| Metric [Unit: $ Million] | Q4 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
|--------------------------|---------|---------|---------|---------|---------|---------|---------|---------|
| **Digital Banking Segment** | N/A     |         |         |         |         |         |         |         |
| Interest Income          | N/A     | 4,077   | N/A     | N/A     | N/A     | 4,948   | N/A     | N/A     |
| Net Interest Income      | N/A     | 3,132   | N/A     | N/A     | N/A     | 3,487   | N/A     | 3,655   |
| Discount & Interchange Revenue, Net | N/A | 321     | 370     | 354     | N/A     | N/A     | 411     | 363     |
| Protection Products Revenue | N/A  | 43      | 44      | 42      | N/A     | N/A     | 42      | 42      |
| Loan Fee Income          | N/A     | 166     | 186     | 194     | N/A     | N/A     | N/A     | 214     |
| Other Income             | N/A     | 3       | 28      | 2       | N/A     | 591     | 33      | 95      |
| Total Other Income       | N/A     | 533     | 514     | 592     | N/A     | N/A     | 486     | 798     |
| **Payment Services Segment** | N/A |         |         |         |         |         |         |         |
| Discount & Interchange Revenue, Net | N/A | 20      | N/A     | 23      | N/A     | N/A     | 26      | N/A     |
| Transaction Processing Revenue | N/A | 67      | 72      | 82      | N/A     | N/A     | 91      | 84      |
| Other Income             | N/A     | 19      | N/A     | 19      | N/A     | 132     | 206     | N/A     |
| Gains on Equity Investments | N/A  | N/A     | 1       | 6       | N/A     | N/A     | N/A     | N/A     |
| Total Other Income       | N/A     | 88      | 187     | 130     | N/A     | N/A     | 323     | N/A     |

5f1804ab76e5553e11a4b5ef3730be7c1f8bcd3d72bb0bcc9b84e83fdb80b19b

| Metric / Quarter                                      | Q4 2022                  | Q1 2023                  | Q2 2023                  | Q3 2023                  | Q4 2023                  | Q1 2024                  | Q2 2024                  | Q3 2024                  |
|-------------------------------------------------------|--------------------------|--------------------------|--------------------------|--------------------------|--------------------------|--------------------------|--------------------------|--------------------------|
| **Network Transaction Volume ($ million)**            | **144,500**  **[0001393612-23-000002_dfs20221231ex992.htm:7]**         | **136,933**  **[0001393612-23-000031_dfs-20230331.htm:56]** **[0001393612-23-000028_dfs20230331ex992.htm:7]**    | **146,412**  **[0001393612-23-000041_dfs-20230630.htm:63]**         | **148,996**  **[0001393612-23-000052_dfs-20230930.htm:66]**         | **156,817**  **[0001393612-24-000004_dfs20231231ex992.htm:8]**         | **152,100**  **[0001393612-24-000032_dfs-20240331.htm:63]**         | **154,632**  **[0001393612-24-000047_dfs-20240630.htm:64]**         | **155,700**  **[0001393612-24-000055_dfs20240930ex992.htm:8]** **[0001393612-24-000056_dfs20240930ex992.htm:8]**   |
| **Transactions Processed on Networks (million)**      | **2,612**  **[0001393612-23-000002_dfs20221231ex992.htm:7]**          | **2,475**  **[0001393612-23-000028_dfs20230331ex992.htm:7]**          | **2,701**  **[0001393612-23-000037_dfs20230630ex992.htm:8]**          | **2,975**  **[0001393612-23-000047_dfs20230930ex992.htm:8]**          | **3,282**  **[0001393612-24-000004_dfs20231231ex992.htm:8]**          | **3,195**  **[0001393612-24-000029_dfs20240331ex992.htm:7]**          | **3,349**  **[0001393612-24-000047_dfs-20240630.htm:64]**           | **3,375**  **[0001393612-24-000055_dfs20240930ex992.htm:8]**           |
| **Credit Card Volume ($ million)**                    | **55,700**  **[0001393612-23-000002_a4q22earningspresentatio.htm:1]**         | **54,100**  **[0001393612-23-000028_dfs20230331ex992.htm:5]**         | **55,229**  **[0001393612-23-000037_a2q23earningspresentatio.htm:2]**        | **55,000**  **[0001393612-23-000052_dfs-20230930.htm:68]**         | **57,145**  **[0001393612-24-000004_a4q23earningspresentatio.htm:2]**         | **53,239**  **[0001393612-24-000032_dfs-20240331.htm:63]**         | **56,441**  **[0001393612-24-000043_dfs20240630ex992.htm:5]**         | **56,593**  **[0001393612-24-000056_dfs20240930ex992.htm:5]** **[0001393612-24-000055_dfs20240930ex992.htm:5]**  |
| **DiscoverSeries 3-Month Rolling Avg Excess Spread (%)** | **14.73**  **[0001393612-23-000007_dfs-20221231.htm:101]**          | **14.45**  **[0001393612-23-000031_dfs-20230331.htm:66]**          | **14.45**  **[0001393612-23-000041_dfs-20230630.htm:76]**          | **14.42**  **[0001393612-23-000052_dfs-20230930.htm:79]**          | **14.75**  **[0001393612-24-000010_dfs-20231231.htm:104]**          | **14.14**  **[0001393612-24-000032_dfs-20240331.htm:74]**          | **14.07**  **[0001393612-24-000047_dfs-20240630.htm:76]**          | N/A                      |
| **Aggregate Sales Transaction Volume ($ million)**    | N/A                      | **60,833**  **[0001393612-23-000031_dfs-20230331.htm:36]**         | **65,850**  **[0001393612-23-000041_dfs-20230630.htm:38]**         | **65,490**  **[0001393612-23-000052_dfs-20230930.htm:40]**         | N/A                      | **61,332**  **[0001393612-24-000032_dfs-20240331.htm:39]**         | **61,886**  **[0001393612-24-000047_dfs-20240630.htm:37]**         | **155,657**  **[0001393612-24-000055_dfs20240930ex992.htm:8]** **[0001393612-24-000056_dfs20240930ex992.htm:8]**  |
| **Direct-to-Consumer Deposits ($ billion)**           | **70.5**  **[0001393612-23-000007_dfs-20221231.htm:100]** **[0001393612-23-000002_dfs20221231ex992.htm:2]**     | **75.3**  **[0001393612-23-000031_dfs-20230331.htm:52]**           | **77.3**  **[0001393612-23-000041_dfs-20230630.htm:59]**           | **81.2**  **[0001393612-23-000052_dfs-20230930.htm:78]** **[0001393612-23-000047_dfs20230930ex992.htm:2]**     | **84.0**  **[0001393612-24-000010_dfs-20231231.htm:103]** **[0001393612-24-000004_dfs20231231ex992.htm:2]**    | **87.3**  **[0001393612-24-000032_dfs-20240331.htm:73]** **[0001393612-24-000029_dfs20240331ex992.htm:2]**     | **87.3**  **[0001393612-24-000047_dfs-20240630.htm:75]** **[0001393612-24-000047_dfs-20240630.htm:59]**     | **90.309**  **[0001393612-24-000056_dfs20240930ex992.htm:2]** **[0001393612-24-000055_dfs20240930ex992.htm:2]**   |
| **Brokered Deposits ($ billion)**                     | **21.1**  **[0001393612-23-000002_dfs20221231ex992.htm:2]**           | **20.4**  **[0001393612-23-000031_dfs-20230331.htm:65]**           | **21.7**  **[0001393612-23-000041_dfs-20230630.htm:75]**           | **22.8**  **[0001393612-23-000052_dfs-20230930.htm:78]**           | **24.9**  **[0001393612-24-000010_dfs-20231231.htm:103]** **[0001393612-24-000004_dfs20231231ex992.htm:2]**     | **23.1**  **[0001393612-24-000032_dfs-20240331.htm:73]**           | **21.1**  **[0001393612-24-000047_dfs-20240630.htm:75]**           | **20.2**  **[0001393612-24-000056_a3q24earningspresentatio.htm:7]**           |
| **SCB Requirement (%)**                               | **2.5**  **[0001393612-23-000007_dfs-20221231.htm:110]** **[0001393612-23-000007_dfs-20221231.htm:28]** **[0001393612-23-000031_dfs-20230331.htm:75]**  | **2.5**  **[0001393612-23-000031_dfs-20230331.htm:75]** **[0001393612-23-000007_dfs-20221231.htm:110]**      | **2.5**  **[0001393612-23-000041_dfs-20230630.htm:85]** **[0001393612-23-000041_dfs-20230630.htm:60]**      | **2.5**  **[0001393612-23-000052_dfs-20230930.htm:88]** **[0001393612-23-000052_dfs-20230930.htm:64]**      | **2.5**  **[0001393612-24-000010_dfs-20231231.htm:114]** **[0001393612-24-000010_dfs-20231231.htm:31]** **[0001393612-24-000032_dfs-20240331.htm:83]**  | **2.5**  **[0001393612-24-000032_dfs-20240331.htm:83]** **[0001393612-24-000010_dfs-20231231.htm:114]**      | **2.5**  **[0001393612-24-000047_dfs-20240630.htm:85]** **[0001393612-24-000047_dfs-20240630.htm:61]**      | **2.5**  **[0001393612-24-000047_dfs-20240630.htm:85]** **[0001393612-24-000047_dfs-20240630.htm:61]**      |

b868cc9aa0d8e7f0891939748c9dd43f4bc476193222f48c82324e32f9250f09

5fb18dc3d754922c86de57f73572b5cd44ca598fd982dbbba9cbe5b89791def5

Discover Financial Services (DFS) operates as a digital banking and payment services company, managing its business activities in two main segments: Digital Banking and Payment Services. The company offers Discover-branded credit cards, personal loans, home loans, and deposit products, generating substantial revenue from interest income on these loan products **[0001393612-24-000010_dfs-20231231.htm:191]** **[0001393612-24-000032_dfs-20240331.htm:52]** **[0001393612-24-000032_dfs-20240331.htm:6]** **[0001393612-24-000010_dfs-20231231.htm:129]**. Additionally, DFS provides payment transaction processing and settlement services through the PULSE network, Diners Club, and the Network Partners business on the Discover Global Network **[0001393612-24-000010_dfs-20231231.htm:191]** **[0001393612-24-000032_dfs-20240331.htm:52]** **[0001393612-24-000032_dfs-20240331.htm:6]** **[0001393612-24-000010_dfs-20231231.htm:129]**. The company's primary revenues consist of interest income earned on loan receivables and fees from customers, financial institutions, merchants, and issuers **[0001393612-24-000047_dfs-20240630.htm:59]**.

1. **Digital Banking** - Offers Discover-branded credit cards, personal loans, home loans, and deposit products, generating revenue primarily from interest income on loan products and fees related to discount and interchange, protection products, and loan fee income.
   - **Credit Cards** - Provides Discover-branded credit card products contributing significantly to revenue through interest income and fees.
   - **Personal Loans** - Offers personal loan products with revenue generated from interest income.
   - **Home Loans** - Provides home loan products, contributing to interest income.
   - **Deposit Products** - Includes consumer deposit products that fund business activities.
2. **Payment Services** - Encompasses the PULSE network, Diners Club, and the Network Partners business, providing payment transaction processing and settlement services on the Discover Global Network.
   - **PULSE Network** - Generates transaction processing revenue.
   - **Diners Club** - Provides royalty and licensee revenue.
   - **Network Partners** - Offers additional payment services on the Discover Global Network.

a0e4afd65efc9f24f84e7656b9baf548badf996d45c4bee11ee39b60b73cc2a7

1. With the updated loan growth expectations now projected to decline **low to mid-single digits**, what specific strategies are you implementing to counteract the higher than anticipated payment rates and slightly lower card sales impacting growth?  **[DFS_3403003_3]** 

2. Given the SEC's disagreement with your accounting approach on the **card misclassification matter**, can you elaborate on the potential implications for future financial reporting and how you plan to address the SEC's concerns?  **[DFS_3403003_3]** 

3. Total operating expenses increased by **16% year-over-year**, driven in part by **professional fees up 15% due to higher recovery fees and merger and integration costs**; how do you plan to manage these rising expenses, especially considering the pending merger with Capital One?  **[DFS_3403003_2]** 

4. Despite recognizing a gain from the sale of the private student loan portfolio, **student loans were down 19% year-over-year**; how will the continued sale of this portfolio impact your profitability and focus on a more streamlined business model moving forward?  **[DFS_3403003_2]** 

5. With net charge-offs in total loans at **4.86%**, up **134 basis points from the prior year**, and an increase in **30-plus day delinquency formation**, what measures are you taking to mitigate credit risk, especially as consumer spending stabilizes and households face inflationary pressures?  **[DFS_3403003_2]** 

9d6c45fff636e36c14975749887edaa7a14cfbc2793f5e516a01d990fffe4181

e00e4ea0d09ecaf2f2a314ff083c8de88a629f786fc65a6cb129c6d9190164f1

Adjustments for Non-Cash Items [USD, Millions]

Stock-Based Compensation [USD, Millions]

Changes in Working Capital [USD, Millions]

Capital Expenditures (CapEx) [USD, Millions]

Proceeds from / Repayments of Debt [USD, Millions]

Share Repurchases [USD, Millions]

Dividend Payments [USD, Millions]

Net Change in Cash [USD, Millions]

e19a4781ada6af5d45e43d9237d2c27e5645413ca9cba8da386fcda8b2c0f1da

- **Strong Financial Performance:** Discover reported net income of **$1.3 billion** in Q4 2024, up from **$366 million** in the same period last year, indicating significant growth in profitability.  **[DFS_3413105_2]**
- **Improved Credit Performance:** Net charge-offs began to improve, with the total net charge-off rate ending at **4.8%**, slightly better than the guided range. Additionally, the **2023 card vintage is expected to modestly outperform** the 2022 vintage, reflecting better credit performance.  **[DFS_3413105_3]**
- **Successful Strategic Actions:** The company successfully completed the sale of its student loan portfolio, resulting in a gain of **$381 million** and streamlining its business model, which enhances focus on core operations.  **[DFS_3413105_2]** **[DFS_3413105_1]**

cca6ac2d4fa02df561ec0c123dbbdbb6b6978ce43e10ca09a2587bc2b404565b

- **Decline in Card Sales Volume:** Discover card sales were down **3%** compared to the prior year, primarily due to credit tightening actions that began in 2022. This decline indicates potential challenges in growing the company's core credit card business.  **[DFS_3413105_2]**
- **Restatement of Financial Results and Increased Regulatory Costs:** The company restated financial results dating back to 2021 due to reclassification related to the card tiering accrual. An independent review identified approximately **$60 million** of incremental charges related to the card product misclassification, and the company increased its accrual for potential regulatory penalties by **$90 million** in the third quarter. These issues resulted in a cumulative impact on equity of a decrease of **$151 million**, raising concerns about internal controls and risk management practices.  **[DFS_3413105_2]**
- **Rising Operating Expenses:** Total operating expenses increased by **$67 million** or **4%** year-over-year. Specifically, compensation costs rose by **$146 million** or **23%**, primarily due to higher wages, benefits, and proactive employee retention actions. The increase in expenses could pressure profitability if not matched by revenue growth.  **[DFS_3413105_2]**

461ff80e346d097bd0e30c4f8ca92180b5bcbc35caab372bd616f4e18aa0e322

49a49cf59879640b623590d09fd322bd12ded8dbcc3f3b59dc2a473a186af9a8

- Visa: Enjoys greater merchant acceptance and broader global brand recognition than Discover. Has entered into long-term arrangements with financial institutions that may discourage them from issuing cards on the Discover Network or PULSE network  **[0001393612-24-000010_dfs-20231231.htm:49]** .
- MasterCard: Similar to Visa, has greater merchant acceptance and global brand recognition. Also has long-term arrangements with financial institutions that may limit Discover's business opportunities  **[0001393612-24-000010_dfs-20231231.htm:49]** .
- American Express: A strong competitor with international acceptance, high transaction fees, and an upscale brand image. Competes in the same market segments as Diners Club internationally  **[0001393612-24-000010_dfs-20231231.htm:49]** .

4c80fac39a34232284041239e56bd96e2845240d704b516d8527a3477b4725e2

DFS Q4 net income soared to $1.3B vs $366M YOY, boosted by a $381M student loan sale gain and improving credit performance (net charge-off at 4.8%). However, a 3% drop in card sales and rising expenses underscore challenges to watch in 2024.

62f839064669aa3cc0871fcdbcf50a5a72c81d685cbdb0c1062c2967560bad10

877b12c2ea51ccd1434603a58bc96a8453344b356b6719f1ca9ada03433ef4f5

Total Revenue [USD, Millions]

Cost of Goods Sold (COGS) [USD, Millions]

SG&A [USD, Millions]

R&D [USD, Millions]

D&A [USD, Millions]

Interest Expense [USD, Millions]

Operating Income (EBIT) [USD, Millions]

Net Income [USD, Millions]

EPS - Basic [USD, Units]

EPS - Diluted [USD, Units]

d3287e9f07266f70df526ff41268d83d85fd7ff3e8281b1ee8a424ffe731cd82

**Annual guidance for FY 2025:**
- **Loan Growth**: down low to mid-single digits; excluding student loan sale, low single digits  **[DFS_3403003_3]** (no change from down low to mid-single digits; excluding student loan sale, low single digits   )  
- **Net Interest Margin (NIM)**: 11.2% to 11.4%  **[DFS_3403003_3]** (no change from 11.2% to 11.4%   )  
- **Net Charge-Offs**: 4.9% to 5.0%  **[DFS_3403003_3]** (no change from 4.9% to 5%   )  
- **Operating Expenses**: Unchanged  **[DFS_3403003_3]** (no change from Unchanged   )  
- **Capital Management**: No changes to expectations  **[DFS_3403003_3]** (no change from Unchanged   )  

5cee60c97999a1f610a0c6c25f19f950a273b810fd95c0d1defe8be65a9ada56

23794d91c53ae875c8e247d72561e35d9d06ee07c70c9e0dbcc977a6d161504a

**Network Transaction Volume ($ million)**

**Transactions Processed on Networks (million)**

**Credit Card Volume ($ million)**

**DiscoverSeries 3-Month Rolling Avg Excess Spread (%)**

**Aggregate Sales Transaction Volume ($ million)**

**Direct-to-Consumer Deposits ($ billion)**

**Brokered Deposits ($ billion)**

**SCB Requirement (%)**

599402d85001c62c847a5bc5244f51c1791d8a0a6a205355c477621151183d6f

### Q3 2024 Earnings Call
- **Issued Period**: Q3 2024
- **Guided Period**: FY 2024
- **Guidance**:
  1. **Loan Growth Expectations**: Down low to mid-single digits; excluding student loan sale, low single digits  **[DFS_3403003_3]** .
  2. **Net Interest Margin**: **11.2% to 11.4%**  **[DFS_3403003_3]** .
  3. **Operating Expense Guidance**: Unchanged  **[DFS_3403003_3]** .
  4. **Net Charge-Offs**: **4.9% to 5%**  **[DFS_3403003_3]** .
  5. **Capital Management Expectations**: Unchanged  **[DFS_3403003_3]** .

### Q2 2024 Earnings Call
- **Issued Period**: Q2 2024
- **Guided Period**: FY 2024
- **Guidance**:
  1. **Loan Growth Expectations**: Down low single digits; without student loan sale, consistent with prior view  **[DFS_3393444_4]** .
  2. **Net Interest Margin**: **11.1% to 11.4%**  **[DFS_3393444_4]** .
  3. **Operating Expense Guidance**: Unchanged  **[DFS_3393444_4]** .
  4. **Net Charge-Offs**: Low end of **4.9% to 5.2%** range  **[DFS_3393444_4]** .
  5. **Capital Management Expectations**: Unchanged  **[DFS_3393444_4]** .

### Q1 2024 Earnings Call
- **Issued Period**: Q1 2024
- **Guided Period**: FY 2024
- **Guidance**:
  1. **Loan Growth**: Up low single digits  **[DFS_3380040_4]** .
  2. **Net Interest Margin**: **10.7% to 11%**  **[DFS_3380040_4]** .
  3. **Operating Expenses**: Increase by mid-single digits  **[DFS_3380040_4]** .
  4. **Net Charge-Offs**: **4.9% to 5.2%**  **[DFS_3380040_4]** .
  5. **Compliance and Risk Management Expenses**: Approximately **$500 million**  **[DFS_3380040_3]** .
  6. **Sales Growth**: Flat to slightly negative  **[DFS_3380040_2]** .
  7. **Payment Rates**: About **70 basis points above 2019 levels**  **[DFS_3380040_2]** .
  8. **Student Loan Portfolio Sale**: Expected by late Q3 or Q4  **[DFS_3380040_2]** .

### Q4 2023 Earnings Call
- **Issued Period**: Q4 2023
- **Guided Period**: FY 2024
- **Guidance**:
  1. **Loan Growth**: End-of-period flat; average up modestly  **[DFS_3370440_3]** .
  2. **Net Interest Margin**: **10.5% to 10.8%**  **[DFS_3370440_3]** .
  3. **Operating Expenses**: Increase by mid-single digits  **[DFS_3370440_3]** .
  4. **Net Charge-Offs**: **4.9% to 5.3%**  **[DFS_3370440_3]** .
  5. **Capital Management**: Focus on organic growth and returning capital  **[DFS_3370440_3]** .
  6. **Efficiency Ratio**: Long-term sub-40%  **[DFS_3370440_14]** .

128291479c3c682d5876817831d2f660643717742ac4aaae4ba201af2fb50f8a

| Name               | Position                                                                 | Start Date        | Short Bio                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------------------|--------------------------------------------------------------------------|-------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Michael G. Rhodes  | Chief Executive Officer and President                                    | February 2024     | Michael G. Rhodes joined Discover in February 2024. Before joining Discover, he was the Group Head of Canadian Personal Banking at TD Bank Group. His previous experience includes leadership roles at Bank of America and MBNA America Bank. He holds an MBA from the Wharton School at the University of Pennsylvania and a bachelor's degree in engineering from Duke University  **[0001393612-24-000010_dfs-20231231.htm:38]** **[0001393612-24-000020_dfs-20240315.htm:19]** .                                                                                                                                                |
| John T. Greene     | Executive Vice President, Chief Financial Officer                         | September 2019    | John T. Greene has been the CFO at Discover since September 2019. Before joining Discover, he was the CFO at Bioverativ and held CFO positions at Willis Group Holdings and HSBC Holdings. He holds a bachelor's degree in accounting from the State University of New York and an MBA from the Kellogg School of Management at Northwestern University  **[0001393612-24-000010_dfs-20231231.htm:38]** **[0001393612-23-000007_dfs-20221231.htm:38]** .                                                                                                                                                                                                 |
| Daniel P. Capozzi  | Executive Vice President, President - Consumer Banking                    | July 2023         | Daniel P. Capozzi has been with Discover since 2007 and became President - Consumer Banking in July 2023. He oversees enterprise marketing, consumer products, and customer care operations. Previously, he served as President - US Cards. He holds a bachelor's degree in business administration from Northeastern University  **[0001393612-24-000010_dfs-20231231.htm:38]** **[0001393612-23-000007_dfs-20221231.htm:38]** **[0001393612-24-000020_dfs-20240315.htm:45]** .                                                                                                                                                                                                                             |
| Jason P. Hanson    | Executive Vice President, President - Payment Services                    | July 2023         | Jason P. Hanson joined Discover in 2019 and became President - Payment Services in July 2023. Prior to Discover, he held roles at FIS/WorldPay, McKinsey & Company, and served as an officer in the U.S. Army. He holds a bachelor's degree in economics from the United States Military Academy, West Point, and an MBA from the University of Chicago Booth School of Business  **[0001393612-24-000010_dfs-20231231.htm:38]** .                                                                                                                                                                               |
| Hope D. Mehlman    | Executive Vice President, Chief Legal Officer, General Counsel, and Corporate Secretary | January 2023      | Hope D. Mehlman joined Discover in January 2023. Before Discover, she was the General Counsel and Corporate Secretary at Bank of the West and BNP Paribas USA, Inc. She held leadership roles at Regions Financial Corp. She holds a bachelor's degree in Near Eastern Studies from Cornell University, a Juris Doctor from Seton Hall University Law School, and a Master of Laws in Taxation from New York University School of Law  **[0001393612-24-000010_dfs-20231231.htm:39]** **[0001393612-23-000007_dfs-20221231.htm:39]** .                                                                                                               |
| Michael E. Roemer  | Executive Vice President, Chief Risk Officer                              | July 2021         | Michael E. Roemer has been the CRO at Discover since July 2021. Before Discover, he was the Chief Compliance Officer at Wells Fargo and held compliance roles at Barclays. He holds a bachelor's degree from St. John's University and completed the Tuck Executive Program at Dartmouth College  **[0001393612-24-000010_dfs-20231231.htm:39]** **[0001393612-23-000007_dfs-20221231.htm:39]** .                                                                                                                                                                                                                                                             |
| Jason J. Strle     | Executive Vice President, Chief Information Officer                       | July 2023         | Jason J. Strle became the CIO at Discover in July 2023. Prior to Discover, he was the Group CIO for Corporate Functions at Wells Fargo and held various roles at JPMorgan Chase. He holds a bachelor's degree in computer science from Ohio University  **[0001393612-24-000010_dfs-20231231.htm:39]** .                                                                                                                                                                                                                                                                                                        |
| Keith E. Toney     | Executive Vice President, President - Credit and Decision Management      | July 2023         | Keith E. Toney joined Discover in December 2019 and became President - Credit and Decision Management in July 2023. Previously, he was President - Data and Analytics. He holds a bachelor's and a master's degree in mathematics from Ohio State University  **[0001393612-24-000010_dfs-20231231.htm:39]** **[0001393612-24-000010_dfs-20231231.htm:38]** .                                                                                                                                                                                                                                                                                                |
| J. Michael Shepherd| Interim Chief Executive Officer and President                             | April 1, 2024     | J. Michael Shepherd was appointed Interim CEO and President of Discover effective April 1, 2024. He was the former chairman and CEO of BancWest Corporation and Bank of the West. He has held various roles including general counsel and president. He served as chairman of BNP Paribas USA, Inc. and has extensive experience in financial services  **[0001393612-24-000025_a2024discoverproxysuppleme.htm:1]** .                                                                                                                                                                                                                 |

214d131bcf74e9285d105f1f188ea67754e15b0761c4505e0cd7bf598d3ff503

| Name                  | Start Date | End Date | Reason for Change |
|-----------------------|------------|----------|-------------------|
| Deloitte & Touche LLP | 2007  **[0001393612-24-000010_dfs-20231231.htm:124]**  | Present  | Current auditor   |

0ae8d8470943e55de30dc1cb144f3ce25e4257f00bf6d999c5f890026ed50f7a

- Total Revenue: $4,759 million (+68% YoY)  **[0001393612-25-000004_dfs12312024ex992.htm:1]** **[0001393612-25-000004_dfs-earningsreleasex4q24ex.htm:0]** **[0001393612-24-000010_dfs-20231231.htm:126]** **[0001393612-24-000010_dfs-20231231.htm:192]**   
- Payment Services: $128 million (+9% YoY)  **[0001393612-25-000004_dfs12312024ex992.htm:7]** **[0001393612-24-000010_dfs-20231231.htm:192]**   
- Operating Income (EBIT): $1,702 million (**+232% YoY**)  **[0001393612-25-000004_dfs12312024ex992.htm:1]** **[0001393612-24-000010_dfs-20231231.htm:126]** **[0001393612-24-000010_dfs-20231231.htm:192]**   
- Net Income: $1,291 million (**+233% YoY**)  **[0001393612-25-000004_dfs12312024ex992.htm:1]** **[0001393612-25-000004_dfs-earningsreleasex4q24ex.htm:0]** **[0001393612-24-000010_dfs-20231231.htm:126]** **[0001393612-24-000010_dfs-20231231.htm:192]**   
- EPS (Diluted): $5.11 (**+225% YoY**)  **[0001393612-25-000004_dfs12312024ex992.htm:1]** **[0001393612-25-000004_dfs-earningsreleasex4q24ex.htm:0]** **[0001393612-24-000010_dfs-20231231.htm:126]** **[0001393612-24-000010_dfs-20231231.htm:192]**   

3914f3b123b8981c6f48a2f10c035fb6dc8b48c1b647a91477f0d087054c67d0

f3693cbf084d1534fdc8a1463aae3ca1646231187b1df6935cc3b0e88f1e247e

| Year  | Amount Due (in millions) | Debt Type                                      | Interest Rate (%)                     | % of Total Debt                       |
|-------|---------------------------|-----------------------------------------------|---------------------------------------|---------------------------------------|
| 2024  | 1,025 **[0001393612-24-000076_dfs-20240930.htm:27]**            | Fixed-rate senior notes                       | 3.75 - 6.70 **[0001393612-24-000076_dfs-20240930.htm:27]**                  | 5.9% = (1,025 / 17,427) * 100 **[0001393612-24-000076_dfs-20240930.htm:27]** |
| 2025  | 6,174 **[0001393612-24-000076_dfs-20240930.htm:27]**            | Fixed-rate asset-backed securities, retail notes | 1.03 - 5.03; 3.25 - 4.40 **[0001393612-24-000076_dfs-20240930.htm:27]**    | 35.4% = (6,174 / 17,427) * 100 **[0001393612-24-000076_dfs-20240930.htm:27]** |
| 2026  | 4,941 **[0001393612-24-000076_dfs-20240930.htm:27]**            | Fixed-rate asset-backed securities, senior bank notes | 1.03 - 5.03; 2.70 - 4.65 **[0001393612-24-000076_dfs-20240930.htm:27]** | 28.4% = (4,941 / 17,427) * 100 **[0001393612-24-000076_dfs-20240930.htm:27]** |
| 2027  | 1,002 **[0001393612-24-000076_dfs-20240930.htm:27]**            | N/A                                           | N/A **[0001393612-24-000076_dfs-20240930.htm:27]**                          | 5.7% = (1,002 / 17,427) * 100 **[0001393612-24-000076_dfs-20240930.htm:27]** |
| 2028  | 1,452 **[0001393612-24-000076_dfs-20240930.htm:27]**            | Fixed-rate subordinated bank notes            | 5.97 **[0001393612-24-000076_dfs-20240930.htm:27]**                         | 8.3% = (1,452 / 17,427) * 100 **[0001393612-24-000076_dfs-20240930.htm:27]** |
| 2030  | N/A                      | Fixed-rate senior bank notes, FHLB advances   | 2.70 - 4.65; 4.77 - 4.82 **[0001393612-24-000076_dfs-20240930.htm:27]**     | N/A                                   |
| 2031  | N/A                      | Fixed-rate retail notes, floating-rate asset-backed security | 3.25 - 4.40; Prime + 1.00 **[0001393612-24-000076_dfs-20240930.htm:27]** | N/A                                   |
| 2032  | N/A                      | Fixed-rate senior notes                       | 3.75 - 6.70 **[0001393612-24-000076_dfs-20240930.htm:27]**                  | N/A                                   |
| 2034  | N/A                      | Fixed to floating-rate senior notes           | 7.96 (fixed); resets to SOFR + 3.37 **[0001393612-24-000076_dfs-20240930.htm:27]** | N/A                                   |
| Thereafter | 2,833 **[0001393612-24-000076_dfs-20240930.htm:27]**       | N/A                                           | N/A **[0001393612-24-000076_dfs-20240930.htm:27]**                          | 16.3% = (2,833 / 17,427) * 100 **[0001393612-24-000076_dfs-20240930.htm:27]** |

ed538637c9312c3db688ae8be9a3ad54493c52f3ed25ba626b0fdadf4ceedc85

bc8358c2fbb6791f63a0d9ee37c87366f3d3a015406045b19d5658a04941cdd4

- **Discover card sales were down 3% compared to the prior year**, indicating a decline in customer spending or market share  **[DFS_3403003_2]** .
- **Operating expenses increased by $238 million or 16% year-over-year**, which could pressure profitability if revenue growth doesn't keep pace  **[DFS_3403003_2]** .
- **Loan growth expectations have been revised down to low to mid-single digits**, suggesting slower growth prospects  **[DFS_3403003_2]** .

49f4ba4ce5a2d9dec8f4b9e5c53518943b4666b04c47669b7a329a1e71315003

- **Operating expenses increased 23% year-over-year**, driven by **a charge for expected regulatory penalties related to the card misclassification issue**, which could negatively impact profitability.  **[DFS_3393444_3]** **[DFS_3393444_1]**
- **Discover card sales were down 3% compared to the prior year**, indicating a **decline in consumer spending**, especially among **lower-income households**, potentially affecting future revenue and increasing credit risk.  **[DFS_3393444_3]**
- The planned **sale of the student loan portfolio** may reduce diversification and eliminate a revenue stream, potentially impacting the company's long-term earnings.  **[DFS_3393444_3]** **[DFS_3393444_1]**

795c8173bb99473bca12256973bc65c7ddc226c1f7a52644fd3d16002c19b9a5

- **Strong core financial performance** with double-digit revenue expansion from loan growth  **[DFS_3380040_2]** , a resilient net interest margin expected to increase to **10.7% to 11%** in 2024  **[DFS_3380040_4]** , and average deposits up **18% year-over-year**.  **[DFS_3380040_2]**
- **Stabilizing credit performance**, with delinquency formation improving  **[DFS_3380040_3]**  and losses expected to peak and plateau in mid to late 2024.  **[DFS_3380040_2]** **[DFS_3380040_4]** **[DFS_3380040_3]**  The company believes the credit reserve rate is likely at or near peak levels.  **[DFS_3380040_3]**
- **Proactive management of deposit rates** with a cumulative deposit beta now about **70%**  **[DFS_3380040_4]** **[DFS_3380040_3]** , providing opportunities to manage deposit costs and support net interest margin expansion.  **[DFS_3380040_4]**

283a300d0dc312b44eaabff8e5080090cc5d6df0c7e2b33ad483c890ca8f969b

- **Strong Financial Performance**: Discover Financial Services reported a net income of **$1.5 billion**, up **70%** from the prior year quarter, driven by revenue expansion from loan growth, higher net interest margin, and noninterest revenue growth.  **[DFS_3393444_2]**
- **Improving Credit Metrics**: Credit performance is in line with expectations, with losses near peak and expected to plateau during the second half of 2024.  **[DFS_3393444_2]**  The **30-plus day delinquency rate decreased by 14 basis points** versus the prior quarter, indicating improved delinquency formation.  **[DFS_3393444_4]**
- **Positive Strategic Developments**: The company increased its net interest margin expectations to **11.1% to 11.4%**, bolstered by higher card yields and the sale of the student loan portfolio.  **[DFS_3393444_4]**  Additionally, the pending merger with Capital One is progressing well, expected to enhance the strategic rationale, operating scale, and economics of the combined company.  **[DFS_3393444_1]**

ff71a1789256ec266223f2aa191f30919cb4fac20692c88a4ee2c234c226e805

- **Net income decreased by 68% to $308 million** due to a **$799 million increase to the reserve for remediation related to the card misclassification issue**.  **[DFS_3380040_2]**
- **Card sales declined by 1% year-over-year**, and the company expects **sales to be flat to slightly negative this year** as consumers, particularly lower-income households, spend less amid inflation.  **[DFS_3380040_2]**
- **Increased liabilities and ongoing compliance issues**: Discover significantly increased its liability for the card misclassification issue after extensive discussions with merchants and regulators, indicating potential regulatory risks.  **[DFS_3380040_3]**

be2345a41fa476dc55cd946dac5b1319301a43a675de596218b4a719d563cda0

- **Strong financial performance in Q3 2024**, with net income of **$965 million**, up **41%** from the prior year, driven by revenue growth and net interest margin expansion.  **[DFS_3403003_2]**
- **Credit performance in line with expectations with net charge-offs plateauing**, and net charge-offs in card declining **27 basis points** sequentially, outperforming seasonality.  **[DFS_3403003_2]**
- **Progress on strategic initiatives**, including the sale of the private student loan portfolio (recognizing a **$70 million** gain in the quarter) and preparations for the merger with Capital One advancing well.  **[DFS_3403003_1]** **[DFS_3403003_2]**

389e33f097ac4ce28d9ab24088da161c1944fc89061d52029e8a11ac65776d93

1. **Credit Quality and Charge-offs**  
   **Q:** Are charge-offs peaking and what comes after?  
   **A:** Charge-offs are expected to peak mid-year and then plateau.  **[DFS_3370440_6]**  This is due to the seasoning of the 2021 and 2022 vintages and normalization after unusually low losses during the pandemic.  **[DFS_3370440_6]**  We anticipate charge-offs will plateau and begin to step down in 2025.  **[DFS_3370440_6]** 

2. **Loan Growth Expectations**  
   **Q:** Why is loan growth guidance flat despite prior growth?  
   **A:** We project modest loan growth of **5–6%**  **[DFS_3370440_17]** , reflecting conservative underwriting and elevated payment rates.  **[DFS_3370440_7]** **[DFS_3370440_17]**  Sales are expected to be relatively flat year-over-year, and new account growth will be positive but down from last year.  **[DFS_3370440_5]** **[DFS_3370440_7]**  We're being cautious before increasing growth aggressively.  **[DFS_3370440_7]** **[DFS_3370440_18]** 

3. **Reserve Rates Outlook**  
   **Q:** How will reserve rates change over 2024?  
   **A:** Reserve rates may decrease in 2024.  **[DFS_3370440_11]**  As we approach peak losses, reserve levels increase, typically peaking one to two quarters before losses.  **[DFS_3370440_11]**  Assuming stable macros and portfolio performance, there's potential to reduce the reserve rate.  **[DFS_3370440_11]** 

4. **Student Loan Portfolio Sale**  
   **Q:** What's the status and impact of the student loan sale?  
   **A:** We signed a servicing agreement with Nelnet  **[DFS_3370440_7]**  and expect to sell the **$9.5 billion** portfolio in the second half.  **[DFS_3370440_7]**  The sale will positively impact net interest margin by **10–20 basis points** and free up at least **$2 billion** of capital.  **[DFS_3370440_7]** **[DFS_3370440_10]** 

5. **Regulatory Issues and Capital Return**  
   **Q:** How do regulatory matters affect capital return plans?  
   **A:** We're progressing on compliance but remain paused on buybacks pending regulator feedback.  **[DFS_3370440_10]** **[DFS_3370440_11]**  The FDIC consent order does not include the misclassification issue.  **[DFS_3370440_10]**  We remain committed to returning excess capital to shareholders.  **[DFS_3370440_10]** **[DFS_3370440_11]** 

6. **Delinquency Formations**  
   **Q:** Are delinquency rates starting to roll over?  
   **A:** Month-over-month delinquency formations have declined since September, from a **26 basis points** increase in September to **11 basis points** in December.  **[DFS_3370440_13]**  This trend gives us confidence in our credit outlook.  **[DFS_3370440_13]** 

7. **Net Interest Margin Guidance**  
   **Q:** How will rate cuts impact NIM in 2024?  
   **A:** We assume four rate cuts in 2024, which could affect deposit betas and pricing.  **[DFS_3370440_20]**  Despite this, we expect NIM to remain strong, targeting the upper end of our guidance range.  **[DFS_3370440_20]** 

8. **Expenses and Remediation Charges**  
   **Q:** What's driving higher expenses and remediation reserves?  
   **A:** We accrued an **$80 million** customer remediation reserve unrelated to the merchant misclassification issue.  **[DFS_3370440_9]** **[DFS_3370440_15]**  This mainly concerns servicing issues in student loans.  **[DFS_3370440_9]** **[DFS_3370440_15]**  We continue to invest in compliance and risk management.  **[DFS_3370440_13]** 

9. **Underwriting Strategy**  
   **Q:** Why is account growth slowing?  
   **A:** We've tightened underwriting throughout 2023.  **[DFS_3370440_7]**  We're awaiting further confirmation of delinquency trends before being more aggressive in new account growth.  **[DFS_3370440_7]** **[DFS_3370440_18]**  Our current approach is conservative to ensure long-term profitability.  **[DFS_3370440_7]** 

10. **Efficiency Ratio Outlook**  
    **Q:** What's the sustainable long-term efficiency ratio?  
    **A:** We expect the long-term efficiency ratio to be below **40%**.  **[DFS_3370440_13]**  While expenses may increase due to compliance efforts, we aim to manage costs effectively.  **[DFS_3370440_13]** 

2b1eecccbccb73aaef3fa4418efbf7d3da30465036b97031409575e95b728ad0

- **Discover Financial Services expects average loan growth of 5-6% in 2024**, driven by positive new account growth and potential further declines in payment rates.  **[DFS_3370440_17]** ,  **[DFS_3370440_5]**
- **The planned sale of Discover's $9.5 billion student loan portfolio is progressing on schedule**, expected to improve net interest margin by **10-20 basis points** and free up at least **$2 billion** of capital, enabling potential capital returns to shareholders.  **[DFS_3370440_8]** ,  **[DFS_3370440_11]**
- **Credit trends are improving**, with delinquency formations declining month-over-month since September 2023, indicating that charge-offs are expected to plateau in mid-2024 and begin decreasing in 2025, reinforcing confidence in future credit performance.  **[DFS_3370440_13]** ,  **[DFS_3370440_6]** ,  **[DFS_3370440_22]**

0e5462ff7990bcf84af54a327675995ce32b38dc9c02c392fd09bbe7c50e59c3

- **Discover projects net charge-offs to increase to between 4.9% and 5.3% in 2024**, significantly higher than historical levels, indicating worsening credit performance.  **[DFS_3370440_22]**
- **An $80 million remediation charge** related to servicing issues, primarily in student loans, was recognized, suggesting ongoing operational and compliance problems.  **[DFS_3370440_16]**
- **Loan growth is expected to be relatively flat**, with sales projected to be relatively flat year-over-year and cautious underwriting, potentially limiting revenue growth.  **[DFS_3370440_5]**

fb0be384f4d727701fd06d194d51c4ec4e88a5f5753f17cc6d57bfccf4983876

Discover Financial Services (DFS)

Financials