Discover 2015 Annual Report Download

Download and view the complete annual report

Please find the complete 2015 Discover annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 192

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181
  • 182
  • 183
  • 184
  • 185
  • 186
  • 187
  • 188
  • 189
  • 190
  • 191
  • 192

It Pays to Discover®
2 015
ANNUAL REPORT

Table of contents

  • Page 1
    It Pays to Discover ® 2015 ANNUAL REPORT

  • Page 2

  • Page 3
    ...deposit, savings accounts and checking accounts Payment Services PULSE is one of the nation's leading ATM/debit networks, and Diners Club International is a global payments network. Our Network Partners business provides payment transaction processing and settlement services on the Discover Network...

  • Page 4
    ... leading direct bank and payments partner. Change can also bring challenges. Enhanced regulatory expectations constrain the return of capital to shareholders and require higher spending on compliance. We are also in a dynamic and intensely competitive industry, and information security in a digital...

  • Page 5
    ... for 2015 included: • Net income of $2.3 billion, return on equity of 21% • Diluted earnings per share of $5.13, up 5% from the prior year • Growth in total loans of 3.5% • A net charge-off rate of 2.01% • Network volume of $312 billion, including $118 billion from Discover card sales...

  • Page 6
    ...credit card loans by 3% by focusing on what is most important to consumers: rewards, service and value. Rewards: In 2015, we launched a program that doubles cash rewards for new Discover it Cardmembers at the end of their first year. Double rewards resulted in lower acquisition cost per new account...

  • Page 7
    ...2016, we plan to make free FICO® Credit Scores available to even more consumers, and to continue to pursue additional innovative features. To make our rewards/service/value proposition more widely available, we have expanded the breadth of our product line. The Discover it card continues to perform...

  • Page 8
    ... also has debit capabilities. Our assets in payments include the PULSE ATM/Debit network, the Diners Club International global payments network and the Discover Network. Near term, we are focused on leveraging our proprietary network for our card-issuing business, including increasing acceptance and...

  • Page 9
    ... Success program-Discover's five-year, $10-million commitment to bring financial education into America's public high schools. So far, more than 1,000 schools and districts have been awarded more than $9 million in grant money. For shareholders, our primary focus is on creating value over the long...

  • Page 10
    ...12.4 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Personal/Other* Student Credit Card *Includes other consumer loans and loans held for sale Certificate of Deposits Money Market/Savings/Checking Total Network Volume [Billions] Net Principal Charge-Off Rate $322 $306 $280 29 140...

  • Page 11
    ... Ratio Return on Equity 36.0% 39.9% 39.4% 39.4% 41.4% 30% 26% 24% 21% 21% 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income). Number of Outstanding Shares [Millions...

  • Page 12
    Board of Directors (1) (12) (6) (7) (4) (8) (10) (9) (11) 11) (3) (2) ( ) (5) David W. Nelms (1) Chairman and Chief Executive Officer, Discover Financial Services Lawrence A. Weinbach (2) Chairman, Great Western Products Holdings LLC; Managing Director, Yankee Hill Capital Management LLC; Lead ...

  • Page 13
    ... (17) Executive Vice President, Chief Marketing Officer Carlos M. Minetti (18) Executive Vice President, President-Consumer Banking Diane E. Offereins (19) Executive Vice President, President-Payment Services James V. Panzarino (20) Executive Vice President, President-Credit and Card Operations...

  • Page 14
    ... More Card, Discover it , Discover Network and Diners Club International. All other trademarks, trade names and service marks included in this Annual Report are the property of their respective owners. All FICO® Score materials are Fair Isaac proprietary information. ©Fair Isaac Corporation. All...

  • Page 15
    ... 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has...

  • Page 16
    ...Bonus®, Discover Cashback Checking®, Discover® More® Card, Discover it®, Discover® MotivaSM Card, Discover® Open Road® Card, Discover® Network and Diners Club International®. All other trademarks, trade names and service marks included in this annual report on Form 10-K are the property of...

  • Page 17
    ... and Diners Club International ("Diners Club"). The Discover Network processes transactions for Discover-branded credit cards and provides payment transaction processing and settlement services. PULSE operates an electronic funds transfer network, providing financial institutions issuing debit cards...

  • Page 18
    ... a reduction of discount and interchange revenue. See "- Marketing - Rewards/Cashback Bonus" for further discussion of our programs offered. The following chart shows the Discover card transaction cycle as processed on the Discover Network: * Student Loans Our private student loans are available to...

  • Page 19
    ... information regarding our deposit products, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Funding Sources - Deposits." Payment Services Set forth below are descriptions of PULSE, Diners Club and our Network Partners...

  • Page 20
    ... credit card, student loan, personal loan, home equity loan and deposit products issued through our Direct Banking segment require significant investments in consumer portfolio risk management, marketing, customer service and related technology, whereas the operation of our Payment Services business...

  • Page 21
    ... and manage our credit and other risks. Account Acquisition (New Customers) We acquire new credit card customers through direct mail, internet, media advertising, merchant or partner relationships, or through unsolicited individual applications. We also acquire new student loan and personal loan...

  • Page 22
    ... account monthly to determine whether the security deposit can be returned. These reviews look for responsible credit use across all of the customer's cards and loans. Discover More card offers 5% Cashback Bonus in categories that change each quarter up to a quarterly maximum (signing up is required...

  • Page 23
    ...at well-known online merchants using their Discover card. Our student loan, personal loan, home equity and deposit product customers can utilize our online account services to manage their accounts, and to use interactive tools and calculators. Processing Services Our processing services cover four...

  • Page 24
    ... date on that statement. Neither cash advances nor balance transfers are subject to a grace period. Each customer with an outstanding debit balance on his or her Discover card account must generally make a minimum payment each month. If a customer exceeds his or her credit limit as of the last day...

  • Page 25
    ... rate on loan balances. Home Equity Loans Home equity loans are fixed-rate loans that carry a monthly payment over the term of the loan and are secured by a first or second lien on a customer's home. The terms of the loan are set at closing. Customers are sent monthly statements 20 days in advance...

  • Page 26
    ...funds transfer, wire transfer and official checks. Money market accounts and savings accounts have limitations on withdrawal frequency, as required by law. Interest rates on money market accounts and savings accounts are subject to change at any time. Fees apply to some transactions and availability...

  • Page 27
    ... actively accepting Discover. We continue to make investments in expanding Discover and Diners Club acceptance in key international markets where an acceptance gap exists. In our payment services business, we compete with other networks for volume and to attract network partners to issue credit...

  • Page 28
    ...and PULSE's network competitors include Visa's Interlink, MasterCard's Maestro and First Data's STAR. American Express is a particularly strong competitor to Diners Club as both cards target international business travelers. As the payments industry continues to evolve, we are also facing increasing...

  • Page 29
    ... such that bank-level risk governance requirements are satisfied as well. Board of Directors Our Board of Directors (i) approves certain risk management policies, (ii) approves our capital targets and goals, (iii) approves our risk appetite framework, (iv) monitors our strategic plan, (v) appoints...

  • Page 30
    ... global risk management program which includes (i) providing a regular forum for representatives of our different functional groups to identify and discuss key risk issues and to recommend to senior management actions that should be taken to manage the level of risk taken by the business lines...

  • Page 31
    ...credit risk. Consumer credit risk is primarily incurred by Discover Bank through the issuance of (i) unsecured credit including credit cards, student loans and personal loans and (ii) secured credit including secured credit cards, deposit secured loans and home equity loans. Counterparty credit risk...

  • Page 32
    ... managing and reporting of counterparty credit risk. Market Risk Market risk is the risk to our financial condition resulting from adverse movements in market rates or prices, such as interest rates, foreign exchange rates, credit spreads or equity prices. Given the nature of our business activities...

  • Page 33
    ... are consolidated to create a comprehensive risk inventory. This inventory is leveraged by a number of processes within the Company including stress scenario design, capital planning, risk appetite setting, and risk modeling. The risk inventory is reviewed and approved at least annually by the Risk...

  • Page 34
    ... types are consolidated to create a comprehensive risk inventory. This inventory is leveraged by a number of processes within the Company including stress scenario design, capital planning, risk appetite setting and risk modeling. The risk inventory is reviewed and approved at least annually by the...

  • Page 35
    ... States. Discover Bank, our main banking subsidiary, offers credit card loans, student loans, personal loans and home equity loans as well as certificates of deposit, savings and checking accounts and other types of deposit accounts. Discover Bank is chartered and regulated by the Office of the...

  • Page 36
    ... December 31, 2015, Discover Financial Services met all requirements to be deemed "well-capitalized". For related information regarding our bank subsidiaries see "-FDIA" below. There are various federal and state law limitations on the extent to which our banking subsidiaries can provide funds to us...

  • Page 37
    ... adversely impact our funding costs and liquidity. For more information, see "Risk Factors - Credit, Market and Liquidity Risk - An inability to accept or maintain deposits in the future could materially adversely affect our liquidity position and our ability to fund our business." The FDIA also...

  • Page 38
    ... fees or charges (other than bona fide insurance) that is related to the obligation or liability. The MLA applies to several of our financial products, including credit cards, private student loans and personal loans. Among other requirements, it imposes an interest rate cap for loans made to active...

  • Page 39
    ... and settlement services to financial institutions and other program participants for a variety of ATM, POS and other electronic banking transactions. These operations are regulated by certain federal and state banking, privacy and data security laws. Moreover, the Discover and PULSE networks are...

  • Page 40
    ...is our Executive Vice President, Chief Financial Officer. He has held this role since April 2011. He was also Chief Accounting Officer until December 2012. Prior to joining us, Mr. Graf was an investment advisor with Aquiline Capital Partners, a private equity firm specializing in investments in the...

  • Page 41
    ... to 2014), Executive Vice President, Cardmember Services and Consumer Banking (2007 to 2010), and Executive Vice President for Cardmember Services, and Chief Risk Officer (2001 to 2007). Prior to joining us, Mr. Minetti worked in card operations and risk management for American Express from 1987 to...

  • Page 42
    ...business strategies or require us to: limit, exit or change our business practices, restructure our products in ways that we may not currently anticipate, limit our product offerings, invest more management time and resources in compliance efforts, limit the fees we can charge for services, or limit...

  • Page 43
    ... basis of a number of factors, including brand, reputation, customer service, product offerings, incentives, pricing and other terms. Competition in credit cards is also based on merchant acceptance and the value provided to the customer by rewards programs. Many credit card issuers have instituted...

  • Page 44
    ... other payment networks to attract network partners to issue credit and debit cards and other card products on the Discover, PULSE and Diners Club networks. Competition with other operators of payment networks is generally based on issuer fees, fees paid to networks (including switch fees), merchant...

  • Page 45
    ... loss on the Diners Club acquisition that, when recognized, could have a material adverse impact on our consolidated financial condition and results of operations. The long-term success of our international network business depends upon achieving meaningful global card acceptance, which has included...

  • Page 46
    ... the need to offer fixed interest rates and competition from non-traditional lenders such as financial technology firms, may present challenges to managing and growing our private student loan business in the future, and could cause us to restructure our private student loan product in ways that we...

  • Page 47
    ... loan products. A customer's ability and willingness to repay personal loans, private student loans and home equity loans may be more significantly impacted than other consumer loans by other debts or increases in their payment obligations to other lenders and by restricted availability of credit...

  • Page 48
    ... our subsidiary Discover Bank, from accepting brokered deposits (as defined in the FDIA) and applies other restrictions, such as a cap on interest rates we may pay. See "Business - Supervision and Regulation" and Note 18: Capital Adequacy to our consolidated financial statements for more information...

  • Page 49
    ... see Note 6: Credit Card and Student Loan Securitization Activities to our consolidated financial statements. An early amortization event would negatively impact our liquidity, and require us to rely on alternative funding sources, which may or may not be available at the time. An early amortization...

  • Page 50
    ...or financial condition. For information related to interest rate risk sensitivities, see "Quantitative and Qualitative Disclosures About Market Risk." We may be limited in our ability to pay dividends on and repurchase our stock. In the year ended December 31, 2015, we increased our quarterly common...

  • Page 51
    ... our subsidiaries. Discover Financial Services, our parent holding company, depends on dividends, distributions and other payments from its subsidiaries, particularly Discover Bank, to fund dividend payments, share repurchases, payments on its obligations, including debt obligations, and to provide...

  • Page 52
    ... to increasingly more risk related to security systems as we increase acceptance of the Discover card internationally, expand our suite of online direct banking products, enhance our mobile payment technologies, acquire new or outsource some of our business operations, expand our internal usage...

  • Page 53
    ... network partners if we are unable to add or retain acquirers or merchants who accept cards issued on the Discover or PULSE networks. As a result of these factors, a reduction in the number of our merchants or the rates they pay could materially adversely affect our business, financial condition...

  • Page 54
    ... as acceptance of the Discover card grows internationally and we expand our direct banking business and introduce new products and features. Our financial condition, the level of our fraud charge-offs and other results of operations could be materially adversely affected if fraudulent activity were...

  • Page 55
    ...financial condition, cash flows and results of operations. As an issuer and merchant acquirer in the United States on the Discover Network, and as a holder of certain merchant agreements internationally for the Diners Club network, we may be contingently liable for certain disputed credit card sales...

  • Page 56
    ... currently anticipate, limit our product offerings, invest more management time and resources in compliance efforts, limit the fees we can charge for services, or limit our ability to pursue certain business opportunities and obtain related required regulatory approvals. For additional information...

  • Page 57
    ... the competitiveness of our credit card or debit card products. See the discussion on recent security developments in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Regulatory Environment and Developments - Payment Networks" for more information. In addition...

  • Page 58
    ...matters or unanticipated developments related to current matters. • We routinely evaluate and may pursue acquisitions of or investments in businesses, products, technologies, loan portfolios or deposits, which may involve payment in cash or our debt or equity securities. The foregoing review...

  • Page 59
    ...Student Loan Corporation office. The call centers, processing center and Student Loan Corporation offices largely support our Direct Banking segment; the PULSE headquarters is used by our Payment Services segment; and our corporate headquarters is used by both our Direct Banking and Payment Services...

  • Page 60
    ...," "Risk Factors - Credit, Market and Liquidity Risk - We may be limited in our ability to pay dividends on and repurchase our stock" and "- We are a holding company and depend on payments from our subsidiaries," "Management's Discussion and Analysis of Financial Condition and Results of Operations...

  • Page 61
    ...: Total Number of Shares Purchased Total Number of Shares Purchased as Part of Publicly Announced Plan or Program(1) Maximum Dollar Value of Shares that may yet be purchased under the Plans or Programs(1) Period Average Price Paid Per Share October 1-31, 2015 Repurchase program(1) ...Employee...

  • Page 62
    ... of financial condition data as of December 31, 2013 and 2012, and November 30, 2012 and 2011 have been derived from audited consolidated financial statements not included elsewhere in this annual report on Form 10-K. In December 2012, our board of directors approved a change in our fiscal year end...

  • Page 63
    Discover Financial Services Selected Financial Data For the Calendar Years Ended December 31, 2015 2014 2013 For the Fiscal Years Ended November 30, 2012 2011 For the One Month Ended December 31, 2012 (dollars in millions, except per share amounts) Statement of Income Data: Interest income ...$ ...

  • Page 64
    ...days) ...Credit Card Loans Credit card loan receivables ...$ 57,896 Average credit card loan receivables ...$ 54,846 Interest yield ...Net principal charge-off rate ...Delinquency rate (over 30 days) ...Delinquency rate (over 90 days) ...Personal Loans Personal loan receivables ...$ Average personal...

  • Page 65
    ...direct banking products and services and payment services through our subsidiaries. We offer our customers credit card loans, private student loans, personal loans, home equity loans and deposit products. We also operate the Discover Network, the PULSE network ("PULSE") and Diners Club International...

  • Page 66
    ... of our existing direct banking products remains a priority. We are pursuing new card accounts and wallet share gains with existing customers through investments in marketing and rewards as well as new features. We are also targeting growth in our private student and personal loans. As a result, we...

  • Page 67
    ... cost of credit. The report discussed the use of new technology, including the movement of marketing and the opening of new accounts to digital channels. The CFPB also discussed debt collection practices and the complexity of card agreements and rewards programs. The cost and availability of credit...

  • Page 68
    ... requirements and interchange fee limitations. The changing debit card environment, including competitor actions related to merchant and acquirer pricing and transaction routing strategies, has adversely affected and is expected to continue to adversely affect our PULSE network's business...

  • Page 69
    ...on our Diners Club business, including revisions to the Payment Services Directive ("PSD2") and the new General Data Protection Regulation ("GDPR"). The PSD2 was published in the Official Journal of the EU in December 2015. Following the publication, each European Union member state has two years to...

  • Page 70
    ..., protection products and loan fee income. Payment Services Our Payment Services segment includes PULSE, an automated teller machine, debit and electronic funds transfer network; Diners Club, a global payments network; and our Network Partners business, which provides payment transaction processing...

  • Page 71
    ... from data provided by licensees for Diners Club branded cards issued outside North America and is subject to subsequent revision or amendment. Represents gross proprietary sales volume on the Discover Network. Represents Discover card activity related to net sales, balance transfers, cash advances...

  • Page 72
    ... in personal and private student loans. Discover card sales volume was $115.5 billion for the year ended December 31, 2014, which was an increase of 5% as compared to the year ended December 31, 2013. This volume growth was driven primarily by continued growth in new accounts combined with lower...

  • Page 73
    ...fair value adjustment of $21 million resulting from recording Diners Club Italy as held for sale in 2014. The decrease in other income was primarily driven by a decrease in transaction processing revenue reflecting the impact of merchant rerouting and lower rates. Transaction dollar volume increased...

  • Page 74
    ... 2: Summary of Significant Accounting Policies to our consolidated financial statements for further details about our allowance for loan losses. Goodwill We recognize goodwill when the purchase price of an acquired business exceeds the total of the fair values of the acquired net assets. As required...

  • Page 75
    ... such changes occur, the effect on our consolidated financial condition and results of operations can be significant. See Note 16: Income Taxes to our consolidated financial statements for additional information about income taxes. Purchased Credit-Impaired Loans The estimate of expected future cash...

  • Page 76
    ... 31, 2015 as compared to the year ended December 31, 2014 primarily driven by higher loan volumes, net of related increases in borrowings. Interest income rose over the prior year due to growth in credit card, personal and private student loans, partially offset by lower yields on personal -60...

  • Page 77
    ... in credit card promotional balances. Interest income increased during the year ended December 31, 2014 as compared to the year ended December 31, 2013 primarily due to higher average balances of credit card loans, personal loans and private student loans resulting from growth across these products...

  • Page 78
    ... 31, 2015 Average Balance Assets Interest-earning assets Cash and cash equivalents ...$ Restricted cash ...Investment securities ...Loan receivables(1) Credit card(2)(3) ...Personal loans ...Private student loans ...PCI student loans ...Mortgage loans held for sale ...Other ...Total loan receivables...

  • Page 79
    ..., 2015 vs. Year Ended December 31, 2014 Volume Increase/(decrease) in net interest income due to changes in: Interest-earning assets Cash and cash equivalents ...$ Investment securities ...Loan receivables: Credit card ...Personal loans ...Private student loans ...PCI student loans ...Mortgage loans...

  • Page 80
    ...3: Business Dispositions to our consolidated financial statements for more information. Represents purchased credit-impaired private student loans. See Note 5: Loan Receivables to our consolidated financial statements for more information regarding PCI loans. Provision and Allowance for Loan Losses...

  • Page 81
    ... losses at December 31, 2013. The reserve build, which primarily related to credit card loans, was due mainly to seasoning of the loan growth and lower recoveries. At December 31, 2014, the level of the allowance related to personal and student loans increased as compared to December 31, 2013 due to...

  • Page 82
    ... Year Ended December 31, 2013 Credit Card Balance at beginning of period ...$ Additions Provision for loan losses ...Deductions Charge-offs ...Recoveries ...Net charge-offs ...Balance at end of period ...$ (1) Includes both PCI and non-PCI private student loans. Personal Loans $ 99 $ Student Loans...

  • Page 83
    ...tables provide changes in our allowance for loan losses for the periods presented (dollars in millions): For the One Month Ended December 31, 2012 Credit Card Balance at beginning of period ...$ Additions Provision for loan losses ...Deductions Charge-offs ...Recoveries ...Net charge-offs ...Balance...

  • Page 84
    ... from the calculation. See Note 5: Loan Receivables to our consolidated financial statements for more information regarding the accounting for charge-offs on PCI loans. The net charge-off rate on our credit card loans decreased by 5 basis points for the year ended December 31, 2015 as compared...

  • Page 85
    ... % $ 2013 % $ Fiscal Years Ended November 30, 2012 % $ 2011 % One Month Ended December 31, 2012 $ % Private student loans (excluding PCI loans(1)) ...$ 108 Loans 90 or more days delinquent Credit card loans ...$ 490 Personal loans ...$ Private student loans (excluding PCI loans(1)) ...$ 15 24 0.85...

  • Page 86
    ...allow for the reversal of certain unpaid interest or fee assessments. We also make loan modifications for customers who request financial assistance through external sources, such as a consumer credit counseling agency program. These loans continue to be subject to the original minimum payment terms...

  • Page 87
    ...partners. We earn discount revenue from fees charged to merchants with whom we have entered into card acceptance agreements for processing credit card purchase transactions. We earn acquirer interchange revenue from merchant acquirers on all Discover Network card transactions and certain Diners Club...

  • Page 88
    ... since the increase in mortgage rates. Other Income Other income includes royalty revenues earned by Diners Club, merchant fees, revenue from the transition services agreement related to the acquisition of SLC, revenue from merchants related to reward programs, revenues from network partners and...

  • Page 89
    ... related to the Discover Home Loans business along with fair value adjustment resulting from recording Diners Club Italy as held for sale. Income Tax Expense The following table reconciles our effective tax rate to the U.S. federal statutory income tax rate: For the Years Ended December 31, 2015...

  • Page 90
    ... desire to issue asset-backed securities in the future. Other Long-Term Borrowings-Student Loans At December 31, 2015, we had $1.2 billion of remaining principal balance outstanding on securitized debt assumed as part of the acquisition of Student Loan Corporation. Principal and interest payments on...

  • Page 91
    Corporate and Bank Debt The following table provides a summary of Discover Financial Services (Parent Company) and Discover Bank outstanding fixed-rate debt (dollars in millions): Principal Amount Outstanding At December 31, 2015 Discover Financial Services (Parent Company) fixed-rate senior notes, ...

  • Page 92
    ... debt and asset securitization capital markets. We also maintain agreements with certain of our derivative counterparties that contain provisions that require DFS and Discover Bank to maintain an investment grade credit rating from specified major credit rating agencies. Because the credit rating...

  • Page 93
    ... investments to access the secured funding markets. The size and composition of our liquidity portfolio may fluctuate based upon the amount of expected liability maturities as well as operational requirements and market conditions. At December 31, 2015, our liquidity portfolio and undrawn credit...

  • Page 94
    ...composition sufficient to support the risks of our businesses, meet regulatory requirements, meet rating agency targets and debt investor expectations and support future business growth. Within these constraints, we are focused on deploying capital in a manner that provides attractive returns to our...

  • Page 95
    ... date of the disclosure requirements began with our financial results for the first quarter of 2015. The Pillar 3 disclosures are made publicly available, on our website, as a stand-alone report called "Basel III Regulatory Capital Disclosures". At December 31, 2015, Discover Financial Services...

  • Page 96
    ... payment on our common stock. In addition, as noted above, banking laws and regulations and our banking regulators may limit our ability to pay dividends and make share repurchases, including limitations on the extent to which our banking subsidiaries can provide funds to us through dividends, loans...

  • Page 97
    ... year include deposits with indeterminate maturities. See Note 10: Long-Term Borrowings to our consolidated financial statements for further discussion. Total future payment of interest charges for the floating-rate notes is estimated to be $559 million as of December 31, 2015, utilizing the current...

  • Page 98
    ... responses to those changes may influence customer payment rates, loan balances or deposit account activity. We may face higher-cost alternative sources of funding as a result, which has the potential to decrease earnings. Our interest rate risk management policies are designed to measure and...

  • Page 99
    ...factors including, but not limited to, the direction and timing of changes in interest rates the movement of short-term versus long-term rates, balance sheet design, competitor actions which may affect pricing decisions in our loans and deposits, and strategic actions undertaken by management. -83-

  • Page 100
    ... of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial condition, and related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows as of and for the year ended December 31, 2015 of the Company and...

  • Page 101
    ...the accompanying consolidated statements of financial condition of Discover Financial Services (the "Company") as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for each of the three years in the...

  • Page 102
    Consolidated Statements of Financial Condition December 31, 2015 2014 (dollars in millions, except share amounts) Assets Cash and cash equivalents ...$ Restricted cash ...Investment securities (includes $2,963 and $3,847 at fair value at December 31, 2015 and 2014, respectively)...Loan receivables: ...

  • Page 103
    DISCOVER FINANCIAL SERVICES Consolidated Statements of Income For the Years Ended December 31, 2015 Interest income: Credit card loans ...$ Other loans ...Investment securities ...Other interest income ...Total interest income ...Interest expense: Deposits ...Short-term borrowings ...Long-term ...

  • Page 104
    Consolidated Statements of Comprehensive Income For the Years Ended December 31, 2015 2014 (dollars in millions) Net income ...$ Other comprehensive (loss) income, net of taxes Unrealized (loss) gain on available-for-sale investment securities, net of tax ...Unrealized (loss) gain on cash flow ...

  • Page 105
    ... Treasury Stock Total Stockholders' Equity DISCOVER FINANCIAL SERVICES (dollars in millions, shares in thousands) Balance at December 31, 2012 ...Net income ...Other comprehensive income ...Purchases of treasury stock ...Common stock issued under employee benefit plans ...Common stock issued and...

  • Page 106
    DISCOVER FINANCIAL SERVICES Consolidated Statements of Cash Flows For the Years Ended December 31, 2015 2014 2013 (dollars in millions) Cash flows from operating activities Net income ...$ Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses ......

  • Page 107
    ... and payment services through its subsidiaries. The Company offers its customers credit card loans, private student loans, personal loans, home equity loans and deposit products. The Company also operates the Discover Network, the PULSE network ("PULSE") and Diners Club International ("Diners Club...

  • Page 108
    ...limited impact on the Company since it does not change the guidance for classifying and measuring investments in debt securities or loans. The standard requires entities to measure certain cost-method equity investments at fair value with changes in value recognized in net income. Equity investments...

  • Page 109
    ... costs (also see "- Significant Revenue Recognition Accounting Policies - Loan Interest and Fee Income"). Credit card loan receivables are reported at their principal amounts outstanding and include uncollected billed interest and fees and are reduced for unearned revenue related to balance transfer...

  • Page 110
    ... if the minimum payment is not received by the specified date on the customer's billing statement. Delinquency is reported on loans that are 30 days or more past due. Credit card loans are charged off at the end of the month during which an account becomes 180 days past due. Closed-end consumer loan...

  • Page 111
    ... difference between the loan balance and the discounted present value of cash flows expected to be collected. Consistent with the Company's measurement of impairment of modified loans on a pooled basis, the discount rate used for credit card loans in internal programs is the average current annual...

  • Page 112
    ...is appropriate. The Company's non-amortizable intangible assets consist of the international transaction processing rights and brand-related intangibles included in the acquisition of Diners Club as well as the trade names acquired in The Student Loan Corporation acquisition. These assets are deemed...

  • Page 113
    ... are recorded in other income. These transactions are discussed in more detail in Note 22: Derivatives and Hedging Activities. Accumulated Other Comprehensive Income The Company records unrealized gains and losses on available-for-sale securities, changes in the fair value of cash flow hedges, and...

  • Page 114
    ... The Company earns discount revenue from fees charged to merchants with whom the Company has entered into card acceptance agreements for processing credit card purchase transactions. The Company earns acquirer interchange revenue from merchant acquirers on all Discover Network, Diners Club and PULSE...

  • Page 115
    ... on the consolidated statements of financial condition. Protection Products The Company earns revenue related to fees received for marketing products or services that are ancillary to the Company's credit card and personal loans to its customers, including payment protection products and identity...

  • Page 116
    ...$ 104 (1) (2) (3) (4) Available-for-sale investment securities are reported at fair value. Held-to-maturity investment securities are reported at amortized cost. Amount represents securities pledged as collateral to a government-related merchant for which transaction settlement occurs beyond the...

  • Page 117
    ... More than 12 months Fair Value Unrealized Losses December 31, 2014 Available-for-Sale Investment Securities Residential mortgage-backed securities - Agency ...8 $ 97 $ - $ 225 $ (1) There were no losses related to other-than-temporary impairments during the years ended December 31, 2015, 2014 and...

  • Page 118
    ... Five Years After Five Years Through Ten Years After Ten Years Total Available-for-Sale-Fair Values U.S. Treasury securities ...$ U.S. government agency securities ...Residential mortgage-backed securities - Agency ...Total available-for-sale investment securities ...$ Held-to-Maturity-Fair Values...

  • Page 119
    ...are accounted for using the equity method of accounting, and are recorded within other assets, and the related commitment for future investments is recorded in accrued expenses and other liabilities within the consolidated statements of financial condition. The portion of each investment's operating...

  • Page 120
    ...based on customers' current balances and most recent interest rates. Credit card loans that are 90 or more days delinquent and accruing interest include $42 million and $43 million of loans accounted for as troubled debt restructurings at December 31, 2015 and 2014, respectively. Personal loans that...

  • Page 121
    ...The following table provides the most recent FICO scores available for the Company's customers as a percentage of each class of loan receivables: Credit Risk Profile by FICO Score 660 and Above At December 31, 2015 Credit card loans ...Personal loans ...Private student loans (excluding PCI)(1) ...83...

  • Page 122
    ... provide changes in the Company's allowance for loan losses for the periods presented (dollars in millions): For the Year Ended December 31, 2015 Credit Card Balance at beginning of period ...$ Additions Provision for loan losses ...Deductions Charge-offs ...Recoveries ...Net charge-offs ...Balance...

  • Page 123
    ...of interest and fee revenues on credit card and other loans is as follows (dollars in millions): For the Years Ended December 31, 2015 Interest and fees accrued subsequently charged off, net of recoveries (recorded as a reduction of interest income) ...$ Fees accrued subsequently charged off, net of...

  • Page 124
    ... who request financial assistance through external sources, similar to the credit card customers discussed above. Payments are modified based on the new terms agreed upon with the credit counseling agency. Personal loans included in temporary and permanent programs are accounted for as troubled debt...

  • Page 125
    ...): Average recorded investment in loans For the Year Ended December 31, 2015 Credit card loans Modified credit card loans(3) ...$ Internal programs ...$ External programs ...$ Personal loans ...$ Private student loans ...$ For the Year Ended December 31, 2014 Credit card loans Modified credit card...

  • Page 126
    ... the period (dollars in millions): For the Years Ended December 31, 2015 Number of Accounts Accounts that entered a loan modification program during the period Credit card loans Internal programs ...External programs ...Personal loans ...Private student loans ...52,850 30,629 4,243 1,362 $ $ $ $ 339...

  • Page 127
    ... through which the Company expects to recover a substantial portion of the loan. The net charge-off rate on PCI student loans for the years ended December 31, 2015, 2014 and 2013 was 0.55%, 0.64% and 1.36%, respectively. Mortgage Loans Held For Sale The following table provides a summary of the...

  • Page 128
    ... 3.9 4.0 3.7 39.1 100.0% 6. Credit Card and Student Loan Securitization Activities Credit Card Securitization Activities The Company accesses the term asset securitization market through DCMT and DCENT, which are trusts into which credit card loan receivables are transferred (or, in the case of...

  • Page 129
    ...outstanding DCMT certificates held by subsidiaries of Discover Bank, constitute intercompany positions which are eliminated in the preparation of the Company's consolidated statements of financial condition. Upon transfer of credit card loan receivables to the trust, the receivables and certain cash...

  • Page 130
    ... on a percentage of the monthly investor principal balance outstanding. Although the fee income to Discover Bank offsets the fee expense to the trusts and thus is eliminated in consolidation, failure to service the transferred loan receivables in accordance with contractual requirements could lead...

  • Page 131
    ..., which are presented on the Company's consolidated statements of financial condition as relating to securitization activities, are shown in the table below (dollars in millions): December 31, 2015 Restricted cash ...$ Student loan receivables(1) ...Allowance for loan losses allocated to securitized...

  • Page 132
    The fair value of the Discover Home Loans reporting unit was estimated using a discounted cash flow method that incorporated the financial forecasts incorporating assumptions about the amount and timing of future cash flows, discount rates and other factors that are inherently uncertain and ...

  • Page 133
    deposit, money market accounts, online savings and checking accounts and IRA certificates of deposit, while brokered deposits include certificates of deposit and sweep accounts. The following table provides a summary of interest-bearing deposit accounts (dollars in millions): December 31, 2015 ...

  • Page 134
    ... long-term borrowings against changes in fair value attributable to changes in London Interbank Offered Rate ("LIBOR"). Use of these interest rate swaps impacts carrying value of the debt. See Note 22: Derivatives and Hedging Activities. Discover Card Execution Note Trust floating-rate asset-backed...

  • Page 135
    ...to those required to issue any term securitization transaction. 11. Stock-Based Compensation Plans The Company has two stock-based compensation plans: the Discover Financial Services Omnibus Incentive Plan ("Omnibus Plan") and the Discover Financial Services Directors' Compensation Plan ("Directors...

  • Page 136
    ... satisfy either explicit vesting terms or retirement-eligibility requirements. Compensation cost associated with restricted stock units is determined based on the number of units granted and the fair value on the date of grant. The fair value is amortized on a straight-line basis, net of estimated...

  • Page 137
    ... requisite service period. Each PSU outstanding at December 31, 2015 is a restricted stock instrument that is subject to additional conditions and constitutes a contingent and unsecured promise by the Company to pay up to 1.5 shares per unit of the Company's common stock on the conversion date for...

  • Page 138
    ... stock price data over a time period similar to the expected option life. The riskfree interest rate was based on U.S. Treasury Strips with a remaining term equal to the expected life assumed at the date of grant. 12. Employee Benefit Plans The Company sponsors the Discover Financial Services...

  • Page 139
    ...'s years of credited service prior to 2009 and on compensation specified in the Discover Pension Plan. The Company's policy is to fund at least the amounts sufficient to meet minimum funding requirements under the Employee Retirement Income Security Act of 1974, as amended. Net Periodic Benefit Cost...

  • Page 140
    ... on plan assets was estimated by computing a weighted-average return of the underlying long-term expected returns on the different asset classes, based on the target asset allocations. Asset class return assumptions are created by integrating information on past capital market performance, current...

  • Page 141
    ... is reviewed by the Investment Committee on a regular basis. The asset allocation strategy will change over time in response to changes in the Discover Pension Plan's funded status. Fair Value Measurements The Discover Pension Plan's assets are stated at fair value. Quoted market prices in active...

  • Page 142
    ... on an active market. The fair value of the stable value product is calculated as the present value of future cash flows. There were no transfers between Levels 1 and 2 within the fair value hierarchy for the years ended December 31, 2015 and 2014. Cash Flows The Company does not expect to make any...

  • Page 143
    ... in millions): Before Tax For the Year Ended December 31, 2015 Available-for-Sale Investment Securities Net unrealized holding losses arising during the period ...$ Amounts reclassified from accumulated other comprehensive income ...Net change ...$ Cash Flow Hedges Net unrealized losses arising...

  • Page 144
    ...) Benefit Net of Tax For the Year Ended December 31, 2013 Available-for-Sale Investment Securities Net unrealized holding losses arising during the period ...$ Amounts reclassified from accumulated other comprehensive income ...Net change ...$ Cash Flow Hedges Net unrealized gains arising during...

  • Page 145
    ... losses and other charges(1) ...Supplies ...Credit-related inquiry fees ...Litigation expense ...Incentive expense ...Other expense ...Total other expense ...$ (1) Includes fair value adjustment of $21 million resulting from recording Diners Club Italy as held for sale for the year ended December...

  • Page 146
    ... are included in other assets in the consolidated statements of financial condition, were as follows (dollars in millions): December 31, 2015 Deferred tax assets Allowance for loan losses ...$ Compensation and benefits ...State income taxes ...Customer fees and rewards ...Other ...Total deferred tax...

  • Page 147
    ... tax benefits as a component of income tax expense. Interest and penalties related to unrecognized tax benefits were $131 million and $135 million for the years ended December 31, 2015 and 2014, respectively. The Company is subject to examination by the Internal Revenue Service ("IRS") and the tax...

  • Page 148
    ...For the Years Ended December 31, 2015 Numerator Net income ...$ Preferred stock dividends ...Net income available to common stockholders ...Income allocated to participating securities ...Net income allocated to common stockholders ...$ Denominator Weighted-average shares of common stock outstanding...

  • Page 149
    ... to average consolidated assets as reported on consolidated financial statements (known as the "leverage ratio"); and 4.5% CET1 to risk-weighted assets. As of December 31, 2015, the Company and Discover Bank met the requirements for well-capitalized status and there have been no conditions or...

  • Page 150
    ... the loans from the trust at the outstanding principal amount plus interest. The maximum potential amount of future payments the Company could be required to make would be equal to the current outstanding balances of third-party investor interests in credit card asset-backed securities plus...

  • Page 151
    ... customers with these merchants. However, Diners Club retains a counterparty exposure if a licensee fails to meet its financial payment obligation to one of these merchants. ATM Guarantee. PULSE entered into contractual relationships with certain international ATM acquirers in which DFS Services...

  • Page 152
    ... the product or service is not scheduled to be provided to the customer until a later date following the purchase, the likelihood of a contingent payment obligation by the Discover Network increases. Losses related to merchant chargebacks were not material for the years ended December 31, 2015, 2014...

  • Page 153
    ..., injunctions, decreases in regulatory ratings, customer restitution or other relief, which could materially impact the Company's consolidated financial statements, increase its cost of operations, or limit its ability to execute its business strategies and engage in certain business activities. For...

  • Page 154
    ...things, enhance its anti-money laundering and related compliance programs. On July 9, 2015, a class action lawsuit was filed against the Company in the U.S. District Court for the Northern District of Illinois (Polly Hansen v. Discover Financial Services and Discover Home Loans, Inc.). The plaintiff...

  • Page 155
    ... related to the marketing, sales and servicing by Discover Bank of the payment protection, identity theft protection, wallet protection and credit score tracker products. On July 22, 2015, the Company announced that its subsidiaries, Discover Bank, The Student Loan Corporation and Discover Products...

  • Page 156
    ... in millions): Quoted Price in Active Markets for Identical Assets (Level 1) Balance at December 31, 2015 Assets U.S. Treasury securities ...$ U.S. government agency securities ...Residential mortgage-backed securities - Agency ...Available-for-sale investment securities ...$ Mortgage loans held for...

  • Page 157
    ..., note rate, loan program, expected sale date of the loan and, most significantly, investor pricing tables stratified by product, note rate and term, adjusted for current market conditions. Mortgage loans held for sale were classified as Level 2 as the investor pricing tables used to value them were...

  • Page 158
    ...settlement date. Therefore, these derivatives were classified as Level 2. Best-efforts forward delivery contracts were valued based on investor pricing tables, which were observable inputs, stratified by product, note rate and term, adjusted for current market conditions. An anticipated loan funding...

  • Page 159
    ... be impaired. During the year ended December 31, 2015, the Company had no material impairments related to these assets. During the fourth quarter of 2014, the Company determined that the fair value of goodwill associated with Discover Home Loans declined below its carrying value and should be fully...

  • Page 160
    ... the estimated fair value of the Company's financial assets and financial liabilities that are not required to be carried at fair value (dollars in millions): Quoted Prices in Active Markets for Identical Assets (Level 1) Balance at December 31, 2015 Assets U.S. Treasury securities ...$ States and...

  • Page 161
    ... by discounting cash flows using estimated assumptions including, among other things, maturity and market discount rates. A portion of the difference between the carrying value and the fair value of the long-term borrowings owed to student loan securitization investors relates to purchase accounting...

  • Page 162
    ..., such as interest rate risk, are considered fair value hedges. Cash Flow Hedges The Company uses interest rate swaps to manage its exposure to changes in interest rates related to future cash flows resulting from interest payments on credit card securitized debt and deposits, and previously from...

  • Page 163
    ...interest rate. The Company reported IRLCs that relate to the origination of mortgage loans that were held for sale as derivative instruments at fair value with changes in fair value recorded in other income. As previously disclosed, the Company closed the mortgage origination business it acquired in...

  • Page 164
    ... and immaterial fair value. At December 31, 2014, the Company one outstanding contract with a notional amount of $33 million and immaterial fair value. Collateral amounts, which consist of both cash and investment securities, are limited to the related derivative asset/liability balance and do...

  • Page 165
    ...subsidiaries or the counterparty depending on the net fair value position of these derivatives held with that counterparty. The Company may also be required to post collateral with a counterparty for its fair value and cash flow hedge interest rate swaps depending on the credit rating it or Discover...

  • Page 166
    ... related to discount and interchange, protection products and loan fee income. Payment Services: The Payment Services segment includes PULSE, an automated teller machine, debit and electronic funds transfer network; Diners Club, a global payments network; and the Company's Network Partners business...

  • Page 167
    ...): Direct Banking For the Year Ended December 31, 2015 Interest income Credit card ...$ Private student loans ...PCI student loans ...Personal loans ...Other ...Total interest income ...Interest expense ...Net interest income ...Provision for loan losses ...Other income ...Other expense ...Income...

  • Page 168
    ...306 3,194 3,944 Payment Services Total 24. Related Party Transactions In the ordinary course of business, the Company offers consumer financial products to its directors, executive officers and certain members of their families. These products are offered on substantially the same terms as those...

  • Page 169
    ...' equity ...$ 2 2 4 314 2,119 298 2,735 11,275 14,010 $ 1 4 5 108 1,559 273 1,945 11,134 $ 13,079 (1) (2) The Parent Company had $2.1 billion in a money market deposit account at Discover Bank as of December 31, 2015, which is included in cash and cash equivalents. These funds are available...

  • Page 170
    Discover Financial Services (Parent Company Only) Condensed Statements of Income For the Years Ended December 31, 2015 Interest income ...$ Interest expense ...Net interest expense ...Dividends from subsidiaries ...Total income ...Other expense Employee compensation and benefits ...Professional fees...

  • Page 171
    ... Financial Services (Parent Company Only) Condensed Statements of Cash Flows For the Years Ended December 31, 2015 Cash flows from operating activities Net income ...$ Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiaries...

  • Page 172
    ... for customer rewards forfeiture, a contra-account to accrued expenses and other liabilities. Because the inputs to net income allocated to common stockholders and earnings per share are calculated using weighted averages for the quarter, the sum of all four quarters may differ from the year to date...

  • Page 173
    ... registered public accounting firm, and the firm's report on this matter is included in Item 8 of this annual report on Form 10-K. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting (as such term is defined in Exchange Act...

  • Page 174
    ...Director Compensation" "Compensation Discussion and Analysis" "2015 Executive Compensation" "Compensation Committee Report" Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information relating to the compensation plans under which our equity...

  • Page 175
    ...Certain Transactions" "Corporate Governance - Director Independence" Item 14. Principal Accounting Fees and Services Information regarding principal accounting fees and services under the caption "Ratification of Appointment of Independent Registered Public Accounting Firm" in our Proxy Statement...

  • Page 176
    ... required to be filed in this annual report on Form 10-K are listed below and appear on pages 84 through 156 herein. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firm ...84 Consolidated Statements of Financial Condition as of December 31, 2015...

  • Page 177
    ...of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Discover Financial Services (Registrant) By: /s/ R. MARK GRAF R. Mark Graf Executive Vice President and Chief Financial Officer Date: February...

  • Page 178
    ..., this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 24, 2016. Signature /S/ DAVID W. NELMS Title Chairman and Chief Executive Officer David W. Nelms /S/ R. MARK GRAF Executive Vice President and Chief Financial Officer...

  • Page 179
    ...). Agreement and Plan of Merger by and among Discover Bank, Academy Acquisition Corp. and The Student Loan Corporation dated as of September 17, 2010 (filed as Exhibit 2.3 to Discover Financial Services' Annual Report on Form 10-K for the fiscal year ended November 30, 2010 filed on January 26...

  • Page 180
    ... and paying agent (filed as Exhibit 4.1 to Discover Financial Services' current report on Form 8-K filed on August 13, 2015 and incorporated herein by reference thereto). Other instruments defining the rights of holders of long-term debt securities of Discover Financial Services and its subsidiaries...

  • Page 181
    ...Employee Stock Purchase Plan (filed as Exhibit 10.3 to Discover Financial Services' Quarterly Report on Form 10-Q filed on September 28, 2011 and incorporated herein by reference thereto). Offer of Employment, dated as of January 8, 1999 (filed as Exhibit 10.2 to Discover Financial Services' Current...

  • Page 182
    ... and Morgan Stanley, dated February 11, 2010 (filed as Exhibit 10.1 to Discover Financial Services' Current Report on Form 8K filed on February 12, 2010 and incorporated herein by reference thereto). Purchase Price Adjustment Agreement by and among Citibank, N.A., The Student Loan Corporation and...

  • Page 183
    ... Plan (filed as Exhibit 10.1 to Discover Financial Services' Current Report on Form 8-K filed on April 30, 2015 and incorporated by reference thereto). Amendment No. 4 to Discover Financial Services Employee Stock Purchase Plan (filed as Exhibit 10.1 to Discover Financial Services' Current Report...

  • Page 184
    ...Earnings to Fixed Charges and Preferred Stock Dividends. Subsidiaries of the Registrant. Consent of Independent Registered Public Accounting Firm. Powers of Attorney (included on signature page). Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of...

  • Page 185
    ...; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 3. 4. 5. Date: February 24, 2016 /s/ DAVID W. NELMS David W. Nelms Chairman of the Board and Chief Executive Officer

  • Page 186
    ...; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 3. 4. 5. b) Date: February 24, 2016 /s/ R. MARK GRAF R. Mark Graf Executive Vice President and Chief Financial Officer

  • Page 187
    ... with the Annual Report of Discover Financial Services (the "Company") on Form 10-K for the period ended December 31, 2015, as filed with the Securities and Exchange Commission (the "Report"), each of David W. Nelms, Chairman of the Board and Chief Executive Officer of the Company, and R. Mark...

  • Page 188
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 189
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 190
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 191

  • Page 192
    ...MISSION To help people spend smarter, manage debt better and save more so they achieve a brighter financial future. VALUES Doing the right thing Innovation Simplicity Collaboration Openness Volunteerism Enthusiasm Respect 2500 Lake Cook Road • Riverwoods, Illinois 60015 • Discover.com/company