2019 Annual Report

2019 Annual Report

A Leading Digital Bank and Payments Partner

Discover is one of the largest digital banks in the United States, offering a broad array of products, including credit cards, personal loans, student loans, deposit products and home equity loans. The Discover brand is known for rewards, service and value. Across all banking products, Discover seeks to help customers meet their financial needs and achieve brighter financial futures.

Discover Card ? $77 billion in loans ? Leading cash rewards program

Student Loans ? $10 billion in student loans ? Offered at more than 2,400 colleges

Personal Loans ? $8 billion in loans ? Debt consolidation and

major purchases

Home Equity Loans ? $1 billion in mortgages ? Cash-out refinance and

home equity loans

Deposits ? $54 billion in direct-to-consumer

deposits ? Money market accounts, certificates

of deposit, savings accounts and checking accounts

Discover Global Network, the global payments brand of Discover Financial Services, strives to be the most flexible and innovative payments partner in the United States and around the world. Our Network Partners business provides payment transaction processing and settlement services on the Discover Network. PULSE is one of the nation's leading ATM/debit networks, and Diners Club International is a global payments network with acceptance around the world.

Discover Network ? $177 billion volume ? 18 network alliances

PULSE Debit Network ? $192 billion volume

Diners Club International ? $34 billion volume

To my fellow

shareholders

Discover started with just one product in 1986--the signature Discover Card--and the first new payments network to launch in more than 20 years. Today, we offer a suite of 25 card and digital banking products with innovative features, and operate three payment networks. With an unwavering focus on customer service, innovation and developing partnerships, our impact has continued to build.

I am pleased to share our 2019 results in this Annual Report. They represent the collective efforts of more than 17,000 Discover employees, an amazing group of people who work together every day to make a difference in the lives of our customers by helping people achieve a brighter financial future.

ROGER C. HOCHSCHILD Chief Executive Officer and President

Customers Recognize How We Are Different

Listening and responding to customer needs has always been a Discover strength. Each month, we receive thousands of calls, letters, emails and texts from customers across the country. They often note the care we take in answering their questions and resolving issues. They tell us how much they appreciate our 100% U.S.-based customer service, our straightforward communications, and the personalized and secure experience that puts them in control.

As a result of our intense focus on the customer, Discover's service ratings are unmatched in the industry. In 2019, we were ranked Highest in Customer Satisfaction with National Credit Card Companies by J.D. Power for the fifth time in six years. In addition, we were ranked #1 in three more J.D. Power studies: Customer Satisfaction among Credit Card Mobile Apps and with Credit Card Websites, as well as Customer Satisfaction with Small Business Credit Card Companies.

We seek to earn that recognition one customer at a time. Their positive feedback (you'll see customer comments throughout this letter) is the greatest acknowledgement we can receive. It is what motivates employees in our Customer Care Centers, and those working behind the scenes across the company, to provide customers with a great experience. It is not only our job--it is our passion.

A look at our 2019

performance

We believe that taking care of customers translates into strong results. Through our 2019 efforts, Discover produced solid growth across loan products, achieving a 6% increase in total loans. Direct-to-consumer deposits grew 22% and account for over half of our total funding. We increased new card accounts by 4% and drove a 7% lift in total network volume. With supply-driven credit normalization and continued seasoning of loans, we experienced higher charge-offs, although still lower than the average of our major competitors. Discover's total net charge-off rate for the year was 3.17%, managed through disciplined underwriting and investments in new servicing and collection capabilities over the years.

Diluted earnings per share was $9.08 and return on equity was 26%. These robust returns gave us the flexibility to return significant capital to our shareholders. We repurchased 7% of our shares and increased dividends for the ninth consecutive year.

While achieving strong financial results in 2019, we also continued to make important investments in building the Discover brand, implementing advanced technology and expanding our global payment acceptance footprint to further

strengthen our competitive position. I am pleased to share the new features, service enhancements and partnerships we launched across our business that will help Discover continue to grow in 2020 and beyond.

U.S. Cards

Discover offers a full set of credit cards with rewards to meet consumers' differing financial needs, including the flagship Discover it card as well as Discover it Miles, Student, Business and Secured cards. Each one has attractive benefits, including Freeze it to prevent new purchases when you misplace your credit card, Credit Scorecard to provide an individual's FICO? Score and key factors that help explain that score, and free New Account, New Inquiry and Social Security Number alerts to help consumers recognize potential fraud.

"I have cards from all the major providers, and I have to say, I only use

In 2019, we launched a number of improvements to add more value for our card customers while continuing to make it even easier for them to do business with us. As a leader in cash rewards that can be redeemed at any time, we added PayPal as a rewards redemption option for consumer cards, incorporated a Cashback Bonus tracker in the Discover Mobile App and included new categories in the 5% Cashback Bonus Calendar. We also collaborated with Amazon to give customers exclusive deals during the winter holidays in "The Discover Store" on and offered curated selections of the season's hottest gifts across select Amazon physical stores. We streamlined our consumer card applications, increased personalization across our web and mobile sites, and we recently launched a redesigned customer statement.

my Discover card. The benefits are on-point and incentivize me to use my Discover card with any possible purchase. I also love the website. So incredibly easy and informative; especially the spend analyzer."

As consumers all over the world began choosing contactless payments, we were right there with them. In January 2019, we teamed up with Garmin, an expert in outdoor adventure, sports performance and other devices, so Discover card customers could make contactless purchases using their smartwatch. Later in the year, we made "tap and go" payments possible with the launch of contactlessenabled Discover it and Discover More credit cards.

BRICKNO,

Discover Card Customer

Accessing account information 24/7 on a multitude of devices is important to our customers. With the increasing popularity of cloud-based, voice-activated devices in homes, in 2019 we made it convenient for cardmembers to access their Discover account with Alexa by using the Discover Alexa Skill to call up current balance, recent transaction, payment due date and rewards category information.

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