Discover Financial Services (DFS) 8-K Barclays 2015 Global Financial Services Conference

Barclays 2015 Global Financial Services Conference

Mark Graf

EVP & Chief Financial Officer

September 17, 2015

©2015 DISCOVER FINANCIAL SERVICES

Exhibit 99.1

Notice

The following slides are part of a presentation by Discover Financial Services (the "Company") and are intended to be viewed as part of that

presentation. No representation is made that the information in these slides is complete.

Throughout these materials, direct-to-consumer deposits are referred to as DTC deposits.  DTC deposits include deposit products that we offer

to

customers

through

direct

marketing,

internet

origination

and

affinity

relationships.

DTC

deposits

include

certificates

of

deposits,

money

market

accounts, online savings and checking accounts, and IRA certificates of deposit.

The information provided herein includes certain non-GAAP financial measures. The reconciliations of such measures to the comparable GAAP

figures are included at the end of this presentation.

The presentation contains forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which

speak only as of the date on which they are made, which reflect management’s estimates, projections, expectations or beliefs at that time, and

which are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of certain risks and uncertainties

that may affect the future results of the Company, please see "Special Note Regarding Forward-Looking Statements," "Risk Factors," "Business

–

Competition," "Business –

Supervision and Regulation" and "Management’s Discussion and Analysis of Financial Condition and Results of

Operations" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 and "Management’s Discussion and Analysis

of Financial Condition and Results of Operations" in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, which

are

filed

with

the

SEC

and

available

at

the

SEC's

website

(www.sec.gov).

The

Company

does

not

undertake

to

update

or

revise

forward-looking

statements as more information becomes available. 

We own or have rights to use the trademarks, trade names and service marks that we use in conjunction with the operation of our business,

including,

but

not

limited

to:

Discover®,

PULSE®,

Cashback

Bonus®,

Discover

Cashback

Checking®,

Discover

it®,

Freeze

It

,

Discover®

Network

and

Diners

Club

International®.

All

other

trademarks,

trade

names

and

service

marks

included

in

this

presentation

are

the

property

of

their respective owners.

2

SM

3

Executive Summary

Attractive business model with a solid record of success

•

Delivering solid card growth

Driven by more new accounts, wallet share gain, low attrition rate and

great credit results

Aided by proprietary network impact on brand, acceptance and rewards

•

Utilizing consumer unsecured lending and marketing capabilities to grow non-

card assets

•

Leveraging a payments partnership strategy to position the business for

growth

•

Creating shareholder value through effective capital management

Positioned as the leading U.S. direct bank & payments partner

Note(s)

Balances as of June 30, 2015; pre-tax profit and volume based on the trailing four quarters ending 2Q15; direct-to-consumer deposits includes affinity deposits

Direct Banking

(98% of DFS Pre-Tax Profit)

Payment Services

(2% of DFS Pre-Tax Profit)

U.S. Card Issuing

•

$55Bn in card receivables

•

$117Bn card sales volume

•

Leading cash rewards program

•

1 in 4 U.S. households

Deposits and Lending

•

$29Bn direct-to-consumer

deposits

•

Cashback checking

•

$9Bn private student loans

•

$5Bn personal loans

•

Home equity installment loans

•

$11Bn volume

•

10+ network alliances

•

$160Bn volume

•

3,700+ issuers

•

$27Bn volume

•

80+ licensees

•

185+ countries / territories

Network Partners

4

U.S. Card -

Recognized leader in customer satisfaction and loyalty

2015 J.D. Power                       

Overall Satisfaction

(1)

Note(s)

1.

Includes general purpose consumer credit cards only; excludes charge, corporate, private label, small business and debit

2.

Discover

received

the

highest

numerical

score

among

credit

card

issuers

in

the

proprietary

J.D.

Power

2014-2015

Credit

Card

Satisfaction

Studies

,

tied

in

2014. 

2015 study based on responses from 20,730 consumers measuring 10 card issuers and measures opinions of consumers about the issuer of their primary credit card.

Proprietary study results are based on experiences and perceptions of consumers surveyed in September 2014-May 2015. Your experiences may vary.  Visit

jdpower.com

“Highest in Customer

Satisfaction with Credit

Card Companies, Two

Years in a Row”

by J.D. Power

(2)

#1 or tied for #1

19 years in a row

743

765

776

777

779

788

790

792

820

828

GE

C

USB

BAC

WFC

BCS

COF

JPM

AXP

DFS

5

SM

U.S. Card -

Strong card loan growth and credit performance

3-Year Average Quarterly

Card Loan Growth (%)

(1)

Note(s)

1.

Average of quarterly rate from 3Q12 through 2Q15

2.

Includes weighted average card loan growth for American Express (U.S. Card), Bank of America (U.S. Card), Capital One (U.S. Card adjusted for portfolio acquisitions and

divestitures and excludes installment loans), Citi (Citi-branded Cards N.A.), JPMorgan Chase (Card Services) and Wells Fargo (Consumer Credit Card)

3.

Weighted

average

rate;

includes

U.S.

card

net

charge-off

rates

for

American

Express

(U.S.

Card),

Bank

of

America

(U.S.

Card),

Capital

One

(U.S.

Card),

Citi

(Citi-branded

Cards N.A.), JPMorgan Chase (Card Services) and Wells Fargo (Consumer Credit Card)

(2)

3-Year Average Quarterly

Card Net Charge-off Rate (%)

(1)

(3)

Source

Public company data

2.3%

3.1%

Discover

Peer Group

5.1%

0.1%

Discover

Peer Group

6

U.S. Card -

Delivering strong returns

U.S. Card Issuers

Net

Interest

Margin

(NIM)

(1,2,3)

U.S. Card Issuers Pre-tax,

Pre-Reserve ROA

(1,4)

Note(s)

1.

Based on the trailing four quarters ending 2Q15

2.

American Express (U.S. Card), Capital One (U.S. Card), Citi (Citi-branded Cards N.A. based on segment tax rate) and JPMorgan Chase (Card Services)

3.

Capital

One,

Citi,

and

JPMorgan

Chase

net

interest

margins

include

late

fees,

whereas

American

Express

and

Discover

exclude

late

fees;

Discover

card

net

interest

margin

represents

credit card interest yield less total company average funding cost (total company interest expense divided by total company average receivables)

4.

Pre-tax income excluding the impact of changes in loan loss reserves divided by average card receivables; Discover pre-tax income excludes 4Q14 charges related to the elimination

of the credit card rewards estimated forfeiture reserve. This is a non-GAAP measure; see appendix for GAAP reconciliation

Source

Public company data; Discover

6.7%

6.6%

5.2%

4.7%

4.7%

AXP

DFS

COF

C

JPM

13.0%

10.3%

10.1%

9.2%

9.0%

COF

DFS

C

JPM

AXP

7

Other Lending -

Growing non-card loan balances with strong credit profile

Non-Card Loan Products

Non-Card Loans ($Bn)

(2)

Note(s)

1.

FICO is the higher of either the borrower or cosigner, weighted by loan balance

2.

Excludes federal student loans, majority of which were sold in 2010 with a subsequent sale of the remaining portfolio in 2012

20% of total loans

at 6/30/15

Private Student Loans (ex PCI)

•

19% YOY receivables growth in 2Q15

•

On track for record originations in 2015

•

Average FICO greater than 750 at

acquisition

(1)

•

Cosigner rate approximately 90%

Personal Loans

•

13% YOY receivables growth in 2Q15

•

On track for record originations in 2015

•

Average FICO ~750

•

~65% cross-sell

$0

$2

$4

$6

$8

$10

$12

$14

$16

Personal Loans

Private Student Loans

8

Payments -

Sources of value

Discover Network

Diners / Global

Partnerships

Debit / PULSE

Payments Assets

Significant Value to Card

•

Brand recognition

•

Merchant funded rewards

•

Emerging technologies

•

Flexibility and control

Independent Value Creation

•

Traditional third-party transaction

processing

•

Nontraditional partnerships

•

Business-to-business

9

Payments Value to Card -

Network drives brand awareness and enhances rewards

Average Unaided Card

Brand Awareness

2014 Indexed

Merchant-Funded Rewards

(1)

Note(s)

1.

Rewards value divided by Discover card sales volume indexed to 100; includes Discover Deals, estimated point-of-sale coupons, CBB offers, statement credits and gift

card redemptions

Source

2014 Millward Brown Brand Tracking Study

100

12

112

Discover

Funded

Partner

Funded

Customer

Cash Reward

59

56

28

28

18

13

DFS

AXP

COF

JPM

C

BAC

10

11

Payments Independent Value Creation -

Competing against large incumbent networks…

Source

The Nilson

Report 2013 Debit market excluding prepaid

and ACH; Discover estimates

2014 U.S. General Purpose

Credit Volume Share (%)

U.S. Debit

Volume Share (%)

Source

2015 Nilson

Report

Size: $2.6Tr

Size: $2.1Tr

Visa

46%

American

Express

26%

MasterCard

23%

Discover

5%

Visa

56%

MasterCard

21%

Other

14%

Discover

8%

12

Payments Independent Value Creation -

...requires partnerships that leverage flexibility

Acquirers

Networks

Emerging

Payments

Issuers

13

Direct-to-Consumer Deposits -

Funding asset growth with high quality deposits

Direct-to-Consumer

Deposits ($Bn)

(1)

DTC Balances                      

by Life of Relationship

Note(s)

1.

Includes affinity deposits

+39%

$21

$29

2010

2Q15

9%

53%

16%

26%

75%

21%

2010

2015 YTD

4+ Years

2 -

4 Years

< 2 Years

Funding Profile -

Prepared for a rising rate environment

Average Months to

Liability Repricing

(1)

Net Interest Income Impact from

100bp Parallel Shift ($MM)

(2)

Note(s)

1.

Excludes all indeterminate maturity deposits (savings and money market) and preferred stock; includes derivatives and hedging activities

2.

1-year net interest income impact from 100bps parallel shift estimated at a point in time as disclosed in the 10-Q for each period

14

16

28

4Q12

2Q15

$42

$200

4Q12

2Q15

Net Interest

Margin -

Preparation for rising rates drove modest NIM compression

Cost of Funds Trend

(1)

Net Interest Margin Trend

Note(s)

1.

Rate on total interest-bearing liabilities

15

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

4Q12

4Q13

2Q15

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

4Q12

4Q13

2Q15

> 9.5% on full year basis

through 2016

16

Recent Themes -

Fee income outlook

•

Exited mortgage originations in 2015

($109MM in revenue for the trailing twelve

month period ending June 30, 2015)

•

Stopped selling Protection Products in

2012; expect attrition to continue

•

Full year impact of lost volume in Pulse

•

Expect non-interchange fee revenue to be

lower in 2016

Other Non-Interchange

Fee Revenue ($MM)

(1)

Note(s)

$1,180

$1,036

$1,034

2013

2014

2Q15 TTM

1.

Other Non-Interchange Fee Revenue, which is derived by subtracting Net Discount and Interchange Revenue from Total Other Income, is a non-GAAP measure which should be

viewed in addition to, and not as a substitute for the Company's reported results. Management believes this information helps investors understand the impact of the components

of Total Other Income on reported results; see appendix for the GAAP to non-GAAP reconciliation schedule.

17

Recent Themes -

Elevated efficiency ratio in 2015

Efficiency Ratio

(1)

•

Despite recent elevated levels, our

efficiency ratio remains lower than

most large banks

•

Currently expect improvement in 2016

38% Long-term Target

Note(s)

1.

Defined as reported total operating expense divided by revenue net of interest expense

2.

Revenue from gain on origination and sale of mortgage loans in the first half of 2015 was $66MM

38.8%

39.4%

41.5%

2013

2014

2Q15 TTM

Select 2015 expense items

1H15

AML/BSA program

remediation

(Lookback)

$34MM

Home

Loans operating

expense

(2)

~$70MM

Home

Loans restructuring

charges

$23MM

1Q15 legal reserve related to

CFPB consent order

$20MM

EMV implementation

$9MM

Lack of postal rebate

$17MM

18

Recent Themes -

Seasoning of newer vintages produces reserve requirements

Card

Vintage

Gross

Loss

Rate

(1)

New Account Bookings (MM)

Note(s)

1.

Blended vintage 6-month moving average gross principal charge-off rate (excludes recoveries)

2010

2011

2012

2013

2014

0

4

8

12

16

20

24

2002-2006 Historical Benchmark

2010-2013

19

Recent Themes –

Well seasoned loan performance is exceeding expectations

Reserve

Release/(Build)

($MM)

(2)

Note(s)

1.

Monthly figures through July 2015

2.

Reserve Release/(Build) for total company including all loan products

Card

30+

Delinquency

Rate

(1)

1H

2015

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

$457

$1,033

$552

$140

$(98)

11

2010

2011

2012

2013

2014

20

Capital Position -

Strong capital level enables capital returns…

DFS Common Equity Tier 1

Ratio

(3)

Min. Common Equity Tier 1

Capital Ratio

(1)

Note(s)

1.

Minimum Common Equity Tier 1 Capital Ratio under the severely adverse scenario

2.

Average of 31 participating bank holding companies as reported by the Federal Reserve

3.

Common Equity Tier 1 Capital Ratio (Basel III fully phased-in) is calculated using Basel III fully phased-in common equity tier 1 capital, a non-GAAP measure.  The Company

believes that the common equity tier 1 capital ratio based on fully phased-in Basel III rules is an important complement to the existing capital ratios and for comparability to other

financial institutions.  For the corresponding reconciliation of common equity tier 1 capital and risk weighted assets calculated under fully phased-in Basel III rules to common

equity tier 1 capital and risk weighted assets calculated under Basel III transition rules, see appendix

Source

Federal Reserve Dodd-Frank Act Stress

Test 2015: Supervisory

Stress Test Methodology and Results, Table 3

11%

Target

$2.5Bn+/-

13.3%

7.6%

DFS

DFAST Average

(2)

14.4%

2Q15

Capital Deployment -

…With highest total yield

Source

Public Company Disclosures and Market Data as of 8/31/15

Note(s)

1.

CCAR

announced

capital

actions

(buybacks

and

dividends)

pro-rated

for

3Q15

through

2Q16

based

on

company

press

releases

2.

CCAR capital actions as stated in Note 1 divided by market capitalization

Estimated

Dividend

and

Buyback

Yield

(1,2)

21

10%

8%

8%

5%

4%

3%

DFS

AXP

COF

JPM

C

BAC

Dividend

Buyback

•

Attractive business model with strong returns

•

98% of profit from Direct Banking segment which is largely a U.S. consumer

driven business

–

Limited direct exposure to changes in global macro environment

–

Efficiency ratio is lower than most large banks and expected to improve

in 2016

•

Management team focused on:

•

Balancing business investments across the organization

•

Profitable loan growth

•

Consistent capital priorities with strong payout

•

Driving long-term shareholder value ROE 15%+

Conclusion

22

Appendix

24

Reconciliation of GAAP to non-GAAP data

Note(s)

1.

Credit

card

pre-tax

income

excluding

forfeiture

reserve

and

reserve

changes

is

a

non-GAAP

measure

and

represents

pre-tax

earnings

of

Discover's

credit

card

business

excluding

the

impact

of

the

elimination

of

the

credit

card

rewards

program

forfeiture

reserve

and

changes

to

the

allowance

for

card

loan

loss

reserve.

This

is

a

meaningful

measure

to

investors

because

it

provides

a

competitive

performance

benchmark

Trailing Twelve

Months Ended

(unaudited, $ in millions)

June 30, 2015

Dec. 31, 2014

Dec. 31, 2013

GAAP Total Other Income

$1,998

$2,015

$2,306

Less:  Discount and Interchange Revenue, Net

(964)

(979)

(1,126)

Total

Other

Income

Excluding

Net

Discount

and

Interchange

Revenue

$1,034

$1,036

$1,180

(unaudited, $ in millions)

Trailing Twelve

Months Ended

June 30, 2015

GAAP Direct Banking pre-tax income

$3,422

Excluding elimination of credit card rewards program forfeiture reserve

178

Excluding non-credit card pre-tax income

(105)

Credit card pre-tax income excluding forfeiture reserve change

$3,495

Excluding credit card reserve changes

82

Credit card pre-tax income excluding forfeiture reserve and reserve changes

$3,577

GAAP average credit card receivables

$53,831

Credit

card

pre-tax

return

on

assets

(excluding

forfeiture

reserve

and

reserve

changes)

(1)

6.6%

25

Reconciliation of GAAP to non-GAAP data (cont’d)

Note(s)

1.

Tangible

common

equity

("TCE"),

a

non-GAAP

financial

measure,

represents

common

equity

less

goodwill

and

intangibles.

A

reconciliation

of

TCE

to

common

equity,

a

GAAP

financial

measure,

is

shown

above.

Other

financial

services

companies

may

also

use

TCE

and

definitions

may

vary,

so

users

of

this

information

are

advised

to

exercise

caution

in

comparing

TCE

of

different

companies.

TCE

is

included

because

management

believes

that

common

equity

excluding

goodwill

and

intangibles

is

a

more

meaningful

measure

to

investors

of

the

true

net

asset

value

of

the

Company

2.

Adjustments related to capital components for fully phased-in Basel III include the phase-in of the intangible asset exclusion

3.

Key differences under fully phased-in Basel III rules in the calculation of risk-weighted assets include higher risk weighting for past due loans and unfunded

commitments

4.

As of January 1, 2015 regulatory capital ratios are calculated under Basel III rules subject to transition provisions

5.

Common equity tier 1 capital ratio (Basel III fully phased-in) is calculated using common equity tier 1 capital (Basel III fully phased-in), a non-GAAP measure,

divided by risk weighted assets (Basel III fully phased-in)

Quarter Ended

(unaudited, in millions)

June 30, 2015

GAAP total common equity

$10,703

Less: Goodwill

(255)

Less: Intangibles

(170)

Tangible

common

equity

(1)

$10,278

Common equity Tier 1 capital (Basel III transition)

$10,552

Adjustments

related

to

capital

components

during

transition

(2)

(83)

Common equity Tier 1 capital (Basel III fully phased-in)

$10,469

Risk weighted assets (Basel III transition) 

$72,658

Risk

weighted

assets

(Basel

III

fully

phased-in)

(3)

$72,555

Common

equity

Tier

1

capital

ratio

(Basel

III

transition)

(4)

14.5%

Common

equity

Tier

1

capital

ratio

(Basel

III

fully

phased-in)

(4,5)

14.4%