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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to 
Commission File Number 001-33378
DISCOVER FINANCIAL SERVICES
(Exact name of registrant as specified in its charter) 
Delaware
(State or other jurisdiction of incorporation or organization)
36-2517428
(I.R.S. Employer Identification No.)
2500 Lake Cook Road, Riverwoods, Illinois 60015
(Address of principal executive offices, including zip code)
(224) 405-0900
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareDFSNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
☒
Accelerated Filer
☐
Non-accelerated Filer
☐
Smaller Reporting Company☐
Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
As of April 20, 2023, there were 253,946,033 shares of the registrant's Common Stock, par value $0.01 per share, outstanding.


DISCOVER FINANCIAL SERVICES
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023
TABLE OF CONTENTS
Except as otherwise indicated or unless the context otherwise requires, "Discover Financial Services," "Discover," "DFS," "we," "us," "our," and "the Company" refer to Discover Financial Services and its subsidiaries. See Glossary of Acronyms, located after Part I — Item 4, for terms and abbreviations used throughout the quarterly report.
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®, College Covered® and Diners Club International®. All other trademarks, trade names and service marks included in this quarterly report on Form 10-Q are the property of their respective owners.

Table of Contents
Part I.    FINANCIAL INFORMATION
Item 1.    Financial Statements
DISCOVER FINANCIAL SERVICES
Condensed Consolidated Statements of Financial Condition (unaudited)
(dollars in millions, except for share amounts)
March 31,
2023		December 31,
2022
Assets
Cash and cash equivalents$10,130 $8,856 
Restricted cash33 41 
Investment securities (includes available-for-sale securities of $12,017 and $11,987 reported at fair value with associated amortized cost of $12,075 and $12,167 at March 31, 2023 and December 31, 2022, respectively)
12,248 12,208 
Loan receivables
Loan receivables112,674 112,120 
Allowance for credit losses(7,691)(7,374)
Net loan receivables104,983 104,746 
Premises and equipment, net1,031 1,003 
Goodwill255 255 
Other assets4,381 4,519 
Total assets$133,061 $131,628 
Liabilities and Stockholders' Equity
Liabilities
Deposits
Interest-bearing deposit accounts$94,319 $90,151 
Non-interest bearing deposit accounts1,421 1,485 
Total deposits95,740 91,636 
Long-term borrowings18,163 20,108 
Accrued expenses and other liabilities4,843 5,294 
Total liabilities118,746 117,038 
Commitments, contingencies and guarantees (Notes 9, 12 and 13)
Stockholders' Equity
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 570,460,075 and 569,689,007 shares issued at March 31, 2023 and December 31, 2022, respectively
6 6 
Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 10,700 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively
1,056 1,056 
Additional paid-in capital4,493 4,468 
Retained earnings29,292 28,453 
Accumulated other comprehensive loss(235)(339)
Treasury stock, at cost; 313,857,601 and 302,305,216 shares at March 31, 2023 and December 31, 2022, respectively
(20,297)(19,054)
Total stockholders' equity14,315 14,590 
Total liabilities and stockholders' equity$133,061 $131,628 
The table below presents the carrying amounts of certain assets and liabilities of Discover Financial Services' consolidated variable interest entities ("VIEs"), which are included in the condensed consolidated statements of financial condition above. The assets in the table below include those assets that can only be used to settle obligations of the consolidated VIEs. The liabilities in the table below include third-party liabilities of consolidated VIEs only and exclude intercompany balances that eliminate in consolidation. The liabilities also exclude amounts for which creditors have recourse to the general credit of Discover Financial Services.
March 31,
2023		December 31,
2022
Assets
Restricted cash$33 $41 
Loan receivables$24,686 $25,937 
Allowance for credit losses allocated to securitized loan receivables$(1,106)$(1,152)
Other assets$4 $3 
Liabilities
Long-term borrowings$9,095 $10,259 
Accrued expenses and other liabilities$13 $14 
See Notes to the Condensed Consolidated Financial Statements.
1
Table of Contents
DISCOVER FINANCIAL SERVICES
Condensed Consolidated Statements of Income (unaudited)
(dollars in millions, except for share amounts)
 For the Three Months Ended March 31,
 20232022
Interest income
Credit card loans$3,321 $2,268 
Other loans564 428 
Investment securities101 36 
Other interest income91 4 
Total interest income4,077 2,736 
Interest expense
Deposits756 139 
Short-term borrowings— 1 
Long-term borrowings189 117 
Total interest expense945 257 
Net interest income3,132 2,479 
Provision for credit losses1,102 154 
Net interest income after provision for credit losses2,030 2,325 
Other income
Discount and interchange revenue, net341 320 
Protection products revenue43 44 
Loan fee income166 140 
Transaction processing revenue67 57 
Losses on equity investments(18)(162)
Other income22 24 
Total other income621 423 
Other expense
Employee compensation and benefits625 500 
Marketing and business development241 192 
Information processing and communications139 125 
Professional fees232 177 
Premises and equipment22 24 
Other expense124 112 
Total other expense1,383 1,130 
Income before income taxes1,268 1,618 
Income tax expense292 376 
Net income$976 $1,242 
Net income allocated to common stockholders$939 $1,205 
Basic earnings per common share$3.58 $4.23 
Diluted earnings per common share$3.58 $4.22 
See Notes to the Condensed Consolidated Financial Statements.
2
Table of Contents
DISCOVER FINANCIAL SERVICES
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(dollars in millions)
 For the Three Months Ended March 31,
 20232022
Net income$976 $1,242 
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on available-for-sale investment securities, net of tax92 (121)
Unrealized gains on cash flow hedges, net of tax12 2 
Other comprehensive income (loss)104 (119)
Comprehensive income$1,080 $1,123 

See Notes to the Condensed Consolidated Financial Statements.
3
Table of Contents
DISCOVER FINANCIAL SERVICES
Condensed Consolidated Statements of Changes in Stockholders' Equity (unaudited)
(dollars in millions, shares in thousands)
 Additional
Paid-in
Capital		Retained
Earnings		Accumulated Other Comprehensive LossTreasury
Stock		Total
Stockholders'
Equity
Preferred StockCommon Stock
 SharesAmountSharesAmount
For the Three Months Ended March 31, 2022
Balance at December 31, 202111 $1,056 568,831 $6 $4,369 $24,766 $(94)$(16,695)$13,408 
Net income— — — — — 1,242 — — 1,242 
Other comprehensive loss — — — — — — (119)— (119)
Purchases of treasury stock— — — — — — — (944)(944)
Common stock issued under employee benefit plans— — 22 — 2 — — — 2 
Common stock issued and stock-based compensation expense— — 651 — 19 — — — 19 
Dividends — common stock ($0.50 per share)
— — — — — (144)— — (144)
Dividends — Series C preferred stock ($2,750 per share)
— — — — — (16)— — (16)
Dividends — Series D preferred stock ($3,062.50 per share)
— — — — — (15)— — (15)
Balance at March 31, 202211 $1,056 569,504 $6 $4,390 $25,833 $(213)$(17,639)$13,433 
For the Three Months Ended March 31, 2023
Balance at December 31, 202211 $1,056 569,689 $6 $4,468 $28,453 $(339)$(19,054)$14,590 
Cumulative effect of ASU No. 2022-02 adoption— — — — — 52 — — 52 
Net income— — — — — 976 — — 976 
Other comprehensive income— — — — — — 104 — 104 
Purchases of treasury stock— — — — — — — (1,243)(1,243)
Common stock issued under employee benefit plans— — 29 — 3 — — — 3 
Common stock issued and stock-based compensation expense— — 742 — 22 — — — 22 
Dividends — common stock ($0.60 per share)
— — — — — (158)— — (158)
Dividends — Series C preferred stock ($2,750 per share)
— — — — — (16)— — (16)
Dividends — Series D preferred stock ($3,062.50 per share)
— — — — — (15)— — (15)
Balance at March 31, 202311 $1,056 570,460 $6 $4,493 $29,292 $(235)$(20,297)$14,315 
See Notes to the Condensed Consolidated Financial Statements.
4
Table of Contents
DISCOVER FINANCIAL SERVICES
Condensed Consolidated Statements of Cash Flows (unaudited)
(dollars in millions)
 For the Three Months Ended March 31,
 20232022
Cash flows provided by operating activities
Net income$976 $1,242 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses1,102 154 
Deferred income taxes(112)(10)
Depreciation and amortization129 139 
Amortization of deferred revenues(105)(76)
Net losses on investments and other assets30 173 
Other, net25 20 
Changes in assets and liabilities:
Decrease (increase) in other assets133 (127)
(Decrease) increase in accrued expenses and other liabilities(387)219 
Net cash provided by operating activities1,791 1,734 
Cash flows provided by (used for) investing activities
Maturities of available-for-sale investment securities402 769 
Purchases of available-for-sale investment securities(285)— 
Maturities of held-to-maturity investment securities3 12 
Purchases of held-to-maturity investment securities(13)(14)
Net change in principal on loans originated for investment(1,245)(103)
Proceeds from the sale of other investments1 71 
Purchases of other investments(16)(23)
Purchases of premises and equipment(76)(51)
Net cash (used for) provided by investing activities(1,229)661 
Cash flows provided by (used for) financing activities
Net change in short-term borrowings— (1,750)
Net change in deposits4,088 82 
Proceeds from issuance of securitized debt— 1,242 
Maturities and repayment of securitized debt(1,180)(2,556)
Maturities and repayments of other long-term borrowings(800)— 
Proceeds from issuance of common stock3 2 
Purchases of treasury stock(1,232)(944)
Dividends paid on common and preferred stock(175)(160)
Net cash provided by (used for) financing activities704 (4,084)
Net increase (decrease) in cash, cash equivalents and restricted cash1,266 (1,689)
Cash, cash equivalents and restricted cash, at the beginning of the period8,897 11,332 
Cash, cash equivalents and restricted cash, at the end of the period$10,163 $9,643 
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents$10,130 $9,625 
Restricted cash33 18 
Cash, cash equivalents and restricted cash, at the end of the period$10,163 $9,643 
See Notes to the Condensed Consolidated Financial Statements.
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Notes to the Condensed Consolidated Financial Statements
(unaudited)
1.    Background and Basis of Presentation
Description of Business
Discover Financial Services ("DFS" or the "Company") is a digital banking and payment services company. The Company is a bank holding company under the Bank Holding Company Act of 1956 and a financial holding company under the Gramm-Leach-Bliley Act. Therefore, the Company is subject to oversight, regulation and examination by the Board of Governors of the Federal Reserve System (the "Federal Reserve"). The Company provides digital banking products and services and payment services through its subsidiaries. The Company offers its customers credit card loans, private student loans, personal loans, home loans and deposit products. The Company also operates the Discover Network, the PULSE network ("PULSE") and Diners Club International ("Diners Club"), collectively known as the Discover Global Network. The Discover Network processes transactions for Discover-branded credit and debit cards and provides payment transaction processing and settlement services. PULSE operates an electronic funds transfer network, providing financial institutions issuing debit cards on the PULSE network with access to ATMs domestically and internationally, as well as merchant acceptance throughout the United States of America ("U.S.") for debit card transactions. Diners Club is a global payments network of licensees, which are generally financial institutions, that issue Diners Club branded credit and charge cards and/or provide card acceptance services.
The Company manages its business activities in two segments, Digital Banking and Payment Services, based on the products and services provided. See Note 16: Segment Disclosures for a detailed description of each segment's operations and the allocation conventions used in business segment reporting.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the financial statements reflect all adjustments necessary for the fair presentation of results for the interim period. All such adjustments are of a normal, recurring nature. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and related disclosures. These estimates are based on information available as of the date of the condensed consolidated financial statements. The Company believes that the estimates used in the preparation of the condensed consolidated financial statements are reasonable. Actual results could differ from these estimates. These interim condensed consolidated financial statements should be read in conjunction with the Company's 2022 audited consolidated financial statements filed with the Company's annual report on Form 10-K for the year ended December 31, 2022.
Recently Issued Accounting Pronouncement (Not Yet Adopted)
In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. The ASU expands the use of the proportional amortization method of accounting for tax credit investments. Currently, the method is limited to Low Income Housing Tax Credit investments. Under the amended guidance, use of proportional amortization will be available to any qualifying tax credit investments, including but not limited to investments in New Markets Tax Credit and Renewable Energy Tax Credit programs. The amendments in the ASU are to be applied on a retrospective or modified retrospective basis. The ASU is effective for the Company on January 1, 2024. Management does not expect the amendments to have a material impact on the Company’s consolidated financial statements.
Recently Adopted Accounting Pronouncement
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The ASU eliminates the troubled debt restructuring ("TDR") recognition and measurement guidance and enhances disclosures for modifications of receivables to borrowers experiencing financial difficulty. Under ASU 2022-02, the use of a discounted cash flow method is no longer required when measuring expected credit losses on modified loans. The ASU also refines existing credit-related disclosures by requiring disclosure of current-
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period gross charge-offs of receivables by year of origination. The amendments in the ASU are to be applied prospectively to modifications and disclosures of gross charge-offs; however, adoption on a modified retrospective basis is permitted for the effect on the allowance for credit losses related to the elimination of the TDR recognition and measurement guidance. The ASU became effective for the Company on January 1, 2023. Upon adoption, the Company recorded an adjustment to reduce the beginning balance of its allowance for credit losses by $68 million to reflect the elimination of the measurement guidance related to TDRs with an offsetting increase, net of tax, to beginning retained earnings.
2.    Investments
The Company's investment securities consist of the following (dollars in millions):
March 31,
2023		December 31,
2022