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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, 2022
    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 22, 2022, there were 280,965,096 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, 2022
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.


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,
2022
December 31,
2021
Assets
Cash and cash equivalents$9,625 $8,750 
Restricted cash18 2,582 
Investment securities (includes available-for-sale securities of $5,772 and $6,700 reported at fair value with associated amortized cost of $5,781 and $6,549 at March 31, 2022 and December 31, 2021, respectively)
5,977 6,904 
Loan receivables
Loan receivables93,471 93,684 
Allowance for credit losses(6,647)(6,822)
Net loan receivables86,824 86,862 
Premises and equipment, net984 983 
Goodwill255 255 
Other assets3,729 3,906 
Total assets$107,412 $110,242 
Liabilities and Stockholders' Equity
Liabilities
Deposits
Interest-bearing deposit accounts$70,941 $70,818 
Non-interest bearing deposit accounts1,541 1,575 
Total deposits72,482 72,393 
Short-term borrowings 1,750 
Long-term borrowings17,132 18,477 
Accrued expenses and other liabilities4,365 4,214 
Total liabilities93,979 96,834 
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; 569,504,031 and 568,830,897 shares issued at March 31, 2022 and December 31, 2021, 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, 2022 and December 31, 2021, respectively
1,056 1,056 
Additional paid-in capital4,390 4,369 
Retained earnings25,833 24,766 
Accumulated other comprehensive loss(213)(94)
Treasury stock, at cost; 288,539,871 and 280,502,577 shares at March 31, 2022 and December 31, 2021, respectively
(17,639)(16,695)
Total stockholders' equity13,433 13,408 
Total liabilities and stockholders' equity$107,412 $110,242 
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,
2022
December 31,
2021
Assets
Restricted cash$18 $2,582 
Loan receivables$24,231 $25,449 
Allowance for credit losses allocated to securitized loan receivables$(1,231)$(1,371)
Other assets$4 $4 
Liabilities
Short- and long-term borrowings$7,715 $9,539 
Accrued expenses and other liabilities$5 $6 
See Notes to the Condensed Consolidated Financial Statements.
1

DISCOVER FINANCIAL SERVICES
Condensed Consolidated Statements of Income (unaudited)
(dollars in millions, except for share amounts)
 For the Three Months Ended March 31,
 20222021
Interest income
Credit card loans$2,268 $2,154 
Other loans428 437 
Investment securities36 50 
Other interest income4 5 
Total interest income2,736 2,646 
Interest expense
Deposits139 193 
Short-term borrowings1  
Long-term borrowings117 123 
Total interest expense257 316 
Net interest income2,479 2,330 
Provision for credit losses154 (365)
Net interest income after provision for credit losses2,325 2,695 
Other income
Discount and interchange revenue, net320 241 
Protection products revenue44 43 
Loan fee income140 107 
Transaction processing revenue57 51 
Unrealized (losses) gains on equity investments(188) 
Realized gains on equity investments26  
Other income24 23 
Total other income423 465 
Other expense
Employee compensation and benefits500 506 
Marketing and business development192 154 
Information processing and communications125 109 
Professional fees177 182 
Premises and equipment24 24 
Other expense112 106 
Total other expense1,130 1,081 
Income before income taxes1,618 2,079 
Income tax expense376 486 
Net income$1,242 $1,593 
Net income allocated to common stockholders$1,205 $1,546 
Basic earnings per common share$4.23 $5.04 
Diluted earnings per common share$4.22 $5.04 
See Notes to the Condensed Consolidated Financial Statements.
2

DISCOVER FINANCIAL SERVICES
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(dollars in millions)
 For the Three Months Ended March 31,
 20222021
Net income$1,242 $1,593 
Other comprehensive loss, net of tax
Unrealized losses on available-for-sale investment securities, net of tax(121)(53)
Unrealized gains on cash flow hedges, net of tax2 1 
Other comprehensive loss(119)(52)
Comprehensive income$1,123 $1,541 

See Notes to the Condensed Consolidated Financial Statements.
3

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, 2021
Balance at December 31, 202011 $1,056 567,898 $6 $4,257 $19,955 $45 $(14,435)$10,884 
Net income— — — — — 1,593 — — 1,593 
Other comprehensive loss — — — — — — (52)— (52)
Purchases of treasury stock— — — — — — — (119)(119)
Common stock issued under employee benefit plans— — 26  2 — — — 2 
Common stock issued and stock-based compensation expense— — 656  21 — — — 21 
Dividends — common stock ($0.44 per share)
— — — — — (136)— — (136)
Dividends — Series C preferred stock ($2,750 per share)
— — — — — (16)— — (16)
Dividends — Series D preferred stock ($4,611 per share)
— — — — — (23)— — (23)
Balance at March 31, 202111 $1,056 568,580 $6 $4,280 $21,373 $(7)$(14,554)$12,154 
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 
See Notes to the Condensed Consolidated Financial Statements.
4

DISCOVER FINANCIAL SERVICES
Condensed Consolidated Statements of Cash Flows (unaudited)
(dollars in millions)
 For the Three Months Ended March 31,
 20222021
Cash flows provided by operating activities
Net income$1,242 $1,593 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses154 (365)
Deferred income taxes(10)232 
Depreciation and amortization139 119 
Amortization of deferred revenues(76)(74)
Net unrealized and realized losses on investments and other assets173 10 
Other, net20 23 
Changes in assets and liabilities:
Increase in other assets(127)(150)
Increase in accrued expenses and other liabilities219 120 
Net cash provided by operating activities1,734 1,508 
Cash flows provided by investing activities
Maturities of other short-term investments 2,200 
Maturities of available-for-sale investment securities769 404 
Maturities of held-to-maturity investment securities12 20 
Purchases of held-to-maturity investment securities(14)(16)
Net change in principal on loans originated for investment(103)3,642 
Proceeds from the sale of other investments71  
Purchases of other investments(23)(21)
Purchases of premises and equipment(51)(41)
Net cash provided by investing activities661 6,188 
Cash flows used for by financing activities
Net change in short-term borrowings(1,750) 
Net change in deposits82 (165)
Proceeds from issuance of securitized debt1,242  
Maturities and repayment of securitized debt(2,556)(7)
Maturities and repayment of other long-term borrowings (163)
Proceeds from issuance of common stock2 2 
Purchases of treasury stock(944)(119)
Dividends paid on common and preferred stock(160)(159)
Net cash used for financing activities(4,084)(611)
Net (decrease) increase in cash, cash equivalents and restricted cash(1,689)7,085 
Cash, cash equivalents and restricted cash, at the beginning of the period11,332 13,589 
Cash, cash equivalents and restricted cash, at the end of the period$9,643 $20,674 
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents$9,625 $20,348 
Restricted cash18 326 
Cash, cash equivalents and restricted cash, at the end of the period$9,643 $20,674 
See Notes to the Condensed Consolidated Financial Statements.
5

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 2021 audited consolidated financial statements filed with the Company's annual report on Form 10-K for the year ended December 31, 2021.
Recently Issued Accounting Pronouncements (Not Yet Adopted)
In March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 from borrowers experiencing financial difficulty. ASU 2022-02 no longer requires the application of a discounted cash flow method for any modified receivables when measuring expected credit losses. The ASU also refines existing credit-related disclosures by requiring disclosure of current-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 is effective for the Company on January 1, 2023, with early adoption permitted. Management does not expect the amendments to have a material impact on the Company's financial statements.
6

2.    Investments
The Company's investment securities consist of the following (dollars in millions):
March 31,
2022
December 31,
2021
U.S. Treasury(1) and U.S. GSE(2) securities
$5,612 $6,514 
Residential mortgage-backed securities - Agency(2)
365 390 
Total investment securities$5,977 $6,904 
(1)Includes $