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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 September 30, 2021
    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 October 22, 2021, there were 293,075,754 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 September 30, 2021
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
September 30,
2021
December 31,
2020
 
(unaudited)
(dollars in millions,
except for share amounts)
Assets
Cash and cash equivalents$12,716 $13,564 
Restricted cash32 25 
Other short-term investments 2,200 
Investment securities (includes available-for-sale securities of $7,791 and $9,654 reported at fair value with associated amortized cost of $7,566 and $9,277 at September 30, 2021 and December 31, 2020, respectively)
8,014 9,914 
Loan receivables
Loan receivables89,542 90,449 
Allowance for credit losses(6,861)(8,226)
Net loan receivables82,681 82,223 
Premises and equipment, net987 1,027 
Goodwill255 255 
Intangible assets, net1 95 
Other assets3,858 3,586 
Total assets$108,544 $112,889 
Liabilities and Stockholders' Equity
Liabilities
Deposits
Interest-bearing deposit accounts$71,126 $75,695 
Non-interest bearing deposit accounts1,436 1,209 
Total deposits72,562 76,904 
Long-term borrowings18,516 21,241 
Accrued expenses and other liabilities4,203 3,860 
Total liabilities95,281 102,005 
Commitments, contingencies and guarantees (Notes 10, 13 and 14)
Stockholders' Equity
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 568,761,125 and 567,898,063 shares issued at September 30, 2021 and December 31, 2020, respectively
6 6 
Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 10,700 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
1,056 1,056 
Additional paid-in capital4,345 4,257 
Retained earnings23,846 19,955 
Accumulated other comprehensive (loss) income(68)45 
Treasury stock, at cost; 274,001,084 and 261,300,765 shares at September 30, 2021 and December 31, 2020, respectively
(15,922)(14,435)
Total stockholders' equity13,263 10,884 
Total liabilities and stockholders' equity$108,544 $112,889 
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.
September 30,
2021
December 31,
2020
 
(unaudited)
(dollars in millions)
Assets
Restricted cash$32 $25 
Loan receivables$24,751 $27,546 
Allowance for credit losses allocated to securitized loan receivables$(1,436)$(1,936)
Other assets$4 $4 
Liabilities
Long-term borrowings$9,064 $10,840 
Accrued expenses and other liabilities$5 $8 
See Notes to the Condensed Consolidated Financial Statements.
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DISCOVER FINANCIAL SERVICES
Condensed Consolidated Statements of Income
 For the Three Months Ended September 30,For the Nine Months Ended September 30,
 2021202020212020
  (unaudited)
(dollars in millions, except per share amounts)
Interest income
Credit card loans$2,193 $2,171 $6,452 $6,760 
Other loans433 446 1,301 1,369 
Investment securities45 58 142 171 
Other interest income3 6 14 35 
Total interest income2,674 2,681 7,909 8,335 
Interest expense
Deposits156 287 519 1,000 
Short-term borrowings 3  3 
Long-term borrowings113 126 356 479 
Total interest expense269 416 875 1,482 
Net interest income2,405 2,265 7,034 6,853 
Provision for credit losses185 750 (45)4,603 
Net interest income after provision for credit losses2,220 1,515 7,079 2,250 
Other income
Discount and interchange revenue, net299 238 879 691 
Protection products revenue43 44 129 135 
Loan fee income121 100 333 304 
Transaction processing revenue58 50 167 143 
Unrealized (losses) gains on equity investments(167) 562  
Realized gains on equity investments   79 
Other income18 17 47 59 
Total other income372 449 2,117 1,411 
Other expense
Employee compensation and benefits483 471 1,487 1,390 
Marketing and business development210 140 539 500 
Information processing and communications121 111 375 342 
Professional fees198 151 567 525 
Premises and equipment23 26 69 83 
Other expense155 106 456 401 
Total other expense1,190 1,005 3,493 3,241 
Income before income taxes1,402 959 5,703 420 
Income tax expense311 188 1,321 78 
Net income$1,091 $771 $4,382 $342 
Net income allocated to common stockholders$1,055 $751 $4,289 $309 
Basic earnings per common share$3.54 $2.45 $14.17 $1.00 
Diluted earnings per common share$3.54 $2.45 $14.16 $1.00 
See Notes to the Condensed Consolidated Financial Statements.
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DISCOVER FINANCIAL SERVICES
Condensed Consolidated Statements of Comprehensive Income
 For the Three Months Ended September 30,For the Nine Months Ended September 30,
 2021202020212020
  (unaudited)
(dollars in millions)
Net income$1,091 $771 $4,382 $342 
Other comprehensive (loss) income, net of tax
Unrealized (losses) gains on available-for-sale investment securities, net of tax(29)(32)(115)208 
Unrealized gains on cash flow hedges, net of tax 3 2 4 
Other comprehensive (loss) income(29)(29)(113)212 
Comprehensive income$1,062 $742 $4,269 $554 

See Notes to the Condensed Consolidated Financial Statements.
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DISCOVER FINANCIAL SERVICES
Condensed Consolidated Statements of Changes in Stockholders' Equity
 Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Treasury
Stock
Total
Stockholders'
Equity
Preferred StockCommon Stock
 SharesAmountSharesAmount
 (unaudited)
(dollars in millions, shares in thousands)
For the Three Months Ended September 30, 2020
Balance at June 30, 202011 $1,056 567,653 $6 $4,216 $18,673 $122 $(14,430)$9,643 
Net income— — — — — 771 — — 771 
Other comprehensive loss — — — — — — (29)— (29)
Common stock issued under employee benefit plans— — 50  3 — — — 3 
Common stock issued and stock-based compensation expense— — 41  16 — — — 16 
Dividends — common stock ($0.44 per share)
— — — — — (137)— — (137)
Dividends — Series C preferred stock ($2,750 per share)
— — — — — (15)— — (15)
Balance at September 30, 202011 $1,056 567,744 $6 $4,235 $19,292 $93 $(14,430)$10,252 
For the Three Months Ended September 30, 2021
Balance at June 30, 202111 $1,056 568,693 $6 $4,319 $22,936 $(39)$(15,107)$13,171 
Net income— — — — — 1,091 — — 1,091 
Other comprehensive loss — — — — — — (29)— (29)
Purchases of treasury stock— — — — — — — (815)(815)
Common stock issued under employee benefit plans— — 21  2 — —