On this page of StockholderLetter.com we present the latest annual shareholder letter from Discover Financial Services — ticker symbol DFS. Reading current and past DFS letters to shareholders can bring important insights into the investment thesis.
Annual Report
A Leading Consumer 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, home loans and deposit products. The Discover brand is known for rewards, service and value. Across all digital banking products, Discover seeks to help customers meet their financial needs and achieve brighter financial futures. Discover Global Network, the global payments brand of Discover Financial Services, offers network services across the payments ecosystem, processes millions of transactions daily and facilitates billions in volume annually. Comprised of the Discover Network in the U.S., PULSE, a leading ATM/debit network, and Diners Club International, a global payments network, our payments brand provides our cardholders with global acceptance and cash access to ensure a seamless payments experience. Credit Cards Personal Loans Deposits $102 billion in card loans $10 billion in personal loans Leading cash rewards program Debt consolidation and major purchases Student Loans Home Loans $10 billion in student loans Discover Network $264 billion volume 29 network alliances $6 billion in home loans $84 billion in consumer deposits Money market accounts, certificates of deposit, savings accounts and checking accounts Cash-out refinance and home loans PULSE Debit Network Diners Club International billion volume billion volume $286 $39
To my fellow shareholders: It is my honor to communicate with you for the first time as Discover s CEO. Although I am new to the company, I have long admired Discover s unique business model, and its strong brand and reputation for service. I have seen firsthand the commitment of our employees and am working with them, our Executive Management team and Board of Directors to help people achieve a brighter financial future. To do that, we seek to build a better bank for our customers, one that anticipates needs, personalizes service, and provides a consistent and rewarding experience at every touchpoint. As a bank that s 100% consumer-focused, with the fastest growing global payments network in the world and 24/7, U.S.-based customer service, we are unique in the marketplace and our future is bright. Fintechs looking to be seen as banks don t offer the same depth of products and features or have the brand loyalty and broad customer base we do. And many traditional, brick-and-mortar banks are trying to become more digital. No one is better positioned to become the leading consumer digital bank. This is an ambitious goal and it is one I believe we can achieve. Michael G. Rhodes CEO and President, Discover Financial Services On February 19, 2024, Capital One Financial Corporation and Discover Financial Services jointly Navigating Change announced they have Last year was one of change for Discover, as higher credit costs, compliance and regulatory issues and a transition in the Company s leadership created uncertainty. Nonetheless, our organization approached each with focus and determination. We invested more than $500 million to address identified compliance issues while creating a structure to improve our operations before they impact customers. We also announced we are exploring the sale of our student loan portfolio, which will better enable us to focus on our core business. entered into a merger As we confronted these matters, the underlying stability of our unique business model remained. Total revenue was up 19% year-over-year, we finished with Diluted Earnings Per Share of $11.26 our third-best in company history and we achieved a 21% return on equity. approval, the transaction Driving Growth of delivering attractive In 2023, we experienced growth across Banking and Payments, investing in our brand and adding millions of customers. and resilient financial We relaunched our Cashback Debit Checking account product, adding many new account holders that were first-time Discover customers. Consumer deposits increased 19%, ending the year at $84 billion and total loans were up 15%. Our Especially for Everyone mass-market brand campaign featuring award-winning actress Jennifer Coolidge contributed to these numbers and will continue to educate consumers about our offerings. customer experiences, In Payments, total network volume was up 7%, as PULSE and Diners Club International expanded their global acceptance footprint, signing new debit card merchants and issuers and executing renewals with key licensees in China, India and Switzerland. In 2023, participants in the Discover Global Network, along with other third parties, reported that we added 3.4 million new point-of-sale acceptance locations. agreement under which the companies will combine in an all-stock merger, which values Discover at $35.3 billion. Subject to regulatory brings together two companies with longstanding track records results, award-winning breakthrough innovation and financial inclusion. For more information, refer to the Pending Merger with Capital One Financial Corporation section on page 1 of Discover s 2023 Annual Report on Form 10-K. 1
Overall, we continued to see strong adoption of transit and tap-onmobile capabilities and launched a new cloud-based network tokenization platform for participants to enable a more seamless and secure customer experience. Providing unique offerings like the Cashback Debit Checking account and expanding our global payments network remain winning formulas for Discover, and we will continue to act on opportunities to differentiate ourselves in-market. Investing in Our Future Discover continued to invest in technology and data and analytics to streamline operations, reduce risk and better serve our customers. We concluded Project Runway, a three-year technology transformation program, and leveraged process automation to save more than 350,000 work hours in 2023. We also enhanced cybersecurity and equipped our 10,000+ customer care agents with the latest tools to assist our customers. In addition, we leveraged analytics to make data-informed decisions and celebrated the 15-year anniversary of our Shanghai Analytics Center, as well as the first anniversary of the Advanced Analytics Resource Center (AARC). A two-year talent development program, AARC drives value through technology, insights and decisioning intelligence to improve the customer experience. It is one of many ways we are trying to make Chicago The City of Tech, as well as ensure a steady pipeline of analytics talent. Serving Our Communities Discover is committed to our communities. Volunteerism is one of our Discover Values, and last year more than 8,800 U.S. employees volunteered more than 52,000 hours at nearly 250 volunteer events. Our Chatham Customer Care Center, which continues to bring jobs to the South Side, has hosted more than 500 community gatherings since 2022. With an ongoing commitment to financial literacy, we continued to support the Pathway in Schools program, which integrates financial education into the curriculum of public schools across the country. Looking Ahead In a year that tested our resolve, Discover showed it was up to the challenge, and as the new CEO, I am excited to lead the company on the next phase of our journey. Strengthening compliance and risk management to ensure we re taking care of our customers, merchants and business relationships remains our top priority, and it is something I know we can and will achieve. Discover has a long history of innovation and success, and I intend to honor that legacy as we build a better bank for consumers. I d like to thank the Board for their leadership and our 21,000 employees for their dedication and commitment to our continued success. We have a bright future ahead, and while our journey is still unfolding, a new horizon is within reach. 2 Michael G. Rhodes Chief Executive Officer and President February 16, 2024
2023 Financial Performance The operating backdrop in 2023 was impacted by the Federal Reserve s restrictive monetary policy. While this policy stance contributed to some abatement in inflation, consumer behavior nonetheless reflected some level of economic pressure, as spending volumes slowed throughout the year and credit performance deteriorated. Despite these conditions, we delivered the third best EPS performance in our company s history, generating net income of $2.9 billion, or $11.26 per diluted share. These results underscore our ability to generate resilient returns through a range of economic conditions. Highlighting a Few Key Metrics: We continued to invest in our brand and customer acquisition. We grew new card accounts, successfully expanded our deposits franchise and launched our Cashback Debit Checking account product on a national scale. As a result of these activities, loan receivables grew 15% and consumer deposits grew by 19%, demonstrating the appeal of our products strong value proposition. Our net interest margin remained robust at 11.07%, with benefits from a higher prime rate partially offset by higher funding costs. The combination of receivables growth and a strong margin contributed to our 19% revenue growth. While credit losses continued to increase, driven by the seasoning of newer card vintages with higher delinquency trends, they were at the low end of our expected range for the year. We also focused on maturing our risk management and compliance capabilities by making significant investments in staffing, technology and process management. This was achieved while delivering an efficiency ratio of 38%. All these factors contributed to our 21% return on equity for the year. This level of return supported the increase in our quarterly dividend by 17% to $0.70 per share. The following pages detail some of the accomplishments made across the Discover enterprise over the past year that contributed to our strong results in 2023, support our ambition to be the leading digital consumer bank and will help sustain future shareholder value. Cultivating Economic Resilience Discover Bank launched the Discover Financial Health Improvement Fund in Delaware, committing an initial investment of $36 million to support startups and early-stage tech companies working on solutions to enhance the financial well-being of low- and moderate-income individuals, communities and small businesses. This innovative approach to funding entrepreneurs who have identified creative ways to benefit those of modest means is expected to be both profitable and beneficial to the community. The Financial Health Network, a leading authority on financial health, will collaborate in evaluating startups for their potential impact. ResilienceVC and Chartline Capital will source, select and manage Discover s earlier- and later-stage investments. The initiative aims to address the financial needs of underserved populations while fostering successful business models in the Mid-Atlantic region. 3
 • shareholder letter icon 3/15/2024 Letter Continued (Full PDF)
 • stockholder letter icon 3/29/2023 DFS Stockholder Letter
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DFS Shareholder/Stockholder Letter Transcript:

Annual Report

A Leading Consumer 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, home
loans and deposit products.
The Discover brand is known for
rewards, service and value. Across
all digital banking products, Discover
seeks to help customers meet their
financial needs and achieve brighter
financial futures.
Discover Global Network, the global
payments brand of Discover Financial
Services, offers network services
across the payments ecosystem,
processes millions of transactions
daily and facilitates billions in volume
annually. Comprised of the Discover
Network in the U.S., PULSE, a leading
ATM/debit network, and Diners Club
International, a global payments
network, our payments brand provides
our cardholders with global acceptance
and cash access to ensure a seamless
payments experience.
Credit Cards
Personal Loans
Deposits



$102 billion in card loans
$10 billion in personal loans
    Leading cash rewards
program
    Debt consolidation
and major purchases
Student Loans
Home Loans

$10
billion in
student loans
Discover Network
$264
billion
volume
29
network
alliances

$6 billion in home loans
$84 billion in
consumer deposits
    Money market accounts,
certificates of deposit,
savings accounts and
checking accounts
    Cash-out refinance
and home loans
PULSE Debit Network
Diners Club International
billion
volume
billion
volume
$286
$39

To my fellow shareholders:
It is my honor to communicate with you for the first time as
Discover   s CEO. Although I am new to the company, I have long
admired Discover   s unique business model, and its strong brand and
reputation for service. I have seen firsthand the commitment of our
employees and am working with them, our Executive Management
team and Board of Directors to help people achieve a brighter financial
future. To do that, we seek to build a better bank for our customers,
one that anticipates needs, personalizes service, and provides a
consistent and rewarding experience at every touchpoint.
As a bank that   s 100% consumer-focused, with the fastest growing
global payments network in the world and 24/7, U.S.-based customer
service, we are unique in the marketplace and our future is bright.
Fintechs looking to be seen as banks don   t offer the same depth of
products and features or have the brand loyalty and broad customer
base we do. And many traditional, brick-and-mortar banks are trying
to become more digital. No one is better positioned to become the
leading consumer digital bank. This is an ambitious goal   and it is one
I believe we can achieve.
Michael G. Rhodes
CEO and President, Discover
Financial Services
On February 19, 2024,
Capital One Financial
Corporation and Discover
Financial Services jointly
Navigating Change
announced they have
Last year was one of change for Discover, as higher credit costs,
compliance and regulatory issues and a transition in the Company   s
leadership created uncertainty. Nonetheless, our organization
approached each with focus and determination. We invested more
than $500 million to address identified compliance issues while creating
a structure to improve our operations before they impact customers.
We also announced we are exploring the sale of our student loan
portfolio, which will better enable us to focus on our core business.
entered into a merger
As we confronted these matters, the underlying stability of our unique
business model remained. Total revenue was up 19% year-over-year,
we finished with Diluted Earnings Per Share of $11.26   our third-best in
company history   and we achieved a 21% return on equity.
approval, the transaction
Driving Growth
of delivering attractive
In 2023, we experienced growth across Banking and Payments,
investing in our brand and adding millions of customers.
and resilient financial
We relaunched our Cashback Debit Checking account product,
adding many new account holders that were first-time Discover
customers. Consumer deposits increased 19%, ending the year at
$84 billion and total loans were up 15%. Our    Especially for Everyone   
mass-market brand campaign featuring award-winning actress
Jennifer Coolidge contributed to these numbers and will continue
to educate consumers about our offerings.
customer experiences,
In Payments, total network volume was up 7%, as PULSE and Diners
Club International expanded their global acceptance footprint, signing
new debit card merchants and issuers and executing renewals with
key licensees in China, India and Switzerland. In 2023, participants in
the Discover Global Network, along with other third parties, reported
that we added 3.4 million new point-of-sale acceptance locations.
agreement under which
the companies will
combine in an all-stock
merger, which values
Discover at $35.3 billion.
Subject to regulatory
brings together two
companies with longstanding track records
results, award-winning
breakthrough innovation
and financial inclusion.
For more information,
refer to the    Pending
Merger with Capital One
Financial Corporation   
section on page 1 of
Discover   s 2023 Annual
Report on Form 10-K.
1

Overall, we continued to see strong adoption of transit and tap-onmobile capabilities and launched a new cloud-based network
tokenization platform for participants to enable a more seamless and
secure customer experience.
Providing unique offerings like the Cashback Debit Checking account
and expanding our global payments network remain winning formulas
for Discover, and we will continue to act on opportunities to differentiate
ourselves in-market.
Investing in Our Future
Discover continued to invest in technology and data and analytics to
streamline operations, reduce risk and better serve our customers.
We concluded Project Runway, a three-year technology transformation
program, and leveraged process automation to save more than 350,000
work hours in 2023. We also enhanced cybersecurity and equipped our
10,000+ customer care agents with the latest tools to assist our customers.
In addition, we leveraged analytics to make data-informed decisions and
celebrated the 15-year anniversary of our Shanghai Analytics Center, as well
as the first anniversary of the Advanced Analytics Resource Center (AARC).
A two-year talent development program, AARC drives value through
technology, insights and decisioning intelligence to improve the customer
experience. It is one of many ways we are trying to make Chicago    The City
of Tech,    as well as ensure a steady pipeline of analytics talent.
Serving Our Communities
Discover is committed to our communities. Volunteerism is one of our
Discover Values, and last year more than 8,800 U.S. employees volunteered
more than 52,000 hours at nearly 250 volunteer events. Our Chatham
Customer Care Center, which continues to bring jobs to the South Side, has
hosted more than 500 community gatherings since 2022. With an ongoing
commitment to financial literacy, we continued to support the Pathway in
Schools program, which integrates financial education into the curriculum
of public schools across the country.
Looking Ahead
In a year that tested our resolve, Discover showed it was up to the
challenge, and as the new CEO, I am excited to lead the company on
the next phase of our journey.
Strengthening compliance and risk management to ensure we   re taking
care of our customers, merchants and business relationships remains our
top priority, and it is something I know we can   and will   achieve. Discover
has a long history of innovation and success, and I intend to honor that
legacy as we build a better bank for consumers.
I   d like to thank the Board for their leadership and our 21,000 employees
for their dedication and commitment to our continued success. We have a
bright future ahead, and while our journey is still unfolding, a new horizon is
within reach.
2
Michael G. Rhodes
Chief Executive Officer and President
February 16, 2024

2023 Financial Performance
The operating backdrop in 2023 was impacted by the Federal Reserve   s
restrictive monetary policy. While this policy stance contributed to some
abatement in inflation, consumer behavior nonetheless reflected some level of
economic pressure, as spending volumes slowed throughout the year and credit
performance deteriorated. Despite these conditions, we delivered the third best
EPS performance in our company   s history, generating net income of $2.9 billion,
or $11.26 per diluted share. These results underscore our ability to generate resilient
returns through a range of economic conditions.
Highlighting a Few Key Metrics:
    We continued to invest in our brand and customer acquisition. We grew new
card accounts, successfully expanded our deposits franchise and launched
our Cashback Debit Checking account product on a national scale.
    As a result of these activities, loan receivables grew 15% and consumer
deposits grew by 19%, demonstrating the appeal of our products    strong
value proposition.
    Our net interest margin remained robust at 11.07%, with benefits from a higher
prime rate partially offset by higher funding costs.
    The combination of receivables growth and a strong margin contributed to
our 19% revenue growth.
    While credit losses continued to increase, driven by the seasoning of newer
card vintages with higher delinquency trends, they were at the low end of our
expected range for the year.
    We also focused on maturing our risk management and compliance capabilities
by making significant investments in staffing, technology and process
management. This was achieved while delivering an efficiency ratio of 38%.
    All these factors contributed to our 21% return on equity for the year. This level of
return supported the increase in our quarterly dividend by 17% to $0.70 per share.
The following pages detail some of the accomplishments made across the
Discover enterprise over the past year that contributed to our strong results in 2023,
support our ambition to be the leading digital consumer bank and will help sustain
future shareholder value.
Cultivating Economic Resilience
Discover Bank launched the Discover Financial Health Improvement Fund in Delaware, committing an
initial investment of $36 million to support startups and early-stage tech companies working on solutions
to enhance the financial well-being of low- and moderate-income individuals, communities and small
businesses. This innovative approach to funding entrepreneurs who have identified creative ways to benefit
those of modest means is expected to be both profitable and beneficial to the community. The Financial
Health Network, a leading authority on financial health, will collaborate in evaluating startups for their potential
impact. ResilienceVC and Chartline Capital will source, select and manage Discover   s earlier- and later-stage
investments. The initiative aims to address the financial needs of underserved populations while fostering
successful business models in the Mid-Atlantic region.
3



shareholder letter icon 3/15/2024 Letter Continued (Full PDF)
 

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