DISCOVER FINANCIAL SERVICES Consolidated Statements of Financial Condition December 31, 2020 2019 (dollars in millions, except share amounts) Assets Cash and cash equivalents $ 13,564 $ 6,924 Restricted cash 25 40 Other short-term investments 2,200 Investment securities (includes available-for-sale securities of $9,654 and $10,323 reported at fair value with associated amortized cost of $9,277 and $10,173 at December 31, 2020 and 2019, respectively) 9,914 10,595 Loan receivables Loan receivables 90,449 95,894 Allowance for credit losses (8,226) (3,383) Net loan receivables 82,223 92,511 Premises and equipment, net 1,027 1,057 Goodwill 255 255 Intangible assets, net 95 155 Other assets 3,586 2,459 Total assets $ 112,8895 113,996 Liabilities and Stockholders' Equity Liabilities Deposits Interest-bearing deposit accounts $ 75,695 $ 71,955 Non-interest bearing deposit accounts 1,209 791 Total deposits 76,904 72,746 Long-term borrowings 21,241 25,701 Accrued expenses and other liabilities 3,860 3,690 Total liabilities 102,005 102,137 Commitments, contingencies and guarantees (Notes 15, 18 and 19) Stockholders' Equity Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 567,898,063 and 566,653,650 shares issued at December 31, 2020 and 2019, respectively 6 6 Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 10,700 and 5,700 shares issued and outstanding at December 31, 2020 and 2019, respectively 1,056 563 Additional paid-in capital 4,257 4,206 Retained earnings 19,955 21,290 Accumulated other comprehensive income (loss) 45 (119) Treasury stock, at cost; 261,300,765 and 256,496,492 shares at December 31, 2020 and 2019, respectively (14,435) (14,0871 Total stockholders' equity 10,884 11,859 Total liabilities and stockholders' equity 112,8895 113.996 (1) Prior to adoption of Accounting Standards Update ("ASU")No. 2016-13 on January 1, 2020, credit losses were estimated using the incurred loss approach. The table below presents the carrying amounts of certain assets and liabilities of Discover Financial Services consolidated variable interest entities "VIE"), which are included in the consolidated statements of financial condition above. The assets in the table below include those assets that con 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 December 31, 2020 2019 Idollars in millions) Assets Restricted cash $ 25 $ 40 Loan receivables $ 27,546 $ 31,840 Allowance for credit losses allocated to securitized loan receivables." $ (1,936) $ 11,179) Other assets $ 4 $ 5 Liabilities Long-term borrowings $ 10,840 $ 14,284 Accrued expenses and other liabilities $ 8 $ 15 (1) Prior to adoption of Accounting Standards Update ("ASU") No. 2016-13 on January 1, 2020, credit losses were estimated using the incurred loss approach. See Notes to the Consolidated Financial Statements. DISCOVER FINANCIAL SERVICES Consolidated Statements of Changes in Stockholders' Equity Accumulated Preferred Stock Common Stock Additional Other Total Paid in Retained Comprehensive Treasury Stockholders Shares Amount Shares Amount Capital Earnings (Loss) Income Stock Equity (dollars in millions, shares in thousands) 6 $ 563 563,498 $ 6 $ 4,042 $16,687 $ (152) $(10,254) $ 10,892 (29) 29 2,742 25 2,742 25 (2,065) - (2,065) 96 - 6 6 - 1 6 - - 1,258 - 82 82 - ( - 1 - - 1 (521) - 1 (521) I (31) 563 564,852 6 4,130 (31) 18,906 2,957 (156) (12,319) 11,130 2,957 37 (1,768) 37 - (1,768) - - 97 - 7 - - 7 Balance at December 31, 2017 Cumulative effect of ASU No. 2018-02 adoption Net income Other comprehensive income Purchases of treasury stock Common stock issued under employee benefit plans Common stock issued and stock based compensation expense Dividends - common stock ($1.50 per share) Dividends --Series preferred stock ($5,500 per share) Balance at December 31, 2018 Net income Other comprehensive income Purchases of treasury stock Common stock issued under employee benefit plans Common stock issued and stock- based compensation expense Dividends - common stock ($1.68 per share) Dividends --Series preferred stock ($5,500 per share) Balance at December 31, 2019 Cumulative effect of ASU No. 2016-13 adoption Net income Other comprehensive income Purchases of treasury stock Common stock issued under employee benefit plans Common stock issued and stock- based compensation expense Preferred stock issued Dividends --- common stock ($1.76 per share Dividends --Series preferred stock ($5,500 per share) Balance at December 31, 2020 - 1,705 - 69 - 1 - 69 1 - (542) (542) (31) 21,290 (31) 11,859 563 566,654 6 4,206 (119) (14,087) (1,902) 1,141 II (1,902) 1,141 164 (348) 11 164 TI 11 (348) 192 - 10 1 - 10 1,052 41 41 TI 5 493 493 (543) (543) (31) 6 $ 4,257 $19,955 $ (31) 10,884 11 $ 1,056 567,898 $ 45 $(14,435) $ See Notes to the Consolidated Financial Statements. 11 DISCOVER FINANCIAL SERVICES Consolidated Statements of Cash Flows For the Years Ended December 31, 2020 2019 2018 dollars in millions Cash flows provided by operating activities Net income $ 1,141 $ 2,957 $ 2,742 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses!" 5,134 3,231 3,035 Deferred income taxes (672) (133) (190) Depreciation and amortization 485 436 435 Amortization of deferred revenues and accretion of accretable yield on acquired loans (320) (421) (403) Net (gains) losses on investments and other assets (26) 37 45 Other, net 200 82 83 Changes in assets and liabilities: Decrease increase) in other assets 118 (202) (7) Increase (decrease) in accrued expenses and other liabilities 136 209 (549) Net cash provided by operating activities 6,196 6,196 5,191 Cash flows provided by lused for) investing activities Maturities of other short-term investments 5,850 1,000 Purchases of other short-term investments (8,046) (1,000) Maturities of available-for-sale investment securities 1,007 140 838 Purchases of available-for-sale investment securities (113) 17,183) (2,554) Maturities of held-to-maturity investment securities 54 31 18 Purchases of held-to-maturity investment securities (44) (66) (82) Net principal repaid (disbursed) on loans originated for investment 3,045 17,844 (8,480) Proceeds from returns of investment. 94 Purchases of other investments 172) (68) (65) Purchases of premises and equipment (261) (284 (254) Net cash provided by used for investing activities 1,514 (15,274 (10,579) Cash flows (used for provided by financing activities Proceeds from issuance of securitized debt. 3,519 4,766 Maturities and repayment of securitized debt. (3,531) (6,287) (4,447) Proceeds from issuance of other long-term borrowings 494 1,340 2,233 Maturities and repayment of other long-term borrowings (1,755) (286) (1,756) Proceeds from issuance of common stock 10 7 6 Purchases of treasury stock (348) (1,768) (2,065) Net increase in deposits 4,128 4,945 8,961 Proceeds from issuance of preferred stock 493 Dividends paid on common and preferred stock (576) (573) (552) Net cash (used for provided by financing activities 11,085) 897 7,146 Net increase (decrease) in cash, cash equivalents and restricted cash. 6,625 (8,181) 1,758 Cash, cash equivalents and restricted cash, at beginning of period 6,964 15,145 13,387 Cash, cash equivalents and restricted cash, at end of period $ 13,589 $ 6.964 $ 15,145 Reconciliation of cash, cash equivalents and restricted cash Cash and cash equivalents 13,564 $ 6,924 $ 13,299 Restricted cash 25 40 1,846 Cash, cash equivalents and restricted cash, at end of period $ 13,589 $ 6,964 $ 15,145 Supplemental disclosures of cash flow information Cash paid during the period for Interest expense $ 1,799 $ 2,407 $ 1,847 Income taxes, net of income tax refunds $ 901 $ 1,088 $ 650 $ (1) Prior to adoption of ASU No. 2016-13 on January 1, 2020, credit losses were estimated using the incurred loss approach. See Notes to the Consolidated Financial Statements. Discover's undistributed earnings increased over the last two balance sheet dates. True False At the most recent balance sheet date, Discover's shareholder total claims to the company's assets were (in miilions)? O a. $19,955 O b. $102,005 a. O c. $10,884 O d. $112,889 Over the last two reporting periods, Discover's total common stock cash dividends declared: O a. increased O b.decreased c. did not change O d. cannot be determined Total cash common stock and preferred stock dividends paid to Discover's shareholders during the most recent reporting period was (in millions): O a. $493 O b. $574 O c. $543 O d. $31 Over the last three reporting periods, the amount of cash Discover paid for treasury stock: a, increased O b. decreased a. c. did not change d. cannot be determined DISCOVER FINANCIAL SERVICES Consolidated Statements of Financial Condition December 31, 2020 2019 (dollars in millions, except share amounts) Assets Cash and cash equivalents $ 13,564 $ 6,924 Restricted cash 25 40 Other short-term investments 2,200 Investment securities (includes available-for-sale securities of $9,654 and $10,323 reported at fair value with associated amortized cost of $9,277 and $10,173 at December 31, 2020 and 2019, respectively) 9,914 10,595 Loan receivables Loan receivables 90,449 95,894 Allowance for credit losses (8,226) (3,383) Net loan receivables 82,223 92,511 Premises and equipment, net 1,027 1,057 Goodwill 255 255 Intangible assets, net 95 155 Other assets 3,586 2,459 Total assets $ 112,8895 113,996 Liabilities and Stockholders' Equity Liabilities Deposits Interest-bearing deposit accounts $ 75,695 $ 71,955 Non-interest bearing deposit accounts 1,209 791 Total deposits 76,904 72,746 Long-term borrowings 21,241 25,701 Accrued expenses and other liabilities 3,860 3,690 Total liabilities 102,005 102,137 Commitments, contingencies and guarantees (Notes 15, 18 and 19) Stockholders' Equity Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 567,898,063 and 566,653,650 shares issued at December 31, 2020 and 2019, respectively 6 6 Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 10,700 and 5,700 shares issued and outstanding at December 31, 2020 and 2019, respectively 1,056 563 Additional paid-in capital 4,257 4,206 Retained earnings 19,955 21,290 Accumulated other comprehensive income (loss) 45 (119) Treasury stock, at cost; 261,300,765 and 256,496,492 shares at December 31, 2020 and 2019, respectively (14,435) (14,0871 Total stockholders' equity 10,884 11,859 Total liabilities and stockholders' equity 112,8895 113.996 (1) Prior to adoption of Accounting Standards Update ("ASU")No. 2016-13 on January 1, 2020, credit losses were estimated using the incurred loss approach. The table below presents the carrying amounts of certain assets and liabilities of Discover Financial Services consolidated variable interest entities "VIE"), which are included in the consolidated statements of financial condition above. The assets in the table below include those assets that con 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 December 31, 2020 2019 Idollars in millions) Assets Restricted cash $ 25 $ 40 Loan receivables $ 27,546 $ 31,840 Allowance for credit losses allocated to securitized loan receivables." $ (1,936) $ 11,179) Other assets $ 4 $ 5 Liabilities Long-term borrowings $ 10,840 $ 14,284 Accrued expenses and other liabilities $ 8 $ 15 (1) Prior to adoption of Accounting Standards Update ("ASU") No. 2016-13 on January 1, 2020, credit losses were estimated using the incurred loss approach. See Notes to the Consolidated Financial Statements. DISCOVER FINANCIAL SERVICES Consolidated Statements of Changes in Stockholders' Equity Accumulated Preferred Stock Common Stock Additional Other Total Paid in Retained Comprehensive Treasury Stockholders Shares Amount Shares Amount Capital Earnings (Loss) Income Stock Equity (dollars in millions, shares in thousands) 6 $ 563 563,498 $ 6 $ 4,042 $16,687 $ (152) $(10,254) $ 10,892 (29) 29 2,742 25 2,742 25 (2,065) - (2,065) 96 - 6 6 - 1 6 - - 1,258 - 82 82 - ( - 1 - - 1 (521) - 1 (521) I (31) 563 564,852 6 4,130 (31) 18,906 2,957 (156) (12,319) 11,130 2,957 37 (1,768) 37 - (1,768) - - 97 - 7 - - 7 Balance at December 31, 2017 Cumulative effect of ASU No. 2018-02 adoption Net income Other comprehensive income Purchases of treasury stock Common stock issued under employee benefit plans Common stock issued and stock based compensation expense Dividends - common stock ($1.50 per share) Dividends --Series preferred stock ($5,500 per share) Balance at December 31, 2018 Net income Other comprehensive income Purchases of treasury stock Common stock issued under employee benefit plans Common stock issued and stock- based compensation expense Dividends - common stock ($1.68 per share) Dividends --Series preferred stock ($5,500 per share) Balance at December 31, 2019 Cumulative effect of ASU No. 2016-13 adoption Net income Other comprehensive income Purchases of treasury stock Common stock issued under employee benefit plans Common stock issued and stock- based compensation expense Preferred stock issued Dividends --- common stock ($1.76 per share Dividends --Series preferred stock ($5,500 per share) Balance at December 31, 2020 - 1,705 - 69 - 1 - 69 1 - (542) (542) (31) 21,290 (31) 11,859 563 566,654 6 4,206 (119) (14,087) (1,902) 1,141 II (1,902) 1,141 164 (348) 11 164 TI 11 (348) 192 - 10 1 - 10 1,052 41 41 TI 5 493 493 (543) (543) (31) 6 $ 4,257 $19,955 $ (31) 10,884 11 $ 1,056 567,898 $ 45 $(14,435) $ See Notes to the Consolidated Financial Statements. 11 DISCOVER FINANCIAL SERVICES Consolidated Statements of Cash Flows For the Years Ended December 31, 2020 2019 2018 dollars in millions Cash flows provided by operating activities Net income $ 1,141 $ 2,957 $ 2,742 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses!" 5,134 3,231 3,035 Deferred income taxes (672) (133) (190) Depreciation and amortization 485 436 435 Amortization of deferred revenues and accretion of accretable yield on acquired loans (320) (421) (403) Net (gains) losses on investments and other assets (26) 37 45 Other, net 200 82 83 Changes in assets and liabilities: Decrease increase) in other assets 118 (202) (7) Increase (decrease) in accrued expenses and other liabilities 136 209 (549) Net cash provided by operating activities 6,196 6,196 5,191 Cash flows provided by lused for) investing activities Maturities of other short-term investments 5,850 1,000 Purchases of other short-term investments (8,046) (1,000) Maturities of available-for-sale investment securities 1,007 140 838 Purchases of available-for-sale investment securities (113) 17,183) (2,554) Maturities of held-to-maturity investment securities 54 31 18 Purchases of held-to-maturity investment securities (44) (66) (82) Net principal repaid (disbursed) on loans originated for investment 3,045 17,844 (8,480) Proceeds from returns of investment. 94 Purchases of other investments 172) (68) (65) Purchases of premises and equipment (261) (284 (254) Net cash provided by used for investing activities 1,514 (15,274 (10,579) Cash flows (used for provided by financing activities Proceeds from issuance of securitized debt. 3,519 4,766 Maturities and repayment of securitized debt. (3,531) (6,287) (4,447) Proceeds from issuance of other long-term borrowings 494 1,340 2,233 Maturities and repayment of other long-term borrowings (1,755) (286) (1,756) Proceeds from issuance of common stock 10 7 6 Purchases of treasury stock (348) (1,768) (2,065) Net increase in deposits 4,128 4,945 8,961 Proceeds from issuance of preferred stock 493 Dividends paid on common and preferred stock (576) (573) (552) Net cash (used for provided by financing activities 11,085) 897 7,146 Net increase (decrease) in cash, cash equivalents and restricted cash. 6,625 (8,181) 1,758 Cash, cash equivalents and restricted cash, at beginning of period 6,964 15,145 13,387 Cash, cash equivalents and restricted cash, at end of period $ 13,589 $ 6.964 $ 15,145 Reconciliation of cash, cash equivalents and restricted cash Cash and cash equivalents 13,564 $ 6,924 $ 13,299 Restricted cash 25 40 1,846 Cash, cash equivalents and restricted cash, at end of period $ 13,589 $ 6,964 $ 15,145 Supplemental disclosures of cash flow information Cash paid during the period for Interest expense $ 1,799 $ 2,407 $ 1,847 Income taxes, net of income tax refunds $ 901 $ 1,088 $ 650 $ (1) Prior to adoption of ASU No. 2016-13 on January 1, 2020, credit losses were estimated using the incurred loss approach. See Notes to the Consolidated Financial Statements. Discover's undistributed earnings increased over the last two balance sheet dates. True False At the most recent balance sheet date, Discover's shareholder total claims to the company's assets were (in miilions)? O a. $19,955 O b. $102,005 a. O c. $10,884 O d. $112,889 Over the last two reporting periods, Discover's total common stock cash dividends declared: O a. increased O b.decreased c. did not change O d. cannot be determined Total cash common stock and preferred stock dividends paid to Discover's shareholders during the most recent reporting period was (in millions): O a. $493 O b. $574 O c. $543 O d. $31 Over the last three reporting periods, the amount of cash Discover paid for treasury stock: a, increased O b. decreased a. c. did not change d. cannot be determined
