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  • UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

    FORM 10-K (Mark One)

    x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

      For the year ended December 31, 2018

    o 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 36-2517428 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

          2500 Lake Cook Road, Riverwoods, Illinois 60015 (224) 405-0900

    (Address of principal executive offices, including zip code) (Registrant’s telephone number, including area code)

    Securities registered pursuant to Section 12(b) of the Act: Title of each class   Name of each exchange on which registered

    Common Stock, par value $0.01 per share   New York Stock Exchange      Securities registered pursuant to Section 12(g) of the Act: None

    Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   x      No o

    Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes

    o     No x

    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    x      No   o

    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   x     No

      o

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x

    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

    Large accelerated filer   x Accelerated filer o

    Non-accelerated filer o    Smaller reporting company o

    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.   o

    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   o       No

      x

    The aggregate market value of the common equity held by non-affiliates of the registrant on the last business day of the registrant’s most recently completed second fiscal quarter was approximately $24,123,706,276 .

    As of February 15, 2019 , there were 328,386,672 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.

    DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s definitive proxy statement for its annual stockholders’ meeting to be held on May 16, 2019 are incorporated by reference in Part III of this Form 10-K.

  • DISCOVER FINANCIAL SERVICES Annual Report on Form 10-K for the year ended December 31, 2018

    TABLE OF CONTENTS

    Part I     Item 1. Business 1 Item 1A. Risk Factors 24 Item 1B. Unresolved Staff Comments 41 Item 2. Properties 41 Item 3. Legal Proceedings 41 Item 4. Mine Safety Disclosures 41     Part II     Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 42 Item 6. Selected Financial Data 43 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 46 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 72 Item 8. Financial Statements and Supplementary Data 74 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 145 Item 9A. Controls and Procedures 145 Item 9B. Other Information 145     Part III     Item 10. Directors, Executive Officers and Corporate Governance 146 Item 11. Executive Compensation 146 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 146 Item 13. Certain Relationships and Related Transactions, and Director Independence 147 Item 14. Principal Accounting Fees and Services 147

        Part IV     Item 15. Exhibits, Financial Statement Schedules 148 Item 16. Form 10-K Summary 155      

    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 Item 8 — Financial Statements and Supplementary Data — Glossary of Acronyms for terms and abbreviations used throughout the annual 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 annual report on Form 10-K are the property of their respective owners.

  • Table of Contents

    Part I.

    Part I | Item 1. Business

    Introduction Discover Financial Services (the “Company”) is a direct banking and payment services company. We were incorporated in Delaware in 1960.

    We are a bank holding company under the Bank Holding Company Act of 1956 as well as a financial holding company under the Gramm-Leach- Bliley Act and therefore are subject to oversight, regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). We provide direct banking products and services and payment services through our subsidiaries. We offer our customers credit card loans, private student loans, personal loans, home equity loans and deposit products. We had $90.5 billion in loan receivables and $44.7 billion in deposits issued through direct-to-consumer channels and affinity relationships at December 31, 2018 . We also operate the Discover Network, the PULSE network (“PULSE”) and Diners Club International (“Diners Club”). 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 point-of- sale (“POS”) terminals at retail locations throughout the 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 charge cards and/or provide card acceptance services.

    Available Information We make available, free of charge through the investor relations page of our internet site www.discover.com , our annual reports on Form 10-

    K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, Forms 3, 4 and 5 filed by or on behalf of our directors and executive officers, and any amendments to those documents filed with or furnished to the Securities and Exchange Commission (the “SEC”) pursuant to the Securities Exchange Act of 1934. These filings are available as soon as reasonably practicable after they are filed with or furnished to the SEC.

    In addition, the following information is available on the investor relations page of our internet site: (i) our Corporate Governance Policies; (ii) our Code of Ethics and Business Conduct; and (iii) the charters of the Audit, Compensation and Leadership Development, Nominating and Governance, and Risk Oversight Committees of our Board of Directors. These documents are also available in print without charge to any person who requests them by writing or telephoning our principal executive offices: Discover Financial Services, Office of the Corporate Secretary, 2500 Lake Cook Road, Riverwoods, Illinois 60015, U.S.A., telephone number (224) 405-0900.

    Operating Model We manage our business activities in two segments: Direct Banking and Payment Services. Our Direct Banking segment includes consumer

    banking and lending products, specifically Discover-branded credit cards issued to individuals on the Discover Network and other consumer banking products and services, including student loans, personal loans, home equity loans and deposit products. Our Payment Services segment includes PULSE, Diners Club and our Network Partners business, which provides payment transaction processing and settlement services on the Discover Network.

    We are principally engaged in providing pro