Discover Financial Services Reports Third Quarter Net Income Of $627 Million Or $1.21 Per Diluted Share

Additional factors that could cause the company’s results to differ materially from those described in the forward-looking statements can be found under “Risk Factors,” “Business – Competition,” “Business – Supervision and Regulation” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the company's Annual Report on Form 10-K for the year ended November 30, 2011; “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the company's Quarterly Reports on Form 10-Q for the quarters ended February 29, 2012 and May 31, 2012; and "Risk Factors" in the company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2012, which are filed with the SEC and available at the SEC's internet site ( http://www.sec.gov).

DISCOVER FINANCIAL SERVICES
(unaudited, in millions, except per share statistics)
		Quarter Ended
		Aug 31, 2012			May 31, 2012			Aug 31, 2011
EARNINGS SUMMARY
Interest Income		$1,695			$1,656			$1,599
Interest Expense		325			341			362
Net Interest Income		1,370			1,315			1,237
Discount/Interchange Revenue		533			514			517
Rewards		268			248			234
Discount and Interchange Revenue, net		265			266			283
Protection Products Revenue		104			101			108
Loan Fee Income		80			77			84
Transaction Processing Revenue		59			52			44
Other Income		86			37			33
Total Other Income		594			533			552
Revenue Net of Interest Expense		1,964			1,848			1,789
Provision for Loan Losses		126			232			100
Employee Compensation and Benefits		274			249			242
Marketing and Business Development		161			119			133
Information Processing & Communications		69			72			64
Professional Fees		107			110			106
Premises and Equipment		20			19			18
Other Expense		195			180			79
Total Other Expense		826			749			642
Income Before Income Taxes		1,012			867			1,047
Tax Expense		385			330			398
Net Income		$627			$537			$649
Net Income Allocated to Common Stockholders		$621			$532			$642
PER SHARE STATISTICS
Basic EPS		$1.21			$1.01			$1.18
Diluted EPS		$1.21			$1.00			$1.18
Common Stock Price (period end)		$38.73			$33.11			$25.16
Book Value per share		$18.02			$17.20			$14.88
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$963			$820			$1,009
Payment Services		49			47			38
Total		$1,012			$867			$1,047
BALANCE SHEET SUMMARY
Total Assets		$73,909			$72,083			$65,726
Total Liabilities		64,763			63,184			57,720
Total Equity		9,146			8,899			8,006
Total Liabilities and Stockholders' Equity		$73,909			$72,083			$65,726
TOTAL LOAN RECEIVABLES STATISTICS
Ending Loans 1, 2		$59,157			$57,058			$54,082
Average Loans 1, 2		$57,721			$56,180			$53,013
Interest Yield		11.50	%		11.55	%		11.83	%
Net Principal Charge-off Rate		2.12	%		2.42	%		3.43	%
Net Principal Charge-off Rate excluding PCI Loans 3		2.32	%		2.66	%		3.63	%
Delinquency Rate (over 30 days) 3		1.71	%		1.81	%		2.35	%
Delinquency Rate (over 90 days) 3		0.81	%		0.91	%		1.17	%
Net Principal Charge-off Dollars		$308			$342			$459
Net Interest and Fee Charge-off Dollars		$92			$110			$151
Loans Delinquent Over 30 Days 3		$931			$941			$1,203
Loans Delinquent Over 90 Days 3		$441			$474			$599
Allowance for Loan Loss (period end)		$1,687			$1,869			$2,273
Change in Loan Loss Reserves		($182	)		($110	)		($359	)
Reserve Rate 4		2.85	%		3.28	%		4.20	%
Reserve Rate Excluding PCI Loans 3, 4		3.11	%		3.59	%		4.44	%
CREDIT CARD LOANS STATISTICS
Ending Loans		$48,124			$46,610			$46,178
Average Loans		$47,067			$45,772			$45,343
Interest Yield		12.27	%		12.35	%		12.46	%
Net Principal Charge-off Rate		2.43	%		2.79	%		3.85	%
Delinquency Rate (over 30 days)		1.81	%		1.91	%		2.43	%
Delinquency Rate (over 90 days)		0.89	%		0.99	%		1.22	%
Net Principal Charge-off Dollars		$287			$322			$440
Loans Delinquent Over 30 Days		$870			$890			$1,121
Loans Delinquent Over 90 Days		$427			$459			$565
Allowance for Loan Loss (period end)		$1,522			$1,713			$2,154
Change in Loan Loss Reserves		($191	)		($122	)		($365	)
Reserve Rate		3.16	%		3.68	%		4.66	%
Total Discover Card Volume		$29,763			$28,140			$28,455
Discover Card Sales Volume		$27,202			$26,115			$26,271
NETWORK VOLUME
PULSE Network		$40,990			$42,001			$35,109
Third-Party Issuers		2,231			2,189			1,984
Diners Club International 5		7,041			7,205			7,428
Total Payment Services		50,262			51,395			44,521
Discover Network - Proprietary		28,085			26,985			27,133
Total		$78,347			$78,380			$71,654
1 Total Loans includes mortgages and other loans.
2 Purchased Credit Impaired ("PCI") loans are loans that were acquired in which a deterioration in credit quality occurred between the origination date and the acquisition date. These loans were initially recorded at fair value and accrete interest income over the estimated lives of the loans as long as cash flows are reasonably estimable, even if the loans are contractually past due. PCI loans are private student loans and are included in total loan receivables.
3 Excludes PCI loans (described above) which are accounted for on a pooled basis. Since a pool is accounted for as a single asset with a single composite interest rate and aggregate expectation of cash flows, the past-due status of a pool, or that of the individual loans within a pool, is not meaningful. Because the company is recognizing interest income on a pool of loans, it is all considered to be performing.
4 The Reserve Rate includes federal student loans held for sale.
5 Volume is derived from data provided by licensees for Diners Club branded cards issued outside of North America and is subject to subsequent revision or amendment.
Note: See Glossary for definitions of financial terms in the financial supplement which is available online at the SEC's website ( http://www.sec.gov) and the company's website ( http://investorrelations.discoverfinancial.com).

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