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Discover Financial Services Reports Third Quarter Net Income Of $593 Million Or $1.20 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, 2012 and under “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the company's Quarterly Report on Form 10-Q for the quarters ended March 31, 2013 and June 30, 2013, 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
Sep 30, 2013   Jun 30, 2013   Sep 30, 2012

EARNINGS SUMMARY
   
Interest Income $1,787 $1,727 $1,708
Interest Expense 278   297   321  
Net Interest Income 1,509 1,430 1,387
 
Discount/Interchange Revenue 550 546 526
Rewards Cost 274   238   273  
Discount and Interchange Revenue, net 276 308 253
Protection Products Revenue 90 88 104
Loan Fee Income 78 76 82
Transaction Processing Revenue 46 47 58
Other Income 63   92   121  
Total Other Income 553   611   618  
 
Revenue Net of Interest Expense 2,062 2,041 2,005
 
Provision for Loan Losses 333 240 136
 
Employee Compensation and Benefits 292 285 275
Marketing and Business Development 174 185 174
Information Processing & Communications 81 85 71
Professional Fees 97 101 108
Premises and Equipment 21 20 19
Other Expense 118   144   194  
Total Other Expense 783 820 841
     
Income Before Income Taxes 946 981 1,028
Tax Expense 353   379   391  
Net Income $593   $602   $637  
 
Net Income Allocated to Common Stockholders $579   $588   $631  
 
 

PER SHARE STATISTICS
Basic EPS $1.20 $1.20 $1.24
Diluted EPS $1.20 $1.20 $1.24
Common Stock Price (period end) $50.54 $47.64 $39.73
Book Value per share $22.14 $21.52 $18.18
 

SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking $918 $1,002 $980
Payment Services 28   (21 ) 48  
Total $946   $981   $1,028  
 

BALANCE SHEET SUMMARY
Total Assets $75,544   $74,944   $75,169  
Total Liabilities 64,942 64,496 65,992
Total Equity 10,602   10,448   9,177  
Total Liabilities and Stockholders' Equity $75,544   $74,944   $75,169  
 

TOTAL LOAN RECEIVABLES
Ending Loans 1, 2 $62,738 $61,703 $59,634
Average Loans 1, 2 $62,110 $60,793 $58,735
 
Interest Yield 11.29 % 11.24 % 11.39 %
Net Principal Charge-off Rate 1.86 % 2.10 % 2.05 %
Net Principal Charge-off Rate excluding PCI Loans 3 2.00 % 2.27 % 2.23 %
Delinquency Rate (over 30 days) excluding PCI Loans 3 1.60 % 1.50 % 1.73 %
Delinquency Rate (over 90 days) excluding PCI Loans 3 0.72 % 0.73 % 0.81 %
Net Principal Charge-off Dollars $291 $318 $303
Net Interest and Fee Charge-off Dollars $79 $85 $90
Loans Delinquent Over 30 Days 3 $933 $861 $947
Loans Delinquent Over 90 Days 3 $421 $419 $447
 
Allowance for Loan Loss (period end) $1,598 $1,556 $1,731
Change in Loan Loss Reserves $42 ($78 ) ($167 )
Reserve Rate 2.55 % 2.52 % 2.90 %
Reserve Rate Excluding PCI Loans 3 2.73 % 2.72 % 3.16 %
 

CREDIT CARD LOANS
Ending Loans $50,360 $49,791 $48,434
Average Loans $50,017 $49,002 $47,875
 
Interest Yield 12.00 % 11.97 % 12.14 %
Net Principal Charge-off Rate 2.05 % 2.34 % 2.34 %
Delinquency Rate (over 30 days) 1.67 % 1.58 % 1.83 %
Delinquency Rate (over 90 days) 0.78 % 0.80 % 0.89 %
Net Principal Charge-off Dollars $258 $286 $281
Loans Delinquent Over 30 Days $843 $789 $887
Loans Delinquent Over 90 Days $395 $398 $431
 
Allowance for Loan Loss (period end) $1,393 $1,360 $1,565
Change in Loan Loss Reserves $33 ($93 ) ($174 )
Reserve Rate 2.77 % 2.73 % 3.23 %
 
Total Discover Card Volume $30,275 $29,684 $29,692
Discover Card Sales Volume $27,989 $27,574 $27,109
 

NETWORK VOLUME
PULSE Network $39,458 $40,060 $40,365
Network Partners 2,507 2,442 2,228
Diners Club International 4 6,549   6,848   7,038  
Total Payment Services 48,514 49,350 49,631
Discover Network - Proprietary 28,880   28,551   27,662  
Total $77,394   $77,901   $77,293  

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 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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