-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L/KZvJnruClPHIvRIe089HRq1XRhcJzH89pZoLdTMb72YCd36cQgMxbZrf4+zNJg CHv4C23miRzbG5YoamUfSg== 0001157523-07-006220.txt : 20070620 0001157523-07-006220.hdr.sgml : 20070620 20070620121601 ACCESSION NUMBER: 0001157523-07-006220 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070620 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070620 DATE AS OF CHANGE: 20070620 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Discover Financial Services CENTRAL INDEX KEY: 0001393612 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 362517428 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-33378 FILM NUMBER: 07930635 BUSINESS ADDRESS: STREET 1: 2500 LAKE COOK ROAD CITY: RIVERWOODS STATE: IL ZIP: 60015 BUSINESS PHONE: 224-405-0900 MAIL ADDRESS: STREET 1: 2500 LAKE COOK ROAD CITY: RIVERWOODS STATE: IL ZIP: 60015 8-K 1 a5429915.htm DISCOVER FINANCIAL SERVICES 8-K a5429915.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 8-K
 
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported):  June 20, 2007
 
DISCOVER FINANCIAL SERVICES
(Exact name of registrant as specified in its charter)
 
Commission File Number:  001-33378
 
Delaware
36-2517428
(State or other jurisdiction of
(IRS Employer
incorporation)
Identification No.)
 
2500 Lake Cook Road, Riverwoods, Illinois 60015
(Address of principal executive offices, including zip code)
 
(224) 405-0900
(Registrant’s telephone number, including area code)
 
(Former name or former address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
[  ]   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ]   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ]   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ]   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 


Item 2.02.
Results of Operations and Financial Condition.
 
On June 20, 2007, Discover Financial Services (the "Company") released financial information with respect to its fiscal quarter ended May 31, 2007. A copy of the press release containing this information is attached hereto as Exhibit 99.1 and incorporated herein by reference. In addition, a copy of  the Company's Financial Data Supplement for its fiscal quarter ended May 31, 2007 is attached hereto as Exhibit 99.2 and incorporated herein by reference.
 
The information furnished under Item 2.02 of this Report, including Exhibit 99.1 and Exhibit 99.2, shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference to such filing.
 
Item 9.01.
Financial Statements and Exhibits.

The exhibits accompanying this report are listed in the accompanying Exhibit Index.


 


 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
DISCOVER FINANCIAL SERVICES
   
Dated: June 20, 2007.
By:
 /s/ Christopher Greene
   
Name: Christopher Greene
   
Title: Assistant Secretary



 
EXHIBIT INDEX

Exhibit No.
Description
99.1
Press release of the Company dated June 20, 2007 containing financial information for the second quarter ended May 31, 2007
99.2
Quarterly Financial Data Supplement of the Company for the second quarter ended May 31, 2007
 
 
 
 
 EX-99.1 2 a5429915-ex991.htm EXHIBIT 99.1 a5429915-ex991.htm
Exhibit 99.1
 
 
DISCOVER FINANCIAL SERVICES REPORTS SECOND QUARTER RESULTS
 
Riverwoods, IL, June 20, 2007 - Discover Financial Services (NYSE: DFSWI) today reported net income of $209 million for the quarter ended May 31, 2007, compared with record net income of $343 million for the second quarter of 2006.  The second quarter of 2007 included approximately $20 million of pretax costs related to the spin-off from Morgan Stanley that will take place on June 30, 2007.  The second quarter of 2006 benefited from low bankruptcy filings in the United States following the bankruptcy legislation that became effective in October 2005.  Return on managed receivables for the second quarter of 2007 was 1.65%, down from 2.90% in the second quarter of 2006.

Managed credit card receivables were $51.4 billion as of May 31, 2007 reflecting growth of 6% over last year.  Sales volume of $25.4 billion was up 6% from the second quarter of 2006.  Total transactions processed on the Discover® and PULSE® networks grew 14% over the same period last year.

Credit quality remained strong with the managed over 30 day delinquency rate of 3.12% at an all time low reflecting record low U.S. delinquencies partially offset by higher delinquencies in the United Kingdom.  The managed net charge-off rate for the quarter was 4.23%, up 93 basis points from the same period last year.

Financial information presented on a managed basis assumes that loans that have been securitized were not sold and presents financial information on these loans in a manner similar to the way financial information on loans that have not been sold is presented.  For more information and a detailed reconciliation, please refer to the schedule titled “Reconciliation of GAAP to Managed” attached to this press release.


Segment Results (Managed Basis):

U.S. Card

The U.S. Card segment reported second quarter 2007 pretax income of $389 million compared with $534 million for the second quarter of 2006.  Results reflect increased provision for loan losses, higher other expense and lower net interest income partially offset by an increase in other income.  The increase in the provision for loan losses reflects a trend toward more normalized levels of bankruptcy charge-offs compared to low levels in the second quarter of 2006.  The increase in other expense reflects approximately $10 million of spin-off related costs and higher compensation and professional services expense.  The decrease in net interest income reflects higher cost of funds driven by increased market rates and increased borrowings partially offset by higher interest income.  The increase in other income reflects an increase in the interest-only strip receivable mainly due to gains recognized on $3.7 billion of new securitization transactions in the second quarter of 2007, and higher discount and interchange revenue due to higher sales volume, partially offset by lower late and overlimit fees.
 
 
 
U.S. Card managed credit card receivables grew 6% over the same period last year to $46.9 billion and U.S. credit quality remained strong with an over 30 day delinquency rate of 2.97%, 23 basis points lower than last year’s second quarter and 34 basis points below the first quarter of 2007.  The net charge-off rate of 4.00% was up 82 basis points from the same period last year and 19 basis points from the first quarter of 2007.

International Card

The International Card segment reported a pretax loss of $64 million for the second quarter of 2007 compared to pretax income of $4 million for the second quarter of 2006 driven primarily by an increase in the provision for loan losses and higher other expense.  The second quarter of 2007 included a $16 million increase in the provision for loan losses related to implementation of higher minimum payment requirements on certain accounts.   Other expense included approximately $10 million of spin-off related costs and higher technology-related investment.

International Card managed credit card receivables increased 3% from the same period last year to $4.6 billion.  The over 30 day delinquency rate rose 42 basis points from the second quarter of 2006 to 4.69%, but declined 6 basis points from the first quarter of 2007.  The net charge-off rate of 6.50% increased 193 basis points from the second quarter of 2006 and 5 basis points from the first quarter of 2007.  Charge-offs related to the Goldfish portfolio were significantly lower for the second quarter of 2006 as no late stage delinquencies were purchased under the terms of  the acquisition of the Goldfish business in February 2006.

Third Party Payments
 
The Third Party Payments segment reported pretax income of $8 million for the second quarter of 2007 compared to pretax income of $7 million for the second quarter of 2006.  Increased revenues driven by higher volumes were partially offset by increased expenses.

 
2
 
Transactions processed on the PULSE Network increased 19% to 559 million for the second quarter of 2007.

Outlook
 
Growth in U.S. Card sales and receivables is expected to continue in the second half of 2007 while loan losses are expected to gradually increase as bankruptcies trend toward more normal levels.  These factors are expected to result in higher loan loss reserves in the second half of 2007.  In addition, the elevated level of securitization transactions completed in the second quarter is not representative of the quarterly volume of securitization transactions expected for the remainder of the year.  This is expected to lead to lower gains related to new securitization transactions in the second half of 2007.  Marketing expense is expected to increase in the second half of the year, reaching a level similar to 2006 on a full year basis.  The Company estimates an additional $30 million of pre-tax spin-off related costs in the second half of 2007.  Transition effects of the separation from Morgan Stanley, including higher stand-alone funding and liquidity costs and higher compensation expenses, are expected to negatively impact earnings following the spin-off.

About Discover Financial Services
 
Discover Financial Services, a business unit of Morgan Stanley (NYSE: MS), operates the Discover Card with more than 50 million cardmembers, the Discover Network with millions of merchant and cash access locations, and the Goldfish credit card business in the United Kingdom. Discover also operates the PULSE ATM/debit network, which serves more than 4,400 financial institutions and includes nearly 260,000 ATMs, as well as point-of-sale terminals nationwide. For more information, visit www.discoverfinancial.com, www.discovercard.com, www.discovernetwork.com or www.pulse-eft.com.
 

Contacts
  
Discover Financial Services Investor Relations
Discover Financial Services Public Relations
Craig Streem
Leslie Sutton
224-405-4555
224-405-3965
   
Morgan Stanley Investor Relations
  
William Pike
  
212-761-0008
  

 
3
 
A financial summary follows.  Financial, statistical, and business related information, as well as information regarding business and segment trends, is included in the Financial Supplement.  Both the earnings release and the Financial Supplement are available online in the Investor Relations section at www.discoverfinancial.com.


###


This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements are based upon the current beliefs and expectations of Discover Financial Services’ management and are subject to significant risks and uncertainties.  Actual results may differ materially from those set forth in the forward-looking statements.  The following factors, among others, could cause actual results to differ materially from those set forth in the forward-looking statements: the actions and initiatives of current and potential competitors; our ability to manage credit risks and securitize our receivables at acceptable rates; changes in economic variables, such as the number and size of personal bankruptcy filings, the rate of unemployment and the levels of consumer confidence and consumer debt; the level and volatility of equity prices, commodity prices and interest rates, currency values, investments and other market indices; the availability and cost of funding and capital; access to U.S. or U.K. debt markets; the ability to increase or sustain Discover Card usage or attract new cardmembers and introduce new products or services; our ability to attract new merchants and maintain relationships with current merchants; material security breaches of key systems; unforeseen and catastrophic events; our reputation; the potential effects of technological changes; the effect of political, economic and market conditions and geopolitical events; unanticipated developments relating to lawsuits, investigations or similar matters; the impact of current, pending and future legislation, regulation and regulatory and legal actions; our ability to attract and retain employees; the ability to protect our intellectual property; the impact of our separation from Morgan Stanley; the impact of any potential future acquisitions; investor sentiment; and the restrictions on our operations resulting from indebtedness incurred during our separation from Morgan Stanley.

These forward-looking statements speak only as of the date of this press release, and there is no undertaking to update or revise them as more information becomes available.  Additional factors that could cause Discover Financial Services’ results to differ materially from those described in the forward-looking statements can be found in the Company’s Form 10, as amended, filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov).
 
 
4

 
DISCOVER FINANCIAL SERVICES
Quarterly Financial Summary
GAAP Basis
(unaudited, dollars in thousands)
 
      
      
    
Three Months Ended   

      		 
%

      		 
      
  
 May 31, 2007

      		  
 May 31, 2006

      		 
 Change

      		 
      
      
60;  
      
Interest Income

      		 $
703,365

      		  $
607,181

      		  16%
      
Interest Expense

      		  
336,253

      		   
217,336

      		  55%
      
            
      
Net Interest Income

      		  
367,112

      		   
389,845

      		  (6%)
      
Provision for Loan Losses

      		  
203,287

      		   
129,502

      		  57%
      
            
      
Net interest income after provision for loan losses

      		  
163,825

      		   
260,343

      		  (37%)
      
Other Income

      		  
871,693

      		   
932,027

      		  (6%)
      
Other Expense

      		  
702,992

      		   
648,034

      		  8%
      
            
      
Income Before Income Taxes

      		  
332,526

      		   
544,336

      		  (39%)
      
Tax Expense

      		  
123,284

      		   
201,058

      		  (39%)
      
            
      
Net Income

      		 $
209,242

      		  $
343,278

      		  (39%)
 
 
 
DISCOVER FINANCIAL SERVICES
Quarterly Financial Summary
Managed Basis(1)
(unaudited, dollars in thousands)
 
   
Three Months Ended
  
%
  
   
May 31, 2007
    
May 31, 2006
  
Change
  
                 
Interest Income
   $
1,715,844
     $
1,574,998
     9 %
Interest Expense
    
747,303
      
573,329
     30 %
                       
Net Interest Income
    
968,541
      
1,001,669
     (3 %)
Provision for Loan Losses
    
530,438
      
371,537
     43 %
                       
Net interest income after provision for loan losses
    
438,103
      
630,132
     (30 %)
Other Income
    
597,415
      
562,238
     6 %
Other Expense
    
702,992
      
648,034
     8 %
                       
Income Before Income Taxes
    
332,526
      
544,336
     (39 %)
Tax Expense
    
123,284
      
201,058
     (39 %)
                       
Net Income
   $
209,242
     $
343,278
     (39 %)
                       
(1) Managed basis assumes loans that have been securitized were not sold and presents earnings and statistical information on these loans in a manner similar to the way loans that have not been sold are presented. See Reconciliation of GAAP to Managed schedule.
  
 
 
 
 
DISCOVER FINANCIAL SERVICES
Quarterly Financial Summary
GAAP Basis
(unaudited, dollars in thousands)
 
   
Six Months Ended
  
% 
  
   
May 31, 2007
    
May 31, 2006
  
Change
  
                 
Interest Income
   $
1,383,670
     $
1,193,612
     16 %
Interest Expense
    
620,212
      
446,082
     39 %
                       
Net Interest Income
    
763,458
      
747,530
     2 %
Provision for Loan Losses
    
398,673
      
284,330
     40 %
                       
Net interest income after provision for loan losses
    
364,785
      
463,200
     (21 %)
Other Income
    
1,697,370
      
1,821,302
     (7 %)
Other Expense
    
1,358,168
      
1,255,269
     8 %
                       
Income Before Income Taxes
    
703,987
      
1,029,233
     (32 %)
Tax Expense
    
261,113
      
380,532
     (31 %)
                       
Net Income
   $
442,874
     $
648,701
     (32 %)
 
 
 
 
DISCOVER FINANCIAL SERVICES
Quarterly Financial Summary
Managed Basis(1)
(unaudited, dollars in thousands)
 
   
Six Months Ended
  
%
  
   
May 31, 2007
    
May 31, 2006
  
Change
  
                 
Interest Income
   $
3,315,528
     $
3,050,113
     9 %
Interest Expense
    
1,393,129
      
1,112,457
     25 %
                       
Net Interest Income
    
1,922,399
      
1,937,656
     (1 %)
Provision for Loan Losses
    
1,013,098
      
878,741
     15 %
                       
Net interest income after provision for loan losses
    
909,301
      
1,058,915
     (14 %)
Other Income
    
1,152,854
      
1,225,587
     (6 %)
Other Expense
    
1,358,168
      
1,255,269
     8 %
                       
Income Before Income Taxes
    
703,987
      
1,029,233
     (32 %)
Tax Expense
    
261,113
      
380,532
     (31 %)
                       
Net Income
   $
442,874
     $
648,701
     (32 %)
                       
(1) Managed basis assumes loans that have been securitized were not sold and presents earnings and statistical information on these loans in a manner similar to the way loans that have not been sold are presented. See Reconciliation of GAAP to Managed schedule.
  
 
 
 
 
DISCOVER FINANCIAL SERVICES
Quarterly Financial Summary
Reconciliation of GAAP to Managed (2)
(unaudited, dollars in thousands)
 
   
Three Months Ended
  
   
May 31, 2007
    
May 31, 2006
  
Interest Income
        
GAAP Basis
   $
703,365
     $
607,181
  
Securitization Adjustments (2)
    
1,012,479
      
967,817
  
                 
Managed Basis
   $
1,715,844
     $
1,574,998
  
                 
Interest Expense
          
GAAP Basis
   $
336,253
     $
217,336
  
Securitization Adjustments
    
411,050
      
355,993
  
                 
Managed Basis
   $
747,303
     $
573,329
  
                 
Net Interest Income
  
GAAP Basis
   $
367,112
     $
389,845
  
Securitization Adjustments
    
601,429
      
611,824
  
                 
Managed Basis
   $
968,541
     $
1,001,669
  
                 
Provision for Loan Losses
  
GAAP Basis
   $
203,287
     $
129,502
  
Securitization Adjustments
    
327,151
      
242,035
  
                 
Managed Basis
   $
530,438
     $
371,537
  
                 
Net interest income after provision for loan losses
  
GAAP Basis
   $
163,825
     $
260,343
  
Securitization Adjustments
    
274,278
      
369,789
  
                 
Managed Basis
   $
438,103
     $
630,132
  
                 
Other Income
                
GAAP Basis
   $
871,693
     $
932,027
  
Securitization Adjustments
     (274,278 )     (369,789 )
                 
Managed Basis
   $
597,415
     $
562,238
  
 
 
 
DISCOVER FINANCIAL SERVICES
Quarterly Financial Summary
Reconciliation of GAAP to Managed (2)
(unaudited, dollars in thousands)
 
   
Six Months Ended
  
   
May 31, 2007
    
May 31, 2006
  
Interest Income
        
GAAP Basis
   $
1,383,670
     $
1,193,612
  
Securitization Adjustments
    
1,931,858
      
1,856,501
  
                 
Managed Basis
   $
3,315,528
     $
3,050,113
  
                 
Interest Expense
          
GAAP Basis
   $
620,212
     $
446,082
  
Securitization Adjustments
    
772,917
      
666,375
  
                 
Managed Basis
   $
1,393,129
     $
1,112,457
  
                 
Net Interest Income
  
GAAP Basis
   $
763,458
     $
747,530
  
Securitization Adjustments
    
1,158,941
      
1,190,126
  
                 
Managed Basis
   $
1,922,399
     $
1,937,656
  
                 
Provision for Loan Losses
  
GAAP Basis
   $
398,673
     $
284,330
  
Securitization Adjustments
    
614,425
      
594,411
  
                 
Managed Basis
   $
1,013,098
     $
878,741
  
                 
Net interest income after provision for loan losses
  
GAAP Basis
   $
364,785
     $
463,200
  
Securitization Adjustments
    
544,516
      
595,715
  
                 
Managed Basis
   $
909,301
     $
1,058,915
  
                 
Other Income
                
GAAP Basis
   $
1,697,370
     $
1,821,302
  
Securitization Adjustments
     (544,516 )     (595,715 )
                 
Managed Basis
   $
1,152,854
     $
1,225,587
  
 
(2) Securitization Adjustments present the effect of loan securitization by recharacterizing as securitization income the portions of the following items that relate to the securitized loans: interest income, interest expense, provision for loan losses, discount and interchange revenue and loan fee revenues. Securitization income is reported in other income.
 
The data is presented on both a "managed" loan basis and as reported under generally accepted accounting principles ("owned" loan basis). Managed loan data assume that the Company's securitized loan receivables have not been sold and presents the results of securitized loan receivables in the same manner as the Company's owned loans. The Company operates its business and analyzes its financial performance on a managed basis. Accordingly, underwriting and servicing standards are comparable for both owned and securitized loans. The Company  believes that managed loan information is useful to investors because it provides information regarding the quality of loan origination and credit performance of the entire managed portfolio and allows investors to understand the related credit risks inherent in owned loans and retained interests in securitizations. Managed loan data is also relevant because the company services the securitized and owned loans, and the related accounts, in the same manner without regard to ownership of the loans. In addition, investors often request information on a managed basis which provides a more meaningful comparison to industry competitors.
 EX-99.2 3 a5429915-ex992.htm EXHIBIT 99.2 a5429915-ex992.htm
Exhibit 99.2

 



 
                                     
GAAP Basis      
                                          
(dollars in thousands)     
                                            
   
Quarter Ended
                
Six Months Ended
              
   
May 31,
2007
    
Feb 28,
2007
    
May 31,
2006
    
2Q07 vs 2Q06
    
May 31,
 2007
    
May 31,
2006
    
2007 vs 2006
  
                                                       
Interest Income
   $
703,365
     $
680,305
     $
607,181
     $
96,184
       16 %   $
1,383,670
     $
1,193,612
      
190,058
       16 %
Interest Expense
    
336,253
      
283,959
      
217,336
      
118,917
       55 %    
620,212
      
446,082
      
174,130
       39 %
Net Interest Income
    
367,112
      
396,346
      
389,845
       (22,733 )     -6 %    
763,458
      
747,530
      
15,928
       2 %
Provision for Loan Losses
    
203,287
      
195,386
      
129,502
      
73,785
       57 %    
398,673
      
284,330
      
114,343
       40 %
Net interest income after provision for loan losses
    
163,825
      
200,960
      
260,343
       (96,518 )     -37 %    
364,785
      
463,200
       (98,415 )     -21 %
Other Income
    
871,693
      
825,677
      
932,027
       (60,334 )     -6 %    
1,697,370
      
1,821,302
       (123,932 )     -7 %
Other Expense
    
702,992
      
655,176
      
648,034
      
54,958
       8 %    
1,358,168
      
1,255,269
      
102,899
       8 %
Income Before Income Taxes
    
332,526
      
371,461
      
544,336
       (211,810 )     -39 %    
703,987
      
1,029,233
       (325,246 )     -32 %
Tax Expense
    
123,284
      
137,829
      
201,058
       (77,774 )     -39 %    
261,113
      
380,532
       (119,419 )     -31 %
Net Income
   $
209,242
     $
233,632
     $
343,278
     $ (134,036 )     -39 %   $
442,874
     $
648,701
     $ (205,827 )     -32 %
                                                                         
ROE(1)
     15 %     16 %     26 %                     15 %     26 %                
                                                                         
Total  Credit Card Loans(2)
                                                                        
Credit Card Loans - Owned
   $
22,698,457
     $
22,520,861
     $
21,764,219
     $
934,238
       4 %   $
22,698,457
     $
21,764,219
     $
934,238
       4 %
Average Credit Card Loans - Owned
   $
21,419,465
     $
24,760,587
     $
19,664,413
     $
1,755,052
       9 %   $
23,071,669
     $
20,807,584
     $
2,264,085
       11 %
Owned Interest Yield
     10.50 %     10.41 %     11.01 %     (51 ) bps       10.45 %     10.41 %    
4
   bps  
Owned Interest Spread
     5.25 %     5.22 %     6.47 %     (122 ) bps       5.23 %     5.93 %     (70 ) bps  
Owned Net Principal Charge-off Rate
     3.91 %     3.77 %     3.02 %    
89
   bps       3.84 %     3.82 %    
2
   bps  
Owned Delinquency Rate (over 30 days)
     2.94 %     3.15 %     2.97 %     (3 ) bps       2.94 %     2.97 %     (3 ) bps  
Owned Delinquency Rate (over 90 days)
     1.43 %     1.55 %     1.38 %    
5
   bps       1.43 %     1.38 %    
5
   bps  
Return on Owned Receivables
     3.91 %     3.77 %     6.98 %     (308 ) bps       3.84 %     6.24 %     (240 ) bps  
                                                                         
                                                                         
(1) Annualized net income divided by average shareholder equity.            
                                          
(2) Includes domestic and international consumer and commercial credit card businesses.         
                                
 
 
Page 1

 
                                                       
Discover Financial Services         
                                    
Managed Basis(1)          
                                  
(dollars in thousands)          
                                  
   
Quarter Ended
                
Six Months Ended
              
   
May 31,
2007
    
Feb 28,
2007
    
May 31,
2006
    
2Q07 vs 2Q06
    
May 31,
2007
    
May 31,
2006
    
2007 vs 2006
  
                                                       
Interest Income
   $
1,715,844
     $
1,599,684
     $
1,574,998
     $
140,846
       9 %   $
3,315,528
     $
3,050,113
      
265,415
       9 %
Interest Expense
    
747,303
      
645,826
      
573,329
      
173,974
       30 %    
1,393,129
      
1,112,457
      
280,672
       25 %
Net Interest Income
    
968,541
      
953,858
      
1,001,669
       (33,128 )     -3 %    
1,922,399
      
1,937,656
       (15,257 )     -1 %
Provision for Loan Losses
    
530,438
      
482,660
      
371,537
      
158,901
       43 %    
1,013,098
      
878,741
      
134,357
       15 %
Net interest income after provision for loan losses
    
438,103
      
471,198
      
630,132
       (192,029 )     -30 %    
909,301
      
1,058,915
       (149,614 )     -14 %
Other Income
    
597,415
      
555,439
      
562,238
      
35,177
       6 %    
1,152,854
      
1,225,587
       (72,733 )     -6 %
Other Expense
    
702,992
      
655,176
      
648,034
      
54,958
       8 %    
1,358,168
      
1,255,269
      
102,899
       8 %
Income Before Income Taxes
    
332,526
      
371,461
      
544,336
       (211,810 )     -39 %    
703,987
      
1,029,233
       (325,246 )     -32 %
Tax Expense
    
123,284
      
137,829
      
201,058
       (77,774 )     -39 %    
261,113
      
380,532
       (119,419 )     -31 %
Net Income
   $
209,242
     $
233,632
     $
343,278
     $ (134,036 )     -39 %   $
442,874
     $
648,701
     $ (205,827 )     -32 %
                                                                         
ROE(2)
     15 %     16 %     26 %                     15 %     26 %                
                                                                         
Total  Credit Card Loans(3)
                                                                        
Credit Card Loans - Managed
   $
51,415,812
     $
50,840,710
     $
48,539,238
     $
2,876,574
       6 %   $
51,415,812
     $
48,539,238
     $
2,876,574
       6 %
Average Credit Card Loans - Managed
   $
50,751,580
     $
51,478,643
     $
47,307,163
     $
3,444,417
       7 %   $
51,111,117
     $
47,439,370
     $
3,671,747
       8 %
Managed Interest Yield
     12.35 %     12.25 %     12.69 %     (34 ) bps       12.30 %     12.42 %     (12 ) bps  
Managed Interest Spread
     6.93 %     6.86 %     7.80 %     (87 ) bps       6.89 %     7.63 %     (74 ) bps  
Managed Net Principal Charge-off Rate
     4.23 %     4.05 %     3.30 %    
93
   bps       4.14 %     4.18 %     (4 ) bps  
Managed Delinquency Rate (over 30 days)
     3.12 %     3.44 %     3.29 %     (17 ) bps       3.12 %     3.29 %     (17 ) bps  
Managed Delinquency Rate (over 90 days)
     1.51 %     1.68 %     1.53 %     (2 ) bps       1.51 %     1.53 %     (2 ) bps  
Return on Managed Receivables
     1.65 %     1.82 %     2.90 %     (125 ) bps       1.73 %     2.73 %     (100 ) bps  
                                                                         
Total Credit Card Volume
                                                                        
Domestic
   $
26,408,578
     $
26,880,735
     $
25,410,738
     $
997,840
       4 %   $
53,289,313
     $
50,464,603
     $
2,824,710
       6 %
International
    
3,646,009
      
3,578,199
      
3,132,704
      
513,305
       16 %    
7,224,208
      
4,882,789
      
2,341,419
       48 %
Total
   $
30,054,587
     $
30,458,934
     $
28,543,442
     $
1,511,145
       5 %   $
60,513,521
     $
55,347,392
     $
5,166,129
       9 %
                                                                         
Total Credit Card Sales Volume
                                                                        
Domestic
   $
22,108,865
     $
22,037,053
     $
21,148,180
     $
960,685
       5 %   $
44,145,918
     $
42,290,975
     $
1,854,943
       4 %
International
    
3,277,439
      
3,169,284
      
2,816,816
      
460,623
       16 %    
6,446,723
      
4,186,540
      
2,260,183
       54 %
Total
   $
25,386,304
     $
25,206,337
     $
23,964,996
     $
1,421,308
       6 %   $
50,592,641
     $
46,477,515
     $
4,115,126
       9 %
                                                                         
Transactions Processed on
Networks (000's)
                                                                  
Discover Network
    
361,893
      
361,700
      
340,342
      
21,551
       6 %    
723,593
      
679,864
      
43,729
       6 %
PULSE Network
    
558,811
      
520,866
      
470,867
      
87,944
       19 %    
1,079,677
      
895,524
      
184,153
       21 %
Total
    
920,704
      
882,566
      
811,209
      
109,495
       14 %    
1,803,270
      
1,575,388
      
227,882
       14 %
                                                                         
                                                                         
                                                                         
(1) Managed basis assumes loans that have been securitized were not sold and presents earnings and statistical information on these loans in a manner similar to the way loans that have not been sold are presented. See Reconciliation of GAAP to Managed schedule.       
  
(2) Annualized net income divided by average shareholder equity.                     
                        
(3) Includes domestic and international consumer and commercial credit card businesses.                 
                
 
 
Page 2
 
 
                                   
U.S. Card Segment          
                                  
Managed Basis(1)          
                                  
(dollars in thousands)          
                                  
   
Quarter Ended
                
Six Months Ended
              
   
May 31,
2007
    
Feb 28,
2007
    
May 31,
2006
    
2Q07 vs 2Q06
    
May 31,
2007
    
May 31,
2006
    
2007 vs 2006
  
                                                       
Interest Income
   $
1,601,324
     $
1,481,992
     $
1,461,299
     $
140,025
       10 %   $
3,083,316
     $
2,858,583
     $
224,733
       8 %
Interest Expense
    
693,837
      
593,610
      
527,476
      
166,361
       32 %    
1,287,447
      
1,031,351
      
256,096
       25 %
Net Interest Income
    
907,487
      
888,382
      
933,823
       (26,336 )     -3 %    
1,795,869
      
1,827,232
       (31,363 )     -2 %
Provision for Loan Losses
    
444,249
      
406,076
      
324,228
      
120,021
       37 %    
850,325
      
790,801
      
59,524
       8 %
Net interest income after provision for loan losses
    
463,238
      
482,306
      
609,595
       (146,357 )     -24 %    
945,544
      
1,036,431
       (90,887 )     -9 %
Other Income
    
526,304
      
490,003
      
492,311
      
33,993
       7 %    
1,016,307
      
1,093,005
       (76,698 )     -7 %
Other Expense
    
600,729
      
571,283
      
568,389
      
32,340
       6 %    
1,172,012
      
1,105,283
      
66,729
       6 %
Income Before Income Taxes
   $ 
388,813
     $ 
401,026
     $ 
533,517
     $  (144,704 )     -27 %   $ 
789,839
     $ 
1,024,153
     $  (234,314 )     -23 %
                                                                         
                                                                         
                                                                         
Credit Card Loans - Managed
   $
46,864,317
     $
46,266,012
     $
44,132,845
     $
2,731,472
       6 %   $
46,864,317
     $
44,132,845
     $
2,731,472
       6 %
Average Credit Card Loans - Managed
   $
46,203,924
     $
46,870,259
     $
43,257,882
     $
2,946,042
       7 %   $
46,533,431
     $
43,953,074
     $
2,580,357
       6 %
Managed Interest Yield
     12.59 %     12.45 %     12.88 %     (29 ) bps       12.52 %     12.56 %     (4 ) bps  
Managed Interest Spread
     7.15 %     7.02 %     7.92 %     (77 ) bps       7.09 %     7.75 %     (66 ) bps  
Managed Net Principal Charge-off Rate
     4.00 %     3.81 %     3.18 %    
82
   bps       3.91 %     4.15 %     (24 ) bps  
Managed Delinquency Rate (over 30 days)
     2.97 %     3.31 %     3.20 %     (23 ) bps       2.97 %     3.20 %     (23 ) bps  
Managed Delinquency Rate (over 90 days)
     1.44 %     1.63 %     1.49 %     (5 ) bps       1.44 %     1.49 %     (5 ) bps  
Total Credit Card Volume
   $
26,408,578
     $
26,880,735
     $
25,410,738
     $
997,840
       4 %   $
53,289,313
     $
50,464,603
     $
2,824,710
       6 %
Sales Volume
   $
22,108,865
     $
22,037,053
     $
21,148,180
     $
960,685
       5 %   $
44,145,919
     $
42,290,974
     $
1,854,945
       4 %
                                                                         
                                                                         
                                                                         
                                                                         
(1) Managed basis assumes loans that have been securitized were not sold and presents earnings and statistical information on these loans in a manner similar to the way loans that have not been sold are presented. See Reconciliation of GAAP to Managed schedule.
          
 
 
Page 3
 
 
Discover Financial Services         
                                    
International Card Segment          
                                  
Managed Basis(1)          
                                  
(dollars in thousands)         
                                    
   
Quarter Ended
                
Six Months Ended
              
   
May 31,
2007
    
Feb 28,
2007
    
May 31,
2006
    
2Q07 vs 2Q06
    
May 31,
2007
    
May 31,
2006
    
2007 vs 2006
  
                                                       
Interest Income
   $
113,962
     $
117,118
     $
113,285
     $
677
       1 %   $
231,080
     $
190,773
     $
40,307
       21 %
Interest Expense
    
53,462
      
52,201
      
45,849
      
7,613
       17 %    
105,663
      
81,089
      
24,574
       30 %
Net Interest Income
    
60,500
      
64,917
      
67,436
       (6,936 )     -10 %    
125,417
      
109,684
      
15,733
       14 %
Provision for Loan Losses
    
86,189
      
76,584
      
47,309
      
38,880
       82 %    
162,773
      
87,940
      
74,833
       85 %
Net interest income after provision for loan losses
     (25,689 )     (11,667 )    
20,127
       (45,816 )     -228 %     (37,356 )    
21,744
       (59,100 )     -272 %
Other Income
    
41,863
      
34,754
      
43,859
       (1,996 )     -5 %    
76,617
      
79,194
       (2,577 )     -3 %
Other Expense
    
80,471
      
64,572
      
60,187
      
20,284
       34 %    
145,043
      
107,941
      
37,102
       34 %
Income Before Income Taxes
   $  (64,297 )   $  (41,485 )   $ 
3,799
     $  (68,096 )  
NM
     $  (105,782 )   $  (7,003 )   $  (98,779 )  
NM
  
                                                                         
                                                                         
                                                                         
Credit Card Loans - Managed
   $
4,551,495
     $
4,574,698
     $
4,406,393
     $
145,102
       3 %   $
4,551,495
     $
4,406,393
     $
145,102
       3 %
Average Credit Card Loans - Managed
   $
4,547,656
     $
4,608,384
     $
4,049,281
     $
498,375
       12 %   $
4,577,686
     $
3,486,296
     $
1,091,390
       31 %
Managed Interest Yield
     9.89 %     10.25 %     10.74 %     (85 ) bps       10.07 %     10.60 %     (53 ) bps  
Managed Interest Spread
     4.71 %     5.16 %     6.45 %     (174 ) bps       4.94 %     6.10 %     (116 ) bps  
Managed Net Principal Charge-off Rate
     6.50 %     6.45 %     4.57 %    
193
   bps       6.48 %     4.62 %    
186
   bps  
Managed Delinquency Rate (over 30 days)
     4.69 %     4.75 %     4.27 %    
42
   bps       4.69 %     4.27 %    
42
   bps  
Managed Delinquency Rate (over 90 days)
     2.25 %     2.25 %     1.96 %    
29
   bps       2.25 %     1.96 %    
29
   bps  
Total Credit Card Volume
   $
3,646,009
     $
3,578,199
     $
3,132,704
     $
513,305
       16 %   $
7,224,208
     $
4,882,788
     $
2,341,420
       48 %
Sales Volume
   $
3,277,439
     $
3,169,284
     $
2,816,816
     $
460,623
       16 %   $
6,446,723
     $
4,186,540
     $
2,260,183
       54 %
                                                                         
                                                                         
                                                                         
(1) Managed basis assumes loans that have been securitized were not sold and presents earnings and statistical information on these loans in a manner similar to the way loans that have not been sold are presented. See Reconciliation of GAAP to Managed schedule.
          
 
 
Page 4

 
                                                       
                                     
Third Party Payments Segment        
                                      
(dollars in thousands)         
                                    
   
Quarter Ended
                
Six Months Ended
              
   
May 31,
2007
    
Feb 28,
2007
    
May 31,
2006
    
2Q07 vs 2Q06
    
May 31,
2007
    
May 31,
2006
    
2007 vs 2006
  
                                                       
Interest Income
   $
558
     $
574
     $
414
     $
144
       35 %   $
1,132
     $
757
     $
375
       50 %
Interest Expense
    
4
      
15
      
4
      
0
       0 %    
19
      
17
      
2
       12 %
Net Interest Income
    
554
      
559
      
410
      
144
       35 %    
1,113
      
740
      
373
       50 %
Provision for Loan Losses
    
0
      
0
      
0
      
0
      
-
      
0
      
0
      
0
      
-
  
Net interest income after provision for loan losses
    
554
      
559
      
410
      
144
       35 %    
1,113
      
740
      
373
       50 %
Other Income
    
29,248
      
30,682
      
26,068
      
3,180
       12 %    
59,930
      
53,388
      
6,542
       12 %
Other Expense
    
21,792
      
19,321
      
19,458
      
2,334
       12 %    
41,113
      
42,045
       (932 )     -2 %
Income Before Income Taxes
   $
8,010
     $
11,920
     $
7,020
     $
990
       14 %   $
19,930
     $
12,083
     $
7,847
       65 %
                                                                         
                                                                         
                                                                         
Transactions Processed on PULSE Network
    
558,811
      
520,866
      
470,867
      
87,944
       19 %    
1,079,677
      
895,524
      
184,153
       21 %
 
 
Page 5

 

RECONCILIATION OF GAAP TO MANAGED




The following (pages 7 - 10) present a reconciliation for certain information disclosed on pages 1, 2, 3 and 4.

The data is presented on both a "managed" loan basis and as reported under generally accepted accounting principles ("owned" loan basis). Managed loan data assume that the Company's securitized loan receivables have not been sold and presents the results of securitized loan receivables in the same manner as the Company's owned loans.  The Company operates its business and analyzes its financial performance on a managed basis.  Accordingly, underwriting and servicing standards are comparable for both owned and securitized loans.  The Company believes that managed loan information is useful to investors because it provides information regarding the quality of loan origination and credit performance of the entire managed portfolio and allows investors to understand the related credit risks inherent in owned loans and retained interests in securitizations.  Managed loan data is also relevant because the company services the securitized and owned loans, and the related accounts, in the same manner without regard to ownership of the loans.  In addition, investors often request information on a managed basis which provides a more meaningful comparison to industry competitors.
 

 
 
Page 6
 
 
Discover Financial Services
                              
Reconciliation of GAAP to Managed
                          
(dollars in thousands)
                              
                               
                               
   
Quarter Ended
    
Six Months Ended
  
   
May 31, 2007
    
Feb 28, 2007
    
May 31, 2006
    
May 31, 2007
    
May 31, 2006
  
                               
Interest Income
                              
GAAP Basis
   $
703,365
     $
680,305
     $
607,181
     $
1,383,670
     $
1,193,612
  
Securitization Adjustments(1)
    
1,012,479
      
919,379
      
967,817
      
1,931,858
      
1,856,501
  
Managed Basis
   $
1,715,844
     $
1,599,684
     $
1,574,998
     $
3,315,528
     $
3,050,113
  
                                         
Interest Expense
                                        
GAAP Basis
   $
336,253
     $
283,959
     $
217,336
     $
620,212
     $
446,082
  
Securitization Adjustments
    
411,050
      
361,867
      
355,993
      
772,917
      
666,375
  
Managed Basis
   $
747,303
     $
645,826
     $
573,329
     $
1,393,129
     $
1,112,457
  
                                         
Net Interest Income
                                        
GAAP Basis
   $
367,112
     $
396,346
     $
389,845
     $
763,458
     $
747,530
  
Securitization Adjustments
    
601,429
      
557,512
      
611,824
      
1,158,941
      
1,190,126
  
Managed Basis
   $
968,541
     $
953,858
     $
1,001,669
     $
1,922,399
     $
1,937,656
  
                                         
Provision for Loan Losses
                                        
GAAP Basis
   $
203,287
     $
195,386
     $
129,502
     $
398,673
     $
284,330
  
Securitization Adjustments
    
327,151
      
287,274
      
242,035
      
614,425
      
594,411
  
Managed Basis
   $
530,438
     $
482,660
     $
371,537
     $
1,013,098
     $
878,741
  
                                         
Net interest income after provision for loan losses
                                  
GAAP Basis
   $
163,825
     $
200,960
     $
260,343
     $
364,785
     $
463,200
  
Securitization Adjustments
    
274,278
      
270,238
      
369,789
      
544,516
      
595,715
  
Managed Basis
   $
438,103
     $
471,198
     $
630,132
     $
909,301
     $
1,058,915
  
                                         
Other Income
                                        
GAAP Basis
   $
871,693
     $
825,677
     $
932,027
     $
1,697,370
     $
1,821,302
  
Securitization Adjustments
     (274,278 )     (270,238 )     (369,789 )     (544,516 )     (595,715 )
Managed Basis
   $
597,415
     $
555,439
     $
562,238
     $
1,152,854
     $
1,225,587
  
                                         
Credit Card Loans
                                        
GAAP Basis
   $
22,698,457
     $
22,520,861
     $
21,764,219
     $
22,698,457
     $
21,764,219
  
Securitization Adjustments
    
28,717,355
      
28,319,849
      
26,775,019
      
28,717,355
      
26,775,019
  
Managed Basis
   $
51,415,812
     $
50,840,710
     $
48,539,238
     $
51,415,812
     $
48,539,238
  
                                         
Average Credit Card Loans
                                        
GAAP Basis
   $
21,419,465
     $
24,760,587
     $
19,664,413
     $
23,071,669
     $
20,807,584
  
Securitization Adjustments
    
29,332,115
      
26,718,056
      
27,642,750
      
28,039,448
      
26,631,786
  
Managed Basis
   $
50,751,580
     $
51,478,643
     $
47,307,163
     $
51,111,117
     $
47,439,370
  
                                         
                                         
(1) Securitization Adjustments present the effect of loan securitization by recharacterizing as securitization income the portions of the following items that relate to the securitized loans: interest income, interest expense, provision for loan losses, discount and interchange revenue and loan fee revenues. Securitization income is reported in other income.
  
 
Page 7

 
Discover Financial Services
                              
Reconciliation of GAAP to Managed
                              
(dollars in thousands)
                              
                               
                               
   
Quarter Ended
    
Six Months Ended
  
   
May 31, 2007
    
Feb 28, 2007
    
May 31, 2006
    
May 31, 2007
    
May 31, 2006
  
                               
                               
Interest Yield
                              
GAAP Basis
     10.50 %     10.41 %     11.01 %     10.45 %     10.41 %
Securitization Adjustments
     13.69 %     13.96 %     13.89 %     13.82 %     13.98 %
Managed Basis
     12.35 %     12.25 %     12.69 %     12.30 %     12.42 %
                                         
Interest Spread
                                        
GAAP Basis
     5.25 %     5.22 %     6.47 %     5.23 %     5.93 %
Securitization Adjustments
     8.14 %     8.39 %     8.76 %     8.26 %     8.97 %
Managed Basis
     6.93 %     6.86 %     7.80 %     6.89 %     7.63 %
                                         
Net Principal Charge-off Rate
                                        
GAAP Basis
     3.91 %     3.77 %     3.02 %     3.84 %     3.82 %
Securitization Adjustments
     4.46 %     4.30 %     3.50 %     4.38 %     4.46 %
Managed Basis
     4.23 %     4.05 %     3.30 %     4.14 %     4.18 %
                                         
Delinquency Rate (over 30 days)
                                        
GAAP Basis
     2.94 %     3.15 %     2.97 %     2.94 %     2.97 %
Securitization Adjustments
     3.26 %     3.67 %     3.56 %     3.26 %     3.56 %
Managed Basis
     3.12 %     3.44 %     3.29 %     3.12 %     3.29 %
                                         
Delinquency Rate (over 90 days)
                                        
GAAP Basis
     1.43 %     1.55 %     1.38 %     1.43 %     1.38 %
Securitization Adjustments
     1.58 %     1.79 %     1.65 %     1.58 %     1.65 %
Managed Basis
     1.51 %     1.68 %     1.53 %     1.51 %     1.53 %
                                         
Return on Receivables
                                        
GAAP Basis
     3.91 %     3.77 %     6.98 %     3.84 %     6.24 %
Securitization Adjustments
     2.83 %     3.50 %     4.97 %     3.14 %     4.87 %
Managed Basis
     1.65 %     1.82 %     2.90 %     1.73 %     2.73 %
 
Page 8
 
 
Discover Financial Services
                              
Reconciliation of GAAP to Managed
                              
(dollars in thousands)
                              
                               
                               
   
Quarter Ended
    
Six Months Ended
  
   
May 31, 2007
    
Feb 28, 2007
    
May 31, 2006
    
May 31, 2007
    
May 31, 2006
  
                               
US CARD
                              
Credit Card Loans
                              
GAAP Basis
   $
19,849,401
     $
19,636,991
     $
18,967,494
     $
19,849,401
     $
18,967,494
  
Securitization Adjustments
    
27,014,916
      
26,629,021
      
25,165,351
      
27,014,916
      
25,165,351
  
Managed Basis
   $
46,864,317
     $
46,266,012
     $
44,132,845
     $
46,864,317
     $
44,132,845
  
                                         
Average Credit Card Loans
                                        
GAAP Basis
   $
18,581,153
     $
21,841,166
     $
17,141,035
     $
20,193,248
     $
18,511,087
  
Securitization Adjustments
    
27,622,771
      
25,029,093
      
26,116,847
      
26,340,183
      
25,441,987
  
Managed Basis
   $
46,203,924
     $
46,870,259
     $
43,257,882
     $
46,533,431
     $
43,953,074
  
                                         
Interest Yield
                                        
GAAP Basis
     10.72 %     10.55 %     11.09 %     10.63 %     10.53 %
Securitization Adjustments
     13.85 %     14.10 %     14.05 %     13.97 %     14.04 %
Managed Basis
     12.59 %     12.45 %     12.88 %     12.52 %     12.56 %
                                         
Interest Spread
                                        
GAAP Basis
     5.48 %     5.36 %     6.44 %     5.41 %     5.98 %
Securitization Adjustments
     8.25 %     8.49 %     8.91 %     8.36 %     9.05 %
Managed Basis
     7.15 %     7.02 %     7.92 %     7.09 %     7.75 %
                                         
Net Principal Charge-off Rate
                                        
GAAP Basis
     3.51 %     3.43 %     2.93 %     3.47 %     3.86 %
Securitization Adjustments
     4.34 %     4.14 %     3.35 %     4.24 %     4.36 %
Managed Basis
     4.00 %     3.81 %     3.18 %     3.91 %     4.15 %
                                         
Delinquency Rate (over 30 days)
                                        
GAAP Basis
     2.71 %     2.97 %     2.80 %     2.71 %     2.80 %
Securitization Adjustments
     3.16 %     3.56 %     3.50 %     3.16 %     3.50 %
Managed Basis
     2.97 %     3.31 %     3.20 %     2.97 %     3.20 %
                                         
Delinquency Rate (over 90 days)
                                        
GAAP Basis
     1.31 %     1.46 %     1.30 %     1.31 %     1.30 %
Securitization Adjustments
     1.54 %     1.75 %     1.62 %     1.54 %     1.62 %
Managed Basis
     1.44 %     1.63 %     1.49 %     1.44 %     1.49 %

 
Page 9
 
 
Discover Financial Services
                              
Reconciliation of GAAP to Managed
                              
(dollars in thousands)
                              
                               
                               
   
Quarter Ended
    
Six Months Ended
  
   
May 31, 2007
    
Feb 28, 2007
    
May 31, 2006
    
May 31, 2007
    
May 31, 2006
  
                               
INTERNATIONAL CARD
                              
Credit Card Loans
                              
GAAP Basis
   $
2,849,056
     $
2,883,870
     $
2,796,725
     $
2,849,055
     $
2,796,725
  
Securitization Adjustments
    
1,702,439
      
1,690,828
      
1,609,668
      
1,702,439
      
1,609,668
  
Managed Basis
   $
4,551,495
     $
4,574,698
     $
4,406,393
     $
4,551,494
     $
4,406,393
  
                                         
Average Credit Card Loans
                                        
GAAP Basis
   $
2,838,312
     $
2,919,421
     $
2,523,378
     $
2,878,421
     $
2,296,496
  
Securitization Adjustments
    
1,709,344
      
1,688,963
      
1,525,903
      
1,699,265
      
1,189,800
  
Managed Basis
   $
4,547,656
     $
4,608,384
     $
4,049,281
     $
4,577,686
     $
3,486,296
  
                                         
Interest Yield
                                        
GAAP Basis
     9.09 %     9.38 %     10.50 %     9.24 %     9.46 %
Securitization Adjustments
     11.20 %     11.77 %     11.12 %     11.48 %     12.79 %
Managed Basis
     9.89 %     10.25 %     10.74 %     10.07 %     10.60 %
                                         
Interest Spread
                                        
GAAP Basis
     3.71 %     4.14 %     6.56 %     3.93 %     5.53 %
Securitization Adjustments
     6.33 %     6.90 %     6.20 %     6.61 %     7.17 %
Managed Basis
     4.71 %     5.16 %     6.45 %     4.94 %     6.10 %
                                         
Net Principal Charge-off Rate
                                        
GAAP Basis
     6.53 %     6.29 %     3.65 %     6.41 %     3.54 %
Securitization Adjustments
     6.45 %     6.72 %     6.08 %     6.59 %     6.69 %
Managed Basis
     6.50 %     6.45 %     4.57 %     6.48 %     4.62 %
                                         
Delinquency Rate (over 30 days)
                                        
GAAP Basis
     4.55 %     4.35 %     4.11 %     4.55 %     4.11 %
Securitization Adjustments
     4.93 %     5.42 %     4.55 %     4.93 %     4.55 %
Managed Basis
     4.69 %     4.75 %     4.27 %     4.69 %     4.27 %
                                         
Delinquency Rate (over 90 days)
                                        
GAAP Basis
     2.24 %     2.16 %     1.89 %     2.24 %     1.89 %
Securitization Adjustments
     2.26 %     2.40 %     2.07 %     2.26 %     2.07 %
Managed Basis
     2.25 %     2.25 %     1.96 %     2.25 %     1.96 %
 
 
 Page 10
-----END PRIVACY-ENHANCED MESSAGE-----