a5571783.htm

-----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, VWSuP17lxPldIGuGWjAWLTAlLvASStwx0BaCGafpTpY9mNtrIqNTztwRKdnTGoCY tL5Hy2DwQU82QcqodczeVA== 0001157523-07-012342.txt : 20071220 0001157523-07-012342.hdr.sgml : 20071220 20071220083107 ACCESSION NUMBER: 0001157523-07-012342 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20071220 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20071220 DATE AS OF CHANGE: 20071220 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: 071317829 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 a5571783.htm DISCOVER FINANCIAL SERVICES 8-K a5571783.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): December 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 December 20, 2007, Discover Financial Services (the "company") released financial information with respect to its fiscal quarter ended November 30, 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 November 30, 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: December 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 December 20, 2007 containing financial information for the fourth quarter ended November 30, 2007
99.2	Quarterly Financial Data Supplement of the company for the fourth quarter ended November 30, 2007

EX-99.1 2 a5571783ex99_1.htm EXHIBIT 99.1 a5571783ex99_1.htm

Exhibit 99.1

DISCOVER FINANCIAL SERVICES REPORTS FOURTH QUARTER RESULTS

Riverwoods, IL, Dec. 20, 2007 - Discover Financial Services (NYSE: DFS) today reported a net loss for the fourth quarter of 2007 of $84 million ($0.18 per share), including a non-cash impairment charge related to the company’s Goldfish business in the United Kingdom of $391 million ($279 million after tax, or $0.58 per share). Excluding the impairment charge, the company earned $195 million ($0.40 per share), 4% above last year. On a pretax basis, the company reported a loss of $88 million for the fourth quarter of 2007 ($303 million profit excluding the impairment charge), as compared to a profit of $186 million for the fourth quarter of 2006.

For the full year, the company reported net income of $561 million, or $1.17 per share, including the impairment charge. Without the charge, net income would have been $840 million, or $1.75 per share.

Fourth Quarter Highlights

U.S. Card managed loans reached $48.2 billion, up 5% from last year driven by a 6% increase in credit card sales volume.

U.S. Card credit quality remained strong, although delinquency rates increased from last quarter reflecting weakening in the U.S. economy. The fourth quarter managed credit card net charge-off rate was 3.84% and the 30+ days delinquency rate was 3.59%.

Third-Party Payment debit and credit volume was $24.5 billion for the fourth quarter, 28% above last year.

The International Card segment reported reduced losses excluding the impairment charge.

“While we are disappointed with the impairment charge in our UK business, Discover’s overall fourth quarter profit before tax, excluding this charge, increased by 63% over last year,” said David Nelms, chief executive officer of Discover Financial Services. “Our U.S. Card business achieved solid growth in sales volume and receivables, strong credit results and improved revenues and operating efficiencies. In our Third-Party Payments segment, our network volume reached almost $25 billion in the quarter, an increase of 28%. For the International Card segment, our loss before impairment was substantially reduced despite an elevated cost of funds and high credit losses.”

Segment Results (Managed Basis):

U.S. Card

Pretax income for the fourth quarter of 2007 was $328 million, up 43% from the fourth quarter of 2006, driven by higher net interest income and other income and by lower expenses, partially offset by higher provision for loan losses.

Interest income increased due to higher average receivables and an increase in interest yield, partially offset by higher interest expense resulting from increased funding costs and borrowings.

Other income increased, reflecting a favorable revaluation of the interest-only strip receivable, gains related to the sale of merchant contracts, higher loan fee revenue and lower rewards costs related to forfeiture changes in the program.

Expenses decreased, reflecting timing of advertising expenditures, lower overhead costs and a decrease in legal fees related to the Visa/MasterCard litigation.

Provision for loan losses increased due to a higher level of loans retained on the company’s balance sheet and an increase in the reserve rate that reflects recent delinquency and charge-off trends.

Managed loans grew for the seventh consecutive quarter to $48.2 billion, up 5% from last year, and strong sales volume continued, increasing 6%. Credit quality remained strong, but delinquency rates increased from last quarter. The managed credit card net charge-off rate of 3.84% was up 14 basis points from the third quarter of 2007, but was 15 basis points lower than last year. The managed credit card 30+ days delinquency rate was 3.59%, up 43 basis points from the third quarter of 2007 and 20 basis points from last year.

Full year pretax income of $1.5 billion was down $136 million from 2006, driven by an increase in provision for loan losses partially offset by higher net interest income.

The provision for loan losses increased, reflecting a trend toward more normalized levels of bankruptcy charge-offs compared to the unusually low levels in 2006 and a higher level of loans retained on the company’s balance sheet.

An increase in interest income due to higher average receivables was partially offset by an increase in interest expense, reflecting increased funding costs and borrowings.

Full year credit card sales volume was a record $90.3 billion, up 4% over last year. The full year managed credit card net charge-off rate of 3.84% was 12 basis points lower than 2006.

Third-Party Payments

Fourth quarter pretax income of $8 million was up 9% from the fourth quarter of 2006 due to higher revenue related to increased volumes, partially offset by higher marketing and pricing incentives. Third-Party Payment debit and credit volume was $24.5 billion for the fourth quarter of 2007, up 28% over last year, reflecting the impact of new financial institution signings as well as increased volumes from existing financial institutions.

Full year pretax income of $37 million was up 28% from 2006, driven by higher revenue from increased volumes that was partially offset by higher marketing and pricing incentives and from higher third-party card issuer fees. Third-Party Payment debit and credit volume was $91.7 billion for 2007, up 25% from 2006.

International Card

The pretax loss of $423 million for the fourth quarter of 2007 included the non-cash impairment charge of $391 million. Excluding this charge, the pretax loss of $32 million compared favorably to the pretax loss of $50 million for the fourth quarter of 2006 due to lower provision for loan losses and expenses and higher other income partially offset by lower net interest income.

Net interest income decreased, reflecting higher funding costs as a result of the spin-off and the rising interest rate environment in the United Kingdom.

The provision for loan losses decreased, reflecting lower reserve requirements.

Other income increased primarily due to a write-down of the interest-only strip receivable in the fourth quarter of 2006 and lower rewards costs.

Expenses decreased reflecting lower overhead costs and lower marketing and compensation expense.

Managed loans decreased 6% from last year, reflecting increased payments and reduced emphasis on loan growth, partially offset by a favorable foreign exchange rate. The fourth quarter managed net charge-off rate of 6.65% was up 9 basis points from the third quarter of 2007 and 85 basis points from last year. Managed net charge-off dollars have stabilized, but the rate was up due to the effect of declining receivable balances. The managed 30+ days delinquency rate of 5.25% was up 36 basis points from the third quarter of 2007 and 67 basis points from last year.

The full year 2007 pretax loss of $596 million compared unfavorably to the loss of $87 million for 2006, largely driven by the $391 million non-cash impairment charge as well as higher provision for loan losses and expenses.

The provision for loan losses increased, reflecting a full period of charge-offs related to the Goldfish and Liverpool Victoria portfolios, weakening in the consumer credit environment in the United Kingdom, certain maturing securitized receivables being retained in the portfolio, and an increase in reserves related to implementation of higher minimum payment requirements on certain accounts.

Expenses increased due to spin-off related costs and initiatives.

Full year credit card sales volume was $13.0 billion, up 25% over last year reflecting a full year of sales related to the Goldfish acquisition. The full year managed net charge-off rate of 6.54% was up 109 basis points from 2006.

Dividend Declaration/Share Repurchase

The company declared a cash dividend of $0.06 per share, payable on Jan. 22, 2008 to stockholders of record at the close of business on Jan. 3, 2008.

As announced on Dec. 3, 2007, the Board of Directors approved a share repurchase program, authorizing the company to purchase up to $1 billion of its common stock. The program expires on Nov. 30, 2010, and may be terminated at any time.

Conference Call and Webcast Information

The company will host a conference call to discuss its fourth quarter results on Thursday, Dec. 20, 2007, at 10 a.m. Central time. Interested parties can listen to the conference call via a live audio webcast at http://investorrelations.discoverfinancial.com.

About Discover Financial Services

Discover Financial Services (NYSE: DFS) is a leading credit card issuer and electronic payment services company with one of the most recognized brands in U.S.financial services. The company operates the Discover Card, America's cash rewards pioneer. Since its inception in 1986, the company has become one of the largest card issuers in the United States. Its payments businesses consist of the Discover Network, with millions of merchant and cash access locations, and PULSE, one of the nation's leading ATM/debit networks. Discover also operates the Goldfish credit card business in the United Kingdom. For more information, visit www.discoverfinancial.com.

Contacts:

Investors:

Craig Streem, 224-405-3575

craigstreem@discover.com

Media:

Leslie Sutton, 224-405-3965

lesliesutton@discover.com

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.

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.

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 and securitization 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).

Discover Financial Services

GAAP Basis

(unaudited, dollars in thousands, except per share statistics)
	Quarter Ended
	Nov 30, 2007			Aug 31, 2007			Nov 30, 2006

Earnings Summary
Interest Income	$	748,889		$	755,610		$	622,166
Interest Expense		400,734			361,469			243,518
Net Interest Income		348,155			394,141			378,648
Other Income		1,003,251			845,498			828,263
Revenue Net of Interest Expense		1,351,406			1,239,639			1,206,911
Provision for Loan Losses		339,916			211,576			239,693
Employee Compensation and Benefits		226,494			227,904			234,625
Marketing and Business Development		163,916			163,015			197,601
Information Processing & Communications		98,926			99,065			102,936
Professional Fees		102,742			94,060			119,049
Premises and Equipment		21,761			22,611			23,886
Other Expense 1		485,656			92,194			103,580
Total Other Expense		1,099,495			698,849			781,677
Income (Loss) Before Income Taxes 1		(88,005	)		329,214			185,541
Tax Expense		(3,938	)		126,974			(981	)
Net Income (Loss) 1	$	(84,067	)	$	202,240		$	186,522

Effective Tax Rate		4.5	%		38.6	%		(0.5	%)

Balance Sheet Statistics
Loan Receivables	$	23,954,295		$	22,393,598		$	23,742,750
Total Assets	$	37,348,409		$	36,141,011		$	29,067,242
Total Equity	$	5,571,839		$	5,667,282		$	5,774,772
Total Tangible Equity	$	5,218,375		$	4,927,431		$	5,039,867
Tangible Equity/Total Owned Assets		14.0	%		13.6	%		17.3	%
ROE 1		(6	%)		14	%		12	%

Allowance for Loan Loss (period end)	$	916,844		$	792,883		$	832,483
Change in Loan Loss Reserves	$	120,703		$	1,446		$	16,623
Interest-only Strip Receivable (period end)	$	400,313		$	353,289		$	337,752
Net Revaluation of Retained Interests	$	37,298		$	(24,043	)	$	5,492

Per Share Statistics
Basic EPS 1	$	(0.18	)	$	0.42		$	0.39
Diluted EPS 1, 2	$	(0.18	)	$	0.42		$	0.39
Stock Price (period end)	$	17.37		$	23.14
Book Value	$	11.66		$	11.87
Ending Shares Outstanding (000's)		477,688			477,328			477,236
Weighted Average Shares Outstanding (000's)		477,567			477,272			477,236
Weighted Average Shares Outstanding (fully diluted) (000's)		477,567			480,071			477,236

Total Credit Card Loans
Credit Card Loans - Owned	$	23,703,101		$	22,301,589		$	23,646,901
Average Credit Card Loans - Owned	$	22,468,387		$	22,646,290		$	22,573,508

Interest Yield		10.43	%		10.99	%		10.27	%
Net Principal Charge-off Rate		3.90	%		3.71	%		3.95	%
Delinquency Rate (over 30 days)		3.50	%		3.07	%		3.22	%
Delinquency Rate (over 90 days)		1.63	%		1.44	%		1.53	%

Transactions Processed on Networks (000's)
Discover Network		378,438			384,335			358,152
PULSE Network		611,518			593,866			488,087
Total		989,956			978,201			846,239

Network Volume
PULSE Network	$	23,035,361		$	22,372,106
Third Party Issuers		1,458,959			1,492,568
Total Third Party Payments		24,494,320			23,864,674		$	19,178,369
U.S. Card		23,482,095			24,411,714			22,283,874
Total	$	47,976,415		$	48,276,388		$	41,462,243


1The quarter ended November 30, 2007 includes a $391 million pre-tax ($279 million after-tax) non-cash impairment charge related to the company's Goldfish business in the International Card Segment. Excluding the impairment charge the company's basic EPS would be $0.41 and $1.76, diluted EPS would be $0.40 and $1.75, and ROE would be 14% and 15% for the quarter and year end, respectively.

2 For all periods prior to the spin off from Morgan Stanley, the same number of shares is being used for diluted EPS as for basic EPS as no common stock of Discover Financial Services was traded prior to July 2, 2007 and no Discover equity awards were outstanding for the prior periods.

Discover Financial Services

Managed Basis1

(unaudited, dollars in thousands)

	Quarter Ended
	Nov 30, 2007			Aug 31, 2007			Nov 30, 2006

Earnings Summary
Interest Income	$	1,793,072		$	1,751,919		$	1,543,806
Interest Expense		815,208			767,451			609,102
Net Interest Income		977,864			984,468			934,704
Other Income		682,344			552,621			560,053
Revenue Net of Interest Expense		1,660,208			1,537,089			1,494,757
Provision for Loan Losses		648,718			509,026			527,539
Employee Compensation and Benefits		226,494			227,904			234,625
Marketing and Business Development		163,916			163,015			197,601
Information Processing & Communications		98,926			99,065			102,936
Professional Fees		102,742			94,060			119,049
Premises and Equipment		21,761			22,611			23,886
Other Expense 2		485,656			92,194			103,580
Total Other Expense		1,099,495			698,849			781,677
Income (Loss) Before Income Taxes 2		(88,005	)		329,214			185,541
Tax Expense		(3,938	)		126,974			(981	)
Net Income (Loss) 2	$	(84,067	)	$	202,240		$	186,522

Balance Sheet Statistics
Loan Receivables	$	52,553,604		$	51,892,455		$	50,446,177
Average Loan Receivables	$	51,818,029		$	51,530,934		$	49,318,549
Total Assets	$	65,724,235		$	65,457,390		$	55,512,185
Total Equity 3	$	5,571,839		$	5,667,282		$	5,774,772
Total Tangible Equity 3	$	5,218,375		$	4,927,431		$	5,039,867
Tangible Equity/Net Managed Receivables		10.1	%		9.6	%		10.2	%
Tangible Equity/Total Managed Assets		7.9	%		7.5	%		9.1	%

Net Yield on Loan Receivables		7.57	%		7.58	%		7.60	%
Return on Loan Receivables		(0.65	%)		1.56	%		1.52	%

Total Credit Card Loans
Credit Card Loans - Managed	$	52,302,410		$	51,800,446		$	50,350,328
Average Credit Card Loans - Managed	$	51,688,457		$	51,440,722		$	49,214,953

Managed Interest Yield		12.63	%		12.52	%		12.22	%
Managed Net Principal Charge-off Rate		4.08	%		3.95	%		4.15	%
Managed Delinquency Rate (over 30 days)		3.73	%		3.30	%		3.50	%
Managed Delinquency Rate (over 90 days)		1.74	%		1.55	%		1.65	%

Total Credit Card Volume
Domestic	$	26,159,776		$	27,171,729		$	25,682,545
International		3,428,543			3,601,870			3,547,702
Total	$	29,588,319		$	30,773,599		$	29,230,247

Total Credit Card SalesVolume
Domestic	$	22,588,639		$	23,527,999		$	21,404,325
International		3,212,885			3,296,360			3,123,230
Total	$	25,801,524		$	26,824,359		$	24,527,555

Segment - Income Before Income Taxes
U.S. Card	$	327,526		$	387,085		$	228,986
Third Party Payments		7,591			9,439			6,946
International Card		(423,122	)		(67,310	)		(50,391	)
Total	$	(88,005	)	$	329,214		$	185,541

1Managed 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 The quarter ended November 30, 2007 includes a $391 million pre-tax ($279 million after-tax) non-cash impairment charge related to the company's Goldfish business in the International Card Segment.

3Balance on a GAAP and Managed basis is the same.

Discover Financial Services

U.S. Card Segment

Managed Basis1

(unaudited, dollars in thousands)

	Quarter Ended
	Nov 30, 2007			Aug 31, 2007			Nov 30, 2006

Earnings Summay
Interest Income	$	1,666,768		$	1,626,214		$	1,429,508
Interest Expense		743,975			697,643			562,185
Net Interest Income		922,793			928,571			867,323
Other Income		603,709			481,060			493,713
Revenue Net of Interest Expense		1,526,502			1,409,631			1,361,036
Provision for Loan Losses		584,722			418,349			452,965
Total Other Expense		614,254			604,197			679,085
Income Before Income Taxes	$	327,526		$	387,085		$	228,986

Loan Receivables	$	48,180,436		$	47,444,107		$	45,802,071
Average Loan Receivables	$	47,381,471		$	47,016,472		$	44,899,320

Net Yield on Loan Receivables		7.81	%		7.84	%		7.75	%
Pretax Return on Loan Receivables		2.77	%		3.27	%		2.05	%

Total Credit Card Loans
Credit Card Loans - Managed	$	47,929,242		$	47,352,098		$	45,706,222
Average Credit Card Loans - Managed	$	47,251,899		$	46,926,260		$	44,795,724

Managed Interest Yield		12.85	%		12.76	%		12.42	%
Managed Net Principal Charge-off Rate		3.84	%		3.70	%		3.99	%
Managed Delinquency Rate (over 30 days)		3.59	%		3.16	%		3.39	%
Managed Delinquency Rate (over 90 days)		1.68	%		1.48	%		1.59	%

Total Credit Card Volume	$	26,159,776		$	27,171,729		$	25,682,545
Sales Volume	$	22,588,639		$	23,527,999		$	21,404,325

Discover Financial Services

Third Party Payments Segment

(unaudited, dollars in thousands)

	Quarter Ended
	Nov 30, 2007		Aug 31, 2007		Nov 30, 2006

Earnings Summary
Interest Income	$	650	$	594	$	516
Interest Expense		-		-		6
Net Interest Income		650		594		510
Other Income		29,305		29,465		28,077
Revenue Net of Interest Expense		29,955		30,059		28,587
Provision for Loan Losses		-		-		-
Total Other Expense		22,364		20,620		21,641
Income Before Income Taxes	$	7,591	$	9,439	$	6,946

Network Volume
PULSE Network	$	23,035,361	$	22,372,106
Third Party Issuers		1,458,959		1,492,568
Total Third Party Payments	$	24,494,320	$	23,864,674	$	19,178,369

Transactions Processed on PULSE Network (000's)		611,518		593,866		488,087

Discover Financial Services

International Card Segment

Managed Basis1

(unaudited, dollars in thousands)

	Quarter Ended
	Nov 30, 2007			Aug 31, 2007			Nov 30, 2006

Earnings Summary
Interest Income	$	125,654		$	125,111		$	113,782
Interest Expense		71,233			69,808			46,911
Net Interest Income		54,421			55,303			66,871
Other Income		49,330			42,096			38,263
Revenue Net of Interest Expense		103,751			97,399			105,134
Provision for Loan Losses		63,996			90,677			74,574
Total Other Expense 2		462,877			74,032			80,951
Income (Loss) Before Income Taxes 2	$	(423,122	)	$	(67,310	)	$	(50,391	)

Loan Receivables	$	4,373,168		$	4,448,348		$	4,644,106
Average Loan Receivables	$	4,436,558		$	4,514,462		$	4,419,229

Net Yield on Loan Receivables		4.92	%		4.86	%		6.07	%
Pretax Return on Loan Receivables 2		(38.25	%)		(5.92	%)		(4.57	%)

Total Credit Card Loans
Credit Card Loans - Managed	$	4,373,168		$	4,448,348		$	4,644,106
Average Credit Card Loans - Managed	$	4,436,558		$	4,514,462		$	4,419,229

Managed Interest Yield		10.32	%		10.00	%		10.23	%
Managed Net Principal Charge-off Rate		6.65	%		6.56	%		5.80	%
Managed Delinquency Rate (over 30 days)		5.25	%		4.89	%		4.58	%
Managed Delinquency Rate (over 90 days)		2.43	%		2.30	%		2.22	%

Total Credit Card Volume	$	3,428,543		$	3,601,870		$	3,547,702
Sales Volume	$	3,212,885		$	3,296,360		$	3,123,230

2 Includes non-cash impairment charge related to the company's Goldfish business ($391 million pre-tax, $279 million after-tax).

Discover Financial Services

Reconciliation of GAAP to Managed 1

(unaudited, dollars in thousands)

	Quarter Ended
	Nov 30, 2007			Aug 31, 2007			Nov 30, 2006

Interest Income
GAAP Basis	$	748,889		$	755,610		$	622,166
Securitization Adjustments 1		1,044,183			996,309			921,640
Managed Basis	$	1,793,072		$	1,751,919		$	1,543,806

Interest Expense
GAAP Basis	$	400,734		$	361,469		$	243,518
Securitization Adjustments		414,474			405,982			365,584
Managed Basis	$	815,208		$	767,451		$	609,102

Net Interest Income
GAAP Basis	$	348,155		$	394,141		$	378,648
Securitization Adjustments		629,709			590,327			556,056
Managed Basis	$	977,864		$	984,468		$	934,704

Other Income
GAAP Basis	$	1,003,251		$	845,498		$	828,263
Securitization Adjustments		(320,907	)		(292,877	)		(268,210	)
Managed Basis	$	682,344		$	552,621		$	560,053

Revenue Net of Interest Expense
GAAP Basis	$	1,351,406		$	1,239,639		$	1,206,911
Securitization Adjustments		308,802			297,450			287,846
Managed Basis	$	1,660,208		$	1,537,089		$	1,494,757

Provision for Loan Losses
GAAP Basis	$	339,916		$	211,576		$	239,693
Securitization Adjustments		308,802			297,450			287,846
Managed Basis	$	648,718		$	509,026		$	527,539

Loan Receivables
GAAP Basis	$	23,954,295		$	22,393,598		$	23,742,750
Securitization Adjustments		28,599,309			29,498,857			26,703,427
Managed Basis	$	52,553,604		$	51,892,455		$	50,446,177

Total Assets
GAAP Basis	$	37,348,409		$	36,141,011		$	29,067,242
Securitization Adjustments		28,375,826			29,316,379			26,444,943
Managed Basis	$	65,724,235		$	65,457,390		$	55,512,185

Tangible Equity/Total Assets
GAAP Basis		14.0	%		13.6	%		17.3	%
Securitization Adjustments		18.4	%		16.8	%		19.1	%
Managed Basis		7.9	%		7.5	%		9.1	%

Total Credit Card Loans
Credit Card Loans
GAAP Basis	$	23,703,101		$	22,301,589		$	23,646,901
Securitization Adjustments		28,599,309			29,498,857			26,703,427
Managed Basis	$	52,302,410		$	51,800,446		$	50,350,328

Average Credit Card Loans
GAAP Basis	$	22,468,387		$	22,646,290		$	22,573,508
Securitization Adjustments		29,220,070			28,794,432			26,641,445
Managed Basis	$	51,688,457		$	51,440,722		$	49,214,953

Discover Financial Services

Reconciliation of GAAP to Managed 1

(unaudited, dollars in thousands)

	Quarter Ended
	Nov 30, 2007			Aug 31, 2007			Nov 30, 2006

Interest Yield
GAAP Basis		10.43	%		10.99	%		10.27	%
Securitization Adjustments		14.33	%		13.73	%		13.88	%
Managed Basis		12.63	%		12.52	%		12.22	%

Net Principal Charge-off Rate
GAAP Basis		3.90	%		3.71	%		3.95	%
Securitization Adjustments		4.23	%		4.13	%		4.32	%
Managed Basis		4.08	%		3.95	%		4.15	%

Delinquency Rate (over 30 days)
GAAP Basis		3.50	%		3.07	%		3.22	%
Securitization Adjustments		3.92	%		3.48	%		3.76	%
Managed Basis		3.73	%		3.30	%		3.50	%

Delinquency Rate (over 90 days)
GAAP Basis		1.63	%		1.44	%		1.53	%
Securitization Adjustments		1.84	%		1.63	%		1.75	%
Managed Basis		1.74	%		1.55	%		1.65	%

US CARD
Loan Receivables
GAAP Basis	$	20,831,117		$	19,170,450		$	20,790,244
Securitization Adjustments		27,349,319			28,273,657			25,011,827
Managed Basis	$	48,180,436		$	47,444,107		$	45,802,071

Domestic Credit Card Loans
Credit Card Loans
GAAP Basis	$	20,579,923		$	19,078,441		$	20,694,395
Securitization Adjustments		27,349,319			28,273,657			25,011,827
Managed Basis	$	47,929,242		$	47,352,098		$	45,706,222

Average Credit Card Loans
GAAP Basis	$	19,276,203		$	19,722,180		$	19,785,248
Securitization Adjustments		27,975,696			27,204,080			25,010,476
Managed Basis	$	47,251,899		$	46,926,260		$	44,795,724

Interest Yield
GAAP Basis		10.53	%		11.22	%		10.37	%
Securitization Adjustments		14.45	%		13.88	%		14.04	%
Managed Basis		12.85	%		12.76	%		12.42	%

Net Principal Charge-off Rate
GAAP Basis		3.43	%		3.27	%		3.67	%
Securitization Adjustments		4.13	%		4.01	%		4.23	%
Managed Basis		3.84	%		3.70	%		3.99	%

Delinquency Rate (over 30 days)
GAAP Basis		3.28	%		2.80	%		3.05	%
Securitization Adjustments		3.82	%		3.40	%		3.67	%
Managed Basis		3.59	%		3.16	%		3.39	%

Delinquency Rate (over 90 days)
GAAP Basis		1.53	%		1.31	%		1.44	%
Securitization Adjustments		1.79	%		1.60	%		1.72	%
Managed Basis		1.68	%		1.48	%		1.59	%

Discover Financial Services

Reconciliation of GAAP to Managed 1

(unaudited, dollars in thousands)

	Quarter Ended
	Nov 30, 2007			Aug 31, 2007			Nov 30, 2006


INTERNATIONAL CARD
Loan Receivables
GAAP Basis	$	3,123,178		$	3,223,148		$	2,952,506
Securitization Adjustments		1,249,990			1,225,200			1,691,600
Managed Basis	$	4,373,168		$	4,448,348		$	4,644,106

International Credit Card Loans
Credit Card Loans
GAAP Basis	$	3,123,178		$	3,223,148		$	2,952,506
Securitization Adjustments		1,249,990			1,225,200			1,691,600
Managed Basis	$	4,373,168		$	4,448,348		$	4,644,106

Average Credit Card Loans
GAAP Basis	$	3,192,184		$	2,924,110		$	2,788,260
Securitization Adjustments		1,244,374			1,590,352			1,630,969
Managed Basis	$	4,436,558		$	4,514,462		$	4,419,229

Interest Yield
GAAP Basis		9.77	%		9.42	%		9.53	%
Securitization Adjustments		11.75	%		11.07	%		11.41	%
Managed Basis		10.32	%		10.00	%		10.23	%

Net Principal Charge-off Rate
GAAP Basis		6.70	%		6.71	%		5.88	%
Securitization Adjustments		6.52	%		6.27	%		5.67	%
Managed Basis		6.65	%		6.56	%		5.80	%

Delinquency Rate (over 30 days)
GAAP Basis		4.91	%		4.63	%		4.36	%
Securitization Adjustments		6.09	%		5.55	%		4.96	%
Managed Basis		5.25	%		4.89	%		4.58	%

Delinquency Rate (over 90 days)
GAAP Basis		2.27	%		2.21	%		2.16	%
Securitization Adjustments		2.83	%		2.51	%		2.32	%
Managed Basis		2.43	%		2.30	%		2.22	%

1Securitization 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.

Discover Financial Services

GAAP Basis

(unaudited, dollars in thousands, except per share statistics)

	Year Ended
	2007			2006

Earnings Summary
Interest Income	$	2,888,169		$	2,458,526
Interest Expense		1,382,415			940,040
Net Interest Income		1,505,754			1,518,486
Other Income		3,546,119			3,538,939
Revenue Net of Interest Expense		5,051,873			5,057,425
Provision for Loan Losses		950,165			755,637
Employee Compensation and Benefits		922,089			933,196
Marketing and Business Development		610,205			603,556
Information Processing & Communications		388,065			387,595
Professional Fees		391,024			367,769
Premises and Equipment		91,531			92,278
Other Expense 1		753,598			335,089
Total Other Expense		3,156,512			2,719,483
Income (Loss) Before Income Taxes 1		945,196			1,582,305
Tax Expense		384,149			505,689
Net Income (Loss) 1	$	561,047		$	1,076,616

Effective Tax Rate		40.6	%		32.0	%

Balance Sheet Statistics
Loan Receivables	$	23,954,295		$	23,742,750
Total Assets	$	37,348,409		$	29,067,242
Total Equity	$	5,571,839		$	5,774,772
Total Tangible Equity	$	5,218,375		$	5,039,867
Tangible Equity/Total Owned Assets		14.0	%		17.3	%
ROE 1		10	%		20	%

Allowance for Loan Loss (period end)	$	916,844		$	832,483
Change in Loan Loss Reserves	$	77,580		$	(71,309	)
Interest-only Strip Receivable (period end)	$	400,313		$	337,752
Net Revaluation of Retained Interests	$	44,878		$	159,442

Per Share Statistics
Basic EPS 1	$	1.18		$	2.26
Diluted EPS 1, 2	$	1.17		$	2.26
Stock Price (period end)
Book Value	$	11.66
Ending Shares Outstanding (000's)		477,688			477,236
Weighted Average Shares Outstanding (000's)		477,328			477,236
Weighted Average Shares Outstanding (fully diluted) (000's)		478,879			477,236

Total Credit Card Loans
Credit Card Loans - Owned	$	23,703,101		$	23,646,901
Average Credit Card Loans - Owned	$	22,814,043		$	21,656,295

Interest Yield		10.58	%		10.38	%
Net Principal Charge-off Rate		3.82	%		3.79	%
Delinquency Rate (over 30 days)		3.50	%		3.22	%
Delinquency Rate (over 90 days)		1.63	%		1.53	%

Transactions Processed on Networks (000's)
Discover Network		1,486,366			1,399,933
PULSE Network		2,285,061			1,856,477
Total		3,771,427			3,256,410

Network Volume
PULSE Network	$	86,236,408
Third Party Issuers		5,480,105
Total Third Party Payments		91,716,513		$	73,196,400
U.S. Card		93,794,500			89,819,628
Total	$	185,511,013		$	163,016,028

1The quarter ended November 30, 2007 includes a $391 million pre-tax ($279 million after-tax) non-cash impairment charge related to the company's Goldfish business in the International Card Segment. Excluding the impairment charge the company's basic EPS would be $0.41 and $1.76, diluted EPS would be $0.40 and $1.75, and ROE would be 14% and 15% for the quarter and year end, respectively.

2 For all periods prior to the spin off from Morgan Stanley, the same number of shares is being used for diluted EPS as for basic EPS as no common stock of Discover Financial Services was traded prior to July 2, 2007 and no Discover equity awards were outstanding for the prior periods.

Discover Financial Services

Managed Basis1

(unaudited, dollars in thousands)

	Year Ended
	2007			2006

Earnings Summary
Interest Income	$	6,860,519		$	6,167,485
Interest Expense		2,975,788			2,337,589
Net Interest Income		3,884,731			3,829,896
Other Income		2,387,819			2,373,536
Revenue Net of Interest Expense		6,272,550			6,203,432
Provision for Loan Losses		2,170,842			1,901,644
Employee Compensation and Benefits		922,089			933,196
Marketing and Business Development		610,205			603,556
Information Processing & Communications		388,065			387,595
Professional Fees		391,024			367,769
Premises and Equipment		91,531			92,278
Other Expense 2		753,598			335,089
Total Other Expense		3,156,512			2,719,483
Income (Loss) Before Income Taxes 2		945,196			1,582,305
Tax Expense		384,149			505,689
Net Income (Loss) 2	$	561,047		$	1,076,616

Balance Sheet Statistics
Loan Receivables	$	52,553,604		$	50,446,177
Average Loan Receivables	$	51,440,039		$	48,401,547
Total Assets	$	65,724,235		$	55,512,185
Total Equity 3	$	5,571,839		$	5,774,772
Total Tangible Equity 3	$	5,218,375		$	5,039,867
Tangible Equity/Net Managed Receivables		10.1	%		10.2	%
Tangible Equity/Total Managed Assets		7.9	%		9.1	%

Net Yield on Loan Receivables		7.55	%		7.91	%
Return on Loan Receivables		1.09	%		2.22	%

Total Credit Card Loans
Credit Card Loans - Managed	$	52,302,410		$	50,350,328
Average Credit Card Loans - Managed	$	51,338,135		$	48,216,546

Managed Interest Yield		12.44	%		12.36	%
Managed Net Principal Charge-off Rate		4.08	%		4.08	%
Managed Delinquency Rate (over 30 days)		3.73	%		3.50	%
Managed Delinquency Rate (over 90 days)		1.74	%		1.65	%

Total Credit Card Volume
Domestic	$	106,620,818		$	102,901,893
International		14,254,621			11,881,465
Total	$	120,875,439		$	114,783,358

Total Credit Card SalesVolume
Domestic	$	90,262,556		$	86,385,577
International		12,955,968			10,335,331
Total	$	103,218,524		$	96,720,908

Segment - Income Before Income Taxes
U.S. Card	$	1,504,450		$	1,640,453
Third Party Payments		36,960			28,949
International Card		(596,214	)		(87,097	)
Total	$	945,196		$	1,582,305

2 The quarter ended November 30, 2007 includes a $391 million pre-tax ($279 million after-tax) non-cash impairment charge related to the company's Goldfish business in the International Card Segment.

3Balance on a GAAP and Managed basis is the same.

Discover Financial Services

U.S. Card Segment

Managed Basis1

(unaudited, dollars in thousands)

	Year Ended
	2007			2006

Earnings Summay
Interest Income	$	6,376,298		$	5,748,698
Interest Expense		2,729,065			2,160,569
Net Interest Income		3,647,233			3,588,129
Other Income		2,101,076			2,097,676
Revenue Net of Interest Expense		5,748,309			5,685,805
Provision for Loan Losses		1,853,396			1,663,472
Total Other Expense		2,390,463			2,381,880
Income Before Income Taxes	$	1,504,450		$	1,640,453

Loan Receivables	$	48,180,436		$	45,802,071
Average Loan Receivables	$	46,913,474		$	44,409,231

Net Yield on Loan Receivables		7.77	%		8.08	%
Pretax Return on Loan Receivables		3.21	%		3.69	%

Total Credit Card Loans
Credit Card Loans - Managed	$	47,929,242		$	45,706,222
Average Credit Card Loans - Managed	$	46,811,570		$	44,277,249

Managed Interest Yield		12.66	%		12.53	%
Managed Net Principal Charge-off Rate		3.84	%		3.96	%
Managed Delinquency Rate (over 30 days)		3.59	%		3.39	%
Managed Delinquency Rate (over 90 days)		1.68	%		1.59	%

Total Credit Card Volume	$	106,620,818		$	102,901,893
Sales Volume	$	90,262,556		$	86,385,577

Discover Financial Services

Third Party Payments Segment

(unaudited, dollars in thousands)

	Year Ended
	2007		2006

Earnings Summary
Interest Income	$	2,376	$	1,801
Interest Expense		19		23
Net Interest Income		2,357		1,778
Other Income		118,700		110,700
Revenue Net of Interest Expense		121,057		112,478
Provision for Loan Losses		-		-
Total Other Expense		84,097		83,529
Income Before Income Taxes	$	36,960	$	28,949

Network Volume
PULSE Network	$	86,236,408
Third Party Issuers		5,480,105
Total Third Party Payments	$	91,716,513	$	73,196,400

Transactions Processed on PULSE Network (000's)		2,285,061		1,856,477

Discover Financial Services

International Card Segment

Managed Basis1

(unaudited, dollars in thousands)

	Year Ended
	2007			2006

Earnings Summary
Interest Income	$	481,845		$	416,986
Interest Expense		246,704			176,997
Net Interest Income		235,141			239,989
Other Income		168,043			165,160
Revenue Net of Interest Expense		403,184			405,149
Provision for Loan Losses		317,446			238,172
Total Other Expense 2		681,952			254,074
Income (Loss) Before Income Taxes 2	$	(596,214	)	$	(87,097	)

Loan Receivables	$	4,373,168		$	4,644,106
Average Loan Receivables	$	4,526,565		$	3,992,316

Net Yield on Loan Receivables		5.19	%		6.01	%
Pretax Return on Loan Receivables 2		(13.17	%)		(2.18	%)

Total Credit Card Loans
Credit Card Loans - Managed	$	4,373,168		$	4,644,106
Average Credit Card Loans - Managed	$	4,526,565		$	3,939,297

Managed Interest Yield		10.11	%		10.38	%
Managed Net Principal Charge-off Rate		6.54	%		5.45	%
Managed Delinquency Rate (over 30 days)		5.25	%		4.58	%
Managed Delinquency Rate (over 90 days)		2.43	%		2.22	%

Total Credit Card Volume	$	14,254,621		$	11,881,465
Sales Volume	$	12,955,968		$	10,335,331

2 Includes non-cash impairment charge related to the company's Goldfish business ($391 million pre-tax, $279 million after-tax).

Discover Financial Services

Reconciliation of GAAP to Managed 1

(unaudited, dollars in thousands)

	Year Ended
	2007			2006

Interest Income
GAAP Basis	$	2,888,169		$	2,458,526
Securitization Adjustments 1		3,972,350			3,708,959
Managed Basis	$	6,860,519		$	6,167,485

Interest Expense
GAAP Basis	$	1,382,415		$	940,040
Securitization Adjustments		1,593,373			1,397,549
Managed Basis	$	2,975,788		$	2,337,589

Net Interest Income
GAAP Basis	$	1,505,754		$	1,518,486
Securitization Adjustments		2,378,977			2,311,410
Managed Basis	$	3,884,731		$	3,829,896

Other Income
GAAP Basis	$	3,546,119		$	3,538,939
Securitization Adjustments		(1,158,300	)		(1,165,403	)
Managed Basis	$	2,387,819		$	2,373,536

Revenue Net of Interest Expense
GAAP Basis	$	5,051,873		$	5,057,425
Securitization Adjustments		1,220,677			1,146,007
Managed Basis	$	6,272,550		$	6,203,432

Provision for Loan Losses
GAAP Basis	$	950,165		$	755,637
Securitization Adjustments		1,220,677			1,146,007
Managed Basis	$	2,170,842		$	1,901,644

Loan Receivables
GAAP Basis	$	23,954,295		$	23,742,750
Securitization Adjustments		28,599,309			26,703,427
Managed Basis	$	52,553,604		$	50,446,177

Total Assets
GAAP Basis	$	37,348,409		$	29,067,242
Securitization Adjustments		28,375,826			26,444,943
Managed Basis	$	65,724,235		$	55,512,185

Tangible Equity/Total Assets
GAAP Basis		14.0	%		17.3	%
Securitization Adjustments		18.4	%		19.1	%
Managed Basis		7.9	%		9.1	%

Total Credit Card Loans
Credit Card Loans
GAAP Basis	$	23,703,101		$	23,646,901
Securitization Adjustments		28,599,309			26,703,427
Managed Basis	$	52,302,410		$	50,350,328

Average Credit Card Loans
GAAP Basis	$	22,814,043		$	21,656,295
Securitization Adjustments		28,524,092			26,560,251
Managed Basis	$	51,338,135		$	48,216,546

Discover Financial Services

Reconciliation of GAAP to Managed 1

(unaudited, dollars in thousands)

	Year Ended
	2007			2006

Interest Yield
GAAP Basis		10.58	%		10.38	%
Securitization Adjustments		13.93	%		13.96	%
Managed Basis		12.44	%		12.36	%

Net Principal Charge-off Rate
GAAP Basis		3.82	%		3.79	%
Securitization Adjustments		4.28	%		4.31	%
Managed Basis		4.08	%		4.08	%

Delinquency Rate (over 30 days)
GAAP Basis		3.50	%		3.22	%
Securitization Adjustments		3.92	%		3.76	%
Managed Basis		3.73	%		3.50	%

Delinquency Rate (over 90 days)
GAAP Basis		1.63	%		1.53	%
Securitization Adjustments		1.84	%		1.75	%
Managed Basis		1.74	%		1.65	%

US CARD
Loan Receivables
GAAP Basis	$	20,831,117		$	20,790,244
Securitization Adjustments		27,349,319			25,011,827
Managed Basis	$	48,180,436		$	45,802,071

Domestic Credit Card Loans
Credit Card Loans
GAAP Basis	$	20,579,923		$	20,694,395
Securitization Adjustments		27,349,319			25,011,827
Managed Basis	$	47,929,242		$	45,706,222

Average Credit Card Loans
GAAP Basis	$	19,845,880		$	19,120,946
Securitization Adjustments		26,965,690			25,156,303
Managed Basis	$	46,811,570		$	44,277,249

Interest Yield
GAAP Basis		10.75	%		10.50	%
Securitization Adjustments		14.07	%		14.08	%
Managed Basis		12.66	%		12.53	%

Net Principal Charge-off Rate
GAAP Basis		3.41	%		3.64	%
Securitization Adjustments		4.15	%		4.20	%
Managed Basis		3.84	%		3.96	%

Delinquency Rate (over 30 days)
GAAP Basis		3.28	%		3.05	%
Securitization Adjustments		3.82	%		3.67	%
Managed Basis		3.59	%		3.39	%

Delinquency Rate (over 90 days)
GAAP Basis		1.53	%		1.44	%
Securitization Adjustments		1.79	%		1.72	%
Managed Basis		1.68	%		1.59	%

Discover Financial Services

Reconciliation of GAAP to Managed 1

(unaudited, dollars in thousands)

	Year Ended
	2007			2006

INTERNATIONAL CARD
Loan Receivables
GAAP Basis	$	3,123,178		$	2,952,506
Securitization Adjustments		1,249,990			1,691,600
Managed Basis	$	4,373,168		$	4,644,106

International Credit Card Loans
Credit Card Loans
GAAP Basis	$	3,123,178		$	2,952,506
Securitization Adjustments		1,249,990			1,691,600
Managed Basis	$	4,373,168		$	4,644,106

Average Credit Card Loans
GAAP Basis	$	2,968,163		$	2,535,349
Securitization Adjustments		1,558,402			1,403,948
Managed Basis	$	4,526,565		$	3,939,297

Interest Yield
GAAP Basis		9.42	%		9.51	%
Securitization Adjustments		11.43	%		11.94	%
Managed Basis		10.11	%		10.38	%

Net Principal Charge-off Rate
GAAP Basis		6.56	%		4.94	%
Securitization Adjustments		6.49	%		6.36	%
Managed Basis		6.54	%		5.45	%

Delinquency Rate (over 30 days)
GAAP Basis		4.91	%		4.36	%
Securitization Adjustments		6.09	%		4.96	%
Managed Basis		5.25	%		4.58	%

Delinquency Rate (over 90 days)
GAAP Basis		2.27	%		2.16	%
Securitization Adjustments		2.83	%		2.32	%
Managed Basis		2.43	%		2.22	%

1Securitization 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.

EX-99.2 3 a5571783ex99_2.htm EXHIBIT 99.2 a5571783ex99_2.htm

Exhibit 99.2

Discover Financial Services

GAAP Basis

(unaudited, dollars in thousands, except per share statistics)

	Quarter Ended															Nov 30, 2007						Year Ended
	Nov 30, 2007			Aug 31, 2007			May 31, 2007			Feb 28, 2007			Nov 30, 2006			vs Nov 30, 2006						2007			2006			2007 vs 2006

Earnings Summary
Interest Income	$	748,889		$	755,610		$	703,365		$	680,305		$	622,166		$	126,723			20	%	$	2,888,169		$	2,458,526		$	429,643			17	%
Interest Expense		400,734			361,469			336,253			283,959			243,518			157,216			65	%		1,382,415			940,040			442,375			47	%
Net Interest Income		348,155			394,141			367,112			396,346			378,648			(30,493	)		(8	%)		1,505,754			1,518,486			(12,732	)		(1	%)
Other Income		1,003,251			845,498			871,693			825,677			828,263			174,988			21	%		3,546,119			3,538,939			7,180			0	%
Revenue Net of Interest Expense		1,351,406			1,239,639			1,238,805			1,222,023			1,206,911			144,495			12	%		5,051,873			5,057,425			(5,552	)		(0	%)
Provision for Loan Losses		339,916			211,576			203,287			195,386			239,693			100,223			42	%		950,165			755,637			194,528			26	%
Employee Compensation and Benefits		226,494			227,904			234,373			233,318			234,625			(8,131	)		(3	%)		922,089			933,196			(11,107	)		(1	%)
Marketing and Business Development		163,916			163,015			140,930			142,344			197,601			(33,685	)		(17	%)		610,205			603,556			6,649			1	%
Information Processing & Communications		98,926			99,065			96,622			93,452			102,936			(4,010	)		(4	%)		388,065			387,595			470			0	%
Professional Fees		102,742			94,060			113,264			80,958			119,049			(16,307	)		(14	%)		391,024			367,769			23,255			6	%
Premises and Equipment		21,761			22,611			24,350			22,809			23,886			(2,125	)		(9	%)		91,531			92,278			(747	)		(1	%)
Other Expense ¹		485,656			92,194			93,453			82,295			103,580			382,076		NM				753,598			335,089			418,509			125	%
Total Other Expense		1,099,495			698,849			702,992			655,176			781,677			317,818			41	%		3,156,512			2,719,483			437,029			16	%
Income (Loss) Before Income Taxes ¹		(88,005	)		329,214			332,526			371,461			185,541			(273,546	)		(147	%)		945,196			1,582,305			(637,109	)		(40	%)
Tax Expense		(3,938	)		126,974			123,284			137,829			(981	)		(2,957	)	NM				384,149			505,689			(121,540	)		(24	%)
Net Income (Loss) ¹	$	(84,067	)	$	202,240		$	209,242		$	233,632		$	186,522		$	(270,589	)		(145	%)	$	561,047		$	1,076,616		$	(515,569	)		(48	%)

Effective Tax Rate		4.5	%		38.6	%		37.1	%		37.1	%		(0.5	%)								40.6	%		32.0	%

Balance Sheet Statistics
Loan Receivables	$	23,954,295		$	22,393,598		$	22,788,042		$	22,611,707		$	23,742,750		$	211,545			1	%	$	23,954,295		$	23,742,750		$	211,545			1	%
Total Assets	$	37,348,409		$	36,141,011		$	35,672,568		$	29,763,803		$	29,067,242		$	8,281,167			28	%	$	37,348,409		$	29,067,242		$	8,281,167			28	%
Total Equity	$	5,571,839		$	5,667,282		$	5,780,284		$	5,528,658		$	5,774,772		$	(202,933	)		(4	%)	$	5,571,839		$	5,774,772		$	(202,933	)		(4	%)
Total Tangible Equity	$	5,218,375		$	4,927,431		$	5,044,586		$	4,797,784		$	5,039,867		$	178,508			4	%	$	5,218,375		$	5,039,867		$	178,508			4	%
Tangible Equity/Total Owned Assets		14.0	%		13.6	%		14.1	%		16.1	%		17.3	%								14.0	%		17.3	%
ROE ¹		(6	%)		14	%		15	%		16	%		12	%								10	%		20	%

Allowance for Loan Loss (period end)	$	916,844		$	792,883		$	788,748		$	793,850		$	832,483		$	84,361			10	%	$	916,844		$	832,483		$	84,361			10	%
Change in Loan Loss Reserves	$	120,703		$	1,446		$	(6,098	)	$	(38,471	)	$	16,623		$	104,080		NM			$	77,580		$	(71,309	)	$	148,889		NM
Interest-only Strip Receivable (period end)	$	400,313		$	353,289		$	372,796		$	331,621		$	337,752		$	62,561			19	%	$	400,313		$	337,752		$	62,561			19	%
Net Revaluation of Retained Interests	$	37,298		$	(24,043	)	$	35,620		$	(3,997	)	$	5,492		$	31,806		NM			$	44,878		$	159,442		$	(114,564	)		(72	%)

Per Share Statistics
Basic EPS ¹	$	(0.18	)	$	0.42		$	0.44		$	0.49		$	0.39		$	(0.57	)		(146	%)	$	1.18		$	2.26		$	(1.08	)		(48	%)
Diluted EPS ^{1, 2}	$	(0.18	)	$	0.42		$	0.44		$	0.49		$	0.39		$	(0.57	)		(146	%)	$	1.17		$	2.26		$	(1.09	)		(48	%)
Stock Price (period end)	$	17.37		$	23.14
Book Value	$	11.66		$	11.87																	$	11.66
Ending Shares Outstanding (000's)		477,688			477,328			477,236			477,236			477,236			452			0	%		477,688			477,236			452			0	%
Weighted Average Shares Outstanding (000's)		477,567			477,272			477,236			477,236			477,236			331			0	%		477,328			477,236			92			0	%
Weighted Average Shares Outstanding (fully diluted) (000's)		477,567			480,071			477,236			477,236			477,236			331			0	%		478,879			477,236			1,643			0	%

Total Credit Card Loans
Credit Card Loans - Owned	$	23,703,101		$	22,301,589		$	22,698,457		$	22,520,861		$	23,646,901		$	56,200			0	%	$	23,703,101		$	23,646,901		$	56,200			0	%
Average Credit Card Loans - Owned	$	22,468,387		$	22,646,290		$	21,419,465		$	24,760,587		$	22,573,508		$	(105,121	)		(0	%)	$	22,814,043		$	21,656,295		$	1,157,748			5	%

Interest Yield		10.43	%		10.99	%		10.50	%		10.41	%		10.27	%		16		bps				10.58	%		10.38	%		20		bps
Net Principal Charge-off Rate		3.90	%		3.71	%		3.91	%		3.77	%		3.95	%		(5	)	bps				3.82	%		3.79	%		3		bps
Delinquency Rate (over 30 days)		3.50	%		3.07	%		2.94	%		3.15	%		3.22	%		28		bps				3.50	%		3.22	%		28		bps
Delinquency Rate (over 90 days)		1.63	%		1.44	%		1.43	%		1.55	%		1.53	%		10		bps				1.63	%		1.53	%		10		bps

Transactions Processed on Networks (000's)
Discover Network		378,438			384,335			361,893			361,700			358,152			20,286			6	%		1,486,366			1,399,933			86,433			6	%
PULSE Network		611,518			593,866			558,811			520,866			488,087			123,431			25	%		2,285,061			1,856,477			428,584			23	%
Total		989,956			978,201			920,704			882,566			846,239			143,717			17	%		3,771,427			3,256,410			515,017			16	%

Network Volume
PULSE Network	$	23,035,361		$	22,372,106		$	20,799,365		$	20,029,576											$	86,236,408
Third Party Issuers		1,458,959			1,492,568			1,313,438			1,215,140												5,480,105
Total Third Party Payments		24,494,320			23,864,674			22,112,803			21,244,716		$	19,178,369		$	5,315,951			28	%		91,716,513		$	73,196,400		$	18,520,113			25	%
U.S. Card		23,482,095			24,411,714			22,975,645			22,925,046			22,283,874			1,198,221			5	%		93,794,500			89,819,628			3,974,872			4	%
Total	$	47,976,415		$	48,276,388		$	45,088,448		$	44,169,762		$	41,462,243		$	6,514,172			16	%	$	185,511,013		$	163,016,028		$	22,494,985			14	%


¹ The quarter ended November 30, 2007 includes a $391 million pre-tax ($279 million after-tax) non-cash impairment charge related to the company's Goldfish business in the International Card Segment. Excluding the impairment charge the company's basic EPS would be $0.41 and $1.76, diluted EPS would be $0.40 and $1.75, and ROE would be 14% and 15% for the quarter and year end, respectively.

²For all periods prior to the spin off from Morgan Stanley, the same number of shares is being used for diluted EPS as for basic EPS as no common stock of Discover Financial Services was traded prior to July 2, 2007 and no Discover equity awards were outstanding for the prior periods.

Discover Financial Services

Managed Basis¹

(unaudited, dollars in thousands)

	Quarter Ended															Nov 30, 2007						Year Ended
	Nov 30, 2007			Aug 31, 2007			May 31, 2007			Feb 28, 2007			Nov 30, 2006			vs Nov 30, 2006						2007			2006			2007 vs 2006

Earnings Summary
Interest Income	$	1,793,072		$	1,751,919		$	1,715,844		$	1,599,684		$	1,543,806		$	249,266			16	%	$	6,860,519		$	6,167,485		$	693,034			11	%
Interest Expense		815,208			767,451			747,303			645,826			609,102			206,106			34	%		2,975,788			2,337,589			638,199			27	%
Net Interest Income		977,864			984,468			968,541			953,858			934,704			43,160			5	%		3,884,731			3,829,896			54,835			1	%
Other Income		682,344			552,621			597,415			555,439			560,053			122,291			22	%		2,387,819			2,373,536			14,283			1	%
Revenue Net of Interest Expense		1,660,208			1,537,089			1,565,956			1,509,297			1,494,757			165,451			11	%		6,272,550			6,203,432			69,118			1	%
Provision for Loan Losses		648,718			509,026			530,438			482,660			527,539			121,179			23	%		2,170,842			1,901,644			269,198			14	%
Employee Compensation and Benefits		226,494			227,904			234,373			233,318			234,625			(8,131	)		(3	%)		922,089			933,196			(11,107	)		(1	%)
Marketing and Business Development		163,916			163,015			140,930			142,344			197,601			(33,685	)		(17	%)		610,205			603,556			6,649			1	%
Information Processing & Communications		98,926			99,065			96,622			93,452			102,936			(4,010	)		(4	%)		388,065			387,595			470			0	%
Professional Fees		102,742			94,060			113,264			80,958			119,049			(16,307	)		(14	%)		391,024			367,769			23,255			6	%
Premises and Equipment		21,761			22,611			24,350			22,809			23,886			(2,125	)		(9	%)		91,531			92,278			(747	)		(1	%)
Other Expense ²		485,656			92,194			93,453			82,295			103,580			382,076		NM				753,598			335,089			418,509			125	%
Total Other Expense		1,099,495			698,849			702,992			655,176			781,677			317,818			41	%		3,156,512			2,719,483			437,029			16	%
Income (Loss) Before Income Taxes ²		(88,005	)		329,214			332,526			371,461			185,541			(273,546	)		(147	%)		945,196			1,582,305			(637,109	)		(40	%)
Tax Expense		(3,938	)		126,974			123,284			137,829			(981	)		(2,957	)	NM				384,149			505,689			(121,540	)		(24	%)
Net Income (Loss) ²	$	(84,067	)	$	202,240		$	209,242		$	233,632		$	186,522		$	(270,589	)		(145	%)	$	561,047		$	1,076,616		$	(515,569	)		(48	%)

Balance Sheet Statistics
Loan Receivables	$	52,553,604		$	51,892,455		$	51,505,397		$	50,931,556		$	50,446,177		$	2,107,427			4	%	$	52,553,604		$	50,446,177		$	2,107,427			4	%
Average Loan Receivables	$	51,818,029		$	51,530,934		$	50,843,952		$	51,574,268		$	49,318,549		$	2,499,480			5	%	$	51,440,039		$	48,401,547		$	3,038,492			6	%
Total Assets	$	65,724,235		$	65,457,390		$	65,112,826		$	57,782,359		$	55,512,185		$	10,212,050			18	%	$	65,724,235		$	55,512,185		$	10,212,050			18	%
Total Equity ³	$	5,571,839		$	5,667,282		$	5,780,284		$	5,528,658		$	5,774,772		$	(202,933	)		(4	%)	$	5,571,839		$	5,774,772		$	(202,933	)		(4	%)
Total Tangible Equity ³	$	5,218,375		$	4,927,431		$	5,044,586		$	4,797,784		$	5,039,867		$	178,508			4	%	$	5,218,375		$	5,039,867		$	178,508			4	%
Tangible Equity/Net Managed Receivables		10.1	%		9.6	%		10.0	%		9.6	%		10.2	%								10.1	%		10.2	%		(0	)	bps
Tangible Equity/Total Managed Assets		7.9	%		7.5	%		7.8	%		8.3	%		9.1	%								7.9	%		9.1	%

Net Yield on Loan Receivables		7.57	%		7.58	%		7.56	%		7.50	%		7.60	%		(3	)	bps				7.55	%		7.91	%		(36	)	bps
Return on Loan Receivables		(0.65	%)		1.56	%		1.63	%		1.84	%		1.52	%		(217	)	bps				1.09	%		2.22	%		(113	)	bps

Total Credit Card Loans
Credit Card Loans - Managed	$	52,302,410		$	51,800,446		$	51,415,812		$	50,840,710		$	50,350,328		$	1,952,082			4	%	$	52,302,410		$	50,350,328		$	1,952,082			4	%
Average Credit Card Loans - Managed	$	51,688,457		$	51,440,722		$	50,751,580		$	51,478,643		$	49,214,953		$	2,473,504			5	%	$	51,338,135		$	48,216,546		$	3,121,589			6	%

Managed Interest Yield		12.63	%		12.52	%		12.35	%		12.25	%		12.22	%		41		bps				12.44	%		12.36	%		8		bps
Managed Net Principal Charge-off Rate		4.08	%		3.95	%		4.23	%		4.05	%		4.15	%		(7	)	bps				4.08	%		4.08	%		0		bps
Managed Delinquency Rate (over 30 days)		3.73	%		3.30	%		3.12	%		3.44	%		3.50	%		23		bps				3.73	%		3.50	%		23		bps
Managed Delinquency Rate (over 90 days)		1.74	%		1.55	%		1.51	%		1.68	%		1.65	%		9		bps				1.74	%		1.65	%		9		bps

Total Credit Card Volume
Domestic	$	26,159,776		$	27,171,729		$	26,408,578		$	26,880,735		$	25,682,545		$	477,231			2	%	$	106,620,818		$	102,901,893		$	3,718,925			4	%
International		3,428,543			3,601,870			3,646,009			3,578,199			3,547,702			(119,159	)		(3	%)		14,254,621			11,881,465			2,373,156			20	%
Total	$	29,588,319		$	30,773,599		$	30,054,587		$	30,458,934		$	29,230,247		$	358,072			1	%	$	120,875,439		$	114,783,358		$	6,092,081			5	%

Total Credit Card Sales Volume
Domestic	$	22,588,639		$	23,527,999		$	22,108,865		$	22,037,053		$	21,404,325		$	1,184,314			6	%	$	90,262,556		$	86,385,577		$	3,876,979			4	%
International		3,212,885			3,296,360			3,277,439			3,169,284			3,123,230			89,655			3	%		12,955,968			10,335,331			2,620,637			25	%
Total	$	25,801,524		$	26,824,359		$	25,386,304		$	25,206,337		$	24,527,555		$	1,273,969			5	%	$	103,218,524		$	96,720,908		$	6,497,616			7	%

Segment - Income Before Income Taxes
U.S. Card	$	327,526		$	387,085		$	388,813		$	401,026		$	228,986		$	98,540			43	%	$	1,504,450		$	1,640,453		$	(136,003	)		(8	%)
Third Party Payments		7,591			9,439			8,010			11,920			6,946			645			9	%		36,960			28,949			8,011			28	%
International Card		(423,122	)		(67,310	)		(64,297	)		(41,485	)		(50,391	)		(372,731	)	NM				(596,214	)		(87,097	)		(509,117	)	NM
Total	$	(88,005	)	$	329,214		$	332,526		$	371,461		$	185,541		$	(273,546	)		(147	%)	$	945,196		$	1,582,305		$	(637,109	)		(40	%)


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.

²The quarter ended November 30, 2007 includes a $391 million pre-tax ($279 million after-tax) non-cash impairment charge related to the company's Goldfish business in the International Card Segment.

³ Balance on a GAAP and Managed basis is the same.

Discover Financial Services

U.S. Card Segment

Managed Basis¹

(unaudited, dollars in thousands)

	Quarter Ended															Nov 30, 2007						Year Ended
	Nov 30, 2007			Aug 31, 2007			May 31, 2007			Feb 28, 2007			Nov 30, 2006			vs Nov 30, 2006						2007			2006			2007 vs 2006

Earnings Summary
Interest Income	$	1,666,768		$	1,626,214		$	1,601,324		$	1,481,992		$	1,429,508		$	237,260			17	%	$	6,376,298		$	5,748,698		$	627,600			11	%
Interest Expense		743,975			697,643			693,837			593,610			562,185			181,790			32	%		2,729,065			2,160,569			568,496			26	%
Net Interest Income		922,793			928,571			907,487			888,382			867,323			55,470			6	%		3,647,233			3,588,129			59,104			2	%
Other Income		603,709			481,060			526,304			490,003			493,713			109,996			22	%		2,101,076			2,097,676			3,400			0	%
Revenue Net of Interest Expense		1,526,502			1,409,631			1,433,791			1,378,385			1,361,036			165,466			12	%		5,748,309			5,685,805			62,504			1	%
Provision for Loan Losses		584,722			418,349			444,249			406,076			452,965			131,757			29	%		1,853,396			1,663,472			189,924			11	%
Total Other Expense		614,254			604,197			600,729			571,283			679,085			(64,831	)		(10	%)		2,390,463			2,381,880			8,583			0	%
Income Before Income Taxes	$	327,526		$	387,085		$	388,813		$	401,026		$	228,986		$	98,540			43	%	$	1,504,450		$	1,640,453		$	(136,003	)		(8	%)

Loan Receivables	$	48,180,436		$	47,444,107		$	46,953,902		$	46,356,858		$	45,802,071		$	2,378,365			5	%	$	48,180,436		$	45,802,071		$	2,378,365			5	%
Average Loan Receivables	$	47,381,471		$	47,016,472		$	46,296,296		$	46,965,884		$	44,899,320		$	2,482,151			6	%	$	46,913,474		$	44,409,231		$	2,504,243			6	%

Net Yield on Loan Receivables		7.81	%		7.84	%		7.78	%		7.67	%		7.75	%		6		bps				7.77	%		8.08	%		(31	)	bps
Pretax Return on Loan Receivables		2.77	%		3.27	%		3.33	%		3.46	%		2.05	%		72		bps				3.21	%		3.69	%		(48	)	bps

Total Credit Card Loans
Credit Card Loans - Managed	$	47,929,242		$	47,352,098		$	46,864,317		$	46,266,012		$	45,706,222		$	2,223,020			5	%	$	47,929,242		$	45,706,222		$	2,223,020			5	%
Average Credit Card Loans - Managed	$	47,251,899		$	46,926,260		$	46,203,924		$	46,870,259		$	44,795,724		$	2,456,175			5	%	$	46,811,570		$	44,277,249		$	2,534,321			6	%

Managed Interest Yield		12.85	%		12.76	%		12.59	%		12.45	%		12.42	%		43		bps				12.66	%		12.53	%		13		bps
Managed Net Principal Charge-off Rate		3.84	%		3.70	%		4.00	%		3.81	%		3.99	%		(15	)	bps				3.84	%		3.96	%		(12	)	bps
Managed Delinquency Rate (over 30 days)		3.59	%		3.16	%		2.97	%		3.31	%		3.39	%		20		bps				3.59	%		3.39	%		20		bps
Managed Delinquency Rate (over 90 days)		1.68	%		1.48	%		1.44	%		1.63	%		1.59	%		9		bps				1.68	%		1.59	%		9		bps

Total Credit Card Volume	$	26,159,776		$	27,171,729		$	26,408,578		$	26,880,735		$	25,682,545		$	477,231			2	%	$	106,620,818		$	102,901,893		$	3,718,925			4	%
Sales Volume	$	22,588,639		$	23,527,999		$	22,108,865		$	22,037,053		$	21,404,325		$	1,184,314			6	%	$	90,262,556		$	86,385,577		$	3,876,979			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.

Discover Financial Services

Third Party Payments Segment

(unaudited, dollars in thousands)

	Quarter Ended										Nov 30, 2007					Year Ended
	Nov 30, 2007		Aug 31, 2007		May 31, 2007		Feb 28, 2007		Nov 30, 2006		vs Nov 30, 2006					2007		2006		2007 vs 2006

Earnings Summary
Interest Income	$	650	$	594	$	558	$	574	$	516	$	134		26	%	$	2,376	$	1,801	$	575		32	%
Interest Expense		-		-		4		15		6		(6	)	(100	%)		19		23		(4	)	(17	%)
Net Interest Income		650		594		554		559		510		140		27	%		2,357		1,778		579		33	%
Other Income		29,305		29,465		29,248		30,682		28,077		1,228		4	%		118,700		110,700		8,000		7	%
Revenue Net of Interest Expense		29,955		30,059		29,802		31,241		28,587		1,368		5	%		121,057		112,478		8,579		8	%
Provision for Loan Losses		-		-		-		-		-		-		0	%		-		-		-		0	%
Total Other Expense		22,364		20,620		21,792		19,321		21,641		723		3	%		84,097		83,529		568		1	%
Income Before Income Taxes	$	7,591	$	9,439	$	8,010	$	11,920	$	6,946	$	645		9	%	$	36,960	$	28,949	$	8,011		28	%

Network Volume
PULSE Network	$	23,035,361	$	22,372,106	$	20,799,365	$	20,029,576								$	86,236,408
Third Party Issuers		1,458,959		1,492,568		1,313,438		1,215,140									5,480,105
Total Third Party Payments	$	24,494,320	$	23,864,674	$	22,112,803	$	21,244,716	$	19,178,369	$	5,315,951		28	%	$	91,716,513	$	73,196,400	$	18,520,113		25	%

Transactions Processed on PULSE Network (000's)		611,518		593,866		558,811		520,866		488,087		123,431		25	%		2,285,061		1,856,477		428,584		23	%

Discover Financial Services

International Card Segment

Managed Basis¹

(unaudited, dollars in thousands)

	Quarter Ended															Nov 30, 2007						Year Ended
	Nov 30, 2007			Aug 31, 2007			May 31, 2007			Feb 28, 2007			Nov 30, 2006			vs Nov 30, 2006						2007			2006			2007 vs 2006

Earnings Summary
Interest Income	$	125,654		$	125,111		$	113,962		$	117,118		$	113,782		$	11,872			10	%	$	481,845		$	416,986		$	64,859			16	%
Interest Expense		71,233			69,808			53,462			52,201			46,911			24,322			52	%		246,704			176,997			69,707			39	%
Net Interest Income		54,421			55,303			60,500			64,917			66,871			(12,450	)		(19	%)		235,141			239,989			(4,848	)		(2	%)
Other Income		49,330			42,096			41,863			34,754			38,263			11,067			29	%		168,043			165,160			2,883			2	%
Revenue Net of Interest Expense		103,751			97,399			102,363			99,671			105,134			(1,383	)		(1	%)		403,184			405,149			(1,965	)		(0	%)
Provision for Loan Losses		63,996			90,677			86,189			76,584			74,574			(10,578	)		(14	%)		317,446			238,172			79,274			33	%
Total Other Expense ²		462,877			74,032			80,471			64,572			80,951			381,926		NM				681,952			254,074			427,878			168	%
Income (Loss) Before Income Taxes ²	$	(423,122	)	$	(67,310	)	$	(64,297	)	$	(41,485	)	$	(50,391	)	$	(372,731	)	NM			$	(596,214	)	$	(87,097	)	$	(509,117	)	NM

Loan Receivables	$	4,373,168		$	4,448,348		$	4,551,495		$	4,574,698		$	4,644,106		$	(270,938	)		(6	%)	$	4,373,168		$	4,644,106		$	(270,938	)		(6	%)
Average Loan Receivables	$	4,436,558		$	4,514,462		$	4,547,656		$	4,608,384		$	4,419,229		$	17,329			0	%	$	4,526,565		$	3,992,316		$	534,249			13	%

Net Yield on Loan Receivables		4.92	%		4.86	%		5.28	%		5.71	%		6.07	%		(115	)	bps				5.19	%		6.01	%		(82	)	bps
Pretax Return on Loan Receivables ²		(38.25	%)		(5.92	%)		(5.61	%)		(3.65	%)		(4.57	%)		(3,368	)	bps				(13.17	%)		(2.18	%)		(1099	)	bps

Total Credit Card Loans
Credit Card Loans - Managed	$	4,373,168		$	4,448,348		$	4,551,495		$	4,574,698		$	4,644,106		$	(270,938	)		(6	%)	$	4,373,168		$	4,644,106		$	(270,938	)		(6	%)
Average Credit Card Loans - Managed	$	4,436,558		$	4,514,462		$	4,547,656		$	4,608,384		$	4,419,229		$	17,329			0	%	$	4,526,565		$	3,939,297		$	587,268			15	%

Managed Interest Yield		10.32	%		10.00	%		9.89	%		10.25	%		10.23	%		9		bps				10.11	%		10.38	%		(27	)	bps
Managed Net Principal Charge-off Rate		6.65	%		6.56	%		6.50	%		6.45	%		5.80	%		85		bps				6.54	%		5.45	%		109		bps
Managed Delinquency Rate (over 30 days)		5.25	%		4.89	%		4.69	%		4.75	%		4.58	%		67		bps				5.25	%		4.58	%		67		bps
Managed Delinquency Rate (over 90 days)		2.43	%		2.30	%		2.25	%		2.25	%		2.22	%		21		bps				2.43	%		2.22	%		21		bps

Total Credit Card Volume	$	3,428,543		$	3,601,870		$	3,646,009		$	3,578,199		$	3,547,702		$	(119,159	)		(3	%)	$	14,254,621		$	11,881,465		$	2,373,156			20	%
Sales Volume	$	3,212,885		$	3,296,360		$	3,277,439		$	3,169,284		$	3,123,230		$	89,655			3	%	$	12,955,968		$	10,335,331		$	2,620,637			25	%


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.

²Includes non-cash impairment charge related to the company's Goldfish business ($391 million pre-tax, $279 million after-tax).

DISCOVER FINANCIAL SERVICES

RECONCILIATION OF GAAP TO MANAGED

The following pages present a reconciliation for certain information disclosed in the financial data supplement.

Discover Financial Services
Reconciliation of GAAP to Managed ¹
(unaudited, dollars in thousands)

	Quarter Ended															Year Ended
	Nov 30, 2007			Aug 31, 2007			May 31, 2007			Feb 28, 2007			Nov 30, 2006			2007			2006

Interest Income
GAAP Basis	$	748,889		$	755,610		$	703,365		$	680,305		$	622,166		$	2,888,169		$	2,458,526
Securitization Adjustments ¹		1,044,183			996,309			1,012,479			919,379			921,640			3,972,350			3,708,959
Managed Basis	$	1,793,072		$	1,751,919		$	1,715,844		$	1,599,684		$	1,543,806		$	6,860,519		$	6,167,485

Interest Expense
GAAP Basis	$	400,734		$	361,469		$	336,253		$	283,959		$	243,518		$	1,382,415		$	940,040
Securitization Adjustments		414,474			405,982			411,050			361,867			365,584			1,593,373			1,397,549
Managed Basis	$	815,208		$	767,451		$	747,303		$	645,826		$	609,102		$	2,975,788		$	2,337,589

Net Interest Income
GAAP Basis	$	348,155		$	394,141		$	367,112		$	396,346		$	378,648		$	1,505,754		$	1,518,486
Securitization Adjustments		629,709			590,327			601,429			557,512			556,056			2,378,977			2,311,410
Managed Basis	$	977,864		$	984,468		$	968,541		$	953,858		$	934,704		$	3,884,731		$	3,829,896

Other Income
GAAP Basis	$	1,003,251		$	845,498		$	871,693		$	825,677		$	828,263		$	3,546,119		$	3,538,939
Securitization Adjustments		(320,907	)		(292,877	)		(274,278	)		(270,238	)		(268,210	)		(1,158,300	)		(1,165,403	)
Managed Basis	$	682,344		$	552,621		$	597,415		$	555,439		$	560,053		$	2,387,819		$	2,373,536

Revenue Net of Interest Expense
GAAP Basis	$	1,351,406		$	1,239,639		$	1,238,805		$	1,222,023		$	1,206,911		$	5,051,873		$	5,057,425
Securitization Adjustments		308,802			297,450			327,151			287,274			287,846			1,220,677			1,146,007
Managed Basis	$	1,660,208		$	1,537,089		$	1,565,956		$	1,509,297		$	1,494,757		$	6,272,550		$	6,203,432

Provision for Loan Losses
GAAP Basis	$	339,916		$	211,576		$	203,287		$	195,386		$	239,693		$	950,165		$	755,637
Securitization Adjustments		308,802			297,450			327,151			287,274			287,846			1,220,677			1,146,007
Managed Basis	$	648,718		$	509,026		$	530,438		$	482,660		$	527,539		$	2,170,842		$	1,901,644

Loan Receivables
GAAP Basis	$	23,954,295		$	22,393,598		$	22,788,042		$	22,611,707		$	23,742,750		$	23,954,295		$	23,742,750
Securitization Adjustments		28,599,309			29,498,857			28,717,355			28,319,849			26,703,427			28,599,309			26,703,427
Managed Basis	$	52,553,604		$	51,892,455		$	51,505,397		$	50,931,556		$	50,446,177		$	52,553,604		$	50,446,177

Total Assets
GAAP Basis	$	37,348,409		$	36,141,011		$	35,672,568		$	29,763,803		$	29,067,242		$	37,348,409		$	29,067,242
Securitization Adjustments		28,375,826			29,316,379			29,440,258			28,018,556			26,444,943			28,375,826			26,444,943
Managed Basis	$	65,724,235		$	65,457,390		$	65,112,826		$	57,782,359		$	55,512,185		$	65,724,235		$	55,512,185

Tangible Equity/Total Assets
GAAP Basis		14.0	%		13.6	%		14.1	%		16.1	%		17.3	%		14.0	%		17.3	%
Securitization Adjustments		18.4	%		16.8	%		17.1	%		17.1	%		19.1	%		18.4	%		19.1	%
Managed Basis		7.9	%		7.5	%		7.8	%		8.3	%		9.1	%		7.9	%		9.1	%

Total Credit Card Loans
Credit Card Loans
GAAP Basis	$	23,703,101		$	22,301,589		$	22,698,457		$	22,520,861		$	23,646,901		$	23,703,101		$	23,646,901
Securitization Adjustments		28,599,309			29,498,857			28,717,355			28,319,849			26,703,427			28,599,309			26,703,427
Managed Basis	$	52,302,410		$	51,800,446		$	51,415,812		$	50,840,710		$	50,350,328		$	52,302,410		$	50,350,328

Average Credit Card Loans
GAAP Basis	$	22,468,387		$	22,646,290		$	21,419,465		$	24,760,587		$	22,573,508		$	22,814,043		$	21,656,295
Securitization Adjustments		29,220,070			28,794,432			29,332,115			26,718,056			26,641,445			28,524,092			26,560,251
Managed Basis	$	51,688,457		$	51,440,722		$	50,751,580		$	51,478,643		$	49,214,953		$	51,338,135		$	48,216,546

Discover Financial Services
Reconciliation of GAAP to Managed ¹
(unaudited, dollars in thousands)

	Quarter Ended															Year Ended
	Nov 30, 2007			Aug 31, 2007			May 31, 2007			Feb 28, 2007			Nov 30, 2006			2007			2006

Interest Yield
GAAP Basis		10.43	%		10.99	%		10.50	%		10.41	%		10.27	%		10.58	%		10.38	%
Securitization Adjustments		14.33	%		13.73	%		13.69	%		13.96	%		13.88	%		13.93	%		13.96	%
Managed Basis		12.63	%		12.52	%		12.35	%		12.25	%		12.22	%		12.44	%		12.36	%

Net Principal Charge-off Rate
GAAP Basis		3.90	%		3.71	%		3.91	%		3.77	%		3.95	%		3.82	%		3.79	%
Securitization Adjustments		4.23	%		4.13	%		4.46	%		4.30	%		4.32	%		4.28	%		4.31	%
Managed Basis		4.08	%		3.95	%		4.23	%		4.05	%		4.15	%		4.08	%		4.08	%

Delinquency Rate (over 30 days)
GAAP Basis		3.50	%		3.07	%		2.94	%		3.15	%		3.22	%		3.50	%		3.22	%
Securitization Adjustments		3.92	%		3.48	%		3.26	%		3.67	%		3.76	%		3.92	%		3.76	%
Managed Basis		3.73	%		3.30	%		3.12	%		3.44	%		3.50	%		3.73	%		3.50	%

Delinquency Rate (over 90 days)
GAAP Basis		1.63	%		1.44	%		1.43	%		1.55	%		1.53	%		1.63	%		1.53	%
Securitization Adjustments		1.84	%		1.63	%		1.58	%		1.79	%		1.75	%		1.84	%		1.75	%
Managed Basis		1.74	%		1.55	%		1.51	%		1.68	%		1.65	%		1.74	%		1.65	%

US CARD
Loan Receivables
GAAP Basis	$	20,831,117		$	19,170,450		$	19,938,986		$	19,727,837		$	20,790,244		$	20,831,117		$	20,790,244
Securitization Adjustments		27,349,319			28,273,657			27,014,916			26,629,021			25,011,827			27,349,319			25,011,827
Managed Basis	$	48,180,436		$	47,444,107		$	46,953,902		$	46,356,858		$	45,802,071		$	48,180,436		$	45,802,071

Domestic Credit Card Loans
Credit Card Loans
GAAP Basis	$	20,579,923		$	19,078,441		$	19,849,401		$	19,636,991		$	20,694,395		$	20,579,923		$	20,694,395
Securitization Adjustments		27,349,319			28,273,657			27,014,916			26,629,021			25,011,827			27,349,319			25,011,827
Managed Basis	$	47,929,242		$	47,352,098		$	46,864,317		$	46,266,012		$	45,706,222		$	47,929,242		$	45,706,222

Average Credit Card Loans
GAAP Basis	$	19,276,203		$	19,722,180		$	18,581,153		$	21,841,166		$	19,785,248		$	19,845,880		$	19,120,946
Securitization Adjustments		27,975,696			27,204,080			27,622,771			25,029,093			25,010,476			26,965,690			25,156,303
Managed Basis	$	47,251,899		$	46,926,260		$	46,203,924		$	46,870,259		$	44,795,724		$	46,811,570		$	44,277,249

Interest Yield
GAAP Basis		10.53	%		11.22	%		10.72	%		10.55	%		10.37	%		10.75	%		10.50	%
Securitization Adjustments		14.45	%		13.88	%		13.85	%		14.10	%		14.04	%		14.07	%		14.08	%
Managed Basis		12.85	%		12.76	%		12.59	%		12.45	%		12.42	%		12.66	%		12.53	%

Net Principal Charge-off Rate
GAAP Basis		3.43	%		3.27	%		3.51	%		3.43	%		3.67	%		3.41	%		3.64	%
Securitization Adjustments		4.13	%		4.01	%		4.34	%		4.14	%		4.23	%		4.15	%		4.20	%
Managed Basis		3.84	%		3.70	%		4.00	%		3.81	%		3.99	%		3.84	%		3.96	%

Delinquency Rate (over 30 days)
GAAP Basis		3.28	%		2.80	%		2.71	%		2.97	%		3.05	%		3.28	%		3.05	%
Securitization Adjustments		3.82	%		3.40	%		3.16	%		3.56	%		3.67	%		3.82	%		3.67	%
Managed Basis		3.59	%		3.16	%		2.97	%		3.31	%		3.39	%		3.59	%		3.39	%

Delinquency Rate (over 90 days)
GAAP Basis		1.53	%		1.31	%		1.31	%		1.46	%		1.44	%		1.53	%		1.44	%
Securitization Adjustments		1.79	%		1.60	%		1.54	%		1.75	%		1.72	%		1.79	%		1.72	%
Managed Basis		1.68	%		1.48	%		1.44	%		1.63	%		1.59	%		1.68	%		1.59	%

Discover Financial Services
Reconciliation of GAAP to Managed ¹
(unaudited, dollars in thousands)

	Quarter Ended															Year Ended
	Nov 30, 2007			Aug 31, 2007			May 31, 2007			Feb 28, 2007			Nov 30, 2006			2007			2006

INTERNATIONAL CARD
Loan Receivables
GAAP Basis	$	3,123,178		$	3,223,148		$	2,849,056		$	2,883,870		$	2,952,506		$	3,123,178		$	2,952,506
Securitization Adjustments		1,249,990			1,225,200			1,702,439			1,690,828			1,691,600			1,249,990			1,691,600
Managed Basis	$	4,373,168		$	4,448,348		$	4,551,495		$	4,574,698		$	4,644,106		$	4,373,168		$	4,644,106

International Credit Card Loans
Credit Card Loans
GAAP Basis	$	3,123,178		$	3,223,148		$	2,849,056		$	2,883,870		$	2,952,506		$	3,123,178		$	2,952,506
Securitization Adjustments		1,249,990			1,225,200			1,702,439			1,690,828			1,691,600			1,249,990			1,691,600
Managed Basis	$	4,373,168		$	4,448,348		$	4,551,495		$	4,574,698		$	4,644,106		$	4,373,168		$	4,644,106

Average Credit Card Loans
GAAP Basis	$	3,192,184		$	2,924,110		$	2,838,312		$	2,919,421		$	2,788,260		$	2,968,163		$	2,535,349
Securitization Adjustments		1,244,374			1,590,352			1,709,344			1,688,963			1,630,969			1,558,402			1,403,948
Managed Basis	$	4,436,558		$	4,514,462		$	4,547,656		$	4,608,384		$	4,419,229		$	4,526,565		$	3,939,297

Interest Yield
GAAP Basis		9.77	%		9.42	%		9.09	%		9.38	%		9.53	%		9.42	%		9.51	%
Securitization Adjustments		11.75	%		11.07	%		11.20	%		11.77	%		11.41	%		11.43	%		11.94	%
Managed Basis		10.32	%		10.00	%		9.89	%		10.25	%		10.23	%		10.11	%		10.38	%

Net Principal Charge-off Rate
GAAP Basis		6.70	%		6.71	%		6.53	%		6.29	%		5.88	%		6.56	%		4.94	%
Securitization Adjustments		6.52	%		6.27	%		6.45	%		6.72	%		5.67	%		6.49	%		6.36	%
Managed Basis		6.65	%		6.56	%		6.50	%		6.45	%		5.80	%		6.54	%		5.45	%

Delinquency Rate (over 30 days)
GAAP Basis		4.91	%		4.63	%		4.55	%		4.35	%		4.36	%		4.91	%		4.36	%
Securitization Adjustments		6.09	%		5.55	%		4.93	%		5.42	%		4.96	%		6.09	%		4.96	%
Managed Basis		5.25	%		4.89	%		4.69	%		4.75	%		4.58	%		5.25	%		4.58	%

Delinquency Rate (over 90 days)
GAAP Basis		2.27	%		2.21	%		2.24	%		2.16	%		2.16	%		2.27	%		2.16	%
Securitization Adjustments		2.83	%		2.51	%		2.26	%		2.40	%		2.32	%		2.83	%		2.32	%
Managed Basis		2.43	%		2.30	%		2.25	%		2.25	%		2.22	%		2.43	%		2.22	%


¹Securitization 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.

-----END PRIVACY-ENHANCED MESSAGE-----