a5781612ex99

a5781612ex99_1.htm

Exhibit 99.1

DISCOVER FINANCIAL SERVICES REPORTS THIRD QUARTER RESULTS:

NET INCOME OF $180 MILLION AND EARNINGS PER SHARE OF $.37

Riverwoods, IL, Sept. 25, 2008 - Discover Financial Services (NYSE: DFS) today reported net income for the third quarter of 2008 of $180 million, or $.37 per share, as compared to $202 million, or $.42 per share, in the third quarter of 2007. Income from continuing operations was $179 million, or $.37 per share, as compared to $244 million, or $.51 per share, in the third quarter of 2007.

Third Quarter Highlights

·	Managed loans grew 6% from last year to $50 billion; Discover Card sales grew 5% to $25 billion.

·	Revenue net of interest expense increased 8% from last year, 14% on a managed basis, while expenses decreased 2%.

·	The third-quarter managed net charge-off rate was 5.20% and the managed over 30 days delinquency rate was 3.85%.

·	The company added reserves in excess of charge-offs of $113 million.

·	The Third-Party Payments segment volume grew 48% to $35 billion, including $5 billion of Diners Club International volume. The company completed its acquisition of Diners Club International on June 30, 2008.

“While the consumer credit environment and funding costs continue to be challenging, Discover’s results demonstrate the underlying quality of our customer base and reflect our disciplined loan underwriting process and multi-channel funding strategy,” said David Nelms, chief executive officer of Discover Financial Services. “Card sales volume and receivables grew this quarter as our cardmembers took advantage of the value provided by our various Discover products and programs.” Nelms added, “The acquisition of Diners Club International, completed this quarter, has quickly added to the already strong results of our Third-Party Payments segment.”

Segment Results (Managed Basis):

U.S. Card

Managed loans grew to $50 billion, up 6% from last year, reflecting growth in both credit card and installment loan receivables. Total Discover Card volume was up 5% year over year, driven by a 5% increase in sales volume, as well as an 11% increase in balance transfer volume.

The managed over 30 days delinquency rate of 3.85% was up 4 basis points from the second quarter of 2008, and 69 basis points from last year. The managed net charge-off rate increased to 5.20% for the third quarter of 2008, up 21 and 154 basis points, respectively, from last quarter and last year.

Pretax income was $245 million in the third quarter of 2008, down 36% from the third quarter of 2007.

·	Managed net interest income increased $180 million, or 19%, an improvement of 116 basis points, reflecting widening net interest margins benefiting from lower cost of funds and amortization of balance transfer fees previously included in loan fee revenue.

·	Provision for loan losses increased $336 million, or 80%, due to higher net charge-offs and a $113 million charge to increase loan loss reserves related to owned loan growth in the quarter, as well as a higher reserve rate.

·	Expenses decreased $20 million, or 3%.

Third-Party Payments

The Third-Party Payments segment produced strong transaction volume of $35 billion, up 48% from last year, reflecting the impact of new issuers, increased volumes from existing issuers and the addition of July and August Diners Club International volume of $5 billion. Diners Club International volume is derived from data provided by licensees and is subject to subsequent revision or amendment.

Pretax income of $29 million was up $19 million from the third quarter of 2007. Diners Club International contributed $7 million to the segment’s pretax income.

·	Revenue increased $25 million, or 84%, due to increased volumes and fee revenues, as well as a $12 million contribution from Diners Club International.

·	Expenses increased $6 million, or 30%, including $5 million in Diners Club International expenses.

Discontinued Operations

Discontinued operations represent the company’s Goldfish business in the United Kingdom which was sold to Barclays Bank PLC on March 31, 2008. In the third quarter of 2008, the company recognized income from discontinued operations, net of tax, of $1 million versus a loss of $42 million in the third quarter of 2007.

Balance Sheet and Liquidity

The company increased cash liquidity by $1.2 billion since May 2008 to $9.6 billion. Funding growth during the quarter was achieved principally through our deposit channels as deposit balances grew $2 billion in the quarter, including $1 billion in growth from the direct to consumer channel.

Tangible equity was $5.5 billion at August 31, 2008, or 11.2% of net managed receivables.

Dividend Declaration/Stock Repurchase Program

On September 16, 2008, the company declared a cash dividend of $.06 per share, payable on Oct. 22, 2008, to stockholders of record at the close of business on Oct. 1, 2008. No stock repurchases were conducted under the stock repurchase program during the third quarter.

Conference Call and Webcast Information

The company will host a conference call to discuss its third quarter results on Thursday, September 25, 2008, 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; PULSE, one of the nation's leading ATM/debit networks; and Diners Club International, a global payments network with acceptance in 185 countries and territories. 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 regarding these loans in a manner similar to the presentation of financial information regarding loans that have not been sold. Management believes it is useful for investors to consider the credit performance of the entire managed loan portfolio to understand the quality of loan originations and the related credit risks inherent in the owned portfolio and retained interests in securitization. For more information, and a detailed reconciliation, please refer to the schedule titled “Reconciliation of GAAP to Managed Data” 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. 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. 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 and under sale accounting treatment; 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, other market fluctuations and other market indices; the availability and cost of funding and capital; access to U.S. debt and deposit markets; losses in our investment portfolio; 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; our ability to successfully integrate the Diners Club International network and maintain relationships with network participants; 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, including the Federal Reserve Board’s proposed amendments limiting certain credit card practices; 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.

Additional factors that could cause Discover Financial Services' results to differ materially from those described in the forward-looking statements can be found under “Part I. Item 1A. Risk Factors” in the Company's Annual Report on Form 10-K for the year ended November 30, 2007 and “Part II. Other Information – Item 1A. Risk Factors” in the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2008, 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
	Aug 31, 2008			May 31, 2008			Aug 31, 2007

Earnings Summary
Interest Income	$	681,692		$	612,063		$	674,864
Interest Expense		305,643			313,248			317,124
Net Interest Income		376,049			298,815			357,740
Other Income		875,121			844,892			804,047
Revenue Net of Interest Expense		1,251,170			1,143,707			1,161,787
Provision for Loan Losses		364,838			210,969			145,827
Employee Compensation and Benefits		222,426			218,290			210,541
Marketing and Business Development		137,928			132,038			153,786
Information Processing & Communications		76,675			79,449			83,779
Professional Fees		82,775			81,392			88,111
Premises and Equipment		20,274			19,803			19,962
Other Expense		72,469			75,853			69,705
Total Other Expense		612,547			606,825			625,884
Income (Loss) Before Income Taxes		273,785			325,913			390,076
Tax Expense		94,885			124,370			145,925
Income From Continuing Operations		178,900			201,543			244,151
Discontinued Operations, Net of Tax 1		1,153			32,605			(41,911	)
Net Income (Loss) 1	$	180,053		$	234,148		$	202,240

Effective Tax Rate From Continuing Operations		34.7	%		38.2	%		37.4	%

Balance Sheet Statistics 2
Total Assets	$	37,283,548		$	34,020,245		$	31,683,866
Total Equity	$	6,000,393		$	5,849,691		$	5,667,282
Total Tangible Equity	$	5,539,274		$	5,538,240		$	5,350,377
Tangible Equity/Total Owned Assets		14.9	%		16.3	%		16.9	%
ROE 1		12	%		16	%		14	%
ROE from Continuing Operations		12	%		14	%		17	%

Allowance for Loan Loss (period end)	$	959,769		$	846,775		$	629,458
Change in Loan Loss Reserves	$	112,994		$	(13,603	)	$	(15,243	)
Reserve Rate		4.41	%		4.28	%		3.28	%
Interest-only Strip Receivable (period end)	$	408,649		$	447,994		$	353,091
Net Revaluation of Retained Interests	$	(33,513	)	$	(44,473	)	$	(23,905	)

Per Share Statistics
Basic EPS 1	$	0.38		$	0.49		$	0.42
Basic EPS from Continuing Operations	$	0.38		$	0.42		$	0.51
Diluted EPS 1	$	0.37		$	0.48		$	0.42
Diluted EPS from Continuing Operations	$	0.37		$	0.42		$	0.51
Stock Price (period end)	$	16.45		$	17.15		$	23.14
Book Value	$	12.51		$	12.20		$	11.87
Ending Shares Outstanding (000's)		479,764			479,346			477,328
Weighted Average Shares Outstanding (000's)		479,618			479,270			477,272
Weighted Average Shares Outstanding (fully diluted) (000's)		484,128			483,753			480,071

Loan Receivables 2
Total Loans - Owned	$	21,767,483		$	20,502,063		$	19,170,450
Average Total Loans - Owned	$	21,053,804		$	19,890,330		$	19,812,392

Interest Yield		11.41	%		10.40	%		11.20	%
Net Principal Charge-off Rate		4.76	%		4.49	%		3.23	%
Delinquency Rate (over 30 days)		3.58	%		3.54	%		2.81	%
Delinquency Rate (over 90 days)		1.73	%		1.81	%		1.31	%

Transactions Processed on Networks (000's)
Discover Network		388,504			370,596			384,335
PULSE Network		713,791			703,404			593,866
Total		1,102,295			1,074,000			978,201

Volume
PULSE Network	$	28,364,575		$	27,830,403		$	22,372,106
Third-Party Issuers		1,711,617			1,603,006			1,492,568
Diners Club International 3		5,226,984			-			-
Total Third-Party Payments		35,303,176			29,433,409			23,864,674
Discover Network - Proprietary 4		25,117,321			23,621,519			24,411,714
Total	$	60,420,497		$	53,054,928		$	48,276,388

1 The quarter ended May 31, 2008 includes income from discontinued operations, net of tax of $32.6 million consisting of a $21 million gain related to disposition of the Goldfish business and income of $12 million related to the Goldfish business operations.

2 Based on Continuing Operations except equity and ROE. Equity is based on company's equity.

3 Volume is derived from data provided by licensees for Diners Club branded cards issued outside of North America and is subject to subsequent revision or amendment.

4 Gross proprietary sales volume on the Discover Network.

Discover Financial Services
Managed Basis 1
(unaudited, dollars in thousands)
	Quarter Ended
	Aug 31, 2008			May 31, 2008			Aug 31, 2007

Earnings Summary
Interest Income	$	1,638,250		$	1,572,697		$	1,626,808
Interest Expense		534,887			550,629			703,024
Net Interest Income		1,103,363			1,022,068			923,784
Other Income		536,997			492,207			510,525
Revenue Net of Interest Expense		1,640,360			1,514,275			1,434,309
Provision for Loan Losses		754,028			581,537			418,349
Employee Compensation and Benefits		222,426			218,290			210,541
Marketing and Business Development		137,928			132,038			153,786
Information Processing & Communications		76,675			79,449			83,779
Professional Fees		82,775			81,392			88,111
Premises and Equipment		20,274			19,803			19,962
Other Expense		72,469			75,853			69,705
Total Other Expense		612,547			606,825			625,884
Income (Loss) Before Income Taxes		273,785			325,913			390,076
Tax Expense		94,885			124,370			145,925
Income From Continuing Operations		178,900			201,543			244,151
Discontinued Operations, Net of Tax 2		1,153			32,605			(41,911	)
Net Income (Loss) 2	$	180,053		$	234,148		$	202,240

Balance Sheet Statistics 3
Total Assets	$	65,632,825		$	62,148,577		$	59,688,962
Total Equity 4	$	6,000,393		$	5,849,691		$	5,667,282
Total Tangible Equity 4	$	5,539,274		$	5,538,240		$	5,350,377
Tangible Equity/Net Managed Receivables		11.2	%		11.8	%		11.4	%
Tangible Equity/Total Managed Assets		8.4	%		8.9	%		9.0	%

Net Yield on Loan Receivables		8.95	%		8.57	%		7.80	%
Return on Loan Receivables		1.45	%		1.69	%		2.06	%

Loan Receivables 3
Total Loans - Managed	$	50,427,305		$	47,841,491		$	47,444,107
Average Total Loans - Managed	$	49,019,083		$	47,472,077		$	47,016,472

Managed Interest Yield		12.67	%		12.41	%		12.75	%
Managed Net Principal Charge-off Rate		5.20	%		4.99	%		3.66	%
Managed Delinquency Rate (over 30 days)		3.85	%		3.81	%		3.16	%
Managed Delinquency Rate (over 90 days)		1.88	%		1.96	%		1.48	%

Credit Card Volume	$	28,611,680		$	25,596,794		$	27,171,729
Credit Card Sales Volume	$	24,601,611		$	22,457,651		$	23,527,999

Segment - Income Before Income Taxes
U.S. Card	$	245,241		$	309,123		$	380,637
Third-Party Payments		28,544			16,790			9,439
Total	$	273,785		$	325,913		$	390,076

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 Data schedule.

2 The quarter ended May 31, 2008 includes income from discontinued operations, net of tax of $32.6 million consisting of a $21 million gain related to disposition of the Goldfish business and income of $12 million related to the Goldfish business operations.

3 Based on Continuing Operations. Equity is based on company's equity.

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

Discover Financial Services
U.S. Card Segment
Managed Basis 1
(unaudited, dollars in thousands)
	Quarter Ended
	Aug 31, 2008			May 31, 2008			Aug 31, 2007

Earnings Summary
Interest Income	$	1,637,588		$	1,572,164		$	1,626,214
Interest Expense		534,870			550,629			703,024
Net Interest Income		1,102,718			1,021,535			923,190
Other Income		482,311			455,074			481,060
Revenue Net of Interest Expense		1,585,029			1,476,609			1,404,250
Provision for Loan Losses		754,028			581,537			418,349
Total Other Expense		585,760			585,949			605,264
Income (Loss) Before Income Taxes	$	245,241		$	309,123		$	380,637

Net Yield on Loan Receivables		8.95	%		8.56	%		7.79	%
Pretax Return on Loan Receivables		1.99	%		2.59	%		3.21	%

Loan Receivables
Total Loans	$	50,427,305		$	47,841,491		$	47,444,107
Average Total Loans	$	49,019,083		$	47,472,077		$	47,016,472

Managed Interest Yield		12.67	%		12.41	%		12.75	%
Managed Net Principal Charge-off Rate		5.20	%		4.99	%		3.66	%
Managed Delinquency Rate (over 30 days)		3.85	%		3.81	%		3.16	%
Managed Delinquency Rate (over 90 days)		1.88	%		1.96	%		1.48	%

Credit Card Loans
Credit Card Loans - Managed	$	49,348,507		$	47,124,842		$	47,352,098
Average Credit Card Loans - Managed	$	48,168,124		$	46,857,480		$	46,926,260

Managed Interest Yield		12.70	%		12.43	%		12.76	%
Managed Net Principal Charge-off Rate		5.28	%		5.05	%		3.67	%
Managed Delinquency Rate (over 30 days)		3.92	%		3.85	%		3.16	%
Managed Delinquency Rate (over 90 days)		1.92	%		1.99	%		1.48	%

Total Credit Card Volume	$	28,611,680		$	25,596,794		$	27,171,729
Sales Volume	$	24,601,611		$	22,457,651		$	23,527,999

Discover Financial Services
Third-Party Payments Segment
(unaudited, dollars in thousands)
	Quarter Ended
	Aug 31, 2008		May 31, 2008		Aug 31, 2007

Earnings Summary
Interest Income	$	662	$	533	$	594
Interest Expense		17		-		-
Net Interest Income		645		533		594
Other Income		54,686		37,133		29,465
Revenue Net of Interest Expense		55,331		37,666		30,059
Provision for Loan Losses		-		-		-
Total Other Expense		26,787		20,876		20,620
Income (Loss) Before Income Taxes	$	28,544	$	16,790	$	9,439

Volume
PULSE Network	$	28,364,575	$	27,830,403	$	22,372,106
Third-Party Issuers		1,711,617		1,603,006		1,492,568
Diners Club International 1		5,226,984		-		-
Total Third-Party Payments	$	35,303,176	$	29,433,409	$	23,864,674

Transactions Processed on PULSE Network (000's)		713,791		703,404		593,866

1 Volume is derived from data provided by licensees for Diners Club branded cards issued outside of North America and is subject to subsequent revision or amendment.

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


	Quarter Ended
	Aug 31, 2008			May 31, 2008			Aug 31, 2007

Interest Income
GAAP Basis	$	681,692		$	612,063		$	674,864
Securitization Adjustments 1		956,558			960,634			951,944
Managed Basis	$	1,638,250		$	1,572,697		$	1,626,808

Interest Expense
GAAP Basis	$	305,643		$	313,248		$	317,124
Securitization Adjustments		229,244			237,381			385,900
Managed Basis	$	534,887		$	550,629		$	703,024

Net Interest Income
GAAP Basis	$	376,049		$	298,815		$	357,740
Securitization Adjustments		727,314			723,253			566,044
Managed Basis	$	1,103,363		$	1,022,068		$	923,784

Other Income
GAAP Basis	$	875,121		$	844,892		$	804,047
Securitization Adjustments		(338,124	)		(352,685	)		(293,522	)
Managed Basis	$	536,997		$	492,207		$	510,525

Revenue Net of Interest Expense
GAAP Basis	$	1,251,170		$	1,143,707		$	1,161,787
Securitization Adjustments		389,190			370,568			272,522
Managed Basis	$	1,640,360		$	1,514,275		$	1,434,309

Provision for Loan Losses
GAAP Basis	$	364,838		$	210,969		$	145,827
Securitization Adjustments		389,190			370,568			272,522
Managed Basis	$	754,028		$	581,537		$	418,349

Total Assets
GAAP Basis	$	37,283,548		$	34,020,245		$	31,683,866
Securitization Adjustments		28,349,277			28,128,332			28,005,096
Managed Basis	$	65,632,825		$	62,148,577		$	59,688,962

Tangible Equity/Total Assets
GAAP Basis		14.9	%		16.3	%		16.9	%
Securitization Adjustments		19.5	%		19.7	%		19.1	%
Managed Basis		8.4	%		8.9	%		9.0	%

Loan Receivables
Total Loans
GAAP Basis	$	21,767,483		$	20,502,063		$	19,170,450
Securitization Adjustments		28,659,822			27,339,428			28,273,657
Managed Basis	$	50,427,305		$	47,841,491		$	47,444,107

Average Total Loans
GAAP Basis	$	21,053,804		$	19,890,330		$	19,812,392
Securitization Adjustments		27,965,279			27,581,747			27,204,080
Managed Basis	$	49,019,083		$	47,472,077		$	47,016,472

Interest Yield
GAAP Basis		11.41	%		10.40	%		11.20	%
Securitization Adjustments		13.61	%		13.86	%		13.88	%
Managed Basis		12.67	%		12.41	%		12.75	%

Net Principal Charge-off Rate
GAAP Basis		4.76	%		4.49	%		3.23	%
Securitization Adjustments		5.54	%		5.34	%		3.97	%
Managed Basis		5.20	%		4.99	%		3.66	%

Delinquency Rate (over 30 days)
GAAP Basis		3.58	%		3.54	%		2.81	%
Securitization Adjustments		4.06	%		4.01	%		3.40	%
Managed Basis		3.85	%		3.81	%		3.16	%

Delinquency Rate (over 90 days)
GAAP Basis		1.73	%		1.81	%		1.31	%
Securitization Adjustments		2.00	%		2.07	%		1.60	%
Managed Basis		1.88	%		1.96	%		1.48	%

Credit Card Loans
Credit Card Loans
GAAP Basis	$	20,688,685		$	19,785,414		$	19,078,441
Securitization Adjustments		28,659,822			27,339,428			28,273,657
Managed Basis	$	49,348,507		$	47,124,842		$	47,352,098

Average Credit Card Loans
GAAP Basis	$	20,202,845		$	19,275,733		$	19,722,180
Securitization Adjustments		27,965,279			27,581,747			27,204,080
Managed Basis	$	48,168,124		$	46,857,480		$	46,926,260

Interest Yield
GAAP Basis		11.45	%		10.40	%		11.22	%
Securitization Adjustments		13.61	%		13.86	%		13.88	%
Managed Basis		12.70	%		12.43	%		12.76	%

Net Principal Charge-off Rate
GAAP Basis		4.92	%		4.63	%		3.24	%
Securitization Adjustments		5.54	%		5.34	%		3.97	%
Managed Basis		5.28	%		5.05	%		3.67	%

Delinquency Rate (over 30 days)
GAAP Basis		3.72	%		3.63	%		2.80	%
Securitization Adjustments		4.06	%		4.01	%		3.40	%
Managed Basis		3.92	%		3.85	%		3.16	%

Delinquency Rate (over 90 days)
GAAP Basis		1.81	%		1.87	%		1.31	%
Securitization Adjustments		2.00	%		2.07	%		1.60	%
Managed Basis		1.92	%		1.99	%		1.48	%

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.

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.