8-K

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 18, 2012

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 incorporation)	(IRS Employer 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)

N/A

(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, 2012, Discover Financial Services (the “Company”) released financial information with respect to the quarter and year ended November 30, 2012. 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 the quarter and year ended November 30, 2012 is attached hereto as Exhibit 99.2 and incorporated herein by reference.

The information contained in this Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 and Exhibit 99.2, is furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, 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, as amended, or the Securities Exchange Act of 1934, as amended, except as shall be expressly stated by specific reference in such filing.

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On December 18, 2012, the Company announced that the Board of Directors had unanimously elected Edward McGrogan, age 46, as Vice President, Controller and Chief Accounting Officer of the Company, effective immediately. Prior to Mr. McGrogan's appointment, Mark Graf, the Company's Chief Financial Officer, acted as principal accounting officer. In connection with Mr. McGrogan's election as Vice President, Controller and Chief Accounting Officer, he will be entitled to an annual salary of $275,000 and will be eligible to receive an annual performance-based award under the Company's Amended and Restated 2007 Omnibus Incentive Plan.

Mr. McGrogan has been employed by the Company for approximately four years serving most recently, as Vice President, Reporting and Accounting Services and previously as Director, External Reporting.  Prior to working at the Company, Mr. McGrogan worked at LaSalle Bank N.A. for approximately ten years in a variety of positions, including as Senior Vice President, Financial Planning and Analysis from 2006 until 2008 and previously as First Vice President, External Reporting.

Mr. McGrogan has no family relationships with any director or executive officer of the Company. Since December 1, 2009, there have been no transactions, or proposed transactions, to which the Company was or is a party, in which Mr. McGrogan had or is to have a direct or indirect material interest.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description
99.1	Press Release of the Company dated December 20, 2012 containing financial information for the quarter and year ended November 30, 2012
99.2	Financial Data Supplement of the Company for the quarter and year ended November 30, 2012

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, 2012	By:	/s/ Simon Halfin
		Name:  Simon Halfin
		Title:  Vice President, Assistant General Counsel and Assistant Secretary

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release of the Company dated December 20, 2012 containing financial information for the quarter and year ended November 30, 2012
99.2	Financial Data Supplement of the Company for the quarter and year ended November 30, 2012

EX-99.1

Exhibit 99.1

DISCOVER FINANCIAL SERVICES REPORTS FOURTH QUARTER NET INCOME OF $551 MILLION OR $1.07 PER DILUTED SHARE

DECLARES QUARTERLY DIVIDEND OF $0.14 PER SHARE, AN INCREASE OF 40%

Riverwoods, IL, Dec. 20, 2012 – Discover Financial Services (NYSE: DFS) today reported net income of $551 million or $1.07 per diluted share for the fourth quarter of 2012, as compared to $513 million or $0.95 per share for the fourth quarter of 2011.  The company’s return on equity was 23%.

Fourth Quarter Highlights

● Total loans, credit card loans and Discover card sales volume all grew 6% from the prior year.

● Credit card net charge-offs reached historic lows with a net charge-off rate of 2.29%. Credit card loan delinquencies over 30 days past due increased 5 basis points sequentially to 1.86%.

● Payment Services pretax income was down 21% from the prior year to $33 million. Transaction volume for the segment was $49.0 billion in the quarter, an increase of 13% from the prior year.

“Our strategy and business model are working as we achieved organic growth in all of our lending products,” said David Nelms, chairman and CEO of Discover.  “I am proud of our strong performance this year and our achievement of record net income, record volumes and a strong return on equity.  In 2012, we established new partnerships in payments, diversified our direct banking product offerings and demonstrated our commitment to returning excess capital, which we are further emphasizing with a 40% increase in our dividend.”

Segment Results:

Direct Banking

Direct Banking pretax income of $827 million in the quarter was up $51 million, or 7%, from the prior year.

Discover card sales volume grew 6% from the prior year to $26.5 billion.  Credit card loans ended the quarter at $49.6 billion, up 6%, from the prior year.

Total loans ended the quarter at $61.0 billion, up 6% compared to the prior year.  Private student loans increased $426 million, or 6%, from the prior year and personal loans increased $624 million, or 24%, from the prior year.

Net interest margin was 9.44%, up 34 basis points from the prior year.  The increase in net interest margin from the prior year reflects decreased funding costs partially offset by lower total yield.  Credit card yield was 12.16%, a decrease of 20 basis points from the prior year.  The decline in credit card yield from the prior year reflects an increase in promotional rate balances and a decline in higher rate balances, partially offset by lower interest charge-offs.  Interest expense as a percent of total loans decreased 49 basis points from the prior year as the company continued to take advantage of available low rate funding.

Net interest income increased $134 million, or 11%, from the prior year, benefiting from loan growth and lower interest expense, which was partially offset by a decline in total yield.

The delinquency rate for credit card loans over 30 days past due was 1.86%, an improvement of 53 basis points from the prior year, and a seasonal increase of 5 basis points from the prior quarter.  The credit card net charge-off rate improved to 2.29% for the fourth quarter of 2012, down 95 basis points from the prior year, and 14 basis points from the prior quarter.

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Net principal charge-offs were $87 million lower than the prior year as a result of the continued decline in delinquencies and bankruptcies.  Provision for loan losses of $338 million increased $19 million, or 6%, from the prior year, driven by an increase in loan loss reserves partially offset by the decline in charge-offs.  The reserve build for the fourth quarter of 2012 was $38 million reflecting reserve additions due to loan growth.  The fourth quarter of 2011 included a reserve release of $68 million.

Other income increased $50 million, or 11%, from the prior year primarily due to revenue from Discover Home Loans, which was launched in June 2012 after acquiring Home Loan Center assets from Tree.com, higher interchange revenue as a result of increased sales and a $26 million gain on sale of a minority investment.  Increases in other income were partially offset by higher customer rewards.

Expenses were up $114 million, or 18%, from the prior year.  The increase was primarily due to higher employee compensation and marketing expenses associated with the Home Loan Center acquisition in June, increased card marketing initiatives and higher headcount.

Payment Services

Payment Services pretax income was $33 million in the quarter, down $9 million, or 21%, from the prior year.  Revenue increased $8 million, primarily driven by an increase in point-of-sale transactions on the PULSE network.  Expenses were up $17 million from the prior year mainly due to higher marketing and employee expenses, primarily related to new partnership and growth initiatives.

Payment Services dollar volume was $49.0 billion for the fourth quarter of 2012, up 13% from the prior year, driven by higher PULSE and Network Partners volume.  Network Partners was formerly referred to as Third-Party Issuers. The name change does not impact the composition of the business.

Dividend

The company’s board declared a cash dividend of $0.14 per share of common stock, payable on Jan. 17, 2013, to stockholders of record at the close of business on Jan. 3, 2013.

Share Repurchases

In the fourth quarter of 2012, the company repurchased approximately 10 million shares of common stock for $401 million. Shares outstanding declined by 2% from prior quarter.

Conference Call and Webcast Information

The company will host a conference call to discuss its fourth quarter results on Thursday, December 20, 2012, at 10:30 a.m. Central time.  Interested parties can listen to the conference call via a live audio webcast at http://investorrelations.discoverfinancial.com.

About Discover

Discover Financial Services (NYSE: DFS) is a direct banking and payment services company with one of the most recognized brands in U.S. financial services. Since its inception in 1986, the company has become one of the largest card issuers in the United States. The company operates the Discover card, America's cash rewards pioneer, and offers home loans, private student loans, personal loans, online savings accounts, certificates of deposit and money market accounts through its direct banking business. Its payment businesses consist of 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 more than 185 countries and territories. For more information, visit www.discoverfinancial.com.

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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 filed as Exhibit 99.2 to the company’s Current Report on Form 8-K filed today with the Securities and Exchange Commission (“SEC”). Both the earnings release and the financial supplement are available online at the SEC’s website (http://www.sec.gov) and the company’s website (http://investorrelations.discoverfinancial.com).

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which speak to our expected business and financial performance, among other matters, contain words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” and similar expressions. Such statements are based upon the current beliefs and expectations of the company’s 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: changes in economic variables, such as the availability of consumer credit, the housing market, energy costs, the number and size of personal bankruptcy filings, the rate of unemployment, the levels of consumer confidence and consumer debt, and investor sentiment; the impact of current, pending and future legislation, regulation, supervisory guidance, and regulatory and legal actions, including those related to financial regulatory reform, consumer financial services practices, and funding, capital and liquidity; the actions and initiatives of current and potential competitors; the company’s ability to manage its expenses; the company’s ability to successfully achieve full card acceptance across its networks and maintain relationships with network participants; the company’s ability to sustain and grow its private student loan portfolio; the company’s ability to manage its credit risk, market risk, liquidity risk, operational risk, legal and compliance risk, and strategic risk; the availability and cost of funding and capital; access to deposit, securitization, equity, debt and credit markets; the impact of rating agency actions; the level and volatility of equity prices, commodity prices and interest rates, currency values, investments, other market fluctuations and other market indices; losses in the company’s investment portfolio; limits on the company's ability to pay dividends and repurchase its common stock; fraudulent activities or material security breaches of key systems; the company’s ability to increase or sustain Discover card usage or attract new customers; the company’s ability to attract new merchants and maintain relationships with current merchants; the effect of political, economic and market conditions, geopolitical events and unforeseen or catastrophic events; the company’s ability to introduce new products or services; the company’s ability to manage its relationships with third-party vendors; the company's ability to maintain current technology and integrate new and acquired systems; the company’s ability to collect amounts for disputed transactions from merchants and merchant acquirers; the company’s ability to attract and retain employees; the company’s ability to protect its reputation and its intellectual property; difficulty obtaining regulatory approval for, financing, closing, transitioning, integrating or managing the expenses of acquisitions of or investments in new businesses, products or technologies; and new lawsuits, investigations or similar matters or unanticipated developments related to current matters. The company routinely evaluates and may pursue acquisitions of or investments in businesses, products, technologies, loan portfolios or deposits, which may involve payment in cash or the company's debt or equity securities.

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

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DISCOVER FINANCIAL SERVICES
(unaudited, in millions, except per share statistics)
	Quarter Ended
	Nov 30, 2012			Aug 31, 2012			Nov 30, 2011
EARNINGS SUMMARY
Interest Income		$1,706			$1,695			$1,620
Interest Expense		312			325			360
Net Interest Income		1,394			1,370			1,260
Discount/Interchange Revenue		521			533			489
Rewards		281			268			215
Discount and Interchange Revenue, net		240			265			274
Protection Products Revenue		99			104			107
Loan Fee Income		83			80			87
Transaction Processing Revenue		54			59			48
Other Income		128			86			30
Total Other Income		604			594			546
Revenue Net of Interest Expense		1,998			1,964			1,806
Provision for Loan Losses		338			126			319
Employee Compensation and Benefits		278			274			229
Marketing and Business Development		192			161			144
Information Processing & Communications		78			69			69
Professional Fees		115			107			114
Premises and Equipment		20			20			18
Other Expense		117			195			95
Total Other Expense		800			826			669
Income Before Income Taxes		860			1,012			818
Tax Expense		309			385			305
Net Income		$551			$627			$513
Net Income Allocated to Common Stockholders		$541			$621			$508
PER SHARE STATISTICS
Basic EPS		$1.08			$1.21			$0.95
Diluted EPS		$1.07			$1.21			$0.95
Common Stock Price (period end)		$41.61			$38.73			$23.82
Book Value per share		$19.55			$18.02			$15.59
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$827			$963			$776
Payment Services		33			49			42
Total		$860			$1,012			$818
BALANCE SHEET SUMMARY
Total Assets		$75,238			$73,909			$68,784
Total Liabilities		65,506			64,763			60,542
Total Equity		9,732			9,146			8,242
Total Liabilities and Stockholders' Equity		$75,238			$73,909			$68,784
TOTAL LOAN RECEIVABLES STATISTICS
Ending Loans 1, 2, 3		$61,017			$59,157			$57,337
Average Loans 1, 2		$59,343			$57,721			$55,539
Interest Yield		11.39	%		11.50	%		11.56	%
Net Principal Charge-off Rate		2.03	%		2.12	%		2.81	%
Net Principal Charge-off Rate excluding PCI Loans4		2.21	%		2.32	%		3.05	%
Delinquency Rate (over 30 days) 4		1.75	%		1.71	%		2.30	%
Delinquency Rate (over 90 days) 4		0.83	%		0.81	%		1.14	%
Net Principal Charge-off Dollars		$300			$308			$387
Net Interest and Fee Charge-off Dollars		$88			$92			$128
Loans Delinquent Over 30 Days 4		$983			$931			$1,200
Loans Delinquent Over 90 Days 4		$468			$441			$596
Allowance for Loan Loss (period end)		$1,725			$1,687			$2,205
Change in Loan Loss Reserves		$38			($182	)		($68	)
Reserve Rate 5		2.83	%		2.85	%		3.85	%
Reserve Rate Excluding PCI Loans 4, 5		3.07	%		3.11	%		4.23	%
CREDIT CARD LOANS STATISTICS
Ending Loans 3		$49,642			$48,124			$46,639
Average Loans		$48,122			$47,067			$45,756
Interest Yield		12.16	%		12.27	%		12.36	%
Net Principal Charge-off Rate		2.29	%		2.43	%		3.24	%
Delinquency Rate (over 30 days)		1.86	%		1.81	%		2.39	%
Delinquency Rate (over 90 days)		0.91	%		0.89	%		1.20	%
Net Principal Charge-off Dollars		$274			$287			$370
Loans Delinquent Over 30 Days		$925			$870			$1,117
Loans Delinquent Over 90 Days		$451			$427			$560
Allowance for Loan Loss (period end)		$1,554			$1,522			$2,070
Change in Loan Loss Reserves		$32			($191	)		($84	)
Reserve Rate		3.13	%		3.16	%		4.44	%
Total Discover Card Volume		$28,940			$29,763			$26,946
Discover Card Sales Volume		$26,533			$27,202			$25,033
NETWORK VOLUME
PULSE Network		$39,376			$40,990			$33,911
Network Partners 6		2,297			2,231			1,939
Diners Club International 7		7,298			7,041			7,469
Total Payment Services		48,971			50,262			43,319
Discover Network - Proprietary		27,462			28,085			25,926
Total		$76,433			$78,347			$69,245

1 Total Loans includes mortgages and other loans.

2 Purchased Credit Impaired ("PCI") loans are loans that were acquired in which a deterioration in credit quality occurred between the origination date and the acquisition date. These loans were initially recorded at fair value and accrete interest income over the estimated lives of the loans as long as cash flows are reasonably estimable, even if the loans are contractually past due. PCI loans are private student loans and are included in total loan receivables.

3 Effective November 30, 2012 the Company began including confirmed card transactions as part of loans in process, which resulted in a $365 million increase to ending card receivables for the fourth quarter. Comparable periods (shown above) have not been adjusted to reflect this change.

4 Excludes PCI loans (described above) which are accounted for on a pooled basis. Since a pool is accounted for as a single asset with a single composite interest rate and aggregate expectation of cash flows, the past-due status of a pool, or that of the individual loans within a pool, is not meaningful. Because the company is recognizing interest income on a pool of loans, it is all considered to be performing.

5 The Reserve Rate includes federal student loans held for sale.

6 Network Partners was formerly referred to as Third-Party Issuers. The reference has been changed to better reflect the nature of the volume included. The composition, however, has not changed.

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

Note: See Glossary for definitions of financial terms in the financial supplement which is available online at the SEC's website (http://www.sec.gov) and the company's website (http://investorrelations.discoverfinancial.com).

CONTACT:

Discover Financial Services

Investors:

Bill Franklin, 224-405-1902

williamfranklin@discover.com

or

Media:

Jon Drummond, 224-405-1888

jondrummond@discover.com

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EX-99.2

Exhibit 99.2

DISCOVER FINANCIAL SERVICES
EARNINGS SUMMARY
(unaudited, in millions, except per share statistics)
	Quarter Ended																						Twelve Months Ended
	Nov 30, 2012			Aug 31, 2012			May 31, 2012			Feb 29, 2012			Nov 30, 2011			November 30, 2012 vs. November 30, 2011							Nov 30, 2012			Nov 30, 2011			2012 vs. 2011
EARNINGS SUMMARY
Interest Income		$1,706			$1,695			$1,656			$1,646			$1,620			$86				5	%		$6,703			$6,345			$358			6	%
Interest Expense		312			325			341			353			360			(48	)			(13	%)		1,331			1,485			(154	)		(10	%)
Net Interest Income		1,394			1,370			1,315			1,293			1,260			134				11	%		5,372			4,860			512			11	%
Discount/Interchange Revenue		521			533			514			500			489			32				7	%		2,069			1,963			106			5	%
Rewards		281			268			248			236			215			66				31	%		1,034			879			155			18	%
Discount and Interchange Revenue, net		240			265			266			264			274			(34	)			(12	%)		1,035			1,084			(49	)		(5	%)
Protection Products Revenue		99			104			101			105			107			(8	)			(7	%)		409			428			(19	)		(4	%)
Loan Fee Income		83			80			77			85			87			(4	)			(5	%)		325			338			(13	)		(4	%)
Transaction Processing Revenue		54			59			52			53			48			6				13	%		218			180			38			21	%
Other Income		128			86			37			43			30			98			NM				294			175			119			68	%
Total Other Income		604			594			533			550			546			58				11	%		2,281			2,205			76			3	%
Revenue Net of Interest Expense		1,998			1,964			1,848			1,843			1,806			192				11	%		7,653			7,065			588			8	%
Provision for Loan Losses		338			126			232			152			319			19				6	%		848			1,013			(165	)		(16	%)
Employee Compensation and Benefits		278			274			249			247			229			49				21	%		1,048			914			134			15	%
Marketing and Business Development		192			161			119			131			144			48				33	%		603			537			66			12	%
Information Processing & Communications		78			69			72			70			69			9				13	%		289			264			25			9	%
Professional Fees		115			107			110			100			114			1				1	%		432			415			17			4	%
Premises and Equipment		20			20			19			17			18			2				11	%		76			71			5			7	%
Other Expense		117			195			180			112			95			22				23	%		604			340			264			78	%
Total Other Expense		800			826			749			677			669			131				20	%		3,052			2,541			511			20	%
Income Before Income Taxes		860			1,012			867			1,014			818			42				5	%		3,753			3,511			242			7	%
Tax Expense		309			385			330			384			305			4				1	%		1,408			1,284			124			10	%
Net Income		$551			$627			$537			$630			$513			$38				7	%		$2,345			$2,227			$118			5	%
Net Income Allocated to Common Stockholders		$541			$621			$532			$624			$508			$33				6	%		$2,318			$2,202			$116			5	%
Effective Tax Rate		35.9	%		38.1	%		38.1	%		37.8	%		37.3	%									37.5	%		36.6	%
Net Interest Margin		9.44	%		9.44	%		9.31	%		9.03	%		9.10	%		34		bps					9.31	%		9.18	%		13		bps
ROE		23	%		28	%		24	%		29	%		25	%									26	%		30	%
Ending Common Shares Outstanding		498			507			517			530			529			(31	)			(6	%)		498			529			(31	)		(6	%)
Weighted Average Common Shares Outstanding		503			513			528			530			532			(29	)			(5	%)		519			542			(23	)		(4	%)
Weighted Average Common Shares Outstanding (fully diluted)		504			514			529			531			533			(29	)			(5	%)		520			543			(23	)		(4	%)
PER SHARE STATISTICS
Basic EPS		$1.08			$1.21			$1.01			$1.18			$0.95			$0.13				14	%		$4.47			$4.06			$0.41			10	%
Diluted EPS		$1.07			$1.21			$1.00			$1.18			$0.95			$0.12				13	%		$4.46			$4.06			$0.40			10	%
Common Stock Price (period end)		$41.61			$38.73			$33.11			$30.01			$23.82			$17.79				75	%		$41.61			$23.82			$17.79			75	%
Book Value per share		$19.55			$18.02			$17.20			$16.66			$15.59			$3.96				25	%		$19.55			$15.59			$3.96			25	%
Note: See Glossary of Financial Terms for definitions of financial terms.

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DISCOVER FINANCIAL SERVICES

EARNINGS SUMMARY

(unaudited, in millions)

	Quarter Ended															Twelve Months Ended
	Nov 30, 2012		Aug 31, 2012		May 31, 2012		Feb 29, 2012		Nov 30, 2011		November 30, 2012 vs. November 30, 2011					Nov 30, 2012		Nov 30, 2011		2012 vs. 2011
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$827		$963		$820		$962		$776		$51		7	%		$3,572		$3,345		$227		7	%
Payment Services		33		49		47		52		42		(9	)	(21	%)		181		166		15		9	%
Total		$860		$1,012		$867		$1,014		$818		$42		5	%		$3,753		$3,511		$242		7	%
TRANSACTIONS PROCESSED ON NETWORKS
Discover Network		469		476		455		444		439		30		7	%		1,844		1,722		122		7	%
PULSE Network		1,064		1,125		1,136		996		939		125		13	%		4,321		3,824		497		13	%
Total		1,533		1,601		1,591		1,440		1,378		155		11	%		6,165		5,546		619		11	%
NETWORK VOLUME
PULSE Network		$39,376		$40,990		$42,001		$37,577		$33,911		$5,465		16	%		$159,944		$140,119		$19,825		14	%
Network Partners 1		2,297		2,231		2,189		2,037		1,939		358		18	%		8,754		7,533		1,221		16	%
Diners Club International 2		7,298		7,041		7,205		7,100		7,469		(171	)	(2	%)		28,644		29,275		(631	)	(2	%)
Total Payment Services		48,971		50,262		51,395		46,714		43,319		5,652		13	%		197,342		176,927		20,415		12	%
Discover Network - Proprietary		27,462		28,085		26,985		26,482		25,926		1,536		6	%		109,014		103,527		5,487		5	%
Total		$76,433		$78,347		$78,380		$73,196		$69,245		$7,188		10	%		$306,356		$280,454		$25,902		9	%
1 Network Partners was formerly referred to as Third-Party Issuers. The reference has been changed to better reflect the nature of the volume included. The composition, however, has not changed.
2 Volume is derived from data provided by licensees for Diners Club branded cards issued outside of North America and is subject to subsequent revision or amendment.
Note: See Glossary of Financial Terms for definitions of financial terms.

2

DISCOVER FINANCIAL SERVICES

BALANCE SHEET STATISTICS

(unaudited, in millions)

	Quarter Ended
	Nov 30, 2012			Aug 31, 2012			May 31, 2012			Feb 29, 2012			Nov 30, 2011			November 30, 2012 vs. November 30, 2011
BALANCE SHEET SUMMARY
Assets
Cash and Investment Securities		$12,491			$13,007			$13,567			$12,946			$10,342			$2,149		21	%
Total Loan Receivables 1		61,017			59,157			57,058			56,299			57,337			3,680		6	%
Allowance for Loan Losses		(1,725	)		(1,687	)		(1,869	)		(1,979	)		(2,205	)		480		22	%
Net Loan Receivables		59,292			57,470			55,189			54,320			55,132			4,160		8	%
Premises and Equipment, net		534			520			492			487			483			51		11	%
Goodwill and Intangible Assets, net		476			479			440			442			443			33		7	%
Other Assets		2,445			2,433			2,395			2,291			2,384			61		3	%
Total Assets		$75,238			$73,909			$72,083			$70,486			$68,784			$6,454		9	%
Liabilities & Stockholders' Equity
Direct to Consumer and Affinity Deposits		$27,948			$27,720			$27,606			$27,346			$26,177			$1,771		7	%
Brokered Deposits and Other Deposits		14,207			14,598			13,945			12,802			13,401			806		6	%
Deposits		42,155			42,318			41,551			40,148			39,578			2,577		7	%
Borrowings		20,013			19,496			19,024			18,754			18,337			1,676		9	%
Accrued Expenses and Other Liabilities		3,338			2,949			2,609			2,755			2,627			711		27	%
Total Liabilities		65,506			64,763			63,184			61,657			60,542			4,964		8	%
Total Equity		9,732			9,146			8,899			8,829			8,242			1,490		18	%
Total Liabilities and Stockholders' Equity		$75,238			$73,909			$72,083			$70,486			$68,784			$6,454		9	%
BALANCE SHEET STATISTICS
Total Common Equity		$9,172			$9,146			$8,899			$8,829			$8,242			$930		11	%
Total Common Equity/Total Assets		12.2	%		12.4	%		12.3	%		12.5	%		12.0	%
Total Common Equity/Net Loans		15.5	%		15.9	%		16.1	%		16.3	%		15.0	%
Tangible Assets		$74,762			$73,430			$71,643			$70,044			$68,341			$6,421		9	%
Tangible Common Equity 2		$8,696			$8,667			$8,459			$8,387			$7,799			$897		12	%
Tangible Common Equity/Tangible Assets 2		11.6	%		11.8	%		11.8	%		12.0	%		11.4	%
Tangible Common Equity/Net Loans 2		14.7	%		15.1	%		15.3	%		15.4	%		14.1	%
Tangible Common Equity per share 2		$17.47			$17.08			$16.35			$15.82			$14.75			$2.72		18	%
REGULATORY CAPITAL RATIOS
Total Risk Based Capital Ratio		16.8	%		17.1	%		17.3	%		17.6	%		16.5	%
Tier 1 Risk Based Capital Ratio		14.4	%		13.9	%		14.0	%		14.3	%		13.2	%
Tier 1 Common Capital Ratio 3		13.6	%		13.9	%		14.0	%		14.3	%		13.2	%
Tier 1 Leverage Ratio		12.6	%		11.9	%		11.9	%		12.1	%		11.5	%
LIQUIDITY
Liquidity Portfolio		$9,625			$12,084			$11,279			$12,097			$8,548			$1,077		13	%
Undrawn Credit Facilities 4		16,990			16,912			16,271			15,634			17,602			(612	)	(3	%)
Total Liquidity		$26,615			$28,996			$27,550			$27,731			$26,150			$465		2	%
1 Effective November 30, 2012 the Company began including confirmed card transactions as part of loans in process, which resulted in a $365 million increase to ending card receivables for the fourth quarter. Comparable periods have not been adjusted in the financial supplement to reflect this change.
2 Tangible Common Equity ("TCE") is a non-GAAP measure. The Company believes TCE is a more meaningful measure to investors of the net asset value of the Company. For corresponding reconciliation of TCE to a GAAP financial measure see Reconciliation of GAAP to non-GAAP Data schedule.
3 Tier 1 Common Capital Ratio is calculated using tier 1 common capital, a non-GAAP measure. The Company believes the tier 1 common capital ratio is meaningful to investors to assess the quality and composition of the Company’s capital. For corresponding reconciliation of tier 1 common capital to a GAAP financial measure see Reconciliation of GAAP to non-GAAP Data schedule.
4 Excludes investments pledged to the Federal Reserve, which is included within the liquidity portfolio.
Note: See Glossary of Financial Terms for definitions of financial terms.

3

DISCOVER FINANCIAL SERVICES

LOAN STATISTICS

(unaudited, in millions)

	Quarter Ended																					Twelve Months Ended
	Nov 30, 2012			Aug 31, 2012			May 31, 2012			Feb 29, 2012			Nov 30, 2011			November 30, 2012 vs. November 30, 2011						Nov 30, 2012			Nov 30, 2011			2012 vs. 2011
TOTAL LOAN RECEIVABLES
Ending Loans 1, 2, 3		$61,017			$59,157			$57,058			$56,299			$57,337			$3,680			6	%		$61,017			$57,337			$3,680			6	%
Average Loans 1, 2		$59,343			$57,721			$56,180			$57,606			$55,539			$3,804			7	%		$57,708			$52,943			$4,765			9	%
Interest Yield		11.39	%		11.50	%		11.55	%		11.36	%		11.56	%		(17	)	bps				11.45	%		11.85	%		(40	)	bps
Net Principal Charge-off Rate		2.03	%		2.12	%		2.42	%		2.64	%		2.81	%		(78	)	bps				2.30	%		3.99	%		(169	)	bps
Net Principal Charge-off Rate excluding PCI Loans 4		2.21	%		2.32	%		2.66	%		2.90	%		3.05	%		(85	)	bps				2.52	%		4.24	%		(172	)	bps
Delinquency Rate (over 30 days) 4		1.75	%		1.71	%		1.81	%		2.08	%		2.30	%		(55	)	bps				1.75	%		2.30	%		(55	)	bps
Delinquency Rate (over 90 days) 4		0.83	%		0.81	%		0.91	%		1.08	%		1.14	%		(31	)	bps				0.83	%		1.14	%		(31	)	bps
Net Principal Charge-off Dollars		$300			$308			$342			$378			$387			($87	)		(22	%)		$1,328			$2,112			($784	)		(37	%)
Net Interest and Fee Charge-off Dollars		$88			$92			$110			$123			$128			($40	)		(31	%)		$412			$695			($284	)		(41	%)
Loans Delinquent Over 30 Days 4		$983			$931			$941			$1,066			$1,200			($217	)		(18	%)		$983			$1,200			($217	)		(18	%)
Loans Delinquent Over 90 Days 4		$468			$441			$474			$554			$596			($128	)		(21	%)		$468			$596			($128	)		(21	%)
Allowance for Loan Loss (period end)		$1,725			$1,687			$1,869			$1,979			$2,205			($480	)		(22	%)		$1,725			$2,205			($480	)		(22	%)
Change in Loan Loss Reserves		$38			($182	)		($110	)		($226	)		($68	)		$106			156	%		($480	)		($1,099	)		$619			56	%
Reserve Rate 5		2.83	%		2.85	%		3.28	%		3.51	%		3.85	%		(102	)	bps				2.83	%		3.85	%		(102	)	bps
Reserve Rate Excluding PCI Loans4, 5		3.07	%		3.11	%		3.59	%		3.87	%		4.23	%		(116	)	bps				3.07	%		4.23	%		(116	)	bps
CREDIT CARD LOANS
Ending Loans 3		$49,642			$48,124			$46,610			$45,918			$46,639			$3,003			6	%		$49,642			$46,639			$3,003			6	%
Average Loans		$48,122			$47,067			$45,772			$46,919			$45,756			$2,366			5	%		$46,967			$45,205			$1,762			4	%
Interest Yield		12.16	%		12.27	%		12.35	%		12.21	%		12.36	%		(20	)	bps				12.25	%		12.51	%		(26	)	bps
Net Principal Charge-off Rate		2.29	%		2.43	%		2.79	%		3.07	%		3.24	%		(95	)	bps				2.64	%		4.50	%		(186	)	bps
Delinquency Rate (over 30 days)		1.86	%		1.81	%		1.91	%		2.22	%		2.39	%		(53	)	bps				1.86	%		2.39	%		(53	)	bps
Delinquency Rate (over 90 days)		0.91	%		0.89	%		0.99	%		1.18	%		1.20	%		(29	)	bps				0.91	%		1.20	%		(29	)	bps
Net Principal Charge-off Dollars		$274			$287			$322			$358			$370			($96	)		(26	%)		$1,240			$2,036			($796	)		(39	%)
Loans Delinquent Over 30 Days		$925			$870			$890			$1,019			$1,117			($192	)		(17	%)		$925			$1,117			($192	)		(17	%)
Loans Delinquent Over 90 Days		$451			$427			$459			$540			$560			($109	)		(19	%)		$451			$560			($109	)		(19	%)
Allowance for Loan Loss (period end)		$1,554			$1,522			$1,713			$1,835			$2,070			($516	)		(25	%)		$1,554			$2,070			($516	)		(25	%)
Change in Loan Loss Reserves		$32			($191	)		($122	)		($235	)		($84	)		$116			138	%		($516	)		($1,139	)		$623			55	%
Reserve Rate		3.13	%		3.16	%		3.68	%		4.00	%		4.44	%		(131	)	bps				3.13	%		4.44	%		(131	)	bps
Total Discover Card Volume		$28,940			$29,763			$28,140			$27,370			$26,946			$1,994			7	%		$114,213			$108,087			$6,126			6	%
Discover Card Sales Volume		$26,533			$27,202			$26,115			$25,604			$25,033			$1,500			6	%		$105,454			$100,138			$5,316			5	%
1 Total Loans includes mortgages and other loans.
2 Purchased Credit Impaired ("PCI") loans are loans that were acquired in which a deterioration in credit quality occurred between the origination date and the acquisition date. These loans were initially recorded at fair value and accrete interest income over the estimated lives of the loans as long as cash flows are reasonably estimable, even if the loans are contractually past due. PCI loans are private student loans and are included in total loan receivables.
3 Effective November 30, 2012 the Company began including confirmed card transactions as part of loans in process, which resulted in a $365 million increase to ending card receivables for the fourth quarter. Comparable periods have not been adjusted in the financial supplement to reflect this change.
4 Excludes PCI loans (described above) which are accounted for on a pooled basis. Since a pool is accounted for as a single asset with a single composite interest rate and aggregate expectation of cash flows, the past-due status of a pool, or that of the individual loans within a pool, is not meaningful. Because the company is recognizing interest income on a pool of loans, it is all considered to be performing.
5 The Reserve Rate includes federal student loans held for sale.
Note: See Glossary of Financial Terms for definitions of financial terms.

4

DISCOVER FINANCIAL SERVICES

LOAN STATISTICS

(unaudited, in millions)

	Quarter Ended																					Twelve Months Ended
	Nov 30, 2012			Aug 31, 2012			May 31, 2012			Feb 29, 2012			Nov 30, 2011			November 30, 2012 vs. November 30, 2011						Nov 30, 2012			Nov 30, 2011			2012 vs. 2011
FEDERAL STUDENT LOANS
Ending Loans		$-			$-			$-			$-			$715			($715	)		(100	%)		$-			$715			($715	)		(100	%)
PRIVATE STUDENT LOANS
Ending Loans		$7,744			$7,620			$7,504			$7,571			$7,318			$426			6	%		$7,744			$7,318			$426			6	%
Ending PCI Loans 1		$4,744			$4,867			$4,995			$5,124			$5,250			($506	)		(10	%)		$4,744			$5,250			($506	)		(10	%)
Interest Yield		6.51	%		6.49	%		6.43	%		6.35	%		6.81	%		(30	)	bps				6.44	%		7.18	%		(74	)	bps
Net Principal Charge-off Rate		0.36	%		0.25	%		0.22	%		0.15	%		0.14	%		22		bps				0.25	%		0.17	%		8		bps
Net Principal Charge-off Rate excluding PCI Loans2		0.95	%		0.73	%		0.67	%		0.49	%		0.45	%		50		bps				0.73	%		0.48	%		25		bps
Delinquency Rate (over 30 days)2		1.07	%		1.28	%		1.02	%		0.93	%		0.63	%		44		bps				1.07	%		0.63	%		44		bps
Reserve Rate		0.94	%		0.90	%		0.87	%		0.72	%		0.72	%		22		bps				0.94	%		0.72	%		22		bps
Reserve Rate Excluding PCI Loans2		2.43	%		2.48	%		2.61	%		2.23	%		2.55	%		(12	)	bps				2.43	%		2.55	%		(12	)	bps
PERSONAL LOANS
Ending Loans		$3,272			$3,114			$2,916			$2,784			$2,648			$624			24	%		$3,272			$2,648			$624			24	%
Interest Yield		12.39	%		12.41	%		12.31	%		12.26	%		12.12	%		27		bps				12.35	%		11.94	%		41		bps
Net Principal Charge-off Rate		2.36	%		2.14	%		2.24	%		2.59	%		2.58	%		(22	)	bps				2.33	%		3.02	%		(69	)	bps
Delinquency Rate (over 30 days)		0.76	%		0.74	%		0.79	%		0.81	%		0.87	%		(11	)	bps				0.76	%		0.87	%		(11	)	bps
Reserve Rate		2.99	%		3.09	%		3.12	%		3.18	%		3.10	%		(11	)	bps				2.99	%		3.10	%		(11	)	bps
1 Purchased Credit Impaired ("PCI") loans are loans that were acquired in which a deterioration in credit quality occurred between the origination date and the acquisition date. These loans were initially recorded at fair value and accrete interest income over the estimated lives of the loans as long as cash flows are reasonably estimable, even if the loans are contractually past due. PCI loans are private student loans and are included in total loan receivables.
2 Excludes PCI loans (described above) which are accounted for on a pooled basis. Since a pool is accounted for as a single asset with a single composite interest rate and aggregate expectation of cash flows, the past-due status of a pool, or that of the individual loans within a pool, is not meaningful. Because the company is recognizing interest income on a pool of loans, it is all considered to be performing.
Note: See Glossary of Financial Terms for definitions of financial terms.

5

DISCOVER FINANCIAL SERVICES

SEGMENT RESULTS

(unaudited, in millions)

	Quarter Ended																					Twelve Months Ended
	Nov 30, 2012			Aug 31, 2012			May 31, 2012			Feb 29, 2012			Nov 30, 2011			November 30, 2012 vs. November 30, 2011						Nov 30, 2012			Nov 30, 2011			2012 vs. 2011
DIRECT BANKING
Interest Income		$1,706			$1,695			$1,656			$1,646			$1,620			$86			5	%		$6,703			$6,345			$358			6	%
Interest Expense		312			325			341			353			360			(48	)		(13	%)		1,331			1,485			(154	)		(10	%)
Net Interest Income		1,394			1,370			1,315			1,293			1,260			134			11	%		5,372			4,860			512			11	%
Other Income		520			506			449			464			470			50			11	%		1,939			1,907			32			2	%
Revenue Net of Interest Expense		1,914			1,876			1,764			1,757			1,730			184			11	%		7,311			6,767			544			8	%
Provision for Loan Losses		338			126			232			152			319			19			6	%		848			1,013			(165	)		(16	%)
Total Other Expense		749			787			712			643			635			114			18	%		2,891			2,409			482			20	%
Income Before Income Taxes		$827			$963			$820			$962			$776			$51			7	%		$3,572			$3,345			$227			7	%
Net Interest Margin		9.44	%		9.44	%		9.31	%		9.03	%		9.10	%		34		bps				9.31	%		9.18	%		13		bps
Pretax Return on Loan Receivables		5.60	%		6.63	%		5.81	%		6.72	%		5.60	%		-		bps				6.19	%		6.32	%		(13	)	bps
PAYMENT SERVICES
Interest Income		$-			$-			$-			$-			$-			$-		NM				$-			$-			$-		NM
Interest Expense		-			-			-			-			-			-		NM				-			-			-		NM
Net Interest Income		-			-			-			-			-			-		NM				-			-			-		NM
Other Income		84			88			84			86			76			8			11	%		342			298			44			15	%
Revenue Net of Interest Expense		84			88			84			86			76			8			11	%		342			298			44			15	%
Total Other Expense		51			39			37			34			34			17			50	%		161			132			29			22	%
Income Before Income Taxes		$33			$49			$47			$52			$42			($9	)		(21	%)		$181			$166			$15			9	%
Note: See Glossary of Financial Terms for definitions of financial terms.

6

DISCOVER FINANCIAL SERVICES

GLOSSARY OF FINANCIAL TERMS

Book Value per share represents total equity divided by ending common shares outstanding.

Delinquency Rate (Over 30 Days) represents loans delinquent over thirty days divided by ending loans (total or respective loans, as appropriate).

Delinquency Rate (Over 90 Days) represents loans delinquent over ninety days divided by ending loans (total or respective loans, as appropriate).

Earnings Per Share represents net income allocated to common stockholders divided by the weighted average common shares outstanding.

Effective Tax Rate represents tax expense divided by income before income taxes.

Interest Yield represents interest income on loan receivables (annualized) divided by average loans for the reporting period.

Liquidity Portfolio represents cash and cash equivalents (excluding cash-in-process) and other investments.

Net Income Allocated to Common Stockholders represents net income less (i) dividends and accretion of discount on shares of preferred stock and (ii) income allocated to participating securities.

Net Interest Margin represents net interest income (annualized) divided by average total loans for the period.

Net Principal Charge-off Rate represents net principal charge-off dollars (annualized) divided by average loans for the reporting period.

Pretax Return on Loan Receivables represents income before income taxes (annualized) divided by total average loans for the period.

Proprietary Network Volume represents gross proprietary sales volume on the Discover Network.

Regulatory Capital Ratios are regulatory measures used to evaluate capital adequacy. To be considered "well-capitalized," total risk-based, tier 1 risk-based, and tier 1 leverage ratios of 10%, 6% and 5% respectively must be maintained. Total Risk Based Capital Ratio represents total capital divided by risk-weighted assets. Tier 1 Capital Ratio represents tier 1 capital divided by risk-weighted assets. Tier 1 Leverage Ratio represents tier 1 capital divided by average total assets. Tier 1 Common Capital Ratio represents tier 1 common capital, a non-GAAP measure, divided by risk-weighted assets. For corresponding reconciliation of tier 1 common capital to a GAAP financial measure, see Reconciliation of GAAP to Non-GAAP Data schedule.

Reserve Rate represents the allowance for loan losses divided by total loans.

Return on Equity represents net income (annualized) divided by average total equity for the reporting period.

Tangible Assets represents total assets less goodwill and intangibles.

Tangible Common Equity ("TCE"), a non-GAAP financial measure, represents total common equity less goodwill and intangibles. The Company believes TCE is a more meaningful measure to investors of the net asset value of the Company. For corresponding reconciliation of TCE to a GAAP financial measure, see Reconciliation of GAAP to Non-GAAP Data schedule.

Tangible Common Equity/Net Loans,a non-GAAP measure,represents total common equity less goodwill and intangibles divided by total loans less the allowance for loan loss (period end).

Tangible Common Equity per Share,a non-GAAP measure,represents total common equity less goodwill and intangibles divided by ending common shares outstanding.

Tangible Common Equity/Tangible Assets, a non-GAAP measure,represents total common equity less goodwill and intangibles divided by total assets less goodwill and intangibles.

Undrawn Credit Facilities represents asset-backed conduit funding facilities, committed unsecured credit facility and Federal Reserve discount window (excluding investments pledged to the Federal Reserve, which are included within the liquidity investment portfolio).

7

DISCOVER FINANCIAL SERVICES

RECONCILIATION OF GAAP TO NON-GAAP DATA

(unaudited, in millions)

	Quarter Ended
	Nov 30, 2012			Aug 31, 2012			May 31, 2012			Feb 29, 2012			Nov 30, 2011
GAAP total common equity		$9,172			$9,146			$8,899			$8,829			$8,242
Less: Goodwill		(286	)		(287	)		(255	)		(255	)		(255	)
Less: Intangibles		(190	)		(192	)		(185	)		(187	)		(188	)
Tangible common equity 1		$8,696			$8,667			$8,459			$8,387			$7,799
Effect of certain items in accumulated other comprehensive
income (loss) excluded from tier 1 common capital		121			31			41			49			51
Total tier 1 common capital 2		$8,817			$8,698			$8,500			$8,436			$7,850
GAAP book value per share		$19.55			$18.02			$17.20			$16.66			$15.59
Less: Goodwill		(0.58	)		(0.57	)		(0.49	)		(0.48	)		(0.48	)
Less: Intangibles		(0.38	)		(0.37	)		(0.36	)		(0.36	)		(0.36	)
Less: Preferred Stock		(1.12	)		0.00			0.00			0.00			0.00
Tangible common equity per share		$17.47			$17.08			$16.35			$15.82			$14.75

1 Tangible common equity ("TCE"), a non-GAAP financial measure, represents common equity less goodwill and intangibles.  A reconciliation of TCE to common equity, a GAAP financial measure, is shown above.  Other financial services companies may also use TCE and definitions may vary, so we advise users of this information to exercise caution in comparing TCE of different companies.  TCE is included because management believes that common equity excluding goodwill and intangibles is a more meaningful measure to investors of the true net asset value of the company.

2 Tier 1 common capital, a non-GAAP financial measure, represents common equity and the effect of certain items in accumulated other comprehensive income (loss) excluded from tier 1 common capital, less goodwill and intangibles. A reconciliation of tier 1 common capital to common equity, a GAAP financial measure, is shown above. Other financial services companies may also use tier 1 common capital and definitions may vary, so we advise users of this information to exercise caution in comparing tier 1 common capital of different companies. Tier 1 common capital is included to support the tier 1 common capital ratio which is meaningful to investors to assess the quality and composition of the Company’s capital.

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