10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended August 31, 2011

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                    to

Commission File Number 001-33378

DISCOVER FINANCIAL SERVICES

(Exact name of registrant as specified in its charter)

Delaware	36-2517428
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2500 Lake Cook Road, Riverwoods, Illinois 60015	(224) 405-0900
(Address of principal executive offices, including zip code)	(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  S    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  S    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x	Accelerated filer  o
Non-accelerated filer  o (Do not check if a  smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  S

As of September 23, 2011, there were 549,637,090 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.

DISCOVER FINANCIAL SERVICES

Quarterly Report on Form 10-Q

for the quarterly period ended August 31, 2011

TABLE OF CONTENTS

Part I. FINANCIAL INFORMATION	1
Item 1.      Financial Statements	1
Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.      Quantitative and Qualitative Disclosures About Market Risk	66
Item 4.      Controls and Procedures	67
Part II. OTHER INFORMATION	68
Item 1.      Legal Proceedings	68
Item 1A.   Risk Factors	68
Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 3.      Defaults Upon Senior Securities	68
Item 4.      (Removed and Reserved)	68
Item 5.      Other Information	68
Item 6.      Exhibits	68

Except as otherwise indicated or unless the context otherwise requires, “Discover Financial Services,” “Discover,” “DFS,” “we,” “us,” “our,” and “the Company” refer to Discover Financial Services and its subsidiaries.

We own or have rights to use the trademarks, trade names and service marks that we use in conjunction with the operation of our business, including, but not limited to: Discover^®, PULSE^®, Cashback Bonus^®, Discover^® More^® Card, Discover^® Motiva^SM Card, Discover^® Open Road^® Card, Discover^® Network and Diners Club International^®. All other trademarks, trade names and service marks included in this quarterly report on Form 10-Q are the property of their respective owners.

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

DISCOVER FINANCIAL SERVICES

Condensed Consolidated Statements of Financial Condition

	August 31, 2011			November 30, 2010
	(unaudited) (dollars in thousands, except share amounts)
Assets
Cash and cash equivalents	$	3,957,525		$	5,098,733
Restricted cash	937,230			1,363,758
Other short-term investments	—			375,000
Investment securities:
Available-for-sale (amortized cost of $5,798,756 and $4,989,958 at August 31, 2011 and November 30, 2010, respectively)	5,899,080			5,002,579
Held-to-maturity (fair value of $51,189 and $70,195 at August 31, 2011 and November 30, 2010, respectively)	53,088			72,816
Total investment securities	5,952,168			5,075,395
Loan receivables:
Loans held for sale	738,382			788,101
Loan portfolio:
Credit card	46,177,673			45,156,994
Other	4,279,613			2,891,318
Purchased credit-impaired loans	2,886,783			—
Total loan portfolio	53,344,069			48,048,312
Total loan receivables	54,082,451			48,836,413
Allowance for loan losses	(2,273,058		)	(3,304,118		)
Net loan receivables	51,809,393			45,532,295
Premises and equipment, net	465,871			460,732
Goodwill	255,421			255,421
Intangible assets, net	189,298			188,973
Other assets	2,158,761			2,434,661
Total assets	$	65,725,667		$	60,784,968
Liabilities and Stockholders’ Equity
Deposits:
Interest-bearing deposit accounts	$	37,470,037		$	34,309,839
Non-interest bearing deposit accounts	116,847			103,544
Total deposits	37,586,884			34,413,383
Short-term borrowings	100,000			—
Long-term borrowings	17,718,200			17,705,728
Accrued expenses and other liabilities	2,314,667			2,209,011
Total liabilities	57,719,751			54,328,122
Commitments, contingencies and guarantees (Notes 8, 11, and 12)
Stockholders’ Equity:
Common stock, par value $.01 per share; 2,000,000,000 shares authorized; 549,475,683 and 547,128,270 shares issued at August 31, 2011 and November 30, 2010, respectively	5,495			5,471
Additional paid-in capital	3,492,663			3,435,318
Retained earnings	4,763,180			3,126,488
Accumulated other comprehensive loss	(19,979		)	(82,548		)
Treasury stock, at cost; 11,278,326 and 2,446,506 shares at August 31, 2011 and November 30, 2010, respectively	(235,443		)	(27,883		)
Total stockholders’ equity	8,005,916			6,456,846
Total liabilities and stockholders’ equity	$	65,725,667		$	60,784,968

The table below presents the carrying amounts of certain assets and liabilities of Discover Financial Services’ consolidated variable interest entities (VIEs) which are included in the condensed consolidated statements of financial condition above. The assets in the table below include those assets that can only be used to settle obligations of the consolidated VIEs. The liabilities in the table below include third party liabilities of consolidated VIEs only, and exclude intercompany balances that eliminate in consolidation. The liabilities also exclude amounts for which creditors have recourse to the general credit of the Company.

	August 31, 2011			November 30, 2010
	(unaudited) (dollars in thousands)
Assets
Restricted cash	$	937,230		$	1,363,758
Credit card loan receivables	33,978,980			34,452,989
Other loan receivables	2,876,923			—
Allowance for loan losses allocated to securitized loan receivables	(1,589,949		)	(2,431,399		)
Other assets	30,404			24,083
Liabilities
Long-term borrowings	$	15,260,509		$	14,919,400
Accrued interest payable	12,803			11,758

See Notes to Condensed Consolidated Financial Statements.

1

DISCOVER FINANCIAL SERVICES

Condensed Consolidated Statements of Income

	For the Three Months Ended August 31,					For the Nine Months Ended August 31,
	2011			2010		2011			2010
	(unaudited) (dollars in thousands, except per share amounts)
Interest income:
Credit card loans	$	1,423,496		$	1,455,907	$	4,243,803		$	4,423,654
Other loans	157,424			67,588		428,762			183,150
Investment securities	15,676			5,574		42,535			15,966
Other interest income	2,496			6,870		10,234			24,101
Total interest income	1,599,092			1,535,939		4,725,334			4,646,871
Interest expense:
Deposits	241,719			279,137		749,584			882,921
Short-term borrowings	33			—		116			—
Long-term borrowings	120,301			110,000		375,060			324,561
Total interest expense	362,053			389,137		1,124,760			1,207,482
Net interest income	1,237,039			1,146,802		3,600,574			3,439,389
Provision for loan losses	99,514			712,565		692,763			2,824,035
Net interest income after provision for loan losses	1,137,525			434,237		2,907,811			615,354
Other income:
Discount and interchange revenue, net	282,889			273,932		809,631			805,209
Fee product revenue	107,858			104,132		321,527			309,590
Loan fee income	84,243			92,465		250,596			267,483
Transaction processing revenue	43,931			40,184		131,792			109,570
Merchant fees	4,110			7,220		12,981			23,091
Gain (loss) on investments	(3,614		)	18,951		(3,622		)	19,131
Other income	32,546			27,260		135,526			88,790
Total other income	551,963			564,144		1,658,431			1,622,864
Other expense:
Employee compensation and benefits	241,881			204,210		684,782			602,510
Marketing and business development	133,398			130,532		393,244			313,175
Information processing and communications	63,547			62,357		194,852			190,862
Professional fees	106,042			85,289		301,122			239,169
Premises and equipment	18,063			17,722		53,268			53,273
Other expense	79,476			66,128		245,431			155,601
Total other expense	642,407			566,238		1,872,699			1,554,590
Income before income tax expense	1,047,081			432,143		2,693,543			683,628
Income tax expense	398,263			171,526		979,414			268,482
Net income	$	648,818		$	260,617	$	1,714,129		$	415,146
Net income allocated to common stockholders	$	641,772		$	258,194	$	1,694,636		$	321,613
Basic earnings per share	$	1.18		$	0.47	$	3.11		$	0.59
Diluted earnings per share	$	1.18		$	0.47	$	3.11		$	0.58
Dividends paid per share	$	0.06		$	0.02	$	0.14		$	0.06

See Notes to the Condensed Consolidated Financial Statements.

2

DISCOVER FINANCIAL SERVICES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

	Preferred Stock					Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders’ Equity
	Shares		Amount			Shares	Amount
	(unaudited) (dollars and shares in thousands)
Balance at November 30, 2009	1,225		$	1,158,066		544,799	$	5,448	$	3,573,231		$	3,873,262		$	(154,818	)	$	(19,642	)	$	8,435,547
Adoption of ASC 810 (FASB Statement No. 167), net of tax	—		—			—	—		—			(1,411,117		)	78,561			—			(1,332,556		)
Comprehensive income:
Net income	—		—			—	—		—			415,146			—			—			415,146
Adjustments related to investment securities, net of tax	—		—			—	—		—			—			(6,276		)	—
Adjustments related to cash flow hedges, net of tax	—		—			—	—		—			—			158			—
Adjustments related to pension and postretirement benefits, net of tax	—		—			—	—		—			—			78			—
Other comprehensive loss	—		—			—	—		—			—			(6,040		)	—			(6,040		)
Total comprehensive income	—		—			—	—		—			—			—			—			409,106
Purchases of treasury stock	—		—			—	—		—			—			—			(8,145		)	(8,145		)
Common stock issued under employee benefit plans	—		—			67	1		867			—			—			—			868
Common stock issued and stock-based compensation expense	—		—			2,125	21		29,402			—			—			—			29,423
Income tax deficiency on stock based compensation plans	—		—			—	—		(3,411		)	—			—			—			(3,411		)
Dividends paid—common stock	—		—			—	—		—			(32,923		)	—			—			(32,923		)
Accretion of preferred stock discount	—		66,492			—	—		—			(66,492		)	—			—			—
Dividends—preferred stock	—		—			—	—		—			(23,811		)	—			—			(23,811		)
Redemption of preferred stock	(1,225	)	(1,224,558		)	—	—		—			—			—			—			(1,224,558		)
Repurchase of stock warrant	—		—			—	—		(172,000		)	—			—			—			(172,000		)
Special dividend—Morgan Stanley	—		—			—	—		—			33,757			—			—			33,757
Balance at August 31, 2010	—		$	—		546,991	$	5,470	$	3,428,089		$	2,787,822		$	(82,297	)	$	(27,787	)	$	6,111,297
Balance at November 30, 2010	—		—			547,128	5,471		3,435,318			3,126,488			(82,548		)	(27,883		)	6,456,846
Comprehensive income:
Net income	—		—			—	—		—			1,714,129			—			—			1,714,129
Adjustments related to investment securities, net of tax	—		—			—	—		—			—			54,897			—
Adjustments related to cash flow hedges, net of tax	—		—			—	—		—			—			7,330			—
Adjustments related to pension and postretirement benefits, net of tax	—		—			—	—		—			—			342			—
Other comprehensive income	—		—			—	—		—			—			62,569			—			62,569
Total comprehensive income	—		—			—	—		—			—			—			—			1,776,698
Purchases of treasury stock	—		—			—	—		—			—			—			(207,560		)	(207,560		)
Common stock issued under employee benefit plans	—		—			40	—		906			—			—			—			906
Common stock issued and stock based compensation expense	—		—			2,308	24		56,439			—			—			—			56,463
Dividends paid—common stock	—		—			—	—		—			(77,437		)	—			—			(77,437		)
Balance at August 31, 2011	—		$	—		549,476	$	5,495	$	3,492,663		$	4,763,180		$	(19,979	)	$	(235,443	)	$	8,005,916

Notes to the Condensed Consolidated Financial Statements.

3

DISCOVER FINANCIAL SERVICES

Condensed Consolidated Statements of Cash Flows

	For the Nine Months Ended August 31,
	2011			2010
	(unaudited)
	(dollars in thousands)
Cash flows from operating activities
Net income	$	1,714,129		$	415,146
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	692,763			2,824,035
Deferred income taxes	351,854			63,131
Depreciation and amortization on premises and equipment	66,274			68,130
Amortization of deferred revenues	(191,290		)	(137,492		)
Other depreciation and amortization	(35,346		)	57,947
Loss (gain) on investments	3,622			(19,131		)
Loss on premises and equipment	3,242			1,930
Loss (gain) on loans sold	28			(439		)
Stock-based compensation expense	33,690			29,554
Gain on purchase of business	(15,917		)	—
Net change in loans originated for sale	49,719			(118,557		)
Changes in assets and liabilities:
Decrease (increase) in other assets	32,339			(230,385		)
Increase (decrease) in accrued expenses and other liabilities	106,908			(247,107		)
Net cash provided by operating activities	2,812,015			2,706,762
Cash flows from investing activities
Maturities of other short-term investments	375,000			1,350,000
Purchases of other short-term investments	—			(375,000		)
Maturities and sales of available-for-sale investment securities	786,463			540,526
Purchases of available-for-sale investment securities	(1,627,215		)	(1,239,631		)
Maturities of held-to-maturity investment securities	17,466			19,779
Purchases of held-to-maturity investment securities	(550		)	(549		)
Proceeds from sale of loans held for investment	611			—
Net principal disbursed on loans held for investment	(3,074,805		)	(2,035,023		)
Purchase of loan receivables	(596,163		)	—
Purchase of business, net of cash acquired	(401,158		)	—
Purchase of other investment	(15,000		)	—
Decrease in restricted cash—special dividend escrow	—			643,311
Decrease in restricted cash—for securitization investors	623,794			547,064
Proceeds from sale of premises and equipment	13			146
Purchases of premises and equipment	(70,053		)	(29,538		)
Net cash used for investing activities	(3,981,597		)	(578,915		)
Cash flows from financing activities
Net increase in short-term borrowings	100,000			—
Proceeds from issuance of securitized debt	2,500,000			1,000,000
Maturities of securitized debt	(5,114,986		)	(8,560,528		)
Proceeds from issuance of other long-term borrowings	—			1,003,427
Maturities of other long-term borrowings	(345,048		)	(590,676		)
Proceeds from issuance of common stock	17,928			—
Purchases of treasury stock	(207,560		)	(8,145		)
Net increase in deposits	3,147,752			1,177,096
Proceeds from acquisition of deposits	—			976,627
Redemption of preferred stock	—			(1,224,558		)
Repurchase of warrant	—			(172,000		)
Dividend paid to Morgan Stanley	—			(775,000		)
Dividends paid on common and preferred stock	(69,712		)	(59,455		)
Excess tax benefits related to stock-based compensation	—			737
Net cash provided by (used for) financing activities	28,374			(7,232,475		)
Net decrease in cash and cash equivalents	(1,141,208		)	(5,104,628		)
Cash and cash equivalents, at beginning of period	5,098,733			13,020,719
Cash and cash equivalents, at end of period	$	3,957,525		$	7,916,091
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense	$	1,045,370		$	1,125,181
Income taxes, net of income tax refunds	$	635,360		$	112,027
Non-cash transactions:
Assumption of SLC debt	$	2,921,372		$	—
Special dividend—Morgan Stanley	$	—		$	33,757

See Notes to the Condensed Consolidated Financial Statements.

4

Notes to the Condensed Consolidated Financial Statements

(unaudited)

1. Background and Basis of Presentation

Description of Business. Discover Financial Services (“DFS” or the “Company”) is a direct banking and payment services company. The Company is a bank holding company under the Bank Holding Company Act of 1956 and therefore is subject to oversight, regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Through its Discover Bank subsidiary, a Delaware state-chartered bank, the Company offers its customers credit cards, student loans, personal loans and deposit products. Through its DFS Services LLC subsidiary and its subsidiaries, the Company operates the Discover Network, the PULSE Network (“PULSE”) and Diners Club International (“Diners Club”). The Discover Network is a payment card transaction processing network for Discover card-branded and third-party issued credit, debit and prepaid cards. PULSE operates an electronic funds transfer network, providing financial institutions issuing debit cards on the PULSE network with access to ATMs domestically and internationally, as well as point of sale terminals at retail locations throughout the U.S. for debit card transactions. Diners Club is a global payments network of licensees, which are generally financial institutions, that issue Diners Club branded credit cards and/or provide card acceptance services.

The Company’s business segments are Direct Banking and Payment Services. The Direct Banking segment includes Discover card-branded credit cards issued to individuals and small businesses on the Discover Network and other consumer products and services, including personal loans, student loans, prepaid cards and other consumer lending and deposit products offered through the Company’s Discover Bank subsidiary. The Payment Services segment includes PULSE, Diners Club and the Company’s third-party issuing business, which includes credit, debit and prepaid cards issued on the Discover Network by third parties.

Basis of Presentation. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the financial statements reflect all adjustments which are necessary for a fair presentation of the results for the quarter. All such adjustments are of a normal, recurring nature. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and related disclosures. These estimates are based on information available as of the date of the condensed consolidated financial statements. The Company believes that the estimates used in the preparation of the condensed consolidated financial statements are reasonable. Actual results could differ from these estimates. These interim condensed consolidated financial statements should be read in conjunction with the Company’s 2010 audited consolidated financial statements filed with the Company’s annual report on Form 10-K for the fiscal year ended November 30, 2010.

Recently Issued Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify goodwill impairment testing by adding a qualitative review step to assess whether the required quantitative impairment analysis that exists today is necessary.Under the amended rule, a company will not be required to calculate the fair value of a business that contains recorded goodwill unless it concludes, based on the qualitative assessment, that it is more likely than not that the fair value of that business is less than its book value. If such a decline in fair value is deemed more likely than not to have occurred, then the quantitative goodwill impairment test that exists under current GAAP must be completed; otherwise, goodwill is deemed to be not impaired and no further testing is required until the next annual test date (or sooner if conditions or events before that date raise concerns of potential impairment in the business). The amended goodwill impairment guidance does not affect the manner in which a company estimates fair value. The new standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company has $255 million in goodwill, all of which is associated with its PULSE network. The value of that goodwill will not be affected by the adoption of this standard.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The standard does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. This standard is effective for interim and annual periods beginning after December 15, 2011. Because this ASU

5

impacts presentation only, it will have no effect on the Company's financial condition, results of operations or cash flows.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU is intended to result in convergence between U.S. GAAP and International Financial Reporting Standards (“IFRS”) requirements for measurement of and disclosures about fair value. The amendments are not expected to have a significant impact on companies applying U.S. GAAP. Key provisions of the amendment include: a prohibition on grouping financial instruments for purposes of determining fair value, except when an entity manages market and credit risks on the basis of the entity’s net exposure to the group; an extension of the prohibition against the use of a blockage factor to all fair value measurements (that prohibition currently applies only to financial instruments with quoted prices in active markets); and a requirement that for recurring Level 3 fair value measurements, entities disclose quantitative information about unobservable inputs, a description of the valuation process used and qualitative details about the sensitivity of the measurements. In addition, for items not carried at fair value but for which fair value is disclosed, entities will be required to disclose the level within the fair value hierarchy that applies to the fair value measurement disclosed. This ASU is effective for interim and annual periods beginning after December 15, 2011. The adoption of this ASU is not expected to have a significant impact on the Company’s fair value measurements, financial condition, results of operations or cash flows.

In April 2011, the FASB issued ASU No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements. This ASU amends the sale accounting requirement concerning a transferor’s ability to repurchase transferred financial assets even in the event of default by the transferee, which typically is facilitated in a repurchase agreement by the presence of a collateral maintenance provision. Specifically, the level of cash collateral received by a transferor will no longer be relevant in determining whether a repurchase agreement constitutes a sale. As a result of this amendment, more repurchase agreements will be treated as secured financings rather than sales. This ASU is effective prospectively for new transfers and existing transactions that are modified in the first interim or annual period beginning on or after December 15, 2011. Because essentially all repurchase agreements entered into by the Company have historically been deemed to constitute secured financing transactions, this amendment is expected to have no impact on the Company’s characterization of such transactions and therefore is not expected to have any impact on the Company's financial condition, results of operations or cash flows.

In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This ASU is intended to clarify the FASB’s views on the conditions under which a loan modification should be deemed to be a troubled debt restructuring and could result in the determination that more loan modifications meet that definition. Loans which constitute troubled debt restructurings are considered impaired when calculating the allowance for loan losses and are subject to additional disclosures pursuant to ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which becomes effective concurrent with ASU No. 2011-02. The amendment is effective for the first interim or annual period beginning after June 15, 2011 and must be applied retrospectively to loan modifications occurring on or after the beginning of the fiscal year of adoption. The Company has reviewed the loan modifications it makes in light of this guidance, and has determined that this amendment is not expected to result in any change to the characterization of the Company's current loan modification programs. The amendment is therefore not expected to impact the Company's financial condition, results of operations or cash flows.

2. Business Combinations

Acquisition of The Student Loan Corporation. On December 31, 2010, the Company acquired The Student Loan Corporation (“SLC”), which is now a wholly-owned subsidiary of Discover Bank and included in the Company’s Direct Banking segment. The Company acquired SLC’s ongoing private student loan business, which includes certain private student loans held in three securitization trusts and other assets, and assumed SLC’s asset-backed securitization debt incurred by those trusts and other liabilities. The acquired loans are considered to be purchased credit-impaired loans for accounting purposes, the details of which are discussed further in Note 4: Loan Receivables. The acquisition significantly increased the size of the Company’s private student loan portfolio. In addition, the acquisition has provided the Company with a developed student loan business platform, additional school relationships and SLC’s website. Since the acquisition date, the results of operations and cash flows of SLC have been included in the Company’s condensed consolidated results of operations and cash flows. Pro forma data is not provided as the impact of the SLC acquisition was not significant to the Company’s condensed consolidated results of operations or cash flows.

6

Net cash consideration paid. The following table provides a calculation of the amount paid by the Company for SLC based on the net assets of the SLC securitization trusts acquired after applying an 8.5% discount to the trust assets (the “Trust Certificate Purchase Price”) (dollars in millions):
	Actual			Estimate at Closing December 31, 2010
Gross trust assets	$	3,977		$	3,993
Less: 8.5% discount	(338		)	(339		)
Net trust assets	3,639			3,654
Less: Principal amount of and accrued interest on trust debt	(3,193		)	(3,215		)
Trust Certificate Purchase Price	$	446		$	439

Although the Company paid SLC shareholders $600 million for the acquisition of SLC (“Aggregate Merger Consideration”), the Company received a purchase price adjustment from Citibank, N.A. (“Citibank”) equivalent to the amount by which the Aggregate Merger Consideration exceeded the value of the Trust Certificate Purchase Price. In addition, Citibank agreed to adjust the cash consideration paid by the Company to compensate it for (i) agreeing to commute certain insurance policies covering certain of the loans acquired and (ii) for the value of non-trust related liabilities assumed by the Company. The following table provides a summary of total consideration paid by Discover at the closing of the acquisition on December 31, 2010 and a summary of the consideration revised for post-closing adjustments (dollars in millions):
	Actual			Estimate at Closing December 31, 2010
Aggregate Merger Consideration	$	600		$	600
Less: Purchase price adjustment(1)	(154		)	(161		)
Trust Certificate Purchase Price	446			439
Less: Further adjustments provided for by Citibank
Cash received for consent to insurance commutation	(16		)	(16		)
Cash received related to reimbursable liabilities(1)	(29		)	(57		)
Net cash consideration paid(1)	$	401		$	366

______________

(1) Based on the final SLC closing balance sheet, the Company accrued a $35 million liability, at the end of the first quarter of fiscal 2011, payable to Citibank for post-closing adjustments arising from a $7 million increase in the Trust Certificate Purchase Price and a $28 million reduction in reimbursable liabilities, which together resulted in the difference between the actual and estimated numbers shown. The accrued amount was paid to Citibank during the second quarter of 2011.

Net assets acquired. The Company acquired net assets (including $155 million of cash) with an aggregate fair value of $572 million in exchange for cash consideration of $556 million, resulting in the recognition of a bargain purchase gain of approximately $16 million. The bargain purchase gain primarily resulted from Citibank’s adjustment of the cash consideration to be paid by the Company in exchange for the Company’s consent to permit SLC to commute, immediately prior to the acquisition, certain student loan insurance policies covering loans in one of the three trusts. The bargain purchase gain is recorded in other income on the Company’s condensed consolidated statement of income. Adjustments to these amounts may occur during 2011, as the Company completes its final valuation analysis of assets acquired and liabilities assumed.

7

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of the SLC acquisition (dollars in thousands):
	At December 31, 2010
Student loan receivables	$	3,050,784
Cash	155,347
Indemnification asset	101,127
Student relationships intangible	2,400
Trade name intangible	3,800
Total intangible assets	6,200
Other assets	218,514
Total assets acquired	3,531,972
Securitized debt	2,921,372
Other liabilities	38,178
Total liabilities assumed	2,959,550
Net assets acquired	$	572,422

The Company acquired $6.2 million in identifiable intangible assets. These intangible assets consist of student relationships and trade name intangibles. Acquired student relationships consist of those relationships in existence between SLC and the numerous students that carry student loan balances. This intangible asset is deemed to have a finite useful life of five years and will be amortized over this period. Trade name intangibles relate to trademarks, trade names and internet domains and content. This intangible asset is deemed to have an indefinite useful life and therefore is not subject to amortization.

The Company also recorded a $101 million indemnification asset at the acquisition date. This asset reflects the discounted present value of payments expected to be received under Citibank’s indemnification of student loan credit losses that would have been recoverable under certain student loan insurance policies which, as noted above, were commuted pursuant to an agreement entered into by SLC with the Company’s consent immediately prior to the acquisition. The indemnification pertains only to loans in one of the three SLC securitization trusts that the Company acquired, namely the SLC Private Student Loan Trust 2010-A (“SLC 2010-A”). The SLC 2010-A trust included loans with an aggregate outstanding principal balance of $1.2 billion at the time of acquisition; outstanding loans in that trust totaled $1.1 billion as of August 31, 2011. The initial value of the indemnification asset is based on the insured portion of expected credit losses reflected in the initial carrying value of the related loans. Under the terms of the indemnification agreement with Citibank, indemnification payments related to student loan credit losses are subject to an overall cap of $166.8 million, consistent with the terms of the insurance policies which the indemnification serves to replace.

The subsequent accounting for the indemnification asset will generally reflect the manner in which the indemnified loans are subsequently measured. The value of the indemnification asset will increase or decrease as expected credit losses on the purchased credit-impaired (“PCI”) student loans increase or decrease, respectively. An increase in expected losses on PCI student loans that results in the immediate recognition of an allowance for loan losses will result in an immediate increase in the indemnification asset. A decrease in expected losses that results in an immediate reversal of a previously recognized loan loss allowance will result in the immediate reduction of the indemnification asset. Recognition of an allowance for loan losses on PCI student loans is discussed in more detail within Note 4: Loan Receivables under “Purchased Credit-Impaired Loans.” To the extent that a decrease in expected losses results in a prospective increase in the accretable yield on PCI student loans rather than an immediate reduction of the loan loss allowance, the value of the indemnification asset will be adjusted prospectively through a reduction in the rate of amortization. Amortization and valuation adjustments to the indemnification asset are recorded through other income on the condensed consolidated statement of income.

8

3. Investment Securities

The Company’s investment securities consist of the following (dollars in thousands):
	August 31, 2011		November 30, 2010
U.S. Treasury securities	$	2,371,805	$	1,575,403
U.S. government agency securities	2,669,180		1,888,701
States and political subdivisions of states	39,670		51,774
Other securities:
Credit card asset-backed securities of other issuers	356,940		1,031,112
Corporate debt securities(1)	501,705		507,896
Residential mortgage-backed securities	7,344		9,800
Other debt and equity securities	5,524		10,709
Total other securities	871,513		1,559,517
Total investment securities	$	5,952,168	$	5,075,395

___________________________

(1) Amount represents corporate debt obligations issued under the Temporary Liquidity Guarantee Program (TLGP) that are guaranteed by the Federal Deposit Insurance Corporation (FDIC).

9

The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale and held-to-maturity investment securities are as follows (dollars in thousands):
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
At August 31, 2011
Available-for-Sale Investment Securities(1)
U.S Treasury securities	$	2,322,042	$	49,213	$	—		$	2,371,255
U.S government agency securities	2,627,392		41,788		—			$	2,669,180
Credit card asset-backed securities of other issuers	348,606		8,335		(1		)	$	356,940
Corporate debt securities	500,716		989		—			$	501,705
Total available-for-sale investment securities	$	5,798,756	$	100,325	$	(1	)	$	5,899,080
Held-to-Maturity Investment Securities(2)
U.S. Treasury securities(3)	$	550	$	—	$	—		$	550
States and political subdivisions of states	39,670		219		(2,923		)	36,966
Residential mortgage-backed securities	7,344		805		—			8,149
Other debt securities(4)	5,524		—		—			5,524
Total held-to-maturity investment securities	$	53,088	$	1,024	$	(2,923	)	$	51,189
At November 30, 2010
Available-for-Sale Investment Securities(1)
U.S Treasury securities	$	1,576,094	$	344	$	(1,585	)	$	1,574,853
U.S government agency securities	1,888,909		1,090		(1,298		)	1,888,701
Credit card asset-backed securities of other issuers	1,017,183		13,983		(54		)	1,031,112
Corporate debt securities	507,757		241		(102		)	507,896
Equity securities	15		2		—			17
Total available-for-sale investment securities	$	4,989,958	$	15,660	$	(3,039	)	$	5,002,579
Held-to-Maturity Investment Securities(2)
U.S. Treasury securities(3)	$	550	$	—	$	—		$	550
States and political subdivisions of states	51,774		281		(3,771		)	48,284
Residential mortgage-backed securities	9,800		869		—			10,669
Other debt securities(4)	10,692		—		—			10,692
Total held-to-maturity investment securities	$	72,816	$	1,150	$	(3,771	)	$	70,195

_________________________

(1) Available-for-sale investment securities are reported at fair value.

(2) Held-to-maturity investment securities are reported at amortized cost.

(3) Amount represents securities pledged as collateral to a government-related merchant for which transaction settlement occurs beyond the normal 24-hour period.

(4) Included in other debt securities at August 31, 2011 and November 30, 2010 are commercial advances of $2.8 million and $7.9 million respectively related to the Company’s Community Reinvestment Act strategies.

10

The following table provides information about investment securities with aggregate gross unrealized losses and the length of time that individual investment securities have been in a continuous unrealized loss position as of August 31, 2011 and November 30, 2010 (dollars in thousands):
	Number of Securities in a Loss Position	Less than 12 months				More than 12 months
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
At August 31, 2011
Available-for-Sale Investment Securities
U.S. Treasury securities	—	$	—	$	—	$	—	$	—
U.S. government agency securities	—	—		—		$	—	$	—
Credit card asset-backed securities of other issuers	1	4,126		1		$	—	$	—
Corporate debt securities	—	—		—		$	—	$	—
Held-to-Maturity Investment Securities
State and political subdivisions of states	4	$	6,084	$	1	$	21,538	$	2,922
At November 30, 2010
Available-for-Sale Investment Securities
U.S. Treasury securities	17	$	1,262,670	$	1,585	$	—	$	—
U.S. government agency securities	18	$	1,181,148	$	1,298	$	—	$	—
Credit card asset-backed securities of other issuers	23	$	238,646	$	54	$	—	$	—
Corporate debt securities	5	$	230,441	$	102	$	—	$	—
Held-to-Maturity Investment Securities
State and political subdivisions of states	4	$	7,731	$	239	$	27,603	$	3,532

During the three and nine months ended August 31, 2011, the Company received $170.5 million and $803.9 million, respectively, of proceeds related to maturities or redemptions of investment securities, as compared to $159.7 million and $560.3 million for the three and nine months ended August 31, 2010, respectively. For the three and nine months ended August 31, 2011, approximately $165.0 million and $786.5 million, respectively, of these proceeds related to maturities of credit card asset-backed securities of other issuers. For the three and nine months ended August 31, 2010, approximately $75.2 million and $469.6 million, respectively, of these proceeds related to maturities of credit card asset-backed securities of other issuers.

The Company records unrealized gains and losses on its available-for-sale investment securities in other comprehensive income. For the three months ended August 31, 2011 and 2010, the Company recorded a net unrealized gain of $61.0 million ($38.2 million after tax) and a net unrealized loss of $13.6 million ($8.5 million after tax), respectively, in other comprehensive income. For the nine months ended August 31, 2011 and 2010, the Company recorded a net unrealized gain of $87.7 million ($54.9 million after tax) and a net unrealized loss of $9.9 million ($6.3 million after tax), respectively, in other comprehensive income. Additionally for the nine months ended August 31, 2010, the Company reversed an unrealized gain of $7.5 million ($4.7 million after tax) from other comprehensive income upon liquidation of the collateral supporting the Golden Key U.S. LLC investment.

At August 31, 2011 and November 30, 2010, the Company had $2.9 million and $3.5 million, respectively, of gross unrealized losses in a continuous loss position for more than 12 months on its held-to-maturity investment securities in states and political subdivisions of states. The Company believes the unrealized loss on these investments is the result of changes in interest rates subsequent to the Company’s acquisitions of these securities and that the reduction in value is temporary. The Company does not intend to sell these investments nor does it expect to be required to sell these investments before recovery of their amortized cost bases, but rather expects to collect all amounts due according to the contractual terms of these securities.

11

Maturities of available-for-sale debt securities and held-to-maturity debt securities at August 31, 2011 are provided in the table below (dollars in thousands):
	One Year or Less		After One Year Through Five Years		After Five Years Through Ten Years		After Ten Years		Total
Available-for-sale—Amortized Cost (1)
U.S Treasury securities	$	590,462	$	1,731,580	$	—	$	—	$	2,322,042
U.S government agency securities	921,790		1,705,602		—		—		2,627,392
Credit card asset-backed securities of other issuers	191,269		157,337		—		—		348,606
Corporate debt securities	353,224		147,492		—		—		500,716
Total available-for-sale investment securities	$	2,056,745	$	3,742,011	$	—	$	—	$	5,798,756
Held-to-maturity—Amortized Cost (2)
U.S. Treasury securities	$	550	$	—	$	—	$	—	$	550
State and political subdivisions of states	—		2,085		3,375		34,210		39,670
Residential mortgage-backed securities	—		—		—		7,344		7,344
Other debt securities	275		2,641		153		2,455		5,524
Total held-to-maturity investment securities	$	825	$	4,726	$	3,528	$	44,009	$	53,088
Available-for-sale—Fair Values (1)
U.S Treasury securities	$	591,201	$	1,780,054	$	—	$	—	$	2,371,255
U.S government agency securities	922,717		1,746,463		—		—		2,669,180
Credit card asset-backed securities of other issuers	192,728		164,212		—		—		356,940
Corporate debt securities	353,547		148,158		—		—		501,705
Total available-for-sale investment securities	$	2,060,193	$	3,838,887	$	—	$	—	$	5,899,080
Held-to-maturity—Fair Values (2)
U.S. Treasury securities	$	550	$	—	$	—	$	—	$	550
State and political subdivisions of states	—		2,125		3,549		31,292		36,966
Residential mortgage-backed securities	—		—		—		8,149		8,149
Other debt securities	275		2,641		153		2,455		5,524
Total held-to-maturity investment securities	$	825	$	4,766	$	3,702	$	41,896	$	51,189

_____________________________

(1) Available-for-sale investment securities are reported at fair value.

(2) Held-to-maturity investment securities are reported at amortized cost.

12

4. Loan Receivables

The Company has three portfolio segments: credit card loans, other consumer loans and purchased credit-impaired (“PCI”) student loans acquired in the SLC transaction (See Note 2: Business Combinations). Within these portfolio segments, the Company has classes of receivables which are depicted in the table below (dollars in thousands):

	August 31, 2011			November 30, 2010
Loans held for sale(1)	$	738,382		$	788,101
Loan portfolio:
Credit card loans:
Discover card(2)	45,949,224			44,904,267
Discover business card	228,449			252,727
Total credit card loans	46,177,673			45,156,994
Other consumer loans:
Personal loans	2,439,330			1,877,633
Private student loans	1,828,493			999,322
Other	11,790			14,363
Total other consumer loans	4,279,613			2,891,318
PCI student loans(3)	2,886,783			—
Total loan portfolio	53,344,069			48,048,312
Total loan receivables	54,082,451			48,836,413
Allowance for loan losses	(2,273,058		)	(3,304,118		)
Net loan receivables	$	51,809,393		$	45,532,295

 ____________________________

(1) Amount represents federal student loans. At August 31, 2011 and November 30, 2010, $463.9 million and $500.2 million of federal student loan receivables, respectively, were pledged as collateral against a long-term borrowing.

(2) Amounts include $16.9 billion and $19.5 billion of underlying investors’ interest in trust debt at August 31, 2011 and November 30, 2010, respectively, and $17.0 billion and $14.9 billion in seller’s interest at August 31, 2011 and November 30, 2010, respectively. See Note 5: Credit Card and Student Loan Securitization Activities for further information.

(3) Amount includes $2.9 billion of loans pledged as collateral against the notes issued from the SLC securitization trusts. See Note 5: Credit Card and Student Loan Securitization Activities. The remaining $9.9 million not pledged as collateral represents loans eligible for reimbursement through an indemnification claim. Discover Bank must purchase such loans from the trust before a claim may be filed.

Credit Quality Indicators. The Company regularly reviews its collection experience (including delinquencies and net charge-offs) in determining its allowance for loan losses. Credit card and closed-end consumer loan receivables are placed on nonaccrual status upon receipt of notification of the bankruptcy or death of a customer or suspected fraudulent activity on an account. In some cases of suspected fraudulent activity, loan receivables may resume accruing interest upon completion of the fraud investigation.

13

Information related to the delinquencies and net charge-offs in the Company’s loan portfolio, which excludes loans held for sale, is shown below by each class of loan receivables except for PCI student loans, which is shown under the heading “Purchased Credit-Impaired Loans” (dollars in thousands):

Delinquent and Non-Accruing Loans:
	30-89 Days Delinquent		90 or More Days Delinquent		Total Past Due		90 or More Days Delinquent and Accruing		Total Non-accruing(2)
At August 31, 2011
Credit card loans:
Discover card(1)	$	553,174	$	561,127	$	1,114,301	$	498,752	$	208,404
Discover business card	2,885		3,929		6,814		3,655		889
Total credit card loans	556,059		565,056		1,121,115		502,407		209,293
Other consumer loans:
Personal loans	14,170		6,446		20,616		5,814		3,527
Private student loans (excluding PCI)	12,415		2,150		14,565		2,150		—
Other(3)	438		2,199		2,637		—		2,426
Total other consumer loans (excluding PCI)	27,023		10,795		37,818		7,964		5,953
Total loan receivables (excluding PCI)(3)	$	583,082	$	575,851	$	1,158,933	$	510,371	$	215,246
At November 30, 2010
Total loan receivables(1)	$	908,306	$	993,618	$	1,901,924	$	853,757	$	325,900

______________________ 

(1) Consumer credit card loans that are 90 or more days delinquent and accruing interest include $36.4 million and $35 million of loans accounted for as troubled debt restructurings at August 31, 2011 and November 30, 2010, respectively.

(2) The Company estimates that the gross interest income that would have been recorded in accordance with the original terms of these loans was $10.6 million and $35.6 million for the three months and nine months ended August 31, 2011, respectively. The Company does not separately track the amount of gross interest income that would have been recorded in accordance with the original terms of loans. These amounts were estimated based on customers' current balances and most recent rates.

(3) Amount also excludes federal student loans that are held for sale.

Net Charge-Offs:	For the Three Months Ended August 31, 2011				For the Nine Months Ended August 31, 2011
	Net Charge-offs		Net Charge-off Rate		Net Charge-offs		Net Charge-off Rate
Credit card loans:
Discover card	$	436,242	3.84	%	$	1,651,311	4.91	%
Discover business card	3,506		6.01	%	14,937		8.26	%
Total credit card loans	439,748		3.85	%	1,666,248		4.93	%
Other consumer loans:
Personal loans	16,000		2.73	%	50,980		3.19	%
Private student loans (excluding PCI)	2,618		0.62	%	5,573		0.49	%
Other	410		13.41	%	1,022		10.35	%
Total other consumer loans (excluding PCI)	19,028		0.98	%	57,575		1.09	%
Net charge-offs as a percentage of total loans (excluding PCI)	$	458,776	3.63	%	$	1,723,823	4.64	%
Net charge-offs as a percentage of total loans (including PCI)	$	458,776	3.43	%	$	1,723,823	4.41	%

14

As part of credit risk management activities, on an ongoing basis the Company reviews information related to the performance of a customer’s account with the Company as well as information from credit bureaus, such as a FICO score, relating to the customer’s broader credit performance. FICO scores are generally obtained at origination of the account and monthly or quarterly thereafter. The following table provides the most recent FICO scores available for the Company’s customers as of August 31, 2011, as a percentage of each class of loan receivables:

	Credit Risk Profile by FICO Score
	660 and Above	Less than 660 or No Score
Discover card	79%	21%
Discover business card	87%	13%
Private student loans (excluding PCI)	95%	5%
Personal loans	95%	5%

Allowance for Loan Losses. The Company maintains an allowance for loan losses at an appropriate level to absorb probable losses inherent in the loan portfolio. The Company considers the collectibility of all amounts contractually due on its loan receivables, including those components representing interest and fees. Accordingly, the allowance for loan losses represents the estimated uncollectible principal, interest and fee components of loan receivables. The allowance is evaluated monthly and is maintained through an adjustment to the provision for loan losses. Charge-offs of principal amounts of loans outstanding are deducted from the allowance and subsequent recoveries of such amounts increase the allowance. Charge-offs of loan balances representing unpaid interest and fees result in a reversal of interest and fee income, respectively, which is effectively a reclassification of provision for loan loss.

For its credit card loan receivables, the Company bases its allowance for loan losses on several analyses that help estimate incurred losses as of the balance sheet date. While the Company’s estimation process includes historical data and analysis, there is a significant amount of judgment applied in selecting inputs and analyzing the results produced by the models to determine the allowance. The Company uses a migration analysis to estimate the likelihood that a loan will progress through the various stages of delinquency. The loan balances used in the migration analysis represent all amounts contractually due and, as a result, the migration analysis captures principal, interest and fee components in estimating uncollectible accounts. The Company uses other analyses to estimate losses incurred on non-delinquent accounts. The considerations in these analyses include past performance, risk management techniques applied to various accounts, historical behavior of different account vintages, current economic conditions, recent trends in delinquencies, bankruptcy filings, account collection management, policy changes, account seasoning, loan volume and amounts, payment rates, and forecasting uncertainties. The Company does not identify individual loans for impairment, but instead estimates its allowance for credit card loan losses on a pooled basis, which includes loans that are delinquent and/or no longer accruing interest.

For its other consumer loans, the Company considers historical and forecasted estimates of incurred losses in estimating the related allowance for loan losses. The Company may also consider other factors, such as current economic conditions, recent trends in delinquencies and bankruptcy filings, account collection management, policy changes, account seasoning, loan volume and amounts, payment rates and forecasting uncertainties.

15

The following table provides changes in the Company’s allowance for loan losses for the three and nine months ended August 31, 2011 and 2010 (dollars in thousands):

	For the Three Months Ended August 31,						For the Nine Months Ended August 31,
	2011			2010			2011			2010
Balance at beginning of period	$	2,632,320		$	3,930,624		$	3,304,118		$	1,757,899
Additions:
Addition to allowance related to securitized receivables(1)	—			—			—			2,144,461
Provision for loan losses	99,514			712,565			692,763			2,824,035
Deductions:
Charge-offs:
Discover card	(584,534		)	(982,920		)	(2,085,452		)	(3,203,959		)
Discover business card	(4,416		)	(14,502		)	(17,672		)	(50,190		)
Total credit card loans	(588,950		)	(997,422		)	(2,103,124		)	(3,254,149		)
Personal loans	(16,458		)	(23,836		)	(52,438		)	(70,957		)
Federal student loans	—			(11		)	—			(308		)
Private student loans	(2,663		)	(660		)	(5,646		)	(1,264		)
Other	(411		)	(139		)	(1,025		)	(858		)
Total other consumer loans	(19,532		)	(24,646		)	(59,109		)	(73,387		)
Total charge-offs	(608,482		)	(1,022,068		)	(2,162,233		)	(3,327,536		)
Recoveries:
Discover card	148,292			121,255			434,141			341,337
Discover business card	910			875			2,735			2,516
Total credit card loans	149,202			122,130			436,876			343,853
Personal loans	458			421			1,458			942
Private student loans	45			14			73			22
Other	1			35			3			45
Total other consumer loans	504			470			1,534			1,009
Total recoveries	149,706			122,600			438,410			344,862
Net charge-offs	(458,776		)	(899,468		)	(1,723,823		)	(2,982,674		)
Balance at end of period	$	2,273,058		$	3,743,721		$	2,273,058		$	3,743,721

 ______________________

(1) On December 1, 2009, upon adoption of FASB Statements No. 166 and 167, the Company recorded $2.1 billion allowance for loan losses related to newly consolidated and reclassified credit card loan receivables.

Net charge-offs of principal are recorded against the allowance for loan losses, as shown in the table above. Information regarding net charge-offs of interest and fee revenues on credit card and other consumer loans is as follows (dollars in thousands):
	For the Three Months Ended August 31,				For the Nine Months Ended August 31,
	2011		2010		2011		2010
Interest and fees accrued subsequently charged off, net of recoveries (recorded as a reduction of interest income)(1)	$	128,329	$	219,422	$	480,044	$	723,909
Fees accrued subsequently charged off, net of recoveries (recorded as a reduction to other income)(1)	$	22,807	$	58,331	$	86,762	$	228,039

 _________________________

(1) Beginning in 2011, net charge-offs of interest and fees include amounts related to other consumer loans. Prior to 2011 such amounts were not included as they were not material.

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The following table provides additional detail of the Company’s allowance for loan losses and recorded investment in its loan portfolio (which excludes loans held for sale) by impairment methodology (dollars in thousands):

	Credit Card		Personal Loans		Student Loans		Other Loans		Total
At August 31, 2011
Allowance for loans evaluated for impairment as:
Collectively evaluated for impairment(1)	$	1,963,962	$	75,562	$	43,406	$	220	$	2,083,150
Troubled debt restructurings(2)	189,908		—		—		—		189,908
Purchased credit-impaired(3)	—		—		—		—		—
Total allowance for loan losses	$	2,153,870	$	75,562	$	43,406	$	220	$	2,273,058
Recorded investment in loans evaluated for impairment as:
Collectively evaluated for impairment(1)	$	44,972,100	$	2,439,330	$	1,828,493	$	11,790	$	49,251,713
Troubled debt restructurings(2)	1,205,573		—		—		—		1,205,573
Purchased credit-impaired(3)	—		—		2,886,783		—		2,886,783
Total recorded investment	$	46,177,673	$	2,439,330	$	4,715,276	$	11,790	$	53,344,069
At November 30, 2010
Allowance for loans evaluated for impairment as:
Collectively evaluated for impairment(1)	$	3,095,046	$	76,087	$	18,569	$	574	$	3,190,276
Troubled debt restructurings(2)	113,842		—		—		—		113,842
Purchased credit-impaired(3)	—		—		—		—		—
Total allowance for loan losses	$	3,208,888	$	76,087	$	18,569	$	574	$	3,304,118
Recorded investment in loans evaluated for impairment as:
Collectively evaluated for impairment(1)	$	44,851,650	$	1,877,633	$	999,322	$	14,363	$	47,742,968
Troubled debt restructurings(2)	305,344		—		—		—		305,344
Purchased credit-impaired(3)	—		—		—		—		—
Total recorded investment	$	45,156,994	$	1,877,633	$	999,322	$	14,363	$	48,048,312

 _________________________

(1) Represents loans evaluated for impairment in accordance with ASC 450-20, Loss Contingencies.

(2) Represents loans evaluated for impairment in accordance with ASC 310-10, Receivables, which consists of modified loans accounted for as troubled debt restructurings. The unpaid principal balance of such loans was $1.0 billion at August 31, 2011. All loans accounted for as troubled debt restructurings have a related allowance for loan losses. In the first quarter 2011, the Company began accounting for credit card loans modified through temporary hardship and external programs as troubled debt restructurings. The impact on the total allowance for loan losses as a result of this change was not material.

(3) Represents loans evaluated for impairment in accordance with ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality.

Impaired Loans and Troubled Debt Restructurings. The Company has loan modification programs that provide for temporary or permanent hardship relief for credit card loans to borrowers experiencing financial hardship. The temporary hardship program primarily consists of a reduced minimum payment and an interest rate reduction, both lasting for a period no longer than twelve months. The permanent workout program involves changing the structure of the loan to a fixed payment loan with a maturity no longer than 60 months and reducing the interest rate on the loan. These programs do not normally provide for the forgiveness of unpaid principal, but may allow for the reversal of certain unpaid interest or fee assessments.

The Company also makes loan modifications for customers who request financial assistance through external sources, such as a consumer credit counseling agency program (referred to below as external programs). These loans typically receive a reduced interest rate but continue to be subject to the original minimum payment terms and do not normally include waiver of unpaid principal, interest or fees.

Credit card loan receivables modified and included in a temporary, permanent or external program are accounted for as a troubled debt restructuring and are recorded at their present value with impairment measured as the difference between the loan balance and the discounted present value of cash flows expected to be collected. Consistent with the Company’s measurement of impairment of modified loans on a pooled basis, the Company uses as its discount rate the average current annual percentage rate it applies to non-impaired credit card loans, similar to what would have applied to the pool of modified loans prior to impairment.

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Interest income from loans accounted for as troubled debt restructurings is accounted for in the same manner as other accruing loans. Cash collections on these loans are allocated according to the same payment hierarchy methodology applied to loans that are not in such programs. Additional information about modified loans in the Company’s credit card portfolio is shown below (dollars in thousands):
	For the three months ended August 31, 2011(1)				For the nine months ended August 31, 2011(1)
	Temporary and Permanent Programs		External Programs		Temporary and Permanent Programs		External Programs
Average recorded investment in loans	$	519,884	$	709,211	$	534,479	$	727,113
Interest income recognized during the time within the period these loans were impaired(2)	$	4,518	$	15,391	$	16,660	$	46,974
Gross interest income that would have been recorded in accordance with the original terms(3)	$	16,411	$	2,467	$	47,950	$	7,535
	For the three months ended August 31, 2010				For the nine months ended August 31, 2010
	Permanent Programs				Permanent Programs
Average recorded investment in loans	$	271,114			$	248,686
Interest income recognized during the time within the period these loans were impaired(2)	$	765			$	2.107
Gross interest income that would have been recorded in accordance with the original terms(3)	$	10,462			$	28,707

 ____________________________

(1) In addition to loans modified through permanent workout programs, in the first quarter 2011, the Company began accounting for credit card loans modified through temporary hardship and external programs as troubled debt restructurings. The impact on the allowance for loan losses as a result of this change was not material.

(2) The Company does not separately track interest income on loans in modification programs. Amounts shown are estimated by applying an average interest rate to the average loans in the various modification programs.

(3) The Company does not separately track the amount of gross interest income that would have been recorded if the loans in modification programs had not been restructured and interest had instead been recorded in accordance with the original terms. Amounts shown are estimated by applying the difference between the average interest rate earned on non-impaired credit card loans and the average interest rate earned on loans in the modification programs to the average loans in the modification programs.

Purchased Credit-Impaired Loans. Purchased loans with evidence of credit deterioration after origination for which it is probable that not all contractually required payments will be collected are considered impaired at acquisition and are reported as PCI loans. The private student loans acquired in The Student Loan Corporation transaction comprise the Company’s only PCI loans at August 31, 2011.

PCI loans are subject to interest income recognition on the basis of expected cash flows rather than contractual cash flows, pursuant to ASC Subtopic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The Company accounts for the entire portfolio of acquired private student loans on the basis of expected cash flows. The loan portfolio was acquired at a discount related, at least in part, to a decline in the credit quality of the loans after their origination, and management has concluded it is probable that it will be unable to collect all contractually required payments due. However, the Company is unable to specifically identify which loans it will be unable to collect.

The PCI student loans were aggregated into pools based on common risk characteristics. Loans were grouped primarily on the basis of origination date as loans originated in a particular year generally reflect the application of common origination strategies and/or underwriting criteria. Because student loan payments are deferred while a student is in school and all loans in deferment are considered performing, the segmentation between performing and non-performing loans is not considered an accurate risk indicator and was therefore not used as a basis for segmentation. The loan pools match the composition of the securitization trusts in which the acquired loans are held. Each pool is accounted for as a single asset and each has a single composite interest rate, total contractual cash flows and total expected cash flows.

As of the December 31, 2010 acquisition date, the PCI student loans had an aggregate outstanding balance of approximately $3.8 billion, including accrued interest, and a fair value (initial carrying value) of approximately $3.1 billion. Of the $3.8 billion aggregate outstanding balance of loans acquired, loans with an aggregate outstanding balance of approximately $31 million were non-performing as of the acquisition date. PCI student loans had an outstanding balance of $3.4 billion, including accrued interest, and a related carrying amount of $2.9 billion as of August 31, 2011.

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At the time of acquisition, these loans were recorded at fair value. The Company estimated the initial fair value of the acquired loans based on the cash flows expected to be collected, discounted at a market rate of interest. Expected cash flows used in the initial fair value measurement reflect the effect of expected losses and prepayments as well as anticipated changes in the interest rate indices applicable to these variable rate loans.

Interest income is recognized on each pool of PCI student loans through accretion on a level-yield basis over the life of the loan pool of the difference between the carrying amount of the loan pool and the expected cash flows (accretable yield). The initial estimate of the fair value of the PCI student loans includes the impact of expected credit losses, and therefore, no allowance for loan losses was recorded at the purchase date. The difference between contractually required cash flows and cash flows expected to be collected, as measured at the acquisition date, is referred to as the non-accretable difference. Charge-offs are absorbed by the non-accretable difference and do not result in a charge to earnings.

The estimate of cash flows expected to be collected is updated each reporting period to reflect management’s latest assumptions about expected credit losses and borrower prepayments, and interest rates in effect in the current period. To the extent expected credit losses increase after the date of acquisition, the Company must record an allowance for loan losses through the provision for loan losses, which would reduce net income. There has not been any significant credit deterioration since the acquisition date, and therefore no allowance has been established for the PCI student loans at August 31, 2011. Changes in expected cash flows related to changes in prepayments or interest rate indices for variable rate loans generally are recorded prospectively as adjustments to interest income.

To the extent that a significant increase in cash flows due to lower expected losses is deemed probable, the Company will first reverse any previously established allowance for loan losses and then increase the amount of remaining accretable yield. The increase to yield would be recognized prospectively over the remaining life of the loan pool. An increase in the accretable yield would reduce the remaining non-accretable difference available to absorb subsequent charge-offs.

Certain PCI student loans in one of the pools are covered by an indemnification agreement with Citibank for credit losses. The indemnified loans are presented along with all other PCI student loans and the related indemnification asset is recognized as a separate asset on the Company’s condensed consolidated statement of financial condition. See Note 2: Business Combinations for a description of the indemnification asset.

The following table shows contractually required payments receivable, cash flows expected to be collected and fair value of loans acquired as of the acquisition date (dollars in millions):
	At December 31, 2010
Contractually required payments receivable (1)	$	5,673
Less: Non-accretable difference (2)	(846		)
Cash flows expected to be collected	4,827
Less: Accretable yield (3)	(1,776		)
Fair value of loans acquired	$	3,051

 ______________________

(1) Amount represents principal and interest payments, both currently due and due in the future, adjusted for the effect of estimated prepayments.

(2) Charge-offs on acquired loans will be written off against non-accretable difference.

(3) Amount accreted into interest income over the estimated lives of the acquired loans.

The following table provides changes in accretable yield for the acquired loans for the three and nine month periods ended August 31, 2011 (dollars in millions):

	For the Three Months Ended August 31, 2011			For the Nine Months Ended August 31, 2011
Balance at beginning of period	$	1,772		$	—
Acquisition of The Student Loan Corporation	—			1,776
Accretion into interest income	(54		)	(149		)
Reclassifications from non-accretable difference	—			91
Balance at end of period	$	1,718		$	1,718

During the nine months ended August 31, 2011, the Company reclassified $91 million from non-accretable difference because of an increase in expected cash flows. This amount will be recognized prospectively as an adjustment to yield over the remaining life of the pools.

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At August 31, 2011, the 30 or more days delinquency and 90 or more days delinquency rates on PCI student loans (which includes loans not yet in repayment) were 2.60% and 0.83% , respectively. These rates include private student loans that are greater than 120 days delinquent that are covered by an indemnification agreement or insurance arrangements through which the Company expects to recover a substantial portion of the loan. The net charge-off rate on PCI student loans for the three and nine months ended August 31, 2011 was 1.23% and 1.22%, respectively.

5. Credit Card and Student Loan Securitization Activities

Credit Card Securitization Activities

The Company accesses the term asset securitization market through the Discover Card Master Trust I (“DCMT”) and the Discover Card Execution Note Trust (“DCENT”), which are trusts into which credit card loan receivables are transferred (or, in the case of DCENT, into which beneficial interests in DCMT are transferred) and from which beneficial interests are issued to investors.

The DCMT structure consists of Class A, triple-A rated certificates and Class B, single-A rated certificates held by third parties. Credit enhancement is provided by the subordinated Class B certificates, cash collateral accounts, and more subordinated Series 2009-CE certificates that are held by a wholly-owned subsidiary of Discover Bank. The DCENT debt structure consists of four classes of securities (DiscoverSeries Class A, B, C and D notes), with the most senior class generally receiving a triple-A rating. In this structure, in order to issue senior, higher rated classes of notes, it is necessary to obtain the appropriate amount of credit enhancement, generally through the issuance of junior, lower rated or more highly subordinated classes of notes. The majority of these more highly subordinated classes of notes are held by subsidiaries of Discover Bank. In addition, there is another series of certificates (Series 2009-SD) issued by DCMT which provides increased excess spread levels to all other outstanding securities of the trusts. The Series 2009-SD certificates are held by a wholly-owned subsidiary of Discover Bank. In January 2010, the Company increased the size of the Class D (2009-1) note and Series 2009-CE certificate to further support the more senior securities of the trusts. The Company was not contractually required to provide this incremental level of credit enhancement but did so pursuant to the trusts’ governing documents in order to maintain the credit ratings of the securities issued by the trusts and to preserve the Company’s ability to participate in the credit card asset-backed securitization markets. The credit-related risk of loss associated with trust assets as of the balance sheet date to which the Company is exposed through the retention of these subordinated interests is fully captured in the allowance for loan losses recorded by the Company.

The Company’s credit card securitizations are accounted for as secured borrowings and the trusts are treated as consolidated subsidiaries of the Company. The Company’s retained interests in the assets of the trusts, principally consisting of investments in DCMT certificates and DCENT notes held by subsidiaries of Discover Bank, constitute intercompany positions which are eliminated in the preparation of the Company’s condensed consolidated statement of financial condition.

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Upon transfer of credit card loan receivables to the trust, the receivables and certain cash flows derived from them become restricted for use in meeting obligations to the trusts’ creditors. The trusts have ownership of cash balances that also have restrictions, the amounts of which are reported in restricted cash. Investment of trust cash balances is limited to investments that are permitted under the governing documents of the trusts and which have maturities no later than the related date on which funds must be made available for distribution to trust investors. With the exception of the seller’s interest in trust receivables, the Company’s interests in trust assets are generally subordinate to the interests of third-party investors and, as such, may not be realized by the Company if needed to absorb deficiencies in cash flows that are allocated to the investors in the trusts’ debt. The carrying values of these restricted assets, which are presented on the Company’s condensed consolidated statement of financial condition as relating to securitization activities, are shown in the table below (dollars in thousands):
	August 31, 2011			November 30, 2010
Cash collateral accounts (1)	$	226,579		$	459,474
Collections and interest funding accounts	585,030			904,284
Restricted cash	811,609			1,363,758
Investors’ interests held by third-party investors	12,621,054			14,921,057
Investors’ interests held by wholly owned subsidiaries of Discover Bank	4,327,121			4,608,210
Seller’s interest	17,030,805			14,923,722
Loan receivables (2)	33,978,980			34,452,989
Allowance for loan losses allocated to securitized loan receivables (2)	(1,589,949		)	(2,431,399		)
Net loan receivables	32,389,031			32,021,590
Other	25,195			24,083
Carrying value of assets of consolidated variable interest entities	$	33,225,835		$	33,409,431

 _______________________

(1) As of November 30, 2010, the full amount was pledged as collateral against a long-term borrowing.

(2) The Company maintains its allowance for loan losses at an amount sufficient to absorb probable losses inherent in all loan receivables, which includes all loan receivables in the trusts. Therefore, credit risk associated with the transferred receivables is fully reflected on the Company’s balance sheet in accordance with GAAP.

The debt securities issued by the consolidated VIEs are subject to credit, payment and interest rate risks on the transferred credit card loan receivables. To protect investors, the securitization structures include certain features that could result in earlier-than-expected repayment of the securities. The primary investor protection feature relates to the availability and adequacy of cash flows in the securitized pool of receivables to meet contractual requirements. Insufficient cash flows would trigger the early repayment of the securities. This is referred to as the “economic early amortization” feature.

Investors are allocated cash flows derived from activities related to the accounts comprising the securitized pool of receivables, the amounts of which reflect finance charges billed, certain fee assessments, allocations of merchant discount and interchange, and recoveries on charged-off accounts. From these cash flows, investors are reimbursed for charge-offs occurring within the securitized pool of receivables and receive a contractual rate of return and Discover Bank is paid a servicing fee as servicer. Any cash flows remaining in excess of these requirements are reported to investors as excess spread. An excess spread rate of less than 0% for a contractually specified period, generally a three-month average, would trigger an economic early amortization event. In such an event, the Company would be required to seek immediate sources of replacement funding. Apart from the restricted assets related to securitization activities, the investors and the securitization trusts have no recourse to the Company’s other assets or credit for a shortage in cash flows.

The Company is required to maintain a contractual minimum level of receivables in the trust in excess of the face value of outstanding investors’ interests. This excess is referred to as the minimum seller’s interest requirement. The required minimum seller’s interest in the pool of trust receivables, which is included in credit card loan receivables restricted for securitization investors, is set at approximately 7% in excess of the total investors’ interests (which includes interests held by third parties as well as those certificated interests held by the Company). If the level of receivables in the trust was to fall below the required minimum, the Company would be required to add receivables from the unrestricted pool of receivables, which would increase the amount of credit card loan receivables restricted for securitization investors. A decline in the amount of the excess seller’s interest could occur if balance repayments and charge-offs exceeded new lending on the securitized accounts or as a result of changes in total outstanding investors’ interests. If the Company could not add enough receivables to satisfy the requirement, an early amortization (or repayment) of investors’ interests would be triggered.

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Another feature of the Company’s securitization structure that is designed to protect investors’ interests from loss, which is applicable only to the notes issued from DCENT, is a reserve account funding requirement in which excess cash flows generated by the transferred loan receivables are held at the trust. This funding requirement is triggered when DCENT’s three-month average excess spread rate decreases to below 4.5%, with increasing funding requirements as excess spread levels decline below preset levels to 0%.

In addition to performance measures associated with the transferred credit card loan receivables, there are other events or conditions which could trigger an early amortization event. As of August 31, 2011, no economic or other early amortization events have occurred.

The tables below provide information concerning investors’ interests and related excess spreads at August 31, 2011 (dollars in thousands):
	Investors’ Interests(1)		# of Series Outstanding
Discover Card Master Trust I	$	3,830,858	7
Discover Card Execution Note Trust (DiscoverSeries notes)	13,117,317		28
Total investors’ interests	$	16,948,175	35

______________________ 

(1) Investors’ interests include third-party interests and subordinated interests held by wholly-owned subsidiaries of Discover Bank.

	3-Month Rolling Average Excess Spread(1)(2)
Group excess spread percentage	16.92	%
DiscoverSeries excess spread percentage	16.76	%

 ______________________

(1) DCMT certificates refer to the higher of the Group excess spread or their applicable series excess spread (not shown) and DiscoverSeries notes refer to the higher of the Group or DiscoverSeries excess spread in assessing whether an economic early amortization has been triggered.

(2) Discount Series (DCMT 2009-SD) makes principal collections available for reallocation to other series to cover shortfalls in interest and servicing fees and to reimburse charge-offs. Three-month rolling average excess spread rates reflected the availability of these additional collections.

The Company continues to own and service the accounts that generate the loan receivables held by the trusts. Discover Bank receives servicing fees from the trusts based on a percentage of the monthly investor principal balance outstanding. Although the fee income to Discover Bank offsets the fee expense to the trusts and thus is eliminated in consolidation, failure to service the transferred loan receivables in accordance with contractual requirements could lead to a termination of the servicing rights and the loss of future servicing income.

Student Loan Securitization Activities

The Company’s student loan securitizations are accounted for as secured borrowings and the trusts are treated as consolidated subsidiaries of the Company. Trust receivables underlying third-party investors’ interests are recorded in purchased credit-impaired loans, and the related debt issued by the trusts is reported in long-term borrowings. The assets of the Company’s consolidated VIEs are restricted from being sold or pledged as collateral for other borrowings and the cash flows from these restricted assets may be used only to pay obligations of the trust.

Under terms of all the trust arrangements, the Company has the option, but not the obligation, to provide financial support to the trusts, but has never provided such support. A substantial portion of the credit risk associated with the securitized loans has been transferred to third parties under private credit insurance or indemnification arrangements. See Note 2: Business Combinations.

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The carrying values of these restricted assets, which are presented on the Company’s condensed consolidated statement of financial condition as relating to securitization activities, are shown in the table below (dollars in thousands):
	August 31, 2011
Restricted cash	$	125,621
Student loan receivables	$	2,876,923
Other assets	$	5,209
Carrying value of assets of consolidated variable interest entities	$	3,007,753

6. Deposits

The Company offers its deposit products, including certificates of deposit, money market accounts, online savings accounts and Individual Retirement Account (IRA) certificates of deposit to customers through two channels: (i) through direct marketing, internet origination and affinity relationships (“direct-to-consumer deposits”); and (ii) indirectly through contractual arrangements with securities brokerage firms (“brokered deposits”). As of August 31, 2011 and November 30, 2010, the Company had approximately $24.5 billion and $20.6 billion, respectively, of direct-to-consumer deposits and approximately $13.0 billion and $13.7 billion, respectively, of brokered deposits.

A summary of interest-bearing deposit accounts is as follows (dollars in thousands):
	August 31, 2011			November 30, 2010
Certificates of deposit in amounts less than $100,000(1)	$	19,524,679		$	19,797,420
Certificates of deposit from amounts of $100,000(1)to less than $250,000(1)	4,999,091			4,626,792
Certificates of deposit in amounts of $250,000(1)or greater	1,148,445			1,146,843
Savings deposits, including money market deposit accounts	11,797,822			8,738,784
Total interest-bearing deposits	$	37,470,037		$	34,309,839
Average annual interest rate	2.67		%	3.12		%

 _______________________

(1) $100,000 represents the basic insurance amount previously covered by the FDIC. Effective July 21, 2010, the basic insurance per depositor was permanently increased to $250,000.

At August 31, 2011, certificates of deposit maturing during the remainder of 2011, over the next four years and thereafter were as follows (dollars in thousands):
Year	Amount
2011	$	2,650,831
2012	$	10,787,166
2013	$	5,939,329
2014	$	2,576,005
2015	$	1,949,946
Thereafter	$	1,768,938

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7. Borrowings

Long-term borrowings consist of borrowings and capital leases having original maturities of one year or more. The following table provides a summary of the Company’s long-term borrowings and weighted average interest rates on balances outstanding at period end (dollars in thousands):
	August 31, 2011				November 30, 2010
	Outstanding		Interest Rate		Outstanding			Interest Rate		Interest Rate Terms	Maturity
Securitized Debt
Fixed rate asset-backed securities (including discount of $1,339)	$	1,748,660	5.65	%	$	2,598,343		5.47	%	Various fixed rates	Various June 2013— September 2017
Floating rate asset-backed securities	9,371,055		0.77	%	10,621,057			0.75	%	1-month LIBOR(1) + 3 to 130 basis points	Various September 2011— September 2015
Floating rate asset-backed securities	1,250,000		0.59	%	1,250,000			0.63	%	3-month LIBOR(1) + 34 basis points	December 2012
Floating rate asset-backed securities and other borrowings	250,000		0.89	%	450,000			0.98	%	Commercial Paper rate + 70 basis points	April 2013
Total Discover Card Master Trust I and Discover Card Execution Note Trust	12,619,715				14,919,400
Floating rate asset-backed securities (including discount of $238,629)	1,436,906		0.45	%	—					3-month LIBOR(1) + 7 to 45 basis points	Various April 2018— July 2036(2)
Floating rate asset-backed securities (including discount of $3,847)	648,407		4.25	%	—					Prime rate +100 basis points	June 2031(2)
Floating rate asset-backed securities (including premium of $2,927)	165,597		4.00	%	—					Prime rate + 75 basis points	July 2042(2)
Floating rate asset-backed securities (including premium of $6,894)	389,884		3.71	%	—					1-month LIBOR(1) + 350 basis points	July 2042(2)
Total SLC Private Student Loan Trusts	2,640,794				—
Total Long-Term Borrowings—owed to securitization investors	15,260,509				14,919,400
Discover Financial Services (Parent Company)
Fixed rate senior notes due 2017
Principal value (including discount of $472)	399,528		6.45	%	399,467			6.45	%	Fixed	June 2017
Fair value adjustment(3)	8,456				(7,888		)
Book value	407,984				391,579
Fixed rate senior notes due 2019	400,000		10.25	%	400,000			10.25	%	Fixed	July 2019
Discover Bank
Subordinated bank notes due 2019 (including discount of $1,483)	698,517		8.70	%	698,382			8.70	%	Fixed	November 2019
Subordinated bank notes due 2020 (including discount of $2,988)	497,012		7.00	%	496,753			7.00	%	Fixed	April 2020
Floating rate secured borrowings	—		—	%	93,980			0.79	%	Commercial Paper rate + 50 basis points	December  2010
Floating rate secured borrowings	—		—	%	212,336			0.70	%	1-month LIBOR(1) + 45 basis points	December  2010
Floating rate secured borrowings(4)	454,178		0.72	%	492,910			0.66	%	Commercial Paper rate + 50 basis points	August  2013(4)
Capital lease obligations	—		—	%	388			6.26	%	Fixed	June 2011
Total long-term borrowings	$	17,718,200			$	17,705,728

 __________________________

(1) London Interbank Offered Rate (“LIBOR”).

(2) Repayment of this debt is dependent upon the timing of principal and interest payments on the underlying student loans. The dates shown represent final maturity dates.

(3) The Company uses interest rate swaps to hedge this long-term borrowing against changes in fair value attributable to changes in LIBOR. See Note 14: Derivatives and Hedging Activities.

(4) Under a program established by the U.S. Department of Education, this loan facility was entered into to fund certain federal student loans, which were held for sale at August 31, 2011 and November 30, 2010. Principal and interest payments on the underlying student loans will reduce the balance of the secured borrowing over time, with final maturity in August 2013. However, upon sale of the loans, this loan facility will be repaid.

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Maturities. At August 31, 2011, long-term borrowings maturities during the remainder of 2011, over the next four years and thereafter were as follows (dollars in thousands):

Year	Amount
2011	$	526,234
2012	3,325,989
2013	5,632,873
2014	1,989,293
2015	599,819
Thereafter	5,643,992
Total	$	17,718,200

The Company has an unsecured credit agreement that is effective through May 2012. The agreement provides for a revolving credit commitment of up to $2.4 billion (of which the Company may borrow up to 30% and Discover Bank may borrow up to 100% of the total commitment). As of August 31, 2011, the Company had no outstanding balances due under the facility. The credit agreement provides for a commitment fee on the unused portion of the facility, which can range from 0.07% to 0.175% depending on the index debt ratings. Loans outstanding under the credit facility bear interest at a margin above the Federal Funds rate, LIBOR, the EURIBOR or the Euro Reference rate. The terms of the credit agreement include various affirmative and negative covenants, including financial covenants related to the maintenance of certain capitalization and tangible net worth levels, and certain double leverage, delinquency and Tier 1 capital to managed loans ratios. The credit agreement also includes customary events of default with corresponding grace periods, including, without limitation, payment defaults, cross-defaults to other agreements evidencing indebtedness for borrowed money and bankruptcy-related defaults. The commitment may be terminated upon an event of default.

The Company also has access to committed undrawn capacity through private securitizations to support the funding of its credit card loan receivables. As of August 31, 2011, the total commitment of secured credit facilities through private providers was $6.8 billion, of which $250 million had been used and was included in long-term borrowings at August 31, 2011. Access to the unused portions of the secured credit facilities is dependent upon the agreement with each of the providers which have various expirations in 2012, 2013 and 2014. Borrowings outstanding under each facility bear interest at a margin above LIBOR or the asset-backed commercial paper costs of each individual conduit provider. The terms of each agreement provide for a commitment fee to be paid on the unused capacity, and include various affirmative and negative covenants, including performance metrics and legal requirements similar to those required to issue any term securitization transaction.

Short-Term Borrowings. Short-term borrowings consist of overnight Federal Fundspurchased with original maturities less than one year. Total short-term borrowings as of August 31, 2011 were $100 million and the weighted-average interest rate was 0.06%. There were no outstanding short-term borrowings as of November 30, 2010.

8. Income Taxes

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Income tax expense consisted of the following (dollars in thousands):
	For the Three Months Ended August 31,				For the Nine Months Ended August 31,
	2011		2010		2011		2010
Current:
U.S. federal	$	213,765	$	68,942	$	550,250	$	166,541
U.S. state and local	38,576		24,451		74,292		38,512
International	747		53		3,018		298
Total	253,088		93,446		627,560		205,351
Deferred:
U.S. federal	135,145		73,149		332,965		61,301
U.S. state and local	10,024		4,931		18,882		1,830
International	6		—		7		—
Total	145,175		78,080		351,854		63,131
Income tax expense	$	398,263	$	171,526	$	979,414	$	268,482

The following table reconciles the Company’s effective tax rate to the U.S. federal statutory income tax rate:
	For the Three Months Ended August 31,				For the Nine Months Ended August 31,
	2011		2010		2011		2010
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%	35.0	%
U.S. state and local income taxes, net of U.S. federal income tax benefits	3.4		4.8		2.6		4.3
Valuation allowance - capital loss	—		—		(0.8	)	—
Non-deductible compensation	—		0.1		—		0.5
Other	(0.4	)	(0.2	)	(0.4	)	(0.5	)
Effective income tax rate	38.0	%	39.7	%	36.4	%	39.3	%

The Company is under continuous examination by the IRS and the tax authorities for various states. The tax years under examination vary by jurisdiction; for example, the current IRS examination covers 1999 through the short period June 30, 2007 when Discover was a subsidiary of Morgan Stanley. The Company was recently notified by the IRS that the years 2008 through 2009, which are after Discover spun off from Morgan Stanley, are going to be audited. The Company regularly assesses the likelihood of additional assessments in each of the taxing jurisdictions resulting from these and subsequent years' examinations. As part of its audit of 1999 through 2005, the IRS has proposed additional tax assessments. In August 2010, the Company filed an appeal with the IRS to protest the proposed adjustments. The Company does not anticipate that a resolution of this matter will occur within the next twelve months as it is in the preliminary stage. Due to uncertainty of the outcome of the appeal, the Company is unable to determine if the total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months. However, the Company believes that its reserve is sufficient to cover any penalties and interest that would result in an increase in federal taxes due.

9. Earnings Per Share

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The following table presents the calculation of basic and diluted EPS (in thousands, except per share amounts):
	For the Three Months Ended August 31,						For the Nine Months Ended August 31,
	2011			2010			2011			2010
Numerator:
Net income	$	648,818		$	260,617		$	1,714,129		$	415,146
Preferred stock dividends	—			—			—			(23,811		)
Preferred stock accretion	—			—			—			(66,492		)
Net income available to common stockholders	648,818			260,617			1,714,129			324,843
Income allocated to participating securities	(7,046		)	(2,423		)	(19,493		)	(3,230		)
Net income allocated to common stockholders	$	641,772		$	258,194		$	1,694,636		$	321,613
Denominator:
Weighted average shares of common stock outstanding	544,438			544,314			544,997			543,874
Effect of dilutive common stock equivalents	743			2,768			701			6,237
Weighted average shares of common stock outstanding and common stock equivalents	545,181			547,082			545,698			550,111
Basic earnings per share	$	1.18		$	0.47		$	3.11		$	0.59
Diluted earnings per share	$	1.18		$	0.47		$	3.11		$	0.58

The following securities were considered anti-dilutive and therefore were excluded from the denominator in the computation of diluted EPS (shares in thousands):
	For the Three Months Ended August 31,		For the Nine Months Ended August 31,
	2011	2010	2011	2010
Unexercised stock options	348	3,944	374	3,418
Unexercised restricted stock units	8	—	3	—
Warrants issued to the U.S. Treasury	—	2,768	—	6,225

10. Capital Adequacy

The Company is subject to capital adequacy guidelines of the Federal Reserve, and Discover Bank (the “Bank”), the Company’s main banking subsidiary, is subject to various regulatory capital requirements as administered by the Federal Deposit Insurance Corporation (the “FDIC”). Failure to meet minimum capital requirements can result in the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial position and results of the Company and the Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items, as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (as defined in the regulations) of total risk-based capital and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. As of August 31, 2011, the Company and the Bank met all capital adequacy requirements to which they were subject.

Under regulatory capital requirements, the Company and the Bank must maintain minimum levels of capital that are dependent upon the risk-weighted amount or average level of the financial institution’s assets, specifically (a) 8% to 10% of total risk-based capital to risk-weighted assets (“total risk-based capital ratio”), (b) 4% to 6% of Tier 1 capital to risk-weighted assets (“Tier 1 risk-based capital ratio”) and (c) 4% to 5% of Tier 1 capital to average assets (“Tier 1 leverage ratio”). To be categorized as “well-capitalized,” the Company and the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table below. As of August 31, 2011, the Company and the Bank met the requirements for well-capitalized status and there have been no conditions or events that management believes have changed the Company’s or the Bank’s category.

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The following table shows the actual capital amounts and ratios of the Company and the Bank as of August 31, 2011 and November 30, 2010 and comparisons of each to the regulatory minimum and “well-capitalized” requirements (dollars in thousands):
	Actual				Minimum Capital Requirements			Capital Requirements To Be Classified as Well-Capitalized
	Amount		Ratio		Amount		Ratio	Amount		Ratio
August 31, 2011
Total capital (to risk-weighted assets)
Discover Financial Services	$	9,493,172	17.0	%	$	4,460,846	≥8.0%	$	5,576,057	≥10.0%
Discover Bank	$	8,562,286	15.6	%	$	4,398,133	≥8.0%	$	5,497,666	≥10.0%
Tier 1 capital (to risk-weighted assets)
Discover Financial Services	$	7,581,177	13.6	%	$	2,230,423	≥4.0%	$	3,345,634	≥6.0%
Discover Bank	$	6,659,969	12.1	%	$	2,199,066	≥4.0%	$	3,298,599	≥6.0%
Tier 1 capital (to average assets)
Discover Financial Services	$	7,581,177	11.7	%	$	2,599,434	≥4.0%	$	3,249,292	≥5.0%
Discover Bank	$	6,659,969	10.4	%	$	2,560,346	≥4.0%	$	3,200,433	≥5.0%
November 30, 2010
Total capital (to risk-weighted assets)
Discover Financial Services	$	7,946,619	15.9	%	$	3,989,689	≥8.0%	$	4,987,111	≥10.0%
Discover Bank	$	7,817,205	15.9	%	$	3,923,344	≥8.0%	$	4,904,180	≥10.0%
Tier 1 capital (to risk-weighted assets)
Discover Financial Services	$	6,095,000	12.2	%	$	1,994,844	≥4.0%	$	2,992,266	≥6.0%
Discover Bank	$	5,975,824	12.2	%	$	1,961,672	≥4.0%	$	2,942,508	≥6.0%
Tier 1 capital (to average assets)
Discover Financial Services	$	6,095,000	9.9	%	$	2,464,324	≥4.0%	$	3,080,406	≥5.0%
Discover Bank	$	5,975,824	9.8	%	$	2,431,610	≥4.0%	$	3,039,512	≥5.0%

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11. Commitments, Contingencies and Guarantees

Lease commitments. The Company leases various office space and equipment under capital and non-cancelable operating leases which expire at various dates through 2021. At August 31, 2011, future minimum payments on leases with original terms in excess of one year consist of the following (dollars in thousands):
	Operating Leases
2011	$	2,537
2012	10,401
2013	8,614
2014	7,161
2015	6,135
Thereafter	14,458
Total minimum lease payments	$	49,306

Unused commitments to extend credit. At August 31, 2011, the Company had unused commitments to extend credit for consumer loans and commercial loans of approximately $164 billion. Such commitments arise primarily from agreements with customers for unused lines of credit on certain credit cards and certain other consumer loan products, provided there is no violation of conditions in the related agreement. These commitments, substantially all of which the Company can terminate at any time and which do not necessarily represent future cash requirements, are periodically reviewed based on account usage, customer creditworthiness and loan qualification.

Commitments to purchase private student loans. Prior to its acquisition by Discover Bank on December 31, 2010, SLC had an agreement with Citibank providing for the origination and servicing of private student loans. Citibank would originate and fund such loans and, after final disbursement, SLC would purchase the loans from Citibank. This agreement between SLC and Citibank was terminated on December 31, 2010, at which time Discover Bank entered into an agreement with Citibank to purchase (i) eligible private student loans originated by Citibank prior to December 31, 2010 and (ii) any private student loans originated by Citibank on or after December 31, 2010 under a new loan origination agreement entered into between Citibank and SLC on December 31, 2010. Discover Bank has agreed to purchase the loans at the funded amount (plus accrued interest and less any capitalized fees for any loans first funded prior to December 31, 2010) and, for any loans first funded by Citibank on December 31, 2010 or later, pay a premium equal to 0.125%. Discover Bank completed the first purchase of loan participations under this agreement on January 3, 2011. The agreement has been amended to extend to December 31, 2012, effective only upon the closing of Discover Bank's purchase of private student loans from Citibank pursuant to an asset purchase agreement dated August 31, 2011. Although the agreement does not set forth a minimum or maximum amount of loans to be purchased, Discover Bank must purchase all eligible loans originated by Citibank, which the Company estimates to be $1.0 billion to $1.5 billion over the life of the agreement, as amended. As of August 31, 2011, Discover Bank had an outstanding commitment to purchase $88.2 million of loans under this agreement.

Secured Borrowing Representations and Warranties. As part of the Company’s financing activities, the Company provides representations and warranties that certain assets pledged as collateral in secured borrowing arrangements conform to specified guidelines. Due diligence is performed by the Company which is intended to ensure that asset guideline qualifications are met. If the assets pledged as collateral do not meet certain conforming guidelines, the Company may be required to replace, repurchase or sell such assets. In its credit card securitization activities, the Company would replace nonconforming receivables through the allocation of excess seller’s interest or from additional transfers from the unrestricted pool of receivables. If the Company could not add enough receivables to satisfy the requirement, an early amortization (or repayment) of investors’ interests would be triggered. In its student loan securitizations, the Company would generally repurchase the loans from the trust at the outstanding principal amount plus interest.

The maximum potential amount of future payments the Company could be required to make would be equal to the current outstanding balances of third-party investor interests in credit card asset-backed securities plus the principal amount of any other outstanding secured borrowings. The Company has recorded substantially all of the maximum potential amount of future payments in long-term borrowings on the Company’s statement of financial condition. The Company has not recorded any incremental contingent liability associated with its secured borrowing representations and warranties. Management believes that the probability of having to replace, repurchase or sell assets pledged as collateral under secured borrowing arrangements, including an early amortization event, is low.

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Guarantees. The Company has obligations under certain guarantee arrangements, including contracts and indemnification agreements, which contingently require the Company to make payments to the guaranteed party based on changes in an underlying asset, liability or equity security of a guaranteed party, rate or index. Also included as guarantees are contracts that contingently require the Company to make payments to a guaranteed party based on another entity’s failure to perform under an agreement. The Company’s use of guarantees is disclosed below by type of guarantee.

Counterparty Settlement Guarantees. Diners Club and DFS Services LLC, on behalf of PULSE, have various counterparty exposures, which are listed below.

• Merchant Guarantee. Diners Club has entered into contractual relationships with certain international merchants, which generally include travel-related businesses, for the benefit of all Diners Club licensees. The licensees hold the primary liability to settle the transactions of their customers with these merchants. However, Diners Club retains a counterparty exposure if a licensee fails to meet its financial payment obligation to one of these merchants.

• ATM Guarantee. PULSE entered into contractual relationships with certain international ATM acquirers in which DFS Services LLC retains counterparty exposure if an issuer fails to fulfill its settlement obligation.

The maximum potential amount of future payments related to such contingent obligations is dependent upon the transaction volume processed between the time a counterparty defaults on its settlement and the time at which the Company disables the settlement of any further transactions for the defaulting party, which could be up to one month depending on the type of guarantee/counterparty. However, there is no limitation on the maximum amount the Company may be liable to pay. The actual amount of the potential exposure cannot be quantified as the Company cannot determine whether particular counterparties will fail to meet their settlement obligations. While the Company has some contractual remedies to offset these counterparty settlement exposures (such as letters of credit or pledged deposits), in the event that all licensees and/or issuers were to become unable to settle their transactions, the Company estimates its maximum potential counterparty exposures to these settlement guarantees, based on historical transaction volume of up to one month, would be as follows:
	August 31, 2011
Diners Club:
Merchant guarantee (in millions)	$	255
PULSE:
ATM guarantee (in thousands)	$	1,077

With regard to the counterparty settlement guarantees discussed above, the Company believes that the estimated amounts of maximum potential future payments are not representative of the Company’s actual potential loss exposure given Diners Club’s and PULSE’s insignificant historical losses from these counterparty exposures. As of August 31, 2011, the Company had not recorded any contingent liability in the condensed consolidated financial statements for these counterparty exposures, and management believes that the probability of any payments under these arrangements is low.

The Company also retains counterparty exposure for the obligations of Diners Club licensees that participate in the Citishare network, an electronic funds processing network. Through the Citishare network, Diners Club customers are able to access certain ATMs directly connected to the Citishare network. The Company’s maximum potential future payment under this counterparty exposure is limited to $15 million, subject to annual adjustment based on actual transaction experience. However, as of August 31, 2011, the Company had not recorded any contingent liability in the condensed consolidated financial statements related to this counterparty exposure, and management believes that the probability of any payments under this arrangement is low.

Merchant Chargeback Guarantees. The Company issues and permits third parties to issue payment cards and owns and operates the Discover Network. The Company is contingently liable for certain transactions processed on the Discover Network in the event of a dispute between the payment card customer and a merchant. The contingent liability arises if the disputed transaction involves a merchant or merchant acquirer with whom the Discover Network has a direct relationship. If a dispute is resolved in the customer’s favor, the Discover Network will credit or refund the disputed amount to the Discover Network card issuer, who in turn credits its customer’s account. The Discover Network will then charge back the disputed amount of the payment card transaction to the merchant or merchant acquirer, where permitted by the applicable agreement, to seek recovery of amounts already paid to the merchant for payment card transactions. If the Discover Network is unable to collect the amount subject to dispute from the merchant or merchant acquirer (e.g., in the event of merchant default or dissolution) or after

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expiration of the time period for chargebacks in the applicable agreement, the Discover Network will bear the loss for the amount credited or refunded to the customer. In most instances, a loss by the Discover Network is unlikely to arise in connection with payments on card transactions because most products or services are delivered when purchased, and credits are issued by merchants on returned items in a timely fashion, thus minimizing the likelihood of cardholder disputes with respect to amounts paid by the Discover Network. However, where the product or service is not scheduled to be provided to the customer until a later date following the purchase, the likelihood of a contingent payment obligation by the Discover Network increases.

The maximum potential amount of obligations of the Discover Network arising as a result of such contingent obligations is estimated to be the portion of the total Discover Network transaction volume processed to date for which timely and valid disputes may be raised under applicable law and relevant issuer and customer agreements. There is no limitation on the maximum amount the Company may be liable to pay to issuers. However, the Company believes that such amount is not representative of the Company’s actual potential loss exposure based on the Company’s historical experience. The actual amount of the potential exposure cannot be quantified as the Company cannot determine whether the current or cumulative transaction volumes may include or result in disputed transactions.

The table below summarizes certain information regarding merchant chargebacks guarantees:
	For the Three Months Ended August 31,				For the Nine Months Ended August 31,
	2011		2010		2011		2010
Losses related to merchant chargebacks (in thousands)	$	291	$	1,036	$	1,625	$	2,294
Aggregate sales transaction volume (in millions)(1)	$	28,416	$	25,990	$	81,051	$	74,645

 ________________

(1) Represents period transactions processed on the Discover Network to which a potential liability exists which, in aggregate, can differ from credit card sales volume.

The Company has not recorded any contingent liability in the condensed consolidated financial statements for merchant chargeback guarantees on August 31, 2011 and November 30, 2010. The Company mitigates the risk of potential loss exposure by withholding settlement from merchants, obtaining third party guarantees, or obtaining escrow deposits or letters of credit from certain merchant acquirers or merchants that are considered higher risk due to various factors such as time delays in the delivery of products or services. The table below provides information regarding settlement withholdings and escrow deposits, which are recorded in interest-bearing deposit accounts, and accrued expenses and other liabilities on the Company’s condensed consolidated statements of financial condition (dollars in thousands):
	August 31, 2011		November 30, 2010
Settlement withholdings and escrow deposits	$	21,948	$	30,483

12. Litigation

In the normal course of business, from time to time, the Company has been named as a defendant in various legal actions, including arbitrations, class actions, and other litigation, arising in connection with its activities. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. The Company contests liability and/or the amount of damages as appropriate in each pending matter. In accordance with applicable accounting guidance, the Company establishes an accrued liability for legal and regulatory matters when those matters present loss contingencies which are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. The Company believes the estimate of the aggregate range of reasonably possible losses (meaning those losses the likelihood of which is more than remote but less than likely) in excess of the amounts that the Company has accrued for legal and regulatory proceedings is from $0 to $40 million. This estimated range of reasonably possible losses is based upon currently available information for those proceedings in which the Company is involved, takes into account the Company’s best estimate of such losses for those matters for which an estimate can be made, and does not represent the Company’s maximum potential loss exposure. Various aspects of the legal proceedings underlying the estimated range will change from time to time and actual results may vary significantly from the estimate.

The Company’s estimated range above involves significant judgment, given the varying stages of the proceedings, the existence of numerous yet to be resolved issues, the breadth of the claims (often spanning multiple years and, in some cases, a wide range of business activities), unspecified damages and/or the novelty of the legal issues presented. The outcome of pending matters could be material to the Company’s consolidated financial condition, operating results and cash flows for a particular future period, depending on, among other things, the level of the Company’s income for such period, and could adversely affect the Company’s reputation.

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The Company has historically relied on the arbitration clause in its cardmember agreements, which has in some instances limited the costs of, and the Company’s exposure to, litigation, but there can be no assurance that the Company will continue to be successful in enforcing its arbitration clause in the future. Legal challenges to the enforceability of these clauses have led most card issuers and may cause the Company to discontinue their use, and there are bills pending in Congress to directly or indirectly prohibit the use of pre-dispute arbitration clauses. Further, the Company is involved in pending legal actions challenging its arbitration clause.

The Company is also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental agencies regarding the Company’s business including, among other matters, accounting, tax and operational matters, some of which may result in significant adverse judgments, settlements, fines, penalties, injunctions, decreases in regulatory ratings or other relief, which could materially impact the Company's financial statements, increase its cost of operations, or limit its ability to execute its business strategies and engage in certain business activities. For example, the Company received a notice of proposed assessment from the IRS related to its audit of the Company’s 1999-2005 tax years as further discussed in Note 8: Income Taxes.

In addition, as previously disclosed, the FDIC has been reviewing Discover Bank's marketing practices with respect to its fee-based products, including its payment protection fee product. The FDIC has notified Discover Bank that it plans to take an enforcement action against Discover Bank. Since well before the FDIC's review began, Discover Bank has made changes to both its fee-based products and program, and Discover Bank believes its current practices substantially address the FDIC's concerns.

There are eight class action cases pending in relation to the sale of the Company’s payment protection fee product. The cases were filed (all in United States District Courts) on: July 8, 2010 in the Northern District of California (Walker, et al. v. DFS, Inc. and Discover Bank; subsequently transferred to the Northern District of Illinois); July 16, 2010 in the Central District of California (Conroy v. Discover Financial Services and Discover Bank); October 22, 2010 in the District of South Carolina (Alexander v. Discover Financial Services, Inc.; DFS Services LLC; Discover Bank; and Morgan Stanley); November 5, 2010 in the Northern District of Illinois (Callahan v. Discover Financial Services, Inc. and Discover Bank); December 17, 2010 in the Western District of Tennessee (Sack v. DFS Services LLC; Discover Financial Services, Inc.; and Discover Bank); January 14, 2011 in the Eastern District of Pennsylvania (Boyce v. DFS Services LLC; Discover Financial Services Inc.; Discover Bank); February 15, 2011 in the Southern District of Florida (Triplett v. Discover Financial Services, Inc., DFS Financial Services LLC, Discover Bank and Morgan Stanley); and March 7, 2011 in the Eastern District of Pennsylvania (Carter v. Discover Financial Services, Inc., DFS Financial Services LLC, Discover Bank, Morgan Stanley et al.). All of the cases have been transferred to the U.S. District Court for the Northern District of Illinois pursuant to a multi-district litigation order issued by the Joint Panel on Multidistrict Litigation in February 2011. These class actions challenge the Company’s marketing practices with respect to its payment protection fee product to cardmembers under various state laws and the Truth in Lending Act. The plaintiffs seek monetary remedies including unspecified damages and restitution, attorneys’ fees and costs, and various forms of injunctive relief including an order rescinding the payment protection fee product enrollments of all class members. In June 2011, the Company and class counsel entered into a preliminary global settlement of all of the pending class actions. The settlement is subject to judicial approval.

On December 6, 2010, the Attorney General for the State of Minnesota filed a lawsuit against the Company in the District Court for Hennepin County, Minnesota (Minnesota v. Discover Financial Services, Discover Bank and DFS Services LLC). The lawsuit challenges the Company’s enrollment of Discover cardmembers in various fee based products under Minnesota law. The remedies sought in the lawsuit include an injunction prohibiting the Company from engaging in the alleged violations, restitution for all persons allegedly injured by the complained of practices, civil penalties and costs. The Company will seek to vigorously defend all claims asserted against it.

On August 16, 2011, the Attorney General of West Virginia filed a lawsuit against the Company in the Circuit Court of Mason County, West Virginia (West Virginia v. Discover Financial Services, Inc., Discover Bank, DFS Services LLC et al.). The lawsuit asserts various claims related to the Company's marketing and administration of various fee based products under West Virginia law. The relief sought in the lawsuit includes an injunction prohibiting the company from engaging in the alleged violations, restitution and disgorgement of monies received from the complained of practices, civil penalties and costs. The Company will seek to vigorously defend all claims asserted against it.

On August 26, 2011, the Attorney General of Missouri issued a request for information to the Company in connection with an investigation to determine whether the Company has engaged in conduct that violates Missouri law in the marketing of its payment protection fee product to its credit card customers. The Company is cooperating with the Attorney General in the

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investigation.

13. Fair Value Disclosures

The Company is required to disclose the fair value of financial instruments for which it is practical to estimate fair value. To obtain fair values, observable market prices are used if available. In some instances, observable market prices are not readily available and fair value is determined using present value or other techniques appropriate for a particular financial instrument. These techniques involve some degree of judgment and, as a result, are not necessarily indicative of the amounts the Company would realize in a current market exchange. The use of different assumptions or estimation techniques may have a material effect on the estimated fair value amounts.

The following table provides the estimated fair values of financial instruments (dollars in thousands):
	August 31, 2011				November 30, 2010
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets
Cash and cash equivalents	$	3,957,525	$	3,957,525	$	5,098,733	$	5,098,733
Restricted cash	$	937,230	$	937,230	$	1,363,758	$	1,363,758
Other short-term investments	$	—	$	—	$	375,000	$	375,000
Investment securities:
Available-for-sale	$	5,899,080	$	5,899,080	$	5,002,579	$	5,002,579
Held-to-maturity	$	53,088	$	51,189	$	72,816	$	70,195
Net loan receivables	$	51,809,393	$	52,802,885	$	45,532,295	$	45,835,543
Derivative financial instruments	$	60,955	$	60,955	$	4,995	$	4,995
Financial Liabilities
Deposits	$	37,586,884	$	38,395,963	$	34,413,383	$	35,500,526
Short-term borrowings	$	100,000	$	100,000	$	—	$	—
Long-term borrowings—owed to securitization investors	$	15,260,509	$	15,698,374	$	14,919,400	$	15,148,534
Other long-term borrowings	$	2,457,691	$	2,834,879	$	2,786,328	$	3,118,967
Derivative financial instruments	$	4	$	4	$	6,594	$	6,594

Cash and cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the low level of risk these assets present to the Company as well as the relatively liquid nature of these assets, particularly given their short maturities.

Restricted cash. The carrying value of restricted cash approximates fair value due to the relatively liquid nature of these assets, particularly given the short maturities of the assets in which the restricted cash is invested.

Other short-term investments. The carrying value of other short-term investments approximates fair value due to the low level of risk these assets present to the Company as well as the relatively liquid nature of these assets, particularly given their maturities of less than one year.

Available-for-sale investment securities. Investment securities classified as available-for-sale consist of credit card asset-backed securities issued by other financial institutions, U.S. Treasury and government agency securities, and corporate debt securities. The fair value for the U.S. Treasury and government agency securities are valued based on quoted market prices for the same or similar securities. The fair value estimation techniques for the credit card asset-backed securities issued by other financial institutions and corporate debt securities are discussed below.

Held-to-maturity investment securities. Held-to-maturity investment securities are generally valued based on quoted market prices for the same or similar securities.

Net loan receivables. The Company’s loan receivables are comprised of credit card and installment loans, including the

33

private student loans acquired from SLC. To estimate the fair value of loan receivables, loans are aggregated into pools of similar loan types, characteristics and expected repayment terms. The fair values of all loan receivables are estimated by discounting expected future cash flows using rates at which similar loans could be made under current market conditions.

Derivative financial instruments. The Company’s derivative financial instruments consist of interest rate swaps and foreign currency forward contracts. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and option volatility. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. See Note 14: Derivatives and Hedging Activities for more information.

Deposits. The carrying values of money market deposits, non-interest bearing deposits, interest-bearing demand deposits and savings deposits approximate fair value due to the liquid nature of these deposits. For time deposits for which readily available market rates do not exist, fair values are estimated by discounting expected future cash flows using market rates currently offered for deposits with similar remaining maturities.

Short-term borrowings. The carrying values of short-term borrowings approximate fair value. Federal Funds purchased and repurchase agreements are short-term in nature and have maturities of less than one year.

Long-term borrowings—owed to securitization investors. Fair values of long-term borrowings owed to credit card securitization investors are determined utilizing quoted market prices of the same transactions. Fair values of long-term borrowings owed to student loan securitization investors are calculated by discounting cash flows using estimated assumptions including, among other things, maturity and market discount rates.

Other long-term borrowings. Fair values of other long-term borrowings are determined utilizing current observable market prices for those transactions, if available. If there are no observable market transactions, then fair values are determined by discounting cash flows of future interest accruals at market rates currently offered for borrowings with similar credit risks, remaining maturities and repricing terms.

Assets and Liabilities Measured at Fair Value on a Recurring Basis. ASC 820 defines fair value, establishes a fair value hierarchy that distinguishes between valuations that are based on observable inputs from those based on unobservable inputs, and requires certain disclosures about those measurements. In general, fair values determined by Level 1 inputs are defined as those that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs are those that utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active or inactive markets, quoted prices for the identical assets in an inactive market, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. The Company evaluates factors such as the frequency of transactions, the size of the bid-ask spread and the significance of adjustments made when considering transactions involving similar assets or liabilities to assess the relevance of those observed prices. If relevant and observable prices are available, the fair values of the related assets or liabilities would be classified as Level 2. Fair values determined by Level 3 inputs are those based on unobservable inputs, and include situations where there is little, if any, market activity for the asset or liability being valued. In instances in which the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety is classified is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company may utilize both observable and unobservable inputs in determining the fair values of financial instruments classified within the Level 3 category. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and involves consideration of factors specific to the asset or liability.

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Disclosures concerning assets and liabilities measured at fair value on a recurring basis are as follows (dollars in thousands):
	Quoted Prices in Active Markets for Identical Assets (Level 1)(1)		Significant Other Observable Inputs (Level 2)(1)		Significant Unobservable Inputs (Level 3)		Total
Balance at August 31, 2011
Assets
U.S Treasury securities	$	2,371,255	$	—	$	—	$	2,371,255
U.S government agency securities	2,669,180		—		—		2,669,180
Credit card asset-backed securities of other issuers	—		356,940		—		356,940
Corporate debt securities	—		501,705		—		501,705
Equity securities	—		—		—		—
Available-for-sale investment securities	$	5,040,435	$	858,645	$	—	$	5,899,080
Derivative financial instruments	$	—	$	60,955	$	—	$	60,955
Liabilities
Derivative financial instruments	$	—	$	4	$	—	$	4
Balance at November 30, 2010
Assets
U.S Treasury securities	$	1,574,853	$	—	$	—	$	1,574,853
U.S government agency securities	1,888,701		—		—		1,888,701
Credit card asset-backed securities of other issuers	—		1,031,112		—		1,031,112
Corporate debt securities	—		507,896		—		507,896
Equity securities	—		—		17		17
Available-for-sale investment securities	$	3,463,554	$	1,539,008	$	17	$	5,002,579
Derivative financial instruments	$	—	$	4,995	$	—	$	4,995
Liabilities
Derivative financial instruments	$	—	$	6,594	$	—	$	6,594

________________________

(1) There were no transfers between Levels 1 and 2 within the fair value hierarchy for the three and nine months ended August 31, 2011 and 2010.

At August 31, 2011, amounts reported in credit card asset-backed securities issued by other institutions reflected senior-rated Class A securities having a par value of $302.0 million and more junior-rated Class B and Class C securities with par values of $32.0 million and $22.3 million, respectively. The Class A securities had a weighted-average coupon of 0.67% and a weighted-average remaining maturity of 12.9 months, the Class B, 0.52% and 14.1 months, respectively, and the Class C, 0.63% and 10.6 months, respectively. The assets underlying these securities are predominantly prime general-purpose credit card loan receivables. Amounts reported in corporate debt securities reflected AAA-rated corporate debt obligations issued under the Temporary Liquidity Guarantee Program (“TLGP”) that are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) with a par value of $495.0 million, a weighted-average coupon of 2.42% and a weighted-average remaining maturity of 8.6 months.

Regarding the corporate debt obligations issued under TLGP, fair values estimates are derived utilizing a spread relative to an underlying benchmark curve which reflects the terms and conditions of specific instruments being valued. Regarding credit card asset-backed securities, the expected cash flow models used to derive fair value estimates utilize observable market data to the extent available and other valuation inputs such as benchmark yields, reported trades, broker quotes, issuer spreads, bids and offers, the priority of which may vary based on availability of information.

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The following tables provide changes in the Company’s Level 3 assets and liabilities measured at fair value on a recurring basis. Net transfers into and/or out of Level 3 are presented using beginning of the period fair values excluding purchases and other settlements. There were no Level 3 assets or liabilities measured at fair value on a recurring basis at any point during the quarter ended August 31, 2011.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis (dollars in thousands)
For the Nine Months Ended August 31, 2011	Balance at November 30, 2010		Total Realized and Unrealized Gains (Losses)		Sales			Net Transfers Into and/ or Out of Level 3		Balance at August 31, 2011		Change in unrealized gains (losses) related to financial instruments held at August 31, 2011
Assets
Equity securities	17		144		(161		)	—		—		—
Available-for-sale investment securities	$	17	$	144	$	(161	)	$	—	$	—	—

For the Three Months Ended August 31, 2010	Balance at May 31, 2010		Total Realized and Unrealized Gains (Losses)			Sales			Net Transfers Into and/ or Out of Level 3		Balance at August 31, 2010		Change in unrealized gains (losses) related to financial instruments held at August 31, 2010
Assets
Asset-backed commercial paper notes	63,732		7,161		(1)	(70,893		)	—		—		—
Equity securities	17		—			—			—		17		—
Available-for-sale investment securities	$	63,749	$	7,161		$	(70,893	)	$	—	$	17	—

For the Nine Months Ended August 31, 2010	Balance at November 30, 2009		Derecognition of assets upon adoption of Statement No. 167			Total Realized and Unrealized Gains (Losses)				Sales			Net Transfers Into and/ or Out of Level 3			Balance at August 31, 2010		Change in unrealized gains (losses) related to financial instruments held at August 31, 2010
Assets
Certificated retained interest in DCENT	$	2,204,969	$	(2,204,969	)	$	—			$	—		$	—		$	—	$	—
Credit card asset-backed securities of other issuers	381,705		—			—				—			(381,705		)	—		—
Asset-backed commercial paper notes	58,792		—			12,101		(1	)	(70,893		)	—			—		—
Equity securities	—		—			—				—			17			17		—
Available-for-sale investment securities	$	2,645,466	$	(2,204,969	)	$	12,101			$	(70,893	)	$	(381,688	)	$	17	—
Cash collateral accounts	$	822,585	$	(822,585	)	$	—			$	—		$	—		$	—	$	—
Interest-only strip receivable	117,579		(117,579		)	—				—			—			—		—
Amounts due from asset securitization	$	940,164	$	(940,164	)	$	—			$	—		$	—		$	—	$	—

_____________

(1) Reflects unrealized pretax gains recorded in other comprehensive income in the condensed consolidated statement of financial condition.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis. The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include those associated with acquired businesses, including goodwill and other intangible assets. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more is determined to be impaired. During the three and nine months ended August 31, 2011 and 2010, the Company had no impairments related to these assets.

As of August 31, 2011, the Company had not made any fair value elections with respect to any of its eligible assets and liabilities as permitted under ASC 825-10-25.

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14. Derivatives and Hedging Activities

The Company uses derivatives to manage its exposure to various financial risks. The Company does not enter into derivatives for trading or speculative purposes. Derivatives not designated as hedges are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict requirements of hedge accounting. All derivatives are recorded in other assets at their gross positive fair values and in accrued expenses and other liabilities at their gross negative fair values.

Derivatives may give rise to counterparty credit risk. The Company enters into derivative transactions with established dealers that meet minimum credit criteria established by the Company. All counterparties must be pre-approved prior to engaging in any transaction with the Company. Counterparties are monitored on a periodic basis by the Company to ensure compliance with the Company’s risk policies and limits.

Derivatives designated as Hedges

Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.

Cash Flow Hedges. The Company uses interest rate swaps to manage its exposure to changes in interest rates related to future cash flows resulting from credit card loan receivables. These transactions are hedged for a maximum period of three years. The derivatives are designated as a hedge of the risk of overall changes in cash flows on the Company’s portfolios of prime-based interest receipts and qualify for hedge accounting in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”).

The effective portion of the change in the fair value of derivatives designated as cash flow hedges is recorded in other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted cash flows affect earnings. The ineffective portion of the change in fair value of the derivative, if any, is recognized directly in earnings. Amounts reported in accumulated other comprehensive income related to derivatives at August 31, 2011 will be reclassified to interest income as interest payments are received on certain of the Company's floating rate credit card loan receivables. During the next 12 months, the Company estimates it will reclassify to earnings $7.7 million of pretax gains related to its derivatives designated as cash flow hedges.

Fair Value Hedges. The Company is exposed to changes in fair value of certain of its fixed rate debt obligations due to changes in interest rates. During the three and nine months ended August 31, 2011, the Company used interest rate swaps to manage its exposure to changes in fair value of certain fixed rate senior notes and interest-bearing brokered deposits attributable to changes in LIBOR, a benchmark interest rate as defined by ASC 815. The interest rate swaps involve the receipt of fixed rate amounts from the respective counterparties in exchange for the Company making payments of variable rate amounts over the life of the agreements without exchange of the underlying notional amounts. These interest rate swaps qualify as fair value hedges in accordance with ASC 815. Changes in both (i) the fair values of the derivatives and (ii) the hedged fixed rate senior notes and interest-bearing brokered deposits relating to the risk being hedged were recorded in interest expense and provided substantial offset to one another. Ineffectiveness related to these fair value hedges was recorded in interest expense. Any basis differences between the fair value and the carrying amount of the hedged fixed rate senior notes and interest-bearing brokered deposits at the inception of the hedging relationship is amortized and recorded in interest expense.

Derivatives not designated as Hedges

Foreign Exchange Forward Contracts. The Company has derivatives that are economic hedges and are not designated as hedges for accounting purposes. The Company enters into foreign exchange forward contracts to manage foreign currency risk. Foreign exchange forward contracts involve the purchase or sale of a designated currency at an agreed upon rate for settlement on a specified date. Changes in the fair value of these contracts are recorded in other income.

Interest Rate Swaps. The Company also may have from time to time interest rate swap agreements that are not designated as hedges. As part of its acquisition of SLC, the Company also acquired an interest rate swap related to the securitized debt assumed in the SLC transaction. Such agreements are not speculative and are also used to manage interest rate risk but are not designated for hedge accounting. Changes in the fair value of these contracts are recorded in other income.

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The following table summarizes the fair value (including accrued interest) and related outstanding notional amounts of derivative instruments and indicates where within the statement of financial condition each is reported as of August 31, 2011 and November 30, 2010. See Note 13: Fair Value Disclosures for a description of the valuation methodologies of derivatives. (Dollars in thousands, except notional amounts):
	August 31, 2011							November 30, 2010
				Balance Sheet Location						Balance Sheet Location
	Notional Amount		Number of Transactions	Other Assets (At Fair Value)		Accrued Expenses and Other Liabilities (At Fair Value)		Notional Amount		Other Assets (At Fair Value)		Accrued Expenses  and Other Liabilities (At Fair Value)
Derivatives designated as hedges:
Interest rate swaps—Cash Flow hedge	$	2,000,000	8	$	16,721	$	—	$	2,000,000	$	4,989	$	—
Interest rate swaps—Fair Value hedge	$	1,543,905	64	$	38,998	$	4	$	400,000	$	—	$	6,587
Derivatives not designated as hedges:
Foreign exchange forward contracts(1)	$	8,471	2	$	38	$	—	$	7,800	$	6	$	7
Interest rate swap	$	1,367,809	1	$	5,198	$	—	$	—	$	—	$	—

 ______________

(1) The foreign exchange forward contracts have notional amounts of EUR 4 million and GBP 1.7 million as of August 31, 2011 and November 30, 2010.

The following table summarizes the impact of the derivative instruments on income, and indicates where within the condensed consolidated statements of income such impact is reported for the three and nine months ended August 31, 2011 and 2010 (dollars in thousands):
		For the Three Months Ended August 31,						For the Nine Months Ended August 31,
	Location	2011			2010			2011			2010
Derivatives designated as hedges:
Interest Rate Swaps—Cash Flow Hedges:
Gain (loss) recognized in other comprehensive income after amounts reclassified into earnings, pre-tax	Other Comprehensive Income	$	13,113		$	251		$	11,711		$	251
Total gains (losses) recognized in other comprehensive income		$	13,113		$	251		$	11,711		$	251
Amount reclassified from other comprehensive income into income	Interest Income	$	1,892		$	442		$	5,636		$	442
Interest Rate Swaps—Fair Value Hedges:
Interest expense—ineffectiveness		34,715			—			38,924			—
Interest expense—other		4,087			—			8,090			(26		)
Gain (loss) on interest rate swaps	Interest Expense	38,802			—			47,014			(26		)
Interest expense—ineffectiveness		(32,575		)	—			(34,064		)	—
Interest expense—other		(1,608		)	—			(4,853		)	70
Gain (loss) on hedged Item	Interest Expense	(34,183		)	—			(38,917		)	70
Total gains (losses) recognized in income		$	6,511		$	442		$	13,733		$	486
Derivatives not designated as hedges:
Gain (loss) on forward contracts	Other Income	$	30		$	(301	)	$	(703	)	$	458
Gain (loss) on interest rate swaps	Other Income	(2,037		)	—			(7,518		)	6
Total gains (losses) on derivatives not designated as hedges recognized in income		$	(2,007	)	$	(301	)	$	(8,221	)	$	464

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Collateral Requirements and Credit-Risk Related Contingency Features

For its interest rate swaps, the Company has master netting arrangements and minimum collateral posting thresholds with its counterparties. Collateral is required by either the Company or the counterparty depending on the net fair value position of all interest rate swaps held with that counterparty. The Company may also be required to post collateral with a counterparty depending on the credit rating it or Discover Bank receives from specified major credit rating agencies. Collateral amounts recorded in the condensed consolidated statement of financial condition are based on the net collateral receivable or payable position for each counterparty. Collateral receivable or payable amounts are not offset against the fair value of the interest rate swap, but are recorded separately in other assets or deposits.

As of August 31, 2011, the Company had a right to reclaim $4 million of cash collateral that had been posted (net of amounts required to be posted by the counterparty) because the credit rating of the Company did not meet specified thresholds. At August 31, 2011, Discover Bank’s credit rating met specified thresholds set by its counterparties. However, if Discover Bank’s credit rating is reduced to below investment grade, the Company would be required to post collateral, which would have been $53 million as of August 31, 2011.

As of August 31, 2011, the Company had interest rate swaps in a net asset position with all of its counterparties, inclusive of accrued interest. If the Company had breached any provisions of the derivative agreements, there would have been no obligation to settle termination values since none of the derivative agreements were in net liability positions as of August 31, 2011.

The Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

15. Segment Disclosures

The Company’s business activities are managed in two segments: Direct Banking and Payment Services.

• Direct Banking. The Direct Banking segment includes Discover card-branded credit cards issued to individuals and small businesses and other consumer products and services, including personal loans, student loans, prepaid cards and other consumer lending and deposit products offered through the Company’s Discover Bank subsidiary. The majority of the Direct Banking revenues relate to interest income earned on each of its loan products. Additionally, the Company’s credit card products generate substantially all of the Company’s revenues related to discount and interchange, fee products and loan fee income.

• Payment Services. The Payment Services segment includes PULSE, an automated teller machine, debit and electronic funds transfer network; Diners Club, a global payments network; and the Company’s third-party issuing business, which includes credit, debit and prepaid cards issued on the Discover Network by third parties. The majority of the Payment Services revenues relate to transaction processing revenue from PULSE and royalty and licensee revenue (included in other income) from Diners Club.

The business segment reporting provided to and used by the Company’s chief operating decision maker is prepared using the following principles and allocation conventions:

• Corporate overhead is not allocated between segments; all corporate overhead is included in the Direct Banking segment.

• Through its operation of the Discover Network, the Direct Banking segment incurs fixed marketing, servicing and infrastructure costs that are not specifically allocated among the operating segments.

• The assets of the Company are not allocated among the operating segments in the information reviewed by the Company’s chief operating decision maker.

• The revenues of each segment are derived from external sources. The segments do not earn revenue from intercompany sources.

• Income taxes are not specifically allocated among the operating segments in the information reviewed by the Company’s chief operating decision maker.

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The following table presents segment data for the three and nine months ended August 31, 2011 and 2010 (dollars in thousands):
For the Three Months Ended	Direct Banking		Payment Services			Total
August 31, 2011
Interest income
Credit card	$	1,423,496	$	—		$	1,423,496
Private student loans	84,318		—			84,318
Personal loans	70,052		—			70,052
Other	21,209		17			21,226
Total interest income	1,599,075		17			1,599,092
Interest expense	362,017		36			362,053
Net interest income (expense)	1,237,058		(19		)	1,237,039
Provision for loan losses	99,514		—			99,514
Other income	481,134		70,829			551,963
Other expense	609,202		33,205			642,407
Income before income tax expense	$	1,009,476	$	37,605		$	1,047,081
August 31, 2010
Interest income
Credit card	$	1,455,907	$	—		$	1,455,907
Private student loans	12,266		—			12,266
Personal loans	47,105		—			47,105
Other	20,656		5			20,661
Total interest income	1,535,934		5			1,535,939
Interest expense	389,059		78			389,137
Net interest income (expense)	1,146,875		(73		)	1,146,802
Provision for loan losses	712,565		—			712,565
Other income	495,771		68,373			564,144
Other expense	534,782		31,456			566,238
Income before income tax expense	$	395,299	$	36,844		$	432,143

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For the Nine Months Ended	Direct Banking		Payment Services			Total
August 31, 2011
Interest income
Credit card	$	4,243,803	$	—		$	4,243,803
Private student loans	229,933		—			229,933
Personal loans	189,525		—			189,525
Other	62,044		29			62,073
Total interest income	4,725,305		29			4,725,334
Interest expense	1,124,597		163			1,124,760
Net interest income (expense)	3,600,708		(134		)	3,600,574
Provision for loan losses	692,763		—			692,763
Other income	1,436,764		221,667			1,658,431
Other expense	1,774,915		97,784			1,872,699
Income before income tax expense	$	2,569,794	$	123,749		$	2,693,543
August 31, 2010
Interest income
Credit card	$	4,423,654	$	—		$	4,423,654
Private student loans	33,025		—			33,025
Personal loans	129,832		—			129,832
Other	60,345		15			60,360
Total interest income	4,646,856		15			4,646,871
Interest expense	1,207,322		160			1,207,482
Net interest income (expense)	3,439,534		(145		)	3,439,389
Provision for loan losses	2,824,035		—			2,824,035
Other income	1,423,823		199,041			1,622,864
Other expense	1,465,749		88,841			1,554,590
Income (loss) before income tax expense	$	573,573	$	110,055		$	683,628

16. Subsequent Events

Long-term Borrowings. On September 20, 2011, DCENT, one of the Company's securitization trusts, issued $800 million of credit card asset-backed securities in a registered public offering at an interest rate of one-month LIBOR plus 21 basis points and with a maturity of three years.

Cash Dividend. On September 14, 2011, the Company announced a cash dividend of $0.06 per share, payable on October 20, 2011, to stockholders of record at the close of business on October 6, 2011.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report. This quarterly report 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 our 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 quarterly report, 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 and the levels of consumer confidence and consumer debt, and investor sentiment; the impact of current, pending and future legislation, regulation and regulatory and legal actions, including new laws and rules and rules related to financial regulatory reform, new laws and rules limiting or modifying certain credit card practices, new laws and rules affecting securitizations, funding and liquidity, and bank holding company regulations and supervisory guidance on our ability to execute our business strategies; the actions and initiatives of current and potential competitors; our ability to manage our expenses; our ability to successfully achieve card acceptance across our networks and maintain relationships with network participants; our ability to sustain and grow our private student loan business; our ability to manage our 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 our investment portfolio; restrictions on our operations resulting from financing transactions; our ability to increase or sustain Discover card usage or attract new customers; our 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; fraudulent activities or material security breaches of key systems; our ability to introduce new products and services; our ability to sustain our investment in new technology and manage our relationships with third-party vendors; our ability to collect amounts for disputed transactions from merchants and merchant acquirers; our ability to attract and retain employees; our ability to protect our reputation and our intellectual property; difficulty obtaining regulatory approval for, financing, 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. We routinely evaluate and may pursue acquisitions of or investments in businesses, products, technologies, loan portfolios or deposits, which may involve payment in cash or our debt or equity securities. Our pending acquisition of the mortgage origination business of Tree.com, Inc. is subject to closing conditions including regulatory approvals. Our pending acquisition of private student loans from Citibank, N.A. is subject to customary closing conditions. For additional information on these pending acquisitions, see our current reports on Form 8-K filed with the SEC on May 12, 2011 and September 1, 2011.

Additional factors that could cause our results to differ materially from those described below can be found in this section in this quarterly report and in “Risk Factors,” “Business—Competition,” “Business—Supervision and Regulation” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the fiscal year ended November 30, 2010, filed with the SEC and available at the SEC’s internet site (http://www.sec.gov).

Introduction and Overview

Discover Financial Services is a direct banking and payment services company. Through our Discover Bank subsidiary, we offer our customers credit cards, student loans, personal loans and deposit products. Through our DFS Services LLC subsidiary and its subsidiaries, we operate the Discover Network, the PULSE Network (“PULSE”) and Diners Club International (“Diners Club”). The Discover Network is a payment card transaction processing network for Discover card-branded and third-party issued credit, debit and prepaid cards. PULSE operates an electronic funds transfer network, providing financial institutions issuing debit cards on the PULSE Network with access to ATMs domestically and internationally, as well as point of sale terminals at retail locations throughout the U.S. for debit card transactions. Diners Club is a global payments network of licensees, which are generally financial institutions, that issue Diners Club branded credit cards and/or provide card acceptance services. Our fiscal year ends on November 30 of each year.

Our primary revenues consist of interest income earned on loan receivables and fees earned from customers, merchants and issuers. The primary expenses required to operate our business include funding costs (interest expense), loan loss

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provisions, customer rewards, and expenses incurred to grow, manage and service our loan receivables and networks. Our business activities are funded primarily through consumer deposits, securitization of loan receivables and the issuance of both secured and unsecured debt.

Third Quarter 2011 Highlights

• Net income was $649 million in the third quarter 2011 as compared to $261 million in the third quarter 2010.

• Discover card sales volume showed strong year-over-year growth of 9% with $26.3 billion in volume in the quarter.

• Credit card loans increased $930 million, or 2%, as compared to the third quarter of 2010 and grew $1.2 billion, or 3%, from second quarter 2011. Total loans increased 8% from the prior year to $54.1 billion.

• Credit performance continued to improve in the third quarter of 2011. The delinquency rate for credit card loans over 30 days past due at August 31, 2011 was 2.43% compared to 2.79% at May 31, 2011. Our credit card net charge-off rate declined to 3.85% for the quarter as compared to 5.01% for the second quarter 2011. Additionally, we had a $359 million reduction of our allowance for loan losses during the third quarter of 2011.

• Payment Services continues to grow profitably with pretax income of $38 million in the quarter. Transaction volume for the segment was $45 billion in the quarter, an increase of 15% from the same period in the prior year.

• We agreed to acquire approximately $2.5 billion of private student loans from Citibank, N.A. ("Citi") for a purchase price equal to 99% of the outstanding aggregate principal and accrued interest balance of the purchased loans through the closing date. The acquisition is expected to close on or around September 30, 2011, subject to customary closing conditions.

• We repurchased 8.4 million shares of our common stock in the third quarter for approximately $198 million through our share repurchase program.

Recent Developments

• We issued $800 million of credit card asset-backed securities in a registered public offering on September 20, 2011 at an interest rate of one-month LIBOR plus 21 basis points and with a maturity of three years.

Outlook

Credit performance continued to improve in the third quarter as shown by the decline in the delinquency rate of loans 30 or more days past due. We expect our delinquency rates through the end of 2011 to remain lower compared to 2010 levels, which should result in continued lower principal and interest charge-offs. As we approach cyclical lows in delinquency and net charge-off rates, we expect the level of reserve releases to decline. As our loan portfolio continues to grow, we may need to build loan loss reserves in 2012.

The implementation of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “CARD Act”) has had and will continue to have an unfavorable impact on the yield of our loan portfolio. We anticipate further yield compression in the fourth quarter due to increased promotional offer balances in the third quarter and continued growth in lower-rate student and personal loans, partially offset by ongoing improvement in credit and reduced funding costs. Net interest margin is expected to decrease slightly in the fourth quarter of 2011 as we plan to close on the previously announced acquisition of $2.5 billion in additional private student loans.

Our funding plan contemplates accessing all of our current funding channels. We expect to issue additional credit card asset-backed securities when we believe market conditions are favorable. We intend to maintain a strong capital level while investing for future growth, and returning capital to shareholders through dividends and our share repurchase program.

Investments in marketing and advertising during 2011 are expected to lead to an increase in Discover card sales volume during the fourth quarter of 2011. We will continue to emphasize marketing, rewards programs, and merchant acceptance to strengthen our brand. Additionally, we continue to pursue opportunities to strengthen our core business. We expect our marketing efforts, increased sales volume, and positive credit performance trends to contribute to modest year over year growth in credit card receivables in the fourth quarter of 2011.

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Legislative and Regulatory Developments

Financial Regulatory Reform

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) contains a comprehensive set of provisions designed to govern the practices and oversight of financial institutions and other participants in the financial markets. The Reform Act, as well as other legislative and regulatory changes, could have a significant impact on us by, for example, requiring us to change our business practices, requiring us to meet more stringent capital, liquidity and leverage ratio requirements, limiting our ability to pursue business opportunities, imposing additional costs on us, limiting fees we can charge for services, impacting the value of our assets, or otherwise adversely affecting our businesses.

The Reform Act addresses risks to the economy and the payments system, especially those posed by large systemically significant financial firms. Under the Reform Act, bank holding companies with $50 billion or more in total consolidated assets, including Discover, are considered systemically significant and are subject to heightened prudential standards, including heightened capital, leverage, liquidity, credit exposure and risk management requirements and other requirements that may be recommended by the new Financial Stability Oversight Council and implemented by the Board of Governors of the Federal Reserve System (the "Federal Reserve").

On September 13, 2011, the FDIC approved a final rule pursuant to Section 165(d) of the Reform Act which requires bank holding companies with $50 billion or more in consolidated assets (which would include us) and certain other financial companies to submit a resolution plan (or so-called “living will”) to the FDIC, the Federal Reserve Board, and the Financial Stability Oversight Council for their rapid and orderly liquidation in the event of material financial distress or failure. On the same date, the FDIC issued an interim final rule requiring insured depository institutions with assets of $50 billion or more (which would include Discover Bank) to submit a contingent plan to the FDIC for their resolution in the event of failure. These rules are meant to be complementary and use the same staggered submission schedule. Under the rules, the initial resolution plans for us and Discover Bank are required to be submitted on or before December 31, 2013. Thereafter, we and Discover Bank are required to update such plans annually and, in certain circumstances, more frequently.

The Reform Act also provides for restrictions on and additional disclosure of executive compensation, additional corporate governance requirements and far more stringent requirements with respect to affiliate transactions and mergers and acquisitions. The Reform Act also grants broad new powers to the government to seize and conduct an orderly liquidation of failing systemically-important financial firms, including bank holding companies and other nonbank financial companies, and to recover the costs of such liquidations through assessments on large financial firms.

Effective July 2011, the Reform Act requires a bank holding company that elects treatment as a financial holding company, such as Discover, to be both well-capitalized and well-managed in addition to the existing requirement that a financial holding company's subsidiary banks be well-capitalized and well-managed. If we were to fail to meet requirements to be a financial holding company, we could be restricted from engaging in new financial activities or acquisitions or be required to discontinue or divest existing activities that are not generally permissible for bank holding companies.

The Reform Act established the Consumer Financial Protection Bureau (the “CFPB”), which regulates consumer financial products and services provided by certain financial services providers, including Discover. On July 21, 2011, many consumer financial protection functions formerly assigned to the federal banking and other agencies transferred to the CFPB. The CFPB is authorized to prevent “unfair, deceptive or abusive practices” and ensure consistent enforcement of laws so that all consumers have access to markets for consumer financial products and services that are fair, transparent and competitive. The CFPB has rulemaking and interpretive authority under the Reform Act and other federal consumer financial services laws (including the CARD Act), as well as broad supervisory, examination and enforcement authority over large providers of consumer financial products and services, such as Discover. State officials are authorized to enforce consumer protection rules issued by the CFPB and other requirements of the Reform Act. Prior to the confirmation of a CFPB Director by the U.S. Senate, there are limitations on the CFPB's authority, including its ability to promulgate regulations. However, the CFPB is already engaged in consumer education activities and has established an online process to collect consumer complaints about credit cards.

In addition, the Reform Act requires that interchange fees received or charged by payment card issuers on debit card and certain prepaid transactions be “reasonable” and “proportional” to the issuer's cost in connection with such transactions. It also prohibits debit and prepaid card networks and issuers from requiring debit and prepaid card transactions to be processed solely on a single payment network, or two or more affiliated payment networks. In addition, provisions of the Reform Act prohibit credit/debit network rules that restrict merchants from offering discounts to customers in order to encourage them to use a particular form of payment, or from setting minimum transaction amounts of $10.00 or less for use of credit cards, as long as such merchant practices do not differentiate on the basis of the issuer or network. The Federal Reserve issued final implementing regulations with respect to the interchange fee and routing provisions on June 29, 2011, some of which become effective on October 1, 2011. Discover Network and PULSE are reviewing and modifying operating rules and interchange fee

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schedules to ensure consistency with the Reform Act and Federal Reserve implementing regulations. The ultimate impact of these laws and regulations will depend upon the actions of our competitors and the behavior of other marketplace participants. It is uncertain how PULSE's business practices, network transaction volume, revenue, and prospects for future growth, as well as the debit card market as a whole, may be impacted.

The Reform Act also imposes a number of significant changes relating to the asset-backed securities and structured finance markets, which may impact our ability and/or desire to utilize those markets to meet funding and liquidity needs. For more information regarding these and other changes related to asset-backed securities, see “Management's Discussion and Analysis of Financial Condition and Results of Operations - Legislative and Regulatory Developments - Asset-Backed Securities Regulations” in our Quarterly Report on Form 10-Q for the quarter ended February 28, 2011 and "Liquidity and Capital Resources - Funding Sources - Credit Card Securitization Financing" in this report.

It is uncertain at this time what the final rules implementing many of the provisions of the Reform Act will ultimately look like and what impact they will have on our business and operations. In addition, the Reform Act mandates multiple studies, which could result in additional legislative or regulatory action. We may be required to invest significant management time and resources to address the various provisions of the Reform Act and the numerous regulations that are required to be issued under it. The Reform Act, any related legislation and any implementing regulations could have a material adverse effect on our business, results of operations, cash flows and financial condition.

Regulatory Initiatives Related to Capital and Liquidity

In December 2010, the Basel Committee released the Basel III rules text, which includes significant changes to bank capital, leverage and liquidity requirements. Implementation of Basel III in the U.S. will require implementing regulations and guidelines by U.S. banking regulators, which may differ in significant ways from the recommendations published by the Basel Committee. It is unclear how U.S. banking regulators will define “well-capitalized” in their implementation of Basel III. For more information regarding Basel III, see “Management's Discussion and Analysis of Financial Condition and Results of Operations - Legislative and Regulatory Developments - International Initiatives Related to Capital and Liquidity” in our Quarterly Report on Form 10-Q for the quarter ended February 28, 2011.

The Reform Act also includes provisions related to increased capital and liquidity requirements. Such provisions would establish minimum leverage and risk-based capital requirements on a consolidated basis for all depository institution holding companies and insured depository institutions that cannot be less than the strictest requirements in effect for depository institutions as of the date of enactment of the Reform Act (i.e., July 21, 2010).

In June 2011, the bank regulatory agencies released proposals related to stress testing and capital planning that would apply to Discover. On June 9, 2011, the agencies jointly issued proposed guidance on stress testing that outlines principles for a satisfactory stress testing framework and describes the manner in which stress testing should be employed as an integral component of risk management and capital and liquidity planning. In addition, on June 10, 2011, the Federal Reserve issued a proposed rule that would require us to submit an annual capital plan for review and to provide prior notice to the Federal Reserve under certain circumstances before making a capital distribution (including a dividend payment or share repurchase). The proposed rule includes a list of mandatory elements the capital plan will be required to contain, a list of factors the Federal Reserve will consider in reviewing the capital plan and a description of actions to be taken by the Federal Reserve in response to submission of the capital plan.

We are not able to predict at this time the precise content of capital and liquidity guidelines or regulations that may be adopted by regulatory agencies having authority over us and our subsidiaries or the impact that any changes in regulation would have on us. However, we expect that the new standards will generally require us or our banking subsidiaries to maintain more capital, with common equity as a more predominant component, or manage the configuration of our assets and liabilities in order to comply with formulaic liquidity requirements, which could significantly impact our return on equity, financial condition, operations, capital position and ability to pursue business opportunities.

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Segments

We manage our business activities in two segments: Direct Banking and Payment Services. In compiling the segment results that follow, our Direct Banking segment bears all overhead costs that are not specifically associated with a particular segment and all costs associated with Discover Network marketing, servicing and infrastructure, with the exception of an allocation of direct and incremental costs driven by our Payment Services segment.

Direct Banking. The Direct Banking segment includes Discover card-branded credit cards issued to individuals and small businesses and other consumer products and services, including personal loans, student loans, prepaid cards and other consumer lending and deposit products offered through the Company’s Discover Bank subsidiary. The majority of the Direct Banking revenues relate to interest income earned on each of its loan products. Additionally, the Company’s credit card products generate substantially all of the Company’s revenues related to discount and interchange, fee products and loan fee income.

Payment Services. The Payment Services segment includes PULSE, an automated teller machine, debit and electronic funds transfer network; Diners Club, a global payments network; and the Company’s third-party issuing business, which includes credit, debit and prepaid cards issued on the Discover Network by third parties. The majority of the Payment Services revenues relate to transaction processing revenue from PULSE and royalty and licensee revenue (included in other income) from Diners Club.

The following table presents segment data (dollars in thousands):
	For the Three Months Ended August 31,						For the Nine Months Ended August 31,
	2011			2010			2011			2010
Direct Banking
Interest income
Credit card	1,423,496			1,455,907			4,243,803			4,423,654
Private student loans	84,318			12,266			229,933			33,025
Personal loans	70,052			47,105			189,525			129,832
Other	21,209			20,656			62,044			60,345
Total interest income	1,599,075			1,535,934			4,725,305			4,646,856
Interest expense	362,017			389,059			1,124,597			1,207,322
Net interest income	1,237,058			1,146,875			3,600,708			3,439,534
Provision for loan losses	99,514			712,565			692,763			2,824,035
Other income	481,134			495,771			1,436,764			1,423,823
Other expense	609,202			534,782			1,774,915			1,465,749
Income before income tax expense	1,009,476			395,299			2,569,794			573,573
Payment Services
Interest income	17			5			29			15
Interest expense	36			78			163			160
Net interest expense	(19		)	(73		)	(134		)	(145		)
Provision for loan losses	—			—			—			—
Other income	70,829			68,373			221,667			199,041
Other expense	33,205			31,456			97,784			88,841
Income before income tax expense	37,605			36,844			123,749			110,055
Total income before income tax expense	$	1,047,081		$	432,143		$	2,693,543		$	683,628

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The following table presents information on transaction volume (in thousands):
	For the Three Months Ended August 31,				For the Nine Months Ended August 31,
	2011		2010		2011		2010
Network Transaction Volume
PULSE Network	$	35,109,450	$	30,581,850	$	106,208,008	$	86,845,109
Third-Party Issuers	1,983,863		1,793,785		5,593,364		5,034,051
Diners Club	7,659,166		6,542,418		22,036,529		19,805,455
Total Payment Services	44,752,479		38,918,053		133,837,901		111,684,615
Discover Network—Proprietary (1)	27,133,026		24,880,163		77,601,894		71,684,416
Total Volume	$	71,885,505	$	63,798,216	$	211,439,795	$	183,369,031
Transactions Processed on Networks
Discover Network	451,041		418,423		1,282,783		1,192,556
PULSE Network	949,965		882,172		2,885,239		2,407,359
Total	1,401,006		1,300,595		4,168,022		3,599,915
Credit Card Volume
Discover Card Volume (2)	$	28,455,156	$	25,552,568	$	81,141,781	$	73,644,406
Discover Card Sales Volume (3)	$	26,270,622	$	23,992,715	$	75,104,974	$	69,251,162

 ____________

(1) Represents gross proprietary sales volume on the Discover Network.

(2) Represents Discover card activity related to net sales, balance transfers, cash advances and fee-based products.

(3) Represents Discover card activity related to net sales.

Direct Banking

Our Direct Banking segment reported pretax income of $1.0 billion and $2.6 billion for the three and nine months ended August 31, 2011, respectively, as compared to pretax income of $395 million and $574 million for the three and nine months ended August 31, 2010, respectively.

Loan receivables totaled $54.1 billion at August 31, 2011, which was up from $48.8 billion at November 30, 2010. This was primarily driven by the increase in private student loans due to the acquisition of The Student Loan Corporation ("SLC") (see Note 2: Business Combinations to our condensed consolidated financial statements) as well as an increase in credit card promotional offer balances. Credit card loan receivables were $46.2 billion at August 31, 2011, which was up from $45.2 billion at November 30, 2010. Discover card sales volume was $26.3 billion and $75.1 billion for the three and nine months ended August 31, 2011, respectively, an increase of 9% and 8% as compared to the same periods in the prior year. This increase is driven by growth in spending from both new and existing customers, along with increased gas prices.

Net interest income improved in the three and nine months ended August 31, 2011 as compared to the three and nine months ended August 31, 2010 due to an increase in total loan receivables and lower funding-related costs. This was partially offset by a decline in yield. For a more detailed discussion on net interest income, see “-Net Interest Income.”

At August 31, 2011, our delinquency rate for credit card loans over 30 days past due was 2.43% as compared to 4.06% at November 30, 2010, reflective of continued improvement in credit performance. For the three and nine months ended August 31, 2011, our net charge-off rate on credit cards declined to 3.85% and 4.93%, respectively, as compared to 7.73% and 8.44% for the three and nine months ended August 31, 2010. A reduction in the loan loss reserve rate and a decline in the level of net charge-offs led to a decline in the provision for loan losses for the three and nine months ended August 31, 2011 as compared to the same period in 2010. For a more detailed discussion on provision for loan losses, see “-Loan Quality-Provision and Allowance for Loan Losses.”

Other income decreased for the three months ended August 31, 2011, as compared to the same period in 2010. This decrease is primarily attributable to the inclusion of a gain of $19.6 million related to the liquidation of the collateral supporting our investment in the asset-backed commercial paper notes of Golden Key U.S. LLC ("Golden Key") during 2010. There was also a decrease in loan fee income due to lower late fee income, partially offset by lower related charge-offs. These declines were offset by an increase in discount and interchange revenue. The increase in discount and interchange revenue was driven

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by higher sales volume, partially offset by an increase in Cashback Bonus rewards earned by our customers. In addition, other income for the three months ended August 31, 2011 benefited from the inclusion of income from the transition service agreement related to SLC, which was acquired in the first quarter of 2011.

Total other income increased for the nine months ended August 31, 2011 as compared to the same period in 2010, primarily due to the inclusion of income from the transition service agreement, as well as the purchase gain of approximately $16 million related to the acquisition of SLC in first quarter 2011 (see Note 2: Business Combinations to our condensed consolidated financial statements). Furthermore, there was an increase in income from the sale of fee products. These increases were partially offset by declines in loan fee income and losses on investments. Loan fee income declined due to the implementation of the provisions of the CARD Act which resulted in lower late fees and the discontinuance of overlimit fees on consumer credit card loans. Gain on investments declined for nine months ended August 31, 2011 as compared to the same period in 2010 due to the inclusion of a gain of $19.6 million related to the liquidation of the collateral supporting our Golden Key investment during 2010. There was not a similar benefit recognized in 2011.

    Total other expenses increased for the three months ended August 31, 2011 as compared to the same period in 2010 due to various factors including higher compensation expense. Professional fees increased due to higher costs related to key technology and growth initiatives, costs relating to the SLC acquisition, and an increase in costs related to recovering charged-off accounts. Other expense increased for the three months ended August 31, 2011 as compared to the same period in 2010 due to a number of factors. There were higher expenses relating to incentive payments to increase global acceptance for the Discover Network. Furthermore, other expense increased due to higher fraud costs as well as expenses related to SLC.

Total other expense increased for the nine months ended August 31, 2011 as compared to the same period in 2010 primarily due to higher compensation expenses, and higher marketing and business development costs due to an increase in investments in new account acquisitions. Professional fees also increased due to higher costs related to key technology and growth initiatives, costs relating to the SLC acquisition, as well as an increase in costs related to recovering charged-off accounts. Furthermore, other expense also increased due to an increase in fraud related costs and an increase in legal reserves related to pending litigation. For the nine months ended August 31, 2010, other expense benefited from a $29 million expense reversal related to the payment to Morgan Stanley under an amendment to the special dividend agreement that occurred in the first quarter of 2010. There was not a similar benefit recognized in 2011.

Payment Services

Our Payment Services segment reported pretax income of $38 million and $124 million for the three and nine months ended August 31, 2011, respectively, up $1 million and $14 million, as compared to the three and nine months ended August 31, 2010, respectively. Revenues increased during both periods as a result of higher volumes and margins from transactions on the PULSE network. Expenses increased for both periods due to higher investments related to enhancing infrastructure.

Transaction dollar volume increased $6 million and $22 million for the three and nine months ended August 31, 2011, respectively, as compared to the three and nine months ended August 31, 2010, primarily driven by increased PULSE volume. The number of transactions on the PULSE network increased by 8% and 20% for the three and nine months ended August 31, 2011, respectively, as compared to the same periods in 2010.

Critical Accounting Estimates

In preparing our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”), management must make judgments and use estimates and assumptions about the effects of matters that are uncertain. For estimates that involve a high degree of judgment and subjectivity, it is possible that different estimates could reasonably be derived for the same period. For estimates that are particularly sensitive to changes in economic or market conditions, significant changes to the estimated amount from period to period are also possible. Management believes the current assumptions and other considerations used to estimate amounts reflected in our condensed consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts in our consolidated financial statements, the resulting changes could have a material effect on our consolidated results of operations and, in certain cases, could have a material effect on our consolidated financial condition. Management has identified the estimates related to our allowance for loan losses, the accrual of credit card customer rewards cost, the evaluation of goodwill and other nonamortizable intangible assets for potential impairment and the accrual of income taxes as critical accounting estimates. These critical accounting estimates are discussed in greater detail in our annual report on Form 10-K for the fiscal year ended November 30, 2010. That discussion can be found within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Critical Accounting Estimates.” There have not been any material changes in the methods used to formulate these critical accounting estimates from those discussed in our annual report on Form 10-K for the fiscal year ended November 30, 2010.

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In the first quarter 2011, we determined the estimates related to our accounting for purchased credit-impaired ("PCI") loans acquired from SLC to be critical accounting estimates. The estimate of expected future cash flows on PCI loans determines the amount of yield we can recognize in future periods and impacts whether a loan loss reserve must be established for these loans. We reevaluate the amount and timing of expected cash flows quarterly. Because estimates of expected future cash flows on PCI loans involve assumptions and significant judgment, it is reasonably possible that others could derive different estimates than ours for the same periods. In addition, changes in estimates from one period to the next can have a significant impact on our consolidated financial condition and results of operations. A decrease in expected cash flows involving an increase in estimated credit losses would result in an immediate charge to earnings for the recognition of a loan loss provision. Increases or decreases in expected cash flows related solely to changes in estimated prepayments or to changes in variable interest rate indices would result in prospective yield adjustments over the remaining life of the loans. An increase in expected cash flows due to a reduction in expected credit losses would result first in the reversal of any previously established loan loss reserve on PCI loans through an immediate credit to earnings and then, if needed, a prospective adjustment to yield over the remaining life of the loans. The accounting and estimates used in our calculations are discussed further in Note 4: Loan Receivables to our condensed consolidated financial statements.

Earnings Summary

The following table outlines changes in our condensed consolidated statements of income for the periods presented (dollars in thousands):
	For the Three Months Ended August 31,				2011 vs. 2010 increase (decrease)					For the Nine Months Ended August 31,				2011 vs. 2010 increase (decrease)
	2011		2010		$			%		2011		2010
Interest income	$	1,599,092	$	1,535,939	$	63,153		4	%	$	4,725,334	$	4,646,871	$	78,463		2	%
Interest expense	362,053		389,137		(27,084		)	(7	)%	1,124,760		1,207,482		(82,722		)	(7	)%
Net interest income	1,237,039		1,146,802		90,237			8	%	3,600,574		3,439,389		161,185			5	%
Provision for loan losses	99,514		712,565		(613,051		)	(86	)%	692,763		2,824,035		(2,131,272		)	(76	)%
Net interest income after provision for loan losses	1,137,525		434,237		703,288			162	%	2,907,811		615,354		2,292,457			NM
Other income	551,963		564,144		(12,181		)	(2	)%	1,658,431		1,622,864		35,567			2	%
Other expense	642,407		566,238		76,169			14	%	1,872,699		1,554,590		318,109			21	%
Income (loss) before income tax expense	1,047,081		432,143		614,938			142	%	2,693,543		683,628		2,009,915			NM
Income tax expense	398,263		171,526		226,737			132	%	979,414		268,482		710,932			NM
Net income	$	648,818	$	260,617	$	388,201		149	%	$	1,714,129	$	415,146	$	1,298,983		NM

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Net Interest Income

The tables that follow this section have been provided to supplement the discussion below and provide further analysis of net interest income, net interest margin and the impact of rate and volume changes on net interest income. Net interest income represents the difference between interest income earned on our interest-earning assets and the interest expense incurred to finance those assets. We analyze net interest income in total by calculating net interest margin (interest income, net of interest expense, as a percentage of average total loan receivables) and net yield on interest-bearing assets (net interest income as a percentage of average total interest-earning assets). We also separately consider the impact of the level of loan receivables and the related interest yield and the impact of the cost of funds related to each of our funding sources, along with the income generated by our liquidity investment portfolio, on net interest income.

Our interest-earning assets consist of: (i) loan receivables, (ii) cash and cash equivalents, which includes amounts on deposit with the Federal Reserve, highly rated certificates of deposit, and triple-A rated government mutual funds, (iii) restricted cash, (iv) short-term investments and (v) investment securities. Our interest-bearing liabilities consist primarily of deposits, both direct-to-consumer and brokered, and long-term borrowings, including amounts owed to securitization investors. Net interest income is influenced by the following:

• The level and composition of loan receivables, including the proportion of credit card loans to other consumer loans, as well as the proportion of loan receivables bearing interest at promotional rates as compared to standard rates;

• The credit performance of our loans, particularly with regard to charge-offs of finance charges, which reduce interest income;

• The terms of long-term borrowings and certificates of deposit upon initial offering, including maturity and interest rate;

• The level and composition of other interest-bearing assets and liabilities, including our liquidity investment portfolio;

• Changes in the interest rate environment, including the levels of interest rates and the relationships among interest rate indices, such as the prime rate, the Federal Funds rate and LIBOR; and

• The effectiveness of interest rate swaps in our interest rate risk management program.

Net interest income improved in the three and nine months ended August 31, 2011 as compared to the three and nine months ended August 31, 2010 due to an increase in loan receivables and lower funding related costs. This was partially offset by a decline in yield. This, along with other factors affecting net interest income, is discussed in further detail below.

Interest income on loan receivables increased during both the three and nine months ended August 31, 2011 as compared to the same periods in 2010, as an increase in interest income from other consumer loans was partially offset by a decline in interest income from credit card loans. The increase in interest income from other consumer loans for both the three and nine months ended August 31, 2011 as compared to the same periods in 2010 is primarily attributable to the acquisition of SLC during the first quarter of 2011, as well as growth in personal loans. For the three months ended August 31, 2011, the decline in interest income from credit card loans was primarily due to a decline in yield caused by an increase in promotional rate balances and an increase in customers who pay their balances in full, partially offset by lower interest charge-offs. Furthermore, the decline in yield was also impacted by the CARD Act that was implemented in 2010, which led to restrictions on imposing default interest rates on existing balances. For the three months ended August 31, 2011, these declines were partially offset by higher income relating to higher average levels of credit card loan receivables. However, for the nine months ended August 31, 2011, the average level of credit card loan receivables declined, causing a further decrease in interest income from credit card receivables for the period.

Interest expense declined in the three and nine months ended August 31, 2011 as compared to the same periods in 2010. This was primarily due to a decline in interest expense related to maturities of deposits bearing higher interest rates. This was partially offset by an increase in interest expense on securitized borrowings, primarily due to the acquisition of three SLC securitization trusts in the first quarter of 2011. Although interest expense on securitized borrowings increased, the average level of securitized borrowings decreased for the nine months ended August 31, 2011 as compared to the same periods in 2010. This is primarily because a substantial portion of the securitized borrowings that matured in 2010 had been issued at lower interest rates than the issuances that have not yet matured.

Interest income on other interest-earning assets, which largely relates to investment income on our liquidity investment portfolio, increased primarily due to a shift in the mix of our liquidity investment portfolio in the fourth quarter of 2010 from cash and cash equivalents to investments in securities of the U.S Treasury and U.S. government agencies, which typically have a higher yield than cash.

50

Average Balance Sheet Analysis
	For the Three Months Ended August 31,
	2011							2010
	Average Balance			Rate		Interest		Average Balance			Rate		Interest
Assets
Interest-earning assets:
Cash and cash equivalents	$	3,453,928		0.25	%	$	2,160	$	8,352,952		0.25	%	$	5,326
Restricted cash	1,184,566			0.11	%	336		1,062,261			0.20	%	533
Other short-term investments	—			—	%	—		375,000			1.07	%	1,011
Investment securities	5,814,467			1.07	%	15,676		1,196,306			1.85	%	5,574
Loan receivables(1):
Credit card(2)	45,343,304			12.46	%	1,423,496		44,905,220			12.86	%	1,455,907
Personal loans	2,321,496			11.97	%	70,052		1,639,319			11.40	%	47,105
Federal student loans(3)	747,719			1.57	%	2,957		2,253,184			1.38	%	7,832
Private student loans	4,588,400			7.29	%	84,318		838,237			5.81	%	12,266
Other	12,140			3.13	%	97		51,340			2.98	%	385
Total loan receivables	53,013,059			11.83	%	1,580,920		49,687,300			12.16	%	1,523,495
Total interest-earning assets	63,466,020			10.00	%	1,599,092		60,673,819			10.04	%	1,535,939
Allowance for loan losses	(2,490,577		)					(3,856,016		)
Other assets	3,796,491							3,973,848
Total assets	$	64,771,934						$	60,791,651
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits(4)	$	24,829,744		3.30	%	206,645		$	26,985,136		3.70	%	251,524
Money market deposits	4,676,243			1.38	%	16,284		3,936,681			1.52	%	15,105
Other interest-bearing deposits	6,432,652			1.16	%	18,790		3,485,724			1.42	%	12,508
Total interest-bearing deposits(5)	35,938,639			2.67	%	241,719		34,407,541			3.22	%	279,137
Borrowings:
Short-term borrowings	167,804			0.08	%	33		—			—		—
Securitized borrowings	15,624,848			2.05	%	80,573		14,964,828			1.77	%	66,677
Other long-term borrowings(4)	2,449,670			6.43	%	39,728		2,884,933			5.96	%	43,323
Total borrowings	18,242,322			2.62	%	120,334		17,849,761			2.44	%	110,000
Total interest-bearing liabilities	54,180,961			2.65	%	362,053		52,257,302			2.95	%	389,137
Other liabilities and stockholders’ equity	10,590,973							8,534,349
Total liabilities and stockholders’ equity	$	64,771,934						$	60,791,651
Net interest income						$	1,237,039						$	1,146,802
Net interest margin(6)				9.26	%						9.16	%
Net yield on interest-bearing assets(7)				7.73	%						7.50	%
Interest rate spread(8)				7.35	%						7.09	%

51

	For the Nine Months Ended August 31,
	2011							2010
	Average Balance			Rate		Interest		Average Balance			Rate		Interest
Assets
Interest-earning assets:
Cash and cash equivalents	$	3,885,023		0.24	%	$	7,143	$	10,528,297		0.25	%	$	20,018
Restricted cash	1,365,770			0.14	%	1,452		2,401,644			0.15	%	2,646
Other short-term investments	203,832			1.07	%	1,639		189,234			0.90	%	1,437
Investment securities	5,469,488			1.04	%	42,535		910,722			2.34	%	15,966
Loan receivables(1):
Credit card(2)	45,021,656			12.56	%	4,243,803		45,931,331			12.83	%	4,423,654
Personal loans	2,127,084			11.87	%	189,525		1,526,095			11.33	%	129,831
Federal student loans(3)	761,580			1.58	%	9,019		2,044,432			1.20	%	18,462
Private student loans	4,156,790			7.37	%	229,933		781,773			5.63	%	33,026
Other	13,169			2.88	%	285		61,488			3.97	%	1,831
Total loan receivables	52,080,279			11.95	%	4,672,565		50,345,119			12.19	%	4,606,804
Total interest-earning assets	63,004,392			9.99	%	4,725,334		64,375,016			9.62	%	4,646,871
Allowance for loan losses	(2,863,500		)					(3,967,079		)
Other assets	3,781,777							4,004,750
Total assets	$	63,922,669						$	64,412,687
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits(4)	$	25,102,544		3.46	%	651,594		$	27,637,969		3.90	%	808,646
Money market deposits	4,511,303			1.40	%	47,490		4,359,380			1.40	%	45,715
Other interest-bearing deposits	5,576,319			1.21	%	50,500		2,593,249			1.47	%	28,560
Total interest-bearing deposits(5)	35,190,166			2.84	%	749,584		34,590,598			3.40	%	882,921
Borrowings:
Short-term borrowings	125,590			0.12	%	116		—			—		—
Securitized borrowings	16,142,231			2.09	%	253,297		17,872,540			1.55	%	207,580
Other long-term borrowings(4)	2,472,765			6.56	%	121,763		2,705,586			5.76	%	116,981
Total borrowings	18,740,586			2.67	%	375,176		20,578,126			2.10	%	324,561
Total interest-bearing liabilities	53,930,752			2.78	%	1,124,760		55,168,724			2.92	%	1,207,482
Other liabilities and stockholders’ equity	9,991,917							9,243,963
Total liabilities and stockholders’ equity	$	63,922,669						$	64,412,687
Net interest income						$	3,600,574						$	3,439,389
Net interest margin(6)				9.21	%						9.10	%
Net yield on interest-bearing assets(7)				7.61	%						7.12	%
Interest rate spread(8)				7.21	%						6.70	%

(1) Average balances of loan receivables include non-accruing loans, which are included in the yield calculations. If the non-accruing loan balances were excluded, there would not be a material impact on the amounts reported above.

(2) Interest income on credit card loans includes $60.8 million and $170.1 million of amortization of balance transfer fees for the three and nine months ended August 31, 2011, respectively. Interest income on credit card loans includes $41.0 million and $124.2 million of amortization of balance transfer fees for the three and nine months ended August 31, 2010, respectively.

(3) Includes federal student loans held for sale.

(4) Includes the impact of interest rate swap agreements used to change a portion of fixed-rate funding to floating-rate funding.

(5) Includes the impact of FDIC insurance premiums and special assessments.

(6) Net interest margin represents net interest income as a percentage of average total loan receivables.

(7) Net yield on interest-earning assets represents net interest income as a percentage of average total interest-earning assets.

(8) Interest rate spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities.

52

Rate/Volume Variance Analysis(1)
	For the Three Months Ended August 31, 2011 vs. August 31, 2010									For the Nine Months Ended August 31, 2011 vs. August 31, 2010
	Volume			Rate			Total			Volume			Rate			Total
Increase/(decrease) in net interest income due to changes in:
Interest-earning assets:
Cash and cash equivalents	$	(3,066	)	$	(100	)	$	(3,166	)	$	(12,235	)	$	(640	)	$	(12,875	)
Restricted cash	343			(539		)	(196		)	(1,105		)	(88		)	(1,193		)
Other short-term investments	(505		)	(506		)	(1,011		)	115			87			202
Investment securities	25,910			(15,808		)	10,102			45,211			(18,642		)	26,569
Loan receivables:
Credit card	78,559			(110,970		)	(32,411		)	(86,712		)	(93,139		)	(179,851		)
Personal loans	20,479			2,468			22,947			53,288			6,405			59,693
Federal student loans	(11,144		)	6,269			(4,875		)	(16,550		)	7,108			(9,442		)
Private student loans	68,155			3,897			72,052			183,740			13,167			196,907
Other	(419		)	130			(289		)	(1,145		)	(401		)	(1,546		)
Total loan receivables	155,630			(98,206		)	57,424			132,621			(66,860		)	65,761
Total interest income	178,312			(115,159		)	63,153			164,607			(86,143		)	78,464
Interest-bearing liabilities:
Interest-bearing deposits:
Time deposits	(19,171		)	(25,708		)	(44,879		)	(70,429		)	(86,623		)	(157,052		)
Money market deposits	8,216			(7,037		)	1,179			1,599			176			1,775
Other interest-bearing deposits	20,278			(13,996		)	6,282			30,716			(8,775		)	21,941
Total interest-bearing deposits	9,323			(46,741		)	(37,418		)	(38,114		)	(95,222		)	(133,336		)
Borrowings:
Short-term borrowings	33			—			33			116			—			116
Securitized borrowings	3,042			10,854			13,896			(32,085		)	77,802			45,717
Other long-term borrowings	(20,315		)	16,720			(3,595		)	(14,730		)	19,512			4,782
Total borrowings	(17,240		)	27,574			10,334			(46,699		)	97,314			50,615
Total interest expense	(7,917		)	(19,167		)	(27,084		)	(84,813		)	2,092			(82,721		)
Net interest income	$	186,229		$	(95,992	)	$	90,237		$	249,420		$	(88,235	)	$	161,185

 _______________

(1) The rate/volume variance for each category has been allocated on a consistent basis between rate and volume variances between August 31, 2011 and August 31, 2010 based on the percentage of the rate or volume variance to the sum of the two absolute variances.

53

Loan Quality

Loan receivables consist of the following (dollars in thousands):

	August 31, 2011			November 30, 2010
Loans held for sale	$	738,382		$	788,101
Loan portfolio:
Credit card loans:
Discover card	45,949,224			44,904,267
Discover business card	228,449			252,727
Total credit card loans	46,177,673			45,156,994
Other consumer loans:
Personal loans	2,439,330			1,877,633
Private student loans	1,828,493			999,322
Other	11,790			14,363
Total other consumer loans	4,279,613			2,891,318
PCI student loans(1)	2,886,783			—
Total loan portfolio	53,344,069			48,048,312
Total loan receivables	54,082,451			48,836,413
Allowance for loan losses	(2,273,058		)	(3,304,118		)
Net loan receivables	$	51,809,393		$	45,532,295

 ________________

(1) Represents purchased credit-impaired private student loans acquired from SLC on December 31, 2010 which do not have a related allowance for loan losses or charge-offs (see Note 4: Loan Receivables to our condensed consolidated financial statements).

Provision and Allowance for Loan Losses

Provision for loan losses is the expense related to maintaining the allowance for loan losses at an appropriate level to absorb the estimated probable losses in the loan portfolio at each period end date. Factors that influence the provision for loan losses include:

• The impact of general economic conditions on the consumer, including unemployment levels, bankruptcy trends and interest rate movements;

• Changes in consumer spending and payment behaviors;

• Changes in our loan portfolio, including the overall mix of accounts, products and loan balances within the portfolio;

• The level and direction of historical and anticipated loan delinquencies and charge-offs;

• The credit quality of the loan portfolio, which reflects, among other factors, our credit granting practices and effectiveness of collection efforts; and

• Regulatory changes or new regulatory guidance.

In calculating the allowance for loan losses, we estimate probable losses separately for segments of the loan portfolio that have similar risk characteristics, such as credit card and other consumer loans. For our credit card loans, we use a migration analysis to estimate the likelihood that a loan will progress through the various stages of delinquency. We use other analyses to estimate losses incurred from non-delinquent accounts which broadens the identification of loss emergence. We use these analyses together to determine our allowance for loan losses.

During the three and nine months ended August 31, 2011, the provision for loan losses decreased by $613 million and $2.1 billion as compared to the three and nine months ended August 31, 2010, respectively. This decrease is primarily due to improved credit performance, which resulted in a decline in the level of net charge-offs during the three and nine months ended August 31, 2011 as compared to the three and nine months ended August 31, 2010. Improvements in credit performance were also evidenced by a decline in the delinquency rate for the periods, which was the primary driver of the reduction in the allowance for loan losses during both the three and nine months ended August 31, 2011.

54

The following table provides changes in our allowance for loan losses for the periods presented (dollars in thousands):
	For the Three Months Ended August 31,						For the Nine Months Ended August 31,
	2011			2010			2011			2010
Balance at beginning of period	$	2,632,320		$	3,930,624		$	3,304,118		$	1,757,899
Additions:
Addition to allowance related to securitized receivables(1)	—			—			—			2,144,461
Provision for loan losses	99,514			712,565			692,763			2,824,035
Deductions:
Charge-offs:
Discover card	(584,534		)	(982,920		)	(2,085,452		)	(3,203,959		)
Discover business card	(4,416		)	(14,502		)	(17,672		)	(50,190		)
Total credit card loans	(588,950		)	(997,422		)	(2,103,124		)	(3,254,149		)
Personal loans	(16,458		)	(23,836		)	(52,438		)	(70,957		)
Federal student loans	—			(11		)	—			(308		)
Private student loans	(2,663		)	(660		)	(5,646		)	(1,264		)
Other	(411		)	(139		)	(1,025		)	(858		)
Total other consumer loans	(19,532		)	(24,646		)	(59,109		)	(73,387		)
Total charge-offs	(608,482		)	(1,022,068		)	(2,162,233		)	(3,327,536		)
Recoveries:
Discover card	148,292			121,255			434,141			341,337
Discover business card	910			875			2,735			2,516
Total credit card loans	149,202			122,130			436,876			343,853
Personal loans	458			421			1,458			942
Private student loans	45			14			73			22
Other	1			35			3			45
Total other consumer loans	504			470			1,534			1,009
Total recoveries	149,706			122,600			438,410			344,862
Net charge-offs	(458,776		)	(899,468		)	(1,723,823		)	(2,982,674		)
Balance at end of period	2,273,058			$	3,743,721		2,273,058			$	3,743,721

 ________________

(1) On December 1, 2009, upon adoption of the Financial Accounting Standards Board (“FASB”) Statements No. 166 and 167, the Company recorded $2.1 billion allowance for loan losses related to newly consolidated and reclassified credit card loan receivables.

The following table presents a breakdown of the allowance for loan losses (dollars in thousands):
	August 31, 2011		November 30, 2010
Discover card	$	2,139,610	$	3,182,603
Discover business card	14,260		26,285
Total credit card loans	2,153,870		3,208,888
Personal loans	75,562		76,087
Private student loans	43,406		18,569
Other	220		574
Total other consumer loans	119,188		95,230
Total allowance for loan losses	$	2,273,058	$	3,304,118

While the overall allowance decreased, as discussed and as reflected in the table above, the allowance for private student loans increased as a result of receivables growth.

55

Net Charge-offs

Our net charge-offs include the principal amount of losses charged-off less principal recoveries and exclude charged-off interest and fees, recoveries of interest and fees and fraud losses. Charged-off and recovered interest and fees are recorded in interest and loan fee income, respectively, for loan receivables as an effective reclassification of the provision while fraud losses are recorded in other expense. Credit card loan receivables are charged-off at the end of the month during which an account becomes 180 days contractually past due. Closed-end consumer loan receivables are generally charged-off at the end of the month during which an account becomes 120 days contractually past due. Generally, customer bankruptcies and probate accounts are charged-off at the end of the month 60 days following the receipt of notification of the bankruptcy or death but not later than the 180-day or 120-day contractual time frame.

The following table presents amounts and rates of net charge-offs of key loan portfolio segments (dollars in thousands):
	For the Three Months Ended August 31,								For the Nine Months Ended August 31,
	2011				2010				2011				2010
	$		%		$		%		$		%		$		%
Credit card loans	$	439,748	3.85	%	$	875,292	7.73	%	$	1,666,248	4.93	%	$	2,910,296	8.44	%
Personal loans	$	16,000	2.73	%	$	23,414	5.67	%	$	50,980	3.19	%	$	70,015	6.11	%
Private student loans (excluding PCI(1))	$	2,618	0.62	%	$	653	0.31	%	$	5,573	0.49	%	$	1,255	0.21	%

 _________________

(1) Charge-offs for PCI loans did not result in a charge to earnings during 2011 and are therefore excluded from the calculation. See Note 4: Loan Receivables to our condensed consolidated financial statements for more information regarding the accounting for charge-offs on PCI loans.

The net charge-off rate on our credit card loan receivables decreased 388 basis points and 351 basis points respectively for the three and nine months ended August 31, 2011, as compared to the three and nine months ended August 31, 2010. The decrease in net charge-offs on our credit card loans was attributable to improvement in both contractual and bankruptcy related charge-offs subsequent to a peak in the level of charge-offs in the first quarter of 2010. Furthermore, during the three and nine months ended August 31, 2011, there were higher levels of recoveries as compared to the same periods in 2010.

Delinquencies

Delinquencies are an indicator of credit quality at a point in time. Loan balances are considered delinquent when contractual payments on the loan become 30 days past due. Information related to loans on nonaccrual status and loans 90 days or more delinquent and accruing interest is provided in Note 4: Loan Receivables to our condensed consolidated financial statements.

The following table presents the amounts and delinquency rates of key loan portfolio segments that are 30 and 90 days or more delinquent (dollars in thousands):
	August 31, 2011				November 30, 2010
	$		%		$		%
Loans 30 days delinquent or more:
Credit card loans	$	1,121,115	2.43	%	$	1,831,119	4.06	%
Personal loans	$	20,616	0.85	%	$	29,486	1.57	%
Private student loans (excluding PCI(1))	$	14,565	0.80	%	$	5,030	0.50	%
Loans 90 days delinquent or more:
Credit card loans	$	565,056	1.22	%	$	958,216	2.12	%
Personal loans	$	6,446	0.26	%	$	10,670	0.57	%
Private student loans (excluding PCI(1))	$	2,150	0.12	%	$	1,408	0.14	%

 ________________

(1) Excludes PCI loans that were acquired as part of the SLC transaction 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 we are recognizing interest income on a pool of loans, it is all considered to be performing.

Delinquency rates at August 31, 2011 have generally declined as compared to November 30, 2010 due to continued improvement in credit trends, which has resulted in improvements in early delinquency balances. The decline is also attributable to enhanced collection management and underwriting processes.

56

Modified Loans

We have programs that provide for temporary hardship and permanent workout programs for our credit card loans. The temporary hardship program primarily consists of a reduced minimum payment and an interest rate reduction, both lasting for a period no longer than twelve months. The permanent workout program involves changing the structure of the loan to a fixed payment loan with a maturity no longer than 60 months and reducing the interest rate on the loan. These programs do not normally provide for the forgiveness of unpaid principal, but may allow for the reversal of certain unpaid interest or fee assessments. We also make loan modifications for customers who request financial assistance through external sources, such as a consumer credit counseling agency program. These loans continue to be subject to the original minimum payment terms and do not normally include waiver of unpaid principal, interest or fees. For additional information regarding the accounting treatment for these loans as well as amounts recorded in the financial statements related to these loans, see Note 4: Loan Receivables to our condensed consolidated financial statements.

Other Income

The following table presents the components of other income for the periods presented (dollars in thousands):

	For the Three Months Ended August 31,					2011 vs. 2010 increase (decrease)					For the Nine Months Ended August 31,					2011 vs. 2010 increase (decrease)
	2011			2010		$			%		2011			2010		$			%
Discount and interchange revenue(1)	$	282,889		$	273,932	$	8,957		3	%	$	809,631		$	805,209	$	4,422		1	%
Fee products	107,858			104,132		3,726			4	%	321,527			309,590		11,937			4	%
Loan fee income	84,243			92,465		(8,222		)	(9	)%	250,596			267,483		(16,887		)	(6	)%
Transaction processing revenue	43,931			40,184		3,747			9	%	131,792			109,570		22,222			20	%
Merchant fees	4,110			7,220		(3,110		)	(43	)%	12,981			23,091		(10,110		)	(44	)%
(Loss) gain on investments	(3,614		)	18,951		(22,565		)	(119	)%	(3,622		)	19,131		(22,753		)	(119	)%
Other income	32,546			27,260		5,286			19	%	135,526			88,790		46,736			53	%
Total other income	$	551,963		$	564,144	$	(12,181	)	(2	)%	$	1,658,431		$	1,622,864	$	35,567		2	%

_______________ 

(1) Net of rewards, including Cashback Bonus rewards, of $234 million and $194 million for the three months ended August 31, 2011 and 2010, respectively, and $664 million and $535 million for the nine months ended August 31, 2011 and 2010, respectively.

Total other income decreased $12 million during the three months ended August 31, 2011 as compared to the three months ended August 31, 2010 due to various factors, including a gain of $19.6 million recognized in 2010 related to the liquidation of the collateral supporting our Golden Key investment. There was not a similar benefit recognized in 2011. Additionally, loan fee income for the three months ended August 31, 2011 decreased as compared to the three months ended August 31, 2010 primarily as the result of fewer late fee assessments, partially offset by lower related charge-offs. These decreases were partially offset by an increase in discount and interchange revenue. Discount and interchange revenue increased as higher sales volumes were partially offset by higher Cashback Bonus rewards earned by our customers. Transaction processing fees increased due to higher PULSE revenue, reflecting an increase in the number of transactions, including higher margin volume. In addition, other income for the three months ended August 31, 2011 benefits from the inclusion of income from the transition service agreements related to the acquisition of SLC in the first quarter of 2011 (see Note 2: Business Combinations to our condensed consolidated financial statements).

Total other income increased $36 million during the nine months ended August 31, 2011 as compared to the nine months ended August 31, 2010 due to increased transaction processing revenue, discount and interchange revenue, fee products and other income partially offset by decreases in loan fee income, merchant fees and gain (loss) on investment securities. Other income increased in 2011 primarily due to the inclusion of income from the transition service agreement as well as the purchase gain of approximately $16 million, both of which related to the SLC acquisition. Transaction processing revenue increased for the nine months ended August 31, 2011 as compared to the nine months ended August 31, 2010 due to higher PULSE revenue, reflecting an increase in the number of transactions, including higher margin volume. Discount and interchange revenue increased slightly as higher sales volume was partially offset by an increase in Cashback Bonus rewards earned by our

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customers. Furthermore, there was an increase in income from the sale of fee products. Theses increases were partially offset by a decrease in loan fee income due to the implementation of the provisions of the CARD Act which resulted in fewer late fee assessments and the discontinuance of overlimit fees on consumer credit card loans. Our direct fees from merchants decreased as we continue to grow merchant acceptance through merchant acquirers. Gain (loss) on investment securities in 2010 included a gain of $19.6 million which related to the liquidation of collateral supporting the asset-backed commercial paper notes of Golden Key. There was not a similar benefit recognized in 2011.

Other Expense

The following table represents the components of other expense for the periods presented (dollars in thousands):

	For the Three Months Ended August 31,				2011 vs. 2010 increase (decrease)				For the Nine Months Ended August 31,				2011 vs. 2010 increase (decrease)
	2011		2010		$		%		2011		2010		$			%
Employee compensation and benefits	$	241,881	$	204,210	$	37,671	18	%	$	684,782	$	602,510	$	82,272		14	%
Marketing and business development	133,398		130,532		2,866		2	%	393,244		313,175		80,069			26	%
Information processing and communications	63,547		62,357		1,190		2	%	194,852		190,862		3,990			2	%
Professional fees	106,042		85,289		20,753		24	%	301,122		239,169		61,953			26	%
Premises and equipment	18,063		17,722		341		2	%	53,268		53,273		(5		)	—	%
Other expense	79,476		66,128		13,348		20	%	245,431		155,601		89,830			58	%
Total other expense	$	642,407	$	566,238	$	76,169	14	%	$	1,872,699	$	1,554,590	$	318,109		21	%

Total other expense increased in the three month period ended August 31, 2011 by $76 million as compared to the three month period ended August 31, 2010. This increase was due to higher employee compensation and benefits, professional fees and other expense. Professional fees increased due to higher costs related to key technology and growth initiatives and the SLC acquisition. Other expenses increased due to higher incentive payments to increase growth in network operations as well as an increase in fraud costs.

Total other expense increased by $318 million for the for the nine months ended August 31, 2011 as compared to the same period in 2010 due to a number of factors. There was an increase in employee compensation and benefits during the nine months ended August 31, 2011 as compared to the same period in 2010. Marketing and business development costs also increased due to higher investments in new account acquisitions. In addition, there was an increase in professional fees in the nine month period ended August 31, 2011 as compared to the nine month period ended August 31, 2010 due to higher costs related to key technology and growth initiatives, higher costs due to the SLC acquisition and higher costs related to recovering charged-off accounts. Furthermore, there was an increase in other expense due to an increase in fraud related costs and an in increase in legal reserves related to pending litigation. For the nine month period ended August 31, 2010, other expense benefited from a $29 million expense reversal related to the payment to Morgan Stanley under an amendment to the special dividend agreement that occurred in the first quarter of 2010. There was not a similar benefit recognized in 2011.

Income Tax Expense

For the three and nine months ended August 31, 2011 compared to the three and nine months ended August 31, 2010 income tax expense increased $227 million and $711 million, respectively, as a result of increased pretax income. Due to the substantially higher pretax income and the regressive nature of certain state taxes, the effective tax rate decreased from 39.7% and 39.3% for the three and nine months ended August 31, 2010 to 38.0% and 36.4% for the three and nine months ended August 31, 2011. The nine months ended August 31, 2011 also included receiving confirmation of a state's treatment on a previously uncertain tax position, the settlement of certain state examination issues and the release of the valuation allowance previously recognized in May 2009 on a tax benefit arising from the capital loss associated with sale of the Goldfish business unit.

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Liquidity and Capital Resources

Funding and Liquidity

We seek to maintain diversified funding sources and a strong liquidity profile in order to fund our business and repay or refinance our maturing obligations. In addition, we seek to achieve an appropriate maturity profile and utilize a cost-effective mix of funding sources. Our primary funding sources include deposits, sourced directly from consumers or through brokers, term asset-backed securitizations, private asset-backed securitizations and long-term borrowings.

Funding Sources

Deposits. We offer deposit products, including certificates of deposit, money market accounts, online savings accounts and Individual Retirement Account (“IRA”) certificates of deposit, to customers through two channels: (i) through direct marketing, internet origination and affinity relationships (“direct-to-consumer deposits”); and (ii) indirectly through contractual arrangements with securities brokerage firms (“brokered deposits”).

At August 31, 2011, we had $24.5 billion of direct-to-consumer deposits and $13.0 billion of brokered deposits. Maturities of our certificates of deposit range from one month to ten years, with a weighted average maturity of 21 months at August 31, 2011. The following table summarizes deposits by contractual maturity as of August 31, 2011 (dollars in thousands):

	Total		Three Months or Less		Over Three Months Through Six Months		Over Six Months Through Twelve Months		Over Twelve Months
Certificates of deposit in amounts less than $100,000(1)	$	19,524,679	$	1,873,291	$	2,115,900	$	4,835,014	$	10,700,474
Certificates of deposit in amounts of $100,000 to less than $250,000(1)	4,999,091		605,042		729,184		1,288,124		2,376,741
Certificates of deposit in amounts of $250,000(1)or greater	1,148,445		172,498		218,013		286,318		471,616
Savings deposits, including money market deposit accounts	11,797,822		11,797,822		—		—		—
Total interest-bearing deposits	$	37,470,037	$	14,448,653	$	3,063,097	$	6,409,456	$	13,548,831

 ___________________

(1) $100,000 represents the basic insurance amount previously covered by the FDIC. Effective July 21, 2010, the basic insurance per depositor was permanently increased to $250,000.

Credit Card Securitization Financing. We use the securitization of credit card receivables as an additional source of funding. We access the asset-backed securitization market using the Discover Card Master Trust I (“DCMT”) and the Discover Card Execution Note Trust (“DCENT”), through which we issue asset-backed securities both publicly and through private transactions.

The DCMT structure utilizes Class A and Class B certificates held by third parties, with credit enhancement provided by the subordinated Class B certificates, cash collateral accounts and subordinated Series 2009-CE. The DCENT structure utilizes four classes of securities with declining levels of seniority (Class A, B, C and D), with credit enhancement provided by the more subordinated classes of notes. Both DCMT and DCENT are further enhanced by Series 2009-SD through its provisions to reallocate principal cash flows, thereby enhancing the excess spread, discussed below, of both trusts. We retain significant exposure to the performance of trust assets through holdings of the seller's interest and subordinated security classes of DCMT and DCENT.

The securitization structures include certain features designed to protect investors. The primary feature relates to the availability and adequacy of cash flows in the securitized pool of receivables to meet contractual requirements, the insufficiency of which triggers early repayment of the securities. We refer to this as “economic early amortization,” which is based on excess spread levels. Excess spread is the amount by which income received by a trust during a collection period, including interest collections, fees and interchange, as well as the amount of certain principal collections available to be reallocated from Series 2009-SD exceeds the fees and expenses of the trust during such collection period, including interest expense, servicing fees and charged-off receivables. In the event of an economic early amortization, which would occur if the excess spread fell below 0% on a three-month rolling average basis, we would be required to repay the affected outstanding securitized borrowings over a period of months using all available collections received by the trust (the period of ultimate repayment would be determined by the amount and timing of collections received). An early amortization event would

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negatively impact our liquidity, and require us to utilize our available non-securitization related contingent liquidity or rely on alternative funding sources, which may or may not be available at the time. As of August 31, 2011, the 3-month rolling average excess spread was 16.92%.

Another feature of our securitization structure, which is applicable only to the notes issued from DCENT, is a reserve account funding requirement in which, in limited circumstances, excess cash flows generated by the transferred loan receivables are held at the trust. This funding requirement is triggered when DCENT’s three-month average excess spread rate decreases to below 4.50%, with increasing funding requirements as excess spread levels decline below preset levels to 0%. See Note 5: Credit Card and Student Loan Securitization Activities to our condensed consolidated financial statements for additional information regarding the structures of DCMT and DCENT and for tables providing information concerning investors’ interests and related excess spreads at August 31, 2011.

At August 31, 2011, we had $12.4 billion of outstanding public asset-backed securities, $0.3 billion of outstanding private asset-backed securitizations and $4.3 billion of outstanding asset-backed securities that had been issued to our wholly-owned subsidiaries. The following table summarizes expected contractual maturities of the investors’ interests in credit card securitizations excluding those that have been issued to our wholly-owned subsidiaries at August 31, 2011 (dollars in thousands):

	Total		Less Than One Year		One Year Through Three Years		Four Years Through Five Years		After Five Years
Scheduled maturities of long-term borrowings—owed to credit card securitization investors	$	12,619,715	$	3,852,305	$	7,167,952	$	599,639	$	999,819

At August 31, 2011, we had capacity to issue up to $5.0 billion in triple-A rated asset-backed securities from DCENT without the issuance of additional Class B or Class C notes as subordination, which was reduced to $4.2 billion after we issued $800 million in credit card asset-backed securities on September 20, 2011. The triple-A rating of DCENT Class A Notes issued to date has been based, in part, on an FDIC rule which created a safe harbor that provides that the FDIC, as conservator or receiver, will not, using its power to disaffirm or repudiate contracts, seek to reclaim or recover assets transferred in connection with a securitization, or recharacterize them as assets of the insured depository institution, provided such transfer satisfies the conditions for sale accounting treatment under previous GAAP. Pursuant to amendments to GAAP related to transfers of financial assets, effective for us on December 1, 2009, certain transfers of assets to special purpose entities (including Discover Bank’s transfers of assets to the DCMT) no longer qualify for sale accounting treatment. However, on September 27, 2010, the FDIC approved a final rule that preserves the safe-harbor treatment applicable to revolving trusts and master trusts, including the DCMT, so long as those trusts would have satisfied the original FDIC safe harbor if evaluated under GAAP pertaining to transfers of financial assets in effect prior to December 1, 2009. Other legislative and regulatory developments, namely the proposed SEC Regulation AB II (including the SEC's July 2011 reproposal of certain of its provisions), the August 2011 SEC advance notice of proposed rulemaking regarding the rule exempting securitization entities from being regarded as "investment companies" under the Investment Company Act of 1940, the securitization and rating agency provisions of the Reform Act and the rules promulgated or proposed thereunder, including proposed rules requiring us to retain risk in our securitization on an unhedged basis, may, however, impact our ability and/or desire to issue asset-backed securities in the future.

Short-Term Borrowings. We primarily access short-term borrowings through the Federal Funds market or through repurchase agreements. In the past two years, we have rarely used short-term borrowings; however, we have recently been borrowing overnight Federal Funds on an opportunistic basis. Total short-term borrowings as of August 31, 2011 were $100 million and the weighted-average interest rate was 0.06%. Information about our use of short-term borrowings for the three and nine months ended August 31, 2011 is shown in the table below (dollars in thousands):

	For the three months ended, August 31, 2011		For the nine months ended, August 31, 2011
	Maximum Daily Balance During the Period		Maximum Daily Balance During the Period
Overnight Federal Funds purchased	$	265,000	$	265,000
Overnight repurchase agreements	—		48,188

Corporate and Bank Debt. At August 31, 2011, we had $800 million in principal amount of senior unsecured notes outstanding and Discover Bank had $1.2 billion in principal amount of subordinated notes outstanding. Our senior unsecured

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notes are comprised of two issuances, each $400 million in principal amount, with one issuance maturing in June 2017 and the other issuance maturing in July 2019. The senior unsecured notes would require us to offer to repurchase the notes at a price equal to 101% of their aggregate principal amount plus accrued and unpaid interest in the event of a change of control involving us and a corresponding ratings downgrade to below investment grade. Discover Bank’s subordinated notes are comprised of one $700 million issuance due in November 2019 and a $500 million issuance due in April 2020. For more information, see Note 7: Long-Term Borrowings to our condensed consolidated financial statements.

Other Long-Term Borrowings—Student Loans. At August 31, 2011, we had $454 million and $2.6 billion of funding related to federal student loans, which are currently classified as held for sale, and private student loans, respectively. We obtained $500 million of funding in April 2010 through an agreement with an asset-backed commercial paper conduit sponsored by the U.S. Department of Education under the Ensuring Continued Access to Student Loans Act of 2008. However, upon sale of the loans, this loan facility will be repaid. We assumed $3.2 billion principal amount outstanding of securitization debt in December 2010 as part of the SLC acquisition. Principal and interest payments on the underlying student loans will reduce the balance of these secured borrowings over time.

Additional Funding Sources

Private Asset-Backed Securitizations. We have access to committed undrawn capacity through privately placed asset-backed securitizations to support the funding of our credit card loan receivables. Under these arrangements, we had used $250 million of capacity and had undrawn capacity of $6.5 billion at August 31, 2011.

Unsecured Committed Credit Facility. Our unsecured committed credit facility of $2.4 billion is available through May 2012. This facility serves to diversify our funding sources and enhance our liquidity. This facility is provided by a group of major global banks, and is available to both Discover Financial Services and Discover Bank (Discover Financial Services may borrow up to 30% and Discover Bank may borrow up to 100% of the total commitment). The facility is available to support general liquidity needs and may be drawn to meet short-term funding needs from time to time. The terms of the credit facility include various affirmative and negative covenants, including financial covenants related to the maintenance of certain capitalization and tangible net worth levels, and certain double leverage, delinquency and tier 1 capital to managed loans ratios. The credit facility also includes customary events of default with corresponding grace periods, including, without limitation, payment defaults, cross-defaults to other agreements evidencing indebtedness for borrowed money and bankruptcy-related defaults. The facility may be terminated upon an event of default. We have no outstanding balances due under the facility.

Federal Reserve. Discover Bank has access to the Federal Reserve Bank of Philadelphia’s discount window. As of August 31, 2011, Discover Bank had $8.2 billion of available capacity through the discount window based on the amount of assets pledged. We have no borrowings outstanding under the discount window.

Credit Ratings

Our borrowing costs and capacity in certain funding markets, including securitizations and senior and subordinated debt, may be affected by the credit ratings of Discover Financial Services, Discover Bank and the securitization trusts. Downgrades in these credit ratings could result in higher interest expense on our unsecured debt and asset securitizations, as well as potentially higher fees related to borrowings under our lines of credit. In addition to increased funding costs, deterioration in credit ratings could reduce our borrowing capacity in the unsecured debt and asset securitization capital markets.

We also have agreements with certain of our derivative counterparties that contain provisions that require Discover Bank’s debt to maintain an investment grade credit rating from specified major credit rating agencies. If Discover Bank’s credit rating is reduced to below investment grade, we would be required to post additional collateral, which, as of August 31, 2011, would have been $53 million.

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A credit rating is not a recommendation to buy, sell or hold securities, may be subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. The credit ratings are summarized in the following table:
	Discover Financial Services	Discover Bank	Outlook for Senior Unsecured Debt	Discover Bank	Discover Card Master Trust I		Discover Card Execution Note Trust
	Senior Unsecured Debt	Senior Unsecured Debt		Subordinated Debt	Class  A(1)	Class B	Class  A(1)	Class B	Class C
Moody’s Investors Service	Ba1	Baa3	Stable	Ba1	Aaa(sf)	A1(sf)	Aaa(sf)	A1(sf)	N/A(2)
Standard & Poor’s	BBB-	BBB	Stable	BBB-	AAA(SF)	AA+(SF)	AAA(SF)	AA+(SF)	N/A(2)
Fitch Ratings	BBB	BBB	Stable	BBB-	AAAsf	AAsf	AAAsf	AA-sf	N/A(2)

_____________ 

(1) An “sf” in the rating denotes an identification for structured finance product ratings that was implemented for these products by the rating agencies as of September 2010.

(2) All Class C notes are currently held by subsidiaries of Discover Bank and therefore, are not publicly rated.

Several rating agencies have announced that they will be evaluating the effects of the Reform Act in order to determine the extent, if any, to which financial institutions, including us, may be negatively impacted. While we are currently unaware of any negative actions, there is no assurance that our credit ratings could not be downgraded in the future as a result of any such reviews. See “—Legislative and Regulatory Developments” for information regarding the Reform Act.

Liquidity

We seek to ensure that we have adequate liquidity to sustain business operations, fund asset growth and satisfy debt obligations. In the assessment of our liquidity needs, we also evaluate a range of stress events that would impact our access to normal funding sources, cash needs and/or liquidity. We maintain contingent funding sources, including our liquidity investment portfolio, private securitizations with unused capacity, committed credit facility capacity and Federal Reserve discount window capacity, which we could seek to utilize to satisfy liquidity needs during such stress events. We expect to be able to satisfy all maturing obligations and fund business operations during the next 12 months by utilizing our deposit channels, credit card asset-backed securitizations and our contingent funding sources.

We maintain policies outlining the overall framework and general principles for managing liquidity risk across our business, which is the responsibility of our Asset and Liability Committee (the “ALCO”). We seek to balance the trade-offs between maintaining too much liquidity, which may limit financial flexibility and be costly, with having too little liquidity that could cause financial distress. Liquidity risk is centrally managed by the ALCO, which is chaired by our Treasurer and has cross-functional membership. The ALCO monitors positions and determines any actions that need to be taken.

At August 31, 2011, our liquidity investment portfolio was comprised of cash and cash equivalents and high quality, liquid investment securities. Cash and cash equivalents are invested primarily in deposits with the Federal Reserve. Investment securities included credit card asset-backed securities of other issuers and U.S. Treasury, U.S. government agency and AAA-rated corporate debt obligations issued under the Temporary Liquidity Guarantee Program that are guaranteed by the FDIC, all of which are considered highly liquid. In addition, we have the ability to raise cash by utilizing repurchase agreements and pledging certain of these investments. The level of our liquidity investment portfolio may fluctuate based upon the level of expected maturities of our funding sources as well as operational requirements and market conditions.

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At August 31, 2011, our liquidity investment portfolio and undrawn credit facilities were $26.3 billion, which was $3.8 billion higher than the balance at November 30, 2010 due to the addition of multi-year conduit capacity during 2011 in order to balance the flexibility and economics of our liquidity mix, partially offset by maturities of securitized debt.
	August 31, 2011		November 30, 2010
	(dollars in billions)
Liquidity investment portfolio
Cash and cash equivalents(1)	$	3.5	$	4.7
Other short term investments	—		0.4
Investment securities	5.9		5.0
Total liquidity investment portfolio	9.4		10.1
Undrawn credit facilities(2)
Private asset-backed securitizations	6.5		3.3
Unsecured committed credit facility	2.4		2.4
Federal Reserve discount window(3)	8.0		6.7
Total undrawn credit facilities	16.9		12.4
Total liquidity investment portfolio and undrawn credit facilities	$	26.3	$	22.5

__________________

(1) Cash-in-process is excluded from cash and cash equivalents for liquidity purposes.

(2) See "—Funding Sources—Additional Funding Sources" for additional information.

(3) Excludes $302 million and $1.5 billion of investments accounted for in the liquidity investment portfolio that were pledged to the Federal Reserve as of August 31, 2011 and November 30, 2010, respectively.

Capital

Our primary sources of capital are from the earnings generated by our businesses and issuances in the capital markets. We seek to manage capital to a level and composition sufficient to support the risks of our businesses, meet regulatory requirements, adhere to rating agency guidelines and support future business growth. Within these constraints, we are focused on deploying capital in a manner that provides attractive returns to our stockholders. The level, composition and utilization of capital are influenced by changes in the economic environment, strategic initiatives, and legislative and regulatory developments. See “—Legislative and Regulatory Developments—Regulatory Initiatives Related to Capital and Liquidity” for a discussion of recent initiatives related to capital matters.

Under regulatory capital requirements adopted by the FDIC, the Federal Reserve and other bank regulatory agencies, we, along with Discover Bank, must maintain minimum levels of capital. Failure to meet minimum capital requirements can result in the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could limit our business activities and have a direct material effect on our financial position and results. We must meet specific capital guidelines that involve quantitative measures of assets and liabilities as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Our capital adequacy assessment also includes tax and accounting considerations in accordance with regulatory guidance. We maintain a substantial deferred tax asset on our balance sheet, and we include this asset when calculating our regulatory capital levels. However, for regulatory capital purposes, deferred tax assets that are dependent on future taxable income are currently limited to the lesser of: (i) the amount of deferred tax assets we expect to realize within one year of the calendar quarter-end date, based on our projected future taxable income for that year; or (ii) 10% of the amount of our Tier 1 capital. At August 31, 2011, no portion of our deferred tax asset was disallowed for regulatory capital purposes.

At August 31, 2011, Discover Financial Services and Discover Bank met the requirements for well-capitalized status, exceeding the regulatory minimums to which they were subject. See Note 10: Capital Adequacy to our condensed consolidated financial statements for quantitative disclosures of our capital ratios and levels. Recent regulatory initiatives may subject us to increased capital requirements in the future. See “—Legislative and Regulatory Developments—Regulatory Initiatives Related to Capital and Liquidity.”

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Dividends. We declared a common stock dividend of $0.06 per share in September 2011. The declaration and payment of future dividends, as well as the amount thereof, are subject to the discretion of our board of directors and will depend upon our results of operations, financial condition, capital levels, cash requirements, future prospects and other factors deemed relevant by our board of directors. Accordingly, there can be no assurance that we will declare and pay any dividends in the future. In addition, our banking regulators and applicable banking laws and regulations may limit our ability to pay dividends or take other actions that impact our capital levels, such as share repurchases. Further, as a result of provisions that may be contained in our borrowing agreements or the borrowing agreements of our subsidiaries, our ability to pay dividends to our stockholders may be limited.

Share Repurchase Program. On June 15, 2011, our board of directors approved a share repurchase program authorizing the repurchase of up to $1 billion of our outstanding shares of common stock. The program expires on June 14, 2013, and may be terminated at any time. We expect to make share repurchases under the program from time to time based on market conditions and other factors, subject to legal and regulatory restrictions.

Guarantees

Guarantees are contracts or indemnification agreements that contingently require us to make payments to a guaranteed party based on changes in an underlying asset, liability, or equity security of a guaranteed party, rate or index. Also included in guarantees are contracts that contingently require the guarantor to make payments to a guaranteed party based on another entity’s failure to perform under an agreement. Our guarantees relate to transactions processed on the Discover Network and certain transactions processed by PULSE and Diners Club. See Note 11: Commitments, Contingencies and Guarantees to our condensed consolidated financial statements for further discussion regarding our guarantees.

Contractual Obligations and Contingent Liabilities and Commitments

In the normal course of business, we enter into various contractual obligations that may require future cash payments. Contractual obligations at August 31, 2011, which include deposits, securitized debt, long-term borrowings, operating and capital lease obligations, purchase obligations and other long-term liabilities, were $58 billion, which includes $2.9 billion of securitized debt assumed as part of the SLC acquisition. For a description of our contractual obligations, see our annual report on Form 10-K for the fiscal year ended November 30, 2010 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Contractual Obligations and Contingent Liabilities and Commitments.”

We extend credit for consumer and commercial loans, primarily arising from agreements with customers for unused lines of credit on certain credit cards, provided there is no violation of conditions established in the related agreement. At August 31, 2011, our unused commitments were $164 billion. These commitments, substantially all of which we can terminate at any time and which do not necessarily represent future cash requirements, are periodically reviewed based on account usage and customer creditworthiness. In addition, in the ordinary course of business, we guarantee payment on behalf of subsidiaries relating to contractual obligations with external parties. The activities of the subsidiaries covered by any such guarantees are included in our condensed consolidated financial statements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk refers to the risk that a change in the level of one or more market prices, rates, indices, correlations or other market factors will result in losses for a position or portfolio. We are exposed to market risk primarily from changes in interest rates.

Interest Rate Risk. We borrow money from a variety of depositors and institutions in order to provide loans to our customers, as well as invest in other assets and our business. These loans and other assets earn interest, which we use to pay interest on the money borrowed. Our net interest income and, therefore, earnings, will be negatively affected if the interest rate earned on assets increases at a slower pace than increases to the interest rate we owe on our borrowings. Changes in interest rates and competitor responses to those changes may influence customer payment rates, loan balances or deposit account activity. We may face higher-cost alternative sources of funding as a result, which has the potential to decrease earnings.

Our interest rate risk management policies are designed to measure and manage the potential volatility of earnings that may arise from changes in interest rates by having a financing portfolio that reflects the mix of variable and fixed rate assets. To the extent that asset and related financing repricing characteristics of a particular portfolio are not matched effectively, we may utilize interest rate derivative contracts, such as swap agreements, to achieve our objectives. Interest rate swap agreements effectively convert the underlying asset or financing from fixed to floating rate or from floating to fixed rate. See Note 14: Derivatives and Hedging Activities to our condensed consolidated financial statements for information on our derivatives activity.

We use an interest rate sensitivity simulation to assess our interest rate risk exposure. For purposes of presenting the possible earnings effect of a hypothetical, adverse change in interest rates over the 12-month period from our reporting date, we assume that all interest rate sensitive assets and liabilities will be impacted by a hypothetical, immediate 100 basis point increase in interest rates as of the beginning of the period. The sensitivity is based upon the hypothetical assumption that all relevant types of interest rates that affect our results would increase instantaneously, simultaneously and to the same degree.

Our interest rate sensitive assets include our variable rate loan receivables and the assets that make up our liquidity investment portfolio. Due to recently enacted credit card legislation, we now have restrictions on our ability to mitigate interest rate risk by adjusting rates on existing balances. At August 31, 2011, the majority of our credit card loans were at variable rates. Beginning in the third quarter 2010, we began using interest rate derivatives to reduce the asset sensitivity that resulted from having a larger percentage of our loan portfolio at variable rates. Assets with rates that are fixed at period end but which will mature, or otherwise contractually reset to a market-based indexed rate or other fixed rate prior to the end of the 12-month period, are considered to be rate sensitive. The latter category includes certain credit card loans that may be offered at below-market rates for an introductory period, such as balance transfers and special promotional programs, after which the loans will contractually reprice in accordance with our normal market-based pricing structure. For purposes of measuring rate sensitivity for such loans, only the effect of the hypothetical 100 basis point change in the underlying market-based indexed rate or other fixed rate has been considered rather than the full change in the rate to which the loan would contractually reprice. For assets that have a fixed interest rate at the fiscal period end but which contractually will, or are assumed to, reset to a market-based indexed rate or other fixed rate during the next 12 months, earnings sensitivity is measured from the expected repricing date. In addition, for all interest rate sensitive assets, earnings sensitivity is calculated net of expected loan losses.

Interest rate sensitive liabilities are assumed to be those for which the stated interest rate is not contractually fixed for the next 12-month period. Thus, liabilities that vary with changes in a market-based index, such as Federal Funds or LIBOR, which will reset before the end of the 12-month period, or liabilities whose rates are fixed at the fiscal period end but which will mature and are assumed to be replaced with a market-based indexed rate prior to the end of the 12-month period, also are considered to be rate sensitive. For these fixed rate liabilities, earnings sensitivity is measured from the expected repricing date.

Assuming an immediate 100 basis point increase in the interest rates affecting all interest rate sensitive assets and liabilities at August 31, 2011, we estimate that net interest income over the following 12-month period would increase by approximately $55 million, or 1%. Assuming an immediate 100 basis point increase in the interest rates affecting all interest rate sensitive assets and liabilities at November 30, 2010, we estimated that net interest income over the following 12-month period would increase by approximately $50 million, or 1%. We have not provided an estimate of any impact on net interest income of a decrease in interest rates as many of our interest rate sensitive assets and liabilities are tied to interest rates that are already at or near their minimum levels (i.e., Prime and LIBOR) and, therefore, could not materially decrease further.

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Item 4.     Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), which are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

On December 31, 2010, we completed our acquisition of SLC, which includes its existing information systems and internal controls over financial reporting that previously existed when SLC was a separate publicly traded company. In conducting our evaluation of the effectiveness of our internal control over financial reporting, we have elected to exclude SLC from our evaluation as permitted under SEC rules. We are currently in the process of evaluating and integrating SLC’s historical internal controls over financial reporting with ours. We expect to complete this integration by November 30, 2011, the end of our current fiscal year.

Other than the change noted above, there have been no changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) that occurred during the quarter ended August 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

67

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a description of legal proceedings, see Note 12: Litigation to our condensed consolidated financial statements.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in our annual report on Form 10-K for the fiscal year ended November 30, 2010.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The table below sets forth information regarding purchases of our common stock related to our share repurchase program and employee transactions that were made by us or on our behalf during the three months ended August 31, 2011.

Period	Total Number of Shares Purchased	Average  Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program(1)	Maximum Dollar Value of Shares that may yet be purchased under the Plans or Programs (1)
June 1- 30, 2011
Repurchase program (1)	55,330	$	25.68	55,330	$	998,579,341
Employee transactions (2)	—	$	—	N/A	N/A
July 1 - 31, 2011
Repurchase program (1)	716,784	$	25.62	716,784	$	980,214,629
Employee transactions (2)	161,511	$	26.55	N/A	N/A
August 1 - 31, 2011
Repurchase program (1)	7,614,731	$	23.36	7,614,731	$	802,325,809
Employee transactions (2)	8,784	$	23.24	N/A	N/A
Total
Repurchase program (1)	8,386,845	$	23.57	8,386,845	$	802,325,809
Employee transactions (2)	170,295	$	27.11	N/A	N/A

 ______________________

(1) On June 15, 2011, our board of directors approved a share repurchase program authorizing the repurchase of up to $1 billion of our outstanding shares of common stock. This share repurchase program expires on June 14, 2013 and may be terminated at any time.

(2) Reflects shares withheld (under the terms of grants under employee stock compensation plans) to offset tax withholding obligations that occur upon the delivery of outstanding shares underlying restricted stock units or upon the exercise of stock options.

Item 3. Defaults Upon Senior Securities

None

Item 4. (Removed and Reserved)

Item 5. Other Information

None

Item 6. Exhibits

See “Exhibit Index” for documents filed herewith and incorporated herein by reference.

68

Signature

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Discover Financial Services (Registrant)
By:	/S/ R. MARK GRAF
	R. Mark Graf Executive Vice President, Chief Financial Officer and Chief Accounting Officer

Date: September 28, 2011

69

Exhibit Index

Exhibit Number	Description
10.1	Third Amendment to the Discover Financial Services Change in Control Severance Policy, effective as of August 1, 2011 (filed as Exhibit 10.3 to Discover Financial Services' Quarterly Report on Form 10-Q for the quarter ended May 31, 2011 and incorporated herein by reference thereto).
10.2	Asset Purchase Agreement between Discover Bank and Citibank, N.A. dated August 31, 2011.
10.3	Amendment No. 3 to Discover Financial Services Employee Stock Purchase Plan.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

70

EX-10.2

Exhibit 10.2

ASSET PURCHASE AGREEMENT

________________________________________

by and between

CITIBANK, N.A.

as the Seller

and

DISCOVER BANK

as the Buyer

________________________________________

Dated as of August 31, 2011

TABLE OF CONTENTS

		Page
ARTICLE I
DEFINITIONS, ACCOUNTING TERMS AND INTERPRETATIONS
Section 1.1	Defined Terms	2
Section 1.2	Computations of Time Periods	2
Section 1.3	Accounting Terms and Principles	2
Section 1.4	Certain Terms	2
ARTICLE II
PURCHASE AND SALE
Section 2.1	Purchase and Sale of the Aquired Assets	3
Section 2.2	Intent and Characterization	5
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1	Representations and Warranties of each Party	5
Section 3.2	Additional Representations and Warranties of the Seller	7
Section 3.3	Additional Representations and Warranties of the Buyer	8
ARTICLE IV
CLOSING
Section 4.1	Closing	8
ARTICLE V
CONDITIONAL PRECEDENT
Section 5.1	Conditions to the Obligations of the Buyer	9
Section 5.2	Conditions to the Obligations of the Seller	9
Section 5.3	Closing Documents	10
ARTICLE VI
COVENANTS
Section 6.1	No Public Announcements	11
Section 6.2	Conduct of Business	11
Section 6.3	Seller Actions	11

Section 6.4	Tax Matters	12
Section 6.5	Exclusivity	12
Section 6.6	Notification of Certain Matters	13
Section 6.7	Appropriate Action	13
Section 6.8	Further Assurances	13
Section 6.9	Right of First Offer	13
Section 6.10	Confidential Information	14
Section 6.11	Nonpublic Personal Inforamtion	15
Section 6.12	Access to Information	16
Section 6.13	Borrower Communications	16
ARTICLE VII
INDEMNIFICATION
Section 7.1	Liability of the Buyer and the Seller; Indemnities	16
Section 7.2	Remedies Exclusive	17
Section 7.3	Mitigation	18
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1	Termination	18
Section 8.2	Effect of Termination	18
Section 8.3	Amendment	19
Section 8.4	Waiver	19
Section 8.5	Survival	19
ARTICLE IX
MISCELLANEOUS
Section 9.1	Assignments	19
Section 9.2	Costs and Expenses	20
Section 9.3	Relationship of Parties	20
Section 9.4	Notices, Etc.	20
Section 9.5	Governing Law	21
Section 9.6	Entire Agreement; No Third Party Beneficiaries	21
Section 9.7	Submission to Jurisdiction; Service of Process	21
Section 9.8	Waiver of Jury Trial	22
Section 9.9	Severability	22
Section 9.10	Article and Section Titles	23
Section 9.11	Execution in Counterparts	23

APPENDICES
Appendix A	Definitions	25
Appendix B	Represenations and Warranties with Respect to the Acquired Assets	32
Appendix C	Power of Attorney and Blanket Endorsement	34
Appendix D	Form of Bill of Sale, Assignment and Assumption Agreement	36

This ASSET PURCHASE AGREEMENT (as the same may be amended or otherwise modified from time to time in accordance with the terms hereof, this “Agreement”), dated as of August 31, 2011 (the “Commitment Date”) is entered into by and between (i) Citibank, N.A., a national banking association, as the Seller (the “Seller”) and (ii) Discover Bank, a Delaware banking corporation, as the Buyer (the “Buyer”), and shall be effective upon execution by the parties hereto. The capitalized terms used and not otherwise defined herein have the meanings assigned thereto pursuant to Section 1.1 hereof.

W i t n e s s e t h:

WHEREAS, the Seller is the owner of a portfolio of Loans listed on the Schedule of Purchased Loans; and

WHEREAS, the Seller desires to sell, and the Buyer desires to purchase, all of the Seller’s right, title and interest in, to and under the Loans in such portfolio and all assets and obligations related thereto.

NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I

Section 1.1Defined Terms. Capitalized terms used but not otherwise defined herein shall have the meanings set forth in Appendix A to this Agreement (such meanings to be equally applicable to both singular and plural forms of the terms defined). Appendix A and the other appendices to this Agreement shall constitute a part of this Agreement.

Section 1.2Computation of Time Periods. In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding” and the word “through” means “to and including.”

Section 1.3Accounting Terms and Principles. All accounting terms not specifically defined herein shall be construed in accordance with GAAP and all accounting determinations required to be made pursuant hereto shall, unless expressly otherwise provided herein, be made in accordance with GAAP.

Section 1.4Certain Terms.

(a) The terms “herein,” “hereof,” “hereto” and “hereunder” and similar terms refer to this Agreement as a whole and not to any particular Article, Section, subsection or clause in this Agreement.

(b) Unless otherwise expressly indicated herein, (i) references in this Agreement to an Appendix, Article, Section, clause or sub-clause refer to the appropriate Appendix, Article, Section, clause or sub-clause in or to this Agreement and (ii) the words “above” and “below,” when following a reference to a clause or a sub-clause of this Agreement, refer to a clause or sub-clause within, respectively, the same Section or clause.

(c) The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term.

(d) References in this Agreement to any statute shall be to such statute as amended or modified from time to time and to any successor legislation thereto, in each case as in effect at the time any such reference is operative.

(e) The term “including” when used in this Agreement means “including without limitation” except when used in the computation of time periods.

(f) The terms “Seller” and “Buyer” include their respective permitted successors and assigns hereunder.

(g) References in this Agreement (including in Appendix A) to another agreement, instrument or other document means such agreement, instrument or other document as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms

thereof.

(h) In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of the authorship of any of the provisions of this Agreement.

ARTICLE II
PURCHASE AND SALE

Section 2.1Purchase and Sale of the Acquired Assets.

(a) On the terms and subject to the satisfaction of the conditions set forth in this Agreement, including the conditions precedent set forth in Article V, and in reliance on the representations, warranties, covenants and agreements set forth in this Agreement, the Seller agrees to sell, transfer, assign and grant to the Buyer, and the Buyer agrees to purchase, on the Closing Date without recourse to the Seller and without representations or warranties (except as specifically set forth herein), all of the Seller’s right, title and interest in, to and under (i) the Loans that are identified on the Loan Transmittal Summary Form (the “Purchased Loans”) and all obligations with respect thereto, (ii) all principal, interest, fees and other payments and reimbursements of principal and interest with respect to the Purchased Loans (collectively, “Collections”) received or deemed to have been received, in each case, after the Closing Date, whether accruing before, on or after the Closing Date), (iii) all other claims, rights and remedies (including pursuant to any Proceeding) as against the Borrowers of the Purchased Loans, (iv) the Loan Files related to the Purchased Loans including the Notes evidencing the Purchased Loans, (v) subject to Section 6.11(b), all Nonpublic Personal Information related to the Purchased Loans, (vi) all documents, books, records and other information maintained by or on behalf of the Seller with respect to the Purchased Loans, (vii) all insurance policies. risk sharing agreements and other agreements or arrangements supporting or securing payment of the Purchased Loans, and (viii) all proceeds of the property referenced in clauses (i) through (vii) above (collectively, the “Acquired Assets”), in consideration of the payment of the Estimated Purchase Price to the Seller in the manner provided in Section 2.1(b) and subsequently adjusted pursuant to Section 2.1(e). The Estimated Purchase Price will be based upon the Estimated Schedule of Purchased Loans determined as of the Measuring Date and will be adjusted after the Closing Date pursuant to Section 2.1(e) based upon the Schedule of Purchased Loans.

(b) Delivery or transfer of the Acquired Assets shall be made on the Closing Date. On the Closing Date, the Buyer shall pay or cause to be paid to the Seller the Estimated Purchase Price by wire transfer of immediately available funds in U.S. dollars to the account specified by the Seller to the Buyer by written notice at least two (2) Business Days prior to the Closing Date.

(c) Upon receipt of (i) evidence of the payment of the Estimated Purchase Price and (ii) a fully executed Bill of Sale, Assignment and Assumption Agreement, the Seller shall cause the

Purchased Loans to be delivered to the Buyer by delivering the Loan Transmittal Summary Form identifying the Purchased Loans to the Buyer and, if applicable, in its capacity as the custodian of the Loan Files related to the Purchased Loans including the Notes evidencing the Purchased Loans, indicating in its books and records that the Buyer is the holder of the Purchased Loans and the related Loan Files.

(d) The sale and purchase of the Acquired Assets on the Closing Date shall be consummated upon (i) the payment by the Buyer to the Seller of the Estimated Purchase Price in the manner provided in Section 2.1(b) and (ii) the execution and delivery by the Seller and the Buyer of the Bill of Sale, Assignment and Assumption Agreement. Upon the satisfaction of such conditions, such sale and purchase shall be effective as of 11:59 p.m. (New York City time) on the Closing Date.

(e) Within sixty (60) days after the Closing Date, the Buyer shall provide the Seller with the Schedule of Purchased Loans and shall calculate the Purchase Price based upon the Schedule of Purchased Loans, subject to the Seller timely providing any information reasonably requested by the Buyer to prepare the Schedule of Purchased Loans. The Seller shall have fifteen (15) Business Days after delivery of the Schedule of Purchased Loans and Purchase Price calculation to review and comment on the Schedule of Purchased Loans and the Purchase Price calculation. During this period the Seller and the Buyer (to the extent available to it) will provide information relating to the Schedule of Purchased Loans and calculation of the Purchase Price as reasonably requested by the other, and the Buyer will meet with the Seller to discuss this information and the calculations. If during this fifteen (15) Business Day period the Seller does not notify the Buyer that it disagrees with the Buyer’s Purchase Price calculation, then the Buyer’s calculation will be final and binding on the Buyer and the Seller as of the end of such fifteen (15) Business Day period. If during this fifteen (15) Business Day period the Seller notifies the Buyer that the Seller disagrees with the Buyer’s calculation, the Buyer and the Seller will meet to attempt to resolve any differences. If they are unable to agree on the adjustments within the next thirty (30) days, then the Buyer and the Seller will be free to pursue an additional review by jointly selecting an independent accounting firm to review the calculations and make a determination as to the Purchase Price. If the Seller and the Buyer are unable to agree on an accounting firm, then they will apply to the American Arbitration Association to make the selection. (The independent accounting firm selected pursuant to this Section 2.1(e) is referred to herein as the “Arbitration Firm”). The Arbitration Firm will be instructed to complete its review within twenty (20) days and to calculate the Purchase Price in accordance with this Section 2.1. The decision of the Arbitration Firm will be final and binding on the Buyer and the Seller.

(f) If the Purchase Price as finally determined pursuant to Section 2.1(e) exceeds the Estimated Purchase Price, then the Buyer shall pay the Seller the amount of such excess no later than fifteen (15) Business Days after the date of final determination pursuant to Section 2.1(e) by wire transfer of immediately available funds in U.S. dollars to the account specified by the Seller to the Buyer by written notice at least two (2) Business Days prior to such payment. If the Purchase Price as finally determined pursuant to Section 2.1(e) is less than the Estimated Purchase Price, then the Seller shall refund to the Buyer the amount of such difference within

fifteen (15) Business Days after the date of final determination pursuant to Section 2.1(e) by wire transfer of immediately available funds in U.S. dollars to the account specified by the Buyer to the Seller by written notice at least two (2) Business Days prior to such payment.

(g) After the Closing Date, the Seller shall promptly (and in any event within two (2) Business days after receipt and identification thereof) remit or credit, or cause to be remitted or credited, to the Buyer all funds received by the Seller that constitute Collections received after the Closing Date with respect to any Purchased Loans.

(h) The Buyer will be responsible for the expense of any notices sent to the applicable Borrowers regarding the purchase and sale of the Loans; provided that the Seller shall cooperate with all reasonable requests by the Buyer to accurately and timely deliver all such notifications. Such notices shall be in form and substance and in accordance with timing mutually agreed upon by both parties.

Section 2.2Intent and Characterization.

(q) The Seller and the Buyer intend that the transfer and assignment of the Acquired Assets pursuant to this Agreement and the Bill of Sale, Assignment and Assumption Agreement constitute a valid sale of the Acquired Assets from the Seller to the Buyer, conveying good title to the Acquired Assets free and clear of any Lien, and the beneficial interest in and title to the Acquired Assets shall not be part of the Seller’s estate in the event of the bankruptcy of the Seller or the appointment of a receiver or conservator with respect to the Seller. The Seller and the Buyer intend and agree to treat the transfer and assignment of the Acquired Assets as an absolute transfer for Tax, financial and accounting purposes, and as an absolute and complete conveyance of title for property Law purposes.

(r) In the event (but only in the event) that the conveyance of the Acquired Assets is characterized by a court or other Governmental Authority as security for a loan rather than a sale, the Seller will be deemed to have granted to the Buyer, and the Seller hereby grants to the Buyer, a security interest in all of its right, title and interest in, to and under the Acquired Assets as security for a loan in the amount of the Purchase Price.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Section 3.1Representations and Warranties of each Party. Each Party represents and warrants to the other Party for its benefit and for the benefit of each of its respective successors and assigns as of the Commitment Date and as of the Closing Date that:

(a) Organization; Power. Such Party is duly organized or formed, validly existing and in good standing under the Laws of the jurisdiction of its organization or formation, has all requisite corporate or similar power and authority to carry on its business as now conducted and to

perform its obligations under the Transaction Documents to which it is a party and, except where the failure individually or in the aggregate would not have a material adverse effect on its ability to timely perform its material obligations under such Transaction Documents, is duly qualified, has obtained all licenses and approvals to do business and is in good standing in each jurisdiction where such qualification, licensing or approval is required.

(b) Authorization; Enforceability; Due Execution and Delivery. Such Party has all necessary corporate or similar power and authority to execute and deliver the Transaction Documents to which it is a party, to perform its obligations thereunder and to consummate the Transaction contemplated thereby. The execution and delivery by such Party of the Transaction Documents to which it is a party and the consummation by such Party of the Transaction contemplated thereby have been duly and validly authorized by all necessary corporate or similar action of such Party, and no other proceedings on the part of such Party are necessary to authorize the execution and delivery of the Transaction Documents or to consummate the Transaction contemplated thereby. The Transaction Documents to which such Party is a party have been (or at the time of the Closing, will be) duly and validly executed and delivered by such Party and, assuming the due authorization, execution and delivery of each other party thereto, the Transaction Documents to which it is a party each constitutes a legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms (except as such enforceability may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar Laws of general applicability relating to or affecting creditor’s rights, and to general equitable principles, regardless of whether considered in a proceeding in equity or at law).

(c) Government and Third Party Approvals; No Conflicts. Except as would not reasonably be expected to have a material adverse effect on such Party’s ability to timely perform its material obligations under the Transaction Documents to which it is a party, the execution and delivery of the Transaction Documents to which such Party is a party by such Party and the consummation of the Transaction contemplated thereby do not and will not (i) require any consent, approval, registration or filing with any Governmental Authority or any other third party by such Party except for those that have been obtained and are in full force and effect, (ii) violate any Law, the certificate of incorporation, the articles of association or by-laws or other organizational documents of such Party or its Subsidiaries or any Order applicable to such Party, (iii) violate, conflict with or result in a default under any indenture, agreement or other instrument binding upon such Party or its Subsidiaries or assets or give rise to a right thereunder to require any payment by such Party or its Subsidiaries or (iv) result in any Lien on any assets of such Party or its Subsidiaries.

(d) Litigation. There is no Proceeding by or before any arbitrator or Governmental Authority pending or, to the knowledge of such Party, threatened, against such Party or its Subsidiaries, and there is no Order, before any arbitrator or Governmental Authority, in each case, as to which there is a reasonable possibility of an adverse determination that would reasonably be expected to have a material adverse effect on such Party’s ability to timely perform its material obligations under any Transaction Documents to which it is a party.

(e) Compliance with Law. Such Party and each of its Subsidiaries is in compliance with all

applicable Laws, except where the failure to be in compliance would not reasonably be expected to have a material adverse effect on such Party’s ability to timely perform its material obligations under any Transaction Documents to which it is a party.

(f)Solvency. Such Party is Solvent as of the Commitment Date and as of the Closing Date.

(g) Investment Company Act Status. Such Party is not an investment company as defined in, or subject to regulation under, the U.S. Investment Company Act of 1940.

Section 3.2Additional Representations and Warranties of the Seller. The Seller represents and warrants to the Buyer for its benefit and for the benefit of each of its successors and assigns as of the Commitment Date and as of the Closing Date that:

(a) Representations and Warranties regarding the Acquired Assets. The Seller affirms each of its representations and warranties set forth in Appendix B and as of the Closing Date affirms the accuracy of the information provided in the Bill of Sale, Assignment and Assumption Agreement, including the information in the Loan Transmittal Summary Form. The Seller affirms the accuracy of the information in the Estimated Schedule of Purchased Loans as of the date specified therein.

(b) Compliance with Laws with respect to Origination of Loans. With respect to each state or jurisdiction therein in which the Seller or any of its Affiliates undertakes origination activities of Loans, the Seller or such Affiliate is and has been in compliance in all material respects with such state’s or jurisdiction’s (as applicable) Laws, settlement agreements and other standards and procedures, including those promulgated by agencies or officers thereof, applicable to it and pertaining to the conduct of participants in the student loan industry, including any applicable voluntary code of conduct, to the extent the Seller or any such Affiliate has assented thereto.

(c) Compliance with Laws with respect to the Purchased Loans Generally. Neither the Seller nor any of its Affiliates, nor any of their respective Representatives is or has been in violation in any respect of any Law or Order applicable to the Purchased Loans, including all Laws applicable to the marketing, origination, ownership, sale, servicing and collection of the Purchased Loans and the Seller’s business, except for such violation that has not had and would not have, individually or in the aggregate, a Seller Material Adverse Effect. The servicing and collection practices used by the Seller and its Affiliates with respect to the Purchased Loans are and have been compliant with all applicable Laws and have met customary standards and practices utilized by similar student lenders in their servicing businesses, except for such non-compliance that has not had and would not have, individually or in the aggregate, a Seller Material Adverse Effect.

(d) Data Processing Systems. All automated data processing systems used by or on behalf of the Seller comply and have complied in all material respects with all applicable Law governing loan origination or servicing, including, the Gramm-Leach-Bliley Act of 1999 restrictions, information reporting requirements of the Internal Revenue Service and credit bureau report format requirements of the Consumer Data Industry Association and applicable state Law

restrictions on the use of Social Security numbers in correspondence related to the Acquired Assets.

(e) Seller Information. The Seller is a national banking association.

(f) Borrower Incentive Programs. Since December 31, 2010, none of the Seller, its Affiliates or their respective Representatives have offered Borrowers of any Purchased Loans any borrower incentive programs not (A) required by Law or (B) put into effect with respect to the related Purchased Loans on or prior to December 31, 2010.

(g) No Other Representations or Warranties. Except for the representations and warranties contained in Section 3.1, Section 3.2 and Appendix B, and the information provided in the Bill of Sale, Assignment and Assumption Agreement, neither the Seller nor any other Person on behalf of the Seller or any of its Subsidiaries or Affiliates makes any express or implied representation or warranty with respect to the Seller or any of its Subsidiaries or Affiliates or with respect to the Acquired Assets or any other information provided to the Buyer in connection with the Transaction.

Section 3.3Additional Representations and Warranties of the Buyer.

The Buyer represents and warrants to the Seller for its benefit and for the benefit of each of its successors and assigns as of the Commitment Date and as of the Closing Date that:

(a) Additional Funds. The Buyer has, and as of the Closing will have, cash on hand sufficient to (i) enable the Buyer to perform its obligations hereunder, (ii) consummate the Transaction and (iii) pay all costs and expenses incurred by the Buyer in connection with this Agreement and the other Transaction Documents and the Transaction, including (x) the Purchase Price and (y) any other payments or obligations of the Buyer pursuant to the Transaction Documents.

ARTICLE IVCLOSING

Section 4.1Closing.

(a) Subject to the satisfaction or, if permissible, waiver of the conditions set forth in Article V, and provided that this Agreement has not been terminated pursuant to Section 8.1, the closing of the Transaction (the “Closing”) will take place at 10:00 a.m., New York time, on September 30, 2011, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036, unless another time, date or place is agreed to in writing by the Parties (such date on which the Closing occurs being the “Closing Date”); provided that neither Party shall unreasonably withhold, condition or delay its assent to the other Party’s request to change such time, date or place.

(b) Each condition precedent to the Closing will be deemed to have been satisfied or waived upon the execution and delivery by the Seller and the Buyer of the Bill of Sale, Assignment and

Assumption Agreement.

ARTICLE V CONDITIONS PRECEDENT

Section 5.1Conditions to the Obligations of the Buyer. The obligation of the Buyer to consummate the Transaction is subject to the satisfaction or waiver by the Buyer of the following further conditions:

(a) no Governmental Authority shall have commenced, enacted, issued, promulgated, enforced or entered any suit, proceeding, Order or other Law which is then in effect and has the effect of making the Transaction illegal or otherwise prohibiting the consummation of the Transaction;

(b) the Seller shall have executed and delivered to the Buyer a special power of attorney and blanket endorsement with respect to the Purchased Loans in favor of the Buyer, substantially in the form of Appendix C, authorizing the Buyer to endorse each of the Notes evidencing such Purchased Loans on the Seller’s behalf;

(c) the representations and warranties of the Seller contained in the Transaction Documents to which it is a party shall be true and correct (without giving effect to any limitation as to materiality or Seller Material Adverse Effect or similar qualifiers set forth therein) at and as of the Closing Date with the same force and effect as if made at and as of the Closing Date (other than those representations and warranties that address matters only as of a particular date or only with respect to a specific period of time, which need only be true and correct as of such date or with respect to such period), except where the failure of such representations and warranties to be true and correct would not reasonably be expected to have, individually or in the aggregate, a Seller Material Adverse Effect;

(d) the Seller shall have performed and complied in all material respects with all material agreements and covenants required by the Transaction Documents to be performed or complied with by the Seller at or prior to the Closing;

(e) since the date hereof, there shall not have been any receiver or conservator appointed for the Seller or all or any substantial part of its property;

(f) the corrections to the Estimated Schedule of Purchased Loans described in Section 5.2(c) do not result, in the aggregate, in a change to the Estimated Purchase Price of more than $25,000,000; and

(g) all documents and certificates specified in Section 5.3 to be delivered by the parties to the Transaction Documents (other than the Buyer) on the Closing Date shall be duly executed and delivered by all signatories as required pursuant to the respective terms thereof.

Section 5.2Conditions to the Obligations of the Seller. The obligation of the Seller to

consummate the Transaction is subject to the satisfaction or waiver by the Seller of the following further conditions:

(a) no Governmental Authority shall have commenced, enacted, issued, promulgated, enforced or entered any suit, proceeding, Order or other Law which is then in effect and has the effect of making the Transaction illegal or otherwise prohibiting the consummation of the Transaction;

(b) the representations and warranties of the Buyer contained in the Transaction Documents to which it is a party shall be true and correct (without giving effect to any limitation as to materiality or Buyer Material Adverse Effect or similar qualifiers set forth therein) at and as of the Closing Date with the same force and effect as if made at and as of the Closing Date (other than those representations and warranties that address matters only as of a particular date or only with respect to a specific period of time, which need only be true and correct as of such date or with respect to such period), except where the failure of such representations and warranties to be true and correct would not reasonably be expected to have, individually or in the aggregate, a Buyer Material Adverse Effect;

(c) the Buyer shall have delivered to the Seller the Estimated Schedule of Purchased Loans no less than 15 calendar days prior to the Closing, and the Buyer and its Affiliates shall have cooperated with the Seller in identifying and correcting any deficiencies contained in the Estimated Schedule of Purchased Loans, each to the extent necessary for the Seller to reasonably affirm the accuracy of the information in the Estimated Schedule of Purchased Loans as of the date specified therein as required by Section 3.2(a);

(d) the Buyer shall have performed and complied in all material respects with all material agreements and covenants required by the Transaction Documents to be performed or complied with by the Buyer at or prior to the Closing;

(e) since the date hereof, there shall not have been any receiver or conservator appointed for the Buyer or all or any substantial part of its property; and

(f) all documents, certificates and opinions specified in Section 5.3 to be delivered by the other parties to the Transaction Documents (other than the Seller) on the Closing Date shall be duly executed and delivered by all signatories as required pursuant to the respective terms thereof.

Section 5.3Closing Documents. On the Closing Date, the Buyer and the Seller shall deliver or cause to be delivered duly executed copies of the following documents to which they are a party or for which they are otherwise responsible as set forth below:

(a) the Bill of Sale, Assignment and Assumption Agreement (together with the Loan Transmittal Summary Form to be delivered electronically in the form of a Student Loan Tape to the Buyer by the Seller);

(b) a certificate issued by the Comptroller of the Currency, as to the corporate existence of the Seller, dated as of a date within thirty (30) days prior to the Closing Date to be delivered by

the Seller;

(c) a certificate of good standing of the Buyer dated as of a date within thirty (30) days prior to the Closing Date to be delivered by the Buyer;

(d) a limited power of attorney executed by Ricardo Arroyo, Chief Financial Officer of Citibank, N.A., appointing each of Calvin Balliet, Charles Jacques, Daniel Madias and James von Moltke to act as attorneys-in-fact on behalf of Citibank, N.A., with respect to this Agreement and the other Transaction Documents and a Secretary’s Certificate of the Seller attaching its charter, bylaws, board resolutions authorizing the Transaction and the execution and delivery (by power of attorney or otherwise) of the Transaction Documents (which resolutions need not specifically reference the Transaction) and an incumbency certificate; and

(e) a Secretary’s Certificate of the Buyer attaching its charter, bylaws, board resolutions authorizing the Transaction and an incumbency certificate.

ARTICLE VI

COVENANTS

Section 6.1No Public Announcements. The Seller and the Buyer will consult in good faith with each other before issuing any press release or otherwise making any public statements with respect to the Transaction Documents or the Transaction and neither the Seller nor the Buyer will issue any such press release or make any such public statement without the prior written consent of the Buyer or the Seller, respectively (which consent will not be unreasonably withheld, delayed or conditioned), except as may be determined in good faith by the disclosing Party as being required by Law or any listing agreement with the New York Stock Exchange to which the Seller or the Buyer is a party.

Section 6.2Conduct of Business. Each of the Parties covenants and agrees that, between the date of this Agreement and the Closing Date or the date, if any, on which this Agreement is terminated pursuant to Article VIII, such Party shall not, and shall cause its Subsidiaries not to, take any action or fail to take any action that is intended to, or would reasonably be expected to, individually or in the aggregate, materially adversely affect the value of the Purchased Loans or prevent or materially delay or materially impair the ability of such Party or any of its Subsidiaries to consummate the Transaction.

Section 6.3Seller Actions. Without the written consent of the Buyer, between the date of this Agreement and the Closing Date or the date, if any, on which this Agreement is terminated pursuant to Article VIII, the Seller shall not:

(a) commence a lawsuit against any party other than the Buyer or its Affiliates that may affect the Acquired Assets or the servicing or administration of the Purchased Loans, except for lawsuits brought in the ordinary course of business by the Seller as plaintiff against a Borrower relating to the collection of Purchased Loans, provided that such consent will not be

unreasonably withheld, delayed or conditioned;

(b) offer Borrowers of any Purchased Loans any borrower incentive programs not (A) required by Law or (B) put into effect with respect to the related Purchased Loans prior to the date hereof; or

(c) amend or otherwise modify the terms of any Purchased Loan or change in any material respect the manner in which the Purchased Loans are serviced unless required by Law.

Section 6.4Tax Matters.

(a) All applicable sales, use, transfer, stamp, stock transfer or similar Taxes that are or become due and payable as a result of the Transaction, if any, whether such Taxes are imposed by Law on the Seller, the Buyer, or any of their Affiliates (such Taxes, “Transfer Taxes”), shall be borne fifty (50) percent by the Buyer and fifty (50) percent by the Seller. Any Tax Returns with respect to Transfer Taxes shall be prepared by the Party hereto that customarily has primary responsibility for filing such Tax Returns pursuant to applicable Law. Buyer and Seller will provide to one another a true copy of each such Tax Return as filed and evidence of the timely filing thereof.

(b) Each Party shall, and shall cause its Affiliates to, (i) provide cooperation and assistance to the other Party hereto, as reasonably requested, in preparing and filing Tax Returns relating to the Acquired Assets and responding to Tax Contests relating to the Acquired Assets; (ii) until the later of (x) the tenth (10th) anniversary of the Closing Date and (y) the expiration of the applicable statute of limitations, retain such information, records, and documents as may be necessary for purposes of preparing and filing such Tax Returns or responding to such Tax Contests; (iii) make available to the other Party, as reasonably requested, such information, records, and documents as may be necessary for purposes of preparing and filing such Tax Returns or responding to such Tax Contests; and (iv) use reasonable efforts, as reasonably requested, to obtain any certificate or other document from any Governmental Authority or any other Person or take any other action, in each case, as may be necessary to mitigate, reduce, or eliminate any Taxes relating to the Acquired Assets that could be imposed on the other Party (including, but not limited to, Taxes resulting from the Transaction).

(c) Neither Party nor any of their respective Affiliates shall be entitled, under this agreement, to any information regarding, any access to, any right to review or any right to obtain any consolidated, combined, affiliated or unitary Tax Return which includes the Seller or the Buyer.

(d) Unless otherwise required by Law, any payment made pursuant to Article VII shall be treated for all Tax purposes as an adjustment to the Purchase Price.

Section 6.5Exclusivity. Until September 30, 2011, the Seller shall not, and shall not permit any of its Affiliates or Representatives to, directly or indirectly, solicit or initiate (including by way of furnishing any non-public information concerning the Acquired Assets) inquiries or proposals, or participate in any discussion or negotiation with any Person (other than the Seller) concerning any transaction: (x) involving the Purchased Loans (or any portion thereof) or any interest in the

Purchased Loans (or any portion thereof) or (y) that is otherwise in conflict or inconsistent with the Transaction.

Section 6.6Notification of Certain Matters. Each Party shall give prompt notice to the other Party of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which causes or would be reasonably likely to cause any representation or warranty of such Party contained in any Transaction Document to be untrue or inaccurate in any material respect as of the Closing, or which, (A) in the case of the Seller, results in or would be reasonably likely to result in a Seller Material Adverse Effect and (B) in the case of Buyer, results in or would be reasonably likely to result in a Buyer Material Adverse Effect, and (ii) any material failure of such Party to comply in all material respects with or satisfy any covenant, condition or agreement to be complied with or satisfied by such Party under the Transaction Documents. The delivery of any notice pursuant to this Section 6.6 shall not, without the express written consent of the other Party (which consent may be withheld in their respective sole discretion) be deemed to (w) modify the representations, warranties, covenants or agreements hereunder of the Party delivering such notice, (x) modify any of the conditions set forth in Article V, (y) cure or prevent any such inaccuracy or failure, or (z) limit or otherwise affect the remedies available hereunder to the Party receiving such notice.

Section 6.7Appropriate Action. Subject to the terms and conditions hereof, each of the Parties will use reasonable best efforts to consummate and make effective the Transaction. Each of the Parties will furnish to the other Party such necessary information and reasonable assistance as such other Party may reasonably request in connection with the foregoing.

Section 6.8Further Assurances. Following the Closing, each of the Buyer and the Seller shall, and shall cause each of their Affiliates to, from time to time, execute and deliver such additional instruments, documents, conveyances or assurances and take such other actions as shall be necessary, or otherwise reasonably requested by the other Party, to confirm and assure the rights and obligations provided for in this Agreement and render effective the consummation of the Transaction.

Section 6.9Right of First Offer.

(a) At any time prior to the fifth anniversary of the Closing Date, in the event that the Seller intends to sell, assign, transfer, convey or otherwise dispose of all or any portion of the Retained Portfolio (such portion, the “Offered Assets”) in a transaction in which the book value of the Offered Assets constitutes twenty-five (25) per cent or more of the book value of the assets to be sold, assigned, transferred, conveyed or otherwise disposed of, the Seller shall give the Buyer written notice (the “Seller’s Notice”) of such intended sale, assignment, transfer, conveyance or other disposition, and, for a period of 45 days commencing on the date of its receipt of such written notice, the Buyer will have the exclusive right to offer to purchase the Offered Assets. During such 45-day period, the Seller shall not sell, assign, transfer, convey or otherwise dispose of all or any portion of the Retained Portfolio. In the event that the Buyer exercises its right to offer, the Seller and the Buyer agree to negotiate in good faith the purchase price and other terms of such purchase. In the event that the Buyer does not exercise its right to offer pursuant to this Section 6.9(a), then the Seller shall be free (without having to provide the Buyer with a further right to offer pursuant to this Section 6.9(a)) for a period of 90 days from the 45th day following the date of the Buyer’s receipt of the Seller’s Notice, to sell the

Offered Assets to any third party purchaser (a “Third Party Purchaser”) on any terms.

(b) In the event that the Buyer exercises its right to offer pursuant to Section 6.9(a) and the Seller and the Buyer cannot reach mutually agreeable terms for the purchase by the Buyer of the Offered Assets as provided by Section 6.9(a), then the Seller shall be free (without having to provide the Buyer with a further right to offer pursuant to Section 6.9(a)), for a period of 90 days from the 45th day following the date of the Buyer’s receipt of the Seller’s Notice, to sell the Offered Assets to any Third Party Purchaser on terms that are no less favorable to the Seller than the most favorable terms offered by the Buyer (the “First Offer Terms”); provided that such sale complies with the provisions of this Section 6.9. If the proposed terms of a third party purchase for the Offered Assets (the “Third Party Terms”) are less favorable to the Seller than the First Offer Terms, the Seller shall not sell, assign, transfer, convey or otherwise dispose any of the Offered Assets unless the Seller shall first reoffer the Offered Assets to the Buyer by giving written notice (the “Reoffer Notice”) thereof, stating the Seller’s intention to transfer the Offered Assets upon terms less favorable than the First Offer Terms. The Buyer shall then have the irrevocable and exclusive option to submit a second offer for the Offered Assets by notifying the Seller in writing of the terms upon which the Buyer proposes to purchase the Offered Assets (the “Reoffer Terms”) within 15 Business Days from the date of the Reoffer Notice, providedthat, for the avoidance of doubt, the Reoffer Terms may be the First Offer Terms. If the Buyer has not exercised its option to submit Reoffer Terms or if the Third Party Terms are no less favorable to the Seller than the Reoffer Terms, then the Seller may (without having to provide the Buyer with a further right to offer or reoffer pursuant to Section 6.9(a) or this Section 6.9(b)) sell the Offered Assets to a Third Party Purchaser within 90 days following the 15th Business Day from the date of the Reoffer Notice, on Third Party Terms that are no less favorable to the Seller than the Reoffer Terms; provided that such sale complies with the provisions of this Section 6.9. The Seller shall certify to the Buyer that, in its sole and absolute discretion, the Third Party Terms are no less favorable to the Seller than the Reoffer Terms.

Section 6.10Confidential Information.

(a) Each Party shall keep confidential and shall not make available or disclose Confidential Information of the other Party to any Person, or make or permit any use of such Confidential Information without the prior written consent of the other Party. Notwithstanding the foregoing, Confidential Information of the other Party may be disclosed on an as needed basis to the Representatives and Affiliates of the receiving Party as required for the purpose of fulfilling the receiving Party’s obligations or exercising its rights under the Transaction Documents and each Party may utilize applicable Confidential Information (if any) in preparing financial statements, tax returns, and tax information it is required to file under applicable Law; provided, that each Party shall be responsible for any unauthorized disclosure of such Confidential Information by its Representatives and Affiliates. Each Party shall take reasonable steps to ensure that any such Confidential Information disclosed to any such Representatives or Affiliates in accordance with this Section 6.10 is treated as confidential by such Representatives and Affiliates in a manner no less protective of the Confidential Information than is required under this Agreement.

(b) The provisions of Section 6.10 shall not apply to any Confidential Information which: (i) is or becomes commonly known to the public other than by breach of this Agreement or any other agreement that the receiving Party has with any party; (ii) is obtained from a third party who is lawfully authorized to disclose such information free from any obligation of confidentiality; or (iii) is independently developed without reference to any Confidential Information of the other Party.

(c) Nothing in Section 6.10 shall prevent either Party from disclosing Confidential Information of the other Party where it is required to be disclosed by judicial, administrative, governmental or regulatory process in connection with any action, suit, proceeding or claim or otherwise by any applicable Law; provided, however, that a Party that is so required to disclose such Confidential Information shall, if legally permitted, give the other Party reasonable prior notice as soon as possible of such required disclosure so as to enable such other Party to seek relief from such disclosure requirement or measures to protect the confidentiality of the disclosure.

(d) Each Party shall immediately inform the other Party if it becomes aware of the possession, use or knowledge of any of such other Party’s Confidential Information by any Person not authorized to possess, use or have knowledge of such Confidential Information and shall at the request of such other Party provide such reasonable assistance as is required by such other Party to mitigate any damage caused thereby.

Section 6.11Nonpublic Personal Information.

(a) The Parties acknowledge that the Acquired Assets include all Nonpublic Personal Information obtained by or on behalf of the Seller or the Buyer in connection with the Purchased Loans. To the extent that any such Nonpublic Personal Information is nonetheless deemed to be owned by the Seller, the Buyer shall have the right to use any such Nonpublic Personal Information obtained by or on behalf of the Seller or the Buyer in connection with the Purchased Loans for any purpose permitted by applicable Law, and the Seller hereby provides the Buyer with an irrevocable, fully paid up, perpetual license to use such Nonpublic Personal Information for such purposes. This Section 6.11(a) shall not apply to any Nonpublic Personal Information that: (x) the Seller or one of its Affiliates has independently obtained or will independently obtain without reference to any Nonpublic Personal Information obtained by or on behalf of the Seller or the Buyer in connection with Purchased Loans, or (y) is known to the Seller prior to the Closing Date other than in connection with the Purchased Loans.

(b) The Seller shall not use or disclose any Nonpublic Personal Information obtained by or on behalf of the Seller or the Buyer in connection with the Purchased Loans; provided, that the Seller may use such Nonpublic Personal Information (a) as necessary to carry out its rights and responsibilities under this Agreement and the other Transaction Documents, or (b) to the extent required to do so under applicable Law or required to do so in connection with complying with any applicable Law. The foregoing shall not apply to any Nonpublic Personal Information that: (x) the Seller or one of its Affiliates has independently obtained or will independently obtain without reference to any Nonpublic Personal Information obtained by or on behalf of the Seller or the Buyer in connection with the Purchased Loans, or (y) is known to the Seller

prior to the Closing Date other than in connection with the Purchased Loans.

Section 6.12Access to Information.

(a) Until the earlier of the Closing Date or the date, if any, on which this Agreement is terminated pursuant to Section 8.1, to the extent permitted by applicable Law, the Seller shall (i) provide the Buyer and its Representatives access during normal business hours and, following reasonable notice from the Buyer, to all documents, instruments, agreements, books, records, Loan Files and other information with respect to the Acquired Assets as the Buyer may reasonably request and (ii) permit such Persons to have reasonable access to such personnel of the Seller during normal business hours as the Buyer may reasonably request; provided, however, that the Seller shall not be required to provide access to any information or documents which would, in the reasonable judgment of the Seller, (x) breach any agreement with any third party if the Seller shall have used its reasonable best efforts to obtain the consent of such third party to such access or disclosure, (y) constitute a waiver of the attorney-client or other privilege held by the Seller or (z) violate any applicable Laws. If any material is withheld by the Seller pursuant to the proviso of the preceding sentence, the Seller shall inform the Buyer as to the general nature of what is being withheld.

(b) No information provided or obtained pursuant to this Section 6.12 shall affect any representation or warranty in this Agreement of either Party or any condition to the obligations of the Parties. The Parties shall comply with, and shall cause their respective Representatives to comply with, all of their respective obligations pursuant to Section 6.10 with respect to the information provided or obtained pursuant to this Section 6.12.

Section 6.13Borrower Communications. The Seller shall, or shall instruct the applicable servicer to, immediately transmit to the Buyer or its servicer any communication received by the Seller after the Closing Date with respect to any Acquired Assets or with respect to the Borrower under a Purchased Loan. Such communication shall include, but not be limited to, letters, notices of death or disability, adjudication of bankruptcy and similar documents and forms requesting deferment of repayment or loan cancellations.

ARTICLE VII

INDEMNIFICATION

Section 7.1Liability of the Buyer and the Seller; Indemnities.

(a) Subject to the terms of this Agreement, from and after the Closing Date, the Seller shall indemnify, defend, save and hold harmless the Buyer and its Affiliates and each of its and their respective Representatives (collectively, the “Buyer Indemnified Parties”) from and against any and all Losses, as such Losses are incurred, resulting from, arising out of or related to (i) any breach by the Seller of any of its representations, warranties or covenants in this Agreement, the Bill of Sale, Assignment and Assumption Agreement or in any certificate delivered pursuant to the terms hereof or thereof (to the extent relating to such representations

and warranties) (ii) the failure of any such representation or warranty to be accurate or (iii) Third Party Claims arising from any incidents, events, facts or circumstances existing on or prior to the Closing Date or any activity, omission, action, failure to act or event occurring or arising on or prior to the Closing Date, and in each case in any way relating to the Acquired Assets.

(b) Subject to the terms of this Agreement, from and after the Closing Date, the Buyer shall indemnify, defend, save and hold harmless the Seller and its Affiliates and each of its and their respective Representatives (collectively, the “Seller Indemnified Parties” and, together with the Buyer Indemnified Parties, the “Indemnified Parties”) from and against any and all Losses, as such Losses are incurred, resulting from, arising out of or related to any breach by the Buyer of any of its representations, warranties or covenants in this Agreement, the Bill of Sale, Assignment and Assumption Agreement or in any certificate delivered pursuant to the terms hereof or thereof (to the extent relating to such representations and warranties) or the failure of any such representation or warranty to be accurate.

(c) Notwithstanding anything set forth in this Agreement to the contrary, Losses shall be determined without duplication of any other Loss for which an indemnification claim has been made under any other representation, warranty, covenant, or agreement contained in the Transaction Documents and shall be net of any other recoveries actually received by the applicable Indemnified Party in connection with the facts giving rise to the right of indemnification, but without any obligation on the part of such indemnified Party to make such other claims or pursue such other recoveries except to the extent provided in Section 7.3.

(d) “Losses” means all costs, expenses, damages, obligations, Liabilities, purchase obligations (including the amount paid in such purchase and costs and expenses associated therewith), assessments, judgments, losses (including lost profits, opportunity costs and diminution in value), settlements, awards and fees (including reasonable legal, accounting or other professional fees); provided, however, that “Losses” shall not include lost profits, opportunity costs, diminution in value, damages based upon a multiple of earnings or similar financial measure or exemplary or punitive damages, in each case, except to the extent awarded against an Indemnified Party in a Third Party Claim. For the avoidance of doubt, damages or losses resulting from the failure of the Buyer or any of its Affiliates to receive any amounts with respect to any Purchased Loan (whether or not then due), including any principal, interest, discount or other fees, assessments or other amounts in respect thereof, shall in no event constitute or be deemed to be lost profits, opportunity costs or diminution in value or exemplary or punitive damages, but shall be deemed to be an indemnifiable Loss; provided, however, that Losses with respect to any Purchased Loan arising out of a breach of any representation or warranty set forth in Section 3.2(a) or Appendix B of this Agreement shall not exceed the Principal Balance of such Purchased Loan plus accrued and unpaid interest thereon plus any Mitigation Loss pursuant to Section 7.3.

Section 7.2Remedies Exclusive. Except in cases of fraud, or as otherwise specifically provided herein (including the Purchase Price adjustment provisions in Sections 2.1(e) and (f) of this Agreement), the remedies provided in this Article VII shall be the exclusive monetary remedies (including equitable remedies that involve monetary payment, such as restitution or disgorgement,

other than specific performance to enforce any payment or performance due hereunder) of the Indemnified Parties from and after the Closing in connection with this Agreement. Notwithstanding anything herein to the contrary, the Buyer on its own behalf and on behalf of its Affiliates hereby agrees that any action, suit, claim or proceeding with respect to the Buyer’s rights under or in respect of this Agreement shall be brought or made against the Seller in accordance with the foregoing.

Section 7.3Mitigation. Each of the Indemnified Parties shall use commercially reasonable efforts to mitigate any claim or liability that such Indemnified Party asserts or is reasonably likely to assert under this Agreement; provided, however that the Buyer Indemnified Parties shall not be required to make any claim under any insurance policy or similar surety arrangement (an “Insurance Arrangement”) pursuant to this Section 7.3; and providedfurther, however, that any Losses incurred by an Indemnified Party in mitigating any such claim or Liability (any such Loss, a “Mitigation Loss”) shall be reimbursed by the indemnifying party. For the avoidance of doubt, the obligation of any co-signor or other secondary obligor of a Loan shall not constitute an Insurance Arrangement. Each of the Indemnified Parties shall be permitted to pursue claims under Section 7.1 without regard to the status of mitigation efforts pursuant to this Section 7.3; provided that to the extent that an Indemnified Party obtains a net recovery as a result of mitigation efforts undertaken pursuant to this Section 7.3, it will reimburse the indemnifying party for amounts in respect of the applicable Loss previously paid by the indemnifying party pursuant to Section 7.1.

ARTICLE VIII

TERMINATION, AMENDMENT AND WAIVER

Section 8.1Termination. Notwithstanding anything contained in this Agreement to the contrary, this Agreement may be terminated and the Transaction may be abandoned, at any time prior to the Closing Date, as follows:

(a) by mutual written consent of each of the Buyer and the Seller;

(b) by written notice of either the Buyer or the Seller, if any Governmental Authority of competent jurisdiction shall have issued an Order or taken any other action permanently restraining, enjoining or otherwise prohibiting the Transaction, and such Order or other action shall have become final and nonappealable; or

(c) by the Seller, on the one hand, or by the Buyer, on the other hand, if the Closing shall not have occurred on or before date that is 75 days after the date hereof (the “Termination Date”); provided that the right to terminate this Agreement under this Section 8.1(c) shall not be available to either Party whose material misrepresentation, inaccuracy, breach of warranty, default or failure to fulfill any covenant or obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date.

Section 8.2Effect of Termination. If this Agreement is terminated pursuant to Section 8.1, this Agreement shall become void and of no effect without liability of either Party (or any Representative of such Party) to the other Party hereto; provided, however, no Party to this Agreement shall be relieved or released from any liabilities or damages arising out of its knowing and intentional breach

of its obligations under this Agreement. For purposes of this Agreement, “knowing and intentional breach” means an act or failure to act which constitutes a material breach of this Agreement with respect to which the breaching Party has knowledge (actual or constructive) that such act or failure to act would or would reasonably be expected to breach its obligations under this Agreement. The provisions of this Article VIII and Article IX shall survive any termination hereof pursuant to Section 8.1.

Section 8.3Amendment. This Agreement may be amended by mutual agreement of the parties hereto at any time prior to the Closing Date. This Agreement may not be amended except by an instrument in writing signed by the parties hereto.

Section 8.4Waiver. At any time prior to the Closing Date, subject to applicable Law, either Party may (a) extend the time for the performance of any obligation or other act of the other Party, (b) waive any inaccuracy in the representations and warranties of the other Party contained herein or in any document delivered pursuant hereto and (c) waive compliance with any agreement or condition contained herein. Any such extension or waiver shall only be valid if set forth in an instrument in writing signed by the Party to be bound thereby. Notwithstanding the foregoing, no failure or delay by the Seller or the Buyer in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise of any other right hereunder.

Section 8.5Survival. The representations and warranties contained in this Agreement and the provisions of Article VII of this Agreement shall survive the execution and delivery of this Agreement and the completion of the Transaction. The covenants contained in this Agreement shall survive the execution and delivery of this Agreement and the completion of the transactions contemplated herein, except for any covenants that by their terms are to be performed only prior to the Closing Date, which covenants shall expire on the Closing Date.

ARTICLE IX

MISCELLANEOUS

Section 9.1Assignments. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby. The obligations and liabilities assumed in this Agreement by the parties hereto shall be binding upon their respective successors and assigns, which shall include successors by operation of Law, such as by merger. No Party may assign or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of the other Party to this Agreement; provided that the Buyer may assign all or any portion of its rights under Section 6.9 to an Affiliate so long as the Seller shall have received written notice of such assignment and the Seller shall have received assurances reasonably satisfactory to the Seller that any payment obligations of such Affiliate pursuant to Section 6.9 shall be guaranteed by either the Buyer or Discover Financial Services and provided, further that the Buyer may assign all or any portion of its other rights or obligations hereunder (other than its obligation to pay the Estimated Purchase Price and the Purchase Price) to SLC.

Section 9.2Costs and Expenses. Except as otherwise specifically provided in this Agreement, each Party shall bear its own costs and expenses (including all legal, accounting, audit, due diligence and other out-of-pocket expenses) incurred in connection with the preparation, execution and delivery of this Agreement and the other Transaction Documents and the consummation of the Transaction and the other Transaction Documents to which it is a party.

Section 9.3Relationship of Parties. Nothing contained in the Transaction Documents shall establish any fiduciary, partnership, joint venture or similar relationship between the parties hereto except to the extent otherwise expressly stated herein or therein.

Section 9.4Notices, Etc.

(a) Addresses for Notices. All notices, demands, requests, consents and other communications provided for, or required to be given, in this Agreement shall be given in writing, or by any telecommunications device capable of creating a written record (including electronic mail) and addressed to the Party to be notified at its respective addresses set forth below. The Parties may change their respective addresses for notices from time to time by written notice to the other Party subject to written acknowledgment of receipt by the other Party.

If to the Buyer:

Discover Bankc/o Discover Financial Services2500 Lake Cook RoadRiverwoods, IL 60015Fax: 224-405-4957Attention: Carlos Minetti

and:

Discover Bankc/o Discover Financial Services2500 Lake Cook RoadRiverwoods, IL 60015Fax: 224-405-4584Attention: Kelly McNamara Corley

with a copy to (which shall not constitute notice):

Sidley Austin LLP1 South Dearborn StreetChicago, IL 60603Fax: 312-853-7036Attention: T.J. Gordon

If to the Seller:

Citigroup Inc.399 Park AvenueNew York, NY 10022Fax: 212-559-0615Attention: Michael S. Zuckert

with a copy to (which shall not constitute notice):

Skadden, Arps, Slate, Meagher & Flom LLPFour Times SquareNew York, NY 10036Fax: 212-735-2000Attention: David Midvidy

(b) Effectiveness of Notices. All notices, demands, requests, consents and other communications described in Section 9.4(a) above shall be effective (i) if delivered by hand, including any overnight courier service, upon personal delivery, (ii) if delivered by mail, when received in the mails and (iii) if delivered by electronic mail or any other telecommunications device, when transmitted to an electronic mail address (or by another means of electronic delivery) as provided in Section 9.4(a) above.

Section 9.5Governing Law. The terms of this Agreement shall be construed in accordance with and governed by the law of the State of New York without reference to its conflict of law provisions (other than Section 5-1401 of the General Obligations Law of the State of New York), and the obligations, rights and remedies of the parties hereunder will be determined in accordance with such laws.

Section 9.6Entire Agreement; No Third Party Beneficiaries. This Agreement (including the appendices hereto) and the other Transaction Documents constitute the entire agreement, and supersede all other prior agreements and understandings, both written and oral, between the parties, or either of them, with respect to the subject matter hereof and thereof. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and its respective successors and assigns permitted hereby, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

Section 9.7Submission to Jurisdiction; Service of Process.

(a) Each of the Buyer and the Seller hereby irrevocably and unconditionally submits, for itself and its property, to the non-exclusive jurisdiction of the Supreme Court of the State of New York sitting in the Borough of Manhattan in The City of New York and of the United States District Court for the Southern District of New York sitting in the Borough of Manhattan in The City of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, and hereby irrevocably agree that all claims in

respect of such action or proceeding may be heard and determined in such New York State or federal court. The parties hereto hereby irrevocably waive any objection, including any objection to the laying of venue or based on the grounds of forumnonconveniens, that either of them may now or hereafter have to the bringing of any such action or proceeding in such respective jurisdictions. Each Party agrees that a final judgment in any action or proceeding will be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.

(b) Each Party irrevocably consents to the service of the summons and complaint and any other process in any other action or proceeding relating to the Transaction, on behalf of itself or its property, by personal delivery of copies of such process to such Party. Nothing contained in this Section 9.7 will affect the right of either Party to serve process in any other manner permitted by Law or commence legal proceedings or otherwise proceed against the other Party in any other jurisdiction.

Section 9.8Waiver of Jury Trial. EACH PARTY HERETO HEREBY EXPRESSLY AND IRREVOCABLY RELEASES, WAIVES AND RELINQUISHES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY CLAIM, DEMAND, ACTION, SUIT, PROCEEDING OR CAUSE OF ACTION IN WHICH EITHER OF THEM IS A PARTY, WHICH IN ANY WAY (DIRECTLY OR INDIRECTLY) ARISES OUT OF, RESULTS FROM OR RELATES TO ANY OF THE FOLLOWING, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER BASED ON CONTRACT OR TORT OR ANY OTHER LEGAL BASIS: (I) THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS TO WHICH IT IS A PARTY; (II) ANY PAST, PRESENT OR FUTURE ACT, OMISSION, CONDUCT OR ACTIVITY WITH RESPECT TO THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS TO WHICH IT IS A PARTY; (III) ANY TRANSACTION, EVENT OR OCCURRENCE CONTEMPLATED BY THIS AGREEMENT; (IV) THE PERFORMANCE OF ANY OBLIGATION OR THE EXERCISE OF ANY RIGHT UNDER THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS TO WHICH IT IS A PARTY; AND (V) THE ENFORCEMENT OF THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS TO WHICH IT IS A PARTY. EACH PARTY HERETO HEREBY FURTHER AGREES THAT THIS AGREEMENT CONSTITUTES ITS WRITTEN CONSENT THAT TRIAL BY JURY SHALL BE WAIVED IN ANY SUCH CLAIM, DEMAND, ACTION, SUIT, PROCEEDING OR OTHER CAUSE OF ACTION AND AGREES THAT EACH OF THEM SHALL HAVE THE RIGHT AT ANY TIME TO FILE THIS AGREEMENT WITH THE CLERK OR JUDGE OF ANY COURT IN WHICH ANY SUCH CLAIM, DEMAND, ACTION, SUIT, PROCEEDING OR OTHER CAUSE OF ACTION MAY BE PENDING AS WRITTEN CONSENT TO WAIVER OF TRIAL BY JURY.

Section 9.9Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and

the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

Section 9.10Article and Section Titles. The Article and Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto, except when used to reference an Article or Section. Any reference to the number of a clause, sub-clause or subsection hereof immediately followed by a reference in parenthesis to the title of the Section containing such clause, sub-clause or subsection is a reference to such clause, sub-clause or subsection and not to the entire Section; provided, however, that, in case of direct conflict between the reference to the title and the reference to the number of such Article or Section, the reference to the title shall govern absent manifest error.

Section 9.11Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties in separate counterparts (including by facsimile, electronic mail or other means of electronic communication), each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

[Signature Page to Follow]

In Witness Whereof, the parties hereto have caused this Agreement to be executed by their

respective officers thereunto duly authorized, as of the date first above written.

CITIBANK, N.A., as the Seller

By:     /s/ Ricardo Arroyo            Name:    Ricardo Arroyo    Title:    Chief Financial Officer

DISCOVER BANK, as the Buyer

By:     /s/ Carlos Minetti_________________    Name:    Carlos Minetti    Title:    Loan Officer

Appendix ADefinitions

“2008 Agreement” means the Amended and Restated Agreement for Education Loan Servicing dated as of January 1, 2008, as amended by Amendment No. 1 thereto dated as of January 1, 2009, among Citibank (South Dakota), N.A., Citibank, N.A. and SLC, as such agreement was in effect immediately prior to its second amendment and restatement on December 31, 2010.

“Acquired Assets” has the meaning given to such term in Section 2.1(a) of the Agreement.

“Affiliate” means, with respect to a Person, a person who, directly or indirectly, through one or more intermediaries controls, is controlled by, or is under common control with, such specified person.

“Agreement” means the Asset Purchase Agreement, dated as of the Commitment Date, by and between (i) Citibank, N.A., a national banking association, as the Seller and (ii) Discover Bank, a Delaware banking corporation, as the Buyer.

“Arbitration Firm” has the meaning given to such term in Section 2.1(e).

“Bill of Sale, Assignment and Assumption Agreement” means that certain Bill of Sale, Assignment and Assumption Agreement between the Seller and the Buyer, substantially in the form attached as Appendix D to the Agreement or such other form as is acceptable to such parties.

“Borrower” means, collectively, the primary obligor on a Loan and any co-signor of such Loan.

“Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions or trust companies in the State of Delaware or the State of New York are authorized or obligated to be closed.

“Buyer” means Discover Bank, a Delaware banking corporation, in its capacity as the buyer under the Agreement.

“Buyer Indemnified Party” has the meaning given to such term in Section 7.1(a) of the Agreement.

“Buyer Material Adverse Effect” means any change, effect or circumstance which, individually or in the aggregate, would reasonably be expected to prevent or materially delay or materially impair the ability of the Buyer or any of its Subsidiaries to consummate the Transaction, other than any change, effect or circumstance relating to, resulting from or arising out of (A) changes in general economic or political conditions or the financial, securities or credit markets in general; (B) any events, circumstances, changes or effects that affect the general student loan industry; (C) any changes, after the date hereof, in Laws (or interpretations thereof) applicable to the Buyer or any of the Buyer’s Subsidiaries or any of their respective properties or assets (including, for the

avoidance of doubt, the Health Care and Education Reconciliation Act of 2010 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010); (D) any changes after the date hereof in GAAP (or interpretations thereof); (E) any outbreak or escalation of hostilities or war (whether or not declared) or any act of terrorism, or any earthquakes, hurricanes, tornados or other natural disasters; (F) the announcement of the Transaction Documents or the Transaction; (G) any change in the trading price of the common stock of the Buyer or its parent company or the failure by the Buyer or its Subsidiaries to meet any internal or published projections, forecasts or estimates for any period (it being understood that the facts and circumstances that cause such change or failure that are not otherwise excluded from the definition of Buyer Material Adverse Effect may be taken into account in determining whether there has been a Buyer Material Adverse Effect); or (H) any action taken as permitted or required by the Transaction Documents or the Transaction or with the consent or at the direction of the Seller.

“Capital Lease” means, with respect to any Person, any lease of, or other arrangement conveying the right to use, property by such Person as lessee that would be accounted for as a capital lease on a balance sheet of such Person prepared in accordance with GAAP.

“Charged-Off Loan” means, as of the applicable date of determination, a Loan (i) that is 120 days or more Delinquent, (ii) for which the primary obligor and each related co-signor, if any, is the subject of a bankruptcy or similar insolvency proceeding, (iii) for which the primary obligor is deceased or permanently disabled or (iv) that has been designated as “charged-off” by the Seller or a servicer on its behalf or is required to be designated as “charged-off” under the terms of the credit policies related to the CitiAssist loan program.

“Closing” has the meaning given to such term in Section 4.1(a) of the Agreement.

“Closing Date” has the meaning given to such term in Section 4.1(a) of the Agreement.

“Commitment Date” means the effective date of the Agreement set forth herein.

“Confidential Information” means all information and materials of a Party or its Affiliates that (a) are being or have been disclosed to the other Party or its Affiliates under or in connection with this Agreement, whether orally, electronically, in writing or otherwise, including copies, or (b) are being or have been learned, acquired, or generated by such other Party in connection with this Agreement (including the terms of this Agreement); provided, however, that the term shall not include any Nonpublic Personal Information with respect to a Purchased Loan.

“control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Delinquent” means, for any Loan, the period in which any payment of principal or interest due on such Loan is overdue (after giving effect to all grace, forbearance and deferment periods).

“Discover Financial Services” means Discover Financial Services, a Delaware corporation.

“Estimated Purchase Price” means the product of (A) the sum of (i) the outstanding aggregate Principal Balance of the Loans identified on the Estimated Schedule of Purchased Loans that are not Charged-Off Loans as of the Measuring Date, plus (ii) accrued and unpaid interest on such Loans through the Measuring Date, plus (iii) interest to be capitalized on such Loans (amounts in clauses (i), (ii) and (iii) to be without duplication of each other), multiplied by (B) the Purchase Price Percentage. For the avoidance of doubt, the Estimated Purchase Price (as adjusted pursuant to Section 2.1(e) of the Agreement) shall constitute payment for all Acquired Assets, including Purchased Loans that are Charged-Off Loans.

“Estimated Schedule of Purchased Loans” means the Student Loan Tape delivered by the Buyer to the Seller prior to the Closing Date containing data as of August 31, 2011.

“FFELP Loan” means a U.S. federally-insured student loan that has been authorized to be made or held by the Seller as the beneficiary of a student loan trust as part of the FFELP and authorized by the Higher Education Act, or the Health Education Assistance Loan Program, as amended, including a Stafford, PLUS, Consolidation or HEAL student loan.

“FFELP” means the U.S. Federal Family Education Loan Program.

“First Offer Terms” has the meaning given to such term in Section 6.9(b) of the Agreement.

“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board, or in such other statements by such other entity as may be in general use by significant segments of the accounting profession, that are applicable to the circumstances as of the date of determination.

“Governmental Authority” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Higher Education Act” means the Higher Education Act of 1965, 20 U.S.C. Section 1001 et seq., as amended or supplemented from time to time, and all regulations and guidelines promulgated thereunder.

“Indemnified Party” has the meaning given to such term in Section 7.1(b) of the Agreement.

“Insurance Arrangement” has the meaning given to such term in Section 7.3 of the Agreement.

“Law” means any and all domestic (federal, state or local) or foreign laws, statutes, rules, regulations, requirements or Orders promulgated by any Governmental Authority.

“Liability” shall mean any debt, liability, commitment or obligation of any kind or nature (whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued,

direct or indirect, primary or secondary, liquidated or unliquidated or due or to become due).

“Lien” means any mortgage, deed of trust, pledge, hypothecation, collateral assignment, charge, deposit arrangement, encumbrance, lien (statutory or other), security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever intended to assure payment of any indebtedness or the performance of any other obligation, including any conditional sale or other title retention agreement, the interest of a lessor under a Capital Lease and any financing lease having substantially the same economic effect as any of the foregoing.

“Loans” means, collectively, private education loans, bar preparation loans and medical residency loans.

“Loan File” means, with respect to a Loan, the file containing all current, relevant information pertaining to such Loan, including a copy of the executed Note and other Loan application documents, approval disclosures, credit acceptance notices, truth-in-lending/final disclosures, and any other paper or electronic loan origination supporting documentation required for underwriting purposes, an evidence of insurance or risk sharing (if any), an accounting of the allocation of all payments by the Borrower or on the Borrower’s behalf to principal and interest on such Loan, documentation which supports periods of repayment and deferment or forbearance (if any), Loan history including interest rates and borrower benefits, Loan status, noting, and collection history (if applicable), and all other electronic or paper records and correspondence with respect to such Loan.

“Loan Transmittal Summary Form” means the form delivered with the Bill of Sale, Assignment and Assumption Agreement which lists, by Borrower, each Loan being acquired by the Buyer.

“Losses” has the meaning given to such term in Section 7.1(d) of the Agreement.

“Measuring Date” means the close of business on August 31, 2011.

“Mitigation Loss” has the meaning given to such term in Section 7.3 of the Agreement.

“Nonpublic Personal Information” has the meaning assigned to that term in Title V of the Gramm-Leach Bliley Act of 1999 (or any successor U.S. federal law).

“Note” means the promissory note or other writing or record evidencing a Loan, together with all addenda, supplements and modifications thereto and, to the extent it is an electronic promissory note, all electronic records evidencing the same.

“Objection Notice” has the meaning given to such term in Section 7.1(d) of the Agreement.

“Offered Assets” has the meaning given to such term in Section 6.9(a) of the Agreement.

“Order” means any decree, order, writ, judgment, stipulation, award, injunction, temporary restraining order or other order in any suit or proceeding by any Governmental Authority.

“Party” means either of Buyer or Seller.

“Person” means an individual, partnership, corporation (including a business trust), joint stock company, estate, trust, limited liability company, association, bank, unincorporated association, joint venture or other entity or a Governmental Authority.

“Principal Balance” means, with respect to a Loan, the outstanding principal balance (including interest and fees which have been capitalized and added to principal) of such Loan as of the applicable date of determination.

“Proceeding” means any suit, action, proceeding, arbitration, audit, hearing, or investigation (in each case, whether civil, criminal, administrative or investigative) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Authority or arbitral tribunal.

“Purchased Loans” has the meaning given to such term in Section 2.1(a) of the Agreement.

“Purchase Price” means the product of (A) the sum of (i) the outstanding aggregate Principal Balance of the Purchased Loans that are not Charged-Off Loans as of the Closing Date, plus (ii) accrued and unpaid interest on such Loans through the Closing Date, plus, (iii) interest to be capitalized on such Loans (amounts in clauses (i), (ii) and (iii) to be without duplication of each other), multipliedby (B) the Purchase Price Percentage. For the avoidance of doubt, the Purchase Price shall constitute payment for all Acquired Assets, including Purchased Loans that are Charged-Off Loans.

“Purchase Price Percentage” means 99.00%.

“Reoffer Notice” has the meaning given to such term in Section 6.9(b) of the Agreement.

“Reoffer Terms” has the meaning given to such term in Section 6.9(b) of the Agreement.

“Representatives” means, with respect to a Person, such Person’s officers, directors, managers, employees, accountants, consultants, legal counsel, financial advisors, agents and other advisors and representatives.

“Retained Portfolio” means, collectively, (i) all Loans owned by the Seller or its Subsidiaries (including SLC Private Student Loan Trust 2009-A) as of the Commitment Date that are not (x) Purchased Loans, (y) Loans required to be purchased by the Buyer pursuant to the Forward Purchase Commitment Agreement dated as of December 31, 2010, between the Seller and the Buyer or (z) FFELP Loans and (ii) all of Seller’s interests in SLC Private Student Loan Trust 2009-A, a Delaware statutory trust.

“Schedule of Purchased Loans” means a Student Loan Tape that provides information as of the Closing Date with respect to the Loans identified on the Estimated Schedule of Purchased Loans, recognizing that certain Loans identified on the Estimated Schedule of Purchased Loans may not be included on such Student Loan Tape due to repayment in full or other discharge in full prior to the Closing Date.

“Seller” means Citibank, N.A., a national banking association, as the seller under the

Agreement.

“Seller Indemnified Party” has the meaning given to such term in Section 7.1(b) of the Agreement.

“Seller Material Adverse Effect” means any change, effect or circumstance that, individually or in the aggregate, (i) has had or would reasonably be expected to have a material adverse effect on the business, operations, results of operations or financial condition of the Acquired Assets, taken as a whole or (ii) would reasonably be expected to prevent or materially delay or materially impair the ability of the Seller to consummate the Transaction, other than any change, effect or circumstance proximately relating to, resulting from or arising out of (A) changes in general economic or political conditions or the financial, securities or credit markets in general; (B) any events, circumstances, changes or effects that affect the general student loan industry; (C) any changes, after the date hereof, in Laws (or interpretations thereof) applicable to the Seller or any of the Seller’s Subsidiaries or any of their respective properties or assets (including, for the avoidance of doubt, the Health Care and Education Reconciliation Act of 2010 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010); (D) any changes, after the date hereof, in GAAP (or interpretations thereof); (E) any outbreak or escalation of hostilities or war (whether or not declared) or any act of terrorism, or any earthquakes, hurricanes, tornados or other natural disasters; (F) the announcement of the Transaction Documents or the Transaction; (G) any change in the trading price of the common stock of the Seller or its parent company or the failure by the Seller or its Subsidiaries to meet any internal or published projections, forecasts or estimates for any period (it being understood that the facts and circumstances that cause such change or failure that are not otherwise excluded from the definition of Seller Material Adverse Effect may be taken into account in determining whether there has been a Seller Material Adverse Effect); or (H) any action taken as permitted or required by the Transaction Documents or the Transaction or with the consent or at the direction of the Buyer.

“Seller’s Notice” has the meaning given to such term in Section 6.9(a) of the Agreement.

“SLC” means The Student Loan Corporation, a Delaware corporation.

“Solvent” means, with respect to any Person as of any date of determination, that, as of such date, (i) the value of the assets of such Person is greater than the total amount of liabilities (including contingent and unliquidated liabilities) of such Person as determined in accordance with GAAP, (ii) such Person is able to pay all liabilities of such Person as such liabilities mature and (iii) such Person does not have unreasonably small capital. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities shall be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“Student Loan Tape” shall mean a schedule or computer tape which contains, as of a specified date with respect to each Purchased Loan, the loan identification number, the current loan rate of interest, the current principal balance, the current accrued and unpaid interest including interest to be capitalized, an indication as to whether or not such Purchased Loan is a Charged-Off Loan, the loan status (including delinquency, grace, deferment and forbearance ), bankruptcy status, and the charge-off status.

“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company, statutory trust or other business entity of which an aggregate of more than 50% of the outstanding voting stock is, at the time, directly or indirectly, owned or controlled by such Person or one or more Subsidiaries of such Person.

“Tax” means all taxes, including income, gross receipts, ad valorem, VAT, excise, real property, personal property, sales, use, transfer, withholding, employment, unemployment, insurance, social security, business license, business organization, environmental, worker’s compensation, profits, license, lease, service, service use, severance, stamp, occupation, windfall profits, customs, duties, franchise and other taxes imposed by any Governmental Authority, and any interest, penalties, assessments or additions to tax resulting from, attributable to or incurred in connection with any tax or any contest or dispute thereof.

“Tax Contest” means any audit, examination, claim, dispute or controversy relating to Taxes.

“Tax Return” means any report, return, declaration, statement or other information required to be supplied to a Governmental Authority in connection with Taxes.

“Termination Date” has the meaning given to such term in Section 8.1(c) of the Agreement.

“Third Party Claim” means any claim, action, suit, proceeding or demand asserted by any Person other than the Seller and the Buyer.

“Third Party Purchaser” has the meaning given to such term in Section 6.9(a) of the Agreement.

“Third Party Terms” has the meaning given to such term in Section 6.9(b) of the Agreement.

“Transaction” means the transaction contemplated by the Transaction Documents.

“Transaction Documents” means the Agreement, the Bill of Sale, Assignment and Assumption Agreement and such other documents as may be identified as “Transaction Documents” for purposes of the Agreement by the Seller and the Buyer.

“Transfer Taxes” has the meaning given to such term in Section 6.4(a) of the Agreement.

Appendix B

Representations and Warranties with Respect to the Acquired Assets

The Seller represents and warrants as to the Acquired Assets as of the Closing Date or as of the date otherwise noted:

(a) Title. As of the Closing Date, the Seller has good and marketable title to, and is the sole owner of, the Acquired Assets, free and clear of all Liens, charges, claims, offsets, defenses, counterclaims or encumbrances of any nature and no right of rescission, offsets, defenses or counterclaims have been asserted or threatened with respect to the Acquired Assets. The sale of the Acquired Assets pursuant to the Agreement and the Bill of Sale, Assignment and Assumption constitutes an absolute transfer of all right, title and interest of the Seller in, to and under the Acquired Assets, free and clear of any Lien or adverse claim. Each of the Purchased Loans was acquired by the Seller from SLC pursuant to the Asset Purchase Agreement, dated as of September 17, 2010, by and among SLC, Citibank (South Dakota) National Association, SLC Student Loan Receivables I, Inc. and the Seller.

(b) Uniform Commercial Code Matters. The Purchased Loans constitute either “Payment Intangibles” or “Instruments” within the meaning of the applicable Uniform Commercial Code.

(c) Description. The description of the Purchased Loans set forth in the Agreement and in the Loan Transmittal Summary Form is true, complete and correct as of the date specified.

(d) Authorization. The Seller is authorized to sell, assign and transfer the Acquired Assets, and the sale, assignment and transfer of the Acquired Assets will be made pursuant to and consistent with the Laws and regulations under which the Seller operates, and will not violate any decree, judgment or order of any court or agency, or conflict with or result in a breach of any of the terms, conditions or provisions of any agreement or instrument to which the Seller is a party or by which the Seller or its property is bound, or will constitute a default (or an event which could constitute a default with the passage of time or notice or both) thereunder.

(e) Binding Obligation. The Purchased Loans were each in full force and effect in accordance with their terms and were the legal, valid and binding obligation of the respective Borrower thereunder subject to no defenses (except the defense of infancy).

(f) No Consents. No consents and approvals are required by the terms of the Acquired Assets for the consummation of the sale of such Acquired Assets under the Agreement to the Buyer.

(g) Servicing, etc. Due diligence and reasonable care, and in any event at least that degree of care, skill and attention that is required to be exercised with respect to the “Education Loans” under the 2008 Agreement, have been exercised by the Seller and its Affiliates in the making, administering, servicing and collecting on the Purchased Loans.

(h) Accordance with Program and Law. Each Purchased Loan has been duly made and serviced

in accordance with the provisions of the related program under which such Purchased Loan was originated and all applicable federal and state Laws.

(i) Promissory Notes. Except for Purchased Loans executed electronically, there was only one executed copy of the Note evidencing each Purchased Loan, which Note is in the possession of the Seller or SLC on behalf of the Seller. For Purchased Loans that were executed electronically, the Seller or SLC on behalf of the Seller has possession of the electronic records evidencing the Note. There exists a Loan File (which may be in hard copy, electronic format or some combination of both) pertaining to each Purchased Loan containing a fully executed Note and application, copies of all written correspondence with the Borrower and notes of other communications with the Borrower, and all other documentation necessary to allow the owner or servicer thereof to collect and enforce such Purchased Loan. The files referred to in the previous sentence are currently in the possession the Seller or SLC on behalf of the Seller.

(j) No Other Notations. The Notes that constitute or evidence the Purchased Loans do not have any marks or notations indicating that they had been pledged, assigned or otherwise conveyed to any person other than the Buyer.

(k) No Other Security Interest. The Seller has not pledged, assigned, sold, granted a security interest in or other Lien on, or otherwise conveyed any of the Acquired Assets except with respect to security interests that have been terminated. The Seller has not authorized the filing of and is not aware of any financing statements against the Seller that included a description of collateral covering all or any portion of the Acquired Assets except with respect to security interests that have been terminated.

(l) Assignability. If the Seller or one of its Subsidiaries is not the original payee of any Note evidencing a Purchased Loan, such Note has been duly and effectively transferred to the Seller in accordance with all applicable requirements of Law and in any event such Purchased Loan and the Note evidencing such Purchased Loan does not require notice to or consent from any Person (including the Borrower) with respect to transfer, sale or assignment of the rights and duties of the holder thereof and does not contain any provision that restricts the ability of the holder thereof or the Buyer to exercise its rights thereunder.

(m) No Modification of Purchased Loans. No Purchased Loan has been modified, extended or renegotiated in any way not provided for in the Note (as originally executed and delivered).

(n) Fully Disbursed. Each of the Purchased Loans is fully disbursed and provides that period payments must be made in order to fully amortize the amount financed over its term to maturity (exclusive of any deferral or forbearance periods).

Appendix CPower of Attorney and Blanket Endorsement

CITIBANK, N.A., a national banking association (“Citibank”), does hereby authorize, constitute and appoint Discover Bank, a Delaware banking corporation (“Discover”), on Citibank’s behalf and as its attorney-in-fact, to endorse all of the Notes evidencing and representing Purchased Loans sold pursuant to that certain Asset Purchase Agreement dated as of August 31, 2011, and that certain Bill of Sale, Assignment and Assumption Agreement, dated as of ●, 2011, each between Citibank and Discover(as the same may have been amended on or prior to the date of this Power of Attorney and Blanket Endorsement) (the “Agreement”) and to endorse each of said Notes on behalf of and as attorney-in-fact for Citibank in the following form:

“All right, title and interest of the undersigned in the annexed Note is hereby assigned to Discover Bank, without recourse except as provided in the Asset Purchase Agreement, dated as of August 31, 2011, between Citibank, N.A. and Discover Bank.

CITIBANK, N.A.By:    
Name:

Title: ”

This power of attorney, and the power and authority granted to Discover hereunder shall expire upon the date that is one year and one day after payment in full of, or the fifth anniversary of the charge-off of, the last Purchased Loan outstanding.

For purposes of this authorization, and for purposes of transfer and endorsement of said Notes, a facsimile of this authorization may be used in place of, or substituted for, the original of this authorization.

Dated:

CITIBANK, N.A.
By:
Name: Title:

Appendix D
Form of Bill of Sale, Assignment and Assumption Agreement

This BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of ●, 2011 (the “Closing Date”), is by and between (i) Citibank, N.A., a national banking association, as the Seller (the “Seller”) and (ii) Discover Bank, a Delaware banking corporation, as the Buyer (the “Buyer”). Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them or incorporated by reference in that certain Asset Purchase Agreement, dated as of August 31, 2011 (the “Agreement”), by and between the Seller and the Buyer.

WHEREAS, the Seller and the Buyer have entered into the Agreement, pursuant to which the Buyer has agreed, among other things, to purchase from the Seller the Acquired Assets; and

WHEREAS, pursuant to this Bill of Sale, Assignment and Assumption Agreement, the Seller shall, on the Closing Date, sell, transfer, assign and delegate to the Buyer, and the Buyer shall purchase, pursuant to this Bill of Sale, Assignment and Assumption Agreement, all the Acquired Assets and all obligations with respect thereto, including the Loans described in the Loan Transmittal Summary Form attached hereto as Annex A, together with the assets and liabilities related thereto under the terms and conditions of the Agreement, as provided for in this Bill of Sale, Assignment and Assumption Agreement.

NOW, THEREFORE, in consideration of the premises and covenants hereinafter contained, in consideration of the representations, warranties and covenants contained in the Agreement, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto desire to enter into this Bill of Sale, Assignment and Assumption Agreement on the terms set forth herein.

KNOW ALL PERSONS BY THESE PRESENTS, that, effective as of 11:59 p.m. (New York City time) on the Closing Date, the Seller does hereby sell, convey, assign, transfer and deliver to the Buyer, and the Buyer does hereby purchase, acquire and accept from the Seller, all right, title, interest and security interest of the Seller in, to and under the Acquired Assets.

The Seller and the Buyer hereby make their respective representations and warranties set forth in Article III of the Agreement.

The respective rights of the Seller and the Buyer with respect to the Acquired Assets shall be governed exclusively by the Agreement, and nothing in this Bill of Sale, Assignment and Assumption Agreement shall alter any liability or obligations arising under the Agreement, which shall (without limiting the generality of the foregoing) govern. If there is any conflict or inconsistency between the provisions of the Agreement and this Bill of Sale, Assignment and Assumption Agreement, the provisions of the Agreement shall govern.

This Bill of Sale, Assignment and Assumption Agreement shall be binding upon, and shall inure to the benefit of, the Seller, the Buyer and their respective successors and assigns permitted

by the Agreement, and shall survive the execution and delivery hereof. This Bill of Sale, Assignment and Assumption Agreement is not intended and shall not be construed to confer upon any Person, other than the Seller and the Buyer, any rights or remedies hereunder.

This Bill of Sale, Assignment and Assumption Agreement, and all claims or causes of action (whether in contract or tort) that may be based upon, arise out of or relate to this Bill of Sale, Assignment and Assumption Agreement or the negotiation, execution or performance of this Bill of Sale, Assignment and Assumption Agreement (including any claim or cause of action based upon, arising out of or related to any representation or warranty made in or in connection with this Bill of Sale, Assignment and Assumption Agreement or as an inducement to enter into this Bill of Sale, Assignment and Assumption Agreement) shall be governed by, and construed in accordance with, the Laws of the State of New York without regard to principles of conflict of laws (other than Section 5-1401 of the General Obligations Law of the State of New York).

No waiver, modification or change of any of the provisions of this Bill of Sale, Assignment and Assumption Agreement shall be valid unless in writing and signed by the Party against whom such claimed waiver, modification or change is sought to be enforced.

This Bill of Sale, Assignment and Assumption Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same instrument.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the Buyer and the Seller have caused this Bill of Sale, Assignment and Assumption Agreement to be executed by their duly authorized representatives as of the date first above written.

CITIBANK, N.A., as the Seller

By:        Name:    Title:

DISCOVER BANK, as the Buyer

By:        Name:    Title:

Annex A

LOAN TRANSMITTAL SUMMARY FORM

[DELIVERED SEPARATELY AS A STUDENT LOAN FILE]

EX-10.3

Amendment No. 3 to

Discover Financial Services

Employee Stock Purchase Plan

The Discover Financial Services Employee Stock Purchase Plan, as heretofore amended (the “Plan”), is hereby amended in the following respects:

1. Effective on the later of December 31, 2010 or the close of the transaction contemplated by the Separation Agreement between Citibank, N.A. (“CBNA”), The Student Loan Corporation (“SLC”) and Discover Bank (the “Transaction”), the Plan is amended to provide that any employee of Discover Financial Services or its Subsidiary Companies (as defined in the Plan) (“Company”) who was employed by CBNA or SLC on the day prior to the close of the Transaction shall be eligible to participate in the Plan beginning on the date such employee becomes an Eligible Employee.

2. Effective December 1, 2010, the Plan is amended to provide that for purposes of determining eligibility to participate in the Plan, any employee of the Company who was employed by an entity from which the Company bought assets or stock on the day immediately preceding the closing date of such purchase of assets or stock shall be given credit for all prior service with such entity, unless otherwise provided in the purchase agreement between the Company and the entity.

3. Section 4 is hereby amended effective December 1, 2008 to clarify the enrollment process by replacing the first sentence of the second paragraph with the following:

“To enroll in the Plan, an Eligible Employee shall make a request to the Company or its designated agent at the time and in the manner specified by the Committee, specifying the amount of payroll deduction to be applied to the Compensation (as defined below) paid to the employee during the Purchase Period.”

EX-31.1

Exhibit 31.1

CERTIFICATION

I, David W. Nelms, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Discover Financial Services (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 28, 2011

/s/ DAVID W. NELMS

David W. Nelms

Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, R. Mark Graf, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Discover Financial Services (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 28, 2011

/s/ R. MARK GRAF

R. Mark Graf

Executive Vice President, Chief Financial Officer and Chief Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Discover Financial Services (the “Company”) on Form 10-Q for the period ended August 31, 2011, as filed with the Securities and Exchange Commission (the “Report”), each of David W. Nelms, Chairman and Chief Executive Officer of the Company, and R. Mark Graf, Executive Vice President, Chief Financial Officer and Chief Accounting Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: September 28, 2011

/s/ DAVID W. NELMS

David W. Nelms

Chairman and Chief Executive Officer

Date: September 28, 2011

/s/ R. MARK GRAF

R. Mark Graf

Executive Vice President, Chief Financial Officer and Chief Accounting Officer

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Fair Value Disclosures (Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis) (Details) (USD $) In Thousands	3 Months Ended		9 Months Ended
	Aug. 31, 2010		Aug. 31, 2011	Aug. 31, 2010		May 31, 2011
Available-for-sale Securities [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Balance			$ 17	$ 2,645,466		$ 63,749
Derecognition of assets upon adoption of statement No. 167				(2,204,969)
Total Realized and Unrealized Gains (Losses)	7,161		144	12,101
Purchases, Sales, Other Settlements and Issuances, net	(70,893)		(161)	(70,893)
Net Transfers In and/or Out of Level 3	0		0	(381,688)
Ending Balance	17		0	17		63,749
Change in unrealized gains (losses) related to financial instruments	0		0	0
Certificated Retained Interests in Dcent [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Balance				2,204,969
Derecognition of assets upon adoption of statement No. 167				(2,204,969)
Total Realized and Unrealized Gains (Losses)				0
Purchases, Sales, Other Settlements and Issuances, net				0
Net Transfers In and/or Out of Level 3				0
Ending Balance	0			0
Change in unrealized gains (losses) related to financial instruments				0
Credit Card Asset-Backed Securities of Other Issuers [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Balance				381,705
Derecognition of assets upon adoption of statement No. 167				0
Total Realized and Unrealized Gains (Losses)				0
Purchases, Sales, Other Settlements and Issuances, net				0
Net Transfers In and/or Out of Level 3				(381,705)
Ending Balance	0			0
Change in unrealized gains (losses) related to financial instruments				0
Asset backed commercial paper notes [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Balance				58,792		63,732
Derecognition of assets upon adoption of statement No. 167				0
Total Realized and Unrealized Gains (Losses)	7,161	[1]		12,101	[1]
Purchases, Sales, Other Settlements and Issuances, net	(70,893)			(70,893)
Net Transfers In and/or Out of Level 3	0			0
Ending Balance	0			0		63,732
Change in unrealized gains (losses) related to financial instruments	0			0
Equity Securities [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Balance			17	0		17
Derecognition of assets upon adoption of statement No. 167				0
Total Realized and Unrealized Gains (Losses)	0		144	0
Purchases, Sales, Other Settlements and Issuances, net	0		(161)	0
Net Transfers In and/or Out of Level 3	0		0	17
Ending Balance	17		0	17		17
Change in unrealized gains (losses) related to financial instruments	0		0	0
Amounts Due from Asset Securitization [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Balance				940,164
Derecognition of assets upon adoption of statement No. 167				(940,164)
Total Realized and Unrealized Gains (Losses)				0
Purchases, Sales, Other Settlements and Issuances, net				0
Net Transfers In and/or Out of Level 3				0
Ending Balance	0			0
Change in unrealized gains (losses) related to financial instruments				0
Cash Collateral Accounts [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Balance				822,585
Derecognition of assets upon adoption of statement No. 167				(822,585)
Total Realized and Unrealized Gains (Losses)				0
Purchases, Sales, Other Settlements and Issuances, net				0
Net Transfers In and/or Out of Level 3				0
Ending Balance	0			0
Change in unrealized gains (losses) related to financial instruments				0
Interest-Only-Strip Receivable [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning Balance				117,579
Derecognition of assets upon adoption of statement No. 167				(117,579)
Total Realized and Unrealized Gains (Losses)				0
Purchases, Sales, Other Settlements and Issuances, net				0
Net Transfers In and/or Out of Level 3				0
Ending Balance	0			0
Change in unrealized gains (losses) related to financial instruments				$ 0

[1] (1)Reflects unrealized pretax gains recorded in other comprehensive income in the condensed consolidated statement of financial condit

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Loan Receivables (Credit Risk Profile by FICO Score) (Details)	9 Months Ended
	Aug. 31, 2011
Discover Card [Member]
Credit Risk Profile Less than 660 or No Score, Percentage	21.00%
Credit Risk Profile 660 and Above, Percentage	79.00%
Discover Business Card [Member]
Credit Risk Profile Less than 660 or No Score, Percentage	13.00%
Credit Risk Profile 660 and Above, Percentage	87.00%
Private Student Loans (Excluding PCI) [Member]
Credit Risk Profile Less than 660 or No Score, Percentage	5.00%
Credit Risk Profile 660 and Above, Percentage	95.00%
Personal Loans [Member]
Credit Risk Profile Less than 660 or No Score, Percentage	5.00%
Credit Risk Profile 660 and Above, Percentage	95.00%

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Condensed Consolidated Statements of Financial Condition (Parenthetical) (USD $) In Thousands, except Share data	Aug. 31, 2011		Nov. 30, 2010
Statement of Financial Position [Abstract]
Available-for-sale, amortized cost	$ 5,798,756	[1]	$ 4,989,958	[1]
Held-to-maturity, fair value	$ 51,189	[2]	$ 70,195	[2]
Common stock, par value	$ 0.01		$ 0.01
Common stock, shares authorized	2,000,000,000		2,000,000,000
Common stock, shares issued	549,475,683		547,128,270
Treasury stock, shares	11,278,326		2,446,506

[1] Available-for-sale investment securities are reported at fair value.

[2] Held-to-maturity investment securities are reported at amortized cost.

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Condensed Consolidated Statements of Income (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Aug. 31, 2011	Aug. 31, 2010	Aug. 31, 2011	Aug. 31, 2010
Interest income:
Credit card loans	$ 1,423,496	$ 1,455,907	$ 4,243,803	$ 4,423,654
Other loans	157,424	67,588	428,762	183,150
Investment securities	15,676	5,574	42,535	15,966
Other interest income	2,496	6,870	10,234	24,101
Total interest income	1,599,092	1,535,939	4,725,334	4,646,871
Interest expense:
Deposits	241,719	279,137	749,584	882,921
Short-term borrowings	33	0	116	0
Long-term borrowings	120,301	110,000	375,060	324,561
Total interest expense	362,053	389,137	1,124,760	1,207,482
Net interest income	1,237,039	1,146,802	3,600,574	3,439,389
Provision for loan losses	99,514	712,565	692,763	2,824,035
Net interest income after provision for loan losses	1,137,525	434,237	2,907,811	615,354
Other income:
Discount and interchange revenue, net	282,889	273,932	809,631	805,209
Fee products revenue	107,858	104,132	321,527	309,590
Loan fee income	84,243	92,465	250,596	267,483
Transaction processing revenue	43,931	40,184	131,792	109,570
Merchant fees	4,110	7,220	12,981	23,091
Gain (loss) on investment	(3,614)	18,951	(3,622)	19,131
Other income	32,546	27,260	135,526	88,790
Total other income	551,963	564,144	1,658,431	1,622,864
Other expense:
Employee compensation and benefits	241,881	204,210	684,782	602,510
Marketing and business development	133,398	130,532	393,244	313,175
Information processing and communications	63,547	62,357	194,852	190,862
Professional fees	106,042	85,289	301,122	239,169
Premises and equipment	18,063	17,722	53,268	53,273
Other expense	79,476	66,128	245,431	155,601
Total other expense	642,407	566,238	1,872,699	1,554,590
Income before income tax expense	1,047,081	432,143	2,693,543	683,628
Income tax expense	398,263	171,526	979,414	268,482
Net income (loss)	648,818	260,617	1,714,129	415,146
Net income allocated to common stockholders	$ 641,772	$ 258,194	$ 1,694,636	$ 321,613
Basic earnings per share	$ 1.18	$ 0.47	$ 3.11	$ 0.59
Diluted earnings per share	$ 1.18	$ 0.47	$ 3.11	$ 0.58
Dividends paid per share	$ 0.06	$ 0.02	$ 0.14	$ 0.06

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Earnings Per Share (Schedule of Anti-Dilutive Securities Excluded from Computation of EPS) (Details) In Thousands	3 Months Ended		9 Months Ended
	Aug. 31, 2011	Aug. 31, 2010	Aug. 31, 2011	Aug. 31, 2010
Unexercised Stock Options [Member]
Anti-dilutive securities excluded from computation of earnings per share amount	348	3,944	374	3,418
Warrant Issued to the U.S. Treasury [Member]
Anti-dilutive securities excluded from computation of earnings per share amount	0	2,768	0	6,225
Unexercised Restricted Stock Units [Member]
Anti-dilutive securities excluded from computation of earnings per share amount	8	0	3	0

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Loan Receivables (Allowance for Loan Losses and Recorded Investment in its Loan Portfolio (which Excludes Loans Held for Sale) by Impairment Methodology) (Details) (USD $)	Aug. 31, 2011		May 31, 2011	Nov. 30, 2010		Aug. 31, 2010	May 31, 2010	Nov. 30, 2009
Allowance for loans evaluated for impairment	$ 2,273,058,000		$ 2,632,320,000	$ 3,304,118,000		$ 3,743,721,000	$ 3,930,624,000	$ 1,757,899,000
Recorded investment in loans evaluated for impairment	53,344,069,000			48,048,312,000
Unpaid principal balance of modified loans accounted for as troubled debt restructurings	1,000,000,000
Credit Card Receivable [Member]
Allowance for loans evaluated for impairment	2,153,870,000			3,208,888,000
Recorded investment in loans evaluated for impairment	46,177,673,000			45,156,994,000
Credit Card Receivable [Member] | Collectively Impaired [Member]
Allowance for loans evaluated for impairment	1,963,962,000	[1]		3,095,046,000	[1]
Recorded investment in loans evaluated for impairment	44,972,100,000	[1]		44,851,650,000	[1]
Credit Card Receivable [Member] | Troubled Debt Restructurings [Member]
Allowance for loans evaluated for impairment	189,908,000	[2]		113,842,000	[2]
Recorded investment in loans evaluated for impairment	1,205,573,000	[2]		305,344,000	[2]
Credit Card Receivable [Member] | Purchased Credit Impaired [Member]
Allowance for loans evaluated for impairment	0	[3]		0	[3]
Recorded investment in loans evaluated for impairment	0	[3]		0	[3]
Total Other Consumer Loans [Member] | Personal Loans [Member]
Allowance for loans evaluated for impairment	75,562,000			76,087,000
Recorded investment in loans evaluated for impairment	2,439,330,000			1,877,633,000
Total Other Consumer Loans [Member] | Personal Loans [Member] | Collectively Impaired [Member]
Allowance for loans evaluated for impairment	75,562,000	[1]		76,087,000	[1]
Recorded investment in loans evaluated for impairment	2,439,330,000	[1]		1,877,633,000	[1]
Total Other Consumer Loans [Member] | Personal Loans [Member] | Troubled Debt Restructurings [Member]
Allowance for loans evaluated for impairment	0	[2]		0	[2]
Recorded investment in loans evaluated for impairment	0	[2]		0	[2]
Total Other Consumer Loans [Member] | Personal Loans [Member] | Purchased Credit Impaired [Member]
Allowance for loans evaluated for impairment	0	[3]		0	[3]
Recorded investment in loans evaluated for impairment	0	[3]		0	[3]
Total Other Consumer Loans [Member] | Private Student Loans (Excluding PCI) [Member] | Collectively Impaired [Member]
Allowance for loans evaluated for impairment	43,406,000	[1]		18,569,000	[1]
Recorded investment in loans evaluated for impairment	1,828,493,000	[1]		999,322,000	[1]
Total Other Consumer Loans [Member] | Private Student Loans (Excluding PCI) [Member] | Troubled Debt Restructurings [Member]
Allowance for loans evaluated for impairment	0	[2]		0	[2]
Recorded investment in loans evaluated for impairment	0	[2]		0	[2]
Total Other Consumer Loans [Member] | Other Consumer Loans [Member]
Allowance for loans evaluated for impairment	220,000			574,000
Recorded investment in loans evaluated for impairment	11,790,000			14,363,000
Total Other Consumer Loans [Member] | Other Consumer Loans [Member] | Collectively Impaired [Member]
Allowance for loans evaluated for impairment	220,000	[1]		574,000	[1]
Recorded investment in loans evaluated for impairment	11,790,000	[1]		14,363,000	[1]
Total Other Consumer Loans [Member] | Other Consumer Loans [Member] | Troubled Debt Restructurings [Member]
Allowance for loans evaluated for impairment	0	[2]		0	[2]
Recorded investment in loans evaluated for impairment	0	[2]		0	[2]
Total Other Consumer Loans [Member] | Other Consumer Loans [Member] | Purchased Credit Impaired [Member]
Allowance for loans evaluated for impairment	0	[3]		0	[3]
Recorded investment in loans evaluated for impairment	0	[3]		0	[3]
Total Student Loans Excluding Held for Sale [Member]
Allowance for loans evaluated for impairment	43,406,000			18,569,000
Recorded investment in loans evaluated for impairment	4,715,276,000			999,322,000
PCI Student Loans [Member] | Purchased Credit Impaired [Member]
Allowance for loans evaluated for impairment	0	[3]		0	[3]
Recorded investment in loans evaluated for impairment	2,886,783,000	[3]		0	[3]
Collectively Impaired [Member]
Allowance for loans evaluated for impairment	2,083,150,000	[1]		3,190,276,000	[1]
Recorded investment in loans evaluated for impairment	49,251,713,000	[1]		47,742,968,000	[1]
Troubled Debt Restructurings [Member]
Allowance for loans evaluated for impairment	189,908,000	[2]		113,842,000	[2]
Recorded investment in loans evaluated for impairment	1,205,573,000	[2]		305,344,000	[2]
Purchased Credit Impaired [Member]
Allowance for loans evaluated for impairment	0	[3]		0	[3]
Recorded investment in loans evaluated for impairment	$ 2,886,783,000	[3]		$ 0	[3]

[1] Represents loans evaluated for impairment in accordance with ASC 450-20, Loss Contingencies.

[2] Represents loans evaluated for impairment in accordance with ASC 310-10, Receivables, which consists of modified loans accounted for as troubled debt restructurings. The unpaid principal balance of such loans was $1.0 billion at August 31, 2011. All loans accounted for as troubled debt restructurings have a related allowance for loan losses. In the first quarter 2011, the Company began accounting for credit card loans modified through temporary hardship and external programs as troubled debt restructurings. The impact on the total allowance for loan losses as a result of this change was not material.

[3] Represents loans evaluated for impairment in accordance with ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality.

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Derivatives and Hedging Activities (Fair Value and Related Outstanding Notional Amounts of Derivative Instruments) (Details) In Thousands, unless otherwise specified	Aug. 31, 2011 Cash Flow Hedge [Member] Interest Rate Swap [Member] Other Assets [Member] Designated as hedges [Member] USD ($)	Nov. 30, 2010 Cash Flow Hedge [Member] Interest Rate Swap [Member] Other Assets [Member] Designated as hedges [Member] USD ($)	Aug. 31, 2011 Cash Flow Hedge [Member] Interest Rate Swap [Member] Other Liabilities [Member] Designated as hedges [Member] USD ($)	Nov. 30, 2010 Cash Flow Hedge [Member] Interest Rate Swap [Member] Other Liabilities [Member] Designated as hedges [Member] USD ($)	Aug. 31, 2011 Cash Flow Hedge [Member] Interest Rate Swap [Member] Designated as hedges [Member] USD ($)	Nov. 30, 2010 Cash Flow Hedge [Member] Interest Rate Swap [Member] Designated as hedges [Member] USD ($)	Aug. 31, 2011 Fair Value Hedge [Member] Interest Rate Swap [Member] Other Assets [Member] Designated as hedges [Member] USD ($)	Nov. 30, 2010 Fair Value Hedge [Member] Interest Rate Swap [Member] Other Assets [Member] Designated as hedges [Member] USD ($)	Aug. 31, 2011 Fair Value Hedge [Member] Interest Rate Swap [Member] Other Liabilities [Member] Designated as hedges [Member] USD ($)	Nov. 30, 2010 Fair Value Hedge [Member] Interest Rate Swap [Member] Other Liabilities [Member] Designated as hedges [Member] USD ($)	Aug. 31, 2011 Fair Value Hedge [Member] Interest Rate Swap [Member] Designated as hedges [Member] USD ($)	Nov. 30, 2010 Fair Value Hedge [Member] Interest Rate Swap [Member] Designated as hedges [Member] USD ($)	Aug. 31, 2011 Foreign Exchange Forward Contracts [Member] EUR (€)	Nov. 30, 2010 Foreign Exchange Forward Contracts [Member] GBP (£)	Aug. 31, 2011 Foreign Exchange Forward Contracts [Member] Other Assets [Member] Not designated as hedges [Member] USD ($)		Nov. 30, 2010 Foreign Exchange Forward Contracts [Member] Other Assets [Member] Not designated as hedges [Member] USD ($)		Aug. 31, 2011 Foreign Exchange Forward Contracts [Member] Other Liabilities [Member] Not designated as hedges [Member] USD ($)		Nov. 30, 2010 Foreign Exchange Forward Contracts [Member] Other Liabilities [Member] Not designated as hedges [Member] USD ($)		Aug. 31, 2011 Foreign Exchange Forward Contracts [Member] Not designated as hedges [Member] USD ($)		Nov. 30, 2010 Foreign Exchange Forward Contracts [Member] Not designated as hedges [Member] USD ($)		Aug. 31, 2011 Interest Rate Swap [Member] Other Assets [Member] Not designated as hedges [Member] USD ($)	Nov. 30, 2010 Interest Rate Swap [Member] Other Assets [Member] Not designated as hedges [Member] USD ($)	Aug. 31, 2011 Interest Rate Swap [Member] Other Liabilities [Member] Not designated as hedges [Member] USD ($)	Nov. 30, 2010 Interest Rate Swap [Member] Other Liabilities [Member] Not designated as hedges [Member] USD ($)	Aug. 31, 2011 Interest Rate Swap [Member] Not designated as hedges [Member] USD ($)	Nov. 30, 2010 Interest Rate Swap [Member] Not designated as hedges [Member] USD ($)
Statement [Line Items]
Notional Amount of Interest Rate Cash Flow Hedge Derivatives					$ 2,000,000	$ 2,000,000
Notional Amount of Interest Rate Fair Value Hedge Derivatives											1,543,905	400,000
Notional Amount of Foreign Currency Derivative Instruments Not Designated as Hedging Instruments													4,000	1,700									8,471	[1]	7,800	[1]
Notional Amount																															1,367,809	0
Number of Transactions					8						64												2	[1]							1
Interest Rate Cash Flow Hedge Asset at Fair Value	16,721	4,989
Interest Rate Fair Value Hedge Asset at Fair Value							38,998	0
Foreign Currency Derivative Instruments Not Designated as Hedging Instruments, Asset at Fair Value															38	[1]	6	[1]
Interest Rate Derivative Instruments Not Designated as Hedging Instruments, Asset at Fair Value																											5,198	0
Interest Rate Cash Flow Hedge Liability at Fair Value			0	0
Interest Rate Fair Value Hedge Liability at Fair Value									4	6,587
Foreign Currency Derivative Instruments Not Designated as Hedging Instruments, Liability at Fair Value																			0	[1]	7	[1]
Interest Rate Derivative Instruments Not Designated as Hedging Instrument Liability at Fair Value																													$ 0	$ 0

[1] The foreign exchange forward contracts have notional amounts of EUR 4 million and GBP 1.7 million as of August 31, 2011 and November 30, 2010.

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Background and Basis of Presentation Background and Basis of Presentation (Policies)

9 Months Ended

Aug. 31, 2011

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

Basis of Presentation. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the financial statements reflect all adjustments which are necessary for a fair presentation of the results for the quarter. All such adjustments are of a normal, recurring nature.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Cash and cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the low level of risk these assets present to the Company as well as the relatively liquid nature of these assets, particularly given their short maturities.

Restricted cash. The carrying value of restricted cash approximates fair value due to the relatively liquid nature of these assets, particularly given the short maturities of the assets in which the restricted cash is invested.

Other short-term investments. The carrying value of other short-term investments approximates fair value due to the low level of risk these assets present to the Company as well as the relatively liquid nature of these assets, particularly given their maturities of less than one year.

Available-for-sale investment securities. Investment securities classified as available-for-sale consist of credit card asset-backed securities issued by other financial institutions, U.S. Treasury and government agency securities, and corporate debt securities. The fair value for the U.S. Treasury and government agency securities are valued based on quoted market prices for the same or similar securities. The fair value estimation techniques for the credit card asset-backed securities issued by other financial institutions and corporate debt securities are discussed below.

Held-to-maturity investment securities. Held-to-maturity investment securities are generally valued based on quoted market prices for the same or similar securities.

Net loan receivables. The Company’s loan receivables are comprised of credit card and installment loans, including the private student loans acquired from SLC. To estimate the fair value of loan receivables, loans are aggregated into pools of similar loan types, characteristics and expected repayment terms. The fair values of all loan receivables are estimated by discounting expected future cash flows using rates at which similar loans could be made under current market conditions.

Derivative financial instruments. The Company’s derivative financial instruments consist of interest rate swaps and foreign currency forward contracts. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and option volatility. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. See Note 14: Derivatives and Hedging Activities for more information.

Deposits. The carrying values of money market deposits, non-interest bearing deposits, interest-bearing demand deposits and savings deposits approximate fair value due to the liquid nature of these deposits. For time deposits for which readily available market rates do not exist, fair values are estimated by discounting expected future cash flows using market rates currently offered for deposits with similar remaining maturities.

Short-term borrowings. The carrying values of short-term borrowings approximate fair value. Federal Funds purchased and repurchase agreements are short-term in nature and have maturities of less than one year.

Long-term borrowings—owed to securitization investors. Fair values of long-term borrowings owed to credit card securitization investors are determined utilizing quoted market prices of the same transactions. Fair values of long-term borrowings owed to student loan securitization investors are calculated by discounting cash flows using estimated assumptions including, among other things, maturity and market discount rates.

Other long-term borrowings. Fair values of other long-term borrowings are determined utilizing current observable market prices for those transactions, if available. If there are no observable market transactions, then fair values are determined by discounting cash flows of future interest accruals at market rates currently offered for borrowings with similar credit risks, remaining maturities and repricing terms.

Assets and Liabilities Measured at Fair Value on a Recurring Basis. ASC 820 defines fair value, establishes a fair value hierarchy that distinguishes between valuations that are based on observable inputs from those based on unobservable inputs, and requires certain disclosures about those measurements. In general, fair values determined by Level 1 inputs are defined as those that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs are those that utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active or inactive markets, quoted prices for the identical assets in an inactive market, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. The Company evaluates factors such as the frequency of transactions, the size of the bid-ask spread and the significance of adjustments made when considering transactions involving similar assets or liabilities to assess the relevance of those observed prices. If relevant and observable prices are available, the fair values of the related assets or liabilities would be classified as Level 2. Fair values determined by Level 3 inputs are those based on unobservable inputs, and include situations where there is little, if any, market activity for the asset or liability being valued. In instances in which the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety is classified is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company may utilize both observable and unobservable inputs in determining the fair values of financial instruments classified within the Level 3 category. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and involves consideration of factors specific to the asset or liability.

on.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis. The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include those associated with acquired businesses, including goodwill and other intangible assets. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more is determined to be impaired. During the three and nine months ended August 31, 2011 and 2010, the Company had no impairments related to these assets.

As of August 31, 2011, the Company had not made any fair value elections with respect to any of its eligible assets and liabilities as permitted under ASC 825-10-25.

Use of Estimates, Policy [Policy Text Block]

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and related disclosures. These estimates are based on information available as of the date of the condensed consolidated financial statements. The Company believes that the estimates used in the preparation of the condensed consolidated financial statements are reasonable. Actual results could differ from these estimates.

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Fair Value Disclosures (Estimated Fair Values of Financial Instruments) (Details) (USD $) In Thousands	Aug. 31, 2011	Nov. 30, 2010
Statement [Line Items]
Available-for-sale investment securities, fair value	$ 5,899,080	$ 5,002,579
Derivative financial instruments, assets	60,955	4,995
Derivative financial instruments, liabilities	4	6,594
Variable Interest Entity, Primary Beneficiary [Member] | Carrying Value [Member]
Statement [Line Items]
Restricted cash	937,230	1,363,758
Long-term borrowings - owed to securitization investors, carrying value	15,260,509	14,919,400
Variable Interest Entity, Primary Beneficiary [Member] | Estimated Fair Value [Member]
Statement [Line Items]
Restricted cash	937,230	1,363,758
Long-term borrowings - owed to securitization investors, carrying value	15,698,374	15,148,534
Carrying Value [Member]
Statement [Line Items]
Cash and cash equivalents	3,957,525	5,098,733
Other short-term investments	0	375,000
Available-for-sale investment securities, fair value	5,899,080	5,002,579
Held-to-maturity investment securities, amortized cost	53,088	72,816
Net loan receivables, carrying value	51,809,393	45,532,295
Derivative financial instruments, assets	60,955	4,995
Deposits	37,586,884	34,413,383
Short-term borrowings	100,000	0
Long-term borrowings - owed to securitization investors, carrying value	2,457,691	2,786,328
Derivative financial instruments, liabilities	4	6,594
Estimated Fair Value [Member]
Statement [Line Items]
Cash and cash equivalents	3,957,525	5,098,733
Other short-term investments	0	375,000
Available-for-sale investment securities, fair value	5,899,080	5,002,579
Held-to-maturity investment securities, amortized cost	51,189	70,195
Net loan receivables, carrying value	52,802,885	45,835,543
Derivative financial instruments, assets	60,955	4,995
Deposits	38,395,963	35,500,526
Short-term borrowings	100,000	0
Long-term borrowings - owed to securitization investors, carrying value	2,834,879	3,118,967
Derivative financial instruments, liabilities	$ 4	$ 6,594

XML



Document and Entity Information	9 Months Ended
	Aug. 31, 2011	Sep. 23, 2011
Document And Entity Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Aug. 31, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Entity Registrant Name	Discover Financial Services
Entity Central Index Key	0001393612
Current Fiscal Year End Date	--11-30
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		549,637,090

XML



Loan Receivables (Delinquent and Non-Accruing Loans) (Details) (USD $)	3 Months Ended		9 Months Ended
	Aug. 31, 2011		Aug. 31, 2011		Nov. 30, 2010
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment 30 to 89 Days Past Due	$ 583,082,000		$ 583,082,000		$ 908,306,000	[1]
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	575,851,000		575,851,000		993,618,000	[1]
Financing Receivable, Recorded Investment, Past Due	1,158,933,000		1,158,933,000		1,901,924,000	[1]
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	510,371,000		510,371,000		853,757,000	[1]
Financing Receivable, Recorded Investment, Nonaccrual Status	215,246,000	[2]	215,246,000	[2]	325,900,000	[1],[2]
Estimated Gross Interest Income Based on Original Terms	10,600,000		35,600,000
Credit Card Receivable [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment 30 to 89 Days Past Due	556,059,000		556,059,000
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	565,056,000		565,056,000
Financing Receivable, Recorded Investment, Past Due	1,121,115,000		1,121,115,000
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	502,407,000		502,407,000
Financing Receivable, Recorded Investment, Nonaccrual Status	209,293,000	[2]	209,293,000	[2]
Credit Card Receivable [Member] | Discover Card [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment 30 to 89 Days Past Due	553,174,000		553,174,000
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	561,127,000		561,127,000
Financing Receivable, Recorded Investment, Past Due	1,114,301,000	[1]	1,114,301,000	[1]
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	498,752,000		498,752,000
Financing Receivable, Recorded Investment, Nonaccrual Status	208,404,000		208,404,000
Credit Card Receivable [Member] | Discover Business Card [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment 30 to 89 Days Past Due	2,885,000		2,885,000
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	3,929,000		3,929,000
Financing Receivable, Recorded Investment, Past Due	6,814,000		6,814,000
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	3,655,000		3,655,000
Financing Receivable, Recorded Investment, Nonaccrual Status	889,000		889,000
Total Other Consumer Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment 30 to 89 Days Past Due	27,023,000		27,023,000
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	10,795,000		10,795,000
Financing Receivable, Recorded Investment, Past Due	37,818,000		37,818,000
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	7,964,000		7,964,000
Financing Receivable, Recorded Investment, Nonaccrual Status	5,953,000	[2]	5,953,000	[2]
Total Other Consumer Loans [Member] | Personal Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment 30 to 89 Days Past Due	14,170,000		14,170,000
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	6,446,000		6,446,000
Financing Receivable, Recorded Investment, Past Due	20,616,000		20,616,000
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	5,814,000		5,814,000
Financing Receivable, Recorded Investment, Nonaccrual Status	3,527,000		3,527,000
Total Other Consumer Loans [Member] | Private Student Loans (Excluding PCI) [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment 30 to 89 Days Past Due	12,415,000		12,415,000
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	2,150,000		2,150,000
Financing Receivable, Recorded Investment, Past Due	14,565,000		14,565,000
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	2,150,000		2,150,000
Financing Receivable, Recorded Investment, Nonaccrual Status	0		0
Total Other Consumer Loans [Member] | Other Consumer Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment 30 to 89 Days Past Due	438,000		438,000
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	2,199,000		2,199,000
Financing Receivable, Recorded Investment, Past Due	2,637,000		2,637,000
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0		0
Financing Receivable, Recorded Investment, Nonaccrual Status	2,426,000		2,426,000
Consumer Credit Card Financing Receivable [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	$ 36,400,000		$ 36,400,000		$ 35,000,000

[1] Consumer credit card loans that are 90 or more days delinquent and accruing interest include $36.4 million and $35 million of loans accounted for as troubled debt restructurings at August 31, 2011 and November 30, 2010, respectively.

[2] The Company estimates that the gross interest income that would have been recorded in accordance with the original terms of these loans was $10.6 million and $35.6 million for the three months and nine months ended August 31, 2011, respectively. The Company does not separately track the amount of gross interest income that would have been recorded in accordance with the original terms of loans. These amounts were estimated based on customers' current balances and most recent rates.

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Loan Receivables (Tables)

9 Months Ended

Aug. 31, 2011

Loans and Leases Receivable Disclosure [Abstract]

Loan Receivables

The Company has three portfolio segments: credit card loans, other consumer loans and purchased credit-impaired (“PCI”) student loans acquired in the SLC transaction (See Note 2: Business Combinations). Within these portfolio segments, the Company has classes of receivables which are depicted in the table below (dollars in thousands):

	August 31, 2011			November 30, 2010
Loans held for sale(1)	$	738,382		$	788,101
Loan portfolio:
Credit card loans:
Discover card(2)	45,949,224			44,904,267
Discover business card	228,449			252,727
Total credit card loans	46,177,673			45,156,994
Other consumer loans:
Personal loans	2,439,330			1,877,633
Private student loans	1,828,493			999,322
Other	11,790			14,363
Total other consumer loans	4,279,613			2,891,318
PCI student loans(3)	2,886,783			—
Total loan portfolio	53,344,069			48,048,312
Total loan receivables	54,082,451			48,836,413
Allowance for loan losses	(2,273,058		)	(3,304,118		)
Net loan receivables	$	51,809,393		$	45,532,295

 ____________________________

(1) Amount represents federal student loans. At August 31, 2011 and November 30, 2010, $463.9 million and $500.2 million of federal student loan receivables, respectively, were pledged as collateral against a long-term borrowing.

(2) Amounts include $16.9 billion and $19.5 billion of underlying investors’ interest in trust debt at August 31, 2011 and November 30, 2010, respectively, and $17.0 billion and $14.9 billion in seller’s interest at August 31, 2011 and November 30, 2010, respectively. See Note 5: Credit Card and Student Loan Securitization Activities for further information.

(3) Amount includes $2.9 billion of loans pledged as collateral against the notes issued from the SLC securitization trusts. See Note 5: Credit Card and Student Loan Securitization Activities. The remaining $9.9 million not pledged as collateral represents loans eligible for reimbursement through an indemnification claim. Discover Bank must purchase such loans from the trust before a claim may be filed.

Delinquent and Non-Accruing Loans

Delinquent and Non-Accruing Loans:
	30-89 Days Delinquent		90 or More Days Delinquent		Total Past Due		90 or More Days Delinquent and Accruing		Total Non-accruing(2)
At August 31, 2011
Credit card loans:
Discover card(1)	$	553,174	$	561,127	$	1,114,301	$	498,752	$	208,404
Discover business card	2,885		3,929		6,814		3,655		889
Total credit card loans	556,059		565,056		1,121,115		502,407		209,293
Other consumer loans:
Personal loans	14,170		6,446		20,616		5,814		3,527
Private student loans (excluding PCI)	12,415		2,150		14,565		2,150		—
Other(3)	438		2,199		2,637		—		2,426
Total other consumer loans (excluding PCI)	27,023		10,795		37,818		7,964		5,953
Total loan receivables (excluding PCI)(3)	$	583,082	$	575,851	$	1,158,933	$	510,371	$	215,246
At November 30, 2010
Total loan receivables(1)	$	908,306	$	993,618	$	1,901,924	$	853,757	$	325,900

______________________ 

(1) Consumer credit card loans that are 90 or more days delinquent and accruing interest include $36.4 million and $35 million of loans accounted for as troubled debt restructurings at August 31, 2011 and November 30, 2010, respectively.

(2) The Company estimates that the gross interest income that would have been recorded in accordance with the original terms of these loans was $10.6 million and $35.6 million for the three months and nine months ended August 31, 2011, respectively. The Company does not separately track the amount of gross interest income that would have been recorded in accordance with the original terms of loans. These amounts were estimated based on customers' current balances and most recent rates.

(3) Amount also excludes federal student loans that are held for sale.

Company's Net Charge-offs

Net Charge-Offs:	For the Three Months Ended August 31, 2011				For the Nine Months Ended August 31, 2011
	Net Charge-offs		Net Charge-off Rate		Net Charge-offs		Net Charge-off Rate
Credit card loans:
Discover card	$	436,242	3.84	%	$	1,651,311	4.91	%
Discover business card	3,506		6.01	%	14,937		8.26	%
Total credit card loans	439,748		3.85	%	1,666,248		4.93	%
Other consumer loans:
Personal loans	16,000		2.73	%	50,980		3.19	%
Private student loans (excluding PCI)	2,618		0.62	%	5,573		0.49	%
Other	410		13.41	%	1,022		10.35	%
Total other consumer loans (excluding PCI)	19,028		0.98	%	57,575		1.09	%
Net charge-offs as a percentage of total loans (excluding PCI)	$	458,776	3.63	%	$	1,723,823	4.64	%
Net charge-offs as a percentage of total loans (including PCI)	$	458,776	3.43	%	$	1,723,823	4.41	%

Credit Risk Profile by FICO Score

	Credit Risk Profile by FICO Score
	660 and Above	Less than 660 or No Score
Discover card	79%	21%
Discover business card	87%	13%
Private student loans (excluding PCI)	95%	5%
Personal loans	95%	5%

Changes in the Company's Allowance for Loan Losses

	For the Three Months Ended August 31,						For the Nine Months Ended August 31,
	2011			2010			2011			2010
Balance at beginning of period	$	2,632,320		$	3,930,624		$	3,304,118		$	1,757,899
Additions:
Addition to allowance related to securitized receivables(1)	—			—			—			2,144,461
Provision for loan losses	99,514			712,565			692,763			2,824,035
Deductions:
Charge-offs:
Discover card	(584,534		)	(982,920		)	(2,085,452		)	(3,203,959		)
Discover business card	(4,416		)	(14,502		)	(17,672		)	(50,190		)
Total credit card loans	(588,950		)	(997,422		)	(2,103,124		)	(3,254,149		)
Personal loans	(16,458		)	(23,836		)	(52,438		)	(70,957		)
Federal student loans	—			(11		)	—			(308		)
Private student loans	(2,663		)	(660		)	(5,646		)	(1,264		)
Other	(411		)	(139		)	(1,025		)	(858		)
Total other consumer loans	(19,532		)	(24,646		)	(59,109		)	(73,387		)
Total charge-offs	(608,482		)	(1,022,068		)	(2,162,233		)	(3,327,536		)
Recoveries:
Discover card	148,292			121,255			434,141			341,337
Discover business card	910			875			2,735			2,516
Total credit card loans	149,202			122,130			436,876			343,853
Personal loans	458			421			1,458			942
Private student loans	45			14			73			22
Other	1			35			3			45
Total other consumer loans	504			470			1,534			1,009
Total recoveries	149,706			122,600			438,410			344,862
Net charge-offs	(458,776		)	(899,468		)	(1,723,823		)	(2,982,674		)
Balance at end of period	$	2,273,058		$	3,743,721		$	2,273,058		$	3,743,721

 ______________________

(1) On December 1, 2009, upon adoption of FASB Statements No. 166 and 167, the Company recorded $2.1 billion allowance for loan losses related to newly consolidated and reclassified credit card loan receivables.

Net charge-offs of principal are recorded against the allowance for loan losses, as shown in the table above. Information regarding net charge-offs of interest and fee revenues on credit card and other consumer loans is as follows (dollars in thousands):
	For the Three Months Ended August 31,				For the Nine Months Ended August 31,
	2011		2010		2011		2010
Interest and fees accrued subsequently charged off, net of recoveries (recorded as a reduction of interest income)(1)	$	128,329	$	219,422	$	480,044	$	723,909
Fees accrued subsequently charged off, net of recoveries (recorded as a reduction to other income)(1)	$	22,807	$	58,331	$	86,762	$	228,039

Net Charge Offs of Interest and Fee Revenues on Loan Receivables

Net charge-offs of principal are recorded against the allowance for loan losses, as shown in the table above. Information regarding net charge-offs of interest and fee revenues on credit card and other consumer loans is as follows (dollars in thousands):
	For the Three Months Ended August 31,				For the Nine Months Ended August 31,
	2011		2010		2011		2010
Interest and fees accrued subsequently charged off, net of recoveries (recorded as a reduction of interest income)(1)	$	128,329	$	219,422	$	480,044	$	723,909
Fees accrued subsequently charged off, net of recoveries (recorded as a reduction to other income)(1)	$	22,807	$	58,331	$	86,762	$	228,039

 _________________________

(1) Beginning in 2011, net charge-offs of interest and fees include amounts related to other consumer loans. Prior to 2011 such amounts were not included as they were not material.

Allowance for Loan Losses and Recorded Investment in Loan Portfolio

	Credit Card		Personal Loans		Student Loans		Other Loans		Total
At August 31, 2011
Allowance for loans evaluated for impairment as:
Collectively evaluated for impairment(1)	$	1,963,962	$	75,562	$	43,406	$	220	$	2,083,150
Troubled debt restructurings(2)	189,908		—		—		—		189,908
Purchased credit-impaired(3)	—		—		—		—		—
Total allowance for loan losses	$	2,153,870	$	75,562	$	43,406	$	220	$	2,273,058
Recorded investment in loans evaluated for impairment as:
Collectively evaluated for impairment(1)	$	44,972,100	$	2,439,330	$	1,828,493	$	11,790	$	49,251,713
Troubled debt restructurings(2)	1,205,573		—		—		—		1,205,573
Purchased credit-impaired(3)	—		—		2,886,783		—		2,886,783
Total recorded investment	$	46,177,673	$	2,439,330	$	4,715,276	$	11,790	$	53,344,069
At November 30, 2010
Allowance for loans evaluated for impairment as:
Collectively evaluated for impairment(1)	$	3,095,046	$	76,087	$	18,569	$	574	$	3,190,276
Troubled debt restructurings(2)	113,842		—		—		—		113,842
Purchased credit-impaired(3)	—		—		—		—		—
Total allowance for loan losses	$	3,208,888	$	76,087	$	18,569	$	574	$	3,304,118
Recorded investment in loans evaluated for impairment as:
Collectively evaluated for impairment(1)	$	44,851,650	$	1,877,633	$	999,322	$	14,363	$	47,742,968
Troubled debt restructurings(2)	305,344		—		—		—		305,344
Purchased credit-impaired(3)	—		—		—		—		—
Total recorded investment	$	45,156,994	$	1,877,633	$	999,322	$	14,363	$	48,048,312

 _________________________

(1) Represents loans evaluated for impairment in accordance with ASC 450-20, Loss Contingencies.

(2) Represents loans evaluated for impairment in accordance with ASC 310-10, Receivables, which consists of modified loans accounted for as troubled debt restructurings. The unpaid principal balance of such loans was $1.0 billion at August 31, 2011. All loans accounted for as troubled debt restructurings have a related allowance for loan losses. In the first quarter 2011, the Company began accounting for credit card loans modified through temporary hardship and external programs as troubled debt restructurings. The impact on the total allowance for loan losses as a result of this change was not material.

(3) Represents loans evaluated for impairment in accordance with ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality.

Loans in the Company's Temporary, Permanent and External Programs

Interest income from loans accounted for as troubled debt restructurings is accounted for in the same manner as other accruing loans. Cash collections on these loans are allocated according to the same payment hierarchy methodology applied to loans that are not in such programs. Additional information about modified loans in the Company’s credit card portfolio is shown below (dollars in thousands):
	For the three months ended August 31, 2011(1)				For the nine months ended August 31, 2011(1)
	Temporary and Permanent Programs		External Programs		Temporary and Permanent Programs		External Programs
Average recorded investment in loans	$	519,884	$	709,211	$	534,479	$	727,113
Interest income recognized during the time within the period these loans were impaired(2)	$	4,518	$	15,391	$	16,660	$	46,974
Gross interest income that would have been recorded in accordance with the original terms(3)	$	16,411	$	2,467	$	47,950	$	7,535
	For the three months ended August 31, 2010				For the nine months ended August 31, 2010
	Permanent Programs				Permanent Programs
Average recorded investment in loans	$	271,114			$	248,686
Interest income recognized during the time within the period these loans were impaired(2)	$	765			$	2.107
Gross interest income that would have been recorded in accordance with the original terms(3)	$	10,462			$	28,707

 ____________________________

(1) In addition to loans modified through permanent workout programs, in the first quarter 2011, the Company began accounting for credit card loans modified through temporary hardship and external programs as troubled debt restructurings. The impact on the allowance for loan losses as a result of this change was not material.

(2) The Company does not separately track interest income on loans in modification programs. Amounts shown are estimated by applying an average interest rate to the average loans in the various modification programs.

(3) The Company does not separately track the amount of gross interest income that would have been recorded if the loans in modification programs had not been restructured and interest had instead been recorded in accordance with the original terms. Amounts shown are estimated by applying the difference between the average interest rate earned on non-impaired credit card loans and the average interest rate earned on loans in the modification programs to the average loans in the modification programs.

Contractually Required Payments Receivable, Cash Flows Expected to be Collected and Fair Value as of the Acquisition Date

The following table shows contractually required payments receivable, cash flows expected to be collected and fair value of loans acquired as of the acquisition date (dollars in millions):
	At December 31, 2010
Contractually required payments receivable (1)	$	5,673
Less: Non-accretable difference (2)	(846		)
Cash flows expected to be collected	4,827
Less: Accretable yield (3)	(1,776		)
Fair value of loans acquired	$	3,051

 ______________________

(1) Amount represents principal and interest payments, both currently due and due in the future, adjusted for the effect of estimated prepayments.

(2) Charge-offs on acquired loans will be written off against non-accretable difference.

(3) Amount accreted into interest income over the estimated lives of the acquired loans.

^[1],[2],[3]

Changes in Accretable Yield for the Acquired Loans

The following table provides changes in accretable yield for the acquired loans for the three and nine month periods ended August 31, 2011 (dollars in millions):

	For the Three Months Ended August 31, 2011			For the Nine Months Ended August 31, 2011
Balance at beginning of period	$	1,772		$	—
Acquisition of The Student Loan Corporation	—			1,776
Accretion into interest income	(54		)	(149		)
Reclassifications from non-accretable difference	—			91
Balance at end of period	$	1,718		$	1,718

[1] Amount accreted into interest income over the estimated lives of the acquired loans.

[2] Amount represents principal and interest payments, both currently due and due in the future, adjusted for the effect of estimated prepayments.

[3] Charge-offs on acquired loans will be written off against non-accretable difference.

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Loan Receivables (Loan Receivables) (Details) (USD $) In Thousands	Aug. 31, 2011	May 31, 2011	Nov. 30, 2010		Aug. 31, 2010	May 31, 2010	Nov. 30, 2009
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans held for sale	$ 738,382		$ 788,101
Credit card loans	46,177,673		45,156,994
Other Consumer Loans	4,279,613		2,891,318
Acquired private student loans carrying amount	2,886,783		0
Total loan portfolio	53,344,069		48,048,312
Total loan receivables	54,082,451		48,836,413
Allowance for loan losses	(2,273,058)	(2,632,320)	(3,304,118)		(3,743,721)	(3,930,624)	(1,757,899)
Loans Receivable, Net	51,809,393		45,532,295
Loans Held For Sale [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans held for sale	738,382		788,101	[1]
Federal Student Loans Pledged as Collateral [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans held for sale	463,900		500,200
Loan Portfolio [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loan portfolio	53,344,069		48,048,312
Credit Card Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Credit card loans	46,177,673		45,156,994
Total loan portfolio	46,177,673		45,156,994
Allowance for loan losses	(2,153,870)		(3,208,888)
Credit Card Receivable [Member] | Discover Card [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Credit card loans	45,949,224		44,904,267	[2]
Credit Card Receivable [Member] | Investors Interest in Trust Debt [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Credit card loans	16,900,000		19,500,000
Credit Card Receivable [Member] | Seller's Interest in Trust Debt [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Credit card loans	17,000,000		14,900,000
Credit Card Receivable [Member] | Discover Business Card [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Credit card loans	228,449		252,727
Total Other Consumer Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Other Consumer Loans	4,279,613		2,891,318
Total Other Consumer Loans [Member] | Personal Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loan portfolio	2,439,330		1,877,633
Allowance for loan losses	(75,562)		(76,087)
Total Other Consumer Loans [Member] | Other Consumer Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loan portfolio	11,790		14,363
Allowance for loan losses	(220)		(574)
PCI Student Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Acquired private student loans carrying amount	2,886,783		0	[3]
Private Student Loans Eligible for Reimbursement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Acquired private student loans carrying amount	9,900
Private Student Loans Pledged as Collateral [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Acquired private student loans carrying amount	2,900,000
Personal Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Other Consumer Loans	2,439,330		1,877,633
Private Student Loans (Excluding PCI) [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Other Consumer Loans	1,828,493		999,322
Other Consumer Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Other Consumer Loans	$ 11,790		$ 14,363

[1] Amount represents federal student loans. At August 31, 2011 and November 30, 2010, $463.9 million and $500.2 million of federal student loan receivables, respectively, were pledged as collateral against a long-term borrowing.

[2] Amounts include $16.9 billion and $19.5 billion of underlying investors’ interest in trust debt at August 31, 2011 and November 30, 2010, respectively, and $17.0 billion and $14.9 billion in seller’s interest at August 31, 2011 and November 30, 2010, respectively. See Note 5: Credit Card and Student Loan Securitization Activities for further information.

[3] Amount includes $2.9 billion of loans pledged as collateral against the notes issued from the SLC securitization trusts. See Note 5: Credit Card and Student Loan Securitization Activities. The remaining $9.9 million not pledged as collateral represents loans eligible for reimbursement through an indemnification claim. Discover Bank must purchase such loans from the trust before a claim may be filed.

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Commitments, Contingencies and Guarantees (Settlement Withholdings and Escrow Deposits) (Details) (USD $) In Thousands	Aug. 31, 2011	Nov. 30, 2010
Commitments Contingencies and Guarantees [Abstract]
Settlement withholdings and escrow deposits	$ 21,948	$ 30,483

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Deposits

9 Months Ended

Aug. 31, 2011

Deposits [Abstract]

Deposits

Deposits

The Company offers its deposit products, including certificates of deposit, money market accounts, online savings accounts and Individual Retirement Account (IRA) certificates of deposit to customers through two channels: (i) through direct marketing, internet origination and affinity relationships (“direct-to-consumer deposits”); and (ii) indirectly through contractual arrangements with securities brokerage firms (“brokered deposits”). As of August 31, 2011 and November 30, 2010, the Company had approximately $24.5 billion and $20.6 billion, respectively, of direct-to-consumer deposits and approximately $13.0 billion and $13.7 billion, respectively, of brokered deposits.

A summary of interest-bearing deposit accounts is as follows (dollars in thousands):
	August 31, 2011			November 30, 2010
Certificates of deposit in amounts less than $100,000(1)	$	19,524,679		$	19,797,420
Certificates of deposit from amounts of $100,000(1)to less than $250,000(1)	4,999,091			4,626,792
Certificates of deposit in amounts of $250,000(1)or greater	1,148,445			1,146,843
Savings deposits, including money market deposit accounts	11,797,822			8,738,784
Total interest-bearing deposits	$	37,470,037		$	34,309,839
Average annual interest rate	2.67		%	3.12		%

 _______________________

(1) $100,000 represents the basic insurance amount previously covered by the FDIC. Effective July 21, 2010, the basic insurance per depositor was permanently increased to $250,000.

At August 31, 2011, certificates of deposit maturing during the remainder of 2011, over the next four years and thereafter were as follows (dollars in thousands):
Year	Amount
2011	$	2,650,831
2012	$	10,787,166
2013	$	5,939,329
2014	$	2,576,005
2015	$	1,949,946
Thereafter	$	1,768,938

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Credit Card and Student Loan Securitization Activities (Tables)

9 Months Ended

Aug. 31, 2011

Transfers and Servicing of Financial Assets [Abstract]

Carrying Value of Assets of the Company's Credit Card Consolidated Variable Interest Entities

Upon transfer of credit card loan receivables to the trust, the receivables and certain cash flows derived from them become restricted for use in meeting obligations to the trusts’ creditors. The trusts have ownership of cash balances that also have restrictions, the amounts of which are reported in restricted cash. Investment of trust cash balances is limited to investments that are permitted under the governing documents of the trusts and which have maturities no later than the related date on which funds must be made available for distribution to trust investors. With the exception of the seller’s interest in trust receivables, the Company’s interests in trust assets are generally subordinate to the interests of third-party investors and, as such, may not be realized by the Company if needed to absorb deficiencies in cash flows that are allocated to the investors in the trusts’ debt. The carrying values of these restricted assets, which are presented on the Company’s condensed consolidated statement of financial condition as relating to securitization activities, are shown in the table below (dollars in thousands):
	August 31, 2011			November 30, 2010
Cash collateral accounts (1)	$	226,579		$	459,474
Collections and interest funding accounts	585,030			904,284
Restricted cash	811,609			1,363,758
Investors’ interests held by third-party investors	12,621,054			14,921,057
Investors’ interests held by wholly owned subsidiaries of Discover Bank	4,327,121			4,608,210
Seller’s interest	17,030,805			14,923,722
Loan receivables (2)	33,978,980			34,452,989
Allowance for loan losses allocated to securitized loan receivables (2)	(1,589,949		)	(2,431,399		)
Net loan receivables	32,389,031			32,021,590
Other	25,195			24,083
Carrying value of assets of consolidated variable interest entities	$	33,225,835		$	33,409,431

 _______________________

(1) As of November 30, 2010, the full amount was pledged as collateral against a long-term borrowing.

(2) The Company maintains its allowance for loan losses at an amount sufficient to absorb probable losses inherent in all loan receivables, which includes all loan receivables in the trusts. Therefore, credit risk associated with the transferred receivables is fully reflected on the Company’s balance sheet in accordance with GAAP.

Investors' Interests and Related Excess Spreads

The tables below provide information concerning investors’ interests and related excess spreads at August 31, 2011 (dollars in thousands):
	Investors’ Interests(1)		# of Series Outstanding
Discover Card Master Trust I	$	3,830,858	7
Discover Card Execution Note Trust (DiscoverSeries notes)	13,117,317		28
Total investors’ interests	$	16,948,175	35

______________________ 

(1) Investors’ interests include third-party interests and subordinated interests held by wholly-owned subsidiaries of Discover Bank.

	3-Month Rolling Average Excess Spread(1)(2)
Group excess spread percentage	16.92	%
DiscoverSeries excess spread percentage	16.76	%

 ______________________

(1) DCMT certificates refer to the higher of the Group excess spread or their applicable series excess spread (not shown) and DiscoverSeries notes refer to the higher of the Group or DiscoverSeries excess spread in assessing whether an economic early amortization has been triggered.

(2) Discount Series (DCMT 2009-SD) makes principal collections available for reallocation to other series to cover shortfalls in interest and servicing fees and to reimburse charge-offs. Three-month rolling average excess spread rates reflected the availability of these additional collections.

Carrying Value of Assets of the Company's Student Loan Consolidated Variable Interest Entities

The carrying values of these restricted assets, which are presented on the Company’s condensed consolidated statement of financial condition as relating to securitization activities, are shown in the table below (dollars in thousands):
	August 31, 2011
Restricted cash	$	125,621
Student loan receivables	$	2,876,923
Other assets	$	5,209
Carrying value of assets of consolidated variable interest entities	$	3,007,753

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Investment Securities (Schedule of Fair Value, Amortized Cost, Gross Unrealized Gains and Gross Unrealized Losses) (Details) (USD $) In Thousands	Aug. 31, 2011		Nov. 30, 2010
Available-for-sale securities, amortized cost	$ 5,798,756	[1]	$ 4,989,958	[1]
Available-for-sale securities, gross unrealized gains	100,325	[1]	15,660	[1]
Available-for-sale securities, gross unrealized losses	(1)	[1]	(3,039)	[1]
Available-for-sale investment securities, fair value	5,899,080	[1]	5,002,579	[1]
Held-to-maturity investment securities, amortized cost	53,088	[2]	72,816
Held-to-maturity securities, gross unrealized gains	1,024	[2]	1,150	[2]
Held-to-maturity securities, gross unrealized losses	(2,923)	[2]	(3,771)	[2]
Held-to-maturity, fair value	51,189	[2]	70,195	[2]
Community Reinvestment Act [Member] | Other Debt Securities [Member]
Held-to-maturity investment securities, amortized cost	2,800		7,900
U.S. Treasury Securities [Member]
Available-for-sale securities, amortized cost	2,322,042		1,576,094	[1]
Available-for-sale securities, gross unrealized gains	49,213		344	[1]
Available-for-sale securities, gross unrealized losses	0		(1,585)	[1]
Available-for-sale investment securities, fair value	2,371,255	[1]	1,574,853	[1]
Held-to-maturity investment securities, amortized cost	550		550
Held-to-maturity securities, gross unrealized gains	0		0	[2],[3]
Held-to-maturity securities, gross unrealized losses	0		0	[2],[3]
Held-to-maturity, fair value	550	[2],[3]	550	[2],[3]
U.S. Government Agency Securities [Member]
Available-for-sale securities, amortized cost	2,627,392		1,888,909	[1]
Available-for-sale securities, gross unrealized gains	41,788		1,090	[1]
Available-for-sale securities, gross unrealized losses	0		(1,298)	[1]
Available-for-sale investment securities, fair value	2,669,180	[1]	1,888,701	[1]
States and Political Subdivisions of States [Member]
Held-to-maturity investment securities, amortized cost	39,670		51,774
Held-to-maturity securities, gross unrealized gains	219		281	[2]
Held-to-maturity securities, gross unrealized losses	(2,923)		(3,771)	[2]
Held-to-maturity, fair value	36,966	[2]	48,284	[2]
Credit Card Asset-Backed Securities of Other Issuers [Member]
Available-for-sale securities, amortized cost	348,606		1,017,183	[1]
Available-for-sale securities, gross unrealized gains	8,335		13,983	[1]
Available-for-sale securities, gross unrealized losses	1		(54)	[1]
Available-for-sale investment securities, fair value	356,940	[1]	1,031,112	[1]
Corporate Debt Securities [Member]
Available-for-sale securities, amortized cost	500,716		507,757	[1]
Available-for-sale securities, gross unrealized gains	989		241	[1]
Available-for-sale securities, gross unrealized losses	0		(102)	[1]
Available-for-sale investment securities, fair value	501,705	[1]	507,896	[1]
Residential Mortgage-Backed Securities [Member]
Held-to-maturity investment securities, amortized cost	7,344		9,800
Held-to-maturity securities, gross unrealized gains	805		869	[2]
Held-to-maturity securities, gross unrealized losses	0		0	[2]
Held-to-maturity, fair value	8,149	[2]	10,669	[2]
Equity Securities [Member]
Available-for-sale securities, amortized cost			15	[1]
Available-for-sale securities, gross unrealized gains			2	[1]
Available-for-sale securities, gross unrealized losses			0	[1]
Available-for-sale investment securities, fair value			17	[1]
Other Debt Securities [Member]
Held-to-maturity investment securities, amortized cost	5,524		10,692
Held-to-maturity securities, gross unrealized gains	0		0	[2],[4]
Held-to-maturity securities, gross unrealized losses	0		0	[2],[4]
Held-to-maturity, fair value	$ 5,524	[2],[4]	$ 10,692	[2],[4]

[1] Available-for-sale investment securities are reported at fair value.

[2] Held-to-maturity investment securities are reported at amortized cost.

[3] Amount represents securities pledged as collateral to a government-related merchant for which transaction settlement occurs beyond the normal 24-hour period.

[4] Included in other debt securities at August 31, 2011 and November 30, 2010 are commercial advances of $2.8 million and $7.9 million respectively related to the Company’s Community Reinvestment Act strategies.

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Business Combinations (Calculation of Trust Certificate Purchase Price) (Details) (Student Loan Corporation [Member], USD $) In Millions	Aug. 31, 2011	Dec. 31, 2010 Estimated Purchase Price [Member]
Gross trust assets	$ 3,977	$ 3,993
Less: 8.5% discount	(338)	(339)
Net trust assets	3,639	3,654
Less: Principal amount of and accrued interest on trust debt	(3,193)	(3,215)
Trust certificate purchase price	$ 446	$ 439

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Investment Securities (Tables)

9 Months Ended

Aug. 31, 2011

Investments, Debt and Equity Securities [Abstract]

Schedule of Investment Securities

The Company’s investment securities consist of the following (dollars in thousands):
	August 31, 2011		November 30, 2010
U.S. Treasury securities	$	2,371,805	$	1,575,403
U.S. government agency securities	2,669,180		1,888,701
States and political subdivisions of states	39,670		51,774
Other securities:
Credit card asset-backed securities of other issuers	356,940		1,031,112
Corporate debt securities(1)	501,705		507,896
Residential mortgage-backed securities	7,344		9,800
Other debt and equity securities	5,524		10,709
Total other securities	871,513		1,559,517
Total investment securities	$	5,952,168	$	5,075,395

___________________________

(1) Amount represents corporate debt obligations issued under the Temporary Liquidity Guarantee Program (TLGP) that are guaranteed by the Federal Deposit Insurance Corporation (FDIC).

Schedule of Fair Value, Amortized Cost, Gross Unrealized Gains and Gross Unrealized Losses

The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale and held-to-maturity investment securities are as follows (dollars in thousands):
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
At August 31, 2011
Available-for-Sale Investment Securities(1)
U.S Treasury securities	$	2,322,042	$	49,213	$	—		$	2,371,255
U.S government agency securities	2,627,392		41,788		—			$	2,669,180
Credit card asset-backed securities of other issuers	348,606		8,335		(1		)	$	356,940
Corporate debt securities	500,716		989		—			$	501,705
Total available-for-sale investment securities	$	5,798,756	$	100,325	$	(1	)	$	5,899,080
Held-to-Maturity Investment Securities(2)
U.S. Treasury securities(3)	$	550	$	—	$	—		$	550
States and political subdivisions of states	39,670		219		(2,923		)	36,966
Residential mortgage-backed securities	7,344		805		—			8,149
Other debt securities(4)	5,524		—		—			5,524
Total held-to-maturity investment securities	$	53,088	$	1,024	$	(2,923	)	$	51,189
At November 30, 2010
Available-for-Sale Investment Securities(1)
U.S Treasury securities	$	1,576,094	$	344	$	(1,585	)	$	1,574,853
U.S government agency securities	1,888,909		1,090		(1,298		)	1,888,701
Credit card asset-backed securities of other issuers	1,017,183		13,983		(54		)	1,031,112
Corporate debt securities	507,757		241		(102		)	507,896
Equity securities	15		2		—			17
Total available-for-sale investment securities	$	4,989,958	$	15,660	$	(3,039	)	$	5,002,579
Held-to-Maturity Investment Securities(2)
U.S. Treasury securities(3)	$	550	$	—	$	—		$	550
States and political subdivisions of states	51,774		281		(3,771		)	48,284
Residential mortgage-backed securities	9,800		869		—			10,669
Other debt securities(4)	10,692		—		—			10,692
Total held-to-maturity investment securities	$	72,816	$	1,150	$	(3,771	)	$	70,195

_________________________

(1) Available-for-sale investment securities are reported at fair value.

(2) Held-to-maturity investment securities are reported at amortized cost.

(3) Amount represents securities pledged as collateral to a government-related merchant for which transaction settlement occurs beyond the normal 24-hour period.

(4) Included in other debt securities at August 31, 2011 and November 30, 2010 are commercial advances of $2.8 million and $7.9 million respectively related to the Company’s Community Reinvestment Act strategies.

Schedule of Fair Value of Securities in a Continuous Unrealized Loss Position for Less than Twelve Months and more than Twelve Months

The following table provides information about investment securities with aggregate gross unrealized losses and the length of time that individual investment securities have been in a continuous unrealized loss position as of August 31, 2011 and November 30, 2010 (dollars in thousands):
	Number of Securities in a Loss Position	Less than 12 months				More than 12 months
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
At August 31, 2011
Available-for-Sale Investment Securities
U.S. Treasury securities	—	$	—	$	—	$	—	$	—
U.S. government agency securities	—	—		—		$	—	$	—
Credit card asset-backed securities of other issuers	1	4,126		1		$	—	$	—
Corporate debt securities	—	—		—		$	—	$	—
Held-to-Maturity Investment Securities
State and political subdivisions of states	4	$	6,084	$	1	$	21,538	$	2,922
At November 30, 2010
Available-for-Sale Investment Securities
U.S. Treasury securities	17	$	1,262,670	$	1,585	$	—	$	—
U.S. government agency securities	18	$	1,181,148	$	1,298	$	—	$	—
Credit card asset-backed securities of other issuers	23	$	238,646	$	54	$	—	$	—
Corporate debt securities	5	$	230,441	$	102	$	—	$	—
Held-to-Maturity Investment Securities
State and political subdivisions of states	4	$	7,731	$	239	$	27,603	$	3,532

Maturities of Available-for-sale Debt Securities and Held-to-maturity Debt Securities

Maturities of available-for-sale debt securities and held-to-maturity debt securities at August 31, 2011 are provided in the table below (dollars in thousands):
	One Year or Less		After One Year Through Five Years		After Five Years Through Ten Years		After Ten Years		Total
Available-for-sale—Amortized Cost (1)
U.S Treasury securities	$	590,462	$	1,731,580	$	—	$	—	$	2,322,042
U.S government agency securities	921,790		1,705,602		—		—		2,627,392
Credit card asset-backed securities of other issuers	191,269		157,337		—		—		348,606
Corporate debt securities	353,224		147,492		—		—		500,716
Total available-for-sale investment securities	$	2,056,745	$	3,742,011	$	—	$	—	$	5,798,756
Held-to-maturity—Amortized Cost (2)
U.S. Treasury securities	$	550	$	—	$	—	$	—	$	550
State and political subdivisions of states	—		2,085		3,375		34,210		39,670
Residential mortgage-backed securities	—		—		—		7,344		7,344
Other debt securities	275		2,641		153		2,455		5,524
Total held-to-maturity investment securities	$	825	$	4,726	$	3,528	$	44,009	$	53,088
Available-for-sale—Fair Values (1)
U.S Treasury securities	$	591,201	$	1,780,054	$	—	$	—	$	2,371,255
U.S government agency securities	922,717		1,746,463		—		—		2,669,180
Credit card asset-backed securities of other issuers	192,728		164,212		—		—		356,940
Corporate debt securities	353,547		148,158		—		—		501,705
Total available-for-sale investment securities	$	2,060,193	$	3,838,887	$	—	$	—	$	5,899,080
Held-to-maturity—Fair Values (2)
U.S. Treasury securities	$	550	$	—	$	—	$	—	$	550
State and political subdivisions of states	—		2,125		3,549		31,292		36,966
Residential mortgage-backed securities	—		—		—		8,149		8,149
Other debt securities	275		2,641		153		2,455		5,524
Total held-to-maturity investment securities	$	825	$	4,766	$	3,702	$	41,896	$	51,189

_____________________________

(1) Available-for-sale investment securities are reported at fair value.

(2) Held-to-maturity investment securities are reported at amortized cost.

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Commitments, Contingencies and Guarantees

9 Months Ended

Aug. 31, 2011

Commitments Contingencies and Guarantees [Abstract]

Commitments, Contingencies and Guarantees

Commitments, Contingencies and Guarantees

Lease commitments. The Company leases various office space and equipment under capital and non-cancelable operating leases which expire at various dates through 2021. At August 31, 2011, future minimum payments on leases with original terms in excess of one year consist of the following (dollars in thousands):
	Operating Leases
2011	$	2,537
2012	10,401
2013	8,614
2014	7,161
2015	6,135
Thereafter	14,458
Total minimum lease payments	$	49,306

Unused commitments to extend credit. At August 31, 2011, the Company had unused commitments to extend credit for consumer loans and commercial loans of approximately $164 billion. Such commitments arise primarily from agreements with customers for unused lines of credit on certain credit cards and certain other consumer loan products, provided there is no violation of conditions in the related agreement. These commitments, substantially all of which the Company can terminate at any time and which do not necessarily represent future cash requirements, are periodically reviewed based on account usage, customer creditworthiness and loan qualification.

Commitments to purchase private student loans. Prior to its acquisition by Discover Bank on December 31, 2010, SLC had an agreement with Citibank providing for the origination and servicing of private student loans. Citibank would originate and fund such loans and, after final disbursement, SLC would purchase the loans from Citibank. This agreement between SLC and Citibank was terminated on December 31, 2010, at which time Discover Bank entered into an agreement with Citibank to purchase (i) eligible private student loans originated by Citibank prior to December 31, 2010 and (ii) any private student loans originated by Citibank on or after December 31, 2010 under a new loan origination agreement entered into between Citibank and SLC on December 31, 2010. Discover Bank has agreed to purchase the loans at the funded amount (plus accrued interest and less any capitalized fees for any loans first funded prior to December 31, 2010) and, for any loans first funded by Citibank on December 31, 2010 or later, pay a premium equal to 0.125%. Discover Bank completed the first purchase of loan participations under this agreement on January 3, 2011. The agreement has been amended to extend to December 31, 2012, effective only upon the closing of Discover Bank's purchase of private student loans from Citibank pursuant to an asset purchase agreement dated August 31, 2011. Although the agreement does not set forth a minimum or maximum amount of loans to be purchased, Discover Bank must purchase all eligible loans originated by Citibank, which the Company estimates to be $1.0 billion to $1.5 billion over the life of the agreement, as amended. As of August 31, 2011, Discover Bank had an outstanding commitment to purchase $88.2 million of loans under this agreement.

Secured Borrowing Representations and Warranties. As part of the Company’s financing activities, the Company provides representations and warranties that certain assets pledged as collateral in secured borrowing arrangements conform to specified guidelines. Due diligence is performed by the Company which is intended to ensure that asset guideline qualifications are met. If the assets pledged as collateral do not meet certain conforming guidelines, the Company may be required to replace, repurchase or sell such assets. In its credit card securitization activities, the Company would replace nonconforming receivables through the allocation of excess seller’s interest or from additional transfers from the unrestricted pool of receivables. If the Company could not add enough receivables to satisfy the requirement, an early amortization (or repayment) of investors’ interests would be triggered. In its student loan securitizations, the Company would generally repurchase the loans from the trust at the outstanding principal amount plus interest.

The maximum potential amount of future payments the Company could be required to make would be equal to the current outstanding balances of third-party investor interests in credit card asset-backed securities plus the principal amount of any other outstanding secured borrowings. The Company has recorded substantially all of the maximum potential amount of future payments in long-term borrowings on the Company’s statement of financial condition. The Company has not recorded any incremental contingent liability associated with its secured borrowing representations and warranties. Management believes that the probability of having to replace, repurchase or sell assets pledged as collateral under secured borrowing arrangements, including an early amortization event, is low.

Guarantees. The Company has obligations under certain guarantee arrangements, including contracts and indemnification agreements, which contingently require the Company to make payments to the guaranteed party based on changes in an underlying asset, liability or equity security of a guaranteed party, rate or index. Also included as guarantees are contracts that contingently require the Company to make payments to a guaranteed party based on another entity’s failure to perform under an agreement. The Company’s use of guarantees is disclosed below by type of guarantee.

Counterparty Settlement Guarantees. Diners Club and DFS Services LLC, on behalf of PULSE, have various counterparty exposures, which are listed below.

• Merchant Guarantee. Diners Club has entered into contractual relationships with certain international merchants, which generally include travel-related businesses, for the benefit of all Diners Club licensees. The licensees hold the primary liability to settle the transactions of their customers with these merchants. However, Diners Club retains a counterparty exposure if a licensee fails to meet its financial payment obligation to one of these merchants.

• ATM Guarantee. PULSE entered into contractual relationships with certain international ATM acquirers in which DFS Services LLC retains counterparty exposure if an issuer fails to fulfill its settlement obligation.

The maximum potential amount of future payments related to such contingent obligations is dependent upon the transaction volume processed between the time a counterparty defaults on its settlement and the time at which the Company disables the settlement of any further transactions for the defaulting party, which could be up to one month depending on the type of guarantee/counterparty. However, there is no limitation on the maximum amount the Company may be liable to pay. The actual amount of the potential exposure cannot be quantified as the Company cannot determine whether particular counterparties will fail to meet their settlement obligations. While the Company has some contractual remedies to offset these counterparty settlement exposures (such as letters of credit or pledged deposits), in the event that all licensees and/or issuers were to become unable to settle their transactions, the Company estimates its maximum potential counterparty exposures to these settlement guarantees, based on historical transaction volume of up to one month, would be as follows:
	August 31, 2011
Diners Club:
Merchant guarantee (in millions)	$	255
PULSE:
ATM guarantee (in thousands)	$	1,077

With regard to the counterparty settlement guarantees discussed above, the Company believes that the estimated amounts of maximum potential future payments are not representative of the Company’s actual potential loss exposure given Diners Club’s and PULSE’s insignificant historical losses from these counterparty exposures. As of August 31, 2011, the Company had not recorded any contingent liability in the condensed consolidated financial statements for these counterparty exposures, and management believes that the probability of any payments under these arrangements is low.

The Company also retains counterparty exposure for the obligations of Diners Club licensees that participate in the Citishare network, an electronic funds processing network. Through the Citishare network, Diners Club customers are able to access certain ATMs directly connected to the Citishare network. The Company’s maximum potential future payment under this counterparty exposure is limited to $15 million, subject to annual adjustment based on actual transaction experience. However, as of August 31, 2011, the Company had not recorded any contingent liability in the condensed consolidated financial statements related to this counterparty exposure, and management believes that the probability of any payments under this arrangement is low.

Merchant Chargeback Guarantees. The Company issues and permits third parties to issue payment cards and owns and operates the Discover Network. The Company is contingently liable for certain transactions processed on the Discover Network in the event of a dispute between the payment card customer and a merchant. The contingent liability arises if the disputed transaction involves a merchant or merchant acquirer with whom the Discover Network has a direct relationship. If a dispute is resolved in the customer’s favor, the Discover Network will credit or refund the disputed amount to the Discover Network card issuer, who in turn credits its customer’s account. The Discover Network will then charge back the disputed amount of the payment card transaction to the merchant or merchant acquirer, where permitted by the applicable agreement, to seek recovery of amounts already paid to the merchant for payment card transactions. If the Discover Network is unable to collect the amount subject to dispute from the merchant or merchant acquirer (e.g., in the event of merchant default or dissolution) or after expiration of the time period for chargebacks in the applicable agreement, the Discover Network will bear the loss for the amount credited or refunded to the customer. In most instances, a loss by the Discover Network is unlikely to arise in connection with payments on card transactions because most products or services are delivered when purchased, and credits are issued by merchants on returned items in a timely fashion, thus minimizing the likelihood of cardholder disputes with respect to amounts paid by the Discover Network. However, where the product or service is not scheduled to be provided to the customer until a later date following the purchase, the likelihood of a contingent payment obligation by the Discover Network increases.

The maximum potential amount of obligations of the Discover Network arising as a result of such contingent obligations is estimated to be the portion of the total Discover Network transaction volume processed to date for which timely and valid disputes may be raised under applicable law and relevant issuer and customer agreements. There is no limitation on the maximum amount the Company may be liable to pay to issuers. However, the Company believes that such amount is not representative of the Company’s actual potential loss exposure based on the Company’s historical experience. The actual amount of the potential exposure cannot be quantified as the Company cannot determine whether the current or cumulative transaction volumes may include or result in disputed transactions.

The table below summarizes certain information regarding merchant chargebacks guarantees:
	For the Three Months Ended August 31,				For the Nine Months Ended August 31,
	2011		2010		2011		2010
Losses related to merchant chargebacks (in thousands)	$	291	$	1,036	$	1,625	$	2,294
Aggregate sales transaction volume (in millions)(1)	$	28,416	$	25,990	$	81,051	$	74,645

 ________________

(1) Represents period transactions processed on the Discover Network to which a potential liability exists which, in aggregate, can differ from credit card sales volume.

The Company has not recorded any contingent liability in the condensed consolidated financial statements for merchant chargeback guarantees on August 31, 2011 and November 30, 2010. The Company mitigates the risk of potential loss exposure by withholding settlement from merchants, obtaining third party guarantees, or obtaining escrow deposits or letters of credit from certain merchant acquirers or merchants that are considered higher risk due to various factors such as time delays in the delivery of products or services. The table below provides information regarding settlement withholdings and escrow deposits, which are recorded in interest-bearing deposit accounts, and accrued expenses and other liabilities on the Company’s condensed consolidated statements of financial condition (dollars in thousands):
	August 31, 2011		November 30, 2010
Settlement withholdings and escrow deposits	$	21,948	$	30,483

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Business Combinations

9 Months Ended

Aug. 31, 2011

Business Combinations [Abstract]

Business Combinations

Business Combinations

Acquisition of The Student Loan Corporation. On December 31, 2010, the Company acquired The Student Loan Corporation (“SLC”), which is now a wholly-owned subsidiary of Discover Bank and included in the Company’s Direct Banking segment. The Company acquired SLC’s ongoing private student loan business, which includes certain private student loans held in three securitization trusts and other assets, and assumed SLC’s asset-backed securitization debt incurred by those trusts and other liabilities. The acquired loans are considered to be purchased credit-impaired loans for accounting purposes, the details of which are discussed further in Note 4: Loan Receivables. The acquisition significantly increased the size of the Company’s private student loan portfolio. In addition, the acquisition has provided the Company with a developed student loan business platform, additional school relationships and SLC’s website. Since the acquisition date, the results of operations and cash flows of SLC have been included in the Company’s condensed consolidated results of operations and cash flows. Pro forma data is not provided as the impact of the SLC acquisition was not significant to the Company’s condensed consolidated results of operations or cash flows.

Net cash consideration paid. The following table provides a calculation of the amount paid by the Company for SLC based on the net assets of the SLC securitization trusts acquired after applying an 8.5% discount to the trust assets (the “Trust Certificate Purchase Price”) (dollars in millions):
	Actual			Estimate at Closing December 31, 2010
Gross trust assets	$	3,977		$	3,993
Less: 8.5% discount	(338		)	(339		)
Net trust assets	3,639			3,654
Less: Principal amount of and accrued interest on trust debt	(3,193		)	(3,215		)
Trust Certificate Purchase Price	$	446		$	439

Although the Company paid SLC shareholders $600 million for the acquisition of SLC (“Aggregate Merger Consideration”), the Company received a purchase price adjustment from Citibank, N.A. (“Citibank”) equivalent to the amount by which the Aggregate Merger Consideration exceeded the value of the Trust Certificate Purchase Price. In addition, Citibank agreed to adjust the cash consideration paid by the Company to compensate it for (i) agreeing to commute certain insurance policies covering certain of the loans acquired and (ii) for the value of non-trust related liabilities assumed by the Company. The following table provides a summary of total consideration paid by Discover at the closing of the acquisition on December 31, 2010 and a summary of the consideration revised for post-closing adjustments (dollars in millions):
	Actual			Estimate at Closing December 31, 2010
Aggregate Merger Consideration	$	600		$	600
Less: Purchase price adjustment(1)	(154		)	(161		)
Trust Certificate Purchase Price	446			439
Less: Further adjustments provided for by Citibank
Cash received for consent to insurance commutation	(16		)	(16		)
Cash received related to reimbursable liabilities(1)	(29		)	(57		)
Net cash consideration paid(1)	$	401		$	366

______________

(1) Based on the final SLC closing balance sheet, the Company accrued a $35 million liability, at the end of the first quarter of fiscal 2011, payable to Citibank for post-closing adjustments arising from a $7 million increase in the Trust Certificate Purchase Price and a $28 million reduction in reimbursable liabilities, which together resulted in the difference between the actual and estimated numbers shown. The accrued amount was paid to Citibank during the second quarter of 2011.

Net assets acquired. The Company acquired net assets (including $155 million of cash) with an aggregate fair value of $572 million in exchange for cash consideration of $556 million, resulting in the recognition of a bargain purchase gain of approximately $16 million. The bargain purchase gain primarily resulted from Citibank’s adjustment of the cash consideration to be paid by the Company in exchange for the Company’s consent to permit SLC to commute, immediately prior to the acquisition, certain student loan insurance policies covering loans in one of the three trusts. The bargain purchase gain is recorded in other income on the Company’s condensed consolidated statement of income. Adjustments to these amounts may occur during 2011, as the Company completes its final valuation analysis of assets acquired and liabilities assumed.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of the SLC acquisition (dollars in thousands):
	At December 31, 2010
Student loan receivables	$	3,050,784
Cash	155,347
Indemnification asset	101,127
Student relationships intangible	2,400
Trade name intangible	3,800
Total intangible assets	6,200
Other assets	218,514
Total assets acquired	3,531,972
Securitized debt	2,921,372
Other liabilities	38,178
Total liabilities assumed	2,959,550
Net assets acquired	$	572,422

The Company acquired $6.2 million in identifiable intangible assets. These intangible assets consist of student relationships and trade name intangibles. Acquired student relationships consist of those relationships in existence between SLC and the numerous students that carry student loan balances. This intangible asset is deemed to have a finite useful life of five years and will be amortized over this period. Trade name intangibles relate to trademarks, trade names and internet domains and content. This intangible asset is deemed to have an indefinite useful life and therefore is not subject to amortization.

The Company also recorded a $101 million indemnification asset at the acquisition date. This asset reflects the discounted present value of payments expected to be received under Citibank’s indemnification of student loan credit losses that would have been recoverable under certain student loan insurance policies which, as noted above, were commuted pursuant to an agreement entered into by SLC with the Company’s consent immediately prior to the acquisition. The indemnification pertains only to loans in one of the three SLC securitization trusts that the Company acquired, namely the SLC Private Student Loan Trust 2010-A (“SLC 2010-A”). The SLC 2010-A trust included loans with an aggregate outstanding principal balance of $1.2 billion at the time of acquisition; outstanding loans in that trust totaled $1.1 billion as of August 31, 2011. The initial value of the indemnification asset is based on the insured portion of expected credit losses reflected in the initial carrying value of the related loans. Under the terms of the indemnification agreement with Citibank, indemnification payments related to student loan credit losses are subject to an overall cap of $166.8 million, consistent with the terms of the insurance policies which the indemnification serves to replace.

The subsequent accounting for the indemnification asset will generally reflect the manner in which the indemnified loans are subsequently measured. The value of the indemnification asset will increase or decrease as expected credit losses on the purchased credit-impaired (“PCI”) student loans increase or decrease, respectively. An increase in expected losses on PCI student loans that results in the immediate recognition of an allowance for loan losses will result in an immediate increase in the indemnification asset. A decrease in expected losses that results in an immediate reversal of a previously recognized loan loss allowance will result in the immediate reduction of the indemnification asset. Recognition of an allowance for loan losses on PCI student loans is discussed in more detail within Note 4: Loan Receivables under “Purchased Credit-Impaired Loans.” To the extent that a decrease in expected losses results in a prospective increase in the accretable yield on PCI student loans rather than an immediate reduction of the loan loss allowance, the value of the indemnification asset will be adjusted prospectively through a reduction in the rate of amortization. Amortization and valuation adjustments to the indemnification asset are recorded through other income on the condensed consolidated statement of income.

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Derivatives and Hedging Activities (Tables)

9 Months Ended

Aug. 31, 2011

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Fair Value and Related Outstanding Notional Amounts of Derivative Instruments

The following table summarizes the fair value (including accrued interest) and related outstanding notional amounts of derivative instruments and indicates where within the statement of financial condition each is reported as of August 31, 2011 and November 30, 2010. See Note 13: Fair Value Disclosures for a description of the valuation methodologies of derivatives. (Dollars in thousands, except notional amounts):
	August 31, 2011							November 30, 2010
				Balance Sheet Location						Balance Sheet Location
	Notional Amount		Number of Transactions	Other Assets (At Fair Value)		Accrued Expenses and Other Liabilities (At Fair Value)		Notional Amount		Other Assets (At Fair Value)		Accrued Expenses  and Other Liabilities (At Fair Value)
Derivatives designated as hedges:
Interest rate swaps—Cash Flow hedge	$	2,000,000	8	$	16,721	$	—	$	2,000,000	$	4,989	$	—
Interest rate swaps—Fair Value hedge	$	1,543,905	64	$	38,998	$	4	$	400,000	$	—	$	6,587
Derivatives not designated as hedges:
Foreign exchange forward contracts(1)	$	8,471	2	$	38	$	—	$	7,800	$	6	$	7
Interest rate swap	$	1,367,809	1	$	5,198	$	—	$	—	$	—	$	—

 ______________

(1) The foreign exchange forward contracts have notional amounts of EUR 4 million and GBP 1.7 million as of August 31, 2011 and November 30, 2010.

Impact of the Derivative Instruments on Income

The following table summarizes the impact of the derivative instruments on income, and indicates where within the condensed consolidated statements of income such impact is reported for the three and nine months ended August 31, 2011 and 2010 (dollars in thousands):
		For the Three Months Ended August 31,						For the Nine Months Ended August 31,
	Location	2011			2010			2011			2010
Derivatives designated as hedges:
Interest Rate Swaps—Cash Flow Hedges:
Gain (loss) recognized in other comprehensive income after amounts reclassified into earnings, pre-tax	Other Comprehensive Income	$	13,113		$	251		$	11,711		$	251
Total gains (losses) recognized in other comprehensive income		$	13,113		$	251		$	11,711		$	251
Amount reclassified from other comprehensive income into income	Interest Income	$	1,892		$	442		$	5,636		$	442
Interest Rate Swaps—Fair Value Hedges:
Interest expense—ineffectiveness		34,715			—			38,924			—
Interest expense—other		4,087			—			8,090			(26		)
Gain (loss) on interest rate swaps	Interest Expense	38,802			—			47,014			(26		)
Interest expense—ineffectiveness		(32,575		)	—			(34,064		)	—
Interest expense—other		(1,608		)	—			(4,853		)	70
Gain (loss) on hedged Item	Interest Expense	(34,183		)	—			(38,917		)	70
Total gains (losses) recognized in income		$	6,511		$	442		$	13,733		$	486
Derivatives not designated as hedges:
Gain (loss) on forward contracts	Other Income	$	30		$	(301	)	$	(703	)	$	458
Gain (loss) on interest rate swaps	Other Income	(2,037		)	—			(7,518		)	6
Total gains (losses) on derivatives not designated as hedges recognized in income		$	(2,007	)	$	(301	)	$	(8,221	)	$	464

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Income Taxes

9 Months Ended

Aug. 31, 2011

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income tax expense consisted of the following (dollars in thousands):
	For the Three Months Ended August 31,				For the Nine Months Ended August 31,
	2011		2010		2011		2010
Current:
U.S. federal	$	213,765	$	68,942	$	550,250	$	166,541
U.S. state and local	38,576		24,451		74,292		38,512
International	747		53		3,018		298
Total	253,088		93,446		627,560		205,351
Deferred:
U.S. federal	135,145		73,149		332,965		61,301
U.S. state and local	10,024		4,931		18,882		1,830
International	6		—		7		—
Total	145,175		78,080		351,854		63,131
Income tax expense	$	398,263	$	171,526	$	979,414	$	268,482

The following table reconciles the Company’s effective tax rate to the U.S. federal statutory income tax rate:
	For the Three Months Ended August 31,				For the Nine Months Ended August 31,
	2011		2010		2011		2010
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%	35.0	%
U.S. state and local income taxes, net of U.S. federal income tax benefits	3.4		4.8		2.6		4.3
Valuation allowance - capital loss	—		—		(0.8	)	—
Non-deductible compensation	—		0.1		—		0.5
Other	(0.4	)	(0.2	)	(0.4	)	(0.5	)
Effective income tax rate	38.0	%	39.7	%	36.4	%	39.3	%

The Company is under continuous examination by the IRS and the tax authorities for various states. The tax years under examination vary by jurisdiction; for example, the current IRS examination covers 1999 through the short period June 30, 2007 when Discover was a subsidiary of Morgan Stanley. The Company was recently notified by the IRS that the years 2008 through 2009, which are after Discover spun off from Morgan Stanley, are going to be audited. The Company regularly assesses the likelihood of additional assessments in each of the taxing jurisdictions resulting from these and subsequent years' examinations. As part of its audit of 1999 through 2005, the IRS has proposed additional tax assessments. In August 2010, the Company filed an appeal with the IRS to protest the proposed adjustments. The Company does not anticipate that a resolution of this matter will occur within the next twelve months as it is in the preliminary stage. Due to uncertainty of the outcome of the appeal, the Company is unable to determine if the total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months. However, the Company believes that its reserve is sufficient to cover any penalties and interest that would result in an increase in federal taxes due.

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Fair Value Disclosures

9 Months Ended

Aug. 31, 2011

Fair Value Disclosures [Abstract]

Fair Value Disclosures

Fair Value Disclosures

The Company is required to disclose the fair value of financial instruments for which it is practical to estimate fair value. To obtain fair values, observable market prices are used if available. In some instances, observable market prices are not readily available and fair value is determined using present value or other techniques appropriate for a particular financial instrument. These techniques involve some degree of judgment and, as a result, are not necessarily indicative of the amounts the Company would realize in a current market exchange. The use of different assumptions or estimation techniques may have a material effect on the estimated fair value amounts.

The following table provides the estimated fair values of financial instruments (dollars in thousands):
	August 31, 2011				November 30, 2010
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets
Cash and cash equivalents	$	3,957,525	$	3,957,525	$	5,098,733	$	5,098,733
Restricted cash	$	937,230	$	937,230	$	1,363,758	$	1,363,758
Other short-term investments	$	—	$	—	$	375,000	$	375,000
Investment securities:
Available-for-sale	$	5,899,080	$	5,899,080	$	5,002,579	$	5,002,579
Held-to-maturity	$	53,088	$	51,189	$	72,816	$	70,195
Net loan receivables	$	51,809,393	$	52,802,885	$	45,532,295	$	45,835,543
Derivative financial instruments	$	60,955	$	60,955	$	4,995	$	4,995
Financial Liabilities
Deposits	$	37,586,884	$	38,395,963	$	34,413,383	$	35,500,526
Short-term borrowings	$	100,000	$	100,000	$	—	$	—
Long-term borrowings—owed to securitization investors	$	15,260,509	$	15,698,374	$	14,919,400	$	15,148,534
Other long-term borrowings	$	2,457,691	$	2,834,879	$	2,786,328	$	3,118,967
Derivative financial instruments	$	4	$	4	$	6,594	$	6,594

Cash and cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the low level of risk these assets present to the Company as well as the relatively liquid nature of these assets, particularly given their short maturities.

Restricted cash. The carrying value of restricted cash approximates fair value due to the relatively liquid nature of these assets, particularly given the short maturities of the assets in which the restricted cash is invested.

Other short-term investments. The carrying value of other short-term investments approximates fair value due to the low level of risk these assets present to the Company as well as the relatively liquid nature of these assets, particularly given their maturities of less than one year.

Available-for-sale investment securities. Investment securities classified as available-for-sale consist of credit card asset-backed securities issued by other financial institutions, U.S. Treasury and government agency securities, and corporate debt securities. The fair value for the U.S. Treasury and government agency securities are valued based on quoted market prices for the same or similar securities. The fair value estimation techniques for the credit card asset-backed securities issued by other financial institutions and corporate debt securities are discussed below.

Held-to-maturity investment securities. Held-to-maturity investment securities are generally valued based on quoted market prices for the same or similar securities.

Net loan receivables. The Company’s loan receivables are comprised of credit card and installment loans, including the private student loans acquired from SLC. To estimate the fair value of loan receivables, loans are aggregated into pools of similar loan types, characteristics and expected repayment terms. The fair values of all loan receivables are estimated by discounting expected future cash flows using rates at which similar loans could be made under current market conditions.

Derivative financial instruments. The Company’s derivative financial instruments consist of interest rate swaps and foreign currency forward contracts. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and option volatility. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. See Note 14: Derivatives and Hedging Activities for more information.

Deposits. The carrying values of money market deposits, non-interest bearing deposits, interest-bearing demand deposits and savings deposits approximate fair value due to the liquid nature of these deposits. For time deposits for which readily available market rates do not exist, fair values are estimated by discounting expected future cash flows using market rates currently offered for deposits with similar remaining maturities.

Short-term borrowings. The carrying values of short-term borrowings approximate fair value. Federal Funds purchased and repurchase agreements are short-term in nature and have maturities of less than one year.

Long-term borrowings—owed to securitization investors. Fair values of long-term borrowings owed to credit card securitization investors are determined utilizing quoted market prices of the same transactions. Fair values of long-term borrowings owed to student loan securitization investors are calculated by discounting cash flows using estimated assumptions including, among other things, maturity and market discount rates.

Other long-term borrowings. Fair values of other long-term borrowings are determined utilizing current observable market prices for those transactions, if available. If there are no observable market transactions, then fair values are determined by discounting cash flows of future interest accruals at market rates currently offered for borrowings with similar credit risks, remaining maturities and repricing terms.

Assets and Liabilities Measured at Fair Value on a Recurring Basis. ASC 820 defines fair value, establishes a fair value hierarchy that distinguishes between valuations that are based on observable inputs from those based on unobservable inputs, and requires certain disclosures about those measurements. In general, fair values determined by Level 1 inputs are defined as those that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs are those that utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active or inactive markets, quoted prices for the identical assets in an inactive market, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. The Company evaluates factors such as the frequency of transactions, the size of the bid-ask spread and the significance of adjustments made when considering transactions involving similar assets or liabilities to assess the relevance of those observed prices. If relevant and observable prices are available, the fair values of the related assets or liabilities would be classified as Level 2. Fair values determined by Level 3 inputs are those based on unobservable inputs, and include situations where there is little, if any, market activity for the asset or liability being valued. In instances in which the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety is classified is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company may utilize both observable and unobservable inputs in determining the fair values of financial instruments classified within the Level 3 category. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and involves consideration of factors specific to the asset or liability.

Disclosures concerning assets and liabilities measured at fair value on a recurring basis are as follows (dollars in thousands):
	Quoted Prices in Active Markets for Identical Assets (Level 1)(1)		Significant Other Observable Inputs (Level 2)(1)		Significant Unobservable Inputs (Level 3)		Total
Balance at August 31, 2011
Assets
U.S Treasury securities	$	2,371,255	$	—	$	—	$	2,371,255
U.S government agency securities	2,669,180		—		—		2,669,180
Credit card asset-backed securities of other issuers	—		356,940		—		356,940
Corporate debt securities	—		501,705		—		501,705
Equity securities	—		—		—		—
Available-for-sale investment securities	$	5,040,435	$	858,645	$	—	$	5,899,080
Derivative financial instruments	$	—	$	60,955	$	—	$	60,955
Liabilities
Derivative financial instruments	$	—	$	4	$	—	$	4
Balance at November 30, 2010
Assets
U.S Treasury securities	$	1,574,853	$	—	$	—	$	1,574,853
U.S government agency securities	1,888,701		—		—		1,888,701
Credit card asset-backed securities of other issuers	—		1,031,112		—		1,031,112
Corporate debt securities	—		507,896		—		507,896
Equity securities	—		—		17		17
Available-for-sale investment securities	$	3,463,554	$	1,539,008	$	17	$	5,002,579
Derivative financial instruments	$	—	$	4,995	$	—	$	4,995
Liabilities
Derivative financial instruments	$	—	$	6,594	$	—	$	6,594

________________________

(1) There were no transfers between Levels 1 and 2 within the fair value hierarchy for the three and nine months ended August 31, 2011 and 2010.

At August 31, 2011, amounts reported in credit card asset-backed securities issued by other institutions reflected senior-rated Class A securities having a par value of $302.0 million and more junior-rated Class B and Class C securities with par values of $32.0 million and $22.3 million, respectively. The Class A securities had a weighted-average coupon of 0.67% and a weighted-average remaining maturity of 12.9 months, the Class B, 0.52% and 14.1 months, respectively, and the Class C, 0.63% and 10.6 months, respectively. The assets underlying these securities are predominantly prime general-purpose credit card loan receivables. Amounts reported in corporate debt securities reflected AAA-rated corporate debt obligations issued under the Temporary Liquidity Guarantee Program (“TLGP”) that are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) with a par value of $495.0 million, a weighted-average coupon of 2.42% and a weighted-average remaining maturity of 8.6 months.

Regarding the corporate debt obligations issued under TLGP, fair values estimates are derived utilizing a spread relative to an underlying benchmark curve which reflects the terms and conditions of specific instruments being valued. Regarding credit card asset-backed securities, the expected cash flow models used to derive fair value estimates utilize observable market data to the extent available and other valuation inputs such as benchmark yields, reported trades, broker quotes, issuer spreads, bids and offers, the priority of which may vary based on availability of information.

The following tables provide changes in the Company’s Level 3 assets and liabilities measured at fair value on a recurring basis. Net transfers into and/or out of Level 3 are presented using beginning of the period fair values excluding purchases and other settlements. There were no Level 3 assets or liabilities measured at fair value on a recurring basis at any point during the quarter ended August 31, 2011.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis (dollars in thousands)
For the Nine Months Ended August 31, 2011	Balance at November 30, 2010		Total Realized and Unrealized Gains (Losses)		Sales			Net Transfers Into and/ or Out of Level 3		Balance at August 31, 2011		Change in unrealized gains (losses) related to financial instruments held at August 31, 2011
Assets
Equity securities	17		144		(161		)	—		—		—
Available-for-sale investment securities	$	17	$	144	$	(161	)	$	—	$	—	—

For the Three Months Ended August 31, 2010	Balance at May 31, 2010		Total Realized and Unrealized Gains (Losses)			Sales			Net Transfers Into and/ or Out of Level 3		Balance at August 31, 2010		Change in unrealized gains (losses) related to financial instruments held at August 31, 2010
Assets
Asset-backed commercial paper notes	63,732		7,161		(1)	(70,893		)	—		—		—
Equity securities	17		—			—			—		17		—
Available-for-sale investment securities	$	63,749	$	7,161		$	(70,893	)	$	—	$	17	—

For the Nine Months Ended August 31, 2010	Balance at November 30, 2009		Derecognition of assets upon adoption of Statement No. 167			Total Realized and Unrealized Gains (Losses)				Sales			Net Transfers Into and/ or Out of Level 3			Balance at August 31, 2010		Change in unrealized gains (losses) related to financial instruments held at August 31, 2010
Assets
Certificated retained interest in DCENT	$	2,204,969	$	(2,204,969	)	$	—			$	—		$	—		$	—	$	—
Credit card asset-backed securities of other issuers	381,705		—			—				—			(381,705		)	—		—
Asset-backed commercial paper notes	58,792		—			12,101		(1	)	(70,893		)	—			—		—
Equity securities	—		—			—				—			17			17		—
Available-for-sale investment securities	$	2,645,466	$	(2,204,969	)	$	12,101			$	(70,893	)	$	(381,688	)	$	17	—
Cash collateral accounts	$	822,585	$	(822,585	)	$	—			$	—		$	—		$	—	$	—
Interest-only strip receivable	117,579		(117,579		)	—				—			—			—		—
Amounts due from asset securitization	$	940,164	$	(940,164	)	$	—			$	—		$	—		$	—	$	—

_____________

(1) Reflects unrealized pretax gains recorded in other comprehensive income in the condensed consolidated statement of financial condition.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis. The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include those associated with acquired businesses, including goodwill and other intangible assets. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more is determined to be impaired. During the three and nine months ended August 31, 2011 and 2010, the Company had no impairments related to these assets.

As of August 31, 2011, the Company had not made any fair value elections with respect to any of its eligible assets and liabilities as permitted under ASC 825-1

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Commitments, Contingencies and Guarantees (Narrative) (Details) (USD $)	9 Months Ended
	Aug. 31, 2011
Private Student Loans [Member] | Minimum [Member]
Range of loans to be purchased	$ 1,000,000,000
Private Student Loans [Member] | Maximum [Member]
Range of loans to be purchased	1,500,000,000
Private Student Loans [Member]
Premium on loans funded by seller	0.125%
Commitments to Extend Credit [Member]
Range of loans to be purchased	164,000,000,000
Loan Purchase Commitments [Member]
Commitments to extend credit	88,200,000
Citishare Network Guarantee [Member] | ATM Guarantee [Member]
Guarantor Obligations, Maximum Exposure, Undiscounted	$ 15,000,000

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Earnings Per Share

9 Months Ended

Aug. 31, 2011

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

The following table presents the calculation of basic and diluted EPS (in thousands, except per share amounts):
	For the Three Months Ended August 31,						For the Nine Months Ended August 31,
	2011			2010			2011			2010
Numerator:
Net income	$	648,818		$	260,617		$	1,714,129		$	415,146
Preferred stock dividends	—			—			—			(23,811		)
Preferred stock accretion	—			—			—			(66,492		)
Net income available to common stockholders	648,818			260,617			1,714,129			324,843
Income allocated to participating securities	(7,046		)	(2,423		)	(19,493		)	(3,230		)
Net income allocated to common stockholders	$	641,772		$	258,194		$	1,694,636		$	321,613
Denominator:
Weighted average shares of common stock outstanding	544,438			544,314			544,997			543,874
Effect of dilutive common stock equivalents	743			2,768			701			6,237
Weighted average shares of common stock outstanding and common stock equivalents	545,181			547,082			545,698			550,111
Basic earnings per share	$	1.18		$	0.47		$	3.11		$	0.59
Diluted earnings per share	$	1.18		$	0.47		$	3.11		$	0.58

The following securities were considered anti-dilutive and therefore were excluded from the denominator in the computation of diluted EPS (shares in thousands):
	For the Three Months Ended August 31,		For the Nine Months Ended August 31,
	2011	2010	2011	2010
Unexercised stock options	348	3,944	374	3,418
Unexercised restricted stock units	8	—	3	—
Warrants issued to the U.S. Treasury	—	2,768	—	6,225

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Derivatives and Hedging Activities (Impact of the Derivative Instruments on Income) (Details) (USD $) In Thousands	3 Months Ended		9 Months Ended
	Aug. 31, 2011	Aug. 31, 2010	Aug. 31, 2011	Aug. 31, 2010
Fair Value Hedging [Member] | Interest Rate Swap [Member] | Designated as hedges [Member] | Derivative [Member] | Interest Expense [Member]
Statement [Line Items]
Gain (loss) on derivatives	$ 38,802	$ 0	$ 47,014	$ (26)
Fair Value Hedging [Member] | Designated as hedges [Member] | Hedged Item [Member] | Interest Expense [Member]
Statement [Line Items]
Change in Unrealized Gain (Loss) on Hedged Item in Fair Value Hedge	(34,183)	0	(38,917)	70
Cash Flow Hedging [Member] | Interest Rate Swap [Member] | Designated as hedges [Member]
Statement [Line Items]
Unrealized Gain (Loss) on Interest Rate Cash Flow Hedges, Pretax, Accumulated Other Comprehensive Income (Loss)	13,113	251	11,711	251
Cash Flow Hedging [Member] | Interest Rate Swap [Member] | Designated as hedges [Member] | Interest Income [Member]
Statement [Line Items]
Interest Rate Cash Flow Hedge Gain (Loss) Reclassified to Earnings, Net	1,892	442	5,636	442
Cash Flow Hedging [Member] | Interest Rate Swap [Member] | Designated as hedges [Member] | Other Comprehensive Income [Member]
Statement [Line Items]
Unrealized Gain (Loss) on Interest Rate Cash Flow Hedges, Pretax, Accumulated Other Comprehensive Income (Loss)	13,113	251	11,711	251
Fair Value Hedging [Member] | Interest Rate Swap [Member] | Designated as hedges [Member] | Interest Expense [Member]
Statement [Line Items]
Interest expense - ineffectiveness	34,715	0	38,924	0
Gain (Loss) on Components Excluded from Assessment of Interest Rate Fair Value Hedge Effectiveness	4,087	0	8,090	(26)
Fair Value Hedging [Member] | Designated as hedges [Member] | Interest Expense [Member]
Statement [Line Items]
Gain Loss on Interest Rate Fair Value Hedged Items Ineffectiveness	(32,575)	0	(34,064)	0
Gain Loss on Components Excluded from Assessment of Interest Rate Fair Value Hedged Items Effectiveness	(1,608)	0	(4,853)	70
Gain (loss) on derivatives	6,511	442	13,733	486
Interest Rate Swap [Member] | Not designated as hedges [Member] | Other Income [Member]
Statement [Line Items]
Gain (loss) on derivatives	(2,037)	0	(7,518)	6
Foreign Exchange Forward [Member] | Not designated as hedges [Member] | Other Income [Member]
Statement [Line Items]
Gain (loss) on derivatives	30	(301)	(703)	458
Not designated as hedges [Member]
Statement [Line Items]
Gain (loss) on derivatives	$ (2,007)	$ (301)	$ (8,221)	$ 464

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Capital Adequacy (Tables)

9 Months Ended

Aug. 31, 2011

Compliance With Regulatory Capital Requirements Under Banking Regulations [Abstract]

Schedule of Capital Adequacy

The following table shows the actual capital amounts and ratios of the Company and the Bank as of August 31, 2011 and November 30, 2010 and comparisons of each to the regulatory minimum and “well-capitalized” requirements (dollars in thousands):
	Actual				Minimum Capital Requirements			Capital Requirements To Be Classified as Well-Capitalized
	Amount		Ratio		Amount		Ratio	Amount		Ratio
August 31, 2011
Total capital (to risk-weighted assets)
Discover Financial Services	$	9,493,172	17.0	%	$	4,460,846	≥8.0%	$	5,576,057	≥10.0%
Discover Bank	$	8,562,286	15.6	%	$	4,398,133	≥8.0%	$	5,497,666	≥10.0%
Tier 1 capital (to risk-weighted assets)
Discover Financial Services	$	7,581,177	13.6	%	$	2,230,423	≥4.0%	$	3,345,634	≥6.0%
Discover Bank	$	6,659,969	12.1	%	$	2,199,066	≥4.0%	$	3,298,599	≥6.0%
Tier 1 capital (to average assets)
Discover Financial Services	$	7,581,177	11.7	%	$	2,599,434	≥4.0%	$	3,249,292	≥5.0%
Discover Bank	$	6,659,969	10.4	%	$	2,560,346	≥4.0%	$	3,200,433	≥5.0%
November 30, 2010
Total capital (to risk-weighted assets)
Discover Financial Services	$	7,946,619	15.9	%	$	3,989,689	≥8.0%	$	4,987,111	≥10.0%
Discover Bank	$	7,817,205	15.9	%	$	3,923,344	≥8.0%	$	4,904,180	≥10.0%
Tier 1 capital (to risk-weighted assets)
Discover Financial Services	$	6,095,000	12.2	%	$	1,994,844	≥4.0%	$	2,992,266	≥6.0%
Discover Bank	$	5,975,824	12.2	%	$	1,961,672	≥4.0%	$	2,942,508	≥6.0%
Tier 1 capital (to average assets)
Discover Financial Services	$	6,095,000	9.9	%	$	2,464,324	≥4.0%	$	3,080,406	≥5.0%
Discover Bank	$	5,975,824	9.8	%	$	2,431,610	≥4.0%	$	3,039,512	≥5.0%

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Borrowings

9 Months Ended

Aug. 31, 2011

Debt Disclosure [Abstract]

Debt Disclosure

Borrowings

Long-term borrowings consist of borrowings and capital leases having original maturities of one year or more. The following table provides a summary of the Company’s long-term borrowings and weighted average interest rates on balances outstanding at period end (dollars in thousands):
	August 31, 2011				November 30, 2010
	Outstanding		Interest Rate		Outstanding			Interest Rate		Interest Rate Terms	Maturity
Securitized Debt
Fixed rate asset-backed securities (including discount of $1,339)	$	1,748,660	5.65	%	$	2,598,343		5.47	%	Various fixed rates	Various June 2013— September 2017
Floating rate asset-backed securities	9,371,055		0.77	%	10,621,057			0.75	%	1-month LIBOR(1) + 3 to 130 basis points	Various September 2011— September 2015
Floating rate asset-backed securities	1,250,000		0.59	%	1,250,000			0.63	%	3-month LIBOR(1) + 34 basis points	December 2012
Floating rate asset-backed securities and other borrowings	250,000		0.89	%	450,000			0.98	%	Commercial Paper rate + 70 basis points	April 2013
Total Discover Card Master Trust I and Discover Card Execution Note Trust	12,619,715				14,919,400
Floating rate asset-backed securities (including discount of $238,629)	1,436,906		0.45	%	—					3-month LIBOR(1) + 7 to 45 basis points	Various April 2018— July 2036(2)
Floating rate asset-backed securities (including discount of $3,847)	648,407		4.25	%	—					Prime rate +100 basis points	June 2031(2)
Floating rate asset-backed securities (including premium of $2,927)	165,597		4.00	%	—					Prime rate + 75 basis points	July 2042(2)
Floating rate asset-backed securities (including premium of $6,894)	389,884		3.71	%	—					1-month LIBOR(1) + 350 basis points	July 2042(2)
Total SLC Private Student Loan Trusts	2,640,794				—
Total Long-Term Borrowings—owed to securitization investors	15,260,509				14,919,400
Discover Financial Services (Parent Company)
Fixed rate senior notes due 2017
Principal value (including discount of $472)	399,528		6.45	%	399,467			6.45	%	Fixed	June 2017
Fair value adjustment(3)	8,456				(7,888		)
Book value	407,984				391,579
Fixed rate senior notes due 2019	400,000		10.25	%	400,000			10.25	%	Fixed	July 2019
Discover Bank
Subordinated bank notes due 2019 (including discount of $1,483)	698,517		8.70	%	698,382			8.70	%	Fixed	November 2019
Subordinated bank notes due 2020 (including discount of $2,988)	497,012		7.00	%	496,753			7.00	%	Fixed	April 2020
Floating rate secured borrowings	—		—	%	93,980			0.79	%	Commercial Paper rate + 50 basis points	December  2010
Floating rate secured borrowings	—		—	%	212,336			0.70	%	1-month LIBOR(1) + 45 basis points	December  2010
Floating rate secured borrowings(4)	454,178		0.72	%	492,910			0.66	%	Commercial Paper rate + 50 basis points	August  2013(4)
Capital lease obligations	—		—	%	388			6.26	%	Fixed	June 2011
Total long-term borrowings	$	17,718,200			$	17,705,728

 __________________________

(1) London Interbank Offered Rate (“LIBOR”).

(2) Repayment of this debt is dependent upon the timing of principal and interest payments on the underlying student loans. The dates shown represent final maturity dates.

(3) The Company uses interest rate swaps to hedge this long-term borrowing against changes in fair value attributable to changes in LIBOR. See Note 14: Derivatives and Hedging Activities.

(4) Under a program established by the U.S. Department of Education, this loan facility was entered into to fund certain federal student loans, which were held for sale at August 31, 2011 and November 30, 2010. Principal and interest payments on the underlying student loans will reduce the balance of the secured borrowing over time, with final maturity in August 2013. However, upon sale of the loans, this loan facility will be repaid.

Maturities. At August 31, 2011, long-term borrowings maturities during the remainder of 2011, over the next four years and thereafter were as follows (dollars in thousands):

Year	Amount
2011	$	526,234
2012	3,325,989
2013	5,632,873
2014	1,989,293
2015	599,819
Thereafter	5,643,992
Total	$	17,718,200

The Company has an unsecured credit agreement that is effective through May 2012. The agreement provides for a revolving credit commitment of up to $2.4 billion (of which the Company may borrow up to 30% and Discover Bank may borrow up to 100% of the total commitment). As of August 31, 2011, the Company had no outstanding balances due under the facility. The credit agreement provides for a commitment fee on the unused portion of the facility, which can range from 0.07% to 0.175% depending on the index debt ratings. Loans outstanding under the credit facility bear interest at a margin above the Federal Funds rate, LIBOR, the EURIBOR or the Euro Reference rate. The terms of the credit agreement include various affirmative and negative covenants, including financial covenants related to the maintenance of certain capitalization and tangible net worth levels, and certain double leverage, delinquency and Tier 1 capital to managed loans ratios. The credit agreement also includes customary events of default with corresponding grace periods, including, without limitation, payment defaults, cross-defaults to other agreements evidencing indebtedness for borrowed money and bankruptcy-related defaults. The commitment may be terminated upon an event of default.

The Company also has access to committed undrawn capacity through private securitizations to support the funding of its credit card loan receivables. As of August 31, 2011, the total commitment of secured credit facilities through private providers was $6.8 billion, of which $250 million had been used and was included in long-term borrowings at August 31, 2011. Access to the unused portions of the secured credit facilities is dependent upon the agreement with each of the providers which have various expirations in 2012, 2013 and 2014. Borrowings outstanding under each facility bear interest at a margin above LIBOR or the asset-backed commercial paper costs of each individual conduit provider. The terms of each agreement provide for a commitment fee to be paid on the unused capacity, and include various affirmative and negative covenants, including performance metrics and legal requirements similar to those required to issue any term securitization transaction.

Short-Term Borrowings. Short-term borrowings consist of overnight Federal Fundspurchased with original maturities less than one year. Total short-term borrowings as of August 31, 2011 were $100 million and the weighted-average interest rate was 0.06%. There were no outstanding short-term borrowings as of November 30, 2010.

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Loan Receivables (Information Regarding Net Charge-offs of Interest and Fee Revenues on Credit Card Loans ) (Details) (USD $) In Thousands	3 Months Ended			9 Months Ended
	Aug. 31, 2011	Aug. 31, 2010		Aug. 31, 2011		Aug. 31, 2010
Loans and Leases Receivable Disclosure [Abstract]
Interest and fees accrued subsequently charged off, net of recoveries (recorded as a reduction of interest income)	$ 128,329	$ 219,422	[1]	$ 480,044	[1]	$ 723,909	[1]
Fees accrued subsequently charged off, net of recoveries (recorded as a reduction to other income)	$ 22,807	$ 58,331	[1]	$ 86,762	[1]	$ 228,039	[1]

[1] Beginning in 2011, net charge-offs of interest and fees include amounts related to other consumer loans. Prior to 2011 such amounts were not included as they were not material

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands	9 Months Ended
	Aug. 31, 2011	Aug. 31, 2010
Cash flows from operating activities
Net income	$ 1,714,129	$ 415,146
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses	692,763	2,824,035
Deferred income taxes	351,854	63,131
Depreciation and amortization on premises and equipment	66,274	68,130
Amortization of deferred revenues	(191,290)	(137,492)
Other depreciation and amortization	(35,346)	57,947
Gain (loss) on investment	(3,622)	19,131
Loss (gain) on equipment	(3,242)	(1,930)
Loss on loans sold	28	439
Stock-based compensation expense	33,690	29,554
Gain on purchase of business	15,917	0
Net change in loans originated for sale	49,719	(118,557)
Changes in assets and liabilities:
(Increase) decrease in other assets	32,339	(230,385)
Increase (decrease) in accrued expenses and other liabilities	106,908	(247,107)
Net cash provided by operating activities	2,812,015	2,706,762
Cash flows from investing activities
Maturities of other short-term investments	375,000	1,350,000
Purchases of other short-term investments	0	(375,000)
Maturities and sales of available-for-sale investment securities	786,463	540,526
Purchases of available-for-sale investment securities	(1,627,215)	(1,239,631)
Maturities of held-to-maturity investment securities	17,466	19,779
Purchases of held-to-maturity invetment securities	(550)	(549)
Proceeds from sale of loans held for investment	611	0
Net principal disbursed on loans held for investment	(3,074,805)	(2,035,023)
Purchase of loan receivables	(596,163)	0
Purchase of business, net of cash acquired	(401,158)	0
Purchase of other investment	(15,000)	0
Decrease in restricted cash-special dividend escrow	0	643,311
Decrease (increase) in restricted cash-for securitization investors	623,794	547,064
Proceeds from sale of equipment	13	146
Purchases of premises and equipment	(70,053)	(29,538)
Net cash used for investing activities	(3,981,597)	(578,915)
Cash flows from financing activities
Net increase (decrease) in short-term borrowings	100,000	0
Proceeds from issuance of securitized debt	2,500,000	1,000,000
Maturities of securitized debt	(5,114,986)	(8,560,528)
Proceeds from issuance of other long-term borrowings	0	1,003,427
Maturities of other long-term borrowings	(345,048)	(590,676)
Proceeds from issuance of common stock	17,928	0
Purchases of treasury stock	(207,560)	(8,145)
Net increase (decrease) in deposits	3,147,752	1,177,096
Proceeds from acquisition of deposits	0	976,627
Redemption of preferred stock	0	(1,224,558)
Repurchase of Warrants	0	172,000
Dividend paid to Morgan Stanley	0	(775,000)
Dividends paid on common and preferred stock	(69,712)	(59,455)
Excess tax benefits related to stock-based compensation	0	737
Net cash used for financing activities	28,374	(7,232,475)
Net increase (decrease) in cash and cash equivalents	(1,141,208)	(5,104,628)
Cash and cash equivalents, at beginning of period	5,098,733	13,020,719
Cash and cash equivalents, at end of period	3,957,525	7,916,091
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest expense	1,045,370	1,125,181
Income taxes, net of income tax refunds	635,360	112,027
Non-cash transactions:
Assumption of SLC debt	2,921,372	0
Special dividend-Morgan Stanley	$ 0	$ 33,757

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Derivatives and Hedging Activities (Narrative) (Details) (USD $) In Millions	9 Months Ended
	Aug. 31, 2011
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Cash flow hedge gain (loss) to be reclassified within twelve months	$ 7.7
Derivative, Collateral, Right to Reclaim Cash	4
Additional collateral securities	$ 53

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Investment Securities

9 Months Ended

Aug. 31, 2011

Investments, Debt and Equity Securities [Abstract]

Investment Securities

Investment Securities

The Company’s investment securities consist of the following (dollars in thousands):
	August 31, 2011		November 30, 2010
U.S. Treasury securities	$	2,371,805	$	1,575,403
U.S. government agency securities	2,669,180		1,888,701
States and political subdivisions of states	39,670		51,774
Other securities:
Credit card asset-backed securities of other issuers	356,940		1,031,112
Corporate debt securities(1)	501,705		507,896
Residential mortgage-backed securities	7,344		9,800
Other debt and equity securities	5,524		10,709
Total other securities	871,513		1,559,517
Total investment securities	$	5,952,168	$	5,075,395

___________________________

(1) Amount represents corporate debt obligations issued under the Temporary Liquidity Guarantee Program (TLGP) that are guaranteed by the Federal Deposit Insurance Corporation (FDIC).

The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale and held-to-maturity investment securities are as follows (dollars in thousands):
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
At August 31, 2011
Available-for-Sale Investment Securities(1)
U.S Treasury securities	$	2,322,042	$	49,213	$	—		$	2,371,255
U.S government agency securities	2,627,392		41,788		—			$	2,669,180
Credit card asset-backed securities of other issuers	348,606		8,335		(1		)	$	356,940
Corporate debt securities	500,716		989		—			$	501,705
Total available-for-sale investment securities	$	5,798,756	$	100,325	$	(1	)	$	5,899,080
Held-to-Maturity Investment Securities(2)
U.S. Treasury securities(3)	$	550	$	—	$	—		$	550
States and political subdivisions of states	39,670		219		(2,923		)	36,966
Residential mortgage-backed securities	7,344		805		—			8,149
Other debt securities(4)	5,524		—		—			5,524
Total held-to-maturity investment securities	$	53,088	$	1,024	$	(2,923	)	$	51,189
At November 30, 2010
Available-for-Sale Investment Securities(1)
U.S Treasury securities	$	1,576,094	$	344	$	(1,585	)	$	1,574,853
U.S government agency securities	1,888,909		1,090		(1,298		)	1,888,701
Credit card asset-backed securities of other issuers	1,017,183		13,983		(54		)	1,031,112
Corporate debt securities	507,757		241		(102		)	507,896
Equity securities	15		2		—			17
Total available-for-sale investment securities	$	4,989,958	$	15,660	$	(3,039	)	$	5,002,579
Held-to-Maturity Investment Securities(2)
U.S. Treasury securities(3)	$	550	$	—	$	—		$	550
States and political subdivisions of states	51,774		281		(3,771		)	48,284
Residential mortgage-backed securities	9,800		869		—			10,669
Other debt securities(4)	10,692		—		—			10,692
Total held-to-maturity investment securities	$	72,816	$	1,150	$	(3,771	)	$	70,195

_________________________

(1) Available-for-sale investment securities are reported at fair value.

(2) Held-to-maturity investment securities are reported at amortized cost.

(3) Amount represents securities pledged as collateral to a government-related merchant for which transaction settlement occurs beyond the normal 24-hour period.

(4) Included in other debt securities at August 31, 2011 and November 30, 2010 are commercial advances of $2.8 million and $7.9 million respectively related to the Company’s Community Reinvestment Act strategies.

The following table provides information about investment securities with aggregate gross unrealized losses and the length of time that individual investment securities have been in a continuous unrealized loss position as of August 31, 2011 and November 30, 2010 (dollars in thousands):
	Number of Securities in a Loss Position	Less than 12 months				More than 12 months
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
At August 31, 2011
Available-for-Sale Investment Securities
U.S. Treasury securities	—	$	—	$	—	$	—	$	—
U.S. government agency securities	—	—		—		$	—	$	—
Credit card asset-backed securities of other issuers	1	4,126		1		$	—	$	—
Corporate debt securities	—	—		—		$	—	$	—
Held-to-Maturity Investment Securities
State and political subdivisions of states	4	$	6,084	$	1	$	21,538	$	2,922
At November 30, 2010
Available-for-Sale Investment Securities
U.S. Treasury securities	17	$	1,262,670	$	1,585	$	—	$	—
U.S. government agency securities	18	$	1,181,148	$	1,298	$	—	$	—
Credit card asset-backed securities of other issuers	23	$	238,646	$	54	$	—	$	—
Corporate debt securities	5	$	230,441	$	102	$	—	$	—
Held-to-Maturity Investment Securities
State and political subdivisions of states	4	$	7,731	$	239	$	27,603	$	3,532

During the three and nine months ended August 31, 2011, the Company received $170.5 million and $803.9 million, respectively, of proceeds related to maturities or redemptions of investment securities, as compared to $159.7 million and $560.3 million for the three and nine months ended August 31, 2010, respectively. For the three and nine months ended August 31, 2011, approximately $165.0 million and $786.5 million, respectively, of these proceeds related to maturities of credit card asset-backed securities of other issuers. For the three and nine months ended August 31, 2010, approximately $75.2 million and $469.6 million, respectively, of these proceeds related to maturities of credit card asset-backed securities of other issuers.

The Company records unrealized gains and losses on its available-for-sale investment securities in other comprehensive income. For the three months ended August 31, 2011 and 2010, the Company recorded a net unrealized gain of $61.0 million ($38.2 million after tax) and a net unrealized loss of $13.6 million ($8.5 million after tax), respectively, in other comprehensive income. For the nine months ended August 31, 2011 and 2010, the Company recorded a net unrealized gain of $87.7 million ($54.9 million after tax) and a net unrealized loss of $9.9 million ($6.3 million after tax), respectively, in other comprehensive income. Additionally for the nine months ended August 31, 2010, the Company reversed an unrealized gain of $7.5 million ($4.7 million after tax) from other comprehensive income upon liquidation of the collateral supporting the Golden Key U.S. LLC investment.

At August 31, 2011 and November 30, 2010, the Company had $2.9 million and $3.5 million, respectively, of gross unrealized losses in a continuous loss position for more than 12 months on its held-to-maturity investment securities in states and political subdivisions of states. The Company believes the unrealized loss on these investments is the result of changes in interest rates subsequent to the Company’s acquisitions of these securities and that the reduction in value is temporary. The Company does not intend to sell these investments nor does it expect to be required to sell these investments before recovery of their amortized cost bases, but rather expects to collect all amounts due according to the contractual terms of these securities.

Maturities of available-for-sale debt securities and held-to-maturity debt securities at August 31, 2011 are provided in the table below (dollars in thousands):
	One Year or Less		After One Year Through Five Years		After Five Years Through Ten Years		After Ten Years		Total
Available-for-sale—Amortized Cost (1)
U.S Treasury securities	$	590,462	$	1,731,580	$	—	$	—	$	2,322,042
U.S government agency securities	921,790		1,705,602		—		—		2,627,392
Credit card asset-backed securities of other issuers	191,269		157,337		—		—		348,606
Corporate debt securities	353,224		147,492		—		—		500,716
Total available-for-sale investment securities	$	2,056,745	$	3,742,011	$	—	$	—	$	5,798,756
Held-to-maturity—Amortized Cost (2)
U.S. Treasury securities	$	550	$	—	$	—	$	—	$	550
State and political subdivisions of states	—		2,085		3,375		34,210		39,670
Residential mortgage-backed securities	—		—		—		7,344		7,344
Other debt securities	275		2,641		153		2,455		5,524
Total held-to-maturity investment securities	$	825	$	4,726	$	3,528	$	44,009	$	53,088
Available-for-sale—Fair Values (1)
U.S Treasury securities	$	591,201	$	1,780,054	$	—	$	—	$	2,371,255
U.S government agency securities	922,717		1,746,463		—		—		2,669,180
Credit card asset-backed securities of other issuers	192,728		164,212		—		—		356,940
Corporate debt securities	353,547		148,158		—		—		501,705
Total available-for-sale investment securities	$	2,060,193	$	3,838,887	$	—	$	—	$	5,899,080
Held-to-maturity—Fair Values (2)
U.S. Treasury securities	$	550	$	—	$	—	$	—	$	550
State and political subdivisions of states	—		2,125		3,549		31,292		36,966
Residential mortgage-backed securities	—		—		—		8,149		8,149
Other debt securities	275		2,641		153		2,455		5,524
Total held-to-maturity investment securities	$	825	$	4,766	$	3,702	$	41,896	$	51,189

_____________________________

(1) Available-for-sale investment securities are reported at fair value.

(2) Held-to-maturity investment securities are reported at amortized cost.

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Business Combinations (Fair Value of Assets Acquired and Liabilities Assumed) (Details) (USD $) In Thousands	Dec. 31, 2010
Business Combinations [Abstract]
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Acquired During Period, at Acquisition, at Fair Value	$ 3,051,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Acquired During Period, at Acquisition, at Fair Value	3,051,000
Student Loan Corporation [Member]
Business Combinations [Abstract]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Assets	3,531,972
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Liabilities	2,959,550
Net assets acquired	572,422
Student Loan Corporation [Member] | Loans Receivable [Member]
Business Combinations [Abstract]
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Acquired During Period, at Acquisition, at Fair Value	3,050,784
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Acquired During Period, at Acquisition, at Fair Value	3,050,784
Student Loan Corporation [Member] | Cash [Member]
Business Combinations [Abstract]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Assets	155,347
Student Loan Corporation [Member] | Indemnification Asset [Member]
Business Combinations [Abstract]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Assets	101,127
Student Loan Corporation [Member] | Intangible Assets [Member]
Business Combinations [Abstract]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Assets	6,200
Student Loan Corporation [Member] | Customer Relationships [Member]
Business Combinations [Abstract]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Assets	2,400
Student Loan Corporation [Member] | Trade Names [Member]
Business Combinations [Abstract]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Assets	3,800
Student Loan Corporation [Member] | Other Assets [Member]
Business Combinations [Abstract]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Assets	218,514
Student Loan Corporation [Member] | Debt [Member]
Business Combinations [Abstract]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Liabilities	2,921,372
Student Loan Corporation [Member] | Other Liabilities [Member]
Business Combinations [Abstract]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Liabilities	$ 38,178

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Earnings Per Share (Tables)

9 Months Ended

Aug. 31, 2011

Earnings Per Share [Abstract]

Schedule of Basic and Diluted EPS

The following table presents the calculation of basic and diluted EPS (in thousands, except per share amounts):
	For the Three Months Ended August 31,						For the Nine Months Ended August 31,
	2011			2010			2011			2010
Numerator:
Net income	$	648,818		$	260,617		$	1,714,129		$	415,146
Preferred stock dividends	—			—			—			(23,811		)
Preferred stock accretion	—			—			—			(66,492		)
Net income available to common stockholders	648,818			260,617			1,714,129			324,843
Income allocated to participating securities	(7,046		)	(2,423		)	(19,493		)	(3,230		)
Net income allocated to common stockholders	$	641,772		$	258,194		$	1,694,636		$	321,613
Denominator:
Weighted average shares of common stock outstanding	544,438			544,314			544,997			543,874
Effect of dilutive common stock equivalents	743			2,768			701			6,237
Weighted average shares of common stock outstanding and common stock equivalents	545,181			547,082			545,698			550,111
Basic earnings per share	$	1.18		$	0.47		$	3.11		$	0.59
Diluted earnings per share	$	1.18		$	0.47		$	3.11		$	0.58

Schedule of Anti-dilutive Securities Excluded from Computation of EPS

The following securities were considered anti-dilutive and therefore were excluded from the denominator in the computation of diluted EPS (shares in thousands):
	For the Three Months Ended August 31,		For the Nine Months Ended August 31,
	2011	2010	2011	2010
Unexercised stock options	348	3,944	374	3,418
Unexercised restricted stock units	8	—	3	—
Warrants issued to the U.S. Treasury	—	2,768	—	6,225

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Credit Card and Student Loan Securitization Activities (Narrative) (Details)	3 Months Ended	9 Months Ended
	Aug. 31, 2011	Aug. 31, 2011
Transfers and Servicing of Financial Assets [Abstract]
Excess spread rate minimum		0.00%
Average excess spread rate calculation period, months		3 months
Excess of the total investors' interests		7.00%
Excess spread rate trigger	4.50%
Increasing funding requirements as excess spread levels decline below preset levels	0.00%

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Credit Card and Student Loan Securitization Activities (Investors' Interests and Related Excess Spreads) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Aug. 31, 2011
Investors Interests	16,948,175	[1]
Number of Series Outstanding	35
Discover Card Master Trust I [Member]
Investors Interests	3,830,858	[1]
Number of Series Outstanding	7
Discover Card Execution Note Trust (DiscoverSeries Notes) [Member]
Investors Interests	13,117,317	[1]
Number of Series Outstanding	28
Group Excess Spread Percentage [Member]
Three Month Rolling Average Excess Spread Percentage	16.92%	[2],[3]
Discover Series Excess Spread Percentage [Member]
Three Month Rolling Average Excess Spread Percentage	16.76%	[2],[3]

[1] Investors’ interests include third-party interests and subordinated interests held by wholly-owned subsidiaries of Discover Bank.

[2] DCMT certificates refer to the higher of the Group excess spread or their applicable series excess spread (not shown) and DiscoverSeries notes refer to the higher of the Group or DiscoverSeries excess spread in assessing whether an economic early amortization has been triggered.

[3] Discount Series (DCMT 2009-SD) makes principal collections available for reallocation to other series to cover shortfalls in interest and servicing fees and to reimburse charge-offs. Three-month rolling average excess spread rates reflected the availability of these additional collections.

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Loan Receivables (Changes in the Company's Allowance for Loan Losses) (Details) (USD $) In Thousands	3 Months Ended			9 Months Ended
	Aug. 31, 2011	Aug. 31, 2010		Aug. 31, 2011		Aug. 31, 2010
Balance at beginning of year	$ 2,632,320	$ 3,930,624		$ 3,304,118		$ 1,757,899
Addition to allowance related to securitized receivables	0	0	[1]	0	[1]	2,144,461	[1]
Provision for loan losses	99,514	712,565		692,763		2,824,035
Total charge-offs	(608,482)	(1,022,068)		(2,162,233)		(3,327,536)
Total recoveries	(149,706)	(122,600)		(438,410)		(344,862)
Net Charge-offs	(458,776)	(899,468)		(1,723,823)		(2,982,674)
Balance at end of year	2,273,058	3,743,721		2,273,058		3,743,721
Credit Card Receivable [Member]
Balance at beginning of year				3,208,888
Total charge-offs	(588,950)	(997,422)		(2,103,124)		(3,254,149)
Total recoveries	(149,202)	(122,130)		(436,876)		(343,853)
Balance at end of year	2,153,870			2,153,870
Credit Card Receivable [Member] | Discover Card [Member]
Total charge-offs	(584,534)	(982,920)		(2,085,452)		(3,203,959)
Total recoveries	(148,292)	(121,255)		(434,141)		(341,337)
Credit Card Receivable [Member] | Discover Business Card [Member]
Total charge-offs	(4,416)	(14,502)		(17,672)		(50,190)
Total recoveries	(910)	(875)		(2,735)		(2,516)
Total Other Consumer Loans [Member]
Total charge-offs	(19,532)	(24,646)		(59,109)		(73,387)
Total recoveries	(504)	(470)		(1,534)		(1,009)
Total Other Consumer Loans [Member] | Personal Loans [Member]
Balance at beginning of year				76,087
Total charge-offs	(16,458)	(23,836)		(52,438)		(70,957)
Total recoveries	(458)	(421)		(1,458)		(942)
Balance at end of year	75,562			75,562
Total Other Consumer Loans [Member] | Federal Student Loans [Member]
Total charge-offs	0	(11)		0		(308)
Total Other Consumer Loans [Member] | Other Consumer Loans [Member]
Balance at beginning of year				574
Total charge-offs	(411)	(139)		(1,025)		(858)
Total recoveries	(1)	(35)		(3)		(45)
Balance at end of year	220			220
Total Other Consumer Loans [Member] | Private Student Loans [Member]
Total charge-offs	(2,663)	(660)		(5,646)		(1,264)
Total recoveries	$ (45)	$ (14)		$ (73)		$ (22)

[1] On December 1, 2009, upon adoption of FASB Statements No. 166 and 167, the Company recorded $2.1 billion allowance for loan losses related to newly consolidated and reclassified credit card loan receivables.

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Deposits (Certificates of Deposits) (Details) (USD $) In Thousands	Aug. 31, 2011
Deposits [Abstract]
2011	$ 2,650,831
2012	10,787,166
2013	5,939,329
2014	2,576,005
2015	1,949,946
Thereafter	$ 1,768,938

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Loan Receivables

9 Months Ended

Aug. 31, 2011

Loans and Leases Receivable Disclosure [Abstract]

Loan Receivables

Loan Receivables

The Company has three portfolio segments: credit card loans, other consumer loans and purchased credit-impaired (“PCI”) student loans acquired in the SLC transaction (See Note 2: Business Combinations). Within these portfolio segments, the Company has classes of receivables which are depicted in the table below (dollars in thousands):

	August 31, 2011			November 30, 2010
Loans held for sale(1)	$	738,382		$	788,101
Loan portfolio:
Credit card loans:
Discover card(2)	45,949,224			44,904,267
Discover business card	228,449			252,727
Total credit card loans	46,177,673			45,156,994
Other consumer loans:
Personal loans	2,439,330			1,877,633
Private student loans	1,828,493			999,322
Other	11,790			14,363
Total other consumer loans	4,279,613			2,891,318
PCI student loans(3)	2,886,783			—
Total loan portfolio	53,344,069			48,048,312
Total loan receivables	54,082,451			48,836,413
Allowance for loan losses	(2,273,058		)	(3,304,118		)
Net loan receivables	$	51,809,393		$	45,532,295

 ____________________________

(1) Amount represents federal student loans. At August 31, 2011 and November 30, 2010, $463.9 million and $500.2 million of federal student loan receivables, respectively, were pledged as collateral against a long-term borrowing.

(2) Amounts include $16.9 billion and $19.5 billion of underlying investors’ interest in trust debt at August 31, 2011 and November 30, 2010, respectively, and $17.0 billion and $14.9 billion in seller’s interest at August 31, 2011 and November 30, 2010, respectively. See Note 5: Credit Card and Student Loan Securitization Activities for further information.

(3) Amount includes $2.9 billion of loans pledged as collateral against the notes issued from the SLC securitization trusts. See Note 5: Credit Card and Student Loan Securitization Activities. The remaining $9.9 million not pledged as collateral represents loans eligible for reimbursement through an indemnification claim. Discover Bank must purchase such loans from the trust before a claim may be filed.

Credit Quality Indicators. The Company regularly reviews its collection experience (including delinquencies and net charge-offs) in determining its allowance for loan losses. Credit card and closed-end consumer loan receivables are placed on nonaccrual status upon receipt of notification of the bankruptcy or death of a customer or suspected fraudulent activity on an account. In some cases of suspected fraudulent activity, loan receivables may resume accruing interest upon completion of the fraud investigation.

Information related to the delinquencies and net charge-offs in the Company’s loan portfolio, which excludes loans held for sale, is shown below by each class of loan receivables except for PCI student loans, which is shown under the heading “Purchased Credit-Impaired Loans” (dollars in thousands):

Delinquent and Non-Accruing Loans:
	30-89 Days Delinquent		90 or More Days Delinquent		Total Past Due		90 or More Days Delinquent and Accruing		Total Non-accruing(2)
At August 31, 2011
Credit card loans:
Discover card(1)	$	553,174	$	561,127	$	1,114,301	$	498,752	$	208,404
Discover business card	2,885		3,929		6,814		3,655		889
Total credit card loans	556,059		565,056		1,121,115		502,407		209,293
Other consumer loans:
Personal loans	14,170		6,446		20,616		5,814		3,527
Private student loans (excluding PCI)	12,415		2,150		14,565		2,150		—
Other(3)	438		2,199		2,637		—		2,426
Total other consumer loans (excluding PCI)	27,023		10,795		37,818		7,964		5,953
Total loan receivables (excluding PCI)(3)	$	583,082	$	575,851	$	1,158,933	$	510,371	$	215,246
At November 30, 2010
Total loan receivables(1)	$	908,306	$	993,618	$	1,901,924	$	853,757	$	325,900

______________________ 

(1) Consumer credit card loans that are 90 or more days delinquent and accruing interest include $36.4 million and $35 million of loans accounted for as troubled debt restructurings at August 31, 2011 and November 30, 2010, respectively.

(2) The Company estimates that the gross interest income that would have been recorded in accordance with the original terms of these loans was $10.6 million and $35.6 million for the three months and nine months ended August 31, 2011, respectively. The Company does not separately track the amount of gross interest income that would have been recorded in accordance with the original terms of loans. These amounts were estimated based on customers' current balances and most recent rates.

(3) Amount also excludes federal student loans that are held for sale.

Net Charge-Offs:	For the Three Months Ended August 31, 2011				For the Nine Months Ended August 31, 2011
	Net Charge-offs		Net Charge-off Rate		Net Charge-offs		Net Charge-off Rate
Credit card loans:
Discover card	$	436,242	3.84	%	$	1,651,311	4.91	%
Discover business card	3,506		6.01	%	14,937		8.26	%
Total credit card loans	439,748		3.85	%	1,666,248		4.93	%
Other consumer loans:
Personal loans	16,000		2.73	%	50,980		3.19	%
Private student loans (excluding PCI)	2,618		0.62	%	5,573		0.49	%
Other	410		13.41	%	1,022		10.35	%
Total other consumer loans (excluding PCI)	19,028		0.98	%	57,575		1.09	%
Net charge-offs as a percentage of total loans (excluding PCI)	$	458,776	3.63	%	$	1,723,823	4.64	%
Net charge-offs as a percentage of total loans (including PCI)	$	458,776	3.43	%	$	1,723,823	4.41	%

As part of credit risk management activities, on an ongoing basis the Company reviews information related to the performance of a customer’s account with the Company as well as information from credit bureaus, such as a FICO score, relating to the customer’s broader credit performance. FICO scores are generally obtained at origination of the account and monthly or quarterly thereafter. The following table provides the most recent FICO scores available for the Company’s customers as of August 31, 2011, as a percentage of each class of loan receivables:

	Credit Risk Profile by FICO Score
	660 and Above	Less than 660 or No Score
Discover card	79%	21%
Discover business card	87%	13%
Private student loans (excluding PCI)	95%	5%
Personal loans	95%	5%

Allowance for Loan Losses. The Company maintains an allowance for loan losses at an appropriate level to absorb probable losses inherent in the loan portfolio. The Company considers the collectibility of all amounts contractually due on its loan receivables, including those components representing interest and fees. Accordingly, the allowance for loan losses represents the estimated uncollectible principal, interest and fee components of loan receivables. The allowance is evaluated monthly and is maintained through an adjustment to the provision for loan losses. Charge-offs of principal amounts of loans outstanding are deducted from the allowance and subsequent recoveries of such amounts increase the allowance. Charge-offs of loan balances representing unpaid interest and fees result in a reversal of interest and fee income, respectively, which is effectively a reclassification of provision for loan loss.

For its credit card loan receivables, the Company bases its allowance for loan losses on several analyses that help estimate incurred losses as of the balance sheet date. While the Company’s estimation process includes historical data and analysis, there is a significant amount of judgment applied in selecting inputs and analyzing the results produced by the models to determine the allowance. The Company uses a migration analysis to estimate the likelihood that a loan will progress through the various stages of delinquency. The loan balances used in the migration analysis represent all amounts contractually due and, as a result, the migration analysis captures principal, interest and fee components in estimating uncollectible accounts. The Company uses other analyses to estimate losses incurred on non-delinquent accounts. The considerations in these analyses include past performance, risk management techniques applied to various accounts, historical behavior of different account vintages, current economic conditions, recent trends in delinquencies, bankruptcy filings, account collection management, policy changes, account seasoning, loan volume and amounts, payment rates, and forecasting uncertainties. The Company does not identify individual loans for impairment, but instead estimates its allowance for credit card loan losses on a pooled basis, which includes loans that are delinquent and/or no longer accruing interest.

For its other consumer loans, the Company considers historical and forecasted estimates of incurred losses in estimating the related allowance for loan losses. The Company may also consider other factors, such as current economic conditions, recent trends in delinquencies and bankruptcy filings, account collection management, policy changes, account seasoning, loan volume and amounts, payment rates and forecasting uncertainties.

The following table provides changes in the Company’s allowance for loan losses for the three and nine months ended August 31, 2011 and 2010 (dollars in thousands):

	For the Three Months Ended August 31,						For the Nine Months Ended August 31,
	2011			2010			2011			2010
Balance at beginning of period	$	2,632,320		$	3,930,624		$	3,304,118		$	1,757,899
Additions:
Addition to allowance related to securitized receivables(1)	—			—			—			2,144,461
Provision for loan losses	99,514			712,565			692,763			2,824,035
Deductions:
Charge-offs:
Discover card	(584,534		)	(982,920		)	(2,085,452		)	(3,203,959		)
Discover business card	(4,416		)	(14,502		)	(17,672		)	(50,190		)
Total credit card loans	(588,950		)	(997,422		)	(2,103,124		)	(3,254,149		)
Personal loans	(16,458		)	(23,836		)	(52,438		)	(70,957		)
Federal student loans	—			(11		)	—			(308		)
Private student loans	(2,663		)	(660		)	(5,646		)	(1,264		)
Other	(411		)	(139		)	(1,025		)	(858		)
Total other consumer loans	(19,532		)	(24,646		)	(59,109		)	(73,387		)
Total charge-offs	(608,482		)	(1,022,068		)	(2,162,233		)	(3,327,536		)
Recoveries:
Discover card	148,292			121,255			434,141			341,337
Discover business card	910			875			2,735			2,516
Total credit card loans	149,202			122,130			436,876			343,853
Personal loans	458			421			1,458			942
Private student loans	45			14			73			22
Other	1			35			3			45
Total other consumer loans	504			470			1,534			1,009
Total recoveries	149,706			122,600			438,410			344,862
Net charge-offs	(458,776		)	(899,468		)	(1,723,823		)	(2,982,674		)
Balance at end of period	$	2,273,058		$	3,743,721		$	2,273,058		$	3,743,721

 ______________________

(1) On December 1, 2009, upon adoption of FASB Statements No. 166 and 167, the Company recorded $2.1 billion allowance for loan losses related to newly consolidated and reclassified credit card loan receivables.

Net charge-offs of principal are recorded against the allowance for loan losses, as shown in the table above. Information regarding net charge-offs of interest and fee revenues on credit card and other consumer loans is as follows (dollars in thousands):
	For the Three Months Ended August 31,				For the Nine Months Ended August 31,
	2011		2010		2011		2010
Interest and fees accrued subsequently charged off, net of recoveries (recorded as a reduction of interest income)(1)	$	128,329	$	219,422	$	480,044	$	723,909
Fees accrued subsequently charged off, net of recoveries (recorded as a reduction to other income)(1)	$	22,807	$	58,331	$	86,762	$	228,039

 _________________________

(1) Beginning in 2011, net charge-offs of interest and fees include amounts related to other consumer loans. Prior to 2011 such amounts were not included as they were not material.

The following table provides additional detail of the Company’s allowance for loan losses and recorded investment in its loan portfolio (which excludes loans held for sale) by impairment methodology (dollars in thousands):

	Credit Card		Personal Loans		Student Loans		Other Loans		Total
At August 31, 2011
Allowance for loans evaluated for impairment as:
Collectively evaluated for impairment(1)	$	1,963,962	$	75,562	$	43,406	$	220	$	2,083,150
Troubled debt restructurings(2)	189,908		—		—		—		189,908
Purchased credit-impaired(3)	—		—		—		—		—
Total allowance for loan losses	$	2,153,870	$	75,562	$	43,406	$	220	$	2,273,058
Recorded investment in loans evaluated for impairment as:
Collectively evaluated for impairment(1)	$	44,972,100	$	2,439,330	$	1,828,493	$	11,790	$	49,251,713
Troubled debt restructurings(2)	1,205,573		—		—		—		1,205,573
Purchased credit-impaired(3)	—		—		2,886,783		—		2,886,783
Total recorded investment	$	46,177,673	$	2,439,330	$	4,715,276	$	11,790	$	53,344,069
At November 30, 2010
Allowance for loans evaluated for impairment as:
Collectively evaluated for impairment(1)	$	3,095,046	$	76,087	$	18,569	$	574	$	3,190,276
Troubled debt restructurings(2)	113,842		—		—		—		113,842
Purchased credit-impaired(3)	—		—		—		—		—
Total allowance for loan losses	$	3,208,888	$	76,087	$	18,569	$	574	$	3,304,118
Recorded investment in loans evaluated for impairment as:
Collectively evaluated for impairment(1)	$	44,851,650	$	1,877,633	$	999,322	$	14,363	$	47,742,968
Troubled debt restructurings(2)	305,344		—		—		—		305,344
Purchased credit-impaired(3)	—		—		—		—		—
Total recorded investment	$	45,156,994	$	1,877,633	$	999,322	$	14,363	$	48,048,312

 _________________________

(1) Represents loans evaluated for impairment in accordance with ASC 450-20, Loss Contingencies.

(2) Represents loans evaluated for impairment in accordance with ASC 310-10, Receivables, which consists of modified loans accounted for as troubled debt restructurings. The unpaid principal balance of such loans was $1.0 billion at August 31, 2011. All loans accounted for as troubled debt restructurings have a related allowance for loan losses. In the first quarter 2011, the Company began accounting for credit card loans modified through temporary hardship and external programs as troubled debt restructurings. The impact on the total allowance for loan losses as a result of this change was not material.

(3) Represents loans evaluated for impairment in accordance with ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality.

Impaired Loans and Troubled Debt Restructurings. The Company has loan modification programs that provide for temporary or permanent hardship relief for credit card loans to borrowers experiencing financial hardship. The temporary hardship program primarily consists of a reduced minimum payment and an interest rate reduction, both lasting for a period no longer than twelve months. The permanent workout program involves changing the structure of the loan to a fixed payment loan with a maturity no longer than 60 months and reducing the interest rate on the loan. These programs do not normally provide for the forgiveness of unpaid principal, but may allow for the reversal of certain unpaid interest or fee assessments.

The Company also makes loan modifications for customers who request financial assistance through external sources, such as a consumer credit counseling agency program (referred to below as external programs). These loans typically receive a reduced interest rate but continue to be subject to the original minimum payment terms and do not normally include waiver of unpaid principal, interest or fees.

Credit card loan receivables modified and included in a temporary, permanent or external program are accounted for as a troubled debt restructuring and are recorded at their present value with impairment measured as the difference between the loan balance and the discounted present value of cash flows expected to be collected. Consistent with the Company’s measurement of impairment of modified loans on a pooled basis, the Company uses as its discount rate the average current annual percentage rate it applies to non-impaired credit card loans, similar to what would have applied to the pool of modified loans prior to impairment.

Interest income from loans accounted for as troubled debt restructurings is accounted for in the same manner as other accruing loans. Cash collections on these loans are allocated according to the same payment hierarchy methodology applied to loans that are not in such programs. Additional information about modified loans in the Company’s credit card portfolio is shown below (dollars in thousands):
	For the three months ended August 31, 2011(1)				For the nine months ended August 31, 2011(1)
	Temporary and Permanent Programs		External Programs		Temporary and Permanent Programs		External Programs
Average recorded investment in loans	$	519,884	$	709,211	$	534,479	$	727,113
Interest income recognized during the time within the period these loans were impaired(2)	$	4,518	$	15,391	$	16,660	$	46,974
Gross interest income that would have been recorded in accordance with the original terms(3)	$	16,411	$	2,467	$	47,950	$	7,535
	For the three months ended August 31, 2010				For the nine months ended August 31, 2010
	Permanent Programs				Permanent Programs
Average recorded investment in loans	$	271,114			$	248,686
Interest income recognized during the time within the period these loans were impaired(2)	$	765			$	2.107
Gross interest income that would have been recorded in accordance with the original terms(3)	$	10,462			$	28,707

 ____________________________

(1) In addition to loans modified through permanent workout programs, in the first quarter 2011, the Company began accounting for credit card loans modified through temporary hardship and external programs as troubled debt restructurings. The impact on the allowance for loan losses as a result of this change was not material.

(2) The Company does not separately track interest income on loans in modification programs. Amounts shown are estimated by applying an average interest rate to the average loans in the various modification programs.

(3) The Company does not separately track the amount of gross interest income that would have been recorded if the loans in modification programs had not been restructured and interest had instead been recorded in accordance with the original terms. Amounts shown are estimated by applying the difference between the average interest rate earned on non-impaired credit card loans and the average interest rate earned on loans in the modification programs to the average loans in the modification programs.

Purchased Credit-Impaired Loans. Purchased loans with evidence of credit deterioration after origination for which it is probable that not all contractually required payments will be collected are considered impaired at acquisition and are reported as PCI loans. The private student loans acquired in The Student Loan Corporation transaction comprise the Company’s only PCI loans at August 31, 2011.

PCI loans are subject to interest income recognition on the basis of expected cash flows rather than contractual cash flows, pursuant to ASC Subtopic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The Company accounts for the entire portfolio of acquired private student loans on the basis of expected cash flows. The loan portfolio was acquired at a discount related, at least in part, to a decline in the credit quality of the loans after their origination, and management has concluded it is probable that it will be unable to collect all contractually required payments due. However, the Company is unable to specifically identify which loans it will be unable to collect.

The PCI student loans were aggregated into pools based on common risk characteristics. Loans were grouped primarily on the basis of origination date as loans originated in a particular year generally reflect the application of common origination strategies and/or underwriting criteria. Because student loan payments are deferred while a student is in school and all loans in deferment are considered performing, the segmentation between performing and non-performing loans is not considered an accurate risk indicator and was therefore not used as a basis for segmentation. The loan pools match the composition of the securitization trusts in which the acquired loans are held. Each pool is accounted for as a single asset and each has a single composite interest rate, total contractual cash flows and total expected cash flows.

As of the December 31, 2010 acquisition date, the PCI student loans had an aggregate outstanding balance of approximately $3.8 billion, including accrued interest, and a fair value (initial carrying value) of approximately $3.1 billion. Of the $3.8 billion aggregate outstanding balance of loans acquired, loans with an aggregate outstanding balance of approximately $31 million were non-performing as of the acquisition date. PCI student loans had an outstanding balance of $3.4 billion, including accrued interest, and a related carrying amount of $2.9 billion as of August 31, 2011.

At the time of acquisition, these loans were recorded at fair value. The Company estimated the initial fair value of the acquired loans based on the cash flows expected to be collected, discounted at a market rate of interest. Expected cash flows used in the initial fair value measurement reflect the effect of expected losses and prepayments as well as anticipated changes in the interest rate indices applicable to these variable rate loans.

Interest income is recognized on each pool of PCI student loans through accretion on a level-yield basis over the life of the loan pool of the difference between the carrying amount of the loan pool and the expected cash flows (accretable yield). The initial estimate of the fair value of the PCI student loans includes the impact of expected credit losses, and therefore, no allowance for loan losses was recorded at the purchase date. The difference between contractually required cash flows and cash flows expected to be collected, as measured at the acquisition date, is referred to as the non-accretable difference. Charge-offs are absorbed by the non-accretable difference and do not result in a charge to earnings.

The estimate of cash flows expected to be collected is updated each reporting period to reflect management’s latest assumptions about expected credit losses and borrower prepayments, and interest rates in effect in the current period. To the extent expected credit losses increase after the date of acquisition, the Company must record an allowance for loan losses through the provision for loan losses, which would reduce net income. There has not been any significant credit deterioration since the acquisition date, and therefore no allowance has been established for the PCI student loans at August 31, 2011. Changes in expected cash flows related to changes in prepayments or interest rate indices for variable rate loans generally are recorded prospectively as adjustments to interest income.

To the extent that a significant increase in cash flows due to lower expected losses is deemed probable, the Company will first reverse any previously established allowance for loan losses and then increase the amount of remaining accretable yield. The increase to yield would be recognized prospectively over the remaining life of the loan pool. An increase in the accretable yield would reduce the remaining non-accretable difference available to absorb subsequent charge-offs.

Certain PCI student loans in one of the pools are covered by an indemnification agreement with Citibank for credit losses. The indemnified loans are presented along with all other PCI student loans and the related indemnification asset is recognized as a separate asset on the Company’s condensed consolidated statement of financial condition. See Note 2: Business Combinations for a description of the indemnification asset.

The following table shows contractually required payments receivable, cash flows expected to be collected and fair value of loans acquired as of the acquisition date (dollars in millions):
	At December 31, 2010
Contractually required payments receivable (1)	$	5,673
Less: Non-accretable difference (2)	(846		)
Cash flows expected to be collected	4,827
Less: Accretable yield (3)	(1,776		)
Fair value of loans acquired	$	3,051

 ______________________

(1) Amount represents principal and interest payments, both currently due and due in the future, adjusted for the effect of estimated prepayments.

(2) Charge-offs on acquired loans will be written off against non-accretable difference.

(3) Amount accreted into interest income over the estimated lives of the acquired loans.

The following table provides changes in accretable yield for the acquired loans for the three and nine month periods ended August 31, 2011 (dollars in millions):

	For the Three Months Ended August 31, 2011			For the Nine Months Ended August 31, 2011
Balance at beginning of period	$	1,772		$	—
Acquisition of The Student Loan Corporation	—			1,776
Accretion into interest income	(54		)	(149		)
Reclassifications from non-accretable difference	—			91
Balance at end of period	$	1,718		$	1,718

During the nine months ended August 31, 2011, the Company reclassified $91 million from non-accretable difference because of an increase in expected cash flows. This amount will be recognized prospectively as an adjustment to yield over the remaining life of the pools.

At August 31, 2011, the 30 or more days delinquency and 90 or more days delinquency rates on PCI student loans (which includes loans not yet in repayment) were 2.60% and 0.83% , respectively. These rates include private student loans that are greater than 120 days delinquent that are covered by an indemnification agreement or insurance arrangements through which the Company expects to recover a substantial portion of the loan. The net charge-off rate on PCI student loans for the three and nine months ended August 31, 2011 was 1.23% and 1.22%, respectively.

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Commitments, Contingencies and Guarantees (Merchant Chargeback Guarantee) (Details) (Merchant Chargebacks [Member], USD $)	3 Months Ended				9 Months Ended
	Aug. 31, 2011		Aug. 31, 2010		Aug. 31, 2011		Aug. 31, 2010
Merchant Chargebacks [Member]
Losses related to merchant chargebacks	$ 291,000		$ 1,036,000		$ 1,625,000		$ 2,294,000
Aggregate sales transaction volume	$ 28,416,000,000	[1]	$ 25,990,000,000	[1]	$ 81,051,000,000	[1]	$ 74,645,000,000	[1]

[1] Represents period transactions processed on the Discover Network to which a potential liability exists which, in aggregate, can differ from credit card sales volume.

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Investment Securities (Schedule of Investment Securities) (Details) (USD $) In Thousands	Aug. 31, 2011	Nov. 30, 2010
Total investment securities	$ 5,952,168	$ 5,075,395
U.S. Treasury Securities [Member]
Total investment securities	2,371,805	1,575,403
U.S. Government Agency Securities [Member]
Total investment securities	2,669,180	1,888,701
States and Political Subdivisions of States [Member]
Total investment securities	39,670	51,774
Total Other Securities [Member]
Total investment securities	871,513	1,559,517
Credit Card Asset-Backed Securities of Other Issuers [Member]
Total investment securities	356,940	1,031,112
Corporate Debt Securities [Member]
Total investment securities	501,705	507,896	[1]
Residential Mortgage-Backed Securities [Member]
Total investment securities	7,344	9,800
Other Debt and Equity Securities [Member]
Total investment securities	$ 5,524	$ 10,709

[1] Amount represents corporate debt obligations issued under the Temporary Liquidity Guarantee Program (TLGP) that are guaranteed by the Federal Deposit Insurance Corporation (FDIC).

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Deposits (Tables)

9 Months Ended

Aug. 31, 2011

Deposits [Abstract]

Interest Bearing Deposit Accounts

A summary of interest-bearing deposit accounts is as follows (dollars in thousands):
	August 31, 2011			November 30, 2010
Certificates of deposit in amounts less than $100,000(1)	$	19,524,679		$	19,797,420
Certificates of deposit from amounts of $100,000(1)to less than $250,000(1)	4,999,091			4,626,792
Certificates of deposit in amounts of $250,000(1)or greater	1,148,445			1,146,843
Savings deposits, including money market deposit accounts	11,797,822			8,738,784
Total interest-bearing deposits	$	37,470,037		$	34,309,839
Average annual interest rate	2.67		%	3.12		%

 _______________________

(1) $100,000 represents the basic insurance amount previously covered by the FDIC. Effective July 21, 2010, the basic insurance per depositor was permanently increased to $250,000.

Deposit Maturities

At August 31, 2011, certificates of deposit maturing during the remainder of 2011, over the next four years and thereafter were as follows (dollars in thousands):
Year	Amount
2011	$	2,650,831
2012	$	10,787,166
2013	$	5,939,329
2014	$	2,576,005
2015	$	1,949,946
Thereafter	$	1,768,938

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Borrowings (Summary of Long-Term Borrowings and Weighted Average Interest Rate) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended									9 Months Ended			9 Months Ended			9 Months Ended				9 Months Ended				9 Months Ended			9 Months Ended				9 Months Ended					9 Months Ended					9 Months Ended		9 Months Ended			9 Months Ended					9 Months Ended				9 Months Ended		9 Months Ended		9 Months Ended		9 Months Ended		9 Months Ended									3 Months Ended
	Sep. 20, 2011	Aug. 31, 2011	Nov. 30, 2010	Aug. 31, 2011 SLC Private Student Loan Trust [Member] Minimum [Member] Secured Debt [Member] Floating Rate Asset-Backed Securities Including Discount of $238,629 [Member] Libor [Member]	Aug. 31, 2011 Discover Card Master Trust I and Discover Card Execution Note Trust [Member] Minimum [Member] Secured Debt [Member] Floating Rate Asset Backed Securities Due 2011 To 2015 Member Libor [Member]	Aug. 31, 2011 SLC Private Student Loan Trust [Member] Maximum [Member] Secured Debt [Member] Floating Rate Asset-Backed Securities Including Discount of $238,629 [Member] Libor [Member]	Aug. 31, 2011 Discover Card Master Trust I and Discover Card Execution Note Trust [Member] Maximum [Member] Secured Debt [Member] Floating Rate Asset Backed Securities Due 2011 To 2015 Member Libor [Member]	Aug. 31, 2011 SLC Private Student Loan Trust [Member] Secured Debt [Member]	Nov. 30, 2010 SLC Private Student Loan Trust [Member] Secured Debt [Member]	Aug. 31, 2011 SLC Private Student Loan Trust [Member] Secured Debt [Member] Floating Rate Asset-Backed Securities Including Discount of $238,629 [Member]		Nov. 30, 2010 SLC Private Student Loan Trust [Member] Secured Debt [Member] Floating Rate Asset-Backed Securities Including Discount of $238,629 [Member]	Aug. 31, 2011 SLC Private Student Loan Trust [Member] Secured Debt [Member] Floating Rate Asset-Backed Securities Including Discount of $3,847 [Member]	Nov. 30, 2010 SLC Private Student Loan Trust [Member] Secured Debt [Member] Floating Rate Asset-Backed Securities Including Discount of $3,847 [Member]	Aug. 31, 2011 SLC Private Student Loan Trust [Member] Secured Debt [Member] Floating Rate Asset-Backed Securities Including Discount of $3,847 [Member] Prime Rate [Member]	Aug. 31, 2011 SLC Private Student Loan Trust [Member] Secured Debt [Member] Floating Rate Asset-Backed Securities Including Premium of $2,927 [Member]		Nov. 30, 2010 SLC Private Student Loan Trust [Member] Secured Debt [Member] Floating Rate Asset-Backed Securities Including Premium of $2,927 [Member]	Aug. 31, 2011 SLC Private Student Loan Trust [Member] Secured Debt [Member] Floating Rate Asset-Backed Securities Including Premium of $2,927 [Member] Prime Rate [Member]	Aug. 31, 2011 SLC Private Student Loan Trust [Member] Secured Debt [Member] Floating Rate Asset-Backed Securities Including Premium of $6,894 [Member]		Nov. 30, 2010 SLC Private Student Loan Trust [Member] Secured Debt [Member] Floating Rate Asset-Backed Securities Including Premium of $6,894 [Member]	Aug. 31, 2011 SLC Private Student Loan Trust [Member] Secured Debt [Member] Floating Rate Asset-Backed Securities Including Premium of $6,894 [Member] Libor [Member]	Aug. 31, 2011 Discover Bank [Member] Secured Debt [Member] 0.79% of Long Term Borrowings [Member]	Nov. 30, 2010 Discover Bank [Member] Secured Debt [Member] 0.79% of Long Term Borrowings [Member]	Aug. 31, 2011 Discover Bank [Member] Secured Debt [Member] 0.79% of Long Term Borrowings [Member] Commercial Paper Rate [Member]	Aug. 31, 2011 Discover Bank [Member] Secured Debt [Member] Floating Rate Secured Borrowing Maturing December 2010 [Member]		Nov. 30, 2010 Discover Bank [Member] Secured Debt [Member] Floating Rate Secured Borrowing Maturing December 2010 [Member]	Aug. 31, 2011 Discover Bank [Member] Secured Debt [Member] Floating Rate Secured Borrowing Maturing December 2010 [Member] Libor [Member]	Aug. 31, 2011 Discover Bank [Member] Secured Debt [Member] Floating Rate Secured Borrowing Maturing August 2013 [Member]		Nov. 30, 2010 Discover Bank [Member] Secured Debt [Member] Floating Rate Secured Borrowing Maturing August 2013 [Member]		Aug. 31, 2011 Discover Bank [Member] Secured Debt [Member] Floating Rate Secured Borrowing Maturing August 2013 [Member] Commercial Paper Rate [Member]	Aug. 31, 2011 Discover Card Master Trust I and Discover Card Execution Note Trust [Member] Floating Rate Asset Backed Securities And Other Borrowings [Member] Secured Debt [Member]	Nov. 30, 2010 Discover Card Master Trust I and Discover Card Execution Note Trust [Member] Floating Rate Asset Backed Securities And Other Borrowings [Member] Secured Debt [Member]	Aug. 31, 2011 Discover Card Master Trust I and Discover Card Execution Note Trust [Member] Floating Rate Asset Backed Securities And Other Borrowings [Member] Secured Debt [Member] Commercial Paper Rate [Member]	Aug. 31, 2011 Discover Card Master Trust I and Discover Card Execution Note Trust [Member] Secured Debt [Member]	Nov. 30, 2010 Discover Card Master Trust I and Discover Card Execution Note Trust [Member] Secured Debt [Member]	Aug. 31, 2011 Discover Card Master Trust I and Discover Card Execution Note Trust [Member] Secured Debt [Member] Fixed Rate Asset Backed Securities Including Discount of $1,339 [Member]	Nov. 30, 2010 Discover Card Master Trust I and Discover Card Execution Note Trust [Member] Secured Debt [Member] Fixed Rate Asset Backed Securities Including Discount of $1,339 [Member]	Aug. 31, 2011 Discover Card Master Trust I and Discover Card Execution Note Trust [Member] Secured Debt [Member] Floating Rate Asset Backed Securities Due 2011 To 2015 Member		Nov. 30, 2010 Discover Card Master Trust I and Discover Card Execution Note Trust [Member] Secured Debt [Member] Floating Rate Asset Backed Securities Due 2011 To 2015 Member	Aug. 31, 2011 Discover Card Master Trust I and Discover Card Execution Note Trust [Member] Secured Debt [Member] Floating Rate Asset Backed Securities Due 2012 [Member]		Nov. 30, 2010 Discover Card Master Trust I and Discover Card Execution Note Trust [Member] Secured Debt [Member] Floating Rate Asset Backed Securities Due 2012 [Member]	Aug. 31, 2011 Discover Card Master Trust I and Discover Card Execution Note Trust [Member] Secured Debt [Member] Floating Rate Asset Backed Securities Due 2012 [Member] Libor [Member]	Aug. 31, 2011 Discover Card Master Trust I and Discover Card Execution Note Trust [Member] Secured Debt [Member] Floating Rate Asset-Backed Securities Including Discount of $238,629 [Member]	Aug. 31, 2011 Secured Debt [Member] Floating Rate Asset-Backed Securities Including Discount of $3,847 [Member]		Aug. 31, 2011 Secured Debt [Member] Long-Term Borrowings-owed to Securitization Investors [Member]	Nov. 30, 2010 Secured Debt [Member] Long-Term Borrowings-owed to Securitization Investors [Member]	Aug. 31, 2011 Parent Company [Member] Corporate Debt Securities [Member] Fixed Rate Senior Notes Due 2017 [Member]	Nov. 30, 2010 Parent Company [Member] Corporate Debt Securities [Member] Fixed Rate Senior Notes Due 2017 [Member]	Aug. 31, 2011 Parent Company [Member] Corporate Debt Securities [Member] Fixed Rate Senior Notes Due 2019 [Member]	Nov. 30, 2010 Parent Company [Member] Corporate Debt Securities [Member] Fixed Rate Senior Notes Due 2019 [Member]	Aug. 31, 2011 Discover Bank [Member] Subordinated Debt [Member] Subordinated Bank Notes Due 2019 Including Discount of $1,483 [Member]	Nov. 30, 2010 Discover Bank [Member] Subordinated Debt [Member] Subordinated Bank Notes Due 2019 Including Discount of $1,483 [Member]	Aug. 31, 2011 Discover Bank [Member] Subordinated Debt [Member] Subordinated Bank Notes Due 2020 Including Discount Of $2,988 [Member]	Nov. 30, 2010 Discover Bank [Member] Subordinated Debt [Member] Subordinated Bank Notes Due 2020 Including Discount Of $2,988 [Member]	Aug. 31, 2011 Capital Lease Obligations [Member]	Nov. 30, 2010 Capital Lease Obligations [Member]	Aug. 31, 2011 Parent Company [Member] Fixed Rate Senior Notes Due 2017 [Member]		Nov. 30, 2010 Parent Company [Member] Fixed Rate Senior Notes Due 2017 [Member]		Aug. 31, 2011 Discover Bank [Member] Fixed Rate Senior Notes Due 2017 [Member]	Aug. 31, 2011 Discover Bank [Member] Subordinated Bank Notes Due 2019 Including Discount of $1,483 [Member]	Aug. 31, 2011 Discover Bank [Member] Subordinated Bank Notes Due 2020 Including Discount Of $2,988 [Member]	Sep. 20, 2011 Libor [Member]
Debt Instrument [Line Items]
Interest Rate										0.45%			4.25%			4.00%				3.71%				0.00%	0.79%		0.00%		0.70%		0.72%	[1]	0.66%	[1]		0.89%	0.98%				5.65%	5.47%	0.77%		0.75%	0.59%		0.63%							6.45%	6.45%	10.25%	10.25%	8.70%	8.70%	7.00%	7.00%	0.00%	6.26%
Interest Rate Terms										3-month LIBOR(1) + 7 to 45 basis points	[2]		Prime rate +100 basis points			Prime rate + 75 basis points				1-month LIBOR(1) + 350 basis points	[2]			Commercial Paper rate + 50 basis points			1-month LIBOR(1) + 45 basis points	[2]			Commercial Paper rate + 50 basis points	[1]				Commercial Paper rate + 70 basis points					Various fixed rates		1-month LIBOR(1) + 3 to 130 basis points	[2]		3-month LIBOR(1) + 34 basis points	[2]								Fixed		Fixed		Fixed		Fixed		Fixed									one-month LIBOR plus 21 basis points
Long term borrowing maturity period	three years									Various April 2018— July 2036(2)	[3]					July 2042(2)	[3]			July 2042(2)	[3]			December  2010			December  2010				August  2013(4)	[1]				April 2013					Various June 2013— September 2017		Various September 2011— September 2015			December 2012					June 2031(2)	[3]			June 2017		July 2019		November 2019		April 2020		June 2011
Long-term Debt and Capital Lease Obligations		$ 17,718,200	$ 17,705,728					$ 2,640,794	$ 0	$ 1,436,906		$ 0	$ 648,407	$ 0		$ 165,597		$ 0		$ 389,884		$ 0		$ 0	$ 93,980		$ 0		$ 212,336		$ 454,178	[1]	$ 492,910	[1]		$ 250,000	$ 450,000		$ 12,619,715	$ 14,919,400	$ 1,748,660	$ 2,598,343	$ 9,371,055		$ 10,621,057	$ 1,250,000		$ 1,250,000					$ 15,260,509	$ 14,919,400	$ 407,984	$ 391,579	$ 400,000	$ 400,000	$ 698,517	$ 698,382	$ 497,012	$ 496,753	$ 0	$ 388
Fair value adjustment																																																																	8,456	[4]	(7,888)	[4]
Long term borrowing book value including discount of $492																																																																	399,528		399,467
Discount													3,847																												1,339									238,629																			472	1,483	2,988
Premium																$ 2,927				$ 6,894
Debt Instrument, Basis Spread on Variable Rate				0.07%	0.03%	0.45%	1.30%								1.00%				0.75%				3.50%			0.50%				0.45%					0.50%			0.70%											0.34%
Debt Instrument, Maturity Date Range, Start										April 2018																															June 2013		September 2011
Debt Instrument, Maturity Date Range, End										July 2036																															September 2017		September 2015

[1] Under a program established by the U.S. Department of Education, this loan facility was entered into to fund certain federal student loans, which were held for sale at August 31, 2011 and November 30, 2010. Principal and interest payments on the underlying student loans will reduce the balance of the secured borrowing over time, with final maturity in August 2013. However, upon sale of the loans, this loan facility will be repaid

[2] London Interbank Offered Rate (“LIBOR”)

[3] Repayment of this debt is dependent upon the timing of principal and interest payments on the underlying student loans. The dates shown represent final maturity dates

[4] The Company uses interest rate swaps to hedge this long-term borrowing against changes in fair value attributable to changes in LIBOR. See Note 14: Derivatives and Hedging Activities

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Subsequent Events (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended	9 Months Ended		3 Months Ended	1 Months Ended	3 Months Ended
	Sep. 20, 2011	Aug. 31, 2011	Sep. 20, 2011 Libor [Member] Issuance of Debt [Member]	Sep. 20, 2011 Issuance of Debt [Member]	Sep. 30, 2011 Dividend Declared [Member]	Sep. 20, 2011 Libor [Member]
Subsequent Event [Line Items]
Dividends payable, amount per share					$ 0.06
Dividends payable, date declared, day, month and year		Sep. 14, 2011
Dividends payable, date of record, day, month and year		Oct. 06, 2011
Dividends payable, date to be paid, day, month and year		Oct. 20, 2011
Public credit card asset-backed securities issued by Company				$ 800
Rate of 1M LIBOR plus 21						one-month LIBOR plus 21 basis points
Long term borrowing maturity period	three years
Debt Instrument, Basis Spread on Variable Rate			0.20%

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Litigation (Details) (Pending or Threatened Litigation [Member], USD $)	Aug. 31, 2011
Pending or Threatened Litigation [Member]
Aggregate range of reasonably possible losses, minimum	$ 0
Aggregate range of reasonably possible losses, maximum	$ 40,000,000

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Deposits (Narrative) (Details) (USD $) In Billions	Aug. 31, 2011	Nov. 30, 2010
Deposits [Abstract]
Direct-to-consumer deposits	$ 24.5	$ 20.6
Brokered deposits	$ 13.0	$ 13.7

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Commitments, Contingencies and Guarantees (Tables)

9 Months Ended

Aug. 31, 2011

Lease Commitments

Lease commitments. The Company leases various office space and equipment under capital and non-cancelable operating leases which expire at various dates through 2021. At August 31, 2011, future minimum payments on leases with original terms in excess of one year consist of the following (dollars in thousands):
	Operating Leases
2011	$	2,537
2012	10,401
2013	8,614
2014	7,161
2015	6,135
Thereafter	14,458
Total minimum lease payments	$	49,306

Settlement Withholdings and Escrow Deposits

The Company has not recorded any contingent liability in the condensed consolidated financial statements for merchant chargeback guarantees on August 31, 2011 and November 30, 2010. The Company mitigates the risk of potential loss exposure by withholding settlement from merchants, obtaining third party guarantees, or obtaining escrow deposits or letters of credit from certain merchant acquirers or merchants that are considered higher risk due to various factors such as time delays in the delivery of products or services. The table below provides information regarding settlement withholdings and escrow deposits, which are recorded in interest-bearing deposit accounts, and accrued expenses and other liabilities on the Company’s condensed consolidated statements of financial condition (dollars in thousands):
	August 31, 2011		November 30, 2010
Settlement withholdings and escrow deposits	$	21,948	$	30,483

Counterparty Settlement Guarantees [Member]

Maximum Potential Counterparty Exposures Related to Settlement Guarantees

The maximum potential amount of future payments related to such contingent obligations is dependent upon the transaction volume processed between the time a counterparty defaults on its settlement and the time at which the Company disables the settlement of any further transactions for the defaulting party, which could be up to one month depending on the type of guarantee/counterparty. However, there is no limitation on the maximum amount the Company may be liable to pay. The actual amount of the potential exposure cannot be quantified as the Company cannot determine whether particular counterparties will fail to meet their settlement obligations. While the Company has some contractual remedies to offset these counterparty settlement exposures (such as letters of credit or pledged deposits), in the event that all licensees and/or issuers were to become unable to settle their transactions, the Company estimates its maximum potential counterparty exposures to these settlement guarantees, based on historical transaction volume of up to one month, would be as follows:
	August 31, 2011
Diners Club:
Merchant guarantee (in millions)	$	255
PULSE:
ATM guarantee (in thousands)	$	1,077

Merchant Chargeback Guarantees [Member]

Maximum Potential Counterparty Exposures Related to Settlement Guarantees

The table below summarizes certain information regarding merchant chargebacks guarantees:
	For the Three Months Ended August 31,				For the Nine Months Ended August 31,
	2011		2010		2011		2010
Losses related to merchant chargebacks (in thousands)	$	291	$	1,036	$	1,625	$	2,294
Aggregate sales transaction volume (in millions)(1)	$	28,416	$	25,990	$	81,051	$	74,645

 ________________

(1) Represents period transactions processed on the Discover Network to which a potential liability exists which, in aggregate, can differ from credit card sales volume.

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Investment Securities (Narrative) (Details) (USD $)	3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended				9 Months Ended
	Aug. 31, 2011	Aug. 31, 2010	Aug. 31, 2011	Aug. 31, 2010	Aug. 31, 2011 Asset-backed Securities, Securitized Loans and Receivables [Member]	Aug. 31, 2010 Asset-backed Securities, Securitized Loans and Receivables [Member]	Aug. 31, 2011 Asset-backed Securities, Securitized Loans and Receivables [Member]	Aug. 31, 2010 Asset-backed Securities, Securitized Loans and Receivables [Member]	Aug. 31, 2011 States and Political Subdivisions of States [Member]	Nov. 30, 2010 States and Political Subdivisions of States [Member]	Aug. 31, 2010 Golden Key impairment [Member]
Proceeds related to maturities or redemptions of investment securities	$ 170,500,000	$ 159,700,000	$ 803,900,000	$ 560,300,000	$ 165,000,000	$ 75,200,000	$ 786,500,000	$ 469,600,000
Unrealized losses on available-for-sale investment securities, pre tax	61,000,000	13,600,000	87,700,000	9,900,000							7,500,000
Unrealized losses on available-for-sale investment securities, after tax	38,200,000	8,500,000	54,900,000	6,300,000							4,700,000
Held-to-maturity securities, continuous unrealized loss position, more than 12 months, unrealized losses									$ 2,922,000	$ 3,532,000

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Income Taxes (Tables)

9 Months Ended

Aug. 31, 2011

Income Tax Disclosure [Abstract]

Income Tax Expense

Income tax expense consisted of the following (dollars in thousands):
	For the Three Months Ended August 31,				For the Nine Months Ended August 31,
	2011		2010		2011		2010
Current:
U.S. federal	$	213,765	$	68,942	$	550,250	$	166,541
U.S. state and local	38,576		24,451		74,292		38,512
International	747		53		3,018		298
Total	253,088		93,446		627,560		205,351
Deferred:
U.S. federal	135,145		73,149		332,965		61,301
U.S. state and local	10,024		4,931		18,882		1,830
International	6		—		7		—
Total	145,175		78,080		351,854		63,131
Income tax expense	$	398,263	$	171,526	$	979,414	$	268,482

Reconciliation of the Company's Effective Tax Rate to the U.S. Federal Statutory Income Tax Rate

The following table reconciles the Company’s effective tax rate to the U.S. federal statutory income tax rate:
	For the Three Months Ended August 31,				For the Nine Months Ended August 31,
	2011		2010		2011		2010
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%	35.0	%
U.S. state and local income taxes, net of U.S. federal income tax benefits	3.4		4.8		2.6		4.3
Valuation allowance - capital loss	—		—		(0.8	)	—
Non-deductible compensation	—		0.1		—		0.5
Other	(0.4	)	(0.2	)	(0.4	)	(0.5	)
Effective income tax rate	38.0	%	39.7	%	36.4	%	39.3	%

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Litigation

9 Months Ended

Aug. 31, 2011

Litigation Dislcosure [Abstract]

Litigation

Litigation

In the normal course of business, from time to time, the Company has been named as a defendant in various legal actions, including arbitrations, class actions, and other litigation, arising in connection with its activities. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. The Company contests liability and/or the amount of damages as appropriate in each pending matter. In accordance with applicable accounting guidance, the Company establishes an accrued liability for legal and regulatory matters when those matters present loss contingencies which are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. The Company believes the estimate of the aggregate range of reasonably possible losses (meaning those losses the likelihood of which is more than remote but less than likely) in excess of the amounts that the Company has accrued for legal and regulatory proceedings is from $0 to $40 million. This estimated range of reasonably possible losses is based upon currently available information for those proceedings in which the Company is involved, takes into account the Company’s best estimate of such losses for those matters for which an estimate can be made, and does not represent the Company’s maximum potential loss exposure. Various aspects of the legal proceedings underlying the estimated range will change from time to time and actual results may vary significantly from the estimate.

The Company’s estimated range above involves significant judgment, given the varying stages of the proceedings, the existence of numerous yet to be resolved issues, the breadth of the claims (often spanning multiple years and, in some cases, a wide range of business activities), unspecified damages and/or the novelty of the legal issues presented. The outcome of pending matters could be material to the Company’s consolidated financial condition, operating results and cash flows for a particular future period, depending on, among other things, the level of the Company’s income for such period, and could adversely affect the Company’s reputation.

The Company has historically relied on the arbitration clause in its cardmember agreements, which has in some instances limited the costs of, and the Company’s exposure to, litigation, but there can be no assurance that the Company will continue to be successful in enforcing its arbitration clause in the future. Legal challenges to the enforceability of these clauses have led most card issuers and may cause the Company to discontinue their use, and there are bills pending in Congress to directly or indirectly prohibit the use of pre-dispute arbitration clauses. Further, the Company is involved in pending legal actions challenging its arbitration clause.

The Company is also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental agencies regarding the Company’s business including, among other matters, accounting, tax and operational matters, some of which may result in significant adverse judgments, settlements, fines, penalties, injunctions, decreases in regulatory ratings or other relief, which could materially impact the Company's financial statements, increase its cost of operations, or limit its ability to execute its business strategies and engage in certain business activities. For example, the Company received a notice of proposed assessment from the IRS related to its audit of the Company’s 1999-2005 tax years as further discussed in Note 8: Income Taxes.

In addition, as previously disclosed, the FDIC has been reviewing Discover Bank's marketing practices with respect to its fee-based products, including its payment protection fee product. The FDIC has notified Discover Bank that it plans to take an enforcement action against Discover Bank. Since well before the FDIC's review began, Discover Bank has made changes to both its fee-based products and program, and Discover Bank believes its current practices substantially address the FDIC's concerns.

There are eight class action cases pending in relation to the sale of the Company’s payment protection fee product. The cases were filed (all in United States District Courts) on: July 8, 2010 in the Northern District of California (Walker, et al. v. DFS, Inc. and Discover Bank; subsequently transferred to the Northern District of Illinois); July 16, 2010 in the Central District of California (Conroy v. Discover Financial Services and Discover Bank); October 22, 2010 in the District of South Carolina (Alexander v. Discover Financial Services, Inc.; DFS Services LLC; Discover Bank; and Morgan Stanley); November 5, 2010 in the Northern District of Illinois (Callahan v. Discover Financial Services, Inc. and Discover Bank); December 17, 2010 in the Western District of Tennessee (Sack v. DFS Services LLC; Discover Financial Services, Inc.; and Discover Bank); January 14, 2011 in the Eastern District of Pennsylvania (Boyce v. DFS Services LLC; Discover Financial Services Inc.; Discover Bank); February 15, 2011 in the Southern District of Florida (Triplett v. Discover Financial Services, Inc., DFS Financial Services LLC, Discover Bank and Morgan Stanley); and March 7, 2011 in the Eastern District of Pennsylvania (Carter v. Discover Financial Services, Inc., DFS Financial Services LLC, Discover Bank, Morgan Stanley et al.). All of the cases have been transferred to the U.S. District Court for the Northern District of Illinois pursuant to a multi-district litigation order issued by the Joint Panel on Multidistrict Litigation in February 2011. These class actions challenge the Company’s marketing practices with respect to its payment protection fee product to cardmembers under various state laws and the Truth in Lending Act. The plaintiffs seek monetary remedies including unspecified damages and restitution, attorneys’ fees and costs, and various forms of injunctive relief including an order rescinding the payment protection fee product enrollments of all class members. In June 2011, the Company and class counsel entered into a preliminary global settlement of all of the pending class actions. The settlement is subject to judicial approval.

On December 6, 2010, the Attorney General for the State of Minnesota filed a lawsuit against the Company in the District Court for Hennepin County, Minnesota (Minnesota v. Discover Financial Services, Discover Bank and DFS Services LLC). The lawsuit challenges the Company’s enrollment of Discover cardmembers in various fee based products under Minnesota law. The remedies sought in the lawsuit include an injunction prohibiting the Company from engaging in the alleged violations, restitution for all persons allegedly injured by the complained of practices, civil penalties and costs. The Company will seek to vigorously defend all claims asserted against it.

On August 16, 2011, the Attorney General of West Virginia filed a lawsuit against the Company in the Circuit Court of Mason County, West Virginia (West Virginia v. Discover Financial Services, Inc., Discover Bank, DFS Services LLC et al.). The lawsuit asserts various claims related to the Company's marketing and administration of various fee based products under West Virginia law. The relief sought in the lawsuit includes an injunction prohibiting the company from engaging in the alleged violations, restitution and disgorgement of monies received from the complained of practices, civil penalties and costs. The Company will seek to vigorously defend all claims asserted against it.

On August 26, 2011, the Attorney General of Missouri issued a request for information to the Company in connection with an investigation to determine whether the Company has engaged in conduct that violates Missouri law in the marketing of its payment protection fee product to its credit card customers. The Company is cooperating with the Attorney General in the investigation.

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Loan Receivables (Changes in Accretable Yield for the Acquired Loans) (Details) (USD $) In Millions	3 Months Ended	9 Months Ended
	Aug. 31, 2011	Aug. 31, 2011	Feb. 28, 2011	Dec. 31, 2010
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Accretable Yield Movement Schedule [Roll Forward]
Balance at beginning of period		$ 0	$ 1,772	$ (1,776)	[1]
Acquisition of the Student Loan Corporation	0	1,776
Accretion into interest income	(54)	(149)
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Accretable Yield, Reclassifications from Nonaccretable Difference	0	91
Balance at end of period	$ 1,718	$ 1,718	$ 1,772	$ (1,776)	[1]

[1] Amount accreted into interest income over the estimated lives of the acquired loans.

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Fair Value Disclosures (Assets and Liabilities Measured at Fair Value on a Recurring Basis) (Details) (USD $) In Thousands	Aug. 31, 2011	Nov. 30, 2010
Statement [Line Items]
Available-for-sale investment securities, fair value	$ 5,899,080	$ 5,002,579
Derivative financial instruments, assets	60,955	4,995
Derivative financial instruments, liabilities	4	6,594
Level 1 [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	5,040,435	3,463,554
Derivative financial instruments, assets	0	0
Derivative financial instruments, liabilities	0	0
Level 1 [Member] | U.S. Treasury Securities [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	2,371,255	1,574,853
Level 1 [Member] | U.S. Government Agency Securities [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	2,669,180	1,888,701
Level 1 [Member] | Credit Card Asset-Backed Securities of Other Issuers [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	0	0
Level 1 [Member] | Corporate Debt Securities [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	0	0
Level 1 [Member] | Equity Securities [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	0	0
Level 2 [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	858,645	1,539,008
Derivative financial instruments, assets	60,955	4,995
Derivative financial instruments, liabilities	4	6,594
Level 2 [Member] | U.S. Treasury Securities [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	0	0
Level 2 [Member] | U.S. Government Agency Securities [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	0	0
Level 2 [Member] | Credit Card Asset-Backed Securities of Other Issuers [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	356,940	1,031,112
Level 2 [Member] | Corporate Debt Securities [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	501,705	507,896
Level 2 [Member] | Equity Securities [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	0	0
Level 3 [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	0	17
Derivative financial instruments, assets	0	0
Derivative financial instruments, liabilities	0	0
Level 3 [Member] | U.S. Treasury Securities [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	0	0
Level 3 [Member] | U.S. Government Agency Securities [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	0	0
Level 3 [Member] | Credit Card Asset-Backed Securities of Other Issuers [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	0	0
Level 3 [Member] | Corporate Debt Securities [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	0	0
Level 3 [Member] | Equity Securities [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	0	17
U.S. Treasury Securities [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	2,371,255	1,574,853
U.S. Government Agency Securities [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	2,669,180	1,888,701
Credit Card Asset-Backed Securities of Other Issuers [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	356,940	1,031,112
Corporate Debt Securities [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	501,705	507,896
Equity Securities [Member]
Statement [Line Items]
Available-for-sale investment securities, fair value	$ 0	$ 17

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Commitments, Contingencies and Guarantees (Lease Commitments) (Details) (USD $) In Thousands	Aug. 31, 2011
Operating Leases, Future Minimum Payments Due [Abstract]
2011, Operating Leases	$ 2,537
2012, Operating Leases	10,401
2013, Operating Leases	8,614
2014, Operating Leases	7,161
2015, Operating Leases	6,135
Thereafter, Operating Leases	14,458
Total minimum lease payments, Operating Leases	$ 49,306

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Credit Card and Student Loan Securitization Activities (Restricted Assets Carrying Value) (Details) (USD $) In Thousands	Aug. 31, 2011	Nov. 30, 2010
Restricted cash - for securitization investors	$ 937,230	$ 1,363,758
Acquired private student loans carrying amount	2,886,783	0
Other assets	2,158,761	2,434,661
Variable Interest Entity, Primary Beneficiary [Member]
Restricted cash - for securitization investors	937,230	1,363,758
Other assets	30,404	24,083
Variable Interest Entity, Primary Beneficiary [Member] | Student Loan Securitization Trusts [Member]
Restricted cash - for securitization investors	125,621
Acquired private student loans carrying amount	2,876,923	0
Other assets	5,209
Variable Interest Entity, Consolidated, Carrying Amount, Assets	$ 3,007,753

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Credit Card and Student Loan Securitization Activities

9 Months Ended

Aug. 31, 2011

Transfers and Servicing of Financial Assets [Abstract]

Credit Card and Student Loan Securitization Activities

Credit Card and Student Loan Securitization Activities

Credit Card Securitization Activities

The Company accesses the term asset securitization market through the Discover Card Master Trust I (“DCMT”) and the Discover Card Execution Note Trust (“DCENT”), which are trusts into which credit card loan receivables are transferred (or, in the case of DCENT, into which beneficial interests in DCMT are transferred) and from which beneficial interests are issued to investors.

The DCMT structure consists of Class A, triple-A rated certificates and Class B, single-A rated certificates held by third parties. Credit enhancement is provided by the subordinated Class B certificates, cash collateral accounts, and more subordinated Series 2009-CE certificates that are held by a wholly-owned subsidiary of Discover Bank. The DCENT debt structure consists of four classes of securities (DiscoverSeries Class A, B, C and D notes), with the most senior class generally receiving a triple-A rating. In this structure, in order to issue senior, higher rated classes of notes, it is necessary to obtain the appropriate amount of credit enhancement, generally through the issuance of junior, lower rated or more highly subordinated classes of notes. The majority of these more highly subordinated classes of notes are held by subsidiaries of Discover Bank. In addition, there is another series of certificates (Series 2009-SD) issued by DCMT which provides increased excess spread levels to all other outstanding securities of the trusts. The Series 2009-SD certificates are held by a wholly-owned subsidiary of Discover Bank. In January 2010, the Company increased the size of the Class D (2009-1) note and Series 2009-CE certificate to further support the more senior securities of the trusts. The Company was not contractually required to provide this incremental level of credit enhancement but did so pursuant to the trusts’ governing documents in order to maintain the credit ratings of the securities issued by the trusts and to preserve the Company’s ability to participate in the credit card asset-backed securitization markets. The credit-related risk of loss associated with trust assets as of the balance sheet date to which the Company is exposed through the retention of these subordinated interests is fully captured in the allowance for loan losses recorded by the Company.

The Company’s credit card securitizations are accounted for as secured borrowings and the trusts are treated as consolidated subsidiaries of the Company. The Company’s retained interests in the assets of the trusts, principally consisting of investments in DCMT certificates and DCENT notes held by subsidiaries of Discover Bank, constitute intercompany positions which are eliminated in the preparation of the Company’s condensed consolidated statement of financial condition.

Upon transfer of credit card loan receivables to the trust, the receivables and certain cash flows derived from them become restricted for use in meeting obligations to the trusts’ creditors. The trusts have ownership of cash balances that also have restrictions, the amounts of which are reported in restricted cash. Investment of trust cash balances is limited to investments that are permitted under the governing documents of the trusts and which have maturities no later than the related date on which funds must be made available for distribution to trust investors. With the exception of the seller’s interest in trust receivables, the Company’s interests in trust assets are generally subordinate to the interests of third-party investors and, as such, may not be realized by the Company if needed to absorb deficiencies in cash flows that are allocated to the investors in the trusts’ debt. The carrying values of these restricted assets, which are presented on the Company’s condensed consolidated statement of financial condition as relating to securitization activities, are shown in the table below (dollars in thousands):
	August 31, 2011			November 30, 2010
Cash collateral accounts (1)	$	226,579		$	459,474
Collections and interest funding accounts	585,030			904,284
Restricted cash	811,609			1,363,758
Investors’ interests held by third-party investors	12,621,054			14,921,057
Investors’ interests held by wholly owned subsidiaries of Discover Bank	4,327,121			4,608,210
Seller’s interest	17,030,805			14,923,722
Loan receivables (2)	33,978,980			34,452,989
Allowance for loan losses allocated to securitized loan receivables (2)	(1,589,949		)	(2,431,399		)
Net loan receivables	32,389,031			32,021,590
Other	25,195			24,083
Carrying value of assets of consolidated variable interest entities	$	33,225,835		$	33,409,431

 _______________________

(1) As of November 30, 2010, the full amount was pledged as collateral against a long-term borrowing.

(2) The Company maintains its allowance for loan losses at an amount sufficient to absorb probable losses inherent in all loan receivables, which includes all loan receivables in the trusts. Therefore, credit risk associated with the transferred receivables is fully reflected on the Company’s balance sheet in accordance with GAAP.

The debt securities issued by the consolidated VIEs are subject to credit, payment and interest rate risks on the transferred credit card loan receivables. To protect investors, the securitization structures include certain features that could result in earlier-than-expected repayment of the securities. The primary investor protection feature relates to the availability and adequacy of cash flows in the securitized pool of receivables to meet contractual requirements. Insufficient cash flows would trigger the early repayment of the securities. This is referred to as the “economic early amortization” feature.

Investors are allocated cash flows derived from activities related to the accounts comprising the securitized pool of receivables, the amounts of which reflect finance charges billed, certain fee assessments, allocations of merchant discount and interchange, and recoveries on charged-off accounts. From these cash flows, investors are reimbursed for charge-offs occurring within the securitized pool of receivables and receive a contractual rate of return and Discover Bank is paid a servicing fee as servicer. Any cash flows remaining in excess of these requirements are reported to investors as excess spread. An excess spread rate of less than 0% for a contractually specified period, generally a three-month average, would trigger an economic early amortization event. In such an event, the Company would be required to seek immediate sources of replacement funding. Apart from the restricted assets related to securitization activities, the investors and the securitization trusts have no recourse to the Company’s other assets or credit for a shortage in cash flows.

The Company is required to maintain a contractual minimum level of receivables in the trust in excess of the face value of outstanding investors’ interests. This excess is referred to as the minimum seller’s interest requirement. The required minimum seller’s interest in the pool of trust receivables, which is included in credit card loan receivables restricted for securitization investors, is set at approximately 7% in excess of the total investors’ interests (which includes interests held by third parties as well as those certificated interests held by the Company). If the level of receivables in the trust was to fall below the required minimum, the Company would be required to add receivables from the unrestricted pool of receivables, which would increase the amount of credit card loan receivables restricted for securitization investors. A decline in the amount of the excess seller’s interest could occur if balance repayments and charge-offs exceeded new lending on the securitized accounts or as a result of changes in total outstanding investors’ interests. If the Company could not add enough receivables to satisfy the requirement, an early amortization (or repayment) of investors’ interests would be triggered.

Another feature of the Company’s securitization structure that is designed to protect investors’ interests from loss, which is applicable only to the notes issued from DCENT, is a reserve account funding requirement in which excess cash flows generated by the transferred loan receivables are held at the trust. This funding requirement is triggered when DCENT’s three-month average excess spread rate decreases to below 4.5%, with increasing funding requirements as excess spread levels decline below preset levels to 0%.

In addition to performance measures associated with the transferred credit card loan receivables, there are other events or conditions which could trigger an early amortization event. As of August 31, 2011, no economic or other early amortization events have occurred.

The tables below provide information concerning investors’ interests and related excess spreads at August 31, 2011 (dollars in thousands):
	Investors’ Interests(1)		# of Series Outstanding
Discover Card Master Trust I	$	3,830,858	7
Discover Card Execution Note Trust (DiscoverSeries notes)	13,117,317		28
Total investors’ interests	$	16,948,175	35

______________________ 

(1) Investors’ interests include third-party interests and subordinated interests held by wholly-owned subsidiaries of Discover Bank.

	3-Month Rolling Average Excess Spread(1)(2)
Group excess spread percentage	16.92	%
DiscoverSeries excess spread percentage	16.76	%

 ______________________

(1) DCMT certificates refer to the higher of the Group excess spread or their applicable series excess spread (not shown) and DiscoverSeries notes refer to the higher of the Group or DiscoverSeries excess spread in assessing whether an economic early amortization has been triggered.

(2) Discount Series (DCMT 2009-SD) makes principal collections available for reallocation to other series to cover shortfalls in interest and servicing fees and to reimburse charge-offs. Three-month rolling average excess spread rates reflected the availability of these additional collections.

The Company continues to own and service the accounts that generate the loan receivables held by the trusts. Discover Bank receives servicing fees from the trusts based on a percentage of the monthly investor principal balance outstanding. Although the fee income to Discover Bank offsets the fee expense to the trusts and thus is eliminated in consolidation, failure to service the transferred loan receivables in accordance with contractual requirements could lead to a termination of the servicing rights and the loss of future servicing income.

Student Loan Securitization Activities

The Company’s student loan securitizations are accounted for as secured borrowings and the trusts are treated as consolidated subsidiaries of the Company. Trust receivables underlying third-party investors’ interests are recorded in purchased credit-impaired loans, and the related debt issued by the trusts is reported in long-term borrowings. The assets of the Company’s consolidated VIEs are restricted from being sold or pledged as collateral for other borrowings and the cash flows from these restricted assets may be used only to pay obligations of the trust.

Under terms of all the trust arrangements, the Company has the option, but not the obligation, to provide financial support to the trusts, but has never provided such support. A substantial portion of the credit risk associated with the securitized loans has been transferred to third parties under private credit insurance or indemnification arrangements. See Note 2: Business Combinations.

The carrying values of these restricted assets, which are presented on the Company’s condensed consolidated statement of financial condition as relating to securitization activities, are shown in the table below (dollars in thousands):
	August 31, 2011
Restricted cash	$	125,621
Student loan receivables	$	2,876,923
Other assets	$	5,209
Carrying value of assets of consolidated variable interest entities	$	3,007,753

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Segment Disclosures (Details) (USD $) In Thousands	3 Months Ended		9 Months Ended
	Aug. 31, 2011	Aug. 31, 2010	Aug. 31, 2011	Aug. 31, 2010
Segment Reporting Information [Line Items]
Interest income	$ 1,599,092	$ 1,535,939	$ 4,725,334	$ 4,646,871
Interest expense	362,053	389,137	1,124,760	1,207,482
Net interest income	1,237,039	1,146,802	3,600,574	3,439,389
Provision for loan losses	99,514	712,565	692,763	2,824,035
Other income	551,963	564,144	1,658,431	1,622,864
Other expense	642,407	566,238	1,872,699	1,554,590
Income before income tax expense	1,047,081	432,143	2,693,543	683,628
Credit Card [Member]
Segment Reporting Information [Line Items]
Interest income	1,423,496	1,455,907	4,243,803	4,423,654
Credit Card [Member] | Direct Banking [Member]
Segment Reporting Information [Line Items]
Interest income	1,423,496	1,455,907	4,243,803	4,423,654
Credit Card [Member] | Payment Services [Member]
Segment Reporting Information [Line Items]
Interest income	0	0	0	0
Private Student Loans [Member]
Segment Reporting Information [Line Items]
Interest income	84,318	12,266	229,933	33,025
Private Student Loans [Member] | Direct Banking [Member]
Segment Reporting Information [Line Items]
Interest income	84,318	12,266	229,933	33,025
Private Student Loans [Member] | Payment Services [Member]
Segment Reporting Information [Line Items]
Interest income	0	0	0	0
Personal Loans [Member]
Segment Reporting Information [Line Items]
Interest income	70,052	47,105	189,525	129,832
Personal Loans [Member] | Direct Banking [Member]
Segment Reporting Information [Line Items]
Interest income	70,052	47,105	189,525	129,832
Personal Loans [Member] | Payment Services [Member]
Segment Reporting Information [Line Items]
Interest income	0	0	0	0
Other [Member]
Segment Reporting Information [Line Items]
Interest income	21,226	20,661	62,073	60,360
Other [Member] | Direct Banking [Member]
Segment Reporting Information [Line Items]
Interest income	21,209	20,656	62,044	60,345
Other [Member] | Payment Services [Member]
Segment Reporting Information [Line Items]
Interest income	17	5	29	15
Direct Banking [Member]
Segment Reporting Information [Line Items]
Interest income	1,599,075	1,535,934	4,725,305	4,646,856
Interest expense	362,017	389,059	1,124,597	1,207,322
Net interest income	1,237,058	1,146,875	3,600,708	3,439,534
Provision for loan losses	99,514	712,565	692,763	2,824,035
Other income	481,134	495,771	1,436,764	1,423,823
Other expense	609,202	534,782	1,774,915	1,465,749
Income before income tax expense	1,009,476	395,299	2,569,794	573,573
Payment Services [Member]
Segment Reporting Information [Line Items]
Interest income	17	5	29	15
Interest expense	36	78	163	160
Net interest income	(19)	(73)	(134)	(145)
Provision for loan losses	0	0	0	0
Other income	70,829	68,373	221,667	199,041
Other expense	33,205	31,456	97,784	88,841
Income before income tax expense	$ 37,605	$ 36,844	$ 123,749	$ 110,055

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Segment Disclosures

9 Months Ended

Aug. 31, 2011

Segment Reporting [Abstract]

Segment Disclosures

Segment Disclosures

The Company’s business activities are managed in two segments: Direct Banking and Payment Services.

• Direct Banking. The Direct Banking segment includes Discover card-branded credit cards issued to individuals and small businesses and other consumer products and services, including personal loans, student loans, prepaid cards and other consumer lending and deposit products offered through the Company’s Discover Bank subsidiary. The majority of the Direct Banking revenues relate to interest income earned on each of its loan products. Additionally, the Company’s credit card products generate substantially all of the Company’s revenues related to discount and interchange, fee products and loan fee income.

• Payment Services. The Payment Services segment includes PULSE, an automated teller machine, debit and electronic funds transfer network; Diners Club, a global payments network; and the Company’s third-party issuing business, which includes credit, debit and prepaid cards issued on the Discover Network by third parties. The majority of the Payment Services revenues relate to transaction processing revenue from PULSE and royalty and licensee revenue (included in other income) from Diners Club.

The business segment reporting provided to and used by the Company’s chief operating decision maker is prepared using the following principles and allocation conventions:

• Corporate overhead is not allocated between segments; all corporate overhead is included in the Direct Banking segment.

• Through its operation of the Discover Network, the Direct Banking segment incurs fixed marketing, servicing and infrastructure costs that are not specifically allocated among the operating segments.

• The assets of the Company are not allocated among the operating segments in the information reviewed by the Company’s chief operating decision maker.

• The revenues of each segment are derived from external sources. The segments do not earn revenue from intercompany sources.

• Income taxes are not specifically allocated among the operating segments in the information reviewed by the Company’s chief operating decision maker.

The following table presents segment data for the three and nine months ended August 31, 2011 and 2010 (dollars in thousands):
For the Three Months Ended	Direct Banking		Payment Services			Total
August 31, 2011
Interest income
Credit card	$	1,423,496	$	—		$	1,423,496
Private student loans	84,318		—			84,318
Personal loans	70,052		—			70,052
Other	21,209		17			21,226
Total interest income	1,599,075		17			1,599,092
Interest expense	362,017		36			362,053
Net interest income (expense)	1,237,058		(19		)	1,237,039
Provision for loan losses	99,514		—			99,514
Other income	481,134		70,829			551,963
Other expense	609,202		33,205			642,407
Income before income tax expense	$	1,009,476	$	37,605		$	1,047,081
August 31, 2010
Interest income
Credit card	$	1,455,907	$	—		$	1,455,907
Private student loans	12,266		—			12,266
Personal loans	47,105		—			47,105
Other	20,656		5			20,661
Total interest income	1,535,934		5			1,535,939
Interest expense	389,059		78			389,137
Net interest income (expense)	1,146,875		(73		)	1,146,802
Provision for loan losses	712,565		—			712,565
Other income	495,771		68,373			564,144
Other expense	534,782		31,456			566,238
Income before income tax expense	$	395,299	$	36,844		$	432,143

For the Nine Months Ended	Direct Banking		Payment Services			Total
August 31, 2011
Interest income
Credit card	$	4,243,803	$	—		$	4,243,803
Private student loans	229,933		—			229,933
Personal loans	189,525		—			189,525
Other	62,044		29			62,073
Total interest income	4,725,305		29			4,725,334
Interest expense	1,124,597		163			1,124,760
Net interest income (expense)	3,600,708		(134		)	3,600,574
Provision for loan losses	692,763		—			692,763
Other income	1,436,764		221,667			1,658,431
Other expense	1,774,915		97,784			1,872,699
Income before income tax expense	$	2,569,794	$	123,749		$	2,693,543
August 31, 2010
Interest income
Credit card	$	4,423,654	$	—		$	4,423,654
Private student loans	33,025		—			33,025
Personal loans	129,832		—			129,832
Other	60,345		15			60,360
Total interest income	4,646,856		15			4,646,871
Interest expense	1,207,322		160			1,207,482
Net interest income (expense)	3,439,534		(145		)	3,439,389
Provision for loan losses	2,824,035		—			2,824,035
Other income	1,423,823		199,041			1,622,864
Other expense	1,465,749		88,841			1,554,590
Income (loss) before income tax expense	$	573,573	$	110,055		$	683,628

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Borrowings (Narrative) (Details) (USD $)	9 Months Ended
	Aug. 31, 2011	Nov. 30, 2010
Line of credit expiration period	May 2012
Revolving credit commitment, maximum	$ 2,400,000,000
Outstanding balance under unsecured credit agreement	0
Total commitment of secured credit facilities	6,800,000,000
Long-term borrowings	17,718,200,000	17,705,728,000
Access to unused portions of secured credit, expiration date	2012, 2013 and 2014
Short-term borrowings	100,000,000	0
Parent Company [Member]
Borrowing capacity under the revolving credit facility in terms of percentage of the total commitment	30.00%
Discover Bank [Member]
Borrowing capacity under the revolving credit facility in terms of percentage of the total commitment	100.00%
Discover Bank [Member] | Federal Funds Purchased [Member]
Short-term borrowings	100,000,000	0
Short-term Debt, Weighted Average Interest Rate	0.06%
Discover Card Master Trust I and Discover Card Execution Note Trust [Member] | Floating Rate Asset Backed Securities And Other Borrowings [Member] | Secured Debt [Member]
Long-term borrowings	250,000,000	450,000,000
Discover Card Master Trust I and Discover Card Execution Note Trust [Member] | Secured Debt [Member]
Long-term borrowings	$ 12,619,715,000	$ 14,919,400,000
Minimum [Member]
Credit agreement provides for a commitment fee on the unused portion of the facility	0.07%
Maximum [Member]
Credit agreement provides for a commitment fee on the unused portion of the facility	0.175%

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Deposits (Summary of Interest Bearing Deposit Accounts) (Details) (USD $)					9 Months Ended
	Aug. 31, 2011		Nov. 30, 2010		Aug. 31, 2011 Prior FDIC Insured Deposit Limit [Member]	Aug. 31, 2011 Current FDIC Insured Deposit Limit [Member]
Certificates of deposit in amounts less than $100,000	$ 19,524,679,000	[1]	$ 19,797,420,000	[1]
Certificates of deposit from amounts of $100,000 to less than $250,000	4,999,091,000	[1]	4,626,792,000	[1]
Certificates of deposit in amounts of $250,000 or greater	1,148,445,000	[1]	1,146,843,000	[1]
Savings deposits, including money market deposit accounts	11,797,822,000		8,738,784,000
Total interest-bearing deposits	37,470,037,000		34,309,839,000
Average annual interest rate	2.67%		3.12%
Basic deposit amount covered by FDIC insurance					$ 100,000	$ 250,000

[1] $100,000 represents the basic insurance amount previously covered by the FDIC. Effective July 21, 2010, the basic insurance per depositor was permanently increased to $250,000

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Business Combinations (Summary of Total Consideration Paid) (Details) (USD $)	9 Months Ended			1 Months Ended
	Aug. 31, 2011	Aug. 31, 2010	Aug. 31, 2011 Student Loan Corporation [Member]	Dec. 31, 2010 Student Loan Corporation [Member] Estimated Purchase Price [Member]
Aggregate Merger Consideration			$ 600,000,000	$ 600,000,000
Purchase Price Closing Adjustment			(154,000,000)	(161,000,000)	[1]
Trust certificate purchase price			446,000,000	439,000,000
Less: Cash received for consent to insurance commutation			(16,000,000)	(16,000,000)
Less: Cash received related to reimbursable liabilities			(29,000,000)	(57,000,000)	[1]
Payments to Acquire Businesses, Net of Cash Acquired	401,158,000	0	401,000,000	366,000,000	[1]
Post closing adjustment accrual			35,000,000
Increase in the Trust Certificate Purchase Price			7,000,000
Reduction in reimbursable liabilities			$ 28,000,000

[1] Based on the final SLC closing balance sheet, the Company accrued a $35 million liability, at the end of the first quarter of fiscal 2011, payable to Citibank for post-closing adjustments arising from a $7 million increase in the Trust Certificate Purchase Price and a $28 million reduction in reimbursable liabilities, which together resulted in the difference between the actual and estimated numbers shown. The accrued amount was paid to Citibank during the second quarter of 2011.

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Earnings Per Share (Calculation of Basic and Diluted EPS ) (Details) (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Aug. 31, 2011	Aug. 31, 2010	Aug. 31, 2011	Aug. 31, 2010
Earnings Per Share Reconciliation [Abstract]
Net income	$ 648,818	$ 260,617	$ 1,714,129	$ 415,146
Dividends-preferred stock	0	0	0	(23,811)
Preferred Stock Redemption Discount	0	0	0	(66,492)
Net Income Available to Common Stockholders, Basic	648,818	260,617	1,714,129	324,843
Income allocated to participating securities	(7,046)	(2,423)	(19,493)	(3,230)
Net Income allocated to common stockholders	$ 641,772	$ 258,194	$ 1,694,636	$ 321,613
Weighted Average Number of Shares Outstanding Reconciliation [Abstract]
Weighted average shares of common stock outstanding	544,438	544,314	544,997	543,874
Effect of dilutive common stock equivalents	743	2,768	701	6,237
Weighted average shares of common stock outstanding and common stock equivalents	545,181	547,082	545,698	550,111
Basic earnings per share	$ 1.18	$ 0.47	$ 3.11	$ 0.59
Diluted earnings per share	$ 1.18	$ 0.47	$ 3.11	$ 0.58

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Borrowings (Tables)

9 Months Ended

Aug. 31, 2011

Debt Disclosure [Abstract]

Summary of the Company's Long-term Borrowings and Weighted Average Interest Rates

Long-term borrowings consist of borrowings and capital leases having original maturities of one year or more. The following table provides a summary of the Company’s long-term borrowings and weighted average interest rates on balances outstanding at period end (dollars in thousands):
	August 31, 2011				November 30, 2010
	Outstanding		Interest Rate		Outstanding			Interest Rate		Interest Rate Terms	Maturity
Securitized Debt
Fixed rate asset-backed securities (including discount of $1,339)	$	1,748,660	5.65	%	$	2,598,343		5.47	%	Various fixed rates	Various June 2013— September 2017
Floating rate asset-backed securities	9,371,055		0.77	%	10,621,057			0.75	%	1-month LIBOR(1) + 3 to 130 basis points	Various September 2011— September 2015
Floating rate asset-backed securities	1,250,000		0.59	%	1,250,000			0.63	%	3-month LIBOR(1) + 34 basis points	December 2012
Floating rate asset-backed securities and other borrowings	250,000		0.89	%	450,000			0.98	%	Commercial Paper rate + 70 basis points	April 2013
Total Discover Card Master Trust I and Discover Card Execution Note Trust	12,619,715				14,919,400
Floating rate asset-backed securities (including discount of $238,629)	1,436,906		0.45	%	—					3-month LIBOR(1) + 7 to 45 basis points	Various April 2018— July 2036(2)
Floating rate asset-backed securities (including discount of $3,847)	648,407		4.25	%	—					Prime rate +100 basis points	June 2031(2)
Floating rate asset-backed securities (including premium of $2,927)	165,597		4.00	%	—					Prime rate + 75 basis points	July 2042(2)
Floating rate asset-backed securities (including premium of $6,894)	389,884		3.71	%	—					1-month LIBOR(1) + 350 basis points	July 2042(2)
Total SLC Private Student Loan Trusts	2,640,794				—
Total Long-Term Borrowings—owed to securitization investors	15,260,509				14,919,400
Discover Financial Services (Parent Company)
Fixed rate senior notes due 2017
Principal value (including discount of $472)	399,528		6.45	%	399,467			6.45	%	Fixed	June 2017
Fair value adjustment(3)	8,456				(7,888		)
Book value	407,984				391,579
Fixed rate senior notes due 2019	400,000		10.25	%	400,000			10.25	%	Fixed	July 2019
Discover Bank
Subordinated bank notes due 2019 (including discount of $1,483)	698,517		8.70	%	698,382			8.70	%	Fixed	November 2019
Subordinated bank notes due 2020 (including discount of $2,988)	497,012		7.00	%	496,753			7.00	%	Fixed	April 2020
Floating rate secured borrowings	—		—	%	93,980			0.79	%	Commercial Paper rate + 50 basis points	December  2010
Floating rate secured borrowings	—		—	%	212,336			0.70	%	1-month LIBOR(1) + 45 basis points	December  2010
Floating rate secured borrowings(4)	454,178		0.72	%	492,910			0.66	%	Commercial Paper rate + 50 basis points	August  2013(4)
Capital lease obligations	—		—	%	388			6.26	%	Fixed	June 2011
Total long-term borrowings	$	17,718,200			$	17,705,728

 __________________________

(1) London Interbank Offered Rate (“LIBOR”).

(2) Repayment of this debt is dependent upon the timing of principal and interest payments on the underlying student loans. The dates shown represent final maturity dates.

(3) The Company uses interest rate swaps to hedge this long-term borrowing against changes in fair value attributable to changes in LIBOR. See Note 14: Derivatives and Hedging Activities.

(4) Under a program established by the U.S. Department of Education, this loan facility was entered into to fund certain federal student loans, which were held for sale at August 31, 2011 and November 30, 2010. Principal and interest payments on the underlying student loans will reduce the balance of the secured borrowing over time, with final maturity in August 2013. However, upon sale of the loans, this loan facility will be repaid.

Schedule of Maturities of Long-term Debt [Table Text Block]

Maturities. At August 31, 2011, long-term borrowings maturities during the remainder of 2011, over the next four years and thereafter were as follows (dollars in thousands):

Year	Amount
2011	$	526,234
2012	3,325,989
2013	5,632,873
2014	1,989,293
2015	599,819
Thereafter	5,643,992
Total	$	17,718,200

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Condensed Consolidated Statements of Changes in Stockholders' Equity (USD $) In Thousands	9 Months Ended								9 Months Ended						9 Months Ended				9 Months Ended				9 Months Ended				9 Months Ended
	Aug. 31, 2011	Aug. 31, 2010	Aug. 31, 2011 Preferred Stock [Member]	Aug. 31, 2010 Preferred Stock [Member]	Aug. 31, 2011 Preferred Stock [Member]	Nov. 30, 2010 Preferred Stock [Member]	Aug. 31, 2010 Preferred Stock [Member]	Nov. 30, 2009 Preferred Stock [Member]	Aug. 31, 2011 Common Stock [Member]	Aug. 31, 2010 Common Stock [Member]	Aug. 31, 2011 Common Stock [Member]	Nov. 30, 2010 Common Stock [Member]	Aug. 31, 2010 Common Stock [Member]	Nov. 30, 2009 Common Stock [Member]	Aug. 31, 2011 Additional Paid-in Capital [Member]	Aug. 31, 2010 Additional Paid-in Capital [Member]	Aug. 31, 2011 Additional Paid-in Capital [Member]	Aug. 31, 2010 Additional Paid-in Capital [Member]	Aug. 31, 2011 Retained Earnings [Member]	Aug. 31, 2010 Retained Earnings [Member]	Aug. 31, 2011 Retained Earnings [Member]	Aug. 31, 2010 Retained Earnings [Member]	Aug. 31, 2011 Accumulated Other Comprehensive Income (Loss) [Member]	Aug. 31, 2010 Accumulated Other Comprehensive Income (Loss) [Member]	Aug. 31, 2011 Accumulated Other Comprehensive Income (Loss) [Member]	Aug. 31, 2010 Accumulated Other Comprehensive Income (Loss) [Member]	Aug. 31, 2011 Treasury Stock [Member]	Aug. 31, 2010 Treasury Stock [Member]	Aug. 31, 2011 Treasury Stock [Member]	Aug. 31, 2010 Treasury Stock [Member]
Effect of Change in Accounting Principle, Tabular Presentation by Financial Statement Line Item, Adjustment Amount		$ (1,332,556)		$ 0						$ 0						$ 0				$ (1,411,117)				$ 78,561				$ 0
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Preferred Stock, Shares Outstanding			0	0		0		1,225
Common Stock, Shares, Outstanding									549,476	546,991		547,128		544,799
Beginning Balance	(6,456,846)	(8,435,547)	0	(1,158,066)	0		0		(5,471)	(5,448)	(5,495)		(5,470)		(3,435,318)	(3,573,231)	(3,492,663)	(3,428,089)	(3,126,488)	(3,873,262)	(4,763,180)	(2,787,822)	82,548	154,818	19,979	82,297	27,883	19,642	235,443	27,787
Comprehensive income:
Net income	1,714,129	415,146	0	0					0	0					0	0			1,714,129	415,146			0	0			0	0
Adjustments related to investment securities, net of tax			0	0					0	0					0	0			0	0			54,897	(6,276)			0	0
Adjustments related to cash flow hedges, net of tax			0	0					0	0					0	0			0	0			7,330	158			0	0
Adjustments related to pension and postretirement benefits, net of tax			0	0					0	0					0	0			0	0			342	78			0	0
Other comprehensive income (loss)	62,569	(6,040)	0	0					0	0					0	0			0	0			62,569	(6,040)			0	0
Total comprehensive income (loss)	1,776,698	409,106	0	0					0	0					0	0			0	0			0	0			0	0
Purchases of treasury stock, value	(207,560)	(8,145)	0	0					0	0					0	0			0	0			0	0			(207,560)	(8,145)
Stock Issued During Period, Value, Employee Benefit Plan	906	868	0	0					0	1					906	867			0	0			0	0			0	0
Stock Issued During Period, Shares, Employee Benefit Plan			0	0					40	67
Common stock issued and stock-based compensation expense (in shares)			0	0					2,308	2,125
Common stock issued and stock-based compensation expense	56,463	29,423	0	0					24	21					56,439	29,402			0	0			0	0			0	0
Income Tax Deficiency From Stock Based Compensation Plans		(3,411)		0						0						(3,411)				0				0				0
Dividends paid-common stock	(77,437)	(32,923)	0	0					0	0					0	0			(77,437)	(32,923)			0	0			0	0
Accretion of preferred stock discount		0		66,492						0						0				(66,492)				0				0
Dividends-preferred stock	0	(23,811)		0						0						0				(23,811)				0				0
Redemption of preferred stock (in shares)				(1,225)						0
Redemption of preferred stock		(1,224,558)		(1,224,558)						0						0				0				0				0
Special dividend-Morgan Stanley	0	33,757		0						0						0				33,757				0				0
Repurchase of stock warrants		$ (172,000)		$ 0						$ 0						$ (172,000)				$ 0				$ 0				$ 0

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Subsequent Events

9 Months Ended

Aug. 31, 2011

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

Long-term Borrowings. On September 20, 2011, DCENT, one of the Company's securitization trusts, issued $800 million of credit card asset-backed securities in a registered public offering at an interest rate of one-month LIBOR plus 21 basis points and with a maturity of three years.

Cash Dividend. On September 14, 2011, the Company announced a cash dividend of $0.06 per share, payable on October 20, 2011, to stockholders of record at the close of business on October 6, 2011.

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Investment Securities (Schedule of Fair Value of Securities in a Continuous Unrealized Loss Position for Less than 12 Months and More than 12 Months) (Details) (USD $) In Thousands, unless otherwise specified	Aug. 31, 2011	Nov. 30, 2010
U.S. Treasury Securities [Member]
Available-for-sale securities, continuous unrealized loss position, less than 12 months, fair value	$ 0	$ 1,262,670
Available-for-sale securities, continuous unrealized loss position, less than 12 months, unrealized losses	0	1,585
Available-for-sale securities, continuous unrealized loss position, more than 12 months, fair value	0	0
Available-for-sale securities, continuous unrealized loss position, more than 12 months, unrealized losses	0	0
Number of securities in a loss position, available-for-sale investment securities	0	17
U.S. Government Agency Securities [Member]
Available-for-sale securities, continuous unrealized loss position, less than 12 months, fair value	0	1,181,148
Available-for-sale securities, continuous unrealized loss position, less than 12 months, unrealized losses	0	1,298
Available-for-sale securities, continuous unrealized loss position, more than 12 months, fair value	0	0
Available-for-sale securities, continuous unrealized loss position, more than 12 months, unrealized losses	0	0
Number of securities in a loss position, available-for-sale investment securities	0	18
Credit Card Asset-Backed Securities of Other Issuers [Member]
Available-for-sale securities, continuous unrealized loss position, less than 12 months, fair value	4,126	238,646
Available-for-sale securities, continuous unrealized loss position, less than 12 months, unrealized losses	1	54
Available-for-sale securities, continuous unrealized loss position, more than 12 months, fair value	0	0
Available-for-sale securities, continuous unrealized loss position, more than 12 months, unrealized losses	0	0
Number of securities in a loss position, available-for-sale investment securities	1	23
Corporate Debt Securities [Member]
Available-for-sale securities, continuous unrealized loss position, less than 12 months, fair value	0	230,441
Available-for-sale securities, continuous unrealized loss position, less than 12 months, unrealized losses	0	102
Available-for-sale securities, continuous unrealized loss position, more than 12 months, fair value	0	0
Available-for-sale securities, continuous unrealized loss position, more than 12 months, unrealized losses	0	0
Number of securities in a loss position, available-for-sale investment securities	0	5
States and Political Subdivisions of States [Member]
Held-to-maturity securities, continuous unrealized loss position, less than 12 months, fair value	6,084	7,731
Held-to-maturity securities, continuous unrealized loss position, less than 12 months, unrealized losses	1	239
Held-to-maturity securities, continuous unrealized loss position, more than 12 months, fair value	21,538	27,603
Held-to-maturity securities, continuous unrealized loss position, more than 12 months, unrealized losses	$ 2,922	$ 3,532
Number of securities in a loss position, held-to-maturity investment securities	4	4

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Business Combinations (Tables)

9 Months Ended

Aug. 31, 2011

Business Combinations [Abstract]

Calculation of Trust Certificate Purchase Price

Net cash consideration paid. The following table provides a calculation of the amount paid by the Company for SLC based on the net assets of the SLC securitization trusts acquired after applying an 8.5% discount to the trust assets (the “Trust Certificate Purchase Price”) (dollars in millions):
	Actual			Estimate at Closing December 31, 2010
Gross trust assets	$	3,977		$	3,993
Less: 8.5% discount	(338		)	(339		)
Net trust assets	3,639			3,654
Less: Principal amount of and accrued interest on trust debt	(3,193		)	(3,215		)
Trust Certificate Purchase Price	$	446		$	439

Summary of Total Consideration Paid

Although the Company paid SLC shareholders $600 million for the acquisition of SLC (“Aggregate Merger Consideration”), the Company received a purchase price adjustment from Citibank, N.A. (“Citibank”) equivalent to the amount by which the Aggregate Merger Consideration exceeded the value of the Trust Certificate Purchase Price. In addition, Citibank agreed to adjust the cash consideration paid by the Company to compensate it for (i) agreeing to commute certain insurance policies covering certain of the loans acquired and (ii) for the value of non-trust related liabilities assumed by the Company. The following table provides a summary of total consideration paid by Discover at the closing of the acquisition on December 31, 2010 and a summary of the consideration revised for post-closing adjustments (dollars in millions):
	Actual			Estimate at Closing December 31, 2010
Aggregate Merger Consideration	$	600		$	600
Less: Purchase price adjustment(1)	(154		)	(161		)
Trust Certificate Purchase Price	446			439
Less: Further adjustments provided for by Citibank
Cash received for consent to insurance commutation	(16		)	(16		)
Cash received related to reimbursable liabilities(1)	(29		)	(57		)
Net cash consideration paid(1)	$	401		$	366

______________

(1) Based on the final SLC closing balance sheet, the Company accrued a $35 million liability, at the end of the first quarter of fiscal 2011, payable to Citibank for post-closing adjustments arising from a $7 million increase in the Trust Certificate Purchase Price and a $28 million reduction in reimbursable liabilities, which together resulted in the difference between the actual and estimated numbers shown. The accrued amount was paid to Citibank during the second quarter of 2011.

Fair Value of Assets Acquired and Liabilities Assumed

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of the SLC acquisition (dollars in thousands):
	At December 31, 2010
Student loan receivables	$	3,050,784
Cash	155,347
Indemnification asset	101,127
Student relationships intangible	2,400
Trade name intangible	3,800
Total intangible assets	6,200
Other assets	218,514
Total assets acquired	3,531,972
Securitized debt	2,921,372
Other liabilities	38,178
Total liabilities assumed	2,959,550
Net assets acquired	$	572,422

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Capital Adequacy (Schedule of Minimum and Well-Capitalized Requirements) (Details) (USD $) In Thousands, unless otherwise specified	Aug. 31, 2011	Nov. 30, 2010
Parent Company [Member]
Total capital	$ 9,493,172	$ 7,946,619
Total risk-based capital to risk-weighted assets ratio	17.00%	15.90%
Total capital, minimum capital requirements	4,460,846	3,989,689
Total capital, capital requirements to be classified as well capitalized	5,576,057	4,987,111
Tier I Capital	7,581,177	6,095,000
Tier I capital to risk-weighted assets ratio	13.60%	12.20%
Tier I capital, minimum capital requirements	2,230,423	1,994,844
Tier I capital, capital requirements to be classified as well capitalized	3,345,634	2,992,266
Tier I leverage capital to average assets ratio	11.70%	9.90%
Tier I leverage capital, minimum capital requirements	2,599,434	2,464,324
Tier I leverage capital, capital requirements to be classified as well capitalized	3,249,292	3,080,406
Tier One Risk Based Capital Required to be Well Capitalized to Risk Weighted Assets	6.00%	6.00%
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets	4.00%	4.00%
Tier One Leverage Capital Required to be Well Capitalized to Average Assets	5.00%	5.00%
Tier One Leverage Capital Required for Capital Adequacy to Average Assets	4.00%	4.00%
Capital Required to be Well Capitalized to Risk Weighted Assets	10.00%	10.00%
Capital Required for Capital Adequacy to Risk Weighted Assets	8.00%	8.00%
Discover Bank [Member]
Total capital	8,562,286	7,817,205
Total risk-based capital to risk-weighted assets ratio	15.60%	15.90%
Total capital, minimum capital requirements	4,398,133	3,923,344
Total capital, capital requirements to be classified as well capitalized	5,497,666	4,904,180
Tier I Capital	6,659,969	5,975,824
Tier I capital to risk-weighted assets ratio	12.10%	12.20%
Tier I capital, minimum capital requirements	2,199,066	1,961,672
Tier I capital, capital requirements to be classified as well capitalized	3,298,599	2,942,508
Tier I leverage capital to average assets ratio	10.40%	9.80%
Tier I leverage capital, minimum capital requirements	2,560,346	2,431,610
Tier I leverage capital, capital requirements to be classified as well capitalized	$ 3,200,433	$ 3,039,512
Tier One Risk Based Capital Required to be Well Capitalized to Risk Weighted Assets	6.00%	6.00%
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets	4.00%	4.00%
Tier One Leverage Capital Required to be Well Capitalized to Average Assets	5.00%	5.00%
Tier One Leverage Capital Required for Capital Adequacy to Average Assets	4.00%	4.00%
Capital Required to be Well Capitalized to Risk Weighted Assets	10.00%	10.00%
Capital Required for Capital Adequacy to Risk Weighted Assets	8.00%	8.00%

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Income Taxes (Income Tax Expense) (Details) (USD $) In Thousands	3 Months Ended		9 Months Ended
	Aug. 31, 2011	Aug. 31, 2010	Aug. 31, 2011	Aug. 31, 2010
Current Income Tax Expense (Benefit) [Abstract]
U.S. federal, current	$ 213,765	$ 68,942	$ 550,250	$ 166,541
U.S. state and local, current	38,576	24,451	74,292	38,512
International, current	747	53	3,018	298
Total, current	253,088	93,446	627,560	205,351
Deferred Income Tax Expense (Benefit) [Abstract]
U.S. federal, deferred	135,145	73,149	332,965	61,301
U.S. state and local, deferred	10,024	4,931	18,882	1,830
International, deferred	6	0	7	0
Total, deferred	145,175	78,080	351,854	63,131
Income tax expense	$ 398,263	$ 171,526	$ 979,414	$ 268,482

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Background and Basis of Presentation

9 Months Ended

Aug. 31, 2011

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Background and Basis of Presentation

Background and Basis of Presentation

Description of Business. Discover Financial Services (“DFS” or the “Company”) is a direct banking and payment services company. The Company is a bank holding company under the Bank Holding Company Act of 1956 and therefore is subject to oversight, regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Through its Discover Bank subsidiary, a Delaware state-chartered bank, the Company offers its customers credit cards, student loans, personal loans and deposit products. Through its DFS Services LLC subsidiary and its subsidiaries, the Company operates the Discover Network, the PULSE Network (“PULSE”) and Diners Club International (“Diners Club”). The Discover Network is a payment card transaction processing network for Discover card-branded and third-party issued credit, debit and prepaid cards. PULSE operates an electronic funds transfer network, providing financial institutions issuing debit cards on the PULSE network with access to ATMs domestically and internationally, as well as point of sale terminals at retail locations throughout the U.S. for debit card transactions. Diners Club is a global payments network of licensees, which are generally financial institutions, that issue Diners Club branded credit cards and/or provide card acceptance services.

The Company’s business segments are Direct Banking and Payment Services. The Direct Banking segment includes Discover card-branded credit cards issued to individuals and small businesses on the Discover Network and other consumer products and services, including personal loans, student loans, prepaid cards and other consumer lending and deposit products offered through the Company’s Discover Bank subsidiary. The Payment Services segment includes PULSE, Diners Club and the Company’s third-party issuing business, which includes credit, debit and prepaid cards issued on the Discover Network by third parties.

Basis of Presentation. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the financial statements reflect all adjustments which are necessary for a fair presentation of the results for the quarter. All such adjustments are of a normal, recurring nature. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and related disclosures. These estimates are based on information available as of the date of the condensed consolidated financial statements. The Company believes that the estimates used in the preparation of the condensed consolidated financial statements are reasonable. Actual results could differ from these estimates. These interim condensed consolidated financial statements should be read in conjunction with the Company’s 2010 audited consolidated financial statements filed with the Company’s annual report on Form 10-K for the fiscal year ended November 30, 2010.

Recently Issued Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify goodwill impairment testing by adding a qualitative review step to assess whether the required quantitative impairment analysis that exists today is necessary.Under the amended rule, a company will not be required to calculate the fair value of a business that contains recorded goodwill unless it concludes, based on the qualitative assessment, that it is more likely than not that the fair value of that business is less than its book value. If such a decline in fair value is deemed more likely than not to have occurred, then the quantitative goodwill impairment test that exists under current GAAP must be completed; otherwise, goodwill is deemed to be not impaired and no further testing is required until the next annual test date (or sooner if conditions or events before that date raise concerns of potential impairment in the business). The amended goodwill impairment guidance does not affect the manner in which a company estimates fair value. The new standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company has $255 million in goodwill, all of which is associated with its PULSE network. The value of that goodwill will not be affected by the adoption of this standard.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The standard does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. This standard is effective for interim and annual periods beginning after December 15, 2011. Because this ASU impacts presentation only, it will have no effect on the Company's financial condition, results of operations or cash flows.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU is intended to result in convergence between U.S. GAAP and International Financial Reporting Standards (“IFRS”) requirements for measurement of and disclosures about fair value. The amendments are not expected to have a significant impact on companies applying U.S. GAAP. Key provisions of the amendment include: a prohibition on grouping financial instruments for purposes of determining fair value, except when an entity manages market and credit risks on the basis of the entity’s net exposure to the group; an extension of the prohibition against the use of a blockage factor to all fair value measurements (that prohibition currently applies only to financial instruments with quoted prices in active markets); and a requirement that for recurring Level 3 fair value measurements, entities disclose quantitative information about unobservable inputs, a description of the valuation process used and qualitative details about the sensitivity of the measurements. In addition, for items not carried at fair value but for which fair value is disclosed, entities will be required to disclose the level within the fair value hierarchy that applies to the fair value measurement disclosed. This ASU is effective for interim and annual periods beginning after December 15, 2011. The adoption of this ASU is not expected to have a significant impact on the Company’s fair value measurements, financial condition, results of operations or cash flows.

In April 2011, the FASB issued ASU No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements. This ASU amends the sale accounting requirement concerning a transferor’s ability to repurchase transferred financial assets even in the event of default by the transferee, which typically is facilitated in a repurchase agreement by the presence of a collateral maintenance provision. Specifically, the level of cash collateral received by a transferor will no longer be relevant in determining whether a repurchase agreement constitutes a sale. As a result of this amendment, more repurchase agreements will be treated as secured financings rather than sales. This ASU is effective prospectively for new transfers and existing transactions that are modified in the first interim or annual period beginning on or after December 15, 2011. Because essentially all repurchase agreements entered into by the Company have historically been deemed to constitute secured financing transactions, this amendment is expected to have no impact on the Company’s characterization of such transactions and therefore is not expected to have any impact on the Company's financial condition, results of operations or cash flows.

In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This ASU is intended to clarify the FASB’s views on the conditions under which a loan modification should be deemed to be a troubled debt restructuring and could result in the determination that more loan modifications meet that definition. Loans which constitute troubled debt restructurings are considered impaired when calculating the allowance for loan losses and are subject to additional disclosures pursuant to ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which becomes effective concurrent with ASU No. 2011-02. The amendment is effective for the first interim or annual period beginning after June 15, 2011 and must be applied retrospectively to loan modifications occurring on or after the beginning of the fiscal year of adoption. The Company has reviewed the loan modifications it makes in light of this guidance, and has determined that this amendment is not expected to result in any change to the characterization of the Company's current loan modification programs. The amendment is therefore not expected to impact the Company's financial condition, results of operations or cash flows.

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Capital Adequacy

9 Months Ended

Aug. 31, 2011

Compliance With Regulatory Capital Requirements Under Banking Regulations [Abstract]

Capital Adequacy

Capital Adequacy

The Company is subject to capital adequacy guidelines of the Federal Reserve, and Discover Bank (the “Bank”), the Company’s main banking subsidiary, is subject to various regulatory capital requirements as administered by the Federal Deposit Insurance Corporation (the “FDIC”). Failure to meet minimum capital requirements can result in the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial position and results of the Company and the Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items, as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (as defined in the regulations) of total risk-based capital and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. As of August 31, 2011, the Company and the Bank met all capital adequacy requirements to which they were subject.

Under regulatory capital requirements, the Company and the Bank must maintain minimum levels of capital that are dependent upon the risk-weighted amount or average level of the financial institution’s assets, specifically (a) 8% to 10% of total risk-based capital to risk-weighted assets (“total risk-based capital ratio”), (b) 4% to 6% of Tier 1 capital to risk-weighted assets (“Tier 1 risk-based capital ratio”) and (c) 4% to 5% of Tier 1 capital to average assets (“Tier 1 leverage ratio”). To be categorized as “well-capitalized,” the Company and the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table below. As of August 31, 2011, the Company and the Bank met the requirements for well-capitalized status and there have been no conditions or events that management believes have changed the Company’s or the Bank’s category.

The following table shows the actual capital amounts and ratios of the Company and the Bank as of August 31, 2011 and November 30, 2010 and comparisons of each to the regulatory minimum and “well-capitalized” requirements (dollars in thousands):
	Actual				Minimum Capital Requirements			Capital Requirements To Be Classified as Well-Capitalized
	Amount		Ratio		Amount		Ratio	Amount		Ratio
August 31, 2011
Total capital (to risk-weighted assets)
Discover Financial Services	$	9,493,172	17.0	%	$	4,460,846	≥8.0%	$	5,576,057	≥10.0%
Discover Bank	$	8,562,286	15.6	%	$	4,398,133	≥8.0%	$	5,497,666	≥10.0%
Tier 1 capital (to risk-weighted assets)
Discover Financial Services	$	7,581,177	13.6	%	$	2,230,423	≥4.0%	$	3,345,634	≥6.0%
Discover Bank	$	6,659,969	12.1	%	$	2,199,066	≥4.0%	$	3,298,599	≥6.0%
Tier 1 capital (to average assets)
Discover Financial Services	$	7,581,177	11.7	%	$	2,599,434	≥4.0%	$	3,249,292	≥5.0%
Discover Bank	$	6,659,969	10.4	%	$	2,560,346	≥4.0%	$	3,200,433	≥5.0%
November 30, 2010
Total capital (to risk-weighted assets)
Discover Financial Services	$	7,946,619	15.9	%	$	3,989,689	≥8.0%	$	4,987,111	≥10.0%
Discover Bank	$	7,817,205	15.9	%	$	3,923,344	≥8.0%	$	4,904,180	≥10.0%
Tier 1 capital (to risk-weighted assets)
Discover Financial Services	$	6,095,000	12.2	%	$	1,994,844	≥4.0%	$	2,992,266	≥6.0%
Discover Bank	$	5,975,824	12.2	%	$	1,961,672	≥4.0%	$	2,942,508	≥6.0%
Tier 1 capital (to average assets)
Discover Financial Services	$	6,095,000	9.9	%	$	2,464,324	≥4.0%	$	3,080,406	≥5.0%
Discover Bank	$	5,975,824	9.8	%	$	2,431,610	≥4.0%	$	3,039,512	≥5.0%

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Loan Receivables (Contractually Required Payments Receivable, Cash Flows Expected to be Collected and Fair Value as of the Acquisition Date) (Details) (USD $) In Millions	Aug. 31, 2011	Feb. 28, 2011	Dec. 31, 2010		Nov. 30, 2010
Loans and Leases Receivable Disclosure [Abstract]
Contractually required payments receivable			$ 5,673	[1]
Less: Non-accretable difference			(846)	[2]
Cash flows expected to be collected			4,827
Less: Accretable yield	1,718	1,772	(1,776)	[3]	0
Fair value of loans acquired			$ 3,051

[1] Amount represents principal and interest payments, both currently due and due in the future, adjusted for the effect of estimated prepayments.

[2] Charge-offs on acquired loans will be written off against non-accretable difference.

[3] Amount accreted into interest income over the estimated lives of the acquired loans.

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Credit Card and Student Loan Securitization Activities (Carrying Value of Assets of Consolidated Variable Interest Entities) (Details) (USD $) In Thousands	Aug. 31, 2011		May 31, 2011	Nov. 30, 2010		Aug. 31, 2010	May 31, 2010	Nov. 30, 2009
Restricted cash - for securitization investors	$ 937,230			$ 1,363,758
Loans receivables - restricted for securitization investors	46,177,673			45,156,994
Allowance for loan losses allocated to securitized loan receivables	(2,273,058)		(2,632,320)	(3,304,118)		(3,743,721)	(3,930,624)	(1,757,899)
Other	2,158,761			2,434,661
Variable Interest Entity, Primary Beneficiary [Member]
Restricted cash - for securitization investors	937,230			1,363,758
Other	30,404			24,083
Variable Interest Entity, Primary Beneficiary [Member] | Credit Card Securitization Trusts [Member]
Restricted cash - for securitization investors	811,609			1,363,758
Investors' interests held by third-party investors	12,621,054			14,921,057
Investors' interests held by wholly owned subsidiaries of Discover Bank	4,327,121			4,608,210
Seller's interest	17,030,805			14,923,722
Loans receivables - restricted for securitization investors	33,978,980	[1]		34,452,989	[1]
Allowance for loan losses allocated to securitized loan receivables	(1,589,949)	[1]		(2,431,399)	[1]
Loans Receivable, Net	32,389,031			32,021,590
Other	25,195			24,083
Variable Interest Entity, Consolidated, Carrying Amount, Assets	33,225,835			33,409,431
Variable Interest Entity, Primary Beneficiary [Member] | Credit Card Securitization Trusts [Member] | Cash Collateral Accounts [Member]
Restricted cash - for securitization investors	226,579	[2]		459,474	[2]
Variable Interest Entity, Primary Beneficiary [Member] | Credit Card Securitization Trusts [Member] | Collections and Interest Funding Accounts [Member]
Restricted cash - for securitization investors	$ 585,030			$ 904,284

[1] The Company maintains its allowance for loan losses at an amount sufficient to absorb probable losses inherent in all loan receivables, which includes all loan receivables in the trusts. Therefore, credit risk associated with the transferred receivables is fully reflected on the Company’s balance sheet in accordance with GAAP.

[2] As of November 30, 2010, the full amount was pledged as collateral against a long-term borrowing.

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Income Taxes (Reconciliation of the Company's Effective Tax Rate to the U.S. Federal Statutory Income Tax Rate) (Details)	3 Months Ended		9 Months Ended
	Aug. 31, 2011	Aug. 31, 2010	Aug. 31, 2011	Aug. 31, 2010
Effective Income Tax Rate, Continuing Operations, Tax Rate Reconciliation [Abstract]
U.S. federal statutory income tax rate	35.00%	35.00%	35.00%	35.00%
U.S. state and local income taxes, net of U.S. federal income tax benefits	3.40%	4.80%	2.60%	4.30%
Valuation allowance, capital loss	0.00%	0.00%	(0.80%)	0.00%
Nondeductible Compensation	0.00%	0.10%	0.00%	0.50%
Other	(0.40%)	(0.20%)	(0.40%)	(0.50%)
Effective income tax rate	38.00%	39.70%	36.40%	39.30%

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Fair Value Disclosures (Tables)

9 Months Ended

Aug. 31, 2011

Fair Value Disclosures [Abstract]

Estimated Fair Values of Financial Instruments

The following table provides the estimated fair values of financial instruments (dollars in thousands):
	August 31, 2011				November 30, 2010
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets
Cash and cash equivalents	$	3,957,525	$	3,957,525	$	5,098,733	$	5,098,733
Restricted cash	$	937,230	$	937,230	$	1,363,758	$	1,363,758
Other short-term investments	$	—	$	—	$	375,000	$	375,000
Investment securities:
Available-for-sale	$	5,899,080	$	5,899,080	$	5,002,579	$	5,002,579
Held-to-maturity	$	53,088	$	51,189	$	72,816	$	70,195
Net loan receivables	$	51,809,393	$	52,802,885	$	45,532,295	$	45,835,543
Derivative financial instruments	$	60,955	$	60,955	$	4,995	$	4,995
Financial Liabilities
Deposits	$	37,586,884	$	38,395,963	$	34,413,383	$	35,500,526
Short-term borrowings	$	100,000	$	100,000	$	—	$	—
Long-term borrowings—owed to securitization investors	$	15,260,509	$	15,698,374	$	14,919,400	$	15,148,534
Other long-term borrowings	$	2,457,691	$	2,834,879	$	2,786,328	$	3,118,967
Derivative financial instruments	$	4	$	4	$	6,594	$	6,594

Fair Value of Assets and Liabilities Measured on a Recurring Basis

Disclosures concerning assets and liabilities measured at fair value on a recurring basis are as follows (dollars in thousands):
	Quoted Prices in Active Markets for Identical Assets (Level 1)(1)		Significant Other Observable Inputs (Level 2)(1)		Significant Unobservable Inputs (Level 3)		Total
Balance at August 31, 2011
Assets
U.S Treasury securities	$	2,371,255	$	—	$	—	$	2,371,255
U.S government agency securities	2,669,180		—		—		2,669,180
Credit card asset-backed securities of other issuers	—		356,940		—		356,940
Corporate debt securities	—		501,705		—		501,705
Equity securities	—		—		—		—
Available-for-sale investment securities	$	5,040,435	$	858,645	$	—	$	5,899,080
Derivative financial instruments	$	—	$	60,955	$	—	$	60,955
Liabilities
Derivative financial instruments	$	—	$	4	$	—	$	4
Balance at November 30, 2010
Assets
U.S Treasury securities	$	1,574,853	$	—	$	—	$	1,574,853
U.S government agency securities	1,888,701		—		—		1,888,701
Credit card asset-backed securities of other issuers	—		1,031,112		—		1,031,112
Corporate debt securities	—		507,896		—		507,896
Equity securities	—		—		17		17
Available-for-sale investment securities	$	3,463,554	$	1,539,008	$	17	$	5,002,579
Derivative financial instruments	$	—	$	4,995	$	—	$	4,995
Liabilities
Derivative financial instruments	$	—	$	6,594	$	—	$	6,594

________________________

(1) There were no transfers between Levels 1 and 2 within the fair value hierarchy for the three and nine months ended August 31, 2011 and 2010.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis (dollars in thousands)
For the Nine Months Ended August 31, 2011	Balance at November 30, 2010		Total Realized and Unrealized Gains (Losses)		Sales			Net Transfers Into and/ or Out of Level 3		Balance at August 31, 2011		Change in unrealized gains (losses) related to financial instruments held at August 31, 2011
Assets
Equity securities	17		144		(161		)	—		—		—
Available-for-sale investment securities	$	17	$	144	$	(161	)	$	—	$	—	—

For the Three Months Ended August 31, 2010	Balance at May 31, 2010		Total Realized and Unrealized Gains (Losses)			Sales			Net Transfers Into and/ or Out of Level 3		Balance at August 31, 2010		Change in unrealized gains (losses) related to financial instruments held at August 31, 2010
Assets
Asset-backed commercial paper notes	63,732		7,161		(1)	(70,893		)	—		—		—
Equity securities	17		—			—			—		17		—
Available-for-sale investment securities	$	63,749	$	7,161		$	(70,893	)	$	—	$	17	—

For the Nine Months Ended August 31, 2010	Balance at November 30, 2009		Derecognition of assets upon adoption of Statement No. 167			Total Realized and Unrealized Gains (Losses)				Sales			Net Transfers Into and/ or Out of Level 3			Balance at August 31, 2010		Change in unrealized gains (losses) related to financial instruments held at August 31, 2010
Assets
Certificated retained interest in DCENT	$	2,204,969	$	(2,204,969	)	$	—			$	—		$	—		$	—	$	—
Credit card asset-backed securities of other issuers	381,705		—			—				—			(381,705		)	—		—
Asset-backed commercial paper notes	58,792		—			12,101		(1	)	(70,893		)	—			—		—
Equity securities	—		—			—				—			17			17		—
Available-for-sale investment securities	$	2,645,466	$	(2,204,969	)	$	12,101			$	(70,893	)	$	(381,688	)	$	17	—
Cash collateral accounts	$	822,585	$	(822,585	)	$	—			$	—		$	—		$	—	$	—
Interest-only strip receivable	117,579		(117,579		)	—				—			—			—		—
Amounts due from asset securitization	$	940,164	$	(940,164	)	$	—			$	—		$	—		$	—	$	—

_____________

(1) Reflects unrealized pretax gains recorded in other comprehensive income in the condensed consolidated statement of financial condition.

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Derivatives and Hedging Activities

9 Months Ended

Aug. 31, 2011

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activities

Derivatives and Hedging Activities

The Company uses derivatives to manage its exposure to various financial risks. The Company does not enter into derivatives for trading or speculative purposes. Derivatives not designated as hedges are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict requirements of hedge accounting. All derivatives are recorded in other assets at their gross positive fair values and in accrued expenses and other liabilities at their gross negative fair values.

Derivatives may give rise to counterparty credit risk. The Company enters into derivative transactions with established dealers that meet minimum credit criteria established by the Company. All counterparties must be pre-approved prior to engaging in any transaction with the Company. Counterparties are monitored on a periodic basis by the Company to ensure compliance with the Company’s risk policies and limits.

Derivatives designated as Hedges

Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.

Cash Flow Hedges. The Company uses interest rate swaps to manage its exposure to changes in interest rates related to future cash flows resulting from credit card loan receivables. These transactions are hedged for a maximum period of three years. The derivatives are designated as a hedge of the risk of overall changes in cash flows on the Company’s portfolios of prime-based interest receipts and qualify for hedge accounting in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”).

The effective portion of the change in the fair value of derivatives designated as cash flow hedges is recorded in other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted cash flows affect earnings. The ineffective portion of the change in fair value of the derivative, if any, is recognized directly in earnings. Amounts reported in accumulated other comprehensive income related to derivatives at August 31, 2011 will be reclassified to interest income as interest payments are received on certain of the Company's floating rate credit card loan receivables. During the next 12 months, the Company estimates it will reclassify to earnings $7.7 million of pretax gains related to its derivatives designated as cash flow hedges.

Fair Value Hedges. The Company is exposed to changes in fair value of certain of its fixed rate debt obligations due to changes in interest rates. During the three and nine months ended August 31, 2011, the Company used interest rate swaps to manage its exposure to changes in fair value of certain fixed rate senior notes and interest-bearing brokered deposits attributable to changes in LIBOR, a benchmark interest rate as defined by ASC 815. The interest rate swaps involve the receipt of fixed rate amounts from the respective counterparties in exchange for the Company making payments of variable rate amounts over the life of the agreements without exchange of the underlying notional amounts. These interest rate swaps qualify as fair value hedges in accordance with ASC 815. Changes in both (i) the fair values of the derivatives and (ii) the hedged fixed rate senior notes and interest-bearing brokered deposits relating to the risk being hedged were recorded in interest expense and provided substantial offset to one another. Ineffectiveness related to these fair value hedges was recorded in interest expense. Any basis differences between the fair value and the carrying amount of the hedged fixed rate senior notes and interest-bearing brokered deposits at the inception of the hedging relationship is amortized and recorded in interest expense.

Derivatives not designated as Hedges

Foreign Exchange Forward Contracts. The Company has derivatives that are economic hedges and are not designated as hedges for accounting purposes. The Company enters into foreign exchange forward contracts to manage foreign currency risk. Foreign exchange forward contracts involve the purchase or sale of a designated currency at an agreed upon rate for settlement on a specified date. Changes in the fair value of these contracts are recorded in other income.

Interest Rate Swaps. The Company also may have from time to time interest rate swap agreements that are not designated as hedges. As part of its acquisition of SLC, the Company also acquired an interest rate swap related to the securitized debt assumed in the SLC transaction. Such agreements are not speculative and are also used to manage interest rate risk but are not designated for hedge accounting. Changes in the fair value of these contracts are recorded in other income.

The following table summarizes the fair value (including accrued interest) and related outstanding notional amounts of derivative instruments and indicates where within the statement of financial condition each is reported as of August 31, 2011 and November 30, 2010. See Note 13: Fair Value Disclosures for a description of the valuation methodologies of derivatives. (Dollars in thousands, except notional amounts):
	August 31, 2011							November 30, 2010
				Balance Sheet Location						Balance Sheet Location
	Notional Amount		Number of Transactions	Other Assets (At Fair Value)		Accrued Expenses and Other Liabilities (At Fair Value)		Notional Amount		Other Assets (At Fair Value)		Accrued Expenses  and Other Liabilities (At Fair Value)
Derivatives designated as hedges:
Interest rate swaps—Cash Flow hedge	$	2,000,000	8	$	16,721	$	—	$	2,000,000	$	4,989	$	—
Interest rate swaps—Fair Value hedge	$	1,543,905	64	$	38,998	$	4	$	400,000	$	—	$	6,587
Derivatives not designated as hedges:
Foreign exchange forward contracts(1)	$	8,471	2	$	38	$	—	$	7,800	$	6	$	7
Interest rate swap	$	1,367,809	1	$	5,198	$	—	$	—	$	—	$	—

 ______________

(1) The foreign exchange forward contracts have notional amounts of EUR 4 million and GBP 1.7 million as of August 31, 2011 and November 30, 2010.

The following table summarizes the impact of the derivative instruments on income, and indicates where within the condensed consolidated statements of income such impact is reported for the three and nine months ended August 31, 2011 and 2010 (dollars in thousands):
		For the Three Months Ended August 31,						For the Nine Months Ended August 31,
	Location	2011			2010			2011			2010
Derivatives designated as hedges:
Interest Rate Swaps—Cash Flow Hedges:
Gain (loss) recognized in other comprehensive income after amounts reclassified into earnings, pre-tax	Other Comprehensive Income	$	13,113		$	251		$	11,711		$	251
Total gains (losses) recognized in other comprehensive income		$	13,113		$	251		$	11,711		$	251
Amount reclassified from other comprehensive income into income	Interest Income	$	1,892		$	442		$	5,636		$	442
Interest Rate Swaps—Fair Value Hedges:
Interest expense—ineffectiveness		34,715			—			38,924			—
Interest expense—other		4,087			—			8,090			(26		)
Gain (loss) on interest rate swaps	Interest Expense	38,802			—			47,014			(26		)
Interest expense—ineffectiveness		(32,575		)	—			(34,064		)	—
Interest expense—other		(1,608		)	—			(4,853		)	70
Gain (loss) on hedged Item	Interest Expense	(34,183		)	—			(38,917		)	70
Total gains (losses) recognized in income		$	6,511		$	442		$	13,733		$	486
Derivatives not designated as hedges:
Gain (loss) on forward contracts	Other Income	$	30		$	(301	)	$	(703	)	$	458
Gain (loss) on interest rate swaps	Other Income	(2,037		)	—			(7,518		)	6
Total gains (losses) on derivatives not designated as hedges recognized in income		$	(2,007	)	$	(301	)	$	(8,221	)	$	464

Collateral Requirements and Credit-Risk Related Contingency Features

For its interest rate swaps, the Company has master netting arrangements and minimum collateral posting thresholds with its counterparties. Collateral is required by either the Company or the counterparty depending on the net fair value position of all interest rate swaps held with that counterparty. The Company may also be required to post collateral with a counterparty depending on the credit rating it or Discover Bank receives from specified major credit rating agencies. Collateral amounts recorded in the condensed consolidated statement of financial condition are based on the net collateral receivable or payable position for each counterparty. Collateral receivable or payable amounts are not offset against the fair value of the interest rate swap, but are recorded separately in other assets or deposits.

As of August 31, 2011, the Company had a right to reclaim $4 million of cash collateral that had been posted (net of amounts required to be posted by the counterparty) because the credit rating of the Company did not meet specified thresholds. At August 31, 2011, Discover Bank’s credit rating met specified thresholds set by its counterparties. However, if Discover Bank’s credit rating is reduced to below investment grade, the Company would be required to post collateral, which would have been $53 million as of August 31, 2011.

As of August 31, 2011, the Company had interest rate swaps in a net asset position with all of its counterparties, inclusive of accrued interest. If the Company had breached any provisions of the derivative agreements, there would have been no obligation to settle termination values since none of the derivative agreements were in net liability positions as of August 31, 2011.

The Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

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Condensed Consolidated Statements of Financial Condition (USD $) In Thousands	Aug. 31, 2011		Nov. 30, 2010
Assets
Cash and Cash Equivalents	$ 3,957,525		$ 5,098,733
Restricted cash	937,230		1,363,758
Other short-term investments	0		375,000
Investment securities:
Available-for-sale (amortized cost of $5,798,756 and $4,989,958 at August 31, 2011 and November 30, 2010, respectively)	5,899,080	[1]	5,002,579	[1]
Held-to-maturity (fair value of $51,189 and $70,195 at August 31, 2011 and November 30, 2010, respectively)	53,088	[2]	72,816
Total investments securities	5,952,168		5,075,395
Loan receivables:
Loans held for sale	738,382		788,101
Loan portfolio:
Credit card	46,177,673		45,156,994
Other Consumer Loans	4,279,613		2,891,318
Purchased credit-impaired loans	2,886,783		0
Total loan portfolio	53,344,069		48,048,312
Total loan receivables	54,082,451		48,836,413
Allowance for loan losses	(2,273,058)		(3,304,118)
Net loan receivables	51,809,393		45,532,295
Premises and equipment, net	465,871		460,732
Goodwill	255,421		255,421
Intangible assets, net	189,298		188,973
Other assets	2,158,761		2,434,661
Total assets	65,725,667		60,784,968
Deposits:
Interest-bearing deposit accounts	37,470,037		34,309,839
Non-interest bearing deposit accounts	116,847		103,544
Total deposits	37,586,884		34,413,383
Short-term borrowings	100,000		0
Long-term borrowings	17,718,200		17,705,728
Accrued expenses and other liabilities	2,314,667		2,209,011
Total liabilities	57,719,751		54,328,122
Commitments, contingencies and guarantees (Note 11)
Stockholders' Equity:
Common stock, par value $.01 per share; 2,000,000,000 shares authorized; 549,475,683 and 547,128,270 shares issued at August 31, 2011 and November 30, 2010, respectively	5,495		5,471
Additional paid-in capital	3,492,663		3,435,318
Retained earnings	4,763,180		3,126,488
Accumulated other comprehensive loss	(19,979)		(82,548)
Treasury stock, at cost; 11,278,326 and 2,446,506 shares at August 31, 2011 and November 30, 2010, respectively	(235,443)		(27,883)
Total stockholders' equity	8,005,916		6,456,846
Total liabilities and stockholders' equity	65,725,667		60,784,968
Variable Interest Entity, Primary Beneficiary [Member]
Assets
Restricted cash	937,230		1,363,758
Loan portfolio:
Other assets	30,404		24,083
Deposits:
Long-term borrowings	15,260,509		14,919,400
Accrued expenses and other liabilities	12,803		11,758
Variable Interest Entity, Primary Beneficiary [Member] | Credit Card Securitization Trusts [Member]
Assets
Restricted cash	811,609		1,363,758
Loan portfolio:
Credit card	33,978,980	[3]	34,452,989	[3]
Allowance for loan losses	(1,589,949)	[3]	(2,431,399)	[3]
Other assets	25,195		24,083
Variable Interest Entity, Primary Beneficiary [Member] | Student Loan Securitization Trusts [Member]
Assets
Restricted cash	125,621
Loan portfolio:
Purchased credit-impaired loans	2,876,923		0
Other assets	$ 5,209

[1] Available-for-sale investment securities are reported at fair value.

[2] Held-to-maturity investment securities are reported at amortized cost.

[3] The Company maintains its allowance for loan losses at an amount sufficient to absorb probable losses inherent in all loan receivables, which includes all loan receivables in the trusts. Therefore, credit risk associated with the transferred receivables is fully reflected on the Company’s balance sheet in accordance with GAAP.

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Segment Disclosures (Tables)

9 Months Ended

Aug. 31, 2011

Segment Reporting [Abstract]

Segment Disclosures

The following table presents segment data for the three and nine months ended August 31, 2011 and 2010 (dollars in thousands):
For the Three Months Ended	Direct Banking		Payment Services			Total
August 31, 2011
Interest income
Credit card	$	1,423,496	$	—		$	1,423,496
Private student loans	84,318		—			84,318
Personal loans	70,052		—			70,052
Other	21,209		17			21,226
Total interest income	1,599,075		17			1,599,092
Interest expense	362,017		36			362,053
Net interest income (expense)	1,237,058		(19		)	1,237,039
Provision for loan losses	99,514		—			99,514
Other income	481,134		70,829			551,963
Other expense	609,202		33,205			642,407
Income before income tax expense	$	1,009,476	$	37,605		$	1,047,081
August 31, 2010
Interest income
Credit card	$	1,455,907	$	—		$	1,455,907
Private student loans	12,266		—			12,266
Personal loans	47,105		—			47,105
Other	20,656		5			20,661
Total interest income	1,535,934		5			1,535,939
Interest expense	389,059		78			389,137
Net interest income (expense)	1,146,875		(73		)	1,146,802
Provision for loan losses	712,565		—			712,565
Other income	495,771		68,373			564,144
Other expense	534,782		31,456			566,238
Income before income tax expense	$	395,299	$	36,844		$	432,143

For the Nine Months Ended	Direct Banking		Payment Services			Total
August 31, 2011
Interest income
Credit card	$	4,243,803	$	—		$	4,243,803
Private student loans	229,933		—			229,933
Personal loans	189,525		—			189,525
Other	62,044		29			62,073
Total interest income	4,725,305		29			4,725,334
Interest expense	1,124,597		163			1,124,760
Net interest income (expense)	3,600,708		(134		)	3,600,574
Provision for loan losses	692,763		—			692,763
Other income	1,436,764		221,667			1,658,431
Other expense	1,774,915		97,784			1,872,699
Income before income tax expense	$	2,569,794	$	123,749		$	2,693,543
August 31, 2010
Interest income
Credit card	$	4,423,654	$	—		$	4,423,654
Private student loans	33,025		—			33,025
Personal loans	129,832		—			129,832
Other	60,345		15			60,360
Total interest income	4,646,856		15			4,646,871
Interest expense	1,207,322		160			1,207,482
Net interest income (expense)	3,439,534		(145		)	3,439,389
Provision for loan losses	2,824,035		—			2,824,035
Other income	1,423,823		199,041			1,622,864
Other expense	1,465,749		88,841			1,554,590
Income (loss) before income tax expense	$	573,573	$	110,055		$	683,628

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Fair Value Disclosures (Narrative) (Details) (USD $)	3 Months Ended		9 Months Ended
	Aug. 31, 2011	Aug. 31, 2010	Aug. 31, 2011	Aug. 31, 2010
Impairment on Assets Measured at Fair Value on a Non-Recurring Basis	$ 0	$ 0	$ 0	$ 0
Fair Value, Level 2 to level 1 Transfers, Amount	0	0	0	0
Fair Value, Level 1 to level 2 Transfers, Amount	0	0	0	0
Class A [Member] | Asset-backed Securities, Securitized Loans and Receivables [Member]
Available for sale security, par value	302,000,000		302,000,000
Available for sale securities, weighted average coupon rate	0.67%		0.67%
Available for sale securities, Weighted Average Remaining Maturity			12.9
Class B [Member] | Asset-backed Securities, Securitized Loans and Receivables [Member]
Available for sale security, par value	32,000,000		32,000,000
Available for sale securities, weighted average coupon rate	0.52%		0.52%
Available for sale securities, Weighted Average Remaining Maturity			14.1
Class C [Member] | Asset-backed Securities, Securitized Loans and Receivables [Member]
Available for sale security, par value	22,300,000		22,300,000
Available for sale securities, weighted average coupon rate	0.63%		0.63%
Available for sale securities, Weighted Average Remaining Maturity			10.6
Corporate Debt Securities [Member]
Available for sale security, par value	$ 495,000,000		$ 495,000,000
Available for sale securities, weighted average coupon rate	2.42%		2.42%
Available for sale securities, Weighted Average Remaining Maturity			8.6

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Commitments, Contingencies and Guarantees (Guarantee Settlement) (Details) (USD $) In Thousands	Aug. 31, 2011
Diners Club [Member] | Merchant Guarantee [Member]
Statement [Line Items]
Guarantor Obligations, Maximum Exposure, Undiscounted	$ 255,000
ATM Guarantee [Member] | PULSE [Member]
Statement [Line Items]
Guarantor Obligations, Maximum Exposure, Undiscounted	$ 1,077

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Loan Receivables (Company's Net Charge-offs) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Aug. 31, 2011	Aug. 31, 2010	Aug. 31, 2011	Aug. 31, 2010
Charge Offs [Line Items]
Net Charge-offs	$ 458,776	$ 899,468	$ 1,723,823	$ 2,982,674
Credit Card Receivable [Member] | Discover Card [Member] | Excluding PCI Loans [Member]
Charge Offs [Line Items]
Net Charge-offs	436,242		1,651,311
Net Charge-off Rate	3.84%		4.91%
Credit Card Receivable [Member] | Discover Business Card [Member] | Excluding PCI Loans [Member]
Charge Offs [Line Items]
Net Charge-offs	3,506		14,937
Net Charge-off Rate	6.01%		8.26%
Credit Card Receivable [Member] | Excluding PCI Loans [Member]
Charge Offs [Line Items]
Net Charge-offs	439,748		1,666,248
Net Charge-off Rate	3.85%		4.93%
Total Other Consumer Loans [Member] | Personal Loans [Member] | Excluding PCI Loans [Member]
Charge Offs [Line Items]
Net Charge-offs	16,000		50,980
Net Charge-off Rate	2.73%		3.19%
Total Other Consumer Loans [Member] | Private Student Loans (Excluding PCI) [Member] | Excluding PCI Loans [Member]
Charge Offs [Line Items]
Net Charge-offs	2,618		5,573
Net Charge-off Rate	0.62%		0.49%
Total Other Consumer Loans [Member] | Other Consumer Loans [Member] | Excluding PCI Loans [Member]
Charge Offs [Line Items]
Net Charge-offs	410		1,022
Net Charge-off Rate	13.41%		10.35%
Total Other Consumer Loans [Member] | Excluding PCI Loans [Member]
Charge Offs [Line Items]
Net Charge-offs	19,028		57,575
Net Charge-off Rate	0.98%		1.09%
Including PCI Loans [Member]
Charge Offs [Line Items]
Net Charge-offs	458,776		1,723,823
Net Charge-off Rate	3.43%		4.41%
Excluding PCI Loans [Member]
Charge Offs [Line Items]
Net Charge-offs	$ 458,776		$ 1,723,823
Net Charge-off Rate	3.63%		4.64%

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Loan Receivables (Credit Quality Indicators of PCI Student Loans) (Details)	3 Months Ended	9 Months Ended
	Aug. 31, 2011	Aug. 31, 2011
Loans and Leases Receivable Disclosure [Abstract]
30 or more days delinquent	2.60%	2.60%
90 or more days delinquent	0.83%	0.83%
Net charge-off rate	1.23%	1.22%

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Borrowings Borrowings (Schedule of Maturities) (Details) (USD $) In Thousands	Aug. 31, 2011	Nov. 30, 2010
Debt Disclosure [Abstract]
Due in 2011	$ 526,234
Due in 2012	3,325,989
Due in 2013	5,632,873
Due in 2014	1,989,293
Due in 2015	599,819
Thereafter	5,643,992
Total	$ 17,718,200	$ 17,705,728

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Investment Securities (Maturities and Weighted Average Yields of Available-for-Sale Debt Securities and Held-to-Maturity Debt Securities) (Details) (USD $) In Thousands	Aug. 31, 2011
Available-for-sale securities, debt maturities, one year or less, amortized cost	$ 2,056,745	[1]
Available-for-sale securities, debt maturities, after one year through five years, amortized cost	3,742,011	[1]
Available-for-sale securities, debt maturities, after five years through ten years, amortized cost	0	[1]
Available-for-sale securities, debt maturities, after ten years, amortized cost	0	[1]
Available-for-sale securities, debt maturities, amortized cost	5,798,756	[1]
Held-to-maturity securities, debt maturities, one year or less, amortized cost	825	[2]
Held-to-maturity securities, debt maturities, after one year through five years, amortized cost	4,726	[2]
Held-to-maturity securities, debt maturities, after five years through ten years, amortized cost	3,528	[2]
Held-to-maturity securities, debt maturities, after ten years, amortized cost	44,009	[2]
Held-to-maturity securities, debt maturities, amortized cost	53,088	[2]
Available-for-sale securities, debt maturities, one year or less, fair value	2,060,193	[1]
Available-for-sale debt maturities, after one year through five years, fair value	3,838,887	[1]
Available-for-sale securities, debt maturities, after five years through ten years, fair value	0	[1]
Available-for-sale securities, debt maturities, after ten years, fair value	0	[1]
Available-for-sale securities, debt maturities, fair value	5,899,080
Held-to-maturity securities, debt maturities, one year or less, fair value	825	[2]
Held-to-maturity securities, debt maturities, after one year through five years, fair value	4,766	[2]
Held-to-maturity securities, debt maturities, after five years through ten years, fair value	3,702	[2]
Held-to-maturity securities, debt maturities, after ten years, fair value	41,896	[2]
Held-to-maturity securities, debt maturities, fair value	51,189	[2]
U.S. Treasury Securities [Member]
Available-for-sale securities, debt maturities, one year or less, amortized cost	590,462
Available-for-sale securities, debt maturities, after one year through five years, amortized cost	1,731,580
Available-for-sale securities, debt maturities, after five years through ten years, amortized cost	0
Available-for-sale securities, debt maturities, after ten years, amortized cost	0
Available-for-sale securities, debt maturities, amortized cost	2,322,042	[1]
Held-to-maturity securities, debt maturities, one year or less, amortized cost	550
Held-to-maturity securities, debt maturities, after one year through five years, amortized cost	0
Held-to-maturity securities, debt maturities, after five years through ten years, amortized cost	0
Held-to-maturity securities, debt maturities, after ten years, amortized cost	0
Held-to-maturity securities, debt maturities, amortized cost	550	[2]
Available-for-sale securities, debt maturities, one year or less, fair value	591,201
Available-for-sale debt maturities, after one year through five years, fair value	1,780,054
Available-for-sale securities, debt maturities, after five years through ten years, fair value	0
Available-for-sale securities, debt maturities, after ten years, fair value	0
Available-for-sale securities, debt maturities, fair value	2,371,255	[1]
Held-to-maturity securities, debt maturities, one year or less, fair value	550
Held-to-maturity securities, debt maturities, after one year through five years, fair value	0
Held-to-maturity securities, debt maturities, after five years through ten years, fair value	0
Held-to-maturity securities, debt maturities, after ten years, fair value	0
Held-to-maturity securities, debt maturities, fair value	550	[2]
U.S. Government Agency Securities [Member]
Available-for-sale securities, debt maturities, one year or less, amortized cost	921,790
Available-for-sale securities, debt maturities, after one year through five years, amortized cost	1,705,602
Available-for-sale securities, debt maturities, after five years through ten years, amortized cost	0
Available-for-sale securities, debt maturities, after ten years, amortized cost	0
Available-for-sale securities, debt maturities, amortized cost	2,627,392	[1]
Available-for-sale securities, debt maturities, one year or less, fair value	922,717
Available-for-sale debt maturities, after one year through five years, fair value	1,746,463
Available-for-sale securities, debt maturities, after five years through ten years, fair value	0
Available-for-sale securities, debt maturities, after ten years, fair value	0
Available-for-sale securities, debt maturities, fair value	2,669,180	[1]
Credit Card Asset-Backed Securities of Other Issuers [Member]
Available-for-sale securities, debt maturities, one year or less, amortized cost	191,269
Available-for-sale securities, debt maturities, after one year through five years, amortized cost	157,337
Available-for-sale securities, debt maturities, after five years through ten years, amortized cost	0
Available-for-sale securities, debt maturities, after ten years, amortized cost	0
Available-for-sale securities, debt maturities, amortized cost	348,606	[1]
Available-for-sale securities, debt maturities, one year or less, fair value	192,728
Available-for-sale debt maturities, after one year through five years, fair value	164,212
Available-for-sale securities, debt maturities, after five years through ten years, fair value	0
Available-for-sale securities, debt maturities, after ten years, fair value	0
Available-for-sale securities, debt maturities, fair value	356,940	[1]
Corporate Debt Securities [Member]
Available-for-sale securities, debt maturities, one year or less, amortized cost	353,224
Available-for-sale securities, debt maturities, after one year through five years, amortized cost	147,492
Available-for-sale securities, debt maturities, after five years through ten years, amortized cost	0
Available-for-sale securities, debt maturities, after ten years, amortized cost	0
Available-for-sale securities, debt maturities, amortized cost	500,716	[1]
Available-for-sale securities, debt maturities, one year or less, fair value	353,547
Available-for-sale debt maturities, after one year through five years, fair value	148,158
Available-for-sale securities, debt maturities, after five years through ten years, fair value	0
Available-for-sale securities, debt maturities, after ten years, fair value	0
Available-for-sale securities, debt maturities, fair value	501,705	[1]
States and Political Subdivisions of States [Member]
Held-to-maturity securities, debt maturities, one year or less, amortized cost	0
Held-to-maturity securities, debt maturities, after one year through five years, amortized cost	2,085
Held-to-maturity securities, debt maturities, after five years through ten years, amortized cost	3,375
Held-to-maturity securities, debt maturities, after ten years, amortized cost	34,210
Held-to-maturity securities, debt maturities, amortized cost	39,670	[2]
Held-to-maturity securities, debt maturities, one year or less, fair value	0
Held-to-maturity securities, debt maturities, after one year through five years, fair value	2,125
Held-to-maturity securities, debt maturities, after five years through ten years, fair value	3,549
Held-to-maturity securities, debt maturities, after ten years, fair value	31,292
Held-to-maturity securities, debt maturities, fair value	36,966	[2]
Residential Mortgage-Backed Securities [Member]
Held-to-maturity securities, debt maturities, one year or less, amortized cost	0
Held-to-maturity securities, debt maturities, after one year through five years, amortized cost	0
Held-to-maturity securities, debt maturities, after five years through ten years, amortized cost	0
Held-to-maturity securities, debt maturities, after ten years, amortized cost	7,344
Held-to-maturity securities, debt maturities, amortized cost	7,344	[2]
Held-to-maturity securities, debt maturities, one year or less, fair value	0
Held-to-maturity securities, debt maturities, after one year through five years, fair value	0
Held-to-maturity securities, debt maturities, after five years through ten years, fair value	0
Held-to-maturity securities, debt maturities, after ten years, fair value	8,149
Held-to-maturity securities, debt maturities, fair value	8,149	[2]
Other Debt Securities [Member]
Held-to-maturity securities, debt maturities, one year or less, amortized cost	275
Held-to-maturity securities, debt maturities, after one year through five years, amortized cost	2,641
Held-to-maturity securities, debt maturities, after five years through ten years, amortized cost	153
Held-to-maturity securities, debt maturities, after ten years, amortized cost	2,455
Held-to-maturity securities, debt maturities, amortized cost	5,524	[2]
Held-to-maturity securities, debt maturities, one year or less, fair value	275
Held-to-maturity securities, debt maturities, after one year through five years, fair value	2,641
Held-to-maturity securities, debt maturities, after five years through ten years, fair value	153
Held-to-maturity securities, debt maturities, after ten years, fair value	2,455
Held-to-maturity securities, debt maturities, fair value	$ 5,524	[2]

[1] Available-for-sale investment securities are reported at fair value.

[2] Held-to-maturity investment securities are reported at amortized cost.

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Loan Receivables (Narrative) (Details) (USD $)	9 Months Ended
	Aug. 31, 2011	Dec. 31, 2010
Temporary hardship program, maturity, months	12 months
Permanent workout program, maturity, months	60 months
Aggregate outstanding balance of loans acquired		$ 3,800,000,000
Acquired private student loans unpaid principal balance	3,400,000,000
Non-Performing [Member]
Aggregate outstanding balance of loans acquired		$ 31,000,000

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Loan Receivables (Loans in the Company's Permanent Workout Program) (Details) (USD $) In Thousands	3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended
	Aug. 31, 2011 Temporary and Permanent Programs [Member]		Aug. 31, 2011 Temporary and Permanent Programs [Member]		Aug. 31, 2011 External Programs [Member]		Aug. 31, 2011 External Programs [Member]		Aug. 31, 2010 Permanent Program [Member]		Aug. 31, 2010 Permanent Program [Member]
Average recorded investment in loans	$ 519,884	[1]	$ 534,479	[1]	$ 709,211	[1]	$ 727,113	[1]	$ 271,114		$ 248,686
Interest income recognized during the time within the period these loans were impaired	4,518	[1],[2]	16,660	[1],[2]	15,391	[1],[2]	46,974	[1],[2]	765	[2]	2,107	[2]
Gross interest income that would have been recorded in accordance with the original terms	$ 16,411	[1],[3]	$ 47,950	[1],[3]	$ 2,467	[1],[3]	$ 7,535	[1],[3]	$ 10,462	[3]	$ 28,707	[3]

[1] (1)In addition to loans modified through permanent workout programs, in the first quarter 2011, the Company began accounting for credit card loans modified through temporary hardship and external programs as troubled debt restructurings. The impact on the allowance for loan losses as a result of this change was not material.

[2] (2)The Company does not separately track interest income on loans in modification programs. Amounts shown are estimated by applying an average interest rate to the average loans in the various modification programs.

[3] (3)The Company does not separately track the amount of gross interest income that would have been recorded if the loans in modification programs had not been restructured and interest had instead been recorded in accordance with the original terms. Amounts shown are estimated by applying the difference between the average interest rate earned on non-impaired credit card loans and the average interest rate earned on loans in the modification programs to the average loans in the modification programs.

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Business Combinations (Narrative) (Details) (USD $)	9 Months Ended			1 Months Ended
	Aug. 31, 2011	Aug. 31, 2010	Dec. 31, 2010	Dec. 31, 2010 Student Loan Corporation [Member]	Aug. 31, 2011 Student Loan Corporation [Member]	Aug. 31, 2011 Student Loan Corporation [Member] Slc Trust 2010A [Member]	Dec. 31, 2010 Student Loan Corporation [Member] Slc Trust 2010A [Member]
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Acquired During Period, at Acquisition, at Fair Value			$ 3,051,000,000
Aggregate consideration				556,000,000
Cash acquired from acquisition				155,000,000
Net assets acquired				572,422,000
Gain on purchase of business	15,917,000	0		16,000,000
Discount on acquisition of loans and other assets	8.50%
Identifiable intangible assets acquired				6,200,000
Finite-Lived Intangible Assets, Useful Life	5
Business Combination, Indemnification Assets, Amount as of Acquisition Date				101,000,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Assets				3,531,972,000		1,100,000,000	1,200,000,000
Indemnification payments					166,800,000
Merger consideration					$ 600,000,000