Discover Financial Services - FORM 8-K - EX-99.2 - EXHIBIT 99.2

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8-K - DISCOVER FINANCIAL SERVICES 8-K - Discover Financial Services	a50512369.htm
EX-99.1 - EXHIBIT 99.1 - Discover Financial Services	a50512369ex99_1.htm

Exhibit 99.2

DISCOVER FINANCIAL SERVICES
EARNINGS SUMMARY
(unaudited, in millions, except per share statistics)

	Quarter Ended																						Twelve Months Ended
	Nov 30, 2012			Aug 31, 2012			May 31, 2012			Feb 29, 2012			Nov 30, 2011			November 30, 2012 vs. November 30, 2011							Nov 30, 2012			Nov 30, 2011			2012 vs. 2011
EARNINGS SUMMARY
Interest Income		$1,706			$1,695			$1,656			$1,646			$1,620			$86				5	%		$6,703			$6,345			$358			6	%
Interest Expense		312			325			341			353			360			(48	)			(13	%)		1,331			1,485			(154	)		(10	%)
Net Interest Income		1,394			1,370			1,315			1,293			1,260			134				11	%		5,372			4,860			512			11	%

Discount/Interchange Revenue		521			533			514			500			489			32				7	%		2,069			1,963			106			5	%
Rewards		281			268			248			236			215			66				31	%		1,034			879			155			18	%
Discount and Interchange Revenue, net		240			265			266			264			274			(34	)			(12	%)		1,035			1,084			(49	)		(5	%)
Protection Products Revenue		99			104			101			105			107			(8	)			(7	%)		409			428			(19	)		(4	%)
Loan Fee Income		83			80			77			85			87			(4	)			(5	%)		325			338			(13	)		(4	%)
Transaction Processing Revenue		54			59			52			53			48			6				13	%		218			180			38			21	%
Other Income		128			86			37			43			30			98			NM				294			175			119			68	%
Total Other Income		604			594			533			550			546			58				11	%		2,281			2,205			76			3	%

Revenue Net of Interest Expense		1,998			1,964			1,848			1,843			1,806			192				11	%		7,653			7,065			588			8	%

Provision for Loan Losses		338			126			232			152			319			19				6	%		848			1,013			(165	)		(16	%)

Employee Compensation and Benefits		278			274			249			247			229			49				21	%		1,048			914			134			15	%
Marketing and Business Development		192			161			119			131			144			48				33	%		603			537			66			12	%
Information Processing & Communications		78			69			72			70			69			9				13	%		289			264			25			9	%
Professional Fees		115			107			110			100			114			1				1	%		432			415			17			4	%
Premises and Equipment		20			20			19			17			18			2				11	%		76			71			5			7	%
Other Expense		117			195			180			112			95			22				23	%		604			340			264			78	%
Total Other Expense		800			826			749			677			669			131				20	%		3,052			2,541			511			20	%

Income Before Income Taxes		860			1,012			867			1,014			818			42				5	%		3,753			3,511			242			7	%
Tax Expense		309			385			330			384			305			4				1	%		1,408			1,284			124			10	%
Net Income		$551			$627			$537			$630			$513			$38				7	%		$2,345			$2,227			$118			5	%

Net Income Allocated to Common Stockholders		$541			$621			$532			$624			$508			$33				6	%		$2,318			$2,202			$116			5	%

Effective Tax Rate		35.9	%		38.1	%		38.1	%		37.8	%		37.3	%									37.5	%		36.6	%

Net Interest Margin		9.44	%		9.44	%		9.31	%		9.03	%		9.10	%		34		bps					9.31	%		9.18	%		13		bps
ROE		23	%		28	%		24	%		29	%		25	%									26	%		30	%

Ending Common Shares Outstanding		498			507			517			530			529			(31	)			(6	%)		498			529			(31	)		(6	%)
Weighted Average Common Shares Outstanding		503			513			528			530			532			(29	)			(5	%)		519			542			(23	)		(4	%)
Weighted Average Common Shares Outstanding (fully diluted)		504			514			529			531			533			(29	)			(5	%)		520			543			(23	)		(4	%)

PER SHARE STATISTICS
Basic EPS		$1.08			$1.21			$1.01			$1.18			$0.95			$0.13				14	%		$4.47			$4.06			$0.41			10	%
Diluted EPS		$1.07			$1.21			$1.00			$1.18			$0.95			$0.12				13	%		$4.46			$4.06			$0.40			10	%
Common Stock Price (period end)		$41.61			$38.73			$33.11			$30.01			$23.82			$17.79				75	%		$41.61			$23.82			$17.79			75	%
Book Value per share		$19.55			$18.02			$17.20			$16.66			$15.59			$3.96				25	%		$19.55			$15.59			$3.96			25	%

Note: See Glossary of Financial Terms for definitions of financial terms.

DISCOVER FINANCIAL SERVICES

EARNINGS SUMMARY

(unaudited, in millions)

	Quarter Ended															Twelve Months Ended
	Nov 30, 2012		Aug 31, 2012		May 31, 2012		Feb 29, 2012		Nov 30, 2011		November 30, 2012 vs. November 30, 2011					Nov 30, 2012		Nov 30, 2011		2012 vs. 2011
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$827		$963		$820		$962		$776		$51		7	%		$3,572		$3,345		$227		7	%
Payment Services		33		49		47		52		42		(9	)	(21	%)		181		166		15		9	%
Total		$860		$1,012		$867		$1,014		$818		$42		5	%		$3,753		$3,511		$242		7	%

TRANSACTIONS PROCESSED ON NETWORKS
Discover Network		469		476		455		444		439		30		7	%		1,844		1,722		122		7	%
PULSE Network		1,064		1,125		1,136		996		939		125		13	%		4,321		3,824		497		13	%
Total		1,533		1,601		1,591		1,440		1,378		155		11	%		6,165		5,546		619		11	%

NETWORK VOLUME
PULSE Network		$39,376		$40,990		$42,001		$37,577		$33,911		$5,465		16	%		$159,944		$140,119		$19,825		14	%
Network Partners 1		2,297		2,231		2,189		2,037		1,939		358		18	%		8,754		7,533		1,221		16	%
Diners Club International 2		7,298		7,041		7,205		7,100		7,469		(171	)	(2	%)		28,644		29,275		(631	)	(2	%)
Total Payment Services		48,971		50,262		51,395		46,714		43,319		5,652		13	%		197,342		176,927		20,415		12	%
Discover Network - Proprietary		27,462		28,085		26,985		26,482		25,926		1,536		6	%		109,014		103,527		5,487		5	%
Total		$76,433		$78,347		$78,380		$73,196		$69,245		$7,188		10	%		$306,356		$280,454		$25,902		9	%

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

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

Note: See Glossary of Financial Terms for definitions of financial terms.

DISCOVER FINANCIAL SERVICES

BALANCE SHEET STATISTICS

(unaudited, in millions)

	Quarter Ended
	Nov 30, 2012			Aug 31, 2012			May 31, 2012			Feb 29, 2012			Nov 30, 2011			November 30, 2012 vs. November 30, 2011

BALANCE SHEET SUMMARY
Assets
Cash and Investment Securities		$12,491			$13,007			$13,567			$12,946			$10,342			$2,149		21	%
Total Loan Receivables 1		61,017			59,157			57,058			56,299			57,337			3,680		6	%
Allowance for Loan Losses		(1,725	)		(1,687	)		(1,869	)		(1,979	)		(2,205	)		480		22	%
Net Loan Receivables		59,292			57,470			55,189			54,320			55,132			4,160		8	%
Premises and Equipment, net		534			520			492			487			483			51		11	%
Goodwill and Intangible Assets, net		476			479			440			442			443			33		7	%
Other Assets		2,445			2,433			2,395			2,291			2,384			61		3	%
Total Assets		$75,238			$73,909			$72,083			$70,486			$68,784			$6,454		9	%

Liabilities & Stockholders' Equity
Direct to Consumer and Affinity Deposits		$27,948			$27,720			$27,606			$27,346			$26,177			$1,771		7	%
Brokered Deposits and Other Deposits		14,207			14,598			13,945			12,802			13,401			806		6	%
Deposits		42,155			42,318			41,551			40,148			39,578			2,577		7	%
Borrowings		20,013			19,496			19,024			18,754			18,337			1,676		9	%
Accrued Expenses and Other Liabilities		3,338			2,949			2,609			2,755			2,627			711		27	%
Total Liabilities		65,506			64,763			63,184			61,657			60,542			4,964		8	%
Total Equity		9,732			9,146			8,899			8,829			8,242			1,490		18	%
Total Liabilities and Stockholders' Equity		$75,238			$73,909			$72,083			$70,486			$68,784			$6,454		9	%

BALANCE SHEET STATISTICS
Total Common Equity		$9,172			$9,146			$8,899			$8,829			$8,242			$930		11	%
Total Common Equity/Total Assets		12.2	%		12.4	%		12.3	%		12.5	%		12.0	%
Total Common Equity/Net Loans		15.5	%		15.9	%		16.1	%		16.3	%		15.0	%

Tangible Assets		$74,762			$73,430			$71,643			$70,044			$68,341			$6,421		9	%
Tangible Common Equity 2		$8,696			$8,667			$8,459			$8,387			$7,799			$897		12	%
Tangible Common Equity/Tangible Assets 2		11.6	%		11.8	%		11.8	%		12.0	%		11.4	%
Tangible Common Equity/Net Loans 2		14.7	%		15.1	%		15.3	%		15.4	%		14.1	%
Tangible Common Equity per share 2		$17.47			$17.08			$16.35			$15.82			$14.75			$2.72		18	%

REGULATORY CAPITAL RATIOS
Total Risk Based Capital Ratio		16.8	%		17.1	%		17.3	%		17.6	%		16.5	%
Tier 1 Risk Based Capital Ratio		14.4	%		13.9	%		14.0	%		14.3	%		13.2	%
Tier 1 Common Capital Ratio 3		13.6	%		13.9	%		14.0	%		14.3	%		13.2	%
Tier 1 Leverage Ratio		12.6	%		11.9	%		11.9	%		12.1	%		11.5	%

LIQUIDITY
Liquidity Portfolio		$9,625			$12,084			$11,279			$12,097			$8,548			$1,077		13	%
Undrawn Credit Facilities 4		16,990			16,912			16,271			15,634			17,602			(612	)	(3	%)
Total Liquidity		$26,615			$28,996			$27,550			$27,731			$26,150			$465		2	%

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

2 Tangible Common Equity ("TCE") is a non-GAAP measure. The Company believes TCE is a more meaningful measure to investors of the net asset value of the Company. For corresponding reconciliation of TCE to a GAAP financial measure see Reconciliation of GAAP to non-GAAP Data schedule.

3 Tier 1 Common Capital Ratio is calculated using tier 1 common capital, a non-GAAP measure. The Company believes the tier 1 common capital ratio is meaningful to investors to assess the quality and composition of the Company’s capital. For corresponding reconciliation of tier 1 common capital to a GAAP financial measure see Reconciliation of GAAP to non-GAAP Data schedule.

4 Excludes investments pledged to the Federal Reserve, which is included within the liquidity portfolio.

Note: See Glossary of Financial Terms for definitions of financial terms.

DISCOVER FINANCIAL SERVICES

LOAN STATISTICS

(unaudited, in millions)

	Quarter Ended																					Twelve Months Ended
	Nov 30, 2012			Aug 31, 2012			May 31, 2012			Feb 29, 2012			Nov 30, 2011			November 30, 2012 vs. November 30, 2011						Nov 30, 2012			Nov 30, 2011			2012 vs. 2011
TOTAL LOAN RECEIVABLES
Ending Loans 1, 2, 3		$61,017			$59,157			$57,058			$56,299			$57,337			$3,680			6	%		$61,017			$57,337			$3,680			6	%
Average Loans 1, 2		$59,343			$57,721			$56,180			$57,606			$55,539			$3,804			7	%		$57,708			$52,943			$4,765			9	%

Interest Yield		11.39	%		11.50	%		11.55	%		11.36	%		11.56	%		(17	)	bps				11.45	%		11.85	%		(40	)	bps
Net Principal Charge-off Rate		2.03	%		2.12	%		2.42	%		2.64	%		2.81	%		(78	)	bps				2.30	%		3.99	%		(169	)	bps
Net Principal Charge-off Rate excluding PCI Loans 4		2.21	%		2.32	%		2.66	%		2.90	%		3.05	%		(85	)	bps				2.52	%		4.24	%		(172	)	bps
Delinquency Rate (over 30 days) 4		1.75	%		1.71	%		1.81	%		2.08	%		2.30	%		(55	)	bps				1.75	%		2.30	%		(55	)	bps
Delinquency Rate (over 90 days) 4		0.83	%		0.81	%		0.91	%		1.08	%		1.14	%		(31	)	bps				0.83	%		1.14	%		(31	)	bps
Net Principal Charge-off Dollars		$300			$308			$342			$378			$387			($87	)		(22	%)		$1,328			$2,112			($784	)		(37	%)
Net Interest and Fee Charge-off Dollars		$88			$92			$110			$123			$128			($40	)		(31	%)		$412			$695			($284	)		(41	%)
Loans Delinquent Over 30 Days 4		$983			$931			$941			$1,066			$1,200			($217	)		(18	%)		$983			$1,200			($217	)		(18	%)
Loans Delinquent Over 90 Days 4		$468			$441			$474			$554			$596			($128	)		(21	%)		$468			$596			($128	)		(21	%)

Allowance for Loan Loss (period end)		$1,725			$1,687			$1,869			$1,979			$2,205			($480	)		(22	%)		$1,725			$2,205			($480	)		(22	%)
Change in Loan Loss Reserves		$38			($182	)		($110	)		($226	)		($68	)		$106			156	%		($480	)		($1,099	)		$619			56	%
Reserve Rate 5		2.83	%		2.85	%		3.28	%		3.51	%		3.85	%		(102	)	bps				2.83	%		3.85	%		(102	)	bps
Reserve Rate Excluding PCI Loans 4, 5		3.07	%		3.11	%		3.59	%		3.87	%		4.23	%		(116	)	bps				3.07	%		4.23	%		(116	)	bps

CREDIT CARD LOANS
Ending Loans 3		$49,642			$48,124			$46,610			$45,918			$46,639			$3,003			6	%		$49,642			$46,639			$3,003			6	%
Average Loans		$48,122			$47,067			$45,772			$46,919			$45,756			$2,366			5	%		$46,967			$45,205			$1,762			4	%

Interest Yield		12.16	%		12.27	%		12.35	%		12.21	%		12.36	%		(20	)	bps				12.25	%		12.51	%		(26	)	bps
Net Principal Charge-off Rate		2.29	%		2.43	%		2.79	%		3.07	%		3.24	%		(95	)	bps				2.64	%		4.50	%		(186	)	bps
Delinquency Rate (over 30 days)		1.86	%		1.81	%		1.91	%		2.22	%		2.39	%		(53	)	bps				1.86	%		2.39	%		(53	)	bps
Delinquency Rate (over 90 days)		0.91	%		0.89	%		0.99	%		1.18	%		1.20	%		(29	)	bps				0.91	%		1.20	%		(29	)	bps
Net Principal Charge-off Dollars		$274			$287			$322			$358			$370			($96	)		(26	%)		$1,240			$2,036			($796	)		(39	%)
Loans Delinquent Over 30 Days		$925			$870			$890			$1,019			$1,117			($192	)		(17	%)		$925			$1,117			($192	)		(17	%)
Loans Delinquent Over 90 Days		$451			$427			$459			$540			$560			($109	)		(19	%)		$451			$560			($109	)		(19	%)

Allowance for Loan Loss (period end)		$1,554			$1,522			$1,713			$1,835			$2,070			($516	)		(25	%)		$1,554			$2,070			($516	)		(25	%)
Change in Loan Loss Reserves		$32			($191	)		($122	)		($235	)		($84	)		$116			138	%		($516	)		($1,139	)		$623			55	%
Reserve Rate		3.13	%		3.16	%		3.68	%		4.00	%		4.44	%		(131	)	bps				3.13	%		4.44	%		(131	)	bps

Total Discover Card Volume		$28,940			$29,763			$28,140			$27,370			$26,946			$1,994			7	%		$114,213			$108,087			$6,126			6	%
Discover Card Sales Volume		$26,533			$27,202			$26,115			$25,604			$25,033			$1,500			6	%		$105,454			$100,138			$5,316			5	%


1 Total Loans includes mortgages and other loans.

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

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

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

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

Note: See Glossary of Financial Terms for definitions of financial terms.

DISCOVER FINANCIAL SERVICES

LOAN STATISTICS

(unaudited, in millions)

	Quarter Ended																					Twelve Months Ended
	Nov 30, 2012			Aug 31, 2012			May 31, 2012			Feb 29, 2012			Nov 30, 2011			November 30, 2012 vs. November 30, 2011						Nov 30, 2012			Nov 30, 2011			2012 vs. 2011

FEDERAL STUDENT LOANS
Ending Loans		$-			$-			$-			$-			$715			($715	)		(100	%)		$-			$715			($715	)		(100	%)

PRIVATE STUDENT LOANS
Ending Loans		$7,744			$7,620			$7,504			$7,571			$7,318			$426			6	%		$7,744			$7,318			$426			6	%
Ending PCI Loans 1		$4,744			$4,867			$4,995			$5,124			$5,250			($506	)		(10	%)		$4,744			$5,250			($506	)		(10	%)

Interest Yield		6.51	%		6.49	%		6.43	%		6.35	%		6.81	%		(30	)	bps				6.44	%		7.18	%		(74	)	bps
Net Principal Charge-off Rate		0.36	%		0.25	%		0.22	%		0.15	%		0.14	%		22		bps				0.25	%		0.17	%		8		bps
Net Principal Charge-off Rate excluding PCI Loans 2		0.95	%		0.73	%		0.67	%		0.49	%		0.45	%		50		bps				0.73	%		0.48	%		25		bps
Delinquency Rate (over 30 days) 2		1.07	%		1.28	%		1.02	%		0.93	%		0.63	%		44		bps				1.07	%		0.63	%		44		bps

Reserve Rate		0.94	%		0.90	%		0.87	%		0.72	%		0.72	%		22		bps				0.94	%		0.72	%		22		bps
Reserve Rate Excluding PCI Loans 2		2.43	%		2.48	%		2.61	%		2.23	%		2.55	%		(12	)	bps				2.43	%		2.55	%		(12	)	bps

PERSONAL LOANS
Ending Loans		$3,272			$3,114			$2,916			$2,784			$2,648			$624			24	%		$3,272			$2,648			$624			24	%

Interest Yield		12.39	%		12.41	%		12.31	%		12.26	%		12.12	%		27		bps				12.35	%		11.94	%		41		bps
Net Principal Charge-off Rate		2.36	%		2.14	%		2.24	%		2.59	%		2.58	%		(22	)	bps				2.33	%		3.02	%		(69	)	bps
Delinquency Rate (over 30 days)		0.76	%		0.74	%		0.79	%		0.81	%		0.87	%		(11	)	bps				0.76	%		0.87	%		(11	)	bps

Reserve Rate		2.99	%		3.09	%		3.12	%		3.18	%		3.10	%		(11	)	bps				2.99	%		3.10	%		(11	)	bps


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

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

Note: See Glossary of Financial Terms for definitions of financial terms.

DISCOVER FINANCIAL SERVICES

SEGMENT RESULTS

(unaudited, in millions)

	Quarter Ended																					Twelve Months Ended
	Nov 30, 2012			Aug 31, 2012			May 31, 2012			Feb 29, 2012			Nov 30, 2011			November 30, 2012 vs. November 30, 2011						Nov 30, 2012			Nov 30, 2011			2012 vs. 2011
DIRECT BANKING

Interest Income		$1,706			$1,695			$1,656			$1,646			$1,620			$86			5	%		$6,703			$6,345			$358			6	%
Interest Expense		312			325			341			353			360			(48	)		(13	%)		1,331			1,485			(154	)		(10	%)
Net Interest Income		1,394			1,370			1,315			1,293			1,260			134			11	%		5,372			4,860			512			11	%
Other Income		520			506			449			464			470			50			11	%		1,939			1,907			32			2	%
Revenue Net of Interest Expense		1,914			1,876			1,764			1,757			1,730			184			11	%		7,311			6,767			544			8	%
Provision for Loan Losses		338			126			232			152			319			19			6	%		848			1,013			(165	)		(16	%)
Total Other Expense		749			787			712			643			635			114			18	%		2,891			2,409			482			20	%
Income Before Income Taxes		$827			$963			$820			$962			$776			$51			7	%		$3,572			$3,345			$227			7	%

Net Interest Margin		9.44	%		9.44	%		9.31	%		9.03	%		9.10	%		34		bps				9.31	%		9.18	%		13		bps
Pretax Return on Loan Receivables		5.60	%		6.63	%		5.81	%		6.72	%		5.60	%		-		bps				6.19	%		6.32	%		(13	)	bps


PAYMENT SERVICES

Interest Income		$-			$-			$-			$-			$-			$-		NM				$-			$-			$-		NM
Interest Expense		-			-			-			-			-			-		NM				-			-			-		NM
Net Interest Income		-			-			-			-			-			-		NM				-			-			-		NM
Other Income		84			88			84			86			76			8			11	%		342			298			44			15	%
Revenue Net of Interest Expense		84			88			84			86			76			8			11	%		342			298			44			15	%
Total Other Expense		51			39			37			34			34			17			50	%		161			132			29			22	%
Income Before Income Taxes		$33			$49			$47			$52			$42			($9	)		(21	%)		$181			$166			$15			9	%

Note: See Glossary of Financial Terms for definitions of financial terms.

DISCOVER FINANCIAL SERVICES

GLOSSARY OF FINANCIAL TERMS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tangible Assets represents total assets less goodwill and intangibles.

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

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

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

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

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

DISCOVER FINANCIAL SERVICES

RECONCILIATION OF GAAP TO NON-GAAP DATA

(unaudited, in millions)

	Quarter Ended
	Nov 30, 2012			Aug 31, 2012			May 31, 2012			Feb 29, 2012			Nov 30, 2011
GAAP total common equity		$9,172			$9,146			$8,899			$8,829			$8,242
Less: Goodwill		(286	)		(287	)		(255	)		(255	)		(255	)
Less: Intangibles		(190	)		(192	)		(185	)		(187	)		(188	)
Tangible common equity 1		$8,696			$8,667			$8,459			$8,387			$7,799
Effect of certain items in accumulated other comprehensive
income (loss) excluded from tier 1 common capital		121			31			41			49			51
Total tier 1 common capital 2		$8,817			$8,698			$8,500			$8,436			$7,850

GAAP book value per share		$19.55			$18.02			$17.20			$16.66			$15.59
Less: Goodwill		(0.58	)		(0.57	)		(0.49	)		(0.48	)		(0.48	)
Less: Intangibles		(0.38	)		(0.37	)		(0.36	)		(0.36	)		(0.36	)
Less: Preferred Stock		(1.12	)		0.00			0.00			0.00			0.00
Tangible common equity per share		$17.47			$17.08			$16.35			$15.82			$14.75

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

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

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