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

Attached files

file	filename
8-K - DFS FORM 8-K - Discover Financial Services	a2q138k.htm
EX-99.3 - EXHIBIT 99.3 - Discover Financial Services	dfspres2q13ex993.htm
EX-99.1 - EXHIBIT 99.1 - Discover Financial Services	dfs-earningsreleasex2q13ex.htm



DISCOVER FINANCIAL SERVICES																											Exhibit 99.2
EARNINGS SUMMARY
(unaudited, in millions, except per share statistics)
	Quarter Ended																				Six Months Ended
	Jun 30, 2013			Mar 31, 2013			Dec 31, 2012			Sep 30, 2012			Jun 30, 2012			June 30, 2013 vs. June 30, 2012					Jun 30, 2013			Jun 30, 2012			2013 vs. 2012
EARNINGS SUMMARY
Interest Income		$1,727			$1,708			$1,740			$1,708			$1,646			$81		5	%		$3,435			$3,287			$148		5	%
Interest Expense	297			298			312			321			332			(35		)	(11	%)	595			681			(86		)	(13	%)
Net Interest Income	1,430			1,410			1,428			1,387			1,314			116			9	%	2,840			2,606			234			9	%
Discount/Interchange Revenue	546			492			559			526			519			27			5	%	1,038			991			47			5	%
Rewards	238			229			318			273			246			(8		)	(3	%)	467			478			(11		)	(2	%)
Discount and Interchange Revenue, net	308			263			241			253			273			35			13	%	571			513			58			11	%
Protection Products Revenue	88			88			98			104			102			(14		)	(14	%)	176			205			(29		)	(14	%)
Loan Fee Income	76			81			83			82			78			(2		)	(3	%)	157			159			(2		)	(1	%)
Transaction Processing Revenue	47			53			55			58			56			(9		)	(16	%)	100			105			(5		)	(5	%)
Other Income	92			97			111			121			43			49			114	%	189			81			108			133	%
Total Other Income	611			582			588			618			552			59			11	%	1,193			1,063			130			12	%

Revenue Net of Interest Expense	2,041			1,992			2,016			2,005			1,866			175			9	%	4,033			3,669			364			10	%

Provision for Loan Losses	240			159			370			136			262			(22		)	(8	%)	399			346			53			15	%

Employee Compensation and Benefits	285			290			280			275			253			32			13	%	575			499			76			15	%
Marketing and Business Development	185			169			187			174			121			64			53	%	354			249			105			42	%
Information Processing & Communications	85			78			77			71			71			14			20	%	163			143			20			14	%
Professional Fees	101			104			115			108			108			(7		)	(6	%)	205			212			(7		)	(3	%)
Premises and Equipment	20			19			22			19			19			1			5	%	39			37			2			5	%
Other Expense	144			93			122			194			186			(42		)	(23	%)	237			290			(53		)	(18	%)
Total Other Expense	820			753			803			841			758			62			8	%	1,573			1,430			143			10	%

Income Before Income Taxes	981			1,080			843			1,028			846			135			16	%	2,061			1,893			168			9	%
Tax Expense	379			407			304			391			321			58			18	%	786			718			68			9	%
Net Income		$602			$673			$539			$637			$525			$77		15	%		$1,275			$1,175			$100		9	%

Net Income Allocated to Common Stockholders		$588			$659			$530			$631			$520			$68		13	%		$1,247			$1,164			$83		7	%

Effective Tax Rate	38.6		%	37.7		%	36.1		%	38.0		%	37.9		%						38.1		%	37.9		%

Net Interest Margin	9.44		%	9.39		%	9.40		%	9.39		%	9.28		%	16			bps		9.41		%	9.18		%	23			bps
ROE	23		%	27		%	22		%	28		%	24		%						25		%	27		%

Ending Common Shares Outstanding	486			493			498			505			515			(29		)	(6	%)	486			515			(29		)	(6	%)
Weighted Average Common Shares Outstanding	489			496			500			510			523			(34		)	(7	%)	492			527			(35		)	(7	%)
Weighted Average Common Shares Outstanding (fully diluted)	490			497			502			511			524			(34		)	(6	%)	494			528			(34		)	(6	%)

PER SHARE STATISTICS
Basic EPS		$1.20			$1.33			$1.06			$1.24			$0.99			$0.21		21	%		$2.53			$2.21			$0.32		14	%
Diluted EPS		$1.20			$1.33			$1.06			$1.24			$0.99			$0.21		21	%		$2.52			$2.21			$0.31		14	%
Common Stock Price (period end)		$47.64			$44.84			$38.55			$39.73			$34.58			$13.06		38	%		$47.64			$34.58			$13.06		38	%
Book Value per share		$21.52			$20.90			$19.83			$18.18			$17.36			$4.16		24	%		$21.52			$17.36			$4.16		24	%

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



DISCOVER FINANCIAL SERVICES
EARNINGS SUMMARY
(unaudited, in millions)
	Quarter Ended																Six Months Ended
	Jun 30, 2013			Mar 31, 2013		Dec 31, 2012		Sep 30, 2012		Jun 30, 2012		June 30, 2013 vs. June 30, 2012					Jun 30, 2013		Jun 30, 2012		2013 vs. 2012
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$1,002			$1,033		$811		$980		$796		$206		26	%		$2,035		$1,795		$240		13	%
Payment Services	(21		)	47		32		48		50		(71		)	(142	%)	26		98		(72		)	(73	%)
Total		$981			$1,080		$843		$1,028		$846		$135		16	%		$2,061		$1,893		$168		9	%

TRANSACTIONS PROCESSED ON NETWORKS
Discover Network	483			442		501		471		462		21			5	%	925		879		46			5	%
PULSE Network	1,067			1,023		1,067		1,105		1,128		(61		)	(5	%)	2,090		2,156		(66		)	(3	%)
Total	1,550			1,465		1,568		1,576		1,590		(40		)	(3	%)	3,015		3,035		(20		)	(1	%)

NETWORK VOLUME
PULSE Network		$40,060			$39,919		$40,441		$40,365		$41,207		($1,147	)	(3	%)		$79,979		$79,757		$222		0	%
Network Partners	2,442			2,246		2,456		2,228		2,195		247			11	%	4,688		4,199		489			12	%
Diners Club International¹	6,848			6,644		7,204		7,038		7,184		(336		)	(5	%)	13,491		14,251		(760		)	(5	%)
Total Payment Services	49,350			48,809		50,101		49,631		50,586		(1,236		)	(2	%)	98,158		98,207		(49		)	0	%
Discover Network - Proprietary	28,551			25,738		29,746		27,662		27,279		1,272			5	%	54,289		51,969		2,320			4	%
Total		$77,901			$74,547		$79,847		$77,293		$77,865		$36		0	%		$152,447		$150,176		$2,271		2	%


¹ Volume is derived from data provided by licensees for Diners Club branded cards issued outside of North America and is subject to subsequent revision or amendment.
Note: See Glossary of Financial Terms for definitions of financial terms.



DISCOVER FINANCIAL SERVICES
BALANCE SHEET STATISTICS
(unaudited, in millions)
	Quarter Ended
	Jun 30, 2013			Mar 31, 2013			Dec 31, 2012			Sep 30, 2012			Jun 30, 2012			June 30, 2013 vs. June 30, 2012
BALANCE SHEET SUMMARY
Assets
Cash and Investment Securities		$11,224			$13,819			$9,106			$13,722			$13,695			($2,471	)	(18	%)
Total Loan Receivables	61,703			60,384			62,598			59,634			58,051			3,652			6	%
Allowance for Loan Losses	(1,556		)	(1,634		)	(1,788		)	(1,731		)	(1,898		)	342			18	%
Net Loan Receivables	60,147			58,750			60,810			57,903			56,153			3,994			7	%
Premises and Equipment, net	607			572			538			522			497			110			22	%
Goodwill and Intangible Assets, net	475			473			475			478			471			4			1	%
Other Assets	2,491			2,525			2,562			2,544			2,422			69			3	%
Total Assets		$74,944			$76,139			$73,491			$75,169			$73,238			$1,706		2	%

Liabilities & Stockholders' Equity
Direct to Consumer and Affinity Deposits		$29,063			$28,724			$28,031			$27,737			$27,588			$1,475		5	%
Brokered Deposits and Other Deposits	13,505			13,670			14,182			14,329			14,179			(674		)	(5	%)
Deposits	42,568			42,394			42,213			42,066			41,767			801			2	%
Borrowings	18,295			19,520			17,993			19,966			19,057			(762		)	(4	%)
Accrued Expenses and Other Liabilities	3,633			3,926			3,412			3,960			3,474			159			5	%
Total Liabilities	64,496			65,840			63,618			65,992			64,298			198			0	%
Total Equity	10,448			10,299			9,873			9,177			8,940			1,508			17	%
Total Liabilities and Stockholders' Equity		$74,944			$76,139			$73,491			$75,169			$73,238			$1,706		2	%

BALANCE SHEET STATISTICS
Total Common Equity		$9,888			$9,739			$9,313			$9,177			$8,940			$948		11	%
Total Common Equity/Total Assets	13.2		%	12.8		%	12.7		%	12.2		%	12.2		%
Total Common Equity/Net Loans	16.4		%	16.6		%	15.3		%	15.8		%	15.9		%

Tangible Assets		$74,469			$75,666			$73,015			$74,691			$72,767			$1,702		2	%
Tangible Common Equity¹		$9,413			$9,266			$8,838			$8,699			$8,469			$944		11	%
Tangible Common Equity/Tangible Assets ¹	12.6		%	12.2		%	12.1		%	11.6		%	11.6		%
Tangible Common Equity/Net Loans ¹	15.6		%	15.8		%	14.5		%	15.0		%	15.1		%
Tangible Common Equity per share¹		$19.38			$18.80			$17.75			$17.23			$16.45			$2.93		18	%

REGULATORY CAPITAL RATIOS
Total Risk Based Capital Ratio	17.8		%	17.9		%	16.8		%	17.1		%	17.1		%
Tier 1 Risk Based Capital Ratio	15.5		%	15.6		%	14.5		%	13.9		%	13.9		%
Tier 1 Common Capital Ratio ²	14.6		%	14.7		%	13.6		%	13.9		%	13.9		%
Tier 1 Leverage Ratio	13.4		%	13.4		%	12.7		%	11.9		%	11.9		%

LIQUIDITY
Liquidity Portfolio		$9,717			$12,530			$8,332			$12,449			$12,096			($2,379	)	(20	%)
Undrawn Credit Facilities ³	18,496			17,415			17,237			16,657			16,493			2,003			12	%
Total Liquidity		$28,213			$29,945			$25,569			$29,106			$28,589			($376	)	(1	%)

¹Tangible 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.
²Tier 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.
³Excludes 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
AVERAGE BALANCE SHEET
(unaudited, in millions)
	Quarter Ended
	Jun 30, 2013			Mar 31, 2013			Dec 31, 2012			Sep 30, 2012			Jun 30, 2012			June 30, 2013 vs. June 30, 2012
AVERAGE BALANCES
Assets
Cash and Investment Securities		$11,097			$10,497			$10,937			$12,083			$12,149			($1,052	)	(9	%)
Restricted Cash	1,176			720			1,160			998			1,279			(103		)	(8	%)
Credit Card Loans	49,002			49,267			49,173			47,875			46,484			2,518			5	%
Private Student Loans	7,925			7,989			7,750			7,551			7,519			406			5	%
Personal Loans	3,511			3,344			3,248			3,074			2,892			619			21	%
Other Loans	355			303			306			235			34			321			NM
Total Loans	60,793			60,903			60,477			58,735			56,929			3,864			7	%
Total Interest Earning Assets	73,066			72,120			72,574			71,816			70,357			2,709			4	%
Allowance for Loan Losses	(1,600		)	(1,822		)	(1,707		)	(1,834		)	(1,931		)	331			17	%
Other Assets	4,274			4,362			4,192			4,132			3,936			338			9	%
Total Assets		$75,740			$74,660			$75,059			$74,114			$72,362			$3,378		5	%

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits		$28,946			$28,391			$27,890			$27,668			$27,593			$1,353		5	%
Brokered Deposits and Other Deposits	13,756			13,663			14,119			14,380			13,590			166			1	%
Total Interest-bearing Deposits	42,702			42,054			42,009			42,048			41,183			1,519			4	%
Short-term Borrowings	270			240			245			189			6			264			NM
Securitized Borrowings	16,412			16,574			17,540			17,341			17,085			(673		)	(4	%)
Other Long-term Borrowings	2,487			2,059			1,829			1,906			1,933			554			29	%
Total Interest-bearing Liabilities	61,871			60,927			61,623			61,484			60,207			1,664			3	%
Other Liabilities & Stockholders' Equity	13,869			13,733			13,436			12,630			12,155			1,714			14	%
Total Liabilities and Stockholders' Equity		$75,740			$74,660			$75,059			$74,114			$72,362			$3,378		5	%

AVERAGE RATES
Assets
Cash and Investment Securities	0.82		%	0.89		%	0.87		%	0.83		%	0.82		%	0			bps
Restricted Cash	0.11		%	0.10		%	0.12		%	0.15		%	0.16		%	(5		)	bps
Credit Card Loans	11.97		%	11.94		%	12.02		%	12.14		%	12.21		%	(24		)	bps
Private Student Loans	6.52		%	6.52		%	6.48		%	6.48		%	6.49		%	3			bps
Personal Loans	12.51		%	12.45		%	12.41		%	12.41		%	12.34		%	17			bps
Other Loans	3.27		%	3.50		%	3.30		%	3.39		%	3.92		%	(65		)	bps
Total Loans	11.24		%	11.22		%	11.29		%	11.39		%	11.45		%	(21		)	bps
Total Interest Earning Assets	9.48		%	9.60		%	9.54		%	9.46		%	9.41		%	7			bps

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits	1.50		%	1.53		%	1.57		%	1.58		%	1.62		%	(12		)	bps
Brokered Deposits and Other Deposits	2.21		%	2.36		%	2.43		%	2.53		%	2.94		%	(73		)	bps
Total Interest-bearing Deposits	1.73		%	1.80		%	1.86		%	1.91		%	2.06		%	(33		)	bps
Short-term Borrowings	1.36		%	1.45		%	1.32		%	1.35		%	2.77		%	(141		)	bps
Securitized Borrowings	1.78		%	1.84		%	1.79		%	1.87		%	1.99		%	(21		)	bps
Other Long-term Borrowings	6.26		%	7.04		%	7.87		%	7.79		%	7.84		%	(158		)	bps
Total Interest-bearing Liabilities	1.92		%	1.99		%	2.01		%	2.08		%	2.22		%	(30		)	bps

Net Interest Margin	9.44		%	9.39		%	9.40		%	9.39		%	9.28		%	16			bps
Net Yield on Interest-earning Assets	7.85		%	7.93		%	7.83		%	7.68		%	7.51		%	34			bps


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



DISCOVER FINANCIAL SERVICES
LOAN STATISTICS
(unaudited, in millions)
	Quarter Ended																				Six Months Ended
	Jun 30, 2013			Mar 31, 2013			Dec 31, 2012			Sep 30, 2012			Jun 30, 2012			June 30, 2013 vs. June 30, 2012					Jun 30, 2013			Jun 30, 2012			2013 vs. 2012
TOTAL LOAN RECEIVABLES
Ending Loans ^{1, 2}		$61,703			$60,384			$62,598			$59,634			$58,051			$3,652		6	%		$61,703			$58,051			$3,652		6	%
Average Loans ^{1, 2}		$60,793			$60,903			$60,477			$58,735			$56,929			$3,864		7	%		$60,848			$57,052			$3,796		7	%

Interest Yield	11.24		%	11.22		%	11.29		%	11.39		%	11.45		%	(21		)	bps		11.23		%	11.42		%	(19		)	bps
Net Principal Charge-off Rate	2.10		%	2.08		%	2.06		%	2.05		%	2.37		%	(27		)	bps		2.09		%	2.44		%	(35		)	bps
Net Principal Charge-off Rate excluding PCI Loans ³	2.27		%	2.25		%	2.24		%	2.23		%	2.60		%	(33		)	bps		2.26		%	2.68		%	(42		)	bps
Delinquency Rate (over 30 days) excluding PCI Loans ³	1.50		%	1.68		%	1.69		%	1.73		%	1.75		%	(25		)	bps		1.50		%	1.75		%	(25		)	bps
Delinquency Rate (over 90 days) excluding PCI Loans ³	0.73		%	0.84		%	0.82		%	0.81		%	0.87		%	(14		)	bps		0.73		%	0.87		%	(14		)	bps
Net Principal Charge-off Dollars		$318			$313			$313			$303			$335			($17	)	(5	%)		$631			$693			($62	)	(9	%)
Net Interest and Fee Charge-off Dollars		$85			$93			$90			$90			$104			($19	)	(18	%)		$177			$222			($45	)	(20	%)
Loans Delinquent Over 30 Days ³		$861			$940			$981			$947			$929			($68	)	(7	%)		$861			$929			($68	)	(7	%)
Loans Delinquent Over 90 Days ³		$419			$469			$478			$447			$460			($41	)	(9	%)		$419			$460			($41	)	(9	%)

Allowance for Loan Loss (period end)		$1,556			$1,634			$1,788			$1,731			$1,898			($342	)	(18	%)		$1,556			$1,898			($342	)	(18	%)
Change in Loan Loss Reserves		($78	)		($154	)		$57			($167	)		($73	)		($5	)	(7	%)		($232	)		($347	)		$115		33	%
Reserve Rate	2.52		%	2.71		%	2.86		%	2.90		%	3.27		%	(75		)	bps		2.52		%	3.27		%	(75		)	bps
Reserve Rate Excluding PCI Loans ³	2.72		%	2.93		%	3.09		%	3.16		%	3.57		%	(85		)	bps		2.72		%	3.57		%	(85		)	bps

CREDIT CARD LOANS
Ending Loans		$49,791			$48,655			$51,135			$48,434			$47,451			$2,340		5	%		$49,791			$47,451			$2,340		5	%
Average Loans		$49,002			$49,267			$49,173			$47,875			$46,484			$2,518		5	%		$49,134			$46,544			$2,590		6	%

Interest Yield	11.97		%	11.94		%	12.02		%	12.14		%	12.21		%	(24		)	bps		11.96		%	12.21		%	(25		)	bps
Net Principal Charge-off Rate	2.34		%	2.36		%	2.31		%	2.34		%	2.72		%	(38		)	bps		2.35		%	2.82		%	(47		)	bps
Delinquency Rate (over 30 days)	1.58		%	1.77		%	1.79		%	1.83		%	1.85		%	(27		)	bps		1.58		%	1.85		%	(27		)	bps
Delinquency Rate (over 90 days)	0.80		%	0.91		%	0.90		%	0.89		%	0.94		%	(14		)	bps		0.80		%	0.94		%	(14		)	bps
Net Principal Charge-off Dollars		$286			$287			$286			$281			$314			($28	)	(9	%)		$573			$652			($79	)	(12	%)
Loans Delinquent Over 30 Days		$789			$862			$917			$887			$879			($90	)	(10	%)		$789			$879			($90	)	(10	%)
Loans Delinquent Over 90 Days		$398			$442			$460			$431			$445			($47	)	(11	%)		$398			$445			($47	)	(11	%)

Allowance for Loan Loss (period end)		$1,360			$1,453			$1,613			$1,565			$1,739			($379	)	(22	%)		$1,360			$1,739			($379	)	(22	%)
Change in Loan Loss Reserves		($93	)		($160	)		$48			($174	)		($83	)		($10	)	(12	%)		($253	)		($362	)		$109		30	%
Reserve Rate	2.73		%	2.99		%	3.15		%	3.23		%	3.66		%	(93		)	bps		2.73		%	3.66		%	(93		)	bps

Total Discover Card Volume		$29,684			$26,880			$31,085			$29,692			$28,579			$1,105		4	%		$56,564			$54,309			$2,255		4	%
Discover Card Sales Volume		$27,574			$24,864			$28,728			$27,109			$26,411			$1,163		4	%		$52,438			$50,302			$2,136		4	%

¹Total 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 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
LOAN STATISTICS
(unaudited, in millions)
	Quarter Ended																				Six Months Ended
	Jun 30, 2013			Mar 31, 2013			Dec 31, 2012			Sep 30, 2012			Jun 30, 2012			June 30, 2013 vs. June 30, 2012					Jun 30, 2013			Jun 30, 2012			2013 vs. 2012
PRIVATE STUDENT LOANS
Ending Loans		$7,881			$7,987			$7,774			$7,738			$7,491			$390		5	%		$7,881			$7,491			$390		5	%
Ending PCI Loans ¹		$4,434			$4,561			$4,702			$4,828			$4,956			($522	)	(11	%)		$4,434			$4,956			($522	)	(11	%)

Interest Yield	6.52		%	6.52		%	6.48		%	6.48		%	6.49		%	3			bps		6.52		%	6.44		%	8			bps
Net Principal Charge-off Rate	0.68		%	0.35		%	0.38		%	0.26		%	0.24		%	44			bps		0.51		%	0.20		%	31			bps
Net Principal Charge-off Rate excluding PCI Loans²	1.58		%	0.82		%	1.00		%	0.74		%	0.73		%	85			bps		1.21		%	0.60		%	61			bps
Delinquency Rate (over 30 days) excluding PCI Loans ²	1.38		%	1.48		%	1.22		%	1.18		%	1.03		%	35			bps		1.38		%	1.03		%	35			bps

Reserve Rate	1.04		%	1.04		%	0.96		%	0.86		%	0.90		%	14			bps		1.04		%	0.90		%	14			bps
Reserve Rate excluding PCI Loans ²	2.38		%	2.43		%	2.44		%	2.30		%	2.67		%	(29		)	bps		2.38		%	2.67		%	(29		)	bps

PERSONAL LOANS
Ending Loans		$3,630			$3,395			$3,296			$3,165			$2,978			$652		22	%		$3,630			$2,978			$652		22	%

Interest Yield	12.51		%	12.45		%	12.41		%	12.41		%	12.34		%	17			bps		12.49		%	12.31		%	18			bps
Net Principal Charge-off Rate	2.24		%	2.30		%	2.47		%	2.09		%	2.25		%	(1		)	bps		2.27		%	2.40		%	(13		)	bps
Delinquency Rate (over 30 days)	0.64		%	0.76		%	0.77		%	0.77		%	0.73		%	(9		)	bps		0.64		%	0.73		%	(9		)	bps

Reserve Rate	2.70		%	2.86		%	3.02		%	3.11		%	3.03		%	(33		)	bps		2.70		%	3.03		%	(33		)	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																				Six Months Ended
	Jun 30, 2013			Mar 31, 2013			Dec 31, 2012			Sep 30, 2012			Jun 30, 2012			June 30, 2013 vs. June 30, 2012					Jun 30, 2013			Jun 30, 2012			2013 vs. 2012
DIRECT BANKING
Interest Income		$1,727			$1,708			$1,740			$1,708			$1,646			$81		5	%		$3,435			$3,287			$148		5	%
Interest Expense	297			298			312			321			332			(35		)	(11	%)	595			681			(86		)	(13	%)
Net Interest Income	1,430			1,410			1,428			1,387			1,314			116			9	%	2,840			2,606			234			9	%
Other Income	531			495			501			530			465			66			14	%	1,026			894			132			15	%
Revenue Net of Interest Expense	1,961			1,905			1,929			1,917			1,779			182			10	%	3,866			3,500			366			10	%
Provision for Loan Losses	225			159			370			136			262			(37		)	(14	%)	384			346			38			11	%
Total Other Expense	734			713			748			801			721			13			2	%	1,447			1,359			88			6	%
Income Before Income Taxes		$1,002			$1,033			$811			$980			$796			$206		26	%		$2,035			$1,795			$240		13	%

Net Interest Margin	9.44		%	9.39		%	9.40		%	9.39		%	9.28		%	16			bps		9.41		%	9.19		%	22			bps
Pretax Return on Loan Receivables	6.61		%	6.87		%	5.34		%	6.64		%	5.63		%	98			bps		6.74		%	6.33		%	41			bps

PAYMENT SERVICES
Interest Income		$—			$—			$—			$—			$—			$—		NM			$—			$—			$—		NM
Interest Expense	—			—			—			—			—			—			NM		—			—			—			NM
Net Interest Income	—			—			—			—			—			—			NM		—			—			—			NM
Other Income	80			87			87			88			87			(7		)	(8	%)	167			169			(2		)	(1	%)
Revenue Net of Interest Expense	80			87			87			88			87			(7		)	(8	%)	167			169			(2		)	(1	%)
Provision for Loan Losses	15			—			—			—			—			15			NM		15			—			15			NM
Total Other Expense	86			40			55			40			37			49			132	%	126			71			55			77	%
Income Before Income Taxes		($21	)		$47			$32			$48			$50			($71	)	(142	%)		$26			$98			($72	)	(73	%)

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 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
	Jun 30, 2013			Mar 31, 2013			Dec 31, 2012			Sep 30, 2012			Jun 30, 2012
GAAP total common equity		$9,888			$9,739			$9,313			$9,177			$8,940
Less: Goodwill	(284		)	(286		)	(286		)	(287		)	(287		)
Less: Intangibles	(191		)	(187		)	(189		)	(191		)	(184		)
Tangible common equity ¹		$9,413			$9,266			$8,838			$8,699			$8,469
Effect of certain items in accumulated other comprehensive income (loss) excluded from tier 1 common capital	106			83			72			29			43
Total tier 1 common capital²		$9,519			$9,349			$8,910			$8,728			$8,512

GAAP book value per share		$21.52			$20.90			$19.83			$18.18			$17.36
Less: Goodwill	(0.59		)	(0.58		)	(0.58		)	(0.57		)	(0.56		)
Less: Intangibles	(0.40		)	(0.38		)	(0.38		)	(0.38		)	(0.35		)
Less: Preferred Stock	(1.15		)	(1.14		)	(1.12		)	0.00			0.00
Tangible common equity per share		$19.38			$18.80			$17.75			$17.23			$16.45


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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