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

Attached files

file	filename
8-K - 8-K - Discover Financial Services	a4q138k.htm
EX-99.1 - EXHIBIT - Discover Financial Services	dfs-earningsreleasex4q13ex.htm
EX-99.3 - EXHIBIT - Discover Financial Services	dfspres4q13ex993.htm



DISCOVER FINANCIAL SERVICES																											Exhibit 99.2
EARNINGS SUMMARY
(unaudited, in millions, except per share statistics)
	Quarter Ended																				Twelve Months Ended
	Dec 31, 2013			Sep 30, 2013			Jun 30, 2013			Mar 31, 2013			Dec 31, 2012			December 31, 2013 vs. December 31, 2012					Dec 31, 2013			Dec 31, 2012			2013 vs. 2012
EARNINGS SUMMARY
Interest Income		$1,842			$1,787			$1,727			$1,708			$1,740			$102		6	%		$7,064			$6,735			$329		5	%
Interest Expense	273			278			297			298			312			(39		)	(13	%)	1,146			1,314			(168		)	(13	%)
Net Interest Income	1,569			1,509			1,430			1,410			1,428			141			10	%	5,918			5,421			497			9	%
Discount/Interchange Revenue	574			550			546			492			559			15			3	%	2,162			2,075			87			4	%
Rewards Cost	295			274			238			229			318			(23		)	(7	%)	1,036			1,068			(32		)	(3	%)
Discount and Interchange Revenue, net	279			276			308			263			241			38			16	%	1,126			1,007			119			12	%
Protection Products Revenue	84			90			88			88			98			(14		)	(14	%)	350			407			(57		)	(14	%)
Loan Fee Income	85			78			76			81			83			2			2	%	320			324			(4		)	(1	%)
Transaction Processing Revenue	46			46			47			53			55			(9		)	(16	%)	192			218			(26		)	(12	%)
Other Income	66			63			92			97			111			(45		)	(41	%)	318			313			5			2	%
Total Other Income	560			553			611			582			588			(28		)	(5	%)	2,306			2,269			37			2	%

Revenue Net of Interest Expense	2,129			2,062			2,041			1,992			2,016			113			6	%	8,224			7,690			534			7	%

Provision for Loan Losses	354			333			240			159			370			(16		)	(4	%)	1,086			852			234			27	%

Employee Compensation and Benefits	297			292			285			290			280			17			6	%	1,164			1,054			110			10	%
Marketing and Business Development	189			174			185			169			187			2			1	%	717			610			107			18	%
Information Processing & Communications	89			81			85			78			77			12			16	%	333			291			42			14	%
Professional Fees	108			97			101			104			115			(7		)	(6	%)	410			435			(25		)	(6	%)
Premises and Equipment	22			21			20			19			22			0			0	%	82			78			4			5	%
Other Expense	133			118			144			93			122			11			9	%	488			606			(118		)	(19	%)
Total Other Expense	838			783			820			753			803			35			4	%	3,194			3,074			120			4	%

Income Before Income Taxes	937			946			981			1,080			843			94			11	%	3,944			3,764			180			5	%
Tax Expense	335			353			379			407			304			31			10	%	1,474			1,413			61			4	%
Net Income		$602			$593			$602			$673			$539			$63		12	%		$2,470			$2,351			$119		5	%

Net Income Allocated to Common Stockholders		$588			$579			$588			$659			$530			$58		11	%		$2,414			$2,325			$89		4	%

Effective Tax Rate	35.8		%	37.3		%	38.6		%	37.7		%	36.1		%						37.4		%	37.5		%

Net Interest Margin	9.81		%	9.64		%	9.44		%	9.39		%	9.40		%	41			bps		9.57		%	9.29		%	28			bps
ROE	22		%	23		%	23		%	27		%	22		%						24		%	26		%

Ending Common Shares Outstanding	472			479			486			493			498			(26		)	(5	%)	472			498			(26		)	(5	%)
Weighted Average Common Shares Outstanding	475			482			489			496			500			(25		)	(5	%)	485			516			(31		)	(6	%)
Weighted Average Common Shares Outstanding (fully diluted)	477			484			490			497			502			(25		)	(5	%)	487			517			(30		)	(6	%)

PER SHARE STATISTICS
Basic EPS		$1.24			$1.20			$1.20			$1.33			$1.06			$0.18		17	%		$4.97			$4.51			$0.46		10	%
Diluted EPS		$1.23			$1.20			$1.20			$1.33			$1.06			$0.17		16	%		$4.96			$4.50			$0.46		10	%
Common Stock Price (period end)		$55.95			$50.54			$47.64			$44.84			$38.55			$17.40		45	%		$55.95			$38.55			$17.40		45	%
Book Value per share		$22.89			$22.14			$21.52			$20.90			$19.83			$3.06		15	%		$22.89			$19.83			$3.06		15	%

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



DISCOVER FINANCIAL SERVICES
EARNINGS SUMMARY
(unaudited, in millions)
	Quarter Ended																Twelve Months Ended
	Dec 31, 2013		Sep 30, 2013		Jun 30, 2013			Mar 31, 2013		Dec 31, 2012		December 31, 2013 vs. December 31, 2012					Dec 31, 2013		Dec 31, 2012		2013 vs. 2012
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$911		$918		$1,002			$1,033		$811		$100		12	%		$3,864		$3,586		$278		8	%
Payment Services	26		28		(21		)	47		32		(6		)	(19	%)	80		178		(98		)	(55	%)
Total		$937		$946		$981			$1,080		$843		$94		11	%		$3,944		$3,764		$180		5	%

TRANSACTIONS PROCESSED ON NETWORKS
Discover Network	522		500		483			442		501		21			4	%	1,947		1,851		96			5	%
PULSE Network	1,044		1,053		1,067			1,023		1,067		(23		)	(2	%)	4,187		4,328		(141		)	(3	%)
Total	1,566		1,553		1,550			1,465		1,568		(2		)	(0	%)	6,134		6,179		(45		)	(1	%)

NETWORK VOLUME
PULSE Network		$40,368		$39,458		$40,060			$39,919		$40,441		($73	)	(0	%)		$159,805		$160,563		($758	)	(0	%)
Network Partners	2,613		2,507		2,442			2,246		2,456		157			6	%	9,808		8,883		925			10	%
Diners Club International¹	6,826		6,549		6,848			6,644		7,204		(378		)	(5	%)	26,867		28,493		(1,626		)	(6	%)
Total Payment Services	49,807		48,514		49,350			48,809		50,101		(294		)	(1	%)	196,480		197,939		(1,459		)	(1	%)
Discover Network - Proprietary	30,622		28,880		28,551			25,738		29,746		876			3	%	113,791		109,377		4,414			4	%
Total		$80,429		$77,394		$77,901			$74,547		$79,847		$582		1	%		$310,271		$307,316		$2,955		1	%


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
	Dec 31, 2013			Sep 30, 2013			Jun 30, 2013			Mar 31, 2013			Dec 31, 2012			December 31, 2013 vs. December 31, 2012
BALANCE SHEET SUMMARY
Assets
Cash and Investment Securities		$11,727			$10,820			$11,224			$13,819			$9,106			$2,621		29	%
Total Loan Receivables	65,771			62,738			61,703			60,384			62,598			3,173			5	%
Allowance for Loan Losses	(1,648		)	(1,598		)	(1,556		)	(1,634		)	(1,788		)	140			8	%
Net Loan Receivables	64,123			61,140			60,147			58,750			60,810			3,313			5	%
Premises and Equipment, net	654			639			607			572			538			116			22	%
Goodwill and Intangible Assets, net	469			472			475			473			475			(6		)	(1	%)
Other Assets	2,367			2,473			2,491			2,525			2,562			(195		)	(8	%)
Total Assets		$79,340			$75,544			$74,944			$76,139			$73,491			$5,849		8	%

Liabilities & Stockholders' Equity
Direct to Consumer and Affinity Deposits		$28,357			$28,854			$29,063			$28,724			$28,031			$326		1	%
Brokered Deposits and Other Deposits	16,602			14,263			13,505			13,670			14,182			2,420			17	%
Deposits	44,959			43,117			42,568			42,394			42,213			2,746			7	%
Borrowings	20,614			18,789			18,295			19,520			17,993			2,621			15	%
Accrued Expenses and Other Liabilities	2,958			3,036			3,633			3,926			3,412			(454		)	(13	%)
Total Liabilities	68,531			64,942			64,496			65,840			63,618			4,913			8	%
Total Equity	10,809			10,602			10,448			10,299			9,873			936			9	%
Total Liabilities and Stockholders' Equity		$79,340			$75,544			$74,944			$76,139			$73,491			$5,849		8	%

BALANCE SHEET STATISTICS
Total Common Equity		$10,249			$10,042			$9,888			$9,739			$9,313			$936		10	%
Total Common Equity/Total Assets	12.9		%	13.3		%	13.2		%	12.8		%	12.7		%
Total Common Equity/Net Loans	16.0		%	16.4		%	16.4		%	16.6		%	15.3		%

Tangible Assets		$78,871			$75,072			$74,469			$75,666			$73,015			$5,856		8	%
Tangible Common Equity¹		$9,780			$9,570			$9,413			$9,266			$8,838			$942		11	%
Tangible Common Equity/Tangible Assets ¹	12.4		%	12.7		%	12.6		%	12.2		%	12.1		%
Tangible Common Equity/Net Loans ¹	15.3		%	15.7		%	15.6		%	15.8		%	14.5		%
Tangible Common Equity per share¹		$20.71			$19.99			$19.38			$18.80			$17.75			$2.96		17	%

REGULATORY CAPITAL RATIOS
Total Risk Based Capital Ratio	17.4		%	17.9		%	17.8		%	17.9		%	16.8		%
Tier 1 Risk Based Capital Ratio	15.2		%	15.6		%	15.5		%	15.6		%	14.5		%
Tier 1 Common Capital Ratio ²	14.3		%	14.7		%	14.6		%	14.7		%	13.6		%
Tier 1 Leverage Ratio	13.4		%	13.7		%	13.4		%	13.4		%	12.7		%

LIQUIDITY
Liquidity Portfolio		$11,115			$10,177			$9,717			$12,530			$8,332			$2,783		33	%
Undrawn Credit Facilities ³	21,500			20,987			18,496			17,415			17,237			4,263			25	%
Total Liquidity		$32,615			$31,164			$28,213			$29,945			$25,569			$7,046		28	%

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
	Dec 31, 2013			Sep 30, 2013			Jun 30, 2013			Mar 31, 2013			Dec 31, 2012			December 31, 2013 vs. December 31, 2012
AVERAGE BALANCES
Assets
Cash and Investment Securities		$11,661			$9,732			$11,097			$10,497			$10,937			$724		7	%
Restricted Cash	488			438			1,176			720			1,160			(672		)	(58	%)
Credit Card Loans	50,957			50,017			49,002			49,267			49,173			1,784			4	%
Private Student Loans	8,124			7,941			7,925			7,989			7,750			374			5	%
Personal Loans	4,114			3,843			3,511			3,344			3,248			866			27	%
Other Loans	248			309			355			303			306			(58		)	(19	%)
Total Loans	63,443			62,110			60,793			60,903			60,477			2,966			5	%
Total Interest Earning Assets	75,592			72,280			73,066			72,120			72,574			3,018			4	%
Allowance for Loan Losses	(1,575		)	(1,564		)	(1,600		)	(1,822		)	(1,707		)	132			8	%
Other Assets	4,405			4,352			4,274			4,362			4,192			213			5	%
Total Assets		$78,422			$75,068			$75,740			$74,660			$75,059			$3,363		4	%

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits		$28,592			$29,009			$28,946			$28,391			$27,890			$702		3	%
Brokered Deposits and Other Deposits	15,669			13,414			13,756			13,663			14,119			1,550			11	%
Total Interest-bearing Deposits	44,261			42,423			42,702			42,054			42,009			2,252			5	%
Short-term Borrowings	114			173			270			240			245			(131		)	(53	%)
Securitized Borrowings	16,584			15,625			16,412			16,574			17,540			(956		)	(5	%)
Other Long-term Borrowings	3,099			2,778			2,487			2,059			1,829			1,270			69	%
Total Interest-bearing Liabilities	64,058			60,999			61,871			60,927			61,623			2,435			4	%
Other Liabilities & Stockholders' Equity	14,364			14,069			13,869			13,733			13,436			928			7	%
Total Liabilities and Stockholders' Equity		$78,422			$75,068			$75,740			$74,660			$75,059			$3,363		4	%

AVERAGE RATES
Assets
Cash and Investment Securities	0.77		%	0.79		%	0.82		%	0.89		%	0.87		%	(10		)	bps
Restricted Cash	0.06		%	0.09		%	0.11		%	0.10		%	0.12		%	(6		)	bps
Credit Card Loans	12.08		%	12.00		%	11.97		%	11.94		%	12.02		%	6			bps
Private Student Loans	6.63		%	6.51		%	6.52		%	6.52		%	6.48		%	15			bps
Personal Loans	12.53		%	12.57		%	12.51		%	12.45		%	12.41		%	12			bps
Other Loans	3.12		%	3.43		%	3.27		%	3.50		%	3.30		%	(18		)	bps
Total Loans	11.38		%	11.29		%	11.24		%	11.22		%	11.29		%	9			bps
Total Interest Earning Assets	9.67		%	9.81		%	9.48		%	9.60		%	9.54		%	13			bps

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits	1.33		%	1.42		%	1.50		%	1.53		%	1.57		%	(24		)	bps
Brokered Deposits and Other Deposits	1.58		%	1.92		%	2.21		%	2.36		%	2.43		%	(85		)	bps
Total Interest-bearing Deposits	1.42		%	1.58		%	1.73		%	1.80		%	1.86		%	(44		)	bps
Short-term Borrowings	2.04		%	1.78		%	1.36		%	1.45		%	1.32		%	72			bps
Securitized Borrowings	1.65		%	1.70		%	1.78		%	1.84		%	1.79		%	(14		)	bps
Other Long-term Borrowings	5.78		%	5.91		%	6.26		%	7.04		%	7.87		%	(209		)	bps
Total Interest-bearing Liabilities	1.69		%	1.81		%	1.92		%	1.99		%	2.01		%	(32		)	bps

Net Interest Margin	9.81		%	9.64		%	9.44		%	9.39		%	9.40		%	41			bps
Net Yield on Interest-earning Assets	8.23		%	8.28		%	7.85		%	7.93		%	7.83		%	40			bps


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



DISCOVER FINANCIAL SERVICES
LOAN STATISTICS
(unaudited, in millions)
	Quarter Ended																				Twelve Months Ended
	Dec 31, 2013			Sep 30, 2013			Jun 30, 2013			Mar 31, 2013			Dec 31, 2012			December 31, 2013 vs. December 31, 2012					Dec 31, 2013			Dec 31, 2012			2013 vs. 2012
TOTAL LOAN RECEIVABLES
Ending Loans ^{1, 2}		$65,771			$62,738			$61,703			$60,384			$62,598			$3,173		5	%		$65,771			$62,598			$3,173		5	%
Average Loans ^{1, 2}		$63,443			$62,110			$60,793			$60,903			$60,477			$2,966		5	%		$61,820			$58,336			$3,484		6	%

Interest Yield	11.38		%	11.29		%	11.24		%	11.22		%	11.29		%	9			bps		11.28		%	11.38		%	(10		)	bps
Gross Principal Charge-off Rate	2.63		%	2.66		%	2.99		%	3.00		%	2.93		%	(30		)	bps		2.81		%	3.23		%	(42		)	bps
Gross Principal Charge-off Rate excluding PCI Loans³	2.82		%	2.86		%	3.23		%	3.24		%	3.19		%	(37		)	bps		3.03		%	3.53		%	(50		)	bps
Net Principal Charge-off Rate	1.90		%	1.86		%	2.10		%	2.08		%	2.06		%	(16		)	bps		1.98		%	2.24		%	(26		)	bps
Net Principal Charge-off Rate excluding PCI Loans ³	2.03		%	2.00		%	2.27		%	2.25		%	2.24		%	(21		)	bps		2.14		%	2.45		%	(31		)	bps
Delinquency Rate (over 30 days) excluding PCI Loans ³	1.64		%	1.60		%	1.50		%	1.68		%	1.69		%	(5		)	bps		1.64		%	1.69		%	(5		)	bps
Delinquency Rate (over 90 days) excluding PCI Loans ³	0.77		%	0.72		%	0.73		%	0.84		%	0.82		%	(5		)	bps		0.77		%	0.82		%	(5		)	bps
Gross Principal Charge-off Dollars		$421			$416			$453			$449			$446			($25	)	(6	%)		$1,739			$1,886			($147	)	(8	%)
Net Principal Charge-off Dollars		$304			$291			$318			$313			$313			($9	)	(3	%)		$1,226			$1,309			($83	)	(6	%)
Net Interest and Fee Charge-off Dollars		$82			$79			$85			$93			$90			($8	)	(9	%)		$339			$400			($61	)	(15	%)
Loans Delinquent Over 30 Days ³		$1,010			$933			$861			$940			$981			$29		3	%		$1,010			$981			$29		3	%
Loans Delinquent Over 90 Days ³		$475			$421			$419			$469			$478			($3	)	(1	%)		$475			$478			($3	)	(1	%)

Allowance for Loan Loss (period end)		$1,648			$1,598			$1,556			$1,634			$1,788			($140	)	(8	%)		$1,648			$1,788			($140	)	(8	%)
Change in Loan Loss Reserves		$50			$42			($78	)		($154	)		$57			($7	)	(12	%)		($140	)		($457	)		$317		69	%
Reserve Rate	2.51		%	2.55		%	2.52		%	2.71		%	2.86		%	(35		)	bps		2.51		%	2.86		%	(35		)	bps
Reserve Rate Excluding PCI Loans ³	2.63		%	2.73		%	2.72		%	2.93		%	3.09		%	(46		)	bps		2.63		%	3.09		%	(46		)	bps

CREDIT CARD LOANS
Ending Loans		$53,150			$50,360			$49,791			$48,655			$51,135			$2,015		4	%		$53,150			$51,135			$2,015		4	%
Average Loans		$50,957			$50,017			$49,002			$49,267			$49,173			$1,784		4	%		$49,816			$47,539			$2,277		5	%

Interest Yield	12.08		%	12.00		%	11.97		%	11.94		%	12.02		%	6			bps		12.00		%	12.14		%	(14		)	bps
Gross Principal Charge-off Rate	2.98		%	3.02		%	3.41		%	3.48		%	3.37		%	(39		)	bps		3.22		%	3.77		%	(55		)	bps
Net Principal Charge-off Rate	2.09		%	2.05		%	2.34		%	2.36		%	2.31		%	(22		)	bps		2.21		%	2.56		%	(35		)	bps
Delinquency Rate (over 30 days)	1.72		%	1.67		%	1.58		%	1.77		%	1.79		%	(7		)	bps		1.72		%	1.79		%	(7		)	bps
Delinquency Rate (over 90 days)	0.84		%	0.78		%	0.80		%	0.91		%	0.90		%	(6		)	bps		0.84		%	0.90		%	(6		)	bps
Gross Principal Charge-off Dollars		$384			$381			$417			$422			$417			($33	)	(8	%)		$1,604			$1,791			($187	)	(10	%)
Net Principal Charge-off Dollars		$269			$258			$286			$287			$286			($17	)	(6	%)		$1,100			$1,219			($119	)	(10	%)
Loans Delinquent Over 30 Days		$912			$843			$789			$862			$917			($5	)	(1	%)		$912			$917			($5	)	(1	%)
Loans Delinquent Over 90 Days		$447			$395			$398			$442			$460			($13	)	(3	%)		$447			$460			($13	)	(3	%)

Allowance for Loan Loss (period end)		$1,406			$1,393			$1,360			$1,453			$1,613			($207	)	(13	%)		$1,406			$1,613			($207	)	(13	%)
Change in Loan Loss Reserves		$13			$33			($93	)		($160	)		$48			($35	)	(73	%)		($207	)		($488	)		$281		58	%
Reserve Rate	2.65		%	2.77		%	2.73		%	2.99		%	3.15		%	(50		)	bps		2.65		%	3.15		%	(50		)	bps

Total Discover Card Volume		$31,755			$30,275			$29,684			$26,880			$31,085			$670		2	%		$118,594			$115,086			$3,508		3	%
Discover Card Sales Volume		$29,530			$27,989			$27,574			$24,864			$28,728			$802		3	%		$109,957			$106,139			$3,818		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																				Twelve Months Ended
	Dec 31, 2013			Sep 30, 2013			Jun 30, 2013			Mar 31, 2013			Dec 31, 2012			December 31, 2013 vs. December 31, 2012					Dec 31, 2013			Dec 31, 2012			2013 vs. 2012
PRIVATE STUDENT LOANS
Ending Loans		$8,148			$8,125			$7,881			$7,987			$7,774			$374		5	%		$8,148			$7,774			$374		5	%
Ending PCI Loans ¹		$4,178			$4,303			$4,434			$4,561			$4,702			($524	)	(11	%)		$4,178			$4,702			($524	)	(11	%)

Interest Yield	6.63		%	6.51		%	6.52		%	6.52		%	6.48		%	15			bps		6.54		%	6.46		%	8			bps
Net Principal Charge-off Rate	0.67		%	0.60		%	0.68		%	0.35		%	0.38		%	29			bps		0.58		%	0.26		%	32			bps
Net Principal Charge-off Rate excluding PCI Loans²	1.41		%	1.33		%	1.58		%	0.82		%	1.00		%	41			bps		1.30		%	0.75		%	55			bps
Delinquency Rate (over 30 days) excluding PCI Loans ²	1.66		%	1.60		%	1.38		%	1.48		%	1.22		%	44			bps		1.66		%	1.22		%	44			bps

Reserve Rate	1.39		%	1.02		%	1.04		%	1.04		%	0.96		%	43			bps		1.39		%	0.96		%	43			bps
Reserve Rate excluding PCI Loans ²	2.14		%	2.18		%	2.38		%	2.43		%	2.44		%	(30		)	bps		2.14		%	2.44		%	(30		)	bps

PERSONAL LOANS
Ending Loans		$4,191			$3,995			$3,630			$3,395			$3,296			$895		27	%		$4,191			$3,296			$895		27	%

Interest Yield	12.53		%	12.57		%	12.51		%	12.45		%	12.41		%	12			bps		12.52		%	12.36		%	16			bps
Net Principal Charge-off Rate	2.00		%	2.01		%	2.24		%	2.30		%	2.47		%	(47		)	bps		2.13		%	2.34		%	(21		)	bps
Delinquency Rate (over 30 days)	0.70		%	0.65		%	0.64		%	0.76		%	0.77		%	(7		)	bps		0.70		%	0.77		%	(7		)	bps

Reserve Rate	2.67		%	2.66		%	2.70		%	2.86		%	3.02		%	(35		)	bps		2.67		%	3.02		%	(35		)	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
	Dec 31, 2013			Sep 30, 2013			Jun 30, 2013			Mar 31, 2013			Dec 31, 2012			December 31, 2013 vs. December 31, 2012					Dec 31, 2013			Dec 31, 2012			2013 vs. 2012
DIRECT BANKING
Interest Income		$1,842			$1,787			$1,727			$1,708			$1,740			$102		6	%		$7,064			$6,735			$329		5	%
Interest Expense	273			278			297			298			312			(39		)	(13	%)	1,146			1,314			(168		)	(13	%)
Net Interest Income	1,569			1,509			1,430			1,410			1,428			141			10	%	5,918			5,421			497			9	%
Other Income	475			475			531			495			501			(26		)	(5	%)	1,976			1,925			51			3	%
Revenue Net of Interest Expense	2,044			1,984			1,961			1,905			1,929			115			6	%	7,894			7,346			548			7	%
Provision for Loan Losses	352			333			225			159			370			(18		)	(5	%)	1,069			852			217			25	%
Total Other Expense	781			733			734			713			748			33			4	%	2,961			2,908			53			2	%
Income Before Income Taxes		$911			$918			$1,002			$1,033			$811			$100		12	%		$3,864			$3,586			$278		8	%

Net Interest Margin	9.82		%	9.65		%	9.44		%	9.39		%	9.40		%	42			bps		9.58		%	9.29		%	29			bps
Pretax Return on Loan Receivables	5.70		%	5.88		%	6.61		%	6.87		%	5.34		%	36			bps		6.26		%	6.15		%	11			bps

PAYMENT SERVICES
Interest Income		$—			$—			$—			$—			$—			$—		NM			$—			$—			$—		NM
Interest Expense	—			—			—			—			—			—			NM		—			—			—			NM
Net Interest Income	—			—			—			—			—			—			NM		—			—			—			NM
Other Income	85			78			80			87			87			(2		)	(2	%)	330			344			(14		)	(4	%)
Revenue Net of Interest Expense	85			78			80			87			87			(2		)	(2	%)	330			344			(14		)	(4	%)
Provision for Loan Losses	2			—			15			—			—			2			NM		17			—			17			NM
Total Other Expense	57			50			86			40			55			2			4	%	233			166			67			40	%
Income Before Income Taxes		$26			$28			($21	)		$47			$32			($6	)	(19	%)		$80			$178			($98	)	(55	%)

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.

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

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
	Dec 31, 2013			Sep 30, 2013			Jun 30, 2013			Mar 31, 2013			Dec 31, 2012
GAAP total common equity		$10,249			$10,042			$9,888			$9,739			$9,313
Less: Goodwill	(284		)	(284		)	(284		)	(286		)	(286		)
Less: Intangibles	(185		)	(188		)	(191		)	(187		)	(189		)
Tangible common equity ¹		$9,780			$9,570			$9,413			$9,266			$8,838
Effect of certain items in accumulated other comprehensive income (loss) excluded from tier 1 common capital	69			110			106			83			72
Total tier 1 common capital²		$9,849			$9,680			$9,519			$9,349			$8,910

Risk weighted assets	$	68,649		$	65,741		$	65,087		$	63,598		$	65,522
Tier 1 common capital ratio ³	14.3		%	14.7		%	14.6		%	14.7		%	13.6		%

GAAP book value per share		$22.89			$22.14			$21.52			$20.90			$19.83
Less: Goodwill	(0.60		)	(0.59		)	(0.59		)	(0.58		)	(0.58		)
Less: Intangibles	(0.39		)	(0.39		)	(0.40		)	(0.38		)	(0.38		)
Less: Preferred Stock	(1.19		)	(1.17		)	(1.15		)	(1.14		)	(1.12		)
Tangible common equity per share		$20.71			$19.99			$19.38			$18.80			$17.75


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.

³ Tier 1 common capital ratio is calculated using tier 1 common capital, a non-GAAP measure, divided by risk weighted assets.

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