Discover Financial Services (DFS) 8-K Discover Financial Services Reports Record First Quarter

Exhibit 99.2

DISCOVER FINANCIAL SERVICES
EARNINGS SUMMARY
(unaudited, in millions, except per share statistics)
	Quarter Ended															February 28, 2011
	Feb 28, 2011			Nov 30, 2010			Aug 31, 2010			May 31, 2010			Feb 28, 2010			vs. February 28, 2010
EARNINGS SUMMARY
Interest Income		$1,553			$1,499			$1,536			$1,552			$1,559			($6	)		(0	%)
Interest Expense		383			375			389			405			414			(31	)		(7	%)
Net Interest Income		1,170			1,124			1,147			1,147			1,145			25			2	%
Discount and Interchange Revenue		261			250			274			269			262			(1	)		(0	%)
Fee Products Revenue		108			103			104			101			104			4			4	%
Loan Fee Income		86			72			92			70			105			(19	)		(18	%)
Transaction Processing Revenue		43			40			40			36			33			10			30	%
Other Income		65			7			54			37			42			23			55	%
Total Other Income		563			472			564			513			546			17			3	%
Revenue Net of Interest Expense		1,733			1,596			1,711			1,660			1,691			42			2	%
Provision for Loan Losses		418			383			713			724			1,387			(969	)		(70	%)
Employee Compensation and Benefits		213			200			204			203			196			17			9	%
Marketing and Business Development		136			150			131			98			85			51			60	%
Information Processing & Communications		65			67			62			63			65			0			0	%
Professional Fees		90			104			85			78			76			14			18	%
Premises and Equipment		17			17			18			18			18			(1	)		(6	%)
Other Expense		74			90			66			54			35			39			111	%
Total Other Expense		595			628			566			514			475			120			25	%
Income Before Income Taxes		720			585			432			422			(171	)		891		NM
Tax Expense		255			235			171			164			(67	)		322		NM
Net Income		$465			$350			$261			$258			($104	)		$569		NM
Net Income Allocated to Common Stockholders  1		$459			$347			$258			$185			($122	)		$581		NM
Effective Tax Rate   2		35.4	%		40.3	%		39.7	%		38.9	%		39.3	%
Net Interest Margin  3		9.22	%		9.28	%		9.16	%		9.14	%		9.01	%		21		bps
ROE  4		28	%		22	%		17	%		16	%		(6	%)
Ending Common Shares Outstanding		545			545			545			544			544			1			0	%
Weighted Average Common Shares Outstanding		545			545			544			544			543			2			0	%
Weighted Average Common Shares Outstanding (fully diluted)		546			545			547			552			543			3			1	%
PER SHARE STATISTICS
Basic EPS  5		$0.84			$0.64			$0.47			$0.34			($0.22	)		$1.06		NM
Diluted EPS  5		$0.84			$0.64			$0.47			$0.33			($0.22	)		$1.06		NM
Common Stock Price (period end)		$21.75			$18.28			$14.51			$13.45			$13.65			$8.10			59	%
Dividend per share		$0.06			$0.02			$0.02			$0.02			$0.02			$0.04			200	%
Book Value per share  6		$12.65			$11.85			$11.22			$11.10			$12.90			($0.25	)		(2	%)
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$677			$554			$395			$386			($208	)		$885		NM
Payment Services		43			31			37			36			37			6			16	%
Total		$720			$585			$432			$422			($171	)		$891		NM
TRANSACTIONS PROCESSED ON NETWORKS
Discover Network		410			413			418			393			382			28			7	%
PULSE Network		929			901			882			805			720			209			29	%
Total		1,339			1,314			1,300			1,198			1,102			237			22	%
NETWORK VOLUME
PULSE Network		$34,380			$31,334			$30,582			$28,646			$27,618			$6,762			24	%
Third-Party Issuers		1,772			1,768			1,794			1,678			1,562			210			13	%
Diners Club International  7		6,998			7,328			6,542			6,708			6,554			444			7	%
Total Payment Services		43,150			40,430			38,918			37,032			35,734			7,416			21	%
Discover Network - Proprietary 8		24,784			24,075			24,880			23,632			23,173			1,611			7	%
Total		$67,934			$64,505			$63,798			$60,664			$58,907			$9,027			15	%

1

DISCOVER FINANCIAL SERVICES
BALANCE SHEET STATISTICS
(unaudited, in millions)
	Quarter Ended															February 28, 2011
	Feb 28, 2011			Nov 30, 2010			Aug 31, 2010			May 31, 2010			Feb 28, 2010			vs. February 28, 2010
BALANCE SHEET SUMMARY
Assets
Cash and Investment Securities		$11,463			$11,913			$10,209			$12,467			$17,317			($5,854	)	(34	%)
Total Loan Receivables		51,663			48,836			50,131			50,025			50,094			1,569		3	%
Allowance for Loan Losses		(3,033	)		(3,304	)		(3,744	)		(3,931	)		(4,208	)		1,175		28	%
Net Loan Receivables		48,630			45,532			46,387			46,094			45,886			2,744		6	%
Premises and Equipment, net		459			461			457			469			483			(24	)	(5	%)
Goodwill and Intangible Assets, net		449			444			446			448			449			0		0	%
Other Assets		2,506			2,435			2,559			2,676			2,684			(178	)	(7	%)
Total Assets		$63,507			$60,785			$60,058			$62,154			$66,819			($3,312	)	(5	%)
Liabilities & Stockholders' Equity
Direct to Consumer and Affinity Deposits		$21,795			$20,597			$19,069			$17,527			$14,833			$6,962		47	%
Brokered Deposits and Other Deposits		13,065			13,816			15,178			17,495			20,219			(7,154	)	(35	%)
Deposits		34,860			34,413			34,247			35,022			35,052			(192	)	(1	%)
Borrowings		19,090			17,706			17,709			18,311			22,392			(3,302	)	(15	%)
Accrued Expenses and Other Liabilities		2,658			2,209			1,991			2,783			2,360			298		13	%
Total Liabilities		56,608			54,328			53,947			56,116			59,804			(3,196	)	(5	%)
Total Equity		6,899			6,457			6,111			6,038			7,015			(116	)	(2	%)
Total Liabilities and Stockholders' Equity		$63,507			$60,785			$60,058			$62,154			$66,819			($3,312	)	(5	%)
BALANCE SHEET STATISTICS
Total Common Equity		$6,899			$6,457			$6,111			$6,038			$5,854			$1,045		18	%
Total Common Equity/Total Assets		10.9	%		10.6	%		10.2	%		9.7	%		8.8	%
Total Common Equity/Net Loans		14.2	%		14.2	%		13.2	%		13.1	%		12.8	%
Tangible Assets  9		$63,058			$60,341			$59,612			$61,706			$66,370			($3,312	)	(5	%)
Tangible Common Equity  10		$6,450			$6,013			$5,665			$5,590			$5,405			$1,045		19	%
Tangible Common Equity/Tangible Assets  10,11		10.2	%		10.0	%		9.5	%		9.1	%		8.1	%
Tangible Common Equity/Net Loans  10,12		13.3	%		13.2	%		12.2	%		12.1	%		11.8	%
Tangible Common Equity per share  10,13		$11.83			$11.04			$10.40			$10.28			$9.94			$1.89		19	%
REGULATORY CAPITAL RATIOS
Total Risk Based Capital Ratio  14		16.0	%		15.9	%		15.5	%		15.3	%		16.2	%
Tier 1 Risk Based Capital Ratio  14		12.4	%		12.2	%		11.7	%		11.6	%		13.4	%
Tier 1 Leverage Ratio  14		10.2	%		9.9	%		9.5	%		9.0	%		9.7	%
LIQUIDITY
Liquidity Investment Portfolio  15		$10,232			$10,132			$9,111			$10,862			$12,643			($2,411	)	(19	%)
Undrawn Credit Facilities  16		14,414			12,492			11,659			12,098			9,517			4,897		51	%
Total Liquidity		$24,646			$22,624			$20,770			$22,960			$22,160			$2,486		11	%

2

DISCOVER FINANCIAL SERVICES
LOAN STATISTICS
(unaudited, in millions)
	Quarter Ended															February 28, 2011
	Feb 28, 2011			Nov 30, 2010			Aug 31, 2010			May 31, 2010			Feb 28, 2010			vs. February 28, 2010
TOTAL LOAN RECEIVABLES
Ending Loans  17,18		$51,663			$48,836			$50,131			$50,025			$50,094			$1,569			3	%
Average Loans  17, 18		$51,488			$48,597			$49,687			$49,819			$51,555			($68	)		(0	%)
Interest Yield  19		12.10	%		12.24	%		12.16	%		12.25	%		12.15	%		(5	)	bps
Net Principal Charge-off Rate  20		5.42	%		6.58	%		7.18	%		7.97	%		8.51	%		(309	)	bps
Net Principal Charge-off Rate Excluding PCI Loans  20, 23		5.64	%		6.58	%		7.18	%		7.97	%		8.51	%		(287	)	bps
Delinquency Rate (over 30 days)  21, 23		3.44	%		3.89	%		4.16	%		4.52	%		5.05	%		(161	)	bps
Delinquency Rate (over 90 days)  22, 23		1.88	%		2.03	%		2.19	%		2.45	%		2.77	%		(89	)	bps
Net Charge-off Dollars		$689			$797			$900			$1,001			$1,082			($393	)		(36	%)
Loans Delinquent Over 30 Days  23		$1,673			$1,902			$2,083			$2,264			$2,530			($857	)		(34	%)
Loans Delinquent Over 90 Days  23		$915			$994			$1,099			$1,225			$1,386			($471	)		(34	%)
Allowance for Loan Loss (period end)		$3,033			$3,304			$3,744			$3,931			$4,208			($1,175	)		(28	%)
Change in Loan Loss Reserves		($271	)		($414	)		($187	)		($277	)		$305			($576	)		(189	%)
Reserve Rate  24		5.87	%		6.77	%		7.47	%		7.86	%		8.40	%		(253	)	bps
Reserve Rate Excluding PCI Loans  23, 24		6.23	%		6.77	%		7.47	%		7.86	%		8.40	%		(217	)	bps
CREDIT CARD LOANS
Ending Loans		$44,317			$45,157			$45,248			$45,328			$45,761			($1,444	)		(3	%)
Average Loans		$45,443			$44,670			$44,905			$45,280			$47,646			($2,204	)		(5	%)
Interest Yield  19		12.65	%		12.68	%		12.86	%		12.93	%		12.70	%		(5	)	bps
Net Principal Charge-off Rate  20		5.96	%		6.95	%		7.73	%		8.56	%		9.00	%		(304	)	bps
Delinquency Rate (over 30 days)  21		3.59	%		4.06	%		4.39	%		4.85	%		5.39	%		(180	)	bps
Delinquency Rate (over 90 days)  22		1.99	%		2.12	%		2.35	%		2.63	%		2.98	%		(99	)	bps
Net Charge-off Dollars		$668			$774			$875			$977			$1,058			($390	)		(37	%)
Loans Delinquent Over 30 Days		$1,590			$1,831			$1,986			$2,196			$2,467			($878	)		(36	%)
Loans Delinquent Over 90 Days		$882			$958			$1,062			$1,193			$1,365			($482	)		(35	%)
Allowance for Loan Loss (period end)		$2,939			$3,209			$3,647			$3,826			$4,092			($1,153	)		(28	%)
Change in Loan Loss Reserves		($270	)		($412	)		($179	)		($266	)		$300			($570	)		(190	%)
Reserve Rate  24		6.63	%		7.11	%		8.06	%		8.44	%		8.94	%		(231	)	bps
Total Discover Card Volume		$25,759			$25,054			$25,553			$24,247			$23,844			$1,915			8	%
Discover Card Sales Volume		$23,990			$23,219			$23,993			$22,859			$22,400			$1,590			7	%
FEDERAL STUDENT LOANS
Ending Loans  25		$767			$789			$2,247			$2,239			$2,027			($1,260	)		(62	%)
PRIVATE STUDENT LOANS
Ending Loans		$4,545			$999			$881			$820			$791			$3,754		NM
Average Loans		$3,310			$962			$838			$808			$697			$2,613		NM
Ending PCI Loans  18		$3,011			-			-			-			-			-		NM
Average PCI Loans  18		$2,016			-			-			-			-			-		NM
Interest Yield  19		7.40	%		6.04	%		5.81	%		5.82	%		5.18	%		222		bps
Net Principal Charge-off Rate  20		0.11	%		0.63	%		0.31	%		0.12	%		0.20	%		(9	)	bps
Net Principal Charge-off Rate Excluding PCI Loans  20, 23		0.29	%		0.63	%		0.31	%		0.12	%		0.20	%		9		bps
Delinquency Rate (over 30 days)  21, 23		0.72	%		0.50	%		0.80	%		0.24	%		0.31	%		41		bps
Delinquency Rate (over 90 days)  22, 23		0.11	%		0.14	%		0.07	%		0.06	%		0.03	%		8		bps
Reserve Rate  24		0.43	%		1.86	%		1.67	%		1.55	%		2.38	%		(195	)	bps
Reserve Rate Excluding PCI Loans  23, 24		1.29	%		1.86	%		1.67	%		1.55	%		2.38	%		(109	)	bps
PERSONAL LOANS
Ending Loans		$2,020			$1,878			$1,707			$1,573			$1,447			$573			40	%
Average Loans		$1,941			$1,793			$1,639			$1,510			$1,426			$515			36	%
Interest Yield  19		11.71	%		11.59	%		11.40	%		11.32	%		11.27	%		44		bps
Net Principal Charge-off Rate  20		4.10	%		4.70	%		5.67	%		5.97	%		6.79	%		(269	)	bps
Delinquency Rate (over 30 days)  21		1.20	%		1.57	%		1.75	%		2.12	%		2.14	%		(94	)	bps
Delinquency Rate (over 90 days)  22		0.43	%		0.57	%		0.57	%		0.76	%		0.70	%		(27	)	bps
Reserve Rate  24		3.68	%		4.05	%		4.70	%		5.73	%		6.53	%		(285	)	bps

3

DISCOVER FINANCIAL SERVICES
SEGMENT RESULTS
(unaudited, in millions)
	Quarter Ended															February 28, 2011
	Feb 28, 2011			Nov 30, 2010			Aug 31, 2010			May 31, 2010			Feb 28, 2010			vs. February 28, 2010
DIRECT BANKING
Interest Income		$1,553			$1,499			$1,536			$1,552			$1,559			($6	)		(0	%)
Interest Expense		383			375			389			405			414			(31	)		(7	%)
Net Interest Income		1,170			1,124			1,147			1,147			1,145			25			2	%
Other Income		486			404			496			448			480			6			1	%
Revenue Net of Interest Expense		1,656			1,528			1,643			1,595			1,625			31			2	%
Provision for Loan Losses		418			383			713			724			1,387			(969	)		(70	%)
Total Other Expense		561			591			535			485			446			115			26	%
Income Before Income Taxes		$677			$554			$395			$386			($208	)		$885		NM
Net Interest Margin  3		9.22	%		9.28	%		9.16	%		9.14	%		9.01	%		21		bps
Pretax Return on Loan Receivables  26		5.33	%		4.57	%		3.16	%		3.07	%		(1.63	%)		696		bps
PAYMENT SERVICES
Interest Income		$-			$-			$-			$-			$-			$-		NM
Interest Expense		-			-			-			-			-			-		NM
Net Interest Income		-			-			-			-			-			-		NM
Other Income		77			68			68			65			66			11			17	%
Revenue Net of Interest Expense		77			68			68			65			66			11			17	%
Total Other Expense		34			37			31			29			29			5			17	%
Income Before Income Taxes		$43			$31			$37			$36			$37			$6			16	%

4

DISCOVER FINANCIAL SERVICES
FOOTNOTES
1	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.
2	Effective Tax Rate represents tax expense divided by income before income taxes.
3	Net Interest Margin represents net interest income (annualized) divided by average total loans for the period.
4	Return on Equity represents net income (annualized) divided by average total equity for the reporting period.
5	Earnings Per Share represents net income allocated to common stockholders divided by the weighted average common shares outstanding.
6	Book Value per share represents total equity divided by ending common shares outstanding.
7	Volume is derived from data provided by licensees for Diners Club branded cards issued outside of North America and is subject to subsequent revision or amendment.
8	Gross proprietary sales volume on the Discover Network.
9	Tangible Assets represents total assets less goodwill and intangibles.
10	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 valuation 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.
11	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.
12	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).
13	Tangible Common Equity per Share, a non-GAAP measure, represents total common equity less goodwill and intangibles divided by ending common shares outstanding.
14	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.
15	Liquidity Investment Portfolio represents cash and cash equivalents (excluding cash-in-process) and other investments.
16	Undrawn Credit Facilities represents asset-backed conduit funding facilities, committed unsecured credit facility and Federal Reserve discount window (excluding $1.1 billion of investments pledged to the Federal Reserve, which is included within the liquidity investment portolio).
17	Total Loans includes mortgages and other loans.
18	Purchased Credit Impaired ("PCI") loans were acquired in The Student Loan Corporation transaction on December 31, 2010. PCI loans are loans for 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.
19	Interest Yield represents interest income on loan receivables (annualized) divided by average loans for the reporting period.
20	Net Principal Charge-off Rate represents net principal charge-off dollars (annualized) divided by average loans for the reporting period.
21	Delinquency Rate (Over 30 Days) represents loans delinquent over thirty days divided by ending loans (total or respective loans, as appropriate).
22	Delinquency Rate (Over 90 Days) represents loans delinquent over ninety days divided by ending loans (total or respective loans, as appropriate).
23	Excludes PCI loans (described above) that were acquired as part of The Student Loan Corporation 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 the company is recognizing interest income on a pool of loans, it is all considered to be performing.
24	Reserve Rate represents the allowance for loan losses divided by total loans. The Reserve Rate includes federal student loans held for sale.
25	Federal Student Loans are held-for-sale as of November 30, 2010.
26	Pretax Return on Loan Receivables represents income before income taxes (annualized) divided by total average loans for the period.

5

DISCOVER FINANCIAL SERVICES
RECONCILIATION OF GAAP TO NON-GAAP DATA
(unaudited, in millions)
	Quarter Ended
	Feb 28, 2011			Nov 30, 2010			Aug 31, 2010			May 31, 2010			Feb 28, 2010
GAAP Total Common Equity		$6,899			$6,457			$6,111			$6,038			$5,854
Less: Goodwill		(255	)		(255	)		(255	)		(255	)		(255	)
Less: Intangibles		(194	)		(189	)		(191	)		(193	)		(194	)
Tangible Common Equity  10		$6,450			$6,013			$5,665			$5,590			$5,405
GAAP Book Value per share		$12.65			$11.85			$11.22			$11.10			$12.90
Less: Goodwill		(0.47	)		(0.47	)		(0.47	)		(0.47	)		(0.47	)
Less: Intangibles		(0.35	)		(0.34	)		(0.35	)		(0.35	)		(0.36	)
Less: Preferred Stock		0.00			0.00			0.00			0.00			(2.13	)
Tangible Common Equity per share   10,13		$11.83			$11.04			$10.40			$10.28			$9.94
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 valuation to investors of the true net asset value of the company.

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