Discover Financial Services (DFS) 10-Q 7 Oct 09 2009 Q3 Quarterly report Financial data

Statement Of Financial Position

Statement Of Financial Position Unclassified - Deposit Based Operations (USD $)
In Thousands	9 Months Ended Aug. 31, 2009	9 Months Ended Nov. 30, 2008
Assets
Cash and due from banks	$485,994	$793,585
Federal Funds sold	0	1,050,000
Interest-earning deposits	10,342,248	8,327,558
Cash and cash equivalents	10,828,242	10,171,143
Restricted cash-special dividend escrow	502,292	0
Investment securities:
Available-for-sale (amortized cost of $1,541,777 and $1,211,245 at August 31, 2009 and November 30, 2008, respectively)	1,523,726	1,127,119
Held-to-maturity (fair value of $1,370,040 and $84,167 at August 31, 2009 and November 30, 2008, respectively)	1,742,808	100,825
Total investment securities	3,266,534	1,227,944
Loan receivables:
Credit card	22,721,603	23,814,307
Other	2,768,206	1,402,304
Total loan receivables	25,489,809	25,216,611
Allowance for loan losses	(1,832,360)	(1,374,585)
Net loan receivables	23,657,449	23,842,026
Accrued interest receivable	183,230	159,021
Amounts due from asset securitization	1,936,783	2,233,600
Premises and equipment, net	518,105	552,502
Goodwill	255,421	255,421
Intangible assets, net	197,556	203,319
Other assets	1,352,678	1,247,406
Total assets	42,698,290	39,892,382
Deposits:
Interest-bearing deposit accounts	29,469,059	28,452,146
Non-interest bearing deposit accounts	98,079	78,375
Total deposits	29,567,138	28,530,521
Short-term borrowings	0	500,000
Long-term borrowings	1,795,134	1,735,383
Accrued interest payable	234,619	268,967
Special dividend-Morgan Stanley	653,500	473,000
Accrued expenses and other liabilities	2,061,697	2,468,688
Total liabilities	34,312,088	33,976,559
Commitments, contingencies and guarantees (Note 14)	-	-
Stockholders' Equity:
Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 1,224,558 and 0 issued and outstanding at August 31, 2009 and November 30, 2008, respectively	1,154,739	0
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 544,554,807 and 480,517,188 shares issued at August 31, 2009 and November 30, 2008, respectively	5,446	4,805
Additional paid-in capital	3,563,986	2,938,657
Retained earnings	3,705,608	3,046,956
Accumulated other comprehensive loss	(24,972)	(66,338)
Treasury stock, at cost; 1,806,292 and 530,549 shares at August 31, 2009 and November 30, 2008, respectively	(18,605)	(8,257)
Total stockholders' equity	8,386,202	5,915,823
Total liabilities and stockholders' equity	$42,698,290	$39,892,382

1_Statement Of Financial Positi

Statement Of Financial Position Unclassified - Deposit Based Operations (Parenthetical) (USD $)
In Thousands, except Share data	Aug. 31, 2009	Nov. 30, 2008
Available-for-sale, amortized cost	$1,541,777	$1,211,245
Held-to-maturity, fair value	$1,370,040	$84,167
Preferred stock, par value	0.01	0.01
Preferred stock, shares authorized	200,000,000	200,000,000
Preferred stock, issued	1,224,558	0
Preferred stock, outstanding	1,224,558	0
Common stock, par value	0.01	0.01
Common stock, shares authorized	2,000,000,000	2,000,000,000
Common stock, shares issued	544,554,807	480,517,188
Treasury stock, shares	1,806,292	530,549

Statement Of Income Interest Ba

Statement Of Income Interest Based Revenue (USD $)
In Thousands, except Per Share data	3 Months Ended Aug. 31, 2009	3 Months Ended Aug. 31, 2008	9 Months Ended Aug. 31, 2009	9 Months Ended Aug. 31, 2008
Interest income:
Credit card loans	$761,477	$581,417	$2,276,152	$1,629,161
Other loans	43,397	22,630	119,271	48,033
Federal Funds sold	0	16,527	3,262	83,868
Investment securities	18,062	14,372	51,606	31,985
Deposits	6,283	31,551	41,342	88,227
Other interest income	3,998	15,195	15,361	75,283
Total interest income	833,217	681,692	2,506,994	1,956,557
Interest expense:
Deposits	289,518	286,861	894,767	889,101
Short-term borrowings	10	0	2,538	135
Long-term borrowings	14,873	18,782	39,821	69,096
Total interest expense	304,401	305,643	937,126	958,332
Net interest income	528,816	376,049	1,569,868	998,225
Provision for loan losses	380,999	364,838	1,962,673	881,439
Net interest income after provision for loan losses	147,817	11,211	(392,805)	116,786
Other income:
Securitization income	567,288	629,046	1,310,435	1,970,574
Loan fee income	75,528	56,514	195,843	198,611
Discount and interchange revenue	51,641	41,480	208,802	158,899
Fee products	78,875	61,124	228,899	179,583
Merchant fees	10,716	16,183	35,289	52,876
Transaction processing revenue	31,839	31,085	93,309	87,444
Loss on investment securities	(7,422)	(5,325)	(9,239)	(37,789)
Antitrust litigation settlement	472,167	0	1,419,783	0
Other income	35,328	45,014	103,915	85,359
Total other income	1,315,960	875,121	3,587,036	2,695,557
Other expense:
Employee compensation and benefits	208,528	222,426	636,167	658,086
Marketing and business development	77,814	137,928	292,169	411,519
Information processing and communications	67,679	76,675	217,017	234,400
Professional fees	83,746	82,775	228,419	237,839
Premises and equipment	18,437	20,274	54,732	59,718
Other expense	67,634	72,469	215,085	220,153
Total other expense	523,838	612,547	1,643,589	1,821,715
Income from continuing operations before income tax expense	939,939	273,785	1,550,642	990,628
Income tax expense	362,485	94,885	626,994	371,356
Income from continuing operations	577,454	178,900	923,648	619,272
Income (loss) from discontinued operations, net of tax	0	1,153	0	(123,857)
Net income	577,454	180,053	923,648	495,415
Preferred stock dividends and accretion of discount	(18,067)	0	(34,621)	0
Net income available to common stockholders	$559,387	$180,053	$889,027	$495,415
Basic earnings per share:
Income from continuing operations available to common stockholders	1.09	0.38	1.81	1.29
Loss from discontinued operations, net of tax	$0	$0	$0	-0.26
Net income available to common stockholders	1.09	0.38	1.81	1.03
Diluted earnings per share:
Income from continuing operations available to common stockholders	1.07	0.37	1.79	1.28
Loss from discontinued operations, net of tax	$0	$0	$0	-0.25
Net income available to common stockholders	1.07	0.37	1.79	1.03
Dividends paid per share of common stock	0.02	0.06	0.1	0.18

Statement Of Shareholders Equit

Statement Of Shareholders Equity And Other Comprehensive Income (USD $)
In Thousands		Preferred Stock Amount		Common Stock Amount	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Treasury Stock	Total
Beginning Balance at Nov. 30, 2007		$0		$4,777	$2,846,127	$2,717,905	$32,032	($1,419)	$5,599,422
Beginning Balance at Nov. 30, 2007	0		477,762
Adoption of FASB Interpretation No. 48						(8,743)			(8,743)
Comprehensive income:
Net income						495,415			495,415
Foreign currency translation, net of tax							(48,358)
Adjustments related to investment securities, net of tax							(22,657)
Other comprehensive income							(71,015)		(71,015)
Purchases of treasury stock								(5,748)	(5,748)
Common stock issued under employee benefit plans			1,150
Common stock issued under employee benefit plans				12	16,310				16,322
Common stock issued and stock-based compensation expense			1,316
Common stock issued and stock-based compensation expense				13	62,621				62,634
Dividends paid-common stock						(87,759)			(87,759)
Other					(135)				(135)
Ending Balance at Aug. 31, 2008	0		480,228
Ending Balance at Aug. 31, 2008		0		4,802	2,924,923	3,116,818	(38,983)	(7,167)	6,000,393
Beginning Balance at May. 31, 2008		0
Beginning Balance at May. 31, 2008	0
Comprehensive income:
Ending Balance at Aug. 31, 2008	0
Ending Balance at Aug. 31, 2008		0
Beginning Balance at Nov. 30, 2008		0		4,805	2,938,657	3,046,956	(66,338)	(8,257)	5,915,823
Beginning Balance at Nov. 30, 2008	0		480,517
Adoption of the measurement date provision of FASB Statement No. 158, net of tax						(1,110)			(1,110)
Comprehensive income:
Net income						923,648			923,648
Adjustments related to investment securities, net of tax							41,605
Adjustments related to pension and postretirement, net of tax							(239)
Other comprehensive income							41,366		41,366
Purchases of treasury stock								(10,348)	(10,348)
Common stock issued under employee benefit plans			99
Common stock issued under employee benefit plans				1	913				914
Common stock issued and stock-based compensation expense			3,885
Common stock issued and stock-based compensation expense				40	33,803	120			33,963
Income tax deficiency on stock-based compensation plans					(18,494)				(18,494)
Issuance of common stock			60,054
Issuance of common stock				600	533,240				533,840
Dividends paid-common stock						(48,885)			(48,885)
Issuance of preferred stock	1,225
Issuance of preferred stock		1,148,691			75,867				1,224,558
Accretion of preferred stock discount		6,048				(6,048)			0
Dividends-preferred stock						(28,573)			(28,573)
Special dividend-Morgan Stanley						(180,500)			(180,500)
Ending Balance at Aug. 31, 2009	1,225		544,555
Ending Balance at Aug. 31, 2009		$1,154,739		$5,446	$3,563,986	$3,705,608	($24,972)	($18,605)	$8,386,202

Statement Of Cash Flows Indirec

Statement Of Cash Flows Indirect Deposit Based Operations (USD $)
In Thousands	3 Months Ended Aug. 31, 2009	3 Months Ended Aug. 31, 2008	9 Months Ended Aug. 31, 2009	9 Months Ended Aug. 31, 2008
Cash flows from operating activities
Net income	$577,454	$180,053	$923,648	$495,415
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on sale of Goldfish business			0	153,073
Loss on investment securities	7,422	5,325	9,239	37,789
Gain on equipment			377	0
Stock-based compensation expense			34,877	78,956
Income tax deficiency on stock-based compensation expense			(18,494)	0
Deferred income taxes			(124,460)	(86,833)
Depreciation and amortization on premises and equipment			73,391	81,000
Other depreciation and amortization			(10,964)	92,120
Provision for loan losses			1,962,673	901,450
Amortization of deferred revenues			(4,598)	(44,530)
Changes in assets and liabilities:
(Increase) decrease in amounts due from asset securitization			296,817	391,033
(Increase) decrease in other assets			(90,970)	(129,387)
Increase (decrease) in accrued expenses and other liabilities			(455,387)	903,014
Net cash provided by operating activities			2,596,149	2,873,100
Cash flows from investing activities
Proceeds from the sale of Goldfish business			0	69,529
Payments for business and other acquisitions, net of cash acquired			0	(160,080)
Maturities of investment securities			209,576	34,726
Purchases of investment securities			(480,157)	(32,129)
Proceeds from securitization and sale of loans held for investment			2,246,100	5,562,195
Net principal disbursed on loans held for investment			(5,652,206)	(7,665,129)
(Increase) in restricted cash-special dividend escrow			(502,292)	0
Proceeds from sale of equipment			1,247	0
Purchases of premises and equipment			(41,653)	(78,414)
Net cash (used for) investing activities			(4,219,385)	(2,269,302)
Cash flows from financing activities
Proceeds from the issuance of preferred stock and warrant			1,224,558	0
Proceeds from the issuance of common stock			533,840	0
Proceeds from the issuance of long-term borrowings			400,000	0
Net (decrease) in short-term borrowings			(500,000)	(759,312)
Repayment of long-term borrowings and bank notes			(339,298)	(279,009)
Purchases of treasury stock			(10,348)	(5,748)
Net increase in deposits			1,046,320	2,248,246
Dividends paid on common and preferred stock			(74,737)	(87,759)
Net cash provided by financing activities			2,280,335	1,116,418
Effect of exchange rate changes on cash and cash equivalents			0	(24,592)
Net increase in cash and cash equivalents			657,099	1,695,624
Cash and cash equivalents, at beginning of period			10,171,143	8,787,095
Cash and cash equivalents, at end of period	10,828,242	10,482,719	10,828,242	10,482,719
Cash paid during the period for:
Interest expense			929,542	998,259
Income taxes, net of income tax refunds			531,826	233,062
Non-cash transactions:
Special dividend-Morgan Stanley			(180,500)	0
Acquisition of certificated beneficial interests in DCENT and DCMT, net of maturities			$1,647,783	$750,000

1.Background and Basis of Prese

1.Background and Basis of Presentation
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
1.Background and Basis of Presentation	1. Background and Basis of Presentation Description of Business. Discover Financial Services (DFS or the Company) is a leading credit card issuer and electronic payment services company. In the second quarter of 2009, the Company became a bank holding company under the Bank Holding Company Act of 1956 and a financial holding company under the Gramm-Leach-Bliley Act, which subjects the Company to oversight, regulation and examination by the Board of Governors of the Federal Reserve System (the Federal Reserve). The Company provides its services through its main subsidiaries Discover Bank and DFS Services LLC, the latter of which, directly or through its subsidiaries, operates Discovers signature card network (the Discover Network), the PULSE Network (PULSE) and Diners Club International (Diners Club). Discover Bank is a Delaware state-chartered bank that offers its customers a variety of credit card, other consumer loan and deposit products. Discover Network operates a credit card transaction processing network for Discover Card-branded and third-party issued credit cards. PULSE operates an electronic funds transfer network, providing financial institutions issuing debit cards on the PULSE network with access to ATMs, as well as point of sale terminals at retail locations throughout the U.S. for debit card transactions. Diners Club is a global payments network that offers transaction processing and marketing services to licensees globally. The Companys business segments are U.S. Card and Third-Party Payments. The U.S. Card segment includes Discover Card-branded credit cards issued to individuals and small businesses on the Discover Network and other consumer products and services, including personal loans, student loans, prepaid cards and other consumer lending and deposit products offered through the Companys Discover Bank subsidiary. The Third-Party Payments segment includes the PULSE Network, Diners Club and the Companys third-party issuing business. Basis of Presentation. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the financial statements reflect all adjustments which are necessary for a fair presentation of the results for the quarter. All such adjustments are of a normal, recurring nature. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related disclosures. Actual results could differ from these estimates. These interim consolidated financial statements should be read in conjunction with the Companys 2008 audited consolidated and combined financial statements filed with the Companys annual report on Form 10-K for the year ended November30, 2008. Recently Issued Accounting Pronouncements In

2.Discontinued Operations

2.Discontinued Operations
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
2.Discontinued Operations	2. Discontinued Operations On March31, 2008, the Company sold its Goldfish credit card business, based in the United Kingdom and previously reported as the International Card segment, to Barclays Bank PLC. The aggregate sale price under the agreement was 35million (which was equivalent to approximately $70 million), which was paid in cash at closing. The following table provides summary financial information for discontinued operations related to the sale of the Companys Goldfish business (dollars in thousands): For the ThreeMonths Ended August 31, 2008 For the NineMonths Ended August31, 2008 Revenues(1) $ 2,008 $ 130,363 Income from discontinued operations $ 3,483 $ 48,395 Loss on the sale of discontinued operations(2) (1,598 ) (222,428 ) Pretax income (loss) from discontinued operations 1,885 (174,033 ) Income tax expense (benefit)(2) 732 (50,176 ) Income (loss) from discontinued operations, net of tax $ 1,153 $ (123,857 ) (1) Revenues are the sum of net interest income and other income. (2) Loss on the sale of discontinued operations for the nine months ended August31, 2008 includes a $27.1 million realization of cumulative foreign currency translation adjustments which were previously recorded net of tax. As a result, there is no tax impact for the nine months ended August31, 2008 related to the realization of cumulative foreign currency translation adjustments.

3.Investment Securities

3.Investment Securities
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
3.Investment Securities	3. Investment Securities The Companys investment securities consist of the following (dollars in thousands): August31, 2009 November30, 2008 U.S. Treasury and other U.S. government agency obligations $ 14,205 $ 16,495 States and political subdivisions of states 68,537 70,290 Other securities: Certificated retained interests in DCENT and DCMT 2,668,146 981,742 Credit card asset-backed securities of other issuers 452,011 85,762 Asset-backed commercial paper notes 51,337 59,586 Other debt and equity securities 12,298 14,069 Total other securities 3,183,792 1,141,159 Total investment securities $ 3,266,534 $ 1,227,944 The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale and held-to-maturity investment securities are as follows (dollars in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value At August31, 2009 Available-for-Sale Investment Securities(1) Certificated retained interests in DCENT $ 1,065,000 $ $ (44,637 ) $ 1,020,363 Credit card asset-backed securities of other issuers 425,425 26,590 (4 ) 452,011 Asset-backed commercial paper notes 51,337 51,337 Equity securities 15 15 Total available-for-sale investment securities $ 1,541,777 $ 26,590 $ (44,641 ) $ 1,523,726 Held-to-Maturity Investment Securities(2) U.S. Treasury and other U.S. government agency obligations: Residential mortgage-backed securities $ 13,705 $ 743 $ $ 14,448 Other 500 500 Total U.S. Treasury and other U.S. government agency obligations 14,205 743 14,948 Certificated retained interests in DCENT and DCMT 1,647,783 (366,123 ) 1,281,660 States and political subdivisions of states 68,537 (7,388 ) 61,149 Other debt securities 12,283 12,283 Total held-to-maturity investment securities $ 1,742,808 $ 743 $ (373,511 ) $ 1,370,040 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value At November30, 2008 Available-for-Sale Investment Securities(1) Certificated retained interests in DCENT $ 1,065,000 $ $ (83,258 ) $ 981,742 Credit card asset-backed securities of other issuers 85,843 627 (708 ) 85,762 Asset-backed commercial paper notes 59,586 59,586 Equity securities 816 (787 ) 29 Total available-for-sale investment securities $ 1,211,245 $ 627 $ (84,753 ) $ 1,127,119 Held-to-Maturity Investment Secur

4.Loan Receivables

4.Loan Receivables
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
4.Loan Receivables	4. Loan Receivables Loan receivables consist of the following (dollars in thousands): August31, 2009 November30, 2008 Credit card loans: Discover Card(1) $ 22,290,549 $ 23,348,134 Discover Business Card 431,054 466,173 Total credit card loans 22,721,603 23,814,307 Other consumer loans: Personal loans 1,279,162 1,028,093 Student loans 1,419,513 299,929 Other 69,531 74,282 Total other consumer loans 2,768,206 1,402,304 Total loan receivables 25,489,809 25,216,611 Allowance for loan losses (1,832,360 ) (1,374,585 ) Net loan receivables $ 23,657,449 $ 23,842,026 (1) Amount includes $12.5 billion and $14.8 billion of the Companys sellers interest in credit card securitizations at August31, 2009 and November30, 2008, respectively. See Note 5: Credit Card Securitization Activities for further information. The following table provides changes in the Companys allowance for loan losses by loan type for the three and nine months ended August31, 2009 and August31, 2008 (dollars in thousands): FortheThreeMonthsEnded August31, For the Nine Months Ended August31, 2009 2008 2009 2008 Balance at beginning of period $ 1,986,473 $ 846,775 $ 1,374,585 $ 759,925 Provision for loan losses: Credit card loans 354,408 348,310 1,877,327 841,553 Other consumer loans 26,591 16,528 85,346 39,886 Total provision for loan losses 380,999 364,838 1,962,673 881,439 Charge-offs: Credit card loans (559,672 ) (290,108 ) (1,604,491 ) (803,951 ) Other consumer loans (21,179 ) (2,287 ) (46,559 ) (3,085 ) Total charge-offs (580,851 ) (292,395 ) (1,651,050 ) (807,036 ) Recoveries: Credit card loans 45,486 40,420 145,503 125,032 Other consumer loans 253 131 649 409 Total recoveries 45,739 40,551 146,152 125,441 Net charge-offs (535,112 ) (251,844 ) (1,504,898 ) (681,595 ) Balance at end of period $ 1,832,360 $ 959,769 $ 1,832,360 $ 959,769 Information regarding net charge-offs of interest and fee revenues on credit card loans is as follows (dollars in thousands): FortheThreeMonthsEnded August31, FortheNineMonthsEnded August31, 2009 2008 2009 2008 Interest accrued subsequently charged off, net of recoveries (recorded as a reduction of interest income) $ 114,828 $ 63,544 $ 363,769 $ 182,670 Loan fees accrued subsequently charged off, n

5.Credit Card Securitization Ac

5.Credit Card Securitization Activities
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
5.Credit Card Securitization Activities	5. Credit Card Securitization Activities The Company has accessed the term asset securitization market through DCMT and, beginning July26, 2007, DCENT, into which credit card loan receivables generated in the U.S. Card segment are transferred (or, in the case of DCENT, into which beneficial interests in DCMT are transferred) and from which beneficial interests are issued to investors. The Company continues to own and service the accounts that generate the transferred loan receivables. The DCMT debt structure consists of ClassA, triple-A rated certificates and Class B, single-A rated certificates held by third parties. Credit enhancement is provided by the subordinated Class B certificates, a cash collateral account, and beginning July 2009, a more subordinated Series 2009-CE certificate that is retained by the Company. DCENT consists of four classes of securities (Class A, B, C and D), with the most senior class generally receiving a triple-A rating. In this structure, in order to issue senior, higher rated classes of notes, it is necessary to obtain the appropriate amount of credit enhancement, generally through the issuance of junior, lower rated or more highly subordinated classes of notes. These trusts are not subsidiaries of the Company and, as such, are excluded from the consolidated financial statements in accordance with GAAP. The Companys securitization activities generally qualify as sales under GAAP and accordingly are not treated as secured financing transactions. As such, credit card loan receivables equal to the amount of the investors interests in transferred loan receivables are currently removed from the consolidated statements of financial condition. However, as described in Note 1: Background and Basis of Presentation, pursuant to Statements No.166 and 167, the transferred loan receivables will be consolidated in the Companys financial statements effective December1, 2009. In the first half of 2009, substantially all of the securities issued by the trusts were placed on negative ratings watch by the rating agencies. To address these ratings watches, in July 2009 two new subordinated classes of securities, Series 2009-CE certificates and Class D notes, were issued by DCMT and DCENT, respectively. The issuance of Series 2009-CE certificates from DCMT provides credit enhancement to all outstanding series of DCMT other than Series 2007-CC which supports the DCENT notes. The issuance of Class D notes from DCENT provides enhancement to the more senior outstanding ClassA, B and C notes of DCENT. The initial issuances of Series 2009-CE certificates and Class D notes were $1.0 billion and $0.7 billion for DCMT and DCENT, respectively, and outstanding amounts are expected to fluctuate as the related outstanding series of DCMT mature and with the maturity and new issuances of more senior DCENT notes. Similar to all prior issuances by the trusts, these new securities are certificated. However, they are not rated, were acquired by a wholly-owned subsidiary of Discover Bank and are recorded at amortized cost as held-to-maturity investment securities on the consolidated statements of financial condition. The Company was not c

6.Deposits

6.Deposits
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
6.Deposits	6. Deposits The Companys deposits are obtained through two channels: (i)products offered directly to consumers through direct mail, internet origination and affinity relationships, including certificates of deposit, money market accounts and online savings accounts; and (ii)brokered certificates of deposit which are issued and distributed through several securities brokerage firms, one of which is Morgan Stanley. These firms distribute certificates of deposit both to their own clients and other firms and brokers known as a selling group. As of August31, 2009, the Company had issued approximately $10 billion of deposit products through direct-to-consumer channels and affinity relationships and approximately $19 billion through brokered channels. As of August31, 2009 and November30, 2008, $8.7 billion and $11.7 billion, respectively, of the Companys certificates of deposit had been distributed through Morgan Stanley and its selling group. A summary of interest-bearing deposit accounts is as follows (dollars in thousands): August31, 2009 November30, 2008 Certificates of deposit in amounts less than $100,000(1) $ 22,096,073 $ 22,083,962 Certificates of deposit in amounts of $100,000(1) or greater 3,135,241 1,808,320 Savings deposits, including money market deposit accounts 4,237,745 4,559,864 Total interest-bearing deposits $ 29,469,059 $ 28,452,146 Average annual interest rate 4.04 % 4.67 % (1) Represents the basic insurance amount covered by the FDIC. Effective May20, 2009, a standard insurance amount of $250,000 per depositor is in effect through December31, 2013. At August31, 2009, certificates of deposit maturing over the next five years and thereafter were as follows (dollars in thousands): Year Amount 2009 $ 1,631,325 2010 $ 8,061,038 2011 $ 4,951,888 2012 $ 4,188,584 2013 $ 3,860,953 Thereafter $ 2,537,526

7.Short-Term Borrowings

7.Short-Term Borrowings
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
7.Short-Term Borrowings	7. Short-Term Borrowings Short-term borrowings consist of term and overnight Federal Funds purchased and other short-term borrowings with original maturities less than one year. The following table identifies the balances and weighted average interest rates on short-term borrowings outstanding at period end (dollars in thousands): August31, 2009 November30, 2008 Amount WeightedAverage InterestRate Amount WeightedAverage Interest Rate Other short-term borrowings(1) $ $ 500,000 0.60 % (1) Other short-term borrowings consist of amounts borrowed under the Federal Reserves Term Auction Facility. The Company was required to pledge $0.7 billion of loan receivables against this borrowing as of November30, 2008.

8.Long-Term Borrowings

8.Long-Term Borrowings
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
8.Long-Term Borrowings	8. Long-Term Borrowings Long-term borrowings consist of borrowings and capital leases having original maturities of one year or more. The following table provides a summary of the outstanding amounts and general terms of the Companys long-term borrowings (dollars in thousands): August31, 2009 November30, 2008 Interest Rate Terms Maturity Funding source Outstanding Interest Rate Outstanding Interest Rate Bank notes $ $ 249,977 2.54 % 3-monthLIBOR(1) + 15 basis points February 2009 Secured borrowings 593,158 0.86 % 682,456 3.05 % Commercial paper rate + 50 basis points December2010(2) Unsecured borrowings: Floating rate senior notes 400,000 1.17 % 400,000 3.35 % 3-month LIBOR(1) + 53 basis points June 2010 Fixed rate senior notes due 2017 399,365 6.45 % 399,304 6.45 % 6.45% fixed June 2017 Fixed rate senior notes due 2019(3) 400,000 10.25 % 10.25% fixed July 2019 Total unsecured borrowings 1,199,365 799,304 Capital lease obligations 2,611 6.26 % 3,646 6.26 % 6.26% fixed Various Total long-term borrowings $ 1,795,134 $ 1,735,383 (1) London Interbank Offered Rate (LIBOR). (2) Repayment is dependent upon the available balances of the cash collateral accounts at the various maturities of underlying securitization transactions, with final maturity in December 2010. (3) Issued on July15, 2009. The Company has entered into an unsecured credit agreement that is effective through May 2012. The agreement provides for a revolving credit commitment of up to $2.4 billion (of which the Company may borrow up to 30% and Discover Bank may borrow up to 100% of the total commitment). As of August31, 2009, the Company had no outstanding balances due under the facility. The credit agreement provides for a commitment fee on the unused portion of the facility, which can range from 0.07% to 0.175% depending on the index debt ratings. Loans outstanding under the credit facility bear interest at a margin above the Federal Funds rate, LIBOR, the EURIBOR or the Euro Reference rate. The terms of the credit agreement include various affirmative and negative covenants, including financial covenants related to the maintenance of certain capitalization and tangible net worth levels, and certain double leverage, delinquency and Tier 1 capital to managed loans ratios. The credit agreement also includes customary events of default with corresponding grace periods, including, without limitation, payment defaults, cross-defaults to other agreements evidencing indebtedness for borrowed money and bankruptcy-related defaults. The commitment may be terminated upon an event of default.

9.Common and Preferred Stock

9.Common and Preferred Stock
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
9.Common and Preferred Stock	9. Common and Preferred Stock During the three months ended August 31, 2009, the Company raised approximately $534 million in capital through the issuance of 60,054,055 shares of common stock, par value of $0.01, at a price of $9.25 per share ($8.89 per share net of underwriter discounts and commissions). This included 6,000,000 shares sold pursuant to the over-allotment option granted to the underwriters. On March13, 2009, the Company issued and sold to the United States Department of the Treasury (the U.S. Treasury) under the U.S. Treasurys Capital Purchase Program (CPP) (i)1,224,558 shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the senior preferred stock) and (ii)a ten-year warrant to purchase 20,500,413 shares of the Companys common stock, par value $0.01 per share, for an aggregate purchase price of $1.225 billion. The senior preferred stock, which qualifies as Tier 1 capital, has a per share liquidation preference of $1,000, and pays a cumulative dividend rate of 5%per year for the first five years and a rate of 9%per year beginning May15, 2014. The warrant has a 10-year term and was immediately exercisable upon issuance, with an exercise price, subject to anti-dilution adjustments, equal to $8.96 per share of common stock. Of the aggregate amount of $1.225 billion received, approximately $1.15 billion was attributable to preferred stock and approximately $75 million was attributable to the warrant based on the relative fair values of these instruments on the date of issuance. As the senior preferred stock was initially valued at $1.15 billion, the difference between the initial value and the par value of the stock will be accreted over a period of five years through a reduction to retained earnings on an effective yield basis. While this accretion does not impact net income, it, along with the dividends, reduces the amount of net income available to common stockholders, and thus reduces both basic and diluted earnings per share. The senior preferred stock is generally non-voting, other than class voting rights on certain matters that could adversely affect the right of the holders of the stock. The senior preferred stock terms provide that the stock may not be redeemed, as opposed to repurchased, prior to May15, 2012 unless the Company has received aggregate gross proceeds from one or more qualified equity offerings (as described below) of at least $306 million. In such a case, the Company may redeem the senior preferred stock, in whole or in part, subject to the approval of the Federal Reserve, upon notice, up to a maximum amount equal to the aggregate net cash proceeds received by the Company from such qualified equity offerings. A qualified equity offering is a sale and issuance for cash by the Company, to persons other than the Company or its subsidiaries after March13, 2009, of shares of perpetual preferred stock, common stock or a combination thereof, that in each case qualify as Tier 1 capital at the time of issuance under the applicable risk-based capital guidelines of the Federal Reserve. On or after May15, 2012, the senior preferred stock may be redeemed by the Company at

10.Employee Benefit Plans

10.Employee Benefit Plans
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
10.Employee Benefit Plans	10. Employee Benefit Plans The Company sponsors defined benefit pension and other postretirement plans for its eligible U.S. employees; however, in October 2008, the Company announced to its employees the discontinuation of the accrual of future benefits in its defined benefit pension plans effective December31, 2008. For more information, see the Companys annual report on Form 10-K for the year ended November30, 2008. Net periodic benefit (income) cost recorded by the Company included the following components (dollars in thousands): Pension FortheThreeMonthsEnded August31, FortheNineMonthsEnded August31, 2009 2008 2009 2008 Service cost, benefits earned during the period $ 255 $ 4,206 $ 765 $ 12,618 Interest cost on projected benefit obligation 5,047 4,998 15,141 14,994 Expected return on plan assets (6,027 ) (6,009 ) (18,081 ) (18,027 ) Net amortization (2 ) (560 ) (6 ) (1,680 ) Net periodic benefit (income) cost $ (727 ) $ 2,635 $ (2,181 ) $ 7,905 Postretirement FortheThreeMonthsEnded August 31, FortheNineMonthsEnded August 31, 2009 2008 2009 2008 Service cost, benefits earned during the period $ 194 $ 269 $ 582 $ 807 Interest cost on projected benefit obligation 394 361 1,182 1,083 Net amortization (38 ) (116 ) (114 ) (348 ) Net periodic benefit cost $ 550 $ 514 $ 1,650 $ 1,542 On December1, 2008, the Company adopted the measurement date provision of FASB Statement of Financial Accounting Standards No.158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No.87, 88, 106 and 132(R), resulting in a $1.8 million pretax reduction of retained earnings ($1.1million after tax).

11.Income Taxes

11.Income Taxes
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
11.Income Taxes	11. Income Taxes Income tax expense on income from continuing operations consisted of the following (dollars in thousands): FortheThreeMonthsEnded August31, FortheNineMonthsEnded August31, 2009 2008 2009 2008 Current: U.S. federal $ 201,615 $ 155,222 $ 653,888 $ 444,919 U.S. state and local 41,736 3,235 95,083 44,609 International 665 395 2,483 399 Total 244,016 158,852 751,454 489,927 Deferred: U.S. federal 109,028 (59,012 ) (111,923 ) (108,426 ) U.S. state and local 9,441 (4,955 ) (12,537 ) (10,145 ) Total 118,469 (63,967 ) (124,460 ) (118,571 ) Income tax expense $ 362,485 $ 94,885 $ 626,994 $ 371,356 The following table reconciles the Companys effective tax rate on income from continuing operations to the U.S. federal statutory income tax rate: FortheThreeMonthsEnded August31, FortheNineMonthsEnded August31, 2009 2008 2009 2008 U.S. federal statutory income tax rate 35.0 % 35.0 % 35.0 % 35.0 % U.S. state and local income taxes and other, net of U.S. federal income tax benefits 3.5 3.4 3.4 3.2 State examinations and settlements (3.9 ) (1.1 ) Valuation allowancecapital loss 1.5 Nondeductible compensation 0.1 0.5 Other 0.2 0.4 Effective income tax rate 38.6 % 34.7 % 40.4 % 37.5 % As of August31, 2009, the Company had a $63.4 million capital loss carryforward for U.S. federal income tax purposes with a tax benefit of $22.2 million that expires in 2013 and capital loss carryforwards for state purposes with a tax benefit of $1.5 million that expire from 2013-2023. These deferred tax assets were created in connection with the sale of the Goldfish business in March 2008. In the second quarter of 2009, the Company decided not to pursue actions at any time during the carryforward periods that would allow it to realize the benefits of substantially all the federal and state capital losses. As a result, the Company recorded a full valuation allowance against these deferred tax assets during the second quarter 2009.

12.Earnings Per Share

12.Earnings Per Share
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
12.Earnings Per Share	12. Earnings Per Share Basic earnings per share (EPS) is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted EPS reflects the assumed conversion of all dilutive securities. The following table presents the calculation of basic and diluted EPS (dollars and shares in thousands, except per share amounts): FortheThreeMonthsEnded August31, FortheNineMonthsEnded August31, 2009 2008 2009 2008 Numerator: Income from continuing operations $ 577,454 $ 178,900 $ 923,648 $ 619,272 Preferred stock dividends (15,307 ) (28,573 ) Preferred stock accretion (2,760 ) (6,048 ) Income from continuing operations available to common stockholders 559,387 178,900 889,027 619,272 Income (loss) from discontinued operations, net of tax 1,153 (123,857 ) Net income available to common stockholders $ 559,387 $ 180,053 $ 889,027 $ 495,415 Denominator: Weighted average shares of common stock outstanding 513,098 479,618 491,839 479,138 Effect of dilutive stock options and restricted stock units 3,529 4,510 3,745 4,187 Effect of dilutive stock warrant 3,952 920 Weighted average shares of common stock outstanding and common stock equivalents 520,579 484,128 496,504 483,325 Basic earnings per share: Income from continuing operations available to common stockholders $ 1.09 $ 0.38 $ 1.81 $ 1.29 Loss from discontinued operations, net of tax (0.26 ) Net income available to common stockholders $ 1.09 $ 0.38 $ 1.81 $ 1.03 Diluted earnings per share: Income from continuing operations available to common stockholders $ 1.07 $ 0.37 $ 1.79 $ 1.28 Loss from discontinued operations, net of tax (0.25 ) Net income available to common stockholders $ 1.07 $ 0.37 $ 1.79 $ 1.03 For the three months ended August31, 2009 and 2008, the Company had 4.4million and 5.1million, respectively, of anti-dilutive securities related to stock options and restricted stock units. For the nine months ended August31, 2009 and 2008, the Company had 4.5million and 6.0million, respectively, of anti-dilutive securities related to stock options and restricted stock units. As a result, these securities were excluded from the computation of diluted EPS.

13.Capital Adequacy

13.Capital Adequacy
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
13.Capital Adequacy	13. Capital Adequacy The Company became subject to capital adequacy guidelines of the Federal Reserve in the second quarter 2009 upon becoming a bank holding company. Discover Bank (the Bank), the Companys main banking subsidiary, is subject to various regulatory capital requirements as administered by the Federal Deposit Insurance Corporation (the FDIC). Failure to meet minimum capital requirements can result in the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial position and results of the Company and the Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items, as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (as defined in the regulations) of total and Tier 1 capital to risk-weighted assets, and of Tier I capital to average assets. Management believes that, as of August31, 2009, the Company and the Bank met all capital adequacy requirements to which they were subject. Under regulatory capital requirements, the Company and the Bank must maintain minimum levels of capital that are dependent upon the risk of the financial institutions assets, specifically (a)8% to 10% of total capital to risk-weighted assets (total risk-based capital ratio), (b)4% to 6% of Tier 1 capital to risk-weighted assets (Tier 1 risk-based capital ratio) and (c)4% to 5% of Tier 1 capital to average assets (Tier 1 leverage ratio). To be categorized as well-capitalized, the Company and the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. The Company and the Bank were well-capitalized as of August31, 2009 and the Bank was well-capitalized as of November30, 2008, under the regulatory framework for prompt corrective action established by the FDIC. As of August31, 2009, there have been no conditions or events that management believes have changed the Companys or the Banks category. Effective July 2009, the Company and the Bank began consolidating the trusts for purposes of computing regulatory capital as a result of actions taken to provide incremental credit enhancement to the trusts, which are discussed in greater detail in Note 5: Credit Card Securitization Activities. In accordance with regulatory capital requirements, the Company and the Bank now include the assets of the trusts, exclusive of any retained interests held on-balance sheet, in the Companys and the Banks regulatory capital calculations. As a result, the Companys and the Banks risk weighted assets increased, causing its capital ratios to decrease, but both the Company and the Bank remain above well-capital

14.Commitments, Contingencies a

14.Commitments, Contingencies and Guarantees
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
14.Commitments, Contingencies and Guarantees	14. Commitments, Contingencies and Guarantees Lease commitments. The Company leases various office space and equipment under capital and non-cancelable operating leases which expire at various dates through 2018. At August31, 2009, future minimum payments on leases with remaining terms in excess of one year, consist of the following (dollars in thousands): August31, 2009 Capitalized Leases Operating Leases 2009 $ 395 $ 1,615 2010 1,579 6,145 2011 790 4,839 2012 4,776 2013 3,233 Thereafter 14,167 Total minimum lease payments 2,764 $ 34,775 Less: amount representing interest 153 Present value of net minimum lease payments $ 2,611 Unused commitments to extend credit. At August31, 2009, the Company had unused commitments to extend credit for consumer and commercial loans of approximately $174 billion. Such commitments arise primarily from agreements with customers for unused lines of credit on certain credit cards, provided there is no violation of conditions established in the related agreement. These commitments, substantially all of which the Company can terminate at any time and which do not necessarily represent future cash requirements, are periodically reviewed based on account usage and customer creditworthiness. Guarantees. The Company has certain obligations under certain guarantee arrangements, including contracts and indemnification agreements that contingently require the Company to make payments to the guaranteed party based on changes in an underlying asset, liability or equity security of a guaranteed party, rate or index. Also included as guarantees are contracts that contingently require the Company to make payments to a guaranteed party based on another entitys failure to perform under an agreement. The Companys use of guarantees is disclosed below by type of guarantee. Securitized Asset Representations and Warranties. As part of the Companys securitization activities, the Company provides representations and warranties that certain securitized assets conform to specified guidelines. The Company may be required to repurchase such assets or indemnify the purchaser against losses if the assets do not meet certain conforming guidelines. Due diligence is performed by the Company to ensure that asset guideline qualifications are met. The maximum potential amount of future payments the Company could be required to make would be equal to the current outstanding balances of all assets subject to such securitization activities. The Company has not recorded any contingent liability in the consolidated financial statements for these representations and warranties, and management believes that the probability of any payments under these arrangements is low. Diners Club. Diners Club has entered into contractual relationships with certain international merchants, which generally include travel-related businesses, for the benefit of all Diners Club licensees. The licensees hold the primary liability to settle the transactions of their car

15.Fair Value Disclosures

15.Fair Value Disclosures
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
15.Fair Value Disclosures	15. Fair Value Disclosures In accordance with FASB Statement of Financial Accounting Standards No.107, Disclosures about Fair Value of Financial Instruments, the Company is required to disclose the fair value of financial instruments for which it is practical to estimate fair value. To obtain fair values, observable market prices are used if available. In some instances, observable market prices are not readily available and fair value is determined using present value or other techniques appropriate for a particular financial instrument. These techniques involve some degree of judgment and as a result are not necessarily indicative of the amounts the Company would realize in a current market exchange. The use of different assumptions or estimation techniques may have a material effect on the estimated fair value amounts. The following table provides the estimated fair values of financial instruments (dollars in thousands): August31, 2009 November30, 2008 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Financial Assets Cash and cash equivalents $ 10,828,242 $ 10,828,242 $ 10,171,143 $ 10,171,143 Restricted cash $ 502,292 $ 502,292 $ $ Investment securities: Available-for-sale $ 1,523,726 $ 1,523,726 $ 1,127,119 $ 1,127,119 Held-to-maturity $ 1,742,808 $ 1,370,040 $ 100,825 $ 84,167 Net loan receivables $ 23,657,449 $ 23,866,022 $ 23,842,026 $ 24,058,173 Amounts due from asset securitization $ 1,936,783 $ 1,936,783 $ 2,233,600 $ 2,233,600 Derivative financial instruments $ 2,058 $ 2,058 $ 4,102 $ 4,102 Financial Liabilities Deposits $ 29,567,138 $ 30,620,915 $ 28,530,521 $ 28,715,427 Short-term borrowings $ $ $ 500,000 $ 500,000 Long-term borrowings $ 1,795,134 $ 1,758,323 $ 1,735,383 $ 1,638,067 Derivative financial instruments $ $ $ 1,895 $ 1,895 Cash and cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the low level of risk these assets present to the Company as well as the relatively liquid nature of these assets particularly given their short maturities. Restricted cash. The carrying value of restricted cash approximates fair value due to the low level of risk these assets present to the Company. Available-for-sale investment securities. Investment securities classified as available for sale are recorded at their fair values. These financial assets consist primarily of certain certificated subordinated interests issued by DCENT that have been acquired by a wholly-owned subsidiary of the Company, credit card asset-backed securities issued by other institutions and mortgage-backed commercial paper notes of one issuer. Fair values of certificated retained interests and credit card asset-backed securities of other issuers are estimated utilizing discounted cash flow analyses, where estimated contractual principal and interest cash flows are discounted

16.Segment Disclosures

16.Segment Disclosures
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
16.Segment Disclosures	16. Segment Disclosures The Companys business activities are managed in two segments: U.S. Card and Third-Party Payments. U.S. Card. The U.S. Card segment includes Discover Card-branded credit cards issued to individuals and small businesses on the Discover Network and other consumer products and services, including installment loans, prepaid cards and other consumer lending and deposit products offered through the Companys Discover Bank subsidiary. Third-Party Payments. The Third-Party Payments segment includes PULSE, an automated teller machine, debit and electronic funds transfer network; Diners Club, a global payments network; and the Companys third-party issuing business, which includes credit, debit and prepaid cards issued on the Discover Network by third parties. The business segment reporting provided to and used by the Companys chief operating decision maker is prepared using the following principles and allocation conventions: Segment information is presented on a managed basis because management considers the performance of the entire managed loan portfolio in managing the business. A managed basis presentation, which is a non-GAAP presentation, involves reporting securitized loans with the Companys owned loans in the managed basis statements of financial condition and reporting the earnings on securitized loans in the same manner as the owned loans instead of as securitization income. The managed basis presentation generally reverses the effects of securitization transactions. Other accounting policies applied to the operating segments are consistent with the accounting policies described in Note 2: Summary of Significant Accounting Policies to the audited consolidated and combined financial statements included in the Companys annual report on Form 10-K for the year ended November30, 2008. Corporate overhead is not allocated between segments; all corporate overhead is included in the U.S. Card segment. Through its operation of the Discover Network, the U.S. Card segment incurs fixed marketing, servicing and infrastructure costs, which are not specifically allocated among the operating segments. The assets of the Company are not allocated among the operating segments in the information reviewed by the Companys chief operating decision maker. Income taxes are not specifically allocated among the operating segments in the information reviewed by the Companys chief operating decision maker. The following table presents segment data on a managed basis and a reconciliation to a GAAP presentation (dollars in thousands): Managed Basis Securitization Adjustment(2) GAAP Basis For the Three Months Ended U.S. Card Third-Party Payments(1) Total Total August31, 2009 Interest income $ 1,663,886 $ 195 $ 1,664,081 $ (830,864 ) $ 833,217 Interest expense 392,592 50 392,642 (88,241 ) 304,401 Net interest income 1,271,294 145 1,271,439 (742,623 ) 528,816

17.Subsequent Events

17.Subsequent Events
	9 Months Ended Aug. 31, 2009 USD / shares
Notes to Financial Statements [Abstract]
17.Subsequent Events	17. Subsequent Events The Company has performed an evaluation of subsequent events through October 7, 2009, the date the financial statements were issued and filed.

Document Information

Document Information
	9 Months Ended Aug. 31, 2009 USD / shares
Document Information [Text Block]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2009-08-31

Entity Information

Entity Information (USD $)
	9 Months Ended Aug. 31, 2009	Sep. 30, 2009
Entity [Text Block]
Trading Symbol	DFS
Entity Registrant Name	Discover Financial Services
Entity Central Index Key	0001393612
Current Fiscal Year End Date	--11-30
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		542,814,731