Discover Financial Services (DFS) 10-Q 7 Jul 10 2010 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information
	6 Months Ended May. 31, 2010	Jun. 30, 2010
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-05-31
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q2
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		544,036,855

Condensed Consolidated Statemen

Condensed Consolidated Statements of Financial Condition (USD $)
In Thousands	6 Months Ended May. 31, 2010	12 Months Ended Nov. 30, 2009
Assets
Cash and cash equivalents	$10,335,729	$13,020,719
Restricted cash-special dividend escrow		643,311
Restricted cash-for securitization investors	685,113
Other short-term investments	375,000	1,350,000
Investment securities:
Available-for-sale (amortized cost of $952,593 and $2,743,729 at May 31, 2010 and November 30, 2009, respectively)	982,947	2,645,481
Held-to-maturity (fair value of $85,103 and $1,953,990 at May 31, 2010 and November 30, 2009, respectively)	88,197	2,389,816
Total investments securities	1,071,144	5,035,297
Loan receivables:
Student loans held for sale	1,416,603
Credit card-restricted for securitization investors	34,890,625
Other credit card	10,437,705	20,230,302
Total credit card loan receivables	45,328,330	20,230,302
Other	3,279,785	3,394,782
Total loan portfolio	48,608,115	23,625,084
Total loan receivables	50,024,718	23,625,084
Allowance for loan losses	(3,930,624)	(1,757,899)
Net loan receivables	46,094,094	21,867,185
Amounts due from asset securitization		1,692,051
Premises and equipment, net	469,001	499,303
Goodwill	255,421	255,421
Intangible assets, net	192,304	195,636
Other assets	2,675,872	1,462,064
Total assets	62,153,678	46,020,987
Deposits:
Interest-bearing deposit accounts	34,933,914	32,028,506
Non-interest bearing deposit accounts	88,061	64,506
Total deposits	35,021,975	32,093,012
Long-term borrowings:
Long-term borrowings-owed to securitization investors	15,069,129
Other long-term borrowings	3,241,998	2,428,101
Total long-term borrowings	18,311,127	2,428,101
Special dividend-Morgan Stanley		808,757
Accrued expenses and other liabilities	2,782,309	2,255,570
Total liabilities	56,115,411	37,585,440
Commitments, contingencies and guarantees (Note 13)
Stockholders' Equity:
Preferred stock, par value $.01 per share; 200,000,000 shares authorized, 0 and 1,224,558 shares issued and outstanding at May 31, 2010 and November 30, 2009, respectively		1,158,066
Common stock, par value $.01 per share; 2,000,000,000 shares authorized; 546,242,968 and 544,799,041 shares issued at May 31, 2010 and November 30, 2009, respectively	5,462	5,448
Additional paid-in capital	3,593,692	3,573,231
Retained earnings	2,538,164	3,873,262
Accumulated other comprehensive (loss) income	(73,940)	(154,818)
Treasury stock, at cost; 2,249,868 and 1,876,795 shares at May 31, 2010 and November 30, 2009, respectively	(25,111)	(19,642)
Total stockholders' equity	6,038,267	8,435,547
Total liabilities and stockholders' equity	$62,153,678	$46,020,987

1_Condensed Consolidated Statem

Condensed Consolidated Statements of Financial Condition (Parenthetical) (USD $)
In Thousands, except Share data	May. 31, 2010	Nov. 30, 2009
Available-for-sale, amortized cost	$952,593	$2,743,729
Held-to-maturity, fair value	$85,103	$1,953,990
Preferred stock, par value	0.01	0.01
Preferred stock, shares authorized	200,000,000	200,000,000
Preferred stock,shares issued	0	1,224,558
Preferred stock,shares outstanding	0	1,224,558
Common stock, par value	0.01	0.01
Common stock, shares authorized	2,000,000,000	2,000,000,000
Common stock, shares issued	546,242,968	544,799,041
Treasury stock, shares	2,249,868	1,876,795

2_Condensed Consolidated Statem

Condensed Consolidated Statements of Income (USD $)
In Thousands, except Per Share data	3 Months Ended May. 31, 2010	3 Months Ended May. 31, 2009	6 Months Ended May. 31, 2010	6 Months Ended May. 31, 2009
Interest income:
Credit card loans	$1,475,860	$781,176	$2,967,747	$1,514,675
Other loans	62,894	40,641	115,562	75,874
Investment securities	5,064	17,960	10,392	33,544
Other interest income	7,964	18,207	17,231	49,684
Total interest income	1,551,782	857,984	3,110,932	1,673,777
Interest expense:
Deposits	298,335	308,123	603,784	605,249
Short-term borrowings		1,345		2,528
Long-term borrowings	106,286	10,537	214,561	24,948
Total interest expense	404,621	320,005	818,345	632,725
Net interest income	1,147,161	537,979	2,292,587	1,041,052
Provision for loan losses	724,264	643,861	2,111,470	1,581,674
Net interest income after provision for loan losses	422,897	(105,882)	181,117	(540,622)
Other income:
Securitization income		325,264		743,147
Discount and interchange revenue	269,286	81,894	531,277	157,161
Fee products	101,363	75,248	205,458	150,024
Loan fee income	69,733	52,293	175,018	120,315
Transaction processing revenue	36,468	32,604	69,386	61,470
Merchant fees	7,426	11,736	15,871	24,573
Gain (loss) on investment securities		(1,012)	180	(1,817)
Antitrust litigation settlement		472,775		947,616
Other income	28,568	30,318	61,530	68,587
Total other income	512,844	1,081,120	1,058,720	2,271,076
Other expense:
Employee compensation and benefits	202,536	208,151	398,300	427,639
Marketing and business development	97,970	102,922	182,643	214,355
Information processing and communications	63,087	74,441	128,505	149,338
Professional fees	78,067	74,550	153,880	144,673
Premises and equipment	17,691	18,223	35,551	36,295
Other expense	54,197	82,341	89,473	147,451
Total other expense	513,548	560,628	988,352	1,119,751
Income before income tax expense	422,193	414,610	251,485	610,703
Income tax expense	164,126	188,810	96,956	264,509
Net income	258,067	225,800	154,529	346,194
Net income allocated to common stockholders	$184,590	$206,366	$63,524	$324,584
Basic earnings per share	0.34	0.43	0.12	0.67
Diluted earnings per share	0.33	0.43	0.12	0.67
Dividends paid per share of common stock	0.02	0.02	0.04	0.08

3_Condensed Consolidated Statem

Condensed Consolidated Statements of Changes in Stockholders' Equity (USD $)
In Thousands	Preferred Stock	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Treasury Stock	Total
Beginning Balance at Nov. 30, 2008		$4,805	$2,938,657	$3,046,956	($66,338)	($8,257)	$5,915,823
Beginning Balance (in shares) at Nov. 30, 2008		480,517
Adoption of the measurement date provision of ASC 715 (FASB Statement No. 158), net of tax				(1,110)			(1,110)
Comprehensive income:
Net income				346,194			346,194
Adjustments related to investment securities, net of tax					14,035
Adjustments related to pension and postretirement benefits, net of tax					(239)
Other comprehensive income					13,796		13,796
Total comprehensive income							359,990
Purchase of treasury stock						(6,597)	(6,597)
Common stock issued under employee benefit plans (in shares)		99
Common stock issued under employee benefit plans		1	665				666
Common stock issued and stock-based compensation expense (in shares)		2,495
Common stock issued and stock-based compensation expense		25	24,417	120			24,562
Income tax deficiency on stock-based compensation plans			(9,614)				(9,614)
Issuance of preferred stock (in shares)	1,225
Issuance of preferred stock	1,148,691		75,867				1,224,558
Accretion of preferred stock discount	3,288			(3,288)
Dividends-preferred stock				(13,266)			(13,266)
Dividends paid-common stock				(39,122)			(39,122)
Special dividend-Morgan Stanley				(40,250)			(40,250)
Ending Balance (in shares) at May. 31, 2009	1,225	483,111
Ending Balance at May. 31, 2009	1,151,979	4,831	3,029,992	3,296,234	(52,542)	(14,854)	7,415,640
Beginning Balance at Nov. 30, 2009	1,158,066	5,448	3,573,231	3,873,262	(154,818)	(19,642)	8,435,547
Beginning Balance (in shares) at Nov. 30, 2009	1,225	544,799
Adoption of ASC 810 (FASB Statement No. 167), net of tax				(1,411,117)	78,561		(1,332,556)
Comprehensive income:
Net income				154,529			154,529
Adjustments related to investment securities, net of tax					2,238
Adjustments related to pension and postretirement benefits, net of tax					79
Other comprehensive income					2,317		2,317
Total comprehensive income							156,846
Purchase of treasury stock						(5,469)	(5,469)
Common stock issued under employee benefit plans (in shares)		43
Common stock issued under employee benefit plans			545				545
Common stock issued and stock-based compensation expense (in shares)		1,401
Common stock issued and stock-based compensation expense		14	21,285				21,299
Income tax deficiency on stock-based compensation plans			(1,369)				(1,369)
Accretion of preferred stock discount	66,492			(66,492)
Dividends-preferred stock				(23,811)			(23,811)
Dividends paid-common stock				(21,964)			(21,964)
Redemption of preferred stock (in shares)	(1,225)
Redemption of preferred stock		(1,224,558)					(1,224,558)
Special dividend-Morgan Stanley				33,757			33,757
Ending Balance (in shares) at May. 31, 2010		546,243
Ending Balance at May. 31, 2010		$5,462	$3,593,692	$2,538,164	($73,940)	($25,111)	$6,038,267

4_Condensed Consolidated Statem

Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands	6 Months Ended May. 31, 2010	6 Months Ended May. 31, 2009
Cash flows from operating activities
Net income	$154,529	$346,194
Adjustments to reconcile net income to net cash provided by operating activities:
Net principal disbursed on loans originated for sale	(98,665)
(Gain) loss on investment securities	(180)	1,817
Gain on disposal of equipment	(159)	(63)
Stock-based compensation expense	20,923	25,228
Income tax deficiency on stock-based compensation expense	(1,369)	(9,614)
Deferred income taxes	(14,949)	(242,929)
Depreciation and amortization on premises and equipment	46,272	49,134
Other depreciation and amortization	37,479	66,955
Amortization of deferred revenues	(91,538)	(75,605)
Provision for loan losses	2,111,470	1,581,674
Changes in assets and liabilities:
(Increase) decrease in amounts due from asset securitization		466,055
(Increase) decrease in other assets	(260,270)	(57,352)
Increase (decrease) in accrued expenses and other liabilities	540,264	(237,916)
Net cash provided by operating activities	2,443,807	1,913,578
Cash flows from investing activities
Maturities of other short-term investments	1,350,000
Purchases of other short-term investments	(375,000)
Maturities of available-for-sale investment securities	394,418	77,570
Purchases of available-for-sale investment securities	(929,070)	(352,873)
Maturities of held-to-maturity investment securities	6,229	2,405
Purchases of held-to-maturity investment securities	(549)	(949)
Net principal disbursed on loans held for investment	(1,085,456)	(3,896,894)
Proceeds from securitization		750,000
Decrease (increase) in restricted cash-special dividend escrow	643,311	(427,357)
Decrease in restricted cash-for securitization investors	553,648
Proceeds from sale of equipment	144	1,513
Purchases of premises and equipment	(17,461)	(29,932)
Net cash provided by (used for) investing activities	540,214	(3,876,517)
Cash flows from financing activities
Proceeds from issuance of preferred stock		1,148,691
Redemption of preferred stock	(1,224,558)
Proceeds from issuance of warrant		75,867
Proceeds from issuance of securitized debt	1,000,000
Maturities of securitized debt	(8,360,528)
Proceeds from issuance of other long-term borrowings	1,003,427
Maturities of other long-term borrowings	(188,200)	(307,719)
Purchase of treasury stock	(5,469)	(6,597)
Net increase in deposits	1,952,266	626,046
Proceeds from acquisition of deposits	976,627
Dividend paid to Morgan Stanley	(775,000)
Dividends paid on common and preferred stock	(48,497)	(49,667)
Excess tax benefits related to stock-based compensation	921
Net cash (used for) provided by financing activities	(5,669,011)	1,486,621
Net decrease in cash and cash equivalents	(2,684,990)	(476,318)
Cash and cash equivalents, at beginning of period	13,020,719	10,171,143
Cash and cash equivalents, at end of period	10,335,729	9,694,825
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest expense	765,286	643,667
Income taxes, net of income tax refunds	56,989	298,877
Non-cash transactions:
Special dividend-Morgan Stanley	$33,757	($40,250)

Background and Basis of Present

Background and Basis of Presentation
	6 Months Ended May. 31, 2010
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 in the United States and an electronic payment services company. In March 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. Therefore, the Company is now subject to oversight, regulation and examination by the Board of Governors of the Federal Reserve System (the "Federal Reserve"). Through its Discover Bank subsidiary, a Delaware state-chartered bank, the Company offers its customers credit cards, other consumer loans and deposit products. Through its DFS Services LLC subsidiary and its subsidiaries, the Company operates the Discover Network, the PULSE Network ("PULSE") and Diners Club International ("Diners Club"). The Discover Network provides credit card transaction processing 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 domestically and internationally, 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 grants rights to licensees, which are generally financial institutions, to issue Diners Club branded credit cards and/or to provide card acceptance services. The Diners Club business also offers transaction processing and marketing services to licensees globally. The Company's business segments are Direct Banking and Payment Services. The Direct Banking 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 Company's Discover Bank subsidiary. The Payment Services segment includes PULSE, Diners Club and the Company's third-party issuing business, which includes credit, debit and prepaid cards issued on the Discover Network by third parties. Basis of Presentation. The accompanying condensed 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 condensed consolidated financial statements and related disclosures. These estimates are based on information available as of the date of the condensed consolidated

Change in Accounting Principle

Change in Accounting Principle
	6 Months Ended May. 31, 2010
Change in Accounting Principle	2. Change in Accounting Principle In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets-an amendment of FASB Statement No. 140 ("Statement No. 166", codified within ASC Topic 860, Transfers and Servicing ) and Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) ("Statement No. 167", codified within ASC Topic 810, Consolidation ). Statement No. 166 amended the accounting for transfers of financial assets. Under Statement No. 166, the trusts used in the Company's securitization transactions are no longer exempt from consolidation. Statement No. 167 prescribes an ongoing assessment of the Company's involvement in the activities of the trusts and the Company's rights or obligations to receive benefits or absorb losses of the trusts that could be potentially significant in order to determine whether those variable interest entities ("VIEs") will be required to be consolidated in the Company's financial statements. In accordance with Statement No. 167, the Company concluded it is the primary beneficiary of the Discover Card Master Trust I ("DCMT") and the Discover Card Execution Note Trust ("DCENT") (the "trusts") and accordingly, the Company began consolidating the trusts on December 1, 2009. Using the carrying amounts of the trust assets and liabilities as prescribed by Statement No. 167, the Company recorded a $21.1 billion increase in total assets, a $22.4 billion increase in total liabilities and a $1.3 billion decrease in stockholders' equity (comprised of a $1.4 billion decrease in retained earnings offset by a $0.1 billion increase in accumulated other comprehensive income). These amounts were comprised of the following transition adjustments, which were treated as noncash activities for purposes of preparing the condensed consolidated statement of cash flows: * Consolidation of $22.3 billion of securitized loan receivables and the related debt issued from the trusts to third-party investors; * Consolidation of $0.1 billion of cash collateral accounts and the associated debt issued from the trusts; * Reclassification of $2.3 billion of held-to-maturity investment securities to loan receivables; * Reclassification of $2.3 billion of available-for-sale investment securities to loan receivables and reversal of $0.1 billion, net of tax, of related unrealized losses previously recorded in other comprehensive income; * Recording of a $2.1 billion allowance for loan losses, not previously required under GAAP, for the newly consolidated and reclassified credit card loan receivables; * Reversal of all amounts recorded in amounts due from asset securitization through (i)derecognition of the remaining $0.1 billion value of the interest-only strip receivable, net of tax, (ii)reclassification of $0.8 billion of cash collateral accounts and $0.3 billion of accumulated collections to restricted cash, (iii)reclassification of $0.2 billion to unbilled accrued interest receivable, and (iv)reclassification of $0.3 billion of billed accrued interest receivable

Investment Securities

Investment Securities
	6 Months Ended May. 31, 2010
Investment Securities	3. Investment Securities The Company's investment securities consist of the following (dollars in thousands): May31,2010 November 30,2009 U.S. Treasury securities(1) $ 549 $ States and political subdivisions of states 64,929 68,553 Other securities: Certificated retained interests in DCENT and DCMT(2) 4,501,108 Credit card asset-backed securities of other issuers 919,198 381,705 Asset-backed commercial paper notes 63,732 58,792 Residential mortgage-backed securities 10,851 12,929 Other debt and equity securities 11,885 12,210 Total other securities 1,005,666 4,966,744 Total investment securities $ 1,071,144 $ 5,035,297 (1) Amount represents U.S. Treasury securities pledged as collateral to a government-related merchant for which transaction settlement occurs beyond the normal 24-hour period. (2) Upon adoption of Statements No.166 and 167, the amount outstanding at November30, 2009 was reclassified to loan receivables. See Note 2: Change in Accounting Principle for more information. 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): AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses Fair Value At May31, 2010 Available-for-Sale Investment Securities(1) Credit card asset-backed securities of other issuers $ 901,241 $ 18,407 $ (450 ) $ 919,198 Asset-backed commercial paper notes 51,337 12,395 63,732 Equity securities 15 2 17 Total available-for-sale investment securities $ 952,593 $ 30,804 $ (450 ) $ 982,947 Held-to-Maturity Investment Securities(2) U.S. Treasury securities $ 549 $ $ $ 549 States and political subdivisions of states 64,929 134 (4,077 ) 60,986 Residential mortgage-backed securities 10,851 849 11,700 Other debt securities(3) 11,868 11,868 Total held-to-maturity investment securities $ 88,197 $ 983 $ (4,077 ) $ 85,103 At November30, 2009 Available-for-Sale Investment Securities(1) Certificated retained interests in DCENT $ 2,330,000 $ 978 $ (126,009 ) $ 2,204,969 Credit card asset-backed securities of other issuers 362,377 19,362 (34 ) 381,705 Asset-backed commercial paper notes 51,337 7,455 58,792 Equity securities 15 15 Total available-for-sale investment securities $ 2,743,729 $ 27,795 $ (126,043 ) $ 2,645,481 Held-to-Maturity Investment Securities(2) Certificated retained interests in DCENT and DCMT $ 2,296,139 $

Loan Receivables

Loan Receivables
	6 Months Ended May. 31, 2010
Loan Receivables	4. Loan Receivables Loan receivables consist of the following (dollars in thousands): May31,2010 November30,2009 Student loans held for sale $ 1,416,603 $ Loan portfolio: Credit card loans: Discover card(1) (2) 44,979,469 19,826,153 Discover business card 348,861 404,149 Total credit card loans 45,328,330 20,230,302 Other consumer loans: Personal loans 1,573,339 1,394,379 Federal student loans(3)(4) 822,323 1,352,587 Private student loans(4) 819,943 579,679 Other 64,180 68,137 Total other consumer loans 3,279,785 3,394,782 Total loan portfolio 48,608,115 23,625,084 Total loan receivables 50,024,718 23,625,084 Allowance for loan losses(2) (3,930,624 ) (1,757,899 ) Net loan receivables $ 46,094,094 $ 21,867,185 (1) Amounts include $19.4 billion underlying investors' interests in trust debt at May31, 2010, and $15.5 billion and $9.9 billion in seller's interest at May31, 2010 and November30, 2009, respectively. See Note 5: Credit Card Securitization Activities for more information. (2) Upon adoption of Statements No.166 and 167, the Company consolidated $22.3 billion of securitized loan receivables, reclassified $4.6 billion from investment securities to loan receivables and recorded a $2.1 billion allowance for loan losses. See Note 2: Change in Accounting Principle for more information. (3) Amount at May31, 2010 includes $499.6 million of student loan receivables, which, along with accrued interest of $24.9 million, are pledged as collateral against a long-term borrowing. (4) Federal student loans are guaranteed by the U.S. Department of Education. Private student loans are made directly to the student with no government guarantees. Student loans held for sale represent certain eligible Federal Family Education Loan Program ("FFELP") loans existing at May 31, 2010 which the Company intends to sell to the U.S. Department of Education ("DOE") pursuant to a Master Loan Sale Agreement for the 2009-10 Loan Purchase Program under the Ensuring Continued Access to Student Loans Act of 2008 ("ECASLA"). Under the Master Loan Sale Agreement, the loans will be purchased by the DOE at an amount which approximates their book value. The loans are expected to be sold to the DOE on or before October 15, 2010. The following table provides changes in the Company's allowance for loan losses for the three and six months ended May 31, 2010 and 2009 (dollars in thousands): For the Three Months EndedMay31, For the Six Months EndedMay31, 2010 2009 2010 2009 Balance at beginning of period $ 4,207,360 $ 1,878,942 $ 1,757,899 $ 1,374,585 Addition to allowance related to securitized receivables(1) 2,144,461 Additions: Provision for loan losses 724,264

Credit Card Securitization Acti

Credit Card Securitization Activities
	6 Months Ended May. 31, 2010
Credit Card Securitization Activities	5. Credit Card Securitization Activities The Company accesses the term asset securitization market through DCMT and DCENT, which are trusts into which credit card loan receivables 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 DCMT debt structure consists of Class A, 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, cash collateral accounts, and more subordinated Series 2009-CE certificates that are held by a wholly-owned subsidiary of Discover Bank. The DCENT debt structure consists of four classes of securities (DiscoverSeries Class A, B, C and D notes), 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. The majority of these more highly subordinated classes of notes are held by subsidiaries of Discover Bank. In addition, there is another series of certificates (Series 2009-SD) issued by DCMT which provides increased excess spread levels to all other outstanding securities of the trusts. The Series 2009-SD certificates are held by a wholly-owned subsidiary of Discover Bank. In January 2010, the Company increased the size of the Class D (2009-1) note and Series 2009-CE certificate to further support the more senior securities of the trusts. The Company was not contractually required to provide this incremental level of credit enhancement but was permitted to do so pursuant to the trusts' governing documents. Subsequent to November 30, 2009, the Company's securitizations are accounted for as secured borrowings and the trusts are treated as consolidated subsidiaries of the Company under ASC 810 and ASC 860. Accordingly, beginning on December 1, 2009, all of the assets and liabilities of the trusts are included directly on the Company's consolidated statement of financial condition. Trust receivables underlying third-party investors' interests are recorded in credit card loan receivablesrestricted for securitization investors, and the related debt issued by the trusts is reported in long-term borrowingsowed to securitization investors. Additionally, beginning on December 1, 2009, certain other of the Company's retained interests in the assets of the trusts, principally consisting of investments in DCMT certificates and DCENT notes held by subsidiaries of Discover Bank, now constitute intercompany positions, which are eliminated in the preparation of the Company's consolidated statement of financial condition. Trust receivables underlying the Company's various retained interests, including the seller's interest in trust receivables, are recorded in credit card loan receivablesrestricted for securitization investors. Upon transfer of credit card loan receivables to the trust, the receivables and certain cash flows derived from them become restr

Deposits

Deposits
	6 Months Ended May. 31, 2010
Deposits	6. Deposits The Company offers its deposit products, including certificates of deposit, money market accounts, online savings accounts and Individual Retirement Account (IRA) certificates of deposit to customers through two channels: (i) through direct marketing, internet origination and affinity relationships ("direct-to-consumer deposits"); and (ii) indirectly through contractual arrangements with brokerage firms ("brokered deposits"). During the three months ended May 31, 2010, the Company acquired approximately $1 billion of deposit accounts from a third party, which were considered to be direct-to-consumer deposits. As of May 31, 2010 and November 30, 2009, the Company had approximately $17.5 billion and $12.6 billion, respectively, of direct-to-consumer deposits and approximately $17.4 billion and $19.5 billion, respectively, of brokered deposits. A summary of interest-bearing deposit accounts is as follows (dollars in thousands): May31,2010 November30,2009 Certificates of deposit in amounts less than $100,000(1) $ 22,472,006 $ 22,587,898 Certificates of deposit in amounts of $100,000(1) or greater 5,168,921 4,047,949 Savings deposits, including money market deposit accounts 7,292,987 5,392,659 Total interest-bearing deposits $ 34,933,914 $ 32,028,506 Average annual interest rate 3.25 % 3.94 % (1) Represents the basic insurance amount covered by the FDIC although, effective May20, 2009, a higher amount of $250,000 of basic insurance per depositor is in effect through December31, 2013. At May 31, 2010, certificates of deposit maturing during the remainder of 2010, the next four years and thereafter were as follows (dollars in thousands): Year Amount 2010 $ 6,318,918 2011 $ 7,704,082 2012 $ 5,596,463 2013 $ 4,398,122 2014 $ 1,983,608 Thereafter $ 1,639,734

Long-Term Borrowings

Long-Term Borrowings
	6 Months Ended May. 31, 2010
Long-Term Borrowings	7. 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 Company's long-term borrowings and weighted average interest rates on balances outstanding at period end (dollars in thousands): May31, 2010 November30, 2009 Interest Rate Terms Maturity Outstanding InterestRate Outstanding InterestRate Discover Card Master Trust I and Discover Card Execution Note Trust Fixed rate asset-backed securities(1) $ 2,598,072 5.47 % $ 5.10% to 5.65% fixed VariousApril2011September2017 Floating rate asset-backed securities(1) 10,971,057 0.81 % 1-month LIBOR(2) +3 to 130basis points Various July 2010July2014 Floating rate asset-backed securities(1) 1,250,000 0.60 % 3-month LIBOR(2) +34 basis points December2012 Floating rate asset-backed securities and other borrowings(1) 250,000 1.01 % CommercialPaperrate +70basis points April 2013 Total Long-Term Borrowingsowed to securitization investors 15,069,129 Discover Financial Services (Parent Company) Floating rate senior notes 400,000 0.79 % 400,000 0.83 % 3-month LIBOR(2) + 53 basis points June 2010 Fixed rate senior notes due 2017 399,426 6.45 % 399,385 6.45 % 6.45% fixed June 2017 Fixed rate senior notes due 2019 400,000 10.25 % 400,000 10.25 % 10.25% fixed July 2019 Discover Bank Subordinated bank notes due 2019 698,292 8.70 % 698,202 8.70 % 8.70% fixed November2019 Subordinated bank notes due 2020 496,579 7.00 % 7.00% fixed April 2020 Floating rate secured borrowing-Cash collateral account(3) 340,527 0.80 % 528,246 0.74 % CommercialPaperrate+50basispoints December 2010(3) Floating rate secured borrowing-Student loans(4) 506,411 0.69 % Commercial Paper rate + 50 basis points August 2013(4) Capital lease obligations 763 6.26 % 2,268 6.26 % 6.26% fixed Various Total Other Long-Term Borrowings 3,241,998 2,428,101 Total long-term borrowings $ 18,311,127 $ 2,428,101 (1) Upon adoption of Statements No.166 and 167, the Company consolidated $22.3 billion of securitized loan receivables and the related debt issued from the trusts to third-party investors. See Note 2: Change in Accounting Principle for more information. Asset-backed securities are collateralized by loan receivables as described in Footnote 5: Credit Card Securitization Activities. (2) London Interbank Offered Rate ("LIBOR"). (3) This loan facility was entered into to fund cash collateral account loans, which provide credit enhancement to certain DCMT certificates. Repayment is dependent upon

Preferred Stock

Preferred Stock
	6 Months Ended May. 31, 2010
Preferred Stock	8. Preferred Stock On April 21, 2010, the Company completed the repurchase of all the outstanding shares of the Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the "Preferred Stock") issued to the U.S. Department of the Treasury under the Capital Purchase Program of the Troubled Asset Relief Program on March 13, 2009 for $1.2 billion. The Preferred Stock was issued at a discount to reflect the value of the warrant (the "Warrant") to purchase 20,500,413 shares of common stock of the Company issued to the U.S. Treasury in connection with the initial sale of the Preferred Stock. As a result of the repurchase of the Preferred Stock, at the redemption date the Company accelerated the accretion of the remaining discount of $61 million. At May 31, 2010, the Warrant remained outstanding.

Employee Benefit Plans

Employee Benefit Plans
	6 Months Ended May. 31, 2010
Employee Benefit Plans	9. Employee Benefit Plans The Company sponsors defined benefit pension and other postretirement plans for its eligible U.S. employees. However, as of December 31, 2008, the pension plans no longer provide for the accrual of future benefits. For more information, see the Company's annual report on Form 10-K for the year ended November 30, 2009. Net periodic benefit (income) cost expensed by the Company included the following components (dollars in thousands): Pension FortheThreeMonthsEndedMay31, FortheSixMonthsEndedMay31, 2010 2009 2010 2009 Service cost, benefits earned during the period $ $ 255 $ $ 510 Interest cost on projected benefit obligation 5,214 5,047 10,428 10,094 Expected return on plan assets (5,823 ) (6,027 ) (11,646 ) (12,054 ) Net amortization 406 (2 ) 812 (4 ) Net settlements and curtailments 68 136 Net periodic benefit income $ (135 ) $ (727 ) $ (270 ) $ (1,454 ) Postretirement For the Three Months EndedMay 31, FortheSixMonthsEndedMay 31, 2010 2009 2010 2009 Service cost, benefits earned during the period $ 264 $ 194 $ 528 $ 388 Interest cost on projected benefit obligation 347 394 694 788 Net amortization (1 ) (38 ) (2 ) (76 ) Net periodic benefit cost $ 610 $ 550 $ 1,220 $ 1,100

Income Taxes

Income Taxes
	6 Months Ended May. 31, 2010
Income Taxes	10. Income Taxes Income tax expense consisted of the following (dollars in thousands): FortheThreeMonthsEndedMay31, FortheSixMonthsEndedMay31, 2010 2009 2010 2009 Current: U.S. federal $ 60,352 $ 211,017 $ 97,599 $ 452,273 U.S. state and local 18,031 23,116 14,061 53,347 International (226 ) 843 245 1,818 Total 78,157 234,976 111,905 507,438 Deferred: U.S. federal 80,951 (42,932 ) (11,848 ) (220,951 ) U.S. state and local 5,018 (3,234 ) (3,101 ) (21,978 ) Total 85,969 (46,166 ) (14,949 ) (242,929 ) Income tax expense $ 164,126 $ 188,810 $ 96,956 $ 264,509 The following table reconciles the Company's effective tax rate to the U.S. federal statutory income tax rate: FortheThreeMonthsEndedMay31, FortheSixMonthsEndedMay31, 2010 2009 2010 2009 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 4.3 3.0 3.3 3.3 Valuation allowancecapital loss 5.7 3.9 Non-deductible compensation 0.4 1.9 1.3 1.3 Other (0.8 ) (0.1 ) (1.0 ) (0.2 ) Effective income tax rate 38.9 % 45.5 % 38.6 % 43.3 % The Company is under continuous examination by the IRS and the tax authorities for various states. The tax years under examination vary by jurisdiction; for example, the current IRS examination covers 1999 through 2005. The Company regularly assesses the likelihood of additional assessments in each of the taxing jurisdictions resulting from these and subsequent years' examinations. A reserve has been established that the Company believes is adequate in relation to the potential for additional assessments. As part of its audit of 1999-2005, the IRS has notified the Company of certain proposed adjustments. The Company intends to utilize the IRS administrative appeal process to protest the proposed adjustments. The outcome of any appeal is not certain and the matter is in a preliminary stage, but the Company expects that any federal income taxes or related interest due will not be materially in excess of the amounts already included in its reserve.

Earnings Per Share

Earnings Per Share
	6 Months Ended May. 31, 2010
Earnings Per Share	11. Earnings Per Share Effective December 1, 2009, the Company adopted new accounting guidance on earnings per share, which clarifies that unvested stock-based payment awards that contain nonforfeitable rights to dividends are participating securities and should be included in computing earnings per share ("EPS") using the two-class method. The Company grants restricted stock units ("RSUs") to certain employees under its stock-based compensation programs, which entitle the recipients to receive nonforfeitable dividend equivalents in the same amount and at the same time as dividends paid to all common stockholders; these unvested awards meet the definition of participating securities. Under the two-class method, all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities, based on their respective rights to receive dividends. Prior period EPS amounts have been restated to conform to current period presentation, although there was no material impact on the previously reported basic or diluted EPS. The following table presents the calculation of basic and diluted EPS (dollars in thousands, except per share amounts): FortheThreeMonthsEndedMay31, FortheSixMonthsEndedMay31, 2010 2009 2010 2009 Numerator: Net income $ 258,067 $ 225,800 $ 154,529 $ 346,194 Preferred stock dividends (8,504 ) (13,266 ) (23,811 ) (13,266 ) Preferred stock discount accretion (63,103 ) (3,288 ) (66,492 ) (3,288 ) Net income available to common stockholders 186,460 209,246 64,226 329,640 Income allocated to participating securities (1,870 ) (2,880 ) (702 ) (5,056 ) Net income allocated to common stockholders $ 184,590 $ 206,366 $ 63,524 $ 324,584 Denominator: Weighted average common shares outstanding 543,875 481,636 543,651 481,092 Effect of dilutive common stock equivalents 8,185 7,977 Weighted average common shares outstanding and common stock equivalents 552,060 481,636 551,628 481,092 Basic earnings per share $ 0.34 $ 0.43 $ 0.12 $ 0.67 Diluted earnings per share $ 0.33 $ 0.43 $ 0.12 $ 0.67 The following securities were considered anti-dilutive and therefore were excluded from the computation of diluted EPS (shares in thousands): For the ThreeMonths EndedMay31, For the SixMonths EndedMay31, 2010 2009 2010 2009 Unexercised stock options 3,391 4,439 3,445 4,462

Capital Adequacy

Capital Adequacy
	6 Months Ended May. 31, 2010
Capital Adequacy	12. Capital Adequacy The Company is subject to capital adequacy guidelines of the Federal Reserve, and Discover Bank (the "Bank"), the Company's 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 risk-based capital and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. As of May 31, 2010, 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-weighted amount or average level of the financial institution's assets, specifically (a) 8% to 10% of total risk-based 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 1 risk-based, and Tier 1 leverage ratios as set forth in the table below. As of May 31, 2010, the Company and the Bank met the requirements for well-capitalized status and there have been no conditions or events that management believes have changed the Company's or the Bank's category. The following table shows the actual capital amounts and ratios of the Company and the Bank as of May 31, 2010 and November 30, 2009 and comparisons of each to the regulatory minimum and "well-capitalized" requirements (dollars in thousands): Actual Minimum CapitalRequirements CapitalRequirementsToBeClassified asWell-Capitalized Amount Ratio Amount Ratio Amount Ratio May31, 2010(1): Total risk-based capital (to risk-weighted assets) Discover Financial Services $ 7,512,954 15.3 % $ 3,920,888 8.0% $ 4,901,110 10.0% Discover Bank $ 7,365,059 15.2 % $ 3,868,372 8.0% $ 4,835,464 10.0% Tier 1 capital (to risk-weighted assets) Di

Commitments, Contingencies and

Commitments, Contingencies and Guarantees
	6 Months Ended May. 31, 2010
Commitments, Contingencies and Guarantees	13. 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 May 31, 2010, future minimum payments on leases with original terms in excess of one year consist of the following (dollars in thousands): CapitalizedLeases OperatingLeases 2010 $ 395 $ 3,103 2011 395 5,430 2012 6,090 2013 4,582 2014 4,568 Thereafter 16,325 Total minimum lease payments 790 $ 40,098 Less: Amount representing interest 27 Present value of net minimum lease payments $ 763 Unused commitments to extend credit. At May 31, 2010, the Company had unused commitments to extend credit for consumer and commercial loans of approximately $168 billion. Such commitments arise primarily from agreements with customers for unused lines of credit on certain credit cards and certain other consumer loan products, provided there is no violation of conditions 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. Secured Borrowing Representations and Warranties. As part of the Company's financing activities, the Company provides representations and warranties that certain assets pledged as collateral in secured borrowing arrangements conform to specified guidelines. Due diligence is performed by the Company which is intended to ensure that asset guideline qualifications are met. If the assets pledged as collateral do not meet certain conforming guidelines, the Company may be required to replace, repurchase or sell such assets. In its credit card securitization activities, the Company would replace nonconforming receivables through the allocation of excess seller's interest or from additional transfers from the unrestricted pool of receivables. If the Company could not add enough receivables to satisfy the requirement, an early amortization (or repayment) of investors' interests would be triggered. The maximum potential amount of future payments the Company could be required to make would be equal to the current outstanding balances of third-party investor interests, which is already entirely reflected in long-term borrowings owed to securitization investors on the Company's statement of financial condition. The Company has not recorded any incremental contingent liability associated with its secured borrowing representations and warranties. Management believes that the probability of having to replace, repurchase or sell assets pledged as collateral under secured borrowing arrangements, including an early amortization event, is low. Guarantees. The Company has 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 un

Litigation

Litigation
	6 Months Ended May. 31, 2010
Litigation	14. Litigation The Company filed a lawsuit captioned Discover Financial Services, Inc. v. Visa USA Inc., MasterCard Inc. et al. in the U.S. District Court for the Southern District of New York on October 4, 2004. Through this lawsuit the Company sought to recover substantial damages and other appropriate relief in connection with Visa's and MasterCard's illegal anticompetitive practices that, among other things, foreclosed the Company from the credit and debit network services markets. The Company executed an agreement to settle the lawsuit with MasterCard and Visa for up to $2.75 billion on October 27, 2008, which became effective on November 4, 2008 upon receipt of the approval of Visa's Class B shareholders. At the time of the Company's 2007 spin-off from Morgan Stanley, the Company entered into an agreement with Morgan Stanley regarding the manner in which the antitrust case against Visa and MasterCard was to be pursued and settled, and how proceeds of the litigation were to be shared (the "Special Dividend Agreement"). On October 21, 2008, Morgan Stanley filed a lawsuit against the Company in New York Supreme Court for New York County seeking a declaration that Morgan Stanley did not breach the Special Dividend Agreement, did not interfere with any of the Company's existing or prospective agreements for resolution of the antitrust case against Visa and MasterCard, and that Morgan Stanley is entitled to receive a portion of the settlement proceeds as set forth in the Special Dividend Agreement. On November 18, 2008, the Company filed its response to Morgan Stanley's lawsuit, which included counterclaims against Morgan Stanley for interference with the Company's efforts to resolve the antitrust lawsuit against Visa and MasterCard and willful and material breach of the Special Dividend Agreement, which expressly provided that the Company would have sole control over the investigation, prosecution and resolution of the antitrust lawsuit. Subsequent to a ruling by the New York State Court, the Company estimated that the amount that was probable it would owe to Morgan Stanley was $837.7 million as of November 30, 2009. Of this amount, $808.8 million was recorded as Special dividendMorgan Stanley in liabilities on the statement of financial condition with an offset to retained earnings and $28.9 million of interest related to delayed payment was recorded in other expense. On February 11, 2010, the Company entered into a Settlement Agreement and Mutual Release with Morgan Stanley, in which each party released and discharged the other party from claims related to the sharing of proceeds from the antitrust suit against Visa and MasterCard. On the same day, the Company entered into a First Amendment to the Separation and Distribution Agreement dated as of June 29, 2007 (the "First Amendment") with Morgan Stanley. The First Amendment provides that payments that Morgan Stanley receives from the Company in connection with the settlement of the antitrust litigation with Visa and MasterCard shall not exceed a total of $775 million, inclusive of any accrued and unpaid interest and fees under the agreement. In addition, on the same day, the

Fair Value Disclosures

Fair Value Disclosures
	6 Months Ended May. 31, 2010
Fair Value Disclosures	15. Fair Value Disclosures 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): May31, 2010 November30, 2009 CarryingValue EstimatedFair Value CarryingValue EstimatedFair Value Financial Assets Cash and cash equivalents $ 10,335,729 $ 10,335,729 $ 13,020,719 $ 13,020,719 Restricted cashspecial dividend escrow $ $ $ 643,311 $ 643,311 Restricted cashfor securitization investors(1) $ 685,113 $ 685,113 $ $ Other short-term investments $ 375,000 $ 375,000 $ 1,350,000 $ 1,350,000 Investment securities: Available-for-sale(1) $ 982,947 $ 982,947 $ 2,645,481 $ 2,645,481 Held-to-maturity(1) $ 88,197 $ 85,103 $ 2,389,816 $ 1,953,990 Net loan receivables(1) $ 46,094,094 $ 46,237,020 $ 21,867,185 $ 21,984,317 Amounts due from asset securitization(1) $ $ $ 1,692,051 $ 1,692,051 Financial Liabilities Deposits $ 35,021,975 $ 36,124,748 $ 32,093,012 $ 33,139,823 Long-term borrowingsowed to securitization investors(1) $ 15,069,129 $ 15,284,353 $ $ Other long-term borrowings $ 3,241,998 $ 3,385,252 $ 2,428,101 $ 2,524,320 (1) Upon adoption of Statements No.166 and 167 on December1, 2009 the Company consolidated the securitization trusts. Loan receivables increased by the amount of securitized loans and long-term borrowings increased by the amount of debt issued from the trusts to third-party investors. Furthermore, applicable amounts of held-to-maturity and available-for-sale investment securities were reclassified to loan receivables, while amounts recorded as due from asset securitization were either reclassified or reversed. See Note 2: Change in Accounting Principle for more information. Fair Value of Assets and Liabilities Held at May 31, 2010. Below are descriptions of the techniques used to estimate the fair value of financial instruments on the Company's statement of financial condition as of May 31, 2010. 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 approxim

Segment Disclosures

Segment Disclosures
	6 Months Ended May. 31, 2010
Segment Disclosures	16. Segment Disclosures The Company's business activities are managed in two segments: Direct Banking and Payment Services. Direct Banking. The Direct Banking 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 Company's Discover Bank subsidiary. Payment Services. The Payment Services segment includes PULSE, an automated teller machine, debit and electronic funds transfer network; Diners Club, a global payments network; and the Company's 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 Company's chief operating decision maker is prepared using the following principles and allocation conventions: * Prior to adoption of Statements 166 and 167, segment information was presented on a managed basis because management considered the performance of the entire managed loan portfolio in managing the business. A managed basis presentation, which is a non-GAAP presentation, involved reporting securitized loans with the Company's owned loans and reporting the earnings on securitized loans in the same manner as the owned loans instead of as securitization income. Although similar, a managed basis presentation is not the same as presenting a full consolidation of the trusts, and therefore, certain information may not be comparable between current and prior periods, particularly related to net interest income, provision for loan losses and other income. Subsequent to the consolidation of securitized assets and liabilities in connection with the adoption of Statements No.166 and 167, there is no distinction between securitized and non-securitized assets on a GAAP basis. See Note 2: Change in Accounting Principle for more information. * 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 financial statements included in the Company's annual report on Form 10-K for the year ended November30, 2009. * Corporate overhead is not allocated between segments; all corporate overhead is included in the Direct Banking segment. * Through its operation of the Discover Network, the Direct Banking segment incurs fixed marketing, servicing and infrastructure costs that 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 Company's chief operating decision maker. * Income taxes are not specifically allocated among the operating segments in the information reviewed by the Company's chief operating decision maker. The following tables present segment data on a GAAP basis for the three and six months ended May 31, 2010 and on a managed basis with a reconciliation to a GAAP p

Subsequent Events

Subsequent Events
	6 Months Ended May. 31, 2010
Subsequent Events	17. Subsequent Events On July 7, 2010, the Company repurchased the warrant to purchase 20,500,413 shares of its common stock that it issued to the U.S. Treasury in connection with the issuance of its preferred stock under the Capital Purchase Program. The Company repurchased the warrant from the U.S. Treasury for $172 million. The Company did not have any other subsequent events that would require recognition or disclosure in the financial statements and footnotes as of and for the three months ended May 31, 2010.