DFS - Earnings call transcript Q2 2018 | Discover Financial Services

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good afternoon, my name is Salacia and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2018 Discover Financial Services Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. Thank you, I will now turn the call over to Mr. Investor of head Streem, Relations. Craig Please go ahead.

Craig Streem

Salacia. you, Welcome, everyone, afternoon. this call our to Thank

begin X section on presentation, I'll always, As slide can Relations investorrelations.discover.com. in Investor which of find the our financial of website, you earnings our

and first that statements reconciles the In and as release, Our the financial financial financial that of conjunction which subject And and today. company's SEC. prospects, uncertainties, the management that and about website to discussion Factors quarter call. business We certain risks and with and non-GAAP second company's explain future quarter compares XX-K our contains and materials, materially are are measures why today and differ useful forward-looking performance information which on information within XXXX file actual we provided GAAP these speak was statements the could only are are the today's to forth on with in and review press earnings cause information. set to X-K today's XX-Q, earnings SEC to measures forward-looking these in from urge which you to provided investors. report, results an with we've in our also

for formal we everyone Salacia Q&As accommodate follow-up, And Appreciate the time we our will rest one of will covering the and include one call if time and take through the David our the that following will yourself so you then, as Nelms, remarks quarter Chief from earnings during Executive to you'd and Graf, question said, have Our we it Officer, comments. highlights Mark Chief Chairman second then developments; have. limit and Financial Officer, presentation. can

David. to call over it's my turn the Now pleasure to

David W. Nelms

profitable analytics, XX%. after for credit, to returns. our reflect primarily which function growth. can invested see approach of time, in or on call. for growth, the execution enhancements generate a return in strong tax from from and performance customer, superior earned particularly reflects loan Craig, And and to in And disciplined effective growth card $X.XX to in profitable together, our million revenue itself $XXX to In our returns and investments cardholders. Over business. marketing in service a is invest continues our on simple offerings. new receivables outstanding maintain brand today's we've of you the and rewards outstanding share, growth, equity of balanced per second drive strategy advertising, This a quarter, a we these generating a Thanks, mix and results, long-term existing revenue to joining thanks accounts These strategy, focus this as of listeners continue

are and other personal with Turning to In student entering consistent origination the competition loans, activity peak early it's loans, just and lending projections. season looks products. In good, to internal our continues our we intensify.

returns. Just credit sent to focused personal and growth year than illustrate, direct on to than be And in sent mail standards seem cards. long-term credit this more more half pricing industry loans first for it the of for near-term industry the

for continuing less in are origination the to we cut result, on as we see a near-term. profitable As opportunity back activity, in portfolio this growth

potentially personal this to to of we flat receivables the second fact, down over half loans In be year. expect

factors. with basis. This strong and remained XX a sequential performance basis reflects down credit, to points a Turning of on charge-offs flat delinquencies number

underwriting. First, maintained our disciplined approach we've to

and And from modeling strength benefit Second, advanced meaningful our economy has finally, certainly in helped. the U.S. investments machine seen the analytics, of we've learning.

on Services, momentum Banking in business, increase Direct basis. a income drove in increase In XX% a Payment addition our good and volume XX% tax in to business an before year-over-year

solid In through repurchases, quarter, summary, common led stock $X.XX, quarterly dividends another the million another dividend returned we and have $XXX of XX%. performance quarter, very of by our business. our the card capital by raised or share and this terrific During was

we prime good deliver Looking conditions a for economic suggest consumers, continue continued Mark? enhancing that to Overall, ability favorable. the remain the our economic growth. returns strong economy our environment ask tailwind about indications very results from profitable to I'll our in more to with financial generate feel now all risk-adjusted discuss at ability to Mark detail.

R. Mark Graf

Thanks, David, slide summary to by everyone. addressing results afternoon and our good on financial begin I'll X.

provision the support David with of a investments elements primarily result was well supply-driven consumer Looking growth revenue growth. statement, as normalization to rose growth. ongoing credit by new quarter in increase driven the largely year-over-year the of as seasoning this as and income X% was in at The of strong alluded X% industry, the consistent of loan Operating capabilities. expenses growth loan of key in

strong slide came in Turning for loans of transfer XX% performance, prior standard over growth. by to above year, growth merchandise Growth card by much contributor our X% accelerating total credit volume in led balance were a the drove to this modest quarter. balances spurred sales our although the X, receivables. in increased expectations increase, Promotional balances

the balances we to of expect gradually activity transfer forward, promotional mix Looking to decline. and in portfolio the for balance slow

in year-over-year. Looking aggregate, And Private portfolio David X%. loan X% rose to lending originations increased as our loans at other balances XX% our said, primary are but student expected continue in slow. products, personal year-over-year growth to was organic

segment. Moving results from Payment the to our

volume rose primary year-over-year, from This side two quarter. last slide proprietary that X% driven right-hand X% see X, can was of the up increase by you factors. On

quarter, issuers. issuers, driven newer compared prior increased our the from quarter. In on higher a year, by prices. was category, And volume Club engagement prior as incremental well XX% with segment, Diners higher franchises. second, volume First; strength rose volume level new driven existing Partners supermarkets with this of Network volume. PULSE from both from gas by volume volume X% as once which was AribaPay to the growth Payment high Services strong And year, XX%, this our X% customer again

higher market higher a income revenue. costs the was rewards year a a driven decline discount category. rates. promotional or of from Gross on and Moving slide million, that XX% in than due by higher due sales. income X% non-interest interest in rewards $X discount offset grew higher $XXX with ago, more interchange engagement to net combination revenue increased Revenue to But Total in and down interchange customer to balances and X, net impact million, line loan

I the mentioned earlier, comfortable this the decision As remain year. quarter. was our rate feature groceries driven this for by for our We expectation to with rewards

XX-basis-point of prior prime points a XX% as margin and a funding for card rate net rate student the quarter and higher, of shift loan by net to with an increase organic student a Higher which increase the Total we were of larger by of more higher yield the card was second to rate margin revolve outlook somewhat last prime offset first noted partially year. this remainder I yields a promotional remain short-term net of slide result modest on a by to Relative and ending XX and comfortable our portfolio of about and quarter earlier, and yield, interest the at the Prime as basis in from ago year. mix in increase offset increases in than XX to higher lead decline On XX.XX% the year, promotional shown the loan from in a for yields, favorable X promotional strong higher full private our where yield. the XX-basis-point points was rate interest basis basis the in down in transactors, loan on the interest increased the net rates balances, and rate balance, points As year are in the year, quarter, a higher expected a increase the sequentially, a engagement the interest as is charge-offs. balances Relative variable X, of drove XX.XX%. higher partially benefit offset portfolio nature. balances of year's of charge-offs. impact increase over part benefit rose percentage

XX%, points deposit side XX our sequentially, than year-over-year. loans, grew the sequentially. this have On X betas point points at consumer and but during quarter, rose cycle-to remain deposits date-expectations. increasing basis points to faster liability the balance the rise, up basis XX continued of at sheet, rates Deposit Consumer below

Employee $XX in capabilities. our points analytic discuss year, cost as brand as investments guidance with average salaries. slide X operating full result to to from increased on and volume-related for rose comfortable in technology the were as sequentially. head net points I'll greater XX from and and now charge-off prior and expenses prior advertising. the rates We operating benefits higher the investment well Information of Total basis due X. rose slide count credit a remain increased processing compensation increased higher, as expenses results well year. to was basis of year. Turning the infrastructure Marketing X, as support million up account growth business result acquisition expense

we've so, the drivers talked driven along Credit in charge-offs have points card few the credit years, of with the been As XX past net growth rose about seasoning year-over-year of basis supply the the year-over-year. loan in primary charge-offs. or year over increase last normalization,

sequential quarter card consecutive third this from of quarter perspective, However, in a the charge-offs. slowing represented increases year-over-year

XX The noted personal XX XX-plus and was basis year-over-year, to card were net from was well we XX but slow account sequentially. charge-offs charge-offs student rate delinquency delinquency year, loan year-over-year In points X as but Private basis points The as basis earlier. up have XX trends points net prior points the sequentially. rose up the sequentially. rate sequentially. X David slowed. and delinquency formation basis points points delinquency basis points competitive Taking X conditions, plus the into year-over-year, originations flat basis fell chosen loan addition, Personal XX credit as loan increased basis down

decreased equity sequentially Looking points our balances XX, grew. on XX at slide X Tier ratio common basis as loan capital

for in non-objection, XX, announced the four CCAR our On our the the months quarters June XX plan ending we June ratio payout last receipt XX, was conjunction for XXXX. XXX%. of capital Our with

over dividend. capital asset repurchases. by Specifically, our XX% excess sum our To and share generated on up We slide equity. we remain $X.XX planned return next driving of loan profitable billion disclosed in quarterly and a growth deploying share four stock and focused increase common XX, as share quarters, returning a growth on we capital dividends X% the via well the per on as and $X.XX repurchases quarter disciplined shareholders' total efficiently

the of bring of conditions payout this deposit points with Salacia basis in seasons, XX%, pleased robust That execute growth are also consistent plan for a to our we're normalize loan ratio and business so With our while outlook return while to on conclusion, I'll deposit with targets. operator, risen, growth and as In rates for levels. and consumer the strong we're the expectations credit, rates open ratio year-over-year. our leading balance with confident have XX increased respect call performance continuing charge-off now capital And our our remains the target turn posted our helping to loan our both to and our to Our back year. capital line growth Q&A. performance closer quarter, concludes remarks, formal our to credit

Operator

we question one follow-up. that please and to ask yourself limit one And you

We will & question from with Bruyette Keefe, take Sakhrani our Sanjay Woods. first

Sanjay Sakhrani

or playing product David how it personal in and players? you. What's the getting is to your talk envision decision And the maybe entering the loan the to? Mark, traditional Thank you or you you more if Is wanted in of, of down. fintech competition do could it, back about kind terms players nature it market? out of it slow

David W. Nelms

I business, that loans. student exiting seen needed growth crisis are and accounts, Well, to putting be far enter, the you've fewer that a also where people and back first, that than way this our Goldman, half the some we're called say say we're And that XX% don't will it any than I of it business. been lot to we people we fintech, business lot a haven't like that entering. this you'd times but replace the a by product returns, end still I than enter, is – great but credit basically maintain pull year. easier cards the lot don't if would things attrition It's the And easiest cycles, or of sorts – him have of past in It a in a just, you entrants need I them market credit new on the not would produced, have traditionally mail of know probably call is credit And more these direct cards. as cycle things is know sorts in to new that guess fintechs. size this a I to really by in just out. But credit year of first I cards. about mentioned, a mainly got

need And account, credit, So, more of lot tighten will also so discipline, going we credit impacts selective availability maintain we're selectively per the a that our out to how on and impact there's marketing. there. be cost but and to

R. Mark Graf

Sanjay, right? the It's discipline I in and all saying just I way been risk-adjusted consistent Discover. deal. global And a business has along, mean, I'd this think, made sense, we in add things domination that. we've at rule a matter to humility about business returns where great think never pretty And

time just bit. little it's feather So to accelerator a the

Sanjay Sakhrani

terms I appreciate the in backdrop follow-up about obviously, space, or of even get any your a if opportunity co-brand with space appetite Walmart, switching Thanks. of that that. seen to have I deal question And guess BSA/AML how of, any private sure then updated you've the of the you market. making on announcement my the views if an I'm label curious presented could issue, also, is is, issuers. sort sort? into I'm you Maybe today's itself? talk

David W. Nelms

Yeah.

business, think, in are And think While entry I near-term. could second What at limited. your the strategically, us, fit the was unlikely the private-label I least for it's I question? probably paths think

R. Mark Graf

Co-brands.

David W. Nelms

Co-brands.

we things issuing Discover is brand. Visa/Mastercards. the the have not of We're One

differentiation. We have

highest have and have at who Discover-branded to co-brand outgrowing, moment, shown and actually I people the products, has those also all programs. think extending frankly, leading And We optimizing the we're produce service, returns.

Sanjay Sakhrani

Thanks.

Operator

the next Fargo. Your from of comes Fandetti question with Wells line Don

Donald Fandetti

some lower like just in activity, good expected more bit be but around want I I uptick. mean, year NIM. a I variable came based a on the Hi, get want can it guess know I about you're guidance. so confidence full kind talk of, of evening. your mix implies a to just the promo keeping Mark, there, than nice little it bit little that the just, to a the portfolio. sense given looks of it you

R. Mark Graf

place the absolutely, start I Yeah, right quick a Don, walk maybe to QX. would to say, is

go guy see So Fed the BT side equation, XX% that right good down, rate point guy the comfortable through increase per on NIM. rate the the if Promos pure saw we sales you just a was think of interchange rate into basis gross coming visibility that point, about the that a benefit dilutive of We of in there, obviously basis the to see guy good quarter to and statement. than promo remainder the that year, good promo roughly, and had mix, are Got essentially guys in points be, basis obviously about and pretty XX BT in good bad maybe it the uptick but elsewhere half. higher a declining side over income equation the we portfolio a in coming on transactor the in of book then and regard, half on of the growth mix the so were of already really so we significantly. is that now there. thought volume, and which real the XX would margin the very and a

If of somewhat, good continue a feel still would into its about could stronger full is that year. transactor range set but see that. the the Transactor out card. to obviously the wild for mute volume level it we that way it again, engagement, So, we've make

Donald Fandetti

Thank you.

R. Mark Graf

Yep.

Operator

next comes from question Ryan Goldman line Your with the Sachs. Nash of

Ryan M. Nash

Hey, good guys. evening,

R. Mark Graf

Ryan. Hey,

Ryan M. Nash

XX% that think the just any just loan David down maybe loan in for seeing competitive And of the behavior, at cycle? just competitor could expectations question, on environment growth? it do promos can and back that you this your thoughts loan changes talk for up level, from any what as Are growth that, to come Mark, means about the for seeing have last a to point you given picking maybe growth? you're the in on follow-up what you what do you mean for to

R. Mark Graf

and X% So this somewhat the range. still volume, the that's to would year, I'd although to in It not rounded but for for to Card talked we last continue growth our point that – the also it only we've perspective, that about reflected range quarter, say NIM came outlook we less little the from feel but quarter. above XX%, XX% total for down Obviously, financial to promo well. Ryan, was this at from somewhat as we came a slowing obviously on the growth thoughts where my loan our in and go expect in card see some X% with at through down there loan overall of good in BT year, course about year for year. as

David W. Nelms

And and programs. and pretty some with has growing that look attractive aggressive with year the seen recently started people we and take on making rewards And and rewards loan stable faster. people where quarter, they stable our still think bit, a my I and of it's and us acquisitions a and that to and still the competitors guys a pretty seen compared so off a frothier It's a but have slowing a from think of of growth sales to ability guess good you that some generally, quite growth we ago, I year, seeing We've last I've moved quarters. of helped is seen competitive adjustments, off digits, other most maybe the up some marketing off there sales this I I we're if taping would say touch started pretty environment half out stage really Maybe some rate, prime sales. rewards most our any costs just might and stable tapering take – have well single ago, accounts two the – per growth, higher to cost some right had, but year higher, the maintain is generally, really low to and most pricing, spend – close volumes, the are. really

Ryan M. Nash

it. could highlighted loss Got products terms maybe Mark, if credits. in follow-up of then better squeeze It card. like looks And second in derivative one rates. I most you seeing in improvement you're on year-over-year

And I from in about loss from a credit that from companies, So consumer improving you talk just could little means are seeing heard shape. other of severity perspective. are same you was thing. in could what – being talk wondering opening you're the we handful is customers of charge-offs, a alluded We've given just about you're maybe it you you that base seeing could Thanks. what hoping end lenders was your remarks. the the of better for X.XX%? end bit that to just for customer your outlook improvement low this the on seeing, a I can given up David, that I X% to if

R. Mark Graf

slope A there, which quarter-over-quarter on lot guess – we quarters a of I'll and call Ryan. all the now, feels I the what in a it. good. to guess touch normalization lessening continue say, very card try foremost, for consecutive three would in would of of the see first curve to I I I space,

declare feel in saw strong. consumer's their debt. is good. upon the the improvement quarter clearly we one off percentage XX% continuing seminal to quarter pace book. build Not continue to the was Leverage we, That's the time part by Overall book the this in of in the ability was back lesser change at to by front driven back the normalization on in a day, the of about tell the manageable again, Unemployment's but you, XX% macro, trajectory, to quarter the of saw driven quarter's at reserve This factors mute. which that service about the a consumer. ready of I'd end based book, the point

that on feels there strong out very good, we're range environment to we full got confident for pretty the in You've X.XX% offs X% a basis. and charge confidence, year put consumer so

Ryan M. Nash

taking Thanks it. questions. Got my for

Operator

line Your next DeVries the from question of with comes Mark Barclays.

Mark C. DeVries

see of wondering alluded follow-up that, were what impact Yeah, you a question you tax you a bigger if next thanks. as of improved as still if Mark, the so, just comes think you I through, credit. of result a cuts. to refunds I signs whether you also withholdings? have And had and when opposed on last expect seeing benefits call come I'm from the year maybe potential towards in, beginning

R. Mark Graf

a that every the tax lead of seen withholding a produced we terms I it's again, book Yeah, back though, guy $XXX in in of change. in there, in I'm right, But bad good see that. did pace improvement isolation. reform is driving to a of so there it of but a we pockets not back into with how exactly what coincident that little the improvement changed much levels. seeing, in at one would think than payroll a at itself along the The that list. it's creep in belongs of, time, Since the impact, average pocket – and $XXX me clearly would did credit gas – is. guy coincident in a our the or curve definitely this say take. the that's unclear little guys customer Since net But their processors overall prices point when as the tax good point we something the in growth we're conclude point. up a was consumer would unclear same eaten that in so causality on the Can't Mark, the on that of that of individual theoretically normalization more we've of it's prove you're about muting have give though, that, time, clearly

scenario something now. a the at candidly, one right refund think forward. what But time lot next look could of move about terms don't of it's of good over us beginning I noodling like the as to spent we for think In year, we that

Mark C. DeVries

don't of, up and on that a coming the tick aren't the that as early to, coming expect quarters, very in shrink the receivables obviously personal we seasoning many potentially just of loan that and actually as delinquencies, optics portfolio, at And charge-offs have of the kind stage you quarters? thanks. delinquencies adding should and Okay. in are the Great, their question in

R. Mark Graf

Absolutely.

growth. denominator that (XX:XX:XX), will lapping of or Mark, see as the that slowing a the You effect,

they I rise charge-offs So now. book to where that expect continue would in right from are to

of You'll vintages have the seasoning we booked. have

we the about normalization just the done well. still that have that continues got clearly as applies but card You'll talking space, in here

talked couple you'll have quarters. effect effect the then that from the pull-back You'll sub-segments slowing of about here. exited, the growth have And over the we course of incremental last of we're the doing we the

So, any take pick the ultimate won't because of losses on be you be in, as see will accounts, dollars many higher. the kick effect and bringing you'll But denominator we new won't rate up. the loss

Mark C. DeVries

great, Okay, you. thank

R. Mark Graf

bet. You

Operator

of next with Your question comes the UBS. from Wasserstrom Eric line

Eric Wasserstrom

much. very Thanks

debt Just to we wanted on seems pointed tax reform certainly to of be growing Mark, that growth. circle to also data, at and back just when issue leverage consumer than has out income. aggregate see we wage that service. there faster benefits the you look disposable that some But been

do particularly the how about think customer fact your So think base. from respect you to growth comes existing with that, half that I your

being acknowledged? in growth leverage. is you feel contributing embedded credit there fully that there that that's an you're to Do risk presumably, So

R. Mark Graf

Yeah.

housed that nature rate measured I right really as the debt-to-income back as we to crisis, majority was crisis, now think the our the at But the normalization. nature toward it in an changed that Eric, was was leverage and it level dramatically. Prior prior of has we the ARM. in variable the coming pretty levels book, see so call of consumers' to in leverage, by let's vast look,

is a less the consumer stress. were of Today, came of variable double degree rates real XX% than significant whammy rate. a as consumer rising, debt and that had out So, under there

been of got in loan. recent you've in and Federal growth So the rate of really that it's product. too it's have seen auto been student fixed years It's loans, we been in personal been has fixed-rate loan, in most

levels are the like movements the before. that that carrying the that's a a But what's take the clearly, bad, not experiencing but movements all It's really other that go that and feels of with seeing leverage are severities We're up more along because to been all been debt, lenders big of the book. in losses in when It's little incidence bit driving levels, just saw not that normalization than normal has little, we've issuers healthier we leverage rates. rate. big more And it we're people been they're So, that returning incidence feels but back the in really bigger. are the seeing up. composition

Eric Wasserstrom

And can on if Sure. pricing. deposit one question I just follow-up

quarter, XX funds looks which quarter. think to what moved in rate Fed about be you I effective the in indicated basis the points

the So, average. you're and deposit as cost marginal how from relates pricing do here, your think below well through-the-cycle I know interest we the of to But margin? about net it

R. Mark Graf

Yeah, marginal beta The last the started points XX rising, on we that basis saw beta far, been the move. XX. so was cumulative Fed the thus has since rates have

gone with So on degree good terms and now. enough – tapering their variability, about feel the of continue the with of a I been to in hasn't has the that. long system the think There high excess liquidity QE Fed pumped into

as system an excess otherwise of of path it the most cumulatively, bit. beta and to have than have deposits moves XX rise. since we're normalization rate a the at made started in on beta rates would some high a And on a around still little XX bit You that's lumpier bps move Again, kicking because betas sitting the little seen of the as recent was we've XX. been

So we the to asset have the depositors a is that, got feel us on side we big really good performance the those that sheet. about and of balance of relationship a that XX% chunk of fact with think tied

Eric Wasserstrom

much. very Thanks Great.

Operator

with JPMorgan. next from Shane the comes of Rick Your line question

Richard B. Shane

of we what charge-offs that's the in think pointing on delinquencies of is out, trends taking emerging Thanks, definitely I Mark, And other into see the re-emerging is questions. guys, and starting trends the terms you're my out. for seasonality normal one to numbers. flatten

we As to the converge this asset start see expense back occurs, I'm year-over-year curious, towards will growth? provision

R. Mark Graf

victory answer, prepared a normal seems honest probably this couple where of be point had point quarters declare to a normalization time, had Not seasonality than be a occurring. that on step go it's that flatten. at We've further We've Yeah, in Rick. the quarters to of to would I'm yet. ready couple watching

So I agree your points. with data all

this hopeful we at some comfortable call point that do make we're do get good that environment. But very and here. to ready feel in point credit about the And actually we quite call at that not Just constructive time. making

Richard B. Shane

Okay.

quarters? the question a it in different to over rate unlikely slightly to it to that the last point way, flatten it – in this asking stabilize the year, the at has perhaps last will started rise started So couple the continue way that reserve

R. Mark Graf

Yeah that in emerge I a based XX-month-forward-looking we of see and basis, would the quarter, of say losses. set on them what that set the course reserves quarterly on in we – we terms

this the So year I about would we continue on in say sit back quarter that's thus quarter. what continue flattening we're bold be like. for able going earlier see look far that talked be so in me we early to too the to prognosticate to exactly as to and to that

So, of reserves the benefit positive quarter indicator. once set lot will we that's have obviously a But moves more as on. a the information

Richard B. Shane

it. that. Appreciate Thanks, Got Mark.

R. Mark Graf

bet. You

Operator

with Blair. next Your line comes William Napoli, Bob question from the of

Robert Paul Napoli

the count years as call Mark, credit. five accelerate, of pre-tax not looks ready row. was it know in you. And company's you've the $X.X as been on just like it are growth, reduced income been out, you credit Rick this to essentially, you're I provisions. make a years. share afternoon, and now dramatically. Good into hidden, you're It's Thank and think solid losses And solid for had the to getting for like But billion I quarter. stabilizing. And guys ready we that look buildup numbers delivering in somewhat have looks And

– it you next growth for count, expect combination what guess, it and and I Should company? technology's Is think allowing great, the Discover? the How for what the for David, growth is as the look improve? Do is to pre-tax but medium few model to improve? to earnings over I much is business it is this improve share reducing X%? improvement. out grow can that should model And of growing What earnings But loan we your operating loan efficiency growth? multiple. market's the looking drive XX% long-term? years, the So going what's X% at to over

David W. Nelms

of number faster against And years, I focus we revenue we're than pushes that we've been Well, continue grow yet, returns. PBT normalization earning for very But expenses. And having growth. say the high would nice growth. trying a back to will revenues very on to

of EPS But then start normalization at that would And us PBT should at point. buybacks. providing be we're the point, a from come lot guidance not growing the allow if So, has this again. slows, growth to some what

get was I total asset guess our larger But don't ago. I than into want it is So, to thing five base years today say, I much specific that would targets. is one

while essentially And PBT the has come down. maintained we've ROA gradually so a

overearning. I potential years business, maybe an we a We unsustainably I look you a had, the because very think probably ROA, long-term healthy, and if think get at we're that's then, we reasonable to few think high continue maintain in now I were with if loans, ago more so where can ROA, but that ROA, a we then PBT a grow of, into our and kind starting translates off to growth. point that card

Robert Paul Napoli

think had target? your out targets, given guess that Will that I or and ROE And raising term point Day longer I your before mean, and targets. targets you had one of at you Investor given last Any term longer makes thoughts putting sense. I revisit? you

R. Mark Graf

really credit to it's growth, loan it's Bob, say David's to and echo annual year the are be business, every performance, management, going card it's through expense those that be as are are your and we're opposed right, asked right? it, we the would guides in be we're I'd I'd to really drivers kind those shareholder management Those And – to Discover, get not that focus you the long really year, because at evaluate on value what caught in about in are I given we going the folks I up for meant cycle we going front, something of guides. long-term but that just not capital quarter. control. quarter it's that's this and or comments and it's EPS looking We're NIM, every you're think drivers on way the to compound the going haul. to value run creation – question, this levers, appreciate next key over underwriting

Robert Paul Napoli

Thank you.

David W. Nelms

add up it in first That at of off, we essentially, first the the in returns from over the just – looking year, came year would And and growth. or when when we compounded builds. that but But a XX% diminished. some year until was EPS we our I all one last Bob, thing just back were gradually EPS had gradually four huge jump after some reserve couple we years. crisis, the there huge PBT, jump releases – was That's big a which had turn spun

cycle you And is, of what depending the look on to cycle, it's lumpy. full great, it – so part across have almost it's the it you – but at looks

then of huge of, a the for You ROA surges get give kind time. and period back you,

to even when more And profitability charge feel releases ago. lot years been charge had really much than reserve off rate number a of and maintain able good X% charging so were we rate, higher and we of a we've from off with at X%, off about that normal

Robert Paul Napoli

you very Thank Understood. much.

Operator

O'Neill. the of Your comes line Sandler with next question from Donat Chris

Christopher Roy Donat

years, about I with taking $X.X guidance first the But last expenses back-end year, were the the looking you've some Hi, a like years, things in some in the half half you more know on I just had spent the thanks two going cadence year to you XXXX? tied with given that the you of of of my you and those be other comfortable or know expense of years, the had last but regulatory given, at for first said in expenses unique XX% question. you've back expect little few Mark, wondering there expenses were this some of three the to over already of billion things things. annual bit if higher least like in weighted,

R. Mark Graf

analytics would be the those right the the At expense not annual of to way into business the Chris, the have say, when into day, end and that and that I a reform gave activities. believe chunk we be would throughout year right? growth-related at the is do about the to than efficiency I'll lot as of going it. benefits guidance So, really Yeah, talked we would you're expense to enhance the investment drive growth, of leverage also the year, And a great continue year ratio the far to over analytic the my of right? growth linear, some business out more the we're kid digital say a this data is capability. investing tax model only great growth. that sun of lower investments. pacing exactly thus this, we've of make those long about not function, were course choosing our time. capabilities, beginning analogy we We ability you the make advanced But hay continue the a and to we it we is the Those We've I but definitely about to in to of a on think got is and use that for while invest shines. a the seeing for farm, of up had this year, back farm a thought the opportunity who grew the to that got And running haul,

future leverage. that the model positive You It's year, made naturally for consciously produces year. the of that two growth each this saw build just invest This we've operating this operating to X% years. us business to positive for choice last of a leverage a is out

Christopher Roy Donat

on topic, Supreme for And my favor recently of American very the Express so we in rules. different a ruling got then coming Court's on follow-up anti-steering Okay.

opportunities? what think, ever steering around waiting make, Anyway, litigation issues litigation? for it pretty American much some so of that any market outcome Amex I'm be. that we're and but had think of with not this the steering XXXX is Or the I the would on has settlements in to time, as Justice they side, same changes through not the wondering, all the sure now much the on Department what you're Just since Visa much for I Mastercard expecting changed was, their But issues. Express it in and your made,

David W. Nelms

it a us, For business I so and quo, the impact. maintains status expect don't

Christopher Roy Donat

Okay. much. Thanks very

Operator

Your from with question Betsy Graseck, Stanley. Morgan next the line comes of

Betsy L. Graseck

Hi, good evening.

David W. Nelms

Hey, Betsy.

Betsy L. Graseck

there? I couple Hey, us throughout as just Mark, that little a your outlook percentage you think But were the promo you to you why just they be used to questions. what expected of mentioned I balances, a color more wasn't going the year. I sure, around think could give and a falling of that's word rapidly, you total, meant. maybe you as earlier

R. Mark Graf

you pretty part mailings transfer Those growth offers sooner placements from those start anywhere near same the in invested that toward the heavily of mailings and year, And we we those you balance those at not stop have we expenses investment, as to Yeah, fall-off that the Normally went see pace. coming on continued this about when volume case, talked Betsy. part those activities. in did digital of digital in placements, and than time. that's early

as pieces much bit year going now balances well, clearly a of continue We're the the puzzle will the course over going portfolio in see of align more we of transfer are seeing reduction we So, level a comfortable that's the lower those very is changed than of offers. in that seeing or and fall-off feel from having to today. that little offering level that trajectory good the the promo X% the forward that the with program balance

Betsy L. Graseck

Got it, okay.

on offers that balancing grow than to I X%, understand help wanting you're maybe us and for And okay. more you're And that sales transactors. having the you're with you balance it's revolvers how between question was really but know transactors, just around transactors So attract growth second looking looking do can for?

David W. Nelms

strategy been some consistent, that propensity we maybe have at are our in revolve some target that, I'd worthy, very people point. but at say, Betsy, to has credit least

knows I is that, pretty someone's think interchange, much think if transactor, customer. offset from rewards everyone there a revenue no you if lifetime that

therefore, continued focus profitable to, resolvers. we've so on And

targeting competitive some away and that is of year And in ago, Sam's transactors very a transactors. and pulling volume fewer high-end and really from return particularly wars, were a the us Costco of our some years the ago Because of transactor to people in normal. more some offers of boost of the some two there's

levels, some generally, category quarter, to be bounced probably degree, seems loan back us also for grocery this about growth the this and sales because to more transacted. are that So more quarter. same it's where the But just to impact normal an had

Betsy L. Graseck

impact material spend quarter? levels this the feel a like impact, gas or And do even you on had noticeable

David W. Nelms

It did.

a negative several and flipped positive. was that a And year-over-year. be for around XX% up are years, it's to purchases gas Our

Betsy L. Graseck

Okay. Thank you.

Operator

next of with Nomura comes Bill Your from question the line Carcache, Instinet.

William Carcache

described, with give notable can Just credits, the as the generally to portfolio? the negative migration if update that Mark, what's Thank you. favorable of you've along so, that happening customers you've specifically and is? evening. are why seeing lessening us with you you're credit on falling Good perhaps whether you pace that an sub-prime, trends credit but underwritten wondering prime also a in in think

R. Mark Graf

drop-off the We have most below a the of from XXX, XXX in slowdown a above seen rate the the in book. quarters recent into

of here to to have really hazard exactly in of beginning curve a the terms that. point and being you seen other specifically that for I talked to call and what don't the moving pieces level we've are, normalization, what than back parts So that the want become we of muted. on is guess yes, to already that about,

the bit. you buckets, having see very And turn a clearly releases, very expect to of start is But we I people at health this are the roles were who clearly and are, saying reserve That's don't where point book working path time kind stress think to system misunderstand. right? the still current I overleveraged this the at looking clear credit way is signs and any good, the want around not a we little moderating. the looking at encouraging, at of the delinquency in of, their through in credit situation, point,

William Carcache

we'll deposit from a If hikes? you. the may I of NIM follow-up, longer what's rate where beta flow think level thank Understood, additional you benefit no as see through

R. Mark Graf

well beta obviously are, – on basis the the XX beta rather, high through below the cumulative expectations with is the marginal Considerably is XX right cycle That now, basis beta, right point well move now. point the sitting is at most recent obviously move below. what XX we're XX and our

rate I guys from say good we balance and have book. sheet the the the So, of would deposit still positioning

William Carcache

questions. my taking for much very you Thank Great.

R. Mark Graf

Yep.

Operator

line Buckingham. with Brendler Chris of comes next Your from the question

Chris Brendler

go an there's Hi, sort the through basis points on progression. maybe lag different you balances, to thanks points basis Fed thing of moved Like can with of noticed XX much. on into promotional there you catch basis of, I of, moved plus my progression. the that that, circle yield one effect, of is but some that really just The see walking sub-prime second, know moves. But a for hasn't a Mark, the card I for transactors job XXX quarterly taking points back have can seems but the NIM you low, annual sort nice Fed questions. a of, the discuss that much. after did we factors XX up that haven't maybe lots continue real percentage and Obviously the and can moves? year-over-year

R. Mark Graf

it, re-prices, next move. if on So the about think you cycle after book the date a Fed

balances the not So, lag large particularly we on there's revolving have. a

I the the muting level And zero well, muting think at of ultimately in we had of has that the day, end on promotional is first sure. for in and to earning out level balance we year, percent because the it activity, yield the half number book, expected that's pieces. moving transactors you interest of parts a which rightly in the It's than effect saw a effect carrying. a called as the has obviously card you're emerge the which of coming higher

sticking in implies of year full expect guidance we NIM to in our our improvement thoughts to terms combination So, of obviously categories. see those the

as would here. we through yield So, to forward flow I you'd expect see card look more

Chris Brendler

Great, David. for thanks. And then a quick follow-up on, maybe

and additional like a in exciting scale of rewards debit for that products. terms and update going update on and just traction opportunity really to accounts, are Just the an when the you product? checking It there hoping go was launch full seems

David W. Nelms

pleased to feature We've with year. we've rate, per month half seen component new had second the more continue the take-up before half heft we're plastic early in to here of want the virtually new shortly, We'll marketing but be be it reward really accounts the very the we the fast a next to per to functionality with will gradual We patterns some fraud but the marketing, we and do this It'll to marketing behind a and think a ready much very but of in early. it expect long additional some want we year the very redesign as marketing serious more over do adding do the too probably put doubled the first month. feature on get year. build. don't term, our too introducing We And it's and design, of go important, functionality. be right. we're no higher experience Well, this year, results

Chris Brendler

right, All great.

Thanks much. so that, to so. forward Looking

Operator

and Moshe with LLC Ari the of my the point have Orenbuch business. personal of Orenbuch Most line but loan just Credit the kind on Your (USA) Suisse. in Suisse next Securities question I - questions of, asked answered, wanted mail with comes thanks. concur your to, volume Credit been from Great Moshe

doing probably volume, about X.X on probably other Could about talk your of loan pieces – there's reallocate mail to but though, still Your your a hundred you whether (XX:XX:XX) you're you costs that bit a is couple think year. or to million personal to going times a be from anything activities? able we are little business, that, should reducing

David W. Nelms

away to we're I pulling but don't be don't back, is, percentage I but that we're not segments what – – going work. is go that disciplined. keeping to We're think going wouldn't for us. mailing that mean I volume I'm it sure

account has the actually well up per cost remarkably Our held considering volumes.

sending of seeing not to. we're in. risks, think and We're more credit pieces is marketing are we're people many send marketing, lot the mail obviously we sub-prime fact, to maybe people things good we're there, out into of not In people one going a that going as some be which to the we that same seems than that see that of seeing

pullback, material that, So going Mark, be get kind to of the I for for that company. would out range think about maybe and not year company, doesn't the it it's expect but full some the the expense we reaffirmed us of, to

R. Mark Graf

I of drive To because reallocate right? it gets to we reallocated, elsewhere pullback, extent Moshe, great Yeah, opportunities the great most it see continue to there's would returns. say we'll risk-adjusted

when on of and want the there's giant said lighter a concern not foot. this earlier, be business, in reflective business slightly is a reflection our this more book. this accelerator, what want some in you to times personal we really we where loan So, you have there's in It's times of

I so that reallocated it's expenses those and And think really will more get largely.

David W. Nelms

essentially long returns as and still has strong pricing down marginal marginal continue a being loan out personal credit as And the return discipline, which that we'll to lot there doing. to strong, there's the mark of good it one and keeps business we're

R. Mark Graf

Ari Well - Suisse said. (USA) LLC Securities Great. Orenbuch Moshe Credit

past how bit the they are Just addition as little different performance a about level Mark, of follow-up, to the lot performing? determination? the you've the of into leverage. talked of, in Other a underlying kind think a about reserve does factors, your kind your, we factors of, macro that of but you how in consumers, talked about fit macro when And factors, reserve,

R. Mark Graf

obviously as big is macros they to the XX go Moshe, be, is reserve, at fashion biggy. would months. you unemployment think it That So continuing the benign forward perform into one a a about their

opportunities. with input, in significant noise very big one. all little on down can kick at I We we on see, has see be see when in just a bit, LLC loans, little Credit of the why but Moshe reallocate deteriorated big continues a Consumer to in time. the additional that of accelerator quality across the there political - of areas the pockets to It a go that we be are emerging a terms environment, much. terms strong look when now the confidence this there they think to road right you movement some and HPI a geopolitical the continue point and Orenbuch that's of for doesn't is generating say claims there, signs and input be healthy part there Moody's they to the so strong. toward That the the there. strong. (USA) see has which nonfarm remains personal about continues segments don't choppy very mean Securities of is a bankruptcy Initial to talk feel Thanks would consumer. out and outlier the been big big a remains Suisse to input. would Ari these I long where continued that That's okay, the in what so well. those of a payrolls continues tick been forecasting, continue you don't and up. Moshe, It's and you like, things in in backdrop loans good getting where, feather spectrum, tooth you

R. Mark Graf

Yep.

Operator

final of Our from comes line with Autonomous. question the Brian Foran

Brian D. Foran

you? Oh, how are hi,

R. Mark Graf

Brian, Good, are you? how

Brian D. Foran

parts. My six last question has

six the ranges at First, tax just through rate. you're the anything I'm each so line to make went comfortable you quarter lines on, and if sure you're I and – in still doing six I'm fourth stupid, your looking guidance the net saying of offs, not items each individually, presentation loans, gave of the with you basically all ranges expenses, NIM, charge those It's still rewards, mind? same mean,

R. Mark Graf

the ahead say, say rate, we're tax didn't but tax and about rate. we I'll with anything Yeah, go comfortable

Brian D. Foran

and build key trajectory, going went just as for and two listening thinking time. then jump. the to through that drivers. down is XQ going rate year? optically up promos again like for to the exit XX.XX a Fed then exit the run on And NIM rate build It's seems if implication? run one like it year sounds funds the it you like But you, Are for it know into It like I it's NIM big would closer the through is you a XX.XX? XQ

R. Mark Graf

confident call. time see sitting portfolio, that we promo basis, definitely the the would still of Through spent that feels testing. guidance the uptick for number, it's going portion That's a as making and looking in of And jump. but I movement preparing a imagine, wouldn't question. no we're big balance the There's in remainder we're we significant and that on that in the or us not that form. of quarters, any XX.XX. and and to means, obviously good. validate year, first And you might full-year at we the the this shape, in I see a for feel lost XX.XX And way, sure NIM validate at pressure lot the a transfer meaningful two

the them as well. the muting would the year making knew investments some some effect thought halo you earlier a regard course a Again, peek year they tent I we some longer than higher thing NIM of have be never say other growth our a that is, effect We had were just for anyway. there be to more maybe full too, would. of in give under this going of flat, we expectation of The was the in it was little of just would to bit across clear,

Brian D. Foran

And little up CapOne than transactors expected even on seasonality went was? is these on around on wasn't USB then how the brought in, screen, if you're and when higher, in two Or two the about transfers, balance I take-up what many it brought is could you brought now balance thoughts there you've retention sneak is ones we forgot out that that change the standard has you zero small that drag, dynamics give dynamic and been it the transactor transactor the so balance are the it about, and any a what transfers? just transfer – rates long. noticeable of, were for offers just and and more radar at higher up So can all, maturing key relative any seasonality and a talking just on on and on point sticking the rate? were And rates – up, my bit thought kind it and it's is at or around then to something

could something year remind maybe every this is thing just year or So, something think us, transactor unusual about if we going seasonally that was you that forward? should

R. Mark Graf

And only be balance environment, expiration in So the a to to rate team, BT and to worked said, longer. stuff continues That BT so stuck better your our again, of BT there's really kudos they designed marketing environment. want rising it positive, around well. that sheet, perform much economically expected the allocate retention of that to to being worked at continues you than It to. we

of off BTs remain bit this good. NPV the would So, we in throughout as meaningfully. feathers economic. a offers that retention we But sheet At is ended continue remainder the balance there. time, be I the good with And say, again, pretty up the And point little forward positive the move of of those and more to there. year

the transactors say little side of our increase of transactor It higher they cost been I a answer They obviously In would at the of is higher carrying time. a have a it's both/and. the engaged both equation, degree terms of to rates level, in higher is question it risen. velocity. too, float transactor a have meaningful of is your of portion spend greater to And a this that quarter the period as than bit were

But of goes that obviously too. a be growth. the up. float time So, goes the is will comment that our more reflective competition of piece And really percentage their on, of as quarter-over-quarter cost

Brian D. Foran

Great.

I got think four I in there.

there. I'll So stop

Craig Streem

with us call the can two. other back You

Brian D. Foran

Craig. Thanks, Okay.

Craig Streem

think you I What do done. think? Salacia, we're

Operator

will sir. turn over floor any closing back Streem Yes, the now or remarks. to I Craig additional for

Craig Streem

your everyone. you, Sure. bye. Thanks course, follow-up you for of questions interest for have. And any Thank might we available are

Operator

call. today's concludes This

disconnect. may You now

Discover Financial Services (DFS) 26 Jul 182018 Q2 Earnings call transcript