DFS - Earnings call transcript Q1 2019 | Discover Financial Services

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Operator

Good afternoon. My name is Thedra, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2019 Discover Financial Services Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator turn over now Mr. the will to call I Investor Craig of Streem, Head Relations. go Please ahead.

Craig Streem

Thedra, everyone, the and this you, Relations the Thank Sure. welcome, our of begin you find Investor Slide financial which section evening. investorrelations.discover.com. to on X presentation, of earnings website can in We'll call our

SEC. forward-looking statements Factors prospects, actual both within filing forward-looking speak today's to in release, subject file on risks press to and to uncertainties and contains earnings the and Our which X-K of the from provided future the are are discussion set certain these today cause website an financial XX-K, forth which company's as which on that of differ the materially today. was XXXX only about results are statements in our performance could and again, SEC business and with

from today the ample completes CFO quarter as Mark have and will then include call always, his through Our rest CEO, you remarks first covering after we'll Roger Mark highlights, presentation. And take the our Hochschild, Graf, comments, our will earnings of Q&A. follow-up for so call that would time And opportunity. can yourself you my has to to now, over we everyone sure an during make that period, Roger. and question it's ask to one the limit pleasure I one that turn

Roger Hochschild

thanks Thanks, for call. our Craig, today's to and joining listeners

very continued of the numbers, quarter and our on $XXX from healthy a quarter a reflecting the after-tax in very Discover, was business. XX%. in per see or this can you As ROE share, drivers execution million of We're generated solid for $X.XX key the clean,

bringing million first in from reduction returned over in in X% level just we support outstanding our form our and principal always, of the use As to capital also to buybacks, to capital dividends is of quarter, year of shares the a shareholders the profitable ago. but growth, the of $XXX

that us quarter. growth, receivables measure. keeping product Total for to basis this and also operating performance as always full expected. the remains on our track And our amongst a lessen impact were as and in at year receivables came operating expenses. expectations, our back first to very approach very credit in to Our And major a a year's level, efficiency achieve that strong target with balance net generate means to profitable demonstrates, XX with that interest each performing we robust continues book growth ratio performance hit consistent how improvement look leading X%, margin, to from emphasis NIM Credit grew quarter on normalization our on the important continues expenses point solid last returns.

moment on everything a in it's fundamentals we all striving for said ago, I do. and excellence about As executing

card, growth principal year’s significant account In Let's of take out, how we for each as that a our the played new leveraged provided growth. saw opportunity products. strong we receivables at look my last

flat. From this We quarter's in level engagement also costs point we spend while growth in was continue bit slower card an brand Year-over-year, customer's, our view, is earnings sales advertising, account rewards our costs, basically a higher invested volume. to somewhat in drive reflected high which offset of grocery more increased acquisition from the from marketing category. of a

portfolio very private shared outlook performance. credit strong X% organic the personal with we in X%, student business in In you. turned loans another grew and growth improvement with Our our further quarter, receivables consistent with loans,

targeting opposed to we continue long-term simply returns originating We a that level what to generate of environment. loans on will growth appropriate and competitive level higher be as the very continues focus of to expect

by vintages. in off were loans, As driven personal earlier expected, principally charge-offs

results and strategy. well, are we're vintages seeing our underwriting performing from positive Newer revised

this at sound, profitable PULSE. partners. and remains solutions deliver our part, And winning The well The quarter growth value segment with performance good. environment model quite strong of existing for been successful deliver to Graf clearly more demonstrates continued to in the X% ask growth. the up deliver we're ability that our Services and team performance I'll new to in the largely creative we building believe economic issuers, Discover results developing strength generated Mark by now positioned of business Wrapping to relationships financial results. meaningful discuss my debit due Payment our volume, detail. businesses has Our PULSE

Mark Graf

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

the statement, quarter growth interest for the about continued growth to due Operating the of X% to a driven at net XX%, loan of in with rate of seasoning consumer of of under compensation driven provision two-thirds certain support the third margin. to our X% of to rose matters. in strong tax strong higher With year-over-year, supply quarter growth key credit normalization due respect was the new X% loan losses, favorable the industry. Looking increase just the revenue income and by the growth, elements this remaining expense expenses higher investments reflects the and was The tax capabilities. effective for resolution due loan and

our to full rate for the that continue affective year about XX%. tax We will expect be

growth The the loans to with balances. the balances standard decelerated increase Turning contributor this promotional form of from from to the modest X. year relatively a the contribution in prior of in merchandise coming this X% year credit slide and quarter. card was Total growth led over prior majority X% increased by receivables,

which also loan other line past in over at total our quarters. few increased up the student primary student the were given was with increased private X% products, our we've Looking in discussed originations Personal slowdown loans balances while organic year-over-year, expectations X%, lending portfolio X%. loans

payment our from results the segment. to Moving

foreign volume see while down from as proprietary incremental Network unfavorable a year prior volume Partners right-hand from on was Club slide exchange the over side new driven slightly driven X% rose XX%, In X% impacts. with volume Payment X, Diners by can the as well you year-over-year. year, primarily prior that issuers the volume issuers. increase existing continue On volume PULSE due both to grow to increased AribaPay, Services,

or income driven on Gross revenue discount from to a driven Total X. interchange was and income primarily year by net in by rates. higher up revenue. by interchange increased, X% X% Moving increased XX% a volume, million million, and higher slide Net in ago, decline balances $XXX sales $XX discount market driven non-interest decreased loan increased revenue interest year-over-year. which

higher due the gasoline first category. of However, this rewards offset higher our rotating this quarter to increased X% result was groceries more year. last the engagement in by was in opposed than This the engagement to featuring costs as quarter customer

of prime higher in the margin net fourth points at brokered basis of prime quarter, higher points quarter. basis rate As rate of sequentially and to the higher costs costs the deposits year-over-year by the offset shown was direct-to-consumer quarter well net as XX first partially on in both Compared was higher slide charge-offs. coming X, offset and our and benefit XX year, for interest as with basis in brokered interest the XX.XX% promotional increase from increased up basis to and loans. revolve a was benefit a last student net by being was increase charge-offs. points deposits XX in interest interest offset primarily by increases ago balances Total point The led by yield XX.X%, year higher loan increase and loan partially rates. a card increased XX-basis-point factor. direct-to-consumer of primarily XX yields a yield student less interest in driven to partially higher Relative and card in increase increase charge-offs rate private and by driven higher, slight yield rate in short-term Prime an much

in On points and the liability balance year-over-year. deposits side cost-effective basis more rates our Consumer increasing and rose points sequentially sheet, basis success during XX the average consumer of funding. attracting reflecting XX%, the deposit XX quarter, stable grew

betas norms. did beta cumulative better continue deposit be historic increase, to While than

trend few the points recoveries a related slide years minimum I'll of last The the Total operating nice growth XX to discuss efficiency the credit loan of quarter prior increase which in the Turning impact was and results reflects slide Credit of ratio with in $XX on wage basis of driven benefits to included higher The average up than to from year-over-year. drivers net hourly at year-over-year. points X. card moderate. expenses basis in the were from and Total rate May perspective, we plus was improvement employee million of and sixth quarter. quarter-over-quarter year charge-offs. the the year-over-year salaries, X. the increase compensation This fact higher past by expense implemented the from the processing was card basis reflects A higher fees and first in two by primarily primary supply-driven credit capabilities. rose costs were quarter. X% positive up in to Professional charge-offs. normalization increases From card increase normalization year-over-year, XX be and the drove up advertising a now that quarter the year-over-year level year-over-year our year-over-year delinquency year. XX in points of year. The Increased lower collection rate information infrastructure slowing credit of driven year, last costs consecutive charge-offs sequentially. continues this X% analytic rose in seasoning higher points a the prior charge-offs investments marketing ongoing XX increased representing continue the basis sequential growth than net fourth spend XX.X%,

basis private remain The rate credit expect year-over-year from strong net card loan see sequentially. points XX-plus loans gains we XX to down delinquency business. decreased were XX points up XX net points four and result solid with performance was sequentially collections. points year nine the efficiency points of year-over-year and basis basis in as continued XX basis up forward, credit basis charge-offs sequentially. Looking in points charge-offs of the basis The and performance Personal student a prior

Tier slide X loan as seasonal common increased at XX, normal balances basis our Looking sequentially, exhibited on card their points equity decline. XX capital ratio

a the return for last loan XX%. total generated XX, ratio slide quarter payout X% was months equity. sum growth on and up Our the on XX To we XX

of as our remains with charge-off normalize, Our and our XX%, loan growth levels. deposit both growth With posted below rates our conditions increased seasons while while had targets. credit, consumer expected to expectations return and robust deposit betas respect business remain performance consistent credit

to we provided with continuing we're performance capital we're to execute our pleased Tier strong with and conclusion, and for returns our In our closer we our bring concludes loan That Finally, ratio guidance with levels. formal quarter remarks. target growth plan, comfortable X remain XXXX. this to on helping capital

line Q&A. back the So Thedra, turn open operator, our now, to I'll to call the for

Operator

We Betsy Stanley. Graseck take question our from with will Instructions] [Operator Morgan first

Betsy Graseck

afternoon. good Hi,

Roger Hochschild

Betsy. Hi,

Betsy Graseck

rotating wanted One, Just have X% to look that the on quick is the groceries. highlighted this two questions. rewards you

gas to go have decline the a have prior the in that left fact that to we So we to is into next over a is, rewards you given a that years you're from going question different fair similar expectation? would that rotating, would we've gone as quarter, quarter, grocery in following the expect rate

Mark Graf

So Betsy, rates, what the I lucrative. max that on correct get would for into but quarterly engage It's you're the is I say, want out to say to what rewards business absolutely, I most people easy grocery would is category and benefits. really the guidance doing don't

you only to quarter, If spend a groceries the than less to something $XXX in think need in about week. $X,XXX spend you it,

a So but of gas, not lot a groceries. on spend of people people that it on spend lot

it So very our my Matter one. we guidance very remarks think guidance rate. all retreated not I our run specifically provided. We lucrative when be to in that of of on tends fact, I did prepared rewards we revise

question. pretty a that So should you probably give that that good answer to -- combination probably

Betsy Graseck

Okay. category you've Or that little the marketing we the bit more that you've And rotating much a that on got that's maybe a the people something just changing offset and because the question? then next to else got looks should on and thinking wondering, the is to to the be so, going don't there you little of And marketing persistent, there spend, is and is need decelerated because like expense And maybe take as about on an that bit. too it's quarter? send going the I'm card out, what's side, essentially costs spend groceries? it efficiency that's

Roger Hochschild

it bit think our growth more to drive in that of efficiency offset increased leveraging grocery. participation of there stimulating a portfolio, be to in But seeing accounts. There can we marketing certainly were seasonality of account broad to elements just new But and number have spend. We're new for of terms spend as impacts that our as program when the an as marketing has on, Yeah. lot a I of is example, put also a and well.

So I too wouldn't into read necessarily much it.

Betsy Graseck

you. Okay. Thank

Operator

our Sanjay question Sakhrani KBW. And next comes with from

Sanjay Sakhrani

I than these there higher should and came pressure? another anything for this any are Or buildup Thanks. to Obviously, of guess, ahead, we part NIM relative should is of range. quite of obviously, Mark, assume the when rest in that level the our downward look cause that strong the year? guidance, expectations we

Mark Graf

again, guidance. say, NIM reiterated that No. I would we

So guidance second thought along Sanjay. a there, to plus with is quarter. of a little you all give the We rest would minus, of head or expect XX.X we as bit bit of the a compression expect probably would into that just our we little

I it's things. Number if then, deposit cost of increase one, within right? rate to to drives think course, well. have piece normal continue some seasonality a as revolve a paydowns of from couple it, different of And seasonality, revolvers You're a you will. going modestly

of a that. little see probably you'll bit So

year. about good full NIM NIM So the the I'd quarter. expect something compression first for in in guidance from into of second the the feel mid quarter We the single-digit order

Sanjay Sakhrani

a is high And in CECL? your terms on from they to be. impact and gave bit of you competitors was wondering out And my question guidance came follow-up we it CECL. relates clarity more pretty if expect a Obviously, had as one card of I there Okay. anymore the got little to on balances FASB. what number

Roger Hochschild

Sure.

models guess on So factors evaluation, inclusion I want of a their say, we're here, time. number Sanjay. There validated. of is are for analyzing number predictive in still not or yet under I fully a over based our remain a exclusion and caveats capabilities would potential that alternatives I

heavily as economy determinable dependent won't remind of time the the addition, until view the our composition well In adoption. as really because in forward-looking out portfolio of really that the both adoption, just it's our point trends ultimate I on date the you be and of impact at

I the reserves, and standard the they card, XX% not total view where So have were than would our assuming now, XX% we -- between but quarter, basically, based have if say, this you total we on right quarter. you reserves, adopted estimate, that want preliminary seen a this somewhere would higher just had

Sanjay Sakhrani

we when about How is how think then there you're And planning thinking it. that? to a obviously, Okay. think capital we return, how phase-in element about you're about should for

Mark Graf

we've Yeah, the known phase-in I all think about along.

numbers forward been think of from for we've all I And that. a I nothing planning disconnected you. shared planning contemplated capital So just our with

Sanjay Sakhrani

you. Thank Okay.

Mark Graf

bet. You

Operator

your And Ryan Nash Goldman from question next with Sachs. comes

Ryan Nash

Hey, guys. good evening

Mark Graf

Ryan evening. Hey, good

Ryan Nash

in When have Mark, the rates points positive think the you're in back net business The a the on maybe years just margin interest stable. of of quarterly understand guidance. seasonality when when follow-up were question. I would back in I not the ago, NIM time half year.

and So pricing to And we I the quarter. just want to maybe fed understand you once the the are takes just related impacts do your here, how going about that, we think puts get a on deposit environment then next if beyond in forward?

Mark Graf

Ryan the we I'll specific maybe guidance you impact giving quarterly about way, seasonally, thoughts So opposed maybe that or will, to if that margin just talk and cover it the bit. key a as things little would

element right? mix moves times seasonal, factored There part. a see any level fed guidance. our thoughts done, Portfolio is of So will about current no is That rate. to the rate, play is And also revolve that is always transactors from coming see unpredictable, other We we exactly lower in that, There of and level do of can't why. disengage. as engage revolve them right? times of and ascertain time-to-time, you are in market our right? you rates, There you talk obviously, higher are when somewhat forward an see

assembly talked moderate, a have as a to is of but well. of local normalization And continues And year we there Interest activity going wildcard to expect seasonal just the do last. this that. charge-offs, over. promotional So Levels don't to about growth. not said, it's there. We there promotional element seasoning we affect as we've there's be element

less factor, a higher factor and rate so betas And the question replacing that off, there'll mix fundings a be and of your have are there. guy. So environment, of part I'll the punk probably Deposit a in probably. but fundings funding to as we're we obviously, that's second rates. rolling those bad funding obviously,

betas a remain after not for usually up look as they rates history, but I Ryan. for deposit while deposit fairly going little at particularly well far go, rates mean, factor stop, concerning if market very through it's keep us. As you managed,

Ryan Nash

the talk Appreciate to a heard color. competitor online. it. about Got we’ve being Roger, And capital then

about talk you're to I expect bit. high talked a last just Thanks. you of seeing Can about still think continue we what single-digit sustain do growth? But type year And tightening a this could doing or tightening credit? And late you online? still that growth. you're you are you

Roger Hochschild

good want the significant we're economics lane see little expect we'll I make a that that to the be being clear Yes. side. in this tightening And we quite do we to cautious of side, as changes cycle, to that credit unless on I continue grow.

So, to changes in come contractionary more expansionary. analytics. they not side advances the at be That than leverage doesn't through as I credit mean that the to look we're on continue policy, looking our still

one identified of better on that in that would even your And So is kind that's improve swap-out would hallmarks credit growth here. continued side. our product on we let disciplined you then us grow I the better and think performance. can marketplace your credit the and been differentiation, you the of drive take as the focus compete always faster And are swap-in,

Ryan Nash

taking it. Got my guys. for questions Thanks

Operator

next from Nomura Carcache question Bill with Instinet. comes your And

Bill Carcache

Thank Roger and you. Good Mark. evening

other thoughts of Discover be potential operating a a discuss And a around helpful? roughly digital this them the dynamic centers to One of Can would any from investments that efficiency have improvement your positions the the meaningful dynamic exit for time for XXXX sees them And and competitors the to step years has fully migrate they've improvement by similar function over similar you efficiency data been by legacy the and frame. whether indicated future? that making positioned XXXX. in cloud

Roger Hochschild

the benefits journey. as do and legacy more how been, benefit. business standpoint from certainly, I advanced from migrating view the centers most a mean, storage you really in in driving cloud necessarily the leverage It's piece that much data cheaper infrastructure. But, I there not I the guess, speed are a cloud-based cost exciting Yes. of for would analytics and that data to

benefits And see when piece, so a but the necessarily as exciting we most not think I analytics, advanced from piece. about the even that's

Mark Graf

our over a to an I about now efficiency have note, addition we We've talked noted for opportunity ratio of do that to down key the quarters in we see see that, That, we're would also bring Bill couple it. thought fact to that time. an a process. cloud-based lowest. already that time environment as the into lower is purpose And general the we over But issuers migration piece a of opportunity

Bill Carcache

your us customers? really helpful. on attracting give you Are merchants debit for customers? Discover Thank you higher can been new any exemption? there you. What's prepaid pushback your from is due engagement going? Has to That's existing an And on Durbin pricing separately, update the product enjoyed that the you

Mark Graf

Yes.

product? You're about talking the checking

Bill Carcache

Yes.

Roger Hochschild

Yes, so not checking. prepaid, a just a

Bill Carcache

great. Great. sorry. am I Yes. That's

Roger Hochschild

We're that Yes. No. how no. with excited doing.

marketing it We pace. a up product. continue to grow that We’ve of the at steady ramped

things of the part that think the taking challenging the but also great is of deposits how I is One are, about account sticky growing it.

set Average seeing We quality we're XX% still the terms savings XX, The targeting demographic younger we're deposit, accounts, not of in but very seeing the we're have we're excited. age of merchants. booking, up so of direct the is low there account. portion, any a pushback XX% open customers about from received is that about also very volume but a

deposits checking they also you. on the lower to checking beyond balances see when relationship will get. you with And on impact have savings we beta accounts, just is So that those a tend

say, would I that continued on of growth product. So focus

Bill Carcache

questions. taking for Thanks helpful. Very my

Operator

Research. your Buckingham from And question comes Brendler with next Chris

Chris Brendler

afternoon. thanks. Hi, Good

processing and processing in Just X.X% sure sales extra some make your wanted any on or growth could you as be as Was little volume. reported you the the other that's lacking days, well acceleration issuers networks holidays? days out, ask case? actually to than Easter there better saw called to So you

Roger Hochschild

call like clean any number. that. adjustments Yes. a We It's not would

Chris Brendler

that's deceleration does people of anything mostly Great. else increased the by the that driving some this And spending in the quarter? in showing rewards successful most driven pickup promotion, face

Roger Hochschild

spend. But that there's promotion play grocery would saw a part did well. that question we I pickup no say, broad-based on the as a in

Chris Brendler

Great. Thanks so much.

Operator

next comes question Fandetti your And Wells from Fargo. Don with

Don Fandetti

look competition are peaked returns moderate card the think view other in loan lot issuers, at But the and the I of the a Roger, of from good. is growth it. you if industry return sort seems credit Discover very to consensus performance and

of your loan picked cycle some downturn? at and Or look of weight their growth reaccelerating? the do we the banks, think bank JPMorgan, bit. What Looking the just up until competitors think do sort to the get low you you they're of at going a are at chances

Roger Hochschild

it hard who sophisticated general, talk It's large But players management I by most in entire to good risk for dominated been industry. cycles. an to with think have

growing who at I's some surprised we to in guess, economy people fundamental is and I the point So, someone probably started be borrowing where that are. changes aggressively this

on discipline high out major again, the see would to versus continued And You the transactors But, we discipline. more of there spend-driven issuers. quite around a of continued and focus from at expect lot I model. lot a lend-driven focus end competitive transactor We see a tend segment.

Don Fandetti

just it delinquency to is like that expect credit. that year-over-year that in very correct? sort you trends sounds steady, on Mark, to of clarify been stay And have On zone,

Mark Graf

leading I consecutive would of of for if underscore we But formation quarters really rate say, to indicator give charge-offs Delinquency obviously guidance, a seeing are well. that bit I now, the delinquency quarterly continuing as six for would little but trends moderate, a is, and would don't we're what I not say, Yes, over. is normalization moderate.

say and I would continue we forward, a say, more as of normalization would piece. growth that loan more function opposed good. going I So, to come feel to provisioning will pretty

Don Fandetti

Thank you.

Operator

Credit with next your from Suisse. question Orenbuch comes And Moshe

Roger Hochschild

Moshe. Hey

Moshe Orenbuch

you. Thank

wondering, very for I impressive cost cost about is little that marketing relate guess, you the to a lower talked a spend. was bit that I Can continuing? you So, just XXXX, you're

Roger Hochschild

Yes.

responsive accounts. it the see the accounts for new cut. on to tends continue tighten We credit, you to cost again, when achieving strong more you cheapest performance that And be that

it's even that shift am progress the And on more continued excited and in advances it again, I well. But also by the more expect environment, being the leveraging performance towards team and we continued tightening the strong the analytics side. year of this as more has. a mix in So, digital

Moshe Orenbuch

And -- as, has -- coming are business personal seen business. loans noticing that the is outlook XX% something in to switching but kind deteriorating about past you've the you off, guess, Thanks. and probably a over the much I as I I I volume got metrics there as of thought to there? your growth how about slowed, performance mean, XX%, that the other you what the you overall do industry. in the talk Is plans mean, think decline your Can in and would is? start up again? indicate you

Roger Hochschild

channels tried we've the to think back that cut around very on. I be we Yes, explicit

Some of we the booking. one with were the highlight And quality. things of more pleased the and vintages we're the aggregator them unsolicited the was credit We're of channels. new

So, what can we And want we account strategy. newer have we're made adjustments the from from the vintages. both mix we achieving to see our our returns underwriting and

unsustainable. you couple In had rates, terms off of And chart. think just industry overall whose mail appeared mail it the were players a I volume volumes

So, surprised. I wouldn't be

spectrum them, is do. The of we thing a other much lot underwriter broader than

to just getting It's remain of going still competing overall But flushed volume. is that system. view the I So, against their of the of competitive. some we're as probably subsequent probably head-to-head excesses would out the

Mark Graf

a technology QX say the saw and of looking only strategies impact. a little coming down, little what than this going would had some I we've pretty there's call possibly opportunity we quarter-over-quarter And one Moshe, point would definitely a does on with and trend it better. come we've there. collection bit has four layered the Not I taught like to delinquency in bps broad bit an to or feel at but in point quarter better charge-offs into meaningful time, synthetic up the say, based guided, a

Moshe Orenbuch

Thanks guys. Great.

Operator

question And with your comes Hecht Jefferies. John next from

John Hecht

Thanks normalization. little you marginal you of Hi dollar that got to -- talking bit consumers And talked -- more assume you're a incremental you marginal about terms pockets into And the getting mentioned Mark, tied I guys. much. kind supply-driven it. very about that or then Roger, risk guys means tightening. the

underwriting you trends into You're dictating at are this market? you're seeing of credit So, that some point Is managing risk? guys taking time? participants incremental how

Roger Hochschild

It's what very see, especially hard are to competitors underwriting. real-time

So, different targeting on to strategies we competitors different our product focus and segments. have again, other tend

So, it seem up, be and earnings continue remains I what as discipline. putting to competitive. to we see, saying look But, again, they're at competitors people

Mark Graf

flex And credit supply-driven of that was coming consumer out of normalization crisis, really restrained. piece, the fact a pretty the

So, consumer standards. leverage lot we time is ratios very as credit. were willing And a kept historic on, low went more availability provide to in, by credit providers saw consumer back what

levels loss And re-lever really its consumers saw and of you re-leveraging credit back So, that. toward leverage. has normalized what driving of that's driven that driven supply The normalization rate.

John Hecht

XXXX think I vintage talk in credit this point vintage against early the then, time? but looks of it's know you you And and on, the about Mark, Okay. at do seasoning the book normalization so XXXX How forth.

Mark Graf

typically and the our ability advanced synthetic we last early a and as say and quarters talked over isolation. What do have talk too job, And about would in course tend better advancements the about detecting It's is, call. I analytics to I vintages don't both targeting think, to in of well. Roger couple to of fraud I

are say, would feel I we booked accounts good the about So, those booking current we in and we XXXX.

John Hecht

very guys. Thanks much, Great.

Operator

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

Chris Donat

if the pretty comment to on competitors for private seeing your deposit just checking of you the do? taking in betas competitive and wanted have were now deposit my You like. you're accounts, more said Thanks what be in overall And any just up what aggressive managed. wondering about that anything I'm that you're deposit and you if worry there betas. to afternoon. you'd Or well wondering even is question. seeing than like, the because competitors market? do feel you don't savings follow on need Mark, I'm Good

Mark Graf

head our there's you beta XX. say, a terms our I on always would guess. date, are, cycle mean, deposits about scratch has I I somebody most businesses, little your been I in in bit think we where who to But of

at said XX% side expect on have think, point well. would our would say, continues depositors than relationship to in traditionally I card -- So up you the we've to this as are of we now with us over be time. I lower a

is now approaching I think that XX%.

up it's in think to I like this XX% at time. point

So be that tend markets customers capital just don't They retail cross-sell there. virtuous some provides benefit re-shopping. to

and So six being that customers served to rate it's a in XXth strategy well, opposed bank our we first place, we place as table, fifth to think. target to both and in us that tend had the the e and the

Chris Donat

it's a the the market, on loan completely a student then, democratic about a canceling candidates, loans, about just that student And years regulatory competitors proposal. anyway, environment -- for market change. as the had there Okay. presidential the think some think was topic, that because different as I the the and included of could private you exited student one partly just But you loans over again, wondering, concerns proposal of think

loans, do Just your the about big not regulation including think how potential changes private for side? student you of the in federal loans, student just

Roger Hochschild

yet proposals individual wouldn't Yes. candidates. much read democratic I into the too of

about when to lot the decided program to way anyone's wasn't we into a have think complex continues excited long it. and to elected the well. a very put that worth very or go is And I We're expanded, a business It law. originate. of before loan players think I gets perform volume federal product So anything it very,

business this about. But I the more look that coming that Your feel a entrants new than it's versus at we season exit, into year's pricing last. as good

Chris Donat

very Got it. Thanks much.

Operator

from And JPMorgan. question next Shane Rick with comes your

Rick Shane

But think really see Look, for think my delay guys any should season, of we basis. year-over-year year? tax did curious, that as refunds. caught consider about to you of on questions. saw the as level rest by it taking have we I the through move distortions a end seems am we tax off the we I Thanks in normal a seasonality if state

Mark Graf

really out in We or the Rick. terms strength No, didn't see much particular particular of pockets pockets any of of of ordinary weakness.

Rick Shane

Mark. Thanks, Great.

Mark Graf

bet. You

Operator

DeVries your with comes And question Barclays. from next Mark

Mark DeVries

you've of over in planning talk approval I level about maybe a you just I Could Thanks. obviously next process historically XX% about that maybe given both I going play talked and capital and so, then kind down question a forward, process to is, we be past, think of of constrained process what a part here, CETX, some how might have in planning. capital regulatory targeting second you two-part question level? capital eventually you around should timing for And expect of given year? see kind had And the economic towards it the to about transition? that, the constraints. if XX% looks But but migrate less some an the that

Roger Hochschild

outside capital granted our the an process look there continue CECL about formula-based would little actions, $XXX process would had So million planning I guidance we're million and to There allowed we our approach for requires what process. in specifically, exemption worksheet-based, Board to bit But still going that year, at exactly not that point an definitely in else is the governance were so strong Yes, say more capital our to and you migrate time from us that and continues to levels if a a the to ultimately range see that capital planned out this like. we through banks a we opportunity I $XXX lower. it will. capital evolve. our the to ask, say, improve specificity, was understand Still around everything this

away rating constraint at that for agencies, I or us CCAR, are buying in the us this probably with been having Mark, the think point we've that modified time. said gone for the

range the earlier not I that. that target around would at capital in inconsistent with three-year caveats, thinking with is the the phase-in or think I say comments, to awful definitely earlier And thoughts is is our my cards lot of XX.X% associated ratio. gave there an time. in CECL I back XX% the XX% this the in point with to And eyes our getting overlay,

Mark DeVries

Thank it. Got you.

Mark Graf

bet. You

Operator

And your final question with Bob comes Napoli Blair. from William

Brian Hogan

is This turning Bob Hogan Napoli. Brian Good afternoon. for

Roger Hochschild

Hey, Brian.

Brian Hogan

product? the And long is some is First long-term plan question how loan Obviously, which I the grow? growth home you XX% rapid that equity category. the loans. your can is pretty grow potential what And a it other strong in pace? there, what that got of at in actually very product, to on guess,

Mark Graf

coming highlight would very is small I a it base. Yeah. off

So of can loan but a over while be, a overall book. grow nice portion our into to it's time, meaningful going business, it's we think it

Brian Hogan

outlook. question actually then -- And payments the network next right. is related and to final more your All

well like American seeing what you you to you doing your that are have like competitors from that with obviously Express doing are growth -- seeing along payments Ariba, a partnership to but in what as and your my you Just you business SAP SAP network business? more doing Are view. drive out more network what there perspective -- in or are along stuff grow

Roger Hochschild

Yeah.

a SAP. the for as to we're is well Ariba a see don't there. to our a to payment PULSE over of hard Express, expect profitability. -- of highlights can SAP have certainly of the mentioned impact I American on from And we that it's There's our continued everything couple continue represents amount the you execute with arrangement arrangement room growth significant the There you think -- here, go portion profitability on material doing They So see growth. side.

them excited also our including support, we provide acceptance provide and seeing international conference our us. cetera. net-to-net Vietnam I They et We -- we our in got spec, home excited acceptance Asia. technical opportunities most everywhere their for BIN about we're of market. in call by probably a from some back provide for I network There very regional outside them just We ranges, partnerships. where chip

issuing core lot see drive again, card to payment a to our proprietary we room to growing also So our our for value but continuing continue of leverage segment, network business.

Brian Hogan

you. right. All Thank

Operator

Securities. we And from UBS a Eric have Wasserstrom question with do

Eric Wasserstrom

that growth changed a of coming that Thank trend past, you questions. In quick Has you've to in. Mark, the in of receivables couple at proportion me from existing customers. for sneaking talked all your recently? just the

Mark Graf

and between It pretty been It's bounce XX/XX No. to somewhere XX/XX. healthy. tends

as about So on average sort kind range. talk we of a XX/XX it of

trended the I again, XX% but little towards quarter, This relatively book, it more XX% bit think a consistent. new and back

Eric Wasserstrom

K, occurring had policy. disclosure about just a explain Can there? And change in in was you what TDR you some your

Mark Graf

that classify there should workout as TDRs. were year, programs decided of we we last a So, number

year big significantly of the migration a reclassifying continue was as think last big we've would heard there's on in out early it's into as to would programs And a originate vintages piece larger puzzle. noise those saw then there you TDRs. see say, bit the we -- into So been of I migration as process a we went That through TDRs well. time, warranted. say TDR book. over you I don't I really little the

effective below If programs years. to can you below look at to the have two XX-day consistent over past on last be dues be course they in a customers. with of And -- work very X% the those a slightly the basis way very continued TDRs,

think we are and it's customer-friendly impacts So, the that credit negligible.

Eric Wasserstrom

Thanks Okay. much. very

Mark Graf

You bet.

Operator

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

Craig Streem

all questions. for and your you attention, Sure. thank your Thanks, Thedra

know You you. any us Thank find how follow-up. for for you. We're there to

Operator

you This participation. does Thank for call. your conclude today's conference

disconnect. now You may

Discover Financial Services (DFS) 25 Apr 192019 Q1 Earnings call transcript