Earnings call transcript Q2 2023

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Operator

Good morning. My name is Todd, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2023 Discover Financial Services Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer session. you. Thank Instructions] [Operator

turn Investor over Relations. now Wasserstrom, Mr. Head of Please the will to call Eric I go ahead.

Eric Wasserstrom

good on our investorrelations.discover.com. And call. section of can Todd. morning, Relations to financial Welcome Thanks, website Investor this find I'll in begin presentation, Slide earnings of our X which you everyone. morning's

appear uncertainties Please contains actual that results cause today that our refer discussion forward-looking may our in forward-looking Our regarding are subject earnings presentation. differ materially. quarter that statements certain to to notices risks release and second to statements and

CEO, On Hochschild Financial we'll our our be call include today, we a After John remarks formal Chief from our for our there will session. time Roger Green, comments, conclude and, Q&A Officer.

pose question. the one one question Q&A the During followed After return to follow-up you follow-up question, queue. please session, we that your by ask

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

Roger Hochschild

Eric, Thank you the in results reviewing release. perspectives to details today's by for listeners begin will our quarter you, then I'll second our our the of on our the and and call. take updated we've then disclosed thanks for John matter that and of joining some through press our quarter highlights XXXX. regulatory discuss

income of our expectations. share. night, we reported strong right line with million growth, performing in second quarter quarter while or $X.XX deposit Last per was and $XXX net The asset by characterized credit is

May when a opened we're The accounts the we becoming goal direct the the of and Discover the advances our back In several advanced be by support and XX,XXX significant seeing weeks, key relaunched priorities occurred time of plan this in our entry we national we point to few the we this far. relaunch operational franchise. cash into will in back over product bank debit leading in One expect first begin fall. so Importantly, results marketing We're new debit quarter. cash early positive excited over product. milestone

Global Discover expand Network. to continue the also We

quarter, and UK. in out honored We're partnerships partnership in and continue recent Asia the region our Places in announced This Work strategic And international our the XXXX Fortune's commitment Women. as Best with XXX we one building we lastly, These underscore for new Disabilities. Pacific human to upon People a our for as recognized builds Guavapay added Best invest to been the This Workplaces partnerships five to acceptance. Workplaces recognitions new with Work Best to Best capital. Parents, for to have our of For, Companies

night, around may classified As acquirer you last beginning our incorrectly our merchant mid-XXXX, highest certain release card we accounts pricing have press into merchant read in tier. and

taking a We program forward card this affected merchants going acquirers. preparing product are are and and misclassification compensate to actions correct

this impacts in risk governance with these misclassification regulators While We're of regarding matters. our it our deficiencies management. are underscored in and corporate not the financial material, discussions

and look to and a connection our take seriously. with consumer have advancement. which to in to from progress the actions We compliance, and could supervisory received believe area that We forward significant investment consent emphasize proposed compliance does I want we with order occur. made very regulators the additional and practices misclassification FDIC this working further cover in our topic. Board our not We've business achieve

review I'll our more updated hand over John to it to detail. in Now results outlook and

John Greene

implications I'm everyone. Thank by of to card morning, and going financial good you, Roger, misclassification. open the addressing the

reflected by adjusted retained revenue. to estimated in and on interchange million of earnings this to liability We of a our In net million establishing compensation and the million sheet liability, and acquirers. tax. balance quarter taken accrue we established owed $XXX $XX $XXX merchant have for is discount was

impact was XXXX million. The first half $XX

the performance of quarter, transition X. we this, that solid. In From Slide financial you lower million, XX% income the business I'll can year-over-year. With see net to which results on reported of financial $XXX that, remains our was summary the

offset reflect low and results and efficiency higher as receivable driven we invested ratio increase technology, compliance reflected the even capital provision expenses. liquidity growth a X. strong The in robust by partially by quarter and a details revenue management and growth, are positions. were growth on strong Slide loan Our Further trends for

Net income year-over-year was interest $XXX million up or XX%.

card by the modest margin increased and year Receivable sequentially. basis from XXXX was prime reflecting and rate XX.XX%, year-over-year, costs balances. rate The basis quarter prior were benefits higher points Our growth. at interest XXX XX levels. net remains a increased The the payment and promotional stable XX rates growth prior basis Card quarter-over-quarter over payment sales and ended XX% up robust. about down points the offset year higher lower funding versus from points

X% Through to the grew continued and up slow about quarter. was volume mid-July, Sales X%. in growth

Turning our driven past up the over originations Personal year. to strength in non-card loans were products. XX% by

quarter We continue XX% deposits up Deposit X% sequentially. disciplined year-over-year to average experience with in while growth the was underwriting. solid, consumer strong demand in staying consumer and our

Our XX% direct-to-consumer mix. billion deposits up total $X balances and consumer funding our grew made of

from XX-plus-percent continue We target funding deposits. of to

$X Slide was Non-interest driven This Adjusting to million loss loan year gain primarily $XX due $XX up investments Looking a quarter non-interest the on prior this by X%, in these, our fee revenue quarter. increased income. on partially at income income was compared for to our X. other million equity XX%. million a or

prior X. year-over-year Total expenses driven by in XX% to investments up several compliance operating investments our systems. the management from Slide our and expenses on impacted line were expense up $XXX quarter, or of primarily our These X% Moving million items.

loan primarily million expense $XX we prudently costs X% Marketing in as or compensation major personal million Looking increased invested particularly were at growth, for products. deposits our headcount. and $XX our XX%, expense increased up due to or categories,

high Our commitment to an has disciplined continue cost efficiency we not changed XXs. and target the management ratio in to

our normalization of quarter. credit lending we Slide charge-offs points prior all the to with expectation, XX products. XXX performance seeing from Total net than Consistent Moving up credit the year X.XX%, on points our higher basis were X. are and basis prior across

we the this of in of seasoning to and year Looking higher XXXX. to and vintages new continue into of half card, normalization vintages the older back expect losses ahead result in accounts through

on Turning to credit allowance Slide the X. for losses

This quarter, our growth. million, $XXX reserve by our driven by we double-digit increased loan

remained X.X%. at rate flat reserve Our

Our the has modestly. economy on macro outlook improved

We to needed. make our and expectations continue will to monitor adjustments as economic conditions

Looking at slide remains our capital position XX, robust.

ratio of stock Our per card we well basis common the equity a and X of requirements. Tier approximately share. for period points. reduced ahead the cumulative regulatory was quarterly related In our declared financial $X.XX of of the statements to the common repurchased million shares dividend XX impact XX.X%, the to The common X.X CETX quarter, by misclassification correction

our governance corporate in on these are are with indicated, reviewing compliance, risk Roger topics. discussions As and management we and regulators our

ongoing, While share we to repurchases. pause this is have decided

been There outlook. growth to on our XX be Concluding our no expectations change in the low Slide loan with to to has mid-teens.

slightly We be promotional the combination are reflecting of driven to and for mix by NIM year, XX% around full higher asset updating a our lower yields expectations costs. funding

are expenses operating low raising We be digits. for to guidance our double up

previously charge-offs delinquencies based are on management and systems. the expenses seeing roll pressure net upward our to on of are X.X% range we indicated, from of X.X% our And expected lowering to current As build-out we rates. our compliance

continues capital, remain liquidity to model funding up, solid positions and strong. generate and wrap our To financial business results our

all invest excellence drive our enable parts continue We in business. that actions sustainable performance, of long-term us to in to achieve

for our to turn call I'll operator, Q&A. back the the to Todd, that, open With line

Operator

will time, this question open JPMorgan. At Instructions] from go you. floor for take Thank Rick We'll of the ahead. our [Operator we questions. Shane first Please

Rick Shane

what the link understand that Thanks between inquiry little love precipitated taking into I'd you tracking? identified miscalculation questions the of how of sort to my guys bit governance a and for consumer this the Look, and in terms morning. then

Roger Hochschild

Sure.

So matter the is the not misclassification. FDIC to linked

FDIC misclassification the that. misclassification broadly doesn't our want system. speculate may mean that so result don't further action, separate matter around but management It issue. compliance to And is on not in is I a regulatory The the

Rick Shane

most seen the do result Got limit, it. what of like reasonable is do past expectation, these further get they capital we've is And everybody know out? playing to a constrain and like actions, really you either timeframe can that understanding repurchases growth to memorandum is clarity things see in I when think how things this wants what and And here? importantly, in the some

Roger Hochschild

regulatory don't to point Yeah, they I many it's can forms. though, take want -- timeframe would actions. your to speculate say of the on I

available And through the working the that's once so consent information with public will be we're and order draft itself more our and we'll make regulators completed.

Rick Shane

Got it.

to Okay. here. pretty I you circumspect -- be about realized there's say have you what

So, thank you.

Roger Hochschild

Thanks.

Operator

take question Morgan Thank Betsy our Stanley. you. We'll Graseck from with next

Jeff Adelson

Jeff on is Betsy. Adelson for thanks. hi, This Yeah,

year sensitivity issue is of this -- Just some buyback. buyback. saw and guess, or around similar what we the of and ahead this this in I buyback the pausing freezing the the terms appreciate you're to understand is regulatory getting last all

student way terms of a to to issues there's maybe servicing loan compare if in issue, last Just the wondering maybe these complexity? scoping two speak year how kind to of

Roger Hochschild

maybe piece then buyback. the talk that a cover and John bit I'll Yeah. can about

I consent in a say was compliance So matter. servicing would student the loan order

a And the let about that, compliance With a buyback. maybe so I'll talk between system. and management that there's our broader think I the on focus bit link John

John Greene

want buyback pause following compliance Great. and of it management pause to conversations with or we issues And robust not details conversations whether risk to the the as And work the are in that the as I we buyback, regulators. to and though. buyback. management internally through these -- our relates reiterate recommended thanks was the what Roger. Board to And the had we

Our capital consistent. allocation priorities remain

in first compliance So to and this be next management. growth and through excess priority year to second, into and will return and into business capital risk the invest shareholders. the certainly year And

I primary capital business So onto and focus your priorities. generation historically. two capital delivered no also in in terms the change that the the has quarter of want the delivered allocation strong attention to

through these can't that on. be in we kind specific I expedited So of we're timing, hoping an but work fashion, issues

buyback that. So have much of us we with information when on timing on the will resumption that, the clarity provide

Jeff Adelson

Okay. maybe here. Thank a you. And bit shifting gears just

us consumer we an what if could you're July? growth recent wanted down rate you know in seeing on spend Wondering on here? the seeing update to the trajectory see update you've slowing about from get talked been in give similar maybe Just if so the book you've your months. X% also to today. in Could I in an something far seeing we're

Roger Hochschild

Yeah.

the sounds far very closer very, necessarily of because probably as the some health slowed level X%. so as well last on think job we that market terms here normalizing think very the is new they thought July, has of growth of So down put of further overall consumer sort of last to so year's And in consumer challenging And got I it base. high were. as terms right prime to it we accounts bad year. of and compared are comps delinquencies you've very as in the path the our sort said in constructive of on side, the as John losses strength I payment for Not

Jeff Adelson

questions. for it. Got Thanks taking my

Operator

Thank Goldman you. We'll take our with next Sachs. question Nash Ryan from

Ryan Nash

Hey, guys. good morning

Roger Hochschild

Good morning.

Ryan Nash

what you and costs, here are Roger, you're get raising the what about what -- of company to again, timeline limiting doing done? these us that we side, we're just I maybe that think give guess making that fix I to you question. internally you Can the that underinvested And I say for know help give is you understand investments in the compliance us terms these. a are the more color but just can talked feel just on the but little a guys in? a in maybe what could bit has areas you broader understand, probably us you framework had what John

Roger Hochschild

can multi-year, investing years. on last something color but couple Sure. that of say it's we I John a over would it's provide been also timeline. in the the have maybe more

sort you system, identification, have as your internal the mapping, of second first line, it's everything management or line terms from audit, think processes. management have So resources risk around management you in building in you of function, the the your resources change governance the compliance risk controls about the processes, compliance testing, the in process

business And so are and and experience, model. other as our around strong aspect every we excellent data we are determined it's customer there side as on analytic, compliance the to be of

and outside the on investment of also but consultants, this our here at top is is terms John? So side, headcount Discover. the technology priority both in

John Greene

items X.X it months wish Ryan, then, about We on were to work. increase to relooked as say XXXX accelerate I that $XXX was increase million some publicly $XXX about XXXX we gentle an ’XX. the as of and we million and to increase it. compliance And so to $XXX from a to probably ‘XX our ensure XXXX, we and made I'll works increased trajectory, I in ago. compliance spend this comment it at indicated to going million spend

for desire, to implications our ’XX. on into expect of kind of expense relatively ’XX, consistent we deserve, we to we the achieve then we this And desire that shape where piece regulators that reduce. level be our today, ‘XX expect Now as into that once that business we we in something shareholders our burn and sit

Ryan Nash

credit, back Really range But appreciate expectations the normalize. took the the about book maybe to just all as I have well then that think front credit talked Roger on for bit. the color. And you book as loss normalization might to continue down a of

year? maybe So can about the bending curve confidence approach performance talk John? As about improved as you you're look next sort the we just your just maybe Thanks. in where of out, one talk seeing on in, the you midpoint losses of

John Greene

Yeah, great.

the tightening range yeah, in a was things. So reflective of of couple the

it. and has on And on of been top right comfort get we the on, actuals, moves our forecasting. forecasting right our been on of date, with time as first, actuals forecasting have top to more our So more

So that us comfort. gave

as Second -- rates XX move time a days day gives and of model out kind days traditional from can us greater XX the delinquency model level is, we out. comfort goes around roll XXX on, to charge-off that the to more a of analytical rate

gave that, comfort. around forecast data us tighten jobs to comfort the gave additional that And the us -- of then jobs top range. that So on and employment certainly

terms portfolio, the the we're In what prepared of comments. seeing what I exactly in said with

seasoning the and of basically older So XXXX kind levels. normalizing newer to expectation vintages vintages to

back to half year which this And the to bit terms a we're of but charge-off terms quarters of the the kind we the of we're of, do charge-offs peak right in ’XX, three charge-offs the to after. to level, and curve, it in In for in begin ‘XX currently, of the push little may the that in shape is rates of acceleration to stabilize half what now expect second half will slow. expecting, of reach then of ‘XX. It second into likely two seeing the

Ryan Nash

Thanks for all the Great. color.

Operator

We'll next you. Hecht Jefferies. our take Thank from question with John

John Hecht

thanks And questions. guys. Morning, for my taking

talked occurs of year. what is loan next giving which year, of the the I'm and normalized you that forth, into the the comps is good of I of of us inflation we of growth -- is the trajectory to loan credit expect later one do about guys kind wondering sort see this trends, of and First you stabilization early of what some normalization normalization guess so when your kind opinions, level and growth? given

John Greene

Yeah.

and So first in certainly real quarter the robust loan growth last the XXXX. half of this year of

increase third and growth also to And expect X comps strong XXXX. from growth. times We of fourth business what and GDP between has the is rate slow this somewhere certainly quarter X really and traditionally loan delivered really, the times in against

year. right We on lower is the indicated, but Now, which and we and mentioned going like now edges seeing, I this the of stabilize growth is slow single say don't balance as We're the GDP account to credit growth my probably -- comments, I this. into sales will would what in for look to in new impact cut card the quality, know digits. ‘XX, in did Roger

also So of loan impact into that growth year the year. this for will and next balance

credit. to the stabilized a some investment appropriate macros multiple a is it's that good the credit to unless GDP So to up number or open tighten of there's either typically change indicates

John Hecht

required is I there investment and framework to some respect forth. you technology -- past helpful you then climate is expense can a any talk there, you and about -- Is That's And the at competitive years. characterize overall spending in Yeah. or well? point few competitive as to think so I'm environment any do relative think a from with the maybe have compliance in perspective the there guide, about. wondering investment competitive this talked the about to some

Roger Hochschild

that, the the cash but from we what the in to think good excited back our debit. fall, terms terms I including talked We'll account campaign the money work have there. front mass with we we've been we're funded put account. results relaunch continue per in cost to per seeing about in some against marketing put of Obviously, way the see of cost market of the on

businesses, is across -- competing how across about all intense good yeah all feel the competitive consumer out our our there we So while is our value environment always products. proposition of of

John Hecht

All right, guys. Thanks very much.

Operator

Thank you.

from comes Wells Fandetti question Fargo. with next Don Our

Don Fandetti

Hi. party? was you the John, I or regulator talk wondering that third you internally on found if that or Was could a was merchant to miscalculation. by brought

John Greene

internally. found was It

Don Fandetti

pretty talk competition, there Okay, that? like than trajectory you around XX%. in great. the you sounded was can general. And now or deposit then about And it promotional a Is on it's NIM, to more more thought going good bit be

John Greene

Yeah. a little The of both actually. bit -- it's

ended likely guidance we And a up I'll ‘XX downward higher at we has be said in modestly. we then then it the XX.XX%. that begin say would NIM it move than call, So and has We peaked would what -- been historically. level likely said normalize, quarter first initial to to and

was we the that investing promotional So we -- are reason we in quarter, in that guidance the tweak are balances.

So with balances attracting customers new existing building customers. or

on points important impact But that in are the was Now, took on NIM a net minor. short fantastic. term communicate. given activity offers the of promotional we interest impact it The those an period, it's And to thought there, out. margin returns our few the and

quarter as said assets terms brand, our attract our somewhere What around deposit our we've in Second, in as more seek in try that come terms competitive and is in XX% the the this price. we are can customer being into set was compete tell by of had And leader offering, a late would be numbers deposit successful part increases. don't very customers. seen price And there. proposition you in to we We first in to But communicated the XX%. thought of price to class I've beta we've been quarter of the competition, we digital that our first also in on the that to past, order here. aggressive

what I is just margin talked north So which seeing we're interest about the be impacting to is net guidance of XX% extent now likely to the in betas point.

are So outlook. on those two revised most playing substantially the factors

Don Fandetti

you. Thank

Operator

you. with question Sanjay KBW. from our We'll Sakhrani take Thank next

Sanjay Sakhrani

I on be a do expense you terms morning. order. the just could impact talked caution? just taken your one, or of Is secondly, there moderate into Thanks. Good guess, repurchase on I for of you prudence expenses XXXX. a follow-up like, the to out made in And of material there capital that other I consent couple on the lines have Maybe sort an that to of Or first think the share on overall abundance on, points of the action year? pause. a position? on leverage John, the pressures guess -- are is there about implications a

John Greene

Thanks, Yeah. Sanjay.

on So share the of was the decision prudence. out repurchase

number tests we and a that in the a ran process stress. internally, example, some capital an simulations. extreme liquidity, stressing regulatory output We above through even of that CCAR that that was done And We dusted factors, and off for have the of both of go number remain extreme well so includes requirements. situation,

on and dealing message what conservative with consistent in So wanted liquidity. The and capital of are organization being of about again we the make we prudence first of going actions the in given level with terms right the was on share our priority. comfortable we repurchase the out that to our sure and have feel issue

of… terms In

Sanjay Sakhrani

Okay.

John Greene

continue make and resources that incident a in with significant expense investments leverage, of situation look of of we base we're get terms the of dealing lines and under to the all management our to expense we all investment. That's at terms in In control. the

certainly an Some people investment. technology, resources supplement consultants, and

to concentrate on and the demand indirect a ensure organization making that, management procurement second, exchange. then, leverage first, and our value we continue on sure there's fair side, On we

now So and right that's the through year. plan be the the plan will of this balance

Sanjay Sakhrani

comfortable just the year ago? bringing the for complexion just very and the you really having about teens growth you've above in thinking such. of very accounts and I'm gotten you mid-teens, teasers the on it's know this follow-up because of growing higher of comfortable obviously that question guess I high I strong thinking what just I'm NIM. Okay. the Roger. strong I past the a mean, about lapping some I makes you're here sort mean just implications makes in

Roger Hochschild

Yeah. question, Good Sanjay.

for start what loosening isn't that You necessarily have accounts and sophisticated credit, carefully. the slow as I'd seen far And we say line we really not competitors. that prime I a from tightening, very been with we've been it have are out focused to It our product. demand the seen growth watching And of book you're clear, is bit. other, think strong

loan And so are product, to we're card But we closely again, adjustments good whether feel the elsewhere. always ready make the or in personal the monitoring it's and performance.

on continuously portfolio in. to adjustments credit, of resonate side we're part is account well the new it Within that And accounts new these with both and proposition offers the But very side. I we're making the bringing strong Discover value our are target customer. the continues think differentiated

Sanjay Sakhrani

Thanks.

Operator

Piper Sandler. Thank take from Barker with our We'll question you. Kevin next

Kevin Barker

Great. I particular. Thanks on my in follow-up to the just for taking wanted questions. expenses

You just target go ratio have additional the investments, the have spend XXs. time a said returning account Could there around to ratio continue Thank before additional you period the it, high of both the a compliance where and you be given issues? above marketing in XXs near-term would particularly compliance back make you time to for on that to short high you. efficiency may debit of efficiency impacts

John Greene

Sure.

we I'm But very, taken achievable. shared But growth that why what like say today, of after approved our -- of this with enunciated we next would that a we'll And time very after at or feel -- I it's goal. -- we share digit comfortable expense target at So as our preliminary look We'll here sit low appropriate that's terms kind share we get that and We've in this. double by plan feeling Board. we review year. we year.

and expense for a continue We're And dial the for Roger's our point term. team see longer that in opportunities expects the want, that the compliance achieve to side on -- to take that on and that profitably contradiction of each we about the to focused to growth now Board grow right do our invest we'll results term levers our the products, we're the and look side. to ensure demand not earlier we going expects. and and medium no but order we'll management shareholders As

Kevin Barker

Are you particular out to where hit whether you there opportunity see create any to to efficiencies, marketing allow it's areas headcount that anything most continue the that or or can there see you your goals?

John Greene

Yeah.

So we're investing driving in in rewards we're advanced analytics our that efficiencies cost.

We reduction third-party The achieved heavily unit year-over-year great and is continue terms in have to at spend resources, people. look situation results invested cost. year in that of in this we've

this up -- people we're year. So X,XXX up about we're about

bring other So both personnel, there's with costs as when well customer salary collections service along that and you additional in people, as it. go on

we're now, with right talked are and through So about. deployed the be future. that efficiencies then organizational the to how I right able we've decided situation as get this to drive resources that. time look we're we've taking efficiencies manage to resources issues priority at structures to on activities, there in we in will going And is situation, the believe a in, like drive over to But continue combining opportunities to the focus be the by first optimizing

Kevin Barker

questions. taking for Okay. Thank you my

Operator

next Bank our take Thank Bhatia with Mihir of you. America. from We'll question

Mihir Bhatia

and business morning. new my you're taking Hi, for applicants you the question. the to quality of Thank application on just seeing. start that good Wanted maybe

underwriting past you've health of in firstly, that underwriting I underwriting. of John's guess, here there new if of response the just something know red actively you understand a -- is was you action is the application think -- wondering loan demand that just to you that's you in quality, and for second and trying question monitoring quarter? applying in -- the making a who consumer tightening was the I underwriting driving I some what's is seeing or mentioned changes? or talked tightening just new to And the then the further to took caution related about environment currently, that portfolio. who is the there tighter Was monitoring flashing you're I

Roger Hochschild

Good Yeah. question.

not seeing. FICO, loan scores quarter in personal So loans, characteristics stable in terms card, it's whether in quality, we're And we're custom in actually terms of and was or tightening not the was equity, for terms we in to where the second of something average in student use. of response seeing home the very applicant

we was lot it made, this would applicant quarter. of of say, course of a in the prior a But of in series So I of changes stability over quality quarters. terms the

Mihir Bhatia

next with it Got what is guess, the switching just you the need and they're strategically more bit the in the the don't what that product Discover it. idea talk this quarters to about few talk to because here? as product And Like, -- little to go Will higher over Can you? through strategically, the, thinking the if term and then opportunity how a expect gears to the offering will relationships rewards, there, -- interest for that be of relaunched. debit product invest offer goal, was can to is the you longer I makes necessarily that and you better sense behind maybe just trajectory customers product, why deepen lower is you growth is how rates? that benefit NIM

Roger Hochschild

great Yeah, question.

So, be our leading digital aspiration bank. the is to

can. debit our when proprietary debit credit about can it you a bank, builds way so on DDA or other in large And And we offer card and around about bank cashback network, product. the think the because a think heritage rewards in inventor have we of as no you core digital And a rewards.

products savings and you experience, from where product. accounts provide over customer new can side, think pretty done So for that point quickly this and have become or it's customers. buy the and also value you customers. account savings card the into card whether other not card a we've franchise significant on will to a lower superior our checking the you if a as the that's want can much just proposition time, to We they cross-sell have And entry then a account beta to to

help you'll potential So very us, think the we're see transforming over Discover. a will against I excited again, fall. initiative for And important significant marketing and time, for continue this it

Mihir Bhatia

my And just it. question. Got then last

difficult compliance Just coming I to this the FDIC order us consent given it's reference, appreciate it details timing, related on issues. also that like, is back issue, -- of many provide give look, is frame now. too But sounds like some the to compliance the maybe right just

You have loan issue. student the

here go Now can this do you that think entail go have through? a or period longer quickly review like Does issue. this two pretty much to or a you quarter

you the you saying resume how quickly review not to the to expect you complete, what probably internally? when understand I'm the regulators cite. to trying -- trying you're buyback bit -- a when least at like the maybe complete it's little then could are maybe what review can buyback you the But tell you to are be but review? review like complete your is trying And Again, to when harder us, at least and be involves discussion for I target

Roger Hochschild

top know This and priority. over-focus the regulatory issue, to frame to not something are portion. I it is where not want where we our And as the we is team on be Yeah. would compliance a we

be And know business focus of result is regulators, standardizing about manual efficient architecture, but it new the aligned on great simplifying not the organization. processes, the our talent firm. automating many a better from talked and forms, So the bring we more compliance into just that as better experience will customer and our with but streamlining John is views taking processes, some

the a separate again, think also are would on -- regulatory this me, but again, committed critically that one future excited team that multi-year initiative. we compliance most from I be the area. in very is what will achieving and are but the team, most the But buyback. be I important it the a important, about. But we would piece will commitment of journey the is company as So the important I to side, that on Board the XXX% That is from one to. a excellence say

Mihir Bhatia

Thank Okay. you.

Operator

take from Najarian We'll with you. Erika Thank next question UBS. our

Nick Holowko

for Erika. taking question. for Nick on This Hi. Holowko Thanks is my

issues. more Just one and the consent order compliance around

in whether take as else? and some you the operate issues, an loans Thank through feel you. looking you like of or you operational closer about complexity anywhere operate to the be your go think view businesses there in, at be you As businesses do opportunity might that may look a into of you these student the

Roger Hochschild

broadly I'll John can about the talk businesses. about complexity and then talk maybe more Yeah. operational

opportunity would I bank differently. And we done a business is it's think set -- more, other to a than size. I we there's great about of have say, again, homogeneous much just process any a have simplify, is similar whether that or may

are and again, help there from think compliance we significant the So it just won't simplify, those over time a to on side. made, opportunities help once standpoint efficiency investments are will the also

John Greene

this line and what Yeah. think we our customer about with and allocation our And capital then we to our our well. regarding can base manage and in products, connections priorities, businesses manage

compliance excellence. drive So or growth in we our those, we we've looked all to at didn't as to invest today. and start returns achieve made order products, Historically, look at our we've decisions

But deliver return And So we're make for we our alternatives. a if focus products, those then it good good continue going look and the to in offering drive return existing our they're other at today to that. we'll that to certainly, way compliant invest something's can and fix is shareholders. we'll below take or at our a targets, look sure

Nick Holowko

Got question. my it. Thank taking you for

Operator

from take Napoli William Blair. with We'll next question our you. Bob Thank

Bob Napoli

it I you, Discover is your as -- morning. from the competitive returns Is XX a Thank to are compliance good there higher the the set? compliance that over can -- look years? used of with at Roger, confidence business, you what bar delivering or big has the picture with confident the you in come and perspective last And have that those the environment, types your returns that competitive to investors deliver XX just environment,

Roger Hochschild

Yeah. benefits to make. just It as yes, by in efficient. that will not do we'll compliance, This I'd again, I company, And customer top start but need able see more is saying but the an well as a for is one the think experience priority investment be over we in to fix. better to time, right? we

If business about model never excited I've you more it been step way compares. and back, Discover's how

be a to and anyone. tested, deposit resources but with the our card the at think banks customer the our side, awards when our of winning only experience have just leading seeing not products. being we for around time deposit I to edge We're are on analytics, investments scale are compete you're and the at making many franchise also strength data the

re-launch of We have the cash back debit.

So we get in owners, of part of To bank, model, to you all on to to the be terms that a Discover, to That's compliance excited. operating the need and of in my more years the at never I've need financial services critical business organization. give though, a get returns standpoint. we can a our XX where been to

are We and there. need to going are not we we to be get where

Bob Napoli

on just of followed time, Discover you're lot out become I few number Discover. at by was big some more been it lot consent investment orders color how there's don't out people on long great I of versus become it's maybe -- a the and -- know crisis, if compliance regulators, in the a difficult? for coming give or expenses follow-up, a what more including know, compliance a compliance, today. across put a there difficult? And has you. mean, -- it a it quite become financial Thank investing historically, Has but very percentage having I in industry us has

Roger Hochschild

some manual accountability I simplify, out on that, risk management, we not back, it talented Yeah. the on invested I within area, take folks but It Right? John, From bringing to highly under compliance think, something highlighted, believe And and environment, now. do certainly challenging I look a I'm that's in very not is but forms. investment focused going blame that As takes are I as many we right? for, think technology the around it's but of of increased. and investments And compliance, building necessarily our automate strong have monitoring needed, liquidity to very especially been right? about the the management, around business our made processes, management, the risk side as a it, complexity investments you risk as standardize, folks, lot credit we've controls, traditionally, we

into products, terms gap capabilities new As more on our that's we and there there was now. I we're think in what focused a got of

Bob Napoli

you. Thank

Operator

next We'll you. Thank our question Citi. with from Cyganovich Arren take

Arren Cyganovich

Thanks.

charge-off peak north normal is that ’XX, and of possibly would -- that net underwriting charge-off expectation highlighted half your into an you ‘XX into second kind go the that for of rate? of On it

John Greene

mean, we gave charge-off range. No, Thanks, Arren. I

Now targeted deliver been Prime there's And high that to of numerator that. we've able our been expectations prime calculation, and where on on looks our a return impact course. focused denominator remain segments behavior it's But very, to revolver very our historically. and revolver. is consistent underwriting on in

relatively analytics and terms going north of I've we I historically, four box in years factors, longer understand a been has the is of improved over kind of and and than customers it But feel to So it vintages. seasoning that. to risk kind be credit target those has was certainly consistent, our new journey where have been of our like here

to So me continuing the in to comfortable high able generate trajectory of to returns and very, be very terms looks deliver capital.

Arren Cyganovich

million just you And confused costs opportunities just on then then And your there. compliance expense just -- as $XXX up you're planning to like if down earlier, I million then to the little million could sounds $XXX the pull Thanks. $XXX million. numbers? rising. the to clarify annual to think gave you $XX marketing Okay. are it and I'm those clarify numbers then like not trajectories you a on that on and back the are commentary, on said

John Greene

cost? Arren… the Was that of question, compliance management your Trajectory

Arren Cyganovich

Yeah.

John Greene

Yeah. overall? …or

focus client So on I'll start with marketing second. the and I'll

generate still we're our to there. decision pull made understand and the returns people customers prime a on from that deposit haven't targeting that putting products revolver we're hopefully that back in find also segment. We we're see helping opportunity We positive And marketing. towards money to compelling

the cash year. on the the have campaign of second back half the for also We debit program slated

year we So where beginning how them dollars, the are we at the with remains of about marketing consistent today. the thought

think short-sighted given And order in to pull back we're number particular to generate to frankly, to able it returns a manage I high been would have there. the

of XXXX was we cost, XXXX. in terms referencing the where In I to was what compliance are

$XXX about And public was month that in increase so I a from forum, said a to ‘XX that million. ago about ‘XX

million, here. us, to at dedicating looked the much $XX as work we've in over million that we $XX of million above an As as front it, call maybe incremental, $XX are and

be from compliance related $XXX clarity? as could about in $XXX the to cost. Does million, so but that total not it million, we're delta So ’XX, million as $XXX maybe year-over-year, ’XX and up ‘XX, provide much

Arren Cyganovich

it. I it got Yes, Yes. got Thank now. I you.

John Greene

you. Thank Great.

Operator

Oppenheimer. with next you. Thank We'll our take question Dominick from Gabriele

Dominick Gabriele

morning, everybody. great. Hey, Good

at And you mid-teens. low XX% growth I When look me, to to basically. loan So that about means your guidance, talk

loan growth X% those digits this fourth indicate the that X.X% be growth you're half at XX% And to it spending in would trajectory lines range. X% it second loan range so month. you suggest if end in roughly growth being the moving think loan most single would or general, the would would guidance quarter about that be discussing, given to would along of probably recent the quarter's and that or It something low make

or was roughly? thinking great. If curious that I so about be that's And the are about that'd you just math we right if could that, talk

John Greene

I and a have liked. as found not to I because guidance other that I give would long not would time learned accurate I ago was have liked Yeah. quarterly as people

a the take talked growth can So we range about, look digit portfolio. on driving some made what double that of, We it. the the comments was kind you of, at

slowed. to high slowed So ‘XX a the quarters new certainly tougher accounts ‘XX while has still level, an and And comp. certainly is fourth new targeted comp activities Sales, account We're high robust ‘XX returning at July. very generating, doing have into of prior the drive absolute growth accounts. quarter versus to promotional in

more did. what math specifics is I just and don't I want into math So than to certainly get your any your

Dominick Gabriele

data. there No a move rate some could And higher if are state start the national problem. unemployment to at then, the Thanks signs of you lot. that some look

it late kind fees unemployment And effect indication has the income a and that are a robust you ultimately bucket? our without been in book this expectations to have to charge-offs that that, rising it than more in higher for the same fee effects If quarter. otherwise loan additive just rate growth with time, quite maybe going an the seasoning your effect? seasoning on to by lot beat of of quite seasoning could the the its saw Is relate at a and that net

John Greene

Yeah.

So --

Dominick Gabriele

Thanks much. so

John Greene

both Yeah. is to answer questions Arren, yes. the

employment that cohort they if was In are loan -- that this. net offs. the job would recovery we've I folks of levels, fees. quick. NSF seen typically and there is situation, time is to if impact unemployment we would by a what the in of typically their But of pretty terms late So fee say fees income, increase, And certainly charge target, impacted

a role. finding mean, I new recovery, by So

opportunity tier jobs So that fact greater the this of the to allows pay income current them levels equal revolvers prime or more cohort of upper in equal -- find a isn't pay environment. of to the have in

credit employment So some we don't the for indications -- see of that or challenges employment early into translating a sign states, situation any us. in some of

Dominick Gabriele

reason the If Okay, been be -- payment going past? rates, spending normalization we more stability there of and any don't growth they have the a one of that loan meaningful in spending is of its see Discover growth there great. -- and fashion I'm in would uncorrelated as is typically trajectories loan Is the matched over here. model. growth given growth your to business sneak time trajectory

John Greene

Yeah.

our at So in this And of that -- going not to part loan in that growth. I'm that get into. data to correlation, opportunities look the form, But at of we'll or the guidance specifically next sales set provide. consumers drive reflect from spending kind we is look of we'll data in and

Dominick Gabriele

it. Appreciate Okay. much. Thanks so

Operator

Thank you. our Ryan We'll take next Partners. with from Bill Research question Seaport

Bill Ryan

thanks I about XX-XX, about growth there? of Could the this also end. opportunity customers, that's the talked that was you historical if case? you're but mix believe Hi, just the that loan had Last seeing about the the mix you good and And that in working market there personal me did, morning still marginal new fairly talk robust business. you was at on loans here tightening existing some for quarter, Question you versus quarter. the curious

Roger Hochschild

Yeah.

them go. they much So and say others a would us are in down say, terms competition, bit than terms lot of pullback there markets are number from, a of pulled been there's little out. overall supply of in as spectrum how more I on But good the competitors. of I'd they A of far side a broader

you're pay strong credit rates consumer really and seeing have their up consolidation, looking down debt I our primarily as for people and consolidate cards. what are used is product think gone demand to is

demand we're even strong is the that strong and prices so very us ability margin, to seeing at credit And raise and our demand. giving tighten see still

where underwriting existing it's credit mix cardholder The to are everything. is a and is a our product but base. So largely cross-sold good amount new,

have also experience with So where its we customers them.

Bill Ryan

Okay. Thank you.

Eric Wasserstrom

So I there. think much our call we going us. are very to joining for conclude Thanks

out any you follow-ups, If very IR we good to team very reach a day. Thanks please the much. have and wish you

Operator

today's conclude does Conference This Services Quarter XXXX Earnings Call. Financial Second Discover

time, You may this have a disconnect and your line day. at wonderful

Discover Financial Services (DFS) 20 Jul 232023 Q2 Earnings call transcript