DFS - Earnings call transcript Q2 2024 | Discover Financial Services

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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 2024 Discover Financial Services Earnings Conference Call. [Operator Instructions] Please note, there will be no question-and-answer period after this morning's prepared remarks. After the call ends, questions should be directed to the Discover Investor Relations team. you. Thank Instructions] [Operator turn over now Mr. the will to call I Strategy President Relations. Eric Vice Corporate and Wasserstrom, Senior of Investor Please go ahead.

Eric Wasserstrom

of which Thank you, financial referencing X by call. section I'll earnings and welcome Relations to Slides this of our X website, in can find you morning's Investor begin our the presentation, investorrelations.discover.com. and

forward-looking that in refer contains results the to actual in SEC. second certain today are other to discussion and earnings and cause notices statements that press filings appear factors annual subject our presentation as materially. may Please statements to quarter XXXX Our as with report forward-looking detailed risks the the our regarding and that uncertainties release differ risk well

John question-and-answer Greene, be Chief There today will following Officer. session our call include our will Interim and Our Financial no remarks. from remarks today's CEO, Shepherd; Michael

However, inquiries. any the available the It to will over is to Relations Investor turn be pleasure Michael. call my for team now

J. Shepherd

who and and Thank today's we you, good, morning, strategic second Good advanced very call. Eric. our several welcome priorities. have operating was Discover's joined quarter performance guests to

of and accomplishments. Let to a few and portfolio student sell of entered our agreement these me private loan we On July partners affiliates limited KKR. into highlight an Carlyle XX, to

business which assume financial few a The Firstmark, important has This and will agreement the completion simplify milestone to also responsibility a represents Greene of sale implications, in Nelnet mix. division portfolio detail of will moments. operations our an servicing the for upon sale. John our in journey

affected merger and resolve internal including our parties Capital key extensive card approval. subject resolve associated with the and into upon a court One. pending our and The litigation, constituencies, card and including the intermediaries. our based to management claims entered merchants, posture, resolve with to decision settlement by The acquirers merchants compliance by would we misclassification, issues past we agreement actions misclassification have to with merchant and regulators class to strengthen continue As agreement was dialogue the settlement settle risk reviews,

to sufficient the terms the Our of settlement cover the under expenses current is remediation agreement. reserve

benefited Payment Discover a also was results from settlement Our segment, Services in the where litigation plaintiff. our

happy are the have and financial with are favorable outcome. satisfied to this resolved We matter

our filing integration to merger virtual the to Upcoming hearing a comment merger-related process, teams Capital public written the public hearing are and merger One. applications. well include One integration regulatory proxy. Reserve by in-person turning continues with period, lead Finally, planning Capital planning Bank pending working completion and hosted together on the and Delaware milestones OCC, of with the definitive Federal of an the and the State the Commissioner the the

votes expect shareholder to this occur fall. We

company by processes that We believe merger XXXX ask compelling. combined I'll are and the planning now and economics continue are scale of how the are financial the strategic review that, results. progressing With to Greene John and quarter to operating second rationale, encouraged application our

John Greene

Thank which I'll with you, net prior XX% year Michael, $X.X was reported financial In on quarter, up from summary quarter. of income we and X. good Slide everyone. results start billion, the the our morning,

loan charge and largely expected reserve favorable of And facility. a our from Lake $XX quarter. from litigation expansion revenue release, view growth, the the of a a There are one another unusual gain near losses Credit plateau second sale misclassification during million impacted $XXX penalties margin perform that noninterest growth. will with by which related XXXX. driven matter. and of loan for the These line revenue was several our period to the are settlement regulatory items were peak supporting included net the in in performance expectations, higher fundamental and Our to student million card offsetting the interest half continues Park

of about reported we EPS $XXX million have items, per and net of would approximately unusual income share. Excluding $X.XX

X. Slide on the review details beginning Let's

was margin net basis at quarter-over-quarter from by mix. points margin the up On sequentially. promotional the up expansion balance lower and Our driven a quarter XX basis, basis XX.XX%, prior XX interest primarily year points a ended card

its declined card XXXX X% at a normalize basis rate category to a during which the of being payment and X% promotion about result included rate to XX a sales is year-over-year in sequentially now Card XXX increased sales XXXX restaurants, receivable X% peak. early prior the contribution points about payment the quarter. anticipated, and due new to from above continues receivables As basis year year, for levels. declined points down compared a spending growth from Discover The to lower smaller is volume last accounts. large compared as were first

of influence relatively categories, trends the for sales stable. are Accounting promotional

reduced spend continue prudently X% tightened year-over-year. underwriting were evidenced originations. over most member with consumer, being conditions, XX% lower loans from were prior by In market cautious year affected. We down to income response loans to past period. we served modestly households see Personal which the Student card to has less year, up a the

mentioned, into Michael to our entered As agreement we student an portfolio. loan have sell

to balance We added timing, based the purchase end rates transaction formula that a the on a and XXXX. has depending expect is the The interest of to on by premium varies in X tranches other be closing price and completed the factors. principal

will loan rather were sequentially. the credit X% Average net up charge-offs from through being held will year-over-year XX% than future loans student recognized that reserve X consumer benefit for which credit longer now financial operating the we student The development, managed loans and notable in loan this our losses. no with to student sale. accounted to a relation sale. maintain balances most expense as are are for association impacts needs, student are statements deposits Deposit In for and will be liquidity

average with has leading deposit deposit in to a modest pricing the quarter, Our rates of in on of pricing reduction disciplined led cycle. industry approach the down practice to the consistent parts in second our

result of revenue Discount lower a Looking as on and rewards increased income $XXX interchange or cost. $XX at Noninterest up million was X. million other revenue Slide XX%.

litigation XX points reflects decrease including year prior basis, sale. decline Our settlement period, The to the revenue the facility versus the an rewards basis due XXX basis was and income Other grew match. rate cash in noninterest back points adjusted unusual of lower XX%. quarter. a the On items, increased

expenses charge operating was XX% $XXX to were Moving expected driver to increase or significant for a Slide expenses of misclassification million this The year-over-year. up issue. regulatory on X. Total card most penalties the related

further amount. important have year-over-year. expenses note imposed by less this our that to for is increased It or charge, actual to are subject would penalties X% be than and this more may Adjusting discussions

or Compensation higher investments recovery to resources. $XX technology and in our categories. risk driven fees at due costs Looking management. increased increase major Professional XX%, in compliance by million and an business were XX%, up million primarily expense or $XX fees

with upside Our risk the excludes bias. management expenses figure expectation for related full This an for misclassification cards compliance costs. the in million and range $XXX remains year

Moving higher was quarter. to our quarter. points a perform points improvement credit the XX-plus card From our the basis than XXXX perspective, X on vintage. in line down prior down card, XX XXX performance basis In prior day continued. with vintage The basis rate prior Total year vintage Slide XXXX points delinquency versus and X. delinquency charge-offs continues to were the net X.XX%, from formation

from could peak our and broader there card not to into credit the actions various taken. we for this generally half both management we've losses of some outlook losses seasonality expect second look changed plateau we in variability and be This year, year. the As monthly has

on for the credit Slide to allowance Turning XX. losses

Our growth. by reserve reserve reflecting declined the support balances offset build from credit $XXX loan quarter, the $XX million release, prior loan reserve million student partially to a primarily

adjusting for unchanged rate after was largely over student X.X%, just reserve Our loans.

Looking at Slide XX.

by Our earnings Tier stock. per Slide was reserve core for bolstered XX.X%, XX. release. generation period points, dividend and the common We a equity cash declared of XXX $X.XX Concluding X basis quarterly of common on the share up

outlook our loan pending the XXXX revised and student impacts included have the having sale. We of

sale. the We are low prior billion loan be our loan Absent single $XX would our reflecting growth digits, be consistent to this, with growth year-over-year down view. roughly updating asset expectations

our sale, mix are XX.X%. which reflecting by X was This We by interest now balance to about anticipate lower XX NIM We to driven margin basis promotional card points. and increasing change the higher increases a factors. yields student loan net range XX.X%

loan Our operating line unchanged, the net the in guidance is inclusion student of charge-offs item. expense this notwithstanding

solid charge-offs to end consummating finally, points call to our to to from the generate To includes range. concludes remarks. compliance resolve summarize, capital case in X.X% And This we loans. not management expectations results, our planned the remain forward basis base over financial low remains turn impact X.X% our I'll net to operator. the continue at This the the efforts back and for look steadfast student our changed. of XX Our merger. have matters

Operator

concludes for Relations available be joining. call. for Investor The will This Discover team questions. you Thank today's

You may now disconnect.

Discover Financial Services (DFS) 18 Jul 242024 Q2 Earnings call transcript