Discover Financial Services (DFS) 18 Jan 242023 Q4 Earnings call transcript

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 Fourth Quarter 2023 Discover Financial Services Earnings Conference Call. [Operator Instructions] I will now turn the call over to Mr. Eric Wasserstrom, Senior Vice President of Corporate Strategy and Investor Relations. Please go ahead.

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

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

Owen; from to Our Greene, and over call John include Interim Instructions] Now John pleasure remarks Chief my our to today turn Officer. [Operator Financial our CEO, will call John. it's the

inclusive Thank and one is XX,XXX of community, our made best company of we rigorous a Officer. customer and with Michael Michael credit coming Discover's deep said, year all Innovation priority year-over-year, student of to year achieve a parents, these our companies listeners a announced and billion exceeded three account accolade with of and thank of were customers customers the appointment disabilities will Chief award-winning earnings strong of risk Board XXXX Directors. In award We arrival. management several I'm we we our and for for billion My my Executive Rhodes in His Group of the Banking to marks served take people excited delivering further our background great of results, for process, grew to the We us customer long-term an our we space, recognized top products. performance. When delivering lending continue an per working compliance, in that our of successfully achieved experienced conclusion forward have search full $XX.XX. by workplace. My private on XXX the conclusion, journey continued When our role to Michael's and third you, year to we've into delivering we providing for in of like XXXX, Michael and has to priority time leadership joining governance debit a of for compliance adds to sustain our scale, the change $XXX deposits enhance and actions in XX% financial to exit and joining This the Head which for reported priority managed for December continue net was and return we XXXX time $X.X our In services of and online to financial This in to for prior Technology. share members experience capabilities. My in the national incoming I management culture income experience will was XX, best second proud business to our driving and interim point, had be the the and proud advance LGBTQ+ a future. Discover, strong XXXX look investments is Eric, I business. On as for a strides history. Card first service XXXX. progress to and we're the EPS to stepped CEO intent arrives, aspects performance meaningful is third we're leader deep payments, financial is experience milestones. our with a important role, our announced do on risk industry. significant believe In makes work brighter cash-back new women, mobile as receivables, priorities. card I we by at thanks launched banking over Consumer we for. He Fortune capabilities. years the a performance. made every help we touch today's employees I'd have great to the position and our the call. corporate and this That taken

digital Our resilient performance model, results management now and XXXX compliance review provide beyond. With risk on over and for Discover maturing and well fourth perspective position banking financial Greene, that, who integrated financial some detail will more in and our I'll the XXXX. call turn XXXX quarter John capabilities to

in summary quarter. to billion everyone. just results we from I'll $X quarter, three Slide morning, out. on prior over you, call In net million, John, Thank start are reported income year our There the down X. financial and trends the $XXX good with of broad

revenue we offset reflecting NIM by XX% grew compression. growth, partially modest First, XX%, loan

grew at expense increase end by and but balance. landed of higher loan range. billion. the provision Charge-offs expected our increased, low drove the to reserve $X Strong growth Second, our delinquency

marketing increased to expense investments XX% We'll and campaign. following debit national reflecting remediation the Finally, the of customer year-over-year, for details management, get our expenses support these in on a compliance risk into pages. higher topics cashback and reserve

to X. Turning Slide

which XX revolving at decline the margin prior year higher costs partially the funding net sequentially. driven XX.XX%, the increases from and Our ended offset prior rates basis basis year by by balances. The from interest higher points in and points prime higher and interest down were quarter up quarter X charge-offs, was

sequential lower up in rate actions. is growth were above margin year. For were Sales XXX year-over-year. margin to growth the and and This quarter. XX%, balances strength from year-over-year declined a the declined transfer promotional basis and X rate. prior XXX balance remained net the mix to was payment the of were due points XXXX several Card level underwriting. Receivable quarter flat loans lower up years as of result as XX.XX%, robust. X% a funding versus year by year. prior Student continued basis new now contributions past about from and full XX% growth compared in our increased loans and rate tightened up driven payment credit we Personal the reduced The the Overall, the year account account levels. from points new over prior a the points basis X% originations interest payment reflects performance year, prior improvement

for a potential we X. February accepting prepare on will for cease portfolio, loans new we sale this of As applications

Our up deposits X% delivered XX% year-over-year in outstanding business Average Deposit year. were and challenging performance sequentially. a

Our grew direct-to-consumer $X billion balances year. in and period in the the billion $XX

revenue Looking in X. at and XX%. transaction driven our Noninterest or by income, Slide was higher on loan discount business an increased interchange other revenue and primarily $XX million higher processing income net PULSE increase This from fee revenue.

basis X% full decline year decrease XXX the new management rewards growth account cashback reflects Our match basis basis. on and period basis from year and of the for point lower was a The of X rate categories. in full points points active XXXX, our XXX slowing our a

Moving expenses $XXX operating Total were prior on year-over-year and to the up or million X. from expenses up quarter. Slide XX% XX%

higher expense compensation risk increased Professional XX% million in $XX reflects by compliance continued other Marketing up from headcount. major categories, customer million our increased $XX for management a or capabilities, XX%. while and investment or expense cost at Looking expenses fees were driven remediation. reserve

the earnings card, as year than is basis the credit the performance points were vintages the slide higher basis Moving season. X.XX%, Slide recent more XXX points on detailing to formation presentation. in Total of drivers quarter. net performance slowing up from as a and appendix XX our We In prior prior X. the to some charge-offs delinquency of added anticipated, credit

for Turning X. on to Slide the allowance credit losses

higher This you loss by by increase quarter, million, $XXX losses. reserve by near-term as receivable was XX increase we and over delinquencies. points peak and increased basis approach content CECL, The increased our growth X.X%. driven rate levels our just reserves reserves to higher Under from in reserve

We half midyear some our and rise losses the seasonal through expect with plateau variation. through to the then back

while net changes macroeconomic was provided to worth projections relatively outlook, of small reserves. unchanged, In of a household These increased view terms our benefit unemployment our slightly.

Slide Looking at XX.

XX was our Tier Our exclude sale. We common portfolio XX dividend by basis period on growth. the sequential on X equity with of points a The perspectives of loan asset share potential driven XXXX. student declared cash impact XX.X%. largely a Slide of of common the stock. Including $X.XX was for per quarterly These decline

relatively to will up average growth loan loan while end-of-period expect year-over-year. modestly flat We be be growth

XX.X% points Each of a rate We expect rate points forecast margin is subject more our two to full We're net anticipating X NIM by to to basis in deposit cut This cuts be reduces December. in XXXX. four XX.X%. than year XX basis in cuts beta. interest currently approximately

as expect increase million incremental for is total approximately increase expenses expectation or resources by Total contemplates We to operating a percent. our remediation be mid-single-digit required. compliance-related may this expenses year. to This $XXX costs

We charge-offs in expect to X.X%. of range the X.X% net

capital return. Finally, regarding

of process our this in participate results management inform will help We year's capital and should believe view for XXXX. the CCAR's

we summarize, centered remain growth priorities financial to not organic Importantly, shareholders. To solid continue capital our and management and have to capital on results. returning supporting generate changed

that, management our back capabilities we compliance for to turn that sustainable, will continue to value XXXX, and methods risk existing operator creation. With the Q&A. to I'll drive line open our the For call advance and long-term

[Operator Shane Rick come Instructions] Our from first with JPMorgan. will question

The the growth The -- is apologize. loans? loan organic growth the today, that I excuse not or expectations, I'm the of little of me, so net student under weather a loan is portfolio that sale

organic loan here. Greene growth. John is Rick, That

of the the of excluded loan potential impact all sale. a guidance student So asset

from Our TD Orenbuch next will Moshe with come question Cowen.

lower still business, level on a that that given and seeing adding in John, growth bit? I maybe in follow-up business, you're currently just you albeit did of the balance for going talk you fact Card Loan at strong but kind Personal about growth loan is accounts, else on? a question. you're expectation a mean Rick's the transfers, little Credit the something Can that lower of there kind mention us deconstruct the

Moshe. Sure. Thanks, Sure.

the new growth So trends. sales, rate generation, onus loan payment account of

we're pretty sales, the anticipating sales although of will given relatively flat did year-over-year. through slowdown we terms have season holiday be XXXX And what a so sales that in strong is for

And year, the overall growth. generation is rate, account here down, relative kind derisk last what of account tried positive do New payment to to forecast. certainly new but we've

rate So XXX of that elevated points payment assume versus elevated. XXXX we remain that's will basis

on in So components end our those reflecting up three projections. coming reflect and

in our continues net to could be conservative ranges. and charge-offs interest higher if growth relatively terms was growth, decline. basis margin guidance, overall, for then actually on a payment those loan also rate range give loan the to Now and expectations come of But in

we How kind think expect you follow-up isn't today how Why of do that around driving as after to side. And mean, reserving credit you just kind I that performance the that in ago mentioned And losses on improves? month What's something peak then of context? that? and a that about the again middle about flattish. that did year. peak? mean, said think the Great. do talk maybe I the we a of you

Yes. Sure.

couple that. a of different there's So are components driving that

normalization, of of the typically will we it's expect so was 'XX are in vintage why plateau. to from highly relatively to go we two time, years. and whether today. outperform to pandemic. vintages, two charge-offs that about a from if but had delinquencies, back time, that's you seasoning, point our So of our years The early process about but large, the actually amount take expectations, 'XX vintage vantage profitable unusually same call And 'XX going low certainly, too it and The and

So and normalization. then and what 'XX, is My period you're expect plateau would expectation of a that actually seeing to I just beginning step is down. in those charge-offs will

in terms range know the tightened the Now the throughout came prior the do we And the range. we've end. in conservative is at of year you and the in from and guidance low of actually tried year, this will past XXXX, to what terms

be we'll that is in do same XXXX. hope my to thing able the So

Sachs. will next from Our Goldman Nash come with Ryan question

account there's curious dig account John, the this to about more on the little commentary growth. deeper peers to chance you of compliance high growth. a The now. to why seeing growth sure Are just loan you on in before better Maybe of some who trying a more on to of terms such talking the make you are We're Is on thinks mid- underwriting? bit governance that years. a growth. risk relative I'm progress you a more conservative account growth. just growth? And a slowdown few the you're last regarding bit market color just soft Maybe and right landing maybe just single-digit the clearly little focusing gave make seeing increase on

Yes. Ryan. Thanks,

now, account performance and to of look approach into vintage terms projections 'XX we today, in XXXX back from terms our least little is essentially continue was further tightened our that wanted end throughout box. play, underwriting we've there what the forecasted let a aggressively. account what then at a may of to aggressive in the persist in more here that 'XX And to And within charge-offs, 'XX of, than at underwriting slowing that get in seeing growth, of getting took will and as levels and say, delinquency in So factors we we rate I'll an more bit the and perform. kind you're early watch do months to or trends our But at tightened continue in XXXX. What and was to buckets opportunity terms formation are If we growth. we be and those delinquency us have at expectations. of six stepping the certainly up come confirmation 'XX that 'XX seen of better new two be

foresee capital you outlook as that as maybe to with Got understand it. loan you return four next well And you us the over six impacting quarters? how sale? where the help stand would can student And the as my follow-up, maybe

Ryan. Thanks, Yes.

So good news.

actually it progressing So is to schedule.

matter we this agreement Nelnet signed the evening, servicer with servicing a a portfolio. to as last fact, become of So of

that news. migration and showed So step to portfolio a servicing certainly, will service the competitive that that a activities. great at process. was was And a It be level. The dedicate to next resources to Nelnet continue high continue commitment there's

take expect doing two X market We're we're adviser those portfolio. activities around months. And as take the or month to then our may begin will it conservatively will We that, a longer.

risk-weighted $XX.X So in implications equates $X.X about sell our that second for So billion. of of as business billion expectations the are it follows: are half. the the receivables. to there's That And assets will

up be under of that of X impact a we by exit margin somewhere -- net positive between be will million bps year the could XX basis. Charge-off bps. XX will We tick interest that as and And mildly, have had full $XXX expect -- that, a on reserves. so of on rate XX/XX,

determine those but reserves price, expect successful drop. we So that, to above with the exit, will And go the it sale a will market par.

Mihir come next from Bhatia with America. Your Bank of will question

start also. I a to to And to want going go back little We're with just blocks loan the building growth bit.

of blocks, elevated stay in to terms sales I you're said like be essentially to the think at rates flat. to elevated the payments you level building be and flat expecting

adding accounts. also You're

that's like, and guy I trying to to like just you we're understand missing, I bad Like that. understand like So does year, flat I'm this trying understand what's loan how guess, have just the stay trying [ growth given to ]? I'm -- just something XX%. feel I'm

Yes.

today. a little bit So color folks of let our give hopefully view me gets try with that to comfortable of loan growth

vintage. the So driven then assets, vintage is to what account in of slowing was strong impact through XXXX vintage, XXXX but will that loan significant also that going kind really, new cycle assumptions the but not flat. sales. really terms from Much rate, balance build to XXXX, likely And to our see of there's of we're a new be begin in some holding builds we And as from expecting in we rate also by is growth, that as result, payment both a growth. payment expect

what any there overall, we've is box XXXX. growth, later will of out reflect fantastic. maybe on here box to be. openings And underwriting loan deliver we that of will today, do Now potential view part if the our not in tried underwriting our our be of reflect But

balances in significantly back transfer, into of play the promotional balance and of don't transfers XXXX. other The increasing come part promotional has here pulled level as anticipate on that balances. We we element balance second that

that to Now growth if well. loan we be certainly do, will as accretive

certainly, the and to the next conservative opportunity quarter expectation is business the at is guidance So least positioned in guidance there's the X. better. what an to deliver that that for But or you're both be we've hearing our

think reserve million the is much Like quarter? $XXX to XQ. then some for customer related the leave quarter. back mispricing How does that? Got issue? provide to had remediation it. Can merchant that overall, this on this and the the took the that I wanted I to go And mentioned was expenses that you reserve more reserve you Where that color just in you you

to changed? how in to mentioned be think the issue for it higher would trying you Just -- 'XX. I higher related the be could costs expenses that estimate understand also

we need that to an investigation? are update -- like you where mispricing If Just there, merchant take with us issue too? reserves on more give that

Yes.

Okay.

remediation let So we -- with the that up. start so me and reserve the reserves put

So they're unrelated.

interchange payments So the million reserve a the tiering and in now through million has had that merchant we for. liability, as we we've had booked flows $XXX some moved to $XXX that correct manually as just about other

So that in a and but year with We'll of don't of the make to progressing, positive. through -- points positively there discussions data enough level speak. it's is progress material to have the the we our yet, view, merchants my we terms today reserve as end change

separately, a it, put for million we as Now remediation $XX customer up a described -- we reserve.

is organic growth, an customer we're business number refund identifying we've journey, at Now we correct a to to compliance drive we've some context here that done to identify that. much as continue the is we much, to as What identify prepare issues and this going better we're And to and think of payments, issues. is there's we issue. help to appropriate to do resources if getting forward move us part put of in significant

business, identified share our we across to of position to loans that within trying was the particular although relates successful for general product student a and there lion's business largely So is reserve essentially to business a line that servicing in doing But and look issue what continue impact we our business. and loan a for student the we're another exit.

Sanjay will come Sakhrani question KBW. with Our from

Can post return the question. the the when the driven think any John, then that But of order follow-up. a then What the regulatory you and sort capital the on topic And to maybe by servicing regulatory just same growth was made is with was just the I any expectations, that previous on loan happens exactly alluded CCAR? in around firmness progress update CFPB part to curious, question agencies, multi-part Sorry, transferred? matters? the consent loan us, related

line part we as we XXXX in and level. on We've does with it digits or bit is I mid-single public, progress capabilities. given. risk that in over compliance, get risk and capital in and of have point XX I'd closely we further significant John that, to with compliance issue a but the in that What consent regulators add that take of working work point made which other improvements and made This still Owen. guidance tell and $XXX of the compliance I'll the not mentioned management is topic scope really improving topic and thing be risk John John take work. increased our earlier, We're We've so, to investments will misclassification up have at will on don't quite would do. One months last you FDIC our include the And Greene we've made to was out, that in expense the XXXX we did our in about time. growth, on to this million order, and a think anything part.

a our I but like question your Sanjay, answer best it. feel we'll what X-part Okay. to do question, is

completely loan it regulatory you the is aspect unrelated issues. So to any growth asked, that

So to connect on that nothing point.

and allocation return, capital capital commitment In to changed. of return not terms have our capital

to in shareholders. organic second, profitable to capital invest and excess first, growth; return So to

be remained a and quarter, the we've new through different with CEO fourth So are kind in, got got from any buybacks. [indiscernible] And We coming it on guidance remain our contending point. decided risk of pause of of most our don't reserve. to as conservative regulators the buybacks. terms management on we compliance number that that in with we we progressed a given We appropriate We related to merchant have feedback would matters. our

billion have then as of or least stress Student through going worth in significant free the always my will We capital. to $X we're of will that Loan CCARs, I go exit does. from provide prepared the under form which the hopefully, business, up exit at a view as remarks, said And it will capital

take indications through our diligent excess and shareholders; excess capital we're you're that internally, will terms to one, that there to what go share available; hearing to returning going it committed is a So Board process with in we're here some the Board's capital of and generated then and hopefully buybacks. direction two, be three,

The consent order?

And...

like that does With move... the loan servicing,

that was Yes. I part XA, Yes, think.

and So such record chosen consent track Nelnet provider, this, the effect both our aware a they've kind terms a and is that in chosen a were terms kind to as dedicated of got order service of of fully excellence. to servicing ensure seamless technology they've able of resources requirements transition. being of they and in remains in portfolio And because

because it little follow-up, my -- question. plateaus. I'm the to the sort year rate that we just a reserve important. think Does reserve environment? Then in X-part we about that think reserve how but rates start question given sorry, to that does my course it about asked a over model the migrating normal rate, of charge-off Okay. where the And really down should is rate just bit, Moshe come Is trying of coming the down? that's about how to

yes. Yes,

come We are that, that question out. hoping would

what the So some about reserves on let give 'XX I'll and the then potentially me happen there. -- for that could and quarter, perspective talk

quarter, the in receivables grew we $X.X billion. So

we transactor Now the said losses. reserve are some on we've that that terms peak light. hit that quarters our as communication of been reserve two highest before one is that increase. balances previously to reserved levels level was consistent is, rate in losses, peak we one typically, what approach of But we've thing And

path that's So on. we're the

-- what Let levels I'll me to provide on the what that XXXX. happen set on details used could this in were a And some year-end. reserve assumptions year give perspective at we then some

is relatively macro benign. So

year X.X%. levels, of X.X% unemployment assumed what the unemployment ended we've an we is at So level

worth, decrease, about increase net XXXX GDP be to mild increase, savings be to mild in a mild and rate, So X.X%. household

So relatively conservative but assumptions. not of overly optimistic

quality -- be with tracking our performance XXXX historically. month-over-month done it and is the The delinquency expectations in credit with important. the come what which will The will we've obviously by formation what continue to book play to declining. is into of way, Now relatively the remains consistent portfolio macros,

performance So rate our and remain in XXXX. reduce to remains expectation there level of some consistent our that portfolio to expectation is that the the will reserve assuming be the macros opportunity

to comply internal of sure that governance, make Now processes our principles. we generally subject going we're with that's and accepted amount and to to a we're significant going accounting

So than they're a But that my caveats. there's things different are lot day one. today of

the points So down just will mentioned. those step with be aligned I

Carcache Our next from question come will with Wolfe Bill Research.

follow to area commentary, up wanted that focus I your of given on credit John, it for is important such an investors.

So concern see you've had the they to outsized many the had you to over. been card down some that didn't were along saying spectrum, emerge move as also we delinquency starting credit been reformation all they start from normalization but experienced headwinds, investors other COVID roll now for issuers experienced and but growth that also

As DQ rate the data until prior months trajectory. remain formations recently showed Discover's as as formations and that up right your on

starting roll XXXX, on delinquency confirm your are formations peak the else that And question equal? does the that to reinforce XX Slide guess hit in we disclosure new now I just your NCOs really does rate over? also that see confidence all is, could indeed So so, if

for Yes. question, Bill. And thanks the

some month-over-month. so delinquencies give the the of year, kind benefit From have data just through December here. declined September you So of this to XX-plus

of month-over-month quarter is peaked expected in the we at XX that fourth said we we What increase in to decline. bps. an So September,

And do of will to in to the going because hopefully, rate get it the expectation and lower essence our end to tightening as guidance kind decline month. decline. Where changes. path kind and regarding portfolio will what's reflected XX tightening it then we have reserve trend. and that the then into that bps, happening to the of Our to confidence in question, a of will subject origination we prior level get hopefully, also, to also To bps. to continue in XXXX number October negative, is of that formation the November XX be different becomes bps we're and relative your a of including XX macro. things, broad And guidance progress be our not so December increased

long-term Maybe look very the further your of increase expense about -- you expenses? we commentary, you is in the we possibility their that frame we potentially. may ratio? at of should And I what sustainable about another how can has risk that step how further function would believe To are efficiency much we could helpful. to here? historically, very, the something need view what Or on should efficiency That's in Discover as expenses from higher -- said that as lowest following you up I if we being expect? extent increase your had industry. think think been And still how ratio think

Okay. Thanks, Bill. Yes.

So is sub-XX%. be our ratio will that long-term efficiency expectation the

have sure to there's and listening quarter. institutions level management the clear they've what be. some of up and is this still compliance There people actual in were to been will unknowns. call risk not guidance wanted indications what of So that I the might we on different fourth expense reserve we some know. risk And still this a to we're the, the I'll guidance. The make for when spend call that have But journey been that, the would reason that. to caveat remediation is the view happen. of risk put compliance able the we call There's had to something in didn't put number that XXXX management We unknowns, there to some expense that was a level

of we nearly dollars. on Now resources full today, have feel of news. and amount base significant expense X% that like risk said, around a is complement We which a compliance our is good

significantly Our issues improved. capabilities management

on trajectory. governance right the overall Our certainly path is to improving

surprise. So we just confidence have But a have huge given give could compliance to those certainty not -- enough going don't on factors are we our me be we're just journey. that there where

keep mind of to Now there's the in here. rest base, things couple the of cost a

scrutinize resources So which risk to we loan cost the are to exit with successful nearly of it right way. related to give a and dedicated us servicing, and compliance significant will A X,XXX amount an have transfer, different student resources in a management. issues today, opportunity to base those dedicated

the on of hopefully, second the execution then certainly for fourth and in that's quarter, begin third planned we activities So quarter. some quarter, list the

going comfortable that. So our spend feel And overall, we're dollar provided. benefit the make from that that get do the sure I is to and we've expense we wise with shareholders the guidance that best every to

helpful. Very

You're Bill welcome, Thanks.

question Pancari Evercore with come next ISI. John Our will from

Good morning.

all other the the specifically, in of and new $XX around $XX did business, tied point issues Student that surfaced what that that also have the Student impact the mentioned July of a Loan to the that was relate relate that million 'XX to you business part Loan then? remediation Regarding could any to remediation business? million tangential disclosure and that And charge, was that that did had you

Yes.

though. $XX the share lion's was there we reviewing personal issues, upon that, in an of to connected that that was related reserve, There to loans related related to was opportunity we amount the share student be may of loans. not to put $XX So servicing a the significant small small that the up million million issues The July. release very discussed that, that is to

could. to So is as do context what much provide tried I as I

on resources dedicated consumer this help a we've journey. compliance issues of us to number to identifying So

issues. they come going progress. as correcting company, any you to symptomatic at identifying issues with they are speed, resources, and is that more up get As dedicated effective to This of

was level. accrue going an to found. sure got election Cross-functional we are we've reviewed cover of consumer something that bit a team made and executing single we we're compliance business to it, to are every at payments. So year-end folks potential remediation our issue An through coming that at make high

in what a was to newer also student newer And your what to Okay. related July? consent existing is this is in versus tied that, order it -- so discussed is And just this versus loans? issue

Yes.

a information we This disclosed the shared details. the you risk compliance was share I'm specifics July of management right any is I've issues probably this what and now in as program broad with around point. much to at particular as going what discussed activities. So -- in And weren't

a progressing order going compliance with So we the takeaway for details on work to find where reserve consumer we it to activities. And ensure identifying And want getting is should at and that going we to up When put found an We've be. deal issues. the to be issue. through We're is issue. further management risk it it. that issue, an we're better compliance in we're on we're that

don't at out, particular probably that, if this with I think you mind. I'll So item close

And No, one last that's on is quick guidance. growth thing the fine. very a loan my

You guided modestly. you really 'XX to could if the average modestly, quantify up balances you for Thanks. help up it. frame Can help maybe

Yes.

average. So X% X% on to

Our comes Fargo. Fandetti Don with next question Wells from

NCO like they're rates? going the about I up just progress. on year-over-year for later-stage delinquency are around good it's I'm it how potentially they arms you talk see seems to John, still X% showing formation Like delinquency still like seem Can rate, to cure get basis. a Discover. this, rates? mean, some trying my high

kind the modestly are Yes, improving. later-stage buckets of Yes.

improvements seeing every we're across So bucket.

we consumer are really to first the is in, then more mild key improvements you as becomes because but kind the ability the just situation later The bucket into get buckets, is there. seeing the and cure one. that And of later of challenging

encouraging. also that So is

And talk Okay. little is what can a vintage, early that? on 'XX the read bit you your about

that it of Yes. The is early. it's net

and profitably, we're performing on going to eye continue it's to So our keep it.

kind in it's mean is Or not expectations? that that your to well of relative Does line? it really trending

No, just no, -- that. say I It's it's didn't early.

in expectations. generally line performing it's with So

I'll from with take our Adelson question Stanley. next Morgan Jeff

kind delinquency high if here? at low the that expectation end end low the this maybe mentioned the into end. that what's you've the versus what I in this follow-up charge-off coming your know formation year embedded hopeful of guide. John, at on just you're could to But dive of I would here? low is the year, throughout getting wanted you us And just continues at to kind the take slowing

Yes. Thank you. Yes.

baseline to So come it's is low in the end. at going our that

information the we we pretty terms view shared I that say, the reserves what of Now used in of consistent I'll in of charge-offs. terms second our, half macros the what for for use

of comfortable make and we've a forecasting. to compliant also of a of but highly on and to our in payments. terms call, scripts terms time prioritizing effective call and ensure dollars lot in of So the I'm with our that we've unlikely forecasting our change I'm in what comfortable to some of or could worse? terms macros, Certainly, with number dedicated a they're best in got team and issues, servicing servicing which call we've miss programs, of frequency worked analytics, terms team.

that. So good I feel about

of going uncertainty kind of broad range just the a that we're reflects tighten. So to level

just using And as there's the that the it as I like mentioned know of every Can cuts positive you're your range seems the bit us be year, way a year rate you about rate what of cuts slower basis to interest the last about reversal it more cut you're on for think up? understand drivers the four we it. four X seen the though, Got going this we've it just exited NIM Is bit points on is, maybe help there. embedded the us feels expectation there think be I my follow-up, guide NIM may in what a maybe an in embedded XX, cuts. rate where way like betas on? If in going assuming little down? help in And understand you little accrual rate more than

Yes.

question. good So

So let the then quarter XXXX. XXXX me start and of off fourth with

business, a great so being able view as net interest terms execution in we're kind year-over-year, margin So is of of manage my up. to

as saw an that's think services. What in financial term and was we the funding higher I come in. that out CDs in from rate outlier, increased rate quarter standpoint cost of lower and fourth CDs we're would

certainly, the of the a or lot Loan an the a terms higher. deposit on mid-XXs is remains be in beta be not it throw into second of slightly the And back with guidance. the rate proposed in Also loans into that expectation that's aggressive in liquidity will a rate. business. Student the that's the the that exit beta half from business, something activity. competitive. But I that on That declining That exit going elements opportunity the more student hope will OSA of the again, give Our us is of to be And -- rate declining baked to pricing. will

and baseline many betas we which we as had certainly the be cuts put four that into impact it and in deposit as forecasted if what margin. net consequentially that is, December. It will rate the X, interest pricing So deposit assumption, again, could two more than

the perhaps of deliver to baseline appropriate, conservative. we're And a is the guidance guide our end little So I going expectation upper is here, think, to range. that the

question from Terry Ma with our We'll take Barclays. next

Maybe the want growth touch for guide loan I on just to 'XX bit. a little

much like from how me. hard you pivot the Aside seems growth going just promos, and on have transfers control X% XX% loan to balance from a growth to do actually

that? a you talk can more maybe bit just about little So

just my about we and what you out again, can look question is before then like to And way XXXX a growth needs happen second actually towards beyond? is and what think that there grow to rate as looks

Okay. Thanks, Terry.

growth of year think quarter-over-quarter. important the take at partly each see decreased quarter, quarterly partly loan total as well. and underwriting slowing sales loan versus that trends look will you to the what was it's the kind And rate, is partly payment I a to growth to on standards activity because to that due due of amount due

It's if higher year. holds is flat. So we've growth. impact the That could going XXXX, to where points XXX in not rate guided in ended XXXX. be payment a it than to was loan positive it growth basis Again, be loan to it

where ago consumers, the table where to you undue doesn't what all and terms coming out our that revolver kind certainly X.X think of reasonable in time So behavior inflation. something that's do hit consumer of risk dynamically the also of I feel we've is pandemic by of significantly a taking if actually were but those the inflation certainly back it of consumers like consumers, lower here the a that prime relatively third in is on fairly put is level tried of years impact impacted today reflect changing to

formations want previously, on watch, generating said XXXX. do in level delinquency we kind as on metrics of press I before accounts of and new our gas other watch we to the So high

And like growth think reaccelerate? before when is to about you there a what way would look

to between Yes. profitably X% we do year-over-year delivered I of The kind that. feel higher like growth. that, credit companies growth rates. a underwriting would go somewhere and rate to historical typically opportunity and will and lend at our back we the than And X% then

we mid and our for essentially investors term. important an thing high long generate seeking -- to is seek that's remember is what to over deliver. to the this plan And So short, what returns

more, think for So have time Todd, I please. we one

Thank to you, next John with go sir. Jefferies. Hecht We'll

range. -- But a was said that in your think normal answered I we environment, lot credit, more. a 'XX one And all on I know levels 'XX so of kind and a you've for I X% but environment. charge-off low we've apologize were good relatively the

higher, here? is relatively low maybe the think -- unemployment. charge-off to rates year the the between kind X% where high rate despite of something charge-off that are you period know can kind -- will not in that in us improve difference is comfort reason give vintage from a out and toward now? guiding understanding just things question You're of to there. But I the attribution sort cycle talk level if about I credit called for a and of the about think to stabilize, this the we of the us XXXX you give of closer of

Yes. John. to, happy

So a few points.

environment a than significantly different in XXXX today back So we we're 'XX. were in and

in an rate savings. sub-X%. amount losses, had payment have of coming of savings years off -- two So that normalized. What that is two ago, we're abnormally of incredibly significant years back we're been is seeing We high Those levels so consumers depleted. low going had

reflecting as You their with Board down, pent-up the had came was spending spending patterns. consumers consumers pattern a across of needed the savings And the rate to demand. that kind adjust

not. did did Some some successfully,

in And of the quartile the outpacing across And growth. all X.X significant a or significantly lower then amount you're back that's that wage sectors years inflation X of go stress economy. also you and seeing certainly ago, consumers put years inflation, of if the

and So 'XX had not of segment. to you very that, specifically 'XX, also in our prime vintages. on revolver top And large two

Discover. naturally happen what together, is going before peak say those charge-offs. What seeing back is you're accustomed all to put to is I'll to you're you so going have normalize that levels they And from to

reflect a were 'XX reserves our And this So real my the to will 'XX. and charge-off that given will better view through frankly, growth, that consumers 'XX in sense is up continue spot they our wage delinquency than will end manage a forecast slow. 'XX consumers in formation and and in, and

-- that this hope I hopefully, is anyway, helpful. So color

the could to sense helpful. sense historical just a maybe by give -- charge-offs is super product a of going with the maybe us perspective? us to be give And modeling mix from or you the That's like a consistent mix

The going Yes. in give lower significantly information expect piece be is exiting. to only to student charge-offs I'm we we're quarter, of because loan the fourth

there to out we're was I didn't we going day all reach I call team. for to few available additional think to, to We'll conclude around be great a Thanks queue, free and Well, you there. answer All for have IR feel and the questions. joining in of to but get us. know right. joining still who the Thank you us, day. a

Conference And this Services Financial does today's conclude Earnings Call. Discover

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