Great. Morning, everyone. Thanks for joining us. We are very pleased to have with us the management of Discover Financial. Discover's has been able to leverage its leading brand to essentially build and grow its revolving credit card book essentially faster than peers, and oftentimes actually with less risk. Its long history has kind of shown that. It's a function of its proprietary network and proprietary brand. It's allowed it to add accounts at lower cost, and in, at times, including in 2023, to introduce new products that can, you know, that can help expand its reach and into customers, its, you know, its customer penetration. John Greene, the CFO, has been with us before. He joined Discover in 2019. Before that, he was CFO of a publicly traded biotech company, as well as a publicly traded insurance company, and divisional CFO responsibilities at a number of large financial and industrial companies. We look forward, you know, to the discussion. John, welcome. Great. Thanks, Moshe. Appreciate it. Sure. Let me be the, maybe the first to wish you happy Valentine's Day. Oh, thank you. You actually are the first. Yes. All right. Now that we've gotten past that. We're, you know, a couple of months into 2023, you did, you know, issue kinda guidance as part of, you know, your normal fourth quarter process. Talked a lot already about, you know, some of these things, Can you give us, like, an update perhaps on how you're thinking about the health of the consumer, their ability and willingness to carry debt, and maybe what you're seeing, you know, currently in the portfolio, given that you did release your portfolio metrics before this presentation? Great. Yeah. I'd be happy to. You know, the consumer remains strong. What we're seeing is still a robust level of activity in terms of sales and use of credit products and just overall spending. The employment data continues to be super strong, which is, you know, certainly a positive for lenders like us. We still see the job market being robust, still way more job openings than there are unemployed people. I think the ratio is about 1.9x to every single unemployed person. What we're also seeing is credit card balances as a percent of disposable income to be less than it was pre-pandemic. All those factors indicate that the consumer remains in a very solid position. We are seeing, however, you know, the savings rates come down, the percent of balance in terms of disposable income, increasing versus where it was, back six months ago. You know, we view the consumer to be in great shape, but we're also viewing it as late cycle. For us, what that means is we're looking out over the horizon and ensuring that we're making good conservative credit decisions that help generate capital over the long term. You've put out, you know, kind of a reasonably high growth expectation. I think a good chunk of that comes from your existing customer base kinda normalizing their balances and payment rates. Maybe talk a little bit about, you know, how that fits into that, and we'll talk then after about your marketing plans for this year and beyond. Yeah. Yeah. Loan growth was extremely robust last year. So if a consumer lender grows at 20% year over year, you know, you'd start to ask yourself some questions about underwriting standards. We've been remarkably consistent with our underwriting standards and still had that strong double-digit loan growth. So what drove that? It was new account acquisitions, so robust level of account acquisitions last year. We also saw some payment rate normalization. As we look from 2022 into 2023, you know, what we said is, "Okay, what's gonna remain constant? What's gonna change?" Certainly component of the growth will be new account generation. Likely year-over-year growth, but not at the same level of growth as we saw from 2021 to 2022. Sales activity, we expect to continue to be strong relative to historical levels, but not at the level that we saw in 2022. Payment rate normalization. Still, the payment rate is about 300 basis points higher than it was at pre-pandemic level. We expect that to continue to normalize and probably end up somewhere between 100 and 150 basis points higher than where it was pre-pandemic on an ongoing basis. All those factors are helping to drive positive loan growth in, you know, what we think will be double digits. Right. Very good. As you kind of look out with respect to, you know, new customer acquisition, you mentioned kind of, you know, kind of careful underwriting practices. Talk a little bit about, you know, what you're seeing from competitors and, you know, what Discover's doing to, you know, to continue to grow accounts, you know, kind of somewhat carefully in that environment. Yeah. The competitive environment remains what I'll say, consistent from what we saw in the fourth quarter of 2022. Certainly formidable competitors out there. What we're seeing in our segment, which is that prime revolver segment, is what I'll say, behavior that is not abnormal, so competitive. You know, we feel our value proposition in terms of no annual fee, cashback, customer service and the digital capabilities that we're offering help continue to differentiate. In terms of new account acquisition, we continue to see significant opportunity. Excuse me. Significant opportunity to generate positive new account, both in the card and personal loan space. You know, we're pleased with our position right now. Got it. Anything... I mean, you've had a very stable position in the rewards space, and your, you know, your proposition has been consistent, well-received. Any changes that you're seeing out there from that, you know, in the competitive environment, that would, you know, cause you to do things differently or kind of still steady as it goes? You know, you know, the space is competitive, the super prime area tends to be the most competitive where, you know, we target in that prime revolver segment, I would say status quo in terms of rewards competitiveness. You know, we finished the year 2022 at a rewards rate, I think at 1.41%. You know, we expect 2- 4 basis points of rewards inflation. We did make a couple tweaks to the program. Historically we have pre-announced four quarters of the 5% categories. What we did this year is we announced the first quarter, and then we'll update it quarterly. The reason we made that change is to optimize around the reward offerings and be able to hopefully put the right, what I'll say, merchants out there so that we can attract a high level of appetite in terms of the usage of the 5% category, a high level of value for the 5% category, both real and perceived. We continue to look at the analytics on those categories to ensure that not only we're picking up a level of sales on those 5% categories, but also on other categories outside of the 5% categories for the people that are using the card. By doing that analytics, we are, I think, overall reducing the pace of rewards inflation while creating a lot of value for our, for our customer base. Got it. You know, the guidance that you gave for credit losses, you know, it was a fairly significant increase on a year-over-year basis. I guess, you know, to some degree it's, you know, we're sitting here, you know, in the middle of February, and things are probably from a macro standpoint, a little better. Could you talk a little bit about, you know, your thoughts on that guidance in light of, you know, kind of where we are today and maybe kind of, you know, drill down for us a little bit in, you know, the performance of, you know, various vintages that you had called out in terms of that? Yeah. Happy to. The reserve guidance was formulated based on probably three factors. One, the broad macros of what we thought was going to happen. Two was what we're seeing in the portfolio in terms of normalization. Then third piece had to do with the seasoning of the newer vintages. When we came out, the initial sense was that seasoning wasn't anticipated, and certainly, we put on $20 billion worth of assets in 2022. You know, those accounts are going to season a lot, going to season through into 2023 and to 2024. Effectively what we shared was a view of the first six months, what was likely going to happen, and that's largely determined based on initial reads on roll rates. Beyond that, beyond that six months, we use analytical models in order to make a determination of where we see the credit losses to go. What we're seeing is the normalization and seasoning of the portfolio, both the 2021 and 2022 vintages, as well as normalization of those vintages prior to 2021. The expectation is today that the pace of change will decrease in the second half of the year. As you think about a loss curve that is moving north and then bending over into the second half of the year, still moving north, but at a lesser extent month-over-month. One of the big topics in the industry, perhaps not as big for Discover as for some others, though, is the recent proposal by the CFPB to cap late fees on credit cards. Can you talk about, you know, your level of engagement or concern with this proposal and any actions that you're planning to take in response to it? Certainly, you know, the proposal that came out, we were aware that there was some work to develop it. As we look at it in terms of Discover's model, you know, we market ourselves as a no-fee cashback product, right? We do charge late fees certainly, but it's not a large piece of our revenue base. To put it in context, Discover's late fees are somewhere between 3.5%-4% of overall revenue, much less significant than some other players. The other thing that's important to keep in mind is from a Discover customer standpoint, first instance of a late fee is automatically waived. The second instance, if the customer calls in, typically waived. You're talking about three customer contacts before actually late fee is imposed upon a customers. We view that as a deterrent to not paying. What we hope is that there's a proper recognition of the cost to serve as well as the deterrent factor as this proposed regulation gets ultimately codified. Now there's some work in the industry groups to make sure there's balance on it, and we're participating in... Got it. ...with those industry groups. You mentioned, you know, kind of seeing better demand from the consumer, the installment portfolio as well. You're one of, you know, I think one of the higher quality kind of portfolios that's out there. Maybe talk a little bit about that. I mean, I would assume that, you know, some of your competitors probably had less, you know, had less funding in advance and other things. Talk a little bit about where, you know, how you see the competitive environment there? The personal loan space competitive environment has actually weakened a bit, less competitive than what we saw certainly a year ago. You know, that's actually, let's say certainly a positive for Discover. We originate in that prime area. As interest rates are increasing, we're seeing increased demand for a debt consolidation product, which positions us very, very well. In terms of that debt consolidation, when we originate to those prime customers, 70% of the loan balance needs to fund directly to the debtors, or to the creditors. What that does is actually gives our customers a lower overall payment and improves credit performance and the ability to repay us. We think we're in a great spot in terms of having a relevant offering in a rising rate environment. Maybe similar type of question, student lending, but, you know, add to it the kind of twist that the federal government's doing all sorts of things. They're trying to get federal loan forgiveness, which doesn't apply to your portfolio. At the same time, whether that may or may not, you know, go forward, but they're also trying to do some things to limit borrowers' repayment, income-based kind of repayment, expand that significantly. Can you talk about how you think that that may affect, you know, Discover's growth in student lending? Yeah. You know, historically, we've grown that product between 3% and 5% a year annually on the organic portfolio. You know, over the last three years since the pandemic, actually, the enrollments in colleges have actually declined about 7%. What we're seeing is growth in the portfolio despite a smaller marketplace. Now, our product typically comes in behind the federal programs, and it's largely cosigned. On the undergrad portfolio, 90% are cosigned all with, you know, prime customers or largely by prime customers. It positions us very, very well in terms of the ability to get repaid even in the face of some uncertainty as a result of the federal programs. We'll see how things evolve, whether or not there's any potential moral hazard on the back end of this, which it frankly, too early to make a determination. In terms of the underwriting quality, super good. Growth, you know, we don't want it to become a larger percent of the portfolio than it has been historically. We'll continue to kind of market and allocate capital in that sort of way. Got it. Okay. One of the things I alluded to in the introduction is this, your ability to launch new products. You did say that you were planning to relaunch the Cashback Debit product this year. Can you talk a little bit about the, you know, the benefits to Discover from that? What... You know, what have you learned so far, and what refinements have you made to that product? Yeah. You know, we're really excited about the product. The initial offer was met with a great response. We had a high volume of applications coming in, and there was also a higher level of fraud coming in than what we expected. The product features were actually put in place to position us well over the long term versus some of the fintech competitors that were offering savings and checking products. Essentially what it did was we created both a product with great features that allows us to enjoy kind of debit interchange revenue, and then actually pass some of that back on to our customers while creating a first-class digital experience. Upon the relaunch, we're really hopeful that it will ultimately create an entirely new set of customers that over time can become customers that we'll also be able to lend profitably too. You know, touch wood, we're really excited about it, and initial indications were positive. Great. Let's talk a little bit about capital. You, you know, paused your capital return for a portion of 2022, you then restarted it. Discuss, you know, how you think about that targeted capital levels. Are there, you know, issues given where we are kind of in this current economic environment? How do you see that, those targeted capital levels kind of evolving over time? Yeah. You know, what we've historically said is, we had a target of 10.5, and we've been persistently higher than that. In 2022, we put forward a really, really robust plan in terms of return of capital. We were executing on that very, very well. We had to pause at the end of the second quarter into the third quarter. You know, fortunately we got that behind us. At the end of the year, I believe we had $2.8 billion remaining on our authorization. The plan is to execute on that authorization in the first quarter of 2023 and into the second quarter of 2023. We'll kind of share a proposal with our board. The expectation is that we'll continue to maintain our capital allocation priorities. First, invest in organic growth. Second, return excess capital to shareholders. Third, if there's some sort of bolt-on M&A, we'll look at it, but no major changes in the priorities. Yeah. Since you mentioned the M&A, do you think of that more as like portfolios? Do you think of it more as small companies with capabilities? Like, what do you think more, you know, is the more likely use of some portion of that excess capital? You know, we've been able to generate high level organic growth through our normal channels. It's highly unlikely that there would be any allocation of capital towards a portfolio purchase. If there's some capability in the payments area that would be the area we would... Got it. ...consider first. Okay. I mean, I've got some more, why don't we see if there are questions in the room, and then I'll go back to mine at some point. Anybody, raise your hand, you'll get a mic. I don't see any. Okay. All right. We'll give you another shot in a couple of minutes. One of the, one of the things that's been interesting about this cycle is obviously the growth rate of assets has been strong, that has required, you know, a high level of funding. It's caused deposit competition to be probably a little hotter for, particularly for online banks perhaps than some might have thought. Can you talk to us about where we are in that now? Like how do you feel about, you know, where your deposit pricing has been? We'll talk a little bit about your net interest margin as well. Right. You know, we certainly did see in the first three quarters of 2022, a greater and competitive intensity for deposits than certainly any time in the previous or go back 10 years. You know, that was driven by, you know, the robust level of consumer asset growth across the industry. You know, what we began to see in the fourth quarter was the pace of rate changes slowing. That has continued actually into the first month and a half of 2023. You know, we do expect the pace of rate changes. You know, there will be certainly a correlation to the Fed rate hike cycles. Certainly the aggressiveness by which folks were changing prices, I think will dissipate further in 2023. You know, that's certainly, you know, beneficial from an overall funding cost. You know, we think our deposit offerings are in great shape in terms of a great digital experience, very competitive rates. Also when you look at kind of the brick-and-mortar banks, certainly there's enough disparity between what our offering and those offerings, that it creates an attractive flow which will further dampen their pressure to increase deposit rates. You know, matter of fact, as we looked at our flows in the fourth quarter of 2022, 60% came from the top four brick-and-mortar institutions. you know, further proof that the differentiation is making a difference. Right. You're actually one of the few kind of card issuers that's had a positive net interest margin outlook during this rising rate environment, and it's continues into at least the early part of 2023. You know, talk a little bit about, you know, what maybe, you know, is there something you've done a little differently on the funding side or, you know, what gives you that confidence that's gonna continue? Yes. Well, certainly over the past three, four years, we did a lot of work on our funding stack. You know, taking meaningful steps to have 70%-80% of our assets funded through deposits. We were well on the way to hitting the lower end of that target. We had, you know, incredible loan growth in 2022 that put that funding rate in the lower to mid-60s. We continue to believe that that's the right course, and we're gonna continue to execute on that. You know, the other sources of funding certainly, brokered CDs. You know, we increased the balances or broker deposits, excuse me. We increased the balances there, by about $10 billion last year. That becomes a good, very, very good outlet for us in terms of being able to not lock into fixed forms of funding and use the brokered CD channel as a way to ebb and flow with the needs of the balance sheet. It's a, frankly, a very, very cost-effective way to do that. Certainly the ABS, we came back into the ABS market pretty strong last year, generating or originating about $5 billion of ABS transactions for people to invest in. Certainly multitude of funding sources with the primary focus on, you know, that deposit franchise that I just talked about. We talked a little bit before about your kind of marketing approach into 2023. Could we talk a little bit about the expense side of that? Obviously you're still able to, you know, add new accounts to the credit card. You're relaunching the Cashback Debit. Talk about your plans. You've said, I think the public comments said, you know, double-digit increase in marketing spend. Talk a little bit about, you know, what's driving that and you know, what would it take for you to kind of rethink that and, you know, pull it back if things didn't go the way you thought? You know, the primary driver of the increase is the opportunities we see. We still see opportunities to generate positive new accounts that'll be highly capital generative. That's number 1. Number 2 is certainly deposit marketing and continue to focus on that. Number 3, the Cashback Debit and putting the right level of new customer acquisition as well as broader messaging around that product will be important. Then finally, we're gonna continue with the broad brand messages in terms of no annual fee, cashback. You might have seen some of the ads on our online security feature that we added. It's free. That's frankly a differentiator versus other card companies. Those sorts of messages will be important. The NHL sponsorship and Big Ten sponsorship programs will continue to be in place. Right. A marketing program that's focused on customer acquisition as well as increasing overall consideration and product awareness. Great. We'll take one last go around the room. If there are any questions, please raise your hand. We'll get you a microphone. Okay. Oh, we got one right here. Could you bring her a mic? Thank you. Thanks for explaining the mix of funding. What scenarios of the rates curve will make you change your view by that mix, you know? Because CDs are very convenient now if you don't wanna lock, you know, term funding. Again, after the CPI number, we've taken one rate cut again. I mean, can you guide us depending on how you see the path of rates, how your mix of funding will look like? Thanks. Yeah. Great question. You know, specific to deposit pricing. We haven't inverted our price curve at this point. We're looking to do that on the longer tenured CDs. Which that way we won't be locked into more expensive funding as the increasing rate cycle dissipates, which we think, you know, likely be late 2023 and into 2024. That's the first approach. The other piece in terms of rates is aligning our marketing with any potential rate changes allows us to be less aggressive in terms of rate increases. That'll be important for us. In terms of the funding of the balance sheet, we're asset sensitive right now. You know, we've taken some steps to make our company less asset sensitive. We're gonna continue to take those steps through 2023. Continue to keep an eye on the forward curves and, you know, Fed actions in the overall economy. Maybe just to kind of follow up on that. You know, it would seem that, you know, you got, you know, savings rates and others that you could move down, in response, to, if the Fed were to, you know, if that were to happen in late 2023 or in 2024, I would imagine that by then the deposit, you know, pricing environment would probably be a little less, intensive. I mean, do you know, how do you think about the margin in a, you know, in a declining rate environment? Yeah. you know, we'll certainly cross that bridge when we get there. It'll be predicated on a couple different factors. Certainly funding needs will be number 1. Competitive dynamics will be number 2. You know, when we went through the last rate decrease cycle, we were more aggressive than Discover had historically been in terms of moving down. The reason being is we felt very, very comfortable that making those changes would not impact our ability to generate funding. Frankly, this ties back to my original comment on deposit pricing. There's enough disparity between us and the brick-and-mortar banks that we feel like there's still a great offering there for consumers. Okay. Good. The last, you know, kind of major topic that I want to talk about a little bit. We talked a little bit about marketing expenses. Talk about the rest of the expense base. You've talked many, many times about the steps that Discover's taken to invest in certain areas, certain areas of analytics and other, you know, things that have kinda helped you maintain and, you know, increase that competitive advantage. Can you talk about how much of that is going on and the context of your overall non-marketing expense, you know, kind of guidance? You know, Discover historically has been disciplined around its allocation of expense dollars. I've spent the past 3.5 years talking about about that, and also internally helping with the team to kind of refine our thinking around that. As we looked at 2022, we saw an opportunity to invest for long-term and medium-term profitable growth on top of years of near record or record profits. As we look at 2023, we felt certainly like the opportunity to continue to invest to build capabilities was there. Some of the specific investments that we've made have been focused on reducing kind of customer attrition. Having kind of triggered offers in order to prevent attrition and drive the card to top of the wallet. We've invested in collection analytics. We've invested in new customer targeting. We've launched Instant Credit, which makes credit available as soon as a customer opens an account. We've also made improvements in terms of the flow from application to offering a card. All those have helped make a difference in terms of the customer experience or the customer value that we enjoy. We're gonna continue to do that. In 2022, we also, in the back half of the year, we increased our... ...the number of FTEs, full-time equivalent people, both in the collection and customer service, but also in headquarters. What we'll see in 2023 is the impact, especially in the first half, when you do comparisons quarter-over-quarter. Certainly, salary and wage growth will be higher than it has been historically. We expect that to dissipate and reduce relative to on a percentage basis in the second half of the year as the comparisons are there. The overall point is we're gonna continue to remain disciplined. We see opportunities to invest to build capabilities. You know, we've talked about in the past creating more dollars available to fund growth and less in headquarters, and that'll remain a focus of ours today and going forward. Got it. Okay. Well, good. With that, please, join me in thanking John for his time this morning. Thank you, John. Thank you, Moshe.