Discover Financial Services (NYSE:DFS) Q3 2017 Earnings Conference Call - Final Transcript
Oct 24, 2017 • 06:00 pm ET
[Operator Instructions] The first question comes from line of Sanjay Sakhrani from KBW. Your line is open.
I was hoping -- hey, how are you -- I was hoping, Mark, you could give us a framework for future allowance builds and provisions and the charge off rate as we're go into 2018, because I know there is a lot going on with the growth inflection that you have seen over the last year and half. Thanks.
Yeah, I would say I'm going to stay away from 2018 guidance at this point, Sanjay, I'm going to make you wait until the January call for we talk about the year ahead. I guess what I would say is the provision build that we're experiencing at this point in time, if we take that small sub-segment of the personal loan book and set it aside, the provision builds we're seeing is completely consistent with the normalization of credit we're seeing from the standpoint of that supply side phenomenon we spoken about a number of times as well as the seasoning of the growth that we're seeing, right.
And as we have continued to find ways to drive very strong profitable growth in that prime segment, the 9% loan growth this quarter, it will drive increases in that provision. All right, I mean there is just a mathematical equation that takes place there, what I would tell you is any place we have seen the returns on that growth not meet our expectations we've demonstrated the willingness to fill back on that.
We did it in the aggregator channel in the card space a few years ago when the cost of acquisition got too high and you have heard us talk about it in this broad market segment at the personal loan business where credit costs are running a little bit high quite honestly. So, I think that discipline is there such that we feel comfortable while the provision expense has been growing it's been growing for the right reasons as we're investing and building shareholder value for the long term.
Okay. And my follow-up on the NIM. I guess what drove the sequential move higher on a year-over-year basis, if you got what I mean. And I was wondering if there was any hurricane impact in the revenue yields.
Yeah, there hasn't been a significant amount of hurricane impact that we can identify in the revenue line at this point in time, Sanjay. In terms of the walk of the margin from Q2 to Q3, it depends already because it's a bunch of things this time around, the biggest piece is market rates contributed about 7 basis points give or take. Credit contributed about 2 basis points, the receivables rate contributed about 2, the funding rate contributed about 2, and then the mix of receivables was about another 2 and funding mix was about another 2, so if you add those all up, you get that 17 basis point quarter-over-quarter