But the other expense lines, professional fees, information processing, other miscellaneous expense, we're going to keep a foot on those to ensure that we're disciplined about how we're spending the dollars. Roger, so you've been with Discover long time. Yeah, thanks for the question. We also, like our teams are doing a great job in terms of interacting with our customer base to help the customers get through tough times, those that are experiencing some trouble. In particular on some of the personal loans and card rates, could you talk about the competitive environment in both of those products. However, the majority of customers needed only one month of assistance. Appreciate that. Yes. Net interest margin was 9.81% for the quarter, down 66 basis points from the prior year. And what you can see there is, based on the maturity profile and the cost we're seeing versus online deposits that there will be an opportunity to expand net interest margin. Great. And your expectations for those yields, at least in the next couple of quarters, just given the resiliency that we've seen in the near term. I would say, as you take a look at the capital trends for the business, they are super solid, our capital levels are higher than our targeted levels. Thanks. Thanks. Since the end of 2019, we have seen a 70% increase in contactless spending. There is an input in our modeling reflecting our second round of stimulus. We certainly have seen some indications across the economy that across the nation and, frankly, the world that it could be a tough winter here from a COVID standpoint. Our next question comes from the line of Bill Carcache of Wolfe Research. ET. The 30-plus delinquency rate improved 59 basis points from last year and 26 basis points from the prior quarter as credit performance of our card portfolio continued to be stable. Thanks everybody for your interest. So, we're feeling good about that. And then we also talked about inactive lines and taken inactive lines down nearly, to pick a number, close to $70 billion. So, it was actually a combination of two things. I guess, I was hoping you could talk a little bit about the performance that you've seen with respect to borrowers that are exiting forbearance, and the fact that you're assuming kind of 11% unemployment at year-end. A conference call to discuss the firm's results, outlook and … Our common equity Tier 1 ratio increased 50 basis points sequentially, primarily due to the decline in loan balances. We assumed an annualized real GDP decline of 30% quarter-over-quarter, or down 10% on a year-over-year basis. We've been talking for a long time. So from a credit standpoint, TDR standpoint, there's been good execution from our customer service teams. In addition, average receivables were down 3%, contributing to the decline in net interest income. As we said pricing, given how hard it is to reprice cards after the Card Act, we're not reacting to specific competitors in a given quarter, we're taking -- working closely with financing, a very disciplined through the cycle book. And that can drive a lot of growth. And so, you can't map total unemployment to losses in a prime card base, the way that you saw that pattern in last downturn. Consumers have had improved household cash flows due to reduced spending government stimulus and have taken this opportunity to boost savings and make larger payments against their loans. Martins Research • Mon, Oct. 26 • 5 Comments Q2 2020 (Jun 2020) EPS of -$1.20 missed by -$1.17 Revenue of $2.66B ( … And also, kind of what's the funding difference between those two? In the third quarter, we earned $771 million after tax or $2.45 per share. Our discussion this morning contains certain forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. For our customers, we continue to provide an industry-leading service experience, leveraging our digital capabilities and with average answer times in our call centers remaining at pre-pandemic levels of under one minute. Yeah. Your next question comes from the line of Bob Napoli with William Blair. Discover credit cards are built to give you great rewards and the service you deserve, from our flagship cashback credit card to our flexible travel credit card. I mean, how much more room do you feel like you have to bring deposit costs lower, just given the current rate environment. Mihir Bhatia -- Bank of America -- Analyst. And then a follow up. Yeah. Please go ahead. The -- in terms of the government programs, we did nothing in our modeling to reflect what's been kicked around right now in Washington in terms of the next round of stimulus. I really appreciate it. In our other lending products, organic student loans increased 7% from the prior year and personal loans decreased 5%. Card net charge off dollars actually came down $7 million, while the rate increased 13 basis points. Great. Outside of a one-time item, operating expenses were down as we started to benefit from our expense reduction programs. And as I said in my prepared remarks, most -- the high majority of the people who entered the card program have exited and are repaying. In terms of trajectory of both delinquencies and charge-offs. Just first off, on the outlook for growth. So that's going to further impact not only service industry, but the entire economy. The improvements in sales volume continued during the quarter with a return to growth in the month of September. That all makes sense. Since we launched this program in mid-March, we have helped over 662,000 customers across all of our products, and in fact, about 60% of total loans enrolled have already exited the program. Discover Financial Services has confirmed Earnings date and time. Before we open up the call for Q&A, I wanted to announce that after a career in consumer finance, including many years at Discover, Craig Streem has informed us of his desire to retire. So, that's what we like to do. I will now turn the call over to Mr. Craig Streem, Head of Investor Relations. One of the questions is around stimulus and if you don't get it, how much does that impact potential changes in the reserve and then the other pieces on the mortgage forbearance. And you can see that from the broadest metric we disclosed, the 30-day delinquency rate. Thank you. Yeah. But management's intent is unchanged. It's a little challenging just to look at operating leverage, because that includes, what I'll call, sort of day-to-day corporate type expenses that we're always trying to bring down. And after we conclude our formal comments, there will be time for Q&A session, and we ask you, please to limit yourself to one question, and if you have a follow-up, we'd like you to queue back in toward the end and we'll try to accommodate as many participants as we can. Thanks so much for taking my question. Of course, the safety of our employees continues to be a top priority, all areas of the Firm, including our 100% US-based customer service team are operating effectively in a remote environment and we have informed employees they will not be required to return to our physical locations until after January 1, 2021, at the earliest. John Thomas Greene -- Executive Vice President and Chief Financial Officer. Nevertheless, the reserve build reflects our view that persistent long-term unemployment will increasingly impact prime consumer lending portfolios. Quick question, I guess, on the average balance sheet. At this time, I would like to welcome everyone to the Third Quarter 2020 Discover Financial Services Earnings Conference Call. Thanks. But I think a good way to think about it is charge-offs elevating in '21, perhaps peaking in the later part of '21 depending on the economic scenario that we're dealing with and then starting to tail off in '22. Now in terms of the mortgage forbearance. John, on net interest margin, you saw some really nice expansion, you talked about the benefits that you are seeing from lower promo activity. … Of the 90% of the $400 that you've saved, how much of that was -- is just investments that have been deferred versus actual core efficiencies that you guys have identify and taken out. And I guess I'm also struck by the stuff we see in the industry that there is continued more cash back mail from some of your big competitors where that wasn't as big a focus. Operating expenses were down 9% year-over-year, driven by marketing expenses and professional fees. So I'll start with how we're expecting delinquencies and charge-offs to roll in. Good morning, Roger and John. Robert Napoli -- William Blair -- Analyst. Thank you, Maria. Thanks for taking my call. ET. So [Multiple Speech]. We've continued to see positive trends in retail, which were up 7% in the second quarter and 15% in the first half of July. Craig is going to continue to lead the IR team until a successor has been named and is in place. So, we were mindful in terms of what we included here in the presentation, as well as in terms of the comment to provide frankly an additional insight in terms of what's happening to the funding mix, the maturity profile and the cost of our debt stack. Discover Financial Services (NYSE: DFS) is a digital banking and payment services company with one of the most recognized brands in U.S. financial services. So, in the reserve, we, I think, took a conservative approach and used an economic outlook that was considerably worse than the end of Q1. We have continued to fund our quarterly dividend at $0.44 per share. Yeah. But the leverage that we're going to get in future quarters will come out of the funding base. And I would expect -- I mean, I guess, you're not really given where delinquencies are, you are not expecting to see charge-offs move up much in the fourth quarter and then more back half-weighted to 2021? First-time enrollments have steadily decreased since then. We took a conservative reserving approach and added $1.3 billion to the allowance for credit losses. In general, higher FICOs across every single form of lending product. Thanks. But again, I think you can expect to see the continued expense discipline that I think has always been a hallmark here at Discover, our overall lower cost operating model. I think we are leveraging that position of strength. So -- and it's a great question and honestly, it's a bit of art and science. But we will invest according to the opportunities we see in the marketplace. And so, I would characterize it that way. So, John, I think in your prepared remarks, you commented that you're looking for additional efficiencies. So I would necessarily characterize it as more intense than ever. Okay. Net interest income was down 6% as the impact of lower market rates was partially offset by lower funding costs. Since the onset of the pandemic, we have been a leader in reducing rates on our consumer deposit products. Okay. So, I'll let John cover the part about reserves Sanjay. And congrats on the quarter. Our net interest margin bottomed out in the second quarter and improved 38 basis points to 10.19% in the current quarter. Discover Financial Services (DFS) Q2 2020 Earnings Call Transcript DFS earnings call for the period ending June 30, 2020. So you've been pleased with your account growth that you've generated over the past couple of quarters. Yes, we did. So then, finally. So, to John's point, we really think about it just in terms of at a macro level as opposed to what those checks may do in one month for a given household. I'll walk through our results starting on slide four. Grocery, retail and home improvement were very strong. And so, where does that stand. Our operating model supports our commitment to providing flexible work arrangements as long as necessary to ensure the safety of our staff and their families. While the overall portfolio performance has been stable through the second quarter, we do expect to see some deterioration in consumer credit in coming quarters. The economic environment remains uncertain, but our strong capital and liquidity and actions we have taken to strengthen the business position allows us to continue to drive long-term value for our shareholders. We're also responding to shifts in consumer preferences with our investments in contactless and Secure Remote Commerce. Sales volume turned positive in September and net interest margin expanded nicely. But knowing you'll see message resonates surprisingly well. So, there was a bit of a mix shift to some products with lower fees and rates. Are there any specific signs that you're seeing inside the portfolio that lead you to be concerned? Our next question comes from the line of Mihir Bhatia of Bank of America. Thanks, guys and good morning. That's -- frankly, it's tough to call it right now because we're modeling out unprecedented scenarios here. areeba is … So we continue to look at that. Oppenheimer analyst D. Gabriele now anticipates that the financial services provider will post earnings per share of $4.06 for the year, up from their previous forecast of $3.49. I would say that in terms of overall volume it was up 16% year-over-year, at least for PULSE and certainly we are happy about that. Discover Financial Services (DFS Quick Quote DFS - Free Report) inked a deal with Lebanon-based areeba to jointly expand their global reach. Total card sales volume decreased 16% in the second quarter. Yeah. These were partially offset by lower funding costs. Credit Card. As we considered the level of allowances needed, we modeled several different scenarios. So I would characterize it this way, as the $400 million of cost savings from the previous guidance, I wouldn't necessarily call that a deferral. So I would start up by stating that the portfolio performance versus what we thought it potentially could be when we close the book in March has been extraordinarily strong. The greatest weekly decline was in mid-April when total sales were down 33% for the week ending April 18. Any outsized amount of liquidity on your balance sheet. Sanjay Sakhrani — KBW — Analyst So, sorry, I can't be -- yeah. Our capital position, combined with advances in analytics and credit risk management, put us in great shape to return to profitable growth when conditions are right. Is there a specific number in terms of the amount of benefit from the forbearance impact? Acquisitions tend to be a distant third. So, we're seeing that the portfolio continues to be really, really stable as I said. What we've been able to do is execute pretty well in terms of deposit pricing. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. Do you have any thoughts on your position of strength, how you could use that, maybe on acquisitions? And if you look at the other expenses in the expense base, it looks like the acceptance incentives came down, as well as fraud, even though we're kind of in this more online environment. Kevin Barker -- Piper Sandler & Co. -- Analyst. So we're submitting our second round of stress test in November and included in there are a number of judgments. I guess, my question is on the reserve build. So we're really excited. Card charge-offs increased 41 basis points from the prior year, mainly due to seasoning of loan growth. Have a good day. We expect these investments to strengthen our ability to achieve profitable growth and shareholder value through improved targeting and personalization, better underwriting decisions and enhanced collection strategies, just to name a few of the benefits. Of those, out of the program, approximately 80% have returned to making payments. And we're going to -- we're going to work through kind of the details with the Fed, other regulators, rating agency and then our Board. The question I have is just around the reserving level. Right. While total revenue was down from last year, reflecting the slowdown in the economy. So good news on what it's doing on the deposit side of our business. And then through the balance of the year we're going to continue to look for opportunities. And how if at all those expectations and your reserve levels are impacted by your expectations for benefits from different forms of government stimulus and different forms of lender forbearance across your customers' different financial obligations? So, you folks don't have the TDR disclosures, but they'll come out in the Q when it's published. We do these programs to improve -- to improve the cash flows of the company and ensure that when there is a temporary issue with a customer that they -- they can manage through it and return to paying their bills. I'm just wondering if we could dig into the account growth aspect of that equation just to understand how account growth has been going. It's encouraging to see positive operating leverage in this environment. And then, Betsy, just one other piece and it's a relatively important difference here when you go back in time on the Great Recession versus where we are today. Copyright, Trademark and Patent Information. Roger C. Hochschild — Director, Chief Executive Officer and President. Understood. In terms of new accounts, while we don't disclose a number on that, what I would say is that, we think we probably sustain new account marketing more than a lot of competitors as I look at industry metrics. I understand. That's what I'm hearing from you, Roger. The Algorithm predicts "% Predicted Move After Earnings Announcement" (PMAEA) for DFS three weeks prior to earnings date. It feels like we're gaining share in the card business in terms of loans and sales this quarter from what I've seen from competitors' reporting. A lion's share of that has been as a result of online retailers and you know the major players there, which is driving, I'll say, further demise of the brick and mortar retailers and accelerating the digital channel for a card, things that Discover offers in terms of the network and our Secure Remote Commerce that we're working on, all will position us well for that growing trend. I know you already addressed one question on that earlier in the Q&A. Betsy Graseck -- Morgan Stanley -- Analyst. The traditional links between unemployment and delinquency and charge-offs, we're trying to model that. Yeah, thanks. We took swift action on expenses and are continuing to invest in core capabilities so we're prepared for the recovery when it comes. So let me start by talking a bit about the unemployment rate, and then I'll pass it to John to talk on the reserves. So you touched on a lot there, and I would sum it up by saying there's a level of uncertainty around what actually will happen on unemployment. So if you put those two together and compare where we are in the third quarter versus where we were in the first quarter and call the first quarter pre-pandemic, relatively stable. But we've seen actually great effectiveness from our procurement team, driving year-over-year savings on the entire indirect cost base and we're still -- as we said in the remarks, investing in advanced analytics and some digital capabilities that's driving up information process. 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