Discover Financial Services

Good afternoon. My name is Celicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter 2018 Discover Financial Services earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your touchtone phone. If you need an operator assistance, please press star zero. Thank you. I will now turn the call over to Mr. Craig Stream, Head of Investor Relations. Please go ahead.

Thank you, Cilicia. Welcome, everyone, to our call this afternoon. I'll begin on slide two of the presentation, which you can find in the financial section of our Investor Relations website. The discussion today contains certain forward-looking statements about the company's future financial performance and business prospects, which are subject to risks and uncertainties and speak only as of today. Factors that could cause actual results to differ materially from these forward-looking statements are set forth within today's earnings press release, which was provided to the SEC in an 8K report, and in our 2017 10K and third quarter 2018 Q, which are on our website and on file with the SEC. In the fourth quarter 2018 earnings materials, we provided information that compares and reconciles our non-GAAP financial measures with GAAP financial information, and we explain why these measures are useful to management and investors. We urge you to review that information in conjunction with today's discussion. Our call today will include remarks from our Chief Executive Officer, Roger Hochschild, covering fourth quarter and full year highlights and developments. And then Mark Graff, our Chief Financial Officer, will take you through the rest of the presentation. And after Mark completes his comments, as Cilicia said, we will have time for Q&A session. And we would ask, of course, that you hold your Q&As to one with one follow-up so that we have time for everyone to submit their questions. So thank you. Now it's my pleasure to turn the call over to Roger.

Thanks, Craig, and thanks to our listeners for joining today's call. With this being our year-end call, I want to begin by reviewing full year highlights and key performance indicators on slide three, then turn the call over to Mark to review fourth quarter results. Later in the call, we'll cover our guidance elements for 2019. We earned $2.7 billion after tax, or $7.79 per share in 2018, generating a return on equity of 25% as we put our capital to work to grow the business and repurchase our shares. Once again, we generated a very strong return on equity, reflecting our unique combination of businesses across consumer lending and payments, as well as strong operating performance. Our performance in 2018 reflected robust receivables and revenue growth, particularly in the card business. We've continued to invest in brand advertising, in marketing analytics, and in superior service. And together, these investments continue to drive profitable growth. And of course, we remain focused on providing an exceptional customer experience and are proud to have won the J.D. Power Award for credit card customer satisfaction in 2018. On the subject of how we treat our customers, I want to take a minute to acknowledge the difficult financial situation now faced by furloughed government employees. To support customers in that situation, we are providing payment holidays to those that ask for flexibility at this time. Overall credit performance continues to stabilize. The impact of normalization is diminishing, and we are experiencing tangible benefits from enhancements to our underwriting and collections strategies. Our payment services segment generated strong volume gains of 15% in 2018, largely due to the performance of Pulse. The Pulse team has been successful at winning new relationships and building business with existing issuers by developing creative debit solutions that deliver meaningful value for partners. Finally, I want to emphasize the importance of investing in our global acceptance footprint and technology. These are two distinct areas, but both are critical to our ongoing success. In terms of global acceptance, we continue to see a great opportunity to partner with local acquirers to enhance merchant acceptance. We made significant progress on this in the fourth quarter. signing a number of agreements in a variety of markets, including the UK and continental Europe. Universal merchant acceptance remains an important objective as we pursue our longer-term vision of being a leading global payments partner. And in terms of technology spend, we are continuing to invest in initiatives to drive even better customer experience and competitive advantage. For example, We're making ongoing investments in machine learning to enable faster and better decisions about how to target our collection strategies and marketing campaigns. We've begun to see the benefits of these investments in 2018 with positive impacts on loan growth and credit performance. Now turning to slide four, we were pleased to generate strong total loan growth for the year of 7%, with card receivables up 8%. I alluded to this a moment ago in talking about machine learning, but I am particularly pleased with our growth in new card accounts, even as we continue to tighten credit and brought down the average acquisition cost per account. Student lending turned in another great year with organic receivables up 9% and record originations of $1.8 billion. Our personal loan portfolio grew 1% in 2018 as we cut back on origination activity by tightening underwriting standards. Competitive intensity remains high with new entrants continuing to ramp up originations. We will maintain our traditional underwriting discipline as we focus on driving growth that meets our return objectives. Turning to slide five, credit continues to perform in line with our expectations with seasoning of recent growth and normalization being the key drivers. We will have more to say about the overall credit environment when we discuss fourth quarter performance in 2019 later in the call. But as we enter 2019, we feel very good about underlying trends. I'll now ask Mark to discuss our financial results in more detail.