Discover Financial Services

Good afternoon. My name is Deidre, and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2019 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 at that time, please press star 1 on your touchtone phone. If you should need 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.

Sure. Thank you, Deidre. And welcome, everyone, to our call this evening. We'll begin on slide two of the earnings presentation, which you can find in the financial section of our Investor Relations website, InvestorRelations.Discover.com. Our 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 filing, and in our 2018 10K, both of which are on the website and, again, on file with the SEC. Our call today will include remarks from our CEO, Roger Hochschild, covering first quarter highlights, And then Mark Raff, our CFO, will take you through the rest of the earnings presentation. And after Mark completes his comments, as always, we'll have ample time for Q&A. I would ask, though, that you limit yourself to one question and one follow-up during that period so we can make sure that everyone has an opportunity. And now it's my pleasure to turn the call over to Roger.

Thanks, Craig, and thanks to our listeners for joining today's call. As you can see from our numbers, this was a very clean, solid quarter for Discover. reflecting continued execution on the key drivers of the business. We earned $726 million after tax in the quarter, or $2.15 per share, and generated a very healthy ROE of 26%. As always, our principal use of capital is to support profitable growth, but in the first quarter, we also returned just over $600 million of capital to our shareholders in the form of dividends and buybacks. bringing the reduction in the level of outstanding shares to 7% from a year ago. Our emphasis on profitable growth means that we always look to achieve a balance amongst receivables growth, net interest margin, credit, and operating expenses. And our performance this quarter demonstrates how that approach continues to generate very strong returns. Total receivables grew 7%, with each major product performing as expected, and NIM came in at a very robust level, keeping us on track to hit our full-year target for that important measure. Credit performance remained solid as the normalization impact on the back book continues to lessen, and operating expenses were also consistent with our expectations, leading to a 50 basis point improvement in our efficiency ratio from last year's first quarter. As I said a moment ago, it's all about executing on fundamentals and striving for excellence in everything we do. Let's take a look at how that played out for each of our principal products. In CARD, we saw strong receivables growth as we leveraged the opportunity provided by last year's significant new account growth. We also continued to drive a high level of engagement from our customers which is reflected in our increased sales volume. Year over year, we invested a bit more in brand advertising, while account acquisition spend was basically flat. From an earnings point of view, slower growth in card marketing costs somewhat offset the higher rewards costs from this quarter's grocery category. Our private student loan business turned in another very strong quarter, with organic receivables growth of 9%, and further improvement in credit performance. In personal loans, our portfolio grew 2%, consistent with the outlook we had shared with you. We continue to focus on originating loans that we expect will generate the appropriate level of long-term returns, as opposed to simply targeting a higher level of growth in what continues to be a very competitive environment. As expected, charge-offs were often personal loans, principally driven by earlier vintages. Newer advantages are performing well, and we are seeing positive results from our revised underwriting strategy. Our payment services segment generated 9% growth in volume, 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. Wrapping up my part, Our performance this quarter clearly demonstrated the strength of the Discover business model and our ability to deliver sound, profitable growth. The economic environment remains quite good, and we believe we are well-positioned to deliver continued strong results. I'll now ask Mark Rapp to discuss our financial results in more detail.