Discover Financial Services

Good afternoon. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the second 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'll now turn the call over to Mr. Craig Stream, Head of Investor Relations. Please go ahead.

Thank you, Erica. Welcome, everybody, to our call this afternoon. I will begin briefly on slide two of our 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 that are subject to risks and uncertainties, that may cause actual results to differ materially. Please refer to our notices regarding forward-looking statements that appear in today's earnings press release and presentation. Our call today will include remarks from our CEO, Roger Hochschild, covering second quarter highlights, and then Mark Graff, our Chief Financial Officer, will take you through the rest of the earnings presentation. And after Mark completes his comments, there will be plenty of time for question and answer session but we'd ask you to limit yourself to one question, please, and one follow-up so we can make sure that everyone gets on. And now beginning on slide three, it's my pleasure to turn the call over to Roger.

Thanks, Craig, and thanks to our listeners for joining today's call. Very simply, this was another very good quarter for us with solid loan growth, a strong net interest margin, and ongoing improvements in underlying credit performance. We earned $753 million after tax, or $2.32 per share, and generated a robust return on equity of 26%. Our ability to balance loan growth with disciplined credit management continues to generate very strong returns, while our investments in the Discover brand and advanced technology enhance our ability to drive a differentiated customer experience and competitive advantage. To that point, we were recently awarded the highest ranking by J.D. Power for customer satisfaction among credit card mobile apps and websites. This recognition highlights how our investments in technology and analytics have enabled us to deliver industry-leading customer value while maintaining operating efficiency. Looking at some of the specifics of our second quarter performance, total loans were up 6%, with strong credit performance across all of our products, reflecting our discipline in underwriting new accounts and line management, along with continued investments in collection capabilities. Looking at our lending products, the 7% growth in card receivables was sourced from a healthy mix of new versus existing customers. In terms of card portfolio mix, growth was primarily from higher yielding merchandise balances versus promotional balances. We have previously shared with you our intent to decrease the level of growth from promotional activity, and that trend continued in the second quarter. This provided a meaningful contribution to our net interest margin performance this quarter. Turning to our student loan business, growth remains strong, and as we enter the peak season, early origination activity looks good and is consistent with our expectations. We believe we are well positioned to continue to gain market share. In personal loans, our recent credit tightening has achieved its desired effect with both charge-off and delinquencies declining from the prior quarter and loan growth consistent with our target. We remain focused on originating loans that will generate satisfactory long-term returns rather than pursuing faster growth in what remains a very competitive environment. Overall, underlying credit trends continue to be favorable across our lending products as the normalization impact on the back book continues to lessen and credit performance is increasingly driven by growth in receivables. Our payment services segment generated a robust 15% increase in pre-tax income driven by strong growth in volume the majority of which came from our Pulse business. The team at Pulse continues to win new relationships and build business with existing issuers by developing creative debit solutions that deliver meaningful value for partners. We continue to execute our strategy and payments to enhance global acceptance by investing in partnerships, primarily with local acquirers in Western Europe, as well as adding to our network-to-network alliance partnerships as we make progress against our objective of universal merchant acceptance. In summary, our results this quarter reflect the discipline and commitment to excellence that we bring to serving our customers and delivering long-term value to our shareholders. Clearly, the favorable economic environment has contributed to our performance, and we don't see any signs that this is changing in the near term. Nevertheless, We recognize that this may moderate at some point and are continuing to adapt our growth and credit strategies as appropriate. Before I turn the call over to Mark, I want to highlight two important additions to the Discover team. First, I want to welcome Wanji Wolcott, our new Chief Legal Officer and General Counsel. Wanji joins us from PayPal with significant prior experience at American Express. so she brings a wealth of highly relevant knowledge to discover. I also want to welcome Jennifer Wong, Chief Operating Officer at Reddit, who has joined our board of directors. Jen will be an invaluable addition to our board, bringing deep experience in media and digital advertising. I'll now ask Mark to discuss our financial results in more detail.