Discover Financial Services' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Discover Financial Services (DFS)

Q1 2012 Earnings Call

March 21, 2012 5:00 pm ET

Executives

Craig A. Streem - Vice President of Investor Relations

David W. Nelms - Chairman and Chief Executive Officer

R. Mark Graf - Chief Financial Officer, Chief Accounting Officer and Executive Vice President

Analysts

Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division

Ryan M. Nash - Goldman Sachs Group Inc., Research Division

Christopher Brendler - Stifel, Nicolaus & Co., Inc., Research Division

David S. Hochstim - The Buckingham Research Group Incorporated

Mark C. DeVries - Barclays Capital, Research Division

John W. Stilmar - SunTrust Robinson Humphrey, Inc., Research Division

Craig J. Maurer - Credit Agricole Securities (USA) Inc., Research Division

Robert P. Napoli - William Blair & Company L.L.C., Research Division

Moshe Orenbuch - Crédit Suisse AG, Research Division

Bradley G. Ball - Evercore Partners Inc., Research Division

Martin Kemnec - Jefferies & Company, Inc., Research Division

Matthew Howlett - Macquarie Research

Presentation

Operator

Welcome to the 2012 First Quarter Earnings Release Call. My name is Hilda, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mr. Craig Streem. Mr. Streem, you may begin.

Craig A. Streem

Today, Hilda. And welcome, everyone, to this afternoon's call. We certainly appreciate your joining us for the discussion today. Let me begin by reminding everyone that 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 furnished to the SEC in an 8-K report and in our Form 10-K for the year ended November 30, 2011, which is on file with the SEC.

In the first quarter 2012 earnings release and supplement, which are now posted on our website at discoverfinancial.com and have been furnished to the SEC, we provided information that compares and reconciles the company's non-GAAP financial measures with the GAAP financial information, and we explain why these presentations are useful to management and to investors. And we urge you to review that information in conjunction with today's discussion.

Finally, we will be holding our annual financial community update tomorrow morning at 8:30 a.m. at The New York Palace Hotel. If you would like more information about that meeting, please get in touch with me these evening by e-mail. And with that event ahead of us tomorrow, it is our intention to keep this call and your questions focused on our first quarter results and performance, and we'll certainly have much more for you tomorrow regarding our strategies for profitable growth.

Our call this afternoon will include formal remarks from David Nelms, our Chairman and Chief Executive Officer; and Mark Graf, our Chief Financial Officer. And of course, a question-and-answer session, excuse me. Now it's my pleasure to turn the call over to David.

David W. Nelms

Good afternoon, everyone, and thanks for joining us. As Craig mentioned, we are looking forward to our annual financial community briefing tomorrow morning where members of our executive team will take you through some of the exciting developments and opportunities ahead of us at Discover.

After the market closed today, we reported record first quarter net income of $631 million, or $1.18 per share, driven by continued improvements in credit performance, along with solid organic growth in receivables and strong volume growth across all of our networks. In Direct Banking, we continued to deliver good growth in card, private student and personal loans and achieved record profits in our Payment Services business and are continuing to expand our network.

I'm very pleased with our 9% year-over-year loan growth, which reflects $1.6 billion in card loan growth. And in private student and personal loans, we eclipsed $10 billion in receivables. In terms of credit card performance, we achieved 25-year lows for net charge-off rate and 30-plus delinquency rate, demonstrating the quality of our portfolio and the strength of our risk management capabilities.

Before I turn the call over to Mark for some more detail in the financial results, I want to mention some recent developments that augur well for future growth and for continued generation of solid shareholder returns. The first of these was our receipt of the non-objection from the Fed related to our capital plan and proposed capital actions. In connection with that, we announced a new 2-year share repurchase authorization of $2 billion along with our regular quarterly dividend. I do want to remind you that last quarter, we took up the dividend by 67% to its current quarterly level of $0.10 per share, and we will review the dividend level at least on an annual basis.

A second recent development for us on the business side was our announcement of a new long-term agreement with the National Payments Corporation of India, which runs the RuPay network in India. Since its founding in 2009 by a consortium of Indian banks, NPCI has grown its share of ATM process transactions in India to 95%. Our new agreement will enable acceptance of Discover and Diners Club International cards at NPCI's ATMs and, eventually, point-of-sale terminals throughout India. The agreement will also allow RuPay cardholders to utilize the Discover, Diners Club International and PULSE networks for purchases and cash access outside of India. We expect this arrangement will result in increased transaction volume over time. I am very pleased that NPCI recognized Discover as the most flexible network and best partner for the future in one of the fastest-growing, largest potential customer, or countries for payment cards. At our meeting tomorrow, Diane Offereins will have more to say about our global network strategy.

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