Discover Financial Services (DFS)
F1Q10 (Qtr End 02/28/10) Earnings Call Transcript
March 16, 2010, 5:00 pm ET
Craig Streem – VP, IR
David Nelms – Chairman and CEO
Roy Guthrie – EVP and CFO
Sanjay Sakhrani – KBW
David Hochstim – Buckingham Research Group
Don Fandetti – Citigroup
Mike Taiano – Sandler O’Neill
Craig Maurer – CLSA
Chris Brendler –Stifel
Rick Shane – Jefferies and Co.
Bruce Harting –Barclays
Scott Valentin – FBR
John Stillmar – SunTrust
Previous Statements by DFS
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» Discover Financial Services Q2 2009 Earnings Call Transcript
I would now like to turn the call over to Mr. Craig Streem, Vice President, Investor Relations. Please proceed, sir.
Thank you, Evert. I want to welcome all of you to this afternoon’s call. We certainly appreciate your joining us. I want to 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, 2009 which is on file with the SEC.
In the first quarter 2010 earnings release and supplement, which are now posted on our Web site at discoverfinancial.com and have been furnished with the SEC. We’ve provided information that compares and reconciles the Company’s non-GAAP financial measures with the GAAP financial information and we explained why these presentations are useful to management and to investors. And certainly we urge you to review that information in congestion with today’s discussion.
In addition, to make comparisons more meaningful, we are now providing historical results on a basis that adjusts for the effects of FAS 166, 167 and excludes income statement impacts of the Visa/MasterCard settlement and the Morgan Stanley special dividend agreement dispute. This as adjusted information was made available in today’s earnings release and in our 8-K filing on March 1st.
And the balance of the comments this afternoon when we refer to prior year information, it will be on this as adjusted basis. Finally, we will be holding our annual financial community update tomorrow afternoon at 1:00 P.M. at the Grand Hyatt Hotel in New York. If you would like more information about that meeting please get in touch with me after the call.
Today’s call will include formal remarks from David Nelms, our Chairman and Chief Executive Officer and Roy Guthrie, our Chief Financial Officer, and of course, the Q&A session afterwards.
And now it is my pleasure to turn the call over to David.
Good afternoon, everyone, and thanks for joining us. As Craig mentioned we will be holding our annual financial community update tomorrow afternoon, so we would like to keep this conference call fairly brief and focus specifically on first quarter results. We will leave most of our customary comments on the environment and the outlook for the business for tomorrow’s meeting.
The bottom-line this quarter was a loss of $0.22 per share including the $305 million reserve addition we announced last week. This reserve increase had the effect of bringing reserve coverage to approximately 12 months.
Our results this quarter suggests a reversal of some of the adverse trends we had seen over the prior five quarters as the economy deteriorated. In particular, I am very pleased that this is the first full quarter since the third quarter of 2008 that we grew Discover Card sales volume year-over-year.
In addition, total 30 plus delinquency dollars in our portfolio is now at the lowest level and over a year. And we believe that the dollars of delinquency may have peaked in the fourth quarter. Our total charge-off rate in the first quarter came in at the low end of our guidance and we expect the charge-offs will start to decline in the second quarter. As we said in our press release we are now expecting second quarter charge-offs to come in between 8% and 8.5%.
In terms of other underlying trends in our business, Discover Card sales volume growth of 5% year-over-year is something I feel very good about. Our total loan portfolio was down about 2% year-over-year, as we continue to see modest reductions in our credit card portfolio, driven by reductions in lower rate balance transfer volume, almost entirely offset by growth in student and personal loans.
Our direct-to-consumer deposit business achieved another $2.3 billion of growth this quarter, bringing total balances at the end of the quarter to almost $15 billion. And just last week, we added another billion dollars of savings account deposits, as a result of the portfolio acquisition from ETrade. That’s not included in the $15 billion.
In our Payments business, we achieved our highest quarterly profits to-date of 37 million and had positive trends in network dollar volumes, including the meaningful level of inbound sales volume generated through our partnership with JCB.
We are also continuing to make important progress in expanding our global platform. For example, we announced a new network-to-network relationship with BC Card of Korea earlier in the quarter. BC Card is the largest domestic network in South Korea with the 11 member banks and over 50 million cards running on their domestic network.