Discover Financial Services

My name is Ashley and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter 2021 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 telephone keypad. If you should need any operator assistance, please press star 0. Thank you, and I will now turn the call over to Mr. Eric Wasserstrom, head of investor relations. Please go ahead.

Thank you, Ashley, and good morning, everyone. Welcome to today's call. I'll begin 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 our third quarter earnings press release and presentation. Our call today will include remarks from our CEO, Roger Hochfeld, and John Green, our Chief Financial Officer. After we conclude our formal comments, there will be time for a question and answer session. During the Q&A session, we request that you ask one question, followed by one follow-up question. After your follow-up question, please return to the queue. Now it's my pleasure to turn the call over to Roger.

Thank you, Eric, and thanks to our listeners for joining today's call. We had another period of strong financial results in the third quarter, with earnings of $1.1 billion after tax, or $3.54 per share. In many respects, these results reflected the unique benefits of our integrated digital banking and payments model, which continues to be a source of significant competitive advantage by supporting our value proposition to consumers and merchants and differentiating our brand. These advantages enabled our continued investment in account acquisition, technology, and analytics while generating substantial capital. In an environment characterized by new entrants and intensifying competition, we believe the strengths of our model position us to accelerate our growth. Underlying our results this quarter were three important advancements. The first was our return to year-over-year receivables growth, which was driven by our investment in acquisition and brand marketing and continued strong sales trends. Total sales were up 27% over 2019 levels with strong momentum across all categories. Even travel sales increased, and while they dropped a bit in August due to concerns related to the Delta variant, travel has steadily improved since then. We also continue to see attractive opportunities for account acquisition and increased our marketing investment to take advantage of this. While the competitive environment has intensified, new accounts are now up 17% over 2019, reflecting the strength of our value propositions. This value proposition remains anchored in our industry-leading onshore customer service model, no annual fees, and useful and transparent rewards. While some of our peers had to reinvigorate their rewards offerings at substantial cost, our rewards costs were up only six basis points year over year, and nearly all of this increase was driven by higher consumer spending as evidenced in our strong discount revenue. Given these dynamics, we will continue investing in new accounts as long as the environment supports profitable opportunities and our robust account growth and our expectations for modest improvement in payment rates supports our view of stronger receivables growth in 2022. The second key trend was credit, which remained exceptionally strong. Our disciplined approach to credit management and favorable economic trends contributed to a record low net charge-off rate and continued low delinquencies. The delinquency outlook affirmed our expectations that losses will be below last year's levels for the full year and supported additional reserve releases during the quarter. And third is the continued expansion of our payments business. Pulse saw a meaningful increase in debit volume with 9% growth year-over-year and a 26% increase over the third quarter of 2019, demonstrating both the impact of the recovery and an increase in debit used through the pandemic. Our diners business has also started to see some improvement from the global recovery with volume up 12% from the prior year. As the global economy recovers, we will continue to look for opportunities to expand our international reach. In summary, our value proposition continues to be attractive, and our integrated digital banking and payments model supports profitable long-term customer relationships and is highly capital generative. I continue to feel very good about our prospects for future growth. I'll now ask John to discuss key aspects of our financial results in more detail.