Discover Financial Services

Good morning. My name is Ashley, and I'll be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2022 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 require 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 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 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 first-quarter earnings press release and presentation. Our call today will include remarks from our CEO, Roger Hochschild, 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, you'll be permitted to ask one question followed by one follow-up question. After your follow-up question, please return to the queue. And now it's my pleasure to turn the call over to Roger.

Thanks, Eric, and thanks to our listeners for joining today's call. In my comments this morning, I'm going to address three topics. Our strategic and financial highlights for the first quarter, the expected impact of the current environment on our 2022 results, and some of the exciting advancements we've made around our DE&I and ESG reporting. Starting on slide three, we had another quarter of outstanding results with earnings of $1.2 billion after tax, or $4.22 per share. Our earnings this quarter were the result of consistent execution on our business priorities against the backdrop of complex economic and geopolitical conditions. Consistent with our expectations, our loan growth accelerated to 8% from the prior year as we benefited from continued strong sales and investments in new account acquisition last year and into 2022. Year-over-year card sales were up 23%, with improvement in all categories. There's been a lot of discussion about the impact of energy price inflation on consumer spending. We believe that higher prices at the pump were a relatively small contributor to sales volume, adding approximately 200 basis points to our first quarter volume growth. We also continue to lean into account acquisition and new accounts grew 11% year over year with particular strength in the prime cashback segment, reflecting our attractive value proposition. Credit performance remains strong with credit losses normalizing in line with our expectations. This is an outgrowth of our consistent focus on prime lending and our strong credit management throughout the pandemic, along with robust labor market conditions. Importantly, we have not seen evidence of credit stress beyond the moderate pace of normalization that we anticipated coming into the year. In fact, as John will address later, we're narrowing our expectations for credit losses to the low end of our prior range. We continue to effectively manage expenses while making investments for profitable growth, analytic capabilities, and product enhancements. As our account growth demonstrates, we're making significant investments in card growth, but we're also focused on innovation in our non-card offerings to further enhance our full suite of digital banking and lending products. In early April, we launched our cashback debit product. This product is digitally native, including a mobile-first customer experience. It provides features like early access to paychecks, as well as items that others will struggle to match, including no fees, 1% cash back on debit transactions, and our industry-leading service. We plan on investing more for the growth of this product with broad market advertising later this year. Now let me talk about how we expect the current environment to impact Discover. We provide some views on macro conditions on slide four. The most pressing issue is Russia's invasion of Ukraine. Naturally, our primary concern is for the resulting humanitarian crisis and the well-being of the Ukrainian people, as well as for our employees and customers with close ties to this nation. From the more narrow perspective of our business, we currently have no activities in either country, and we do not anticipate any material impacts on our business from the war. We have indefinitely suspended our efforts to open an office in Russia, and while we have temporarily paused our certification of a Diners Club bank issuing partner in Ukraine, we plan on moving forward as soon as we can. The war in Ukraine and the resulting sanctions against Russia have also raised concerns about the risk of recession globally and domestically. We do not see any evidence of this across our consumer lending portfolio. Our credit metrics remain good, and there is nothing we're seeing in terms of consumer spending or borrowing behavior that suggests that a broader downturn is imminent. Another concern has been the significant elevation and flattening of the yield curve given the anticipation by the rates market around aggressive monetary policy from the Federal Reserve to stem high inflation. Because we are modestly asset sensitive, the potential for a greater number of Fed rate hikes has improved our outlook for spread income, which John will discuss momentarily. And while we're not immune from the effects of inflation, our business model has somewhat of a natural hedge as the pressure that inflation may create on elements of our expense structure are partially offset by the contribution inflation makes to our sales volume. In summary, while macro conditions are much more fluid than we had thought coming into this year, we're positioned to benefit from the combination of strong sales and receivables growth, expanding margin, and slowly normalizing credit. These trends give us confidence in our outlook over our forecast horizons. Finally, I want to point out our new ESG-related disclosures. In March, we produced our first Diversity, Equity, and Inclusion Transparency Report, which highlights our commitment to supporting a diverse workforce that reflects our communities and customers. We also recently published our first ESG summary that includes details on our greenhouse gas emissions, among other items. The data in our new reports is encouraging, but we intend to do more to reduce our impact on the environment and to advance diversity and equity in our organization and communities. With that, I'll turn the call over to John to review our financial results in more detail and provide an update to our expectations for the rest of 2022.