The operator, Todd, introduces the First Quarter 2024 Discover Financial Services Earnings Conference Call. Eric Wasserstrom, Senior Vice President of Corporate Strategy and Investor Relations, welcomes the participants and reminds them of the forward-looking statements and risk factors. The call will feature remarks from Interim CEO Michael Shepherd and Chief Financial Officer John Greene, with no question-and-answer session. Michael Shepherd, who joined Discover's Board in 2023, has a long career in the financial services industry.

The speaker highlights their relevant experience as Chairman and CEO of BancWest Corporation and Bank of the West, and their role in overseeing the acquisition and integration of Bank of the West into the Bank of Montreal. They also discuss Discover's strong financial performance in the first quarter and their focus on risk management and compliance. The speaker emphasizes their commitment to maximizing shareholder value and maintaining outstanding customer service as the interim CEO of Discover.

The Capital One team is leading the integration planning process for the merger and has submitted the necessary applications. The merger is expected to benefit the company and its customers, and the team thanks Michael Rhodes for his leadership. In the first quarter of 2024, the company reported a decrease in net income due to an increase in the reserve for remediation related to a card misclassification issue. However, the company's core financial performance remains strong with double-digit revenue growth, a resilient net interest margin, and strong credit performance.

In the fourth paragraph, the company reports strong financial results for the first quarter of 2024, with net income of $915 million and EPS of $3.50 per share. The net interest margin decreased slightly from the previous year, but loan yields increased due to a lower promotional balance mix and moderation in payment rates. Card receivables and personal loans both saw growth, but card sales were down 1% compared to the previous year. This was attributed to lower spending among lower-income households due to inflation. The company expects sales to remain flat or slightly negative for the rest of the year. Personal loans were primarily used for debt consolidation, with approximately 50% of originations going towards paying off existing debts. Student loans remained flat year-over-year.

The company has stopped accepting applications for new student loans and is in the process of selling its loans. There has been an increase in deposits and the company is decreasing pricing on deposit products. Noninterest income has increased due to higher net discount and interchange revenue, loan fee income, and transaction processing revenue. However, there has been a decline in rewards rate due to slower growth and active management of 5% categories. The company is closely monitoring the CFPB late fee proposal, which could result in a significant reduction in revenues. Operating expenses have increased primarily due to an increase in the remediation reserve, but would have only increased by 9% without this factor.

In the first quarter, compensation costs increased by $46 million or 7%, mainly due to investments in business technology resources and severance related to organizational changes. Professional fees also increased by $60 million or 26%, driven by compliance and risk management initiatives, recovery fees, and merger-related expenses. Credit performance showed an increase in net charge-offs, with the 30-plus day delinquency rate improving slightly. The 2023 and 2022 card vintages are performing well and remain profitable. Personal loan net charge-offs also increased, but are expected to plateau later this year or in 2025. The credit reserve balance decreased by $25 million, but the reserve rate increased by 9 basis points to 7.32%, mainly due to a reduction in seasonal transactor balances.

The company expects total losses to peak and plateau in mid- to late 2024, assuming a stable economy and no major portfolio changes. Common equity Tier 1 was 10.9% in the period, with lower receivables and core earnings offsetting increased expenses. The company declared a quarterly cash dividend of $0.70 per share. The company has updated its 2024 outlook, including increasing loan growth expectations and net interest margin range due to expected rate cuts and proactive deposit rate management. Core operating expenses are expected to be up mid-single digits, with actions taken in the first quarter reducing the risk of further increases to the remediation reserve. The net charge-off range has been tightened based on current delinquency trends, with the lower end of the range remaining the base case.

The speaker states that due to the merger agreement, share repurchases have been suspended and the dividend will not be increased. They also mention their strong financial performance and their focus on resolving compliance issues and completing the merger. The call is then turned back over to the operator for any further questions.

This summary was generated with AI and may contain some inaccuracies.