John T. Greene
Executive Vice President, Chief Financial Officer at Discover Financial Services
Thank you, Roger, and good morning, everyone. Once again, our results this quarter reflect strong execution on our business priorities with accelerating loan growth and solid credit performance.
I'll begin with our financial summary results on Slide five. There are a few things I'd like to call out here. The first is that our net income is lower year-over-year because of our reserving actions. In the first quarter of last year, we had an $879 million reserve release while this quarter included a $175 million release. Adjusting for reserve changes, our profit before tax and reserves would have been up 19% year-over-year. Second, our reported total revenue net of interest expense increased to $107 million or 4% from the prior year. However, this included $162 million net loss in equity investments. Excluding this loss, total revenue increased 10%. These points underscore the strength of our core earnings power even in a fluid economic environment. Let's turn to the details of the quarter.
Looking at Slide six. Net interest income was up $149 million or 6%, driven by improved net interest margin and higher average receivables. NIM was 10.85%, up 10 basis points from the prior year and four basis points from the prior quarter. The year-over-year increase in net interest margin reflects lower funding costs and a favorable shift in funding mix partially offset by a higher mix of promotional rate balances. We made further progress on our funding mix with consumer deposits now making up 71% of total funding.
On a sequential basis, the modest increase in NIM was driven by slightly improved revolve rate on credit card loans, partially offset by increased funding costs. The better revolve rate reflected a 70 basis point decline in the payment rate quarter-over-quarter. This helped boost sequential loan yields by five basis points. However, the payment rate remains nearly 500 basis points above pre-pandemic levels. We continue to expect that the normalization in the payment rate will continue through the back half of 2023. Receivables were higher driven by Card, which increased 10% year-over-year from the continued strong sales and robust new account growth last year and into this year. Organic student loans increased 4%, reflecting solid originations through the 2021 peak season. Personal loans were down 1% due to a sustained high payment rate.
Looking at other revenue on Slide seven. Excluding the $162 million loss in equity investments, noninterest income increased $120 million or 26%. This was driven by net discount and interchange revenue, which was up $79 million or 33%, reflecting strong sales. Sales were up 23% year-over-year, with growth across all categories. Inflation drove a modest portion of the growth in the quarter, and we expect that inflation will remain a benefit to sales growth over the short term. Strong sales also drove higher rewards expense compared to the prior year. However, the rewards rate was down two basis points year-over-year. We still anticipate the full year rewards rate to increase two to four basis points. Loan fee income was up $33 million or 31%, primarily driven by an increase in late fee instances.
Moving to expenses on Slide eight. Total operating expenses were up $49 million or 5% year-over-year. Excluding marketing investments, expenses increased just 1%. Compensation expense was slightly down year-over-year on lower bonus accruals and headcount, which was partially offset by higher average salaries. We expect some degree of salary and wage pressure in 2022 and possibly into 2023, as we take steps to remain competitive.
Marketing expense increased $38 million or 25%. We continue to invest for growth in our card and consumer banking products, including support of our relaunched Cashback Debit product. Information processing increased $16 million or 15% year-over-year versus a low level in the period a year ago. This expense was flat sequentially. Going forward, we will continue to prioritize investments in analytics to support growth, innovation and generate operating efficiencies.
Moving to Slide nine. Net charge-offs remained low and were in line with our expectations for modest credit normalization. Total net charge-offs were 1.61%, 87 basis points lower than the prior year and up 24 basis points from last quarter's record low. Total net charge-off dollars were down to $160 million -- $169 million from the prior year and up $55 million sequentially.
Moving to the allowance for credit losses on Slide 10. This quarter, we released $175 million from reserves and our reserve rate continued to decline, dropping 17 basis points to 7.1%. The reserve release primarily reflects the sustained strong credit performance in our portfolio, partially offset by loan growth. Looking at the macroeconomic environment, the pandemic now has a lesser impact on our outlook. The primary sources of risk have shifted to the impacts of inflation and a potential slowdown from Fed actions. While the risk has shifted, the economic view of the U.S. consumer remains healthy.
Looking at Slide 11. Our common equity Tier one for the period was 14.7%, slightly lower than the prior period and still well above our 10.5% target. We repurchased $944 million of common stock during the quarter, executing on our remaining authorization. Our Board of Directors also approved a new $4.2 billion shares repurchase program that expires on June 30, 2023, and increased our common stock dividend by 20% to $0.60 per share. This repurchase authorization represents our largest ever over a five-quarter horizon. It is evidence of our commitment to returning excess capital to shareholders while sustaining our investments in strong organic growth.
Concluding on Slide 12. Our outlook for 2022 remains favorable, and we are improving some elements of our expectations. Starting with loans, spending trends through the first quarter and a modest decline in the payment rates improved our conviction for high single-digit growth. We are revising our view on NIM. We now see five to 15 basis points of upside for the full year relative to the first quarter. This view includes five Fed rate hikes at 25 basis points each. Our prior view reflected two-rate hikes of the same magnitude. If the Fed increases rates beyond this, it would provide modest upside to net interest margin.
Despite inflationary pressures, there's no change to our guidance for operating expense. Marketing is expected to be above 2019 levels with nonmarketing expenses up low-single digits. We are improving our credit outlook. We expect losses to be between 2.2% and 2.4% for the full year. While there's still some uncertainty about the back half of this year, our current credit performance and delinquency trends give us confidence in a tighter range. And as previously mentioned, our Board recently approved a new share repurchase program and increased our dividend.
In summary, loan growth accelerated, as we benefited from robust sales and strong account acquisitions last year and into 2022. Credit performance reflected our disciplined approach to underwriting in credit management with moderate normalization as expected. We manage operating expenses while investing in new product, features and functionalities. And our highly capital-generative model enable us to increase our dividend and share repurchase authorization while supporting strong organic asset growth. These results demonstrate the resiliency and flexibility of our integrated digital banking and payments model, and I'm confident that we are well positioned for continued profitable growth through a range of economic conditions.
With that, I'll turn the call back to our operator to open the line for Q&A.
