Good morning. My name is Todd, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2024 Discover Financial Services Earnings Conference Call. [Operator Instructions] Please note, there will be no question-and-answer period after this morning's prepared remarks.

After the call ends, questions should be directed to the Discover Investor Relations team. [Operator Instructions] I will now turn the call over to Mr. Eric Wasserstrom, Senior Vice President of Corporate Strategy and Investor Relations. Please go ahead..

Thank you, and welcome to this morning's call. I'll begin by referencing Slides 2 and 3 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 first quarter 2024 earnings press release and presentation as well as the risk factors detailed in our annual report and other filings with the SEC.

Our call today will include remarks from our Interim CEO, Michael Shepherd; and John Greene, our Chief Financial Officer. There will be no question-and-answer session following today's remarks. However, the Investor Relations team will be available for any inquiries. It's now my pleasure to turn the call over to Michael..

Thank you, Eric, and good morning, everyone. Thank you all for joining today's call. I'd like to begin the call with a few words of introduction. I joined Discover's Board in August of 2023 after a career in the public and private sectors, more than 30 years of which were in the financial services industry.

Among other roles, I served as Senior Deputy Controller of the Currency earlier in my career. Most relevant to my current position, I was Chairman and CEO of BancWest Corporation and Bank of the West. As Chairman of Bank of the West, I helped oversee its acquisition and integration into the Bank of Montreal in 2023.

I hope my experience will help me serve our shareholders customers and employees as an effective leader during this important period. John Greene will discuss the results of the first quarter in greater detail, but let me highlight a few aspects of our financial performance.

Discover's operating performance remained solid with increased revenues in the period, driven by good loan growth, largely reflecting payment rate normalization and a resilient net interest margin. We are seeing receivables expansion while remaining prudent in our underwriting and disciplined in customer acquisition.

Credit continues to perform in line with our expectations and delinquency formation has stabilized as we had anticipated. Importantly, we continue to strengthen our risk management and compliance programs where we are investing in meaningful resources.

In the first quarter, following continuing internal reviews, and after extensive discussions with several constituencies, including merchants and regulators, Discover decided to significantly increase our liability for the card misclassification issue. We believe that taking this action will advance the resolution of these issues.

There's been a lot of change at Discover over the last few months and I thought it might be helpful to emphasize our framework for decision-making.

Our goals are to maximize shareholder value by executing on our risk management and compliance priorities, sustaining our commitment to outstanding customer service and seeing that the company remains well positioned to drive long-term value creation.

As the interim CEO of Discover, I'm committed to these objectives, which will improve our company and allow us to make the strongest contribution to the combined Capital One. The Capital One team is leading the integration planning process and we look forward to partnering with our colleagues in support of our shared objectives.

The process has achieved the first important milestone, the submission of the merger applications to the Federal Reserve and the OCC. We continue to believe that the strategic rationale, operating scale and economics of the combined company are compelling.

The merger will advance the company's shared mission to help our customers meet their financial goals support our commitments to our communities and make the combined company a well-positioned bank and a competitive payments network of the future. Finally, I'd like to thank Michael Rhodes for his leadership through an important phase.

His new position allows him to fulfill his career goal of leading a public company and my colleagues and I wish him well. With that, I'll now ask John Greene to review our first quarter 2024 financial results..

first, the forward curve now reflects an expectation of 2 rate cuts this year versus our prior forecast of 4 cuts. And second, we have been proactive in lowering our deposit rates. Our cumulative deposit beta is now about 70%, and we think there will be further opportunities to manage our deposit costs over the course of this year.

We still expect our core operating expenses to be up mid-single digits, excluding card misclassification related costs and merger expenses.

Our core operating expense trends are in line with our expectations and we believe the actions we took in the first quarter have substantially de-risked the probability of further increases to the remediation reserve. We are tightening our net charge-off range to 4.9% to 5.2%, based largely on current delinquency trends.

Our base case remains at the lower end of the range. Finally, given the merger agreement, we have suspended share repurchases through closing and agreed not to increase the dividend.

To summarize, we continue to generate solid results and our financial performance underscores our steady stewardship of the organization as we move towards resolving compliance items and consummating our planned merger. This concludes our remarks. I'll turn the call back over to our operator..

Thank you. This concludes today's call. The Discover Investor Relations team will be available for questions. Thank you for joining. You may now disconnect..

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