John T. Greene
Executive Vice President and Chief Financial Officer at Discover Financial Services
Thank you, Roger, and good morning, everyone. As we review our fourth quarter results, I echo Roger's points that the actions we took last year position us for strong performance in 2022 and beyond.
I'll begin with our financial summary on Slide 5. Our strong fourth quarter results were characterized by accelerating receivable growth, provision leverage and increased investments in marketing and brand. Revenue, net of interest expense, increased 4% from the prior year. Excluding a $139 million unrealized loss on our equity investments, total revenue was up 9%.
Net interest income increased 4%, driven by growth in average receivables and an 18 basis point improvement in our net interest margin, which was sequentially flat at 10.81%. Our NIM trend reflects the continued benefit from decreased funding cost and lower interest charge-offs, though these were partially offset in the fourth quarter by a higher mix of promotional rate balances.
The growth in receivables was largely driven by card, which was up 4% year-over-year and 6% sequentially. The primary drivers of year-over-year growth were continued strong sales volume and significant new account growth throughout 2021, which was up 23% year-over-year and 13% versus 2019. As has been the case for most of last year, a significant portion of the benefits from strong sales and new account was offset by the sustained high payment rate. The payment rate leveled off during the quarter, but remains approximately 500 basis points above pre-pandemic levels. We currently expect that the payment rate will decline slightly over the course of 2022. However, our expectations for card receivable growth is robust, as I'll detail in a few moments.
Our student loan portfolio also contributed to our growth. Organic student loans were up 4% over the prior year, benefiting from the return to in-person learning in 2021. We continue to gain share in this product and are well positioned for continued organic expansion. Personal loans decreased 3% year-over-year, mainly driven by high payment rates, but were sequentially flat as we returned our underwriting criteria to pre-pandemic levels.
The second significant driver of our revenue growth was higher net discount, interchange revenue, which increased $103 million or 43%, driven by a 25% increase in sales volume year-over-year. The strong volume has continued into this year. Sales are up 24% through the first half of January.
One significant item that relates to our net discount and interchange revenues is our rewards cost. And having covered most of our key revenue drivers, I'll point your attention to the reward rate reflected on Slide 8. We continue to benefit from strong card member engagement with our cash back rewards program. Our rewards cost increased versus last year on higher sales volume. However, the reward rate declined 3 basis points year-over-year and 9 basis points sequentially. This reflects the benefit of our integrated model and our discipline in managing the program while delivering substantial value to card members and merchant partners. For the full-year 2021, our rewards rate was 1.37%, up 2 basis points from the prior year. Consistent with the historical trend, we expect about 2 basis points to 4 basis points of annual rewards cost inflation, driven mostly by shift in mix.
Now, I'd like to spend a moment speaking about expense trends on Slide 9. Total operating expenses increased $34 million, or 3% year-over-year. Focusing on the most significant items here, marketing expense was up $112 million as we continue to invest in new account growth and brand marketing with the launch of our new media campaign, which went live across all channels in the quarter. This pushed our marketing expense towards the top end of our previously guided range.
Employee compensation was down $5 million year-over-year, driven mainly by a $26 million charge last year. Excluding this, our comp expense was up 4% year-over-year, driven largely by a higher bonus accrual. Information processing was down $73 million year-over-year and professional fees increased as a result of higher recoveries.
Moving to credit on Slide 10. The net charge-off rate improved to 1.37% in the quarter, a decrease of 101 basis points year-over-year and a 9 basis point improvement from the prior quarter. Net charge-off dollars were down $218 million from the prior year and decreased $12 million sequentially. Strong credit performance continued across all products. Card net charge-offs were down 113 basis points from the prior year and personal loans were 158 basis points lower. Student loan charge-offs increased slightly but remained very low at 0.8%.
Moving to the allowance for credit losses on Slide 11. Our reserve rate continue to decline, dropping 38 basis points to 7.3%. Two factors contributed to the decrease in reserve rate. First, we released $50 million from reserves during the quarter, driven by the continued strong credit performance of our portfolio and the relative stability of the macroeconomic outlook. These factors were partially offset by the 5% increase in total loans from the prior quarter. Our future reserves will be dictated by our portfolio credit trends, our receivable growth and any changes to our macroeconomic assumptions.
Looking at Slide 12. We remain extremely well-capitalized and above our 10.5% target, with a common equity Tier 1 ratio of 14.8%. We continue to demonstrate our commitment of returning capital to shareholders as we executed on our share repurchase plan and bought back $773 million of common stock in the quarter and paid a dividend of $0.50 per share.
Looking at funding. Average consumer deposits decreased 3% year-over-year and declined 1% sequentially. This sequential decline was driven by a 5% decrease in consumer CDs, while savings and money market deposits increased slightly. We managed our excess liquidity down throughout 2021, and finished the year with consumer deposits representing 68% of total funding. We will continue to target 70% to 80% of funding from the sorts.
Moving to Slide 13, where we will provide some perspectives on 2022. We entered the year in a very strong position and our outlook reflects this. We expect loan growth in the high single digits. This view is based on current expectations of sales trends and the contribution from recently acquired accounts, combined with a very modest decline in the payment rate. We believe this view of payment rate substantially derisks our loan growth forecast.
We expect our NIM rate to be relatively in line with the full year of 2021, with quarter-to-quarter variability. We expect to benefit from higher loan yields with rising interest rates. This may be offset by other factors, including a higher mix of promotional rate balances, some degree of credit normalization and higher deposit rates, which will be subject to funding needs and competitive dynamics.
Turning to expenses. We expect our total GAAP expenses will increase at a mid-single digit rate this year. We'll continue to invest for growth as we see profitable opportunities, and currently expect that our marketing investments will be above 2019 levels. Outside of marketing, we expect operating cost to increase at a low single-digit percent level, reflecting disciplined expense control. Our commitment to positive operating leverage over the medium-term remains a priority. We expect net credit losses will average in the range of 2.2% to 2.6% for the full year. As credit normalizes from historically low levels in 2021, we expect net charge-offs to increase sequentially over the course of the year.
Lastly, we remain committed to returning substantial capital to shareholders through dividends and share buybacks. As of this week, we had approximately $780 million remaining on our share repurchase authorization that expires at the end of March, and expect to announce a new share repurchase authorization next quarter.
In summary, we had an excellent fourth quarter and full year with accelerating loan growth, driven by robust account acquisition and strong sales volumes, excellent credit performance and a reduction in the reserve rate, disciplined management of operating cost and sustained return of excess capital to shareholders.
I'm exceptionally pleased with Discover's execution against our business priorities in 2021. Our value proposition continues to resonate with consumers. We prudently invested for growth, resulting in significant new account growth and strong sales. We continue to optimize our funding mix and actively manage core deposit cost. These actions and the improved macroeconomic outlook have positioned us well.
With that, I'll turn the call back to our operator, Britney, to open the line for Q&A.
