John T. Greene
Executive Vice President, Chief Financial Officer at Discover Financial Services
Thank you, Michael, and good morning, everyone. I'll start with our summary financial results on Slide 5. In the quarter, we reported net income of $965 million, which was up 41% from the prior year. Financial performance was strong, driven by revenue growth from modestly higher loan balances, net interest margin expansion. We recognized a gain from the first closing of the private student loan portfolio sale, and credit is performing in line with expectations with net charge-offs plateauing.
Let's review the details beginning on Slide 6. Our net interest margin ended the quarter at 11.38%, up 43 basis points from the prior year and up 21 basis points sequentially. On a quarter-over-quarter basis, margin expansion was primarily driven by a lower card promotional balance mix.
Card receivables increased 3% year-over-year due to a lower payment rate, partially offset by a decrease in sales volume. The payment rate declined around 100 basis points from last year, was stable versus the prior quarter, and is approximately 70 basis points above pre-pandemic levels. Discover Card sales were down 3% compared to the prior year. Sales were impacted by cautious consumer behavior and credit tightening actions, which began in 2022. We expect these dynamics to persist for the remainder of the year.
Personal loans were up 9% from the prior year. We continue to see strong demand from consumers seeking debt consolidation. The average FICO for new personal loan accounts is above 750.
Student loans were down 19% year-over-year as a result of the first student loan asset sale. We recognize a gain of $70 million in the quarter. As Michael mentioned, shortly after the quarter ended, we completed the sale of the second tranche. Approximately 55% of the portfolio has been sold to date. We expect to sell the remaining portions of the portfolio by mid-November.
Average consumer deposits were up 11% year-over-year and 1% sequentially. We are managing deposit balances to meet our liquidity needs, and we have benefited from the student loan sale. We anticipate a through-the-cycle beta of around 70%.
Looking at other revenue on Slide 7. Non-interest income increased $76 million, or 11%. Other income increased due to the gain from the loan sale. Loan fee revenue was up $20 million driven by higher instances. Our rewards rate was 144 basis points in the period, an increase of 2 basis points versus the prior year quarter and up 12 basis points sequentially. The increases were driven by changes in the promotional categories. During the third quarter of 2024, consumers enjoyed higher rewards with grocery and Walmart spend earning 5%.
Moving to expenses on Slide 8. Total operating expenses were up $238 million, or 16% year-over-year. Looking at our major expense categories, compensation costs increased $128 million, or 22%, primarily due to higher wage rates and employee retention awards. Information processing increased as a result of technology investment and accelerated student loan software depreciation. And professional fees were up $42 million, or 15%, driven by higher recovery fees, and merger and integration costs.
We recognize $43 million of merger and integration planning costs in the quarter, $65 million year-to-date, and anticipate about $125 million for the full year 2024 spread across multiple expense categories. We expect total risk management and compliance expense of approximately $550 million in 2024, excluding card misclassification costs.
Moving to credit performance on Slide 9. Total net charge-offs were 4.86%, 134 basis points higher than the prior year, and up 3 basis points from the prior quarter. Adjusting for the impact of reclassifying private student loans to held-for-sale, the total net charge-off rate would have declined 20 basis points.
In card, net charge-offs declined 27 basis points from the prior quarter, outperforming seasonality. 30-plus day delinquency formation increased in line with seasonal trends. The 2023 card vintage continues to perform in line with the 2022 vintage and remains highly profitable. An early look at the 2024 vintage suggests improvements compared to 2022 and 2023.
Personal loan net charge-offs and delinquencies ticked up modestly but are well within historical norms, and vintages are meeting profitability targets. We continue to see a stable yet cautious consumer. The labor markets remain strong and wages are growing. However, households are contending with inflation and the impacts on everyday living expenses.
Spend per card member is returning to a more normal level. Slower, stable spending indicates that households have adjusted spending patterns to manage their budgets, which is beneficial from a credit standpoint.
Turning to the allowance for credit losses on Slide 10. Our credit reserve balance increased $31 million from the prior quarter as a result of loan growth. The reserve rate was 7.18%, down 4 basis points from the prior quarter, driven by our credit performance and modest improvements in the forecast for household net worth and debt service burden. Our economic outlook assumes year-end 2024 unemployment of 4.4% with peak unemployment at 4.6%, and GDP in the 1% to 3% range.
Looking at Slide 11. Our Common Equity Tier 1 ratio for the period was 12.7%, up 80 basis points supported by core earnings and the student loan sale. We declared a quarterly cash dividend of $0.70 per share of common stock.
Before we discuss our revised view of 2024, I would like to provide a brief regulatory update. As part of its review of the joint proxy statement and prospectus, the staff of the SEC has indicated that they disagree with certain aspects of Discover's accounting approach for the card misclassification matter. We are working diligently to resolve their comments, which largely focus on the allocation of previously incurred card misclassification charges between revenue and expense. We do not anticipate resolution of this matter to have an impact to cumulative historical earnings, capital, or our counterparty restitution plan liability.
Concluding on Slide 12, we have revised our 2024 outlook to reflect our latest view. We are updating our loan growth expectations to down low to mid single-digits. This change is driven by a higher-than-anticipated payment rate and slightly lower card sales. Excluding the student loan sale, loans are estimated to grow low-single-digits.
We are tightening our net interest margin range to 11.2% to 11.4%. Our operating expense guidance is unchanged. We are tightening our range of net charge-offs to 4.9% to 5%, reflecting our improved credit performance. Our capital management expectations have not changed.
In summary, we continue to deliver strong financial results, prudently manage our business, and prepare for our merger with Capital One.
This concludes our remarks. I'll turn the call back over to the operator.
