The operator introduces the conference call and informs participants that there will be no Q&A session. Eric Wasserstrom, Senior Vice President of Corporate Strategy and Investor Relations, welcomes everyone and reminds them to refer to the risk factors and notices regarding forward-looking statements. Michael Shepherd, Interim CEO, and John Greene, Chief Financial Officer, will be speaking, and the Investor Relations team will be available for inquiries. Michael highlights the company's strong performance in the second quarter and progress made in strategic priorities.

The company has entered into an agreement to sell their private student loan portfolio and Firstmark will take over servicing. They have also entered into a settlement agreement to resolve a class action lawsuit related to card misclassification. The company has also settled a litigation in their Payment Services segment. The pending merger with Capital One is progressing well with upcoming milestones including regulatory applications and shareholder votes.

The company's merger planning and application processes are progressing well, and they remain confident in the strategic rationale and economics of the combined company. In the second quarter of 2024, they reported a 70% increase in net income, driven by loan growth, higher net interest margin, and non-interest revenue growth. Credit performance is in line with expectations, and they expect losses to plateau in the second half of 2024. There were some unusual items that impacted the quarter, but excluding those, net income would have been $915 million and EPS would have been $3.63 per share. Net interest margin increased by 11 basis points from the prior year and 14 basis points sequentially, primarily due to a lower card promotional balance mix. Card receivables increased by 7% year-over-year, with a lower payment rate and a smaller contribution from new accounts.

Discover card sales were down 3% compared to the previous year due to a decline in spending at restaurants during the 5% promotion in the first quarter. However, sales trends are stable when accounting for promotional categories. Personal loans were up 13%, but underwriting has been tightened, resulting in reduced originations. Student loans were down 1% and are now being accounted for as held for sale. This will have an impact on the financial statements, including the elimination of credit reserves and recognition of net charge-offs through operating expenses. Consumer deposits increased by 15% year-over-year and 1% sequentially, and deposit rates were slightly reduced in the second quarter. Non-interest income increased by 45%, with discount and interchange revenue up by $67 million due to lower rewards cost.

The rewards rate for the period decreased due to lower cash back match, while other income increased due to unusual items. Operating expenses were up significantly, mainly due to a charge for expected regulatory penalties. Adjusting for this charge, expenses would have increased by 9%. Compensation costs and professional fees were the main drivers of the increase. Credit performance saw an increase in net charge-offs, but delinquency rates improved. The company expects some variability in monthly card losses in the second half of the year, but overall losses are expected to peak and plateau. The allowance for credit losses is shown on Slide 10.

The company's credit reserve balances decreased by $777 million, mainly due to a student loan reserve release. The reserve rate remained largely unchanged. Common equity Tier 1 increased by 100 basis points and a quarterly cash dividend of $0.70 per share was declared. The company has revised its 2024 outlook to reflect the impact of a pending student loan sale, resulting in a low single digit loan growth expectation. Net interest margin range has been increased due to higher card yields and the student loan sale. Operating expense guidance remains unchanged and net charge-offs are expected to be at the low end of the previously stated range. The company's capital management expectations also remain unchanged. In conclusion, the company continues to perform well financially, is working towards resolving compliance matters, and looks forward to completing their planned merger.

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