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Discover Financial Services (NYSE:DFS) stock sank 11% in after-hours trading on Wednesday after the credit card company posted Q2 earnings that fell far short of the Wall Street consensus as its provision for credit losses continued to climb and net charge-offs increased, signaling more normal card delinqeuncy rates.
Q2 EPS of $3.54, trailing the average analyst estimate of $3.67, fell from $3.58 in Q1 2023 and from $3.93 in Q2 2022. Revenue, net of interest expense, was $3.87B, missing the $3.89B consensus, and rose from $3.74B in the prior quarter and $3.21B a year ago.
CEO and President Roger Hochschild said: "Revenue growth offset the impact of normalizing charge-offs, and our deposit base grew another 4%. We are also seeing positive early results from the relaunch of our cash back debit product, an important strategic milestone."
Provision for credit losses of $1.31B, increased from $1.10B in Q1 and from $549M in Q2 2022.
Net interest income of $3.18B, missing the Visible Alpha consensus of $3.21B, climbed from $3.13B in the prior quarter and from $2.61B in the year-ago period.
Noninterest income was $701M vs. $610M in Q1 and $603M in Q2 2022.
Operating expenses of $1.40B grew from $1.38B in the previous quarter and from $1.22B in the year-ago period.
Discover Card sales volume of $55.2B rose from $50.6B in the previous quarter and $53.9B in the year-ago quarter. Average credit card loans of $91.8B advanced from $89.5B in Q1 2023. Credit card net principal charge-off rate increased to 3.68% from 3.10% in Q1 and from 2.01% in Q2 2022.
Digital Banking pretax income of $1.10B slipped from $1.21B in Q1 and from $1.42B in Q2 2022. Payment Services pretax income of $70M rose from $47M in the prior quarter and $20M in the year-ago period.
Conference call on July 20 at 8:00 AM ET.
Earlier, Discover Financial (DFS) GAAP EPS of $3.54 misses by $0.13, revenue of $3.88B misses by $10M.