Discover Expects Charge-Offs to Peak in Mid-2024

As 2023 winds down, Discover is eyeing 2024 and its increasing charge-off rate.

“So what we’ve said previously is we expect charge-offs to peak sometime around the midpoint of the year to the second half of the year, in the second half of 2024,” Chief Financial Officer John Greene said during an earnings call Thursday (Oct. 19).

“So if we don’t see a slowing in delinquency rates between now and the first quarter, certainly that could be an indication that, you know, we’ll have to take incremental provisions,” Greene added.

The earnings report showed Discover’s revenue up 17% year-over-year, “driven by strong asset growth,” interim CEO John Owen said in a news release.

Meanwhile, the company’s provision for credit losses rose by $929 million, “reflecting a $297 million increase in reserve build and a $631 million increase in net charge-offs,” the earnings presentation said.

The report showed 30-day delinquency rates for credit cards at 3.41%, up from 2.86% in the prior quarter and 2.11% during the third quarter of 2022. In August, Discover reported in a Securities and Exchange Commission (SEC) filing that its delinquency rate climbed from 2.86% in June to 3% in July, above the 2.37% recorded before the pandemic.

A number of banks and financial services companies have been noting higher delinquency rates and credit losses as consumers face increased economic pressures.

Owen replaced former president and CEO Roger Hochschild, who resigned in August weeks after Discover revealed it was facing possible action by the Federal Deposit Insurance Corporation (FDIC).

During an earnings call in July, the company revealed it was facing a possible FDIC consent order in connection with consumer compliance issues, while also acknowledging it had been overcharging merchants for years.

“Beginning around mid-2007, we incorrectly classified certain card accounts into our highest merchant and merchant-acquiring pricing tier,” Hochschild said at the time.

On the call Thursday, Owen said Discover had made “significant strides” in compliance since the FDIC issued its consent order.

“Consistent with the terms of this consent order, we have made meaningful investments in improving our corporate governance and enterprise risk management capabilities and expect to drive further enhancements across the organization in the coming quarters,” he said.