Discover Is Benefiting From Low Credit Costs and High Loan Growth, but Economic Uncertainty Grows

After more than two years of little to no receivable growth and credit losses well below normal levels, we are seeing things starting to normalize as consumers are once again borrowing on their cards, which is allowing Discover to generate impressive loan growth. On the other hand, while credit costs have normalized slower than we had initially expected, we are still anticipating high charge-offs for Discover in 2023. We do not expect this to put any pressure on the bank's balance sheet, though, as the firm is in a strong financial position with good reserves. Additionally, Discover's net interest income will benefit from a larger credit card receivable base now that growth has returned. The bank ended September 2022 with $83.6 billion in credit card loans, 19% higher than a year ago.