Discover Is Benefiting From High Loan Growth, but Credit Costs are Set to Rise

After more than two years of little to no receivable growth and credit losses well below normal levels, Discover to was able to generate impressive loan growth in 2022. On the other hand, while credit costs have normalized slower than we had initially expected, there are clear signs that investors should expect higher net charge-offs from Discover and other credit card issuers 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 December 2022 with more than $91 billion in credit card loans, 21% higher than the prior year.