Discover Financial Services (NYSE: DFS) shares are trading lower in Wednesday’s after-hours session after the company reported its fourth-quarter financial results.
Discover reported quarterly earnings of $1.54 per share, which fell below the Street’s estimate of $2.52, representing a decrease of 58% compared to $3.74 per share for the same period last year. Revenue came in at $4.196 billion, net of interest expense, beating analyst estimates of $4.10 billion, representing an increase of 13% year-over-year.
Total loans ended the quarter at $128.4 million, a year-over-year increase of 15%. However, the total net charge-off rate was 4.11%, compared to 2.13% in the same period last year. The provision for credit losses also increased by $1 billion year-over-year to $1.9 billion.
“Discover’s performance in 2023 was driven by strong asset and deposit growth and a resilient net interest margin, while net charge-offs increased but to the low end of our expected range,” said John Owen, Discover’s Interim CEO and president. “Additionally, we have taken steps to strengthen our risk management and compliance programs; launched an important new product, Cashback Debit; and announced our new CEO. These factors position Discover to generate strong shareholder value in 2024 and beyond.”
Despite the positive outlook, shares of Discover were down 6.20% at $102 in the after-hours session at the time of publication Wednesday.
Discover Financial Services is a leading direct banking and payment services company. It operates the Discover Network, with millions of merchant and cash access locations, and provides credit cards, loans, and other banking products to consumers. The company has been focused on growing its loan portfolio and expanding its customer base.
The fourth-quarter results show a mixed performance for Discover Financial Services. While revenue exceeded expectations, earnings fell short. The increase in total loans is a positive sign, indicating growth in the company’s lending business. However, the higher net charge-off rate and provision for credit losses raise concerns about credit quality.
Investors will closely monitor Discover’s efforts to strengthen risk management and compliance programs, as well as the impact of the new product, Cashback Debit, on its business. The appointment of a new CEO also adds uncertainty to the company’s future direction.
Discover Financial Services will need to address these challenges and demonstrate consistent earnings growth to regain investor confidence and drive shareholder value in the coming quarters.
