Discover Is Benefiting From High Loan Growth, but Credit Costs Are Rising

As consumer debt repayment rates in the United States normalize, Discover has enjoyed a period of significant loan growth. On the other hand, while credit costs had initially normalized from historic lows slower than we had expected, they increased materially in 2023 and we expect them to rise further as we head into 2024. That said, we do not expect this to put any pressure on the bank's balance sheet as the firm is in a strong financial position with good reserves. Additionally, Discover's net interest income will benefit from the larger credit card receivable base. The bank ended September 2023 with over $97.3 billion in credit card loans, 16.8% higher than the prior year.