Discover’s Q2 Financial Snapshot: Not as Robust as a Year Earlier

Discover Financial Services late Wednesday reported net income of $901 million for the second quarter of 2023, down 18% from a year earlier. Credit card loans for the quarter totaled $94 billion, a 19% year-over-year increase. As part of its earnings statement, Discover stated that “the comparative prior quarter ended June 30, 2022 has been restated to reflect immaterial corrections to the financial statements.”

Around mid-2007, Discover said it began incorrectly classifying certain credit card accounts in its highest merchant and merchant-acquirer pricing tier. Incremental revenue from the misclassification totaled less than 1% of Discover’s cumulative gross discount and interchange revenue “over this time frame,” the company says in its second-quarter earnings statement.

Discover says its plans to compensate merchants and acquirers that have been affected by the error, but that the final amount of potential refunds is to be determined. Nevertheless, the impact is expected to be immaterial to current and prior-period earnings per share, the company says.

Credit card net chargeoffs totaled 3.68%, a 167-basis-point increase from the prior-year period and up 58 basis points from the prior quarter. The 30-plus-day delinquency rate for credit card loans was 2.86%, up 110 basis points year-over year and up 10 basis points from the prior quarter. Overall, net chargeoffs totaled 3.22%, a 142-basis-point increase from the prior-year period. The increase reflects credit normalization across the portfolio, Discover says.

Payment Services volume for the quarter totaled $89.3 billion, an 8% year-over-year increase. Dollar volume for the Pulse electronic funds transfer network increased 10% during the quarter, driven primarily by increased debit transaction volume.

Diners Club volume was up 18% from the same period a year earlier, reflecting an increase in corporate spending and an improvement in global travel and entertainment. Network Partners volume decreased 10% from the prior year, primarily reflecting lower transaction volume. For the quarter, Payment Services posted pretax income of $70 million, up $50 million year-over-year.