Discover Financial Services (NYSE: DFS) reported its second quarter earnings recently and, once again, the results were a bit of a mixed bag. Bulls on the stock can point to the 9% year-over-year growth of revenue net of interest expense to $2.4 billion. Discover's loan portfolio growth was also solid as total loans grew 8% to $78 billion and credit card loans, the company's largest loan portfolio, increased 8% to $61.8 billion.
Despite these solid numbers, however, the bears had ample figures to highlight as well. Net principal charge-offs, loans that Discovers believes it is now unlikely to collect, once again increased more than expected. This quarter principal charge-offs rose to $520 million, a 35% increase year-over-year. Provisions for loan losses, money Discover sets aside for loan payments it has yet to receive, also spiked to $640 million, a 55% increase year-over-year.
These numbers are growing faster than expected and, as a result, Discover management raised its guidance for the full year total loan charge-off rate to 2.7-2.8%. Largely as a result of this increase in loan liabilities, Discover's return on equity fell from 22% in 2016's second quarter to 19% this quarter.
Source: Fool.com