Discover Financial Services experienced a decrease in its stock price during after-hours trading due to its decision to increase reserves in order to protect against possible credit losses. This move came at a time when the credit-card net charge-off rate rose to 4.03%. To deal with this, Discover earmarked $1.7 billion to safeguard against potential credit losses in the quarter, with a $929 million surge primarily due to a reserve augmentation of $297 million. The company was set to hold its third-quarter earnings call the next day.

These figures were released at a time when Wall Street was closely monitoring consumer spending patterns, given rising expenses for essential items, preparations for the holiday season, and challenges with student loan repayment. Notably, Discover observed a slowdown in card sales volumes, particularly among non-affluent shoppers, as noted by one analyst.

The significant increase in reserves caused Discover to fall short of Wall Street’s profit expectations. The company reported a net income of $683 million, or $2.59 per share, compared to $1.01 billion, or $3.56 per share, in the same quarter of the previous year. Despite missing earnings expectations, revenue rose from $3.47 billion to $4.04 billion when compared to the corresponding quarter in the previous year.

According to analysts polled by FactSet, earnings per share of $3.17 on revenue of $3.95 billion were expected. Consequently, Discover Financial Services’ stock fell by 2.6% after the announcement.

In response to the earnings report, Piper Sandler analyst Kevin Barker emphasized the significance of the reserve increase, which overshadowed the positive aspects of higher net-interest income, reduced expenses, and fee revenue. Bill Ryan, an analyst at Seaport Research Partners, shared a similar view, noting that Discover’s card sales volumes had only increased by 0.3%, indicating a slowdown compared to previous quarters.

Both analysts voiced worries regarding credit-related concerns and their potential influence on Discover’s stock in an already uncertain market. They highlighted that the deceleration in credit sales mirrored the performance of numerous other issuers disclosing their Q3 outcomes, particularly among more affluent consumers.