(Reuters) – Discover Financial Services (NYSE:) fell short of analysts’ estimates for third-quarter profit on Wednesday, as it set aside more rainy-day funds to cover potential loan defaults.
The U.S. Federal Reserve’s aggressive rate hikes to battle inflation have bolstered banks’ interest income but has also heightened concerns of customers likely defaulting on loan repayments.
Discover set aside $1.7 billion as provision for credit losses in the quarter, compared to $773 million a year earlier.
This offset a 17% growth in the lender’s net interest income, the difference between the interest banks earn on loans and pay out on deposits.
The company’s shares were down 2.6% in extended trading.
Discover’s net income came in at $683 million, or $2.59 per share, for the three months ended Sept. 30, compared to analysts’ average estimates of $3.19, according to LSEG data.
Earlier this month, Discover agreed to improve its consumer compliance and related corporate governance as part of the proposed consent order received from the FDIC expand in late July.
The company had also paused its share repurchases while the internal review of compliance, risk management and corporate governance was pending.
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