On Tuesday, Capital One Finl (NYSE:COF) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Capital One Finl reported Q1 2026 earnings of $2.2 billion or $3.34 per share, with adjusted EPS at $4.42 after accounting for Discover integration and other items.
Revenue declined 2% sequentially, while non-interest expenses decreased by 9%, and pre-provision earnings increased by 6% on an adjusted basis.
The provision for credit losses was stable at $4.1 billion, with net charge-offs at $3.8 billion and an allowance build of $230 million.
The company completed its acquisition of BREX for $4.5 billion, which will impact the CET1 ratio by over 40 basis points in Q2.
Capital One Finl’s net interest margin declined to 7.87% due to seasonal effects and elevated cash levels.
The Discover integration continues with the successful conversion of debit customers, and the company expects to see growth opportunities post-integration.
Management reiterated their investment focus on AI, technology, and expanding the Discover and Brex franchises, with a long-term view on revenue synergies.
Future guidance maintains a focus on strong earnings power and strategic investments, with a CET1 capital level assumption of 12.5%.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to the Capital One Q1 2026 earnings call. Please be advised that today’s conference is being recorded. After the speaker’s presentation, there will be a question and answer session. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. I would now like to hand the conference over to your speaker today, Jeff Norris, Senior Vice President of Finance. Please go ahead.
Jeff Norris (Senior Vice President of Finance)
Thanks very much, Josh and welcome everyone. To access the webcast of this call, please go to the Investors section of Capital One’s website at CapitalOne.com. A copy of the earnings presentation, press release and financial supplement can also be found in the Investors section of Capital One’s website at CapitalOne.com by selecting Financials and then quarterly earnings release. With me this evening are Mr. Richard Fairbank, Capital One’s Chairman and Chief Executive Officer, and Mr. Andrew Young, Capital One’s Chief Financial Officer. Rich and Andrew will walk you through the presentation summarizing our first quarter results for 2026. Please note that this presentation may contain forward-looking statements, information regarding Capital One’s financial performance and any forward-looking statements contained in today’s discussion and the materials speak only as of the particular date or dates indicated in the materials. Capital One does not undertake any obligation to update or revise any of this information, whether as a result of new information, future events or otherwise. Numerous factors could cause our actual results to differ materially from those described in forward-looking statements and for more information on those factors, please see the section titled Forward Looking Statements in the earnings release presentation and the Risk Factors section of our annual and quarterly reports which are accessible at Capital One’s website and filed with the SEC. With that, I’ll turn the call over to Andrew.
Andrew Young (Chief Financial Officer)
Thanks Jeff and good afternoon everyone. I will start on Slide 3 of tonight’s presentation. In the first quarter, Capital One earned $2.2 billion or $3.34 per diluted common share. Included in the results for the quarter were adjusting items related to the ongoing Discover integration and purchase accounting impacts which are outlined on the slide.. Of these adjusting items, first quarter earnings per share or $4.42 relative to the fourth quarter revenue declined 2% while non interest expense declined 9%. Pre provision earnings in the quarter decline increased sequentially by about $530 million or 8% on an adjusted basis. Pre provision earnings increased about $430 million or 6%. Our provision for credit losses was roughly flat at $4.1 billion in the quarter. Included in the provision costs is about $3.8 billion of net charge offs and an allowance build of 230 million. Turning to Slide 4, I’ll cover the allowance in greater detail. The $230 million allowance build in the quarter brought the allowance balance to $23.6 billion. Our total portfolio coverage ratio increased 12 basis points and now stands at 5.28%. I’ll cover the drivers of the changes in allowance and coverage ratio by segment on Slide 5. In our domestic card segment, the allowance balance was flat at $18.8 billion. Favorable observed credit in the quarter was offset by greater consideration to downside economic scenarios related to heightened geopolitical uncertainty. The coverage ratio increased 23 basis points to 7.4%, largely driven by the paydown of fourth quarter seasonal balances. In our consumer banking segment, we built $155 million of allowance. The allowance build was primarily driven by strong growth in the auto business, a slightly higher subprime mix in that growth, and a modestly lower outlook for vehicle values. The coverage ratio ended the quarter at 2.36%, 13 basis points higher than the fourth quarter. And finally, in our commercial banking segment, we built $83 million of allowance. The allowance build was primarily driven by a very small number of specific reserves in our real estate portfolio as well as a modest increase in our criticized rate. The commercial banking coverage ratio increased 7 basis points quarter over quarter to 1.7%. Turning to Page 6, I’ll now discuss liquidity. Total liquidity reserves ended the first quarter at about $165 billion, up about 21 billion from the prior quarter. Our cash position increased by $19 billion and ended the quarter at approximately 76 billion. The increase was driven by continued strong deposit growth in our retail banking business and the paydown of seasonal card balances. Our preliminary average liquidity coverage ratio was 166%. Turning to page seven, I’ll cover our net interest margin. Our first quarter net interest margin was 7.87%, 39 basis points lower than the prior quarter. The decline was driven by several factors. First, two fewer days in the quarter drove 18 basis points of the decline. Second, we had the normal seasonal effect of lower average card balances. And third, average cash levels were elevated due to a combination of the typical seasonal increase, strong deposit growth in the quarter and the full quarter impact of last quarter sale of the Discover Home Loans portfolio. Turning to Slide 8, I will end by discussing our capital position. Our common equity tier 1 capital ratio ended the quarter at 14.4% 10 basis points higher than the fourth quarter income in the quarter and the seasonal decline in risk weighted assets were partially offset by $2.5 billion in share repurchases. Before I pass the call over to Rich, I also want to highlight that we closed our acquisition of BREX shortly after the quarter closed. The consideration paid to shareholders was approximately $4.5 billion. As a reminder, the BREX transaction is expected to decrease the CET1 ratio by a little over 40 basis points in the second quarter. Given the recency of the close, we are still working through the purchase accounting marks and will provide a breakout of those impacts in the second quarter earnings call. With that, I will turn the call over to Rich. Rich
Richard Fairbank (Chairman and Chief Executive Officer)
Thanks Andrew and good evening everyone. Slide 10 shows first quarter results in our Credit Card business Credit card segment results are largely a function of our domestic card results and trends which are shown on Slide 11. In the first quarter, the domestic card business posted another quarter of top line growth and strong credit results year over year. Purchase volume growth for the quarter was 40%, driven primarily by the addition of Discover purchase volume as well as continued strong growth in our heavy spender franchise. Excluding Discover, year over year, purchase volume growth was about 8%. Ending loan balances increased 69% year over year, also largely as a result of adding Discover card loans. Excluding Discover ending loans grew about 3.9% year over year. The legacy Discover card loans continued to contract slightly and will likely continue to face a temporary growth headwind in the near term due to Discover’s prior credit policy cutbacks and some additional credit policy changes we’ve made since closing the acquisition. We continue to see good opportunities to grow the Discover card business on the other side of our tech integration where we can implement growth expansions powered by our unique technology and underwriting. Revenue was up about 58% from the first quarter of 2025, largely driven by the addition of Discover revenue. Excluding Discover, year over year, revenue growth was about 6.8% driven by underlying growth in purchase volume and loans. Revenue margin for the quarter was 16.9%. The domestic card charge off rate for the first quarter was 5.1%, up 17 basis points from the prior quarter. In line with normal seasonality, the charge off rate improved by 109 basis points year over year, about half. This improvement is the result of incorporating Discover’s card portfolio into our domestic card business. The rest is driven by the steady improvement of charge offs we’ve seen over the past year for both the Legacy Capital One and Legacy Discover portfolios. Our domestic card delinquency rate was 3.7%, down 29 basis points from the prior quarter and down 55 basis points from a year ago. On a sequential quarter basis, the delinquency rate trend was a bit better than normal seasonality Domestic card non interest expense was up 51% compared to the first quarter of 2025, driven by the addition of Discover. Operating expense and marketing both increased year over year. Our choices in domestic card are the biggest driver of total company marketing, but choices in our consumer banking business have an increasing impact as well. Total company marketing expense in the quarter was about $1.5 billion, up 25% year over year, driven by the addition of Discover as well as higher legacy Capital One. Direct marketing in our domestic card and consumer banking businesses increased media spend and continuing investments in premium benefits. As is usually the case, first quarter marketing was seasonally low and that seasonal trend was amplified this year as the timing of some of our planned marketing investments for the year shifted out of the first quarter into the second quarter and subsequent quarters. This year. Pulling up our marketing continues to deliver strong new account originations to build an enduring franchise with heavy spenders at the top of the domestic credit card market and to grow checking accounts on a national scale. In our consumer banking business, we expect to increasingly lean into marketing to take advantage of these compelling market opportunities. Slide 12 shows first quarter results in our consumer banking business. Global payment network transaction volume for the quarter was steady at about $174 billion as the typical seasonal decline was mostly offset by transaction volume growth related to the completion of our conversion of Capital One debit customers to the Discover network. Auto originations were up 21% from the prior year quarter. Competitor activity in the quarter remained high, but we continue to be in a strong position to pursue resilient growth in the current marketplace. Consumer banking ending loan balances increased $8 billion, or about 10% year over year. Average loans were up 9% compared to the year ago. Quarter ending consumer deposits grew about 35%, driven largely by the addition of Discover deposits. Average deposits were up 34%. Looking through the Discover impact, our digital first national consumer banking business continues to grow and gain traction. Consumer banking revenue for the quarter was up about 37% year over year, driven predominantly by the addition of Discover operations as well as Discover revenue synergies and growth in auto loans. Non interest expense was up about 26% compared to the first quarter of 2025, driven largely by the addition of Discover as well as by higher marketing to drive Growth in our national consumer banking business increased auto originations and continued technology investments. The auto charge off rate for the quarter was 1.64%, up 9 basis points year over year and down 18 basis points from the sequential quarter. In line with expected seasonality, auto charge offs have been stable at near pre pandemic levels for the past year. The auto delinquency rate decreased seasonally from the linked quarter down 102 basis points to 4.21%. On a year over year basis, our auto delinquencies improved by 72 basis points. Slide 13 shows first quarter results for our commercial banking business. Compared to the linked quarter, both ending and average loan balances were up about 1%. Ending and average deposits were both down about 1% from the linked quarter. The commercial banking annualized net charge off rate for the first quarter decreased 14 basis points from the sequential quarter to 0.29%. The commercial criticized performing loan rate was 4.99% up 31 basis points. Compared to the linked quarter. The criticized non performing loan rate was up 4 basis points to 1.4%. In closing first quarter results continued to reflect solid top line growth and strong credit performance. We made expected progress on the Discover integration and synergies in the quarter including the successful conversion of Capital One’s debit customers to the DSCover network. We remain on track to deliver the expected synergies following the quarter. We achieved two important strategic milestones in April. We closed the Brex acquisition on April 7. Acquiring Brex accelerates our quest to build a banking and payments company that’s positioned to win where the world of business payments is going. As we mentioned at the announcement, we will be leveraging Capital One assets and increasing investment levels to drive enhanced growth at Brex. And also in April we brought the technology and capabilities that power Capital One Travel in house. We now fully own the technology that we have built in partnership with Hopper and the Hopper talent we’ve worked with will join Capital One. We also launched the new Capital One Travel app and we’re excited to bring our award winning travel experience to more consumers and businesses as we continue to grow our travel business. Brex and Capital One Travel are just two of the opportunities we are investing in. For years we’ve been working backwards from the coming dramatic transformation of the business marketplace with modern technology, data and AI. We are in the 14th year of our technology transformation from the bottom of the tech stack up. This has involved going 100% into the cloud, building a modern data ecosystem and rebuilding the company in modern technology platforms that can handle big data and AI in real time. We are way down that path, but we are still investing in some very powerful capabilities. All companies will be able to take advantage of AI, but the leverage is vastly greater when AI is embedded in the company’s ecosystem. Our entire technology is architected to enable these capabilities at scale embedded in our modern ecosystem. We continue to invest in building AI infrastructure and specific AI experiences. We also continue to invest in growing our heavy spender franchise at the top of the market, including rewards, lounges, unique access to experiences and breakthrough digital capabilities. And we also continue to lean in to our unique quest to organically build a digital first full service national bank. Many of our opportunities are enhanced by the Discover acquisition, which of course also brings the new opportunity to grow and scale our own global payments network. We continue to invest in network acceptance, we brand and technology. As we’ve discussed, these investments will continue to be reflected in the efficiency ratio, but they are also the engine that powers long term growth and returns. And of course our numbers starting in the second quarter will include Brex and the insourcing of our travel business as well. Pulling way up we continue to build momentum from the game changing acquisition of Discover. Even though some individual variables in our deal model have moved since the announcement and we have acquired Brex and the Hopper travel infrastructure, we still expect our earnings power on the other side of the DSCover integration to be consistent with what we expected at the time we announced the deal. And now we will be happy to answer your questions.
Jeff Norris (Senior Vice President of Finance)
Jeff thank you Rich. We will now start the Q and A session. As a courtesy to other investors and analysts who may wish to ask a question, please limit yourself to one question plus a single follow-up. And if you have any follow up questions, after the Q and A session, the investor relations team will be available. Josh, please start the Q and A.
OPERATOR
Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star one one Again, one moment for questions. Our first question comes from Terry Mull at Barclays. You may proceed. Hi.
Terry Mull (Equity Analyst at Barclays)
Thank you. Good evening, Rich. I’m just curious to get your thoughts on the state of the consumer. There’s obviously concern around the impact of higher energy prices on the health of the consumer, but your credit results are still very good across both card and auto. So maybe just talk about what you’re seeing across your businesses.
Richard Fairbank (Chairman and Chief Executive Officer)
Thank you, Terry. So the US Consumer remained healthy and the overall economy remained resilient through the first quarter. The unemployment rate improved slightly in the quarter. Despite some high profile headlines about layoffs. The total volume of job losses and new jobless claims remains low and stable income growth continued to run ahead of inflation. Consumer spending remained robust because of last year’s budget bill. Tax withholdings are lower than a year ago and tax refunds are higher in our domestic card business. Our credit metrics continue to improve on a year over year basis in the quarter. You know, on a sequential quarter basis, our charge off rate moved in line with seasonality. While our delinquencies improved relative to what we would expect from normal seasonality. Our auto credit metrics remained strong as well. Auto losses were slightly higher on a year over year basis in Q1, but this was consistent with a modest increase in the subprime mix of that portfolio over the past year. Our auto losses have been back near pre pandemic levels for over a year and our auto credit is supported by strong performance of recent originations and generally stable vehicle prices. Of course, the new conflict in the Persian Gulf represents a significant cloud on the horizon. We’ve already seen energy prices spike sharply over the past six weeks. Inflation moved higher in March largely because of the higher gas prices. So if energy prices remain elevated for an extended period of time, that would be a real headwind for consumers and probably a drag on the overall macroeconomy. But so far we’ve not seen any adverse effects on our portfolio even in our, you know, either in our credit or in our spend metrics. You know, we’ve judgmentally incorporated elevated macroeconomic risk into our allowance through qualitative factors. But you know, we continue to, you know, really feel very good about not only our portfolio performance, but good for the credit outlook of consumers and good for the opportunity to continue to lean in to origination and credit line growth in our business. So, you know, once again, it seems like every quarter we’re having a conversation just like this. There’s a lot of noise in the external environment, but the consumer is showing quite a bit of resilience. And I want to comment for just one second back to the credit card delinquencies moving just a little bit better than seasonality. I don’t think we’re ready to declare that it’s diverging from, you know, where it is, but it’s certainly good to see that. Of course, you know, there’s little, you know, a little uncertainty in reading things in a world of tax refunds and other things, but certainly we think our recent credit number is just another indication of the strength of the consumer and particularly the strength of our portfolio and some of the choices that we’ve made in credit. Next question please.
OPERATOR
Thank you. Our next question comes from Sanjay Sikrani with kbw. You may proceed.
Andrew Young (Chief Financial Officer)
Thank you. I wanted to start with a question on expenses. The adjusted efficiency ratio came in a little under 50%. Understanding that marketing was a little bit lighter than it typically would be, I guess as we look ahead. I know Rich, you mentioned Brex and Hopper will come into the expense run rate. How should we think about that expense ratio or the efficiency ratio sort of migrating over the course of the year. So thank you, Sanjay. So as you mentioned Brex and Hopper, those are two investments that are not in the current efficiency ratio and not all of our investments are in the first quarter. Certainly those being the biggest highlights of those that are not in there. But we …
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