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    COF
    Earnings call· Jun 2026(Q2 FY26)

    CAPITAL ONE FINANCIAL CORP COF

    Jul 21, 2026 Source

    Executive summary

    Capital One Q2 FY26 — Strong Credit Performance Amidst Discover Integration

    Capital One delivered solid Q2 FY26 results, marked by strong credit performance and continued integration of Discover and Brex. Management emphasized the long-term earnings power of the combined entity, despite near-term impacts from the Discover loan 'brownout' and ongoing technology investments. The company continues to lean into marketing and tech spend to capitalize on market opportunities and drive future growth, particularly in its heavy spender franchise and digital-first national bank strategy.

    Highlights

    5

    • Adjusted EPS of $5.81 per diluted common share, exceeding GAAP EPS of $4.73.

    • Provision for credit losses decreased $1.1 billion or 27% to $3 billion.

    • Domestic Card charge-off rate down 39 basis points QoQ to 4.71% and 54 basis points YoY.

    • Domestic Card delinquency rate down 31 basis points QoQ to 3.39% and 21 basis points YoY.

    • Consumer Banking ending loan balances increased $9.2 billion or 11% year-over-year.

    Concerns

    5

    • Total company marketing expense up 23% year-over-year to $1.7 billion.

    • Common equity Tier 1 capital ratio ended the quarter at 13.7%, down 70 basis points QoQ.

    • Liquidity reserves decreased $21 billion from prior quarter to $144 billion.

    • Discover card loans shrunk 1.5% from the prior year, experiencing a 'brownout' effect.

    • Commercial Banking net charge-off rate increased 24 basis points QoQ to 0.53%.

    Guidance & targets

    4
    CategoryTargetConfidence
    Discover integration completion
    Full integration of Discover's front book (new originations) onto Capital One's tech platform
    high materiality
    High
    Discover integration completion
    Full integration of Discover's back book (existing customers) onto Capital One's tech platform
    high materiality
    High
    Operating expense synergies from Discover acquisition
    $2.5 billion
    high materiality
    High
    Discover loan growth 'brownout' bottom
    Bottom of brownout
    medium materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Domestic Card
    Strong top-line growth and credit results, primarily driven by the partial quarter addition of Discover purchase volume and revenue. Legacy Capital One showed modest acceleration in organic growth. Noninterest expense increased due to Discover and technology investments.
    Purchase volume growth YoY: 26%Legacy Capital One purchase volume growth YoY (inclusive of Brex and Corporate Card): 14%Legacy Discover purchase volume growth YoY: just under 2%Ending loan balances growth YoY: 2.6%Legacy Discover card loans shrinkage YoY: 1.5%Ending loans growth YoY (excluding Discover): 5.3%Charge-off rate: 4.71%Charge-off rate QoQ change: down 39 bpsCharge-off rate YoY change: down 54 bpsDelinquency rate: 3.39%Delinquency rate QoQ change: down 31 bpsDelinquency rate YoY change: down 21 bpsNoninterest expense growth YoY: 38%
    		Up 30%30%—17.4% revenue margin
    Consumer Banking
    Revenue growth driven by partial Discover operations, Discover revenue synergies, and auto loan growth. Strong auto originations and continued growth in digital-first national consumer banking. Noninterest expense increased due to Discover, marketing, and technology investments. Auto credit metrics show a gradual mix shift in new originations.
    Global Payment Network transaction volume: $190 billionNetwork transaction volume growth YoY: 156% (compared to partial Q2 2025)Network transaction volume growth QoQ: 9%Auto originations growth YoY: 19%Ending loan balances growth YoY: $9.2 billion or 11%Average loans growth YoY: 11%Ending consumer deposits growth YoY: 5%Average deposits growth YoY: 19%Noninterest expense growth YoY: 24%Auto charge-off rate: 1.43%Auto charge-off rate YoY change: up 18 bpsAuto charge-off rate QoQ change: down 21 bpsAuto delinquency rate QoQ change: up 11 bpsAuto delinquency rate YoY change: down 52 bps
    		Up 26%26%——
    Commercial Banking
    Modest loan growth with a slight decrease in ending deposits. Net charge-off rate increased, but criticized loan rates improved.
    Ending loan balances growth QoQ: 1%Average loan balances growth QoQ: 1%Ending deposits growth QoQ: down 1%Average deposits growth QoQ: essentially flatNet charge-off rate: 0.53%Net charge-off rate QoQ change: increased 24 bpsCriticized performing loan rate: 4.4%Criticized performing loan rate QoQ change: down 55 bpsCriticized nonperforming loan rate: 1.32%Criticized nonperforming loan rate QoQ change: down 8 bps
    		————

    Operational metrics

    24
    Diluted EPS (GAAP)
    $4.73
    Q2 FY26

    Earnings per diluted common share for the quarter.

    Diluted EPS (Adjusted)
    $5.81
    Q2 FY26

    Earnings per diluted common share, net of adjusting items related to Discover and Brex acquisitions.

    Pre-provision earnings growth
    1%QoQ
    Q2 FY26

    Growth in pre-provision earnings relative to the first quarter.

    Pre-provision earnings (Adjusted)
    FlatQoQ
    Q2 FY26

    Adjusted pre-provision earnings were flat quarter-over-quarter.

    Provision for credit losses
    $3 billiondown $1.1 billion or 27%
    Q2 FY26

    Total provision for credit losses, reflecting $3.7 billion of net charge-offs and $662 million allowance release.

    Allowance release
    $662 million
    Q2 FY26

    Allowance release in the quarter, bringing the allowance balance to $23 billion.

    Total portfolio coverage ratio
    5.02%decreased 26 bps
    Q2 FY26

    Total portfolio coverage ratio at quarter end.

    Domestic Card allowance release
    $705 million
    Q2 FY26

    Allowance released in the Domestic Card segment, driven by favorable observed credit and modest decrease in economic uncertainties consideration.

    Domestic Card coverage ratio
    6.99%decreased 41 bps
    Q2 FY26

    Coverage ratio in the Domestic Card segment.

    Consumer Banking allowance build
    $150 million
    Q2 FY26

    Allowance build in the Consumer Banking segment, primarily driven by strong growth in the auto business.

    Consumer Banking coverage ratio
    2.39%3 bps higher than Q1
    Q2 FY26

    Coverage ratio in the Consumer Banking segment.

    Commercial Banking allowance release
    $59 million
    Q2 FY26

    Allowance released in the Commercial Banking segment, primarily driven by specific reserves on charged-off loans.

    Commercial Banking coverage ratio
    1.62%decreased 8 bps QoQ
    Q2 FY26

    Coverage ratio in the Commercial Banking segment.

    Liquidity reserves
    $144 billiondown $21 billion from prior quarter
    Q2 FY26

    Ending liquidity reserves.

    Ending cash position
    $55 billiondown $22 billion
    Q2 FY26

    Ending cash position, primarily driven by loan portfolio growth, wholesale funding maturities, and Brex impacts.

    Cash position (prior quarter)
    $75 billion
    Q1 FY26

    Cash position at the end of the prior quarter, elevated due to Discover home loan sale and strong deposit growth.

    Preliminary average liquidity coverage ratio
    165%
    Q2 FY26

    Preliminary average liquidity coverage ratio.

    Preliminary average net stable funding ratio
    136%
    Q2 FY26

    Preliminary average net stable funding ratio.

    Net interest margin
    8.01%14 bps higher than prior quarter
    Q2 FY26

    Net interest margin for the quarter.

    Common equity Tier 1 capital ratio
    13.7%70 bps lower than Q1
    Q2 FY26

    Common equity Tier 1 capital ratio at quarter end.

    Share repurchases
    $2.7 billion
    Q2 FY26

    Amount of share repurchases executed in the quarter.

    Domestic Card revenue growth (ex-Discover)
    9.5%YoY
    Q2 FY26

    Year-over-year revenue growth for legacy Capital One Domestic Card business, excluding Discover.

    Total company marketing expense
    $1.7 billionup 23% YoY
    Q2 FY26

    Total company marketing expense, driven by Discover addition, higher legacy Capital One direct marketing, increased media spend, and premium benefits investments.

    CET1 ratio (for ROTCE calculation)
    12.5%
    At deal announcement

    Weighted average consensus CET1 ratio used as a denominator for ROTCE calculations for comparability, not a target.

    Industry KPIs

    13
    MetricValueDetails
    Fee revenue—
    Funding mix—
    Payment rate—
    Delinquencies3.39%%
    Capital returns$2.7 billionUSD
    Credit quality mix—
    Net charge off rate4.71%%
    Loans card receivables2.6%%
    Provision reserve rate$3 billionUSD
    Rewards engagement costs—
    New accounts card acquisitions—
    Billed business purchase volume26%%
    Net interest margin yield on receivables8.01%%

    Deals & partnerships

    2
    BrexAcquisition of Brex, a corporate card and expense management platform.

    Acquisition closed in early April. Brex's P&L and balance sheet are not material to Capital One on a run-rate basis, but long-term prospects are highly anticipated. Integration efforts are underway to leverage Capital One's marketing and balance sheet for Brex's growth.

    DiscoverAcquisition of Discover, including its card portfolio and global payments network.

    Acquisition closed on May 18, 2025. Integration is 14 months into a planned 24-month process. Focus on integrating Discover's front book (new originations) by Q3 FY26 and back book (existing customers) by Q1 FY27 onto Capital One's tech platform. Also involves building out the Discover global payments network.

    Risks & headwinds

    4
    Discover loan growth 'brownout'Expected to continue in near term, bottoming around Q4 FY26

    Legacy Discover card loans shrunk 1.5% YoY

    Mitigation: Unleashing Capital One's models, full spectrum underwriting, and spender capabilities post-integration to power originations and loan volume.

    Increased noninterest expenseOngoing

    Domestic Card noninterest expense up 38% YoY; Consumer Banking noninterest expense up 24% YoY

    Mitigation: Driven by Discover integration and continuing technology investments. Management is simultaneously driving efficiency across the company to manage expenses.

    CET1 capital ratio declineQ2 FY26

    Down 70 bps QoQ to 13.7%

    Mitigation: Primarily due to share repurchases and Brex acquisition impact. Management views 11% as a long-term capital need and balances capital return with strong returns and flexibility for growth opportunities.

    Commercial Banking net charge-off rate increaseQ2 FY26

    Increased 24 bps QoQ to 0.53%

    Mitigation: No specific mitigation stated, but criticized performing and nonperforming loan rates improved.

    What to watch in Q3 FY26

    5

    Discover front book integration

    End of Q3 FY26
    Current50% of originations on Capital One tech
    TargetFully on Capital One tech platform

    Why it matters

    Completion of this milestone is crucial for enabling Capital One's underwriting and growth strategies for new Discover card accounts.

    On the Discover front book, 50% of Discover originations are now on Capital One's tech platform, and we expect to be fully on our tech stack for new originations by the end of the third quarter.

    Q&A highlights

    7

    When will Brex's growth accelerate due to Capital One's investments, and how much of the associated marketing/tech spend is already reflected in current expenses?

    Management clarified that Brex's growth acceleration would not be immediate but is progressing. Early benefits include cost of funds and lead sharing. Full marketing leverage and travel portal integration will take longer due to technical integration. Most investment dollars are for capability building, not yet reflected in current expenses.

    “We have already stood up a program to share high potential leads from across our businesses with Brex and we are seeing very promising early results at the outset. We will scale into this approach more aggressively over time.”

    asked by Terry Ma · answered by Richard Fairbank

    2 min read6 chapters

    Detailed Narrative

    01

    Discover Integration Progress and 'Brownout' Effect

    Capital One is 14 months into the planned 24-month integration of Discover. The front book of Discover originations is 50% on Capital One's tech platform, aiming for 100% by end of Q3 FY26. The back book migration will occur in waves through Q1 FY27. The Discover card portfolio is experiencing a 'brownout' with loans shrinking 1.5% YoY due to prior credit policy pullbacks and ongoing adjustments, expected to bottom around Q4 FY26. This temporary contraction is not indicative of long-term concerns, as management anticipates unleashing Capital One's tech and underwriting capabilities post-integration to drive growth.

    02

    Brex Acquisition and Strategic Benefits

    The Brex acquisition closed in early April, contributing to Q2 results. Capital One is highly optimistic about Brex's potential in the corporate card, payables, and expense management markets. Early tailwinds include cost of funds benefits from Capital One's balance sheet and promising lead sharing. Full marketing integration and bringing Capital One Travel portal to Brex will follow later, requiring more technical work. Brex is also expected to bring capabilities to Capital One's small business card segment over time⏳.

    03

    Capital Allocation and CET1 Ratio

    The Common Equity Tier 1 (CET1) capital ratio decreased 70 basis points QoQ to 13.7%, primarily due to $2.7 billion in share repurchases, a 40 basis point impact from the Brex transaction, and increased risk-weighted assets. Management reiterates its long-term capital 'need' at 11%, emphasizing capital's asymmetric value in stress periods and the flexibility to pursue growth. The company is not in a race to reduce CET1 quickly but balances capital return with strategic investments.

    04

    Net Interest Margin (NIM) Dynamics

    Q2 FY26 NIM was 8.01%, up 14 basis points QoQ. This increase was largely driven by an additional day in the quarter (9 bps impact), lower rates paid on retail deposits, and a $5 billion decline in average cash balances. Management expects a NIM 'catch-up📎' in Q3 as average cash balances align with lower ending balances. The NII is considered almost perfectly neutral to rates over time⏳, with short-term variability from Fed rate movements.

    05

    Consumer Resilience and Credit Performance

    The U.S. consumer and economy remain resilient, with low unemployment, rebounding job creation, and strong consumer spending. Capital One's credit metrics, including Domestic Card charge-off and delinquency rates, continue to improve year-over-year. Payment rates are meaningfully above pre-pandemic levels, and revolve rates have stabilized. New originations in the card business (2024 and 2025 vintages) are performing strongly, better than 2022 and 2023, and slightly below pre-pandemic levels, supporting continued marketing investments.

    06

    Technology and AI Investments

    Capital One is in its 14th year of technology transformation, investing in foundational capabilities, AI infrastructure, and specific AI experiences. These investments are crucial for long-term growth and returns, powering the heavy spender franchise and the digital-first national bank strategy. While these investments impact the efficiency ratio, management believes they are essential for sustained growth and value creation, with an equal focus on driving efficiency across the company to maintain earnings power.

    AI-generated summary of the company’s earnings call. Not investment advice.