What Management Said

Read the full Q1 2026 transcript ↗

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. 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.

In the first quarter, Capital One earned $2.2 billion, or $3.34 per diluted common share. Net of these adjusting items, first quarter earnings per share were $4.42. Relative to the fourth quarter, revenue declined 2%, while non-interest expense declined 9%. Pre-provision earnings in the quarter increased sequentially by about $530 million, or 8%.

On an adjusted basis, pre-provision earnings increased about $430 million, or 6%. 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 five. In our domestic card segment, the allowance balance was flat at $18.8 billion.

What went well
  • Domestic card credit continued to strengthen, with the charge-off rate improving 109 basis points year-over-year to 5.1% and the delinquency rate down 55 basis points year-over-year to 3.7%, with the sequential delinquency trend running a bit better than normal seasonality.
  • Pre-provision earnings increased sequentially by about $530 million, or 8% (about $430 million, or 6%, on an adjusted basis), even as revenue declined 2% because non-interest expense fell 9%.
  • Reached a key Discover integration milestone by completing the conversion of Capital One's debit customers to the Discover network, keeping the company on track to deliver the full $2.5 billion of synergies by the middle of 2027.
  • Capital position strengthened, with the CET1 ratio rising 10 basis points to 14.4% even after $2.5 billion of share repurchases in the quarter.
  • Total liquidity reserves grew about $21 billion to roughly $165 billion and cash grew $19 billion to about $76 billion, driven by continued strong deposit growth in the retail banking business.
  • Auto credit remained strong, with the delinquency rate improving 72 basis points year-over-year to 4.21% and originations up 21% from the prior-year quarter.
What went wrong
  • Net interest margin declined 39 basis points sequentially to 7.87%, driven by two fewer days in the quarter (18 basis points), seasonally lower average card balances, and elevated average cash levels.
  • Revenue declined 2% relative to the fourth quarter on seasonal effects.
  • The company built $230 million of allowance, giving greater consideration to downside economic scenarios tied to heightened geopolitical uncertainty, including the new conflict in the Persian Gulf and a sharp spike in energy prices.
  • Legacy Discover card outstandings were down 1.2% year-over-year as the growth 'brownout' from prior credit-policy pullbacks continued and was expected to increase a bit until the tech integration is complete.
  • Commercial banking built $83 million of allowance and the criticized performing loan rate rose 31 basis points to 4.99%, driven by a small number of specific real estate reserves and a modest increase in the criticized rate.

Guidance Changes

MetricPeriodCurrent guidance
CET1 ratio impact from BrexQ2 2026expected to decrease the CET1 ratio by a little over 40 basis points (new (Brex closed April 7 for ~$4.5 billion of consideration to shareholders))
Net interest margin (day count)Q2 2026 and Q3/Q4 2026one more day adds about 9 basis points in Q2, with the same ~9 basis point jump heading into Q3 and Q4; the post-Discover structural NIM level should persist as elevated cash trends down (seasonal recovery expected)
Discover card new-origination transition to Capital One technologyby end of Q3 2026fully transitioned to Discover-branded originations booked on Capital One technology and underwriting by September; back book fully converted by Q1 2027 (on track)
Total Discover synergiesby mid-2027$2.5 billion; expense synergies fully realized in the first half of 2027, revenue synergies largely in Q2 results from the debit conversion (unchanged)
Basel III endgame CET1 impact (Standardized Approach, fully phased in)if enacted todayroughly +20 basis points, from a ~140 basis point RWA tailwind (8%-9% RWA decrease) partially offset by a ~120 basis point AOCI headwind on ~$5.2 billion of AOCI (new detail)
Earnings power (ROTCE at 12.5% capital) on the other side of Discover integrationpost-integrationstill consistent with what was expected at deal announcement, inclusive of Brex and the Hopper travel infrastructure (reaffirmed)

Performance Breakdown

MetricYoYNote
Diluted EPS — Earned $2.2 billion, or $3.34 per diluted common share ($4.42 adjusted); results included Discover integration and purchase accounting adjusting items.
Domestic card purchase volume +40% Primarily the addition of Discover purchase volume plus continued strong growth in the heavy spender franchise; excluding Discover, growth was about 8%.
Domestic card ending loans +69% Largely the addition of Discover card loans; excluding Discover, ending loans grew about 3.9%.
Domestic card revenue +58% Largely the addition of Discover revenue; excluding Discover, revenue grew about 6.8% on purchase volume and loan growth.
Domestic card charge-off rate -109 bps to 5.1% About half from incorporating Discover's portfolio into domestic card; the rest from steady improvement across both legacy Capital One and legacy Discover portfolios.
Domestic card delinquency rate -55 bps to 3.7% Continued credit improvement; the sequential trend was a bit better than normal seasonality.
Consumer banking revenue +37% Predominantly the addition of Discover operations, plus Discover revenue synergies and growth in auto loans.
Consumer deposits (ending) +35% Largely the addition of Discover deposits; average deposits up 34%.
Auto charge-off rate +9 bps to 1.64% Consistent with a modest increase in the subprime mix of the portfolio over the past year; losses remain near pre-pandemic levels.
Total company marketing expense +25% to ~$1.5 billion Addition of Discover, higher legacy direct marketing, increased media spend, and continuing investment in premium benefits; Q1 was seasonally low and amplified by a shift of planned spend into later quarters.

Earnings Call Themes & Trends

TopicPrevious mentionCurrent periodTrend
Discover integrationDebit conversion in progress; on track for synergiesCapital One debit conversion to the Discover network completed; card originations in early testing (~8% on Capital One platform), full new-origination transition by end of Q3 2026 and back book by Q1 2027Progressing on schedule
Discover card growth brownoutFlagged as temporary from prior credit-policy pullbacksDiscover card outstandings -1.2% YoY; brownout expected to deepen a bit until the tech integration is complete, then good opportunities to grow above and below Discover's historical prime focusStill a near-term headwind
Brex acquisition and business paymentsAnnounced in Q4 for $5.15 billion in stock and cashClosed April 7 (~$4.5 billion of consideration to shareholders); enablement rather than rush-to-integrate strategy, with increasing investment to drive growthAdvancing
Investment agenda and efficiency ratioUpward pressure on efficiency ratio flagged; no specific guidanceContinued lean-in across tech/AI, heavy spenders, national bank, and network; Brex and in-sourced Capital One Travel enter the run rate starting Q2; still declines to give specific efficiency guidanceElevated investment
Consumer health and credit outlookResilient consumer, elevated uncertaintyConsumer remained healthy and economy resilient, but the new Persian Gulf conflict and spiking energy prices are a cloud on the horizon; elevated macro risk incorporated into the allowance via qualitative factorsMore cautious
Capital return$2.5 billion repurchases in Q4; long-term need 11%$2.5 billion repurchased again with nearly $12 billion of authorization remaining; pace to weigh capital levels, growth, regulation, and macro, erring toward conservatismSteady

Q&A Summary

What are you seeing in the state of the consumer given concerns about higher energy prices, and how is credit holding up?
The U.S. consumer remained healthy and the economy resilient; unemployment improved slightly, income growth ran ahead of inflation, and spending was robust. Card and auto credit metrics improved year-over-year, with card delinquencies a bit better than seasonality. The new Persian Gulf conflict and spiking energy prices are a significant cloud, but no adverse effects have been seen in the portfolio yet; elevated macro risk was incorporated into the allowance via qualitative factors.
How should the efficiency ratio migrate over the year as Brex and Hopper enter the run rate?
Brex and Hopper are two investments not in the current efficiency ratio and will be added; expenses will also be affected by growing synergies as integration nears completion next year, and marketing will be heavier over the year. All of these investments power long-term growth and returns, and earnings power on the other side of the Discover integration is still expected to be consistent with the deal announcement, inclusive of Brex and Hopper.
How will elevated liquidity/cash trend and affect NIM into Q2?
Cash was particularly elevated this quarter due to the full-quarter impact of the Discover Home Loans sale, strong retail deposit growth, and favorable tax-refund flows. Cash is expected to trend down (about $8 billion of Q2 debt maturities plus tax payments). Absent a meaningful balance-sheet mix change, the post-Discover structural NIM level should persist, with each quarter subject to seasonality; the back half of the year on a seasonally adjusted basis is a good indication of structural NIM.
What is holding you back from putting out efficiency-ratio parameters like the 42 and 21 you gave in 2019?
Capital One is built as an organic growth company and generally has not been in the guidance business. It has a striking number of investment-requiring opportunities. Implicit in the reaffirmed earnings-power guidance is an efficiency ratio that makes the numbers work, powered more by growth than cost cutting, but the company does not specifically guide to efficiency ratio.
Can you clarify what 'earnings power' means and the assumed capital level?
Earnings power refers to ROTCE at a constant level of capital; the deal model assumed 12.5% capital, so the guidance is based on that level even though it is not a projection of where capital will be. The guidance would still hold at somewhat higher capital levels, but the specific breakpoint is not quantified.
How should we think about growth in the card business over the next year?
The legacy branded card business is growing strongly, especially up-market with heavy spenders. The Discover 'brownout' from prior pullbacks and additional trimming of high-balance revolvers will hold back reported growth (Discover outstandings -1.2% YoY) until the integration is done; new originations fully transition by end of Q3, back book by Q1 2027, with loan-growth benefits lagging a couple more quarters.
Is there a way to think about the payback period for Brex?
Brex is growing rapidly and growing value and earnings power. Capital One's strategy is enablement rather than a rush to integrate, bringing lower cost of funds, brand credibility, marketing dollars, and lead sharing on a phased basis. More traction will mean leaning in and investing more, which defers the vertical financial benefit, but management is very optimistic about the value creation.
What is the Basel III endgame RWA impact and effect on capital allocation?
Fully phased in today under the Standardized Approach, CET1 would rise about 20 basis points: an ~8%-9% RWA decrease (~140 bps tailwind) partially offset by ~120 bps AOCI headwind on ~$5.2 billion of AOCI. The company is ~$680 billion in assets, below the $700 billion Category II threshold, which may be indexed up. Repurchase pace will continue to weigh capital, growth, regulation, valuations, and macro, erring toward conservatism ($2.5 billion repurchased in Q1).
When do integration expenses wind down and expense synergies come through?
Expense synergies are more back-loaded than revenue synergies because they come from technology-platform conversions and application decommissioning, and will not be fully realized until conversions complete in the first half of 2027. Revenue synergies are tied to the substantially completed debit conversion, with a meaningful portion already in Q1 results and the full debit portion in Q2; the full $2.5 billion of synergies is still expected by mid-2027.
Why not increase buybacks above $2.5 billion per quarter given excess capital?
There is nearly $12 billion of authorization remaining and flexibility under the SCB, but capital decisions weigh many factors and always err toward conservatism and resilience given the asymmetrical value of capital. Rich added that share repurchases remain a very important part of Capital One's value-creation equation.

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Q1 2026 call
Reported 2026-04-21 · figures from the Capital One Financial Corp Q1 2026 earnings call.

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