Capital One Financial Corporation (COF) Earnings

Management highlights

- Overall Financial Results - Q2 2026 GAAP net income was $3 billion ($4.73 per diluted share); adjusted EPS was $5.81, including acquisition-related adjusting items. - Revenue grew 4% QoQ, non-interest expense grew 7% QoQ, pre-provision earnings grew 1% QoQ (adjusted pre-provision earnings were flat QoQ). - Provision for credit losses decreased 27% ($1.1 billion) QoQ to $3 billion; net charge-offs were $3.7 billion, with a $662 million allowance release that brought the total allowance balance to $23 billion (total portfolio coverage ratio of 5.02%, down 26 bps QoQ). - Net interest margin (NIM) was 8.01%, up 14 bps QoQ, 9 bps of which came from an extra day in the quarter; the remaining increase came from lower retail deposit rates and lower average cash balances. - Common equity tier 1 capital ratio was 13.7%, down 70 bps QoQ, driven by $2.7 billion in share repurchases, 40 bps of impact from the Brex acquisition, and higher risk-weighted assets. - Liquidity reserves ended at $144 billion (down $21 billion QoQ), ending cash was $55 billion (down $22 billion QoQ); average LCR was 165%, average NSFR was 136%. - Acquisition and Integration Progress - The BREX acquisition closed in early April 2026, and was added to the domestic card segment; the legacy small corporate card business was moved from commercial banking to domestic card. - Capital One is 14 months into the planned 24-month integration of Discover, which closed in May 2025, and integration is proceeding on schedule. Conversion of Capital One debit customers to the Discover network is complete, bringing full quarterly run-rate debit revenue synergies; ~1/3 of planned operating expense synergies have been realized to date. - 50% of Discover new originations are now on Capital One's tech platform, with full conversion expected by the end of Q3 2026; back book conversion will occur in waves through Q1 2027. - Strategic Investment Priorities - Continuing 14-year company-wide technology transformation from the bottom of the tech stack up, with ongoing investments in foundational capabilities, AI infrastructure, and customer-facing AI experiences. - Investing to grow the heavy spender franchise at the top of the credit card market, including premium rewards, airport lounges, exclusive experiences, and advanced digital capabilities. - Investing to build out the Discover global payment network: closing remaining domestic acceptance gaps, prioritizing improvements to international acceptance in top travel destinations (Mexico, Caribbean, Canada, UK) via four established levers: network partnerships, local issuing partnerships, acquirer partnerships, and direct merchant outreach. - Continuing to expand the digital-first, full-service national consumer banking franchise, leveraging the Discover acquisition to accelerate growth.

Guidance

- Management reaffirms that overall long-term earnings power for the combined company (post-Discover integration, inclusive of the Brex acquisition and in-sourcing of Capital One Travel technology) remains consistent with projections provided at the time the Discover deal was announced. - The temporary Discover loan and personal loan growth brownout will continue through Q4 2026, with a return to growth expected after full integration is completed in 2027. - Full operating expense synergies from the Discover acquisition are on track to be realized by the second half of 2027. - Net interest margin is expected to see a slight lift in Q3 2026 as average cash balances catch up to lower ending Q2 cash balances; the structural long-term NIM level remains consistent with the back half of 2025 levels, with expected quarterly volatility from day count and seasonal factors. - Management maintains its long-term estimated common equity tier 1 capital need of 11%, and is not in a rush to reduce capital to this level immediately, prioritizing maintaining a capital buffer for offensive and defensive flexibility.

Segment performance

1. **Domestic Card**: Purchase volume grew 26% YoY, with 14% YoY growth for Legacy Capital One (inclusive of Brex and the transferred corporate card business, driven primarily by organic acceleration). Ending loan balances grew 2.6% YoY: Legacy Discover loans shrank 1.5% YoY (in line with expected temporary brownout), while ex-Discover loans grew 5.3% YoY. Revenue increased 30% YoY (9.5% YoY ex-Discover, driven by organic growth). Revenue margin was 17.4%. The charge-off rate was 4.71% (down 39 bps QoQ and 54 bps YoY), and the delinquency rate was 3.39% (down 31 bps QoQ and 21 bps YoY). Non-interest expense grew 38% YoY, driven by partial Discover inclusion and ongoing technology investments. This segment contributes the majority of Capital One's total marketing spend. 2. **Consumer Banking**: Global payment network transaction volume hit ~$190 billion, up 156% YoY, following conversion of Capital One Debit to the Discover network. Auto originations grew 19% YoY. Ending loan balances increased 11% YoY ($9.2 billion). Ending consumer deposits grew 5% YoY, while average deposits grew 19% YoY. Revenue increased 26% YoY, driven by partial Discover inclusion, Discover revenue synergies, and auto loan growth. Non-interest expense grew 24% YoY, driven by partial Discover inclusion, increased marketing for national consumer banking growth, higher auto originations, and technology investments. The auto charge-off rate was 1.43% (up 18 bps YoY, down 21 bps QoQ; the YoY increase reflects a return of subprime mix to pre-pandemic levels). Auto delinquency rate was up 11 bps QoQ and down 52 bps YoY. 3. **Commercial Banking**: Ending and average loan balances grew ~1% QoQ. Ending deposits were down ~1% QoQ, while average deposits were flat. The net charge-off rate increased 24 bps QoQ to 0.53%. The criticized performing loan rate was 4.4% (down 55 bps QoQ), and the criticized non-performing loan rate was 1.32% (down 8 bps QoQ).

Risks & headwinds

- Actual future results may differ materially from forward-looking statements due to a wide range of unforeseen factors, per SEC disclosures. - Near-term overall loan growth is suppressed by the temporary Discover brownout, which will continue through the end of 2026. - Changes in macroeconomic conditions, Federal Reserve interest rate moves, and consumer performance could impact net interest margin, credit performance, and loan growth in the short term. - Scaling Discover network international acceptance is a multi-year, ongoing investment that will require sustained spending over an extended period.

Analyst Q&A

• Q: Terry Ma (Barclays) asked how much Brex investment has been absorbed into the current expense run rate, when tangible growth benefits will appear, and what card growth will look like after the Discover brownout ends, including required marketing spend. /

  A: After 100 days of Brex ownership, Capital One has already begun early cross-lead sharing and Brex is benefiting from Capital One's lower cost of funding, but most marketing and integration benefits are still being set up, so most investment has not yet hit the expense run rate. Full leveraging of Capital One's marketing machine requires technical integration, which will roll out over the coming months, with travel portal integration coming after Hopper development is complete in 2026. The Discover brownout is temporary, caused by pre-acquisition credit pullbacks and post-acquisition credit policy trimming; 50% of Discover originations are already on Capital One's platform, with full conversion by end-Q3 2026 and back book conversion done by Q1 2027. Capital One will gradually step up marketing for Discover as integration completes, with growth returning after the bottom of the brownout in Q4 2026.

• Q: Ryan Nash (Goldman Sachs) asked if the post-Discover integration business is still on track to deliver ~20% ROTC, and whether buyback activity will increase now that Brex has closed. /

  A: While some variables (including the temporary Discover brownout) have shifted, the expected long-term earnings power of the combined company remains consistent with original projections, and Capital One remains on track to deliver ROTC consistent with initial guidance. Capital One continues to balance aggressive investment in long-term growth opportunities with rigorous expense management to hit original earnings targets. Management maintains that its long-term regulatory capital need is 11% CET1, but prioritizes maintaining a capital buffer for flexibility during uncertain times, so there is no rush to reduce capital to the 11% level quickly, so buybacks will not see an immediate sharp step-up.

• Q: Rick Shane (JPMorgan) asked how Capital One will balance Brex's historical focus on pure growth with Capital One's focus on near-term ROTCE and margin optimization. /

  A: Capital One's core founding philosophy is already aligned with Brex's approach: Capital One uses lifetime (horizontal) economic analysis for new customer cohorts and investments, rather than just focusing on near-term vertical earnings, similar to how Brex operates. Rigorous analysis of Brex's investment pipeline confirms it generates attractive long-term value, so Capital One will provide resources to accelerate Brex's growth in its large, underpenetrated corporate, payables, and expense management markets while maintaining rigorous value measurement to ensure returns meet hurdles.

• Q: Don Fandetti (Wells Fargo) asked about progress moving Capital One credit cards to the Discover network, and if more volume than expected could be moved long-term. /

  A: The conversion of Capital One debit to the Discover network was completed successfully. Capital One is currently testing both new originations and back book migration of existing Capital One credit cards to the Discover network, alongside investments to expand domestic and international acceptance. Domestic acceptance is already very strong, with remaining gaps being closed quickly. International investment is focused on top travel destinations first; migration of card volume will be sloped, starting with products and customers with less international travel to ensure a good customer experience, with more volume added as acceptance improves, with upside potential for more volume than initially projected if testing goes well.

• Q: Mihir Bhatia (Bank of America) asked about the sharp drop in June charge-off rates and the current strength of the US consumer and Capital One's new vintage performance. /

  A: Credit performance across Capital One's portfolio remains very strong, with June 2026 charge-offs coming in especially strong in line with broader improving trends, with no one-off items explaining the drop. The US consumer remains resilient overall: unemployment is still low, job growth has rebounded, spending remains strong, and real wage growth returned to positive territory in June. Capital One customer metrics are strong: payment rates are above pre-pandemic levels, spend growth is healthy, and revolve rates are stable at pre-pandemic levels. 2024 and 2025 originations for both Legacy Capital One and Discover are performing better than 2022-2023 vintages, in line with underwriting expectations.