Capital One Reports Q3 2026 Earnings of $3.5 Billion

Capital One Finl (NYSE: COF ) reported third-quarter financial results on Tuesday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary Capital One Finl reported Q3 2026 earnings of $3.5 billion or $5.61 per diluted share, with adjusted earnings per share at $6.69 after accounting for acquisitions. Net interest margin increased to 8.41%, driven by higher yields in the domestic card business and a reduction in average cash balances. Loan balances increased 1% while deposits decreased 1% compared to the prior quarter. The Discover and Brex acquisitions were highlighted as strategic moves, with Discover integration proceeding well and synergies ahead of schedule.

Marketing expenses increased 14% year over year, with expectations of further increases in Q4 and into 2027 due to competitive pressures and strategic growth initiatives. Credit performance improved with a charge-off rate of 3.98% in the domestic card segment, benefiting from strong recoveries. The company emphasized ongoing investments in technology, AI, and marketing to drive future growth and maintain competitive positioning. Management expressed confidence in the company's earnings power post-Discover integration and highlighted the potential impact of the Visa MasterCard settlement as being offset by synergies.

The company's liquidity coverage ratio was 163%, with total liquidity reserves decreasing to $134 billion. Overall, the company remains focused on leveraging its modern technology stack and data analytics capabilities to drive efficiency and customer engagement. Full Transcript OPERATOR Good day and thank you for standing by. Welcome to the Capital One Finl Q3 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 one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one 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, everybody. To access the live webcast of this call, please go to the Investors section of Capital One Finl's website, capitalone.com.

A copy of the earnings presentation, press release, and financial supplement can also be found in the Investors section of Capital One Finl's website, capitalone.com, by selecting Financials and then quarterly earnings releases. With me tonight are Mr. Richard Fairbank, Capital One Finl's Chairman and Chief Executive Officer, and Mr. Andrew Young, Capital One Finl's Chief Financial Officer.

Rich and Andrew are going to walk you through the presentation summarizing our third quarter results for 2026. Please note that this presentation may contain forward-looking statements. Information regarding Capital One Finl'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, and Capital One Finl 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. For more information on these 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 accessible at Capital One Finl's website and filed with the SEC. And now I'll turn the call over to Mr. Andrew Young.

Andrew Young (Chief Financial Officer) Thanks, Jeff, and good afternoon, everyone. I will start on Slide 3 of tonight's presentation. In the third quarter, Capital One Finl earned $3.5 billion, or $5.61 per diluted common share. The results for the quarter included several adjusting items related to the Discover and Brex acquisitions, which are outlined on the slide.

Net of these adjusting items, third quarter earnings per share were $6.69. Relative to the prior quarter, both period-end and average loans held for investment increased 1%, while period-end and average deposits decreased 1%. Linked-quarter revenue increased 3%, and noninterest expense declined 2%, resulting in pre-provision earnings growth of 10%. On an adjusted basis, pre-provision earnings grew 9% quarter over quarter.

Our provision for credit losses decreased $73 million, or 2%, to $2.9 billion in the quarter. The provision reflects $3.1 billion of net charge-offs and an allowance release of $225 million. Turning to Slide 4, I'll cover the allowance in greater detail. The $225 million allowance release in the quarter brought the allowance balance to $22.7 billion.

Our total portfolio coverage ratio decreased 10 basis points and now stands at 4.92%. I'll cover the drivers of the changes in allowance and coverage ratio by segment. On Slide 5, in our domestic card business, we released $250 million of allowance. The allowance release was driven by continued favorable observed credit in the quarter, partially offset by greater consideration to downside economic scenarios related to geopolitical risks.

The coverage ratio decreased by 13 basis points and now stands at 6.86%. In our consumer banking segment, we built $41 million of allowance. The allowance build was primarily driven by strong growth in the auto business, partially offset by an improved outlook for vehicle values. The coverage ratio ended the quarter at 2.34%, 5 basis points lower than the second quarter.

And finally, in our commercial banking segment, the allowance balance was flat at about $1.5 billion, and the coverage ratio declined by 2 basis points to 1.6%. Turning to Page 6, I'll now discuss liquidity. Total liquidity reserves ended the second quarter at about $134 billion, down $10 billion from the prior quarter. Our ending cash position decreased by about $6 billion to approximately $49 billion.

The market value of our investment securities decreased by about $3 billion. Our preliminary average liquidity coverage ratio in the quarter was 163%. Turning to Page 7, I'll cover our net interest margin. Our third quarter net interest margin was 8.41%, 40 basis points higher than the prior quarter.

The increase was driven by higher yield in the domestic card business, a $13 billion decline in average cash balances, and an additional day in the quarter. Turning to Slide 8, I will end by discussing our capital position. Our Common Equity Tier 1 capital ratio ended the quarter at 13.8%, roughly flat to the second quarter, as net income in the quarter was largely offset by share repurchases of $2.6 billion, dividends, and growth. With that, I will turn the call over to Rich.

Richard Fairbank (Chairman and Chief Executive Officer) Thanks, Andrew, and welcome everyone to our earnings call this evening. Slide 10 shows third 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. The domestic card business posted another quarter of top-line growth and strong credit results year over year.

Trends in domestic card results now fully incorporate the impacts of the Discover acquisition year over year, and quarterly comparisons continue to reflect the much smaller effects of adding Brex to the domestic card business and moving our small legacy corporate credit card business from the commercial bank to domestic card in the second quarter of this year. Third quarter purchase volume grew 11% year over year, primarily driven by growth in legacy Capital One Finl purchase volume.

The addition of Brex and the corporate card business in the second quarter was a modest tailwind to purchase volume growth, while legacy Discover purchase volume was a modest headwind because of the Discover loan growth brownout. Legacy Discover purchase volume was essentially flat compared to the prior year. Ending loan balances increased about 2% year over year. The legacy Discover card loans shrank about 3% from the prior year as the temporary brownout of Discover loan growth continued.

Excluding Discover, ending loans grew about 6%. Revenue was up 5% from the third quarter of 2025 driven by growth in legacy Capital One Finl purchase volume and loans. Revenue margin for the quarter was 17.8%. The domestic card charge-off rate for the third quarter was 3.98%, down 73 basis points from the prior quarter and down 65 basis points year over year.

Our charge-offs are benefiting from the steady improvement in delinquencies that we observed in the first half of this year and from strong recoveries performance. The delinquency rate was 3.74% at quarter end, up 35 basis points from the linked quarter and down 15 basis points from a year ago. The linked quarter trend was in line with normal seasonality. Domestic card non-interest expense was up 9% compared to the third quarter of 2025, driven by continuing technology investments, higher marketing and the addition of Discover.

Our choices in domestic card are the biggest driver of total company marketing. Total company marketing expense in the quarter was about $1.6 billion, up 14% year over year, driven by higher direct marketing in our domestic card business, increased media spend and continuing investments in premium benefits. As we look ahead to the fourth quarter, we expect the Q3 to Q4 percentage growth in marketing to be similar to the Q3 to Q4 percentage growth we saw in 2025, primarily driven by seasonality. Slide 12 shows third quarter results in our consumer banking business.

Global payment network transaction volume for the quarter was approximately $191 billion. Network transaction volume increased 25% compared to the third quarter of 2025, driven primarily by the successful conversion of Capital One Finl debit customers to the Discover network. Auto originations were up 22% from the prior year quarter. We continue to be in a strong position to pursue resilient growth in the current marketplace.

Consumer banking ending loan balances increased about $11 billion or about 13% year over year. Average loans were up 12%. Both ending and average deposit balances declined about 1% from the linked quarter driven by volume impacts and choices related to the Discover integration, including the sale of a small IRA portfolio we acquired from Discover. Legacy Capital One Finl retail deposits continued to grow.

Consumer banking revenue for the quarter was up about 17% year over year, driven predominantly by Discover revenue synergies and growth in auto loans. Non-interest expense was up about 10% compared to the third quarter of 2025, driven by increased auto originations and continued technology investments. The auto charge-off rate for the quarter was 1.59%, up 5 basis points year over year and up 16 basis points from the sequential quarter. The year-over-year increase is largely the result of a gradual mix shift in new originations and loans as our subprime mix is returning to pre-pandemic levels.

The auto delinquency rate was 4.64%, up 32 basis points from the linked quarter and down 35 basis points from the prior year. Slide 13 shows third 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 also up about 1% from the linked quarter.

Revenue increased 6% from the linked quarter with strong growth in non-interest income. Non-interest expense was up about 1%. The commercial banking net charge-off rate for the second quarter was 0%. The commercial criticized performing loan rate was 4.4%, down 4 basis points compared to the linked quarter.

The criticized loan non-performing loan rate was down 10 basis points to 1.22%. In closing, third quarter results continued to reflect solid top line growth and strong credit performance. The third quarter is a seasonally strong quarter in most years with seasonal strength in margins and charge-offs and this year the quarterly results also benefited from an allowance release. Looking ahead, we expect to lean harder into marketing in 2027 driven by several factors.

We're fully pursuing our origination opportunities and the window is open across our businesses. Our biggest competitors continue to invest heavily in marketing and we need to be at the top of our game. Also, we plan to now lean back into Discover marketing. The trend of marketing increases is also powered by a gradual mix change.

Some of the biggest growth areas in the company are businesses where marketing is inherently a much larger component of the business model. That includes our quest at the top of the market with heavy spenders, Capital One Shopping and our national banking business. These businesses take a lot of marketing to build, but are great franchises with lower risk, lower capital and long-term revenue annuities. The Discover integration continues to go well and we're making good progress on delivering the expected synergies.

On a combined basis, we're achieving the expected synergies ahead of schedule. Our year-to-date results reflect about $1.8 billion of annualized combined synergies, primarily driven by the successful debit conversion early in 2026 and the pace of achieving expense synergies. We have talked for a while now about the earnings power on the other side of integration. You can squint your eyes and see it now.

In the first three quarters of 2026, you would need to normalize for the sizable allowance release we've had thus far this year and add the increased marketing we expect in the fourth quarter. Looking forward, you would add in the remaining synergies we expect to get and probably deduct the lost interchange revenue that will likely come from the Visa MasterCard settlement. Our current view is that the remaining synergies and the Visa MasterCard settlement are roughly offsetting in magnitude. With those adjustments, that's a view into the run rate earnings power coming out of this deal and it's consistent with what we expected at the time we announced the deal.

Pulling way up, we've worked for years to put ourselves in a strong position to win in a rapidly changing marketplace. We continue to lean into investments in modern technology, data and AI. We continue to gain traction as we build enduring franchises with heavy spenders at the top of the credit card marketplace and with primary banking relationships in our national retail bank. And we're building momentum from the game-changing acquisition of Discover.

And now we'll be happy to answer your questions. Jeff Norris (Senior Vice President of Finance) Thank you, Rich. We'll now start the Q&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.

If you have any follow-up questions after the Q&A session, the investor relations team will be available after the call. Josh, please start the Q&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 11 again. One moment for questions. Our first question comes from Terry Ma with Barclays. He may proceed.

Terry Ma (Analyst) Hey, thank you. Good afternoon. I appreciate the color on the fourth quarter marketing and also the outlook for marketing in 2027. But as we kind of think about it, how do you measure the return on investment for those marketing dollars?

Maybe, for example, the dollars allocated to Discover brownout. Since there is a lag between deployment of those dollars to account generation to balance growth, should we expect to keep leaning into marketing ahead of the loan growth materializing? Richard Fairbank (Chairman and Chief Executive Officer) Thank you, Terry. So we, you know, we built a company that was designed for organic growth.

Ironic that I say this at the time we're talking about having done the big acquisition of Discover. But, you know, marketing is right at the heart of this model. And as we've talked about many times, we run our company based on horizontal economics where before an investment, before, during and after an investment, we horizontally measure the performance and make adjustments if necessary. But the key thing is that methodology is really quite different from vertical accounting where one is trying to see how anything is doing based on vertical performance.

Vertical focus systematically underweights and underappreciates the value of investment over the longer term. So that's why if you pull way up in Capital One Finl, with our philosophy of horizontal accounting and building an organic growth company, we have over the years invested heavily to be where we are today. And over time, the vertical returns in some sense on a lag basis manifest that. Let's talk about marketing in particular.

For starters, the marketing machine of Capital One Finl, much of it is a direct marketing machine that is, you know, pretty much stimulus-response. Measure things pretty quickly with respect to, you know, what we are getting in terms of booking new accounts for an investment in marketing. But there's also a whole other component that doesn't lend itself as easily to stimulus-response. And I put at the top of that list building a brand, but also included in that is, you know, it's hard to measure the return on investments in some of the things we're doing at the very top of the market: the unique experiences, the lounges.