LIVE: Q2 2026 Capital One Financial Earnings Conference Call

Thanks Andrew and good evening everyone. Slide 10 shows second 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 topline growth and strong credit results. As a reminder, we closed the Discover acquisition on May 18th, 2025. So, period end balances for the prior year quarter now include the addition of the Discover portfolio. For items like purchase volume and revenue, we'll still need to discuss the partial quarter impacts of adding Discover. In the second quarter, we also added Brex to the domestic card business and moved our small legacy corporate credit card business from the commercial bank to domestic card. Second quarter purchase volume grew 26% year-over-year, primarily driven by the addition of a partial quarter of Discover purchase volume. We also posted a modest acceleration in legacy Capital One purchase volume growth and benefited from modest tailwinds from the addition of Brex and the corporate card business. Legacy Discover purchase volume grew just under 2% year-over-year. Purchase volume for the legacy Capital One businesses inclusive of adding Brex and corporate card grew about 14% year-over-year with the significant majority of the increase coming from the acceleration of underlying organic growth before the addition of Brex and corporate card. Ending loan balances increased 2.6% year-over-year. The legacy Discover card loans shrank 1.5% from the prior year in line with our expectations for the temporary brownout of Discover loan growth. Excluding Discover, ending loans grew about 5.3% year-over-year, driven predominantly by a modest acceleration in the organic growth of legacy Capital One loans and aided by the addition of Brex and corporate card. 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 30% from the second quarter of 2025, largely driven by the addition of a partial quarter of Discover revenue. Excluding Discover, year-over-year revenue growth was 9.5% driven predominantly by underlying organic growth in legacy Capital One purchase volume and loans. Revenue margin for the quarter was 17.4%. The domestic card charge off rate for the second quarter was 4.71%, down 39 basis points from the prior quarter and down 54 basis points year-over-year. The delinquency rate was 3.39% at quarter end, down 31 basis points from the linked quarter and down 21 basis points from a year ago. We are seeing similar credit trends in both the legacy Capital One and legacy Discover portfolios. Domestic card non-interest expense was up 38% compared to the second quarter of 2025 driven by the addition of a partial quarter of Discover as well as continuing technology investments. 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 $1.7 billion, up 23% 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. 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 continue to lean into marketing to take advantage of these compelling market opportunities. Slide 12 shows second quarter results in our consumer banking business. Global payment network transaction volume for the quarter was approximately $190 billion. Network transaction volume increased 156% compared to the partial quarter of transaction volume in the second quarter of 2025 and the successful completion of Capital One debit customers' conversion to the Discover network. The sequential quarter increase was about 9%. Auto originations were up 19% 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 $9.2 billion or about 11% year-over-year. Average loans were also up 11%. Compared to the year ago quarter, ending consumer deposits grew about 5%. Average deposits were up 19%. Our digital first national consumer banking business continues to grow and gain traction. Consumer banking revenue for the quarter was up about 26% year-over-year, driven predominantly by the addition of a partial quarter of Discover operations, as well as Discover revenue synergies and growth in auto loans. Non-interest expense was up about 24% compared to the second quarter of 2025, driven largely by the addition of a partial quarter of Discover as well as 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 1.43%, up 18 basis points year-over-year and down 21 basis points from the sequential quarter. The year-over-year increase is 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 up 11 basis points from the linked quarter and down 52 basis points from the prior year. Slide 13 shows second quarter results for our commercial banking business. Compared to the linked quarter, both ending and average loan balances were up about 1%. Ending deposits were down about 1% from the linked quarter. Average deposits were essentially flat. The commercial banking net charge off rate for the second quarter increased 24 basis points from the sequential quarter to 0.53%. The commercial criticized performing loan rate was 4.4%, down 55 basis points compared to the linked quarter. The criticized non-performing loan rate was down eight basis points to 1.32%. In closing, second quarter results continued to reflect solid topline growth and strong credit performance. We're now 14 months into our planned 24-month integration of Discover and integration is going well with the successful completion of converting Capital One's debit customers to the Discover network. Second quarter results include the full quarterly run rate debit revenue synergies. Our results also include about one-third of the quarterly run rate of the announced operating expense synergies. We remain on track to deliver the full $2.5 billion of announced synergies. For years, we have been working backwards from the 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. We're way down that path, and we continue to invest in some very powerful foundational capabilities as well as 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 continue to lean into 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 and technology. As we've discussed, these investments will continue to be reflected in the efficiency ratio. They are also the engine that powers long-term growth and returns. 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 brought in-house the technology that supports Capital One travel, we still expect our earnings power on the other side of the Discover integration to be consistent with what we expected at the time we announced the deal. And now we'll be happy to answer your questions.

Thank you, Terry. Just to comment on Brex for a second, I don't believe we said that from the second we get it we will be able to accelerate their growth. What we said is from pretty much from the second that we do this acquisition, we're going to be able to start mobilizing the solutions, many of which don't require full integration, and those solutions can be very beneficial and help us lean in and really accelerate Brex's growth. So it's been over a hundred days since we closed the deal and we are as excited as ever about Brex. We acquired Brex because of its success in the attractive corporate card market and for its bottom of the tech stack infrastructure and its world-class talent. And we've just continued to be impressed with all of those striking capabilities. And together we're making good progress in building out foundational capabilities that will support the business going forward. So Brex is already experiencing some of the early tailwinds that will come with our brand and we expect these to only grow stronger over the next few months. They are also benefiting from the cost of funds impact of moving to our balance sheet. 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. Now some other benefits that we bring are going to take a little bit longer. Over the coming months, as we test and learn, we will start leaning in with marketing dollars. Fully leveraging the marketing machine of Capital One requires a little more technical integration. We'll have to set up data pipelines and calibrate our models for Brex's customer base. So that will come a little further down the road. For our travel business, we will be focused on the hopper buildout through the balance of this year. So bringing our travel portal to Brex will likely follow that work. We expect that Brex will also bring many benefits to Capital One, especially bringing Brex capabilities to our small business card business. These benefits will require integration and will be unlocked over time. So we are already moving to bring benefits to them. Most of that is not yet reflected in our investment dollars because really most of the work has been working to put capabilities in place.

Thanks very much. Terry, so maybe what I'll do with your question is I think it's really getting at this thing that I proverbially called the Discover brownout. So let me just comment on that and then I'll come back and talk about marketing spend. So as we mentioned previously, the Discover card portfolio is going through a bit of a loan growth brownout as several factors combined to pressure loan growth in the near term. Following Discover's credit expansion in their card business in 2022 and 2023, they dialed back their origination programs and credit line management by a fair amount toward the end of 2023 and largely sustained those dialbacks. Since we took over, we have been trimming on the margins of Discover's credit policy in areas where we are less comfortable with the resiliency of the underlying customers, more with respect to high balance revolvers. As a result of these collective pullbacks, the portfolio has been contracting and continues to face some headwinds to growth as these more recent smaller vintages mature. As we manage Discover card outstandings, they were down 1.5% year-over-year. Now it's worth noting that the flip side of these pullbacks and the brownout has been strong credit performance and we're glad to see that playing through the system. So let's talk about returning to growth and getting on the other side of this brownout of Discover volume. The brownout is temporary since over time we will bring to bear a number of capabilities as we move Discover originations and existing customers to Capital One's technology. Getting Discover onto Capital One's technology will allow us to unleash our models, full spectrum underwriting, and lean into spender capabilities to power more originations, higher spend volume, and ultimately higher loan volume over time. And so we remain excited about the longer term potential. And let me just talk a little bit about where we are on that journey. 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. And we're now leaning into a combination of testing and rolling out capabilities that have powered our card growth at Capital One and that we believe will be enhancing to the Discover book and the Discover new flow of applicants. We are already seeing several positive green shoots, but it's early. But our early read is confirmatory of our hopes there. On Discover's back book, we will begin the major conversion waves later this month, but we will not be fully on Capital One's tech stack until the first quarter of next year. And so we'll have to wait a bit longer to see these benefits fully manifest. Basically, we're migrating the remainder of the back book in waves. A wave in July, a wave in October, a wave in January. So these will go in phases. With respect to the brownout, we expect continued contraction in the near term, but as we can unleash more of Capital One's tech and capabilities with Discover on the other side of our conversions, we're looking forward to returning to growth. I do want to also mention in parallel to Discover's dial back of card loans, they also dialed back on personal loans and we have also sort of mechanically during the integration dialed back a little bit on the personal loans as well. So that brownout will continue and in fact increase, and the bottom of the brownout will be somewhere around the fourth quarter of this year, but then we look forward to leaning into that growth over time. So pulling up on the brownouts, they are a natural and temporary part of the deal. None of them are reflective of any concerns we have long term. And in fact all of it is really just part of an integration and integrating of credit policies and we look forward to stepping on the gas a little bit more gradually in the coming months. You asked about marketing spend. We will lean into marketing more on the Discover side as well. Really marketing is mostly a front book thing. So we are as we speak leaning more into the marketing so that we can now generate some very good flow of applicants to Capital One. So that will be one of the numerous things that we're leaning into over the course of the next year.

Yeah, thanks Sanjay. The efficiency ratio will continue to reflect our revenue and expense trends, our investment imperatives, and the realization of synergies. And you know, as we've discussed, the debit revenue synergies are essentially in the numbers. The operating expense synergies are more backloaded, and as we mentioned earlier, we've realized about a third of the operating expense synergies to date, and we're on track to achieve the remaining operating expense synergies by the second half of 2027. And then of course we continue to lean into our investment imperative, including foundational technology, AI, and the longer term growth opportunities created by our technology transformation, and of course, you know, Discover and Brex. So these investments are very important to the sustained growth and returns of the company over time. So the efficiency ratio is one of many drivers of the returns of the company with all the moving pieces. We've chosen to focus our conversation on earnings power. But, and you know, as we've said, we expect the earnings power of the combined company on the other side of the Discover integration to be consistent with what we expected at the time we announced the Discover acquisition, inclusive of Brex and the insourcing of technology that supports Capital One travel, and inclusive of all these investments we've been leaning into. So implicit in that, there needs to be an efficiency ratio that makes the numbers work. But, you know, we're not specifically guiding on that, but I think that the combined financial performance of the company continues to track with this guidance we've given on earnings power coming out the other side of the integration.

So, Ryan, we, you know, there clearly was, you know, Discover brings strong earnings power and we bring a lot of synergies to this deal. So earnings power has been a very important part of the conversation and a really important part of the value equation with respect to this deal. The, you know, a number have... I just want to say there are a number of variables that have moved and are moving as we go along here. The brownout on Discover loan growth, which will continue for some time, and we talked about that mitigating in coming quarters, but it is still an important factor. The flip side of the loan pullbacks has been better credit performance. Generally credit has been performing quite well. Capital One margins have had a strength as there's been accelerating retail deposit growth, the full Walmart P&L as part of these things, and then we've had this investment imperative which, you know, in a sense really has two big categories to it. One category is really the investments in technology and AI to capture the moment, to capitalize over time on the extraordinary transformation that's happening out there, and we are way down the path of our technology transformation, but there are still important investments that we are making and we continue to lean into that. And then on the other side, we have many of the emerging growth opportunities that are going to be a very important part of the growth and value equation over time. So, but the striking thing in some ways, back to the phrase 'the more things change, the more they stay the same.' It is striking that out the other side of this we, you know, we expect earnings power very consistent to what we talked about at the outset. We're not branding a precise number because there are a lot of things about Capital One performance that don't lend themselves to precise settling out with precise numbers. But when we look at the earnings power as reflected in ROE, we feel we're headed for a performance very consistent with what we expected along the way. As part of that, we are, when I talk about the investments that we're making, and we are really leaning into that long list of investments that we talked about with an equal energy, we are driving efficiency in one minus all of that across the company. And a bunch of that comes from the flip side of our tech transformation, the ability to save tech costs even as we invest in other tech costs. The savings of legacy tech costs, the efficiencies that we're driving in the operations across the business. But I just want to say that we are kind of living two lives at once here, really leaning into opportunities and really carefully managing the expenses to be able to simultaneously deliver the earnings power that we expected at the outset of this deal and to be positioning ourselves to create value for our investors in the extraordinary years that are unfolding in front of us.

Yeah, Ryan, I'll take that one. And let me just start by focusing on the word you ended with, which is the 11%. We define as a long-term capital need as opposed to a target. And we continue to think that need is 11%. You know, we just got the recent CCAR results, but every year when that comes out, we've seen quite a bit of volatility looking back over the last few years, going from, you know, in the low tens to 7%. And so our need is derived by our internal modeling. It's just far more stable. As we've had for a number of years now, we continue to believe that 11% is that need, where we manage our capital. At any given moment in time, factors in a variety of planning assumptions, including expectations for growth and forecasted capital accretion from earnings, regulatory environment, AOCI, stock price, the macroeconomic environment. But I'd also say that beyond that laundry list of specific considerations, there's also a philosophic point that we view capital as having asymmetric value, particularly in times of stress, providing a ton of both offensive and defensive value in those periods. And so this multi-pronged approach has enabled us to maintain a strong combination of returning capital but also strong returns and the flexibility to take advantage of growth opportunities over time. So we're not in a race to drive it down as quickly as possible to any specific number, but hopefully that gives you a sense of how we're thinking about capital.

Okay. I'll just, hey, Darren, let me just remind you of exactly what we said in the call. Right? We did say that if you just look at the legacy Capital One domestic card business, there was a modest acceleration and that the combination of that plus the addition of Brex and corporate card was about 14% with the significant majority of that driven by the legacy piece.

Well, I hope the overall objective function of Capital One isn't the maximization of ROCE in the near term. We all have our eyes on it, and we are heading to a very good exit rate on the other side of this integration. But I want to just talk about Brex and value creation. We all know that tech startups have power metrics that are not vertical earnings-based, and sometimes they can feel a far cry from how life works in a mature public company. But we feel that Brex's approach to creating value is very consistent with Capital One's founding approach when we created the company all the way to today. And that relates to taking a horizontal economic view. In the founding of Capital One, I looked at the business and said it's really striking that financial big banks and everything are just so focused on vertical earnings, but really banking is an annuity business. One invests quite a bit of money to create annuities that last for a long period of time. And so what we did was build a massive horizontal, we called it horizontal accounting, basically where as we thought about investments or originating a cohort of accounts, we estimated the lifetime economics of that, the cost to create those, etc., and before the investment, during as it played out, and then at the end of it all, we measured it to see if indeed value is created. And this approach to rigorous financial decision-making horizontally, the investing in annuities and creating long-term value, is the financial basis of how Capital One works and how we create value. So when we looked at Brex, obviously the world was looking at their power metrics, but we rolled up our sleeves and looked at how Brex was creating valuable annuities over time. They don't have as deep and rigorous a horizontal accounting system. I wouldn't expect them to. But even as recently as today, I was in a conversation talking about the continuing work we're doing on the Capital One side looking at Brex investments and how each tranche of investment is looking like it's paying off over time. And our observation was these are very value creating. So not every tech company's investments are value creating, but from everything we've seen, the approach Brex has, especially when we onboard them to a more kind of systematic horizontal accounting system, it will fit right into the value creation philosophy of Capital One. And what we have found in building Capital One when we have these growth opportunities is that actually the more you really go in and measure the value creation opportunity, very often the more we invest because we can validate that these things really create value over time. Brex is in an amazing window of opportunity. They've got a tiger by the tail. They are going after three markets at once: the commercial card market, the payables marketplace, and the expense management business. They're going after it with an integrated solution. Strikingly, that solution is something that is needed from small companies all the way to large corporations. It's an amazingly large market. So we are going to lean in and provide the resources and capabilities to help Brex create even more value. But along the way, we're going to very rigorously measure to be sure that what we're investing in generates the value on the other side. But what we see continues to validate our acquisition thesis. And I want to say too, having seen and hung around a lot of young companies over the years, I continue to be amazed at the sophistication of how this business is run and the opportunity to create value here.

So, Robert, when you're talking about domestic card, you're talking overall including Discover in our performance. So we've talked about Discover is going through a shrinking right now. So that certainly is holding back the loan growth of Capital One. If I separate out the Discover brownout effect, Capital One continues to deliver very consistently solid loan growth. It's not... When I look at the various growth metrics and compare them with the industry, looking at legacy Capital One versus a number of the leading players in the industry on all the growth metrics, Capital One is delivering very strong performance. There is one thing on the loan growth side that I would highlight, and it's the flip side of very good news here. Payment rates have come in, continue to come in pretty high, which we always cheer for because it pays off typically in terms of stronger credit, but it does hold loan growth back a little bit. But if we look at the metrics here, not all of which I understand we share with you, we've got Discover going through a brownout and shrinking. The legacy Capital One is growing strongly on all dimensions, and particularly account origination, purchase volume, a lot of the very important metrics. And then another thing that we do, it's not something we publish, but we take the originated upmarket part of Capital One, so we effectively proxy what the other players in the industry do who just don't go out and intentionally originate in subprime. So when we separate and look at the originated upmarket part of Capital One, this thing is absolutely humming and is right up there at the top of the league tables in the key growth metrics. And that by the way is powered by the continued quest to win at the top of the market, to win with heavy spenders, and is the flip side of our investment agenda that we have on the heavy spender side. But Robert, I understand that Discover is going to hold us back for a little bit, and even on the other side of the integration, I think it's reasonable that legacy Capital One will be a faster growing institution than Discover. Why would that be? Just that Discover is a much narrower play in the credit card business, focused on the prime side of the marketplace, and it's been a really great stable play. Capital One legacy has so many other growth vectors growing in card. It's probably going to continue to lead the way, but for right now, we're living with a little bit of a brownout holding our business back.

So, we're talking about, Don, you're talking about moving Capital One cards to the Discover network, correct? Yes. It's always gets confusing because we're also, of course, moving Discover cards onto the Capital One platforms and things, but yes, just to clarify what we're talking about here. Earlier this year we completed the conversion of our debit card business to the Discover network and we're very pleased with how that went. I think that thing has just been, I would call it a smashing success as we look at this. So now, as we think about building credit card volume on the Discover network, there are two ways to do that: with the front book and the back book. And so what we are leaning hard into right now is testing originating legacy Capital One branded accounts on the Discover network, as well as testing the conversion of existing Capital One accounts to the Discover network. So as we lean into that and on the other side of those tests, we will then make our final choices about what credit card volume we're going to move over and what timing. In parallel, an important companion of course is scaling up the volume of investment in the network as we increase international acceptance and further build the brand. The way to think about it, the quest to build international acceptance will be an always thing. So for us, the key is to slope the work. So we're going to slope our quest on both sides of this exercise with respect to acceptance, international acceptance. Well, let me in fact start with domestic acceptance. So Discover has, it just blows my mind how great their domestic acceptance is. There are a few scattered gaps. And we are just leaning all in to literally close them all. So that's a thing that's going great progress and we're so pleased on the domestic side. Internationally, again, it will be a long quest, but what we're doing is sloping the work. While we're working to lift everywhere, we're particularly leaning in to lift acceptance to a higher level in the places our customers go the most. And not surprisingly, we find that where do they travel the most? They travel to Mexico, the Caribbean, Canada, the UK, and those are the top four destinations. We're particularly leaning in there to really move the needle and enhance acceptance there. The other sloping that we're working on, combined with our testing, is sloping what we move, and focusing more on moving things that don't involve as much international travel. And so strategically, we're just working so hard to get as much volume as we can on the network, and we're going to slope the acceptance work and slope the migrations to be able to create great customer experiences and maximize the volume that we move over time.

International acceptance is... there are multiple ways to build that. International issuing, by the way, is a great way to do it because what we're talking about there is having a local player issue our cards, and in that way they can help really drive the acceptance in their own local geography. So that is one of four ways to build acceptance internationally. In fact, again, I'm amazed at how Discover with their relatively small scale built the impressive international acceptance, but it's still not yet where we would love it to be as a destination. So the ways to get there from here, and Discover has used all four of these. One is partnering with other networks, and this has been a really important part of Discover's strategy. They have partnered with networks in Japan, China, India. There is massive acceptance in some of the biggest countries in the world coming from network partnerships. A second way to do it is with card-issuing financial institutions. American Express has particularly leaned into this approach. It's a great approach. We have some cases of that with Discover. It's been less of a lever for Discover than for Amex, but that's another one. And by the way, just a small point: as an issuer ourselves in Canada and the UK, we look forward to getting our own issuer boost there on acceptance. A third lever is partnering with merchant acquirers, and finally the fourth is going directly to merchants. So this is the playbook Discover has used. We will continue to invest in this playbook, and there's of course a flywheel benefit that comes with the more acceptance we get, the more volume we can get. That's how that flywheel works. But those will be the four levers that we lean into in this journey.

Well, the first thing I want to say is, when I give the big list of investments, and I know for the last, sort of our whole lives at Capital One, we've always in some ways been the company that's investing in our future, but there's certainly been a lot of discussion, as you all have noticed, about the long list of investments that we're leaning into. The first thing I want to say is I wouldn't want anyone to draw the perception that massively moving the needle of Capital One investments is investing in the network or international acceptance. It is an important sustained investment we will do for as far out as we can see. But I wouldn't want to leave the impression that that's at the top of the list of what we're spending. We're spending a lot more money than that on Capital One technology, AI, and maybe the biggest single item is, well, I don't know, there are several, but investing to win with heavy spenders at the top of the market. So I want to say this is just one of the many things on the list. That said, to your point, I believe that for as far out as we can see, we'll be investing in international acceptance. But here's the key thing. We're not, our strategy is not hinging on we have to invest so much to get to a point where then finally we can have this big bang moment and move a whole bunch of customers. This is why I went back to the power of the sloping. We take our customers and cards and just analyze what customers are international travelers. We can empirically see that some customers have never traveled outside of the country for 20 years. We can see and really understand where they're coming from. We have good ways to understand on the front book what is happening. And it's partly a customer point and a product that they're choosing point. And then when we look at where customers travel, that also is so sloped. So again, I think that while we will be investing as far out as we can see in the network, by sloping the investment, we can get a lot of progress in a focused way and continue to create the ability to move more customers as soon as we can. And in that way, we don't have to wait for someday to try to monetize the power of this network. We're already living it on the debit side, and we can lean into it on the credit card side, and the benefits accrue right along the way with the investments.