COF FY2026 Q2 IMPROVING

Capital One Financial Corporation earnings call

Jul 21, 2026 · 13:00 ET Andrew YoungJeff NorrisRichard Fairbank

Buzzberg read

Earnings power on other side of Discover integration consistent with expectations

Capital One reported solid Q2 2026 results with adjusted EPS of $5.81, reflecting strong credit performance and growth in card and auto. Management reiterated confidence in the Discover acquisition's earnings power despite a temporary loan brownout, and highlighted ongoing investments in technology, the Discover network, and the Brex acquisition. Key cross-company signals include the timeline for Discover loan growth recovery and a coming reduction in recoveries tailwinds. Adjusted Q2 EPS $5.81; revenue up 4% QoQ; credit trends remain favorable with charge-offs and delinquencies declining.

Buzzberg read Earnings power on other side of Discover integration consistent with expectations Capital One reported solid Q2 2026 results with adjusted EPS of $5.81, reflecting strong credit performance and growth in card and auto. Management reiterated confidence in the Discover acquisition's earnings power despite a temporary loan brownout, and highlighted ongoing investments in technology, the Discover network, and the Brex acquisition. Key cross-company signals include the timeline for Discover loan growth recovery and a coming reduction in recoveries tailwinds. Adjusted Q2 EPS $5.81; revenue up 4% QoQ; credit trends remain favorable with charge-offs and delinquencies declining. Read full analysisCollapse analysis

Discover card loan contraction expected to bottom in Q4 2026, with growth resuming after full tech migration by Q1 2027.
Recoveries inventory to taper over the next year, potentially reducing a credit tailwind.
Payment rates above pre-pandemic levels are supporting credit but constraining loan growth.

Revenue $19.861B +3% QoQ

EPS $5.81 +31% QoQ

Gross margin 84.95% reported

Op margin 36.98% reported

What changed this quarter

Guidance

Earnings power on other side of Discover integration consistent with expectations

Guidance tone

Risk

Domestic card charge-off rate down 54 bps year-over-year

Adjusted Q2 EPS $5.81; revenue up 4% QoQ; credit trends remain favorable with charge-offs and delinquencies declining.

Demand

Discover card loans shrink 1.5% year-over-year due to brownout

Management's overall tone was confident, driven by strong credit performance, top-line growth, and progress on Discover integration, with no notable shift in confidence from prior calls.

Demand

Marketing expense $1.7 billion, up 23% year-over-year

Discover card loans shrink 1.5% year-over-year due to brownout. Management's overall tone was confident, driven by strong credit performance, top-line growth, and progress on Discover integration, with no notable shift in confidence from prior calls.

AI, capex & demand read

Platform & monetization

Management stated they continue to invest in AI infrastructure and specific AI experiences, and leverage AI and machine learning for underwriting and growth in their card and auto businesses.

Demand

Bookings & conversion

Capex

Investment and capacity

Management highlighted ongoing investments in technology, AI, network acceptance, and marketing, with no specific capex figures provided, but noted these investments are key to long-term growth and will be reflected in the efficiency ratio.

Tone · confident

Management's overall tone was confident, driven by strong credit performance, top-line growth, and progress on Discover integration, with no notable shift in confidence from prior calls.

Supply-chain alpha

Discover card loan contraction will bottom around Q4 2026 before returning to growth after tech integration.

DFS

“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.”

Richard Fairbank

Recoveries inventory is expected to taper off over the next year, which could reduce a tailwind to credit loss rates.

“our recoveries inventory should taper off a bit in the next year or so because the inventory of recent charge-offs will itself be going down.”

Richard Fairbank

Customer payment rates remain meaningfully above pre-pandemic levels, slowing loan growth but supporting credit quality.

“Payment rates have continued 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.”

Richard Fairbank

Company read-throughs

WMT

-3.6%

since call

$110.05→$106.10

Customers

The Walmart co-brand portfolio is included in Capital One's results as a large customer; no explicit performance update but it is factored into the earnings power expectation.

“the full Walmart P&L as part of these things”

Richard Fairbank

Q&A context

WMT· Customers

Question

Ryan NashAnalyst, Goldman Sachs

Rich, you know, maybe to build a little bit on Sanjay's question,

Management answer

Richard FairbankChairman and Chief Executive Officer

… But is the right way to think about it, this should be at least a 20% return business? And what are some of the investments that could push it higher or lower in this environment? 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 savor 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 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 an 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 in to 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. 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 have We expect an 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 ROTC, we feel we're headed for a performance very consistent with what we expected along the way. As part of that, 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 …

DFS

—

since call

—→—

Supply chainSupply-chain alpha

Discover card loan contraction will bottom around Q4 2026 before returning to growth after tech integration. — Investors can time expectations for Discover's contribution to Capital One's loan growth; a bottom in Q4 2026 suggests a catalyst for the combined portfolio in 2027.

Richard Fairbank

Q&A context

DFS· Supply chain

Question

Terry MaAnalyst, Barclays

Got it. That's helpful. And then for my follow-up, regarding loan growth, that continues to improve each month in the card business, even in spite of the Discover brownout. So as we kind of look ahead to Discover Originations being fully on Capital One's platform, how should we think about growth in the card business after that, and then also the associated marketing spend required to kickstart Discover growth again? Thank you.

Management answer

Richard FairbankChairman and Chief Executive Officer

… 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 books. 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 dialback of card loans, they also dialed back on personal loans and We have also sort of mechanically during the integration dialed back on 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 You know, stepping on the gas a little bit more gradually in the coming months. You asked, Terry, about marketing spend. We will lean into marketing more on the Discover side. Really, marketing is really 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.