Capital One earnings for the third quarter showed a credit card lender whose losses are shrinking while its Discover deal moves along. Net income rose to $3.5 billion from $3.1 billion a year ago, and the domestic card net charge-off rate, which measures the share of balances written off as uncollectible, fell to 3.98%. It was 4.71% in the second quarter and 4.63% a year earlier.
The numbers come from Capital One’s third-quarter results release, which the company reported on October 20. This article is general information, not investment or financial advice.
What the Capital One earnings numbers show
Adjusted earnings per share were $6.69, up from $5.95 a year ago. That figure leaves out costs tied to the Discover and Brex acquisitions. On a GAAP basis, which includes them, earnings per share were $5.61, up from $4.83. Total net revenue was $16.34 billion, up from $15.36 billion a year ago.
Pre-provision earnings, the profit before setting money aside for loan losses, were $7.49 billion, up 10% from the second quarter. The net interest margin, the gap between what the bank earns on loans and pays on funding, was 8.41%. That is up 40 basis points from the second quarter and 5 basis points from a year ago. The adjusted efficiency ratio, where lower is better, improved to 48.76% from 51.38%.
Credit quality: better, with a seasonal caveat
The biggest change was in credit. Beyond the 3.98% net charge-off rate on domestic cards, the 30-plus day delinquency rate was 3.74%. That is higher than the 3.39% in the second quarter but lower than the 3.89% of a year ago. Yahoo Finance, summarizing the earnings call, attributes the rise from the second quarter to seasonal patterns.
That distinction matters. A delinquency rate that climbs from one quarter to the next can look alarming on its own. Compared with the same quarter a year ago, it fell. The release does not explain the seasonal pattern, so the call summary is the source for that framing.
Other parts of the loan book were less rosy. The consumer banking segment had a net charge-off rate of 1.63%, up from 1.48% in the second quarter and 1.58% a year earlier. Yahoo Finance reports an auto charge-off rate of 1.59% and auto delinquencies of 4.64%, and quotes Chief Executive Richard Fairbank as attributing the auto increase to “a gradual return” of subprime lending to pre-pandemic levels. Commercial banking had no net charge-offs.
The reserve cushion shrank slightly. Capital One booked $2.9 billion in provision for credit losses, but its allowance still fell by $225 million, to $22.7 billion. The allowance now covers 4.92% of loans, down from 5.02% at the end of June.
Spending and loans
Consumers kept using their cards, according to the Capital One earnings figures. Domestic card purchase volume was $250.0 billion, flat from the second quarter and up 11% from a year ago. Ending domestic card loans were $260.3 billion, up 2% from a year earlier.
Total loans held for investment ended the quarter at $462.5 billion, up 1% from the second quarter. Deposits slipped 1% to $480.7 billion. Our earlier preview of the Capital One and American Express reports looked at five numbers that show how consumers are doing.
Where the Discover deal stands
The Discover acquisition remains a large part of the story. Integration expenses were $338 million before taxes, or 42 cents a share, compared with $298 million in the second quarter. Acquisition amortization added $483 million, or 60 cents a share, and the Brex acquisition added $47 million in integration costs.
According to Yahoo Finance, management said the company has achieved about $1.8 billion in annualized synergies so far this year and called that ahead of schedule. Those are the company’s own figures, not an audited result. Management also said the remaining synergies are roughly comparable to the revenue it expects to lose from a proposed settlement between Visa, Mastercard, and merchants over interchange fees, which Capital One is planning around despite uncertainty about final court approval.
Discover’s network handled about $191 billion in volume, up 25% from a year ago, mostly from moving debit cards onto the network. Discover loan balances are expected to keep shrinking for several more quarters before they grow again, and conversion of existing Discover cards is expected to finish in the first quarter, the call summary says.
Capital and buybacks
On capital, the Capital One earnings show the common equity tier 1 ratio, a measure of the bank’s loss-absorbing capital, at 13.8%, up from 13.7% in the second quarter and down from 14.4% a year ago. Capital One bought back 12.6 million shares for $2.6 billion in the quarter and $7.9 billion so far this year. Tangible book value per share was $102.72, down 2% from the second quarter.
What the Capital One earnings mean for cardholders
Falling charge-offs mean the bank is losing less money on borrowers who do not pay. They do not mean card rates are falling. For that, see our look at average credit card APRs in October. Management said it expects to lean harder into marketing in 2027, including restarting Discover marketing.
For cardholders, the practical point is that this quarter’s data shows no wave of defaults. That can change quickly if unemployment rises, and a single quarter does not prove a trend.
What to watch after the Capital One earnings
Four items will decide how the next report reads. First, whether delinquencies follow their usual seasonal path in the fourth quarter. Second, how fast Discover loan balances stop shrinking. Third, whether auto charge-offs keep rising as the bank takes on more subprime borrowers. Fourth, how the interchange settlement between Visa, Mastercard, and merchants is resolved in court, since management says the lost revenue is roughly comparable to the synergies still to come.
Editor’s take
The strongest line in the Capital One earnings release is not profit. It is the charge-off rate, which fell without the seasonal delinquency bump turning into a problem. The weaker line is auto, where losses are moving up as the bank takes on riskier borrowers. We would watch two things next quarter: whether delinquencies fall back toward the second-quarter level of 3.39%, and whether the Discover synergies keep pace with the interchange revenue they are expected to roughly offset.
