CapOne CEO Says Consumers in ‘Good Shape’ as Card Purchases Surge

Capital One’s most recent quarterly earnings, posted Thursday (Oct. 24) after the bell, indicated that cardholders continued to embrace credit as a key payment method, and consumers remained in “good shape,” according to the CEO.

The company’s earnings supplementals noted that card purchase volumes were 5% higher, to $166 billion.

CFO Andrew Young said on the call that “our credit outlook has improved slightly as our confidence in the stability of underlying credit trends has grown, driving a modest release and allowance.”

The company released reserves in the quarter, and supplementals noted that the net charge-off rate in the most recent quarter stood at 5.6%, down from 6% in the second quarter, while gaining from the 4.4% rate seen a year ago.

CEO Richard Fairbank said on the call that card loan balances were up 6% year over year, and the period-end loans held for investment were $149.4 billion. The 30-plus delinquency rate at quarter end was 4.5%, up 0.22%.

“The pace of year-over-year increases in both the charge-off rate and the delinquency rate have been steadily declining for several quarters and continued to shrink in the third quarter,” the CEO said.

Growth in Auto Loans

Auto loan originations were up 23% year over year in third quarter, management noted on the call, to $9.2 billion. The auto charge-off rate for the quarter was 2.1%, up 0.28%. The 30-day delinquency rate, Fairbank said, was down a bit, “largely as the result of our choice to tighten credit and pull back in 2022, [so] auto charge-offs have been strong and stable.”

Turning to the Discover acquisition, he said, “We’re working closely with the regulators as our applications continue to work their way through the regulatory approval process.

“Separately, Discover mentioned in their press release and on their earnings call last week, that they continue to work in parallel with the SEC to resolve comments regarding their accounting approach for their card misclassification matter. As soon as that process wraps up we expect to mail out a joint proxy and a schedule, and to schedule a shareholder vote most likely early next year.”

Asked on the conference call by analysts about the health of the U.S. consumer, Fairbank said, “The U.S. consumer remains a source of relative strength in the overall economy. … The labor market remains strong … and the most recent data points on unemployment and job creation have actually shown renewed strength. Incomes are growing in real terms. And last month, we saw a significant upward revision of the savings rate.”

He added, “We see some pockets of pressure related to the cumulative effects of inflation and elevated interest rates. … I’d say consumers on the whole are in good shape compared to most historical benchmarks.”

He said later in the call that “in the card business … our delinquencies and charge-offs are consistent with normal seasonality now.”

Shares in Capital One were up 3.4% after hours.