Capital One’s Card Purchase Volumes Grow 7%, Charge-Off Rate Is 6%

Capital One’s fourth quarter results, released after the market closed on Tuesday (Jan. 21), indicated that consumers continue to spend on their cards, and stripping out one-time items, credit performance was flat along several metrics.

The company’s earnings supplementals revealed that card purchase volumes surged by 7% to $172.9 billion.

The reported net charge-off rate was 6%, where that ratio had been 5.3% a year ago.

CEO Richard Fairbank said on the call that the domestic card business “delivered another quarter of steady top-line growth, strong margins and stable credit.” Average loans were 6% higher and net charge-off rate was bumped 0.4% higher as a result of the end of the company’s Walmart card partnership and a loss sharing agreement with that company.

Fairbank added that Capital One’s 30-day-plus delinquency rate crossed into actual year-over-year improvement. The 30-day-plus delinquency rate at the end of December was 4.53%, down 0.08%  basis points from the prior year.

Strong Consumer Banking Results

Elsewhere, in the consumer banking business, auto originations were up 53% from the prior year quarter.

“A portion of this growth can be attributed to overall market growth, while the remainder is the result of our strong position to pursue resilient growth in the current marketplace,” Fairbank said.

“As a reminder, our choices to tighten credit and pull back in anticipation of credit score inflation and declining vehicle values were still in effect in the fourth quarter of 2023, resulting in relatively low originations.”

Overall, within the consumer banking portfolio, ending loans were up 4% year over year. Consumer deposits were up 7% at the end of the quarter to $318.3 billion.

Later in the call, Fairbank said that “consumer credit trends remain stable.”

Shares in Capital One were down about 1% after hours on Tuesday.

Elsewhere during the call, Fairbank said that the acquisition of Discover Financial Services remains on track and is slated to close early this year.

The State of the Consumer

Asked on the call about consumer spending, Fairbank said, “The U.S. consumer continues  to be a source of strength in the overall economy. The labor market remains strong, and we saw signs of softening in the first half 2024, but in the second half of the year, the unemployment rate has been stable and job creation data has shown renewed strength. Incomes are growing steadily in real terms as inflation … settles a bit.

“Consumer debt servicing burdens are stable, near pre-pandemic levels. Consumers have higher bank account balances than before the pandemic.” There have been “pockets of pressure” on consumers whose incomes have not kept up with inflation, he said, which may lead to some “delayed charge-offs” among some consumers.

He observed, “The proportion of customers making just the minimum payment is also running somewhat above pre-pandemic levels. … We’re seeing this minimum payment effect across this credit spectrum. I’m not making a point here about the low end of the market or even about subprime. In fact, if anything, the lower end appears to be doing relatively better at the moment.”