CapOne CEO: Consumers in 'Good Shape,' 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 Numbers
The company’s earnings supplementals noted that card purchase volumes were 5% higher, reaching $166 billion. CFO Andrew Young mentioned on the call that the credit outlook had improved slightly, leading to a modest release in allowance reserves.
Financial Stability
The net charge-off rate in the most recent quarter decreased to 5.6%, down from 6% in the previous quarter, although up from the 4.4% rate observed a year ago. CEO Richard Fairbank highlighted that card loan balances had increased by 6% year over year, with period-end loans held for investment totaling $149.4 billion.
Delinquency and Recovery
The 30-plus delinquency rate at quarter end was 4.5%, which was slightly higher compared to the previous period. Fairbank stated that the pace of year-over-year increases in both the charge-off rate and the delinquency rate had been declining over several quarters.
Auto Loans
Auto loan originations saw a 23% increase year over year in the third quarter, amounting to $9.2 billion. The auto charge-off rate for the quarter was 2.1%, experiencing a slight increase. Fairbank mentioned that the 30-day delinquency rate had decreased due to credit tightening measures taken earlier.
Future Ventures
Regarding the Discover acquisition, Fairbank expressed ongoing collaboration with regulators on the approval process. Meanwhile, Discover addressed accounting concerns related to card misclassification in their recent earnings call and press release.
Consumer Strength
When asked about the health of the U.S. consumer, Fairbank emphasized the relative strength of the consumer market. He noted positive trends in the labor market, income growth, and savings rate revisions. Despite inflation and interest rate challenges, consumers were deemed to be in good shape compared to historical benchmarks.
Business Outlook
Delinquencies and charge-offs in the card business were reported to align with normal seasonality. Capital One's shares rose by 3.4% after hours, reflecting investor confidence in the company's performance.
