Capital One has revealed its performance for the fourth quarter, providing insight into consumer behavior and its credit portfolio. The financial data indicates steady consumer card spending, although certain credit metrics have shown slight increases in risk. The report comes as the U.S. economy navigates strong labor markets and persistent inflationary pressures, contributing to evolving consumer habits.
In earlier reports, Capital One’s consumer banking growth was attributed to strategic adjustments in its auto loan and credit card operations. Over the years, the company has closely monitored trends in credit risk and delinquency rates, adapting to macroeconomic changes. Comparatively, the latest figures show steady card spending growth but highlight a gradual increase in charge-off rates, marking a shift from previous flat trends in credit metrics.
What Do the Latest Metrics Show?
Card purchase volumes rose by 7%, reaching $172.9 billion this quarter. However, the net charge-off rate increased to 6%, compared to 5.3% a year earlier. Capital One attributed part of the charge-off increase to the conclusion of its Walmart card partnership and associated loss-sharing agreements. CEO Richard Fairbank noted the company’s domestic card business maintained robust revenue growth and stable credit, with average loans up by 6%.
“The domestic card business delivered another quarter of steady top-line growth, strong margins, and stable credit,” Fairbank said.
Meanwhile, the 30-day-plus delinquency rate showed year-over-year improvement, ending December at 4.53%, slightly lower than the previous year’s figure. Despite these mixed results, Fairbank emphasized the resilience of U.S. consumers, citing stable debt servicing burdens and higher bank account balances compared to pre-pandemic levels.
How Has Consumer Banking Performed?
Capital One’s consumer banking segment also reported significant activity, with auto loan originations surging by 53% year-over-year. However, the company noted these gains partially stemmed from market growth and its selective credit tightening policies. Consumer deposits climbed 7% to $318.3 billion, while overall loans increased by 4%. Fairbank described consumer credit trends as stable, despite some emerging pressures among specific income groups.
“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 explained.
Capital One also reiterated its commitment to closing the acquisition of Discover Financial Services early this year, which represents a key strategic move for expanding its portfolio. However, the announcement of quarterly results caused shares to drop by 1% in after-hours trading.
The company noted that consumer behavior is evolving, with an increased proportion of customers making only minimum payments on their credit balances. Fairbank highlighted that this trend spans across the credit spectrum, although lower-income groups currently appear to be managing relatively well.
Fairbank also remarked on broader economic factors, including stable unemployment rates and growing real incomes. However, he acknowledged pockets of financial strain as inflation continues to affect certain demographics, potentially leading to delayed charge-offs in the coming quarters.
As Capital One adapts to shifting consumer dynamics, its focus on stable margins and cautious credit practices suggests a measured approach to navigating economic uncertainties. For consumers, the report underscores the importance of disciplined financial management during times of economic flux.
