Capital One Financial (NYSE:COF) reported fourth-quarter 2025 earnings of $2.1 billion, or $3.26 per diluted share, and full-year earnings of $2.5 billion, or $4.03 per share, management said on the company’s earnings call. The quarter included the sale of an $8.8 billion Discover Home Loans portfolio, which the company said produced a net gain on sale of $483 million reported in discontinued operations after updated purchase accounting estimates. Excluding the home loan sale and other adjusting items, Capital One said fourth-quarter earnings per share were $3.86 and adjusted full-year earnings per share were $19.61.
Management also highlighted two notable items in the quarter: $200 million of “accelerated philanthropy” contributions and $37 million of pension termination expense. Revenue increased about 1% from the prior quarter, while non-interest expense rose 13%, Capital One said. Pre-provision earnings declined 12% quarter-over-quarter, or 10% net of adjustments.
Credit costs rose on allowance build and higher charge-offs
The allowance build brought the allowance balance to $23.4 billion. The total portfolio coverage ratio declined five basis points to 5.16%, with management attributing changes largely to segment dynamics:
- Domestic card: Coverage ratio fell 11 basis points to 7.17%, with a $335 million allowance build “largely driven by loan growth.”
- Consumer banking: Allowance balance was “largely flat” at $1.9 billion, with growth in auto offset by “continued observed credit favorability.” Coverage ratio ended at 2.23%.
- Commercial banking: Capital One released $47 million of allowance, which Young said was “largely driven by charge-offs.” Coverage ratio declined six basis points to 1.63%.
Margin, liquidity, and capital metrics
Young said total liquidity reserves ended the quarter at about $144 billion, up modestly sequentially, and the preliminary average liquidity coverage ratio increased to 173% due to higher average cash and lower net outflows.
Net interest margin was 8.26% in the fourth quarter, down 10 basis points from the prior quarter. Young attributed the decline to lower asset yields and a higher cash balance, noting the Discover Home Loans sale increased cash and more than offset typical seasonal patterns.
Capital One’s common equity tier 1 (CET1) ratio ended the quarter at 14.3%, down about 10 basis points from the prior quarter. Young said quarterly earnings were more than offset by $2.5 billion in share repurchases and higher risk-weighted assets.
Business segment trends: cards, consumer banking, and commercial
CEO Richard Fairbank described the fourth quarter as reflecting “steady top-line growth, strong margins, and stable credit” in domestic card, while noting competitive intensity remains high.
In the combined domestic card business, Fairbank said purchase volume grew 39% year-over-year, primarily driven by the addition of Discover purchase volume; excluding Discover, purchase volume growth was about 6.2%. Ending loan balances increased 69% year-over-year, also primarily due to Discover; excluding Discover, ending loans grew about 3.3%.
Fairbank said the legacy Discover card loans “continued to contract slightly” and could face “near-term growth headwinds” due to Discover’s prior credit policy cutbacks and Capital One “trimming around the edges.” He added the company sees opportunities to grow Discover “on the other side of our tech integration,” when Capital One can implement growth expansions powered by its technology and underwriting.
On credit, the domestic card charge-off rate was 4.93%, up 30 basis points from the prior quarter and down 113 basis points from a year ago. Domestic card delinquencies were 3.99%, up 10 basis points sequentially and down 54 basis points year-over-year. Fairbank characterized sequential moves as in line with normal seasonality and said credit metrics appear to be “settling out” after nearly a year of steady improvement.
Domestic card non-interest expense rose 60% year-over-year, reflecting a full quarter of combined operations and purchase accounting amortization. Total company marketing expense was about $1.9 billion, up 41% year-over-year, with domestic card as the largest driver. Fairbank said marketing included Discover’s marketing, higher media spend, and more investment in premium benefits and differentiated experiences, which management said is supporting new account originations and the company’s “heavy spender” strategy.
In consumer banking, Capital One said global payment network transaction volume was about $175 billion. Auto originations were up 8% from the year-ago quarter, though management said increased competitor activity slowed originations growth. Ending consumer banking loan balances increased $6.7 billion, or about 9% year-over-year, while consumer deposits grew about 33%, which management said was largely due to Discover deposits. Consumer banking revenue rose about 36% year-over-year, and non-interest expense increased about 48% due to Discover, higher marketing, increased auto originations, and continued technology investment. Auto charge-offs were 1.82% (down 50 basis points year-over-year and up 28 basis points sequentially), while auto delinquencies increased seasonally to 5.23%.
In commercial banking, management said ending and average loan balances were flat versus the prior quarter, while ending deposits rose about 4% and average deposits increased 5%. The annualized net charge-off rate increased 22 basis points sequentially to 0.43%, while criticized performing and criticized non-performing loan rates declined to 4.68% and 1.36%, respectively.
Discover integration: debit migration, network buildout, and a credit “brownout”
Management said it made “expected progress on Discover integration and synergies” and remains on track to deliver expected synergies. Fairbank described the Discover payment network as a “crown jewel” and said a key shared path across network opportunities is increasing international acceptance and building the network brand, with the company prioritizing locations “that Americans travel.”
On integration milestones, Fairbank said Capital One has been migrating debit cardholders to the Discover debit network since August and is “nearly complete” with the conversion. He said the company is beginning to see network synergies in reported results and expects more as the debit conversion completes.
For credit cards, Fairbank said that by the middle of this year Capital One expects to be able to originate Capital One credit cards on the Discover network, and early next year it expects to be able to move some existing credit cards to the network. Longer term, he said broader migration will depend on building international acceptance and strengthening the network brand, with a “big testing agenda” to ensure customer experience.
Fairbank also revisited a Discover-related growth “brownout,” attributing it to Discover’s origination pullbacks that began in late 2023 and to Capital One’s additional tightening, particularly around “higher balance revolvers.” He said the dynamic is temporary and expects growth opportunities to reopen after the technology integration of Discover into Capital One’s platforms.
Brex acquisition announced; management addresses strategy and dilution
Capital One announced it has entered into a definitive agreement to acquire Brex for a combination of stock and cash totaling $5.15 billion. Fairbank described Brex as a pioneer in business payments and spend management and said the acquisition advances Capital One’s long-standing strategy around payments, technology, and data.
In response to analyst questions, Fairbank laid out the strategic rationale centered on an “integrated modern solution” combining business credit cards, spend management software, and banking. He cited Brex features such as customizable credit limits and controls, automated expense capture, real-time policy enforcement, invoice matching to purchase orders, and real-time ERP integrations. He also pointed to Brex’s international capabilities, including issuing business credit cards in local currencies in over 50 countries, and said Brex has built AI agents for expense management and audit.
Fairbank said Capital One’s brand, marketing capabilities, and retail deposit-funded balance sheet could help accelerate Brex’s growth “almost from day one,” while Brex could expand Capital One’s corporate-liability presence, enhance offerings to existing small business card customers, and unlock a national small business banking opportunity. He also said integrating Brex’s spend management platform with Capital One Travel could expand business travel opportunities, and he noted potential longer-term benefits to commercial treasury management through Brex’s technology stack.
Young and Fairbank said the Brex acquisition is not expected to affect Discover integration or expected synergies, and that the size of the transaction—about 3.5% of Capital One’s market capitalization, according to Fairbank—does not change the expected pace or magnitude of quarterly share repurchases. Young added the deal is expected to reduce capital by “a little more than 40 basis points,” which he said is not enough to influence near-term repurchase thinking. Management also said Capital One increased its dividend 33% to $0.80.
On financial impact, Young said the company does not intend to provide additional metrics such as tangible book value dilution or earnings accretion given Brex’s relative size, but it will provide purchase price, balance sheet marks, integration costs, and amortization schedules in future reporting. In the Q&A, Young said the deal would be initially earnings dilutive “in isolation,” reflecting that Capital One is buying a fast-growing business, and that management believes the growth dynamic will lead to “significant accretion over time.”
Fairbank also reiterated that the company expects its earnings power “on the other side of the Discover integration” to remain consistent with what it expected when it announced the Discover deal, inclusive of the Brex acquisition.
About Capital One Financial (NYSE:COF)
Capital One Financial Corporation (NYSE: COF) is a diversified bank holding company headquartered in McLean, Virginia. The company’s core businesses include credit card lending, consumer and commercial banking, and auto finance. Capital One issues a wide range of credit card products for consumers and small businesses, and it operates deposit and digital banking services aimed at retail customers and small to midsize enterprises.
Products and services include credit and charge cards, checking and savings accounts (including the online-focused Capital One 360 platform), auto loans, and commercial lending solutions.
