Capital One Credit Costs Ease as Card Delinquencies Fall
The credit-card lender’s domestic 30+ day delinquency rate improved 11 basis points to 3.33% in May.
Capital One Financial’s credit-card franchise showed signs of stabilization in the first quarter, with delinquency and charge-off rates reversing upward trends even as auto-loan performance deteriorated. The McLean, Virginia-based lender, the largest U.S. issuer of general-purpose credit cards, reported a 12-basis-point quarter-over-quarter decline in its domestic card net charge-off rate to 4.82% in May. The 30+ day performing delinquency rate in the same portfolio improved 11 basis points to 3.33%, down from 3.44% in April and 3.70% in March.
The improvement in card credit quality drove a 33% quarter-over-quarter increase in pre-tax income for the Credit Card segment, to $2.48 billion, reversing a decline from $1.87 billion in the prior quarter. Average loans held for investment in the domestic card business rose 0.6% sequentially to $254.0 billion, halting a months-long contraction. Still, net interest margin compressed 39 basis points to 7.87% as lower asset yields and higher deposit costs weighed on profitability.
Auto loans told a different story. The net charge-off rate in the portfolio rose 25 basis points quarter-over-quarter to 1.45% in May, while the 30+ day delinquency rate climbed 22 basis points to 4.24%. Average auto loans held for investment grew 1.3% sequentially to $87.3 billion, continuing a steady expansion. The divergence between card and auto performance left the broader Consumer Banking net charge-off rate at 1.70%, an 18-basis-point improvement from the prior quarter.
Deposit costs showed signs of peaking. The rate paid on interest-bearing deposits fell 16 basis points quarter-over-quarter to 3.00%, easing pressure on funding expenses. The provision for credit losses declined $74 million to $4.1 billion, reflecting a $230 million reserve build—smaller than the swings seen in prior quarters. Commercial Banking net charge-offs also improved, dropping 14 basis points to 0.29%.
Capital ratios held steady despite the loan growth and reserve builds. The Common Equity Tier 1 ratio under the Basel III Standardized Approach remained at 14.4%, unchanged from prior quarters. Management offered no material update on the operating environment, focusing instead on the credit trends already visible in the portfolio.
The outlook hinges on whether the card delinquency improvement proves durable. May’s data suggests a potential inflection, but auto-loan stress and margin compression remain headwinds. With deposit costs now easing, the next test will be whether loan growth can reaccelerate without reigniting credit pressures.