Capital One Financial’s latest results show that, like consumers, it isn’t immune to the market.
“We are expecting inflation to impact consumer credit by depressing real incomes, as well from an unemployment effect. … We haven’t seen sustained inflation for more than 40 years,” said Richard D. Fairbank, founder, chairman, and chief executive officer of Capital One, to investors on Thursday’s (April 27) first quarter 2023 earnings call.
Still, the CEO noted, “In the first quarter, we built additional balance sheet strength as we grew retail deposits … and we continue to see attractive growth opportunities in our domestic card business and our ‘digital first’ national retail bank.”
The lender’s earnings and revenue both fell short of Wall Street expectations, and the stock was falling off in after-hours trading.
The company said in its latest release that credit card period-end loans decreased $588 million, or less than 1 percent, to $137.1 billion, while domestic card period-end loans decreased $601 million, also less than 1 percent, to $131.0 billion.
Its credit card delinquency rate improved to 3.66% in March from 3.72% in February, the company disclosed, while its net charge-off rate of 4.16% was unchanged.
The lender’s deposits have climbed 12% over the past year, growing to just under $350 billion as of March 31, 78% of which are insured.
Fairbank told investors that Capital One’s national digital bank, and not its brick-and-mortar locations, was driving much of the deposit growth.
See also: Platforms, Alternative Lending Sources Help Fill Small Businesses’ Capital ‘Gap’
The firm’s auto-finance business period-end loans decreased $1.7 billion, or 2 percent, to $76.7 billion; while its commercial banking period-end loans decreased $1.1 billion, or 1 percent, to $93.5 billion.
Capital One announced last month (March 29) that it was planning to sunset a lending business that it provided to car dealerships for them to buy inventory. The lender noted at the time that the decision to wind down the “floor-plan lending” product had “no impact” on its consumer auto-finance business.
As PYMNTS reported, Walmart this month (April 9) also sued Capital One to end a 4-year-old credit card partnership, with the retail giant accusing the bank of failing to live up to its customer care standards.
“At a high level, Walmart has sued us trying to terminate the deal early,” Fairbank told investors on Thursday’s call, adding that there remain “a lot of unknowns,” and emphasizing that Capital One denies that Walmart has “the right to terminate early.”
Capital One’s senior management repeatedly emphasized to investors listening in on the call that they expected macro market pressures not just to be ongoing, but to worsen.
The Virginia-based bank’s provision for credit losses increased $379 million to $2.8 billion, reducing some of the firm’s gains from interest rate hikes.
“We continue to assume material economic worsening from today’s levels on most measures,” CFO Andrew Young told investors on the call.
PYMNTS own data shows that two-thirds of Main Street small and medium-sized business (SMB) owners expect a recession.
“None of us know the effects of inflation, we need to be managing intuitively,” said Fairbank, while emphasizing that he sees the U.S. consumer as remaining a source of relative strength in an adverse economy.
Capital One has invested heavily in technology as competition continues to intensify between card giants and FinTechs.
“Our investments to transform our technology and to drive resilient growth put us in a strong position to capture opportunities and deliver compelling long-term shareholder value,” Fairbank said.
The CEO separately underscored that the lender remains “positioned to win as banking goes digital … [we are] increasingly leveraging ML [machine learning] at scale with a tech engine that drives growth and efficiency improvement.”
“We need to stay on the forefront of innovation or we could be yesterday’s news,” he added.
The company recently cut 1,100 positions in its technology segment at the start of the year, reportedly inviting those employees impacted to apply for other roles at the bank.
PYMNTS research has found that most consumers manage their loan accounts online. Among the 61% of consumers who have loan accounts with outstanding balances, 72% manage those accounts online, according to “Account Opening and Loan Servicing in the Digital Environment,” a PYMNTS and Finicity collaboration.
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