2Q26 Earnings: Lower-Quality Beat, Better-Quality Setup

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2Q26 Earnings: Lower-Quality Beat, Better-Quality Setup

IdeaMquality", this release is a sign of confidence in the consumer. Adjusted EPS

came in 88c (or 18%) better than our estimate of $4.92, driven primarily by a

$653M reserve release (vs. MSe reserve build of $250M). The reserve

release reflected continued favorable credit performance, improving loss

expectations, and a resilient consumer. Despite the provision beat, PPNR was

a 16c miss vs our forecast, in part from higher expenses (+1.4% vs MSe).

• Strongest credit performance in our coverage? Not only are credit metrics

continuing to improve nicely, but CEO Rich Fairbank reiterated his comment

from our June conference: 2024/25 origination vintages are coming in slightly

better than pre-pandemic vintages and even better than 2021-23 vintages.

And when looking beyond traditional credit metrics, payment rates, bank

balances, and debt-servicing burdens all remain stronger than they were a

year ago across income cohorts.

• Discover integration continues to progress, hit key technology

milestones. In addition to the debit migration to the Discover network being

fully complete, COF has migrated 50% of Discover originations onto its own

technology platform, with full migration of the front-book expected by the

end of 3Q26. COF remains on track to deliver the full $1.5B of announced

Discover cost synergies, with ~1/3 of the cost synergies now in the full run-

rate. Full benefit of these cost synergies is still expected to be realized by

2H27.

• Encouraging early progress following the April close of the Brex

acquisition. Brex is already benefiting from Capital One's lower cost of

funds, brand scale, and cross-business lead-sharing initiatives, while

management expects incremental upside from deeper technology