How Does Capital One Make Cash?

Capital One Financial institution is without doubt one of the 20 largest banks by property in the US. To be exact, it’s #10 as of September 30, 2022.

It makes some huge cash too. In 2021, the newest 12 months for which we’ve full knowledge, Capital One Financial institution reported greater than $12 billion in revenue earlier than taxes. 

The place does all that cash come from? The large image really isn’t that difficult. Capital One earns the overwhelming majority of its revenue from curiosity on bank cards, shopper loans, and business loans, and from debit and bank card transaction charges. Right here’s the way it all suits collectively.

How A lot Cash Does Capital One Make?

Capital One Financial institution earned $12.39 billion in 2021.

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The financial institution’s revenue and bills fall into two main classes: curiosity and noninterest. 

Capital One’s Curiosity Earnings Sources

Capital One earned $25.77 billion in gross curiosity revenue in 2021

Most of that curiosity revenue comes from funds lent to clients. That features:

Capital One additionally treats revenue it earns from funding securities as curiosity revenue. Lastly, it earns a really small quantity of curiosity on working money held in its personal accounts as nicely.

Curiosity Earnings Supply % of Curiosity Earnings
Bank cards 60%
Client banking loans 23%
Business banking loans 8%
Different loans 3%
Investments and money 6%
Complete 100%

Capital One’s Curiosity Bills

Capital One had $1.6 billion in curiosity bills in 2021.

Capital One’s curiosity revenue dwarfs its curiosity bills, however these bills do nonetheless lower into its revenue. After accounting for them, Capital One netted $24.2 billion in curiosity revenue in 2021.

Capital One’s largest curiosity expense is the curiosity it pays on buyer deposit accounts, like financial savings accounts and certificates of deposit. (It’s a financial institution, in any case.) The remainder goes to Capital One’s personal debt service — that’s, the curiosity it pays on beforehand borrowed funds.

Curiosity Expense Sort % of Curiosity Bills
Curiosity paid on deposits 60%
Securitized debt obligations 7%
Senior and subordinate notes 31%
Different kinds of debt and liabilities 2%
Complete 100%

Capital One’s Noninterest Earnings

Capital One earned $6.26 billion in noninterest revenue in 2021.

Most of that (62%) comes from interchange charges, also referred to as swipe charges. Interchange charges are transaction processing charges paid by retailers to bank card issuers like Capital One. Each time you utilize your Capital One bank card, Capital One will get a small lower of the quantity paid — sometimes 1.5% to three.5%, relying on the fee community and whether or not the transaction happens on-line or in individual.

Many of the remainder of Capital One’s noninterest revenue comes from service fees and different charges charged to clients. As banks and bank card issuers go, Capital One isn’t identified for charging extreme charges, and it doesn’t cost overdraft charges in any respect on shopper checking accounts. However the charges it does cost nonetheless add up:

  • Bank card annual charges
  • Installment mortgage origination charges
  • Wire switch charges
  • Financial institution test charges
  • Paper assertion charges
Noninterest Earnings Sort % of Noninterest Earnings
Interchange charges 62%
Service fees and different buyer charges 25%
Different charges 13%
Complete 100%

Capital One’s Noninterest Bills

Capital One had $16.57 billion in noninterest bills in 2021.

This expense class encompasses all of the bills Capital One incurs to run its enterprise:

  • Salaries, wages, and advantages
  • Actual property, referred to as “occupancy” in accounting parlance
  • Workplace tools
  • Advertising actions
  • Telecommunications and knowledge processing
  • Skilled providers
  • Numerous overhead bills

The sheer dimension of Capital One’s noninterest bills exhibits simply how necessary the financial institution’s curiosity revenue is for its backside line. Have been it not for curiosity revenue, Capital One’s noninterest bills would depart it deep within the pink — interchange charges and repair fees merely aren’t sufficient to maintain tempo.

Noninterest Expense Sort % of Noninterest Bills
Salaries and advantages 45%
Occupancy and tools 12%
Advertising 17%
Skilled providers 9%
Communications and knowledge 8%
Different bills 9%

Capital One’s 2021 Provision Credit score

Capital One had one different important supply of noninterest revenue in 2021: a provision credit score.

A provision credit score is an accounting artifact that offsets dangerous debt from earlier years. Every year, banks like Capital One preserve observe of unpaid money owed — past-due bank card balances and loans, principally — and make their finest guess as to how a lot cash they’ll really lose on these money owed. They write off the quantity as a loss.

These losses don’t all the time materialize. When the financial institution determines they’ve written off an excessive amount of for phantom future losses, they use a provision credit score to get better the distinction.

In 2021, Capital One took a provision credit score of $1.94 billion. That credit score accounted for six% of its complete revenue.

Earnings Sort % of Complete Earnings
Curiosity revenue 76%
Noninterest revenue 18%
Provision credit score 6%
Complete 100%

The place Did We Get This Information?

We received all the info for this report from Capital One’s 2021 Annual Report, which covers the fiscal 12 months that ended on December 31, 2021.

As a publicly traded firm, Capital One is required by legislation to file an in depth annual monetary assertion with the Securities and Trade Fee. The assertion, referred to as a 10-Ok, runs greater than 200 pages and breaks down Capital One’s property, liabilities, and revenues in excruciating element.

The ten-Ok makes up the majority of Capital One’s annual studies. You could find the 2021 model on the hyperlink above, starting on web page 19.

In the event you don’t have time to pore over lots of of pages of numbers and authorized jargon, we’ve the highlights for you right here.

Remaining Phrase

It’s spectacular that Capital One earned over $12 billion in 2021, a 12 months marked by traditionally low rates of interest and comparatively low charges of bank card utilization. 

In 2022, rates of interest have been a lot greater and customers leaned on bank cards greater than they’ve in years. Regardless of a more difficult financial atmosphere general, it stands to motive that Capital One took benefit of the favorable rate of interest atmosphere and continued printing cash.

Or perhaps not. We’ll have to attend for the financial institution’s subsequent annual report to make certain.

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