Growth in NII, Fee Income Likely to Aid Capital One's Q2 Earnings

Capital One COF is slated to report second-quarter 2025 results on July 22, after market close. Its quarterly earnings and revenues are expected to have witnessed an increase on a year-over-year basis.

In the last reported quarter, COF’s earnings surpassed the Zacks Consensus Estimate. Results benefited from higher net interest income (NII) and non-interest income. Also, provisions declined during the quarter. However, an increase in expenses and a lower loan balance were the undermining factors.

Capital One has a decent earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three and lagged in one of the trailing four quarters.

COF’s Key Factors & Estimates to Note for Q2

NII: Despite an uncertain macroeconomic backdrop, the overall lending scenario was good in the second quarter. Per the Federal Reserve’s latest data, the demand for consumer loans was decent. The Zacks Consensus Estimate for COF’s total average earning assets is pegged at $479.9 billion, which indicates a 6.4% rise from the prior-year quarter’s reported figure. Our estimate for the metric is $458.3 billion.

Moreover, the Federal Reserve kept interest rates unchanged at 4.25-4.5% in the to-be-reported quarter. Thus, amid gradually stabilizing funding/deposit costs, COF’s NII is expected to have been positively impacted by loan growth and higher rates.

Also, Capital One’s continued efforts to strengthen its card operations are expected to have provided some support. The consensus estimate for NII of $9.01 billion indicates 19.4% year-over-year growth. Our estimate for NII is pegged at $9.63 billion.

Fee income: Capital One’s interchange fees (constituting more than 60% of fee income) are likely to have improved in the quarter under review, given increased card usage. The Zacks Consensus Estimate for interchange fees is $1.48 billion, suggesting an 18.8% year-over-year increase. Our estimate for the metric is $1.46 billion.

The consensus estimate for service charges and other customer-related fees of $615 million implies 34% year-over-year growth. The Zacks Consensus Estimate for other non-interest income is pegged at $284 million, indicating a 12.7% year-over-year rise. Our estimates for service charges and other customer-related fees, and other non-interest income are $571 million and $311.7 million, respectively.

The consensus estimate for total non-interest income of $2.31 billion suggests a rise of 17.8% from the prior-year quarter’s actual. We expect the metric to be $2.35 billion.

Expenses: Capital One has been witnessing a persistent rise in expenses over the past several quarters because of higher marketing costs. The company’s investment in technology upgrades leads to higher costs. These, along with inflation pressure, are expected to have resulted in an increase in operating expenses in the second quarter.

Our estimate for total non-interest expenses stands at $7.54 billion, implying a year-over-year rise of 52.5%.

Asset Quality: Capital One is likely to have set aside a substantial amount of money for potential delinquent loans, given the expectations of higher for longer interest rates and the impact of Trump’s tariffs on inflation.

Our estimate for provision for credit losses is pegged at $2.67 billion, indicating a 31.6% fall from the year-ago quarter’s reported figure.

Key Development for COF in Q2

In May, Capital One finalized the takeover of Discover Financial Services, after almost 15 months of announcing the agreement. The $35-billion transaction has reshaped the landscape of the credit card industry, creating a behemoth (in terms of loan volume).

The acquisition places Capital One in a position to capture a bigger share of spending on cards and compete with well-known card issuers. The company now has control over Discover’s payments network — one of only four in the United States.

Per the agreement, Discover’s shareholders received 1.0192 Capital One shares for each Discover share held. Also, three members from Discover’s board of directors — Thomas G. Maheras, Michael Shepherd and Jennifer L. Wong — joined Capital One.

At the time of the deal announcement in February 2024, it was noted that the merger would generate and deliver attractive accretion and returns for shareholders. Expense synergies of $1.5 billion in 2027, coupled with network synergies of $1.2 billion, underscore the value-creation potential of the merger.

The transaction is expected to result in adjusted non-GAAP EPS accretion of more than 15% by 2027. The deal will also bolster Capital One's balance sheet.

Earnings Whispers for Capital One

According to our quantitative model, the chances of Capital One beating the Zacks Consensus Estimate for earnings this time are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.

You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Capital One is -2.26%.

Zacks Rank: The company currently carries a Zacks Rank #3.

The Zacks Consensus Estimate for COF’s second-quarter earnings of $3.82 has been revised 8.2% higher over the past seven days. The estimate indicates an increase of 21.7% from the prior-year quarter’s actual.

The consensus estimate for sales is pegged at $12.22 billion, implying a year-over-year increase of 28.6%.

Finance Stocks That Warrant a Look

Here are a couple of finance stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time:

The Earnings ESP for Zions Bancorporation, National Association ZION is +0.06% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2025 results on July 21. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past seven days, the Zacks Consensus Estimate for Zions’ quarterly earnings has been unchanged at $1.31.

Prosperity Bancshares, Inc. PB is scheduled to announce second-quarter 2025 results on July 23. The company has a Zacks Rank #3 and an Earnings ESP of +1.33% at present. Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

Quarterly earnings estimates for Prosperity Bancshares have been unchanged at $1.40 over the past week.

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This article originally published on Zacks Investment Research (zacks.com).

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