Discover Deal Boosts COF's Q2 Earnings, Consumer Spending in Focus

Capital One COF delivered better-than-expected second-quarter results, with the acquisition of Discover Financial Services (which closed on May 18) emerging as a key growth catalyst. 

Adjusted earnings of $5.48 per share outpaced the Zacks Consensus Estimate of $3.83 and jumped 35% from the prior quarter. Further, COF’s total net revenues surged 25% to $12.49 billion and surpassed the consensus estimate of $12.22 billion.

Relatively higher interest rates and resilient consumer card spending despite uncertainties related to Trump’s trade policies supported the company’s quarterly results.
 

Capital One Financial Corporation Price and EPS Surprise

Capital One Financial Corporation price-eps-surprise | Capital One Financial Corporation Quote

Growing investor confidence in the Discover buyout seems to have caused Capital One shares to gain 4% in after-hours trading yesterday.

Robust Credit Card Spending, Discover Deal Aid COF’s Revenues

Following the Discover buyout, COF became the biggest U.S. credit card issuer by balances. The company acquired $98.3 billion of domestic card loans and $9.9 billion of personal loans as part of the Discover acquisition. On a sequential basis, the company’s credit card loan portfolio jumped a whopping 72% to $269.7 billion, driven by persistent demand for credit card loans. 

Interest on credit card loans is significantly higher than that on mortgages and other types of loans. So, this, along with lower rates paid on deposits, supported Capital One’s NII and margins. As such, quarterly NII improved 25% from the prior quarter to $10 billion and net interest income (NIM) expanded 69 basis points (bps) to 7.62%. Management expects the full quarter benefit from the Discover acquisition to drive an additional 40-bp rise in NIM.

Consumer spending in the United States, which drives the bulk of Capital One’s credit card loan portfolio, was resilient in the second quarter. While inflationary pressures amid ambiguity over tariff policies dampened discretionary purchases, spending on essential goods and services held firm. As a result, purchase volume on Capital One credit cards surged 28% sequentially to $201.5 billion. This included $26.5 billion of Discover purchase volume.

Driven by increased card spend during the quarter, Capital One's non-interest income, which primarily consists of net interchange income and service charges and other customer-related fees, surged 26% to $2.5 billion.

Other Factors That Influenced Capital One’s Q2 Earnings

Following the Discover acquisition, Capital One built an initial allowance of $8.8 billion. Hence, the company’s provision for credit losses jumped significantly from the last quarter to $11.4 billion.  

Further, COF’s non-interest expenses increased 18% to $6.99 billion. This included Discover acquisition-related charges and certain other non-recurring items. Excluding these, this Zacks Rank #3 (Hold) company reported adjusted expenses of $6.4 billion, up 14%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Despite robust top-line growth and the Discover buyout, Capital One’s bottom line weakened because of several one-time charges. Hence, the company posted a net loss of $4.28 billion in the second quarter against net income of $1.4 billion in the prior quarter.

Details About Capital One’s Discover Integration Plan

On the earnings conference call, Capital One CEO Richard Fairbank said, “We certainly are very bullish about the deal and the economics and earnings power and opportunities on the other side.”

Fairbank highlighted the early progress in integrating Discover and emphasized the strategic alignment of the two platforms as a key driver in Capital One’s transformation into a fully integrated banking and global payments leader. Further, he noted Capital One is on track to deliver the $2.5 billion in total net synergies, while signaling integration charges are expected to exceed the previously announced $2.8 billion.

Overall, management reaffirmed that the combined company’s earnings potential and strategic opportunities in payments and global network expansion remain in line with prior expectations, supported by continued investments in technology, data and artificial intelligence (AI).

Performance & Earnings Date of COF’s Peers

Ally Financial’s ALLY second-quarter 2025 adjusted earnings of 99 cents per share surpassed the Zacks Consensus Estimate of 78 cents. Further, the bottom line reflected a jump of 35.6% from the year-ago quarter.

Results benefited from a rise in net finance revenues and other revenues. Further, lower non-interest expenses and reduced provision provided support. However, a decline in net finance receivables and loans and deposits was the undermining factor for ALLY. 

Navient NAVI is scheduled to announce second-quarter 2025 results on July 30.

Over the past seven days, the Zacks Consensus Estimate for NAVI’s quarterly earnings has remained unchanged at 29 cents. This implies a 39.6% decrease from the prior-year quarter.

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

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