Rise in NII & Fee Income to Aid COF's Q3 Earnings, Provisions to Hurt

Capital One COF is slated to announce third-quarter 2025 results on Oct. 21, after market close. Its quarterly revenues are expected to have recorded a rise on a year-over-year basis, while earnings are likely to have declined. 

In the second quarter, COF’s earnings beat the Zacks Consensus Estimate as the closure of the Discover Financial buyout offered support. Higher net interest income (NII) and non-interest income, as well as a solid improvement in loan balance, drove the results. On the other hand, an increase in expenses and a jump in provisions were the undermining factors.

Capital One has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, delivering a surprise of 23.02%, on average.
 

Capital One Financial Corporation Price and EPS Surprise

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

Key Factors & Estimates to Note for Capital One’s Q3 Earnings

NII: As the third quarter witnessed clarity on many macro issues, including the tariff plan and the Federal Reserve’s monetary policy, the lending scenario was good. Per the Fed’s latest data, the demand for consumer loans was decent. The Zacks Consensus Estimate for COF’s total average earning assets is pegged at $577.1 billion, implying a 9.9% rise from the prior quarter. Our estimate for the metric is $528.7 billion.

Further, the Fed lowered interest rates by 25 basis points to 4.00-4.25% in mid-September amid a softening labor market. This is less likely to have affected Capital One’s NII, as rates remained stable for most of the quarter. Thus, amid gradually stabilizing funding/deposit costs, the company’s NII is expected to have been positively impacted by loan growth and relatively higher rates.

Also, Capital One’s continued efforts to strengthen its card operations are expected to have provided support. The consensus estimate for NII of $11.96 billion indicates 19.7% sequential growth. Our estimate for NII is pegged at $11.3 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 and the Discover Financial buyout. The Zacks Consensus Estimate for interchange fees is $1.82 billion, suggesting a 23.5% sequential jump. Our estimate for the metric is $2 billion.

The consensus estimate for service charges and other customer-related fees of $792.4 million implies 20.5% growth from the last quarter. The Zacks Consensus Estimate for other non-interest income is pegged at $382.4 million, indicating a 5.9% rise. Our estimates for service charges and other customer-related fees, and other non-interest income are $815.4 million and $403.9 million, respectively.

The consensus estimate for total non-interest income of $2.98 billion suggests a surge of 19.2% from the prior quarter. We expect the metric to be $3.22 billion.

Expenses: Capital One has been witnessing a persistent rise in expenses over the past several quarters due to higher marketing costs and investment in technology upgrades. Further, the Discover Financial acquisition, along with inflation pressure, is expected to have resulted in an increase in operating expenses in the third quarter.

Our estimate for total non-interest expenses is $8.26 billion, implying a sequential rise of 32.5%.

Asset Quality: Capital One is likely to have set aside a huge amount of money for potential delinquent loans, given the impact of Trump’s tariffs on inflation and rising loan balances. Our estimate for provision for credit losses is pegged at $3.51 billion.

The Zacks Consensus Estimate for total non-performing assets is $1.47 billion, indicating a 20% decline from the prior quarter.

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 high. This is because it has 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 +1.62%.

Zacks Rank: The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for COF’s third-quarter earnings of $4.23 has been revised 1.4% upward over the past seven days. The estimate indicates a fall of 6.2% from the prior-year quarter.

The consensus estimate for sales is pegged at $14.9 billion, implying a jump of 48.8%.

Other Finance Stocks That Warrant a Look

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

The Earnings ESP for U.S. Bancorp USB is +0.67% and it carries a Zacks Rank #3 at present. The company is slated to report third-quarter 2025 results on Oct. 16. 

Over the past seven days, the Zacks Consensus Estimate for U.S. Bancorp’s quarterly earnings has been unchanged at $1.11.

Charles Schwab SCHW is also scheduled to announce third-quarter 2025 results on Oct. 16. The company has a Zacks Rank #3 and an Earnings ESP of +1.40% at present. Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

Quarterly earnings estimates for Schwab have been revised marginally upward to $1.23 over the past week.

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

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