Can Capital One Continue to Ride on NII Despite Recent Rate Cuts?

As the Federal Reserve has lowered interest rates by 50 basis points (bps) this year to counter a weakening labour market and support economic growth, with expectations of additional cuts ahead, Capital One COF remains in focus due to its asset-sensitive balance sheet. Amid an evolving rate environment, the company’s net interest income (NII) remains the biggest revenue source.

Capital One’s NII recorded at a 6% CAGR over the five-year period through 2024 on the back of higher interest rates in 2022 and 2023. This momentum persisted through the first nine months of 2025, even as the Fed lowered rates by a cumulative 100 bps in 2024. The upside was driven by robust demand for credit card loans, improving funding mix and lower funding costs, which offset the lower yields. Also, the Discover Financial acquisition in May 2025 offered support.

During the third quarter of 2025, U.S. credit card balances rose by $24 billion sequentially and 5.75% from the prior-year quarter to $1.23 trillion, per Federal Reserve Bank of New York data. The trend is likely to continue given the rising credit card demand among retailers.  Capital One has been expanding its credit card loan portfolio to boost NII. The company’s credit card loans and net loans held for investments (LHI) witnessed a five-year CAGR of 4.9% and 4.3%, respectively, for the year ended 2024. The momentum continued in the first nine months of 2025.

Thus, demand for credit card loans, improving funding mix, stabilising funding costs and Capital One’s efforts to scale its business are expected to drive NII higher despite lower yields due to interest rate cuts.

How Capital One’s Peers Are Performing

Capital One’s peers like Ally Financial ALLY and OneMain Holdings, Inc. OMF have been trying to deal with the evolving interest rate landscape as well.

Ally Financial’s net financing revenues witnessed a CAGR of 5.4% over the last five years on the back of strong origination volumes and retail loan growth. The momentum continued during the first nine months of 2025. Further, Ally Financial has been restructuring its operations to create a simplified and streamlined organizational structure to achieve higher efficiency.

Similarly, OneMain’s NII has witnessed a CAGR of 3.8% over the last five years, with the uptrend continuing in the first nine months of 2025. Moreover, the company’s loan mix of Front Book and Back Book aims for revenue sustainability while maintaining upside potential in a rapidly changing macroeconomic environment. Management aims to reduce Back Book over time for higher margins. Also, the acquisition of Foursight in 2024 strengthened OneMain’s auto finance capabilities.

Capital One’s Price Performance, Valuation and Estimates

Capital One shares have risen 12.7% this year, massively underperforming the industry’s growth of 40.4%. 

From a valuation standpoint, COF trades at a 12-month forward price-to-earnings (P/E) of 10.19X, above the industry average. 

The Zacks Consensus Estimate for Capital One’s 2025 and 2026 earnings indicates growth of 35.8% and 4.6%, respectively, on a year-over-year basis. In the past week, earnings estimates for 2025 and 2026 have been revised upward to $18.96 and $19.83, respectively.

COF currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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