COF's NII Increases in 4Q25 Despite Rate Cuts: What Drove the Rise?

Despite declining interest rates, Capital One Financial Corporation’s COF net interest income (NII) increased 54% year over year to $12.47 billion in fourth-quarter 2025. The rise was primarily driven by loan and portfolio growth, especially in higher-yield credit card loans, deposit cost control and strategic balance sheet expansion from the Discover Financial acquisition (completed in May 2025).

COF’s credit card business continues to generate the bulk of NII, which benefited from strong ongoing consumer spending and elevated interest rates on card receivables. Period-end loans held for investment in the credit card segment increased 72% year over year in the fourth quarter, lifting interest-earning assets, the primary base for NII.

The integration of Discover Financial’s loan portfolio expanded the loan base significantly, adding to the volume of interest-earning assets. Also, average deposits and total deposits grew modestly, and interest-bearing deposit costs declined, which boosted NII by reducing funding costs. 

Thus, an increase in loan balances (particularly card loans), along with overall higher interest rates on loans relative to deposit costs, sustained robust year-over-year growth in NII despite modest net interest margin (NIM) compression.

Although more rate cuts are expected during the year, Capital One’s NII growth will likely continue, given robust demand for card loans, an improving funding mix, stabilising funding costs and the company’s efforts to scale business.

How Have COF’s Peers Been Performing in Terms of NII

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.

In fourth-quarter 2025, Ally Financial’s net financing revenues increased 5.9% year over year to $1.60 billion. This reflected momentum in the company’s core franchises, disciplined deposit pricing and ongoing balance sheet optimization.

Notably, Ally Financial has been restructuring its operations to create a simplified and streamlined organizational structure to achieve higher efficiency.

OneMain is scheduled to report fourth-quarter results on Feb. 5. Over the last five years (ended 2024), the company’s NII witnessed a compound annual growth rate (CAGR) of 3.8%, with the uptrend continuing in the first nine months of 2025. OneMain’s loan mix of Front Book and Back Book aims for revenue sustainability while maintaining upside potential in a rapidly changing macroeconomic environment.

Capital One’s Price Performance, Valuation and Estimates

COF shares have risen 1.5% in the past six months, underperforming the industry’s growth of 3.5%.

From a valuation standpoint, Capital One currently trades at a 12-month forward price-to-earnings (P/E) of 10.62X, above the industry average of 9.51X.

The Zacks Consensus Estimate for Capital One’s 2026 and 2027 earnings indicates year-over-year growth of 1.3% and 21.6%, respectively. In the past 30 days, earnings estimates for 2026 have been revised lower to $19.86, while estimates for 2027 have been revised higher to $24.16.

Currently, COF 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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