COF Stock Up 2.8% on Q1 Earnings Beat, NII Rises on Upbeat Card Spend

Capital One’s COF first-quarter 2025 adjusted earnings of $4.06 per share outpaced the Zacks Consensus Estimate of $3.66. Also, the figure reflected a jump of 26% from the prior-year quarter.

Further, COF’s total net revenues grew 6% year over year to $10 billion. The top line, however, marginally missed the Zacks Consensus Estimate of $10.03 billion.

The primary drivers for COF’s solid performance were an improvement in net interest income (NII) and robust card spend during the latter part of the quarter. The decline in provisions was also a major tailwind.
 

Capital One Financial Corporation Price, Consensus and EPS Surprise

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

As such, Capital One shares gained 2.8% in after-hours trading yesterday.

Higher NII, Robust Credit Card Spending Drive COF’s Revenues

Quarterly NII was $8.01 billion, improving 7% year over year. This was attributable to growth in the credit card loan portfolio (up 4% to $157.2 billion) and a fall in funding costs. 

Consumer spending in the United States, which drives the bulk of Capital One’s credit card loan portfolio, surged late in the first quarter, fueled by a rush to buy cars, electronics and appliances. The spending spree was prompted by consumers trying to beat the clock on potential tariffs threatened by President Donald Trump. As such, purchase volume on the company’s credit cards rose 5% from the prior-year quarter to $157.9 billion.

On a conference call following the earnings release, Capital One CEO Richard Fairbank said, “There appears to be a bit of a pull-forward in auto purchases, likely as consumers are trying to get ahead of tariff impacts.” The company’s auto loan originations surged 22% year over year to $9.21 billion in the first quarter. Similarly, Capital One’s peer, Ally Financial ALLY, witnessed a 4% increase in total auto loan originations to $10.2 billion in the first quarter.

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, rose 4% to $2 billion.

Other Factors That Influenced Capital One’s Q1 Earnings

Capital One’s provision for credit losses declined 12% from the prior-year quarter to $2.37 billion in the reported quarter. Likewise, Ally Financial recorded a provision for loan losses of $191 million, which plunged 62.3%. The fall was attributable to the reserve release associated with the sale of Ally Credit Card and lower retail auto net charge-offs. 

Further, COF’s non-interest expenses jumped 15% to $5.9 billion. This included Discover Financial DFS related integration charges and legal reserve. Excluding these, this Zacks Rank #3 (Hold) company reported adjusted expenses of $5.59 billion, up 10%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

On April 18, the Federal Reserve and the Office of the Comptroller of the Currency approved Capital One’s proposed acquisition of Discover Financial. The transaction, announced in February 2024, is expected to close on May 18. The acquisition of Discover Financial will reshape the landscape of the credit card industry, leading to the formation of a behemoth.

Given the robust top-line growth and lower provisions, Capital One’s net income improved in the quarter. After considering the DFS-related integration costs and legal reserve, net income available to common shareholders was $1.33 billion or $3.46 per share, up from $1.2 billion or $3.14 per share in the prior-year quarter. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

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

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