What Was Behind Capital One's Credit Quality Improvement in 2025?

In 2025, Capital One Financial Corporation’s COF credit quality reflected both ongoing stress and some stabilization across its major lending portfolios. Early in the year, the company experienced elevated net charge-off (NCO) and delinquency rates in its credit card segment, highlighting continued pressure on consumer credit performance.

However, by late 2025, some credit quality indicators showed signs of moderation. Overall, in 2025, the credit card NCO rate declined to 5.09% from 5.88% in 2024. Likewise, the domestic credit card NCO rate declined 79 basis points year over year to 5.12%. The 30 plus day performing delinquency rate in the Domestic Credit Card segment was 3.99% in 2025, down from 4.53% in 2024.

The improvement in COF’s credit quality was driven primarily by better performance in key loan portfolios and strategic shifts in risk management. Across several quarters, the company reported declining NCO rates and lower delinquency rates, signaling that fewer borrowers were ultimately defaulting on loans. This easing in losses allowed Capital One to release some loan-loss reserve allowances, reflecting growing confidence in credit conditions and helping to stabilize overall credit metrics.

Another key factor was the impact of its acquisition of Discover Financial, which brought in a large portfolio with historically lower loss and delinquency trends and diversified Capital One’s loan mix. The integration of Discover Financial’s assets helped smooth out credit performance by blending in relatively stronger credit quality results, particularly in the credit card business, where Capital One already had scale.

Thus, while elevated loss provisions and earlier charge-off rates indicate that credit quality pressures did not disappear entirely, there definitely were clear signs of improvement in Capital One’s credit quality metrics later in 2025.

How Have COF’s Peers Been Performing?

Let us see how Capital One’s peers, Ally Financial ALLY and OneMain Holdings, Inc. OMF, performed in terms of credit quality in 2025.

At the end of 2025, Ally Financial’s non-performing loans were $1.37 billion, down 8.1% from the end of 2024. In 2025, the NCO rate declined to 1.28% from 1.48% in 2024. Also, provision for loan losses declined 32% year over year to $1.48 billion.

While provisions and NCOs declined in 2025, weak asset quality has been concerning for Ally Financial for the past several years. Relatively high interest rates, volatility and cumulative inflationary pressure are leading to the deteriorating credit profile of the company’s borrowers.

For OneMain, while its provision for finance receivable losses witnessed a CAGR of 9.1% over the five years ended 2024, the metric declined 2.1% year over year in 2025. The company’s allowance ratio has consistently increased over the past few years. In 2025, OneMain’s allowance ratio increased to 11.54% from 11.48% in 2024.

Capital One’s Price Performance, Valuation & Estimates

COF shares have lost 1.2% in the past six months against the industry’s growth of 1.9%.

From a valuation standpoint, Capital One currently trades at a 12-month forward price-to-earnings (P/E) of 10.33X, above the industry average of 9.27X.

The Zacks Consensus Estimate for Capital One’s 2026 and 2027 earnings indicates year-over-year growth of 3.1% and 22.8%, respectively. In the past 30 days, earnings estimates for 2026 have been revised marginally higher to $20.21, while estimates for 2027 have been revised 3.4% higher to $24.81.

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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