COF Up on Q2 Earnings Beat, Discover Deal Boosts NII and Fee Income

Core Insights - Capital One's shares increased by 4% in after-hours trading following the announcement of better-than-expected Q2 2025 results, with adjusted earnings of $5.48 per share surpassing the Zacks Consensus Estimate of $3.83 and up from $4.06 in the prior quarter [1][8] - The acquisition of Discover Financial Services, completed on May 18, has been progressing well, contributing positively to the company's performance [1] Financial Performance - Total net revenues for Q2 2025 reached $12.49 billion, a 25% sequential increase, exceeding the Zacks Consensus Estimate of $12.22 billion [3] - Net interest income (NII) surged 25% year over year to $10 billion, with net interest margin (NIM) expanding by 69 basis points to 7.62% [3] - Non-interest income grew 26% to $2.5 billion, driven by higher service charges, customer-related fees, and interchange fees [3] - Non-interest expenses rose 18% to $6.99 billion, with adjusted expenses increasing 14% to $6.4 billion [4] - The efficiency ratio improved to 55.96%, down from 59.02% in the last quarter, indicating a slight improvement in profitability [4] Loan and Deposit Growth - Loans held for investment increased by 36% to $439.3 billion, while total deposits rose by 27% to $468.1 billion [4][8] Credit Quality - Provision for credit losses significantly increased to $11.43 billion from $2.37 billion in the prior quarter, with the allowance as a percentage of reported loans held for investment at 5.43%, up 20 basis points [5] - The 30-plus-day-performing delinquency rate decreased by 16 basis points to 3.13%, and the net charge-off rate declined by 16 basis points to 3.24% [5] Capital Ratios - As of June 30, 2025, the Tier 1 risk-based capital ratio improved to 15.1% from 14.9%, and the common equity Tier 1 capital ratio increased to 14% from 13.6% [6] Share Repurchase - During the reported quarter, Capital One repurchased 0.76 million shares for $150 million [7] Strategic Outlook - Capital One's strategic expansion, strong demand for consumer loans, and improvements in the card business position it well for long-term growth, particularly following the acquisition of Discover Financial [9]