COF Up on Q3 Earnings Beat as Discover Deal Drives NII and Fee Income

Core Insights - Capital One's shares increased by 4.6% in after-hours trading following the announcement of better-than-expected third-quarter 2025 results and new capital distribution plans [1] - Adjusted earnings per share (EPS) reached $5.95, significantly exceeding the Zacks Consensus Estimate of $4.20 and improving from $5.48 in the previous quarter [1][3] Financial Performance - The results were driven by an increase in net interest income (NII) and non-interest income, alongside lower provisions for credit losses [2] - Total net revenues rose to $15.36 billion, a 23% sequential increase, surpassing the Zacks Consensus Estimate of $14.9 billion [4] - NII surged 24% from the prior quarter to $12.4 billion, with net interest margin (NIM) expanding by 74 basis points to 8.36% [4] - Non-interest income increased by 18% to $2.96 billion, supported by higher service charges and fees [4] Expense and Efficiency Metrics - Non-interest expenses rose to $8.26 billion, an 18% increase, primarily due to higher costs across most categories [5] - Adjusted expenses were $7.42 billion, reflecting a 16% increase [5] - The efficiency ratio deteriorated to 53.8%, up from 53.07% in the last quarter, indicating reduced profitability [5] Credit Quality - Provision for credit losses fell to $2.71 billion, a 76% decrease from the prior quarter [6] - The allowance for credit losses as a percentage of reported loans was 5.21%, down 22 basis points [6] - The net charge-off rate declined to 3.16%, while the 30-plus-day delinquency rate increased to 3.29% [6] Capital Ratios and Distribution Plans - As of September 30, 2025, the Tier 1 risk-based capital ratio improved to 15.5%, up from 15.1% [7] - The common equity Tier 1 capital ratio increased to 14.4% from 14% [7] - The company repurchased 4.6 million shares for $1 billion during the quarter [8] - A new $16 billion share buyback plan was approved, with a proposed 33.3% increase in the quarterly dividend to 80 cents per share, pending board approval [9][10] Strategic Outlook - Capital One's strategic expansion, strong consumer loan demand, favorable interest rate changes, and improvements in the card business position it well for long-term growth [11] - The acquisition of Discover Financial has significantly impacted the credit card industry landscape [11]