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Shares of Capital One COF jumped 2.8% in after-hours trading following the announcement of better-than-expected first-quarter 2025 results. Adjusted earnings of $4.06 per share handily surpassed the Zacks Consensus Estimate of $3.66. The bottom line also compared favorably with $3.21 in the prior-year quarter.
Results benefited from higher net interest income (NII) and non-interest income. Also, provisions declined during the quarter. However, the increase in expenses and lower loan balance were undermining factors.
Results excluded certain non-recurring items, including charges related to Discover Financial DFS integration. After considering these, 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. Our estimate for the metric was $1.34 billion.
Update on Capital One-Discover Merger Deal
On April 18, the Federal Reserve and the Office of the Comptroller of the Currency approved Capital One’s proposed acquisition of Discover. The transaction, announced in February 2024, is expected to close on May 18, subject to the satisfaction of customary closing conditions.
Richard D. Fairbank, Founder, Chairman, and CEO of Capital One, said, “The combination of Capital One and Discover will create a leading consumer banking and payments platform with unique capabilities, modern technology, and powerful brands. It leverages Capital One’s technology transformation and digital capabilities across a significantly larger customer franchise. And it offers the potential to enhance competition and create significant value for merchants and customers.”
Capital One’s Revenues Improve, Expenses Rise
Total net revenues for the quarter were $10 billion, up 6% from the prior-year quarter. However, the top line lagged the Zacks Consensus Estimate of $10.03 billion.
NII increased 7% year over year to $8.01 billion. NIM expanded 24 basis points (bps) to 6.93%. Our estimates for NII and NIM were $7.88 billion and 6.99%, respectively.
Non-interest income of $2 billion grew 4%. The rise was driven by higher service charges and other customer-related fees, and net interchange fees. Our estimate for non-interest income was $2.02 billion.
Non-interest expenses were $5.9 billion, up 15% year over year. The rise was due to an increase in almost all cost components except the amortization of intangibles costs. We expected the metric to be $5.4 billion. Adjusted expenses were $5.59 billion, up 10%.
The efficiency ratio was 59.02%, up from 54.64% in the year-ago quarter. A rise in the efficiency ratio indicates a deterioration in profitability.
As of March 31, 2025, loans held for investment were $323.6 billion, down 1% from the prior-quarter end. Total deposits were $367.5 billion, rising 1%. Our estimates for loans held for investment and total deposits were $313.7 billion and $360.2 billion, respectively.