Capital One Financial on Tuesday evening delivered better-than-expected third-quarter results, driven by stronger net interest income and credit performance. Revenue in the third quarter ended Sept. 30 increased 6.4% year over year to $16.34 billion, beating the $16.27 billion consensus estimate of analysts surveyed by LSEG. Adjusted earnings per share (EPS) increased 12% year over year to $6.69, beating the $5.50 estimate, LSEG data showed. COF YTD mountain Capital One YTD Capital One shares jumped about 4% in after-hours trading to $210 each. As of the close of Tuesday’s regular trading session, the stock was down nearly 17% year to date. Bottom line The top-line beat was driven by better-than-expected net interest income (NII), which was up about 4% quarter over quarter and exceeded the consensus estimate by $134 million, according to FactSet. Non-interest income dipped 1% quarter over quarter and missed analysts’ estimates by $30 million. However, net discount and interchange fees revenue increased 3.5% sequentially to $2.34 billion. This is a worthy callout because Capital One owns the Discover payment network, which allows it to capture more of the economics from card transactions rather than relying solely on third-party networks. The network’s continued growth is a positive indicator for the Discover integration story. Partially offsetting some of the top-line growth was a year-over-year increase in non-interest expense, which was our principal worry heading into the quarter. Higher expenses weighing on profits were part of the reason we sold a small amount of shares this afternoon, a trade that looks ill-timed given Capital One’s positive after-hours reaction. Expenses were a little high at $8.86 billion compared to the consensus estimate of $8.75 billion, according to FactSet. While expenses as a total were larger than expected, operating expenses would look a lot better if you back out $385 million worth of Discover and Brex integration spending as well as another $519 million of acquisition amortization expenses. A bright spot was marketing expense, which at $1.59 billion came in below analyst forecasts of around $1.71 billion, according to FactSet. This is a volatile figure quarter to quarter, and Capital One can always pull back marketing in times when the economic picture looks murky. But the bank likes to lean into marketing and media to drive new accounts in its domestic credit card and checking account business, meaning this figure will bounce around. Looking ahead to 2027, the company plans to “lean harder” into marketing, including ramping up spending on Discover and pursuing growth opportunities across its businesses. This is something to watch in the quarters ahead because, as we’ve pointed out, elevated expenses have limited the size of near-term earnings beats. “Our biggest competitors continue to invest heavily in marketing, and we need to be at the top of our game,” CEO Richard Fairbank said on the earnings call….
Read More: Capital One’s strong quarter and progressing Discover integration are