Capital One Says Discover Deal Is Building Momentum

On Tuesday, Capital One Financial Corp. (NYSE:COF) reported second-quarter earnings that topped Wall Street expectations, supported by revenue growth and early cost synergies from its Discover acquisition.

Capital One Financial Posts Q2 Earnings Beat

Adjusted earnings came in at $5.81 per share, beating the analyst consensus estimate of $4.77. Revenue totaled $15.85 billion, ahead of the Street estimate of $15.77 billion.

Revenue increased 4% from the prior quarter, while adjusted pre-provision earnings were flat as higher operating expenses offset the revenue gain.

Management said the quarter captured about one-third of the expected quarterly operating expense synergies from the Discover integration and reaffirmed its goal of achieving $2.5 billion in annual Discover-related synergies.

Purchase Volume And Margin Improve

Purchase volume rose 26% year over year, primarily reflecting a partial quarter contribution from Discover.

Legacy Capital One purchase volume increased 14% from a year earlier, driven by accelerating organic growth ahead of the Brex acquisition and the addition of a corporate card portfolio.

Net interest margin expanded 14 basis points from the prior quarter to 8.01%. The increase was driven by lower retail deposit costs, a $5 billion reduction in average cash balances and an extra day in the quarter.

Credit Metrics Show Improvement

Provision for credit losses fell 27% sequentially, or $1.1 billion, to $3.0 billion. The decline reflected $3.7 billion in net charge-offs and a $662 million release from credit reserves.

Capital One released $662 million from its allowance for credit losses, bringing the balance to about $23 billion.

Capital One reported a domestic credit card net charge-off rate of 4.37% in June. The 30-day-plus performing delinquency rate was 3.39% at month-end.

Its auto loan portfolio posted a net charge-off rate of 1.65%, while the 30-day-plus performing delinquency rate was 4.32% at the end of June.

Capital Ratios And Business Performance

The Common Equity Tier 1 ratio declined 70 basis points from the prior quarter to 13.7%. The decrease reflected $2.7 billion in share repurchases, the Brex acquisition and higher risk-weighted assets.

Domestic card revenue increased 30% year over year, largely due to Discover. Excluding Discover, domestic card revenue rose 9.5% on stronger purchase volume and loan growth.

Revenue margin was 17.4%, while the domestic card net charge-off rate improved to 4.71%, down 39 basis points from the prior quarter and 54 basis points from a year earlier.

Domestic card purchase volume climbed 26% year over year. Consumer banking revenue increased 26%, while auto originations rose 19%.

Capital One Price Action

COF Price Action: Capital One Financial shares were up 0.55% at $207.35 during premarket trading on Wednesday, according to Benzinga Pro data.

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