Capital One Financial reported higher adjusted earnings for the second quarter on Tuesday, driven by a sharp increase in interest income from credit card balances and a rise in fee-related revenues.
Shares of the McLean, Virginia-based lender climbed 2.5% in after-hours trading. The stock is up nearly 22% so far in 2025.
Consumer spending remained resilient between April and June, with many Americans cutting back on discretionary purchases amid inflationary pressures and trade uncertainty under President Trump, while still maintaining essential household spending.
Despite broader economic uncertainty, Capital One continues to benefit from the robust margins of its credit card business. Credit card interest rates remain substantially higher than those tied to mortgages and other loans, helping insulate the company from broader market weakness.
Capital One became the largest U.S. credit card issuer by balances in Q2 after completing its acquisition of Discover Financial, following over a year of regulatory negotiations.
The company’s net interest income — the spread between earnings on loans and payouts on deposits — jumped 32.5% year-over-year to $10 billion. Non-interest income, primarily composed of interchange fees (net of rewards), service charges, and other customer-related fees, also climbed nearly 27% to $2.50 billion.
However, with consumers feeling the pinch from elevated borrowing costs, Capital One and peers are bracing for higher default risks. The firm set aside $11.43 billion in loan loss provisions in the second quarter, up from $3.91 billion a year ago. Net charge-offs — loans unlikely to be repaid — increased 16% to $3.06 billion.
Capital One’s adjusted net income available to common stockholders reached $2.77 billion, or $5.48 per share, for the quarter ended June 30, compared to $1.21 billion, or $3.14 per share, in the same period last year.
Capital One revealed Tuesday that the final cost of acquiring Discover Financial was significantly higher than originally estimated. While the deal was initially valued at $35.3 billion when announced in February 2024, the fair value purchase consideration came in at $51.8 billion upon closing on May 18, according to new disclosures from the bank.
CEO Richard Fairbank told analysts during Tuesday’s earnings call that the integration budget encompasses a range of expenses — including transaction costs, migrating Discover to Capital One’s technology platform, aligning the Illinois-based company’s products and customer experiences, bolstering risk and compliance infrastructure, and uniting the combined workforce.
“As we have gotten more granularity on each of these efforts, we expect our integration costs will be somewhat higher than our previously announced $2.8 billion,” Fairbank said.
In the first half of 2025, Capital One spent about $409 million on Discover-related integration. The bank reported $9.4 billion in second-quarter expenses tied to the acquisition, including reserves for Discover-originated loans.
“As we get deeper into it, it is … coming in somewhat higher,” Fairbank noted. “But it’s not in any one thing. It’s really just across a variety of the many elements of this deal.”
Beyond integration, Capital One CFO Andrew Young said the company plans further investment, such as expanding debit capabilities through the Discover network to deepen customer engagement.
Fairbank reiterated the bank’s focus on technology, calling it essential to Capital One’s long-term strategy. “We aim to be a technology company that does banking,” he said.
Jefferies analyst John Hecht echoed that sentiment in a note Tuesday, writing, “Management noted ongoing investment in tech stack for operational efficiency and marketing / customer experience to remain competitive. It is clear that [Capital One] is planning on a several-year-journey in investing in the network from several perspectives (brand, technology, etc.).”
The company also reaffirmed its expectation of generating $2.5 billion in synergies from the Discover deal.
Still, not all analysts walked away with clarity. “This quarter reminded me of college physics class — I see the numbers and hear the words but only have a vague grasp of what is actually happening,” wrote Brian Foran of Truist Securities in a note.
Separately on Tuesday, Capital One won a legal reprieve in a lawsuit filed by the Trump Organization. A judge granted the bank’s request to pause discovery, or evidence-sharing, while considering Capital One’s motion to dismiss the case.
Filed in March, the Trump Organization’s lawsuit accuses the bank of politically motivated “de-banking,” claiming it closed hundreds of accounts in 2021 to align with prevailing political sentiment.
Capital One responded in May by asking the court to throw out the case, arguing that the Trump Organization’s allegations are vague and unsupported by facts or legal grounds. Tuesday’s ruling freezes the discovery process until the judge rules on the motion to dismiss.
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