Capital One Financial (NYSE: COF), the US card lender that owns Discover, beat third-quarter profit forecasts yesterday after the US close. Adjusted earnings per share were $6.69 against $5.95 a year earlier and a $5.45 consensus compiled by Zacks. CNBC reported the shares jumped about 5% after hours.
The shares closed yesterday at $201.56, up 0.87% on the session and before the results, so the after-hours move is the first reaction. That close is about 21% below the 52-week high of $256.64. The stock was down about 17.6% year to date before the print. US trading opens at 2.30pm UK time.
The net interest margin, the profit spread between lending income and funding costs, was 8.41%, up 40 basis points on the previous quarter. Revenue rose 3% on the quarter while noninterest expense fell 2%, lifting pre-provision earnings, profit before setting aside money for bad loans, by 10%. The provision fell 2% to $2.9bn.
Adjusted revenue was $16.34bn, against the Zacks consensus of $16.11bn and $15.36bn a year earlier. Net income was $3.5bn, or $5.61 a share, up from $3.2bn, or $4.83, a year ago.
Management credits the Discover integration, the card issuer and payments network Capital One bought last year. Richard Fairbank, Founder, Chairman and CEO of Capital One, told the earnings call:
On a combined basis, we’re achieving the expected synergies ahead of schedule,
Richard Fairbank, Capital One
He said year-to-date results reflect about $1.8bn of annualised combined synergies, the cost and revenue gains from merging. At the end of September, all Discover card originations were on Capital One’s technology platform.
The catch is 2027. Legacy Discover card loans shrank about 3% year on year, and Fairbank said management expects continued contraction over the next several quarters before growth turns positive. Capital One also plans to lean harder into marketing next year.
Fairbank said the remaining synergies and the Visa and Mastercard interchange settlement, a card-fee deal with merchants that cuts income, are roughly offsetting in magnitude. Asked about earnings power by Ryan Nash of Goldman Sachs, he said Capital One does not generally guide on it, and it gave no efficiency ratio guidance either.
The conversion of the older Discover card accounts is due to complete in the first quarter of 2027.