Capital One's NCO Rates Rise: How Will This Impact its Asset Quality?

Capital One COF is entering a more challenging credit environment as rising net charge-offs (NCOs) and delinquencies signal mounting pressure on its consumer portfolios. Per the latest SEC filing, October 2025 brought a clear uptick in asset-quality strain. Domestic credit card NCOs climbed to 4.77%, an increase of 42 basis points (bps) from September, while delinquencies rose 10 bps to 4.99%. Both figures are above pre-pandemic norms. In February 2020, NCOs were 4.68% and delinquencies 3.88%. Auto credit trends were somewhat balanced, with NCOs rising 21 bps to 1.67% but delinquencies edging 2 bps lower to 4.97%.Loan growth offered a slight offset, as lending activity improved modestly in October. Capital One’s loans held for investment in domestic credit cards reached $254.2 billion, while its auto book increased to $82.5 billion. Yet the firm’s increasing exposure to consumer stress is reflected in its rising provisions. For the nine months ended Sept. 30, 2025, provisions for credit losses surged 82% year over year to $16.5 billion, partly influenced by the recently closed Discover Financial acquisition.The broader K-shaped economic recovery is amplifying this divergence in credit performance. Affluent borrowers remain resilient, but lower-income and subprime segments, where Capital One has significant exposure, are feeling greater financial strain. This is leading to higher delinquencies, elevated defaults and continued pressure on NCOs. The trends are likely to persist in the near term, given inflationary headwinds and uneven macroeconomic improvement.Nonetheless, Capital One retains meaningful strengths, including strategic scale from its acquisitions, robust credit card operations and the tailwind of relatively high interest rates supporting revenue momentum. Its strong balance sheet and targeted growth initiatives help buffer the impact of deteriorating credit metrics.How COF Stacks Up Against Peers in Card NCOCapital One’s two peers – American Express AXP and Synchrony Financial SYF – also reported a rise in NCO rates in October.American Express’s NCO rate for the U.S. consumer card loans rose to 2.2% in October 2025 from 1.9% in September. Further, American Express witnessed a 1.2% increase in U.S. consumer card LHI to $95.2 billion.Similarly, Synchrony Financial recorded an adjusted NCO rate of 5.3%, up 20 bps from September. Synchrony Financial’s loan receivables at the end of October were $100.4 billion, up marginally.Capital One’s Price Performance, Valuation and EstimatesCapital One shares have risen 12.1% this year, massively underperforming the industry’s growth of 33.6%.  Image Source: Zacks Investment ResearchFrom a valuation standpoint, COF trades at a 12-month forward price-to-earnings (P/E) of 10.15X, above the industry average.  Image Source: Zacks Investment ResearchThe Zacks Consensus Estimate for Capital One’s 2025 and 2026 earnings indicates growth of 38% and 2.7%, respectively, on a year-over-year basis. In the past week, earnings estimates for 2025 have been revised upward to $19.26, while for 2026, it has moved slightly down to $19.78. Image Source: Zacks Investment ResearchCOF currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.#1 Semiconductor Stock to Buy (Not NVDA)The incredible demand for data is fueling the market's next digital gold rush. As data centers continue to be built and constantly upgraded, the companies that provide the hardware for these behemoths will become the NVIDIAs of tomorrow.One under-the-radar chipmaker is uniquely positioned to take advantage of the next growth stage of this market. It specializes in semiconductor products that titans like NVIDIA don't build. It's just beginning to enter the spotlight, which is exactly where you want to be.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Capital One Financial Corporation (COF): Free Stock Analysis Report American Express Company (AXP): Free Stock Analysis Report Synchrony Financial (SYF): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks