Shares of Capital One Financial (COF -0.48%) are rising today, up 8.7% as of 12:04 p.m. EDT, after the company posted second-quarter earnings that beat estimates on the top and bottom lines. The bank earned $1.94 per share on $6.7 billion of revenue, exceeding estimates of $1.90 and $6.67 billion, respectively.
Capital One is not the only bank to beat earnings expectations this quarter. In fact, most big banks produced better-than-expected earnings. So why did Capital One's stock price soar while others didn't move nearly as much?
For one thing, many banks took a big hit on trading revenue, which spooked investors. Capital One doesn't have to worry about this, as it doesn't rely on trading. Last year, virtually all of the bank's revenue came from credit cards, consumer banking, and commercial banking.
In addition, investors had certain fears about Capital One's business that may have been calmed by the earnings release. Specifically, Capital One has a $582 million portfolio of taxi medallion loans, and the market feared that it could see major writedowns in this portion of the portfolio. After all, taxi medallions once sold for more than $1 million in New York City, but now sell for about one-fifth of the amount, as ride-sharing services such as Uber have shaken up the market.
For one thing, the taxi medallion loans represent just 0.24% of Capital One's total loan portfolio, which is down from 0.27% last quarter and 0.36% a year ago. Furthermore, the nonperforming taxi medallion loan rate is the lowest it's been during the past three quarters.
Finally, Capital One notably was the only bank whose capital plan was not fully approved by the Federal Reserve, but on the bank's conference call, management expressed confidence that the Fed's concerns would be fully addressed in its revised plan, due Dec. 28.
Capital One reported an excellent quarter, posted better results than investors had expected, and also calmed investors' fears. It remains to be seen whether the taxi medallion portfolio will have issues in the future, or if the bank's capital plan will ultimately receive approval, but for now, Capital One appears to be in excellent shape, and investors are cheering the second-quarter results.