What happened

Capital One Financial (NYSE:COF) released its first-quarter earnings on Thursday after the market closed, and it appears that investors are pleased with the results. Not only did shares pop Friday morning, but the stock has been steadily moving higher all day. As of 3:15 p.m. EDT, Capital One was up by about 7% on the day.

So what

For starters, Capital One beat expectations on both the top and bottom lines. Revenue of $7.08 billion was 3% higher than it was a year ago, and came in about $70 million ahead of estimates. Earnings of $2.90 per share handily surpassed the $2.68 that analysts had been looking for.

Two young women paying for a purchase with a credit card

Image source: Getty Images.

The bank's return on assets (ROA) improved by 4 basis points year over year to 1.52%, well above the 1% industry benchmark.

To be sure, Capital One's first quarter wasn't great in all respects. The bank's efficiency ratio increased slightly; the 25% surge in marketing costs was a likely contributor. And return on equity (ROE) declined from 11.47% a year ago to 11.13%.

However, it seems that strength in the company's massive credit card business shows the increased spending is paying off. Average credit card loans increased $2 billion from a year ago, and purchase volume rose 8%. And despite the rapid growth, margins improved and the net charge-off rate declined.

Now what

In some ways, Capital One's first quarter was a mixed bag. Even so, the company seems to be showing enough strength in the most important area of its business, and this seems to be keeping investors happy.

Investors should keep an eye on whether the rapidly increasing portfolio of credit card loans is translating into higher delinquencies, or the company is truly able to grow without sacrificing asset quality.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.