Shares of Capital One Financial (NYSE:COF) rose as much as 9.5% on Friday before falling back to a 5.6% gain as of 2:25 p.m. ET.

The tech-savvy credit card and auto lender reported earnings last night that were well above analysts’ expectations and saw a significant increase in net interest income. Investors cheered the results.

Capital One had revenue of $10 billion in the quarter, up 7% year over year, and adjusted (non-GAAP) earnings per share of $4.51 per share, up just $1 .3% corresponds. Nevertheless, both figures were above expectations.

Investors were likely encouraged by a sharp increase in the company’s net interest margins, which rose to 7.11% from 6.70% in the previous quarter. That’s a big jump for just one quarter and a good sign that the company can continue to generate healthy margins.

Credit card and personal loan providers saw their net interest margins decline during the Federal Reserve’s rate hike cycle. This is because card companies usually increase their interest rates with a delay, while the cost of short-term deposits increases immediately. However, with the Fed just beginning to reverse course and cutting interest rates in September, this trend is likely to reverse.

Capital One saw the first signs of the benefits in the third quarter. The company increased the return on its loan portfolio to 13.24% from 12.66% in the second quarter, but deposit interest paid to customers rose only slightly from 3.56% to 3.63%. Meanwhile, the company’s allowance for loan losses and write-offs increased compared to the same quarter last year, but also decreased slightly compared to the second quarter.

Rising margins and lower credit risk provisions are a perfect combination and fit the “soft landing” scenario that many expect for the economy. This occurs when inflation and interest rates fall, but without the significant job losses that accompany recessions.

That’s all well and good for Capital One. The next big issue for investors is the status of the attempted takeover Discover financial services (NYSE:DFS)which is currently subject to intensive review by the regulatory authorities and is expected to be decided next year.

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