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Capital One (COF) Stock Declines as Q4 Earnings Disappoint
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Capital One Financial Corporation’s (COF - Free Report) fourth-quarter 2016 earnings of $1.45 per share lagged the Zacks Consensus Estimate of $1.60. Also, it compared unfavorably with the year-ago quarter’s earnings of $1.58.
Shares of Capital One fell nearly 1% in after-market trading. Earnings lag and concerns related to continued deterioration in the company’s asset quality were perhaps the primary reasons for the share price decline.
Lower-than-expected results were due to a fall in non-interest income, an increase in provisions and rising expenses. Capital and profitability ratios continued to weaken, while credit quality deteriorated further. However, higher net interest income and easing margin pressure supported the results to some extent.
Net income for the quarter came in at $791 million, down 14% from the prior-year quarter.
For 2016, earnings of $6.89 per share significantly lagged the Zacks Consensus Estimate of $7.30 and were below the 2015 figure of $7.07. Net income amounted to $3.75 billion, down 7% year over year.
Rise in Net Interest Income Supported Results
Net revenues totaled $6.57 billion, up 6% year over year. However, the figure was below the Zacks Consensus Estimate of $6.61 billion.
For 2016, net revenues grew 9% from the prior year to $25.50 billion. Nonetheless, it marginally missed the Zacks Consensus Estimate of $25.55 billion.
Net interest income rose 10% from the prior-year quarter to $5.45 billion. Also, net interest margin increased 6 basis points (bps) year over year to 6.85%.
However, non-interest income declined 9% year over year to $1.11 billion. The decrease was mainly due to fall in service charges and other customer-related fees, and other income.
Non-interest expenses of $3.68 billion were up 6% from the year-ago quarter. All cost components, except amortization of intangibles, rose year over year.
Further, efficiency ratio improved to 56.03% from 56.18% recorded in the year-ago quarter. A decrease in efficiency ratio indicates enhanced profitability.
Worsening Credit Quality
Net charge-off rate rose 52 bps year over year to 2.48%. Further, provision for credit losses surged 27% from the year-ago quarter to $1.75 billion.
Also, the 30-plus day performing delinquency rate increased 24 bps year over year to 2.93%. Likewise, allowance, as a percentage of reported loans held for investment was 2.65%, up 42 bps year over year.
Profitability & Capital Ratios Weaken
Return on average assets of 0.91% as of Dec 31, 2016 was down from 1.12% as of Dec 31, 2015. Also, return on average common equity declined to 6.48% from 7.36% in the prior-year quarter.
As of Dec 31, 2016, Tier 1 risk-based capital ratio decreased to 11.6% from 12.4% as of Dec 31, 2015. Further, total risk-based capital ratio was 14.3%, down from 14.6% as of Dec 31, 2015.
Moreover, common equity Tier 1 capital ratio under Basel III Standardized Approach was 10.1% as of Dec 31, 2016, down from 11.1% as of Dec 31, 2015.
Our Viewpoint
Capital One continues to benefit from geographic diversification and inorganic growth strategy. The company’s strategic acquisitions – General Electric Company’s (GE - Free Report) healthcare-related loans as well as its Healthcare Financial Services business, HSBC Holdings plc’s (HSBC - Free Report) credit card business and ING Direct USA, the online banking unit of ING Groep NV (ING - Free Report) – over the years have supported the financials.
However, elevated expense base along with the impact of new regulations will likely continue to hurt the company’s financials in the near term. Also, concerns related to continued deterioration of its asset quality makes us apprehensive.
Capital One Financial Corporation Price, Consensus and EPS Surprise
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Capital One (COF) Stock Declines as Q4 Earnings Disappoint
Capital One Financial Corporation’s (COF - Free Report) fourth-quarter 2016 earnings of $1.45 per share lagged the Zacks Consensus Estimate of $1.60. Also, it compared unfavorably with the year-ago quarter’s earnings of $1.58.
Shares of Capital One fell nearly 1% in after-market trading. Earnings lag and concerns related to continued deterioration in the company’s asset quality were perhaps the primary reasons for the share price decline.
Lower-than-expected results were due to a fall in non-interest income, an increase in provisions and rising expenses. Capital and profitability ratios continued to weaken, while credit quality deteriorated further. However, higher net interest income and easing margin pressure supported the results to some extent.
Net income for the quarter came in at $791 million, down 14% from the prior-year quarter.
For 2016, earnings of $6.89 per share significantly lagged the Zacks Consensus Estimate of $7.30 and were below the 2015 figure of $7.07. Net income amounted to $3.75 billion, down 7% year over year.
Rise in Net Interest Income Supported Results
Net revenues totaled $6.57 billion, up 6% year over year. However, the figure was below the Zacks Consensus Estimate of $6.61 billion.
For 2016, net revenues grew 9% from the prior year to $25.50 billion. Nonetheless, it marginally missed the Zacks Consensus Estimate of $25.55 billion.
Net interest income rose 10% from the prior-year quarter to $5.45 billion. Also, net interest margin increased 6 basis points (bps) year over year to 6.85%.
However, non-interest income declined 9% year over year to $1.11 billion. The decrease was mainly due to fall in service charges and other customer-related fees, and other income.
Non-interest expenses of $3.68 billion were up 6% from the year-ago quarter. All cost components, except amortization of intangibles, rose year over year.
Further, efficiency ratio improved to 56.03% from 56.18% recorded in the year-ago quarter. A decrease in efficiency ratio indicates enhanced profitability.
Worsening Credit Quality
Net charge-off rate rose 52 bps year over year to 2.48%. Further, provision for credit losses surged 27% from the year-ago quarter to $1.75 billion.
Also, the 30-plus day performing delinquency rate increased 24 bps year over year to 2.93%. Likewise, allowance, as a percentage of reported loans held for investment was 2.65%, up 42 bps year over year.
Profitability & Capital Ratios Weaken
Return on average assets of 0.91% as of Dec 31, 2016 was down from 1.12% as of Dec 31, 2015. Also, return on average common equity declined to 6.48% from 7.36% in the prior-year quarter.
As of Dec 31, 2016, Tier 1 risk-based capital ratio decreased to 11.6% from 12.4% as of Dec 31, 2015. Further, total risk-based capital ratio was 14.3%, down from 14.6% as of Dec 31, 2015.
Moreover, common equity Tier 1 capital ratio under Basel III Standardized Approach was 10.1% as of Dec 31, 2016, down from 11.1% as of Dec 31, 2015.
Our Viewpoint
Capital One continues to benefit from geographic diversification and inorganic growth strategy. The company’s strategic acquisitions – General Electric Company’s (GE - Free Report) healthcare-related loans as well as its Healthcare Financial Services business, HSBC Holdings plc’s (HSBC - Free Report) credit card business and ING Direct USA, the online banking unit of ING Groep NV (ING - Free Report) – over the years have supported the financials.
However, elevated expense base along with the impact of new regulations will likely continue to hurt the company’s financials in the near term. Also, concerns related to continued deterioration of its asset quality makes us apprehensive.
Capital One Financial Corporation Price, Consensus and EPS Surprise
Capital One Financial Corporation Price, Consensus and EPS Surprise | Capital One Financial Corporation Quote
Currently, Capital One carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>