We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Capital One (COF) Lags Q1 Earnings as Costs Rise, Stock Down
Read MoreHide Full Article
Shares of Capital One Financial Corporation (COF - Free Report) declined more than 3% as the company’s first-quarter 2017 adjusted earnings of $1.75 per share lagged the Zacks Consensus Estimate of $1.93. Also, it compared unfavorably with the year-ago quarter’s earnings of $1.84.
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. However, higher net interest income and easing margin pressure supported the results to some extent.
After considering an adjustment related to U.K. Payment Protection Insurance customer refund reserve, net income for the quarter came in at $810 million, down from $1 billion in the prior-year quarter.
Rise in Net Interest Income Supported Results
Net revenues were $6.54 billion, up 5% year over year. However, the figure was marginally below the Zacks Consensus Estimate of $6.59 billion.
Net interest income rose 8% from the prior-year quarter to $5.47 billion. Also, net interest margin increased 13 basis points (bps) year over year to 6.88%.
However, non-interest income declined 9% year over year to $1.06 billion. The decrease was mainly due to a fall in service charges and other customer-related fees, and other income.
Non-interest expenses of $3.43 billion increased 7% from the year-ago quarter. All cost components, except amortization of intangibles and marketing expenses, rose year over year.
Efficiency ratio came in at 52.55%, compared with 51.82% recorded in the year-ago quarter. An increase in efficiency ratio indicates lower profitability.
Worsening Credit Quality
Net charge-off rate rose 42 bps year over year to 2.50%. Further, provision for credit losses surged 30% from the year-ago quarter to $1.99 billion.
Also, the 30-plus day performing delinquency rate increased 28 bps year over year to 2.61%. Likewise, allowance, as a percentage of reported loans held for investment was 2.90%, up 52 bps year over year.
Profitability & Capital Ratios Weaken
Return on average assets of 0.90% at the end of the reported quarter was down 33 bps year over year. Also, return on average common equity declined significantly to 6.73% from 8.52% recorded in the prior-year quarter.
As of Mar 31, 2017, Tier 1 risk-based capital ratio decreased to 12% from 12.4% as of Mar 31, 2016. Further, common equity Tier 1 capital ratio under Basel III Standardized Approach was 10.4% as of Mar 31, 2017, down from 11.1% as of Mar 31, 2016.
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 is likely to continue hurting 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
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Capital One (COF) Lags Q1 Earnings as Costs Rise, Stock Down
Shares of Capital One Financial Corporation (COF - Free Report) declined more than 3% as the company’s first-quarter 2017 adjusted earnings of $1.75 per share lagged the Zacks Consensus Estimate of $1.93. Also, it compared unfavorably with the year-ago quarter’s earnings of $1.84.
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. However, higher net interest income and easing margin pressure supported the results to some extent.
After considering an adjustment related to U.K. Payment Protection Insurance customer refund reserve, net income for the quarter came in at $810 million, down from $1 billion in the prior-year quarter.
Rise in Net Interest Income Supported Results
Net revenues were $6.54 billion, up 5% year over year. However, the figure was marginally below the Zacks Consensus Estimate of $6.59 billion.
Net interest income rose 8% from the prior-year quarter to $5.47 billion. Also, net interest margin increased 13 basis points (bps) year over year to 6.88%.
However, non-interest income declined 9% year over year to $1.06 billion. The decrease was mainly due to a fall in service charges and other customer-related fees, and other income.
Non-interest expenses of $3.43 billion increased 7% from the year-ago quarter. All cost components, except amortization of intangibles and marketing expenses, rose year over year.
Efficiency ratio came in at 52.55%, compared with 51.82% recorded in the year-ago quarter. An increase in efficiency ratio indicates lower profitability.
Worsening Credit Quality
Net charge-off rate rose 42 bps year over year to 2.50%. Further, provision for credit losses surged 30% from the year-ago quarter to $1.99 billion.
Also, the 30-plus day performing delinquency rate increased 28 bps year over year to 2.61%. Likewise, allowance, as a percentage of reported loans held for investment was 2.90%, up 52 bps year over year.
Profitability & Capital Ratios Weaken
Return on average assets of 0.90% at the end of the reported quarter was down 33 bps year over year. Also, return on average common equity declined significantly to 6.73% from 8.52% recorded in the prior-year quarter.
As of Mar 31, 2017, Tier 1 risk-based capital ratio decreased to 12% from 12.4% as of Mar 31, 2016. Further, common equity Tier 1 capital ratio under Basel III Standardized Approach was 10.4% as of Mar 31, 2017, down from 11.1% as of Mar 31, 2016.
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 is likely to continue hurting 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.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>