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Capital One (COF) Up 1.4% on Q2 Earnings & Revenue Beat
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Shares of Capital One (COF - Free Report) rallied 1.4% following the release of second-quarter 2019 results after the market closed. Adjusted earnings of $3.37 per share easily surpassed the Zacks Consensus Estimate of $2.84. Also, it compared favorably with the year-ago quarter’s adjusted earnings of $3.22.
Results benefited from rise in net interest income, improving loan balances and strength in card business. However, a rise in provision for credit losses, lower non-interest income and higher operating expenses were the undermining factors.
After taking into consideration non-recurring items, net income available to common shareholders was $1.53 billion or $3.24 per share, down from $1.81 billion or $3.71 per share in the prior-year quarter.
Revenues Down, Expenses Rise
Net revenues were $7.12 billion, down 1% year over year. However, the figure beat the Zacks Consensus Estimate of $7.00 billion.
Net interest income grew 4% to $5.75 billion. Also, net interest margin increased 14 basis points (bps) to 6.80%.
Non-interest income of $1.38 billion declined 16% from the prior-year quarter. Lower service charges and other customer-related fees, and other income led to the fall.
Non-interest expenses of $3.78 billion were up 10%, mainly owing to 28% jump in marketing costs and 34% surge in professional services costs.
Efficiency ratio was 53.05% compared with 47.61% in the year-ago quarter. An increase in efficiency ratio indicates deterioration in profitability.
As of Jun 30, 2019, loans held for investment were $244.5 billion, up 2% from the prior quarter. Total deposits, as of the same date, were relatively stable sequentially at $254.5 billion.
Credit Quality: A Mixed Bag
Net charge-off rate increased 6 bps year over year to 2.48%. Also, provision for credit losses rose 5% to $1.34 billion. Likewise, the 30-plus day performing delinquency rate increased 27 bps to 3.15%.
However, allowance as a percentage of reported loans held for investment was 2.92%, down 20 bps.
Profitability Ratios Decline, Capital Ratios Improve
Return on average assets was 1.74% at the end of the reported quarter, down from 2.11% in the year-ago quarter. Also, return on average common equity was 12.14%, down from 16.06% in the prior-year quarter.
As of Jun 30, 2019, Tier 1 risk-based capital ratio was 13.8%, up from 12.6% in the prior-year quarter end. Further, common equity Tier 1 capital ratio under Basel III Standardized Approach was 12.3% as of Jun 30, 2019, up from 11.1% on Jun 30, 2018.
Our Take
Capital One’s strategic acquisitions over the years have positioned it well for long-term growth. While rise in credit costs and elevated expenses remain major near-term concerns, steady improvement in card business (leading to rise in interchange fees) will likely aid profitability.
Capital One Financial Corporation Price, Consensus and EPS Surprise
Performance & Earnings Release Dates of Other Consumer Loan Stocks
Ally Financial’s (ALLY - Free Report) second-quarter 2019 adjusted earnings of 97 cents per share surpassed the Zacks Consensus Estimate of 88 cents. Further, the bottom line compared favorably with the prior-year quarter’s earnings of 83 cents.
Navient Corporation (NAVI - Free Report) and Discover Financial Services (DFS - Free Report) are slated to report on Jul 23.
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Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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Capital One (COF) Up 1.4% on Q2 Earnings & Revenue Beat
Shares of Capital One (COF - Free Report) rallied 1.4% following the release of second-quarter 2019 results after the market closed. Adjusted earnings of $3.37 per share easily surpassed the Zacks Consensus Estimate of $2.84. Also, it compared favorably with the year-ago quarter’s adjusted earnings of $3.22.
Results benefited from rise in net interest income, improving loan balances and strength in card business. However, a rise in provision for credit losses, lower non-interest income and higher operating expenses were the undermining factors.
After taking into consideration non-recurring items, net income available to common shareholders was $1.53 billion or $3.24 per share, down from $1.81 billion or $3.71 per share in the prior-year quarter.
Revenues Down, Expenses Rise
Net revenues were $7.12 billion, down 1% year over year. However, the figure beat the Zacks Consensus Estimate of $7.00 billion.
Net interest income grew 4% to $5.75 billion. Also, net interest margin increased 14 basis points (bps) to 6.80%.
Non-interest income of $1.38 billion declined 16% from the prior-year quarter. Lower service charges and other customer-related fees, and other income led to the fall.
Non-interest expenses of $3.78 billion were up 10%, mainly owing to 28% jump in marketing costs and 34% surge in professional services costs.
Efficiency ratio was 53.05% compared with 47.61% in the year-ago quarter. An increase in efficiency ratio indicates deterioration in profitability.
As of Jun 30, 2019, loans held for investment were $244.5 billion, up 2% from the prior quarter. Total deposits, as of the same date, were relatively stable sequentially at $254.5 billion.
Credit Quality: A Mixed Bag
Net charge-off rate increased 6 bps year over year to 2.48%. Also, provision for credit losses rose 5% to $1.34 billion. Likewise, the 30-plus day performing delinquency rate increased 27 bps to 3.15%.
However, allowance as a percentage of reported loans held for investment was 2.92%, down 20 bps.
Profitability Ratios Decline, Capital Ratios Improve
Return on average assets was 1.74% at the end of the reported quarter, down from 2.11% in the year-ago quarter. Also, return on average common equity was 12.14%, down from 16.06% in the prior-year quarter.
As of Jun 30, 2019, Tier 1 risk-based capital ratio was 13.8%, up from 12.6% in the prior-year quarter end. Further, common equity Tier 1 capital ratio under Basel III Standardized Approach was 12.3% as of Jun 30, 2019, up from 11.1% on Jun 30, 2018.
Our Take
Capital One’s strategic acquisitions over the years have positioned it well for long-term growth. While rise in credit costs and elevated expenses remain major near-term concerns, steady improvement in card business (leading to rise in interchange fees) will likely aid profitability.
Capital One Financial Corporation Price, Consensus and EPS Surprise
Capital One Financial Corporation price-consensus-eps-surprise-chart | Capital One Financial Corporation Quote
Currently, Capital One carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance & Earnings Release Dates of Other Consumer Loan Stocks
Ally Financial’s (ALLY - Free Report) second-quarter 2019 adjusted earnings of 97 cents per share surpassed the Zacks Consensus Estimate of 88 cents. Further, the bottom line compared favorably with the prior-year quarter’s earnings of 83 cents.
Navient Corporation (NAVI - Free Report) and Discover Financial Services (DFS - Free Report) are slated to report on Jul 23.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>