Shares of Capital One (COF - Free Report) tanked 5.2% in after-hours trading in response to lower-than-expected second-quarter 2022 results. Earnings of $4.96 per share lagged the Zacks Consensus Estimate of $5.13. The bottom line also plunged 35% from the year-ago quarter.
Results were adversely impacted by higher provisions for credit losses on the worsening macroeconomic environment and recessionary fears. Also, higher operating expenses acted as a headwind.
Yet, a robust improvement in loan balances and higher interest rates aided net interest income (NII). Further decent consumer sentiments supported the credit card business and non-interest income.
Net income available to common shareholders was $1.94 billion, plunging 43% from the prior-year quarter.
Revenues & Expenses Rise
Total net revenues were $8.23 billion, up 12% from the prior-year quarter. The top line, however, missed the Zacks Consensus Estimate of $8.28 billion.
NII improved 13% from the prior-year quarter to $6.52 billion.
Net interest margin surged 65 basis points (bps) to 6.54%. This was largely driven by lower average cash and securities balances and a rise in average loan balances.
Non-interest income of $1.72 billion rose 5%. This was primarily attributable to growth in net interchange fees (up 18%) and service charges and other customer-related fees (up 8%). On the other hand, other non-interest income declined 57%.
Non-interest expenses were $4.58 billion, rising 16%. The increase was mainly due to a 62% surge in marketing expenses.
Efficiency ratio was 55.67%, up from 53.78% in the year-ago quarter. A rise in efficiency ratio indicates deterioration in profitability.
As of Jun 30, 2022, loans held for investment were $296.4 billion, up 6% from the prior quarter. Total deposits, as of the same date, declined 2% to $307.9 billion.
Credit Quality Worsens
Provision for credit losses was $1.09 billion in the reported quarter against a provision benefit of $1.16 billion in the prior-year quarter. The 30-plus day performing delinquency rate rose 61 bps to 2.36%.
Also, the net charge-off rate increased 30 bps year over year to 1.18%. However, allowance, as a percentage of reported loans held for investment, was 3.88%, down 107 bps.
Capital & Profitability Ratios Deteriorates
As of Jun 30, 2022, Tier 1 risk-based capital ratio was 13.5%, down from 16.6% a year ago. Common equity Tier 1 capital ratio was 12.1% as of Jun 30, 2022, down from 14.5%.
At the end of the second quarter, return on average assets was 1.87%, down from the year-ago period’s 3.34%. Return on average common equity was 15.81%, down from 24.24%.
Share Repurchase Update
During the quarter, Capital One repurchased 15.8 million shares for $2 billion.
Our View
Capital One’s strategic acquisitions, rise in demand for consumer loans, higher rates and steady improvement in the card business position it well for long-term growth. However, mounting expenses and a deteriorating macroeconomic backdrop are major near-term concerns.
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.
Performance & Earnings Date Other Consumer Loan Providers
Ally Financial’s (ALLY - Free Report) second-quarter 2022 adjusted earnings of $1.76 per share lagged the Zacks Consensus Estimate of $1.90. The bottom line reflected a decline of 24.5% from the year-ago quarter.
Results were primarily hurt by a rise in expenses, a decline in other revenues and higher provisions. However, an improvement in net financing revenues was an offsetting factor. ALLY also witnessed a rise in loan balances during the quarter.
Navient Corporation (NAVI - Free Report) is slated to report second-quarter 2022 results on Jul 26.
Over the past 30 days, the Zacks Consensus Estimate for Navient’s quarterly earnings has moved 3.7% lower to 79 cents. This indicates a 16% decrease from the prior-year quarter.
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Shares of Capital One (COF - Free Report) tanked 5.2% in after-hours trading in response to lower-than-expected second-quarter 2022 results. Earnings of $4.96 per share lagged the Zacks Consensus Estimate of $5.13. The bottom line also plunged 35% from the year-ago quarter.
Results were adversely impacted by higher provisions for credit losses on the worsening macroeconomic environment and recessionary fears. Also, higher operating expenses acted as a headwind.
Yet, a robust improvement in loan balances and higher interest rates aided net interest income (NII). Further decent consumer sentiments supported the credit card business and non-interest income.
Net income available to common shareholders was $1.94 billion, plunging 43% from the prior-year quarter.
Revenues & Expenses Rise
Total net revenues were $8.23 billion, up 12% from the prior-year quarter. The top line, however, missed the Zacks Consensus Estimate of $8.28 billion.
NII improved 13% from the prior-year quarter to $6.52 billion.
Net interest margin surged 65 basis points (bps) to 6.54%. This was largely driven by lower average cash and securities balances and a rise in average loan balances.
Non-interest income of $1.72 billion rose 5%. This was primarily attributable to growth in net interchange fees (up 18%) and service charges and other customer-related fees (up 8%). On the other hand, other non-interest income declined 57%.
Non-interest expenses were $4.58 billion, rising 16%. The increase was mainly due to a 62% surge in marketing expenses.
Efficiency ratio was 55.67%, up from 53.78% in the year-ago quarter. A rise in efficiency ratio indicates deterioration in profitability.
As of Jun 30, 2022, loans held for investment were $296.4 billion, up 6% from the prior quarter. Total deposits, as of the same date, declined 2% to $307.9 billion.
Credit Quality Worsens
Provision for credit losses was $1.09 billion in the reported quarter against a provision benefit of $1.16 billion in the prior-year quarter. The 30-plus day performing delinquency rate rose 61 bps to 2.36%.
Also, the net charge-off rate increased 30 bps year over year to 1.18%. However, allowance, as a percentage of reported loans held for investment, was 3.88%, down 107 bps.
Capital & Profitability Ratios Deteriorates
As of Jun 30, 2022, Tier 1 risk-based capital ratio was 13.5%, down from 16.6% a year ago. Common equity Tier 1 capital ratio was 12.1% as of Jun 30, 2022, down from 14.5%.
At the end of the second quarter, return on average assets was 1.87%, down from the year-ago period’s 3.34%. Return on average common equity was 15.81%, down from 24.24%.
Share Repurchase Update
During the quarter, Capital One repurchased 15.8 million shares for $2 billion.
Our View
Capital One’s strategic acquisitions, rise in demand for consumer loans, higher rates and steady improvement in the card business position it well for long-term growth. However, mounting expenses and a deteriorating macroeconomic backdrop are major near-term concerns.
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.
Performance & Earnings Date Other Consumer Loan Providers
Ally Financial’s (ALLY - Free Report) second-quarter 2022 adjusted earnings of $1.76 per share lagged the Zacks Consensus Estimate of $1.90. The bottom line reflected a decline of 24.5% from the year-ago quarter.
Results were primarily hurt by a rise in expenses, a decline in other revenues and higher provisions. However, an improvement in net financing revenues was an offsetting factor. ALLY also witnessed a rise in loan balances during the quarter.
Navient Corporation (NAVI - Free Report) is slated to report second-quarter 2022 results on Jul 26.
Over the past 30 days, the Zacks Consensus Estimate for Navient’s quarterly earnings has moved 3.7% lower to 79 cents. This indicates a 16% decrease from the prior-year quarter.
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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