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Capital One (COF) Up 3.3% on Q3 Earnings and Revenue Beat

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Capital One’s (COF - Free Report) shares gained 3.3% in the afterhours trading session, in response to better-than-expected third-quarter 2020 results. Adjusted earnings of $5.05 per share easily outpaced the Zacks Consensus Estimate of $1.99. Also, the figure was 52% above the year-ago quarter level.

The results reflect an improvement in non-interest income and lower expenses. Further, credit costs declined mainly due to reserve releases during the quarter. However, decline in loan balance and lower interest rates were headwinds.

After taking into consideration non-recurring items, net income available to common shareholders was $2.32 billion or $5.06 per share, up from $1.27 billion or $2.69 per share in the prior-year quarter.

Revenues Improve, Expenses Down

Total adjusted net revenues were $7.35 billion, up 3% from the prior-year quarter. The figure also beat the Zacks Consensus Estimate of $6.71 billion.

Net interest income fell 3% from the prior-year quarter to $5.56 billion. Net interest margin also declined 105 basis points (bps) to 5.68% due to lower yields on interest-earning assets.

Non-interest income of $1.83 billion jumped 49% from the prior-year quarter.

Non-interest expenses were $3.55 billion, down 8% from the year-ago number. Rise in other costs, and salaries and associate benefit expenses were more than offset by fall in marketing costs and amortization of intangibles.

Efficiency ratio was 48.07%, down from 55.64% in the year-ago quarter. A fall in efficiency ratio indicates improvement in profitability.

As of Sep 30, 2020, loans held for investment were $248.2 billion, down 1% from the prior quarter. Total deposits, as of the same date, were on par sequentially at $305.7 billion.

Credit Quality: Mixed Bag

Provision for credit losses plunged 76% on a year-over-year basis to $331 million. The fall was largely due to $742 million reserve release. Further, the 30-plus day performing delinquency rate declined 131 bps to 1.97%.

However, allowance, as a percentage of reported loans held for investment was 6.50%, up 368 bps. Also, net charge-off rate decreased 10 bps year over year to 2.38%.

Capital Ratios Improve

As of Sep 30, 2020, Tier 1 risk-based capital ratio was 14.8%, up from 14.4% a year ago. Further, common equity Tier 1 capital ratio was 13% as of Sep 30, 2020, up from 12.5% as of Sep 30, 2019.

Our Take

Capital One’s strategic acquisitions and steady improvement in the card business position it well for long-term growth. However, lower interest rates and economic slowdown remain major near-term concerns.

Capital One Financial Corporation Price, Consensus and EPS Surprise

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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Consumer Loan Providers

Ally Financial’s (ALLY - Free Report) third-quarter 2020 adjusted earnings of $1.25 per share handily surpassed the Zacks Consensus Estimate of 72 cents. Moreover, the bottom line improved 23.8% from the year-ago figure

Sallie Mae (SLM - Free Report) reported third-quarter 2020 earnings per share of 47 cents (on core basis) beating the Zacks Consensus Estimate of 14 cents. Also, the bottom line compared favorably with 29 cents reported in the prior-year quarter.

Navient Corporation (NAVI - Free Report) reported third-quarter 2020 core earnings per share of 99 cents that surpassed the Zacks Consensus Estimate of 78 cents. Also, the bottom line was above the year-ago quarter figure of 62 cents.

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