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Capital One (COF) Up 5.3% on Q4 Earnings and Revenue Beat
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Capital One’s (COF - Free Report) shares gained 5.3% in the afterhours trading session in response to better-than-expected fourth-quarter 2020 results. Adjusted earnings of $5.29 per share outpaced the Zacks Consensus Estimate of $2.85. Also, the bottom line was significantly above $2.49 earned in the year-ago quarter.
Results reflect an improvement in non-interest income, slight rise in loan balance and lower expenses. Further, credit costs declined mainly due to reserve releases during the quarter. However, lower interest rates and economic slowdown were headwinds.
After taking into consideration non-recurring items, net income available to common shareholders was $2.46 billion or $5.35 per share, up from $1.04 billion or $2.25 per share in the prior-year quarter.
In 2020, adjusted earnings per share of $5.79 beat the consensus estimate of $2.51 but declined 52% year over year. Net income available to common shareholders (GAAP basis) was $2.38 billion or $5.18 per share, down from $5.19 billion or $11.05 per share in 2019.
Revenues & Expenses Down
Total net revenues were $7.33 billion, down 1% from the prior-year quarter. The top line beat the Zacks Consensus Estimate of $6.90 billion.
In 2020, total net revenues were relatively stable at $28.52 billion. It surpassed the Zacks Consensus Estimate of $28.03 billion.
Net interest income fell 3% from the prior-year quarter to $5.87 billion. Net interest margin also declined 90 basis points (bps) to 5.05% due to lower yields on interest-earning assets.
Non-interest income of $1.46 billion rose 8% from the prior-year quarter.
Non-interest expenses were $4 billion, down 4% from the year-ago number. This was mainly attributable to lower other costs, marketing costs and amortization of intangibles.
Efficiency ratio was 54.64%, down from 56.03% in the year-ago quarter. A fall in efficiency ratio indicates improvement in profitability.
As of Dec 31, 2020, loans held for investment were $251.6 billion, up 1% from the prior quarter. Total deposits, as of the same date, were on par sequentially at $305.4 billion.
Credit Quality: Mixed Bag
Provision for credit losses plunged 85% on a year-over-year basis to $264 million. The fall was largely due to $593 million reserve release. Further, the 30-plus day performing delinquency rate declined 110 bps to 2.41%.
Also, net charge-off rate decreased 122 bps year over year to 1.38%. However, allowance, as a percentage of reported loans held for investment was 6.19%, up 348 bps.
Capital Ratios Improve
As of Dec 31, 2020, Tier 1 risk-based capital ratio was 15.3%, up from 13.7% a year ago. Further, common equity Tier 1 capital ratio was 13.7% as of Dec 31, 2020, up from 12.2% on Dec 31, 2019.
Share Repurchase Update
Capital One has authorized a share repurchase program of up to $7.5 billion for 2021. The company had suspended buybacks last March to preserve liquidity amid the coronavirus-induced economic slowdown.
Our View
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
Performance & Earnings Date of Other Consumer Loan Providers
Ally Financial’s (ALLY - Free Report) fourth-quarter adjusted earnings of $1.60 per share handily surpassed the Zacks Consensus Estimate of $1.05. Also, the bottom line surged 68.4% from the year-ago figure.
Credit Acceptance Corporation (CACC - Free Report) and Santander Consumer USA Holdings Inc. are scheduled to announce quarterly number on Feb 1 and Feb 3, respectively.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.4% per year.
These 7 were selected because of their superior potential for immediate breakout.
Image: Bigstock
Capital One (COF) Up 5.3% on Q4 Earnings and Revenue Beat
Capital One’s (COF - Free Report) shares gained 5.3% in the afterhours trading session in response to better-than-expected fourth-quarter 2020 results. Adjusted earnings of $5.29 per share outpaced the Zacks Consensus Estimate of $2.85. Also, the bottom line was significantly above $2.49 earned in the year-ago quarter.
Results reflect an improvement in non-interest income, slight rise in loan balance and lower expenses. Further, credit costs declined mainly due to reserve releases during the quarter. However, lower interest rates and economic slowdown were headwinds.
After taking into consideration non-recurring items, net income available to common shareholders was $2.46 billion or $5.35 per share, up from $1.04 billion or $2.25 per share in the prior-year quarter.
In 2020, adjusted earnings per share of $5.79 beat the consensus estimate of $2.51 but declined 52% year over year. Net income available to common shareholders (GAAP basis) was $2.38 billion or $5.18 per share, down from $5.19 billion or $11.05 per share in 2019.
Revenues & Expenses Down
Total net revenues were $7.33 billion, down 1% from the prior-year quarter. The top line beat the Zacks Consensus Estimate of $6.90 billion.
In 2020, total net revenues were relatively stable at $28.52 billion. It surpassed the Zacks Consensus Estimate of $28.03 billion.
Net interest income fell 3% from the prior-year quarter to $5.87 billion. Net interest margin also declined 90 basis points (bps) to 5.05% due to lower yields on interest-earning assets.
Non-interest income of $1.46 billion rose 8% from the prior-year quarter.
Non-interest expenses were $4 billion, down 4% from the year-ago number. This was mainly attributable to lower other costs, marketing costs and amortization of intangibles.
Efficiency ratio was 54.64%, down from 56.03% in the year-ago quarter. A fall in efficiency ratio indicates improvement in profitability.
As of Dec 31, 2020, loans held for investment were $251.6 billion, up 1% from the prior quarter. Total deposits, as of the same date, were on par sequentially at $305.4 billion.
Credit Quality: Mixed Bag
Provision for credit losses plunged 85% on a year-over-year basis to $264 million. The fall was largely due to $593 million reserve release. Further, the 30-plus day performing delinquency rate declined 110 bps to 2.41%.
Also, net charge-off rate decreased 122 bps year over year to 1.38%. However, allowance, as a percentage of reported loans held for investment was 6.19%, up 348 bps.
Capital Ratios Improve
As of Dec 31, 2020, Tier 1 risk-based capital ratio was 15.3%, up from 13.7% a year ago. Further, common equity Tier 1 capital ratio was 13.7% as of Dec 31, 2020, up from 12.2% on Dec 31, 2019.
Share Repurchase Update
Capital One has authorized a share repurchase program of up to $7.5 billion for 2021. The company had suspended buybacks last March to preserve liquidity amid the coronavirus-induced economic slowdown.
Our View
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-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 & Earnings Date of Other Consumer Loan Providers
Ally Financial’s (ALLY - Free Report) fourth-quarter adjusted earnings of $1.60 per share handily surpassed the Zacks Consensus Estimate of $1.05. Also, the bottom line surged 68.4% from the year-ago figure.
Credit Acceptance Corporation (CACC - Free Report) and Santander Consumer USA Holdings Inc. are scheduled to announce quarterly number on Feb 1 and Feb 3, respectively.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.4% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>