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Capital One (COF) Down 5.2% as Q2 Earnings Lag, Provisions Rise
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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.
Capital One Financial Corporation Price, Consensus and EPS Surprise
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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Capital One (COF) Down 5.2% as Q2 Earnings Lag, Provisions Rise
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.
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 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.