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Capital One (COF) Dips on Q4 Earnings Miss as Provisions Rise
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Shares of Capital One (COF - Free Report) lost 1.9% in after-hours trading in response to lower-than-expected fourth-quarter 2022 results. Adjusted earnings of $2.82 per share lagged the Zacks Consensus Estimate of $3.81. The bottom line plunged 47.9% from the year-ago quarter. Our estimate for earnings was $3.66.
Results were adversely impacted by significantly higher provisions. Also, an increase in operating expenses acted as a headwind. Yet, a robust improvement in loan balances and higher interest rates aided net interest income (NII). A rise in non-interest income was another positive.
Net income available to common shareholders (GAAP basis) was $1.16 billion, plunging 49.4% from the prior-year quarter. Our estimate for the metric was $1.40 billion.
Adjusted earnings of $17.71 per share for 2022 lagged the Zacks Consensus Estimate of $18.65. The bottom line plunged 34.7% from the year-ago period. Our estimate for earnings was $18.44. Net income (GAAP basis) was $7.04 billion, plunging 41.1% from the prior year. Our estimate for the metric was $7.28 billion.
Revenues Improve, Expenses Rise
Total quarterly net revenues were $9.04 billion, up 11.4% from the prior-year quarter. The top line also beat the Zacks Consensus Estimate of $9 billion. We had projected revenues of $8.56 billion.
For 2022, revenues were $34.25 billion, up 12.5% from the previous year. The top line marginally beat the Zacks Consensus Estimate of $34.20 billion. We had projected revenues of $33.77 billion.
Quarterly NII improved 11.6% from the prior-year quarter to $7.20 billion. The net interest margin (NIM) increased 24 basis points (bps) year over year to 6.84%. Our estimates for NII and NIM were $6.83 billion and 6.82%, respectively.
Non-interest income of $1.84 billion rose 10.5% year over year. This was primarily attributable to growth in net interchange fees (up 17%) and other income (up 19%). Service charges and other customer-related fees declined 9%. Our estimate for non-interest income was pegged at $1.72 billion.
Non-interest expenses were $5.08 billion, rising 8.6% year over year. The increase was due to a rise in almost all cost components, except for other expenses, which declined 33%. We had expected the metric to be $5.09 billion. The efficiency ratio was 56.19%, down from 57.63% in the year-ago quarter. A fall in the efficiency ratio indicates an improvement in profitability.
As of Dec 31, 2022, loans held for investment were $312.3 billion, up 3% from the prior quarter. Total deposits were $333 billion, which grew 5% sequentially.
Credit Quality Worsens
Provision for credit losses was $2.42 billion in the reported quarter, rising significantly from $381 million in the prior-year quarter. We had anticipated the metric to be $1.50 billion.
The 30-plus-day performing delinquency rate rose 71 bps year over year to 2.96%. Also, the net charge-off rate jumped 107 bps year over year to 1.86%.
Allowance, as a percentage of reported loans held for investment, was 4.24%, up 12 bps from the prior-year quarter.
Capital & Profitability Ratios Deteriorate
As of Dec 31, 2022, Tier 1 risk-based capital ratio was 13.9%, down from 14.5% a year ago. Common equity Tier 1 capital ratio was 12.5% as of Dec 31, 2022, down from 13.1%.
At the end of the fourth quarter, return on average assets was 1.10%, down from the year-ago period’s 2.27%. Return on average common equity was 9.76%, down from 16.13%.
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
Ally Financial’s (ALLY - Free Report) fourth-quarter adjusted earnings of $1.12 per share lagged the Zacks Consensus Estimate of $1.73. The bottom line declined 48.1% from the year-ago quarter. Our estimate for earnings was $1.75.
ALLY’s 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. Loan balances witnessed a rise, which was a positive for ALLY.
Hancock Whitney Corporation’s (HWC - Free Report) fourth-quarter 2022 earnings of $1.65 per share surpassed the Zacks Consensus Estimate of $1.63. The bottom line rose 6.5% from the prior-year quarter’s earnings of $1.55.
HWC’s results benefited from higher net interest income, supported by a rise in loan balance and increasing interest rates. However, lower non-interest income mainly due to higher mortgage rates was the undermining factor. Higher expenses and a rise in provisions were other concerns for HWC.
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Capital One (COF) Dips on Q4 Earnings Miss as Provisions Rise
Shares of Capital One (COF - Free Report) lost 1.9% in after-hours trading in response to lower-than-expected fourth-quarter 2022 results. Adjusted earnings of $2.82 per share lagged the Zacks Consensus Estimate of $3.81. The bottom line plunged 47.9% from the year-ago quarter. Our estimate for earnings was $3.66.
Results were adversely impacted by significantly higher provisions. Also, an increase in operating expenses acted as a headwind. Yet, a robust improvement in loan balances and higher interest rates aided net interest income (NII). A rise in non-interest income was another positive.
Net income available to common shareholders (GAAP basis) was $1.16 billion, plunging 49.4% from the prior-year quarter. Our estimate for the metric was $1.40 billion.
Adjusted earnings of $17.71 per share for 2022 lagged the Zacks Consensus Estimate of $18.65. The bottom line plunged 34.7% from the year-ago period. Our estimate for earnings was $18.44. Net income (GAAP basis) was $7.04 billion, plunging 41.1% from the prior year. Our estimate for the metric was $7.28 billion.
Revenues Improve, Expenses Rise
Total quarterly net revenues were $9.04 billion, up 11.4% from the prior-year quarter. The top line also beat the Zacks Consensus Estimate of $9 billion. We had projected revenues of $8.56 billion.
For 2022, revenues were $34.25 billion, up 12.5% from the previous year. The top line marginally beat the Zacks Consensus Estimate of $34.20 billion. We had projected revenues of $33.77 billion.
Quarterly NII improved 11.6% from the prior-year quarter to $7.20 billion. The net interest margin (NIM) increased 24 basis points (bps) year over year to 6.84%. Our estimates for NII and NIM were $6.83 billion and 6.82%, respectively.
Non-interest income of $1.84 billion rose 10.5% year over year. This was primarily attributable to growth in net interchange fees (up 17%) and other income (up 19%). Service charges and other customer-related fees declined 9%. Our estimate for non-interest income was pegged at $1.72 billion.
Non-interest expenses were $5.08 billion, rising 8.6% year over year. The increase was due to a rise in almost all cost components, except for other expenses, which declined 33%. We had expected the metric to be $5.09 billion.
The efficiency ratio was 56.19%, down from 57.63% in the year-ago quarter. A fall in the efficiency ratio indicates an improvement in profitability.
As of Dec 31, 2022, loans held for investment were $312.3 billion, up 3% from the prior quarter. Total deposits were $333 billion, which grew 5% sequentially.
Credit Quality Worsens
Provision for credit losses was $2.42 billion in the reported quarter, rising significantly from $381 million in the prior-year quarter. We had anticipated the metric to be $1.50 billion.
The 30-plus-day performing delinquency rate rose 71 bps year over year to 2.96%. Also, the net charge-off rate jumped 107 bps year over year to 1.86%.
Allowance, as a percentage of reported loans held for investment, was 4.24%, up 12 bps from the prior-year quarter.
Capital & Profitability Ratios Deteriorate
As of Dec 31, 2022, Tier 1 risk-based capital ratio was 13.9%, down from 14.5% a year ago. Common equity Tier 1 capital ratio was 12.5% as of Dec 31, 2022, down from 13.1%.
At the end of the fourth quarter, return on average assets was 1.10%, down from the year-ago period’s 2.27%. Return on average common equity was 9.76%, down from 16.13%.
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 of Other Companies
Ally Financial’s (ALLY - Free Report) fourth-quarter adjusted earnings of $1.12 per share lagged the Zacks Consensus Estimate of $1.73. The bottom line declined 48.1% from the year-ago quarter. Our estimate for earnings was $1.75.
ALLY’s 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. Loan balances witnessed a rise, which was a positive for ALLY.
Hancock Whitney Corporation’s (HWC - Free Report) fourth-quarter 2022 earnings of $1.65 per share surpassed the Zacks Consensus Estimate of $1.63. The bottom line rose 6.5% from the prior-year quarter’s earnings of $1.55.
HWC’s results benefited from higher net interest income, supported by a rise in loan balance and increasing interest rates. However, lower non-interest income mainly due to higher mortgage rates was the undermining factor. Higher expenses and a rise in provisions were other concerns for HWC.