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Capital One (COF) Q1 Earnings Lag as Provisions Rise, Stock Down
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Shares of Capital One (COF - Free Report) lost 3.3% in after-hours trading in response to lower-than-expected first-quarter 2023 results. Earnings of $2.31 per share lagged the Zacks Consensus Estimate of $3.80 by a wide margin. The bottom line tanked 59% from the year-ago quarter. Our estimate for earnings was $2.71.
Results were adversely impacted by significantly higher provisions. Also, an increase in operating expenses and lower non-interest income acted as headwinds. Yet, decent loan balance and higher interest rates aided net interest income (NII). Further, the company witnessed a robust rise in deposit balance during the quarter.
Net income available to common shareholders was $887 billion, plunging 62% from the prior-year quarter. Our estimate for the metric was $1.04 billion.
Revenues Improve, Expenses Rise
Total net revenues were $8.9 billion, up 9% from the prior-year quarter. The top line missed the Zacks Consensus Estimate of $8.96 billion. We had projected revenues of $8.53 billion.
NII improved 12% to $7.19 billion. The net interest margin (NIM) increased 11 basis points (bps) to 6.60%. Our estimates for NII and NIM were $6.81 billion and 6.68%, respectively.
Non-interest income of $1.72 billion declined 3%. This was primarily due to lower service charges, other customer-related fees and other income, partly offset by an increase in net interchange fees. Our estimate for non-interest income was the same as the reported number.
Non-interest expenses were $4.95 billion, rising 9%. The increase was largely due to a rise in salaries and associate benefit costs and other expenses. We had expected the metric to be $5.3 billion.
The efficiency ratio was 55.54%, down from 55.68% in the year-ago quarter. A fall in the efficiency ratio indicates an improvement in profitability.
As of Mar 31, 2023, loans held for investment were $308.8 billion, down 1% from the prior quarter. Total deposits were $349.8 billion, which grew 5%.
Credit Quality Worsens
Provision for credit losses was $2.8 billion in the reported quarter, rising significantly from $677 million in the prior-year quarter. We had anticipated the metric to be $1.82 billion.
The 30-plus-day performing delinquency rate rose 80 bps to 2.88%. Also, the net charge-off rate jumped 110 bps to 2.21%. Allowance, as a percentage of reported loans held for investment, was 4.64%, up 61 bps.
Capital & Profitability Ratios Deteriorate
As of Mar 31, 2023, Tier 1 risk-based capital ratio was 13.9%, down from 14.1% a year ago. Common equity Tier 1 capital ratio was 12.5%, declining from 12.7%.
At the end of the first quarter, return on average assets was 0.83%, down from the year-ago period’s 2.23%. Return on average common equity was 7.11%, falling from 16.98%.
Share Repurchase Update
During the reported quarter, Capital One repurchased 1.4 million shares for $150 million.
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) first-quarter 2023 adjusted earnings of 82 cents per share missed the Zacks Consensus Estimate of 88 cents. The bottom line reflects a decline of 59.6% from the year-ago quarter. Our estimate for adjusted earnings was 79 cents.
ALLY’s results were primarily hurt by a decline in revenues and higher expenses. A significant increase in provisions was another undermining factor. However, an increase in loans was a tailwind.
Navient Corporation (NAVI - Free Report) reported first-quarter 2023 adjusted earnings per share of $1.06, surpassing the Zacks Consensus Estimate of 88 cents. The reported figure compares favorably with the year-ago quarter’s 90 cents.
A fall in NII and total other income, as well as higher expenses, has hindered the results. However, a decrease in expenses was a tailwind for NAVI.
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Capital One (COF) Q1 Earnings Lag as Provisions Rise, Stock Down
Shares of Capital One (COF - Free Report) lost 3.3% in after-hours trading in response to lower-than-expected first-quarter 2023 results. Earnings of $2.31 per share lagged the Zacks Consensus Estimate of $3.80 by a wide margin. The bottom line tanked 59% from the year-ago quarter. Our estimate for earnings was $2.71.
Results were adversely impacted by significantly higher provisions. Also, an increase in operating expenses and lower non-interest income acted as headwinds. Yet, decent loan balance and higher interest rates aided net interest income (NII). Further, the company witnessed a robust rise in deposit balance during the quarter.
Net income available to common shareholders was $887 billion, plunging 62% from the prior-year quarter. Our estimate for the metric was $1.04 billion.
Revenues Improve, Expenses Rise
Total net revenues were $8.9 billion, up 9% from the prior-year quarter. The top line missed the Zacks Consensus Estimate of $8.96 billion. We had projected revenues of $8.53 billion.
NII improved 12% to $7.19 billion. The net interest margin (NIM) increased 11 basis points (bps) to 6.60%. Our estimates for NII and NIM were $6.81 billion and 6.68%, respectively.
Non-interest income of $1.72 billion declined 3%. This was primarily due to lower service charges, other customer-related fees and other income, partly offset by an increase in net interchange fees. Our estimate for non-interest income was the same as the reported number.
Non-interest expenses were $4.95 billion, rising 9%. The increase was largely due to a rise in salaries and associate benefit costs and other expenses. We had expected the metric to be $5.3 billion.
The efficiency ratio was 55.54%, down from 55.68% in the year-ago quarter. A fall in the efficiency ratio indicates an improvement in profitability.
As of Mar 31, 2023, loans held for investment were $308.8 billion, down 1% from the prior quarter. Total deposits were $349.8 billion, which grew 5%.
Credit Quality Worsens
Provision for credit losses was $2.8 billion in the reported quarter, rising significantly from $677 million in the prior-year quarter. We had anticipated the metric to be $1.82 billion.
The 30-plus-day performing delinquency rate rose 80 bps to 2.88%. Also, the net charge-off rate jumped 110 bps to 2.21%. Allowance, as a percentage of reported loans held for investment, was 4.64%, up 61 bps.
Capital & Profitability Ratios Deteriorate
As of Mar 31, 2023, Tier 1 risk-based capital ratio was 13.9%, down from 14.1% a year ago. Common equity Tier 1 capital ratio was 12.5%, declining from 12.7%.
At the end of the first quarter, return on average assets was 0.83%, down from the year-ago period’s 2.23%. Return on average common equity was 7.11%, falling from 16.98%.
Share Repurchase Update
During the reported quarter, Capital One repurchased 1.4 million shares for $150 million.
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 Consumer Loan Stocks
Ally Financial’s (ALLY - Free Report) first-quarter 2023 adjusted earnings of 82 cents per share missed the Zacks Consensus Estimate of 88 cents. The bottom line reflects a decline of 59.6% from the year-ago quarter. Our estimate for adjusted earnings was 79 cents.
ALLY’s results were primarily hurt by a decline in revenues and higher expenses. A significant increase in provisions was another undermining factor. However, an increase in loans was a tailwind.
Navient Corporation (NAVI - Free Report) reported first-quarter 2023 adjusted earnings per share of $1.06, surpassing the Zacks Consensus Estimate of 88 cents. The reported figure compares favorably with the year-ago quarter’s 90 cents.
A fall in NII and total other income, as well as higher expenses, has hindered the results. However, a decrease in expenses was a tailwind for NAVI.