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Capital One (COF) Q2 Earnings Beat as Revenues Increase Y/Y
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Capital One’s (COF - Free Report) second-quarter 2023 earnings of $3.52 per share surpassed the Zacks Consensus Estimate of $3.31. However, the bottom line tanked 29% from the year-ago quarter.
Results were aided by an increase in net interest income (NII) and fee income. However, despite higher rates, the net interest margin (NIM) declined year over year. Also, higher expenses, along with a significant rise in provisions, were the undermining factors.
Net income available to common shareholders was $1.35 billion, plunging 31% from the prior-year quarter. Our estimate for the metric was $1.23 billion.
Revenues Improve, Expenses Rise
Total net revenues were $9.01 billion, up 9% from the prior-year quarter. The top line missed the Zacks Consensus Estimate of $9.17 billion.
NII improved 9% year over year to $7.11 billion. The NIM declined 6 basis points (bps) to 6.48%. Our estimates for NII and NIM were $7 billion and 6.64%, respectively.
Non-interest income of $1.90 billion increased 11% from the prior-year quarter. The rise was driven by an increase in net interchange fees and other income. Our estimate for non-interest income was $1.75 billion.
Non-interest expenses were $4.79 billion, rising 5%. The increase was due to a rise in salaries and associate benefit costs, occupancy and equipment costs, communications and data processing related costs, costs related to amortization of intangibles, and other expenses. We expected the metric to be $4.84 billion.
The efficiency ratio was 53.20%, down from 55.67% in the year-ago quarter. A fall in the efficiency ratio indicates an improvement in profitability.
As of Jun 30, 2023, loans held for investment were $311.32 billion, up 1% from the prior-quarter end. Total deposits were $343.71 billion, which declined 2% sequentially.
Credit Quality Worsens
Provision for credit losses was $2.49 billion in the reported quarter, rising significantly from $1.09 billion in the prior-year quarter. We had anticipated provisions of $2.31 billion.
The 30-plus-day performing delinquency rate rose 72 bps year over year to 3.08%. Also, the net charge-off rate jumped 164 bps to 2.82%. Allowance, as a percentage of reported loans held for investment, was 4.70%, up 82 bps year over year.
Capital Ratios Improve, Profitability Ratios Deteriorate
As of Jun 30, 2023, the Tier 1 risk-based capital ratio was 14%, up from 13.5% a year ago. The common equity Tier 1 capital ratio was 12.7%, improving from 12.1%.
At the end of the second quarter, the return on average assets was 1.23%, down from the year-ago period’s 1.87%. Return on average common equity was 10.70%, falling from 15.81%.
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) second-quarter 2023 adjusted earnings of 96 cents per share surpassed the Zacks Consensus Estimate of 94 cents. The bottom line reflects a rise of 45.5% from the year-ago quarter.
ALLY’s results were primarily aided by an improvement in other revenues. A decent increase in loans was another tailwind. However, a decline in net financing revenues, along with higher expenses and provisions, were the undermining factors for ALLY.
Citizens Financial Group (CFG - Free Report) reported second-quarter 2023 earnings per share of 92 cents, missing the Zacks Consensus Estimate of $1. Nonetheless, the bottom line rose from 67 cents in the year-ago quarter.
CFG’s results reflected net interest income growth on a rise in interest-earning assets. However, an escalation in expenses, lower non-interest income and a decline in loans were the undermining factors for CFG.
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Capital One (COF) Q2 Earnings Beat as Revenues Increase Y/Y
Capital One’s (COF - Free Report) second-quarter 2023 earnings of $3.52 per share surpassed the Zacks Consensus Estimate of $3.31. However, the bottom line tanked 29% from the year-ago quarter.
Results were aided by an increase in net interest income (NII) and fee income. However, despite higher rates, the net interest margin (NIM) declined year over year. Also, higher expenses, along with a significant rise in provisions, were the undermining factors.
Net income available to common shareholders was $1.35 billion, plunging 31% from the prior-year quarter. Our estimate for the metric was $1.23 billion.
Revenues Improve, Expenses Rise
Total net revenues were $9.01 billion, up 9% from the prior-year quarter. The top line missed the Zacks Consensus Estimate of $9.17 billion.
NII improved 9% year over year to $7.11 billion. The NIM declined 6 basis points (bps) to 6.48%. Our estimates for NII and NIM were $7 billion and 6.64%, respectively.
Non-interest income of $1.90 billion increased 11% from the prior-year quarter. The rise was driven by an increase in net interchange fees and other income. Our estimate for non-interest income was $1.75 billion.
Non-interest expenses were $4.79 billion, rising 5%. The increase was due to a rise in salaries and associate benefit costs, occupancy and equipment costs, communications and data processing related costs, costs related to amortization of intangibles, and other expenses. We expected the metric to be $4.84 billion.
The efficiency ratio was 53.20%, down from 55.67% in the year-ago quarter. A fall in the efficiency ratio indicates an improvement in profitability.
As of Jun 30, 2023, loans held for investment were $311.32 billion, up 1% from the prior-quarter end. Total deposits were $343.71 billion, which declined 2% sequentially.
Credit Quality Worsens
Provision for credit losses was $2.49 billion in the reported quarter, rising significantly from $1.09 billion in the prior-year quarter. We had anticipated provisions of $2.31 billion.
The 30-plus-day performing delinquency rate rose 72 bps year over year to 3.08%. Also, the net charge-off rate jumped 164 bps to 2.82%. Allowance, as a percentage of reported loans held for investment, was 4.70%, up 82 bps year over year.
Capital Ratios Improve, Profitability Ratios Deteriorate
As of Jun 30, 2023, the Tier 1 risk-based capital ratio was 14%, up from 13.5% a year ago. The common equity Tier 1 capital ratio was 12.7%, improving from 12.1%.
At the end of the second quarter, the return on average assets was 1.23%, down from the year-ago period’s 1.87%. Return on average common equity was 10.70%, falling from 15.81%.
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 Finance Stocks
Ally Financial’s (ALLY - Free Report) second-quarter 2023 adjusted earnings of 96 cents per share surpassed the Zacks Consensus Estimate of 94 cents. The bottom line reflects a rise of 45.5% from the year-ago quarter.
ALLY’s results were primarily aided by an improvement in other revenues. A decent increase in loans was another tailwind. However, a decline in net financing revenues, along with higher expenses and provisions, were the undermining factors for ALLY.
Citizens Financial Group (CFG - Free Report) reported second-quarter 2023 earnings per share of 92 cents, missing the Zacks Consensus Estimate of $1. Nonetheless, the bottom line rose from 67 cents in the year-ago quarter.
CFG’s results reflected net interest income growth on a rise in interest-earning assets. However, an escalation in expenses, lower non-interest income and a decline in loans were the undermining factors for CFG.