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Capital One (COF) Up 2% as Q2 Earnings Top on Card Business
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Shares of Capital One (COF - Free Report) gained more than 2% following the release of second-quarter 2018 results after the market closed. Adjusted earnings of $3.22 per share easily surpassed the Zacks Consensus Estimate of $2.63. Also, it compared favorably with the year-ago quarter’s adjusted earnings of $1.96.
Results benefited from rise in revenues and strength in card business. Further, a decline in provision for credit losses and stable expenses were the tailwinds. However, a sequential fall in loans and deposits hurt the results to some extent.
After taking into consideration the non-recurring items, net income available to common shareholders was $1.81 billion or $3.71 per share, up from $948 million or $1.94 per share in the prior-year quarter.
Revenues Rise, Expenses Stable
Net revenues were $7.19 billion, up 7% from the prior-year quarter. Further, the figure beat the Zacks Consensus Estimate of $6.94 billion.
Net interest income inched up 1% from the prior-year quarter to $5.55 billion. However, net interest margin decreased 22 basis points (bps) year over year to 6.66%.
Non-interest income surged 33% year over year to $1.64 billion. The increase was mainly driven by rise in net interchange fees and gain on sale of majority of consumer home loan portfolio and the related servicing, which got reflected in other income.
Non-interest expenses of $3.42 billion was relatively stable year over year.
Efficiency ratio was 47.61% compared with 50.92% in the year-ago quarter. A decrease in efficiency ratio indicates improved profitability.
Credit Quality: A Mixed Bag
Net charge-off rate decreased 25 bps year over year to 2.42%. Also, provision for credit losses declined 29% from the year-ago quarter to $1.28 billion.
However, the 30-plus day performing delinquency rate increased 19 bps year over year to 2.88%. Likewise, allowance as a percentage of reported loans held for investment was 3.12%, up 19 bps year over year.
Loans and Deposits Decline
As of Jun 30, 2018, loans held for investment were $236.12 billion, down 5% from the prior quarter. Also, total deposits, as of the same date, dipped 1% sequentially to $248.23 billion.
Profitability & Capital Ratios Improve
Return on average assets was 2.11% at the end of the reported quarter, up from 1.20% in the year-ago quarter. Also, return on average common equity was 16.06%, up from 8.59% in the prior-year quarter.
As of Jun 30, 2018, Tier 1 risk-based capital ratio was 12.6%, up from 12.2% in the prior-year quarter end. Further, common equity Tier 1 capital ratio under Basel III Standardized Approach was 11.1% as of Jun 30, 2018, up from 10.7% as of Jun 30, 2017.
Our Take
Capital One’s strategic acquisitions over years position it well for long-term growth. Further, steady improvement in card business will likely support profitability. However, increasing expenses remains a concern. Also, asset quality is likely to continue remaining under pressure due to losses in the auto portfolio and U.S. card business.
Capital One Financial Corporation Price, Consensus and EPS Surprise
Earnings Release Dates of Other Consumer Loan Stocks
Navient Corporation (NAVI - Free Report) and SLM Corporation (SLM - Free Report) are scheduled to report results on Jul 24, while Ally Financial Inc. (ALLY - Free Report) will report on Jul 26.
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Image: Bigstock
Capital One (COF) Up 2% as Q2 Earnings Top on Card Business
Shares of Capital One (COF - Free Report) gained more than 2% following the release of second-quarter 2018 results after the market closed. Adjusted earnings of $3.22 per share easily surpassed the Zacks Consensus Estimate of $2.63. Also, it compared favorably with the year-ago quarter’s adjusted earnings of $1.96.
Results benefited from rise in revenues and strength in card business. Further, a decline in provision for credit losses and stable expenses were the tailwinds. However, a sequential fall in loans and deposits hurt the results to some extent.
After taking into consideration the non-recurring items, net income available to common shareholders was $1.81 billion or $3.71 per share, up from $948 million or $1.94 per share in the prior-year quarter.
Revenues Rise, Expenses Stable
Net revenues were $7.19 billion, up 7% from the prior-year quarter. Further, the figure beat the Zacks Consensus Estimate of $6.94 billion.
Net interest income inched up 1% from the prior-year quarter to $5.55 billion. However, net interest margin decreased 22 basis points (bps) year over year to 6.66%.
Non-interest income surged 33% year over year to $1.64 billion. The increase was mainly driven by rise in net interchange fees and gain on sale of majority of consumer home loan portfolio and the related servicing, which got reflected in other income.
Non-interest expenses of $3.42 billion was relatively stable year over year.
Efficiency ratio was 47.61% compared with 50.92% in the year-ago quarter. A decrease in efficiency ratio indicates improved profitability.
Credit Quality: A Mixed Bag
Net charge-off rate decreased 25 bps year over year to 2.42%. Also, provision for credit losses declined 29% from the year-ago quarter to $1.28 billion.
However, the 30-plus day performing delinquency rate increased 19 bps year over year to 2.88%. Likewise, allowance as a percentage of reported loans held for investment was 3.12%, up 19 bps year over year.
Loans and Deposits Decline
As of Jun 30, 2018, loans held for investment were $236.12 billion, down 5% from the prior quarter. Also, total deposits, as of the same date, dipped 1% sequentially to $248.23 billion.
Profitability & Capital Ratios Improve
Return on average assets was 2.11% at the end of the reported quarter, up from 1.20% in the year-ago quarter. Also, return on average common equity was 16.06%, up from 8.59% in the prior-year quarter.
As of Jun 30, 2018, Tier 1 risk-based capital ratio was 12.6%, up from 12.2% in the prior-year quarter end. Further, common equity Tier 1 capital ratio under Basel III Standardized Approach was 11.1% as of Jun 30, 2018, up from 10.7% as of Jun 30, 2017.
Our Take
Capital One’s strategic acquisitions over years position it well for long-term growth. Further, steady improvement in card business will likely support profitability. However, increasing expenses remains a concern. Also, asset quality is likely to continue remaining under pressure due to losses in the auto portfolio and U.S. card business.
Capital One Financial Corporation Price, Consensus and EPS Surprise
Capital One Financial Corporation Price, Consensus and EPS Surprise | 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.
Earnings Release Dates of Other Consumer Loan Stocks
Navient Corporation (NAVI - Free Report) and SLM Corporation (SLM - Free Report) are scheduled to report results on Jul 24, while Ally Financial Inc. (ALLY - Free Report) will report on Jul 26.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
See This Ticker Free >>