Higher revenues drove Capital One Financial Corporation’s COF first-quarter 2015 earnings of $2.00 per share, up 2% from the prior-year quarter figure. Further, earnings from continuing operations of $1.97 per share surpassed the Zacks Consensus Estimate of $1.88 per share.
Capital One Financial Corporation - Earnings Surprise | FindTheCompany
Results benefited from higher net interest income and non-interest income, partly offset by elevated expenses and provisions. However, credit quality along with capital ratios and profitability ratios reflected weakness.
Net income from continuing operations came in at $1.13 billion, increasing 1% year over year.
Performance Details
Capital One’s net revenue totaled $5.65 billion, up 5% year over year. However, the figure slightly missed the Zacks Consensus Estimate of $5.68 billion.
Net interest income climbed 5% year over year to $4.58 billion, mainly due to a 5% rise in total interest income and 1% decrease in interest expenses. Also, net interest margin descended 5 basis points (bps) year over year to 6.57%.
Non-interest income increased 5% year over year to $1.07 billion on the back of higher interchange fees and other income. These were, however, partly offset by a reduction in service charges and other customer-related fees as well as higher net other-than-temporary impairment losses.
Non-interest expenses rose 4% year over year to $3.05 billion. The rise was mainly attributable to an increase in marketing costs, occupancy and equipment expenses as well as salaries and associate benefit costs. Nevertheless, these were partially offset by a fall in amortization of intangibles.
The efficiency ratio improved to 53.99% from 54.60% in the year-ago quarter. A fall in efficiency ratio indicates rise in profitability.
Credit Quality
Capital One’s credit quality deteriorated during the quarter. Net charge-off rate declined 20 bps year over year to 1.72%.
However, provision for credit losses increased 27% year over year to $935 million. Also, the 30-plus day performing delinquency rate inched up 10 bps year over year to 2.32%. Moreover, allowance, as a percentage of reported loans held for investment, came in at 2.16%, up 4 bps from the prior-year quarter.
Capital and Profitability Ratios
Capital One’s profitability ratios and capital ratios weakened during the quarter. As of Mar 31, 2015, return on average assets inched down to 1.47% from 1.53% as of Mar 31, 2014. Return on average common equity declined to 9.84% from 10.53% in the prior-year quarter.
As of Mar 31, 2015, Tier 1 risk-based capital ratio came in at 13.2%, down from 13.4% as of Mar 31, 2014. Moreover, total risk-based capital ratio stood at 15.1%, down from 15.4% as of Mar 31, 2014.
Further, common equity Tier 1 capital ratio under Basel III Standardized Approach was 12.5% as of Mar 31, 2015.
Our Viewpoint
We expect continued synergies from Capital One’s geographic diversification and its major acquisitions, namely HSBC Holdings plc’s HSBC credit card business and ING Direct USA, the online banking unit of ING Groep NV ING. Moreover, the resilience shown by most of the company’s businesses will continue to support its financials going forward.
Nonetheless, exposure to commercial real estate, a weak loan demand and impact of new financial regulations are expected to affect results in the near term.
Currently, Capital One carries a Zacks Rank #3 (Hold).
Among other firms in the same sector, SLM Corporation SLM reported core earnings of 10 cents per share, beating the Zacks Consensus Estimate of 7 cents on the back of lower provisions.
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