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Capital One COF is slated to report fourth-quarter and full-year 2024 results on Jan. 21, after market close. Its quarterly earnings and revenues are expected to have witnessed an increase on a year-over-year basis.
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In the last reported quarter, COF’s earnings surpassed the Zacks Consensus Estimate. The results gained from a rise in net interest income (NII) and higher loans and deposits. An increase in expenses and higher provisions, alongside lower non-interest income, were the undermining factors.
Capital One does not have an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in one quarter and lagged in three of the trailing four quarters.
Capital One Financial Corporation Price and Consensus
Capital One Financial Corporation price-consensus-chart | Capital One Financial Corporation Quote
Key Factors Driving COF’s Q4 Performance & Estimates
NII: Since September 2024, the Federal Reserve has reduced interest rates by 100 basis points (bps). This is likely to have positively impacted COF’s NII during the quarter. Further, the yield curve steepened and then normalized during the quarter. This is likely to have reduced funding costs somewhat, though they’re still expected to remain high due to deposit repricing lag.
The overall lending scenario improved during the quarter, with a rise in demand for consumer loans. The Zacks Consensus Estimate for total average earning assets of $459.5 billion indicates a 2.8% rise from the prior-year quarter’s reported figure. Our estimate for the metric is $453.8 billion.
Also, Capital One’s efforts to strengthen its card operations are expected to have provided some support. The consensus estimate for NII of $8.12 billion indicates 8% growth. Our estimate for NII is pegged at $7.92 billion.
Fee Income: Capital One’s interchange fees (constituting more than 60% of fee income) are likely to have improved in the quarter under review, given increased card usage. The Zacks Consensus Estimate for interchange fees is $1.29 billion, suggesting a 5.9% increase. Our estimate for the metric is $1.31 billion.
The consensus estimate for service charges and other customer-related fees of $478.3 million implies 12.8% growth. The Zacks Consensus Estimate for other non-interest income is pegged at $309.1 million, indicating a 20.8% year-over-year decline. Our estimates for service charges and other customer-related fees, and other non-interest income are $466.6 million and $281.2 million, respectively.
The consensus estimate for total non-interest income of $2.04 billion suggests a rise of 2.6% from the prior-year quarter. We expect the metric to be $2.06 billion.
Expenses: Capital One has been witnessing a persistent rise in expenses over the past several quarters because of higher marketing costs. The company’s investment in technology upgrades leads to higher costs. These, along with inflation pressure, are expected to have resulted in an increase in operating expenses in the fourth quarter.
Also, the pending acquisition of Discover Financial Services is expected to have incurred some merger-related charges in the to-be-reported quarter.
Our estimate for total non-interest expenses stands at $5.97 billion, implying a year-over-year increase of 4.4%.
In the fourth quarter of 2024, management expects operating expenses to rise sequentially, in line with the historical pattern, as the company continues to invest in technology upgrades.
Asset Quality: Capital One is expected to have set aside a decent amount for potential bad loans on account of a higher for longer interest rate backdrop and inflationary pressure.