Capital One (COF) Stock Up 1% On Q4 Earnings & Revenue Beat

Shares of Capital One (NYSE:COF) rose nearly 1% after market close in response to fourth-quarter and 2019 results. Its fourth-quarter adjusted earnings of $2.49 per share easily surpassed the Zacks Consensus Estimate of $2.38. Also, it jumped 33% year over year.

Results reflect rise in net revenues, higher loan and deposit balances, and strength in card business. However, a rise in credit cost and higher operating expenses were the undermining factors.

After taking into consideration non-recurring items, net income available to common shareholders was $1.04 billion or $2.25 per share, down from $1.17 billion or $2.48 per share in the prior-year quarter.

For 2019, adjusted earnings of $12.09 per share grew 11% year over year but lagged the consensus estimate of $11.21. Net income available to common shareholders (as reported) declined 9% to $5.19 billion.

Revenues & Expenses Rise

Net revenues for the quarter were $7.43 billion, up 6% from the prior-year quarter. The figure beat the Zacks Consensus Estimate of $7.36 billion.

For 2019, net revenues increased 2% to $28.59 billion. It surpassed the consensus estimate of $28.56 billion.

Net interest income grew 4% to $6.07 billion. Net interest margin inched down 1 basis point (bp) to 6.95%.

Non-interest income of $1.36 billion increased 14% from the prior-year quarter. Lower service charges and other customer-related fees, and net securities losses were more than offset by rise in net interchange fees and other income.

Non-interest expenses of $4.16 billion were up 1%, mainly owing to 23% rise in salaries and associate benefits costs and 6% increase in communications and data processing costs.

Efficiency ratio was 56.03%, down from 58.92% in the year-ago quarter. A decrease in efficiency ratio indicates improvement in profitability.

As of Dec 31, 2019, loans held for investment were $265.8 billion, up 7% from the prior quarter. Total deposits, as of the same date, increased 2% sequentially to $262.7 billion.

Credit Quality: Mixed Bag

Net charge-off rate decreased 7 bps year over year to 2.60%. The 30-plus day performing delinquency rate declined 11 bps to 3.51%.

Also, allowance as a percentage of reported loans held for investment was 2.71%, down 23 bps. However, provision for credit losses rose 11% to $1.82 billion.

Profitability Ratios Decline, Capital Ratios Improve

Return on average assets was 1.23% at the end of the reported quarter, down from 1.38% in the year-ago quarter. Also, return on average common equity was 7.63%, down from 10.05% in the prior-year quarter.

As of Dec 31, 2019, Tier 1 risk-based capital ratio was 13.7%, up from 12.7% in the prior-year quarter end. Further, common equity Tier 1 capital ratio was 12.2% as of Dec 31, 2019, up from 11.2% on Dec 32, 2018.

Our Take

Capital One’s strategic acquisitions over the years have positioned it well for long-term growth. While rise in credit costs, lower rates and elevated expenses remain major near-term concerns, steady improvement in card business (leading to rise in interchange fees) is likely to aid profitability.

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 Dates of Other Bank Stocks

KeyCorp (NYSE:KEY) , Associated Banc-Corp (NYSE:ASB) and SVB Financial Group (NASDAQ:SIVB) are scheduled to announce results on Jan 23.

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