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Capital One (COF) Down 1.2% Despite Q2 Earnings & Revenue Beat

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Capital One’s COF second-quarter 2021 adjusted earnings of $7.71 per share handily outpaced the Zacks Consensus Estimate of $4.78. The bottom line improved significantly from adjusted loss of $1.61 incurred in the year-ago quarter.

Results benefited from solid rise in loan balances, which supported net interest income. Higher consumer confidence aided credit card business, leading to higher non-interest income. Further, provision benefits, mainly due to reserve releases, acted a tailwind.

However, rise in operating expenses was an undermining factor. During the quarter, the company built legal reserve of $55 million. Perhaps these were the primary reasons for investors’ bearish stance, as the company’s shares lost 1.2% in the afterhours trading session.

Net income available to common shareholders (GAAP basis) was $3.45 billion or $7.62 per share against a net loss of $1.01 billion or $2.21 per share in the prior-year quarter.

Revenues & Expenses Rise, Loan Balance Up

Total net revenues were $7.37 billion, up 12% from the prior-year quarter. The top line beat the Zacks Consensus Estimate of $7.10 billion.

Net interest income grew 5% from the prior-year quarter to $5.74 billion.

Net interest margin also increased 11 basis points (bps) to 5.89%. This was mainly driven by lower rates on interest-bearing liabilities, partly offset by higher balances and lower yields in investment securities.

Non-interest income of $1.63 billion jumped 49% from the prior-year quarter. This was largely attributable to 51% surge in net interchange fees and 49% rise in service charges and other customer-related fees.

Non-interest expenses were $3.97 billion, up 5%.

Efficiency ratio was 53.78%, down from 57.50% in the year-ago quarter. A fall in efficiency ratio indicates improvement in profitability.

As of Jun 30, 2021, loans held for investment were $249.6 billion, up 3% from the prior quarter. Total deposits, as of the same date, fell 1% to $306.3 billion.

Credit Quality Improves

Provision for credit losses was a benefit of $1.16 billion against a provision of $4.24 billion in the year-ago quarter. This was mainly driven by $1.7 billion of reserve releases. The 30-plus day performing delinquency rate declined 34 bps to 1.75%.

Also, net charge-off rate decreased 150 bps year over year to 0.88%. Allowance, as a percentage of reported loans held for investment was 4.95%, down 174 bps.

Capital Ratios Improve

As of Jun 30, 2021, Tier 1 risk-based capital ratio was 16.6%, up from 14.2% a year ago. Common equity Tier 1 capital ratio was 14.5% as of Jun 30, 2021, up from 12.4%.

Share Repurchase Update

During the quarter, Capital One repurchased 11.4 million shares for $$1.7 under its $7.5 billion authorization.

Our View

Capital One’s strategic acquisitions, rise in demand for consumer loans and steady improvement in the card business position it well for long-term growth. However, lower interest rates remain a major near-term concern.

Capital One Financial Corporation Price, Consensus and EPS Surprise

Capital One Financial Corporation Price, Consensus and EPS Surprise
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 & Earnings Date of Other Consumer Loan Providers

Ally Financial’s ALLY second-quarter 2021 adjusted earnings of $2.33 per share surpassed the Zacks Consensus Estimate of $1.55. The bottom line showed significant improvement from 61 cents recorded a year ago.

Sallie Mae SLM reported second-quarter 2021 core earnings per share of 45 cents, which handily surpassed the Zacks Consensus Estimate of 39 cents. The bottom line reflected substantial improvement from a loss of 22 cents incurred in the prior-year quarter.

Navient Corporation NAVI is scheduled to announce quarterly number on Jul 27.


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