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Capital One (COF) Up 2.2% on Q1 Earnings and Revenue Beat

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Capital One’s COF shares gained 2.2% in the afterhours trading session in response to better-than-expected first-quarter 2021 results. Adjusted earnings of $7.03 per share outpaced the Zacks Consensus Estimate of $4.17. Further, the bottom line improved significantly from adjusted loss of $3.02 incurred in the year-ago quarter.

Results reflect an improvement in non-interest income and stable expenses. Further, provision benefits, mainly due to reserve releases, supported the financials. However, lower interest rates and lower loan balance hurt net interest income, which declined during the quarter.

Net income available to common shareholders was $3.24 billion against a net loss of $1.42 billion in the prior-year quarter.

Revenues Down, Expenses Stable

Total net revenues were $7.11 billion, down 2% from the prior-year quarter. However, the top line beat the Zacks Consensus Estimate of $6.92 billion.

Net interest income fell 3% from the prior-year quarter to $5.82 billion. Net interest margin also declined 79 basis points (bps) to 5.99% due to lower yields on interest-earning assets.

Non-interest income of $1.29 billion rose 5% from the prior-year quarter.

Non-interest expenses were $3.74 billion, relatively stable year over year.

Efficiency ratio was 52.58%, up from 51.44% in the year-ago quarter. A rise in efficiency ratio indicates deterioration in profitability.

As of Mar 31, 2021, loans held for investment were $243.1 billion, down 3% from the prior quarter. Total deposits, as of the same date, grew 2% to $310.3 billion.

Credit Quality Improves

Provision for credit losses was a benefit of $823 million against a provision of $5.42 billion. This was mainly driven by $1.6 billion of reserve releases. Further, the 30-plus day performing delinquency rate declined 113 bps to 1.82%.

Also, net charge-off rate decreased 151 bps year over year to 1.21%. However, allowance, as a percentage of reported loans held for investment was 5.77%, up 42 bps.

Capital Ratios Improve

As of Mar 31, 2021, Tier 1 risk-based capital ratio was 16.2%, up from 13.7% a year ago. Further, common equity Tier 1 capital ratio was 14.6% as of Mar 31, 2021, up from 12.0%.

Share Repurchase Update

During the quarter, Capital One repurchased 4.3 million shares for $490 million under its $7.5 billion authorization.

Our View

Capital One’s strategic acquisitions and steady improvement in the card business position it well for long-term growth. However, lower interest rates and weak loan demand remain major near-term concerns.

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 first-quarter 2021 adjusted earnings of $2.09 per share handily surpassed the Zacks Consensus Estimate of $1.18. Also, the bottom line showed a significant rebound from a loss of 44 cents incurred a year ago.

Sallie Mae’s SLM first-quarter 2021 earnings per share of $1.77 (on core basis) easily surpassed the Zacks Consensus Estimate of $1. Also, the bottom line compared favorably with 79 cents reported in the prior-year quarter.

Credit Acceptance Corporation CACC is scheduled to announce quarterly number on Apr 29.

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