Capital One Financial Corp.
) first-quarter 2013 earnings of $1.79 per share substantially
surpassed the Zacks Consensus Estimate of $1.63. Also, this was
nearly 27% above the prior-quarter earnings of $1.41.
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Better-than-expected results benefited from a fall in operating
expenses, partially offset by decline in revenues. Moreover,
strong profitability as well as capital ratios and continuously
improving asset quality were the other highlights of the quarter.
Net income from continuing operations for the first quarter came
in at $1.14 billion or $1.92 per share compared with $848 million
or $1.42 per share in the previous quarter.
Performance in Detail
Capital One's net revenue for the reported quarter stood at $5.55
billion, down 1.3% sequentially. The fall was mainly due to lower
average loan balances and purchase volume, which were partially
offset by higher margins. Moreover, revenues were below the Zacks
Consensus Estimate of $5.62 billion.
Net interest income for the quarter inched up about 1% from the
previous quarter to $4.57 billion. Further, net interest margin
increased 19 basis points (bps) sequentially to 6.71%, driven by
the reduction in interest expenses and release of cash related to
the redemption of trust preferred securities.
Non-interest income declined 10.5% from $1.10 billion in the last
quarter to $981 million in the reported quarter. The fall was
mainly driven by lower service charges and other customer-related
fees as well as decline in interchange fees.
Capital One's operating expenses dropped 7.0% from the prior
quarter to $3.02 billion. The decrease was largely attributable
to lower marketing expenses and acquisition-related costs,
partially offset by higher salaries and associate benefits costs.
The managed efficiency ratio improved to 54.55% from 57.88% in
the prior quarter. The fall in efficiency ratio indicates rise in
Capital One's credit quality showed improvement during the
reported quarter. Net charge-off rate declined 6 bps sequentially
to 2.20%. Similarly, the 30-plus day performing delinquency rate
decreased 33 bps from the prior quarter to 2.37%.
Moreover, allowance, as a percentage of reported loans held for
investment, came in at 2.41%, down 9 bps from 2.50% in the
previous quarter. Additionally, provision for credit losses
plunged 23.1% sequentially to $885 million.
Capital and Profitability Ratios
Capital One's capital and profitability ratios continued to
improve in the reported quarter. As of Mar 31, 2013, return on
average assets improved to 1.51% from 1.10% as of Dec 31, 2012.
Similarly, return on average common equity improved to 11.17%
from 8.44% in the prior quarter.
As of Mar 31, 2013, tier 1 risk-based capital ratio came in at
12.2%, up from 11.3% as of Dec 31, 2012. Also, total risk-based
capital ratio grew to 14.4% from 13.6% as of Dec 31, 2012.
Further, the company's tangible book value per share was $41.87
as of Mar 31, 2013, up from $40.23 as of Dec 31, 2012.
In Feb 2013, Capital One signed an agreement to vend certain
private label and co-branded credit card accounts to
). These card portfolios - worth about $7 billion - are related
to electronics retailer, Best Buy Co Inc.
Capital One stated that the agreement, still subject to customary
closing conditions, is expected to be completed in the third
quarter of 2013. Though the financial terms of the transaction
were not disclosed, the company anticipates the deal to have a
neutral impact on its earnings. Further, Capital One and Best Buy
have agreed to terminate the contractual credit card
relationship, which these companies share.
We anticipate continued synergies from Capital One's geographic
diversification and 2 of its major acquisitions -
HSBC Holdings plc
) credit card business and ING Direct USA, the online banking
ING Groep NV
). Moreover, the resilience shown by almost all its businesses
will continue to support its financials. Nevertheless, exposures
to commercial real estate, weak demand for loans and the impact
of new financial regulations are expected to marginally dent the
results in the near term.
Capital One currently carries a Zacks Rank #3 (Hold).