Continuing with its trend of delivering positive earnings
surprise since the last two quarters,
Capital One Financial Corp.
) third-quarter 2013 earnings per share of $1.86 outpaced the
Zacks Consensus Estimate of $1.77. However, this was 7.5% below
$2.01 earned in the prior-year quarter.
Our proven model also predicted that Capital One will beat
earnings as it had the right combination of two key ingredients -
of +3.39% and Zacks Rank #2 (Buy).
The quarter witnessed higher-than-expected revenues and improved
profitability ratios. However, higher expenses and deteriorating
capital ratios were the dampeners. Meanwhile, asset quality was a
Net income from continuing operations came in at $1.13 billion or
$1.88 per share, down from $1.19 billion or $2.03 per share in
the year-ago quarter.
Behind the Headlines
Capital One's net revenue for the reported quarter was $5.65
billion, down 2.3% year over year. However, it surpassed the
Zacks Consensus Estimate of $5.57 billion.
Net interest income fell 1.9% from the previous-year quarter to
$4.56 billion. Further, net interest margin decreased 8 basis
points (bps) year over year to 6.89%.
Non-interest income fell 4.0% from $1.14 billion in the last year
quarter to $1.09 billion in the reported quarter. The decline was
mainly due to a decrease in other income as well as service
charges and other customer-related fees, partially offset by
higher net interchange fees.
Non-interest expenses rose 3.3% from the prior-year quarter to
$3.15 billion. The increase was mainly due to rise in salaries
and associate benefits costs as well as occupancy and equipment
expenses, partly offset by decline in marketing expenses and
The managed efficiency ratio deteriorated to 55.69% from 52.66%
in the prior-year quarter. A rise in efficiency ratio indicates
decline in profitability.
Capital One's credit quality was a mix bag. Net charge-off rate
increased 17 bps year over year to 1.92%. The 30-plus day
performing delinquency rate was stable from the year-ago quarter
level at 2.54%.
However, allowance, as a percentage of reported loans held for
investment, came in at 2.26%, down 28 bps from the previous-year
quarter. Further, provision for credit losses fell 16.3% year
over year to $849 million.
Capital and Profitability Ratios
Capital One's capital ratios deteriorated in the reported
quarter. As of Sep 30, 2013, return on average assets fell to
1.53% from 1.60% as of Sep 30, 2012. Similarly, return on average
common equity declined to 11.00% from 12.43% in the prior-year
Capital One's profitability ratios continued to improve. As of
Sep 30, 2013, Tier 1 risk-based capital ratio came in at 13.1%,
up from 12.7% as of Sep 30, 2012. Moreover, total risk-based
capital ratio grew to 15.3% from 15.0% as of Sep 30, 2012.
In Sep 2013, Capital One completed the sale of certain private
label and co-branded credit card accounts to
). These card portfolios - worth nearly $6 billion in receivables
- were related to electronics retailer, Best Buy Co Inc.
Moreover, with the closure of the deal, Capital One will likely
be begin its share repurchase program. The company, in July, had
announced a share repurchase program worth approximately $1
billion through Mar 2014, following the approval of its capital
plan in March.
We anticipate continued synergies from Capital One's geographic
diversification and its major acquisitions, namely
HSBC Holdings plc
) credit card business and ING Direct USA - the online banking
ING Groep NV
). Moreover, the resilience shown by most of the company's
businesses will continue to support its financials going forward.
Nevertheless, exposure to commercial real estate, a weak demand
for loans, persistent rise in operating expenses and the impact
of new financial regulations are expected to affect results in
the near term.
CITIGROUP INC (C): Free Stock Analysis Report
CAPITAL ONE FIN (COF): Free Stock Analysis
HSBC HOLDINGS (HBC): Free Stock Analysis
ING GROEP-ADR (ING): Free Stock Analysis
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