Capital One Financial Corp.
) fourth quarter 2012 earnings of $1.41 per share significantly
lagged the Zacks Consensus Estimate of $1.62. However, this was
nearly 60% above the prior-year quarter earnings of 88 cents.
For 2012, Capital One reported earnings of $6.16 per share. This
was below the Zacks Consensus Estimate of $6.43 and prior-year
earnings of $6.80.
The quarterly results improved on a year-over-year basis. Growth
in top line was partially offset by rise in operating expenses.
Further, strong profitability as well as capital ratios and
improving asset quality were the highlights of the quarter.
Net income from continuing operations for the fourth quarter came
in at $848 million or $1.42 per share compared with $411 million
or 89 cents per share in the year-ago quarter. In 2012, it stood
at $3.73 billion or $6.54 per share versus $3.25 billion or $7.03
per share in 2011.
Performance in Detail
Capital One's net revenues for the reported quarter stood at
$5.62 billion, jumping 38.9% year over year. Yet, revenues were
below the Zacks Consensus Estimate of $5.78 billion.
Net revenues for 2012 were $21.40 billion, surging 31.4% from
$16.28 billion in 2011. Also, revenues were above the Zacks
Consensus Estimate of $20.86 billion.
Net interest income for the quarter grew 42.3% from the
previous-year quarter to $4.53 billion. However, net interest
margin decreased 70 basis points (bps) year over year to 6.52%.
Non-interest income surged 26.3% from $868 million in the
prior-year quarter to $1.10 billion in the reported quarter. The
increase was mainly driven by higher service charges and other
customer-related fees as well as rise in interchange fees.
Capital One's operating expenses rose 24.3% from the prior-year
quarter to $3.26 billion. The increase was largely attributable
to higher salaries and associate benefits costs and
merger-related expenses, partially offset by lower marketing
The managed efficiency ratio deteriorated to 57.88% from 64.64%
in the prior-year quarter. The rise in efficiency ratio indicates
decline in profitability.
Capital One's credit quality showed improvement during the
reported quarter. Net charge-off rate declined 43 bps from 2.69%
in the prior-year quarter to 2.26%.
Similarly, the 30-plus day performing delinquency rate decreased
65 bps year over year to 2.70%. Moreover, allowance, as a
percentage of reported loans held for investment, came in at
2.50%, down 63 bps from 3.13% in the previous year quarter.
However, provision for credit losses jumped 33.7% year over year
to $1.15 billion. The rise was largely due to an increasingly
lower proportion of charge-offs related to acquired delinquent
non-revolving credit card loans being absorbed by the SOP 03-3
credit mark and seasonal increase in Domestic Card portfolio.
Capital and Profitability Ratios
Capital One's capital and profitability ratios continued to
remain stable in 2012. As of Dec 31, 2012, return on average
assets stood at 1.10%, up from 0.82% as of Dec 31, 2011.
Similarly, return on average common equity improved to 8.44% from
5.54% in the prior period.
As of Dec 31, 2012, tangible common equity (TCE) ratio was 7.9%
compared with 8.2% as of Dec 31, 2011.
As of Dec 31, 2012, tier 1 risk-based capital ratio came in at
11.4% marginally below 12.0% as of Dec 31, 2011. The company's
tangible book value per share was $40.23 as of Dec 31, 2012
compared with $34.26 as of Dec 31, 2011.
In 2013, Capital One anticipates average quarterly revenue levels
to be almost in line with the fourth quarter of 2012. This would
be driven by a modest fall in earning assets that will be offset
by a steady to slightly higher net interest margin.
Moreover, the company expects non-interest expense to be about
$3.1 billion per quarter in 2013, reflecting a modest decline in
quarterly expenses relative to seasonally elevated operating and
marketing costs in the fourth quarter of 2012.
We anticipate continued synergies from Capital One's geographic
diversification and two 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 retains a Zacks Rank #3 (Hold). Considering
the fundamentals, we also maintain a long-term Neutral
recommendation on the shares.
CAPITAL ONE FIN (COF): Free Stock Analysis
HSBC HOLDINGS (HBC): Free Stock Analysis
ING GROEP-ADR (ING): Free Stock Analysis
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