Capital One Financial Corp. (COF) reported fourth-quarter 2014 earnings of $1.73 per share, up 21% from the prior-year quarter. However, earnings from continuing operations of $1.68 per share missed the Zacks Consensus Estimate of $1.74, though it surpassed the prior-year quarter figure by 15%.
Results were hurt by higher provision for credit losses and a rise in expenses, which were, however, partly offset by higher revenues. Nevertheless, both profitability ratios and capital ratios witnessed improvement in the quarter, where as credit quality was a mixed bag.
Net income from continuing operations for the quarter came in at $970 million, increasing 11% year-over-year.
Capital One Financial Corp.’s full year 2014 earnings were $7.59 per share, up 10% from $6.89 earned in the preceding year. Full year 2014 earnings from continuing operations of $7.58 per share missed the Zacks Consensus Estimate of $7.63. However, it was 4% higher than the prior-year figure of $7.28.
Net income from continuing operations for the full year came in at $4.4 billion, increasing 2% from the prior year.
Performance Details
Capital One’s net revenue for the quarter was $5.81 billion, up 5% on a year-over-year basis. Further, the figure beat the Zacks Consensus Estimate of $5.68 billion. For full year 2014, net revenue came in at $22.3 billion, surpassing the Zacks Consensus Estimate of $22.1 billion.
Net interest income rose 5% from the prior-year quarter to $4.7 billion, driven by a 4% increase in total interest income and 6% decline in interest expenses. Also, net interest margin edged up 8 basis points (bps) year over year to 6.81%.
Non-interest income climbed 3% year over year to $1.16 billion on the back of higher other income and interchange fees. These were, however, partly offset by a decrease in service charges and other customer-related fees, and higher net other-than-temporary impairment recognized in earnings.
Non-interest expenses increased 2% from the prior-year quarter to $3.28 billion. The rise was led by an increase in salaries and associate benefits costs, occupancy and equipment expenses, and marketing costs. Nevertheless, these were partially offset by a fall in expenses related to professional services, communications and data processing, and amortization of intangibles.
The efficiency ratio improved to 56.49% from 58.35% in the year-ago quarter. A fall in efficiency ratio indicates rise in profitability.
Credit Quality
Capital One’s credit quality depicted a mixed bag. Provision for credit losses increased 16% year over year to $1.11 billion.
However, net charge-off rate declined 21 bps from the prior-year quarter to 1.80%. Also, the 30-plus day performing delinquency rate fell 1 basis point from the year-ago quarter to 2.62%. Moreover, allowance, as a percentage of reported loans held for investment, came in at 2.10%, down 9 bps from the prior-year quarter.
Capital and Profitability Ratios
Capital One’s profitability ratios improved during the quarter. As of Dec 31, 2014, return on average assets edged up to 1.27% from 1.19% as of Dec 31, 2013. Return on average common equity increased to 8.61% from 8.27% in the prior-year quarter.
Nevertheless, the company’s capital ratios continued to improve. As of Dec 31, 2014, Tier 1 risk-based capital ratio came in at 13.2%, up from 12.6% as of Dec 31, 2013. Moreover, total risk-based capital ratio was 15.1%, up 40 bps from the prior-year quarter level.
Further, common equity Tier 1 capital ratio under Basel III Standardized Approach was 12.4% as of Dec 31, 2014.
Our Viewpoint
We expect continued synergies from Capital One’s geographically diversified properties and its major acquisitions, namely HSBC Holdings plc’s (HSBC) credit card business and ING Direct USA, the online banking unit of ING Groep NV (ING). Moreover, the resilience shown by most of the company’s businesses will continue to support its financials going forward.
Nonetheless, higher expenses, exposure to commercial real estate, weak loan demand and impact of new financial regulations are anticipated to affect the company’s results in the near term.
Currently, Capital One carries a Zacks Rank #3 (Hold).
Among other firms in the same sector, Sallie Mae (SLM) reported core earnings of 3 cents per share for fourth-quarter 2014, missing the Zacks Consensus Estimate of 5 cents.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment