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Capital One (COF) Q4 Earnings Beat on Loans, Stock Down 2.6%

Capital One’s COF fourth-quarter 2021 earnings of $5.41 per share easily surpassed the Zacks Consensus Estimate of $5.14. The bottom line improved 2% from the year-ago quarter’s adjusted number.

Results benefited from a solid rise in loan balances, which supported net interest income and margin. Higher consumer confidence aided credit card business and non-interest income.

However, an increase in operating expenses was a headwind. During the quarter, the company recorded provision for credit losses. Perhaps these were the primary reasons for investors’ bearish stance, as COF’s shares lost 2.6% in after-hours trading.

Net income available to common shareholders (GAAP basis) was $2.3 billion, down 7% from the prior-year quarter.

In 2021, adjusted earnings per share of $27.11 beat the consensus estimate of $26.64 and witnessed substantial improvement from $5.79 earned in 2020. Net income available to common shareholders (GAAP basis) was $12 billion or $26.94 per share, up significantly from $2.38 billion or $5.18 per share in 2020.

Revenues & Expenses Rise, Loan Balance Up

Total net revenues in the quarter were $8.12 billion, up 11% from the prior-year quarter. The top line also beat the Zacks Consensus Estimate of $7.93 billion.

In 2021, total net revenues grew 7% to $30.44 billion. The top line also outpaced the Zacks Consensus Estimate of $30.25 billion.

Net interest income improved 10% from the prior-year quarter to $6.45 billion.

Net interest margin surged 55 basis points (bps) to 6.60%. This was largely driven by lower rates on interest-bearing liabilities, higher yields and average card balances and a fall in average cash balance.

Non-interest income of $1.67 billion increased 14%. This was primarily attributable to growth in net interchange fees (up 23%) and service charges and other customer-related fees (up 29%).

Non-interest expenses were $4.68 billion, rising 17%. The increase was mainly due to a 77% surge in marketing expenses. Adjusted expenses increased 16% to $4.68 billion.

Efficiency ratio was 57.63%, up from 54.64% in the year-ago quarter. A rise in efficiency ratio indicates deterioration in profitability.

As of Dec 31, 2021, loans held for investment were $277.3 billion, up 6% from the prior quarter. Total deposits, as of the same date, rose 2% to $311 billion.

Credit Quality: A Mixed Bag

Provision for credit losses jumped 44% year over year to $381 million.

However, the 30-plus day performing delinquency rate declined 16 bps to 2.25%. Net charge-off rate decreased 59 bps year over year to 0.79%. Allowance, as a percentage of reported loans held for investment, was 4.12%, down 207 bps.

Capital Ratios Deteriorates

As of Dec 31, 2021, Tier 1 risk-based capital ratio was 14.5%, down from 15.3% a year ago. Common equity Tier 1 capital ratio was 13.1% as of Dec 31, 2021, down from 13.7%.

Share Repurchase Update

During the quarter, Capital One repurchased 17 million shares for $$2.6 billion. This completed the company’s $7.5 billion buyback authorization.

Our View

Capital One’s strategic acquisitions, rise in demand for consumer loans and steady improvement in the card business position it well for long-term growth. However, mounting expenses remain a major near-term concern.

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

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Currently, Capital One carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance & Earnings Date Other Consumer Loan Providers

Ally Financial’s ALLY fourth-quarter 2021 adjusted earnings of $2.02 per share surpassed the Zacks Consensus Estimate by a penny. The bottom line showed a rise of 26.3% from the year-ago quarter’s number.

Results benefited primarily from an improvement in revenues and higher loans and deposit balances. However, a rise in expenses and higher provisions hurt Ally Financial’s results to some extent.

Credit Acceptance Corporation CACC is slated to report fourth-quarter and full-year 2021 results on Jan 31.

Over the past 30 days, the Zacks Consensus Estimate for Credit Acceptance’s quarterly earnings has been stable at $12.72. This indicates a 34.9% increase from the prior-year quarter.

Enova International ENVA is slated to report fourth-quarter and full-year 2021 results on Feb 3.

Over the past 30 days, the Zacks Consensus Estimate for Enova International’s quarterly earnings has been unchanged at $1.14. This indicates a 52.3% decrease from the prior-year quarter.


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Enova International, Inc. (ENVA) : Free Stock Analysis Report

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