Back to top

Image: Bigstock

Capital One (COF) Down 4.4% on Wider-Than-Expected Q2 Loss

Read MoreHide Full Article

Capital One’s (COF - Free Report) shares fell 4.4% in the after-hours trading session, in response to second-quarter 2020 results. Adjusted loss of $1.61 per share was wider than the Zacks Consensus Estimate of a loss of $1.25. The year-ago quarterly earnings were $3.37 per share.

The results reflect a drastic surge in provisions amid coronavirus-related uncertainty. Also, a decline in loan balance, lower interest rates and weak consumer activity were headwinds. However, improvement in the deposit balance and robust capital ratios offered some support.

After taking into consideration non-recurring items, net loss available to common shareholders was $1.01 billion or $2.21 per share versus net income of $1.53 billion or $3.24 per share in the prior-year quarter.

Revenues & Loans Down, Expenses Stable

Total net revenues were $6.56 billion, down 8% from the prior-year quarter. The figure also missed the Zacks Consensus Estimate of $6.88 billion.

Net interest income fell 5% from the prior-year quarter to $5.46 billion. Net interest margin also fell 102 basis points (bps) to 5.78% due to lower yields on interest-earning assets.

Non-interest income of $1.10 billion decreased 20% from the prior-year quarter. Lower service charges and other customer-related fees, along with net interchange fees were the primary reasons for the decline.

Non-interest expenses of $3.77 billion were on par with the year-ago number. Rise in other costs, and salaries and associate benefit expenses were largely offset by fall in marketing costs and amortization of intangibles.

Efficiency ratio was 57.50%, up from 53.05% in the year-ago quarter. A rise in efficiency ratio indicates deterioration in profitability.

As of Jun 30, 2020, loans held for investment were $251.5 billion, down 4% from the prior quarter. Total deposits, as of the same date, increased 13% sequentially to $304.2 billion.

Credit Quality: Mixed Bag

Provision for credit losses jumped significantly on a year-over-year basis to $4.25 billion. The rise was largely due to economic uncertainty due to the coronavirus pandemic. Also, allowance — as a percentage of reported loans held for investment — was 6.69%, up 377 bps.

However, net charge-off rate decreased 10 bps year over year to 2.38%. Further, the 30-plus day performing delinquency rate declined 106 bps to 2.09%.

Capital Ratios Improve

As of Jun 30, 2020, Tier 1 risk-based capital ratio was 14.2%, up from 13.8% in the comparable prior-year period. Further, common equity Tier 1 capital ratio was 12.4% as of Jun 30, 2020, up from 12.3% in the corresponding period of 2019.

Our Take

Capital One’s strategic acquisitions and steady improvement in the card business position it well for long-term growth. However, rise in credit costs, lower interest rates and elevated expenses remain major near-term concerns.

Currently, Capital One carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance & Earnings Release Dates of Other Consumer Loan Providers

Zacks #3 Ranked Ally Financial’s (ALLY - Free Report) second-quarter 2020 adjusted earnings of 61 cents per share handily surpassed the Zacks Consensus Estimate of 18 cents. However, the figure deteriorated from the year-ago reported figure of 97 cents per share.

Enova International (ENVA - Free Report) and Mr. Cooper Group (COOP - Free Report) , each holding a Zacks Rank #2 (Buy), are scheduled to announce quarterly numbers on Jul 28 and Jul 30, respectively.

Just Released: Zacks’ 7 Best Stocks for Today

Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.

These 7 were selected because of their superior potential for immediate breakout.

See these time-sensitive tickers now >>

Published in