A month has gone by since the last earnings report for Capital One (COF Quick QuoteCOF - Free Report) . Shares have lost about 3.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Capital One due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Capital One Q1 Earnings Beat as NII Improves, Provisions Rise

Capital One’s first-quarter 2022 earnings of $5.62 per share easily outpaced the Zacks Consensus Estimate of $5.39. The bottom line, however, declined 20% from the year-ago quarter. The reported quarter included 35 cents per share of gain on the sale of the partnership card portfolio.

Results benefited from a decent improvement in loan balances, which supported net interest income (NII). 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 a provision for credit losses.

Net income available to common shareholders (GAAP basis) was $2.3 billion, plunging 28% from the prior-year quarter.

Revenues & Expenses Rise

Total net revenues were $8.17 billion, up 15% from the prior-year quarter. The top line also beat the Zacks Consensus Estimate of $8.02 billion.

NII improved 10% from the prior-year quarter to $6.4 billion.

Net interest margin surged 50 basis points (bps) to 6.49%. This was largely driven by lower cash balances and a rise in average loan balances.

Non-interest income of $1.78 billion jumped 38%. This was primarily attributable to growth in net interchange fees (up 26%) and service charges and other customer-related fees (up 14%). Further, other non-interest income jumped significantly.

Non-interest expenses were $4.55 billion, rising 22%. The increase was mainly due to an 83% surge in marketing expenses.

Efficiency ratio was 55.68%, up from 52.58% in the year-ago quarter. A rise in efficiency ratio indicates deterioration in profitability.

As of Mar 31, 2022, loans held for investment were $280.5 billion, up 1% from the prior quarter. Total deposits, as of the same date, rose 1% to $313.4 billion.

Credit Quality: A Mixed Bag

Provision for credit losses was $677 million in the reported quarter compared with provision benefit of $823 million in the prior-year quarter. The 30-plus day performing delinquency rate rose 26 bps to 2.08%.

However, net charge-off rate decreased 10 bps year over year to 1.11%. Allowance, as a percentage of reported loans held for investment, was 4.03%, down 174 bps.

Capital Ratios Deteriorates

As of Mar 31, 2022, Tier 1 risk-based capital ratio was 14.1%, down from 16.2% a year ago. Common equity Tier 1 capital ratio was 12.7% as of Mar 31, 2022, down from 14.6%.

Share Repurchase Update

During the quarter, Capital One repurchased 16.7 million shares for $2.4 billion. This was part of the $5 billion buyback authorization announced in January.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Capital One has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Capital One has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.