COF Up as Q1 Earnings Beat on Higher NII & Fee Income, Provisions Dip

Shares of Capital One COF jumped 2.8% in after-hours trading following the announcement of better-than-expected first-quarter 2025 results. Adjusted earnings of $4.06 per share handily surpassed the Zacks Consensus Estimate of $3.66. The bottom line also compared favorably with $3.21 in the prior-year quarter.Results benefited from higher net interest income (NII) and non-interest income. Also, provisions declined during the quarter. However, the increase in expenses and lower loan balance were undermining factors.Results excluded certain non-recurring items, including charges related to Discover Financial DFS integration. After considering these, net income available to common shareholders was $1.33 billion or $3.46 per share, up from $1.2 billion or $3.14 per share in the prior-year quarter. Our estimate for the metric was $1.34 billion.Update on Capital One-Discover Merger DealOn April 18, the Federal Reserve and the Office of the Comptroller of the Currency approved Capital One’s proposed acquisition of Discover. The transaction, announced in February 2024, is expected to close on May 18, subject to the satisfaction of customary closing conditions.Richard D. Fairbank, Founder, Chairman, and CEO of Capital One, said, “The combination of Capital One and Discover will create a leading consumer banking and payments platform with unique capabilities, modern technology, and powerful brands. It leverages Capital One’s technology transformation and digital capabilities across a significantly larger customer franchise. And it offers the potential to enhance competition and create significant value for merchants and customers.”Capital One’s Revenues Improve, Expenses RiseTotal net revenues for the quarter were $10 billion, up 6% from the prior-year quarter. However, the top line lagged the Zacks Consensus Estimate of $10.03 billion.NII increased 7% year over year to $8.01 billion. NIM expanded 24 basis points (bps) to 6.93%. Our estimates for NII and NIM were $7.88 billion and 6.99%, respectively.Non-interest income of $2 billion grew 4%. The rise was driven by higher service charges and other customer-related fees, and net interchange fees. Our estimate for non-interest income was $2.02 billion.Non-interest expenses were $5.9 billion, up 15% year over year. The rise was due to an increase in almost all cost components except the amortization of intangibles costs. We expected the metric to be $5.4 billion. Adjusted expenses were $5.59 billion, up 10%.The efficiency ratio was 59.02%, up from 54.64% in the year-ago quarter. A rise in the efficiency ratio indicates a deterioration in profitability.As of March 31, 2025, loans held for investment were $323.6 billion, down 1% from the prior-quarter end. Total deposits were $367.5 billion, rising 1%. Our estimates for loans held for investment and total deposits were $313.7 billion and $360.2 billion, respectively.COF’s Credit Quality: A Mixed BagProvision for credit losses was $2.37 billion in the reported quarter, down 12% from the prior-year quarter. We anticipated provisions of $2.6 billion.The 30-plus-day-performing delinquency rate fell 11 bps year over year to 3.29%.However, the net charge-off rate rose 7 bps to 3.40%. Allowance, as a percentage of reported loans held for investment, was 4.91%, up 3 bps year over year.COF’s Capital & Profitability Ratios ImproveAs of March 31, 2025, the Tier 1 risk-based capital ratio was 14.9%, up from 14.4% a year ago. The common equity Tier 1 capital ratio was 13.6%, improving from 13.1%.At the end of the first quarter, the return on average assets was 1.14%, up from 1.08% in the year-ago period. Return on average common equity was 9.23%, up from 9.03%.Capital One’s Share Repurchase UpdateDuring the reported quarter, the company repurchased 0.74 million shares for $150 million.Our View on Capital OneCapital One’s strategic acquisitions, decent demand for consumer loans, relatively higher rates and steady improvement in the card business position it well for long-term growth. Also, its acquisition of Discover Financial will reshape the landscape of the credit card industry, leading to the formation of a behemoth in the industry. However, elevated expenses and weak asset quality amid a tough macroeconomic backdrop are major concerns. Capital One Financial Corporation Price, Consensus and EPS Surprise Capital One Financial Corporation price-consensus-eps-surprise-chart | Capital One Financial Corporation QuoteCurrently, 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 Date of COF’s PeersAlly Financial’s ALLY first-quarter 2025 adjusted earnings of 58 cents per share handily surpassed the Zacks Consensus Estimate of 43 cents. Also, the bottom line reflected a jump of 41.5% from the year-ago quarter.Results benefited from a rise in net finance revenues and lower provisions. However, lower other revenues, higher non-interest expenses, and a decline in net finance receivables and loans and deposits were the undermining factors for Ally.Navient NAVI is scheduled to announce first-quarter 2025 results on April 30. (See the Zacks Earnings Calendar to stay ahead of market-making news.)Over the past seven days, the Zacks Consensus Estimate for NAVI’s quarterly earnings has remained unchanged at 11 cents. This implies an 82.5% decrease from the prior-year quarter.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.9% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>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 Discover Financial Services (DFS): Free Stock Analysis Report Capital One Financial Corporation (COF): Free Stock Analysis Report Ally Financial Inc. (ALLY): Free Stock Analysis Report Navient Corporation (NAVI): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks