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Net income: $1.8 billion or $4.41 per diluted common share.
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Adjusted earnings per share: $4.51 after adjusting items.
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Earnings before security: Up 3% to $4.7 billion.
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Revenue Growth: A 5% increase driven by higher net interest income.
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Costs without interest: Increased 7% due to higher operating and marketing costs.
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Provisions for credit losses: 2.5 billion dollars, which is 1.4 billion dollars less compared to the previous quarter.
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Exemption from fee: Released $134 million, with a reserve balance of $16.5 billion.
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Total liquidity reserves: Increased to approximately $132 billion.
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Net interest margin: 7.11%, more than 41 basis points compared to the previous quarter.
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Common Equity Tier 1 ratio: 13.6%, more than 40 basis points compared to the previous quarter.
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Growth in income from domestic cards: 10% compared to the previous year.
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Domestic card revenue margin: Increased by 43 basis points compared to the previous year to 18.7%.
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Repayment rate: 5.61%, with an increase of 38 basis points due to the termination of the Walmart contract.
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30+ Rate Latency: 4.53%, which is an increase of 22 basis points compared to the previous year.
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Marketing expenses: 1.1 billion dollars, which is an increase of 15% compared to the previous year.
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Auto Originations: An increase of 23% compared to the previous year.
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Income from consumer banking: A decrease of 3% compared to the previous year.
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Non-interest costs of consumer banking: An increase of 5% compared to the previous year.
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Autofill rate: 2.05%, up 28 basis points from the previous year.
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Net debit rate for commercial banking: 0.2%, more than 7 basis points compared to the next quarter.
Release date: October 24, 2024
For the full transcript of the earnings call, please refer to full call transcript earnings.
Positive Points
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Capital One Financial Corp (NYSE:COF) posted a strong third quarter with earnings of $1.8 billion, or $4.41 per diluted common share.
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Earnings before provisions rose 3% from the second quarter to $4.7 billion, boosted by higher net interest income.
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The company posted a 5% quarter-over-quarter increase in revenue, which was attributed to higher net interest income.
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Capital One Financial Corp (NYSE:COF) experienced an increase of 23% compared to the previous year, which indicates strong growth in this segment.
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The company’s liquidity reserves increased by approximately $9 billion to approximately $132 billion, reflecting strong deposit growth.
Negative Points
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Non-interest expenses increased by 7%, driven by higher operating and marketing costs.
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Provisions for loan losses totaled $2.5 billion, although compared to the previous quarter, it is still a significant expense.
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The charge-off rate for the credit card segment rose to 5.61%, with the end of Walmart’s loss-sharing agreement affecting the rate.
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Consumer banking revenues decreased by around 3% compared to the previous year, mainly due to higher deposit costs.
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The commercial banking segment recorded a decrease in final loans by around 2% compared to the related quarter.
Featured Questions and Answers
Q: Can you discuss the current state of consumer credit across segments and what that means for potential losses in your major asset classes? A: Richard Fairbank, CEO: The US consumer remains relatively strong, with a strong labor market and rising incomes. However, there are pockets of pressure due to inflation and higher interest rates. We are seeing some delayed payments from the pandemic period. For Capital One, credit has stabilized above pre-pandemic levels due to lower recovery and affordability pressures, but we are confident in our credit performance and have made strategic adjustments to effectively manage risk.
Q: What are the expectations for net interest margin (NIM) given recent trends and Fed actions? A: Andrew Young, CFO: In the near term, we expect some pressure on NIM due to asset sensitivity, but card growth could be a tailwind. In the longer term, factors such as cash levels, steepening of the yield curve and the credit trajectory will affect NIM. Despite some headwinds, recent stability and progress in the third quarter point to a positive outlook.
Q: How is Capital One’s auto business progressing and what are your expectations for growth? A: Richard Fairbank, CEO: Car production has grown for three consecutive quarters. We pulled back in 2022 due to expected risks, but credit performance remains strong. With interest rates and vehicle values easing, we see opportunities for disciplined growth, supported by our coverage and dealer relationships.
Q: How does the Discover acquisition affect your regulatory approval process and competitive position? A: Richard Fairbank, CEO: The Discover acquisition is unique because it includes the acquisition of a network, which we believe increases competition in a concentrated industry. We are confident that this acquisition is pro-competitive and will create significant value for retailers and customers.
Q: What is your approach to capital management and share buybacks given the Discover acquisition and regulatory uncertainty? A: Andrew Young, CFO: We maintain a cautious approach due to uncertainty surrounding regulatory changes and the Discover acquisition. While we have been buying back shares at a moderate pace, we are prepared to return excess capital quickly once we have clarity on post-acquisition capital needs.
For the full transcript of the earnings call, please refer to full call transcript earnings.
This article first appeared on GuruFocus.