Fitch: Steady 1Q15 Earnings For Capital One

Capital One Financial Corporation's (COF) first quarter 2015 (1Q15) earnings of $1.12 billion were good, in Fitch Ratings's view. These results equated to a 1.47% return on average assets (ROAA) in 1Q15, stronger than the 1.28% ROAA in the sequential quarter, but slightly lower than the 1.53% ROAA in the year-ago quarter.

Fitch notes that COF's earnings performance this quarter puts it near the top of its regional bank peer group in 1Q15 from an ROAA perspective.

Provision expense was a significant driver of COF's earnings this quarter, as well as in the sequential and year-ago quarters. Relative to the sequential quarter COF's provision expense declined by $174 million due to better than expected credit quality, particularly in credit card lending as well as relatively static overall loan balances. Relative to the year-ago quarter provision expense was $200 million higher in 1Q15 primarily due to higher loan balances in 1Q15 relative to the year-ago quarter.

As noted, overall credit quality metrics were generally better in 1Q15 than in the sequential or year-ago quarters, in part supported by improving economic conditions. The credit quality improvements were particularly true in the card portfolio, where credit performance continues to be better than expectations. In the commercial portfolio credit performance continues to be excellent and stable.

There was some modest deterioration in the auto portfolio, which was not unexpected given the competitive dynamics of that market, but it still remains good. Fitch would expect further deterioration in auto loan credit metrics over time.

Fitch notes that it continues to believe that credit quality for COF as well as the rest of the industry is at or near a cyclical trough, and Fitch expects some reversion in overall credit metrics over a medium term time horizon.

Fitch notes that COF's liquidity position is good and continues to evolve. While deposit growth has begun to moderate, total deposits in 1Q15 still increased by 2% relative to the sequential quarter and 1% relative to the year-ago quarter. The company's loan-to-deposit ratio clocked in at 97%, which is satisfactory, but higher than some peer institutions. As the company continues to gather deposits, Fitch would expect this ratio to modestly improve (decline) further over time.

Additionally, Fitch believes the company to be in early compliance with the Liquidity Coverage Ratio (LCR) as well.

COF's transitionally phased-in Basel III Common Equity Tier 1 (CET1) ratio under the standardized approach was 12.5%, and under the advanced approaches remained above 8%. Fitch continues to note that while COF's capital ratios have historically been below those of peers, the company's stronger than peer capital generation helps offset the lower ratios.

Additional information is available at www.fitchratings.com

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