Capital One's Earnings Suffer From Seasonal Affective Disorder (Update 1)

  • Fourth-quarter EPS of $1.41 misses consensus estimate of $1.59.
  • EPS declines from $2.01 in Q3, CFO blames "seasonal patterns."
  • Total net revenue declines slightly from Q3 to $5.6 billion.
  • Net interest margin narrows by 45 basis points from Q3, to 6.52% in Q4.
  • Guides for 2013 revenue to be consistent with Q4 2012.
  • Expects "to return to a meaningful dividend in 2013."

Corrected to show that Capital One's fourth-quarter EPS was $1.41 (not $1.31). Updated with comment from Brad Lamensdorf, a portfolio manager for the AdvisorShares Ranger Equity Bear ETF.

NEW YORK ( TheStreet) -- Capital One ( COF) on Thursday after the market close reported fourth-quarter net income available to common stockholders of $825 million, or $1.41 a share, missing the consensus estimate of $1.59, among analyst polled by Thomson Reuters.

In comparison, the company earned $1.173 billion, or $2.05 a share, in the third quarter, and $381 million, or 89 cents a share, in the fourth quarter of 2011, when Capital One incurred unusually high expenses at it prepared for its first-quarter acquisition of ING Direct (USA).

Capital One CFO Gary Perlin said that "seasonal expense and margin trends led to a reduction in fourth quarter earnings compared to the previous quarter," and that "with a few exceptions largely related to these seasonal patterns, fourth quarter 2012 results give us a good picture of what to expect in terms of pre-provision earnings in 2013, assuming little change in the external environment."

Investors were not amused, sending the company's shares down 8% in aftermarket trading, to $56.89.

Pre-provision earnings exclude the quarterly provision for credit losses . The fourth-quarter provision was $1.151 billion, increasing from $1.014 billion the previous quarter, and $861 million a year earlier. The company said that the provision increased form the third quarter because fewer nonperforming loans acquired through acquisitions were absorbed by credit marks previously taken.

Capital One's annualized ratio of net charge-offs to average loans increased to 2.26% in the fourth quarter from 1.75% in the third quarter, "largely because of the diminishing impact of the credit mark," while the net charge-off rate for credit card loans increased to 4.35% from 3.04%, "also driven by seasonality and the diminishing impact of the credit mark."

Capital One's fourth-quarter revenue was $5.624 billion, declining from $5.782 billion in the third quarter, "almost entirely driven by higher levels of estimated uncollectible finance charges and fees in the company's Domestic Card business."

Capital One provided revenue guidance, saying "the company expects average quarterly revenue levels in 2013 to be consistent with the fourth quarter of 2012, as a modest decline in earning assets will be offset by a steady to slightly higher net interest margin."

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