Capital One: First-Quarter Bounceback Winner (Update 1)

Updated with market close information and additional information on Capital One.

NEW YORK ( TheStreet) -- Capital One ( COF) was the big winner on Friday among the largest U.S. financial names, with shares rising over 6% to close at $56.17.

The Dow Jones Industrial Average ended with a slight gain, held back by General Electric ( GE), which dipped 4% to close at $21.75, after a disappointing first-quarter earnings report.

GE beat the consensus estimate among analysts polled by Thomson Reuters with a first-quarter profit of $4.1 billion, or 39 cents a share. However, the industrial giant reported weak revenues in most categories, with revenue in the Power & Gas segment down 26% year-over-year. First-quarter total industrial revenue was down 6% from a year earlier.

The S&P 500 ( SPX.X) and NASDAQ Composite indices ended with 1% gains, as investors continued to watch developments in Boston.

The KBW Bank Index ( I:BKX) was up 1.5% to close at 54.85, with all but two of the 24 index components ending the session with gains.

Shares of State Street ( STT) of Boston rose 1% to close at $56.93. The bank beat the first-quarter consensus with earnings of $443 million, or 96 cents a share, as revenue increases in several key areas more than offset a sharp sequential decline in net interest revenue. Please see TheStreet's earnings coverage for more on State Street's results.

Capital One

Capital One late on Thursday bounced back from a lousy fourth quarter, with a strong first-quarter earnings report.

The McLean, Va., credit card lender reported first-quarter net income of $1.1 billion, or $1.79 a share, compared to $843 million, or $1.41 a share in the fourth quarter, and $1.4 billion, or $2.72 a share, in the first quarter of 2012.

The year-earlier period included a $594 million bargain purchase gain from the acquisition of ING Direct (USA). Excluding that gain, first-quarter 2012 earnings were $809 million, or $1.56 a share, underscoring Capital One's success in the most recent quarter.

Capital One's net interest income increased to $4.570 billion in the first quarter from $4.528 billion in the fourth quarter and $3.414 billion in the first quarter of 2012. The year-over-year increase reflected the acquisition of HSBC's U.S. credit card portfolio in the second quarter of 2012.

Capital One's net interest margin -- the spread between the average yield on loans and investments and the average cost for deposits and borrowings -- expanded during the first quarter to 6.17% from 6.52% the previous quarter and 6.20% a year earlier.

The company's noninterest income declined to $981 million in the first quarter from $1.096 billion in the fourth quarter and $1.521 billion a year earlier. The sequential decline reflected $97 million provision for mortgage repurchase claims in the first quarter. There was no provision for mortgage putback claims in the fourth quarter. The provision was $169 million in the first quarter of 2012. The year-over-year noninterest income decline reflected the prior period's gain on the ING Direct (USA) purchase.

First-quarter non-interest expense totaled $3.028 billion, declining from $3.255 billion in the fourth quarter, and increasing from $2.504 billion in the first quarter of 2012.

The provision for credit losses -- which is the amount added to loan loss reserves each quarter, thus lowering pretax earnings -- was $885 million in the first quarter, declining from $1.151 billion in the fourth quarter, and increasing from $573 million a year earlier.

Oppenheimer analyst Chris Kotowski rates Capital One "outperform," with a 12 to 18 month price target of $69. In a note to clients late on Thursday, the analyst wrote that "COF's 1Q13 was a tad better than we expected and way better than our worst fears."

While the first-quarter results were padded with a release of loan loss reserves that added 23 cents a share to the bottom line, the results were "still a dime better than expected," Kotowski wrote.

Kotowski raised his 2013 EPS estimate for Capital One to $6.71 from $6.48, and his 2014 EPS estimate to $6.86 from $6.79. "COF remains one of our top picks," he wrote. "Operating return on tangible common equity was 16.5%, the card business is resilient and granular with generally good earnings visibility and should fetch more that 8x current year's earnings."

Capital One's shares are down 3% this year, following a 38% return during 2012. The shares trade for 8.4 times the consensus 2014 EPS estimate of $6.66. That is one of the lowest forward price-to-earnings valuations among large U.S. banks.