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CO

CAPITAL ONE FINANCIAL CORP (COF)·Q4 2024 Earnings Summary

Executive Summary

  • COF delivered Q4 2024 net income of $1.1B ($2.67 diluted EPS) on total net revenue of $10.19B; adjusted EPS was $3.09 after $140M Discover integration and $75M legal reserve, plus a $100M philanthropy item .
  • Sequentially, revenue rose 2% while non-interest expense increased 15% (marketing +24%, operating +12%), driving pre-provision earnings down 13% and an efficiency ratio of 59.75% (adjusted 57.64%) .
  • Credit trends remained stable: provision was $2.64B, with net charge-offs of $2.88B and a $245M loan reserve release; NIM was 7.03% (down 8 bps q/q) and CET1 was 13.5% .
  • Strategic catalysts: auto originations +53% y/y and return to loan growth, domestic card purchase volumes +7% y/y, and upcoming Feb 18 shareholder votes on the Discover acquisition; management reiterated confidence in early-2025 close, subject to approvals .

What Went Well and What Went Wrong

  • What Went Well

    • Domestic Card growth: purchase volume +7% y/y; revenue +9% y/y; revenue margin +55 bps y/y aided by Walmart revenue-sharing end .
    • Auto momentum: originations +53% y/y; consumer banking loan balances returned to y/y growth; delinquency rate improved y/y by 39 bps .
    • Credit stability and allowance release: $245M reserve release with coverage ratio down to 4.96% amid stable trends; CFO highlighted seasonal balance effects and favorable observed credit .
    • Management quote: “steady top-line growth in our domestic card business, strong originations and a return to loan growth in our auto business, and stable credit results” — CEO Richard Fairbank .

  • What Went Wrong

    • Cost surge: total non-interest expense +15% q/q (marketing +24%, operating +12%) pressured pre-provision earnings (−13% q/q) and lifted efficiency ratio to 59.75% .
    • NIM compression: NIM decreased 8 bps q/q to 7.03%, reflecting lower asset yields partially offset by lower funding costs; Q1 will face a ~15 bps day-count headwind per CFO .
    • Card loss rate optics: Domestic Card charge-off rate 6.06% (includes ~40 bps Walmart loss-sharing termination impact); excluding Walmart, 5.66% and still above pre-pandemic levels due to delayed charge-offs .
    • Estimates comparison unavailable: Wall Street consensus (S&P Global) could not be retrieved due to rate limits; results vs consensus not assessed.

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Total Net Revenue ($MM)$9,506 $10,014 $10,190
Net Income Available to Common ($MM)$531 $1,692 $1,022
Diluted EPS ($)$1.38 $4.41 $2.67
Efficiency Ratio (%)52.03 53.07 59.75
Adjusted Efficiency Ratio (%)51.47 52.53 57.64
Net Interest Margin (%)6.70 7.11 7.03
Provision for Credit Losses ($MM)$3,909 $2,482 $2,642
Net Charge-offs ($MM)$2,644 $2,604 $2,884
Allowance for Credit Losses ($MM)$16,649 $16,534 $16,258
CET1 Ratio (%)13.2 13.6 13.5

Segment revenue and profit (Q4 2024):

Segment ($MM)Q2 2024Q3 2024Q4 2024
Credit Card – Total Net Revenue$6,800 $7,252 $7,364
Consumer Banking – Total Net Revenue$2,197 $2,210 $2,141
Commercial Banking – Total Net Revenue$880 $888 $953
Other – Total Net Loss$(371) $(336) $(268)
Income from Continuing Ops (Net of Tax) – Credit Card$278 $1,374 $866
Income from Continuing Ops (Net of Tax) – Consumer$471 $403 $205
Income from Continuing Ops (Net of Tax) – Commercial$278 $263 $388
Income from Continuing Ops (Net of Tax) – Other$(243) $(263) $(366)

Selected KPIs:

KPIQ2 2024Q3 2024Q4 2024
Domestic Card Purchase Volume ($MM)$161,370 $162,281 $168,994
Total Card Purchase Volume ($MM)$165,143 $166,203 $172,919
Domestic Card Period-end Loans ($MM)$147,065 $149,400 $155,618
Auto Originations ($MM)$8,463 $9,158 $9,399
Domestic Card Net Charge-off Rate (%)6.05 5.61 6.06
Auto Net Charge-off Rate (%)1.81 2.05 2.32
30+ Day Performing Delinquency – Domestic Card (%)4.14 4.53 4.53

Guidance Changes

MetricPeriodPrevious GuidanceCurrent/ActualChange
Operating Efficiency Ratio (Adjusted)FY 2024“Low 42s” (guided to modestly down y/y) 42.35% (achieved) Met/maintained
Marketing Spend2H 2024 vs 1H 2024“Meaningfully higher in 2H,” similar to prior year Executed: Q4 marketing $1.375B (+24% q/q) Maintained approach
NIM Near-TermQ1 2025Not formal guidance; CFO flagged ~15 bps day-count headwind Headwind acknowledged Informational
CFPB Late Fee Rule2024Assumed in earlier outlook; later indicated uncertainty “No longer assuming 2024 implementation” Deferred assumption

Earnings Call Themes & Trends

TopicQ2 2024 (Q-2)Q3 2024 (Q-1)Q4 2024 (Current)Trend
Credit normalization & seasonalityStable; discussed new tax refund-driven seasonality; elevated but moderating losses Continued stability; refined seasonality benchmarks; allowance release rationale Delinquencies down y/y; losses follow seasonality; delayed charge-offs still in play Improving stability; seasonality amplitude lower
NIM driversWalmart revenue-sharing termination, auto yields, deposit beta dynamics Card mix tailwind; asset sensitivity; day-count helped 8 bps q/q NIM decline; day-count headwind ahead; card growth tailwind persists Mixed near-term; constructive medium-term
Auto strategyPulled back in ’22/’23; originations +18% y/y Originations +23% y/y; margins normalizing Originations +53% y/y; loan growth returned; strong credit Acceleration
Marketing & premium spendersLeaning into 2H; build national digital bank Competitive intensity at top of market; lounges/experiences Continued investment in premium benefits; spend per customer ticking up Sustained investment; traction improving
Discover acquisitionWorking through regulatory approvals Progress; SEC proxy timing contingent Shareholder votes Feb 18; aiming early-2025 close; pro-competitive rationale Advancing

Management Commentary

  • CEO Richard Fairbank: “steady top-line growth in our domestic card business, strong originations and a return to loan growth in our auto business, and stable credit results” .
  • CFO Andrew Young on allowance and NIM: “We released $245 million in allowance… coverage ratio decreased 20 bps to 4.96%… Q1 has two fewer days ~15 bps NIM headwind; card growth remains a tailwind” .
  • Fairbank on credit: “after 20 consecutive months of second derivative improvement, the 30-plus delinquency rate crossed into actual year-over-year improvement… delayed charge-offs from the pandemic still play through” .
  • Fairbank on Discover: “We remain well positioned to complete the acquisition early in 2025, subject to regulatory and shareholder approval” .

Q&A Highlights

  • Credit trajectory: Management emphasized stabilization with delinquencies improving y/y and losses following seasonality; recoveries inventory rebuilding should be a gradual tailwind, but delayed charge-offs remain a factor .
  • NIM outlook: Asset sensitivity and deposit betas present modest headwinds; card growth and curve steepening are tailwinds; first-quarter day count reduces NIM ~15 bps .
  • Auto profitability: Margins normalizing; strong underwriting and platform investments support disciplined growth; y/y originations up sharply with resilient credit .
  • Capital return: Buybacks remain limited (~$150M pace) pending deal and regulatory pre-approval; flexibility expected post-close under SCB regime .
  • Late fee rule: No 2024 implementation assumed; potential significant revenue impact if implemented, with customer-first approach to offsets .

Estimates Context

  • S&P Global consensus estimates for EPS and revenue (Q4 2024 and prior quarters) were unavailable due to SPGI request limits; as a result, we cannot provide an estimates comparison or beat/miss assessment for Q4 2024. Values would normally be sourced from S&P Global.

Key Takeaways for Investors

  • Domestic Card growth plus auto loan momentum underpin top-line resilience; purchase volumes and loans grew y/y, supporting revenue despite NIM headwinds .
  • Expense intensity (marketing and operating) is elevated near term; however, FY 2024 adjusted operating efficiency of 42.35% met “low 42s” guidance, indicating execution on structural efficiency despite Q4 mix .
  • Credit is stabilizing with improving delinquencies; watch the pace of charge-off normalization and the impact of delayed charge-offs on 2025 loss rates and suppression .
  • NIM path: expect near-term pressure from day count and asset sensitivity, but medium-term support from card growth mix and potential curve steepening; deposit betas are a key variable .
  • Discover acquisition is a 2025 catalyst: shareholder votes on Feb 18 with management confident on approvals; vertical integration and network economics could expand strategic optionality in credit/debit and acceptance .
  • Auto franchise is re-accelerating with strong credit and improved margins; watch for sustained loan growth and originations run-rate through 2025 .
  • Marketing at the top of market continues to build an annuity-like premium franchise; spend per customer began to tick up late 2024, an indicator for ongoing revenue quality .