Capital One Financial Corp. (COF), Wells Fargo & Co (WFC), U.S. Bancorp (USB): One Stock Crushing the Competition but Overlooked by Investors

Page 1 of 2

Over the past several years, Capital One Financial Corp. (NYSE:COF) has transformed from a credit card juggernaut to a more traditional bank. If you’re concerned this shifting business might hurt its profitability, the trends revealed in Capital One Financial Corp. (NYSE:COF)’s latest numbers should ease your mind.

Capital One Financial Corp. (NYSE:COF)

Phenomenal net interest margin
As detailed in a prior article, Capital One Financial Corp. (NYSE:COF) has an almost unmatched net interest margin, or NIM, thanks largely to the great returns its credit card unit generates:

Bank Net Interest Margin
Wells Fargo & Co (NYSE:WFC) 3.46%
U.S. Bancorp (NYSE:USB) 3.43%
PNC Financial Services (NYSE:PNC) 3.58%
Capital One 6.83%

Source: Company Second-Quarter Earnings Reports

While we know it’s not apples-to-apples to compare Capital One’s NIM to those of the peers because of the differences in loan types, it might help us see how those numbers have grown over the last year:

Source: Company Earnings Reports.

How has Capital One Financial Corp. (NYSE:COF) bucked the trend of its peers, and in fact almost all U.S. banks, and grown its net interest margin year over year? Put simply, Capital One has managed to squeeze more money out of its assets while paying less on its liabilities.

The higher interest rate the bank is earning stems entirely from its credit card business, which saw its average interest rate earned grow 140 basis points over the last year.

Q2 2012 Q2 2013 YOY Growth
Business Average Balance Yield Average Balance Yield Average Balance BPS Growth
Domestic Credit Card $72 13.3% $76 14.6% 6.1% 130
International Credit Card $8 14.2% $8 16.2% -2.6% 200
Total Credit Card $80 13.4% $84 14.8% 5.2% 140

Source: SEC 10-Q. Balances in billions.

This increase in both the average balance and yield of Capital One’s credit card business produced an additional $433 million in interest income from this division. But Capital One Financial Corp. (NYSE:COF) as a whole only saw its interest income grow by $394 million, as the amount of interest collected on consumer and commercial banking loans fell.

On the other side of the balance sheet, Capital One had to pay out less on its borrowings and customers’ deposits, which reduced its net interest expense by approximately $150 million.

Not Only NIM
As a result of its very healthy and quickly growing NIM, Capital One also boasts a very healthy return on assets when compared to its peers:

Bank Q2 2013 ROA
Capital One 1.66%
U.S. Bancorp 1.70%
PNC 1.49%
Wells Fargo 1.55%

Source: Company Earnings Reports.

The interest earned on its loans is an especially important factor for Capital One Financial Corp. (NYSE:COF) because it does not have as many fee-generating businesses as U.S. Bancorp (NYSE:USB) and its other regional competitors.

In addition to its strong return on assets, Capital One also has a robust efficiency ratio, which essentially measures how much money the bank must spend to generate $1 of revenue. Like golf, the lower the number, the better:

Source: Company Earnings Reports.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!