Capital One Financial Corp (COF), American Express Company (AXP): What’s in Your Portfolio?

I know what you are thinking, and believe me, I find it hard to believe as well. However, I’ve been following many banks for a while, and I believe there is an argument to be made that Capital One Financial Corp (NYSE:COF) has the potential to be one of the best investments of the bunch. The fact that I didn’t really start following Capital One Financial Corp (NYSE:COF) until last year might be why I can see the forest for the trees. Truth be told, this company is changing right before investors eyes, but the problems of the past are holding the stock back.

A different kind of hybrid
There is a lot of talk about hybrid vehicles, but Capital One Financial Corp (NYSE:COF) is the only hybrid bank that I know of. The company operates like a traditional bank, offering deposits and loans, but also generates a tremendous amount of revenue from their credit card division. What’s amazing is, though credit cards are supposed to have a higher charge off rate than other loans, Capital One Financial Corp (NYSE:COF) does a good job of managing this credit risk.

In fact, one of the best reasons to consider buying Capital One Financial Corp (NYSE:COF) has to do with their credit quality. If we compare the company’s credit card portfolio, their charge off rate of 2.2% is actually tied with American Express Company (NYSE:AXP), and comes in lower than Discover Financial Services (NYSE:DFS) at 2.36%. If we compare the company’s non-performing loans to traditional banks like Bank of America Corp (NYSE:BAC) or JPMorgan Chase & Co. (NYSE:JPM), the difference is even more stark.

In the most recent quarter, Capital One Financial Corp (NYSE:COF)’s highest non-performing loan rate was just 0.74% from their consumer loans division. By comparison, Bank of America Corp (NYSE:BAC) reported non-performers of 2.53%, and J.P. Morgan’s non-performing percentage was 1.6%. As you can see, Capital One is managing their credit risk quite well.

Cheap and growing
There should be little question that Capital One’s acquisition strategy is paying off in a big way when it comes to loan and deposit growth. While Bank of America and JPMorgan Chase & Co. (NYSE:JPM) reported total deposits up 4.4% and 7% respectively, Capital One grew their deposits by 24.25%. By comparison, American Express Company (NYSE:AXP) and Discover Financial Services (NYSE:DFS) couldn’t match, reporting deposit growth of just 2.5% and 0%.