Financial stock under pressure: Capital One Financial Corp. (NYSE: COF)

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Capital One Financial Corp. (NYSE: COF) stock lost over 4.4% in the pre-market session of July 22nd, 2020 (Source: Google finance) post second quarter of 2020. The firm recorded a net loss of $918 million or $2.21 per diluted common share during the second quarter of 2020 on the back of $2.7 billion allowance build, due to ongoing COVID-19 pandemic. The total allowance coverage is now 6.7% of loans against 2.7% at the end of the year for 2019. The net interest margin fell 100 basis points to 5.78% during the quarter, on the back of shift in asset mix as average cash rose to $43 billion and average card balances shrunk by 11%.

Domestic card ending loan balances lost $3.6 billion or 3% year-over-year, while average loans declined 1%. Excluding the impact of the Walmart portfolio acquisition, ending loans fell over 10% year-over-year while average loans lost over 8%. Purchase volume fell 15.5% during the quarter against the prior corresponding period. Purchase volume fell 32% in the second week of April but over the last three weeks ended July 17, volumes improved with the year-over-year decline averaging to 3%. Total company net interchange revenue lost over 18% on a yoy basis during the quarter.

The second quarter of 2020 Revenue fell 7% yoy as the average loans as revenue margin decreased 105 basis points compared to the second quarter of 2019. But this decline was expected from the revenue sharing agreement on the acquired Walmart portfolio and the revenue benefit in the second quarter of last year. Consumer Banking revenue fell 6% yoy due to federal reserve rate cuts preceding deposit pricing moves.

The firm increased its Provision for credit losses by $1.9 billion on a yoy due to COVID driven allowance build. The charge-off rate was 4.53%, a 33-basis point improvement year-over-year. The Ending loans rose 11% on a year-over-year basis, while average loans for the second quarter grew 8%, boosted by auto business. Ending deposits in the consumer bank rose $41.6 billion or 20% year-over-year driven by rise in personal savings. Average deposit interest rate fell 37 basis points during the quarter.

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