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Capital One Financial (NYSE: COF ) made quite a splash after hours yesterday, as it presented a Q3 report that was simply amazing, smashing analysts' predictions and showing that the tried-and-true formula of acquisition and increased lending really does work wonders for financial institutions, despite the stalled economy and low interest rate climate.
A real recipe for success
Other financial movers and shakers that are following this path have also turned in sparkly reports. M&T Bank (NYSE: MTB ) , for example, made a stellar showing, offering up numbers borne of its ambition in the acquisition and lending arenas. For Capital One, CEO Richard Fairbank was clear that the company's recent acquisitions of HSBC Holding's (NYSE: HBC ) U.S. credit card unit and ING Groep's (NYSE: ING ) online banking business, ING Direct, deserved credit for Capital One's increased bottom line.
No doubt, that bottom line is now well padded. Income skyrocketed 47% from one year ago, and revenue jumped by 39%. Helping things along was the fact that expenses related to the company's acquisitions fell somewhat from Q2.
Credit quality improvements apparent
Though Capital One has noted that the quality of its HSBC portfolio may cause more charge-offs in the future, the company's delinquency rate ticked up only slightly from last quarter, from 2.06% to 2.54%. Comparatively, the rate stood at 3.13% one year ago. Charge-offs of loans that the company has little hope of collecting decreased to 1.75% from the year ago rate of 2.52% -- not bad at all.
The company's net interest margin number has been improving sequentially, though it now resides at 6.97%, a bit low compared to the 7.39% of one year ago. Net interest income, however, has improved by 8% since last year.
The one area that management noted was a bit off was automobile loans. While Fairbank pointed out that such loans were up 15% over last year, they fell from Q2 by 9%. The CEO noted increased competition from other players, but felt that Capital One's continued growth into new geographic areas would soon boost its market share of vehicle loans.
Few worries on the horizon
Capital One is concrete proof that an ambitious program of M&A, and increased lending activity, can still dramatically boost a company's bottom line, even in a lackluster economy. While I have been following this company's merger activity, I had my doubts as to how well it would pan out. Compared to the slower growth pace of competitor American Express (NYSE: AXP ) , whose only iron in the fire appears to be the Bluebird debit card initiative with megaretailer Walmart (NYSE: WMT ) , I think I will always come down on the side of the go-getters from now on.
And, of course, there are those great commercials.
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