The stock market was having a decent day on Friday, with the Dow Jones Industrial Average and S&P 500 index both about 1% higher at 3 p.m. EDT. However, credit card-focused banking institution Capital One (COF -1.60%) was a standout, with shares up by about 8%.
For the first quarter, Capital One reported a loss of $1.3 billion, or $3.10 per share. However, this includes a $3.6 billion build in its allowance for loan losses. With the uncertainty surrounding the pandemic and the U.S. recession, most financial institutions are bracing for an uptick in loan delinquencies and defaults, and Capital One is no exception.
Excluding the loan-loss provisions, Capital One's earnings were actually 8% higher than in the first quarter of 2020. Average loans and deposits both increased year over year, although by period-end (March 31), outstanding loan balances had decreased slightly.
However, like most other companies, Capital One's first-quarter numbers weren't the primary focus. Rather, investors are more concerned with how the COVID-19 pandemic will affect Capital One's business going forward. On the company's earnings call, founder and CEO Richard Fairbank said:
Capital One is well positioned to weather these challenges. Throughout our history, we've focused on resilience in all of our choices on liquidity and capital. As a result, our balance sheet is strong. We have deep liquidity reserves and a strong capital position.
In addition, the bank reported that as of April 17, just 2% of credit card loan balances and 11% of auto loan balances had been enrolled in forbearance programs designed for customers affected by COVID-19.
Credit card debt is generally more recession-prone than other common loan types, so Capital One has been one of the most beaten-down bank stocks in the market. However, the company's numbers, loss reserve build, and management comments seem to have reassured investors, at least for the time being.