In April, I wrote Capitalize On Capital One Financial, which showed that the bank has very solid past profitability and strong financial strength. In the article I stated that because Capital One (COF) was trading almost 50% off of 2019 book value of $127.05 I was starting a position. Two full quarters later, I am checking up on the business to see just where it stands. The past two quarters have been tough but the concern of forbearance to me is not a huge long-term concern. Therefore, with Capital One trading below tangible book value I will keep adding to my position.

The Year So Far

Q1 for Capital One starts in January and ends in March, therefore it only received some exposure from the pandemic. Net revenue in Q1 was $7.249 Billion, up 2% compared to Q1 2019. But net income was not pretty with a loss of $1.34 Billion which is down a whopping 194.9% from Q1 2019 net income of $1.412 Billion. What was the reason for this decline? Well, due to COVID-19 Capital One increased the provision for credit losses by 220% from prior year to a total of $5.423 Billion. Just for comparison sake in 2019, Q1 provisions were just $1.693 Billion. This is what is expected though from such an uncertain event like a pandemic, as banks try to estimate the expected losses. The net interest margin for the quarter one stayed rather flat at 6.78%, only decreasing by 8 basis points from Q1 2019.

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