OREANDA-NEWS. Capital One's Financial Corporation's (COF) fourth quarter 2015 (4Q15) earnings were down due to higher provisioning and some higher marketing expenses.

The company's overall return on average assets (ROAA) was 1.12% in 4Q15, still a good result relative to peers but down from 1.43% in the sequential quarter and 1.28% in the year-ago quarter.

Similarly, the company's return on average equity (ROE) was 7.36% in 4Q15, down from 9.54% in the sequential quarter and 8.61% in the year-ago quarter. These results are below Fitch's estimated range of a cost of equity assumption for COF of between 10% to 12%.

Provision expense for COF increased 26% from the sequential quarter and 24% from the year-ago quarter. This was due to a number of factors including continued growth in credit card receivables and auto loans. Provision expense this quarter also included the impact of higher provisioning in the company's energy loan portfolio as oil prices continue to decline. That said, the company's energy loan exposure of $3.1 billion represents only 1.3% of total loans as of 4Q15.

COF's marketing expense also increased by 35% relative to the sequential quarter and 11% from the year-ago quarter, but Fitch notes that this did help drive higher card balances and purchase volumes during the quarter. Fitch believes this is a lever management will episodically dial up and down based on market opportunities.

The company also completed its acquisition of GE's healthcare lending business in December 2015, which boosted ending commercial loans by $8.3 billion, which also drove $49 million of provision to bring on the new loans and $20 million of operating expense from deal close costs.

Notwithstanding some of the drivers of higher overall expenses noted above, the company's total revenue increased 5% from the sequential quarter and 11% from the year-ago quarter.

Net interest income (NII) continues to expand due largely to higher loan balances during the quarter. In addition, the company's net interest margin (NIM) in 4Q15 ticked up modestly to 6.79% as there was some mix shift with lower-yielding mortgages being replaced by higher-yield card and auto loans.

Non-interest income was up 5% from the sequential quarter and 7% from the year-ago quarter due largely to higher purchase volumes which drove net interchange revenue higher on the quarter. Purchase volume was up 8% relative to the sequential quarter and 19% relative to the year-ago quarter.

Fitch notes that COF's purchase volume growth outpaced growth in credit card receivables, indicating the possibility that its customer base is skewing more towards transactional-oriented customers rather than those who maintain revolving balances.

COF's liquidity position is good and continues to evolve. While deposit growth has begun to moderate, total deposits in 4Q15 still grew by 2% relative to the sequential quarter and 5% relative to the year-ago quarter.

The company's loan-to-deposit ratio ticked up to 102%, which is higher than that of some peer institutions. During the quarter, COF used some wholesale funding as well as deposits to fund its loan growth. Over time, as COF continues to gather deposits, Fitch would expect this ratio to modestly improve (i.e. decline).

Fitch believes the company to be in early compliance with the Liquidity Coverage Ratio (LCR) as well.

COF's transitionally phased-in Basel III Common Equity Tier 1 (CET1) ratio under the standardized approach was 11.1% down from 12.1% in the sequential quarter due in part to the GE Healthcare transaction which closed in December 2015. Under the advanced approaches, COF's Basel III CET1 ratio remained above 8%.