Jan 18 - Capital One Financial's (COF) earnings for 4Q'12 started to flatten out in 4Q'12 after a year that included two large acquisitions and associated charges, according to Fitch Ratings. As such, Fitch expects COF's 4Q'12 net income of $825 million, which equates to a return on average assets (ROAA) of 1.10%, to be more representative of the company's quarterly earnings potential in 2013. COF's net interest margin (NIM) of 6.52% remained satisfactory, though lower than the sequential quarter due to higher balances of low yielding cash and investment securities weighing on asset yields as well as some revenue suppression in COF's domestic card business. Fitch would expect some margin improvement for COF in 2013 as lower yielding home loans inherited with the ING Direct acquisition continue to run-off and there is some improvement in interest expense given that COF called its higher cost trust preferred securities in early January 2013. COF's 4Q'12 earnings were also impacted by higher non-interest expense, particularly in professional services and marketing. Fitch notes that the rise in marketing costs is not entirely unexpected given the intense competition for new loans. As such, Fitch believes COF's marketing expense will likely remain higher over a near-to-intermediate term time horizon. Given the strong competition, COF's ending loans in its domestic card business increased only 3.05% from the sequential quarter. While Fitch does note that this includes expected run-off primarily from the HSBC domestic card business acquisition, domestic card grew approximately 4.1%, which is still slightly lower than some peers. Auto loans grew 2.6% sequentially and total commercial loans grew 4.3% sequentially. Given the economic and elevated competitive environment, Fitch expects meaningful loan growth to remain challenging for COF over the next year. COF's credit costs, as measure by net charge offs (NCOs) and early stage delinquencies, increased across most lending categories. Fitch notes that some of this is largely due to seasonality in credit trends as well as the full impact of the acquired HSBC card receivables which in the private label space tend to run at higher NCO rates. Additionally, Fitch believes that credit costs had been hovering around a cyclical low, so Fitch would also expect increases in NCO and delinquency rates over time. COF's Tier 1 common ratio increased to 11% in 4Q'12 up from 10.7% in the sequential quarter. Under current Basel III proposals, COF's Tier 1 common ratio would be close to 8%, which is an improvement but is also on the lower side compared to some peer institutions. However, given that COF is a strong generator of capital, Fitch would expect the company's capital ratios to increase over the course of the year, even including any potential balance sheet growth or capital that gets returned to shareholders.