Capital One Revenue Rises in Second Quarter -- Update

By AnnaMaria Andriotis

Capital One Financial Corp. reported that its second-quarter earnings rose 10% from a year prior, to $1.04 billion, beating analyst estimates.

The credit-card issuer's shares jumped about 4% in aftermarket trading.

The company reported earnings per share of $1.94. Analysts polled by Thomson Reuters expected $1.90.

Capital One, which has large credit-card and auto-lending divisions, reported total net revenue of $6.70 billion, up 7% from a year prior. Analysts expected $6.67 billion.

Despite beating expectations, borrower performance remains a top issue for the bank, which is known for its history as a large subprime-credit-card lender. The company is a good indicator of the general state of consumers' ability to repay their debts since, unlike some other card issuers, it primarily doesn't focus on extending credit to the affluent.

The bank wrote off more delinquent loans as losses and set more money aside to cover for future losses. Both issues are being closely watched by credit-card shareholders as concerns grow over whether consumer credit is in the early stages of deteriorating.

Credit concerns resurfaced on Thursday after another business in the sector reported earnings. Shares of Alliance Data Systems Corp., a large store-card issuer, closed down 9.45% on Thursday, after the company that had been guiding to a 2017 credit loss rate in the mid-5% range was noncommittal on its charge-off rate outlook on its earnings call. ADS also cut 2017 core earnings per share guidance from $18.50 to $18.10.

Capital One's net charge-off rate for domestic credit cards was 5.11% for the second quarter, down slightly from the first quarter, but up 1.04 percentage point from 4.07% the year prior.

Provisions for overall credit losses hit $1.8 billion in the second quarter, down 10% from the prior quarter but up 13% from a year prior.

From the first quarter, earnings rose 28%. In April, the company reported first-quarter earnings that missed analyst estimates, largely due to a 33% jump in provisions for loan losses in the company's U.S. credit-card business from the previous quarter.

In June, the Federal Reserve conditionally approved Capital One's capital plan in the regulator's annual "stress tests," saying the firm would have to resubmit its plan by Dec. 28 to address shortcomings in its process.

The Fed said Capital One "exhibited material weaknesses in its capital planning practices." If the revised plan doesn't satisfy the Fed, the regulator said that it may restrict the firm's capital distributions. At the time, Capital One Chairman and Chief Executive Richard Fairbank said the bank is "fully committed to addressing the Federal Reserve's concerns."

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com

(END) Dow Jones Newswires

July 20, 2017 18:30 ET (22:30 GMT)

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