Capital One Profit, Revenue Rise -- Update
July 20 2017 - 7:41PM
Dow Jones News
By AnnaMaria Andriotis
Capital One Financial Corp. said its second-quarter earnings and
revenue rose, helped by a ramp-up in credit-card balances
industrywide and the rise in interest rates.
Profit for the quarter increased 10%, to $1.04 billion, or $1.94
a share, from $942 million, or $1.69 a share, in the year-ago
period. Revenue rose 7% to $6.7 billion. Results beat analyst
estimates, and shares jumped in after-hours trading.
Capital One, which has large credit-card and auto-lending
divisions, said its net interest margin increased 0.15 percentage
point from the year-ago quarter, largely due to higher interest
rates and growth in its domestic card business. Credit-card
interest rates generally rise following Federal Reserve rate
increases.
Despite beating analyst 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 because, 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
watched by shareholders amid concerns over whether consumer credit
is in the early stages of deteriorating.
Credit concerns resurfaced on Thursday after another credit-card
company reported earnings. Shares of Alliance Data Systems Corp., a
large store credit-card issuer, closed down 9.5% on Thursday, after
the issuer that had projected 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 estimates
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 points from a year ago.
Provisions for overall credit losses hit $1.8 billion in the
second quarter, down 10% from the prior quarter but up 13% from the
year-ago period.
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 19:26 ET (23:26 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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