--Profit declined 6.3% as revenue fell and operating expenses
rose
--Results beat analysts' estimates, sending shares up 1.9% after
hours
--Provision for loan losses declined 16% to $849 million
By John Kell and Andrew R. Johnson
Capital One Financial Corp.'s (COF) third-quarter profit slid
6.3% as lower revenue and higher operating expenses more than
offset a decline in provision for credit losses.
But the results from the McLean, Va.-based bank topped Wall
Street's expectations, sending shares up 1.9% at $73.50 in
after-hours trading.
For the latest period, Capital One reported a profit of $1.1
billion, or $1.86 a share, down from $1.2 billion, or $2.01 a
share, a year earlier. Revenue fell 2.3% to $5.65 billion.
Analysts surveyed by Thomson Reuters expected a profit of $1.80
a share on $5.58 billion in revenue.
As one of the country's largest credit-card lenders, Capital
One's results are often considered a gauge of consumer sentiment.
More recently the bank's results have been clouded by shrinking
loans as it has sold some portfolios.
The credit-card issuer has sought to show investors that recent
acquisitions will bolster results.
Last year Capital One bought ING Direct, the U.S. online-banking
business of ING Groep NV, in a bid to strengthen its deposit base.
It also acquired the U.S. credit-card business of HSBC Holdings PLC
(HBC) last year, making it one of the largest issuers of
private-label credit cards that are offered through retailers and
other partners.
While credit-card lending has been Capital One's biggest
business, the bank has been pushing to expand its presence in
commercial real-estate and business lending.
In the third quarter, total commercial loans grew 14% from a
year earlier to $42.4 billion. At the same time, it's credit-card
portfolio continued to shrink, falling 12% to $78 billion due
partly to the sale of a loan portfolio and run-off of other
loans.
Capital One, like other consumer lenders, has struggled to grow
loans as customers remain cautious about borrowing. To boost
revenue, the company has been trying to target more customers who
use their cards frequently but pay their monthly bills off in full
each month.
While so-called transactors don't earn credit-card lenders the
typical interest charges that borrowers who carry balances on their
cards do, they do generate fees that merchants pay banks each time
a customer swipes a card. They also pose less risk to lenders
because they typically pay their bills on time.
Purchases made on its Capital One's credit cards increased 6.1%
from a year earlier to $50.9 billion.
American Express Co. (AXP), the world's largest credit-card
issuer based on spending, said Wednesday its cardholder spending
rose 7.3% to $236.2 billion.
Capital One's overall delinquency rate was 2.54%, unchanged from
a year earlier but up from 2.35% in the prior quarter.
Its net charge-off rate was 1.92%, up from 1.75% a year earlier
but lower than 2.03% in the second quarter.
The company set aside less money to cover bad loans, as its
provision for loan losses fell 16% to $849 million from $1.01
billion last year.
The company's net interest margin, which measures how much money
it makes on loans to customers, totaled 6.89% in the third quarter,
compared to 6.97% a year ago and 6.83% in the prior quarter.
Chief Executive Officer Richard Fairbank is working to boost
payouts to shareholders.
Capital One in March announced it was raising its dividend to 30
cents per share from 5 cents after receiving approval from the
Federal Reserve.
It also said it would use capital generated from the sale of a
portfolio of Best Buy Co. credit-card loans to Citigroup Inc. (C)
for a $1 billion share buyback program.
Write to John Kell at john.kell@wsj.com and Andrew R. Johnson at
andrewr.johnson@wsj.com
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