Capital One Financial's profit slips in 3Q on lower revenue, higher operating expenses

LOS ANGELES, Calif. – Capital One Financial Corp.’s profit fell about 6 per cent in the third quarter, as the lender booked higher operating expenses and its revenue declined versus the same period last year.

Still, the results exceeded Wall Street’s expectations for the July-to-September period, boosting Capitol One’s shares about 2 per cent in after-market trading on Thursday.

Chairman and CEO Richard Fairbank told Wall Street analysts during a conference call that the company’s cardholders remain cautious, but are stepping up spending.

“Cardholder spending for Capital One and for the industry continues to grow at a rate faster than overall retail spending,” Fairbank said.

That’s given Capital One motivation to increase some of its cardholder’s credit lines and sign up new customers to the company’s namesake card, something that should boost growth in loans and card purchase volume over time, Fairbank said.

The gradually improving U.S. job picture could help boost consumer spending during the coming holiday season — traditionally good news for card issuers. Between January and August, the most recent figures available, the economy added an average of 180,250 jobs a month. Unemployment, meanwhile, was 7.3 per cent in August, down from 7.9 per cent in January.

Capital One said overall credit card purchase volume grew 6 per cent in the third quarter from a year earlier. Even so, the lender reported a 6 per cent drop in revenue at its credit card segment.

At quarter’s end, the company’s card loans were down 13 per cent versus the same period last year. The decline would have been about 3 per cent, excluding the impact of Capital One’s sale of its portfolio of Best Buy co-branded credit card accounts during the quarter.

Revenue also declined at Capital One’s consumer banking business, slipping 5 per cent from a year earlier. The segment’s loans were down 7 per cent from the prior-year period at the end of the quarter, with home loans down 20 per cent. Auto loans increased 17 per cent, however.

Loans at Capital One’s commercial banking segment jumped 14 per cent.

Capital One, based in McLean, Va., is best known for its credit card business, but it has taken steps to increase its profile as a national bank in recent years. The acquisition of ING Direct, a deal that closed in February 2012, made Capital One the nation’s sixth-biggest bank, based on deposits. It has since rebranded ING to Capital One 360.

For the three months ended Sept. 30, Capital One said that net income after paying preferred dividends was $1.1 billion, or $1.86 per share. That compares with net income of $1.17 billion, or $2.01 per share, last year.

Analysts polled by FactSet, on average, expected earnings of $1.80 per share.

Total revenue slipped 2 per cent to $5.65 billion from $5.78 billion. Analysts had forecast $5.58 billion.

All told, Capital One’s net interest income, or money earned from loans, dipped 2 per cent to $4.56 billion in the quarter from $4.65 billion a year earlier. Non-interest income, which includes service charges and other customer-related fees, fell 4 per cent to $1.09 billion from $1.14 billion.

Operating expenses climbed 7 per cent to $2.65 billion, including $100 million related to a legal settlement.

Capital One shares ended regular trading down 10 cents at $72.15. The stock added $1.35 to $73.50 in aftermarket trading following the third-quarter report.