Capital One 3Q Profit Declines, Results Top Estimates -- Update

--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 [e-mail] and Andrew R. Johnson at [e-mail]

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