Capital One Posts 10% Rise in Net -- WSJ

By AnnaMaria Andriotis Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 21, 2017).

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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.

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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 21, 2017 02:47 ET (06:47 GMT)