Capital One Beats Street on Higher Credit Card Balances, Interest Rates

Boosted by increases in its credit card portfolio and interest rates,  Capital One Financial beat estimates for the second quarter.

In terms of the headline numbers for the top and bottom lines, the company said that earnings came in at $1.94, beating the Street by six cents and up from $1.69 a year ago, as noted by The Wall Street Journal.  The top line was $6.7 billion, up seven percent from last year and edging the Street by about $30 million.

Breaking down the balance sheet a bit, loans at the end of the quarter stood at $244 billion, gaining two percent overall year on year, and auto loans were $51.8 billion, up four percent from last year.  The efficiency ratio was 50.92 percent, and on the conference call management pointed to one driver as being tied to investment in digital initiatives.

The net interest margin on credit cards and loans, including auto, was up 15 basis points from last year, with tailwinds from higher interest rates and the U.S. card portfolio.

At the same time, the firm’s chargeoff rate on the domestic cards was 5.1 percent, up more than 100 basis points from last year, but a sequential improvement. The credit card loss provisions were up 13 percent from last year to $1.8 billion.  Richard Fairbank, CEO, told analysts on the conference call that the firm expects to see the domestic chargeoff rate in the high four percent to around five percent.

With focus on auto, Fairbank noted that auto originations were up 14 percent, but added that the chargeoff rates may increase here as there is an “expected decline in auction prices and an increasingly indebted consumer.” Separately, he also stated that within the credit card industry, competitiveness is marked overall by “a significant cranking up of rewards [tied to cards].”