Capital One Misses 4Q Estimates As Net Charge-Offs Grow

Capital One missed estimates, adjusted for impact of the tax bill that was signed last year as loans grew across cards and autos, but credit losses grew, too.

Earnings per share of $1.62 was 26 cents below the Street, according to information presented during the Q4 earnings call.

Domestic card average loans were up eight percent to $101 billion. In the auto segment, loans grew by two percent to $53.7 billion.

At the same time, credit loss provisions grew by 5 percent to $1.9 billion. Digging a bit deeper into results, net charge-offs were $1.8 billion compared to $1.4 billion last year.

In the credit card business, the company built $118 million of allowance in the quarter, while net charge-off rates were 4.9 percent compared to 4.6 percent last year. Total ending and average loans in credit cards stood at $9.2 billion, up 9 percent. Broken down a bit, the domestic card business saw ending loans at $8.2 billion, up 8 percent over last year.

CEO Richard Fairbank said in reference to auto loans that “while fourth-quarter auto originations were down 5 percent, compared to the prior year quarter, the auto business continues to grow. Ending loans were 13 higher year-over-year.” He said the competitive intensity in auto is increasing, but “we still see attractive opportunities to grow. We remain cautious about used car prices, and our underwriting assumes that prices decline.” Supplemental materials provided by the company showed that allowance for loan and lease losses stood at $7.5 billion.

Management also said that the charge-off rate will increase gradually and loan growth will moderate. Consumer banking revenue for the quarter increased about 9 percent from the fourth quarter of last year, driven by growth in auto loans as well as deposit spread and volumes.