01—Abstract
Summary
Summary of the 10-K filed February 20, 2019. Cited figures are marked; the original filing is the authoritative source.
Capital One Financial Corporation (COF) reported robust financial performance for the fiscal year ended December 31, 2018.
The company posted a net income of $6.0 billiona, a significant increase from $2.0 billion in 2017, primarily driven by a lower income tax provision, a decrease in the provision for credit losses due to improved credit trends, and higher non-interest income from business sales and increased interchange fees. Total net revenue also saw a modest increase to $28.1 billion, supported by growth in credit card and auto loan portfolios and higher yields on interest-earning assets, despite increased interest expense. Strategic developments during the year included a new, long-term credit card program agreement with Walmart Inc., with Capital One expecting to acquire Walmart's existing credit card receivables portfolio in 2019.
The company also continued to focus on operational efficiency, digital productivity gains, and maintaining a strong capital position, with its Common Equity Tier 1 capital ratio remaining well above regulatory minimums. The company demonstrated a commitment to returning capital to shareholders through share repurchases and dividends, with its capital plan receiving a "no objection" from the Federal Reserve for 2018.
02—Key points
Key Highlights
- Net income surged to $6.0 billion in 2018, a substantial increase from $2.0 billion in 2017, largely due to a lower tax provision and improved credit loss provisions.
- Total net revenue grew to $28.1 billion, driven by strong performance in the Credit Card segment and growth in auto loans within Consumer Banking.
- Capital One entered into a significant agreement with Walmart to be the exclusive issuer of their U.S. credit card program and acquire the associated portfolio, expected to close in late 2019.
- The company maintained a strong capital position, with its Common Equity Tier 1 capital ratio at 11.2% as of December 31, 2018, well above regulatory requirements.
- Provision for credit losses decreased by 22% to $5.9 billion, reflecting improved credit trends in domestic credit card and auto loan portfolios.
- Non-interest income increased by 9%, primarily from gains on exited businesses and higher interchange fees due to increased purchase volume.
- The company returned capital to shareholders through dividends and a $1.2 billion stock repurchase program completed in Q4 2018.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 20, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $28.08B$27.24B | +3.1% |
| Operating Income | $6.03B$2.12B | +184.6% |
| Interest Expense | $4.30B$2.76B | +55.7% |
| Net Income | $6.01B$1.98B | +203.5% |
| EPS (Basic) | $11.90$3.52 | +238.1% |
| EPS (Diluted) | $11.82$3.49 | +238.7% |
| Shares Outstanding (Basic) | 479.90M484.20M | −0.9% |
| Shares Outstanding (Diluted) | 483.10M488.60M | −1.1% |
05—Questions
Frequently Asked Questions
What were the primary drivers of Capital One's improved net income in 2018 compared to 2017?
The significant increase in net income from $2.0 billion in 2017 to $6.0 billion in 2018 was primarily driven by a lower income tax provision, partly due to tax benefits and a reversal of prior year tax impacts, and a reduction in the provision for credit losses due to improvements in credit trends, particularly in domestic credit card and auto loan portfolios. Higher non-interest income from business sales and increased interchange fees also contributed positively.
What is the strategic significance of the Walmart agreement?
Capital One announced a new, long-term agreement to become the exclusive issuer of Walmart's U.S. co-brand and private label credit card program. The company also plans to acquire Walmart's existing credit card receivables portfolio, which is expected to add approximately $9 billion in receivables. This strategic move is expected to significantly expand Capital One's credit card business, with the new issuance program and portfolio acquisition anticipated to launch in late Q3 or early Q4 2019.
How is Capital One managing its capital and liquidity?
Capital One maintained a strong capital position throughout 2018, with its Common Equity Tier 1 capital ratio at 11.2% as of December 31, 2018, well above regulatory minimums. The company also had a "no objection" from the Federal Reserve on its 2018 CCAR capital plan. Liquidity is managed through a robust framework, including maintaining significant liquidity reserves such as cash, cash equivalents, and investment securities, and accessing diversified funding sources like deposits and debt markets.
What impact did the sale of the consumer home loan portfolio have?
In 2018, Capital One sold its entire consumer home loan portfolio and related servicing rights. This transaction contributed to a decrease in period-end loans held for investment by $8.6 billion and impacted the Consumer Banking segment's net interest income and revenue. The proceeds from the sale were partially reinvested in securities.
06—Continue