10-KPeriod: FY2018

CAPITAL ONE FINANCIAL CORP Annual Report, Year Ended Dec 31, 2018

Filed February 20, 2019For Securities:COFCOF-PLCOF-PICOF-PKCOF-PNCOF-PJ

Summary

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 billion, 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.

Financial Highlights

41 data points
Beta

Revenue

$28.08B

Net Income

$6.01B

21.4% Net Margin

EPS (Diluted)

$11.82

Total Assets

$372.54B

Cash & Equivalents

$13.49B

Free Cash Flow

$12.10B

Financial Statements
Beta
Revenue$28.08B
Operating Income$6.03B
Interest Expense$4.30B
Net Income$6.01B
EPS (Basic)$11.90
EPS (Diluted)$11.82
Shares Outstanding (Basic)479.90M
Shares Outstanding (Diluted)483.10M

Key Highlights

  • 1Net 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.
  • 2Total net revenue grew to $28.1 billion, driven by strong performance in the Credit Card segment and growth in auto loans within Consumer Banking.
  • 3Capital 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.
  • 4The 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.
  • 5Provision for credit losses decreased by 22% to $5.9 billion, reflecting improved credit trends in domestic credit card and auto loan portfolios.
  • 6Non-interest income increased by 9%, primarily from gains on exited businesses and higher interchange fees due to increased purchase volume.
  • 7The company returned capital to shareholders through dividends and a $1.2 billion stock repurchase program completed in Q4 2018.

Frequently Asked Questions

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.

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.

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.

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.