10-QPeriod: Q1 FY2019

CAPITAL ONE FINANCIAL CORP Quarterly Report for Q1 Ended Mar 31, 2019

Filed May 1, 2019For Securities:COFCOF-PLCOF-PICOF-PKCOF-PNCOF-PJ

Summary

Capital One Financial Corporation (COF) reported solid results for the first quarter of 2019, demonstrating year-over-year growth in net income and total net revenue. Net income increased by 5% to $1.41 billion, and total net revenue grew by 3% to $7.08 billion, driven primarily by a strong performance in non-interest income, particularly net interchange fees, and a modest increase in net interest income. The company also reported improved capital ratios, with Common Equity Tier 1 capital at 11.9%, indicating a robust capital position. The company highlighted its strategic initiatives, including the upcoming acquisition of Walmart's credit card portfolio, expected to close in the latter half of 2019. Despite an increase in marketing expenses and a slight rise in the net charge-off rate, Capital One maintained strong operational efficiency and a healthy allowance for loan and lease losses, which increased to $7.3 billion. The outlook for the year anticipates continued pressure on net interest margin due to rising deposit costs, but the company remains focused on strategic growth and efficiency improvements.

Financial Highlights

41 data points
Beta

Revenue

$7.08B

Net Income

$1.41B

19.9% Net Margin

EPS (Diluted)

$2.86

Total Assets

$373.19B

Cash & Equivalents

$19.44B

Free Cash Flow

$4.70B

Financial Statements
Beta
Revenue$7.08B
Operating Income$1.41B
Interest Expense$1.30B
Net Income$1.41B
EPS (Basic)$2.87
EPS (Diluted)$2.86
Shares Outstanding (Basic)469.40M
Shares Outstanding (Diluted)471.60M

Key Highlights

  • 1Net income increased 5% to $1.41 billion ($2.86 per diluted share) compared to the prior year's quarter.
  • 2Total net revenue grew 3% to $7.08 billion, driven by an 8% increase in non-interest income, primarily from interchange fees.
  • 3Net interest income saw a 1% increase to $5.79 billion, supported by loan growth in credit card, commercial, and auto portfolios.
  • 4The Common Equity Tier 1 capital ratio improved to 11.9% from 11.2% at the end of the prior year, indicating strong capital adequacy.
  • 5Provision for credit losses remained stable at $1.69 billion, with a slight increase in the net charge-off rate to 2.64%, partly due to portfolio sales.
  • 6Non-interest expense rose 3% primarily due to a 25% increase in marketing expenses, related to technology investments and the Walmart partnership.
  • 7Period-end loans held for investment decreased 2% to $240.3 billion, largely due to seasonal paydowns in the credit card portfolio.

Frequently Asked Questions

Capital One's revenue growth was primarily driven by an increase in non-interest income, particularly net interchange fees, which rose due to higher purchase volumes and updated rewards cost estimates. Net interest income also contributed positively, growing due to expansion in domestic credit card, commercial, and auto loan portfolios.

The net charge-off rate increased slightly to 2.64% compared to the previous year, influenced by the sale of the consumer home loan portfolio. However, the 30+ day delinquency rate decreased to 3.40%, indicating improved borrower performance in key segments. The allowance for loan and lease losses increased to $7.3 billion, reflecting an allowance build in the commercial loan portfolio.

Capital One expects continued increases in deposit costs to negatively impact its net interest margin throughout 2019. The company is focused on managing this pressure through strategies related to deposit mix and pricing.

A key development is the pending acquisition of Walmart's credit card portfolio, expected to close in late Q3 or early Q4 2019, which will make Capital One the exclusive issuer of Walmart's credit card program in the U.S. The company also expects to incur approximately $225 million in one-time expenses in 2019 related to launching new origination programs and integrating the acquired Walmart portfolio.