10-QPeriod: Q3 FY2019

CAPITAL ONE FINANCIAL CORP Quarterly Report for Q3 Ended Sep 30, 2019

Filed October 31, 2019For Securities:COFCOF-PLCOF-PICOF-PKCOF-PNCOF-PJ

Summary

Capital One Financial Corporation reported net income of $1.3 billion for the third quarter of 2019, a decrease of $169 million compared to the same period in the prior year. This decline was primarily driven by an increase in the U.K. Payment Protection Insurance (PPI) customer refund reserve, higher provision for credit losses, and increased non-interest expenses related to technology investments and the Walmart partnership. Despite these headwinds, the company saw growth in its loan portfolios and a slight increase in net interchange fees due to higher purchase volumes. Capital ratios remain strong, with the Common Equity Tier 1 capital ratio at 12.5% as of September 30, 2019. The company also announced a $2.2 billion stock repurchase program and repurchased approximately $466 million in the third quarter. The company also disclosed a significant cybersecurity incident that affected approximately 100 million individuals in the U.S. and 6 million in Canada. While the incident is expected to incur incremental costs, Capital One anticipates these will be at the lower end of their initial estimate and a significant portion will be covered by insurance. Management believes the incident will not negatively impact the company's long-term strategy or financial health.

Financial Statements
Beta
Revenue$6.96B
Operating Income$4.36B
Interest Expense$1.34B
Net Income$1.33B
EPS (Basic)$2.71
EPS (Diluted)$2.69
Shares Outstanding (Basic)469.50M
Shares Outstanding (Diluted)471.80M

Key Highlights

  • 1Net income for Q3 2019 was $1.3 billion, down from $1.5 billion in Q3 2018, primarily due to higher U.K. PPI reserves and increased credit loss provisions.
  • 2Total net revenue remained flat at $7.0 billion for Q3 2019 compared to Q3 2018, supported by growth in loan portfolios and higher interchange fees.
  • 3The provision for credit losses increased by 9% year-over-year for the quarter, driven by a smaller allowance release in the domestic credit card portfolio and energy sector charge-offs.
  • 4Non-interest expense increased by 3% year-over-year for the quarter, influenced by technology investments, the Walmart partnership, and the U.K. PPI reserve build.
  • 5Capital One announced a $2.2 billion stock repurchase program, repurchasing approximately $466 million of shares in Q3 2019.
  • 6The Common Equity Tier 1 capital ratio stood at a strong 12.5% as of September 30, 2019.
  • 7A cybersecurity incident was disclosed, affecting approximately 106 million individuals, with expected incremental costs to be partially offset by insurance recoveries.

Frequently Asked Questions

Capital One reported a net income of $1.3 billion for the third quarter of 2019, a decrease of $169 million (approximately 11%) compared to $1.5 billion in the third quarter of 2018.

The decrease in net income was primarily driven by an increase in the U.K. Payment Protection Insurance (PPI) customer refund reserve, higher provision for credit losses, and increased non-interest expenses related to technology investments and the Walmart partnership.

The cybersecurity incident resulted in approximately $22 million of net expenses in the third quarter of 2019, consisting of $49 million in expenses partially offset by $27 million in probable insurance recoveries. The company expects incremental costs related to the incident to be at the low end of their initial $100-$150 million estimate for 2019, with a significant portion expected to be covered by insurance. Management believes the incident will not negatively impact the company's long-term strategy or financial health.

Capital One's capital position remains strong, with a Common Equity Tier 1 capital ratio of 12.5% as of September 30, 2019, which is well above regulatory minimums.