10-QPeriod: Q3 FY2020

CAPITAL ONE FINANCIAL CORP Quarterly Report for Q3 Ended Sep 30, 2020

Filed November 2, 2020For Securities:COFCOF-PLCOF-PICOF-PKCOF-PNCOF-PJ

Summary

Capital One Financial Corporation (COF) reported a net income of $2.4 billion for the third quarter of 2020, a significant increase from $1.3 billion in the same period last year. This improvement was driven by a lower provision for credit losses, partly due to an allowance release related to loan portfolio transfers, and a substantial gain from an equity investment in Snowflake Inc. However, for the first nine months of 2020, net income was $148 million, a sharp decline from $4.4 billion in the prior year, primarily due to a significant increase in the provision for credit losses related to the COVID-19 pandemic and lower net interest income. The company's Common Equity Tier 1 capital ratio remained strong at 13.0% as of September 30, 2020. Despite the challenging economic environment, Capital One saw strong deposit growth, reflecting increased consumer savings. The company's loan balances decreased year-over-year, particularly in the credit card segment, due to reduced purchase volumes and higher customer payments in response to COVID-19. The company continues to monitor the impact of the pandemic and has taken measures to support customers facing hardship.

Financial Highlights

42 data points
Beta

Revenue

$7.38B

Net Income

$2.41B

32.6% Net Margin

EPS (Diluted)

$5.06

Total Assets

$421.88B

Cash & Equivalents

$45.00B

Free Cash Flow

$2.66B

Financial Statements
Beta
Revenue$7.38B
Operating Income$149.00M
Interest Expense$660.00M
Net Income$2.41B
EPS (Basic)$5.07
EPS (Diluted)$5.06
Shares Outstanding (Basic)457.80M
Shares Outstanding (Diluted)458.50M

Key Highlights

  • 1Net income for Q3 2020 was $2.4 billion, up 80% year-over-year, driven by lower provision for credit losses and a significant gain on an equity investment.
  • 2Nine-month net income for 2020 was $148 million, down 97% year-over-year, mainly due to higher provision for credit losses related to the COVID-19 pandemic.
  • 3Total assets increased to $421.9 billion, primarily due to deposit growth from increased consumer savings.
  • 4Allowance for credit losses increased by $8.9 billion to $16.1 billion, and the allowance coverage ratio rose to 6.50% due to the CECL standard adoption and pandemic-related economic outlook.
  • 5Net charge-off rate decreased to 1.72% in Q3 2020 compared to 2.38% in Q3 2019.
  • 6Common Equity Tier 1 capital ratio was strong at 13.0% as of September 30, 2020.
  • 7Marketing expenses were reduced significantly, down 44% year-over-year for Q3 2020, and 33% year-over-year for the nine-month period.

Frequently Asked Questions

The COVID-19 pandemic significantly impacted Capital One's financial results, primarily through a substantial increase in the provision for credit losses during the first nine months of 2020 due to expectations of economic worsening. This led to a sharp decline in net income for the nine-month period compared to the prior year. The pandemic also affected loan balances, particularly in the credit card segment, due to reduced purchase volumes and higher customer payments.

During the third quarter of 2020, Capital One incurred $13 million in incremental expenses related to the remediation and response to the Cybersecurity Incident, offset by $7 million in insurance recoveries. The company expects total incremental costs for 2020 to be at the high end of the previously disclosed $100 million to $150 million range. While the ultimate impact is uncertain, Capital One does not believe the incident will materially impact its strategy or long-term financial health.

Capital One's capital position remains strong. The Common Equity Tier 1 capital ratio was 13.0% as of September 30, 2020, an increase from 12.2% at December 31, 2019. The company's capital ratios exceeded minimum regulatory requirements, and it was considered well-capitalized under Prompt Corrective Action requirements.