Oct. 18 (Bloomberg) -- Capital One Financial Corp., the fifth-biggest U.S. credit-card lender, posted a profit that beat analysts’ estimates as revenue from investments increased.
Third-quarter net income fell 5.2 percent to $1.12 billion, or $1.86 a share, from $1.18 billion, or $2.01, a year earlier, the McLean, Virginia-based company said yesterday in a statement. Profit from continuing operations, which excludes some items, was $1.88 a share, beating the $1.81 average estimate of 27 analysts surveyed by Bloomberg. The amount of money set aside to cover future defaults fell 16 percent.
“Net interest income in particular was stronger than we had modeled,” Jason Arnold, an analyst at RBC Capital Markets, said in a phone interview. Capital One has been busy integrating recent acquisitions, including ING Groep NV’s online U.S. bank, and “this quarter’s results show that things are heading in the right direction,” he said.
Capital One, vying to counter a drop in consumer loan demand, is expanding beyond credit cards, which generate more than half of its revenue. It hired at least three bankers last quarter for its securities group, which offers financing for municipalities, conducts research, underwrites securities, advises energy firms and arranges foreign-exchange transactions for corporate clients. The lender also bought a commercial real estate company to expand in multifamily home lending.
Income from investment securities climbed 18 percent from a year earlier to $396 million, while income from loans fell 6.6 percent to $4.58 billion. Interest expense slid 28 percent to $438 million. Net interest margin, the difference between what the bank earns on assets and pays for funding, rose 0.06 percentage point from the second quarter to 6.89 percent.
Net revenue fell 2.3 percent to $5.65 billion, beating the $5.58 billion average estimate of analysts in the Bloomberg survey. Loans held for investment rose 0.2 percent from the preceding three-month period to $191.8 billion, led by growth in the auto and commercial-banking businesses, the company said.
“New originations are growing and we’re seeing more opportunity to increase credit lines,” Chief Executive Officer Richard Fairbank said in a conference call with analysts. “We don’t expect these improvements to result in overall domestic card-loan growth until sometime around the second half of next year, as underlying loan growth will continue to be offset by shrinkage in the parts of the business we’re avoiding.”
The bank, seeking to return more capital to investors, boosted its quarterly dividend sixfold this year and said in July that it will buy back as much as $1 billion of stock.
Capital One gained 25 percent this year through the close of regular trading yesterday in New York, trailing the 27 percent advance for the 24-company KBW Bank Index.
American Express Co., the biggest credit-card issuer by purchases, said Oct. 16 that third-quarter profit rose 9.3 percent to $1.37 billion on higher worldwide card spending. AmEx shares surged 5.1 percent yesterday, the most since November 2011.
--Editors: Peter Eichenbaum, Dan Reichl