Capital One earns more as card write-offs fall

What happened

After regional lenders reported slower property lending on Friday 16 October, Capital One reported on Tuesday 20 October that it earned $3.54 billion in the third quarter, against $3.19 billion a year earlier. ^{[1, 2, 3, 7]}

Total net revenue was $16.34 billion, against $15.36 billion a year earlier, the supplement reported. The provision for credit losses was $2.92 billion, against $2.71 billion a year earlier and $2.99 billion in the second quarter. ^[2]

Why it matters

Fewer cards went bad: the domestic card net charge-off rate, yearly write-offs less recoveries as a share of loans, was 3.98 percent, against 4.63 percent a year earlier and 4.71 percent in the second quarter. The bank also released $225 million of its loss reserve, the supplement reported. ^{[1, 2]}

Discover, one year on

Discover integration costs were $338 million in the quarter, the release said. Fairbank said the year's results reflect 'about $1.8 billion of annualized combined synergies,' savings and added revenue from the merger, mostly from moving Capital One debit cards to the Discover Network. ^{[1, 4]}

Discover card balances were 2.9 percent lower than a year earlier, Fairbank said, because the bank tightened Discover's lending to some borrowers. He said all new Discover cards are now opened on Capital One's systems, and existing accounts move by the first quarter. ^[4]

In July the bank said it had begun testing its own credit cards on the Discover Network, PYMNTS reported. Network volume was about $191 billion in the quarter, 25 percent higher than a year earlier, Fairbank said. ^{[5, 4]}

Late payments and capital

Domestic card loans 30 days or more past due were 3.74 percent at the end of September, up from 3.39 percent in June. Chief executive Richard Fairbank said on the call that the rise 'was in line with normal seasonality.' ^{[2, 4]}

Common equity tier 1, the core capital measure regulators watch, was 13.8 percent of risk-weighted assets, against 13.7 percent in June and 14.4 percent a year earlier. Chief financial officer Andrew Young said share repurchases of $2.6 billion largely offset the quarter's net income. ^{[1, 2, 4]}

What settles it next

Fairbank said a hearing on final court approval of the merchants' revised settlement with Visa and Mastercard is set for November, and that he expects lost card fees to roughly offset the remaining merger savings. The quarterly report is due within 40 days of the quarter's end, Monday 9 November by the desk's count. ^{[4, 6]}

The bank files its card charge-off and delinquency figures each month on Form 8-K; the September figures came on Tuesday 20 October. ^[8]

Who it reaches

Capital One (COF) is direct: the figures are its own, filed with the SEC on Tuesday 20 October. Visa (V) and Mastercard (MA) are adjacent: Capital One moved its debit cards to the Discover Network, is testing its credit cards there, and named their settlement as a cost. ^{[1, 4, 5]}