Capital One Earnings Fall as Charge-Offs Increase
Capital One Financial Corp. reported a 20% drop in first-quarter net income from a year earlier as losses jumped for U.S. credit cards and the bank took a bigger provision charge for credit losses.
The firm, known for its big presence in the subprime credit-card market, reported net income of $810 million for the first quarter, or earnings per share of $1.54. Excluding an item pertaining to a U.K. insurance customer refund reserve, the bank reported net profit of $910 million and earnings per share of $1.75.
Even so, the result badly missed Wall Street forecasts. Analysts had expected $937.5 million in net income and earnings per share of $1.92. Revenue of $6.5 billion also fell short of expectations.
Capital One shares fell nearly 6% at one point in aftermarket trading.
The bank, often looked at by analysts as a gauge of consumers' ability to pay back their debts, reported that domestic credit-card net charge-offs reached 5.14% in the first quarter. The was up from 4.16% a year prior. The companywide provision for credit losses jumped 30% from a year earlier to $1.9 billion.
Chief Executive Richard Fairbank said the bank raised its outlook for full-year, domestic card charge-off rates to the high end of a 4%-to-around 5% range. That was up from the bank's prior expectation of the mid-4% range. Mr. Fairbank said this revision is "based on portfolio dynamics and industry conditions [the bank] observed in the first quarter."
Mr. Fairbank voiced concerns about growing consumer indebtedness, saying the first quarter marked the seventh consecutive one in which card loans industrywide are growing faster than household income.
"Against this backdrop, we have been tightening our underwriting," he added. "We still see growth opportunities in our domestic card business, but our growth window is gradually getting smaller."
In one other area of concern, auto-loan performance, Mr. Fairbank also struck a cautious note. Used-car values have been declining, based on some indexes, resulting in higher losses for some auto lenders.
Mr. Fairbank said that Capital One's underwriting assumes declines in these prices and the firm is closely monitoring how these develop. Net charge-offs for Capital One's auto loans increased slightly from a year earlier to 1.64% in the first quarter.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com
(END) Dow Jones Newswires
April 25, 2017 19:22 ET (23:22 GMT)