Capital One Financial (NYSE: COF), one of the U.S.'s leading credit card companies, said first-quarter earnings fell short of analyst forecasts as the bank wrote off more loans amid rising defaults by borrowers.
Net income rose to $1.2 billion, or earnings per share (EPS) of $3.13, the company said in a statement on April 25. This fell short of the average analyst estimate for EPS of $3.25. Net income a year earlier was $887 million, or $2.31 a share.
The company also reported a sharp 54% increase in net charge-offs for uncollectible loans to $2.62 billion compared with $1.7 billion in the same period a year earlier. Also in the latest quarter, the company boosted its reserves for anticipated loan losses to $15.38 billion, a 7% increase from $14.32 billion a year earlier.
| Data Metric | Current Period Results | Analyst Estimate | Prior Year Period | % Change |
|---|---|---|---|---|
| Earnings Per Share (EPS) | $3.13 | $3.25 | 2.31 | 35% |
| Revenue | $9.40 billion |
$9.35 billion | $8.90 billion |
5.6% |
| Net Charge-Offs |
$2.62 |
N/A | $1.7 billion | 54% |
| Allowance for Credit Losses | $15.38 billion | N/A | $14.32 billion | 7% |
About Capital One
Capital One, with $482 billion in assets, is best known for its credit cards, but it offers a full array of banking services, including auto loans, consumer banking and commercial lending.
In February, the company said it agreed to pay $35 billion in an all-stock deal for Discover Financial Services, the fourth biggest credit company after Visa, Mastercard and American Express. If the deal gets approved by antitrust regulators, the combination would fortify Capital One's position in the credit card market.
"The acquisition of Discover is a singular opportunity that creates a consumer banking and global payments platform with the capabilities, technology, brands, and customer franchise to create significant value for merchants, consumers, small businesses and shareholders," Capital One Chairman and Chief Executive Officer Richard Fairbank said in a statement.
Quarterly highlights
From a risk management perspective, the company grappled with an elevated net charge-off rate, particularly in its domestic credit card segment. A charge-off rate of 6.15% underscores the need for stringent credit risk controls amid a volatile economic climate.
Despite these challenges, Capital One's ambition for expansion through its impending acquisition of Discover speaks to its strategic vision. It aims to solidify its position as a credit card titan while venturing further into digital and fintech domains.
Looking ahead
Capital One did not provide an outlook for the second quarter or the full year in its earnings release. The company did emphasize its focus on digital innovation and strategic mergers as it navigates challenging economic conditions and regulatory scrutiny.
Investors are advised to monitor the company's execution of its merger plans with Discover, progression in digital transformation efforts, and management of credit risk. These factors are expected to play pivotal roles in shaping Capital One's trajectory in upcoming quarters.
