Capital One posts higher 2Q net income, revenue

LOS ANGELES (AP) Capital One Financial Corp. said Thursday that its second-quarter profit vaulted versus the same period last year, when the lender set aside $1.7 billion to cover bad loans.

The company benefited from higher revenue from its credit card and commercial banking businesses, and ended the April-June period with higher loan balances at its auto lending division. But retail banking and home loans declined.

All told, Capital One's net interest income, or money earned from loans, grew to $4.55 billion in the quarter from $4 billion a year earlier. Non-interest income, which includes service charges and other customer-related fees, rose to $1.09 billion from $1.05 billion.

Results bested analyst expectations, and the stock added 95 cents, or 1.4 percent, to $68 in aftermarket trading. Shares closed up 15 cents at $67.05 in regular trading and are up nearly 16 percent this year.

Capital One, based in McLean, Virginia, is best known for its namesake credit card business, but it has taken steps in recent years to increase its profile as a national bank. The acquisition of ING Direct, a deal that closed in February 2012, made Capital One the sixth-biggest U.S. bank, based on deposits.

The U.S. economy has been showing more robust signs of growth, led by stronger job gains in the first half of the year versus the same period last year, and a housing recovery that appears to be gaining momentum.

That's helped boost consumer confidence, which rose last month to the highest level since January 2008, according to the Conference Board.

Those factors have made consumers feel wealthier and more willing to spend money and take on more debt for big purchases such as autos all factors that can drive revenue for credit card issuers and lenders.

For the three months ended June 30, Capital One's net income after paying preferred dividends jumped to $1.1 billion, or $1.87 per share, in the three months ended June 30. That compares with net income of $92 million, or 16 cents per share, a year earlier.

Analysts polled by FactSet expected earnings of $1.73 per share.

The company set aside $762 million for credit losses, down from $1.7 billion a year earlier. Operating expenses declined slightly from the prior-year quarter.

Revenue grew nearly 12 percent to $5.64 billion from $5.1 billion. Analysts forecast $5.53 billion.

Capital One's domestic card business generated $3.27 billion in revenue, a gain of 16 percent versus the same quarter last year. Loans in the segment at the end of the quarter were down 13 percent from a year earlier.

Purchase volume for the domestic card business was up about 12 percent.

The lender is seeing more traction on new loans and opportunities to boost credit lines, which should help boost loan balances starting next year, Richard Fairbank, Capital One's chairman and CEO, told analysts during a conference call.

"As a result of our choices, as well as the cautious consumer and a recovering economy, the strong domestic card credit performance we are seeing is likely to continue," he added.

Fairbank noted that the company's brand conversion from ING Direct to Capital One 360 is going well and the company is seeing a pickup in checking accounts.

Even so, consumer banking revenue was flat versus the prior-year quarter.

Auto loans grew 16 percent during the quarter versus the prior-year period.

Fairbank said he expects the pace of auto loan growth to decelerate as more lenders step back into the market after sitting the economic downturn.

"As the cycle plays out and competition continues to pick up, I expect the exceptional results of the past few years to moderate somewhat," Fairbank said.