Capital One Reports Fourth Quarter 2017 Net Loss of $971 million, or $2.17 per share

Excluding adjusting items, Fourth Quarter 2017 Net Income of $1.62 per share(1)

MCLEAN, Va., Jan. 23, 2018  /PRNewswire/ -- Capital One Financial Corporation (NYSE: COF) today announced net loss for the fourth quarter of 2017 of $971 million, or $2.17 per diluted common share, compared with net income of $1.1 billion, or $2.14 per diluted common share in the third quarter of 2017, and with net income of $791 million, or $1.45 per diluted common share in the fourth quarter of 2016. Excluding adjusting items, net income for the fourth quarter of 2017 was $1.62 per diluted common share(1).

Capital One

"In 2017, we continued to grow loans and revenue. We improved our efficiency. Our digital and technology transformation continued to gain momentum. And, we delivered 7.4% EPS growth, net of adjustments," said Richard D. Fairbank, Founder, Chairman and Chief Executive Officer. "Our 2017 results put us in a strong position to continue to deliver attractive growth and returns over the long-term."


Adjusting items in the fourth quarter of 2017, which are excluded from diluted EPS and the efficiency ratio (see Table 15 in our Financial Supplement for additional information):


Pre-Tax

Diluted EPS

(Dollars in millions, except per share data)

Impact

Impact

Impacts of the Tax Act(2)

$

(1,769)


$

(3.61)


Restructuring charges

(76)


(0.10)


Build in the U.K. Payment Protection Insurance customer refund reserve ("U.K. PPI Reserve")

(31)


(0.07)


Notable items in the fourth quarter of 2017 included: 


Pre-Tax

Diluted EPS

(Dollars in millions, except per share data)

Impact

Impact

Mortgage representation and warranty settlement (included in discontinued operations)

$

(169)


$

(0.22)


Charges related to our Commercial Taxi Medallion Lending portfolio

(113)


(0.15)


 

(1)

Amounts excluding adjusting items are non-GAAP measures that we believe help investors and users of our financial information understand the effect of adjusting items on our selected reported results and provide alternate measurements of our performance. See Table 15 in Exhibit 99.2 for a reconciliation of our selected reported results to these non-GAAP measures.

(2) 

Tax Act refers to the Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 enacted on December 22, 2017. This amount is a reasonable estimate as of December 31, 2017, which may be adjusted during the measurement period ending no later than December 2018.

All comparisons below are for the fourth quarter of 2017 compared with the third quarter of 2017 unless otherwise noted.

Fourth Quarter 2017 Income Statement Summary

  • Total net revenue remained substantially flat at $7.0 billion.
  • Total non-interest expense increased 6 percent to $3.8 billion:
    • 4 percent increase in operating expenses.
    • 21 percent increase in marketing.
  • Pre-provision earnings decreased 5 percent to $3.2 billion(2).
  • Provision for credit losses increased 5 percent to $1.9 billion:
    • Net charge-offs of $1.8 billion.
    • $98 million reserve build.
  • Net interest margin of 7.03 percent, down 5 basis points.
  • Efficiency ratio of 53.89 percent.
    • Efficiency ratio excluding adjusting items was 52.50 percent(1).

Fourth Quarter 2017 Balance Sheet Summary

  • Common equity Tier 1 capital ratio under Basel III Standardized Approach of 10.3 percent at December 31, 2017.
  • Period-end loans held for investment in the quarter increased $2.1 billion, or 1 percent, to $254.5 billion.
    • Domestic Card period-end loans increased $5.3 billion, or 5 percent, to $105.3 billion.
    • Consumer Banking period-end loans decreased $486 million, or 1 percent, to $75.1 billion:
      • Auto period-end loans increased $701 million, or 1 percent, to $54.0 billion.
      • Home loans period-end loans decreased $1.2 billion, or 6 percent, to $17.6 billion, primarily driven by run-off of acquired portfolios. 
    • Commercial Banking period-end loans decreased $3.1 billion, or 5 percent, to $64.6 billion.
  • Average loans held for investment in the quarter increased $6.7 billion, or 3 percent, to $252.6 billion.
    • Domestic Card average loans increased $7.4 billion, or 8 percent, to $101.1 billion.
    • Consumer Banking average loans decreased $74 million, or less than 1 percent, to $75.3 billion:
      • Auto average loans increased $1.1 billion, or 2 percent, to $53.7 billion.
      • Home loans average loans decreased $1.2 billion, or 6 percent, to $18.1 billion, primarily driven by run-off of acquired portfolios.
    • Commercial Banking average loans decreased $659 million, or 1 percent, to $67.2 billion.

(1)

Amounts excluding adjusting items are non-GAAP measures that we believe help investors and users of our financial information understand the effect of adjusting items on our selected reported results and provide alternate measurements of our performance. See Table 15 in Exhibit 99.2 for a reconciliation of our selected reported results to these non-GAAP measures.

 

(2) 

Pre-provision earnings is calculated based on the sum of net interest income and non-interest income, less non-interest expense for the period.

 

 

 

  • Period-end total deposits increased $4.6 billion, or 2 percent, to $243.7 billion, while average deposits increased $2.7 billion, or 1 percent, to $241.6 billion.
  • Interest-bearing deposits rate paid increased 8 basis points to 0.85 percent.

All comparisons below are for the full year of 2017 compared with the full year of 2016 unless otherwise noted.

2017 Full Year Income Statement Summary:

               

  • Total net revenue increased 7 percent to $27.2 billion.
  • Total non-interest expense increased 5 percent to $14.2 billion:
    • 8 percent decrease in marketing.
    • 7 percent increase in operating expenses.      
  • Pre-provision earnings increased 9 percent to $13.0 billion(2).  
  • Provision for credit losses increased 17 percent to $7.6 billion
  • Efficiency ratio of 52.11 percent.   
    • Efficiency ratio excluding adjusting items was 51.02 percent(1).

 

Earnings Conference Call Webcast Information

The company will hold an earnings conference call on January 23, 2018 at 5:00 PM Eastern Time. The conference call will be accessible through live webcast. Interested investors and other individuals can access the webcast via the company's home page (www.capitalone.com). Choose "About Us," then choose "Investors" to access the Investor Center and view and/or download the earnings press release, the financial supplement, including a reconciliation of non-GAAP financial measures, and the earnings release presentation. The replay of the webcast will be archived on the company's website through February 6, 2018 at 5:00 PM Eastern Time.

 

Forward-Looking Statements

Certain statements in this release may constitute forward-looking statements, which involve a number of risks and uncertainties. Capital One cautions readers that any forward-looking information is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking information due to a number of factors, including those listed from time to time in reports that Capital One files with the Securities and Exchange Commission, including, but not limited to, the Annual Report on Form 10-K for the year ended December 31, 2016.

 

About Capital One

Capital One Financial Corporation (www.capitalone.com) is a financial holding company whose subsidiaries, which include Capital One, N.A., and Capital One Bank (USA), N.A., had $243.7 billion in deposits and $365.7 billion in total assets as of December 31, 2017. Headquartered in McLean, Virginia, Capital One offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients through a variety of channels. Capital One, N.A. has branches located primarily in New York, Louisiana, Texas, Maryland, Virginia, New Jersey and the District of Columbia. A Fortune 500 company, Capital One trades on the New York Stock Exchange under the symbol "COF" and is included in the S&P 100 index.

 

(1)

Amounts excluding adjusting items are non-GAAP measures that we believe help investors and users of our financial information understand the effect of adjusting items on our selected reported results and provide alternate measurements of our performance. See Table 15 in Exhibit 99.2 for a reconciliation of our selected reported results to these non-GAAP measures.

 



(2) 

Pre-provision earnings is calculated based on the sum of net interest income and non-interest income, less non-interest expense for the period.

 

 

 

Exhibit 99.2


Capital One Financial Corporation

Financial Supplement(1)(2)

Fourth Quarter 2017

Table of Contents


Capital One Financial Corporation Consolidated Results

Page


Table 1:

Financial Summary—Consolidated

1


Table 2:

Selected Metrics—Consolidated

3


Table 3:

Consolidated Statements of Income

4


Table 4:

Consolidated Balance Sheets

6


Table 5:

Notes to Financial Summary, Selected Metrics and Consolidated Financial Statements (Tables 1—4)

8


Table 6:

Average Balances, Net Interest Income and Net Interest Margin

10


Table 7:

Loan Information and Performance Statistics

11


Table 8:

Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity

13

Business Segment Results



Table 9:

Financial Summary—Business Segment Results

14


Table 10:

Financial & Statistical Summary—Credit Card Business

15


Table 11:

Financial & Statistical Summary—Consumer Banking Business

17


Table 12:

Financial & Statistical Summary—Commercial Banking Business

18


Table 13:

Financial & Statistical Summary—Other and Total

19


Table 14:

Notes to Loan, Allowance and Business Segment Disclosures (Tables 7—13)

20

Other



Table 15:

Calculation of Regulatory Capital Measures and Reconciliation of Non-GAAP Measures

21


__________

(1)

The information contained in this Financial Supplement is preliminary and based on data available at the time of the earnings presentation. Investors should refer to our Annual Report on Form 10-K for the period ended December 31, 2017 once it is filed with the Securities and Exchange Commission.

(2)

This Financial Supplement includes non-GAAP measures. We believe these non-GAAP measures are useful to investors and users of our financial information as they provide an alternate measurement of our performance and assist in assessing our capital adequacy and the level of return generated. These non-GAAP measures should not be viewed as a substitute for reported results determined in accordance with generally accepted accounting principles in the U.S. ("GAAP"), nor are they necessarily comparable to non-GAAP measures that may be presented by other companies.

 

 


CAPITAL ONE FINANCIAL CORPORATION (COF)

Table 1: Financial Summary—Consolidated














2017 Q4 vs.


Year Ended December 31,

(Dollars in millions, except per share data and as noted)


2017


2017


2017


2017


2016


2017


2016






2017 vs.


Q4


Q3


Q2


Q1


Q4


Q3


Q4


2017


2016


2016

Income Statement





















Net interest income


$

5,813



$

5,700



$

5,473



$

5,474



$

5,447



2

%


7

%


$

22,460



$

20,873



8

%

Non-interest income


1,200



1,285



1,231



1,061



1,119



(7)



7



4,777



4,628



3


Total net revenue(1)


7,013



6,985



6,704



6,535



6,566





7



27,237



25,501



7


Provision for credit losses


1,926



1,833



1,800



1,992



1,752



5



10



7,551



6,459



17


Non-interest expense:





















Marketing


460



379



435



396



575



21



(20)



1,670



1,811



(8)


Operating expenses


3,319



3,188



2,979



3,038



3,104



4



7



12,524



11,747



7


Total non-interest expense


3,779



3,567



3,414



3,434



3,679



6



3



14,194



13,558



5


Income from continuing operations before income taxes


1,308



1,585



1,490



1,109



1,135



(17)



15



5,492



5,484




Income tax provision


2,170



448



443



314



342



**


**


3,375



1,714



97


Income (loss) from continuing operations, net of tax


(862)



1,137



1,047



795



793



**


**


2,117



3,770



(44)


Income (loss) from discontinued operations, net of tax(2)


(109)



(30)



(11)



15



(2)



**


**


(135)



(19)



**

Net income (loss)


(971)



1,107



1,036



810



791



**


**


1,982



3,751



(47)


Dividends and undistributed earnings allocated to participating securities(3)


(1)



(8)



(8)



(5)



(6)



(88)



(83)



(13)



(24)



(46)


Preferred stock dividends


(80)



(52)



(80)



(53)



(75)



54



7



(265)



(214)



24


Net income (loss) available to common stockholders


$

(1,052)



$

1,047



$

948



$

752



$

710



**


**


$

1,704



$

3,513



(51)


Common Share Statistics





















Basic earnings per common share:(3)





















Net income (loss) from continuing operations


$

(1.95)



$

2.22



$

1.98



$

1.53



$

1.47



**


**


$

3.80



$

7.00



(46)

%

Income (loss) from discontinued operations


(0.22)



(0.06)



(0.02)



0.03





**


**


(0.28)



(0.04)



**

Net income (loss) per basic common share


$

(2.17)



$

2.16



$

1.96



$

1.56



$

1.47



**


**


$

3.52



$

6.96



(49)


Diluted earnings per common share:(3)





















Net income (loss) from continuing operations


$

(1.95)



$

2.20



$

1.96



$

1.51



$

1.45



**


**


$

3.76



$

6.93



(46)


Income (loss) from discontinued operations


(0.22)



(0.06)



(0.02)



0.03





**


**


(0.27)



(0.04)



**

Net income (loss) per diluted common share


$

(2.17)



$

2.14



$

1.94



$

1.54



$

1.45



**


**


$

3.49



$

6.89



(49)


Weighted-average common shares outstanding (in millions):





















Basic


485.7



484.9



484.0



482.3



483.5







484.2



504.9



(4)


Diluted


485.7



489.0



488.1



487.9



489.2



(1)

%


(1)

%


488.6



509.8



(4)


Common shares outstanding (period-end, in millions)


485.5



484.4



483.7



482.8



480.2





1



485.5



480.2



1


Dividends paid per common share


$

0.40



$

0.40



$

0.40



$

0.40



$

0.40







$

1.60



$

1.60




Tangible book value per common share (period-end)(4)


60.28



63.06



60.94



58.66



57.76



(4)



4



60.28



57.76



4













































2017 Q4 vs.


Year Ended December 31,

(Dollars in millions)


2017


2017


2017


2017


2016


2017


2016






2017 vs.


Q4


Q3


Q2


Q1


Q4


Q3


Q4


2017


2016


2016

Balance Sheet (Period-End)





















Loans held for investment(5)


$

254,473



$

252,422



$

244,302



$

240,588



$

245,586



1

%


4

%


$

254,473



$

245,586



4

%

Interest-earning assets


334,124



329,002



319,286



316,712



321,807



2



4



334,124



321,807



4


Total assets


365,693



361,402



350,593



348,549



357,033



1



2



365,693



357,033



2


Interest-bearing deposits


217,298



212,956



213,810



214,818



211,266



2



3



217,298



211,266



3


Total deposits


243,702



239,062



239,763



241,182



236,768



2



3



243,702



236,768



3


Borrowings


60,281



59,458



49,954



48,439



60,460



1





60,281



60,460




Common equity


44,370



45,794



44,777



43,680



43,154



(3)



3



44,370



43,154



3


Total stockholders' equity


48,730



50,154



49,137



48,040



47,514



(3)



3



48,730



47,514



3


Balance Sheet (Average Balances)





















Loans held for investment(5)


$

252,566



$

245,822



$

242,241



$

241,505



$

240,027



3

%


5

%


$

245,565



$

233,272



5

%

Interest-earning assets


330,742



322,015



318,078



318,358



317,853



3



4



322,330



307,796



5


Total assets


363,045



355,191



349,891



351,641



350,225



2



4



354,924



339,974



4


Interest-bearing deposits


215,258



213,137



214,412



212,973



206,464



1



4



213,949



198,304



8


Total deposits


241,562



238,843



240,550



238,550



232,204



1



4



239,882



223,714



7


Borrowings


58,109



54,271



48,838



53,357



58,624



7



(1)



53,659



56,878



(6)


Common equity


46,350



45,816



44,645



43,833



43,921



1



6



45,170



45,162




Total stockholders' equity


50,710



50,176



49,005



48,193



47,972



1



6



49,530



48,753



2


 

 

               


CAPITAL ONE FINANCIAL CORPORATION (COF)

Table 2: Selected Metrics—Consolidated














2017 Q4 vs.


Year Ended December 31,

(Dollars in millions, except as noted)


2017


2017


2017


2017


2016


2017


2016






2017 vs.


Q4


Q3


Q2


Q1


Q4


Q3


Q4


2017


2016


2016

Performance Metrics





















Net interest income growth (period over period)


2

%


4

%






3

%


**


**


8

%


11

%


**

Non-interest income growth (period over period)


(7)



4



16

%


(5)

%


(5)



**


**


3



1



**

Total net revenue growth (period over period)




4



3





2



**


**


7



9



**

Total net revenue margin(6)


8.48



8.68



8.43



8.21



8.26



(20)

bps


22

bps


8.45



8.29



16

bps

Net interest margin(7)


7.03



7.08



6.88



6.88



6.85



(5)



18



6.97



6.78



19


Return on average assets


(0.95)



1.28



1.20



0.90



0.91



(223)



(186)



0.60



1.11



(51)


Return on average tangible assets(8)


(0.99)



1.34



1.25



0.95



0.95



(233)



(194)



0.62



1.16



(54)


Return on average common equity(9)


(8.14)



9.40



8.59



6.73



6.48



(18)

%


(15)

%


4.07



7.82



(4)

%

Return on average tangible common equity(10)


(12.12)



14.11



13.09



10.37



10.00



(26)



(22)



6.16



11.93



(6)


Non-interest expense as a percentage of average loans held for investment


5.98



5.80



5.64



5.69



6.13



18

bps


(15)

bps


5.78



5.81



(3)

bps

Efficiency ratio(11)


53.89



51.07



50.92



52.55



56.03



282



(214)



52.11



53.17



(106)


Effective income tax rate for continuing operations


165.9



28.3



29.7



28.3



30.1



138

%


136

%


61.5



31.3



30

%

Employees (in thousands), period-end


49.3



50.4



49.9



48.4



47.3



(2)



4



49.3



47.3



4


Credit Quality Metrics





















Allowance for loan and lease losses


$

7,502



$

7,418



$

7,170



$

6,984



$

6,503



1

%


15

%


$

7,502



$

6,503



15

%

Allowance as a percentage of loans held for investment


2.95

%


2.94

%


2.93

%


2.90

%


2.65

%


1

bps


30

bps


2.95

%


2.65

%


30

bps

Net charge-offs


$

1,828



$

1,606



$

1,618



$

1,510



$

1,489



14

%


23

%


$

6,562



$

5,062



30

%

Net charge-off rate(12)


2.89

%


2.61

%


2.67

%


2.50

%


2.48

%


28

bps


41

bps


2.67

%


2.17

%


50

bps

30+ day performing delinquency rate(13)


3.23



2.93



2.69



2.61



2.93



30



30



3.23



2.93



30


30+ day delinquency rate


3.48



3.24



2.99



2.92



3.27



24



21



3.48



3.27



21


Capital Ratios(14)





















Common equity Tier 1 capital


10.3

%


10.7

%


10.7

%


10.4

%


10.1

%


(40)

bps


20

bps


10.3

%


10.1

%


20

bps

Tier 1 capital


11.8



12.2



12.2



12.0



11.6



(40)



20



11.8



11.6



20


Total capital


14.4



14.8



14.9



14.7



14.3



(40)



10



14.4



14.3



10


Tier 1 leverage


9.9



10.5



10.3



9.9



9.9



(60)





9.9



9.9




Tangible common equity ("TCE")(15)


8.3



8.8



8.8



8.5



8.1



(50)



20



8.3



8.1



20



 

 

CAPITAL ONE FINANCIAL CORPORATION (COF)

Table 3: Consolidated Statements of Income














2017 Q4 vs.


Year Ended December 31,



2017


2017


2017


2017


2016


2017


2016






2017 vs.

(Dollars in millions, except per share data and as noted)


Q4


Q3


Q2


Q1


Q4


Q3


Q4


2017


2016


2016

Interest income:





















Loans, including loans held for sale


$

6,133



$

5,960



$

5,669



$

5,626



$

5,587



3

%


10

%


$

23,388



$

21,203



10

%

Investment securities


431



431



433



416



393





10



1,711



1,599



7


Other


40



29



26



28



29



38



38



123



89



38


Total interest income


6,604



6,420



6,128



6,070



6,009



3



10



25,222



22,891



10


Interest expense:





















Deposits


457



410



382



353



332



11



38



1,602



1,213



32


Securitized debt obligations


91



85



82



69



65



7



40



327



216



51


Senior and subordinated notes


209



194



179



149



138



8



51



731



476



54


Other borrowings


34



31



12



25



27



10



26



102



113



(10)


Total interest expense


791



720



655



596



562



10



41



2,762



2,018



37


Net interest income


5,813



5,700



5,473



5,474



5,447



2



7



22,460



20,873



8


Provision for credit losses


1,926



1,833



1,800



1,992



1,752



5



10



7,551



6,459



17


Net interest income after provision for credit losses


3,887



3,867



3,673



3,482



3,695



1



5



14,909



14,414



3


Non-interest income:





















Interchange fees, net


665



662



676



570



624





7



2,573



2,452



5


Service charges and other customer-related fees


394



414



418



371



412



(5)



(4)



1,597



1,646



(3)


Net securities gains (losses)


1



68



(4)





(4)



(99)



**


65



(11)



**

Other


140



141



141



120



87



(1)



61



542



541




Total non-interest income


1,200



1,285



1,231



1,061



1,119



(7)



7



4,777



4,628



3


Non-interest expense:





















Salaries and associate benefits


1,521



1,524



1,383



1,471



1,336





14



5,899



5,202



13


Occupancy and equipment


523



471



474



471



522



11





1,939



1,944




Marketing


460



379



435



396



575



21



(20)



1,670



1,811



(8)


Professional services


274



297



279



247



312



(8)



(12)



1,097



1,075



2


Communications and data processing


306



294



289



288



297



4



3



1,177



1,169



1


Amortization of intangibles


61



61



61



62



101





(40)



245



386



(37)


Other


634



541



493



499



536



17



18



2,167



1,971



10


Total non-interest expense


3,779



3,567



3,414



3,434



3,679



6



3



14,194



13,558



5


Income from continuing operations before income taxes


1,308



1,585



1,490



1,109



1,135



(17)



15



5,492



5,484




Income tax provision


2,170



448



443



314



342



**


**


3,375



1,714



97


Income (loss) from continuing operations, net of tax


(862)



1,137



1,047



795



793



**


**


2,117



3,770



(44)


Income (loss) from discontinued operations, net of tax(2)


(109)



(30)



(11)



15



(2)



**


**


(135)



(19)



**

Net income (loss)


(971)



1,107



1,036



810



791



**


**


1,982



3,751



(47)


Dividends and undistributed earnings allocated to participating securities(3)


(1)



(8)



(8)



(5)



(6)



(88)



(83)



(13)



(24)



(46)


Preferred stock dividends


(80)



(52)



(80)



(53)



(75)



54



7



(265)



(214)



24


Net income (loss) available to common stockholders


$

(1,052)



$

1,047



$

948



$

752



$

710



**


**


$

1,704



$

3,513



(51)



































2017 Q4 vs.


Year Ended December 31,



2017


2017


2017


2017


2016


2017


2016






2017 vs.

(Dollars in millions, except per share data and as noted)


Q4


Q3


Q2


Q1


Q4


Q3


Q4


2017


2016


2016

Basic earnings per common share:(3)





















Net income (loss) from continuing operations


$

(1.95)



$

2.22



$

1.98



$

1.53



$

1.47



**


**


$

3.80



$

7.00



(46)

%

Income (loss) from discontinued operations


(0.22)



(0.06)



(0.02)



0.03





**


**


(0.28)



(0.04)



**

Net income (loss) per basic common share


$

(2.17)



$

2.16



$

1.96



$

1.56



$

1.47



**


**


$

3.52



$

6.96



(49)


Diluted earnings per common share:(3)





















Net income (loss) from continuing operations


$

(1.95)



$

2.20



$

1.96



$

1.51



$

1.45



**


**


$

3.76



$

6.93



(46)


Income (loss) from discontinued operations


(0.22)



(0.06)