Capital One Reports Third Quarter 2018 Net Income of $1.5 billion, or $2.99 per share

Excluding adjusting items, Third Quarter 2018 Net Income of $3.12 per share(1)

MCLEAN, Va., Oct. 23, 2018 /PRNewswire/ -- Capital One Financial Corporation (NYSE: COF) today announced net income for the third quarter of 2018 of $1.5 billion, or $2.99 per diluted common share, compared with net income of $1.9 billion, or $3.71 per diluted common share, in the second quarter of 2018, and with net income of $1.1 billion, or $2.14 per diluted common share, in the third quarter of 2017. Excluding adjusting items, net income for the third quarter of 2018 was $3.12 per diluted common share(1).

Capital One

"Our digital and technology transformation is accelerating, and is powering our ability to grow new customer relationships and deepen engagement with new and existing customers," said Richard D. Fairbank, Founder, Chairman and Chief Executive Officer. "We continue to build an enduringly great franchise with the scale, brand, capabilities, and infrastructure to succeed as the digital revolution transforms our industry and our society."

Adjusting items in the third quarter of 2018, which are excluded from diluted EPS and efficiency ratio metrics (see Table 15 in our Financial Supplement for additional information):









Pre-Tax

Diluted EPS

(Dollars in millions, except per share data)

Impact

Impact

Net gains on the sales of exited businesses

$

141


$

0.22


Legal reserve build

(170)


(0.35)


Notable item in the third quarter of 2018 included:









Pre-Tax

Diluted EPS

(Dollars in millions, except per share data)

Impact

Impact

Investment portfolio impairment charges

$

(200)


$

(0.32)




(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.

All comparisons below are for the third quarter of 2018 compared with the second quarter of 2018 unless otherwise noted.

Third Quarter 2018 Income Statement Summary:

  • Total net revenue decreased 3 percent to $7.0 billion.
  • Recognized net gains of $141 million on the sales of exited businesses.
  • Total non-interest expense increased 10 percent to $3.8 billion:
    • 9 percent increase in operating expenses.
    • 19 percent increase in marketing.
  • Pre-provision earnings decreased 15 percent to $3.2 billion(2).
  • Provision for credit losses decreased 1 percent to $1.3 billion:
    • Net charge-offs of $1.4 billion.
    • $157 million reserve release.
  • Net interest margin of 7.01 percent, up 35 basis points.
  • Efficiency ratio of 54.19 percent.
    • Efficiency ratio excluding adjusting items was 52.70 percent(1).
  • Operating efficiency ratio of 46.95 percent.
    • Operating efficiency ratio excluding adjusting items was 45.29 percent(1).

Third Quarter 2018 Balance Sheet Summary:

  • Common equity Tier 1 capital ratio under Basel III Standardized Approach of 11.2 percent at September 30, 2018.
  • Period-end loans held for investment in the quarter increased $2.6 billion, or 1 percent, to $238.8 billion.
    • Credit Card period-end loans increased $908 million, or 1 percent, to $110.7 billion.
      • Domestic Card period-end loans increased $850 million, or 1 percent, to $101.6 billion.
    • Consumer Banking period-end loans increased $602 million, or 1 percent, to $59.3 billion:
      • Auto period-end loans increased $641 million, or 1 percent, to $56.4 billion.
    • Commercial Banking period-end loans increased $1.1 billion, or 2 percent, to $68.7 billion.
  • Average loans held for investment in the quarter decreased $4.0 billion, or 2 percent, to $236.8 billion.
    • Credit Card average loans increased $1.6 billion, or 1 percent, to $109.5 billion.
      • Domestic Card average loans increased $1.7 billion, or 2 percent, to $100.6 billion.
    • Consumer Banking average loans decreased $7.3 billion, or 11 percent, to $59.2 billion:
      • Auto average loans increased $999 million, or 2 percent, to $56.3 billion.
      • Home loans average loans decreased $8.1 billion, or 100 percent, driven by the timing of the sale of substantially all of our consumer home loan portfolio.
    • Commercial Banking average loans increased $1.7 billion, or 3 percent, to $68.0 billion.
  • Period-end total deposits decreased $1.0 billion, or less than 1 percent, to $247.2 billion, while average deposits decreased $2.1 billion, or 1 percent, to $246.7 billion.
  • Interest-bearing deposits rate paid increased 11 basis points to 1.23 percent.

Earnings Conference Call Webcast Information

The company will hold an earnings conference call on October 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 November 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, 2017.

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 $247.2 billion in deposits and $362.9 billion in total assets as of September 30, 2018. 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)

Third Quarter 2018

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

9


Table 7:

Loan Information and Performance Statistics

10


Table 8:

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

12

Business Segment Results



Table 9:

Financial Summary—Business Segment Results

13


Table 10:

Financial & Statistical Summary—Credit Card Business

14


Table 11:

Financial & Statistical Summary—Consumer Banking Business

16


Table 12:

Financial & Statistical Summary—Commercial Banking Business

17


Table 13:

Financial & Statistical Summary—Other and Total

18

Other



Table 14:

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

19


Table 15:

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

20





__________


(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 Quarterly Report on Form 10-Q for the period ended September 30, 2018 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














2018 Q3 vs.


Nine Months Ended September 30,

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


2018


2018


2018


2017


2017


2018


2017






2018 vs.


Q3


Q2


Q1


Q4


Q3


Q2


Q3


2018


2017


2017

Income Statement





















Net interest income


$

5,786



$

5,551



$

5,718



$

5,813



$

5,700



4

%


2

%


$

17,055



$

16,647



2

%

Non-interest income


1,176



1,641



1,191



1,200



1,285



(28)



(8)



4,008



3,577



12


Total net revenue(1)


6,962



7,192



6,909



7,013



6,985



(3)





21,063



20,224



4


Provision for credit losses


1,268



1,276



1,674



1,926



1,833



(1)



(31)



4,218



5,625



(25)


Non-interest expense:





















Marketing


504



425



414



460



379



19



33



1,343



1,210



11


Operating expenses


3,269



2,999



3,159



3,319



3,188



9



3



9,427



9,205



2


Total non-interest expense


3,773



3,424



3,573



3,779



3,567



10



6



10,770



10,415



3


Income from continuing operations before income taxes


1,921



2,492



1,662



1,308



1,585



(23)



21



6,075



4,184



45


Income tax provision


420



575



319



2,170



448



(27)



(6)



1,314



1,205



9


Income (loss) from continuing operations, net of tax


1,501



1,917



1,343



(862)



1,137



(22)



32



4,761



2,979



60


Income (loss) from discontinued operations, net of tax


1



(11)



3



(109)



(30)



**


**


(7)



(26)



(73)


Net income (loss)


1,502



1,906



1,346



(971)



1,107



(21)



36



4,754



2,953



61


Dividends and undistributed earnings allocated to participating securities(2)


(9)



(12)



(10)



(1)



(8)



(25)



13



(32)



(21)



52


Preferred stock dividends


(53)



(80)



(52)



(80)



(52)



(34)



2



(185)



(185)




Net income (loss) available to common stockholders


$

1,440



$

1,814



$

1,284



$

(1,052)



$

1,047



(21)



38



$

4,537



$

2,747



65


Common Share Statistics





















Basic earnings per common share:(2)





















Net income (loss) from continuing operations


$

3.01



$

3.76



$

2.63



$

(1.95)



$

2.22



(20)

%


36

%


$

9.40



$

5.73



64

%

Income (loss) from discontinued operations




(0.02)



0.01



(0.22)



(0.06)



**



**



(0.01)



(0.05)



(80)


Net income (loss) per basic common share


$

3.01



$

3.74



$

2.64



$

(2.17)



$

2.16



(20)



39



$

9.39



$

5.68



65


Diluted earnings per common share:(2)





















Net income (loss) from continuing operations


$

2.99



$

3.73



$

2.61



$

(1.95)



$

2.20



(20)



36



$

9.33



$

5.68



64


Income (loss) from discontinued operations




(0.02)



0.01



(0.22)



(0.06)



**



**



(0.01)



(0.05)



(80)


Net income (loss) per diluted common share


$

2.99



$

3.71



$

2.62



$

(2.17)



$

2.14



(19)



40



$

9.32



$

5.63



66


Weighted-average common shares outstanding (in millions):





















Basic


477.8



485.1



486.9



485.7



484.9



(2)



(1)



483.2



483.7




Diluted


480.9



488.3



490.8



485.7



489.0



(2)



(2)



486.7



488.1




Common shares outstanding (period-end, in millions)


473.7



478.4



485.9



485.5



484.4



(1)



(2)



473.7



484.4



(2)


Dividends declared and paid per common share


$

0.40



$

0.40



$

0.40



$

0.40



$

0.40







$

1.20



$

1.20




Tangible book value per common share (period-end)(3)


66.15



63.86



61.29



60.28



63.06



4



5



66.15



63.06



5













































2018 Q3 vs.


Nine Months Ended September 30,

(Dollars in millions)


2018


2018


2018


2017


2017


2018


2017






2018 vs.


Q3


Q2


Q1


Q4


Q3


Q2


Q3


2018


2017


2017

Balance Sheet (Period-End)





















Loans held for investment


$

238,761



$

236,124



$

248,256



$

254,473



$

252,422



1

%


(5)

%


$

238,761



$

252,422



(5)

%

Interest-earning assets


331,293



332,167



332,251



334,124



329,002





1



331,293



329,002



1


Total assets


362,909



363,989



362,857



365,693



361,402







362,909



361,402




Interest-bearing deposits


222,356



222,605



224,671



217,298



212,956





4



222,356



212,956



4


Total deposits


247,195



248,225



250,847



243,702



239,062





3



247,195



239,062



3


Borrowings


52,205



53,310



50,693



60,281



59,458



(2)



(12)



52,205



59,458



(12)


Common equity


46,277



45,566



44,842



44,370



45,794



2



1



46,277



45,794



1


Total stockholders' equity


50,638



49,926



49,203



48,730



50,154



1



1



50,638



50,154



1


Balance Sheet (Average Balances)





















Loans held for investment


$

236,766



$

240,758



$

249,726



$

252,566



$

245,822



(2)

%


(4)

%


$

242,369



$

243,205




Interest-earning assets


330,272



333,495



330,183



330,742



322,015



(1)



3



331,318



319,497



4

%

Total assets


360,937



363,929



362,049



363,045



355,191



(1)



2



362,293



352,216



3


Interest-bearing deposits


221,431



223,079



219,670



215,258



213,137



(1)



4



221,400



213,508



4


Total deposits


246,720



248,790



245,270



241,562



238,843



(1)



3



246,932



239,316



3


Borrowings


51,684



52,333



54,588



58,109



54,271



(1)



(5)



52,858



52,159



1


Common equity


46,407



45,466



44,670



46,350



45,816



2



1



45,521



44,772



2


Total stockholders' equity


50,768



49,827



49,031



50,710



50,176



2



1



49,882



49,132



2


 

 

CAPITAL ONE FINANCIAL CORPORATION (COF)

Table 2: Selected Metrics—Consolidated














2018 Q3 vs.


Nine Months Ended September 30,

(Dollars in millions, except as noted)


2018


2018


2018


2017


2017


2018


2017






2018 vs.


Q3


Q2


Q1


Q4


Q3


Q2


Q3


2018


2017


2017

Performance Metrics





















Net interest income growth (period over period)


4

%


(3)

%


(2)

%


2

%


4

%


**



**



2

%


8

%


**


Non-interest income growth (period over period)


(28)



38



(1)



(7)



4



**



**



12



2



**


Total net revenue growth (period over period)


(3)



4



(1)





4



**



**



4



7



**


Total net revenue margin(4)


8.43



8.63



8.37



8.48



8.68



(20)

bps


(25)

bps


8.48



8.44



4

bps

Net interest margin(5)


7.01



6.66



6.93



7.03



7.08



35



(7)



6.86



6.95



(9)


Return on average assets


1.66



2.11



1.48



(0.95)



1.28



(45)



38



1.75



1.13



62


Return on average tangible assets(6)


1.74



2.20



1.55



(0.99)



1.34



(46)



40



1.83



1.18



65


Return on average common equity(7)


12.40



16.06



11.47



(8.14)



9.40



(4)

%


3

%


13.31



8.26



5

%

Return on average tangible common equity(8)


18.32



23.99



17.32



(12.12)



14.11



(6)



4



19.88



12.56



7


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


6.37



5.69



5.72



5.98



5.80



68

bps


57

bps


5.92



5.71



21

bps

Efficiency ratio(9)


54.19



47.61



51.72



53.89



51.07



7

%


3

%


51.13



51.50




Operating efficiency ratio(10)


46.95



41.70



45.72



47.33



45.64



5



1



44.76



45.52



(1)

%

Effective income tax rate for continuing operations


21.9



23.1



19.2



165.9



28.3



(1)



(6)



21.6



28.8



(7)


Employees (in thousands), period-end


47.6



47.8



47.9



49.3



50.4





(6)



47.6



50.4



(6)


Credit Quality Metrics





















Allowance for loan and lease losses


$

7,219



$

7,368



$

7,567



$

7,502



$

7,418



(2)

%


(3)

%


$

7,219



$

7,418



(3)

%

Allowance as a percentage of loans held for investment


3.02

%


3.12

%


3.05

%


2.95

%


2.94

%


(10)

bps


8

bps


3.02

%


2.94

%


8

bps

Net charge-offs


$

1,425



$

1,459



$

1,618



$

1,828



$

1,606



(2)

%


(11)

%


$

4,502



$

4,734



(5)

%

Net charge-off rate(11)


2.41

%


2.42

%


2.59

%


2.89

%


2.61

%


(1)

bps


(20)

bps


2.48

%


2.60

%


(12)

bps

30+ day performing delinquency rate


3.28



2.88



2.72



3.23



2.93



40



35



3.28



2.93



35


30+ day delinquency rate


3.48



3.05



2.91



3.48



3.24



43



24



3.48



3.24



24


Capital Ratios(12)





















Common equity Tier 1 capital


11.2

%


11.1

%


10.5

%


10.3

%


10.7

%


10

bps


50

bps


11.2

%


10.7

%


50

bps

Tier 1 capital


12.8



12.6



12.0



11.8



12.2



20



60



12.8



12.2



60


Total capital


15.2



15.1



14.5



14.4



14.8



10



40



15.2



14.8



40


Tier 1 leverage


10.6



10.3



10.1



9.9



10.5



30



10



10.6



10.5



10


Tangible common equity ("TCE")(13)


9.0



8.8



8.6



8.3



8.8



20



20



9.0



8.8



20



 

 

CAPITAL ONE FINANCIAL CORPORATION (COF)

Table 3: Consolidated Statements of Income














2018 Q3 vs.


Nine Months Ended September 30,



2018


2018


2018


2017


2017


2018


2017






2018 vs.

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


Q3


Q2


Q1


Q4


Q3


Q2


Q3


2018


2017


2017

Interest income:





















Loans, including loans held for sale


$

6,247



$

5,989



$

6,134



$

6,133



$

5,960



4

%


5

%


$

18,370



$

17,255



6

%

Investment securities


593



539



452



431



431



10



38



1,584



1,280



24


Other


55



68



51



40



29



(19)



90



174



83



110


Total interest income


6,895



6,596



6,637



6,604



6,420



5



7



20,128



18,618



8


Interest expense:





















Deposits


681



622



539



457



410



9



66



1,842



1,145



61


Securitized debt obligations


127



124



107



91



85



2



49



358



236



52


Senior and subordinated notes


288



289



251



209



194





48



828



522



59


Other borrowings


13



10



22



34



31



30



(58)



45



68



(34)


Total interest expense


1,109



1,045



919



791



720



6



54



3,073



1,971



56


Net interest income


5,786



5,551



5,718



5,813



5,700



4



2



17,055



16,647



2


Provision for credit losses


1,268



1,276



1,674



1,926



1,833



(1)



(31)



4,218



5,625



(25)


Net interest income after provision for credit losses


4,518



4,275



4,044



3,887



3,867



6



17



12,837



11,022



16


Non-interest income:





















Interchange fees, net


714



723



643



665



662



(1)



8



2,080



1,908



9


Service charges and other customer-related fees


410



391



432



394



414



5



(1)



1,233



1,203



2


Net securities gains (losses)


(196)



(1)



8



1



68



**



**



(189)



64



**


Other


248



528



108



140



141



(53)



76



884



402



120


Total non-interest income


1,176



1,641



1,191



1,200



1,285



(28)



(8)



4,008



3,577



12


Non-interest expense:





















Salaries and associate benefits


1,432



1,430



1,520



1,521



1,524





(6)



4,382



4,378




Occupancy and equipment


515



503



490



523



471



2



9



1,508



1,416



6


Marketing


504



425



414



460



379



19



33



1,343



1,210



11


Professional services


275



234



210



274



297



18



(7)



719



823



(13)


Communications and data processing


311



317



306



306



294



(2)



6



934



871



7


Amortization of intangibles


44



43



44



61



61



2



(28)



131



184



(29)


Other


692



472



589



634



541



47



28



1,753



1,533



14


Total non-interest expense


3,773



3,424



3,573



3,779



3,567



10



6



10,770



10,415



3


Income from continuing operations before income taxes


1,921



2,492



1,662



1,308



1,585



(23)



21



6,075



4,184



45


Income tax provision


420



575



319



2,170



448



(27)



(6)



1,314



1,205



9


Income (loss) from continuing operations, net of tax


1,501



1,917



1,343



(862)



1,137



(22)



32



4,761



2,979



60


Income (loss) from discontinued operations, net of tax


1



(11)



3



(109)



(30)



**



**



(7)



(26)



(73)


Net income (loss)


1,502



1,906



1,346



(971)



1,107



(21)



36



4,754



2,953



61


Dividends and undistributed earnings allocated to participating securities(2)


(9)



(12)



(10)



(1)



(8)



(25)



13



(32)



(21)



52


Preferred stock dividends


(53)



(80)



(52)



(80)



(52)



(34)



2



(185)



(185)




Net income (loss) available to common stockholders


$

1,440



$

1,814



$

1,284



$

(1,052)



$

1,047



(21)



38



$

4,537



$

2,747



65