Capital One Reports Strong Growth in Commercial Loans

  • Third-quarter EPS of $1.86 beats consensus estimate of $1.80
  • Net revenue expands sequentially, down from year earlier
  • Net interest margin widens from Q2
  • Very strong commercial loan growth

NEW YORK ( TheStreet) -- Capital One Financial ( COF) after Thursday's market close announced good third-quarter results, including a surprising growth pace for its commercial loan portfolio, an expanding net interest margin and increase in revenue.

The company reported third-quarter earnings available to common shareholders of $1.099 billion, or $1.86 a share, compared to $1.1 billion, or $1.87 a share, in the second quarter, and $1.173 billion, or $2.01 a share, during the third quarter of 2012.

The third-quarter results came in well ahead of the consensus estimate of $1.80, among analysts polled by Thomson Reuters.

Third-quarter net interest income was $4.56 billion, increasing from $4.553 billion the previous quarter, but declining from $4.646 billion a year earlier. The year-over-year decline reflects a 6% decline in average loans held for investment, but average loans rose slightly during the third quarter.

A notable highlight for the company was 5% sequential growth in average commercial banking loans, to $41.576 billion in the third quarter.

Another third-quarter highlight for Capital One was an expansion of the net interest margin to 6.89% from 6.83% in the second quarter, although the margin was down from 6.97% in the third quarter of 2012.

Third-quarter noninterest income totaled $1.091 billion, increasing from $1.085 billion the previous quarter, but down from $1.136 billion a year earlier.

Noninterest expense rose to $3.147 billion in the third quarter from $3.059 billion in the second quarter and $4.045 billion in the third quarter of 2012. The third-quarter expenses included $101 million for litigation reserves.

Reflecting its focus on credit card lending, Capital One's third-quarter return on tangible common equity was a strong 18.08%, although that was down from 19.70% the previous quarter and 21.84% a year earlier.

Capital One CEO Richard Fairbank in the company's earnings release said "We remain focused on important levers that will sustain and improve our profitability and our ability to distribute capital."

Shares of Capital One closed at $72.15 Thursday and traded for 10.5 times the consensus 2014 EPS estimate of $6.88. That is a low forward price-to-earnings ratio for a bank with a high double-digit return on tangible common equity.

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