Uncollectible Fees, Seasonal Costs Hit Capital One's 4Q Profits

Capital One Corp. (COF) announced quarterly net income of $843 million on Thursday, which fell short of analysts' expectations for the McLean, Va.-based credit card company.

Capital One reported earnings of $1.41 per share in the fourth quarter, well below a $1.65 consensus of analysts surveyed by Bloomberg. The results were announced shortly after the stock market closed.

"Seasonal expense and margin trends led to a reduction in fourth quarter earnings compared to the previous quarter," Capital One's chief financial officer, Gary Perlin, explained in a news release.

Thursday's results fell short of Capital One's net income in the third quarter, when the company earned $1.2 billion, or $2.01 per share, but they exceeded results from the fourth quarter of 2011. In the prior-year period, Capital One reported net income of $407 million, or $0.88 per share.

Capital One stated that its total net revenue was $5.6 billion, a 3% decline from the third quarter. It blamed the drop almost entirely on higher levels of estimated uncollectible finance charges and fees in its U.S. credit card business.

The firm expects its average quarterly revenue levels in 2013 to be consistent with those of the fourth quarter of 2012, its release said. And it made a similar prediction with respect to earnings.

"With a few exceptions largely related to these seasonal patterns, fourth quarter 2012 results give us a good picture of what to expect in terms of pre-provision earnings in 2013, assuming little change in the external environment," Perlin stated.

Operating expenses were $2.9 billion, an increase of 5% over the third quarter, and its marketing expenses were $393 million, a 24% jump from the prior three months.

The card issuer's net interest margin declined by 6% from the third quarter, to 6.52%, according to Capital One. It attributed the decline to the same factors that contributed to falling revenue, as well as to a substantial increase in its proportion of lower-yielding cash and investment securities.

Capital One also stated that its total deposits fell by less than 1% between the third and fourth quarters, to $212.5 billion. Average loans were roughly flat at $202.9 billion, and loans held for investment increased by about 1% to $205.9 billion, the company stated.

Capital One expects to provide shareholders a "meaningful dividend" in 2013, following the completion of the stress test process, Chief Executive Officer Richard Fairbank said in the news release.