Fourth-quarter profits fell at Capital One Financial in McLean, Va., because of lower fee income and a larger set-aside for problem loans.

The $357 billion-asset company earned $791 million, or 14% less than a year earlier. Earnings per share were $1.45, falling 16 cents short of an estimate of analysts polled by Bloomberg.

The provision for loan losses jumped 27% to $1.7 billion. The net chargeoff rate climbed 52 basis points to 2.48%.

During a conference call with analysts, CEO Richard Fairbank attributed jump in chargeoffs to “growth math,” or a rise in chargeoffs on newer loans.

Richard Fairbank, CEO of Capital One Financial Corp.
CEO Richard Fairbank attributes Capital One's increase in chargeoffs to "growth math." The net chargeoff rate climbed 52 basis points in the fourth quarter to 2.48%. Bloomberg News

Total loans grew 7% to $245.6 billion because growth in credit card, auto and commercial portfolios.

Approximately 64% of the company’s credit card borrowers had FICO scores above 660, compared with 66% a year earlier. Just over half of its auto borrowers had credit scores above 660 as of Dec. 31.

Net interest income increased 10% to $5.5 billion. The net interest margin rose 6 basis points to 6.85%.

Meanwhile, fee-based revenue fell 9% to $1.1 billion mostly from lower service charges.

Noninterest expenses rose 6% to $3.7 billion due to higher salary and benefit costs.

Fairbank reiterated that Capital One is not expected to receive regulatory approval for its planned acquisition of a $5.2 billion credit card portfolio from Cabela’s, the outdoor equipment chain, prior to its Oct. 3 deadline.

Cabela's warned of the expected delay in a filing earlier this month. The two companies announced the deal in October 2016.

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Kristin Broughton

Kristin Broughton

Kristin Broughton is a reporter for American Banker, where she writes about the business of national and regional banking.