Sluggish loan growth hurts profits at Capital One

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Profits at Capital One Financial were hampered during the second quarter by loan growth that failed to keep pace with rising expenses.

The McLean, Va.-based company reported net income of $1.6 billion, which was down 17% from the same period a year earlier, when profits got a one-time boost from a $400 million net gain on the sale of consumer home loans.

Noninterest expenses rose by 10% to $3.78 billion. That total included marketing spending, which climbed by 28% to $546 million.

Capital One is expected to launch a Walmart credit card later this year, and the company said $54 million of its expenses during the second quarter were tied to that deal.

For years, Capital One has described its spending on technology as necessary to rewire the company in ways that will provide key advantages over competitors in the coming years, and that theme continued on Thursday.

“As the benefits from our digital transformation continue and increase,” Capital One CEO Richard Fairbank said in a press release Thursday, “we are well positioned to succeed in a rapidly changing marketplace and create long-term shareholder value.”

Period-end loans held for investment rose by 3.5% from the second quarter of 2018. Growth among key categories varied: credit card loans (2%), auto loans (3%) and commercial lending (5%).

Capital One’s net interest margin rose to 6.80%, up from 6.66% in the second quarter of 2018. Net interest income climbed by 3.5% to $5.75 billion.

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