Signaling plans to stick with its strategy of diversifying beyond its core general-purpose credit card operations, Capital One Financial Corp. on Wednesday said its second-quarter purchase volume rose and its charge-off rate fell, partly as a result of its acquisition of the Kohl’s Corp. private-label credit card operation.
Cap One said its net income rose 49.8% for the quarter ended June 30, to $911 million from $608 million during the same period last year, helped by a steep reduction in loan-loss reserves. The company’s provision for loan losses during the quarter was $343 million, down 52.6% from $723 million a year earlier.
Revenues were nearly flat at $3.99 million compared with $3.96 million.
The company simultaneously announced a $2 billion stock offering to offset a $9 billion acquisition of ING Group NV’s U.S. online banking unit it announced in June.
The charge-off rate during the quarter for Cap One’s domestic credit cards was 4.74%, down 475 basis points from 9.49% a year earlier. The delinquency rate for accounts at least 30 days past due was 3.33%, down 146 basis points from 4.79%.
Because of a loss-sharing agreement with Kohl’s, Cap One said charge-offs for its card portfolio are now represented net of any reimbursement of credit losses from Kohl’s, which has the effect of lowering the overall charge-off rate.
Credit card purchase volume during the quarter rose 39.9% to $34.3 billion compared with $24.5 billion a year earlier, helped by the addition of Kohl’s $3.7 billion portfolio.
Excluding Kohl’s, card receivables declined “modestly” during the quarter, Kohl’s said, but it did not specify totals.
The company’s revolving credit card balances increased $200 million during the quarter, but those gains were more than offset by $500 million in losses from the company’s installment loan portfolio, which is part of the domestic card segment, the company said.
Marketing expenses during the quarter jumped 50.2%, to $329 million from $219 million a year earlier, driven by “increased opportunities” in the card businesses, Cap One said.
Cap One is “clearly adding ballast from channels other than general credit cards” as it seeks new revenue sources following last year’s implementation of the Credit Card Accountability, Responsibility and Disclosure Act, Brian Riley, research director with TowerGroup, tells PaymentsSource.
“The CARD Act was a game-changer for Cap One because it hampered their ability to do risk-based pricing, which had always been a key to their profitability,” Riley says. “Now they’re looking to private-label cards, developing a broader banking presence and changing their focus in credit card marketing.”
The company last spring initiated a marketing push for its Venture rewards card, which carries a $59 annual fee, in contrast to its core no-annual-fee cards marketed to middle-income borrowers who tend to revolve balances, Riley notes. One promotion included TV spots featuring Alec Bald.
With its increased marketing efforts, Cap One “clearly is going more aggressively after transactors,” or customers who pay off their balances each month, Riley says.
Cap One also may be hoping to dive more deeply into debit cards with its ING purchase.
“I predict we will begin to see some exciting things from Cap One as it combines online banking with debit cards,” Riley says. “This is all part of (CEO Richard) Fairbank’s plan to be much less reliant on its traditional credit card marketing business.”
