Capital One's profit vaults 47 percent in 3Q

LOS ANGELES -- Capital One Financial Corp.'s net income vaulted 47 percent in the third quarter, as the lender's acquisition of online bank ING Direct and HSBC's U.S. credit card business helped boost its loan revenue.

The results released Thursday beat Wall Street estimates, lifting the McLean, Va.-based bank's stock about 3 percent in after-hours trading.

Retail spending increased in the third quarter, as U.S. consumers grew more confident. Retail sales in August and September represented the best two months of sales in two years. Rising consumer spending can help boost credit card use, benefiting card issuers like Capital One.

The company recorded gains across all of its businesses in the July-to-September period, generating annual increases in loans held for investment, domestic card loans, average loan balances and total deposits.

The third quarter also represented the first full three-month period in which both ING Direct and HSBC's U.S. card business were factored into Capital One's results. Capital One's $2.6 billion purchase of HSBC's U.S. card business closed in May, while the $8.96 billion purchase of ING Direct closed in February.

That helped drive up loans held for investment at the end of the quarter to $203.1 billion, up from $130 billion in the prior-year quarter.

It also contributed to a sharp increase in Capital One's provision for credit losses. The bank set aside $1.01 billion, up from $622 million a year earlier.

On a conference call with Wall Street analysts, Chairman and CEO Richard Fairbank said he still expects weak consumer demand for the foreseeable future. He also noted that competition is picking up, particularly in auto, commercial and industrial lending.

The company expects average loans to decline modestly overall for the year from third-quarter levels, including in the domestic credit card category, he said.

Still, Fairbank added that the addition of ING Direct and the HSBC card business placed the company in a strong position to make gains, even amid low industry growth and low interest rates.

"We expect to deliver solid performance in a challenging environment in 2013," he said.

For the three months ended Sept. 30, Capital One reported net income of $1.17 billion, or $2.01 per share. That compares with net income of $813 million, or $1.77 per share, in the same quarter last year.

Revenue climbed 39 percent to $5.78 billion from $4.15 billion.

Analysts polled by FactSet were expecting earnings of $1.68 on revenue of $5.55 billion.

In the latest quarter, Capital One's net interest income, or money earned from loans, grew to $4.65 billion from $3.28 billion a year earlier.

The company ended the quarter with $213.3 billion in deposits, up from $128.3 billion.

Credit card loans held for investment totaled $89 billion, up from $62 billion. While home loans rose to $46.3 billion from $10.9 billion.

The lender's auto financing business grew to $26.4 billion, up from $20.4 billion.

Charge-offs, or loans written off as unpaid, grew to $887 million from $812 million.

The company's stock added $2, or 3.4 percent, to $59.30 in aftermarket trading following the release of the earnings report.