Capital One Financial Corp. on Thursday said its third-quarter profit edged up 1 percent, as it wrote more auto and commercial loans and defaults eased.
A spike in marketing and operating expenses and an increase in a reserve set aside to handle claims against the bank related to soured mortgages tempered the gains.
The McLean, Va.-based bank had net income for the quarter ended Sept. 30 of $813 million, or $1.77 per share, compared with $803 million, or $1.76 per share, in the year-ago period.
Total revenue rose 3 percent to $4.15 billion, from $4.02 billion last year.
Analysts, on average, were expecting profit of $1.68 per share on revenue of $4.04 billion, according to data provided by FactSet.
Net interest income, or money earned from deposits and loans, rose 6 percent to $3.28 billion, from $3.11 billion a year ago. Total deposits jumped nearly 8 percent to $128.32 billion. Total loans gained 3 percent to $129.95 billion.
"Overall, I think the results were pretty good," said Keefe, Bruyette & Woods analyst Sanjay Sakhrani.
The bank, best known for its ubiquitous "What's in your wallet?" advertising campaign, said U.S. credit card use rose 17 percent from the prior-year quarter. Sakhrani said the increased usage was "very strong."
Its auto finance unit wrote 40 percent more loans than last year, bringing total loans in this segment to $20.42 billion. Commercial loans also increased, rising 9 percent to $32.11 billion. CEO Richard Fairbank said during a conference call to discuss results that the growth in commercial loan commitments, which indicates future loan growth, was "even stronger."
"We believe the period of shrinking loans through the Great Recession has come to an end," Fairbank said.
Capital One wrote off $812 million in uncollectible loans, a drop of 47 percent from last year. That enabled the bank to reduce the amount it set aside to cover soured loans by 28 percent, to $622 million.
Fairbank said improvements in the performance of the bank's credit card and auto loans "have outpaced the modest and fragile economic recovery." The bank has been monitoring its outstanding credit in search of signs that recent economic difficulties will lead to another round of worsening payment performance, but said so far "we have yet to see any evidence of this."
The gains in lending were partially offset by higher marketing and operating expenses, which rose 15 percent.
Capital One also said it increased its reserve for mortgage-related claims by 3 percent to $892 million. The bank said it now believes the upper end of potential losses from such claims, which stem from mortgages that were used to back investment vehicles that have since soured, could be $1.5 billion.
The company said the pending acquisition of HSBC's U.S. credit card portfolio should close by the end of the year, pending regulatory approval. It is also still waiting for regulators to OK its purchase of ING Direct.
Capital One shares added 74 cents, or 2 percent, to close Thursday trading at $40.49. Shares rose 11 cents to $40.60 in aftermarket trading.