Consumer lender Capital One’s Q3 profit rises as high interest rates boost income

(Reuters) – Capital One reported a 1.6% increase in third-quarter profit on Thursday, as elevated interest rates enabled the consumer lender to earn more from customers repaying credit card debt.

The company has been shielded from the broader industry-wide weakness in interest income in recent quarters, as rates on credit card debt are significantly higher than those on mortgages and other types of loans.

Capital One’s net interest income – the spread between interest earned on loans and paid out to customers on deposits – increased nearly 9% in the third quarter to about $8.1 billion.

Smaller rival Discover Financial – which Capital One agreed to acquire in a $35 billion deal earlier this year – also reported a 10% increase in quarterly interest income.

Still, lenders have been preparing for the possibility that elevated interest rates will strain consumers, who are already dealing with slower wage growth and dwindling household savings.

Provisions for credit losses totaled $2.48 billion in the quarter, compared with $2.28 billion a year earlier.

The net charge-off rate, or the percentage of total loans written off as unlikely to be repaid, at Capital One rose to 3.27% in the third quarter versus 2.56% a year ago.

These credit trends mirror those of major U.S. lenders, though executives and analysts have noted that the rising delinquencies are a return to normal after the pandemic, not a sign of worsening conditions.

Adjusted net income rose to $1.73 billion, or $4.51 per share, in the three months ended Sept. 30. That compares with $1.71 billion, or $4.45 per share, a year earlier.

Total net revenue climbed 7% to $10 billion in the quarter.