Capital One Financial Corp's (COF.N) first-quarter profit beat analysts' expectations as net interest income jumped 34 percent, and the company said it would buy back shares after closing the sale of its credit card accounts linked to electronics retailer Best Buy Co Inc (BBY.N).
Capital One, one of the large U.S. credit card issuers, said in February it would sell to Citigroup (C.N) its $7 billion portfolio of private label and co-branded credit card accounts linked to electronics retailer Best Buy.
"We've started discussions with our regulators to seek approval to begin share repurchases in 2013," Chief Executive Richard Fairbank said on a post-earnings conference call with analysts.
Chief Financial Officer Gary Perlin said Capital One would wait until the sale closes in the third quarter to begin stock repurchases.
Capital One passed the Federal Reserve stress test last month, and the Fed did not object to the company's capital plan. It expects to raise its dividend to 30 cents per share from 5 cents per share beginning in May.
The company reiterated its 2013 operating expenses forecast of $11 billion. "In 2014, we expect operating expense to improve to about $10.4 billion," Fairbank said.
Shares of the company, which has a market value of about $31 billion, rose 2 percent after the bell. They had closed at $52.79 on Thursday on the New York Stock Exchange.
The company's net income fell to $1.06 billion, or $1.79 per share, in the quarter from $1.40 billion, or $2.72 per share a year earlier, when the company recorded a $594 million gain related to its purchase of ING's online banking business.
Excluding the gain, the company had earned $1.56 per share a year earlier.
Total net revenue rose 12 percent to $5.55 billion.
Analysts on average had expected the lender to earn $1.60 per share on revenue of $5.58 billion, according to Thomson Reuters I/B/E/S.
Capital One's net charge off rate — the percentage of loans written off as unrecoverable — fell marginally by 6 basis points from the end of the fourth quarter.
The company, one of the large credit card issuers in the United States, set aside $885 million to cover bad loans in the first quarter, down 23 percent from the fourth quarter, largely driven by a $261 million release in allowance.
"The largest component of the allowance release was in domestic card, due to better-than-anticipated credit performance in the quarter, including delinquencies," the company said in a statement.
Capital One had the weakest-quality overall loan book, with a 13.2 percent overall loss rate, in Federal Reserve's annual stress tests of the 18 largest U.S. banks. That was attributable to high loss rates on junior liens and home-equity loans, as well as credit cards.
The McLean, Virginia-based lender, which has spent much of the past decade transforming itself from a specialty credit card issuer dependent on bond market funding into a bank that relies on deposits, is now one of the top 10 U.S. banks by deposits, and has over 1,000 bank branches.
Capital One shares have fallen about 14 percent in the last three months, trailing the broader S&P 500 Index .INX that has gained 5 percent. The Thomson Reuters Consumer Financial Services Index .TRXFLDUSPCONF has risen about 3 percent.
(Reporting by Ashutosh Pandey and Aman Shah in Bangalore; Editing by Don Sebastian)