Capital One's Total Expenses increased from $17.5 billion in 2015 to a peak of $21.7 billion in 2017 due to a sharp increase in Loan Loss Provisions over 2016-17, even as Operating Expenses nudged steadily higher. As loan losses normalized in 2018, Total Expenses shrank to $20.6 billion in 2018.
Capital One has two core expense components: Operating Expenses, and Loan Loss Provisions
1. Operating Expenses encompasses all expenses that Capital One incurs for conducting day-to-day operations, including Compensation and Marketing Costs among others.
2. Loan Loss Provisions represent the cash set aside by Capital One in a year to cover loans that are unlikely to be repaid
1. Capital One's Operating Expenses have grown steadily from $13 billion in 2015 to almost $15 billion in 2018 as the bank incurs more expenses to drive an increase in revenues. Notably, Operating Expenses have grown at an average rate of 4.7% over 2015-18 which is lower than the 6.2% growth in revenues the bank reported over the same period.
Additional insights below:
How important are Operating Expenses to Capital One's revenue and stock; how have they performed and what's the potential?
Operating Expenses have contributed between 65-75% of Capital One's Total Expenses over recent years
How have changes in Compensation Expenses affected Capital One's earnings and stock, and what's the forecast?
Capital One's Compensation Expenses increased from under $5 billion in 2015 to almost $5.9 billion in 2017 before falling to $5.7 billion in 2018
How does Capital One's Compensation Expenses as a % of Revenues compare with the five largest U.S. commercial banks?
Capital One's Compensation Expenses were just 20% of its Revenues for 2018, as opposed to being 29-38% of Revenues for its largest peers
How have changes in Marketing Costs affected Capital One's earnings and stock, and what's the forecast?
Capital One's Marketing Costs have swelled from $1.8 billion in 2015 to almost $2.2 billion in 2018
How does Capital One's Marketing Costs as a % of Revenues compare with the five largest U.S. commercial banks?
Capital One's Marketing Costs were almost 8% of its Revenues for 2018, as opposed to being 1-3% of Revenues for its largest peers
How have changes in Professional Services Costs affected Capital One's earnings and stock, and what's the forecast?
Capital One's Professional Services Costs have remained largely around $1.1 billion over recent years
How does Capital One's Professional Services Costs as a % of Revenues compare with the five largest U.S. commercial banks?
Capital One's Professional Services Costs were 4% of its Revenues for 2018, which is in the range of 2-8% of Revenues reported by its largest peers
How have changes in Occupancy & Equipment Costs affected Capital One's earnings and stock, and what's the forecast?
Capital One's Occupancy & Equipment Costs have grown from $1.8 billion in 2015 to just over $2.1 billion in 2018
How does Capital One's Occupancy & Equipment Costs as a % of Revenues compare with the five largest U.S. commercial banks?
Capital One's Occupancy & Equipment Costs were 7.5% of its Revenues for 2018, which is well above the range of 3-6% of Revenues reported by its largest peers
How have changes in Communication & Data Processing Costs affected Capital One's earnings and stock, and what's the forecast?
Capital One's Communication & Data Processing Costs have increased from less than $0.9 billion in 2015 to over $1.2 billion in 2018
How does Capital One's Communication & Data Processing Costs as a % of Revenues compare with the five largest U.S. commercial banks?
Capital One's Communication & Data Processing Costs were 4.5% of its Revenues for 2018, which is in the range of 1-10% of Revenues for its largest peers
2. Capital One's Loan Loss Provisions jumped from $4.5 billion in 2015 to almost $7.6 billion in 2017 due to a sizable increase in loan losses in its card as well as auto loan portfolio. As loan losses normalized, the figure fell to $5.9 billion in 2018.
How important is Loan Loss Provisions to Capital One's earnings and stock; how has it performed and what's the potential?
Loan Loss Provisions generally contribute around 25% of Capital One's Total Expenses, although their proportion reached nearly 35% in 2017
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