Capital One beats estimates, seeks higher capital return

* Less money set aside for credit card defaults

* Third-quarter earnings per share $1.86 vs est. $1.80

* To request higher capital return in 2014 plan

* Shares up 2 percent in extended trading

By Aman Shah

Oct 17 (Reuters) - Capital One Financial Corp posted a quarterly profit that beat Wall Street estimates after setting aside less money to cover credit card defaults, sending its shares up 2 percent after the bell.

The bank, one of the largest credit card issuers in the United States, also plans to return more cash to shareholders next year, Chief Financial Officer Stephen Crawford said on a post-earnings conference call.

He said Capital One would request a payout "well above the industry norm of 50 percent" when it submits its 2014 capital plan to the Federal Reserve, which conducts annual stress tests to determine whether U.S. banks can return cash to shareholders.

Capital One has spent much of the past decade transforming itself from a specialty credit card issuer dependent on bond market funding into one of the top 10 U.S. banks by deposits, with more than a thousand branches nationwide.

The McLean, Virginia-based company set aside $849 million to cover bad loans in the third quarter, 16 percent less than a year earlier.

"The surprise probably came in terms of the provisions, which were lower than what many analysts expected," said Sameer Gokhale, an analyst at Janney Capital Markets.

Net interest income, the difference between what banks earn on loans and pay out on deposits, fell 2 percent to $4.56 billion in the quarter ended Sept. 30.

Capital One passed the Federal Reserve's stress test in March, after which it raised its quarterly dividend to 30 cents per share from 5 cents per share and launched a $1 billion buyback.

The company bought back shares worth $300 million in the third quarter and expects to complete the buyback in the fourth quarter, Crawford said. He did not say how the bank intended to distribute capital to shareholders next year.

Sanjay Sakhrani, analyst at Keefe, Bruyette & Woods, said his brokerage's model estimated that Capital One could pay out about 74 percent of its earnings in 2014, which could equate to about $2.8 billion in buybacks and dividends.


Despite beating analysts' estimates, Capital One still recorded a 6 percent decline in net income in the third quarter.

Credit card usage in the United States declined for a third straight month in August, as tepid consumer spending coupled with uncertainty around the partial government shutdown hurt consumer sentiment.

Rival credit card issuer American Express Co, which has a greater proportion of corporate card users, is less exposed to the wider consumer spending slowdown and on Wednesday posted a rise in quarterly profit.

Capital One's net charge-off rate, the percentage of loans written off as unrecoverable, was 1.92 percent, an increase of 17 basis points from the year-earlier quarter.

"Over the next two quarters, we expect a temporary increase in delinquencies and charge-offs beyond normal seasonality," Capital One Chief Executive Richard Fairbank said on the call.

Net income available to stockholders was $1.10 billion, or $1.86 per share, for the third quarter. Net revenue fell 2 percent to $5.65 billion.

Analysts on average expected the company to earn $1.80 per share on revenue of $5.58 billion, according to Thomson Reuters I/B/E/S.

Capital One's shares, which have risen 35 percent in the past six months, rose to $73.50 in extended trading on Thursday after closing at $72.15 on the New York Stock Exchange.