10-KPeriod: FY2009

CAPITAL ONE FINANCIAL CORP Annual Report, Year Ended Dec 31, 2009

Filed February 26, 2010For Securities:COFCOF-PLCOF-PICOF-PKCOF-PNCOF-PJ

Summary

Capital One Financial Corporation's 2009 10-K filing highlights a challenging year marked by the U.S. economic recession, which led to a significant deterioration in credit performance across its loan portfolios. Despite these headwinds, the company reported a net income of $883.8 million, a substantial turnaround from a net loss in the previous year, largely driven by an increase in income from continuing operations. This improvement was influenced by a lower provision for loan losses compared to 2008, strategic cost-saving measures, and the acquisition of Chevy Chase Bank in February 2009, which strengthened its deposit funding base and expanded its banking footprint. Despite a decline in managed loans held for investment due to economic conditions and prior business exit decisions, Capital One demonstrated resilience. The company focused on fortifying its financial position by growing its deposit base and investing in high-quality, low-risk securities. Management anticipates continued economic challenges in 2010, with expectations of high charge-off rates in certain portfolios but also sees potential for allowance releases as credit trends moderate. The company is actively managing its exposure through conservative underwriting and a robust enterprise risk management framework, aiming to navigate the evolving economic and regulatory landscape.

Financial Highlights

40 data points
Beta

Revenue

$12.98B

Net Income

$884.00M

6.8% Net Margin

EPS (Diluted)

$0.74

Total Assets

$169.65B

Free Cash Flow

$1.84B

Financial Statements
Beta
Revenue$12.98B
Operating Income$987.00M
Interest Expense$2.97B
Net Income$884.00M
EPS (Basic)$0.75
EPS (Diluted)$0.74
Shares Outstanding (Basic)428.00M
Shares Outstanding (Diluted)431.00M

Key Highlights

  • 1Net income of $883.8 million in 2009, a significant improvement from a net loss in 2008, indicating a recovery in profitability.
  • 2Acquisition of Chevy Chase Bank in February 2009 significantly expanded its deposit funding base and retail branch presence.
  • 3Managed charge-off rate increased to 5.87% in 2009, reflecting the ongoing economic recession's impact on credit quality.
  • 4The company repaid all preferred shares issued under the U.S. Treasury's Capital Purchase Program (CPP) in June 2009.
  • 5Non-interest expenses were managed, with a decrease excluding certain charges and a focus on cost-saving initiatives.
  • 6The Credit Card segment remained the largest contributor to the managed loan portfolio, although it experienced a decline in outstanding balances.
  • 7Capital One's regulatory capital ratios remained strong, exceeding the minimum requirements and categorizing the company as 'well-capitalized'.

Frequently Asked Questions

The U.S. economic recession led to a significant deterioration in credit performance across Capital One's loan portfolios, resulting in increased delinquencies and charge-offs. This necessitated higher provisions for loan losses and impacted revenue streams from consumer spending and loan demand. However, strategic cost management and the acquisition of Chevy Chase Bank helped mitigate some of these negative impacts, leading to a net income in 2009 compared to a net loss in 2008.

The acquisition of Chevy Chase Bank in February 2009 was a key strategic move that significantly expanded Capital One's core deposit funding base, increased its liquidity, and enhanced its scale in banking operations. It added a strong customer base and a substantial retail branch presence, particularly in the attractive Washington D.C. market, strengthening Capital One's position as a diversified financial services company.

Capital One anticipated continued cyclical economic challenges in 2010, expecting high charge-off rates in commercial banking and mortgage portfolios, while consumer lending charge-offs were nearing a peak but expected to remain high. The company projected a decline in managed loan balances due to runoff from exited businesses and anticipated investments in marketing and infrastructure. While revenues were expected to decline due to lower loan balances, cost management and potential allowance releases were seen as mitigating factors.

Capital One managed its liquidity by focusing on growing its deposit base through various channels, including branches and direct marketing, aiming for stable, low-cost funding. The company also maintained a significant liquidity reserve comprising cash, unencumbered securities, and committed credit lines. While capital markets funding remained an option, the company increased its reliance on deposit funding due to market conditions.