What were the primary drivers of the decrease in net income and EPS?

The primary drivers for the decline in net income and diluted EPS were the continued normalization of U.S. consumer credit conditions, the full quarter impact from the acquisition of North Fork, and significant weakness observed in the secondary mortgage market.

How did the North Fork acquisition impact the financial results?

The North Fork acquisition significantly impacted the results, contributing substantially to the increase in net interest income, total deposits, and managed loans held for investment. However, it also led to a significant increase in non-interest expenses due to integration costs and added to the overall scale of operations.

What is the outlook for Capital One's mortgage banking business?

The outlook for the mortgage banking business remains challenging. The company revised its full-year outlook to reflect the assumption that current pressures in the secondary mortgage market will persist throughout 2007. As a result, the mortgage banking sub-segment is not expected to contribute to incremental earnings for the remainder of the year.

How is Capital One managing its credit risk in the current environment?

Capital One is experiencing a normalization of credit in U.S. consumer lending, leading to an increased provision for loan and lease losses. The company is focusing on managing its loan portfolio, including the impact of the North Fork acquisition which brought in loans with improved quality. The net charge-off rate for the U.S. Card segment increased year-over-year, reflecting these credit trends.

CAPITAL ONE FINANCIAL CORP 10-Q Quarterly Report Q1 FY2007

Summary

Capital One Financial Corporation (COF) reported its first quarter 2007 results, showing a decrease in net income and diluted EPS compared to the prior year, primarily due to the normalization of U.S. consumer credit, the full impact of the North Fork acquisition, and weakness in the secondary mortgage market. Despite these challenges, the company demonstrated growth in its total managed loans and deposits, bolstered by strategic acquisitions. The company's revenue streams were impacted by a decline in servicing and securitization income, though this was partially offset by gains from asset sales and an increase in service charges and customer-related fees. Non-interest expenses rose significantly, largely driven by integration costs associated with the North Fork acquisition and infrastructure investments. Capital One maintained strong capital adequacy ratios, exceeding regulatory requirements. Looking ahead, Capital One revised its full-year earnings guidance downward, citing persistent pressures in the mortgage market and ongoing credit normalization. The company continues to focus on its strategy of combining national lending with local banking, emphasizing the integration of recent acquisitions and managing credit risk effectively.

Key Highlights

1Net income for the quarter decreased by 24% to $675.1 million, and diluted EPS fell by 43% to $1.62, compared to the first quarter of 2006.
2The provision for loan and lease losses increased by 106% to $350.0 million, reflecting the normalization of U.S. consumer credit.
3Total revenue saw a modest increase of 1% to $3.43 billion, driven by growth in net interest income, partially offset by a decline in non-interest income.
4Total deposits increased by a significant 83% to $87.7 billion, largely due to the North Fork acquisition.
5Managed loans held for investment grew by 37% to $142.0 billion, also heavily influenced by the North Fork acquisition.
6Capital One sold its remaining stake in DealerTrack Holdings, Inc., realizing a pre-tax gain of $46.2 million.
7The company revised its full-year 2007 earnings guidance downwards, now projecting $7.00 to $7.40 per share.

CAPITAL ONE FINANCIAL CORP Quarterly Report for Q1 Ended Mar 31, 2007

Summary

Key Highlights

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