10-QPeriod: Q2 FY2008

CAPITAL ONE FINANCIAL CORP Quarterly Report for Q2 Ended Jun 30, 2008

Filed August 8, 2008For Securities:COFCOF-PLCOF-PICOF-PKCOF-PNCOF-PJ

Summary

Capital One Financial Corporation (COF) reported its second quarter 2008 financial results, which were significantly impacted by the deteriorating U.S. economic environment. Net income for the quarter was $452.9 million, a decrease of 39.7% compared to the same period in 2007, resulting in diluted earnings per share of $1.21. This decline was primarily driven by a substantial increase in the provision for loan and lease losses, which more than doubled year-over-year, reflecting higher charge-offs and delinquencies. Despite the challenging economic conditions, the company demonstrated resilience in deposit growth, with total deposits increasing to $92.4 billion. The company also managed its expenses effectively, with total non-interest expense decreasing by 10.6% for the quarter. Capital One is actively managing its loan portfolio by tightening underwriting standards and focusing on risk-adjusted returns. While the company anticipates continued economic headwinds, it remains focused on strategic initiatives to improve efficiency and maintain a strong capital position.

Financial Highlights

22 data points
Beta

Net Income

$452.90M

EPS (Diluted)

$1.21

Free Cash Flow

$2.30B

Financial Statements
Beta
Operating Income$1.10B
Interest Expense$964.10M
Net Income$452.90M
EPS (Basic)$1.21
EPS (Diluted)$1.21

Key Highlights

  • 1Net income decreased by 39.7% to $452.9 million in Q2 2008, compared to $750.4 million in Q2 2007.
  • 2Diluted EPS fell to $1.21 from $1.89 in the prior year's quarter, reflecting increased loan loss provisions.
  • 3Provision for loan and lease losses more than doubled to $829.1 million, driven by economic weakening and rising delinquencies.
  • 4Total deposits saw robust growth, increasing to $92.4 billion, up from $85.5 billion in the prior year's quarter.
  • 5Total non-interest expense decreased by 10.6% to $1.8 billion, reflecting cost management efforts.
  • 6The company's tangible common equity (TCE) ratio remained above 6%, indicating a solid capital base.
  • 7Managed charge-off rate increased significantly to 4.15% from 2.50% in the prior year's quarter.

Frequently Asked Questions

The primary driver for the decrease in net income was a significant increase in the provision for loan and lease losses, which rose from $396.7 million in Q2 2007 to $829.1 million in Q2 2008. This increase reflects the deteriorating U.S. economic conditions, leading to higher charge-offs and delinquencies across the loan portfolio.

Capital One effectively managed its expenses, with total non-interest expense decreasing by 10.6% to $1.8 billion for the quarter compared to the prior year. This reduction was achieved through lower salary and associate benefit expenses, decreased marketing costs, and ongoing efficiency improvements.

The company expects continued challenges due to the weakening U.S. economy. They anticipate a low single-digit percentage reduction in year-end managed loan balances and expect increased delinquency and charge-off rates. Capital One is responding by tightening underwriting standards and focusing on risk-adjusted returns.

Capital One continues to expand its retail deposit gathering efforts through direct marketing, its branch network, and new branch expansion. The company experienced strong deposit growth, with total deposits reaching $92.4 billion, indicating successful execution of its deposit strategy.