10-QPeriod: Q3 FY2008

CAPITAL ONE FINANCIAL CORP Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 10, 2008For Securities:COFCOF-PLCOF-PICOF-PKCOF-PNCOF-PJ

Summary

Capital One Financial Corporation (COF) reported a net income of $374.1 million, or $1.00 per diluted share, for the third quarter of 2008, a significant turnaround from a net loss of $81.7 million, or -$0.21 per diluted share, in the same period of the prior year. This improvement was driven by a substantial increase in the provision for loan and lease losses, which rose by $498.4 million to $1.1 billion, reflecting the weakening global economy and associated credit deterioration. Despite the challenging economic environment, Capital One's net interest income saw a healthy increase, supported by higher margins in its U.S. Card segment. However, non-interest income declined due to lower servicing and securitization income, impacted by higher expected charge-offs in the securitized portfolio. The company also announced its intention to participate in the U.S. Treasury's Capital Purchase Program, agreeing to sell $3.55 billion in preferred stock, a move taken to support financial stability and as an attractive alternative capital source.

Financial Highlights

22 data points
Beta

Net Income

$374.14M

EPS (Diluted)

$1.00

Free Cash Flow

$1.51B

Financial Statements
Beta
Operating Income$1.48B
Interest Expense$965.15M
Net Income$374.14M
EPS (Basic)$1.00
EPS (Diluted)$1.00

Key Highlights

  • 1Net income of $374.1 million ($1.00/share) for Q3 2008, compared to a net loss of $81.7 million (-$0.21/share) in Q3 2007.
  • 2Significant increase in the provision for loan and lease losses to $1.1 billion from $595.5 million in the prior year's quarter, reflecting economic challenges.
  • 3Net interest income increased by 11.2% to $1.8 billion.
  • 4Non-interest income decreased by 21.1% to $1.7 billion, primarily due to lower servicing and securitization income.
  • 5Capital One announced its intention to participate in the U.S. Treasury's Capital Purchase Program, with the Treasury to purchase $3.55 billion of preferred stock.
  • 6Managed net charge-off rate increased to 4.30% from 2.86% in the prior year's quarter.
  • 7Total assets grew to $154.8 billion from $150.6 billion at the end of the prior year.

Frequently Asked Questions

Capital One Financial Corporation reported a net income of $374.1 million, or $1.00 per diluted share, for the third quarter of 2008, a significant improvement from a net loss of $81.7 million, or -$0.21 per diluted share, in the same quarter of 2007. This turnaround was largely driven by a substantial increase in the provision for loan and lease losses to manage anticipated credit deterioration.

The weakening global economy and associated credit deterioration led to an increase in the provision for loan and lease losses by 83% year-over-year. The managed net charge-off rate rose to 4.30% from 2.86% in the prior year's quarter, and the 30+ day delinquency rate increased to 3.99% from 3.48%.

Capital One announced its intention to participate in the CPP, agreeing to sell $3.55 billion of preferred stock to the U.S. Treasury. While considered 'well-capitalized,' the company stated this participation was an important step in supporting financial and economic stability and provided an attractive alternative source of capital.

The National Lending segment saw a decrease in net income due to higher provisions, particularly in the U.S. Card and Auto Finance businesses, driven by worsening credit conditions. The Local Banking segment's net income also declined year-over-year, influenced by increased loan loss provisions and a decrease in non-interest income related to mortgage originations.