CAPITAL ONE FINANCIAL CORP Quarterly Report for Q2 Ended Jun 30, 2009

Summary

Capital One Financial Corporation (COF) reported mixed results for the second quarter of 2009, facing continued credit deterioration due to the ongoing economic recession, which impacted loan portfolios and led to increased provisions for loan and lease losses. Despite these challenges, the company completed a significant equity offering in May, raising $1.5 billion, and successfully repurchased preferred shares from the U.S. Treasury, signaling a move towards normalizing its capital structure. The acquisition of Chevy Chase Bank in February 2009 provided a boost to the deposit funding base and branch presence, though integration costs were noted. Managed net interest income showed an increase driven by deposit growth and improved net interest margins, but this was offset by a significant decline in non-interest income, largely due to lower servicing and securitization revenues impacted by fair value adjustments on retained interests and higher charge-offs in securitized portfolios. The company's strategic focus remains on managing credit risk, cost efficiency, and strengthening its core deposit funding. While facing headwinds from the economic environment, Capital One emphasized its commitment to disciplined growth and maintaining strong capital ratios, as evidenced by exceeding regulatory capital requirements and being considered "well-capitalized" by regulators. Investors will be closely watching the company's ability to navigate the challenging credit landscape and manage the integration of Chevy Chase Bank while adapting to new regulatory requirements impacting consumer lending.

Key Highlights

• 1Net income available to common shareholders was a loss of $275.5 million ($0.65 per share) for Q2 2009, impacted by preferred share repurchase, compared to a net income of $452.9 million ($1.21 per share) in Q2 2008.
• 2Income from continuing operations was $230.2 million, a decrease of 50.2% year-over-year, reflecting the challenging economic environment.
• 3Capital One successfully raised $1.5 billion in May 2009 through a common stock offering and repurchased all preferred shares from the U.S. Treasury for approximately $3.57 billion.
• 4The acquisition of Chevy Chase Bank in February 2009 contributed to an increase in deposits and branch presence, although integration costs and operating expenses are impacting results.
• 5Managed net interest income increased by 12.7% year-over-year, benefiting from deposit growth and improved net interest margins, but was partially offset by a decline in non-interest income, particularly from servicing and securitization activities.
• 6The provision for loan and lease losses increased by 12.7% year-over-year to $934.0 million, driven by continued economic deterioration and increased charge-offs.
• 7Managed net charge-off rate increased significantly to 6.00% in Q2 2009 from 4.15% in Q2 2008, reflecting ongoing credit quality concerns.

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