10-QPeriod: Q2 FY2011

CAPITAL ONE FINANCIAL CORP Quarterly Report for Q2 Ended Jun 30, 2011

Filed August 5, 2011For Securities:COFCOF-PLCOF-PICOF-PKCOF-PNCOF-PJ

Summary

Capital One Financial Corporation (COF) reported strong year-over-year growth in net income for the second quarter and first six months of 2011, driven by a significant decrease in the provision for loan and lease losses due to improving credit trends. The company's net income increased by 50% to $911 million ($1.97 per diluted share) in Q2 2011 and by 55% to $1.9 billion ($4.18 per diluted share) for the first six months of 2011 compared to the prior year periods. This improved profitability was supported by a substantial decline in net charge-off rates and delinquency rates across key business segments, particularly in the Credit Card and Commercial Banking divisions. The company also made significant strategic moves, including the acquisition of the Kohl's and Hudson's Bay Company credit card portfolios and the announcement of its planned acquisition of ING Direct, signaling a focus on growth and expansion. Despite increased operating expenses related to these acquisitions and marketing efforts, Capital One maintained robust capital ratios, indicating a strong financial position.

Financial Highlights

38 data points
Beta

Net Income

$911.00M

EPS (Diluted)

$1.97

Total Assets

$199.75B

Free Cash Flow

$2.40B

Financial Statements
Beta
Operating Income$1.98B
Interest Expense$563.00M
Net Income$911.00M
EPS (Basic)$2.00
EPS (Diluted)$1.97
Shares Outstanding (Basic)456.00M
Shares Outstanding (Diluted)462.00M

Key Highlights

  • 1Net income surged by 50% year-over-year in Q2 2011 to $911 million, with diluted EPS of $1.97.
  • 2First six months' net income increased by 55% to $1.9 billion, or $4.18 per diluted share.
  • 3Provision for loan and lease losses decreased by 53% in Q2 2011 and 60% for the first six months, reflecting improved credit quality.
  • 4Net charge-off rate improved significantly, falling to 2.91% in Q2 2011 from 5.36% in Q2 2010.
  • 5Total loans held for investment increased by 2% to $129.0 billion, driven by portfolio acquisitions, while strategic acquisitions of Kohl's and HBC portfolios were completed.
  • 6The company announced a significant acquisition of ING Direct for approximately $9.0 billion, expected to close in late 2011 or early 2012.
  • 7Capital ratios remained strong, with the Tier 1 common equity ratio increasing to 9.4% and the Tier 1 risk-based capital ratio at 11.8%.

Frequently Asked Questions

The primary driver for the increase in net income was the substantial reduction in the provision for loan and lease losses, which fell by 53% year-over-year. This was due to significant improvements in underlying credit trends, including lower delinquency and charge-off rates across the company's loan portfolios.

Capital One completed the acquisitions of the Kohl's Department Stores credit card portfolio ($3.7 billion) in April 2011 and the Hudson's Bay Company credit card portfolio ($1.4 billion) in January 2011. Additionally, in June 2011, the company announced its definitive agreement to acquire ING Direct's U.S. business for approximately $9.0 billion.

Total loans held for investment increased by 2% to $129.0 billion. Credit quality showed marked improvement, with the net charge-off rate decreasing to 2.91% in Q2 2011 from 5.36% in Q2 2010. The 30+ day delinquency rate also decreased to 3.57% from 4.23% at the end of 2010.

Capital One expects modest year-over-year growth in ending loan balances for 2011, with average loan balances expected to be comparable to 2010. The company anticipates continued credit performance improvements and believes its strategic acquisitions, particularly ING Direct, will drive strong financial results and long-term value creation, positioning it for attractive and sustainable growth.