10-QPeriod: Q3 FY2011

CAPITAL ONE FINANCIAL CORP Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 7, 2011For Securities:COFCOF-PLCOF-PICOF-PKCOF-PNCOF-PJ

Summary

Capital One Financial Corporation reported solid results for the third quarter and first nine months of 2011, driven by a significant reduction in credit costs due to improved loan quality. Net income for the third quarter of 2011 was $813 million, a slight increase from $803 million in the prior year's third quarter. For the nine-month period, net income rose substantially by 34% to $2.7 billion, primarily due to lower provision for loan and lease losses. The company's capital levels continued to strengthen, with key capital ratios improving. Capital One also provided updates on its strategic acquisitions of ING Direct and HSBC's U.S. credit card business, with both expected to close in late 2011/early 2012 and mid-2012, respectively. These strategic moves, along with ongoing investments in business infrastructure and marketing, position Capital One for continued long-term growth and enhanced customer relationships.

Financial Highlights

38 data points
Beta

Net Income

$813.00M

EPS (Diluted)

$1.77

Total Assets

$200.15B

Free Cash Flow

$1.45B

Financial Statements
Beta
Operating Income$2.84B
Interest Expense$552.00M
Net Income$813.00M
EPS (Basic)$1.78
EPS (Diluted)$1.77
Shares Outstanding (Basic)456.00M
Shares Outstanding (Diluted)460.00M

Key Highlights

  • 1Net income for Q3 2011 was $813 million ($1.77 per diluted share), up 1% from Q3 2010, driven by lower credit costs.
  • 2Nine-month net income increased 34% to $2.7 billion ($5.95 per diluted share) year-over-year, also benefiting from reduced credit costs and a lower provision for mortgage repurchase losses.
  • 3The company's Tier 1 risk-based capital ratio improved to 12.4% and Tier 1 common equity ratio reached 10.0% as of September 30, 2011.
  • 4Total loans held for investment increased by 3% to $130 billion as of September 30, 2011, largely due to acquisitions of Kohl's and HBC credit card portfolios.
  • 5Net charge-off rates continued to decline, with the Q3 2011 rate at 2.52% compared to 4.82% in Q3 2010.
  • 6Significant progress was made on strategic initiatives, including the pending acquisition of ING Direct and HSBC's U.S. credit card business, which are expected to close in late 2011/early 2012 and mid-2012, respectively.
  • 7Non-interest expense increased by 15% year-over-year due to integration costs from recent acquisitions and higher marketing expenditures.

Frequently Asked Questions

Capital One reported net income of $813 million for the third quarter of 2011, a slight 1% increase from the same period in 2010. For the first nine months of 2011, net income was $2.7 billion, a substantial 34% increase year-over-year. This growth was primarily driven by a significant reduction in credit costs and lower provisions for loan and lease losses, reflecting an improvement in the credit quality of its loan portfolio.

Capital One provided updates on two major pending acquisitions: ING Direct, expected to close in late 2011 or early 2012, and HSBC's U.S. credit card business, anticipated to close in the second quarter of 2012. These acquisitions are expected to enhance Capital One's customer base and market position. The company also executed interest-rate swaps to manage market risk related to the ING Direct acquisition, resulting in a $266 million mark-to-market loss recognized in the third quarter, which was largely offset by a gain from selling investment securities.

Capital One's credit quality showed significant improvement. The net charge-off rate decreased to 2.52% in the third quarter of 2011 from 4.82% in the third quarter of 2010. Similarly, the 30+ day delinquency rate declined to 3.81% as of September 30, 2011, from 4.23% at the end of 2010. These improvements reflect better credit performance across all business segments and reflect stabilizing credit trends after a period of cyclical improvement.

Capital One's capital levels strengthened, with its Tier 1 risk-based capital ratio increasing to 12.4% and its Tier 1 common equity ratio reaching 10.0% as of September 30, 2011. These ratios exceed the minimum regulatory requirements and meet the 'well capitalized' standards. The company's deposit base also grew by 5% in the first nine months of 2011, bolstering its liquidity.