CAPITAL ONE FINANCIAL CORP Quarterly Report for Q1 Ended Mar 31, 2013

Summary

Capital One Financial Corporation's first quarter 2013 results demonstrate a significant increase in net interest income driven by asset growth from recent acquisitions, alongside a decline in net income compared to the prior year quarter. This decline is primarily attributed to the absence of a large bargain purchase gain from the ING Direct acquisition in Q1 2012. Despite the year-over-year net income decrease, adjusted net income shows substantial growth, indicating operational improvement. The company reported a strong increase in its Tier 1 common ratio, reflecting robust capital generation. However, investors should note the increase in provision for credit losses and non-interest expenses, largely due to integration and amortization costs from the recent acquisitions. The company is also managing a declining loan portfolio due to planned run-offs and asset sales, while strategically navigating a challenging low-interest-rate environment. Looking ahead, Capital One anticipates continued pressure from the low-interest-rate environment and weak consumer demand, though recent acquisitions are expected to bolster long-term value and customer relationships. The company announced a significant increase in its quarterly common stock dividend, signaling confidence in its capital position and future earnings potential. Investors should monitor credit quality trends, particularly in the credit card segment, and the impact of ongoing integration efforts.

Key Highlights

• 1Net income available to common shareholders decreased by 25% to $1.05 billion ($1.79 per diluted share) in Q1 2013 from $1.40 billion ($2.72 per diluted share) in Q1 2012.
• 2The decrease in net income was primarily due to the absence of a $594 million bargain purchase gain from the ING Direct acquisition in Q1 2012. Excluding this gain, net income increased by 32% to $1.14 billion.
• 3Total net revenue increased by 12% to $5.55 billion, driven by a 34% increase in net interest income to $4.57 billion, largely due to higher average interest-earning assets from the ING Direct and 2012 U.S. card acquisitions.
• 4Provision for credit losses increased by 54% to $885 million, primarily due to higher net charge-offs related to the 2012 U.S. card acquisition.
• 5Non-interest expense increased by 21% to $3.03 billion, driven by higher operating expenses, amortization of intangibles, and costs associated with recent acquisitions.
• 6Period-end loans held for investment decreased by 7% to $191.3 billion, influenced by the transfer of the Best Buy loan portfolio to held for sale and the run-off of certain acquired loans.
• 7The Tier 1 common ratio increased to 11.79% from 10.96%, reflecting strong internal capital generation.

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