10-QPeriod: Q2 FY2013

CAPITAL ONE FINANCIAL CORP Quarterly Report for Q2 Ended Jun 30, 2013

Filed August 8, 2013For Securities:COFCOF-PLCOF-PICOF-PKCOF-PNCOF-PJ

Summary

Capital One Financial Corporation's second-quarter 2013 results demonstrate a significant year-over-year improvement, driven primarily by the absence of substantial credit loss provisions that impacted the prior year period. Net income surged to $1.1 billion ($1.87 per diluted share) from $93 million ($0.16 per diluted share) in Q2 2012, reflecting strong performance across all business segments, particularly in the Credit Card division. Total net revenue grew 12% to $5.6 billion, supported by an increase in interest-earning assets resulting from acquisitions and a notable expansion in net interest margin to 6.83%. The company also highlighted its robust capital position, with a Tier 1 common ratio increasing to 12.1%. Looking ahead, Capital One anticipates navigating product mix changes and the run-off of certain acquired loans. The company's strategic focus remains on franchise-enhancing customer relationships, supported by ongoing investments in infrastructure and a commitment to delivering shareholder value through dividends and share repurchases. The sale of the Best Buy loan portfolio is expected to close in the third quarter, further impacting the company's financial profile.

Financial Highlights

39 data points
Beta

Revenue

$5.64B

Net Income

$1.11B

19.7% Net Margin

EPS (Diluted)

$1.85

Total Assets

$296.54B

Free Cash Flow

$2.34B

Financial Statements
Beta
Revenue$5.64B
Operating Income$1.23B
Interest Expense$457.00M
Net Income$1.11B
EPS (Basic)$1.88
EPS (Diluted)$1.85
Shares Outstanding (Basic)581.50M
Shares Outstanding (Diluted)588.80M

Key Highlights

  • 1Net income significantly increased to $1.1 billion in Q2 2013 from $93 million in Q2 2012, driven by the absence of large credit loss provisions from the prior year.
  • 2Total net revenue grew 12% year-over-year to $5.6 billion, fueled by increased interest-earning assets and a wider net interest margin of 6.83%.
  • 3The Credit Card segment showed a strong turnaround, reporting net income of $719 million compared to a net loss of $297 million in the prior year quarter.
  • 4Capital One's capital position remains strong, with the Tier 1 common ratio improving to 12.06% as of June 30, 2013.
  • 5The company announced a substantial increase in its quarterly common stock dividend to $0.30 per share and authorized up to $1 billion in share repurchases.
  • 6Loans held for investment decreased by 7% from year-end 2012 to $191.5 billion, partly due to the transfer of the Best Buy loan portfolio to held-for-sale status.
  • 7The allowance for loan and lease losses decreased by 15% to $4.4 billion, reflecting an improved credit outlook and the transfer of the Best Buy portfolio.

Frequently Asked Questions

The substantial increase in net income was primarily driven by the absence of a large provision for credit losses recorded in the second quarter of 2012, which was related to the credit card receivables acquired in the 2012 U.S. card acquisition. This was partially offset by a bargain purchase gain recognized in the prior year from the ING Direct acquisition and higher ongoing operating expenses from acquisitions.

Total loans held for investment decreased by 7% from the end of 2012 to $191.5 billion as of June 30, 2013. This decrease was partly due to the transfer of the Best Buy loan portfolio (approximately $7 billion) to 'held for sale' in the first quarter of 2013. Other factors include the expected run-off of certain acquired and installment loans, partially offset by growth in auto loans and commercial lending.

Capital One anticipates navigating changes in product mix and the expected run-off of certain acquired loans. They expect intensifying competition in auto and commercial and industrial lending. The company expects pre-provision net income of approximately $10 billion and operating expenses of approximately $11 billion for the full year 2013.

Capital One's Tier 1 common ratio increased to 12.06% as of June 30, 2013, reflecting strong internal capital generation. The Board of Directors approved an increase in the quarterly common stock dividend to $0.30 per share and authorized the repurchase of up to $1 billion of common stock, subject to the closing of the Best Buy loan portfolio sale.