Capital One Reports Third Quarter Earnings
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Affirms earnings guidance of approximately $5.00 per share in 2007
MCLEAN, Va., Oct. 18 /PRNewswire-FirstCall/ -- Capital One Financial Corporation (NYSE: COF) today announced a net loss for the third quarter of 2007 of $81.6 million, or $0.21 per share (diluted). Earnings were $2.09 per share (diluted) excluding the loss from discontinued operations of $898.0 million related to the shutdown of GreenPoint Mortgage announced in August 2007. This compares to net income of $587.8 million, or $1.89 per share (diluted), for the third quarter of 2006, and income from continuing operations of $767.6 million, or $1.93 per share (diluted), for the second quarter of 2007. Additionally, the company continues to expect earnings for 2007 of approximately $5.00 per share (diluted).
"Capital One remains focused on driving revenue growth, reducing costs, and effectively deploying capital to generate strong returns for our investors," said Richard D. Fairbank, Capital One's Chairman and Chief Executive Officer. "Our businesses are generating robust revenue margins, even as we continue to take a cautious approach to underwriting and managing credit risk in the current environment."
Highlights of the quarter: -- Announced the shutdown of GreenPoint Mortgage, which is largely complete. When the company announced the shutdown, it estimated total after-tax charges to be $860 million, whereas the total charges in the third quarter of 2007 was $883 million due primarily to increased valuation adjustments. The company expects to incur approximately $23 million of additional after-tax charges associated with GreenPoint Mortgage in the fourth quarter of 2007 and into early 2008. -- Executed $477.5 million of open market share repurchases in the quarter, and completed the $1.5 billion Accelerated Share Repurchase program that was launched in April. The company expects to complete the $3.0 billion share repurchase program in the fourth quarter with additional repurchases of $772.5 million. -- Successfully executed $3.8 billion in funding transactions despite difficult capital market conditions. -- Company-wide cost initiative and bank integration programs remain on track.
"Earnings from continuing operations in the third quarter grew 6.4 percent over the second quarter of 2007 driven by increased revenues which more than offset increased credit costs in the quarter," said Gary L. Perlin, Capital One's Chief Financial Officer. "We also realized significant operating leverage. Continued cost discipline and capital management will be two key drivers of future shareholder returns."
Total Company Results -- Total deposits at the end of the third quarter of $83.3 billion were down $2.3 billion from the second quarter of 2007 primarily as a result of the intended run-off of high cost brokered and public deposits. -- Managed loans held for investment from continuing operations increased from the previous quarter by $1.3 billion driven largely by the growth in Global Financial Services. -- Total managed revenue is up 8.0 percent relative to the second quarter of 2007 driven largely by revenue margin expansion in our U.S. Card sub-segment. The company expects 2008 revenue growth to be in-line or slightly higher than asset growth. -- Provision expense was up quarter over quarter and year over year, in anticipation of higher charge-offs over the next twelve months, primarily in U.S. Card and Auto Finance. The provision increase related to continuing operations of $124.2 million is net of a $91.4 million release in allowance associated with the integration of bank allowance methodologies. Without this methodology change, the allowance would have increased $215.6 million due primarily to a build in the National Lending segment. -- Operating expenses declined $35.2 million relative to the second quarter of 2007 driven by continued efficiency gains across the businesses. Looking forward, the company expects its operating efficiency ratio to be in the mid-forty percent range for the full year 2008. Segment Results Local Banking Segment highlights relative to Q2 2007 -- Net income of $192.3 million was up $47.5 million over the second quarter due primarily to a third quarter release in reserves that resulted from aligning the Banking segment's allowance methodologies with the company's methodology. -- Loans held for investment were essentially flat relative to the second quarter of 2007 at $42.2 billion. Total Bank deposits declined $1.1 billion to $73.4 billion. -- Credit at the Bank remained strong and stable, with the net charge-off rate at 19 basis points and non-performing loans at 27 basis points. -- Integration efforts continue to be on track. National Lending Segment
Following are highlights from the National Lending Segment, followed by highlights from each of the sub-segments of National Lending: U.S. Card, Global Financial Services (GFS), and Auto Finance. Mortgage Finance information is now included in Discontinued Operations.
-- Profits for the National Lending segment were up 11.8 percent as compared to the third quarter of 2006, driven by increased profits in U.S. Card and GFS. -- The managed charge-off rate for the National Lending segment increased 71 basis points to 3.96 percent in the third quarter of 2007 from 3.25 percent in the third quarter of 2006 due to normalization of credit year over year and as a result of a mix shift in U.S. Card and credit worsening in Auto Finance. The delinquency rate of 4.70 percent for National Lending increased from 3.70 percent as of September 30, 2006. U.S. Card highlights relative to Q3 2006 -- U.S. Card reported net income of $560.8 million, a 21.5 percent increase, year over year, driven by growth in revenue and reductions in non-interest expenses. -- Revenue increased 13.2 percent from the third quarter of 2006 largely as a result of pricing changes implemented in some of the company's products after completion of the card holder system conversion. This increase was partially offset by an increase in provision expense resulting from increased credit costs in the quarter and an allowance build for expected future credit losses. -- Non-interest expenses declined 9.3 percent as the business began to leverage its new infrastructure to streamline processes and reduce costs as a part of the broader corporate cost initiative. -- Managed loans declined from the third quarter of 2006 by 3.0 percent, or $1.6 billion to $49.6 billion at September 30, 2007, resulting from the continued low levels of marketing of teaser rate offers in the prime market and a $600.0 million portfolio sale in the first quarter of 2007. -- Charge-offs rose in the third quarter of 2007 to 4.13 percent from 3.39 percent in the third quarter of 2006, and delinquencies rose to 4.46 percent from 3.53 percent. The increases resulted primarily from continued normalization of consumer credit and the mix effects of the company's decline in prime revolver loans. Given current loan growth and delinquency trends, the company expects the U.S. Card charge-off rate to be around 5.25 percent in the fourth quarter. -- Delinquencies increased 105 basis points from the sequential quarter primarily due to normal seasonality, the company's change to a 25 day grace period, changes in the company's pricing and fee policies, and mix effects of the decline in prime revolver loan balances. These delinquency trends are consistent with the expected rise in card charge-offs in the fourth quarter. Global Financial Services (GFS) highlights relative to Q3 2006 -- Net income rose 10.5 percent from the third quarter of 2006, to $118.4 million. Net income growth resulted from strong growth in revenues partially offset by higher provision expense. -- Managed loans as of September 30, 2007 grew 7.6 percent, to $28.6 billion relative to September 30, 2006, with growth from North American businesses more than offsetting a modest decline in loans in the UK. About half of the dollar growth resulted from stronger Canadian and UK currencies versus the third quarter of 2006. -- Risk metrics were up modestly from the third quarter of 2006 as expected normalization continues in the U.S. Credit in the UK remains stable. Auto Finance highlights relative to Q3 2006 -- Auto Finance posted a net loss of $3.8 million in the quarter. A 5.8 percent increase in revenues was more than offset by a 51.7 percent increase in provision. -- Charge-off and delinquencies increases were a result of continued consumer credit normalization from historically low levels in the third quarter of 2006, continued elevated losses, and delinquencies in recent Dealer Prime vintages, and industry-wide increases in loan-to-value ratios and extended loan terms in subprime. -- Originations in the third quarter of $3.2 billion were up 2.9 percent compared to the year ago third quarter. -- Managed loans of $24.3 billion as of September 30, 2007 were up 15.0 percent relative to the third quarter of 2006 from ongoing originations as well as the addition of loans from the North Fork portfolio.
The company generates earnings from its managed loan portfolio, which includes both on-balance sheet loans and securitized (off-balance sheet) loans. For this reason, the company believes managed financial measures to be useful to stakeholders. In compliance with Regulation G of the Securities and Exchange Commission, the company is providing a numerical reconciliation of managed financial measures to comparable measures calculated on a reported basis using generally accepted accounting principles (GAAP). Please see the schedule titled "Reconciliation to GAAP Financial Measures" attached to this release for more information.
Forward looking statements
The company cautions that its current expectations in this release, in the presentation slides available on the company's website and in its Form 8-K dated October 18, 2007 for 2007 earnings, loan and deposit growth, revenue growth, return on equity, projected charge-offs for the fourth quarter of 2007 and for 2008, credit trends, dividends, operating efficiencies and ongoing cost reductions, including future financial and operating results, and the company's plans, objectives, expectations, and intentions, are forward-looking statements and actual results could differ materially from current expectations due to a number of factors, including: the risk that the company's acquired businesses will not be integrated successfully and that the cost savings and other synergies from such acquisitions may not be fully realized; continued intense competition from numerous providers of products and services which compete with Capital One's businesses; changes in our aggregate accounts and balances, and the growth rate and composition thereof; the risk that the benefits of the company's restructuring initiative, including cost savings and other benefits, may not be fully realized; the success of the company's marketing efforts; general economic conditions affecting interest rates and consumer income, spending, and savings which may affect consumer bankruptcies, defaults, charge-offs and deposit activity; changes in the labor market; general secondary market conditions in the mortgage industry; changes in the credit environment in the U.S. and or the UK; and the company's ability to execute on its strategic and operational plans. A discussion of these and other factors can be found in Capital One's annual report and other reports filed with the Securities and Exchange Commission, including, but not limited to, Capital One's report on Form 10-K for the fiscal year ended December 31, 2006, and reports on Form 10-Q for the quarters ended March 31, 2007 and June 30, 2007.
About Capital One
Headquartered in McLean, Virginia, Capital One Financial Corporation (http://www.capitalone.com) is a financial holding company, with 732 locations in New York, New Jersey, Connecticut, Texas and Louisiana. Its principal subsidiaries, Capital One Bank, Capital One Auto Finance, Inc., and Capital One, N.A., offer a broad spectrum of financial products and services to consumers, small businesses and commercial clients. Capital One's subsidiaries collectively had $83.3 billion in deposits and $146.4 billion in managed loans outstanding as of September 30, 2007. Capital One, a Fortune 500 company, trades on the New York Stock Exchange under the symbol "COF" and is included in the S&P 100 index.
NOTE: Third quarter 2007 financial results, SEC Filings, and first quarter earnings conference call slides are accessible on Capital One's home page (http://www.capitalone.com). Choose "Investors" on the bottom of the home page to view and download the earnings press release, slides, and other financial information. Additionally, a webcast of today's 5:00 pm (ET) earnings conference call is accessible through the same link.
CAPITAL ONE FINANCIAL CORPORATION (COF) FINANCIAL & STATISTICAL SUMMARY REPORTED BASIS (in millions, except per 2007 2007 2006 share data and as noted) Q3 Q2 Q3 Earnings (Reported Basis) Net Interest Income $1,624.5 $1,538.6 (2) $1,294.5 Non-Interest Income 2,149.7 1,971.9 1,761.4 Total Revenue (5) 3,774.2 3,510.5 3,055.9 Provision for Loan Losses 595.5 396.7 430.6 Marketing Expenses 332.7 326.1 368.5 Restructuring Expenses (4) 19.4 91.1 - Operating Expenses 1,582.2 (3) 1,617.4 (3),(12) 1,358.1 Income Before Taxes 1,244.4 1,079.2 898.7 Tax Rate (7) 34.4 % 28.9 % 34.6 % Income From Continuing Operations, Net of Tax $816.4 $767.6 $587.8 (Loss) From Discontinued Operations, Net of Tax (1) (898.0) (17.2) - Net (Loss) Income $(81.6) $750.4 $587.8 Common Share Statistics Basic EPS: Income From Continuing Operations $2.11 $1.96 $1.95 (Loss) From Discontinued Operations $(2.32) $(0.04) $ - Net (Loss) Income $(0.21) $1.92 $1.95 Diluted EPS: Income From Continuing Operations $2.09 $1.93 $1.89 (Loss) From Discontinued Operations $(2.30) $(0.04) $ - Net (Loss) Income $(0.21) $1.89 $1.89 Dividends Per Share $0.03 $0.03 $0.03 Tangible Book Value Per Share (period end) $28.88 $29.11 $41.12 Stock Price Per Share (period end) $66.43 $78.44 $78.66 Total Market Capitalization (period end) $25,602.1 $30,701.4 $23,944.1 Shares Outstanding (period end) 385.4 391.4 304.4 Shares Used to Compute Basic EPS 386.1 390.8 301.6 Shares Used to Compute Diluted EPS 390.8 397.5 310.4 Reported Balance Sheet Statistics (period average) (7) Average Loans Held for Investment $91,745 $91,145 $62,429 Average Earning Assets $117,694 $119,430 $81,437 Average Assets $143,291 $142,690 $92,295 Average Interest Bearing Deposits $73,555 $75,218 $42,984 Total Average Deposits $84,884 $86,719 $47,196 Average Equity $25,344 $25,128 $16,310 Return on Average Assets (ROA) 2.28 % 2.15 % 2.55 % Return on Average Equity (ROE) 12.89 % 12.22 % 14.42 % Reported Balance Sheet Statistics (period end) (7) Loans Held for Investment $93,789 $90,930 $63,612 Total Assets $143,884 $141,917 $94,907 Interest Bearing Deposits $72,503 $74,444 $43,468 Total Deposits $83,343 $85,680 $47,613 Performance Statistics (Reported)(7) Net Interest Income Growth (annualized) 22 % (16)% 33 % Non Interest Income Growth (annualized) 36 % 45 % 12 % Revenue Growth (annualized) 30 % 16 % 20 % Net Interest Margin 5.52 % 5.15 % 6.36 % Revenue Margin 12.83 % 11.76 % 15.01 % Risk Adjusted Margin (10) 11.20 % 10.41 % 13.20 % Non Interest Expense as a % of Average Loans Held for Investment (annualized) 8.43 % 8.93 % 11.06 % Efficiency Ratio (11) 50.74 % 55.36 % 56.50 % Asset Quality Statistics (Reported)(7) Allowance $2,237 $2,113 $1,840 Allowance as a % of Reported Loans Held for Investment 2.39 % 2.32 % 2.89 % Net Charge-Offs $480 $401 $369 Net Charge-Off Rate 2.09 % 1.76 % (13) 2.36 % Full-time equivalent employees (in thousands) 27.5 29.5 21.1 CAPITAL ONE FINANCIAL CORPORATION (COF) FINANCIAL & STATISTICAL SUMMARY MANAGED BASIS (*) 2007 2007 2006 (in millions) Q3 Q2 Q3 Earnings (Managed Basis) Net Interest Income $2,803.4 $2,613.3 (2) $2,217.8 Non-Interest Income 1,518.0 1,387.5 1,275.4 Total Revenue(5) 4,321.4 4,000.8 3,493.2 Provision for Loan Losses 1,142.7 887.1 867.9 Marketing Expenses 332.7 326.1 368.5 Restructuring Expenses (4) 19.4 91.1 - Operating Expenses 1,582.2 (3) 1,617.4 (3),(12) 1,358.1 Income Before Taxes 1,244.4 1,079.1 898.7 Tax Rate(6) 34.4 % 28.9 % 34.6 % Income From Continuing Operations, Net of Tax $816.4 $767.6 $587.8 (Loss) From Discontinued Operations, Net of Tax (1) (898.0) (17.2) - Net (Loss) Income $(81.6) $750.4 $587.8 Managed Balance Sheet Statistics (period average) (7) Average Loans Held for Investment $143,781 $142,616 $110,512 Average Earning Assets $167,578 $168,841 $127,742 Average Assets $194,528 $193,446 $139,833 Return on Average Assets (ROA) 1.68 % 1.59 % 1.68 % Managed Balance Sheet Statistics (period end) (7) Loans Held for Investment(8) $144,769 $143,498 $112,239 Total Assets $194,019 $193,682 $142,977 Tangible Assets(9) $180,363 $179,888 $138,817 Tangible Common Equity(8) $11,131 $11,393 $12,517 Tangible Common Equity to Tangible Assets Ratio 6.17 % 6.33 % 9.02 % % Off-Balance Sheet Securitizations 35 % 37 % 43 % Performance Statistics (Managed)(7) Net Interest Income Growth (annualized) 29 % 2 % 14 % Non Interest Income Growth (annualized) 38 % 29 % 25 % Revenue Growth (annualized) 32 % 11 % 18 % Net Interest Margin 6.69 % 6.19 % 6.94 % Revenue Margin 10.31 % 9.48 % 10.94 % Risk Adjusted Margin (10) 7.86 % 7.37 % 8.41 % Non Interest Expense as a % of Average Loans Held for Investment (annualized) 5.38 % 5.71 % 6.25 % Efficiency Ratio (11) 44.31 % 48.58 % 49.43 % Asset Quality Statistics (Managed)(7) Net Charge-Offs $1,027 $891 $806 Net Charge-Off Rate 2.86 % 2.50 % (13) 2.92 % (*) The information in this statistical summary reflects the adjustment to add back the effect of securitization transactions qualifying as sales under generally accepted accounting principles. See accompanying schedule - "Reconciliation to GAAP Financial Measures". CAPITAL ONE FINANCIAL CORPORATION (COF) FINANCIAL & STATISTICAL SUMMARY NOTES (1) On August 20, 2007, the Company announced that it would cease residential mortgage origination operations of its wholesale mortgage banking unit, GreenPoint Mortgage which was acquired in Q4 2006. The results of the residential mortgage origination operations are being reported as discontinued operations for each period presented subsequent to the acquisition. The results of GreenPoint's Mortgage Servicing Business are reported as continuing operations for each period presented subsequent to the acquisition. The Company recorded a loss from discontinued operations of $898.0 million after-tax for Q3 2007. Approximately $646.0 million after-tax of this loss resulted from the non-cash write-down of goodwill associated with the acquisition of GreenPoint Mortgage as part of the North Fork Bancorporation in December 2006. The remaining $252.0 million of after-tax loss includes approximately $177.8 million after-tax valuation adjustments related to ongoing operations, $59.0 million in after-tax restructuring charges associated with severance benefits and facilities closure, and $15.2 million in loss from operations in the third quarter. (2) Includes a $17.4 million gain from the early extinguishment of Trust Preferred Securities in Q2 2007 included as a component of Interest expense. (3) Includes core deposit intangible amortization expense of $52.4 million in Q3 2007 and $53.7 million in Q2 2007, and integration costs of $30.3 million in Q3 2007 and $24.5 million in Q2 2007. (4) During the second quarter of 2007, the Company announced a broad- based initiative to reduce expenses and improve its competitive cost position. As part of this initiative $19.4 million and $91.1 million of restructuring charges were recognized as part of continuing operations during Q3 2007 and Q2 2007, respectively. (5) In accordance with the Company's finance charge and fee revenue recognition policy, the amounts billed to customers but not recognized as revenue were as follows: Q3 2007 - $310.5 million, Q2 2007 - $236.3 million, and Q3 2006 - $226.3 million. (6) Includes a $69.0 million benefit in Q2 2007 resulting from changes in the Company's international tax position and tax benefits from resolution of tax issues and miscellaneous tax adjustments in prior periods as follows: Q1 2007 - $11.7 million, Q4 2006 - $28.8 million and Q3 2006 - $18.7 million. (7) Based on continuing operations. Average equity and return on equity are based on the Company's stockholder's equity. (8) Includes stockholders' equity and preferred interests less intangible assets and related deferred tax liability. Tangible Common Equity on a reported and managed basis is the same. (9) Tangible assets include managed assets less intangible assets. (10) Risk adjusted margin is total revenue less net charge-offs as a percentage of average earning assets. (11) Efficiency ratio is Non-interest expense less restructuring expense divided by total revenue. (12) Includes a charge of $39.8 million as a result of the accelerated vesting of equity awards made in connection with the transition of the management team for Capital One's Banking business following the North Fork acquisition in Q4 2006. (13) Managed and reported net charge-off rate for Q2 2007 was positively impacted 11 and 17 basis points, respectively, due to the implementation of a change in customer statement generation from 30 to 25 days grace. The change did not have a material impact on Net Provision for Q2 2007. CAPITAL ONE FINANCIAL CORPORATION (COF) SEGMENT FINANCIAL & STATISTICAL SUMMARY FOR CONTINUING OPERATIONS MANAGED BASIS (1) 2007 2007 2006 (in thousands) Q3 Q2 Q3 Local Banking: Interest Income $1,746,683 $1,724,239 $719,207 Interest Expense 1,161,758 1,139,774 461,009 Net interest income $584,925 $584,465 $258,198 Non-interest income 195,204 210,581 115,526 Provision for loan losses (58,285) 23,929 5,495 Other non-interest expenses 543,390 548,462 297,080 Income tax provision 102,693 77,821 24,902 Net income $192,331 $144,834 $46,247 Loans Held for Investment $42,233,665 $41,919,645 $13,326,088 Average Loans Held for Investment $41,992,618 $42,110,537 $13,171,414 Core Deposits (2) $63,118,580 $63,828,306 $26,997,345 Total Deposits $73,419,558 $74,482,705 $35,163,849 Loans Held for Investment Yield 7.13% 7.03% 8.02% Net Interest Margin - Loans (3) 1.79% 1.88% 3.30% Net Interest Margin - Deposits (4) 2.09% 2.01% 1.62% Efficiency Ratio (6) 69.65% 68.98% 79.49% Net charge-off rate 0.19% 0.19% 0.48% Non Performing Loans $112,794 $80,781 $79,042 Non Performing Loans as a % of Loans Held for Investment 0.27% 0.19% 0.59% Non-Interest Expenses as a % of Average Loans Held for Investment 5.18% 5.21% 9.02% Number of Active ATMs 1,282 1,253 623 Number of locations 732 724 342 National Lending: Interest Income $3,511,878 $3,261,042 $3,078,097 Interest Expense 1,232,115 1,197,106 1,089,279 Net interest income $2,279,763 $2,063,936 $1,988,818 Non-interest income 1,312,146 1,177,139 1,213,924 Provision for loan losses 1,196,087 869,149 862,375 Other non-interest expenses 1,367,607 1,366,282 1,411,882 Income tax provision 352,847 346,547 324,366 Net income $675,368 $659,097 $604,119 Loans Held for Investment $102,556,271 $101,590,039 $98,909,970 Average Loans Held for Investment $101,805,584 $100,520,138 $97,309,087 Core Deposits(2) $470 $1,124 $137,602 Total Deposits $2,295,131 $2,411,435 $2,461,941 Loans Held for Investment Yield 13.77% 12.95% 12.63% Net Interest Margin 8.96% 8.21% 8.18% Revenue Margin 14.11% 12.90% 13.17% Risk Adjusted Margin 10.15% 9.43% 9.92% Non-Interest Expenses as a % of Average Loans Held for Investment 5.37% 5.44% 5.80% Efficiency Ratio (6) 38.07% 42.16% 44.08% Net charge-off rate 3.96% 3.47% (5) 3.25% Delinquency Rate (30+ days) 4.70% 3.89% 3.70% Number of Loan Accounts (000s) 48,473 48,536 49,176 Other: Net interest income $(61,250) $(35,056) $(29,194) Non-interest income 10,639 (249) (54,041) Provision for loan losses 5,023 (5,981) 27 Restructuring expenses 19,354 91,074 - Other non-interest expenses 3,870 28,717 17,667 Income tax benefit (27,530) (112,796) (38,402) Net loss $(51,328) $(36,319) $(62,527) Loans Held for Investment $(21,375) $(11,928) $2,488 Core Deposits (2) $5,967,308 $6,937,760 $7,301,435 Total Deposits $7,628,125 $8,786,315 $9,987,360 Total: Interest Income $4,646,430 $4,380,376 $3,595,874 Interest Expense 1,842,992 1,767,031 1,378,052 Net interest income $2,803,438 $2,613,345 $2,217,822 Non-interest income 1,517,989 1,387,471 1,275,409 Provision for loan losses 1,142,825 887,097 867,897 Restructuring expenses 19,354 91,074 - Other non-interest expenses 1,914,867 1,943,461 1,726,629 Income tax provision 428,010 311,572 310,866 Income From Continuing Operations, Net of Tax $816,371 $767,612 $587,839 Loans Held for Investment $144,768,561 $143,497,756 $112,238,546 Core Deposits (2) $69,086,358 $70,767,190 $34,436,382 Total Deposits $83,342,814 $85,680,455 $47,613,150 (1) The information in this statistical summary reflects the adjustment to add back the effect of securitization transactions qualifying as sales under generally accepted accounting principles. See accompanying schedule - "Reconciliation to GAAP Financial Measures." On August 20, 2007, the Company announced that it would cease residential mortgage origination operations of its wholesale mortgage banking unit, GreenPoint Mortgage. The results of the residential mortgage origination operations are reported as discontinued operations and excluded from the segment results presented. The results of GreenPoint's Mortgage Servicing Business are reported as continuing operations for each period presented and included in Local Banking results for 2007. (2) Includes domestic non-interest bearing deposits, NOW accounts, money market deposit accounts, savings accounts, certificates of deposit of less than $100,000 and other consumer time deposits. (3) Interest Income - funds transfer pricing charges divided by average managed loans (4) Interest Expense - funds transfer pricing credits divided by average retail deposits (5) Net charge-off rate for Q2 2007 was positively impacted by 16 basis points due to the implementation of a change in customer statement generation from 30 to 25 days grace. This change did not have a material impact on the provision for the quarter. (6) Efficiency ratio is Non-Interest Expenses divided by total Managed Revenue CAPITAL ONE FINANCIAL CORPORATION (COF) NATIONAL LENDING SUBSEGMENT FINANCIAL & STATISTICAL SUMMARY FOR CONTINUING OPERATIONS MANAGED BASIS (1) 2007 2007 2006 (in thousands) Q3 Q2 Q3 US Card: Interest Income $1,953,967 $1,779,670 $1,734,459 Interest Expense 596,767 590,236 554,708 Net interest income $1,357,200 $1,189,434 $1,179,751 Non-interest income 975,502 842,428 881,304 Provision for loan losses 662,428 402,589 451,782 Non-interest expenses 815,470 808,769 899,062 Income tax provision 294,053 282,253 248,574 Net income $560,751 $538,251 $461,637 Loans Held for Investment $49,573,279 $50,032,530 $51,127,654 Average Loans Held for Investment $49,682,666 $49,573,957 $50,131,562 Loans Held for Investment Yield 15.73% 14.36% 13.84% Net Interest Margin 10.93% 9.60% 9.41% Revenue Margin 18.78% 16.39% 16.45% Risk Adjusted Margin 14.65% 12.66% 13.05% Non-Interest Expenses as a Percentage of Average Loans Held for Investment 6.57% 6.53% 7.17% Efficiency Ratio (2) 34.96% 39.80% 43.62% Net charge-off rate 4.13% 3.73% (5) 3.39% Delinquency Rate (30+ days) 4.46% 3.41% 3.53% Purchase Volume (3) $21,522,104 $21,781,462 $21,450,024 Number of Loan Accounts (000s) 36,504 36,608 37,483 Auto Finance: Interest Income $661,471 $651,821 $575,376 Interest Expense 283,949 277,783 227,053 Net interest income $377,522 $374,038 $348,323 Non-interest income 13,514 23,273 21,181 Provision for loan losses 244,537 182,278 161,145 Non-interest expenses 152,275 157,044 154,014 Income tax provision (1,987) 19,948 19,021 Net (loss) income $(3,789) $38,041 $35,324 Loans Held for Investment $24,335,242 $24,067,760 $21,158,797 Average Loans Held for Investment $24,170,047 $23,898,070 $20,812,533 Loans Held for Investment Yield 10.95% 10.91% 11.06% Net Interest Margin 6.25% 6.26% 6.69% Revenue Margin 6.47% 6.65% 7.10% Risk Adjusted Margin 2.91% 4.30% 4.76% Non-Interest Expenses as a % of Average Loans Held for Investment 2.52% 2.63% 2.96% Efficiency Ratio (2) 38.94% 39.53% 41.68% Net charge-off rate 3.56% 2.35% 2.34% Delinquency Rate (30+ days) 7.15% 6.00% 5.18% Auto Loan Originations $3,248,747 $2,992,427 $3,158,481 Number of Loan Accounts (000s) 1,731 1,771 1,558 Global Financial Services: Interest Income $896,440 $829,551 $768,262 Interest Expense 351,399 329,087 307,518 Net interest income $545,041 $500,464 $460,744 Non-interest income 323,130 311,438 311,439 Provision for loan losses 289,122 284,282 249,448 Non-interest expenses 399,862 400,469 358,806 Income tax provision 60,781 44,346 56,771 Net income $118,406 $82,805 $107,158 Loans Held for Investment $28,647,750 $27,489,749 $26,623,519 Average Loans Held for Investment $27,952,871 $27,048,111 $26,364,992 Loans Held for Investment Yield (4) 12.72% 12.16% 11.58% Net Interest Margin 7.80% 7.40% 6.99% Revenue Margin 12.42% 12.01% 11.72% Risk Adjusted Margin 8.42% 8.03% 8.02% Non-Interest Expenses as a % of Average Loans Held for Investment 5.72% 5.92% 5.44% Efficiency Ratio (2) 46.06% 49.32% 46.47% Net charge-off rate 4.00% 3.98% 3.70% Delinquency Rate (30+ days) 3.02% 2.93% 2.86% Number of Loan Accounts (000s) 10,238 10,157 10,135 (1) The information in this statistical summary reflects the adjustment to add back the effect of securitization transactions qualifying as sales under generally accepted accounting principles. See accompanying schedule - "Reconciliation to GAAP Financial Measures." (2) Efficiency ration is non-Interest Expenses divided by total Managed Revenue (3) Includes all purchase transactions net of returns and excludes cash advance transactions. (4) Excludes "GFS - Home Loans Originations" and "GFS - Settlement Services" from Other Interest Income. (5) Net charge-off rate for Q2 2007 was positively impacted by 31 basis points due to the implementation of a change in customer statement generation from 30 to 25 days grace. This change did not have a material impact on the provision for the quarter. CAPITAL ONE FINANCIAL CORPORATION Reconciliation to GAAP Financial Measures For the Three Months Ended September 30, 2007 (dollars in thousands) (unaudited) The Company's consolidated financial statements prepared in accordance with generally accepted accounting principles ("GAAP") are referred to as its "reported" financial statements. Loans included in securitization transactions which qualified as sales under GAAP have been removed from the Company's "reported" balance sheet. However, servicing fees, finance charges, and other fees, net of charge-offs, and interest paid to investors of securitizations are recognized as servicing and securitizations income on the "reported" income statement. The Company's "managed" consolidated financial statements reflect adjustments made related to effects of securitization transactions qualifying as sales under GAAP. The Company generates earnings from its "managed" loan portfolio which includes both the on-balance sheet loans and off-balance sheet loans. The Company's "managed" income statement takes the components of the servicing and securitizations income generated from the securitized portfolio and distributes the revenue and expense to appropriate income statement line items from which it originated. For this reason the Company believes the "managed" consolidated financial statements and related managed metrics to be useful to stakeholders. Total Total Reported Adjustments(1) Managed(2) Income Statement Measures (3) Net interest income $1,624,474 $1,178,964 $2,803,438 Non-interest income 2,149,662 $(631,673) 1,517,989 Total revenue 3,774,136 $547,291 4,321,427 Provision for loan losses 595,534 $547,291 1,142,825 Net charge-offs $480,065 $547,291 $1,027,356 Balance Sheet Measures Loans Held for Investment $95,405,217 $50,980,053 $146,385,270 Total assets $147,154,835 $50,135,190 $197,290,025 Average loans Held for Investment $92,450,865 $52,036,422 $144,487,287 Average earning assets $121,169,771 $49,884,042 $171,053,813 Average total assets $147,884,578 $51,237,294 $199,121,872 Delinquencies $3,077,211 $2,020,368 $5,097,579 (1) Income statement adjustments reclassify the net of finance charges of $1,659.5 million, past-due fees of $262.7 million, other interest income of $(42.7) million and interest expense of $700.5 million; and net charge-offs of $547.3 million from Non-interest income to Net interest income and Provision for loan losses, respectively. (2) The managed loan portfolio does not include auto loans which have been sold in whole loan sale transactions where the Company has retained servicing rights. (3) Based on continuing operations. CAPITAL ONE FINANCIAL CORPORATION Consolidated Balance Sheets (in thousands) (unaudited) As of As of As of September 30 June 30 September 30 2007 2007 (1) 2006 (1) Assets: Cash and due from banks $1,819,121 $2,354,393 $1,461,132 Federal funds sold and resale agreements 1,922,735 3,940,269 3,340,809 Interest-bearing deposits at other banks 703,805 753,160 797,708 Cash and cash equivalents 4,445,661 7,047,822 5,599,649 Securities available for sale 19,959,247 20,203,381 13,631,409 Mortgage loans held for sale 1,454,457 2,732,044 311,169 Loans held for investment 95,405,217 91,617,353 63,612,169 Less: Allowance for loan and lease losses (2,320,000) (2,120,000) (1,840,000) Net loans held for investment 93,085,217 89,497,353 61,772,169 Accounts receivable from securitizations 6,905,859 5,481,686 5,617,113 Premises and equipment, net 2,268,034 2,260,928 1,532,006 Interest receivable 793,693 768,617 529,104 Goodwill 12,952,838 13,612,005 3,964,177 Other 5,289,829 4,334,121 1,949,950 Total assets $147,154,835 $145,937,957 $94,906,746 Liabilities: Non-interest-bearing deposits $10,840,189 $11,236,110 $4,145,173 Interest-bearing deposits 72,502,625 74,444,345 43,467,977 Senior and subordinated notes 10,784,182 9,222,506 8,701,794 Other borrowings 22,722,519 20,681,289 17,619,817 Interest payable 552,674 543,805 387,000 Other 4,965,794 4,623,241 3,908,008 Total liabilities 122,367,983 120,751,296 78,229,769 Stockholders' Equity: Common stock 4,183 4,174 3,065 Paid-in capital, net 15,768,525 15,682,009 7,237,785 Retained earnings and cumulative other comprehensive income 11,395,226 11,386,625 9,551,504 Less: Treasury stock, at cost (2,381,082) (1,886,147) (115,377) Total stockholders' equity 24,786,852 25,186,661 16,676,977 Total liabilities and stockholders' equity $147,154,835 $145,937,957 $94,906,746 (1) Certain prior period amounts have been reclassified to conform to the current period presentation. CAPITAL ONE FINANCIAL CORPORATION Consolidated Statements of Income (in thousands, except per share data) (unaudited) Three Months Ended September 30 June 30(1) September 30(1) 2007 2007 2006 Interest Income: Loans held for investment, including past-due fees $2,381,096 $2,255,573 $1,814,803 Securities available for sale 252,550 237,978 151,616 Other 133,321 145,135 98,652 Total interest income 2,766,967 2,638,686 2,065,071 Interest Expense: Deposits 740,091 749,603 442,571 Senior and subordinated notes 144,643 134,061 96,300 Other borrowings 257,759 216,441 231,685 Total interest expense 1,142,493 1,100,105 770,556 Net interest income 1,624,474 1,538,581 1,294,515 Provision for loan and lease losses 595,534 396,713 430,566 Net interest income after provision for loan and lease losses 1,028,940 1,141,868 863,949 Non-Interest Income: Servicing and securitizations 1,354,303 1,226,896 1,071,091 Service charges and other customer-related fees 522,374 482,979 459,125 Mortgage banking operations 52,661 68,365 44,520 Interchange 103,799 125,979 150,474 Other 116,525 67,632 36,175 Total non-interest income 2,149,662 1,971,851 1,761,385 Non-Interest Expense: Salaries and associate benefits 627,358 667,904 554,504 Marketing 332,693 326,067 368,498 Communications and data processing 194,551 192,620 183,020 Supplies and equipment 134,639 116,434 111,625 Occupancy 77,597 75,843 49,710 Restructuring expense 19,354 91,074 - Other 548,029 564,593 459,272 Total non-interest expense 1,934,221 2,034,535 1,726,629 Income from continuing operations before income taxes 1,244,381 1,079,184 898,705 Income taxes 428,010 311,572 310,866 Income from continuing operations, net of tax 816,371 767,612 587,839 (Loss) from discontinued operations, net of tax (898,029) (17,240) - Net (loss) income $(81,658) $750,372 $587,839 Basic earnings per share Net income from continuing operations $2.11 $1.96 $1.95 Net (loss) from discontinued operations (2.32) (0.04) - Net (loss) income $(0.21) $1.92 $1.95 Diluted earnings per share Net income from continuing operations $2.09 $1.93 $1.89 Net (loss) from discontinued operations (2.30) (0.04) - Net (loss) income $(0.21) $1.89 $1.89 Dividends paid per share $0.03 $0.03 $0.03 (in thousands, except per share data) (unaudited) Nine Months Ended September 30 September 30 (1) 2007 2006 Interest Income: Loans held for investment, including past-due fees $6,963,349 $5,044,362 Securities available for sale 694,608 483,078 Other 460,005 313,370 Total interest income 8,117,962 5,840,810 Interest Expense: Deposits 2,220,177 1,262,412 Senior and subordinated notes 417,250 275,361 Other borrowings 712,937 604,563 Total interest expense 3,350,364 2,142,336 Net interest income 4,767,598 3,698,474 Provision for loan and lease losses 1,342,292 963,281 Net interest income after provision for loan and lease losses 3,425,306 2,735,193 Non-Interest Income: Servicing and securitizations 3,569,281 3,250,201 Service charges and other customer-related fees 1,484,820 1,308,254 Mortgage banking operations 172,476 118,378 Interchange 347,889 401,503 Other 321,417 251,213 Total non-interest income 5,895,883 5,329,549 Non-Interest Expense: Salaries and associate benefits 1,970,433 1,607,113 Marketing 989,654 1,048,964 Communications and data processing 569,405 524,958 Supplies and equipment 384,971 322,837 Occupancy 230,835 151,840 Restructuring expense 110,428 - Other 1,687,077 1,325,293 Total non-interest expense 5,942,803 4,981,005 Income from continuing operations before income taxes 3,378,386 3,083,737 Income taxes 1,108,279 1,059,972 Income from continuing operations, net of tax 2,270,107 2,023,765 (Loss) from discontinued operations, net of tax (2) (926,343) - Net (loss) income $1,343,764 $2,023,765 Basic earnings per share Net income from continuing operations $5.74 $6.73 Net (loss) from discontinued operations (2.34) - Net (loss) income $3.40 $6.73 Diluted earnings per share Net income from continuing operations $5.66 $6.53 Net (loss) from discontinued operations (2.31) - Net (loss) income $3.35 $6.53 Dividends paid per share $0.08 $0.08 (1) Certain prior period amounts have been reclassified to conform to the current period presentation. (2) On August 20, 2007, the Company announced that it would cease residential mortgage origination operations of its wholesale mortgage banking unit, GreenPoint Mortgage, which was acquired in Q4 2006. The results of the residential mortgage origination operations are being reported as discontinued operations for each period presented subsequent to the acquisition. CAPITAL ONE FINANCIAL CORPORATION Statements of Average Balances, Income and Expense, Yields and Rates (dollars in thousands) (unaudited) Reported Quarter Ended 9/30/07 Average Income/ Yield/ Balance Expense Rate Earning assets: Loans held for investment 91,744,846 2,381,096 10.38% Securities available for sale 20,041,177 252,550 5.04% Other 5,908,249 133,321 9.03% Total earning assets (2) $117,694,272 $2,766,967 9.40% Interest-bearing liabilities: Interest-bearing deposits NOW accounts $4,759,665 $34,030 2.86% Money market deposit accounts 28,696,735 294,873 4.11% Savings accounts 8,345,638 37,474 1.80% Other Consumer Time Deposits 17,203,453 194,256 4.52% Public Fund CD's of $100,000 or more 1,884,767 23,092 4.90% CD's of $100,000 or more 8,673,860 103,296 4.76% Foreign time deposits 3,991,056 53,070 5.32% Total Interest-bearing deposits $73,555,174 $740,091 4.02% Senior and subordinated notes 9,811,821 144,643 5.90% Other borrowings 18,892,876 257,759 5.46% Total interest-bearing liabilities $102,259,871 $1,142,493 4.47% Net interest spread 4.93% Interest income to average earning assets 9.40% Interest expense to average earning assets 3.88% Net interest margin 5.52% (dollars in thousands) (unaudited) Reported Quarter Ended 6/30/07 (1) Average Income/ Yield/ Balance Expense Rate Earning assets: Loans held for investment 91,144,738 2,255,573 9.90% Securities available for sale 19,144,926 237,978 4.97% Other 9,140,405 145,135 6.35% Total earning assets (2) $119,430,069 $2,638,686 8.84% Interest-bearing liabilities: Interest-bearing deposits NOW accounts $5,115,994 $36,764 2.87% Money market deposit accounts 27,612,189 276,038 4.00% Savings accounts 8,409,684 36,294 1.73% Other Consumer Time Deposits 18,494,150 217,700 4.71% Public Fund CD's of $100,000 or more 1,981,883 24,290 4.90% CD's of $100,000 or more 9,609,949 107,491 4.47% Foreign time deposits 3,994,639 51,026 5.11% Total Interest-bearing deposits $75,218,488 $749,603 3.99% Senior and subordinated notes 9,336,130 134,061 5.74% Other borrowings 17,124,784 216,441 5.06% Total interest-bearing liabilities $101,679,402 $1,100,105 4.33% Net interest spread 4.51% Interest income to average earning assets 8.84% Interest expense to average earning assets 3.69% Net interest margin 5.15% (dollars in thousands) (unaudited) Reported Quarter Ended 9/30/06 (1) Average Income/ Yield/ Balance Expense Rate Earning assets: Loans held for investment 62,428,789 1,814,803 11.63% Securities available for sale 14,259,073 151,616 4.25% Other 4,749,636 98,652 8.31% Total earning assets (2) $81,437,498 $2,065,071 10.14% Interest-bearing liabilities: Interest-bearing deposits NOW accounts $619,460 $4,816 3.11% Money market deposit accounts 11,237,206 103,073 3.67% Savings accounts 3,911,765 28,604 2.92% Other Consumer Time Deposits 14,325,784 153,881 4.30% Public Fund CD's of $100,000 or more 1,022,465 13,046 5.10% CD's of $100,000 or more 8,302,487 95,229 4.59% Foreign time deposits 3,564,708 43,922 4.93% Total Interest-bearing deposits $42,983,875 $442,571 4.12% Senior and subordinated notes 6,544,768 96,300 5.89% Other borrowings 18,010,737 231,685 5.15% Total interest-bearing liabilities $67,539,380 $770,556 4.56% Net interest spread 5.58% Interest income to average earning assets 10.14% Interest expense to average earning assets 3.78% Net interest margin 6.36% (1) Prior period amounts have been reclassified to conform with current period presentation. (2) Average balances, income and expenses, yields and rates are based on continuing operations. CAPITAL ONE FINANCIAL CORPORATION Statements of Average Balances, Income and Expense, Yields and Rates (dollars in thousands) (unaudited) Managed (1) Quarter Ended 9/30/07 Average Income/ Yield/ Balance Expense Rate Earning assets: Loans held for investment 143,781,268 4,324,272 12.03% Securities available for sale 20,041,177 252,550 5.04% Other 3,755,869 69,610 7.41% Total earning assets (3) $167,578,314 $4,646,432 11.09% Interest-bearing liabilities: Interest-bearing deposits NOW accounts $4,759,665 $34,030 2.86% Money market deposit accounts 28,696,735 294,873 4.11% Savings accounts 8,345,638 37,474 1.80% Other Consumer Time Deposits 17,203,453 194,256 4.52% Public Fund CD's of $100,000 or more 1,884,767 23,092 4.90% CD's of $100,000 or more 8,673,860 103,296 4.76% Foreign time deposits 3,991,056 53,070 5.32% Total Interest-bearing deposits $73,555,174 $740,091 4.02% Senior and subordinated notes 9,811,821 144,643 5.90% Other borrowings 18,892,876 257,759 5.46% Securitization liability 51,320,446 700,501 5.46% Total interest-bearing liabilities $153,580,317 $1,842,994 4.80% Net interest spread 6.29% Interest income to average earning assets 11.09% Interest expense to average earning assets 4.40% Net interest margin 6.69% (dollars in thousands) (unaudited) Managed (1) Quarter Ended 6/30/07 (2) Average Income/ Yield/ Balance Expense Rate Earning assets: Loans held for investment 142,616,011 4,055,689 11.38% Securities available for sale 19,144,926 237,978 4.97% Other 7,080,441 86,709 4.90% Total earning assets (3) $168,841,378 $4,380,376 10.38% Interest-bearing liabilities: Interest-bearing deposits NOW accounts $5,115,994 $36,764 2.87% Money market deposit accounts 27,612,189 276,038 4.00% Savings accounts 8,409,684 36,294 1.73% Other Consumer Time Deposits 18,494,150 217,700 4.71% Public Fund CD's of $100,000 or more 1,981,883 24,290 4.90% CD's of $100,000 or more 9,609,949 107,491 4.47% Foreign time deposits 3,994,639 51,026 5.11% Total Interest-bearing deposits $75,218,488 $749,603 3.99% Senior and subordinated notes 9,336,130 134,061 5.74% Other borrowings 17,124,784 216,441 5.06% Securitization liability 50,841,894 666,926 5.25% Total interest-bearing liabilities $152,521,296 $1,767,031 4.63% Net interest spread 5.75% Interest income to average earning assets 10.38% Interest expense to average earning assets 4.19% Net interest margin 6.19% (dollars in thousands) (unaudited) Managed (1) Quarter Ended 9/30/06 (2) Average Income/ Yield/ Balance Expense Rate Earning assets: Loans held for investment 110,512,266 3,401,130 12.31% Securities available for sale 14,259,073 151,616 4.25% Other 2,970,236 43,128 5.81% Total earning assets (3) $127,741,575 $3,595,874 11.26% Interest-bearing liabilities: Interest-bearing deposits NOW accounts $619,460 $4,816 3.11% Money market deposit accounts 11,237,206 103,073 3.67% Savings accounts 3,911,765 28,604 2.92% Other Consumer Time Deposits 14,325,784 153,881 4.30% Public Fund CD's of $100,000 or more 1,022,465 13,046 5.10% CD's of $100,000 or more 8,302,487 95,229 4.59% Foreign time deposits 3,564,708 43,922 4.93% Total Interest-bearing deposits $42,983,875 $442,571 4.12% Senior and subordinated notes 6,544,768 96,300 5.89% Other borrowings 18,010,737 231,672 5.15% Securitization liability 47,648,021 607,510 5.10% Total interest-bearing liabilities $115,187,401 $1,378,053 4.79% Net interest spread 6.47% Interest income to average earning assets 11.26% Interest expense to average earning assets 4.32% Net interest margin 6.94% (1) The information in this table reflects the adjustment to add back the effect of securitized loans. (2) Prior period amounts have been reclassified to conform with current period presentation. (3) Average balances, income and expenses, yields and rates are based on continuing operations.
SOURCE Capital One Financial Corporation -0- 10/18/2007 /CONTACT: Investor Relations, Jeff Norris, +1-703-720-2455; Media Relations, Tatiana Stead, +1-703-720-2352, or Julie Rakes, +1-804-284-5800, all of Capital One Financial Corporation/ /Web site: http://www.capitalone.com / (COF) CO: Capital One Financial Corporation ST: Virginia IN: FIN SU: ERN CCA AD-CS -- NETH066 -- 1601 10/18/2007 16:23 EDT http://www.prnewswire.com