Business Editors

MCLEAN, Va.--(BUSINESS WIRE)--Oct. 9, 2006--Employment statistics, sales tax collections, large construction projects and other key economic indicators point to an accelerating recovery in many Gulf Coast communities damaged by hurricanes Katrina and Rita in 2005.

Economic growth driven by construction and manufacturing in Pascagoula, Miss., and Lake Charles, La., parallels the aggressive recovery patterns that most regions encounter following a major natural disaster. Yet despite these improvements, the economic impact of Hurricanes Katrina and Rita continued to negatively affect key cities in the Gulf Coast region through the second quarter of 2006.

Floodwaters from Hurricane Katrina, widespread lack of flood insurance and the ensuing slow-paced development of programs to aid housing repair or replacement are key reasons for slower recovery in two parishes, Orleans and St. Bernard.

These results are reported in "Advancing in the Aftermath III: Tracking the Recovery from Katrina and Rita," a study by noted economist Dr. Loren C. Scott and sponsored by Capital One, N.A.

Construction helps drive recovery

Economic recovery is accelerating in heavily damaged Biloxi-Gulfport, Miss., where programs have been implemented to assist homeowners and businesses rebuild. By contrast, planning such aid programs took much longer in the New Orleans area, where flood waters that lingered for weeks heavily damaged large portions of Orleans and St. Bernard parishes. Residential grant programs in those areas were only recently finalized and the distribution of funds is just beginning in New Orleans.

"Much of the recovery to date has been driven by construction in communities where money is available for repair and replacement of damaged structures and housing is available to accommodate an expanding work force," Scott said.

On Mississippi's Gulf Coast, Scott pointed to casinos in Biloxi-Gulfport and shipbuilding in Pascagoula as examples of progress. Scott said that legislation allowing casinos to be built along the shore rather than on the water and Gulf Opportunity Zone assistance programs provide strong incentives to accelerate rebuilding and new casino developments.

"In the Lake Charles area, where there was storm damage but little flooding from Hurricane Rita, the construction and manufacturing sectors are moving ahead and creating positive results for the local economy," Scott explained.

The report also cites University of New Orleans research findings that construction projects in the New Orleans area which would normally provide 28 years-worth of building activity are currently scheduled for completion in just the next few years.

"Rebuilding public schools and other institutions is another example of how construction leads recovery," Scott said. "But housing for the work force is still an issue that must be resolved before construction can take economic recovery to the next level."

Overall, the report states that large industries and manufacturers, including shipbuilding operations and ports, have recovered faster than small businesses. For example, in Pascagoula, Northrop Grumman's Ingalls Shipyard has new Navy contracts, and its total employment is just 1,000 jobs short of its pre-Katrina employment peak of 13,000.

The quarterly economic study by Scott attempts to benchmark the recovery of the hurricane-impacted regions of Louisiana and Mississippi. The full report is available at www.lorenscottassociates.com. Scott is professor emeritus of economics at Louisiana State University and president of Loren C. Scott & Associates, Inc.

About Capital One

Headquartered in McLean, Virginia, Capital One Financial Corporation (www.capitalone.com) is a financial holding company, with more than 324 locations in Texas and Louisiana. Its principal subsidiaries, Capital One Bank, Capital One, F.S.B., 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 $47.2 billion in deposits and $108.4 billion in managed loans outstanding as of June 30, 2006. Capital One, a Fortune 500 company, trades on the New York Stock Exchange under the symbol "COF" and is included in the S&P 500 index.

Advancing in the Aftermath III: Tracking the Recovery from Katrina and Rita Summary Results

The quarterly study by Dr. Loren C. Scott and sponsored by Capital One, N.A., Advancing in the Aftermath III: Tracking the Recovery from Katrina and Rita, attempts to benchmark the recovery of the hurricane-impacted regions of Louisiana and Mississippi. The full report is available at www.lorenscottassociates.com. Scott is professor emeritus of economics at Louisiana State University and president of Loren C. Scott & Associates, Inc.

Employment trends were among 12 key economic variables tracked in Scott's study (other economic indicators include housing reconstruction and repair, healthcare and hospitals, airport traffic and casino performance). Scott's study highlights economic recovery benchmarks for the following areas affected by hurricanes Katrina and Rita:

New Orleans MSA

• Within the seven-parish New Orleans MSA, Orleans and St. Bernard parishes remain the most affected and slowest to recover from Hurricane Katrina. In the New Orleans MSA, 515,249 homes were damaged by the storms, and 204,757 were left uninhabitable. The widespread flooding in these areas also has impeded recovery on a number of fronts, including difficulty of repairs and insurance settlement issues. Only 26 percent of homeowners in the New Orleans MSA had flood insurance.
• Road Home funds from the federal government intended to help fill the gap between insurance compensation and the actual cost of repair or replacement of a home were not available until April. The first checks were not issued until September.
• Employment has been on the upswing with the New Orleans MSA adding jobs at an average rate of 4,200 per month in the second quarter before slowing to an average of 450 per month over the past two months. Big companies are moving ahead with employment faster than smaller companies. Construction employment is slowly rebuilding. The pace is slow, according to Scott, because of the time it is taking for insurance funds to flow into the market, a dramatically reduced population, a shortage of labor exacerbated by the vastness of the destruction and the slow pace of federal aid. New large-scale construction projects have been announced but not started. Examples are $963 million for a new six-lane I-10 span over Lake Pontchartrain between eastern New Orleans and Slidell and $660 million to widen the Huey P. Long Bridge over the Mississippi River. Several new condominium projects and the rebuilding of public schools and other institutions will help account for the equivalent of 28 years of construction spending currently planned for the near term in the MSA, according to University of New Orleans research cited in the Scott report.
• Hospitals and healthcare are still on the critical list in New Orleans and St. Bernard, although other parishes in the New Orleans MSA have reopened most of their facilities. All areas, however, still face shortages of doctors and other healthcare professionals, according to Scott.
• Revenue at the area's casinos is up dramatically, increasing more than 30 percent from the same period a year ago for each of the gambling operations in the New Orleans MSA.
• Only 13 percent of the St. Bernard schools are open; 43 percent in Orleans parish. Most schools in other parishes within the MSA sustained less damage and are fully operational.
• Hotel occupancy is stabilizing, and the area has recovered about 75 percent of pre-Katrina hotel rooms, according to Scott.
• Sales tax collections in each month since the storms have been higher than the corresponding month of 2005, except in Orleans and St. Bernard parishes.
• The Port of New Orleans is operating at pre-Katrina total tonnage levels. Break-bulk cargo is up 28 percent, but container cargo is down 33 percent because of damage to facilities on the Industrial Canal. The Port of St. Bernard is 100 percent recovered. Cruise line activity is expanding.

Lake Charles MSA

• The Lake Charles MSA is the only area directly hit by Rita (although the storm did cause parts of New Orleans to re-flood).
• With the exception of lower Cameron Parish (the most sparsely populated parish in the state), Lake Charles experienced virtually no floodwater damage. This MSA is performing like most regions that suffer from a major natural disaster -- the construction sector has led a rather quick rebound from the effects of the storm. There were 47,384 homes damaged by Rita in this MSA. Of that total, 2,284 incurred severe damage, and 6,673 experienced major damage.
• After a decline of 6,100 jobs (6.7 percent) in October 2005, the area regained all of those jobs, plus some, within two months. Initially the MSA was setting employment records, but its year-over-year numbers have declined since May. In its August release, the Department of Labor estimated that employment was down in the Lake Charles area by 2,200 jobs since August 2005. Manufacturing employment was down by 1,400 jobs, or 15.4 percent. It was during this time that the Lyondell Chemical Plant closed. Plus, the aircraft repair firm EADS reduced its work force from about 350 down to 160 before selling to Aeroframe Services. Leisure and hospitality sector employment fell by 2,400 jobs or 17 percent over this time period mainly because of the loss of the two Harrah's riverboat casinos. Manufacturing employment in the MSA is down post-storm primarily because of a decline of 1,200 jobs in the chemical industry -- about one-fourth of that attributable to Lyondell Chemical, which employed 280 people when it closed.
• Housing remained largely intact in Lake Charles, alleviating the issue of living quarters for workers.
• Employment in the construction sector leapt right after the storms. By March, employment in this sector had risen by 3,600 jobs after reaching its low point in October 2005. As of August, this sector is still leading all others in the MSA in terms of growth, up 2,300 jobs, or 22.8 percent, from the 2005 level.
• The construction sector should be a key player in this region's growth. Lake Charles homeowners will receive a sizable chunk of the Road Home money when those checks are distributed later this year. Private insurance monies all will be spent on home and commercial establishments. The thrust in construction spending started in 2006 should continue well into 2008.
• Officials at Chennault Airpark will spend $40 million during the next two years to repair damage to hangars at the airfield. Delta Downs will spend about $12 million to repair hurricane damage. Plans have been announced for five significant industrial projects in this area.
• Hospitals in the Lake Charles MSA suffered varying degrees of damage, but, with the exception of South Cameron Memorial, all were reopened shortly after the storm.
• The Lake Charles Regional Airport now is operating a full commercial schedule. All commercial flights are arriving and departing from a temporary passenger terminal located near the original terminal. The new terminal will comprise approximately 65,000 square feet, compared to the present terminal with 44,000 square feet.
• Pinnacle Entertainment, which owns L'Auberge du Lac casino, has purchased both of Harrah's gaming licenses in Lake Charles. The company will use one to construct a new $350-million casino resort near L'Auberge du Lac called Sugarcane Bay Resort, which is scheduled to open in 2009. Sugarcane Bay will employ 1,500 to 1,600 workers. Pinnacle is required by the Justice Department to move the other license out of the Lake Charles market.
• By Oct. 31, 2005, all public schools in both Calcasieu and Cameron parishes were open.
• For the most part, the hotel industry in Lake Charles has recovered well from the aftermath of Rita, according to Scott, although he cited continued staffing problems. The MSA had 4,100 of the original 4,685 rooms open as of August. Two bright spots on the horizon are that L'Auberge du Lac will spend another $45 million next year to add a 250-room tower to its hotel complex, supporting 500 new permanent jobs, and Pinnacle's proposed Sugarcane Bay Resort will include another hotel.
• Sales tax collections in the Lake Charles MSA reflect the relatively large amount of money spent on home and business repairs and the replacement of vehicles damaged by the storm. Initially, between August and September of 2005, local sales taxes fell by a whopping $8.7 million, or 63 percent. Sales tax collections soared from only $5.1 million in September 2005 to $18.4 million the next month. In August 2006 -- though collection growth had retreated slightly -- tax receipts were still 13.6 percent higher than August 2005.
• The Port of Lake Charles escaped flooding by Rita. However, it did experience about $40 million in wind damage and initially had no power. Almost all repairs are now complete, and the port is expecting to spend more than $100 million on capital improvement projects over the next five years. Tonnage has not returned to pre-Rita levels. In fact, tonnage in August 2006 was about 166,500 tons lower than a year earlier, a decline of 19.6 percent. Breakbulk and bulk commodities like rice and lumber are actually up compared to last year. In March, the port loaded the largest volume of bagged goods in its 80-year history when one million bags of rice were loaded for shipment to the Philippines.

Biloxi-Gulfport MSA

• The Biloxi-Gulfport MSA is composed of three counties. Hancock and Harrison counties are located on the coast; Stone County, north and inland of them. Almost 60 percent of the homes in Mississippi that were destroyed were in this MSA. Most were in the two coastal counties, where water surges from the Gulf claimed many houses and businesses.
• Officials in Mississippi already have designed, received federal approval for, and implemented their federal housing assistance program and are issuing checks to homeowners.
• Since bottoming out in January, employment has more or less crept upward, rising by an average of only 370 jobs per month in the first seven months of 2006. However, that pace picked up in August with a much-faster 2,000-job addition. This improvement can be traced to the reopening of some large casinos on the coast. Pre-Katrina, this MSA was home to 13 casinos with a large hotel/restaurant support industry around it. The casino sector is still down 11,000 jobs year-over-year, but it was down by nearly 16,000 jobs at one time (January).
• Employment in the natural resources and construction sector is up by 6.6 percent. The natural resources part of this sector is quite small, so the job gains are most certainly concentrated in the construction sector -- not a surprising discovery given the volume of repair work under way in the region.
• Northrop Grumman's work force of 200 is fully back in Gulfport and may get a boost as a result of a new $2.5-billion contract with the Navy to build two additional amphibious assault ships. The area received good news when Edison Chouest Shipyards announced it is seriously considering opening a new shipyard along the Industrial Seaway in Gulfport. To be called GulfShip, this would involve an $18 million capital investment with a startup work force of 200 and ultimately as much as 600.
• The housing market is hot in the Biloxi-Gulfport MSA. After declining by 72 percent in the first three months after Katrina, housing permit activity has jumped dramatically, rising from only 46 permits in November to 488 in June. One reason for the high level of permitting activity is the sheer number of homes destroyed or damaged by the hurricane. The Reviving the Renaissance group is working on plans for a 4,200-unit development near Woolmarket that would be a mix of houses and apartments in the $120,000 price range, along with some retail development. It is estimated the complex would take about three years to build. Also, Congress has appropriated $314 million to build 1,067 homes at Keesler Air Force Base, the largest single appropriation of its kind in Air Force history.
• By Nov. 15, all seven hospitals in this MSA were operating at full service.
• Before Katrina, 11 casinos operated in the Biloxi-Gulfport MSA, and Hard Rock Casino was set to open along with the Silver Slipper. All of these remained closed until late December 2005, when the Imperial Palace reopened, followed by the Isle of Capri and the Palace Casino Resort. In August 2006, re-openings started to accelerate, so that by September 2006 eight of the casinos in this MSA were back in operation. New legislation allows shore-based gambling rather than river boat gambling. Eight additional new casinos have announced plans to enter the market.
• The Gulfport-Biloxi Regional Airport is making excellent strides toward returning to pre-Katrina activity levels, Scott reported. After declining by nearly 72 percent in the month after Katrina, enplanements are now only one percent below pre-storm levels.
• All of the public schools in this MSA are open. However, enrollment is 23.2 percent below pre-Katrina levels.
• This MSA had nearly 15,000 hotels rooms before Katrina. By the end of 2005, only 4,044 were opened. That number now has almost doubled to 7,698 as more casinos have opened along with their hotels.
• Employment in the leisure/hospitality sector initially declined from 30,500 in August 2005 to 23,400 in October 2005. Then another round of layoffs occurred when many of the casinos and restaurants, which had been carrying employees on the payroll, even though they were not working, finally released these workers, according to Scott. This led to a decline of 14,700 jobs from the August 2005 employment peak. Employment rose by only 360 per month in the first six months of 2006. However, employment has increased by a much faster 1,050 per month over the July-August period as more casinos have opened.
• After dropping markedly in September 2005, tonnage moving through the Port of Gulfport rebounded to the 30-40 percent level within two months. As of August 2006, import tonnage is still 41 percent below pre-Katrina levels, and export volume is 18 percent lower.
• One of the few strongly positive economic measurements in this MSA is sales tax collection. In August 2006, total MSA sales taxes were up 47.5 percent year-over-year, and in Harrison County collections were up more than 50 percent during that same period. Collections were smaller and recovered at slower rates in the other two counties in this MSA. In Stone County, collections were 29.8 percent higher year-over-year; in Hancock County, there are enough near-term building projects on the books in the New Orleans area to represent a 28-year construction cycle in normal times. Up 28 percent.

Pascagoula, Miss., MSA

• The Pascagoula MSA is composed of Jackson and George counties and is the smallest of the four MSAs covered in this report. Even post-storm New Orleans is nearly eight times larger than Pascagoula; Biloxi-Gulfport, about 60 percent larger; and Lake Charles, nearly 69 percent larger. Like Lake Charles, employment recovery has been rapid in Pascagoula, attributable largely to construction jobs, according to Scott.
• As of August 2006, the area had recovered all of the jobs lost post-Katrina and is even with August 2005. Job recovery is being largely driven largely by construction employment, as insurance monies and federal rebuilding assistance funds are pumped into the region. Pascagoula actually is doing better than Lake Charles in the trade, transportation and utilities sector, where Pascagoula is already showing job gains, and Lake Charles continues to show a small job loss of 200. Large employer Ingalls Shipyard has managed to get its employment back to about 12,000, a decline of more than 1,000 from pre-Katrina levels and a drop that largely explains the 1,400-job deficit that still exists in this sector as of August. The firm is very much in the hiring mode, but employee housing remains a persistent problem, with workers still living in temporary quarters at the shipyard or nearby.
• In 2006, construction employment has stabilized at a new level of 2,800 jobs, about 300 jobs higher than a year earlier. Even though insurance settlements and government grant monies are flowing into the MSA, construction employment has hardly varied from this new 2,800-person plateau.
• Housing permit activity in this MSA has been far more volatile post-Katrina than pre-Katrina. Only one permit was issued in the MSA in the month following the storm. With the exception of the November 2005, March 2005 and May 2005, permit activity has varied little from the previous year. The difference between July 2005 and July 2006 was only three permits. Nearly 50,000 homes were negatively impacted by the storm. Rebuilding that kind of destruction should boost permit activity considerably in the future.
• All three of the hospitals in this MSA were operating by Sept. 5, although initially they were just seeing patients in the emergency room.
• The hotel sector in the Pascagoula MSA is well on its way to full recovery from the effects of Katrina. This is a much smaller hotel market than the nearby Biloxi-Gulfport MSA, where there were 14,880 rooms pre-Katrina. This MSA's hotel industry provided 2,654 rooms pre-Katrina. As of September, 91.2 percent of those rooms are back on the market.
• All of the public schools in George County reopened Sept. 14, 2006, and all Jackson County public schools reopened Oct. 3.
• All repairs to port facilities in both harbors are complete, with the exception of the freezer at Terminal A. An expansion at the port which will double its capacity is in progress. Completion of the freezer should bring this port up to 100 percent. Vessel traffic is already back to pre-Katrina levels.
• Sales tax collection data for August indicate a decline, but collections were still nearly $3.2 million, or 29.2 percent, higher than in August 2005. Detailed data by county reveal that August collections in Jackson County were up 42.9 percent and, in George County, were up 24.7 percent compared to August 2006.

Special Section: Oil and Gas Production in the Gulf of Mexico

Hurricanes Katrina and Rita cut a swath through the heart of the Gulf of Mexico offshore oil and natural gas production activity. Katrina swept over about 1,300 offshore platforms, and Rita covered about 1,600.

• In the case of Katrina, 95.2 percent of the crude oil and 88 percent of the natural gas production was shut-in by August 30. By September 9, the shut-in rates had dropped to about 56-58 percent for oil and about 33-37 percent for natural gas.
• When Rita appeared, because it made landfall further to the west and more into the center of the Gulf of Mexico production region, 100 percent of crude and 80 percent of natural gas was shut-in.
• The latest, and last, Minerals Management Service report on shut-in data in the Gulf show that as of June 6, 2006, 12 percent of the oil and 9.3 percent of natural gas production remains shut-in.

Special Section: Impact of Katrina and Rita on the Banking Sector

The FDIC has collected key statistics on banks in the affected areas. These data are reported by the banks through the second quarter of 2006.

• It is obvious that the impacts of Katrina and Rita were far harsher on banks in Louisiana than those in Mississippi, although banks in both states were dealt a substantial blow. In the final quarter of 2005, the return on assets (ROA) for Louisiana banks plummeted to only 0.21. The ROA for Mississippi banks fell as well but bottomed out at 0.90 in 2005.
• In some parishes/counties there was minimal to no damage as a result of hurricanes Katrina and Rita. For mortgages secured in this zone as of March 1, 2006, unless a servicer had determined that extended forbearance was appropriate for a particular mortgage, normal foreclosure and property protection activities were to be resumed.
• In parishes/counties that sustained moderate damage, mortgage lenders were to continue to obtain Freddie Mac approval for the initiation and resumption of foreclosure proceedings and any lender-initiated property preservation work.
• In parishes/counties that sustained significant damage, Freddie Mac extended the suspension period for foreclosure proceedings through the end of May 2006 and required that, once the suspension period expired, servicers were to obtain Freddie Mac approval before initiating or resuming foreclosure on a mortgage.
• Freddie Mac has added two other dimensions to this minimum, moderate and significant three-zone protocol. First, pre-payment penalties were waived in all situations for mortgages secured in these zones. Secondly, regardless of zone designation, servicers were to perform individual assessments to determine if forbearance in the form of suspension of payment or reduction in payment was warranted. Servicers could ask for up to 12 months of relief where warranted.
• One unusual impact of the storms has been the impact on core deposit growth rates at banks in the hardest-hit areas. Core deposits are total deposits less time deposits over $100,000 or more. The rapid rise in this key financial variable reflects primarily the receipt of insurance proceeds for damaged homes and businesses, plus emergency relief funds. Growth has been greater in the Mississippi market than in Louisiana, perhaps because (1) homeowner insurance claims have been settled faster there, (2) Road Home monies have been distributed in Mississippi and not in Louisiana.
• The large increase in core deposits indicates that banks in the region were blessed with a high degree of liquidity. Normally, that liquidity can be put to work in high-yield loans, which contribute to banks' bottom line. After dropping in 2005, loan growth has returned to pre-storm levels for Mississippi banks in the hardest-hit areas. Such a rebound has not occurred at Louisiana banks in the strike zone. The downward trend in loan growth has continued through 2006. The problem for Louisiana banks in this zone is the decimated customer base caused by the housing shortage and business destruction, Scott said.
• Loan growth was not enough to absorb the deposit growth. That meant banks in this region had available cash. Despite being forced into placing much of their excess funds in lower-earning government securities, as compared to loans, the net interest margin did not suffer all that much. The report explains that the great majority of the increase in core deposits was going into low-interest or non-interest-bearing checking accounts.

CONTACT: Capital One Financial Corporation, McLean
Steven Thorpe, 504-533-2753
steven.thorpe@capitalonebank.com
SOURCE: Capital One Financial Corporation