Capital One Reports First Quarter 2010 Net Income of $636.3 million, or
$1.40 per share (diluted), up from a Loss of $(0.44) in the First
Quarter of 2009
Printer Friendly Version of the Press Release (pdf format)
Printer Friendly Version of the Financial Supplement (pdf format)
Printer Friendly Version of the Earnings Conference Call Presentation
Revenues of $4.3 billion were up $554.0 million, or 14.8 percent, as
compared to same quarter a year ago
Full Story
Capital One Financial Corporation has announced net income for the first
quarter of 2010 of $636.3 million, or $1.40 per common share (diluted),
versus fourth quarter 2009 net income of $375.6 million, or $0.83 per
common share (diluted). This compares with a loss in the first quarter
of 2009 of $(172.3) million, or $(0.44) per share (diluted).
Highlights compared to Fourth Quarter 2009
Revenue declined $79.3 million, or 1.8 percent, due to a $4.0 billion,
or 2.9 percent, decline in average loans
Provision expense declined $368.6 million driven by improving
charge-offs and an allowance release
Tangible common equity to tangible managed assets, or “TCE ratio,”
increased to 5.5 percent, up 78 basis points from the pro-forma December
31, 2009 ratio of 4.8 percent.
“We’ve demonstrated our resilience through the most challenging economic
cycle we’ve seen in generations, and we believe that charge-offs in our
consumer lending businesses likely peaked in the first quarter,” said
Richard D. Fairbank, Capital One’s Chairman and Chief Executive Officer.
“While legislative and regulatory uncertainty remains, we believe that
we are well-positioned to ramp up our businesses as we emerge from the
recession, and to deliver strong and sustainable returns over the long
term.”
Total Company Managed Results
Total revenue in the first quarter of 2010 declined $79.3 million, or
1.8 percent, from the fourth quarter of 2009 to $4.3 billion as an
improvement in margin partially offset a 2.9 percent decline in average
loans. Non-interest income decreased $137.4 million in the first
quarter, or 11.5 percent relative to the prior quarter, while net
interest income increased $58.1 million, or 1.8 percent.
Net interest margin increased 20 basis points in the quarter to 7.1
percent, driven by a 17 basis point decrease in the cost of funds and a
3 basis point increase in loan yields.
Provision expense decreased $368.6 million from the prior quarter, or
20.0 percent, driven by lower charge-offs and an allowance release of
$566 million. Total charge-offs in the quarter fell as improvements in
the company’s commercial, auto finance, and retail banking businesses
more than offset a slight increase in domestic card charge-offs.
The company released $566 million of allowance through provision expense
in the first quarter of 2010. On January 1, 2010, the company built its
allowance by $4.3 billion resulting in a $2.9 billion after-tax impact
to retained earnings and the creation of a $1.6 billion deferred tax
asset as a result of the adoption of FAS 167. This compares to a release
of $386 million in the fourth quarter of 2009. The allowance as a
percentage of outstanding loans was 5.96 percent at the end of the first
quarter of 2010 as compared with 4.55 percent at the end of the prior
quarter.
Average total deposits during the quarter were $117.5 billion, an
increase of $2.9 billion, or 2.6 percent, over the prior quarter.
Period-end total deposits increased by $2.0 billion to $117.8 billion.
The cost of interest-bearing liabilities decreased to 1.96 percent in
the first quarter from 2.16 percent in the prior quarter. The overall
cost of funds declined 17 basis points to 1.76 percent in the first
quarter.
Period-end total managed assets decreased by 5.4 percent from the fourth
quarter of 2009 to $200.7 billion at the end of the first quarter of
2010. The decline was driven primarily by reductions in loans held for
investment. Loans declined $6.7 billion, or 4.9 percent, during the
first quarter primarily as a result of charge-offs and the expected
run-off of loans in businesses the company exited or repositioned
earlier in the recession. Run-off businesses include Installment Loans
in the Credit Card segment and Mortgages in the Consumer Banking segment.
Non-interest expenses of $1.8 billion decreased $100.3 million in the
first quarter of 2010 from the prior quarter, driven primarily by
reduced operating expenses across the business.
The company’s TCE ratio increased to 5.5 percent, up 78 basis points
from the fourth quarter 2009 pro forma ratio of 4.8 percent after
consolidation for FAS 167. The Tier 1 risk-based capital ratio of
approximately 9.6 percent decreased 300 basis points relative to the pro
forma FAS 167 ratio of 9.9 percent, and remains comfortably above the
regulatory well-capitalized minimum.
“Capital One posted strong bottom-line results in the quarter, as
modestly improved pre-provision earnings were bolstered by lower
provision expenses,” said Gary L. Perlin, Capital One’s Chief Financial
Officer. “As we begin to emerge from the challenging economic
environment, our strong and flexible balance sheet continues to position
us well to take advantage of profitable growth opportunities.”
Impacts from Consolidation on Reported Balance Sheet
Effective January 1, 2010, Capital One adopted two new accounting
standards (FAS 166 and 167) that resulted in the consolidation of the
company’s credit card securitization trusts. The adoption of these new
accounting standards resulted in the addition of approximately $41.9
billion of assets, consisting primarily of credit card loan receivables,
and a reduction of $2.9 billion in stockholders’ equity as of January 1,
2010.
The adoption of these new accounting standards does not have a
significant impact on the ability to compare the company’s results to
prior periods on a “managed” basis; however, it does limit the
comparability of the company’s reported financial results subsequent to
January 1, 2010 with its reported financial results prior to January 1,
2010. Because of the January 1, 2010, adoption of the new consolidation
accounting standards, the company’s reported results subsequent to
January 1, 2010 will be comparable with its results on a “managed” basis.
Segment Results
The company reports the results of its business through three operating
segments: Credit Card, Commercial Banking, and Consumer Banking. Please
refer to the Financial Supplement for additional details.
Credit Card Highlights
For details on the sub-segments’ results, please refer to the Financial
Supplement.
Revenues relative to the prior quarter:
Domestic Card – down $91.7 million, or 3.6 percent
International Card – down $2.8 million, or 0.8 percent
Revenue margin in the Domestic Card sub-segment was 17.1 percent in the
first quarter, compared to 17.0 percent in the prior quarter. The
company expects quarterly Domestic Card revenue margin to decline over
the next several quarters to around 15 percent by early 2011.
Period-end loans in the Domestic Card segment were $56.2 billion in the
first quarter, a decline of $4.1 billion, or 6.8 percent, from the prior
quarter.
International credit card loans declined in the quarter by $645.7
million, or 7.9 percent, to $7.6 billion.
Domestic Card provision expense increased $62.9 million in the first
quarter, or 6.1 percent, relative to the prior quarter. Net charge-offs
increased $74.0 million relative to the prior quarter, partially offset
by an increase in allowance release of $11 million. International card
provision expense decreased $92.4 million, or 53.9 percent.
Net charge-off rates relative to the prior quarter:
Domestic Card – increased 89 basis points to 10.48 percent from 9.59
percent
International Card – decreased 69 basis points to 8.83 percent from 9.52
percent
Delinquency rates relative to the prior quarter:
Domestic Card – decreased 48 basis points to 5.30 percent from 5.78 percent
International Card – decreased 16 basis points to 6.39 percent from 6.55
percent
Commercial Banking Highlights
For more lending information and statistics on the segment results,
please refer to the Financial Supplement.
The Commercial Banking segment consists of commercial and multi-family
real-estate, middle market lending, and specialty lending, which are
summarized under Commercial Lending, and small ticket commercial real
estate.
Period-end loans in Commercial Banking were $29.6 billion, essentially
even with the prior quarter
Average deposits increased $2.4 billion, or 12.6 percent, to $21.9
billion during the first quarter from $19.4 billion during the prior
quarter, while the deposit interest expense rate declined to 72 basis
points.
Provision expense decreased $130.3 million relative to the prior
quarter. Net charge-offs decreased $115.7 million in the first quarter,
and the level of allowance build relative to the prior quarter was
reduced by $11.9 million.
Non-performing asset rate relative to the prior quarter:
Total Commercial Banking – 2.64 percent, an increase of 12 basis points
Commercial lending – 2.52 percent, an increase of 19 basis points
Small ticket commercial real estate – 4.18 percent, a decrease of 69
basis points
Consumer Banking highlights
For more lending information and statistics on the segment’s results,
please refer to the Financial Supplement.
Period-end loans relative to the prior quarter:
Auto – declined $739.6 million, or 4.1 percent, to $17.4 billion. The
decline reflects continued impact of repositioning the business earlier
in the recession.
Mortgage – declined $926.7 million, or 6.2 percent, to $14.0 billion.
Mortgage loans continued to reflect expected run off in the portfolio.
Retail banking – declined $165.5 million, or 3.2 percent, to $5.0 billion.
Average deposits in Consumer Banking increased $2.1 billion, or 2.9
percent, to 75.1 billion during the first quarter from $73.0 billion in
the prior quarter. Improved deposit mix, disciplined deposit pricing and
favorable interest rates drove a 14 basis point improvement in the
deposit interest expense rate in the fourth quarter.
Net charge-off rates relative to the prior quarter:
Auto – 2.97 percent, a decrease of 1.58 basis points
Mortgage – 0.94 percent, an increase of 22 basis points
Retail banking – 2.11 percent, a decrease of 82 basis points
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). The reconciliation of such measures to the comparable
GAAP figures are included in the Company’s Form 10-K for the fiscal year
ended December 31, 2009, and in its current report on Form 8-K filed
April 22, 2010, which are available on Capital One’s homepage,
http://www.capitalone.com/
About Capital One
Capital One Financial Corporation (http://www.capitalone.com/) is a
financial holding company whose subsidiaries, which include Capital One,
N.A. and Capital One Bank (USA), N. A., had $117.8 billion in deposits
and $200.7 billion in total managed assets outstanding as of March 31,
2010. Headquartered in McLean, Virginia, Capital One offers a broad
spectrum of financial products and services to consumers, small
businesses and commercial clients. Capital One, N.A. has approximately
1,000 branch locations primarily in New York, New Jersey, Texas,
Louisiana, Maryland, Virginia, and the District of Columbia. A Fortune
500 company, Capital One trades on the New York Stock Exchange under the
symbol “COF” and is included in the S&P 100 index.
