Including the impact of TARP, loss per share in the second quarter was $0.65 (diluted)
MCLEAN, Va., July 23 /PRNewswire-FirstCall/ --
Second Quarter Highlights
- Managed revenue increased 11.2 percent relative to the first quarter of 2009.
- Lower provision expense relative to the first quarter as an increase in charge-offs was more than offset by an allowance release of $166.2 million.
- The allowance release was due to a $4.5 billion reduction in reported loan balances.
- Allowance as a percentage of reported loans for the company remained stable and strong at 4.84 percent.
- Pre-tax results included an expense of $80.5 million for the FDIC special assessment.
- Repurchased the $3.6 billion of preferred stock issued through Treasury's Capital Purchase Program (CPP) of the Troubled Asset Relief Program (TARP).
- Tangible common equity to tangible managed assets, or "TCE ratio," increased to 5.7 percent, up 90 basis points from the March 31, 2009, ratio of 4.8 percent.
Capital One Financial Corporation (NYSE: COF) today announced net income for the second quarter of 2009 of $224.2 million, or $0.53 per common share (diluted) prior to the impact of the government's TARP preferred share investment. After including the $461.7 million impact of the June redemption of the preferred shares and the $38.0 million dividend payment on those shares in the quarter, Capital One posted a net loss available to common shareholders of $0.65 per common share (diluted).
"Second quarter results reflect the economic environment and our actions to decisively manage the company through the downturn for the benefit of our shareholders," said Richard D. Fairbank, Capital One's Chairman and Chief Executive Officer. "Despite turbulence in the marketplace, we believe that we remain well positioned to weather the storm, deliver shareholder value over the cycle, and achieve our vision of combining great local banking franchises with a high return credit card business."
Total Company Results
- Total managed revenues in the second quarter of 2009 of $4.1 billion increased $418.2 million, or 11.2 percent, relative to the first quarter. Net interest income increased $215.4 million in the second quarter while non-interest income increased $202.8 million. The increase in revenue was driven by a number of factors, including a full quarter of Chevy Chase Bank results and an improvement in both net interest and revenue margins.
- Provision expense was down $228.1 million quarter over quarter as the expected increase in charge-offs in the second quarter was more than offset by the $166.2 million allowance release in the quarter versus an increase in allowance of $124.1 million in the first quarter.
- The allowance release was driven by a reduction in reported loan balances of $4.5 billion.
- Allowance as a percentage of reported loans remained at 4.84 percent in the second quarter and increased 143 basis points from the second quarter of 2008.
- The full quarter effect of Chevy Chase Bank increased average deposits in the quarter by $7.5 billion, while total deposits on June 30, 2009, were $116.7 billion, a decline of $4.4 billion, or 3.6 percent, over the prior quarter, as the company allowed higher cost deposits to run-off as loans contracted in the quarter.
- Deposits represented 65.0 percent of the company's total funding at the end of the second quarter.
- Interest-bearing deposit costs decreased from 2.51 percent in the first quarter to 2.08 percent in the second quarter.
- The weighted average cost of funds decreased by 36 basis points, from 2.76 percent in the first quarter to 2.40 percent in the second quarter.
- Managed loans held for investment decreased by $4.1 billion, or 2.7 percent, from the first quarter of 2009 to $146.3 billion at June 30, 2009, and decreased $996.0 million, or 0.7 percent, from the year ago quarter, primarily as a result of the weak economic environment.
- Non-interest expense increased $176.7 million in the second quarter of 2009 as compared to the first quarter, primarily as a result of an expense of $80.5 million for the FDIC special assessment, which is recorded in the "Other" category, and from a full quarter of Chevy Chase Bank expenses.
- The managed efficiency ratio decreased 103 basis points to 45.28 percent in the second quarter of 2009 from 46.31 percent in the first quarter of 2009.
- The company's TCE ratio was 5.7 percent on June 30, 2009, an improvement of 90 basis points from the first quarter level of 4.8 percent. The Tier 1 risk-based capital ratio of an estimated 9.7 percent reflects impact of the repayment of TARP preferred shares in the second quarter and continues to be well above the regulatory well-capitalized minimum.
"Our capital strength was evident in the quarter as we repaid the government's preferred share investment and increased our Tangible Common Equity ratio by 90 basis points to 5.7 percent," said Gary L. Perlin, Capital One's Chief Financial Officer. "In addition, the company's strong deposit franchise helped drive margin expansion through lower funding costs and will continue to serve as a cornerstone of our rock-solid balance sheet."
Segment Results
Local Banking Segment highlights
The Local Banking business posted a net loss of $0.2 million in the second quarter of 2009, an improvement of $36.0 million from the first quarter of 2009. (The results of Chevy Chase Bank are reported in the "Other" category.) The revenue increase in the quarter resulted from favorable loan and deposit pricing, higher average deposit balances, and improving deposit mix. Increases in non-performing loans and charge-offs in the Commercial Lending portfolio were driven primarily by worsening in the Middle Market portfolio, while increases in the Consumer charge-offs and non-performing loans were attributed to falling home prices in the residential mortgage portfolio.
- Local Banking reported a net loss for the second quarter of 2009 of $0.2 million, versus a net loss in the first quarter of 2009 of $36.2 million.
- Revenues improved $43.3 million, or 5.5 percent, primarily due to an increase in deposit margins. Operating expenses increased $11.6 million relative to the first quarter of 2009.
- Local Banking deposits declined $612.5 million, or 0.8 percent, during the second quarter of 2009 to $78.5 billion, while the net interest margin on deposits increased by 21 basis points to 2.08 percent.
- Loans held for investment of $43.7 billion declined $795.7 million, or 1.8 percent, from the first quarter of 2009, primarily driven by the continued run-off of residential mortgage loans, and a decline in small business lending.
- The net charge-off rate increased 34 basis points to 1.10 percent in the second quarter of 2009 from 76 basis points in the first quarter of 2009, primarily as a result of the continuing difficult credit environment.
- Non-performing loans as a percentage of loans held for investment was 2.35 percent, an increase of 58 basis points from 1.77 percent at the end of the first quarter of 2009. The Commercial Loan portfolio's rate increased 47 basis points in the quarter while Consumer Lending's rate increased 78 basis points.
National Lending Segment highlights
The National Lending segment contains the results of the company's U.S. Card, Auto Finance and International Lending businesses. For details on each of these subsegments' results, please refer to the Financial Supplement.
National Lending reported a profit of $270.8 million in the second quarter, up from $75.9 million in the prior quarter, but down relative to $407.6 million in the year ago quarter. Each business within National Lending also reported a profit in the second quarter of 2009 - U.S. Card delivered $168.4 million, the Auto Finance business reported $97.2 million, and International contributed $5.2 million.
Performance in the National Lending segment primarily reflects expected continued economic deterioration during the second quarter, although the pace of deterioration was partially offset by seasonal benefits and the company's ongoing efforts to aggressively manage credit risk.
- National Lending segment revenues of $3.1 billion were up $11.5 million in the second quarter of 2009 compared to the first quarter of 2009, but down $253.7 million compared to the second quarter of 2008.
- Revenue margin expanded from 12.43 percent in the first quarter of 2009 to 13.03 percent in the second quarter for National Lending. The individual businesses also reported revenue margin expansion. The company now expects the full year U.S. Card revenue margin to be a bit below 15 percent.
- The managed net charge-off rate for the National Lending segment increased 49 basis points in the second quarter of 2009 to 8.04 percent from 7.55 percent in the first quarter of 2009.
- U.S. Card - 9.23 percent, an increase of 84 basis points over the
first quarter of 2009
- Auto Finance - 3.65 percent, a decline of 123 basis points from the
first quarter
- International - 9.32 percent, an increase of 202 basis points over
the first quarter of 2009
- The delinquency rate for the segment was 5.82 percent as of June 30, 2009, an increase of 12 basis points from 5.70 percent as of March 31, 2009.
- U.S. Card - 4.77 percent, a decline of 31 basis points over the
first quarter of 2009
- Auto Finance - 8.89 percent, an increase of 137 basis points from
the first quarter
- International - 6.69 percent, an increase of 44 basis points over
the first quarter of 2009
- Managed loans held for investment declined $2.5 billion, or 2.6 percent, to $93.3 billion from $95.8 billion at the end of the first quarter of 2009, and down 8.7 percent relative to the year-ago quarter.
- U.S. Card - declined $2.3 billion, or 3.4 percent, to $64.8 billion
- Auto Finance - declined $765.5 million, or 3.7 percent, to $19.9
billion
- International - increased $568.5 million, or 7.0 percent, to $8.6
billion
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 July 23, 2009; and the company's plans, objectives, expectations, and intentions, are forward-looking statements. Actual results could differ materially from current expectations due to a number of factors, including: general economic conditions in the U.S., the UK, or the company's local markets, including conditions affecting consumer income, confidence, spending, and savings which may affect consumer bankruptcies, defaults, charge-offs, deposit activity, and interest rates; changes in the labor and employment market; changes in the credit environment; the company's ability to execute on its strategic and operational plans; competition from providers of products and services that compete with the company's businesses; increases or decreases in the company's aggregate accounts and balances, or the growth rate and/or composition thereof; changes in the reputation of or expectations regarding the financial services industry or the company with respect to practices, products or financial condition; financial, legal, regulatory, tax or accounting changes or actions, including with respect to any litigation matter involving the company; and the success of the company's marketing efforts in attracting or retaining customers. A discussion of these and other factors can be found in the company's annual report and other reports filed with the Securities and Exchange Commission, including, but not limited to, the company's reports on Form 10-K for the fiscal year ended December 31, 2008 and report on Form 10-Q for the quarter ended March 31, 2009.
About Capital One
Capital One Financial Corporation (www.capitalone.com) is a financial holding company whose subsidiaries, which include Capital One, N.A., Capital One Bank (USA), N. A., and Chevy Chase F.S.B. collectively, had $116.7 billion in deposits and $146 billion in managed loans outstanding as of June 30, 2009. 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. and Chevy Chase Bank, F.S.B. have 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.
NOTE: Second quarter 2009 financial results, SEC Filings, and earnings conference call slides are accessible on Capital One's home page (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 podcast and 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 share 2009 2009 2008
data and as noted) Q2 Q1(8) Q2
------- ------- -------
Earnings (Reported Basis)
Net Interest Income $1,946.6 $1,786.8 $1,727.8
Non-Interest Income (2) 1,231.7 (5) 1,090.3 1,622.3 (5)
------- ------- -------
Total Revenue (1) 3,178.3 2,877.1 3,350.1
Provision for Loan Losses 934.0 1,279.1 829.1
Marketing Expenses 134.0 162.7 288.1
Restructuring Expenses 43.4 17.6 13.6
Operating Expenses (3) 1,744.4 (9) 1,564.8 1,517.9
------- ------- -------
Income (Loss) Before Taxes 322.5 (147.1) 701.4
Tax Rate 28.6% 40.9% 34.1%
Income (Loss)From Continuing
Operations, Net of Tax $230.2 $(86.9) $462.5
Loss From Discontinued
Operations, Net of Tax (6.0) (25.0) (9.6)
---- ----- ----
Net Income (Loss) $224.2 $(111.9) $452.9
------ ------- ------
Net Income (Loss) Available to
Common Shareholders (F) $(275.5)(11) $(176.1) $452.9
------------------------ ------- ------- ------
Common Share Statistics
Basic EPS: (G)
Income (Loss) From
Continuing Operations $(0.64) $(0.39) $1.24
Loss From Discontinued
Operations $(0.01) $(0.06) $(0.03)
------ ------ ------
Net Income (Loss) $(0.65) $(0.45) $1.21
Diluted EPS: (G)
Income (Loss) From
Continuing Operations $(0.64) $(0.39) $1.24
Loss From Discontinued
Operations $(0.01) $(0.06) $(0.03)
------ ------ ------
Net Income (Loss) $(0.65) $(0.45) $1.21
Dividends Per Common Share $0.05 $0.375 $0.375
Tangible Book Value Per Common
Share (period end) $25.34 $25.11 $30.77
Stock Price Per Common Share
(period end) $21.88 $12.24 $38.01
Total Market Capitalization
(period end) $9,826.3 $4,806.6 $14,280.4
Common Shares Outstanding
(period end) 449.1 392.7 375.7
Shares Used to Compute
Basic EPS 421.9 390.5 372.3
Shares Used to Compute
Diluted EPS 421.9 390.5 373.7
------------ ----- ----- -----
Reported Balance Sheet
Statistics
(period average) (A)
Average Loans Held for
Investment $105,278 $103,445 $97,950
Average Earning Assets $151,400 $145,374 $131,629
Average Assets $177,589 $168,454 $154,288
Average Interest Bearing
Deposits $107,040 $100,852 $78,675
Total Average Deposits $119,611 $112,138 $89,522
Average Equity $27,658 (7),(10) $27,002 $24,839
Return on Average Assets (ROA) 0.52% (0.21)% 1.20%
Return on Average Equity (ROE) 3.33% (1.29)% 7.45%
----------------------------- ---- ----- ----
Reported Balance Sheet
Statistics (period end) (A)
Loans Held for Investment $101,074 $105,527 $97,065
Total Assets $171,865 $177,357 $150,978
Interest Bearing Deposits $104,121 $108,696 $81,655
Total Deposits $116,724 $121,119 $92,407
-------------- -------- -------- -------
Performance Statistics
(Reported) (A)
Net Interest Income Growth
(annualized) 36% (3)% (19)%
Non Interest Income Growth
(annualized) 52% (81)% (84)%
Revenue Growth (annualized) 42% (37)% (54)%
Net Interest Margin 5.14% 4.92% 5.25%
Revenue Margin 8.40% 7.92% 10.18%
Risk Adjusted Margin (B) 5.44% 4.90% 7.77%
Non Interest Expense as a %
of Average Loans Held for
Investment (annualized) 7.30% 6.75% 7.43%
Efficiency Ratio ( C ) 59.10% 60.04% 53.91%
---------------------- ----- ----- -----
Asset Quality Statistics
(Reported) (A)
Allowance $4,482 $4,648 $3,311
Allowance as a % of Reported
Loans Held for Investment 4.84%(4) 4.84%(4) 3.41%
Net Charge-Offs $1,119 (4) $1,097(4) $793
Net Charge-Off Rate 4.66%(4) 4.41%(4) 3.24%
Delinquency Rate (30+ days) 4.04%(4) 3.99%(4) 3.43%
-------------------------- ---- ---- ----
Full-time equivalent
employees (in thousands) 26.6 27.5 24.0
------------------------ ---- ---- ----
CAPITAL ONE FINANCIAL CORPORATION (COF)
FINANCIAL & STATISTICAL SUMMARY
MANAGED BASIS (*)
2009 2009 2008
(in millions) Q2 Q1 (8) Q2
------------- ------- ------ -------
Earnings (Managed Basis)
Net Interest Income $2,959.2 $2,743.8 $2,788.0
Non-Interest Income (2) 1,189.0 (5) 986.2 1,302.0 (5)
------- ----- -------
Total Revenue (1) 4,148.2 3,730.0 4,090.0
Provision for Loan Losses 1,903.9 2,132.0 1,569.0
Marketing Expenses 134.0 162.7 288.1
Restructuring Expenses 43.4 17.6 13.6
Operating Expenses (3) 1,744.4 (9) 1,564.8 1,517.9
------- ------- -------
Income (Loss) Before
Taxes 322.5 (147.1) 701.4
Tax Rate 28.6% 40.9% 34.1%
Income (Loss) From
Continuing Operations,
Net of Tax $230.2 $(86.9) $462.5
Loss From Discontinued
Operations, Net of Tax (6.0) (25.0) (9.6)
---- ----- ----
Net Income (Loss) $224.2 $(111.9) $452.9
------ ------- ------
Net Income (Loss)
Available to Common
Shareholders (F) $(275.5)(11) $(176.1) $452.9
-------------------- ------- ------- ------
Managed Balance Sheet
Statistics
(period average) (A)
Average Loans Held for
Investment $148,609 $147,385 $147,716
Average Earning Assets $191,804 $186,817 $179,421
Average Assets $218,325 $210,133 $203,308
Return on Average Assets
(ROA) 0.42% (0.17)% 0.91%
------------------------ ---- ----- ----
Managed Balance Sheet
Statistics
(period end) (A)
Loans Held for Investment $146,251 $150,335 $147,247
Total Assets $214,095 $219,883 $200,420
Tangible Assets(D) $200,110 $206,161 $187,059
Tangible Common Equity (E) $11,379 $9,862 $11,560
Tangible Common Equity to
Tangible Assets Ratio (H) 5.69%(6) 4.78% 6.18%
% Off-Balance Sheet
Securitizations 31% 30% 34%
-------------------- -- -- --
Performance Statistics
(Managed) (A)
Net Interest Income
Growth (annualized) 31% (3)% (25)%
Non Interest Income
Growth (annualized) 82% (67)% (76)%
Revenue Growth
(annualized) 45% (22)% (43)%
Net Interest Margin 6.17% 5.87% 6.22%
Revenue Margin 8.65% 7.99% 9.12%
Risk Adjusted Margin (B) 4.29% 3.72% 5.70%
Non Interest Expense as a
% of Average Loans Held
for Investment
(annualized) 5.17% 4.74% 4.93%
Efficiency Ratio ( C ) 45.28% 46.31% 44.16%
---------------------- ----- ----- -----
Asset Quality Statistics
(Managed) (A)
Net Charge-Offs $2,089 (4) $1,991(4) $1,533
Net Charge-Off Rate 6.00%(4) 5.52%(4) 4.15%
Delinquency Rate
(30+ days) 4.34%(4) 4.36%(4) 3.64%
--------------------- ---- ---- ----
(*) 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) 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: Q2 2009 - $571.9 million,
Q1 2009 - $544.4 million and Q2 2008 - $476.0 million.
(2) Includes the impact from the decrease in fair value of retained
interests, including the interest-only strips, of $127.0 million in
Q2 2009, $128.0 million in Q1 2009 and $71.7 million in Q2 2008.
(3) Includes core deposit intangible amortization expense of $57.4
million in Q2 2009, $49.2 million in Q1 2009 and $48.5 million in Q2
2008, and integration costs of $8.8 million in Q2 2009, $23.6 million
in Q1 2009 and $27.4 million in Q2 2008.
(4) Excludes the impact from the Chevy Chase Bank, FSB acquired loan
portfolio. See accompanying schedule Impact of Chevy Chase Bank, FSB
(CCB) Acquisition.
(5) In Q2 2009 and 2008 the Company elected to convert and sell 404,508
shares and 154,991 shares of MasterCard class B common stock,
respectively. The Company recognized gains of $65.5 million and $44.9
million in non-interest income from those transactions, respectively.
(6) The Q2 2009 TCE ratio reflects the issuance of 56,000,000 common
shares on May 14, 2009 at $27.75 per share.
(7) Average equity includes the impact of the Company's participation
in the U.S. Treasury's Capital Purchase Program. On June 17, 2009,
the Company repurchased all 3,555,199 preferred shares issued in Q4
2008 for approximately $3.57 billion, including accrued dividends.
The warrants to purchase common shares of $491.5 million remain
outstanding and are included in paid-in capital on the balance sheet.
(8) Effective February 27, 2009 the Company acquired Chevy Chase Bank,
FSB for $475.9 million, which included $9.8 billion in loans and
$13.6 billion in deposits. The Company paid cash of $445.0 million
and issued 2.6 million shares valued at $30.9 million.
(9) Includes the FDIC Special Assessment of $80.5 million.
(10) Average equity includes the impact of the issuance of 56,000,000
common shares on May 14, 2009 at $27.75 per share.
(11) The calculation of net income (loss) available to common
shareholders includes the impact from dividends on preferred shares
of $38.0 million and from the accretion of the discount on preferred
shares of $461.7 million. With the repayment of the preferred shares
to the U.S. Treasury, the remaining accretion was accelerated to Q2
2009 and treated as a dividend.
STATISTICS / METRIC DEFINITIONS
(A) Based on continuing operations. Average equity and return on equity
are based on the Company's stockholders' equity.
(B) Risk adjusted margin equals total revenue less net charge-offs as a
percentage of average earning assets.
( C ) Efficiency ratio equals non-interest expense less restructuring
expense divided by total revenue.
(D) Tangible assets include managed assets less intangible assets and is
considered a non-GAAP measure. See accompanying schedule
Reconciliation To GAAP Financial Measures for a reconciliation of
tangible assets.
(E) Includes stockholders' equity less preferred shares less intangible
assets and related deferred tax liabilities. Tangible Common
Equity on a reported and managed basis is the same and is considered
a non-GAAP measure. See accompanying schedule Reconciliation To GAAP
Financial Measures for a reconciliation of tangible common equity.
(F) Net income (loss) available to common shareholders equals net
income (loss) less dividends on preferred shares.
(G) Earnings per share is based on net income (loss) available to
common shareholders.
(H) Tangible Common Equity to Tangible Assets Ratio ("TCE Ratio") is
considered a non-GAAP measure.
