form8k.htm


UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
 
Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934
 
July 22, 2010
Date of Report (Date of earliest event reported)
 
Commission File No. 1-13300
 
CAPITAL ONE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
54-1719854
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
   
1680 Capital One Drive, McLean, Virginia
22102
(Address of Principal Executive Offices)
(Zip Code)
 
Registrant’s telephone number, including area code: (703) 720-1000
 
(Former name or former address, if changed since last report)
 
 

 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 
 

 

Item 2.02.
Results of Operations and Financial Condition

On July 22, 2010, the Company issued a press release announcing its financial results for the second quarter ended June 30, 2010. A copy of the Company’s press release is attached and filed herewith as Exhibit 99.1 and 99.3 to this Form 8-K and is incorporated herein by reference.
 
Item 7.01.
Regulation FD Disclosure.

The Company hereby furnishes the information in Exhibit 99.2 hereto, Second Quarter Earnings Presentation for the quarter ended June 30, 2010.
 
Note: Information in Exhibit 99.2 furnished pursuant to Item 7.01 shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section. This report will not be deemed an admission as to the materiality of any information in the report that is required to be disclosed solely by Regulation FD. Furthermore, the information provided in Exhibit 99.2 shall not be deemed to be incorporated by reference into the filings of the Company under the Securities Act of 1933.

 
 

 

Item 8.01.
Other Events.

 
(a)
See attached press release, at Exhibit 99.1.

 
(b)
Cautionary Factors.

The attached press release and information provided pursuant to Items 2.02, 7.01 and 9.01 contain forward-looking statements, which involve a number of risks and uncertainties. The Company cautions readers that any forward-looking information is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking information as a result of various factors including, but not limited to, the following:

general economic and business conditions in the U.S., the UK, or the Company’s local markets, including conditions affecting employment levels, interest rates, consumer income and confidence, spending and savings that may affect consumer bankruptcies, defaults, charge-offs, and deposit activity;

an increase or decrease in credit losses (including increases due to a worsening of general economic conditions in the credit environment);

financial, legal, regulatory (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations to be promulgated thereunder), tax or accounting changes or actions, including with respect to any litigation matter involving the Company;

increases or decreases in interest rates;

the success of the Company’s marketing efforts in attracting and retaining customers;

the ability of the Company to securitize its credit cards and consumer loans and to otherwise access the capital markets at attractive rates and terms to capitalize and fund its operations and future growth;

with respect to financial and other products, increases or decreases in the Company’s aggregate loan balances and/or number of customers and the growth rate and composition thereof, including increases or decreases resulting from factors such as shifting product mix, amount of actual marketing expenses made by the Company and attrition of loan balances;
 
the level of future repurchase or indemnification requests the Company may receive, the actual future performance of loans relating to such requests, the success rates of claimants against the Company, any developments in litigation, and the actual recoveries the Company may make on any collateral relating to claims against it;
 
the amount and rate of deposit growth;

the Company’s ability to control costs;

changes in the reputation of or expectations regarding the financial services industry and/or the Company with respect to practices, products or financial condition;

any significant disruption in the Company’s operations or technology platform;

the Company’s ability to maintain a compliance infrastructure suitable for its size and complexity;

the amount of, and rate of growth in, the Company’s expenses as the Company’s business develops or changes or as it expands into new market areas;

the Company’s ability to execute on its strategic and operational plans;

any significant disruption of, or loss of public confidence in, the United States Mail service affecting our response rates and consumer payments;

the ability of the Company to recruit and retain experienced personnel to assist in the management and operations of new products and services;
 
 
changes in the labor and employment market;

the risk that the cost savings and any other synergies from the Company’s acquisitions may not be fully realized or may take longer to realize than expected;

disruption from the acquisitions negatively impacting the Company’s ability to maintain relationships with customers, employees or suppliers;

competition from providers of products and services that compete with the Company’s businesses; and

other risk factors listed from time to time in the Company’s SEC reports including, but not limited to, the Annual Report on Form 10-K for the year ended December 31, 2009.

 
 

 

Item 9.01.
Financial Statements, Pro Forma Financial Information and Exhibits.
 
 
(c)
Exhibits.
 
Exhibit No.
 
Description of Exhibit      
 
Press release, dated July 22, 2010.
 
Second Quarter Earnings Presentation.
 
Reconciliation to GAAP Financial Measures.
 
Earnings Conference Call Webcast Information.

Capital One will hold an earnings conference call on July 22, 2010, 5:00 PM Eastern Daylight time. The conference call will be accessible through live webcast. Interested investors and other individuals can access the webcast via Capital One’s home page (http://www.capitalone.com). Choose “Investors” to access the Investor Center and view and/or download the earnings press release, a reconciliation to GAAP financial measures and other relevant financial information. The replay of the webcast will be archived on Capital One’s website through September 30, 2010.
 
 
 

 

SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned, hereunto duly authorized.
 
   
CAPITAL ONE FINANCIAL CORPORATION
     
Dated: July 22, 2010
 
By:
/s/ Gary L. Perlin
     
Gary L. Perlin
Chief Financial Officer
 
 

ex99_1.htm

Exhibit 99.1
CAPITAL ONE FINANCIAL CORPORATION (COF)
FINANCIAL & STATISTICAL SUMMARY
GAAP BASIS *

   
2010
   
2010
   
2009
   
2009
   
2009
 
(in millions, except per share data and as noted) (unaudited)
  Q2     Q1     Q4     Q3     Q2  
Earnings
                                       
Net Interest Income
  $ 3,097     $ 3,228     $ 1,954     $ 2,005     $ 1,945  
Non-Interest Income (1)
  $ 807 (7)   $ 1,061 (7)(8)   $ 1,412     $ 1,553     $ 1,232 (9)
Total Revenue (2)
  $ 3,904     $ 4,289     $ 3,366     $ 3,558     $ 3,177  
Provision for Loan Losses
  $ 723     $ 1,478     $ 844     $ 1,173     $ 934  
Marketing Expenses
  $ 219     $ 180     $ 188     $ 104     $ 134  
Restructuring Expenses (3)
  $ -     $ -     $ 32     $ 26     $ 44  
Operating Expenses (4)
  $ 1,781     $ 1,667     $ 1,728     $ 1,672     $ 1,744 (10)
Income Before Taxes
  $ 1,181     $ 964     $ 574     $ 583     $ 321  
Effective Tax Rate
    31.2 %     25.3 %     29.6 %     25.0 %     28.7 %
Income From Continuing Operations, Net of Tax
  $ 812     $ 720     $ 404     $ 437     $ 229  
Loss From Discontinued Operations, Net of Tax
  $ (204 )(7)   $ (84 )(7)   $ (28 )   $ (43 )   $ (6 )
Net Income
  $ 608     $ 636     $ 376     $ 394     $ 223  
Net Income (Loss) Available to Common Shareholders (A)
  $ 608     $ 636     $ 376     $ 394     $ (277 ) (11)
Common Share Statistics
                                       
Basic EPS: (B)
                                       
Income (Loss) From Continuing Operations
  $ 1.79     $ 1.59     $ 0.90     $ 0.97     $ (0.64 )
Loss From Discontinued Operations
  $ (0.45 )   $ (0.18 )   $ (0.07 )   $ (0.09 )   $ (0.01 )
Net Income (Loss)
  $ 1.34     $ 1.41     $ 0.83     $ 0.88     $ (0.66 )
Diluted EPS: (B)
                                       
Income (Loss) From Continuing Operations
  $ 1.78     $ 1.58     $ 0.89     $ 0.96     $ (0.64 )
Loss From Discontinued Operations
  $ (0.45 )   $ (0.18 )   $ (0.06 )   $ (0.09 )   $ (0.01 )
Net Income (Loss)
  $ 1.33     $ 1.40     $ 0.83     $ 0.87     $ (0.66 )
Dividends Per Common Share
  $ 0.05     $ 0.05     $ 0.05     $ 0.05     $ 0.05  
Tangible Book Value Per Common Share (period end) (C)
  $ 24.89     $ 22.86     $ 27.72     $ 26.86     $ 24.95  
Stock Price Per Common Share (period end)
  $ 40.30     $ 41.41     $ 38.34     $ 35.73     $ 21.88  
Total Market Capitalization (period end)
  $ 18,228     $ 18,713     $ 17,268     $ 16,064     $ 9,826  
Common Shares Outstanding (period end)
    452.3       451.9       450.4       449.6       449.1  
Shares Used to Compute Basic EPS
    452.1       451.0       450.0       449.4       421.9  
Shares Used to Compute Diluted EPS
    456.4       455.4       454.9       453.7       421.9  
Reported Balance Sheet Statistics (period average)
                                       
Average Loans Held for Investment
  $ 128,203     $ 134,206     $ 94,732     $ 99,354     $ 104,682  
Average Earning Assets
  $ 174,650     $ 181,881     $ 143,663     $ 145,280     $ 150,804  
Total Average Assets
  $ 199,329     $ 207,207     $ 169,856     $ 173,428     $ 177,628  
Average Interest Bearing Deposits
  $ 104,163     $ 104,018     $ 101,144     $ 103,105     $ 107,033  
Total Average Deposits
  $ 118,484     $ 117,530     $ 114,598     $ 115,882     $ 119,604  
Average Equity
  $ 24,526     $ 23,681     $ 26,518     $ 26,002     $ 27,668 (12), (13)
Return on Average Assets (ROA)
    1.63 %     1.39 %     0.95 %     1.01 %     0.52 %
Return on Average Equity (ROE)
    13.24 %     12.16 %     6.09 %     6.72 %     3.31 %
Return on Average Tangible Common Equity (D)
    30.97 %     29.98 %     13.02 %     14.75 %     6.75 %
Reported Balance Sheet Statistics (period end)
                                       
Loans Held for Investment
  $ 127,140     $ 130,115     $ 90,619     $ 96,714     $ 100,940  
Total Assets (E)
  $ 197,479     $ 200,691     $ 169,622     $ 168,432     $ 171,948  
Interest Bearing Deposits
  $ 103,172     $ 104,013     $ 102,370     $ 101,769     $ 104,121  
Total Deposits
  $ 117,331     $ 117,787     $ 115,809     $ 114,503     $ 116,725  
Tangible Assets(E) (F)
  $ 183,468     $ 186,647     $ 155,516     $ 154,315     $ 157,782  
Tangible Common Equity (TCE) (E) (G)
  $ 11,259     $ 10,330     $ 12,483     $ 12,075     $ 11,204  
Tangible Common Equity to Tangible Assets Ratio (E) (H)
    6.14 %     5.53 %     8.03 %     7.82 %     7.10 % (12)
Performance Statistics (Reported) Quarter over Quarter
                                       
Net Interest Income Growth (5)
    (4 )%     65 %     (3 )%     3 %     8 %
Non- Interest Income Growth (5)
    (24 )%     (25 )%     (9 )%     26 %     13 %
Revenue Growth (5)
    (9 )%     27 %     (5 )%     12 %     10 %
Net Interest Margin
    7.09 %     7.10 %     5.44 %     5.52 %     5.16 %
Revenue Margin
    8.94 %     9.43 %     9.37 %     9.80 %     8.43 %
Risk-Adjusted Margin (I)
    5.01 %     4.99 %     6.07 %     6.69 %     5.46 %
Non-Interest Expense as a % of Average Loans Held for Investment (annualized)
    6.24 %     5.50 %     8.23 %     7.25 %     7.34 %
Efficiency Ratio (J)
    51.23 %     43.06 %     56.92 %     49.92 %     59.11 %
Asset Quality Statistics (Reported) (6)
                                       
Allowance
  $ 6,799     $ 7,752     $ 4,127     $ 4,513     $ 4,482  
Allowance as a % of Reported Loans Held for Investment
    5.35 %     5.96 %     4.55 %     4.67 %     4.44 %
Net Charge-Offs
  $ 1,717     $ 2,018     $ 1,185     $ 1,128     $ 1,117  
Net Charge-Off Rate
    5.36 %     6.01 %     5.00 %     4.54 %     4.28 %
30+ day performing delinquency rate
    3.81 %     4.22 %     4.13 %     4.12 %     3.71 %
Full-time equivalent employees (in thousands)
    25.7       25.9       25.9       26.0       26.6  

* Effective January 1, 2010, Capital One prospectively adopted two new accounting standards that resulted in the consolidation of the majority 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. As the new accounting standards were adopted prospectivley, prior period results have not been adjusted.  See the accompanying schedule "Impact of Adopting New Accounting Guidance." While the adoption of these new accounting standards has a significant impact on the comparability of the Company's GAAP financial results prior to and subsequent to adoption, the Company's reported GAAP results afte r adoption are now comparable to the prior  "managed" results.

 
Page 1

 

CAPITAL ONE FINANCIAL CORPORATION (COF)
FINANCIAL & STATISTICAL SUMMARY
MANAGED BASIS * (for 2009 data)

   
2010
   
2010
   
2009
   
2009
   
2009
 
(in millions, except per share data and as noted) (unaudited)
  Q2     Q1     Q4     Q3     Q2  
Earnings
                                       
Net Interest Income
  $ 3,097     $ 3,228     $ 3,170     $ 3,212     $ 2,957  
Non-Interest Income (1)
  $ 807 (7)   $ 1,061 (7)(8)   $ 1,199     $ 1,373     $ 1,190 (9)
Total Revenue (2)
  $ 3,904     $ 4,289     $ 4,369     $ 4,585     $ 4,147  
Provision for Loan and Lease Losses
  $ 723     $ 1,478     $ 1,847     $ 2,200     $ 1,904  
Marketing Expenses
  $ 219     $ 180     $ 188     $ 104     $ 134  
Restructuring Expenses (3)
  $ -     $ -     $ 32     $ 26     $ 44  
Operating Expenses (4)
  $ 1,781     $ 1,667     $ 1,728     $ 1,672     $ 1,744 (10)
Income Before Taxes
  $ 1,181     $ 964     $ 574     $ 583     $ 321  
Effective Tax Rate
    31.2 %     25.3 %     29.6 %     25.0 %     28.7 %
Income From Continuing Operations, Net of Tax
  $ 812     $ 720     $ 404     $ 437     $ 229  
Loss From Discontinued Operations, Net of Tax
  $ (204 )(7)   $ (84 )(7)   $ (28 )   $ (43 )   $ (6 )
Net Income
  $ 608     $ 636     $ 376     $ 394     $ 223  
Net Income (Loss) Available to Common Shareholders (A)
  $ 608     $ 636     $ 376     $ 394     $ (277 )(11)
Common Share Statistics
                                       
Basic EPS: (B)
                                       
Income (Loss) From Continuing Operations
  $ 1.79     $ 1.59     $ 0.90     $ 0.97     $ (0.64 )
Loss From Discontinued Operations
  $ (0.45 )   $ (0.18 )   $ (0.07 )   $ (0.09 )   $ (0.01 )
Net Income (Loss)
  $ 1.34     $ 1.41     $ 0.83     $ 0.88     $ (0.66 )
Diluted EPS: (B)
                                       
Income (Loss) From Continuing Operations
  $ 1.78     $ 1.58     $ 0.89     $ 0.96     $ (0.64 )
Loss From Discontinued Operations
  $ (0.45 )   $ (0.18 )   $ (0.06 )   $ (0.09 )   $ (0.01 )
Net Income (Loss)
  $ 1.33     $ 1.40     $ 0.83     $ 0.87     $ (0.66 )
Dividends Per Common Share
  $ 0.05     $ 0.05     $ 0.05     $ 0.05     $ 0.05  
Tangible Book Value Per Common Share (period end) (C)
  $ 24.89     $ 22.86     $ 27.72     $ 26.86     $ 24.95  
Stock Price Per Common Share (period end)
  $ 40.30     $ 41.41     $ 38.34     $ 35.73     $ 21.88  
Total Market Capitalization (period end)
  $ 18,228     $ 18,713     $ 17,268     $ 16,064     $ 9,826  
Common Shares Outstanding (period end)
    452.3       451.9       450.4       449.6       449.1  
Shares Used to Compute Basic EPS
    452.1       451.0       450.0       449.4       421.9  
Shares Used to Compute Diluted EPS
    456.4       455.4       454.9       453.7       421.9  
Managed Balance Sheet Statistics (period average)
                                       
Average Loans Held for Investment
  $ 128,203     $ 134,206     $ 138,184     $ 143,540     $ 148,013  
Average Earning Assets
  $ 174,650     $ 181,881     $ 183,899     $ 185,874     $ 191,208  
Total Average Assets
  $ 199,329     $ 207,207     $ 210,425     $ 214,655     $ 218,402  
Average Interest Bearing Deposits
  $ 104,163     $ 104,018     $ 101,144     $ 103,105     $ 107,033  
Total Average Deposits
  $ 118,484     $ 117,530     $ 114,598     $ 115,882     $ 119,604  
Average Equity
  $ 24,526     $ 23,681     $ 26,518     $ 26,002     $ 27,668 (12), (13)
Return on Average Assets (ROA)
    1.63 %     1.39 %     0.77 %     0.81 %     0.42 %
Return on Average Equity (ROE)
    13.24 %     12.16 %     6.09 %     6.72 %     3.31 %
Return on Average Tangible Common Equity (D)
    30.97 %     29.98 %     13.02 %     14.75 %     6.75 %
Managed Balance Sheet Statistics (period end)
                                       
Loans Held for Investment
  $ 127,140     $ 130,115     $ 136,803     $ 140,990     $ 146,117  
Total Assets (E)
  $ 197,479     $ 200,691     $ 212,389     $ 209,683     $ 214,178  
Interest Bearing Deposits
  $ 103,172     $ 104,013     $ 102,370     $ 101,769     $ 104,121  
Total Deposits
  $ 117,331     $ 117,787     $ 115,809     $ 114,503     $ 116,725  
Tangible Assets(E) (F)
  $ 183,468     $ 186,647     $ 198,283     $ 195,566     $ 200,012  
Tangible Common Equity (TCE) (E) (G)
  $ 11,259     $ 10,330     $ 12,483     $ 12,075     $ 11,204  
Tangible Common Equity to Tangible Assets Ratio (E) (H)
    6.14 %     5.53 %     6.30 %     6.17 %     5.60 % (12)
Performance Statistics (Managed) Quarter over Quarter
                                       
Net Interest Income Growth (5)
    (4 )%     2 %     (1 )%     9 %     8 %
Non-Interest Income Growth (5)
    (24 )%     (12 )%     (13 )%     15 %     21 %
Revenue Growth (5)
    (9 )%     (2 )%     (5 )%     11 %     11 %
Net Interest Margin
    7.09 %     7.10 %     6.90 %     6.91 %     6.19 %
Revenue Margin
    8.94 %     9.43 %     9.50 %     9.87 %     8.68 %
Risk-Adjusted Margin (I)
    5.01 %     4.99 %     4.74 %     5.23 %     4.31 %
Non-Interest Expense as a % of Average Loans Held for Investment
    6.24 %     5.50 %     5.64 %     5.02 %     5.19 %
Efficiency Ratio (J)
    51.23 %     43.06 %     43.85 %     38.74 %     45.29 %
Asset Quality Statistics (Managed) (6)
                                       
Net Charge-Offs
  $ 1,717     $ 2,018     $ 2,188     $ 2,155     $ 2,087  
Net Charge-Off Rate
    5.36 %     6.01 %     6.33 %     6.00 %     5.64 %
30+ day performing delinquency rate
    3.81 %     4.22 %     4.73 %     4.55 %     4.10 %
Full-time equivalent employees (in thousands)
    25.7       25.9       25.9       26.0       26.6  

*Prior to the adoption of the new consolidation accounting standards, management evaluated the Company and each of its lines of business results on a "managed" basis, which is a non-GAAP measure. With the adoption of the new consolidation accounting standards, the Company's reported results are comparable to the "managed" basis, which reflect the consolidation of the majority of the Company's credit card securitization trusts.  The accompanying Exhibit "Reconciliation to GAAP Financial Measures" presents a reconciliation of the Company's non-GAAP "managed" results to its GAAP results for periods prior to January 1, 2010. See the accompanying schedule "Impact of Adopting New Accounting Guidance" for additional information on the impact of new accounting standards.

 
Page 2

 

CAPITAL ONE FINANCIAL CORPORATION (COF)
FINANCIAL & STATISTICAL SUMMARY NOTES

(1)
Includes the impact from the change in fair value of retained interests, including the interest-only strips, which totaled $17.4 million in Q2 2010, $(35.7) million in Q1 2010, $55.3 million in Q4 2009, $37.3 million in Q3 2009 and $(114.5) million in Q2 2009.

(2)
In accordance with the Company's finance charge and fee revenue recognition policy, amounts billed not included in revenue totaled: $261.2 million in Q2 2010, $354.4 million in Q1 2010, $490.4 million in Q4 2009, $517.0 million in Q3 2009 and $571.9 million in Q2 2009.

(3)
The Company completed its 2007 restructuring initiative during 2009.

(4)
Includes core deposit intangible amortization expense of $50.4 million in Q2 2010, $52.1 million in Q1 2010, $53.8 million in Q4 2009, $55.5 million in Q3 2009 and $57.2 million in Q2 2009 and integration costs of $22.4 million in Q2 2010, $16.7 million in Q1 2010, $22.1 million in Q4 2009, $10.7 million in Q3 2009 and $8.8 million in Q2 2009.

(5)
Prior period amounts have been reclassified to conform with the current period presentation and adjusted to reflect purchase accounting refinements related to the acquisition of Chevy Chase Bank, FSB ("CCB").

(6)
The denominator used in calculating the allowance as a % of Loans Held for Investment, Net Charge-off Rate and 30+ Day Performing Delinquency Rate include loans acquired as part of the CCB acquisition. The metrics excluding such loans are as follows.

      Q2 2010       Q1 2010       Q4 2009       Q3 2009       Q2 2009  
CCB period end acquired loan portfolio (in millions)(unaudited)
  $ 6,381     $ 6,799     $ 7,251     $ 7,885     $ 8,644  
CCB average acquired loan portfolio (in millions)(unaudited)
  $ 6,541     $ 7,037     $ 7,512     $ 8,029     $ 8,499  
Allowance as a % of loans held for investment, excluding CCB
    5.63 %     6.29 %     4.95 %     5.08 %     4.86 %
Net charge-off rate (GAAP), excluding CCB
    5.64 %     6.35 %     5.44 %     4.94 %     4.65 %
Net charge-off rate (Managed), excluding CCB
    5.64 %     6.35 %     6.70 %     6.36 %     5.98 %
30+ day performing delinquency rate (GAAP), excluding CCB
    4.01 %     4.46 %     4.49 %     4.48 %     4.06 %
30+ day performing delinquency rate (Managed), excluding CCB
    4.01 %     4.46 %     4.99 %     4.82 %     4.36 %

(7)
During Q2 and Q1 2010, the Company recorded charges of $403.6 million and $224.4 million, respectively, related to representation and warranty matters.  A portion of this expense is included in Discontinued Operations and the remainder is included in Non-Interest Income.

(8)
During Q1 2010, certain mortgage trusts were deconsolidated based on the sale of interest-only bonds associated with the trusts. The net effect of the deconsolidation resulted in $128 million of income which is included in non-interest income.

(9)
In Q2 2009, the Company elected to convert and sell 404,508 shares of MasterCard class B common stock, which resulted in a gain of $65.5 million that is included in non-interest income.

(10)
Includes the FDIC Special Assessment of $80.5 million.

(11)
Includes the impact from dividends of $38.0 million on preferred shares and from the accretion of $461.7 million of the discount on preferred shares. With the repayment of the preferred shares to the U.S. Treasury as described in note 13 below, the recognition of the remaining accretion was accelerated to Q2 2009 and accounted for as a dividend. Subsequent to this transaction, there is no difference between net income (loss) and net income (loss) available to common shareholders.

(12)
Includes the impact of the issuance of 56,000,000 common shares at $27.75 per share on May 14, 2009.

(13)
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 from the U.S. Treasury for approximately $3.57 billion all 3,555,199 preferred shares issued in Q4 2008, including accrued dividends. The warrants to purchase common shares were sold by the U.S. Treasury on December 11, 2009 at a price of $11.75 per warrant. The sale by the US Treasury had no impact on the Company's equity. The warrants remain outstanding and are included in paid-in capital on the balance sheet.

STATISTICS / METRIC CALCULATIONS

(A)
Consists of net income (loss) less dividends on preferred shares.

(B)
Calculated based on net income (loss) available to common shareholders.

(C)
Calculated based on tangible common equity divided by common shares outstanding.

(D)
Calculated based on income from continuing operations divided by average tangible common equity, which is a non-GAAP measure. See page 4, Reconciliation To GAAP Financial Measures for a reconciliation of average equity to average tangible common equity.

(E)
Calculated based on continuing operations, except for Average Equity and Return on Average Equity (ROE), which are based on average stockholders' equity.

(F)
Consists of reported or managed assets less intangible assets and is a non-GAAP measure.  See page 4, Reconciliation To GAAP Financial Measures for a reconciliation of this measure to the reported common equity ratio.

(G)
Consists of stockholders' equity less preferred shares and intangible assets and the related deferred tax liabilities.

(H)
Tangible Common Equity to Tangible Assets Ratio ("TCE Ratio") is a non-GAAP measure. See page 4, Reconciliation To GAAP Financial Measures for a reconciliation of this measure to the reported common equity ratio.

(I)
Calculated based on total revenue less net charge-offs divided by average earning assets, expressed as a percentage.

(J)
Calculated based on non-interest expense less restructuring expense divided by total revenue.

 
Page 3

 

CAPITAL ONE FINANCIAL CORPORATION
Reconciliation to GAAP Financial Measures
(dollars in millions)(unaudited)

The table below presents a reconciliation of tangible common equity and tangible assets, which are the components used to reconcile the non-GAAP tangible common equity "TCE" ratio to the comparable GAAP measure.  The Company believes the non-GAAP TCE ratio is an important measure for investors to use in assessing the Company's capital strength. This measure may not be comparable to similarly titled measures used by other companies.

   
2010
   
2010
   
2009
   
2009
   
2009
 
    Q2     Q1     Q4     Q3     Q2  
Reconciliation of Average Equity to Average Tangible Common Equity
                                       
Average Equity
  $ 24,526     $ 23,681     $ 26,518     $ 26,002     $ 27,668  
Less: Preferred Stock
    -       -       -       -       41  
Less: Average Intangible Assets (1)
    (14,039 )     (14,075 )     (14,105 )     (14,151 )     (14,129 )
Average Tangible Common Equity
  $ 10,487     $ 9,606     $ 12,413     $ 11,851     $ 13,580  
                                         
Reconciliation of Period End Equity to Tangible Common Equity
                                       
Stockholders' Equity
  $ 25,270     $ 24,374     $ 26,589     $ 26,192     $ 25,332  
Less: Preferred Stock
    -       -       -       -       38  
Less: Intangible Assets (1)
    (14,011 )     (14,044 )     (14,106 )     (14,117 )     (14,166 )
Period End Tangible Common Equity
  $ 11,259     $ 10,330     $ 12,483     $ 12,075     $ 11,204  
                                         
Reconciliation of Period End Assets to Tangible Assets
                                       
Total Assets
  $ 197,489     $ 200,707     $ 169,646     $ 168,463     $ 171,994  
Less: Discontinued Operations Assets
    (10 )     (16 )     (24 )     (31 )     (46 )
Total Assets- Continuing Operations
    197,479       200,691       169,622       168,432       171,948  
Less: Intangible Assets (1)
    (14,011 )     (14,044 )     (14,106 )     (14,117 )     (14,166 )
Period End Tangible Assets
  $ 183,468     $ 186,647     $ 155,516     $ 154,315     $ 157,782  
                                         
TCE ratio (2)
    6.14 %     5.53 %     8.03 %     7.82 %     7.10 %
                                         
Reconciliation of Period End Assets to Tangible Assets on a Managed Basis (for 2009) *
                                 
Total Assets
  $ 197,489     $ 200,707     $ 169,646     $ 168,463     $ 171,994  
Securitization Adjustment (3)
    -       -       42,767       41,251       42,230  
Total Assets on a Managed Basis
    197,489       200,707       212,413       209,714       214,224  
Less: Assets-Discontinued Operations
    (10 )     (16 )     (24 )     (31 )     (46 )
Total Assets- Continuing Operations
    197,479       200,691       212,389       209,683       214,178  
Less: Intangible Assets (1)
    (14,011 )     (14,044 )     (14,106 )     (14,117 )     (14,166 )
Period End Tangible Assets
  $ 183,468     $ 186,647     $ 198,283     $ 195,566     $ 200,012  
                                         
TCE ratio (2)
    6.14 %     5.53 %     6.30 %     6.17 %     5.60 %

(1) Includes impact from related deferred taxes.
(2) Calculated based on tangible common equity divided by tangible assets.
(3) Adjustments to our GAAP results to reflect loans that have been securitized and sold as though the loans remained on our consolidated balance sheet.
* In addition to analyzing the Company's results on a reported basis, management previously evaluated Capital One's results on a "managed" basis, which consisted of non-GAAP financial measures.  Capital One's managed results reflected the Company's reported results, adjusted to reflect the consolidation of the majority of the Company's credit securitization trusts.  Because of the January 1, 2010, adoption of the new consolidation accounting standards, the Company's consolidated reported results subsequent to January 1, 2010 are comparable to its "managed" results.  The accompanying Exhibit "Reconciliation to GAAP Financial Measures" presents a reconciliation of the Company's non-GAAP "managed" results to its GAAP results for periods prior to January 1, 2010.

 
Page 4

 

Capital One Financial Corporation
Impact of Adopting New Accounting Guidance

Consolidation of VIEs
                 
(dollars in millions)(unaudited)
 
Opening Balance Sheet
January 1, 2010
   
VIE Consolidation
Impact
   
Ending Balance Sheet
December 31, 2009
 
                   
Assets:
                 
Cash and due from banks
  $ 12,683     $ 3,998     $ 8,685  
Loans held for investment
    138,184       47,565       90,619  
Allowance for loan and lease losses
    (8,391 )     (4,264 ) (3)     (4,127 )
Net loans held for investment
    129,793       43,301       86,492  
Accounts receivable from securitizations
    166       (7,463 )     7,629  
Other assets
    68,869 (1)     2,029       66,840  
Total assets
    211,511       41,865       169,646  
Liabilities:
                       
Securitization liability
    48,300       44,346       3,954  
Other liabilities
    139,561       458       139,103  
Total liabilities
    187,861       44,804       143,057  
Stockholders' equity
    23,650       (2,939 ) (3)     26,589  
Total liabilities and stockholders' equity
  $ 211,511     $ 41,865     $ 169,646  

Allocation of the Allowance by Segment

(dollars in millions)(unaudited)
 
January 1, 2010
   
Consolidation Impact
   
December 31, 2009
 
Domestic credit card
  $ 5,590     $ 3,663 (3)   $ 1,927  
International credit card
    727       528       199  
Total credit card
    6,317       4,191       2,126  
Commercial and multi-family real estate
    471       -       471  
Middle market
    131       -       131  
Specialty lending
    90       -       90  
Total commercial lending
    692       -       692  
Small ticket commercial real estate
    93       -       93  
Total commercial banking
    785       -       785  
Automobile
    665       -       665  
Mortgage (inc all new CCB originations)
    248       73 (2)     175  
Other retail
    236       -       236  
Total consumer banking
    1,149       73       1,076  
Other
    140       -       140  
Total company
  $ 8,391     $ 4,264     $ 4,127  

(1) Included within the "Other assets" line item is a deferred tax asset of $3.9 billion, of which $1.6 billion related to the January 1, 2010, adoption of the new consolidation accounting standards.

(2) $73 million of the reduction in the allowance for the first quarter is associated with the deconsolidation of certain mortgage trusts. This reduction in the allowance is recorded in non-interest income.

(3) An adjustment for $34 million to retained earnings and the allowance for loan and lease losses was made in the second quarter for the impact of impairment on consolidated loans accounted for troubled debt restructurings. These adjustments are not reflected in the above table.

 
Page 5

 

CAPITAL ONE FINANCIAL CORPORATION
Consolidated Statements of Income
(in millions, except per share data)(unaudited)

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
March 31,
   
June 30,
   
June 30,
   
June 30,
 
   
2010
   
2010
   
2009 (1)
   
2010
   
2009 (1)
 
                               
                               
Interest Income:
                             
Loans held for investment, including past-due fees
  $ 3,476     $ 3,658     $ 2,237     $ 7,134     $ 4,428  
Investment securities
    342       349       412       691       808  
Other
    17       23       68       40       131  
Total interest income
    3,835       4,030       2,717       7,865       5,367  
                                         
Interest Expense:
                                       
Deposits
    368       399       560       767       1,187  
Securitized debt
    212       242       74       454       165  
Senior and subordinated notes
    72       68       57       140       115  
Other borrowings
    86       93       81       179       162  
Total interest expense
    738       802       772       1,540       1,629  
Net interest income
    3,097       3,228       1,945       6,325       3,738  
Provision for loan and lease losses
    723       1,478       934       2,201       2,213  
Net interest income after provision for loan and lease losses
    2,374       1,750       1,011       4,124       1,525  
                                         
Non-Interest Income:
                                       
Servicing and securitizations
    21       (36 )     363       (15 )     816  
Service charges and other customer-related fees
    496       585       492       1,081       998  
Interchange
    333       311       126       644       267  
Net other-than-temporary impairment losses recognized in earnings(2)
    (26 )     (31 )     (10 )     (57 )     (10 )
Other
    (17 )     232       261       215       251  
Total non-interest income
    807       1,061       1,232       1,868       2,322  
                                         
Non-Interest Expense:
                                       
Salaries and associate benefits
    650       646       634       1,296       1,188  
Marketing
    219       180       134       399       297  
Communications and data processing
    164       169       195       333       394  
Supplies and equipment
    129       124       128       253       247  
Occupancy
    117       120       115       237       215  
Restructuring expense (3)
    -       -       43       -       61  
Other
    721       608       673       1,329       1,265  
Total non-interest expense
    2,000       1,847       1,922       3,847       3,667  
Income from continuing operations before income taxes
    1,181       964       321       2,145       180  
Income tax provision
    369       244       92       613       34  
Income from continuing operations, net of tax
    812       720       229       1,532       146  
Loss from discontinued operations, net of tax
    (204 )     (84 )     (6 )     (288 )     (31 )
Net income
  $ 608     $ 636     $ 223     $ 1,244     $ 115  
Preferred stock dividends
    -       -       (500 )     -       (564 )
Net income (loss) available to common shareholders
  $ 608     $ 636     $ (277 )   $ 1,244     $ (449 )
                                         
                                         
                                         
Basic earnings per common share:
                                       
Income (loss) from continuing operations
  $ 1.79     $ 1.59     $ (0.64 )   $ 3.38     $ (1.03 )
Loss from discontinued operations
    (0.45 )     (0.18 )     (0.01 )     (0.63 )     (0.07 )
Net Income (loss) per common share
  $ 1.34     $ 1.41     $ (0.66 )   $ 2.75     $ (1.11 )
                                         
Diluted earnings per common share:
                                       
Income (loss) from continuing operations
  $ 1.78     $ 1.58     $ (0.64 )   $ 3.36     $ (1.03 )
Loss from discontinued operations
    (0.45 )     (0.18 )     (0.01 )     (0.63 )     (0.07 )
Net Income (loss) per common share
  $ 1.33     $ 1.40     $ (0.66 )   $ 2.73     $ (1.11 )
                                         
Dividends paid per common share
  $ 0.05     $ 0.05     $ 0.05     $ 0.10     $ 0.43  

(1) Certain prior period amounts have been revised to conform to the current period presentation.
(2) For the three and six months ended June 30, 2010, the Company recorded other-than-temporary impairment losses of $26.2 million and $57.4 million, respectively. Additional unrealized losses of $119.7 million on these securities was recognized in other comprehensive income as a component of stockholders' equity at June 30, 2010.
(3) The Company completed its 2007 restructuring initiative during 2009.

 
Page 6

 

CAPITAL ONE FINANCIAL CORPORATION
Consolidated Balance Sheets
(in millions)(unaudited)

   
As of
   
As of
   
As of
 
   
June 30
   
December 31
   
June 30
 
   
2010
   
2009 (1)
   
2009 (1)
 
                   
Assets:
                 
Cash and due from banks
  $ 2,668     $ 3,100     $ 2,432  
Federal funds sold and repurchase agreements
    384       542       604  
Interest-bearing deposits at other banks
    2,147       5,043       1,166  
Cash and cash equivalents
    5,199       8,685       4,202  
Restricted cash for securitization investors
    3,446       501       570  
Securities available for sale
    39,424       38,830       37,667  
Securities held to maturity
    -       80       88  
Loans held for sale
    249       268       320  
Loans held for investment
    71,491       75,097       81,838  
Restricted loans for securitization investors
    55,649       15,522       19,102  
Less:  Allowance for loan and lease losses
    (6,799 )     (4,127 )     (4,482 )
Net loans held for investment
    120,341       86,492       96,458  
Accounts receivable from securitizations
    206       7,128       5,220  
Premises and equipment, net
    2,730       2,736       2,827  
Interest receivable
    1,077       936       951  
Goodwill
    13,588       13,596       13,568  
Other
    11,229       10,394       10,123  
Total assets
  $ 197,489     $ 169,646     $ 171,994  
                         
                         
Liabilities:
                       
Non-interest-bearing deposits
  $ 14,159     $ 13,439     $ 12,604  
Interest-bearing deposits
    103,172       102,370       104,121  
Senior and subordinated notes
    9,424       9,045       10,092  
Other borrowings
    5,585       8,015       7,990  
Securitized debt obligations
    33,009       3,954       5,270  
Interest payable
    543       509       660  
Other
    6,327       5,725       5,925  
Total liabilities
    172,219       143,057       146,662  
                         
Stockholders' Equity:
                       
Preferred stock
    -       -       -  
Common stock
    5       5       5  
Paid-in capital, net
    19,029       18,955       18,891  
Retained earnings and accumulated other comprehensive income
    9,436       10,809       9,605  
Less:  Treasury stock, at cost
    (3,200 )     (3,180 )     (3,169 )
Total stockholders' equity
    25,270       26,589       25,332  
Total liabilities and stockholders' equity
  $ 197,489     $ 169,646     $ 171,994  

(1) Certain prior period amounts have been revised to conform to the current period presentation.

 
Page 7

 

CAPITAL ONE FINANCIAL CORPORATION
Statements of Average Balances, Income and Expense, Yields and Rates (1)
(dollars in millions)(unaudited)

   
Quarter Ended 06/30/10
   
Quarter Ended 3/31/10
   
Quarter Ended 06/30/09 (3)
 
GAAP Basis
 
Average
   
Income/
   
Yield/
   
Average
   
Income/
   
Yield/
   
Average
   
Income/
   
Yield/
 
   
Balance
   
Expense
   
Rate
   
Balance
   
Expense
   
Rate
   
Balance
   
Expense
   
Rate
 
Interest-earning assets:
                                                     
                                                       
Loans held for investment
  $ 128,203     $ 3,476       10.85 %   $ 134,206     $ 3,658       10.90 %   $ 104,682     $ 2,237       8.55 %
Investment securities (2)
    39,022       342       3.51 %     38,087       349       3.67 %     37,499       412       4.39 %
Other
    7,425       17       0.92 %     9,588       23       0.96 %     8,623       68       3.15 %
Total interest-earning assets
  $ 174,650     $ 3,835       8.78 %   $ 181,881     $ 4,030       8.86 %   $ 150,804     $ 2,717       7.21 %
                                                                         
Interest-bearing liabilities:
                                                                       
Interest-bearing deposits
                                                                       
NOW accounts
  $ 11,601     $ 10       0.34 %   $ 12,276     $ 16       0.52 %   $ 10,915     $ 15       0.55 %
Money market deposit accounts
    42,127       99       0.94 %     39,364       96       0.98 %     35,751       104       1.16 %
Savings accounts
    21,017       44       0.84 %     18,627       41       0.88 %     9,931       13       0.52 %
Other consumer time deposits
    20,744       150       2.89 %     24,253       174       2.87 %     35,834       305       3.40 %
Public fund CD's of $100,000 or more
    240       1       1.67 %     400       2       2.00 %     1,117       3       1.07 %
CD's of $100,000 or more
    7,601       63       3.32 %     8,180       68       3.33 %     11,098       108       3.89 %
Foreign time deposits
    833       1       0.48 %     918       2       0.87 %     2,387       12       2.01 %
Total interest-bearing deposits
  $ 104,163     $ 368       1.41 %   $ 104,018     $ 399       1.53 %   $ 107,033     $ 560       2.09 %
Senior and subordinated notes
    8,760       72       3.29 %     8,757       68       3.11 %     8,323       57       2.74 %
Other borrowings
    6,375       86       5.40 %     7,431       93       5.01 %     10,399       81       3.12 %
Securitization liability
    35,248       212       2.41 %     43,764       242       2.21 %     5,876       74       5.04 %
Total interest-bearing liabilities
  $ 154,546     $ 738       1.91 %   $ 163,970     $ 802       1.96 %   $ 131,631     $ 772       2.35 %
                                                                         
Net interest spread
                    6.87 %                     6.90 %                     4.86 %
                                                                         
Interest income to average interest-earning assets
                    8.78 %                     8.86 %                     7.21 %
Interest expense to average interest-earning assets
                    1.69 %                     1.76 %                     2.05 %
Net interest margin
                    7.09 %                     7.10 %                     5.16 %
                                                                         
Managed Basis *
                                                                       
                                                                         
Interest-earning assets:
                                                                       
Loans held for investment
  $ 128,203     $ 3,476       10.85 %   $ 134,206     $ 3,658       10.90 %   $ 148,013     $ 3,568       9.64 %
Investment securities (2)
  $ 39,022     $ 342       3.51 %     38,087       349       3.67 %     37,499       412       4.39 %
Other
  $ 7,425     $ 17       0.92 %     9,588       23       0.96 %     5,696       17       1.19 %
Total interest-earning assets
  $ 174,650     $ 3,835       8.78 %   $ 181,881     $ 4,030       8.86 %   $ 191,208     $ 3,997       8.36 %
                                                                         
Interest-bearing liabilities:
                                                                       
Interest-bearing deposits
                                                                       
NOW accounts
  $ 11,601     $ 10       0.34 %   $ 12,276     $ 16       0.52 %   $ 10,915     $ 15       0.55 %
Money market deposit accounts
  $ 42,127     $ 99       0.94 %     39,364       96       0.98 %     35,751       104       1.16 %
Savings accounts
  $ 21,017     $ 44       0.84 %     18,627       41       0.88 %     9,931       13       0.52 %
Other consumer time deposits
  $ 20,744     $ 150       2.89 %     24,253       174       2.87 %     35,834       305       3.40 %
Public fund CD's of $100,000 or more
  $ 240     $ 1       1.67 %     400       2       2.00 %     1,117       3       1.07 %
CD's of $100,000 or more
  $ 7,601     $ 63       3.32 %     8,180       68       3.33 %     11,098       108       3.89 %
Foreign time deposits
  $ 833     $ 1       0.48 %     918       2       0.87 %     2,387       12       2.01 %
Total interest-bearing deposits
  $ 104,163     $ 368       1.41 %   $ 104,018     $ 399       1.53 %   $ 107,033     $ 560       2.09 %
Senior and subordinated notes
  $ 8,760       72       3.29 %     8,757       68       3.11 %     8,323       57       2.74 %
Other borrowings
  $ 6,375       86       5.40 %     7,431       93       5.01 %     10,399       81       3.12 %
Securitization liability
  $ 35,248       212       2.41 %     43,764       242       2.21 %     46,682       342       2.93 %
Total interest-bearing liabilities
  $ 154,546     $ 738       1.91 %   $ 163,970     $ 802       1.96 %   $ 172,437     $ 1,040       2.41 %
                                                                         
Net interest spread
                    6.87 %                     6.90 %                     5.95 %
                                                                         
Interest income to average interest-earning assets
                    8.78 %                     8.86 %                     8.36 %
Interest expense to average interest-earning assets
                    1.69 %                     1.76 %                     2.17 %
Net interest margin
                    7.09 %                     7.10 %                     6.19 %

(1) Reflects amounts based on continuing operations.
(2) Consists of available-for-sale and held-to-maturity securities.
(3) Certain prior period amounts have been revised to conform to the current period presentation.
* Prior to the adoption of the new consolidation accounting standards, management evaluated the Company and each of its lines of business results on a "managed" basis. With the adoption of the new consolidation accounting standards, the Company's reported results are comparable to the "managed" basis which now reflect the consolidation of the majority of the Company's credit card securitization trusts.  The accompanying Exhibit "Reconciliation to GAAP Financial Measures" presents a reconciliation of the Company's non-GAAP "managed" results to its reported results for periods prior to January 1, 2010.

 
Page 8

 

CAPITAL ONE FINANCIAL CORPORATION (COF)
LENDING INFORMATION AND STATISTICS
MANAGED BASIS (1)

   
2010
   
2010
   
2009
   
2009
   
2009
 
(Dollars in millions) (unaudited)
 
Q2
   
Q1
   
Q4
   
Q3
   
Q2
 
                               
Period end loans held for investment
                             
                               
Domestic credit card
  $ 54,628     $ 56,228     $ 60,300     $ 61,892     $ 64,760  
International credit card
    7,269       7,578       8,224       8,477       8,639  
Total Credit Card
  $ 61,897     $ 63,806     $ 68,524     $ 70,369     $ 73,399  
                                         
Commercial and multifamily real estate
  $ 13,580     $ 13,618     $ 13,843     $ 13,978     $ 14,225  
Middle market
    10,203       10,310       10,062       10,023       10,219  
Specialty lending
    3,815       3,619       3,555       3,399       3,228  
Total Commercial Lending
  $ 27,598     $ 27,547     $ 27,460     $ 27,400     $ 27,672  
Small-ticket commercial real estate
    1,977       2,065       2,153 (7)     2,413       2,503  
Total Commercial Banking
  $ 29,575     $ 29,612     $ 29,613     $ 29,813     $ 30,175  
                                         
Automobile
  $ 17,221     $ 17,446     $ 18,186     $ 19,295     $ 19,902  
Mortgages
    13,322       13,967       14,893       15,639       16,579  
Retail banking
    4,770       4,970       5,135       5,215       5,367  
Total Consumer Banking
  $ 35,313     $ 36,383     $ 38,214     $ 40,149     $ 41,848  
                                         
Other loans (2)
  $ 470     $ 464     $ 452     $ 659     $ 695  
Total
  $ 127,255     $ 130,265     $ 136,803     $ 140,990     $ 146,117  
                                         
Average loans held for investment
                                       
                                         
Domestic credit card
  $ 55,252     $ 58,108     $ 60,443     $ 63,299     $ 65,862  
International credit card
    7,427       7,814       8,300       8,609       8,328  
Total Credit Card
  $ 62,679     $ 65,922     $ 68,743     $ 71,908     $ 74,190  
                                         
Commercial and multifamily real estate
  $ 13,543     $ 13,716     $ 13,926     $ 13,938     $ 14,122  
Middle market
    10,276       10,324       10,052       9,911       10,429  
Specialty lending
    3,654       3,609       3,535       3,753       3,472  
Total Commercial Lending
  $ 27,473     $ 27,649     $ 27,513     $ 27,602     $ 28,023  
Small-ticket commercial real estate
    2,060       2,074       2,354       2,471       2,542  
Total Commercial Banking
  $ 29,533     $ 29,723     $ 29,867     $ 30,073     $ 30,565  
                                         
Automobile
  $ 17,276     $ 17,769     $ 18,768     $ 19,636     $ 20,303  
Mortgages
    13,573       15,434       15,170       15,925       16,707  
Retail banking
    4,811       5,042       5,176       5,515       5,712  
Total Consumer Banking
  $ 35,660     $ 38,245     $ 39,114     $ 41,076     $ 42,722  
                                         
Other loans (2)
  $ 464     $ 489     $ 460     $ 483     $ 536  
Total
  $ 128,336     $ 134,379     $ 138,184     $ 143,540     $ 148,013  
                                         
Net charge-off rates
                                       
Domestic credit card
    9.49 %     10.48 %     9.59 %     9.64 %     9.23 %
International credit card
    8.38 %     8.83 %     9.52 %     9.19 %     9.32 %
Total Credit Card
    9.36 %     10.29 %     9.58 %     9.59 %     9.24 %
                                         
Commercial and multifamily real estate (3)
    1.17 %     1.45 %     3.02 %     1.37 %     0.92 %
Middle market (3)
    0.78 %     0.82 %     0.75 %     0.56 %     0.58 %
Specialty lending
    0.87 %     0.90 %     1.85 %     1.39 %     0.99 %
Total Commercial Lending (3)
    0.98 %     1.14 %     2.04 %     1.08 %     0.80 %
Small-ticket commercial real estate
    4.21 %     4.43 %     13.08 %(7)     5.19 %     1.86 %
Total Commercial Banking (3)
    1.21 %     1.37 %     2.91 %     1.42 %     0.89 %
                                         
Automobile
    2.09 %     2.97 %     4.55 %     4.38 %     3.65 %
Mortgages (3)
    0.46 %     0.94 %     0.72 %     0.69 %     0.43 %
Retail banking (3)
    2.11 %     2.11 %     2.93 %     2.44 %     2.42 %
Total Consumer Banking (3)
    1.47 %     2.03 %     2.85 %     2.69 %     2.23 %
                                         
Other loans
    27.95 %     18.82 %     28.25 %     28.53 %     37.00 %
Total
    5.36 %     6.02 %     6.33 %     6.00 %     5.64 %
                                         
30+ day performing delinquency rate
                                       
Domestic credit card
    4.79 %     5.30 %     5.78 %     5.38 %     4.77 %
International credit card
    6.03 %     6.39 %     6.55 %     6.63 %     6.69 %
Total Credit Card
    4.94 %     5.43 %     5.88 %     5.53 %     4.99 %
                                         
Automobile
    7.74 %     7.58 %     10.03 %     9.52 %     8.89 %
Mortgages (3)
    0.68 %     0.93 %     1.26 %     1.17 %     0.97 %
Retail banking (3)
    0.87 %     1.02 %     1.23 %     1.26 %     0.91 %
Total Consumer Banking (3)
    4.15 %     4.13 %     5.43 %     5.19 %     4.73 %
                                         
Nonperforming asset rates (5) (6)
                                       
Commercial and multifamily real estate (3)
    2.82 %     3.65 %     3.25 %     2.66 %     2.15 %
Middle market (3)
    1.20 %     1.15 %     1.09 %     1.25 %     1.15 %
Specialty lending
    1.94 %     2.18 %     2.25 %     2.12 %     2.11 %
Total Commercial Lending (3)
    2.10 %     2.52 %     2.33 %     2.08 %     1.78 %
Small-ticket commercial real estate
    3.57 %     4.18 %     4.87 %(7)     11.39 %     10.08 %
Total Commercial Banking (3)
    2.20 %     2.64 %     2.52 %     2.84 %     2.47 %
                                         
Automobile (4)
    0.56 %     0.55 %     0.92 %     0.87 %     0.78 %
Mortgages (3)
    3.78 %     3.17 %     2.24 %     1.83 %     1.51 %
Retail banking (3)
    2.25 %     2.07 %     2.11 %     1.98 %     1.88 %
Total Consumer Banking (3)
    2.00 %     1.76 %     1.60 %     1.39 %     1.21 %

 
Page 9

 

CAPITAL ONE FINANCIAL CORPORATION (COF)
CREDIT CARD SEGMENT FINANCIAL & STATISTICAL SUMMARY FOR CONTINUING OPERATIONS
MANAGED BASIS (1)

   
2010
   
2010
   
2009
   
2009
   
2009
 
(Dollars in millions) (unaudited)
  Q2     Q1     Q4     Q3     Q2  
Credit Card:
                                       
Earnings
                                       
Interest income
  $ 2,232     $ 2,453     $ 2,442     $ 2,472     $ 2,283  
Interest expense
    255       340       413       448       486  
Net interest income
  $ 1,977     $ 2,113     $ 2,029     $ 2,024     $ 1,797  
Non-interest income
    659       718       897       967       898  
Total revenue
  $ 2,636     $ 2,831     $ 2,926     $ 2,991     $ 2,695  
Provision for loan and lease losses
    765       1,175       1,204       1,644       1,520  
Non-interest expense
    1,002       914       943       897       910  
Income before taxes
    869       742       779       450       265  
Income tax provision
    301       253       269       158       92  
Net income
  $ 568     $ 489     $ 510     $ 292     $ 173  
                                         
Selected Metrics
                                       
Period end loans held for investment
  $ 61,897     $ 63,806     $ 68,524     $ 70,369     $ 73,399  
Average loans held for investment
  $ 62,679     $ 65,922     $ 68,743     $ 71,908     $ 74,190  
Loans held for investment yield
    14.24 %     14.88 %     14.21 %     13.75 %     12.31 %
Revenue margin
    16.82 %     17.18 %     17.03 %     16.64 %     14.53 %
Net charge-off rate
    9.36 %     10.29 %     9.58 %     9.59 %     9.24 %
30+ day performing delinquency rate
    4.94 %     5.43 %     5.88 %     5.53 %     4.99 %
Purchase volume (8)
  $ 26,570     $ 23,924     $ 26,866     $ 25,982     $ 25,747  
                                         
Domestic Card Sub-segment
                                       
Earnings
                                       
Net interest income
  $ 1,735     $ 1,865     $ 1,781     $ 1,797     $ 1,586  
Non-interest income
    560       618       794       856       795  
Total revenue
  $ 2,295     $ 2,483     $ 2,575     $ 2,653     $ 2,381  
Provision for loan and lease losses
    675       1,096       1,033       1,437       1,336  
Non-interest expense
    869       809       833       770       788  
Income before taxes
    751       578       709       446       257  
Income tax provision
    268       206       248       156       90  
Net income
  $ 483     $ 372     $ 461     $ 290     $ 167  
                                         
Selected Metrics
                                       
Period end loans held for investment
  $ 54,628     $ 56,228     $ 60,300     $ 61,892     $ 64,760  
Average loans held for investment
  $ 55,252     $ 58,108     $ 60,443     $ 63,299     $ 65,862  
Loans held for investment yield
    13.98 %     14.78 %     14.08 %     13.74 %     12.17 %
Revenue margin
    16.61 %     17.09 %     17.04 %     16.76 %     14.46 %
Net charge-off rate
    9.49 %     10.48 %     9.59 %     9.64 %     9.23 %
30+ day performing delinquency rate
    4.79 %     5.30 %     5.78 %     5.38 %     4.77 %
Purchase volume (8)
  $ 24,513     $ 21,988     $ 24,593     $ 23,761     $ 23,611  
                                         
International Card Sub-segment
                                       
Earnings
                                       
Net interest income
  $ 242     $ 248     $ 248     $ 227     $ 211  
Non-interest income
    99       100       103       111       103  
Total revenue
  $ 341     $ 348     $ 351     $ 338     $ 314  
Provision for loan and lease losses
    90       79       171       207       184  
Non-interest expense
    133       105       110       127       122  
Income before taxes
    118       164       70       4       8  
Income tax provision
    33       47       21       2       2  
Net income
  $ 85     $ 117     $ 49     $ 2     $ 6  
                                         
Selected Metrics
                                       
Period end loans held for investment
  $ 7,269     $ 7,578     $ 8,224     $ 8,477     $ 8,639  
Average loans held for investment
  $ 7,427     $ 7,814     $ 8,300     $ 8,609     $ 8,328  
Loans held for investment yield
    16.21 %     15.66 %     15.18 %     13.80 %     13.40 %
Revenue margin
    18.37 %     17.81 %     16.92 %     15.70 %     15.08 %
Net charge-off rate
    8.38 %     8.83 %     9.52 %     9.19 %     9.32 %
30+ day performing delinquency rate
    6.03 %     6.39 %     6.55 %     6.63 %     6.69 %
Purchase volume (8)
  $ 2,057     $ 1,936     $ 2,273     $ 2,221     $ 2,136  

 
Page 10

 

CAPITAL ONE FINANCIAL CORPORATION (COF)
COMMERCIAL BANKING SEGMENT FINANCIAL & STATISTICAL SUMMARY FOR CONTINUING OPERATIONS
MANAGED BASIS (1)

   
2010
   
2010
   
2009
   
2009
   
2009
 
(Dollars in millions) (unaudited)
  Q2     Q1     Q4     Q3     Q2  
Commercial Banking:
                                       
Earnings
                                       
Net interest income
  $ 319     $ 312     $ 318     $ 301     $ 279  
Non-interest income
    60       42       38       43       49  
Total revenue
  $ 379     $ 354     $ 356     $ 344     $ 328  
Provision for loan and lease losses
    62       238       368       375       122  
Non-interest expense
    198       192       197       166       156  
Income (loss) before taxes
    119       (76 )     (209 )     (197 )     50  
Income tax provision (benefit)
    42       (27 )     (73 )     (69 )     17  
Net income (loss)
  $ 77     $ (49 )   $ (136 )   $ (128 )   $ 33  
                                         
Selected Metrics
                                       
Period end loans held for investment
  $ 29,575     $ 29,612     $ 29,613     $ 29,813     $ 30,175  
Average loans held for investment
  $ 29,533     $ 29,723     $ 29,867     $ 30,073     $ 30,565  
Loans held for investment yield
    4.94 %     5.03 %     5.11 %     5.06 %     5.01 %
Period end deposits
  $ 21,527     $ 21,605     $ 20,480     $ 18,617     $ 16,897  
Average deposits
  $ 22,171     $ 21,859     $ 19,420     $ 17,761     $ 17,021  
Deposit interest expense rate
    0.67 %     0.72 %     0.80 %     0.75 %     0.77 %
Core deposit intangible amortization
  $ 14     $ 14     $ 14     $ 10     $ 10  
Net charge-off rate (3)
    1.21 %     1.37 %     2.91 %     1.42 %     0.89 %
Nonperforming loans as a percentage of loans held for investment (3)
    2.04 %     2.48 %     2.37 %     2.65 %     2.33 %
Nonperforming asset rate (3)
    2.20 %     2.64 %     2.52 %     2.84 %     2.47 %

 
Page 11

 

CAPITAL ONE FINANCIAL CORPORATION (COF)
CONSUMER BANKING SEGMENT FINANCIAL & STATISTICAL SUMMARY FOR CONTINUING OPERATIONS
MANAGED BASIS (1)

   
2010
   
2010
   
2009
   
2009
   
2009
 
(Dollars in millions) (unaudited)
  Q2     Q1     Q4     Q3     Q2  
Consumer Banking:
                                       
Earnings
                                       
Net interest income
  $ 935     $ 896     $ 833     $ 848     $ 826  
Non-interest income
    162       316       153       212       226  
Total revenue
  $ 1,097     $ 1,212     $ 986     $ 1,060     $ 1,052  
Provision for loan and lease losses
    (112 )     50       249       156       202  
Non-interest expenses
    735       688       749       681       725  
Income (loss) before taxes
    474       474       (12 )     223       125  
Income tax provision (benefit)
    169       169       (4 )     78       44  
Net income (loss)
  $ 305     $ 305     $ (8 )   $ 145     $ 81  
                                         
Selected Metrics
                                       
Period end loans held for investment
  $ 35,313     $ 36,383     $ 38,214     $ 40,149     $ 41,848  
Average loans held for investment
  $ 35,660     $ 38,245     $ 39,114     $ 41,076     $ 42,722  
Loans held for investment yield
    8.99 %     8.96 %     8.83 %     8.89 %     8.69 %
Auto loan originations
    1,765       1,343       1,018       1,513       1,342  
Period end deposits
  $ 77,407     $ 76,883     $ 74,145     $ 72,253     $ 73,883  
Average deposits
  $ 77,082     $ 75,115     $ 72,976     $ 73,284     $ 74,321  
Deposit interest expense rate
    1.18 %     1.27 %     1.41 %     1.58 %     1.76 %
Core deposit intangible amortization
  $ 36     $ 38     $ 40     $ 46     $ 47  
Net charge-off rate (3)
    1.47 %     2.03 %     2.85 %     2.69 %     2.23 %
Nonperforming loans as a percentage of loans held for investment (3) (4)
    1.82 %     1.62 %     1.45 %     1.26 %     1.08 %
Nonperforming asset rate (3) (4)
    2.00 %     1.76 %     1.60 %     1.39 %     1.21 %
30+ day performing delinquency rate (3) (4)
    4.15 %     4.13 %     5.43 %     5.19 %     4.73 %
Period end loans serviced for others
  $ 23,730     $ 26,778     $ 30,283     $ 30,659     $ 31,492  

 
Page 12

 

CAPITAL ONE FINANCIAL CORPORATION (COF)
OTHER AND TOTAL SEGMENT FINANCIAL & STATISTICAL SUMMARY FOR CONTINUING OPERATIONS
MANAGED BASIS (1)

   
2010
   
2010
   
2009
   
2009
   
2009
 
(Dollars in millions) (unaudited)
  Q2     Q1     Q4     Q3     Q2  
Other:
                                       
Earnings
                                       
Net interest income (expense)
  $ (132 )   $ (91 )   $ (11 )   $ 39     $ 55  
Non-interest income (expense)
    (74 )     (14 )     111       150       17  
Total revenue
  $ (206 )   $ (105 )   $ 100     $ 189     $ 72  
Provision for loan and lease losses
    10       18       24       26       60  
Restructuring expenses (9)
    -       -       32       26       43  
Non-interest expense
    65       53       27       31       88  
Income (loss) before taxes
    (281 )     (176 )     17       106       (119 )
Income tax benefit
    (143 )     (151 )     (21 )     (22 )     (61 )
Net income (loss)
  $ (138 )   $ (25 )   $ 38     $ 128     $ (58 )
                                         
Selected Metrics
                                       
Period end loans held for investment (2)
  $ 470     $ 464     $ 452     $ 659     $ 695  
Average loans held for investment (2)
  $ 464     $ 489     $ 460     $ 483     $ 536  
Period end deposits
  $ 18,397     $ 19,299     $ 21,184     $ 23,633     $ 25,945  
Average deposits
  $ 19,231     $ 20,556     $ 22,202     $ 24,837     $ 28,262  
                                         
Total:
                                       
Earnings
                                       
Net interest income
  $ 3,099     $ 3,230     $ 3,169     $ 3,212     $ 2,957  
Non-interest income
    807       1,062       1,199       1,372       1,190  
Total revenue
  $ 3,906     $ 4,292     $ 4,368     $ 4,584     $ 4,147  
Provision for loan and lease losses
    725       1,481       1,845       2,201       1,904  
Restructuring expenses (9)
    -       -       32       26       43  
Non-interest expense
    2,000       1,847       1,916       1,775       1,879  
Income before taxes
    1,181       964       575       582       321  
Income tax provision
    369       244       171       145       92  
Net income
  $ 812     $ 720     $ 404     $ 437     $ 229  
                                         
Selected Metrics
                                       
Period end loans held for investment
  $ 127,255     $ 130,265     $ 136,803     $ 140,990     $ 146,117  
Average loans held for investment
  $ 128,336     $ 134,379     $ 138,184     $ 143,540     $ 148,013  
Period end deposits
  $ 117,331     $ 117,787     $ 115,809     $ 114,503     $ 116,725  
Average deposits
  $ 118,484     $ 117,530     $ 114,598     $ 115,882     $ 119,604  

 
Page 13

 

CAPITAL ONE FINANCIAL CORPORATION (COF)
LOAN DISCLOSURES AND SEGMENT
FINANCIAL & STATISTICAL SUMMARY FOR CONTINUING OPERATIONS NOTES

(1)
Prior to the adoption of the new consolidation accounting standards management evaluated the Company and each of its lines of business results on a "managed' basis, which is a non-GAAP measure. With the adoption of the new consolidation accounting standards, the Companys reported results are comparable to the "managed" basis, which now reflect the consolidation of the majority of the Company's credit card securitization trusts. However, the Company's total segment results differs from its reported consolidated results because our segment results include the loans underlying one of our securitization trusts that remains unconsolidated.  The outstanding balance of the loans in this off-balance sheet trust are reflected in our segment results was $114.8 million as of June 30, 2010.The accompanying Exhibit "Reconciliation to GAAP Financial Measures" presents a reconciliation of the Company's non-GAAP "managed " results to its GAAP results for periods prior to January 1, 2010.

(2)
Other loans held for investment includes unamortized premiums and discounts on loans acquired as part of North Fork and Hibernia acquisitions.

(3)
The denominator used in calculating the allowance as a % of Loans Held for Investment, Net Charge-off Rate and 30+ Day Performing Delinquency Rate include loans acquired as part of the Chevy Chase Bank, FSB ("CCB") acquisition. The metrics excluding such loans are as follows.

      Q2 2010       Q1 2010       Q4 2009       Q3 2009       Q2 2009  
CCB period end acquired loan portfolio (in millions)(unaudited)
  $ 6,381     $ 6,799     $ 7,251     $ 7,885     $ 8,644  
CCB average acquired loan portfolio (in millions)(unaudited)
  $ 6,541     $ 7,037     $ 7,512     $ 8,029     $ 8,499  
Net charge-off rate
                                       
Commercial and Multifamily Real Estate
    1.19 %     1.48 %     3.05 %     1.38 %     0.95 %
Middle Market
    0.82 %     0.87 %     0.75 %     0.56 %     0.61 %
Total Commercial Lending
    1.01 %     1.48 %     2.05 %     1.08 %     0.83 %
Total Commercial Banking
    1.24 %     1.41 %     2.93 %     1.43 %     0.92 %
                                         
Mortgage
    0.77 %     1.02 %     1.24 %     1.24 %     0.77 %
Retail Banking
    2.23 %     2.22 %     3.20 %     2.57 %     2.56 %
Total Consumer Banking
    1.76 %     2.28 %     3.45 %     3.28 %     2.72 %
                                         
30+ day performing delinquency rate
                                       
Mortgage
    1.14 %     1.58 %     2.18 %     2.06 %     1.76 %
Retail Banking
    0.91 %     1.07 %     1.30 %     1.33 %     0.96 %
Total Consumer Banking
    4.93 %     4.95 %     6.56 %     6.27 %     5.61 %
                                         
Nonperforming asset rate
                                       
Commercial and Multifamily Real Estate
    2.90 %     3.71 %     3.34 %     2.79 %     2.25 %
Middle Market
    1.25 %     1.23 %     1.13 %     1.30 %     1.21 %
Total Commercial Lending
    2.16 %     2.60 %     2.39 %     2.15 %     1.85 %
Total Commercial Banking
    2.26 %     2.72 %     2.62 %     2.95 %     2.54 %
                                         
Mortgage
    6.30 %     5.36 %     3.88 %     3.24 %     2.73 %
Retail Banking
    2.37 %     2.17 %     2.23 %     2.09 %     1.88 %
Total Consumer Banking
    2.38 %     2.11 %     1.93 %     1.68 %     1.47 %
                                         
Nonperforming loans as a percentage of loans held for investment
                                       
Commercial Banking
    2.09 %     2.55 %     2.43 %     2.72 %     2.41 %
Consumer Banking
    2.16 %     1.93 %     1.75 %     1.53 %     1.32 %

(4)
Includes nonaccrual consumer auto loans 90+ days past due.

(5)
Nonperforming assets consist of nonperforming loans and real estate owned ("REO") and foreclosed assets. The nonperforming asset ratios are calculated based on nonperforming assets for each segment divided by the combined total of loans held for investment, REO and foreclosed assets for the segment.

(6)
The Company's policy is not to classify delinquent credit card loans as nonperforming as permitted by regulatory guidance. Instead, we continue to accrue finance charges and fees on credit card loans until the loan is charged off, typically when the account becomes 180 days past due.  Billed finance charges and fees considered uncollectible are not recognized in income.

(7)
During Q4 2009, the Company reclassified $127.5 million of small ticket commercial real estate from loans held for investment to loans held for sale and recognized charge-offs of $79.5 million.

(8)
Includes all purchase transactions net of returns.  Excludes cash advance transactions.

(9)
The Company completed its 2007 restructuring initiative during 2009.
 
 
Page 14

 
 

FOR IMMEDIATE RELEASE: July 22, 2010
 
 
Contacts:
 
Jeff Norris
 
Danielle Dietz
 
Tatiana Stead
 
Julie Rakes
   
Investor Relations
 
Investor Relations
 
Media Relations
 
Media Relations
   
703-720-2455
 
703-720-2455
 
703-720-2352
 
804-284-5800


Capital One Reports Second Quarter 2010 Net Income of $608 million,
or $1.33 per share (diluted), up from a loss of $(0.66) in the second quarter of 2009
Revenues of $3.9 billion were up $727 million, or 22.9 percent, as compared to same quarter a year ago
Operating Earnings of $812 million increased $583 million, more than doubling as compared to same quarter a year ago
Domestic Card charge-off rate improved almost 100 basis points in the quarter to 9.49 percent; delinquencies were down 51 basis points

McLean, Va. (July 22, 2010) – Capital One Financial Corporation (NYSE: COF) today announced net income for the second quarter of 2010 of $608 million, or $1.33 per common share (diluted), versus first quarter 2010 net income of $636 million, or $1.40 per common share (diluted). This compares with a loss in the second quarter of 2009 of $(277) million, or $(0.66) per share (diluted). Income from continuing operations of $812 million increased $92 million, or 12.8 percent, from $720 million in the first quarter of 2010 and $583 million, or 255 percent, from $229 million in the second quarter of 2009.

“Capital One has demonstrated considerable resilience throughout the recession and the ongoing legislative and regulatory changes reshaping the financial services industry," said Richard D. Fairbank, Capital One’s Chairman and Chief Executive Officer.  “While economic and regulatory uncertainty remains, those same forces are creating attractive opportunities for Capital One.  We continue to be well positioned to take advantage of emerging opportunities and deliver significant shareholder value over the long-term.”

 
 

 

Capital One – Second Quarter 2010 Results
Page 2

Total Company Results

·
Total revenue in the second quarter of 2010 declined $385 million, or 9.0 percent, from the first quarter of 2010 to $3.9 billion as average loans declined 4.5 percent with no offsetting increase in margin. Non-interest income decreased $254 million in the second quarter, or 23.9 percent relative to the prior quarter, due to the absence of one-time benefits experienced in the first quarter and an expected decline in overlimit fees in the Domestic Card business. Net interest income decreased $131 million, or 4.1 percent.

·
Net interest margin was stable at 7.09 percent, driven by a 7 basis point decrease in the cost of funds, partially offset by a 5 basis point decrease in loan yields.

·
Provision expense decreased $755 million from the prior quarter, or 51.1 percent, driven by lower charge-offs and a reduction in allowance balance of $1.0 billion. Charge-offs and delinquencies improved across our consumer businesses, with the exception of an expected seasonal up-tick in auto delinquencies. Commercial Banking charge-offs and non-performing asset rates improved in the quarter.

·
The continued improvement in credit drove allowance releases in all of the company’s businesses in the second quarter, totaling $1.0 billion for the company. This compares to an allowance release of $566 million in the first quarter of 2010. The Card segment released $665 million, with the majority of that coming from the Domestic Card sub-segment. Better than expected loss performance in the portfolio and a lower level of delinquencies were the primary drivers of the second quarter allowance release.  In addition, the $1.9 billion of lower period-end loans require lower allowance, all else being equal.  The allowance as a percentage of outstanding loans was 5.35 percent at the end of the second quarter of 2010 as compared with 6.0 percent at the end of the prior quarter.

·
Period-end total assets decreased by $3.2 billion, or 1.6 percent, from the first quarter of 2010 to      $197.5 billion at the end of the second quarter of 2010, with $3.0 billion of the decline coming from loans held for investment. Expected run-off continues in our Installment Loan portfolio in Domestic Card, our Mortgage portfolio in Consumer Banking, and our Small Ticket CRE portfolio in Commercial Banking. Loans held for investment at June 30, 2010 were $127.1 billion, a decline of 2.3 percent from the prior quarter.

 
 

 

Capital One – Second Quarter 2010 Results
Page 3

·
Average total deposits during the quarter were $118.5 billion, an increase of $1.0 billion, or 0.8 percent, over the prior quarter. Period-end total deposits decreased by $0.5 billion, or 0.4 percent, to $117.3 billion.

·
The cost of funds decreased to 1.69 percent in the second quarter from 1.76 percent in the prior quarter.

·
Non-interest expenses of $2.0 billion increased $153 million in the second quarter of 2010 from the prior quarter, driven primarily by one-time expenses and infrastructure expenses, as well as an increase in marketing.

·
The company’s TCE ratio increased to 6.1 percent, up 60 basis points from the first quarter 2010 ratio of 5.5 percent. The Tier 1 risk-based capital ratio of 9.9 percent increased 30 basis points relative to the ratio of 9.6 percent in the prior quarter.  The recent enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act may have an impact on the Tier 1 treatment of the companys approximately $3.5 billion of trust preferred securities and provides for a phase-in period expected to begin in 2013.  Given the potential change in capital treatment of these securities, the company anticipates that it will determine whether to exercise its rights to redeem its trust preferred securities at or near the beginning of the phase-in period.  The company looks forward to receiving clarity on these issues through rule-making and other regulatory action.

 Capital One posted strong bottom-line results in the quarter, as the ongoing improvement in credit performance drove a material reduction in provision expense,” said Gary L. Perlin, Capital One’s Chief Financial Officer. “Taking into account our improved capital ratios and historically high allowance for loan losses, our total risk-bearing capacity is now greater than it was at any point during the financial crisis, even as we’re past the peak in credit losses.”

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.

 
 

 

Capital One – Second Quarter 2010 Results
Page 4

Credit Card Highlights

For more lending information and statistics on the segment results, please refer to the Financial Supplement.

·
Revenues relative to the prior quarter:

 
Domestic Card – declined $188.0 million, or 7.6 percent
 
International Card – declined $7.0 million, or 2.0 percent

·
Period-end loans in the Domestic Card segment were $54.6 billion in the second quarter, a decline of          $1.6 billion, or 2.9 percent, from the prior quarter as the Installment Loan portfolio continued to run off. International credit card loans declined in the quarter by $309 million, or 4.1 percent, to $7.3 billion.

·
As expected, revenue margin in the Domestic Card sub-segment declined in the quarter. Revenue margin fell 48 basis points to16.61 percent in the second quarter from 17.09 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 the end of 2010 or early 2011.

·
Non-interest expense increased $88 million, or 9.6 percent, in the second quarter primarily due to higher marketing expense in Domestic Card and tax accruals in International Card.

·
Domestic Card provision expense decreased $421 million in the second quarter, or 38.4 percent, relative to the prior quarter. The lower provision expense resulted from both lower charge-offs and an allowance release in the quarter.

·
Net charge-off rates relative to the prior quarter:

 
Domestic Card – improved 99 basis points to 9.49 percent from 10.48 percent
 
International Card – improved 45 basis points to 8.38 percent from 8.83 percent

·
Delinquency rates relative to the prior quarter:

 
Domestic Card – improved 51 basis points to 4.79 percent from 5.30 percent
 
International Card – improved 36 basis points to 6.03 percent from 6.39 percent

·
Purchase volumes in Domestic Card increased $2.6 billion, or 11.0 percent, relative to the prior quarter.

Commercial Banking Highlights

For more lending information and statistics on the segment results, please refer to the Financial Supplement.

 
 

 

Capital One – Second Quarter 2010 Results
Page 5

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.

·
Commercial Banking reported net income improved to $77 million in the second quarter compared to a net loss in of $49 million in the first quarter, largely as a result of improving credit.

·
Total revenue increased $25 million, or 7.1 percent, during the quarter to $379 million.

·
Period-end loans in Commercial Banking were $29.6 billion, essentially even with the prior quarter.

·
Average deposits increased by $312 million, or 1.4 percent, to $22.2 billion during the second quarter, while the deposit interest expense rate improved 5 basis points to 67 basis points.

·
Provision expense decreased $176 million relative to the prior quarter as a result of lower charge-offs and an allowance release in the quarter.

·
Charge-off rate relative to the prior quarter:

 
Total Commercial Banking –1.21percent, a decline of 16 basis points
 
Commercial lending – 0.98 percent, a decline of 16 basis points
 
Small ticket commercial real estate – 4.21 percent, a decline of 22 basis points

·
Non-performing asset rate relative to the prior quarter:

 
Total Commercial Banking – 2.20 percent, a decline of 44 basis points
 
Commercial lending – 2.10 percent, a decline of 42 basis points
 
Small ticket commercial real estate – 3.57 percent, a decline of 61 basis points

Consumer Banking highlights

For more lending information and statistics on the segment’s results, please refer to the Financial Supplement.

·
Total revenue decreased $115 million, or 9.5 percent, during the quarter to $1.1 billion.

·
Provision expense decreased $162 million relative to the prior quarter as a result of lower charge-offs and a larger allowance release relative to the prior quarter.

·
Period-end loans relative to the prior quarter:

 
Auto – declined $225 million, or 1.3 percent, to $17.2 billion.
 
Mortgage – declined $645 million, or 4.6 percent, to $13.3 billion. Mortgage loans continued to reflect expected run-off in the portfolio.
 
Retail banking – declined $200 million, or 4.0 percent, to $4.8 billion.

·
Auto loan originations increased 31.4 percent over the prior quarter to $1.8 billion in the second quarter.

 
 

 

Capital One – Second Quarter 2010 Results
Page 6

·
Average deposits in Consumer Banking increased $2.0 billion, or 2.6 percent, to $77.1 billion during the second quarter. Improving interest rates and disciplined pricing drove a 9 basis point decline in the deposit interest expense rate in the quarter.

·
Net charge-off rates relative to the prior quarter:

 
Auto – 2.09 percent, a decrease of 88 basis points
 
Mortgage – 0.46 percent, an decrease of 48 basis points
 
Retail banking –  2.11 percent, even with the prior quarter

TCE and related ratios, as used throughout this release, are non-GAAP financial measures.  For additional information, see Exhibit 99.3 included in the company’s current report on Form 8-K filed July 22, 2010.

Forward looking statements

The company cautions that its current expectations in this release dated July 22, 2010; 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 (including the impact of the Dodd-Frank Act and the regulations to be promulgated thereunder), 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 report on Form 10-K for the fiscal year ended December 31, 2009 and report on Form 10-Q for the quarter ended March 31, 2010.

 
 

 

Capital One – Second Quarter 2010 Results
Page 7

About Capital One
Capital One Financial Corporation (www.capitalone.com) is a financial holding company whose subsidiaries, which include Capital One, N.A. and Capital One Bank (USA), N. A., had $117.3 billion in deposits and     $197.5 billion in total assets outstanding as of June 30, 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.

###

NOTE: Second quarter 2010 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.
 
 

ex99_2.htm

Exhibit 99.2
Second Quarter 2010 Results
July 22, 2010
 
 

 
2
July 22, 2010
Please note that the following materials containing information regarding Capital One’s financial performance speak only as of the particular date or dates
indicated in these materials. Capital One does not undertake any obligation to update or revise any of the information contained herein whether as a result
of new information, future events or otherwise.
Certain statements in this presentation and other oral and written statements made by Capital One from time to time are forward-looking statements,
including those that discuss, among other things, strategies, goals, outlook or other non-historical matters; projections, revenues, income, returns,
accruals for claims in litigation and for other claims against us, earnings per share or other financial measures for Capital One; future financial and
operating results; and Capital One’s plans, objectives, expectations and intentions; and the assumptions that underlie these matters.  To the extent that
any such information is forward-looking, it is intended to fit within the safe harbor for forward-looking information provided by the Private Securities
Litigation Reform Act of 1995. Numerous factors could cause our actual results to differ materially from those described in such forward-looking
statements, including, among other things:  general economic and business conditions in the U.S., the UK, or Capital One’s local markets, including
conditions affecting employment levels, interest rates, consumer income and confidence, spending and savings that may affect consumer bankruptcies,
defaults, charge-offs and deposit activity; an increase or decrease in credit losses (including increases due to a worsening of general economic conditions
in the credit environment); financial, legal, regulatory (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the
regulations to be promulgated thereunder), tax or accounting changes or actions, including with respect to any litigation matter involving Capital One;
increases or decreases in interest rates; the success of Capital One’s marketing efforts in attracting and retaining customers; the ability of Capital One to
securitize our credit cards and consumer loans and to otherwise access the capital markets at attractive rates and terms to capitalize and fund its
operations and future growth; with respect to financial and other products, increases or decreases in Capital One’s aggregate loan balances and/or the
number of customers and the growth rate and composition thereof, including increases or decreases resulting from factors such as a shifting product mix,
the amount of actual marketing expenses made by Capital One and attrition of loan balances; the level of future repurchase or indemnification requests
Capital One may receive, the actual future performance of loans relating to such requests, the success rates of claimants against Capital One, any
developments in litigation, and the actual recoveries Capital One may make on any collateral relating to claims against us; the amount and rate of deposit
growth; Capital One’s ability to control costs; changes in the reputation of or expectations regarding the financial services industry and/or Capital One with
respect to practices, products or financial condition; any significant disruption in Capital One’s operations or technology platform; Capital One’s ability to
maintain a compliance infrastructure suitable for its size and complexity; the amount of, and rate of growth in, Capital One’s expenses as Capital One’s
business develops or changes or as it expands into new market areas; Capital One’s ability to execute on its strategic and operational plans; any
significant disruption of, or loss of public confidence in, the United States Mail service affecting our response rates and consumer payments; Capital One’s
ability to recruit and retain experienced personnel to assist in the management and operations of new products and services; changes in the labor and
employment markets; the risk that cost savings and any other synergies from Capital One’s acquisitions may not be fully realized or may take longer to
realize than expected; disruptions from Capital One’s acquisitions negatively impacting Capital One’s ability to maintain relationships with customers,
employees or suppliers; competition from providers of products and services that compete with Capital One’s businesses; and other risk factors listed
from time to time in reports that Capital One files with the Securities and Exchange Commission (the “SEC”), including, but not limited to, the Annual
Report on Form 10-K for the year ended December 31, 2009. You should carefully consider the factors discussed above in evaluating these forward-
looking statements. All information in these slides is based on the consolidated results of Capital One Financial Corporation, unless otherwise noted. A
reconciliation of any non-GAAP financial measures included in this presentation can be found in Capital One’s most recent Form 10-K concerning annual
financial results and in our most recent Form 8-K filed July 22, 2010, available on Capital One’s website at www.capitalone.com under “Investors”.
Forward looking statements
 
 

 
3
July 22, 2010
Net Interest Income
Non Interest Income
Revenue
Marketing Expense
Operating Expense
Non-Interest Expense
Pre-Provision Earnings (before tax)
Net Charge-offs
Other
Allowance Build (Release)
Provision Expense
Discontinued Operations, net of tax
Total Company (after tax)
EPS Available to Common Shareholders
Tax Expense
Change
Pretax Income
$MM
3,228
1,061
4,289
180
1,667
1,847
2,442
2,018
26
(566)
1,478
636
720
(83)
$1.40
964
244
Q110
 
 
 
 
 
 
 
 
 
 
Operating Earnings (after tax)
Q210
 
 
 
 
 
 
 
 
 
 
 
 
3,097
807
3,904
219
1,781
2,000
1,904
1,717
12
(1,006)
723
608
812
(204)
$1.33
1,181
369
 
(131)
(254)
(385)
39
114
153
(538)
(301)
14
440
(755)
(28)
92
(121)
217
125
 
 
 
 
 
 
Second quarter earnings were $608MM or $1.33 per share, compared to
$636MM or $1.40 per share in the first quarter
Highlights
  Income from continuing operations up 13% quarter
 over quarter
  Revenue declined $385MM, or 9%
  4.5% decline in average loans
  Stable net interest margin (NIM)
  Decline in non-interest income primarily driven by:
 § lower one-time benefits than Q1 (mortgage
 I/O bond sale and securities sales)
 § Full quarter impact of reduced overlimit fees
  Non-Interest expenses up $153MM
  Operating expense increased due to one-time
 expenses and infrastructure investments
  Marketing expenses up $39MM
  Provision expense declined $755MM or 51%; charge
 offs down $301MM
  Rep & warranty expense of $404MM
  $309MM in discontinued operations
($0.07)
 
 

 
4
July 22, 2010
The pace of loan contraction slowed in the quarter and funding costs
continued to improve
Liability Highlights
Asset Highlights
  Consumer/Card loans down $3.0B or 2.3%
  $2.0B decline in run-off portfolios
  Charge-offs still elevated at $1.7B
  Commercial commitments up ~$500MM; loan
 balances stable
  Cost of funds decreased to 1.69% in second quarter
 from 1.76% in the first quarter
  Continued shift to lower priced deposits
  Loan to deposit ratio at 1.08
1 Managed portfolio data Q3-Q409
End of Period Assets1
Domestic Card
Commercial
Int’l Card
Consumer
$B
Other
 Cash & Cash
 Equivalents
Securities
End of Period Liabilities 1
 
 

 
5
July 22, 2010
Allowance coverage ratios remain high
Allowance Balance
$MM
Allowance as % of
Reported 30+ Delinquencies
Commercial Lending Allowance as % of
Non-Performing Loans
Allowance as % of Loans
Total Company: 4.43%  4.44%  4.67%  4.55%  5.96%  5.36%
Consumer Banking
Credit Card
Commercial Banking
Domestic Card
Int’l Card
Auto Finance
Commercial
 
 

 
6
July 22, 2010
Tier 1 Capital to
Risk Weighted Assets
Our capacity to absorb risk remains high
 Other
 Tier 1
 Common
11.9%
13.8%
Tangible Common Equity + Allowance to
Tangible Managed Assets
6.3%
 Allowance
 TCE
5.5%
6.2%
8.4%
9.7%
8.5%
9.6%
6.1%
9.8%
9.9%
 
 

 
7
July 22, 2010
Margins as % of Managed Assets
Revenue Margin
Net Interest Margin
Revenue Margin
NIM remained stable in the quarter, as modest funding cost improvements
were offset by modest declines in asset yield
Funding costs improved modestly
 Favorable interest rates
 Mix shift from wholesale funding to bank deposits
Asset yields declined modestly
 Greater mix of investment securities vs. loans
Domestic Card Revenue margin declined in Q210
 Decline in overlimit fees in non-interest income
 Expect quarterly Domestic Card revenue margin to
 decline to around 15% by early 2011
Domestic Card Revenue Margin
 
 

 
8
July 22, 2010
Domestic Card
Commercial Banking
Consumer Banking
Commentary
 Expected run off continues in ILs, Mortgages, and
 Small ticket CRE
 Consumer and Commercial demand remains weak
 
 
Partially offset by:
 Lower charge-offs
 Pockets of origination growth in Domestic Card, Auto
 Finance
$B
$B
 Commercial
 Lending
 Small Ticket
 CRE
 Auto & Retail
 Mortgage
$B
 Domestic
 Card
 Installment
 Loans
Loan balances continued to decline, but at a slower pace
 
 

 
9
July 22, 2010
Charge-off rates improved across our consumer lending businesses
Domestic Credit Card ($55.3B*)
Net Charge-off Rate
30+ Delinquency Rate
Mortgage Credit ($13.6B*)
International Credit Card ($7.4B*)
Net Charge-off Rate
30+ Delinquency Rate
Net Charge-off Rate
30+ Delinquency Rate
Net Charge-off Rate
30+ Delinquency Rate
* Average assets for Q2
Auto Credit ($17.3B*)
 
 

 
10
July 22, 2010
Commercial Banking non-performing asset rates and charge-off rates
improved
Total Commercial Banking ($29.6B*)
Non Performing
Asset Rate
Commercial & Multi Family ($13.6B*)
Non Performing
Asset Rate
Total Commercial Lending
Excluding Small Ticket CRE ($27.6B*)
Non Performing
Asset Rate
Charge-off
Rate
Non Performing
Asset Rate
Charge-off
Rate
* Period end assets for Q2
Middle Market ($10.2B*)
 
 

 
11
July 22, 2010
 Fragile economic recovery
 
 Consumer demand
 
 Regulatory risk
We remain well positioned to deliver significant shareholder value over the
long term
 Businesses with
 sustainable, above-hurdle
 returns
 Positioned to grow as
 consumer demand
 returns
 Emerging opportunities
 in the aftermath of
     recession and regulatory
     reform
 Strong and resilient
 balance sheet
Elevated Uncertainty
Long-Term Value
Near-Term Trends
 Expect lower pre-
 provision earnings into
 2011
 Bottom line cushioned by
 lower provision expense
 Expect path to normalized
 earnings to become
 evident in quarterly
 results in 2011
 
 

 
12
July 22, 2010
Appendix
 
 

 
13
July 22, 2010
Q2 2009
Q2 2010
Q1 2010
Domestic Card profits increased, as the decline in pre-provision earnings was
more that offset by lower provision expense
Highlights
Domestic Card
 Pre-provision earnings declined, as
 expected
 ­ Lower loan balances
 ­ Expected decline in revenue margin
 ­ Higher non-interest expense
 Lower provision expense
 ­ Charge-offs improved from first
 quarter peak levels
 ­ Allowance release driven by lower
 balances and improving credit trends
 Delinquency rate improved 51 basis points
 from Q110
 Loans continued to decline, but at a slower
 pace
 ­ Loans down $1.6 billion vs. $4.1
 billion first quarter decline
 ­ Continuing IL run off drove the
 second quarter decline
 Purchase volumes increased vs. Q110
 and Q209
Net interest income
Non-interest income
Total revenue
Provision for loan and lease losses
Non-interest expenses
Income (loss) before taxes
Income taxes (benefit)
Net income (loss)
Selected Metrics
Period end loans held for investment
Average loans held for investment
Loans held for investment yield
Revenue Margin
Net charge-off rate
30+ day performing delinquency rate
Purchase Volume
618
1,096
809
2,483
578
206
372
56,228
58,108
14.78%
17.09%
5.30%
21,988
1,865
10.48%
Earnings
(in millions)
560
675
869
2,295
751
268
483
54,628
55,252
13.98%
16.61%
4.79%
24,513
1,735
9.49%
795
1,336
788
2,381
257
90
167
64,760
65,862
12.17%
14.46%
4.77%
23,611
1,586
9.23%
 
 

 
14
July 22, 2010
Q2 2009
Q2 2010
Q1 2010
The International Card businesses posted another quarter of solid profitability,
with stable revenue and improving credit metrics
Highlights
International Card
 Revenues relatively stable, with modest
 pressure from FX movements
 Non Interest expense increased, driven by
 $25 million charge related to the enactment
 of the Canada Goods and Services Tax
 Provision expenses increased modestly
 ­ Lower charge-offs
 ­ Smaller allowance release than Q1
 Delinquency rate improved 36 basis points
 from Q110
 Loans continued to decline, but at a slower
 pace
 ­ Loans down $309 million in the
 quarter, compared to $646 million first
 quarter decline
 Purchase volumes increased modestly
Net interest income
Non-interest income
Total revenue
Provision for loan and lease losses
Non-interest expenses
Income (loss) before taxes
Net income (loss)
Selected Metrics
Period end loans held for investment
Average loans held for investment
Loans held for investment yield
Revenue Margin
Net charge-off rate
30+ day performing delinquency rate
Purchase Volume
100
79
105
348
164
47
117
7,578
7,814
15.66%
17.81%
6.39%
1,936
248
8.83%
Earnings
(in million)
Income taxes (benefit)
99
90
133
341
118
33
85
7,269
7,427
16.21%
18.37%
6.03%
2,057
242
8.38%
103
184
122
314
8
2
6
8,639
8,328
13.40%
15.08%
6.69%
2,136
211
9.32%
 
 

 
 
15
July 22, 2010
Q2 2009
Q2 2010
Q1 2010
The Commercial Banking business returned to profitability, with increasing
revenue and sharply lower provision expense
Highlights
Commercial Banking
 Revenues increased modestly
 ­ NII up, driven by growth in average
 deposits, with lower deposit interest
 expense
 ­ Non-interest income, driven by
 growth in fee income
 Sharply lower provision expense, resulting
 from improving credit
 ­ Lower charge-offs and NPLs
 ­ Allowance release
 ­ Allowance as % of NPLs increased,
 despite the Q2 release
 Relatively stable loan balances, modest
 decline in loan yields
 Modest increase in average deposits,
 with improved deposit interest expense
 rate
 Non-performing asset rate improved 44
 bps compared to Q110
Net interest income
Non-interest income
Total revenue
Provision for loan and lease losses
Non-interest expenses
Income (loss) before taxes
Net income (loss)
Selected Metrics
Period end loans held for investment
Average loans held for investment
Loans held for investment yield
Period end deposits
Average deposits
Deposit interest expense rate
Core deposit intangible amortization
Net charge-off rate
42
238
192
354
(76)
(27)
(49)
29,612
29,723
5.03%
21,605
21,859
14
1.37%
312
0.72%
Earnings
Non-performing loans as a %
 of loans HFI
Non-performing asset rate
2.64%
2.48%
(in millions)
Income taxes (benefit)
60
62
198
379
119
42
77
29,575
29,533
4.94%
21,527
22,171
14
1.21%
319
0.67%
2.20%
2.04%
49
122
156
328
50
(17)
33
30,175
30,565
5.01%
16,897
17,021
10
0.89%
279
0.77%
2.47%
2.33%
 
 

 
16
July 22, 2010
Q2 2009
Q2 2010
Q1 2010
Consumer Banking net income was flat, as the decline in pre-provision
earnings was cushioned by lower provision expense
Highlights
Consumer Banking
 Revenues declined
 ­ NII up modestly, with growth in
 average deposits and lower deposit
 interest expense rate
 ­ Non Interest Income down, driven by
 absence of Q1 benefit from sale of
 I/O Bonds
 Significant improvement in provision
 expense
 ­ Lower charge-offs
 ­ Significant allowance release from
 improving outlook in all Consumer
 Banking businesses
 Non-interest expenses increased, driven
 by bank infrastructure investments
 Loans continued to decline, but at a
 slower pace
 ­ Loans down ~$1 billion, vs. ~$1.8
 billion first quarter decline
 ­ Continuing mortgage run off drove
 the second quarter decline
 Auto originations increased 32%
Net interest income
Non-interest income
Total revenue
Provision for loan and lease losses
Non-interest expenses
Income (loss) before taxes
Net income (loss)
Selected Metrics
Period end loans held for investment
Average loans held for investment
Loans held for investment yield
Auto loan originations
Period end deposits
Average deposits
Deposit interest expense rate
Core deposit intangible amortization
316
50
688
1,212
474
169
305
36,383
38,245
8.96%
1,343
76,883
1.27%
38
896
75,115
Earnings
Non-performing loans as a %
 of loans HFI
Non-performing asset rate
1.76%
1.62%
Net charge-off rate
2.03%
30+ day performing delinquency rate
4.13%
Period end loans serviced for others
26,778
(in millions)
Income taxes (benefit)
162
(112)
735
1,097
474
169
305
35,313
35,660
8.99%
1,765
77,407
1.18%
36
935
77,082
2.00%
1.82%
1.47%
4.15%
23,730
226
202
725
1,052
125
44
81
41,848
42,722
8.69%
1,342
73,883
826
74,321
1.08%
4.73%
31,492
1.76%
47
2.23%
1.21%
 
 

 
 
 

ex99_3.htm

Exhibit 99.3

Capital One Financial Corporation
Reconciliation of Reported GAAP Measures to Managed Basis Non-GAAP Measures

We refer to our consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") as our "reported" or GAAP financial statements.  Effective January 1, 2010, we prospectively adopted two new consolidation accounting standards that resulted in the conolidation of the substantial majority of our securitization trusts that had been previously treated as off-balance sheet. Prior to our adoption of these new consolidation accounting standards, management evaluated the company's performance on a non-GAAP "managed" basis, which assumed that securitized loans were not sold and the earnings from securitized loans were classified in our results of operations in the same manner as the earnings from loans that we owned.  We believed that our managed basis information is usefu l to investors because it portrays the results of both on- and off-balance sheet loans that we manage, which enables investors to understand and evaluate the credit risks associated with the portfolio of loans reported on our consolidated balance sheet and our retained interests in securitized loans. Our non-GAAP managed basis measures may not be comparable to similarly titled measures used by other companies.

As a result of the January 1, 2010 adoption of the new consolidation accounting standards, the accounting for the loans in our securitization trusts in our reported GAAP financial statements is similar to how we accounted for these loans on a managed basis prior to January 1, 2010. Consequently, we believe our managed basis presentations for periods prior to January 1, 2010 are generally comparable to our reported basis presentations for periods beginning after January 1, 2010.  In periods prior to January 1, 2010, certain of our non-GAAP managed basis measures differed from our comparable reported measures because we assumed, for our managed basis presentation, that securitized loans that were accounted for as sales in our GAAP financial statements remained on our balance sheet.

The following tables, which are described below, provide a reconciliation of reported GAAP financial measures for each quarter of 2009 to our non-GAAP managed basis financial measures included in our filing.  The year-to-date earnings results for each reported period included in our filing can be derived by adding the respective earnings results for each quarter. We also provide a reconciliation of our tangible common equity ratios calculated based on our reported results to ratios calculated based on our non-GAAP managed results.

Table 1:  Reported GAAP Measures
Reflects selected financial measures from our consolidated GAAP financial statements or metrics calculated based on our consolidated GAAP financial statements.
       
Table 2:  Non GAAP Securitization Reconciliation Adjustments
Presents the reconciling differences between our reported GAAP financial measures and our non-GAAP managed basis financial measures.  These differences include certain reclassifications that assume loans securitized by Capital One and accounted for as sales and off-balance sheet transactions in our GAAP financial statements remain on our balance sheet.  These adjustments do not impact net income as reported by our lines of business or the company as a whole.
       
Table 3:  Non GAAP Managed Basis Measures
Reflects selected financial measures and related metrics based on our non-GAAP managed basis results.
       
Table 4:  Financial & Statistical Summary Explanatory Footnotes
Includes explanatory footnotes that provide additional information for certain financial and statistical measures presented in Tables 1, 2 and 3.
       
Table 5:  Average Balances and Net Interest Margin Non-GAAP Reconciliation
Presents a reconciliation of our average balances and net interest margin on a reported basis to our average balances and net interest margin on a non-GAAP managed basis.
       
Table 6:  Tangible Common Equity Non-GAAP Reconciliation
Presents a reconciliation of tangible common equity ratios calculated based on our reported results to our tangible common equity ratios calculated on a non-GAAP managed basis.

 
Page 1

 
 
CAPITAL ONE FINANCIAL CORPORATION (COF)
FINANCIAL & STATISTICAL SUMMARY
TABLE 1:  REPORTED GAAP MEASURES

   
2009
 
(Dollars in millions, except per share data and as noted)
 
Q4
   
Q3
   
Q2
   
Q1(7)
 
Earnings (Reported Basis)
                       
Net interest income
  $ 1,954     $ 2,005     $ 1,945     $ 1,793  
Non-interest Income (1)
    1,412       1,553       1,232 (5)     1,090  
Total revenue (2)
    3,366       3,558       3,177       2,883  
Provision for loan and lease losses
    844       1,173       934       1,279  
                                 
Reported Balance Sheet Statistics (Period Average)
                               
Average loans held for investment
  $ 94,732     $ 99,354     $ 104,682     $ 103,242  
Average earning assets
    143,663       145,280       150,804       145,172  
Average assets
    169,856       173,428       177,628       168,489  
Return on average assets (ROA)
    0.95 %     1.01 %     0.52 %     (0.20 )%
                                 
Reported Balance Sheet Statistics (Period End)
                               
Loans held for investment
  $ 90,619     $ 96,714     $ 100,940     $ 104,921  
Total assets
    169,622       168,432       171,948       177,431  
Tangible assets (A)
    155,516       154,315       157,782       163,230  
Tangible common equity to tangible assets ratio (B)
    8.03 %     7.82 %     7.10 % (6)     5.75 %
                                 
Reported Performance Statistics (Quarter over Quarter)
                               
Net interest income growth (3)
    (3 )%     3 %     8 %     (1 )%
Non-interest income growth (3)
    (9 )%     26 %     13 %     (20 )%
Revenue growth
    (5 )%     12 %     10 %     (9 )%
Net interest margin
    5.44 %     5.52 %     5.16 %     4.94 %
Revenue margin
    9.37 %     9.80 %     8.43 %     7.94 %
Risk-adjusted margin (C)
    6.07 %     6.69 %     5.46 %     4.81 %
Non-interest expense as a % of average loans held for investment (annualized)
    8.23 %     7.25 %     7.34 %     6.76 %
Efficiency ratio (D)
    56.92 %     49.92 %     59.11 %     59.93 %
                                 
Reported Asset Quality Statistics
                               
Net charge-offs (4)
  $ 1,185     $ 1,128     $ 1,117     $ 1,138  
Net charge-off rate (4)
    5.00 %     4.54 %     4.28 %     4.41 %
30+ day performing delinquency rate (4)
    4.13 %     4.12 %     3.71 %     3.65 %

 
Page 2

 

CAPITAL ONE FINANCIAL CORPORATION (COF)
FINANCIAL & STATISTICAL SUMMARY
TABLE 2:  NON-GAAP SECURITIZATION RECONCILIATION ADJUSTMENTS

   
2009
 
(Dollars in millions, except per share data and as noted)
 
Q4
   
Q3
   
Q2
   
Q1
 
Earnings
                       
Net interest income
  $ 1,216     $ 1,207     $ 1,013     $ 957  
Non-interest Income (1)
    (213 )     (180 )     (43 )     (104 )
Total revenue (2)
    1,003       1,027       970       853  
Provision for loan and lease losses
    1,003       1,027       970       853  
                                 
Balance Sheet Statistics (Period Average)
                               
Average loans held for investment
  $ 43,452     $ 44,186     $ 43,331     $ 43,940  
Average earning assets
    40,236       40,594       40,404       41,442  
Average assets
    40,569       41,227       40,774       41,680  
Return on average assets (ROA)
    (0.18 )%     (0.20 )%     (0.10 )%     0.04 %
                                 
Balance Sheet Statistics (Period End)
                               
Loans held for investment
  $ 46,184     $ 44,275     $ 45,177     $ 44,809  
Total assets
    42,767       41,251       42,230       42,527  
Tangible assets (A)
    42,767       41,251       42,230       42,526  
Tangible common equity to tangible assets ratio (B)
    (1.73 )%     (1.65 )%     (1.50 )%     (1.19 )%
                                 
Performance Statistics
                               
Net interest income growth
    2 %     6 %     - %     - %
Non-interest income growth
    (4 ) %     (11 ) %     8 %     3 %
Revenue growth
    - %     (1 ) %     1 %     4 %
Net interest margin
    1.46 %     1.39 %     1.03 %     0.95 %
Revenue margin
    0.13 %     0.07 %     0.25 %     0.07 %
Risk-adjusted margin
    (1.33 )%     (1.46 )%     (1.15 )%     (1.07 )%
Non-interest expense as a % of average loans held for investment
    (2.59 )%     (2.23 )%     (2.15 )%     (2.02 )%
Efficiency ratio
    (13.07 )%     (11.19 )%     (13.82 )%     (13.68 )%
                                 
Asset Quality Statistics
                               
Net charge-offs
  $ 1,003     $ 1,027     $ 970     $ 853  
Net charge-off rate
    1.33 %     1.46 %     1.36 %     1.00 %
30+ day performing delinquency rate
    0.60 %     0.43 %     0.39 %     0.45 %

 
Page 3

 

CAPITAL ONE FINANCIAL CORPORATION (COF)
FINANCIAL & STATISTICAL SUMMARY
TABLE 3:  NON-GAAP MANAGED BASIS MEASURES

   
2009
 
(Dollars in millions, except per share data and as noted)
 
Q4
   
Q3
   
Q2
   
Q1(7)
 
Earnings (Managed Basis)
                       
Net interest income
  $ 3,170     $ 3,212     $ 2,957     $ 2,750  
Non-interest income (1)
    1,199       1,373       1,190 (5)     986  
Total revenue (2)
    4,369       4,585       4,147       3,736  
Provision for loan and lease losses
    1,847       2,200       1,904       2,132  
                                 
Managed Balance Sheet Statistics (Period Average)
                               
Average loans held for investment
  $ 138,184     $ 143,540     $ 148,013     $ 147,182  
Average earning assets
    183,899       185,874       191,208       186,614  
Average assets
    210,425       214,655       218,402       210,169  
Return on average assets (ROA)
    0.77 %     0.81 %     0.42 %     (0.16 )%
                                 
Managed Balance Sheet Statistics (Period End)
                               
Loans held for investment
  $ 136,803     $ 140,990     $ 146,117     $ 149,730  
Total assets
    212,389       209,683       214,178       219,958  
Tangible assets (A)
    198,283       195,566       200,012       205,756  
Tangible common equity to tangible assets ratio (B)
    6.30 %     6.17 %     5.60 % (6)     4.56 %
                                 
Managed Performance Statistics (Quarter over Quarter)
                               
Net interest income growth (3)
    (1 )%     9 %     8 %     (1 )%
Non-interest income growth (3)
    (13 )%     15 %     21 %     (17 )%
Revenue growth
    (5 )%     11 %     11 %     (5 )%
Net interest margin
    6.90 %     6.91 %     6.19 %     5.89 %
Revenue margin
    9.50 %     9.87 %     8.68 %     8.01 %
Risk-adjusted margin (C)
    4.74 %     5.23 %     4.31 %     3.74 %
Non-interest expense as a % of average loans held for investment (annualized)
    5.64 %     5.02 %     5.19 %     4.74 %
Efficiency ratio (D)
    43.85 %     38.73 %     45.29 %     46.25 %
                                 
Asset Quality Statistics
                               
Net charge-offs (4)
  $ 2,188     $ 2,155     $ 2,087     $ 1,991  
Net charge-off rate (4)
    6.33 %     6.00 %     5.64 %     5.41 %
30+ day performing delinquency rate (4)
    4.73 %     4.55 %     4.10 %     4.10 %

 
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CAPITAL ONE FINANCIAL CORPORATION (COF)
TABLE 4:  FINANCIAL & STATISTICAL SUMMARY EXPLANATORY NOTES

(1)
Includes the impact from the change in fair value of retained interests, including the interest-only strips, which totaled $55 million in Q4 2009, $37 million in Q3 2009, $(115) million in Q2 2009 and $(128) million in Q1 2009.

(2)
Billed finance charges and fees not included in revenue totaled: $490 million in Q4 2009, $517 million in Q3 2009, $572 million in Q2 2009 and $544 million in Q1 2009.

(3)
Prior period amounts have been reclassified to conform with the current period presentation and adjusted to reflect purchase accounting refinements related to the acquisition of Chevy Chase Bank, FSB ("CCB").

(4)
The denominator used in calculating the allowance as a % of loans held for investment, the net charge-off rate and the 30+ day performing delinquency rate includes loans acquired as part of the CCB acquisition. These metrics, calculated excluding CCB loans, are presented below.

(Dollars in millions)
  Q4 2009     Q3 2009     Q2 2009     Q1 2009  
CCB period end acquired loan portfolio (unaudited)
  $ 7,251     $ 7,885     $ 8,644     $ 8,859  
CCB average acquired loan portfolio (unaudited)
  $ 7,512     $ 8,029     $ 8,499     $ 3,073  
Allowance as a % of loans held for investment, excluding CCB
    4.95 %     5.08 %     4.86 %     4.84 %
Net charge-off rate (Reported), excluding CCB
    5.44 %     4.94 %     4.65 %     4.54 %
Net charge-off rate (Managed), excluding CCB
    6.70 %     6.36 %     5.98 %     5.53 %
30+ day performing delinquency rate (Reported), excluding CCB
    4.49 %     4.48 %     4.06 %     3.99 %
30+ day performing delinquency rate (Managed), excluding CCB
    4.99 %     4.82 %     4.36 %     4.36 %

(5)
In Q2 2009, the Company elected to convert and sell 404,508 shares of MasterCard class B common stock, which resulted in a gain of $66 million that is included in non-interest income.

(6)
Includes the impact of the issuance of 56,000,000 common shares at $27.75 per share on May 14, 2009.

(7)
Effective February 27, 2009, the Company acquired Chevy Chase Bank, FSP for $476 million, which included a cash payment of $445 million and the issuance of 2.6 million common shares valued at $31 million.  The acquistion of Chevy Chase Bank included $10 billion in loans and $13.6 billion in deposits.

STATISTICS / METRIC CALCULATIONS

(A)
Tangible assets represents total assets from continuing operations less identifiable intangible assets and goodwill. See Table 6: Tangible Common Equity Non-GAAP Reconciliation.

(B)
Tangible common equity ("TCE") represents common stockholders' equity (total stockholders' equity less preferred stock) less identifable intangible assets and goodwill.  See Table 6: Tangible Common Equity Non-GAAP Reconciliation.

(C)
Calculated based on total revenue less net charge-offs divided by average earning assets, expressed as a percentage.

(D)
Calculated based on non-interest expense less restructuring expense divided by total revenue.

 
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CAPITAL ONE FINANCIAL CORPORATION
TABLE 5: AVERAGE BALANCES AND NET INTEREST MARGIN NON-GAAP RECONCILIATION(1)

(Dollars in millions)
 
Quarter Ended 06/30/09
 
Reported Basis
 
Average
   
Income/
   
Yield/
 
   
Balance
   
Expense
   
Rate
 
Interest-earning assets:
                 
Loans held for investment
  $ 104,682     $ 2,237       8.55 %
Other
    8,623       68       3.15 %
                         
Total interest-earning assets
  $ 150,804     $ 2,717       7.21 %
                         
Interest-bearing liabilities:
                       
Securitization liability
    5,876       74       5.04 %
                         
Total interest-bearing liabilities
  $ 131,631     $ 772       2.35 %
                         
Net interest spread
                    4.86 %
                         
Interest income to average interest-earning assets
                    7.21 %
Interest expense to average interest-earning assets
                    2.05 %
Net interest margin
                    5.16 %

Non-GAAP Securitization Reconciliation Adjustments
 
Quarter Ended 06/30/09
 
   
Average
   
Income/
   
Yield/
 
Interest-earning assets:
 
Balance
   
Expense
   
Rate
 
Loans held for investment
  $ 43,331     $ 1,331       1.09 %
Other
    (2,927 )     (51 )     (1.96 )%
                         
Total interest-earning assets
  $ 40,404     $ 1,280       1.15 %
                         
Interest-bearing liabilities:
                       
Securitization liability
    40,806       268       (2.11 )%
                         
Total interest-bearing liabilities
  $ 40,806     $ 268       0.06 %
                         
Net interest spread
                    1.09 %
                         
Interest income to average interest-earning assets
                    1.15 %
Interest expense to average interest-earning assets
                    0.12 %
Net interest margin
                    1.03 %

Non-GAAP Managed Basis
 
Quarter Ended 06/30/09
 
   
Average
   
Income/
   
Yield/
 
Interest-earning assets:
 
Balance
   
Expense
   
Rate
 
Loans held for investment
  $ 148,013     $ 3,568       9.64 %
Other
    5,696       17       1.19 %
                         
Total interest-earning assets
  $ 191,208     $ 3,997       8.36 %
                         
Interest-bearing liabilities:
                       
Securitization liability
    46,682       342       2.93 %
                         
Total interest-bearing liabilities
  $ 172,437     $ 1,040       2.41 %
                         
Net interest spread
                    5.95 %
                         
Interest income to average interest-earning assets
                    8.36 %
Interest expense to average interest-earning assets
                    2.17 %
Net interest margin
                    6.19 %

(1) Reflects amounts based on continuing operations.

 
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CAPITAL ONE FINANCIAL CORPORATION
TANGIBLE COMMON EQUITY NON-GAAP RECONCILIATION

The table below presents reconciliation adjustments necessary to calculate our non-GAAP tangible common equity ("TCE") ratios for the periods presented. The Company believes the non-GAAP TCE ratio is a meaningful measure to use in assessing the Company's capital strength. This measure may not be comparable to similarly titled measures used by other companies.

   
2010
   
2010
   
2009
   
2009
   
2009
 
(Dollars in millions)
 
Q2
   
Q1
   
Q4
   
Q3
   
Q2
 
Reconciliation of Average Equity to Average Tangible Common Equity
                             
Average equity
  $ 24,526     $ 23,681     $ 26,518     $ 26,002     $ 27,668  
Less: Preferred stock
    -       -       -       -       41  
Less: Average intangible assets (1)
    (14,039 )     (14,075 )     (14,105 )     (14,151 )     (14,129 )
Average Tangible Common Equity
  $ 10,487     $ 9,606     $ 12,413     $ 11,851     $ 13,580  
                                         
Reconciliation of Period End Equity to Tangible Common Equity
                                       
Stockholders' equity
  $ 25,270     $ 24,374     $ 26,589     $ 26,192     $ 25,332  
Less: Preferred stock
    -       -       -       -       38  
Less: Intangible assets (1)
    (14,011 )     (14,044 )     (14,106 )     (14,117 )     (14,166 )
Period End Tangible Common Equity
  $ 11,259     $ 10,330     $ 12,483     $ 12,075     $ 11,204  
                                         
Reconciliation of Period End Assets to Tangible Assets
                                       
Total assets
  $ 197,489     $ 200,707     $ 169,646     $ 168,463     $ 171,994  
Less: Assets—discontinued operations
    (10 )     (16 )     (24 )     (31 )     (46 )
Total assets—continuing operations
    197,479       200,691       169,622       168,432       171,948  
Less: Intangible assets (1)
    (14,011 )     (14,044 )     (14,106 )     (14,117 )     (14,166 )
Period End Tangible Assets
  $ 183,468     $ 186,647     $ 155,516     $ 154,315     $ 157,782  
                                         
TCE ratio (2)
    6.14 %     5.53 %     8.03 %     7.82 %     7.10 %
                                         
Reconciliation of Period End Assets to Tangible Assets on a Managed Basis
                                 
Total reported assets
  $ 197,489     $ 200,707     $ 169,646     $ 168,463     $ 171,994  
Securitization adjustments (3)
    -       -       42,767       41,251       42,230  
Total non-GAAP managed assets
    197,489       200,707       212,413       209,714       214,224  
Less: Assets—discontinued operations
    (10 )     (16 )     (24 )     (31 )     (46 )
Total assets—continuing operations
    197,479       200,691       212,389       209,683       214,178  
Less: Intangible Assets (1)
    (14,011 )     (14,044 )     (14,106 )     (14,117 )     (14,166 )
Period End Tangible Assets
  $ 183,468     $ 186,647     $ 198,283     $ 195,566     $ 200,012  
                                         
TCE ratio (2)
    6.14 %     5.53 %     6.30 %     6.17 %     5.60 %

(1) Presented net of related deferred taxes.
(2) Calculated based on tangible common equity divided by tangible assets.
(3) Reflects adjustments to our reported GAAP results to reflect loans that have been securitized and accounted for as sales on a GAAP basis as though the loans remained on our consolidated balance sheets.
 
 
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