UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 


FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of

The Securities Exchange Act of 1934

January 23, 2008

Date of Report (Date of earliest event reported)

 


CAPITAL ONE FINANCIAL CORPORATION

(Exact name of registrant as specified in its chapter)

 

Delaware   1-13300   54-1719854

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS 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 January 23, 2008, the Company issued a press release announcing its financial results for the fourth quarter ended December 31, 2007. A copy of the Company’s press release is attached and filed herewith as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.

The Company’s consolidated financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) are referred to as its “reported” financial statements. Loans included in securitization transactions which qualified as sales under GAAP have been removed from the Company’s “reported” balance sheet. However, servicing fees, finance charges, and other fees, net of charge-offs, and interest paid to investors of securitizations are recognized as servicing and securitizations income on the “reported” income statement.

The Company’s “managed” consolidated financial statements reflect adjustments made related to effects of securitization transactions qualifying as sales under GAAP. The Company generates earnings from its “managed” loan portfolio which includes both the on-balance sheet loans and off-balance sheet loans. The Company’s “managed” income statement takes the components of the servicing and securitizations income generated from the securitized portfolio and distributes the revenue and expense to appropriate income statement line items from which it originated. For this reason the Company believes the “managed” consolidated financial statements and related managed metrics to be useful to stakeholders.

 

Item 7.01. Regulation FD Disclosure.

The Company hereby furnishes the information in Exhibit 99.2 hereto, Fourth Quarter Earnings Presentation for the quarter ended December 31, 2007.

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.

 

2


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. and or UK, including conditions affecting employment levels, interest rates, consumer income, 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);

 

 

continued intense competition from numerous providers of products and services which compete with the Company’s businesses;

 

 

the success, timeliness and financial impact of the Company’s restructuring initiative, including costs, cost savings and other benefits;

 

 

changes in interest rates;

 

 

the success of the Company’s marketing efforts;

 

 

the ability of the Company to continue 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;

 

 

financial, legal, regulatory, accounting changes or actions that may affect investment in, or the overall performance of, a product or business;

 

 

with respect to financial and other products, changes in the Company’s aggregate loan balances and/or number of customers and the growth rate and composition thereof, including changes resulting from factors such as shifting product mix, amount of actual marketing expenses made by the Company and attrition of loan balances;

 

 

the amount of deposit growth;

 

 

general market conditions in the mortgage industry;

 

 

changes in the reputation of the credit card industry and/or the Company with respect to practices or products;

 

 

any significant disruption in our 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 ability of the Company to build the operational and organizational infrastructure necessary to engage in new businesses;

 

 

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;

 

 

the risk that the businesses acquired by the Company will not be integrated successfully;

 

 

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

 

 

disruption from the acquisitions making it more difficult to maintain relationships with customers, employees or suppliers; 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, 2006 and the Quarterly Reports on Form 10-Q and Form 10-Q/A for the quarters ended March 31, 2007, June 30, 2007 and September 30, 2007.

 

3


Item 9.01. Financial Statements, Pro Forma Financial Information and Exhibits.

 

  (c) Exhibits.

 

Exhibit No.  

Description of Exhibit      

99.1   Press release, dated January 23, 2008.
99.2   Fourth Quarter Earnings Presentation.

Earnings Conference Call Webcast Information.

Capital One will hold an earnings conference call on January 23, 2008, 5:00 PM Eastern time. The conference call will be accessible through live webcast. Interested investors and other interested 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 March 31, 2008.


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: January 23, 2008   By:  

/s/ GARY L. PERLIN

   

Gary L. Perlin

Chief Financial Officer

 

5

Exhibit 99.1

CAPITAL ONE FINANCIAL CORPORATION (COF)

FINANCIAL & STATISTICAL SUMMARY

REPORTED BASIS

 

     2007     2007     2007     2007     2006  

(in millions, except per share data and as noted)

   Q4     Q3 (17)     Q2     Q1     Q4  

Earnings (Reported Basis)

          

Net Interest Income

   $ 1,762.3     $ 1,624.5     $ 1,538.6 (8)   $ 1,604.5     $ 1,393.0  

Non-Interest Income

     2,158.3 (16)     2,149.7       1,971.9       1,774.4 (11)     1,671.5  
                                        

Total Revenue (1)

     3,920.6       3,774.2       3,510.5       3,378.9       3,064.5  

Provision for Loan Losses

     1,294.2       595.5       396.7       350.0       513.2  

Marketing Expenses

     358.2       332.7       326.1       330.9       395.4  

Restructuring Expenses (2)

     27.8       19.4       91.1       —         —    

Operating Expenses

     1,749.2 (3),(4)     1,582.2 (3)     1,617.4 (3),(9)     1,643.2 (3)     1,567.3  
                                        

Income Before Taxes

     491.2       1,244.4       1,079.2       1,054.8       588.6  

Tax Rate (5)

     34.5 %     34.4 %     28.9 %     35.0 %     31.6 %

Income From Continuing Operations, Net of Tax

   $ 321.6     $ 816.4     $ 767.6     $ 686.1     $ 402.6  

Loss From Discontinued Operations, Net of Tax (6)

     (95.0 )     (898.0 )     (17.2 )     (11.1 )     (11.9 )
                                        

Net Income (Loss)

   $ 226.6     $ (81.6 )   $ 750.4     $ 675.0     $ 390.7  
                                        

Common Share Statistics

          

Basic EPS:

          

Income From Continuing Operations

   $ 0.85     $ 2.11     $ 1.96     $ 1.68     $ 1.20  

Loss From Discontinued Operations

   $ (0.25 )   $ (2.32 )   $ (0.04 )   $ (0.03 )   $ (0.04 )
                                        

Net Income (Loss)

   $ 0.60     $ (0.21 )   $ 1.92     $ 1.65     $ 1.16  

Diluted EPS:

          

Income From Continuing Operations

   $ 0.85     $ 2.09     $ 1.93     $ 1.65     $ 1.17  

Loss From Discontinued Operations

   $ (0.25 )   $ (2.30 )   $ (0.04 )   $ (0.03 )   $ (0.03 )
                                        

Net Income (Loss)

   $ 0.60     $ (0.21 )   $ 1.89     $ 1.62     $ 1.14  

Dividends Per Share

   $ 0.03     $ 0.03     $ 0.03     $ 0.03     $ 0.03  

Tangible Book Value Per Share (period end)

   $ 29.02     $ 28.88     $ 29.11     $ 29.76     $ 27.95  

Stock Price Per Share (period end)

   $ 47.26     $ 66.43     $ 78.44     $ 75.46     $ 76.82  

Total Market Capitalization (period end)

   $ 17,613.8     $ 25,602.1     $ 30,701.4     $ 31,112.2     $ 31,488.5  

Shares Outstanding (period end)

     372.7       385.4       391.4       412.3       409.9  

Shares Used to Compute Basic EPS

     375.6       386.1       390.8       408.7       336.5  

Shares Used to Compute Diluted EPS

     378.4       390.8       397.5       415.5       343.8  
                                        

Reported Balance Sheet Statistics (period average) (7)

          

Average Loans Held for Investment

   $ 97,785     $ 91,745     $ 91,145     $ 93,466     $ 74,738  

Average Earning Assets

   $ 127,242     $ 118,354     $ 119,430     $ 120,766     $ 97,849  

Average Assets

   $ 150,926     $ 143,291     $ 142,690     $ 143,130     $ 111,440  

Average Interest Bearing Deposits

   $ 72,312     $ 73,555     $ 75,218     $ 74,867     $ 53,735  

Total Average Deposits

   $ 84,051     $ 84,884     $ 86,719     $ 86,237     $ 60,382  

Average Equity

   $ 24,733     $ 25,344     $ 25,128     $ 25,610     $ 18,311  

Return on Average Assets (ROA)

     0.85 %     2.28 %     2.15 %     1.92 %     1.45 %

Return on Average Equity (ROE)

     5.20 %     12.89 %     12.22 %     10.72 %     8.79 %
                                        

Reported Balance Sheet Statistics (period end) (7)

          

Loans Held for Investment

   $ 101,805     $ 93,789     $ 90,930     $ 90,869     $ 96,512  

Total Assets

   $ 150,202     $ 143,884     $ 141,917     $ 143,832     $ 144,361  

Interest Bearing Deposits

   $ 71,944     $ 72,503     $ 74,444     $ 76,306     $ 74,123  

Total Deposits

   $ 82,990     $ 83,343     $ 85,680     $ 87,664     $ 85,771  
                                        

Performance Statistics (Reported) (7)

          

Net Interest Income Growth (annualized)

     34 %     22 %     (16 )%     61 %     30 %

Non Interest Income Growth (annualized)

     2 %     36 %     45 %     25 %     (20 )%

Revenue Growth (annualized)

     16 %     30 %     16 %     41 %     1 %

Net Interest Margin

     5.54 %     5.49 %     5.15 %     5.31 %     5.69 %

Revenue Margin

     12.32 %     12.76 %     11.76 %     11.19 %     12.53 %

Risk Adjusted Margin (12)

     10.28 %     11.13 %     10.41 %     9.77 %     10.72 %

Non Interest Expense as a % of Average Loans Held for Investment (annualized)

     8.73 %     8.43 %     8.93 %     8.45 %     10.50 %

Efficiency Ratio (13)

     53.75 %     50.74 %     55.36 %     58.42 %     64.05 %
                                        

Asset Quality Statistics (Reported) (7)

          

Allowance

   $ 2,963     $ 2,237     $ 2,113     $ 2,105     $ 2,180  

Allowance as a % of Reported Loans Held for Investment

     2.91 %     2.39 %     2.32 %     2.32 %     2.26 %

Net Charge-Offs

   $ 650     $ 480     $ 401     $ 430     $ 443  

Net Charge-Off Rate

     2.66 %     2.09 %     1.76 %(10)     1.84 %     2.37 %
                                        

Full-time equivalent employees (in thousands)

     27.0       27.5       29.5       30.8       31.1  
                                        

 

1


CAPITAL ONE FINANCIAL CORPORATION (COF)

FINANCIAL & STATISTICAL SUMMARY

MANAGED BASIS (*)

 

     2007     2007     2007     2007     2006  

(in millions)

   Q4     Q3 (17)     Q2     Q1     Q4  

Earnings (Managed Basis)

          

Net Interest Income

   $ 3,000.5     $ 2,803.4     $ 2,613.3 (8)   $ 2,602.5     $ 2,339.1  

Non-Interest Income

     1,566.2 (16)     1,518.0       1,387.5       1,294.1 (11)     1,210.3  
                                        

Total Revenue (1)

     4,566.7       4,321.4       4,000.8       3,896.6       3,549.4  

Provision for Loan Losses

     1,940.3       1,142.7       887.1       867.7       998.1  

Marketing Expenses

     358.2       332.7       326.1       330.9       395.4  

Restructuring Expenses (2)

     27.8       19.4       91.1       —         —    

Operating Expenses

     1,749.2 (3),(4)     1,582.2 (3)     1,617.4 (3),(9)     1,643.2 (3)     1,567.3  
                                        

Income Before Taxes

     491.2       1,244.4       1,079.1       1,054.8       588.6  

Tax Rate (5)

     34.5 %     34.4 %     28.9 %     35.0 %     31.6 %

Income From Continuing Operations, Net of Tax

   $ 321.6     $ 816.4     $ 767.6     $ 686.1     $ 402.6  

Loss From Discontinued Operations, Net of Tax (6)

     (95.0 )     (898.0 )     (17.2 )     (11.1 )     (11.9 )
                                        

Net Income (Loss)

   $ 226.6     $ (81.6 )   $ 750.4     $ 675.0     $ 390.7  
                                        

Managed Balance Sheet Statistics (period average) (7)

          

Average Loans Held for Investment

   $ 148,362     $ 143,781     $ 142,616     $ 144,113     $ 123,902  

Average Earning Assets

   $ 175,652     $ 168,238     $ 168,841     $ 169,358     $ 145,113  

Average Assets

   $ 200,658     $ 194,528     $ 193,446     $ 193,034     $ 159,947  

Return on Average Assets (ROA)

     0.64 %     1.68 %     1.59 %     1.42 %     1.01 %
                                        

Managed Balance Sheet Statistics (period end) (7)

          

Loans Held for Investment

   $ 151,362     $ 144,769     $ 143,498     $ 142,005     $ 146,151  

Total Assets

   $ 198,908     $ 194,019     $ 193,682     $ 194,252     $ 193,267  

Tangible Assets(14)

   $ 185,428     $ 180,363     $ 179,888     $ 180,501     $ 179,487  

Tangible Common Equity (15)

   $ 10,814     $ 11,131     $ 11,393     $ 12,270     $ 11,455  

Tangible Common Equity to Tangible Assets Ratio

     5.83 %     6.17 %     6.33 %     6.80 %     6.38 %

% Off-Balance Sheet Securitizations

     33 %     35 %     37 %     36 %     34 %
                                        

Performance Statistics (Managed) (7)

          

Net Interest Income Growth (annualized)

     28 %     29 %     2 %     45 %     22 %

Non Interest Income Growth (annualized)

     13 %     38 %     29 %     28 %     (20 )%

Revenue Growth (annualized)

     23 %     32 %     11 %     39 %     6 %

Net Interest Margin

     6.83 %     6.67 %     6.19 %     6.15 %     6.45 %

Revenue Margin

     10.40 %     10.27 %     9.48 %     9.20 %     9.78 %

Risk Adjusted Margin (12)

     7.45 %     7.83 %     7.37 %     6.97 %     7.23 %

Non Interest Expense as a % of Average Loans Held for Investment (annualized)

     5.76 %     5.38 %     5.71 %     5.48 %     6.34 %

Efficiency Ratio (13)

     46.15 %     44.31 %     48.58 %     50.66 %     55.30 %
                                        

Asset Quality Statistics (Managed) (7)

          

Net Charge-Offs

   $ 1,296     $ 1,027     $ 891     $ 947     $ 927  

Net Charge-Off Rate

     3.49 %     2.86 %     2.50 %(10)     2.63 %     2.99 %
                                        

 

(*) The information in this statistical summary reflects the adjustment to add back the effect of securitization transactions qualifying as sales under generally accepted accounting principles. See accompanying schedule—“Reconciliation to GAAP Financial Measures”.

 

2


CAPITAL ONE FINANCIAL CORPORATION (COF)

FINANCIAL & STATISTICAL SUMMARY NOTES

 

(1) In accordance with the Company's finance charge and fee revenue recognition policy, the amounts billed to customers but not recognized as revenue were as follows: Q4 2007—$379.4 million, Q3 2007—$310.5 million, Q2 2007—$236.3 million, Q1 2007—$213.6 million, and Q4 2006—$248.3 million.

 

(2) During the second quarter of 2007, the Company announced a broad-based initiative to reduce expenses and improve its competitive cost position. As part of this initiative $27.8 million, $19.4 million and $91.1 million of restructuring charges were recognized as part of continuing operations during Q4 2007, Q3 2007 and Q2 2007, respectively.

 

(3) Includes core deposit intangible amortization expense of $51.1 million in Q4 2007, $52.4 million in Q3 2007, $53.7 million in Q2 2007 and $55.0 million in Q1 2007, and integration costs of $28.6 million in Q4 2007, $30.3 million in Q3 2007, $24.5 million in Q2 2007 and $14.6 million in Q1 2007.

 

(4) The Company recognized a pre-tax charge in the fourth quarter of approximately $80 million for liabilities in connection with the Visa antitrust lawsuit settlement with American Express. Additionally, the company has initiated a legal reserve of approximately $60 million for estimated possible damages in connection with other pending Visa litigation, reflecting Capital One’s share of such potential damages as a Visa member.

 

(5) Includes a $69.0 million benefit in Q2 2007 resulting from changes in the Company’s international tax position and tax benefits from resolution of tax issues. Miscellaneous tax adjustments in other prior periods as follows: Q1 2007—$11.7 million and Q4 2006—$28.8 million.

 

(6) In Q3 2007, the Company shutdown the mortgage origination operations of its wholesale mortgage banking unit, GreenPoint Mortgage, realizing an after-tax loss of $898.0 million. The results of the mortgage origination operation of GreenPoint have been accounted for as a discontinued operation and have been removed from the Company's results of continuing operations for all periods presented. The results of GreenPoint's mortgage servicing business are reported in continuing operations for all periods presented. Effective Q4 2007, GreenPoint's held for investment commercial and consumer loan portfolio results are included in continuing operations.

 

(7) Based on continuing operations. Average equity and return on equity are based on the Company's stockholder's equity.

 

(8) Includes a $17.4 million gain from the early extinguishment of Trust Preferred Securities in Q2 2007 included as a component of Interest expense.

 

(9) Includes a charge of $39.8 million as a result of the accelerated vesting of equity awards made in connection with the transition of the management team for Capital One’s Banking business following the acquisition of North Fork acquisition.

 

(10) Managed and reported net charge-off rate for Q2 2007 was positively impacted 11 and 17 basis points, respectively, due to the implementation of a change in customer statement generation from 30 to 25 days grace. The change did not have a material impact on Net Provision for Q2 2007.

 

(11) Includes a $46.2 million gain resulting from the sale of a 7% stake in the privately held company, DealerTrack Holding Inc., a leading provider of on-demand software and data solutions for the automotive retail industry in Q1 2007.

 

(12) Risk adjusted margin is total revenue less net charge-offs as a percentage of average earning assets.

 

(13) Efficiency ratio is Non-interest expense less restructuring expense divided by total revenue.

 

(14) Tangible assets include managed assets less intangible assets.

 

(15) Includes stockholders’ equity and preferred interests less intangible assets and related deferred tax liability. Tangible Common Equity on a reported and managed basis is the same.

 

(16) During the fourth quarter 2007, the Company completed the sale of its interest in a relationship agreement to develop and market consumer credit products in the Spanish Market and recorded a gain related to this sale of approximately $30 million in non-interest income.

 

(17) Certain prior period amounts have been reclassified to conform with current period presentation.

 

3


CAPITAL ONE FINANCIAL CORPORATION (COF)

SEGMENT FINANCIAL & STATISTICAL SUMMARY FOR CONTINUING OPERATIONS

MANAGED BASIS (1)

 

(in thousands)

 

2007

Q4

   

2007

Q3 (8)

   

2007

Q2

   

2007

Q1

   

2006

Q4

 

Local Banking: (3)

 

Interest Income

  $ 1,702,252     $ 1,744,038     $ 1,724,239     $ 1,740,132     $ 721,102  

Interest Expense

    1,119,738       1,161,758       1,139,774       1,166,563       476,523  
                                       

Net interest income

  $ 582,514     $ 582,280     $ 584,465     $ 573,569     $ 244,579  

Non-interest income

    192,342       195,204       210,581       200,141       112,021  

Provision for loan losses

    42,665       (58,285 )     23,929       23,776       (21,549 )

Other non-interest expenses

    561,812       543,390       548,462       554,598       307,810  

Income tax provision

    58,610       101,783       77,821       68,339       24,619  
                                       

Net income

  $ 111,769     $ 190,596     $ 144,834     $ 126,997     $ 45,720  
                                       

Loans Held for Investment

  $ 43,972,795     $ 42,233,665     $ 41,919,645     $ 41,642,594     $ 12,145,533  

Average Loans Held for Investment

  $ 43,128,767     $ 41,992,618     $ 42,110,537     $ 41,846,678     $ 13,330,876  

Core Deposits(2)

  $ 63,206,923     $ 62,712,373     $ 63,828,306     $ 62,962,395     $ 27,071,324  

Total Deposits

  $ 73,318,570     $ 73,013,351     $ 74,482,705     $ 74,509,054     $ 35,334,610  

Loans Held for Investment Yield

    7.02 %     7.13 %     7.03 %     6.99 %     7.98 %

Net Interest Margin—Loans (4)

    1.87 %     1.79 %     1.88 %     1.91 %     3.21 %

Net Interest Margin—Deposits (5)

    2.04 %     2.08 %     2.01 %     1.98 %     1.50 %

Efficiency Ratio (7)

    72.51 %     69.89 %     68.98 %     71.68 %     86.32 %

Net charge-off rate

    0.28 %     0.19 %     0.19 %     0.15 %     0.40 %

Non Performing Loans

  $ 178,385     $ 112,794     $ 80,781     $ 80,162     $ 57,824  

Non Performing Loans as a % of Loans Held for Investment

    0.41 %     0.27 %     0.19 %     0.19 %     0.48 %

Non-Interest Expenses as a % of Average Loans Held for Investment

    5.21 %     5.18 %     5.21 %     5.30 %     9.24 %

Number of Active ATMs

    1,288       1,282       1,253       1,236       661  

Number of locations

    742       732       724       723       358  

National Lending:

 

Interest Income

  $ 3,675,528     $ 3,511,878     $ 3,261,042     $ 3,254,596     $ 3,182,013  

Interest Expense

    1,235,080       1,232,115       1,197,106       1,184,284       1,163,106  
                                       

Net interest income

  $ 2,440,448     $ 2,279,763     $ 2,063,936     $ 2,070,312     $ 2,018,907  

Non-interest income

    1,384,315       1,312,146       1,177,139       1,138,499       1,105,240  

Provision for loan losses

    1,777,327       1,196,087       869,149       849,216       1,010,837  

Other non-interest expenses

    1,389,840       1,367,607       1,366,282       1,422,169       1,534,523  

Income tax provision

    224,802       352,847       346,547       322,877       205,768  
                                       

Net income

  $ 432,794     $ 675,368     $ 659,097     $ 614,549     $ 373,019  
                                       

Loans Held for Investment

  $ 106,508,443     $ 102,556,271     $ 101,590,039     $ 100,371,532     $ 102,359,180  

Average Loans Held for Investment

  $ 104,321,485     $ 101,805,584     $ 100,520,138     $ 102,276,581     $ 99,881,480  

Core Deposits(2)

  $ 1,599     $ 470     $ 1,124     $ 3,212     $ 6,061  

Total Deposits

  $ 2,050,861     $ 2,295,131     $ 2,411,435     $ 2,409,291     $ 2,383,902  

Loans Held for Investment Yield

    14.07 %     13.77 %     12.95 %     12.70 %     12.72 %

Net Interest Margin

    9.36 %     8.96 %     8.21 %     8.10 %     8.09 %

Revenue Margin

    14.67 %     14.11 %     12.90 %     12.55 %     12.51 %

Risk Adjusted Margin

    9.94 %     10.15 %     9.43 %     8.90 %     8.88 %

Non-Interest Expenses as a % of Average Loans Held for Investment

    5.33 %     5.37 %     5.44 %     5.56 %     6.15 %

Efficiency Ratio (7)

    36.34 %     38.07 %     42.16 %     44.32 %     49.12 %

Net charge-off rate

    4.73 %     3.96 %     3.47 %(6)     3.65 %     3.63 %

Delinquency Rate (30+ days)

    5.17 %     4.70 %     3.89 %     3.63 %     4.09 %

Number of Loan Accounts (000s)

    48,537       48,473       48,536       48,668       49,374  

Other: (3)

 

Net interest income

  $ (22,449 )   $ (58,605 )   $ (35,056 )   $ (41,427 )   $ 75,586  

Non-interest income

    (10,425 )     10,639       (249 )     (44,564 )     (6,915 )

Provision for loan losses

    120,376       5,023       (5,981 )     (5,330 )     8,840  

Restructuring expenses

    27,809       19,354       91,074       —         —    

Other non-interest expenses

    155,746       3,870       28,717       (2,720 )     120,353  

Income tax benefit

    (113,854 )     (26,620 )     (112,796 )     (22,519 )     (44,395 )
                                       

Net loss

  $ (222,951 )   $ (49,593 )   $ (36,319 )   $ (55,422 )   $ (16,127 )
                                       

Loans Held for Investment

  $ 881,179     $ (21,375 )   $ (11,928 )   $ (9,084 )   $ 31,646,555  

Core Deposits(2)

  $ 6,107,779     $ 6,373,515     $ 6,937,760     $ 7,532,854     $ 42,819,710  

Total Deposits

  $ 7,621,031     $ 8,034,332     $ 8,786,315     $ 10,745,405     $ 48,052,380  

Total:

 

Interest Income

  $ 4,863,246     $ 4,646,431     $ 4,380,376     $ 4,359,663     $ 3,901,560  

Interest Expense

    1,862,733       1,842,993       1,767,031       1,757,209       1,562,488  
                                       

Net interest income

  $ 3,000,513     $ 2,803,438     $ 2,613,345     $ 2,602,454     $ 2,339,072  

Non-interest income

    1,566,232       1,517,989       1,387,471       1,294,076       1,210,346  

Provision for loan losses

    1,940,368       1,142,825       887,097       867,662       998,128  

Restructuring expenses

    27,809       19,354       91,074       —         —    

Other non-interest expenses

    2,107,398       1,914,867       1,943,461       1,974,047       1,962,686  

Income tax provision

    169,558       428,010       311,572       368,697       185,992  
                                       

Net Income

  $ 321,612     $ 816,371     $ 767,612     $ 686,124     $ 402,612  
                                       

Loans Held for Investment

  $ 151,362,417     $ 144,768,561     $ 143,497,756     $ 142,005,042     $ 146,151,268  

Core Deposits(2)

  $ 69,316,301     $ 69,086,358     $ 70,767,190     $ 70,498,461     $ 69,897,095  

Total Deposits

  $ 82,990,462     $ 83,342,814     $ 85,680,455     $ 87,663,750     $ 85,770,892  

 

(1) The information in this statistical summary reflects the adjustment to add back the effect of securitization transactions qualifying as sales under generally accepted accounting principles. See accompanying schedule—“Reconciliation to GAAP Financial Measures.” In Q3 2007, the Company shutdown the mortgage origination operations of its wholesale mortgage banking unit, GreenPoint Mortgage. The results of the mortgage origination operation of GreenPoint have been accounted for as a discontinued operation and have been removed from the Company’s results of continuing operations for all periods presented. The results of GreenPoint’s mortgage servicing business are reported in continuing operations for all periods presented. Effective Q4 2007, GreenPoint’s held for investment commercial and consumer loan portfolio results are included in continuing operations.
(2) Includes domestic non-interest bearing deposits, NOW accounts, money market deposit accounts, savings accounts, certificates of deposit of less than $100,000 and other consumer time deposits.
(3) Results of the North Fork acquisition were included in the Other category for Q4 2006.
(4) Net Interest Margin—Loans is interest income—loans divided by average managed loans.
(5) Net Interest Margin—Deposits is interest expense—deposits divided by average retail deposits.
(6) Net charge-off rate for Q2 2007 was positively impacted by 16 basis points due to the implementation of a change in customer statement generation from 30 to 25 days grace. This change did not have a material impact on the provision for the quarter.
(7) Efficiency Ratio is non-interest expenses divided by total managed revenue.

 

(8) Certain prior period amounts have been reclassified to conform with current period presentation.

 

4


CAPITAL ONE FINANCIAL CORPORATION (COF)

NATIONAL LENDING SUBSEGMENT FINANCIAL & STATISTICAL SUMMARY FOR CONTINUING OPERATIONS

MANAGED BASIS (1)

 

(in thousands)

 

2007

Q4

   

2007

Q3

   

2007

Q2

   

2007

Q1

   

2006

Q4

 

US Card:

         

Interest Income

  $ 2,058,920     $ 1,953,967     $ 1,779,670     $ 1,813,846     $ 1,795,345  

Interest Expense

    574,714       596,767       590,236       602,505       600,821  
                                       

Net interest income

  $ 1,484,206     $ 1,357,200     $ 1,189,434     $ 1,211,341     $ 1,194,524  

Non-interest income

    1,046,823       975,502       842,428       778,606       795,881  

Provision for loan losses

    913,113       662,428       402,589       373,836       554,698  

Non-interest expenses

    822,317       815,470       808,769       861,020       916,963  

Income tax provision

    273,686       294,053       282,253       259,751       181,561  
                                       

Net income

  $ 521,913     $ 560,751     $ 538,251     $ 495,340     $ 337,183  
                                       

Loans Held for Investment

  $ 52,078,847     $ 49,573,279     $ 50,032,530     $ 49,681,559     $ 53,623,680  

Average Loans Held for Investment

  $ 50,276,568     $ 49,682,666     $ 49,573,957     $ 51,878,104     $ 51,686,135  

Loans Held for Investment Yield

    16.38 %     15.73 %     14.36 %     13.99 %     13.89 %

Net Interest Margin

    11.81 %     10.93 %     9.60 %     9.34 %     9.24 %

Revenue Margin

    20.14 %     18.78 %     16.39 %     15.34 %     15.40 %

Risk Adjusted Margin

    14.74 %     14.65 %     12.66 %     11.35 %     11.58 %

Non-Interest Expenses as a % of Average Loans Held for Investment

    6.54 %     6.57 %     6.53 %     6.64 %     7.10 %

Efficiency Ratio (2)

    32.49 %     34.96 %     39.80 %     43.27 %     46.07 %

Net charge-off rate

    5.40 %     4.13 %     3.73 %(5)     3.99 %     3.82 %

Delinquency Rate (30+ days)

    4.95 %     4.46 %     3.41 %     3.48 %     3.74 %

Purchase Volume (3)

  $ 22,909,274     $ 21,522,104     $ 21,781,462     $ 19,346,812     $ 22,782,451  

Number of Loan Accounts (000s)

    36,450       36,504       36,608       36,758       37,630  

Auto Finance:

         

Interest Income

  $ 687,389     $ 661,471     $ 651,821     $ 637,609     $ 593,268  

Interest Expense

    300,133       283,949       277,783       265,556       242,311  
                                       

Net interest income

  $ 387,256     $ 377,522     $ 374,038     $ 372,053     $ 350,957  

Non-interest income

    14,888       13,514       23,273       60,586       14,143  

Provision for loan losses

    429,247       244,537       182,278       200,058       151,171  

Non-interest expenses

    144,301       152,275       157,044       164,948       162,022  

Income tax provision

    (58,963 )     (1,987 )     19,948       23,266       18,167  
                                       

Net (loss) income

  $ (112,441 )   $ (3,789 )   $ 38,041     $ 44,367     $ 33,740  
                                       

Loans Held for Investment

  $ 25,128,352     $ 24,335,242     $ 24,067,760     $ 23,930,547     $ 21,751,827  

Average Loans Held for Investment

  $ 24,920,380     $ 24,170,047     $ 23,898,070     $ 23,597,675     $ 21,498,205  

Loans Held for Investment Yield

    11.03 %     10.95 %     10.91 %     10.81 %     11.04 %

Net Interest Margin

    6.22 %     6.25 %     6.26 %     6.31 %     6.53 %

Revenue Margin

    6.45 %     6.47 %     6.65 %     7.33 %     6.79 %

Risk Adjusted Margin

    2.46 %     2.91 %     4.30 %     5.04 %     3.94 %

Non-Interest Expenses as a % of Average Loans Held for Investment

    2.32 %     2.52 %     2.63 %     2.80 %     3.01 %

Efficiency Ratio (2)

    35.88 %     38.94 %     39.53 %     38.13 %     44.38 %

Net charge-off rate

    4.00 %     3.56 %     2.35 %     2.29 %     2.85 %

Delinquency Rate (30+ days)

    7.84 %     7.15 %     6.00 %     4.64 %     6.35 %

Auto Loan Originations

  $ 3,623,491     $ 3,248,747     $ 2,992,427     $ 3,311,868     $ 3,078,877  

Number of Loan Accounts (000s)

    1,771       1,731       1,771       1,762       1,589  

Global Financial Services:

         

Interest Income

  $ 929,219     $ 896,440     $ 829,551     $ 803,141     $ 793,400  

Interest Expense

    360,233       351,399       329,087       316,223       319,974  
                                       

Net interest income

  $ 568,986     $ 545,041     $ 500,464     $ 486,918     $ 473,426  

Non-interest income

    322,604       323,130       311,438       299,307       295,216  

Provision for loan losses

    434,967       289,122       284,282       275,322       304,968  

Non-interest expenses

    423,222       399,862       400,469       396,201       455,538  

Income tax provision

    10,079       60,781       44,346       39,860       6,040  
                                       

Net income

  $ 23,322     $ 118,406     $ 82,805     $ 74,842     $ 2,096  
                                       

Loans Held for Investment

  $ 29,301,244     $ 28,647,750     $ 27,489,749     $ 26,759,426     $ 26,983,673  

Average Loans Held for Investment

  $ 29,124,537     $ 27,952,871     $ 27,048,111     $ 26,800,802     $ 26,697,140  

Loans Held for Investment Yield (4)

    12.69 %     12.72 %     12.16 %     11.88 %     11.80 %

Net Interest Margin

    7.81 %     7.80 %     7.40 %     7.27 %     7.09 %

Revenue Margin

    12.25 %     12.42 %     12.01 %     11.73 %     11.52 %

Risk Adjusted Margin

    8.05 %     8.42 %     8.03 %     7.55 %     7.63 %

Non-Interest Expenses as a % of Average Loans Held for Investment

    5.81 %     5.72 %     5.92 %     5.91 %     6.83 %

Efficiency Ratio (2)

    47.47 %     46.06 %     49.32 %     50.39 %     59.27 %

Net charge-off rate

    4.19 %     4.00 %     3.98 %     4.18 %     3.89 %

Delinquency Rate (30+ days)

    3.29 %     3.02 %     2.93 %     2.99 %     2.97 %

Number of Loan Accounts (000s)

    10,316       10,238       10,157       10,148       10,155  

 

(1) The information in this statistical summary reflects the adjustment to add back the effect of securitization transactions qualifying as sales under generally accepted accounting principles. See accompanying schedule—“Reconciliation to GAAP Financial Measures.”
(2) Efficiency ratio is non-Interest Expenses divided by total Managed Revenue
(3) Includes all purchase transactions net of returns and excludes cash advance transactions.
(4) Excludes “GFS—Home Loans Originations” and “GFS—Settlement Services” from Other Interest Income.
(5) Net charge-off rate for Q2 2007 was positively impacted by 31 basis points due to the implementation of a change in customer statement generation from 30 to 25 days grace. This change did not have a material impact on the provision for the quarter.

 

5


CAPITAL ONE FINANCIAL CORPORATION

Reconciliation to GAAP Financial Measures

For the Three Months Ended December 31, 2007

(dollars in thousands)(unaudited)

The Company’s consolidated financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) are referred to as its “reported” financial statements. Loans included in securitization transactions which qualified as sales under GAAP have been removed from the Company’s “reported” balance sheet. However, servicing fees, finance charges, and other fees, net of charge-offs, and interest paid to investors of securitizations are recognized as servicing and securitizations income on the “reported” income statement.

The Company’s “managed” consolidated financial statements reflect adjustments made related to effects of securitization transactions qualifying as sales under GAAP. The Company generates earnings from its “managed” loan portfolio which includes both the on-balance sheet loans and off-balance sheet loans. The Company’s “managed” income statement takes the components of the servicing and securitizations income generated from the securitized portfolio and distributes the revenue and expense to appropriate income statement line items from which it originated. For this reason the Company believes the “managed” consolidated financial statements and related managed metrics to be useful to stakeholders.

 

     Total Reported    Adjustments(1)     Total Managed(2)

Income Statement Measures(3)

       

Net interest income

   $ 1,762,247    $ 1,238,266     $ 3,000,513

Non-interest income

     2,158,340      (592,108 )     1,566,232
                     

Total revenue

     3,920,587      646,158       4,566,745

Provision for loan losses

     1,294,210      646,158       1,940,368

Net charge-offs

   $ 650,018    $ 646,158     $ 1,296,176

Balance Sheet Measures

       

Loans Held for Investment

   $ 101,805,027    $ 49,557,390     $ 151,362,417

Total assets

   $ 150,590,369    $ 48,706,677     $ 199,297,046

Average loans Held for Investment

   $ 97,784,813    $ 50,577,525     $ 148,362,338

Average earning assets

   $ 127,553,955    $ 48,409,256     $ 175,963,211

Average total assets

   $ 151,517,794    $ 49,732,018     $ 201,249,812

Delinquencies

   $ 3,721,444    $ 2,142,353     $ 5,863,797

 

(1)

Income statement adjustments reclassify the net of finance charges of $1,648.6 million, past-due fees of $301.1 million, other interest income of $(46.7) million and interest expense of $664.8 million; and net charge-offs of $646.2 million from Non-interest income to Net interest income and Provision for loan losses, respectively.

(2)

The managed loan portfolio does not include auto loans which have been sold in whole loan sale transactions where the Company has retained servicing rights.

(3)

Based on continuing operations.

 

6


CAPITAL ONE FINANCIAL CORPORATION

Consolidated Balance Sheets

(in thousands)(unaudited)

 

     As of
December 31
2007
    As of
September 30
2007
    As of
December 31
2006(1)
 

Assets:

      

Cash and due from banks

   $ 2,377,287     $ 1,819,121     $ 2,817,519  

Federal funds sold and resale agreements

     1,766,762       1,922,735       1,099,156  

Interest-bearing deposits at other banks

     677,360       703,805       743,821  
                        

Cash and cash equivalents

     4,821,409       4,445,661       4,660,496  

Securities available for sale

     19,781,587       19,959,247       15,246,887  

Mortgage loans held for sale

     315,863       1,454,457       10,435,295  

Loans held for investment

     101,805,027       95,405,217       96,512,139  

Less: Allowance for loan and lease losses

     (2,963,000 )     (2,320,000 )     (2,180,000 )
                        

Net loans held for investment

     98,842,027       93,085,217       94,332,139  

Accounts receivable from securitizations

     4,717,879       6,905,859       4,589,235  

Premises and equipment, net

     2,299,603       2,268,034       2,203,280  

Interest receivable

     839,317       793,693       816,426  

Goodwill

     12,830,740       12,952,838       13,635,435  

Other

     6,141,944       5,289,829       3,820,092  
                        

Total assets

   $ 150,590,369     $ 147,154,835     $ 149,739,285  
                        

Liabilities:

      

Non-interest-bearing deposits

   $ 11,046,549     $ 10,840,189     $ 11,648,070  

Interest-bearing deposits

     71,943,913       72,502,625       74,122,822  

Senior and subordinated notes

     10,712,706       10,784,182       9,725,470  

Other borrowings

     26,583,683       22,722,519       24,257,007  

Interest payable

     631,609       552,674       574,763  

Other

     5,377,797       4,965,794       4,175,947  
                        

Total liabilities

     126,296,257       122,367,983       124,504,079  

Stockholders’ Equity:

      

Common stock

     4,192       4,183       4,122  

Paid-in capital, net

     15,860,490       15,768,525       15,333,137  

Retained earnings and cumulative other comprehensive income

     11,582,816       11,395,226       10,026,364  

Less: Treasury stock, at cost

     (3,153,386 )     (2,381,082 )     (128,417 )
                        

Total stockholders’ equity

     24,294,112       24,786,852       25,235,206  
                        

Total liabilities and stockholders’ equity

   $ 150,590,369     $ 147,154,835     $ 149,739,285  
                        

 

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

 

7


CAPITAL ONE FINANCIAL CORPORATION

Consolidated Statements of Income

(in thousands, except per share data)(unaudited)

 

     Three Months Ended     Year Ended  
     December 31
2007
    September 30
2007
    December 31 (1)
2006
    December 31
2007
    December 31 (1)
2006
 

Interest Income:

          

Loans held for investment, including past-due fees

   $ 2,536,779     $ 2,381,096     $ 2,002,111     $ 9,500,128     $ 7,046,473  

Securities available for sale

     256,364       252,550       185,424       950,972       676,712  

Other

     167,051       133,321       136,390       627,056       441,550  
                                        

Total interest income

     2,960,194       2,766,967       2,323,925       11,078,156       8,164,735  

Interest Expense:

          

Deposits

     686,174       740,091       552,385       2,906,351       1,814,797  

Senior and subordinated notes

     159,878       144,643       136,282       577,128       411,643  

Other borrowings

     351,895       257,759       242,286       1,064,832       846,849  
                                        

Total interest expense

     1,197,947       1,142,493       930,953       4,548,311       3,073,289  
                                        

Net interest income

     1,762,247       1,624,474       1,392,972       6,529,845       5,091,446  

Provision for loan and lease losses

     1,294,210       595,534       513,157       2,636,502       1,476,438  
                                        

Net interest income after provision for loan and lease losses

     468,037       1,028,940       879,815       3,893,343       3,615,008  

Non-Interest Income:

          

Servicing and securitizations

     1,271,396       1,354,303       959,436       4,840,677       4,209,637  

Service charges and other customer-related fees

     573,034       522,374       462,086       2,057,854       1,770,340  

Mortgage servicing and other

     (5,700 )     52,661       58,805       166,776       177,893  

Interchange

     152,595       103,799       147,571       500,484       549,074  

Other

     167,015       116,525       43,577       488,432       294,080  
                                        

Total non-interest income

     2,158,340       2,149,662       1,671,475       8,054,223       7,001,024  

Non-Interest Expense:

          

Salaries and associate benefits

     622,101       627,358       617,563       2,592,534       2,224,676  

Marketing

     358,182       332,693       395,360       1,347,836       1,444,324  

Communications and data processing

     189,415       194,551       187,043       758,820       712,001  

Supplies and equipment

     146,267       134,639       137,582       531,238       460,419  

Occupancy

     91,675       77,597       63,796       322,510       215,636  

Restructuring expense

     27,809       19,354       —         138,237       —    

Other

     699,758       548,029       561,342       2,386,835       1,886,635  
                                        

Total non-interest expense

     2,135,207       1,934,221       1,962,686       8,078,010       6,943,691  
                                        

Income from continuing operations before income taxes

     491,170       1,244,381       588,604       3,869,556       3,672,341  

Income taxes

     169,558       428,010       185,992       1,277,837       1,245,964  
                                        

Income from continuing operations, net of tax

     321,612       816,371       402,612       2,591,719       2,426,377  

Loss from discontinued operations, net of tax(2)

     (95,044 )     (898,029 )     (11,884 )     (1,021,387 )     (11,884 )
                                        

Net income (loss)

   $ 226,568     $ (81,658 )   $ 390,728     $ 1,570,332     $ 2,414,493  
                                        

Basic earnings per share

          

Income from continuing operations

   $ 0.85     $ 2.11     $ 1.20     $ 6.64     $ 7.84  

Loss from discontinued operations

     (0.25 )     (2.32 )     (0.04 )     (2.62 )     (0.04 )
                                        

Net income (loss)

   $ 0.60     $ (0.21 )   $ 1.16     $ 4.02     $ 7.80  
                                        

Diluted earnings per share

          

Income from continuing operations

   $ 0.85     $ 2.09     $ 1.17     $ 6.55     $ 7.65  

Loss from discontinued operations

     (0.25 )     (2.30 )     (0.03 )     (2.58 )     (0.03 )
                                        

Net income (loss)

   $ 0.60     $ (0.21 )   $ 1.14     $ 3.97     $ 7.62  
                                        

Dividends paid per share

   $ 0.03     $ 0.03     $ 0.03     $ 0.11     $ 0.11  
                                        

 

(1) Certain prior period amounts have been reclassified to conform to the current period presentation.
(2) Certain prior period amounts have been reclassified to conform to the current period presentation. In Q3 2007, the Company shutdown the mortgage origination operations of its wholesale mortgage banking unit, GreenPoint Mortgage, realizing an after-tax loss of $898.0 million. The results of the mortgage origination operation of GreenPoint have been accounted for as a discontinued operation and have been removed from the Company’s results of continuing operations for all periods presented.

 

8


CAPITAL ONE FINANCIAL CORPORATION

Statements of Average Balances, Income and Expense, Yields and Rates

(dollars in thousands)(unaudited)

 

Reported   Quarter Ended 12/31/07     Quarter Ended 9/30/07 (1)     Quarter Ended 12/31/06 (1)  
    Average
Balance
  Income/
Expense
  Yield/
Rate
    Average
Balance
  Income/
Expense
  Yield/
Rate
    Average
Balance
  Income/
Expense
  Yield/
Rate
 

Earning assets:

                 

Loans held for investment

    97,784,813     2,536,779   10.38 %     91,744,846     2,381,096   10.38 %     74,737,753     2,002,111   10.72 %

Securities available for sale

    20,102,440     256,364   5.10 %     20,041,177     252,550   5.04 %     15,090,001     185,424   4.92 %

Other

    9,355,161     167,051   7.14 %     6,568,358     133,321   8.12 %     8,020,811     136,390   6.80 %
                                                     

Total earning assets (2)

  $ 127,242,414   $ 2,960,194   9.31 %   $ 118,354,381   $ 2,766,967   9.35 %   $ 97,848,565   $ 2,323,925   9.50 %
                                         

Interest-bearing liabilities:

                 

Interest-bearing deposits

                 

NOW accounts

  $ 4,674,490   $ 30,443   2.61 %   $ 4,759,665   $ 34,030   2.86 %   $ 2,094,623   $ 14,546   2.78 %

Money market deposit accounts

    28,983,602     270,943   3.74 %     28,696,735     294,873   4.11 %     15,762,255     149,831   3.80 %

Savings accounts

    8,172,510     32,520   1.59 %     8,345,638     37,474   1.80 %     5,425,790     31,386   2.31 %

Other Consumer Time Deposits

    16,374,958     183,570   4.48 %     17,203,453     194,256   4.52 %     16,656,731     190,489   4.57 %

Public Fund CD’s of $100,000 or more

    1,902,442     23,126   4.86 %     1,884,767     23,092   4.90 %     1,281,768     16,636   5.19 %

CD’s of $100,000 or more

    8,335,941     97,335   4.67 %     8,673,860     103,296   4.76 %     8,682,658     101,535   4.68 %

Foreign time deposits

    3,868,444     48,237   4.99 %     3,991,056     53,070   5.32 %     3,831,401     47,962   5.01 %
                                                     

Total Interest-bearing deposits

  $ 72,312,387   $ 686,174   3.80 %   $ 73,555,174   $ 740,091   4.02 %   $ 53,735,226   $ 552,385   4.11 %

Senior and subordinated notes

    10,682,635     159,878   5.99 %     9,811,821     144,643   5.90 %     9,034,696     136,282   6.03 %

Other borrowings

    26,433,200     351,895   5.33 %     18,892,876     257,759   5.46 %     18,891,606     242,286   5.13 %
                                                     

Total interest-bearing liabilities (2)

  $ 109,428,222   $ 1,197,947   4.38 %   $ 102,259,871   $ 1,142,493   4.47 %   $ 81,661,528   $ 930,953   4.56 %
                                                     

Net interest spread

      4.93 %       4.88 %       4.94 %
                             

Interest income to average earning assets

      9.31 %       9.35 %       9.50 %

Interest expense to average earning assets

      3.77 %       3.86 %       3.81 %
                             

Net interest margin

      5.54 %       5.49 %       5.69 %
                             

 

(1) Prior period amounts have been reclassified to conform with current period presentation.
(2) Average balances, income and expenses, yields and rates are based on continuing operations.

 

9


CAPITAL ONE FINANCIAL CORPORATION

Statements of Average Balances, Income and Expense, Yields and Rates

(dollars in thousands)(unaudited)

 

Managed (1)   Quarter Ended 12/31/07     Quarter Ended 9/30/07 (2)     Quarter Ended 12/31/06 (2)  
    Average
Balance
  Income/
Expense
  Yield/
Rate
    Average
Balance
  Income/
Expense
  Yield/
Rate
    Average
Balance
  Income/
Expense
  Yield/
Rate
 

Earning assets:

                 

Loans held for investment

    148,362,338     4,512,219   12.17 %     143,781,268     4,324,272   12.03 %     123,901,960     3,640,588   11.75 %

Securities available for sale

    20,102,440     256,364   5.10 %     20,041,177     252,550   5.04 %     15,090,001     185,424   4.92 %

Other

    7,186,892     94,663   5.27 %     4,415,978     69,610   6.31 %     6,121,053     75,547   4.94 %
                                                     

Total earning assets (3)

  $ 175,651,670   $ 4,863,246   11.07 %   $ 168,238,423   $ 4,646,432   11.05 %   $ 145,113,014   $ 3,901,559   10.76 %
                                         

Interest-bearing liabilities:

                 

Interest-bearing deposits

                 

NOW accounts

  $ 4,674,490   $ 30,443   2.61 %   $ 4,759,665   $ 34,030   2.86 %   $ 2,094,623   $ 14,546   2.78 %

Money market deposit accounts

    28,983,602     270,943   3.74 %     28,696,735     294,873   4.11 %     15,762,255     149,831   3.80 %

Savings accounts

    8,172,510     32,520   1.59 %     8,345,638     37,474   1.80 %     5,425,790     31,386   2.31 %

Other Consumer Time Deposits

    16,374,958     183,570   4.48 %     17,203,453     194,256   4.52 %     16,656,731     190,489   4.57 %

Public Fund CD’s of $100,000 or more

    1,902,442     23,126   4.86 %     1,884,767     23,092   4.90 %     1,281,768     16,636   5.19 %

CD’s of $100,000 or more

    8,335,941     97,335   4.67 %     8,673,860     103,296   4.76 %     8,682,658     101,535   4.68 %

Foreign time deposits

    3,868,444     48,237   4.99 %     3,991,056     53,070   5.32 %     3,831,401     47,962   5.01 %
                                                     

Total Interest-bearing deposits

  $ 72,312,387   $ 686,174   3.80 %   $ 73,555,174   $ 740,091   4.02 %   $ 53,735,226   $ 552,385   4.11 %

Senior and subordinated notes

    10,682,635     159,878   5.99 %     9,811,821     144,643   5.90 %     9,034,696     136,282   6.03 %

Other borrowings

    26,433,200     351,895   5.33 %     18,892,876     257,759   5.46 %     18,891,606     242,299   5.13 %

Securitization liability

    49,847,555     664,786   5.33 %     51,320,446     700,501   5.46 %     48,603,831     631,521   5.20 %
                                                     

Total interest-bearing liabilities (3)

  $ 159,275,777   $ 1,862,733   4.68 %   $ 153,580,317   $ 1,842,994   4.80 %   $ 130,265,359   $ 1,562,487   4.80 %
                                                     

Net interest spread

      6.39 %       6.25 %       5.96 %
                             

Interest income to average earning assets

      11.07 %       11.05 %       10.76 %

Interest expense to average earning assets

      4.24 %       4.38 %       4.31 %
                             

Net interest margin

      6.83 %       6.67 %       6.45 %
                             

 

(1) The information in this table reflects the adjustment to add back the effect of securitized loans.
(2) Prior period amounts have been reclassified to conform with current period presentation.
(3) Average balances, income and expenses, yields and rates are based on continuing operations.

 

10


LOGO

News Release

FOR IMMEDIATE RELEASE: January 23, 2008

 

Contacts:    Investor Relations            Media Relations
   Jeff Norris    Tatiana Stead    Julie Rakes
   703-720-2455    703-720-2352    804-284-5800

Capital One Reports Fourth Quarter Earnings

McLean, Va. (Jan 23, 2008) – Capital One Financial Corporation (NYSE: COF) today announced earnings for 2007 of $1.6 billion, or $3.97 per share (diluted). Earnings from continuing operations for the full year were $2.6 billion or $6.55 per share (diluted), versus the prior year’s $2.4 billion, or $7.65 earnings per share (diluted). Net income for the fourth quarter of 2007 was $226.6 million, or $0.60 earnings per share (diluted). Fourth quarter 2007 earnings from continuing operations were $321.6 million, or $0.85 earnings per share (diluted) compared to $402.6 million, or $1.17 earnings per share (diluted) in the fourth quarter of 2006. These results are consistent with those reported by the company on January 10, 2008 and provide additional information regarding segment performance.

Earnings from continuing operations excludes the loss from discontinued operations related to the shutdown of GreenPoint Mortgage, announced in August 2007, of $0.25 per share (diluted) for the fourth quarter of 2007 and $2.58 per share (diluted) for full year 2007.

“As the economy has weakened, we have selectively pulled back loan growth and maintained appropriately conservative underwriting standards,” said Richard D. Fairbank, Capital One’s Chairman and Chief Executive Officer. “We feel confident that our strong balance sheet, resilient businesses, and decisive actions will allow us to successfully navigate the cyclical economic weakness and we remain poised to generate above average returns on the other side of the cycle.”

Total Company Results

 

   

Managed loans held for investment at the end of 2007 were $151.4 billion, up $5.2 billion or 3.6 percent over the end of 2006. Increases during the year came primarily in the Auto and Global Financial Services portfolios. Managed loans increased from the third quarter of 2007 by $6.6 billion, or 4.6 percent, driven largely by seasonal growth in U.S. Card and Auto. The company expects managed loan growth in the low single digits in 2008.


Capital One Reports Fourth Quarter Earnings

Page 2

 

   

Total managed revenue was up 5.7 percent relative to the third quarter of 2007, driven largely by revenue margin expansion and seasonal loan growth in our U.S. Card portfolio. The company expects 2008 revenue growth to be in the low single digits.

 

   

On a managed basis, the fourth quarter 2007 provision for loan losses was approximately $1.9 billion. This was comprised of approximately $1.3 billion in charge-offs and an allowance build of approximately $650 million. The allowance is driven by the loss outlook at year-end which reflects fourth quarter credit metrics and a recognition of the weakening trends in the U.S. economy as the company entered 2008.

 

   

Fourth quarter operating expenses of $1.7 billion included approximately $140 million of legal liabilities and reserves. Full year 2007 operating expenses were $6.6 billion, leading to an efficiency ratio of 47 percent. The company expects its 2008 operating expenses to be at least $200 million below 2007, leading to an efficiency ratio in the mid-forty percent range for 2008.

 

   

Total deposits of $83.0 billion at the end of the fourth quarter of 2007 were essentially flat with the previous quarter.

“The company ended 2007 with a year-end ratio of tangible common equity (TCE) to tangible managed assets of 5.8 percent. In the current environment we intend, through internal capital generation, to manage toward the high end or above our target range of 5.5 - 6.0 percent,” said Gary L. Perlin, Capital One’s Chief Financial Officer. “We will maintain our strong liquidity position and continue to take actions to sustain profitability through the cycle.”

Segment Results

National Lending Segment

 

   

Profits for the National Lending segment were up $59.8 million as compared to the fourth quarter of 2006, driven by increased profits in U.S. Card and Global Financial Services.

 

   

The managed charge-off rate for the National Lending segment in the fourth quarter of 2007 was 4.73 percent versus 3.96 percent in the third quarter of 2007 and 3.63 percent in the fourth quarter of 2006. The delinquency rate of 5.17 percent for National Lending increased from 4.70 percent at the end of the third quarter and 4.09 percent as of December 31, 2006. Credit metrics have risen year over year due to credit normalization, secondary effects of changes to pricing and fee policies in U.S. Card, and deterioration in the company’s U.S. consumer loan portfolio due to weakening in the U.S. economy.


Capital One Reports Fourth Quarter Earnings

Page 3

 

U.S. Card highlights

 

   

U.S. Card reported record net income for 2007 of $2.1 billion, versus $1.8 billion in 2006. Fourth quarter net income was $521.9 million, a 54.8 percent increase, year over year as revenue growth and expense reductions more than offset increased charge-offs and allowance build.

 

   

Revenues increased 27.2 percent from the fourth quarter of 2006 largely as a result of pricing changes implemented in some of the company’s products after completion of the card holder system conversion.

 

   

Non-interest expenses decreased 6.1 percent to $3.3 billion in 2007 from $3.5 billion in 2006. Non-interest expenses in the fourth quarter of 2007 were relatively flat compared to the third quarter of 2007.

 

   

Managed loans at the end of 2007 were $52.1 billion, a decline of 2.9 percent from the end of 2006, and an increase of 5.1 percent from the end of the third quarter of 2007. The year over year decline was a result of a reduction in the marketing of teaser rate offers in the prime market and a $600.0 million portfolio sale in the first quarter of 2007. The increase in managed loans relative to the third quarter was due primarily to seasonality.

 

   

Charge-offs rose in the fourth quarter of 2007 to 5.40 percent from 3.82 percent in the fourth quarter of 2006, and delinquencies rose to 4.95 percent from 3.74 percent. The increases resulted from continued normalization of consumer credit, pull-back from the prime revolver market throughout the year, impacts of U.S. Card’s pricing and fee policy changes made in the second and third quarters, and economic weakening evidenced in recently released economic indicators. In addition, credit metrics in the fourth quarter of 2007 reflect expected seasonal patterns on a sequential quarter basis. The company expects the U.S. Card managed charge-off rate to be in the mid-6 percent range in the first half of 2008.

Auto Finance highlights

 

   

Auto Finance reported a net loss for 2007 of $33.8 million, versus net income of $233.5 million in 2006. In the fourth quarter of 2007, Auto posted a net loss of $112.4 million, primarily due to the effects of credit worsening.

 

   

Increases in charge-off and delinquency rates were a result of expected seasonal patterns, credit normalization and weakening in the U.S. economy. While the company increased its pricing and tightened credit standards in the fourth quarter of 2007, the reduction in

 


Capital One Reports Fourth Quarter Earnings

Page 4

 

 

competitive intensity allowed the company to originate $3.6 billion of high quality loans, up 11.5 percent, compared to the third quarter of 2007.

 

   

Tightened underwriting and increased prices implemented in the fourth quarter have resulted in better credit profiles and higher pricing on the portfolio. An intended effect of the tightened underwriting has been to reduce the amount of originations. In 2008, the company expects to further reduce originations and focus its dealer prime business on a much smaller network of dealers.

 

   

On January 1, 2008, the company moved Capital One Auto Finance Company (“COAF”), a previously wholly owned finance company subsidiary of Capital One Financial Corporation to become a direct operating subsidiary of Capital One, N.A., a wholly owned banking subsidiary. This legal entity restructuring enhances the holding company’s liquidity profile and COAF’s funding flexibility.

Global Financial Services (GFS) highlights

 

   

GFS reported net income for 2007 of $299.4 million, versus $273.9 million in 2006. Fourth quarter 2007 net income was $23.3 million, a $21.2 million increase over last year’s fourth quarter driven by higher revenue margin and lower operating expenses offset by higher provision expense. The reduction in net income relative to the prior quarter was primarily driven by an increase in provision expense.

 

   

Managed loans grew 8.6 percent, to $29.3 billion during 2007 with growth from North American businesses more than offsetting a modest decline in loans in the UK.

 

   

Strong credit results in the Canadian credit card business and stable and improving credit performance in the UK muted worsening credit trends in the domestic GFS businesses for 2007.

Local Banking Segment highlights

 

   

Net income of $111.8 million in the fourth quarter of 2007 was down $78.8 million over the third quarter, due primarily to the third quarter including a release in reserves that resulted from aligning the Banking segment’s allowance methodologies with the company’s methodology.

 

   

Loans held for investment grew $1.7 billion from the third quarter of 2007 to $44.0 billion primarily from the addition of GreenPoint Mortgage loans and increased commercial loan production. Total Bank deposits grew $305.2 million to $73.3 billion.

 


Capital One Reports Fourth Quarter Earnings

Page 5

 

   

The charge-off rate was 28 basis points in the fourth quarter of 2007 compared to 19 basis points in the third quarter, and non-performing loans were 41 basis points at December 31, 2007 compared to 27 basis points at September 30, 2007. While losses remain at very low levels, during the quarter the Bank experienced charge-off increases in its Consumer Real Estate portfolio and Unsecured Lending.

 

   

Integration efforts continue to be on track with the brand conversion and deposit platform conversion scheduled for the first quarter.

The company generates earnings from its managed loan portfolio, which includes both on-balance sheet loans and securitized (off-balance sheet) loans. For this reason, the company believes managed financial measures to be useful to stakeholders. In compliance with Regulation G of the Securities and Exchange Commission, the company is providing a numerical reconciliation of managed financial measures to comparable measures calculated on a reported basis using generally accepted accounting principles (GAAP). Please see the schedule titled “Reconciliation to GAAP Financial Measures” attached to this release for more information.

Forward looking statements

The company cautions that its current expectations in this release, in the presentation slides available on the company’s website and in its Form 8-K dated January 23, 2008, for 2008 revenue growth, managed growth, operating efficiencies, operating expense reductions, the expected managed charge-off rate for U.S. Card for the first half of 2008, and estimated loss levels for the twelve months ending December 31, 2008 underlying its provision expenses in the fourth quarter of 2007, and the company’s plans, objectives, expectations, and intentions, are forward-looking statements and actual results could differ materially from current expectations due to a number of factors, including: general economic and business conditions in the U.S. and or the UK, including conditions affecting employment levels, interest rates, consumer income, spending, and savings that may affect consumer bankruptcies, defaults, charge-offs and deposit activity; changes in the credit environment in the U.S. and or the UK; continued intense competition from numerous providers of products and services that compete with Capital One’s businesses; changes in our aggregate accounts and balances, and the growth rate and composition thereof; the company’s ability to execute on its strategic and operational plans; the risk that the company’s acquired businesses will not be integrated successfully and that the cost savings and other synergies from such acquisitions may not be fully realized; the risk that the benefits of the company’s restructuring initiative, including cost savings and other benefits, may not be fully realized; the success of the company’s marketing efforts; general conditions in the wholesale funding markets; and general market conditions in the mortgage industry. A discussion of these and other factors can be found in Capital One’s annual report and other reports filed with the Securities and Exchange Commission, including, but not limited to, Capital One’s report on Form 10-K for the fiscal year ended December 31, 2006, and reports on Form 10-Q and 10-Q/A for the quarters ended March 31, 2007, June 30, 2007 and September 30, 2007.

 


Capital One Reports Fourth Quarter Earnings

Page 6

 

About Capital One

Capital One Financial Corporation (www.capitalone.com) is a financial holding company whose subsidiaries collectively had $83.0 billion in deposits and $151.4 billion in managed loans outstanding as of December 31, 2007. Headquartered in McLean, VA, Capital One has 742 locations in New York, New Jersey, Connecticut, Texas and Louisiana. It is a diversified financial services company whose principal subsidiaries, Capital One, N.A., Capital One Bank, and Capital One Auto Finance, Inc., offer a broad spectrum of financial products and services to consumers, small businesses and commercial clients. 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: Fourth quarter 2007 financial results, SEC Filings, and fourth quarter 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 webcast of today’s 5:00 pm (ET) earnings conference call is accessible through the same link.

January 23, 2008


2
Forward-Looking Information
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 the Company from time to time, are forward-looking
statements, including those that discuss strategies, goals, outlook or other non-historical matters; projections, revenues, income, returns,
earnings per share or other financial measures for Capital One and/or discuss the assumptions that underlie these projections, including future
financial
and
operating
results,
and
the
company’s
plans,
objectives,
expectations
and
intentions.
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 forward-looking statements, including,
among
other
things:
general
economic
and
business
conditions
in
the
U.S.
and
or
the
UK,
including
conditions
affecting
consumer
income,
spending and repayments, changes in the credit environment in the U.S. and or the UK, including an increase or decrease in credit losses,
changes in the interest rate environment; continued intense competition from numerous providers of products and services that compete with our
businesses; financial, legal, regulatory or accounting changes or actions; changes in our aggregate accounts or consumer loan balances and the
growth rate and composition thereof; the amount of deposit growth; changes in the reputation of the credit card industry and/or the company with
respect to practices and products; the risk that Capital One’s acquired businesses will not be integrated successfully; the risk that synergies from
such
acquisitions
may
not
be
fully
realized
or
may
take
longer
to
realize
than
expected;
disruption
from
the
acquisitions
making
it
more
difficult
to
maintain relationships with customers, employees or suppliers; the risk that the benefits of the Company’s restructuring initiative, including cost
savings, may not be fully realized; our ability to access the capital markets at attractive rates and terms to fund our operations and future growth;
losses
associated
with
new
products
or
services;
the
company’s
ability
to
execute
on
its
strategic
and
operational
plans;
any
significant
disruption
in our operations or technology platform; our ability to effectively control our costs; the success of marketing efforts; our ability to recruit and retain
experienced management personnel; changes in the labor market; general economic conditions in the mortgage industry; and other factors listed
from time to time in reports we file with the Securities and Exchange Commission (the “SEC”), including, but not limited to, factors set forth under
the caption “Risk Factors”
in our Annual Report on Form 10-K for the year ended December 31, 2006, and our Quarterly Reports on Forms 10-Q
and 10-Q/A for the quarters ended March 31, 2007, June 30, 2007 and September 30, 2007.  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. A reconciliation of any non-GAAP financial measures included in this presentation can be found in the Company’s most recent Form
10-K
concerning
annual
financial
results,
available
on
the
Company’s
website
at
www.capitalone.com
in
Investor
Relations
under
“About
Capital
One.”
Forward looking statements


3
Diluted EPS of $0.60 in quarter, and $3.97 for full year 2007
EPS from continuing operations of $0.85 in quarter, and $6.55 for 2007
We’re acting decisively to manage the company effectively in the
face of cyclical economic headwinds
Pulling back on growth
Managing credit with insights & experience from prior economic downturns
Increasing intensity of cost restructuring and operating efficiency efforts
Building revenues
Managing
capital
with
discipline
and
returning
excess
capital
to
shareholders
We remain confident that our strong balance sheet and resilient
businesses will enable us to successfully navigate an economic
downturn, and will be poised for above-average shareholder returns
on the other side of the cycle
Fourth quarter 2007 highlights


4
0%
1%
2%
3%
4%
5%
6%
7%
8%
Credit metrics reflect weakening in the U.S. economy
0%
1%
2%
3%
4%
5%
6%
7%
8%
Monthly Managed
Net Charge-off Rate
Monthly Managed Delinquency
and Non-Performing Loan Rate
Bankruptcy
Filing Spike
National Lending
Local Banking
Local Banking: 
Non performing loans
as % of loans HFI
National Lending
30+ Delinquency Rate
Q407:
4.73%
Q407:
0.28%
5.17%
0.41%


5
We’re taking action to strengthen resiliency and sustain the strong
financial returns of our US Card business
3.82%
3.99%
3.73%
3.39%
4.13%
5.40%
3.74%
3.53%
3.48%
3.41%
4.46%
4.95%
0%
1%
2%
3%
4%
5%
6%
Q306
Q406
Q107
Q207
Q307
Q407
Credit Risk Metrics
(1) Based on internal allocations of consolidated results
Managed 30+
Delinquency Rate
Managed Net
Charge-off Rate
Highlights
Q407 NIAT of $522 million, up 55% from Q406
-
Revenues up 27%
-
Expenses down 10%
-
Provision up 65%
Charge-off and delinquency rates increased from Q406
and Q307
-
Charge-off normalization and economic weakening
-
Exacerbated by prime revolver pull back, as well as pricing
and fee moves in Q2, Q3
-
Expect
charge-off rate in mid-6%s in the first half of 2008
Revenue margin peaked at 20% in Q407, moving to
high-teens throughout 2008
Return on allocated capital well above 40% in 2007,
despite higher credit costs
Lessons from prior cyclical challenges inform current
actions
-
Maintaining low lines and targeted product structures for
riskier parts of the credit spectrum
-
Pulling back on growth with prudent underwriting and
marketing
-
Ramping up collections intensity early in cycle
-
Increasing process and operating efficiency efforts
Net Income After Tax
(1)
($M)
$461.6
$337.2
$495.3
$538.3
$560.8
$521.9
$0
$200
$400
$600
Q306
Q406
Q107
Q207
Q307
Q407


6
4.00%
3.56%
2.34%
2.85%
2.35%
2.29%
7.84%
7.15%
6.00%
4.64%
6.35%
5.18%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Q306
Q406
Q107
Q207
Q307
Q407
Credit Risk Metrics
(1) Based on internal allocations of consolidated results
Managed Net
Charge-off Rate
Managed 30+
Delinquency Rate
Actions
Scaled back dealer prime
Much smaller network of dealers
Focus on dealers with deeper relationships, better
credit and profitability performance
Moving “upmarket”
within subprime and prime
Exiting bottom 25% of subprime originations
Exiting “near prime”
Significant improvement in credit characteristics,
with average FICO of prime originations 30 points
higher than Q406
Increased pricing
Reduction in supply enabled higher pricing, even
as credit characteristics of loans improved
2008 expectations
Further pull backs in current cyclical environment
Declining originations and loan balances
Further migration to higher quality loans within
prime and subprime originations
Improved
financial returns
$35.3
$33.7
$44.4
$38.0
($3.8)
($112.4)
($120)
($80)
($40)
$0
$40
$80
$120
Q306
Q406
Q107
Q207
Q307
Q407
Net Income After Tax
(1)
($M)
We’re taking decisive actions to reposition our auto business for improved
performance


7
4.19%
4.00%
3.98%
4.18%
3.89%
3.70%
3.29%
3.02%
2.93%
2.99%
2.97%
2.86%
0%
1%
2%
3%
4%
5%
6%
Q306
Q406
Q107
Q207
Q307
Q407
Global Financial Services posted solid loan growth and stable
credit performance
Credit Risk Metrics
(1) Based on internal allocations of consolidated results
Managed Net
Charge-off Rate
Managed 30+
Delinquency Rate
Highlights
Net income of $23.3 million
-
Revenue up 16%
-
Expenses down 7%
-
Provision up 43%
-
Includes $30 million pre-tax gain on sale of Spanish
Credit Card portfolio
Risk metrics up modestly from Q307
US portfolio experiencing same pressures as US Card
UK credit outlook stable
$29 billion in managed loans, up 9% from Q406
-
Small business loans up 12%
-
Installment Loans up 17%
-
Canadian Credit Card loans up 27%
-
Point-of-Sale originations up 9%
-
Capital One Home Loans originations down 26%
-
UK Card loans down 7%
$2.1
$74.8
$82.8
$118.4
$23.3
$107.2
$0
$20
$40
$60
$80
$100
$120
$140
Q306
Q406
Q107
Q207
Q307
Q407
Net Income After Tax
(1)
($M)


8
$0
$10
$20
$30
$40
$50
$60
$70
$80
$41.6
Local banking continues to make progress on integration
Deposit and Loan Portfolio
(2)
($B)
$111.8
$190.6
$144.8
$127.0
$160.9
$165.4
$0
$50
$100
$150
$200
Q306
Q406
Q107
Q207
Q307
Q407
Net Income After Tax
(1,2)
($M)
(1)
Based on internal allocations of consolidated results
(2)
2006 Numbers based on pro-forma disclosures for combined NFB
and COF; net of purchase accounting and integration expenses.
(3)
Includes adjustment reflecting incorporation of float deposits.
Loans
Held for
Investment
Deposits³
Highlights
NIAT of $111.8 million in Q407, down
$80M from Q307
-
Revenues flat
-
Expenses up 3%
Deposits of $73.3 billion, up slightly from
Q307
-
Expected re-investment by several large
customers
-
Continued tough deposit competition
Loans up modestly from Q307, excluding
the addition of Greenpoint
loans
-
Commercial and small business loans grew
-
Expected paydowns
in mortgage portfolio
Integration on track; New bank leadership
team in place
$71.5
$73.2
$74.5
$47.9
$42.3
Q406
Q107
Q207
Q307
$74.5
$41.9
Q407
Q306
$73.04
$42.2
$73.3
$44.0


9
We have taken numerous actions to protect the business in the event
of a cyclical downturn
Pulled back on lending programs
Tightened underwriting
Increased pricing
Remain cautious on loan growth, bullish on deposit growth
Slowed asset growth, particularly in low resilience segments
Resumed growth of direct deposits channels
Increased focus on driving solid operating performance
Increased collections and recoveries capacity
Accelerated portions of cost restructuring initiative
Expanded funding flexibility
moved COAF to become a direct operating subsidiary of Capital One Bank, N.A.
Extended committed conduit program from 1 year to 3 year renewal
Managing to high end, or possibly above, our target TCE ratio of
5.5% to
6.0% for 2008


10
We continue to take actions to protect our business against a
weakening economy
Income Statement
Balance Sheet
Maintaining high revenue
margin
Taking out cost
Provisioning for a weakening
economy
Maintaining strong liquidity
Enhancing already flexible
funding
Growing capital levels with
expected increase in dividend


11
Our strong revenue margin, coupled with ongoing operating leverage,
helps protect our P&L in an economic downturn
40%
45%
50%
55%
60%
Q107
Q207
Q307
Q407
Revenue
Margin
Efficiency
Ratio
8%
10%
12%
Q107
Q207
Q307
Q407


12
We have built allowance to reflect elevated loss estimates and
continued economic weakness
US Card: 109%
Auto Finance: 46%
GFS: 173%
Local Banking: 94%
Consumer: 75%
Commercial: 103%
GreenPoint: 276%
Allowance as % of
Reported Loans
Allowance as % of
Reported 30+
Delinquencies
(as of 12/31/07)
2.4%
2.9%
0%
1%
2%
3%
4%
Q406
Q107
Q207
Q307
Q407


13
We have strengthened our balance sheet to manage an
economic downturn
$12B cash and unpledged
marketable securities
$11B
undrawn
committed
conduit
$6B FHLB capacity
Restructured legal entities to
ensure all businesses have access
to deposits
Capacity to securitize credit cards
without accessing public markets
provides flexibility in issuance
Ability to grow deposits across
multiple channels
Strong Liquidity
Flexible Funding


14
We expect our portfolio to remain capital generative under a
variety of economic scenarios
TCE target of
5.5% to 6.0%
Dividends and
share
repurchases
Capital
Generation
Completed $771M of share repurchases in Q407 ($3B
buyback program complete)
Board of Directors expected to declare 2008 dividend of about
25% of estimated earnings
Share repurchases unlikely in first half of 2008 as we further
build TCE ratios
Ended 2007 with 5.8% ratio of tangible common equity to
tangible managed assets
Expect to manage at high-end of, or possibly above, target
range in 2008
High margins with slower growth means increasing capital
Stress testing using past recession scenarios suggests
capital generation can support TCE target and ongoing
capital return to shareholders


15
Expect sound operating metrics in 2008, despite continued credit
headwinds
Commentary
Loan/Deposit
Growth
Cautious on loan growth; bullish on deposit growth
Revenue
Growth
Positive US Card yield trends in last few quarters
will moderate into 2008
Cost
Management
Capital
Management
~25% of estimated 2008 NIAT paid as dividend;
repurchases unlikely before second half of 2008
Credit
Expectations
Allowance at 12/31/07 consistent with $5.9B in
managed charge-offs for twelve months ending
12/31/08
2008 Outlook
Low single-digit growth
Mid-
40s efficiency ratio
Manage to the high end, or
possibly above, 5.5-
6.0% TCE
target
Continued economic weakness
At least $200M Y/Y OpEx reduction vs. 2007
Low single digits
Strong business performance and capital discipline will drive above-average
shareholder returns on the other side of a cyclical downturn


16
Appendix


17
Managed Balance Sheet Highlights ($Millions)
2007 balance sheet and return metrics from Continuing
Operations
Q407/Q307 Change
Q407
Q307
Q406
$
%/bps
Total Deposits
$
82,990
$
83,343
$
85,771
$
(353)
(0.4)
%
Total
Managed
Loans
Held
for
Investment
151,362
144,769
146,151
6,593
4.6
Tangible Assets
185,428
180,363
179,487
5,065
2.8
Tangible Common Equity
10,814
11,131
11,455
(317)
(2.8)
Tangible Common Equity to Tangible Assets Ratio
5.83
%
6.17
%
6.38
%
n/a
(34)
bps
Net Interest Margin
6.83
%
6.67
%
6.45
%
n/a
16
bps
Revenue Margin
10.40
10.27
9.78
n/a
13
Return on Managed Assets
0.64
1.68
1.01
n/a
(104)
Return on Equity
5.20
12.89
8.79
n/a
(769)
Return on Tangible Equity
11.54
27.95
14.38
n/a
(1,641)


18
($Millions except per share data)
Change
2007
2006
$
%/bps
Net Interest Income
$
11,019.8
$
8,932.7
$
2,087.1
23
%
Non-Interest Income
5,765.8
4,907.3
858.5
17
%
Total Revenue
16,785.6
13,840.0
2,945.6
21
%
Net Charge-offs
4,162.0
3,158.1
1,003.9
32
%
Allowance Build
783.0
164.1
618.9
377
%
Other
(107.0)
(98.3)
(8.7)
n/a
Provision for Loan Losses
4,838.0
3,223.9
1,614.1
50
%
Marketing Expenses
1,347.8
1,444.3
(96.5)
(7)
%
Restructuring Expenses
138.2
0.0
138.2
Operating Expenses
6,592.0
5,499.4
1,092.6
20
%
Tax Rate
33.0
%
33.9
%
n/a
(90)
bps
Income from Continuing Operations, Net of Tax
$
2,591.7
$
2,426.4
$
165.3
7
%
Loss from Discontinued Operations, Net of Tax
(1,021.4)
(11.9)
(1,009.5)
Net Income
$
1,570.3
2,414.5
$
(844.2)
(35)
%
Shares Used to Compute Diluted EPS (MM)
395.5
317.0
Diluted EPS from Continuing Operations
6.55
               
7.65
               
Diluted EPS from Discontinued Operations
(2.58)
              
(0.03)
              
2007 managed income statement


19
Managed Income Statement Highlights ($Millions except per share data)
Fourth quarter 2007 managed income statement
Q407/Q307 Change
Q407
Q307
Q406
$
%/bps
Net Interest Income
$
3,000.5
$
2,803.4
$
2,339.1
$
197.1
7
%
Non-Interest Income
1,566.2
1,518.0
1,210.3
48.2
3
Total Revenue
4,566.7
4,321.4
3,549.4
245.3
6
%
Net Charge-offs
$
1,296.2
$
1,027.4
$
927.5
$
268.8
26
%
Allowance Build
643.0
124.2
114.1
518.8
418
Other
1.1
(8.9)
(43.5)
10.0
112
Provision for Loan Losses
1,940.3
1,142.7
998.1
797.6
70
%
Marketing Expenses
$
358.2
$
332.7
$
395.4
25.5
8
%
Restructuring Expenses
27.8
19.4
-
8.4
43
Operating Expenses
1,749.2
1,582.2
1,567.3
167.0
11
Tax Rate
34.5
%
34.4
%
31.6
%
n/a
10
bps
Income from Continuing Operations, Net of Tax
$
321.6
$
816.4
$
402.6
$
(494.8)
(61)
%
Loss from Discontinued Operations, Net of Tax
(95.0)
(898.0)
(11.9)
803.0
89
Net (Loss) Income
226.6
(81.6)
390.7
308.2
378
Shares Used to Compute Diluted EPS (MM)
378.4
390.8
343.8
n/a
(3)
%
Diluted EPS from Continuing Operations
$
0.85
$
2.09
$
1.17
$
(1.24)
(59)
%
Diluted EPS from Discontinued Operations
(0.25)
(2.30)
(0.03)
2.05
89
%


20
With the $643M build in Q407, our allowance for loan losses is
consistent with $5.9B of managed charge offs in 2008
Charge-offs and Allowance for Loan Losses ($Millions)
1 : Based on Continuing Operations.
2 : Based on Total Company balance sheet.
Q407/Q307 Change
Q407
Q307
Q406
$
%/bps
Managed Net Charge-offs
1
$
1,296.2
$
1,027.4
$
927.5
$
268.8
26
%
Allowance Build
1
643.0
124.2
114.1
518.8
418
Other
1
1.1
(8.9)
(43.5)
10.0
n/a
Managed Provision for Loan Losses
1
1,940.3
1,142.7
998.1
797.6
70
%
Reported Net Charge-off Rate
1
2.66
2.09
2.37
n/a
57
bps
Reported Loans
2
$
101,805
$
95,405
$
96,512
$
6,400
7
%
Allowance for Loan Losses
2,963
2,320
2,180
643
28
Reported $30+ Day Delinquencies
2
3,721
3,077
2,648
644
21
Reported 30+ Delinquency Rate
2
3.66
%
3.22
%
2.74
%
n/a
44
bps
2