Capital One Reports Third Quarter 2012 Net Income Capital One Reports Third Quarter 2012 Net Income of $1.2 billion, or $2.01 per share
Release
Financial Supplement
Presentation
Tier 1 common ratio of 10.7% under Basel I; expected to be above 8% on Basel III basis in 2013(1)
MCLEAN, Va., Oct. 18, 2012 /PRNewswire/ -- Capital One Financial Corporation (NYSE: COF) today announced net income for the third quarter of 2012 of $1.2 billion, or $2.01 per diluted common share, compared with net income of $93 million, or $0.16 per diluted common share, for the second quarter of 2012, and net income of $813 million, or $1.77 per diluted common share, for the third quarter of 2011.
"Capital One posted solid results across all of our businesses in the third quarter, including strong contributions from ING Direct and the HSBC U.S. credit card business," said Richard D. Fairbank, Chairman and Chief Executive Officer. "We are well positioned to sustain strong returns and capital generation, even in an environment with low industry growth and prolonged low interest rates."
Total Company Results
All comparisons in the following paragraphs are for the third quarter of 2012 compared with the second quarter of 2012 unless otherwise noted.
Loans and Deposits
Period-end loans held for investment remained essentially flat at $203.1 billion. Domestic Card period-end loans decreased by $177 million as modest organic growth in revolving credit card loans was more than offset by the expected run-off in the quarter of HSBC credit card loans and the continuing run-off of installment loans. Period-end loans in Home Loans decreased by $1.9 billion, or 4 percent, to $46.3 billion driven by continued run-off of acquired portfolios. Commercial Banking's period-end loans increased $1.2 billion, or 3 percent, to $37.2 billion, and period-end loans in Auto Finance grew $1.2 billion, or 5 percent, to $26.4 billion due to strong growth in both businesses.
Average loans in the quarter grew by $10.2 billion, or 5 percent, to $202.9 billion, primarily as a result of a $9.0 billion, or 13 percent, increase in Domestic Card average loans due to the full-quarter impact of the HSBC U.S. credit card acquisition. Average Home Loans decreased by $1.7 billion, or 3 percent, to $47.3 billion driven by continued run-off of acquired portfolios. Average Commercial Banking loans increased $1.5 billion, or 4 percent, to $36.8 billion, and average Auto Finance loans grew $1.4 billion, or 6 percent, to $25.9 billion, again due to strong growth in both businesses.
Period-end total deposits decreased $676 million to $213.3 billion, driven by a reduction in deposits in legacy banking segments. Deposit interest rates remained essentially flat in the quarter.
Revenues
Total net revenue for the third quarter of 2012 was $5.8 billion, an increase of $727 million, or 14 percent, largely due to the full-quarter impact of the HSBC credit card loans acquired in the second quarter and a lower non-principal reserve build related to the HSBC acquisition. This resulted in an increase in net interest margin of 93 basis points to 6.97 percent. Cost of funds in the third quarter of 1.06 percent remained flat relative to the second quarter.
Non-interest income increased $82 million, or 8 percent, also due to the full-quarter impact of the HSBC U.S. credit card acquisition.
Non-Interest Expense
Operating expense for the third quarter decreased $79 million, or 3 percent, largely due to a decrease in charges for legal and regulatory matters and unique items as well as lower merger-related expenses, which were partially offset by the full-quarter impact of the HSBC U.S. credit card acquisition. Marketing expense declined $18 million, or 5 percent.
Provision for Credit Losses
Provision for credit losses was $1.0 billion in the quarter, down $663 million from the previous quarter, driven by a significantly lower HSBC-related allowance build.
The net charge-off rate was 1.75 percent in the third quarter of 2012, an increase of 22 basis points from 1.53 percent in the second quarter, largely because a lower proportion of charge-offs on the HSBC U.S. credit card loans was absorbed by the credit mark on such loans than in the second quarter. The net charge-off rate for Domestic Card remained at low levels, driven by merger-related impacts and favorable seasonal patterns. The company expects the Domestic Card charge-off rate to increase significantly in the fourth quarter as the impact of the mark has largely run its course and because the third quarter is the seasonal low point for the underlying Domestic Card charge-off rate. The net charge-off rate for Auto increased 68 basis points primarily due to seasonality, while the rate for Commercial Banking declined 19 basis points.
Net charge-offs include approximately $25 million from the required implementation of newly issued Office of the Comptroller of the Currency (OCC) guidance regarding the treatment of consumer loans where the borrower has gone through Chapter 7 bankruptcy.
Net Income
Income from continuing operations before income taxes of $1.7 billion in the quarter was impacted by lower provision expense and a full-quarter of HSBC results relative to the second quarter. Net income was $1.2 billion in the third quarter, up from $93 million in the prior quarter.
Capital Ratios
The company's estimated Tier 1 common ratio was approximately 10.7 percent as of September 30, 2012, up from 9.9 percent as of June 30, 2012.
"Given our strong capital trajectory, we expect to exceed an assumed Basel III Tier 1 common ratio target of 8 percent in 2013," said Gary L. Perlin, Capital One's Chief Financial Officer. "This includes the estimated impact of implementing the Basel II Advanced Approaches to calculating regulatory capital, which we expect will apply to Capital One in 2016 or later."
Detailed segment information will be available in the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012.
1 Assumed 8 percent Basel III Tier 1 common ratio target assumes a buffer of 50 basis points for a systemically important financial institution (SIFI) under applicable rules and regulations and a further buffer of 50 basis points. Actual target will depend on regulatory expectations and business judgments. Estimated based on the company's current interpretation, expectations and understanding of the Basel III capital rules and other capital regulations proposed by U.S. regulators and the application of such rules to its businesses as currently conducted. Basel III calculations are necessarily subject to change based on, among other things, the scope and terms of the final rules and regulations, model calibration and other implementation guidance, changes in the company's businesses and certain actions of management, including those affecting the composition of its balance sheet. The company believes this ratio provides useful information to investors and others by measuring its progress against expected future regulatory capital standards.
Earnings Conference Call Webcast Information
The company will hold an earnings conference call on October 18, 2012 at 5:00 PM, Eastern Daylight Time
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