Capital One Financial Corporation COF today announced that its earnings for the first quarter of 2006 were $883.3 million, or $2.86 per share (diluted), compared with $506.6 million, or $1.99 per share (diluted), for the first quarter of 2005, and $280.3 million, or $0.97 per share (diluted), for the fourth quarter of 2005.
“Capital One delivered record results in the first quarter across our diversified portfolio of businesses,” said Richard D. Fairbank, Capital One’s Chairman and Chief Executive Officer. “We’re pleased with the results of our new banking segment. The integration of Hibernia Bank is on track and our de novo branches in Texas continue to deliver great results. The addition of North Fork, expected in the fourth quarter, will further diversify our balance sheet and provide us with a premier growth platform in the largest deposit market in America.”
The managed charge-off rate for the company decreased to 2.65 percent in the first quarter of 2006 from 4.13 percent in the first quarter of 2005 and from 4.53 percent in the previous quarter. The company decreased its allowance for loan losses by $115.0 million in the first quarter of 2006, driven largely by decreasing delinquencies and lower loan balances in the quarter. The managed delinquency rate (30+ days) decreased to 2.92 percent as of March 31, 2006 from 3.45 percent as of the end of March 31, 2005 and from 3.24 percent as of December 31, 2005.
Managed loans at March 31, 2006 were $103.9 billion, up $22.3 billion, or 27 percent, from March 31, 2005. This includes organic growth as well as $16.3 billion of loans acquired through Hibernia in November 2005. Managed loans decreased $1.6 billion, or two percent from the previous quarter due to normal seasonality of credit card loan balances. The company expects that managed loans will grow at a rate of between seven and nine percent during 2006, excluding the loan growth that will come with the acquisition of North Fork.
Capital One’s managed revenue margin decreased to 11.30 percent in the first quarter of 2006 from 12.50 percent in the first quarter of 2005, primarily due to the addition of Hibernia’s loan portfolio. The company’s managed revenue margin was 12.06 percent in the fourth quarter of 2005. Return on managed assets for the first quarter of 2006 was 2.62 percent versus 2.04 percent in the first quarter of 2005, and 0.94 percent in the fourth quarter of 2005.
First quarter marketing expenses increased $12.0 million to $323.8 million from $311.8 million in the first quarter of 2005, and decreased $123.6 million from the fourth quarter of 2005. Annualized operating expenses as a percentage of average managed loans decreased to 4.78 percent in the first quarter of 2006 from 4.98 percent in the first quarter of 2005 and from 5.27 percent in the previous quarter.
First quarter pre-tax income was positively impacted by the $83.8 million sale of a combination of company originated and previously purchased charged- off loan portfolios. Additionally, the company realized a $34.9 million tax benefit related to resolution of a federal tax audit for the years 2000 through 2002.
“We are affirming our earnings guidance of between $7.40 and $7.80 per share (diluted) for 2006, taking into account both strong first quarter earnings and the expected close of the North Fork acquisition in the fourth quarter,” said Gary L. Perlin, Capital One’s Chief Financial Officer. “We continue to expect stability in return on managed assets in 2006 as decreases in revenue margin are expected to be offset by reductions in provision expense and operating expenses as a percent of assets.”
The US Card business net income in the first quarter of 2006 was $602.8 million, compared with $458.2 million in the first quarter of 2005, and $237.0 million in the fourth quarter of 2005. Overall performance in the segment was driven principally by continued improvement in credit trends. Managed loans at March 31, 2006 were $47.1 billion, up $512.9 million, or one percent, from March 31, 2005, and down $2.3 billion, or five percent from the prior quarter, reflecting the normal seasonality of credit card loan balances. The managed charge-off rate decreased to 2.93 percent in the first quarter of 2006 from 4.73 percent in the first quarter of 2005 and 5.70 percent in the previous quarter. We expect credit card charge-offs to return to more normal levels late in the year as the effects of the bankruptcy filing spike dissipate.
Results in the auto business segment this quarter reflect continued growth and strong credit, and the addition of the $2.9 billion Hibernia auto portfolio. Net income in the first quarter of 2006 was $69.4 million, compared with $35.6 million in the first quarter of 2005, and $8.0 million in the fourth quarter of 2005. Auto loan originations during the quarter were $2.9 billion, up $907.4 million, or 45 percent, from the prior year’s first quarter, and up $377.2 million, or 15 percent from the fourth quarter 2005. The managed charge-off rate decreased to 2.35 percent in the first quarter of 2006 from 2.89 percent in the first quarter of 2005 and 3.32 percent in the previous quarter.
Solid results in the Global Financial Services segment were led by strong growth and credit performance in its North American businesses. Net income in the first quarter of 2006 was $113.5 million, compared with $70.5 million in the first quarter of 2005, and $7.0 million in the fourth quarter of 2005. Managed loans during the quarter were $23.7 billion, up $2.0 billion, or nine percent, from the prior year’s first quarter, and up $346.0 million, or two percent from the fourth quarter of 2005. The managed charge-off rate increased to 3.63 percent in the first quarter of 2006 from 3.55 percent in the first quarter of 2005 and decreased from 4.33 percent in the previous quarter.
Capital One’s new banking segment includes most of the historical business of Hibernia and Capital One’s branchless deposit business, as well as integration expenses, corporate allocations, and purchase accounting impacts. It specifically excludes, however, Hibernia originated auto loans, which are now reported in our auto business segment. Banking segment net income in the first quarter of 2006 was $43.3 million. Total deposits at the end of the quarter were $35.4 billion. The company opened three new branches in the quarter and remains on track to open 40 new branches in 2006. During the first quarter, the company made great progress on the integration of Hibernia and remains poised to complete the brand conversion next week. It continues to expect integration costs and synergies to be greater than original estimates.
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).
