Capital One (NYSE:COF) reported fourth-quarter results and forecast 2007 earnings that fell short of earnings expectations. However, I'm a big fan of the company, so if shares drop, I may just put some Capital One in my portfolio.

With a long-term perspective, I actually thought Capital One's results were pretty good. Quarterly earnings increased 13% from last year, and management forecast 2007 earnings of $7.40-$7.80 per share, compared to 2006 earnings of $7.62. Apparently, Wall Street was expecting a number north of $8 per share.

However, there were a lot of things to like. Capital One successfully integrated Hibernia, the smaller of two regional bank acquisitions. Loans grew 10% on an organic basis, and 39% including acquisitions. Thanks to the acquisitions, Capital One added $38.5 billion in deposits, ending with a total of $86 billion, or about half of managed liabilities. Because core deposits are a lower-cost and more stable source of funding, the rating agencies responded with several credit upgrades.

Capital One's management strategically continues to move upmarket within the subprime space, a wise decision considering the difficulties other players are having in this credit space. Washington Mutual's (NYSE:WM) subprime mortgage segment singlehandedly tanked the company's entire year because of weakening credit quality. However, credit card debt has done much better. In fact, fourth-quarter provision for loan losses of $998 million was actually less than the prior-year period of $1.1 billion, although last year included a spike in bankruptcies caused by regulatory changes. Going forward, management expects to see this normalize. However, the results so far have been unpredictable.

Capital One's U.S. credit card business continued to perform well, with after-tax income for the year up 13% to $1.8 billion and yearly managed loans and purchase volume up 8.4% and 13%. For the year, global financial services and auto finance increased net income 47% and 76%, respectively, although both were flat or down for the quarter.

Looking at North Fork (NYSE:NFB), the other major regional bank acquisition, Capital One expects the bank to earn $750 million-$780 million on a stand-alone basis, down from its $800 million in run-rate earnings. The slowdown is a result of the flat yield curve and competitive environment for deposits.

Although it's never a positive for a company to miss its earning targets, I'm still a big believer in Capital One's "bank local, lend national" strategy. I believe Capital One is absolutely making the right decision in diversifying its low-cost funding base through local deposit market share. Meanwhile, Capital One is also diversifying its loan platform by leveraging its underwriting prowess into auto finance, home equity, small business lending, and other markets. Although next year might be a wash, Capital One's strategy is hardly a one-year process, and I believe five years from now Capital One will be making much more money than it does today.

Check out this related commentary on Capital One:

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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above and appreciates your comments, concerns, and complaints. The Motley Fool has a disclosure policy.