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CAPITAL ONE FINANCIAL CORP Annual Report, Year Ended Dec 31, 1999

Filing Date
Filed March 21, 2000
Period End
December 31, 1999
In the record · 2016–202610-K1110-Q328-K410

COF filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 410 current reports (8-K) between 2016 and 2026.

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01—Abstract

Summary

Summary of the 10-K filed March 21, 2000. Cited figures are marked; the original filing is the authoritative source.

Capital One Financial Corporation (NYSE: COF) reported a strong 1999 for its fiscal year ended December 31, 1999, with net income rising 32% to $363.1 milliona, or $1.72 per diluted share, up from $275.2 million, or $1.32 per diluted share, in 1998.

Return on average equity was 25.79% and return on average assets was 3.28%. Growth was driven by a 19% increase in average managed consumer loans to $18.0 billionb and a 42% rise in average managed accounts, while the company ended the year with 23.7 million accounts and $20.2 billion in managed loans. Reported net interest income rose 53% to $1.05 billion as the reported net interest margin expanded to 10.86% from 9.51%, largely on higher past-due fee income and a higher loan yield of 19.33%.

The growth came at a cost to expenses and credit quality trends that investors should weigh. Non-interest expense rose 68% to $2.46 billionc, led by marketing spending of $732 million and a headcount increase of roughly 5,000 associates. The provision for loan losses increased 43% to $383 million, and the reported 30-plus day delinquency rate rose to 5.92% at year-end from 4.70%.

Management expects delinquencies to rise moderately through 2000 and charge-offs to increase accordingly, and it targets a 25% ROE and about 30% EPS growth for 2000. The managed net charge-off rate improved to 3.85% from 5.33%, aided by favorable consumer credit trends in 1999. Funding relies heavily on securitizations, with $10.3 billiond of certificates outstanding and 51% of managed loans securitized at year-end, alongside $3.8 billion of retail deposits and about $8 billion of bank note program capacity.

The company was well-capitalized under regulatory guidelines, and its Tier 1 leverage ratio was 12.79%. The board also authorized the repurchase of up to 10 million additional shares over two years. Risks flagged in the filing include intense competition, reliance on securitization markets, and a telecommunications unit (America One) facing pricing pressure.

02—Key points

Key Highlights

  1. Net income rose 32% to $363.1 million ($1.72 diluted EPS) in 1999, versus $275.2 million ($1.32) in 1998, with ROE of 25.8%.
  2. Managed consumer loans reached $20.2 billion at year-end (up 16% from $17.4 billion), with 23.7 million accounts, up from 16.7 million a year earlier.
  3. Reported net interest income grew 53% to $1.05 billion, and the reported net interest margin expanded to 10.86% from 9.51%.
  4. Non-interest expense rose 68% to $2.46 billion, including marketing of $732 million (up 64%) and about 5,000 added associates.
  5. Credit quality is mixed: the managed net charge-off rate improved to 3.85% from 5.33%, but the reported 30+ day delinquency rate rose to 5.92% from 4.70%, and management expects further increases in 2000.
  6. Funding depends largely on securitizations ($10.3 billion outstanding, 51% of managed loans securitized), supplemented by $3.8 billion of retail deposits and senior notes.
  7. Management targets a 25% ROE and roughly 30% EPS growth for 2000, and the board authorized up to 10 million additional share repurchases.

03—Questions

Frequently Asked Questions

  1. How profitable was Capital One in 1999 and how did it compare with 1998?

    Net income was $363.1 million, or $1.72 per diluted share, up 32% from $275.2 million, or $1.32 per diluted share, in 1998. Return on average equity was 25.79% and return on average assets was 3.28%, both broadly stable with the prior year.

  2. What drove the growth in revenue and loan balances?

    Growth came from account and balance expansion. Average managed consumer loans rose 19% to $18.0 billion, and average accounts grew 42% to 19.6 million. A higher reported net interest margin of 10.86%, driven by past-due fees and higher loan yields, also contributed significantly.

  3. What are the main risks investors should watch?

    Key risks include rising delinquencies (the reported 30+ day rate reached 5.92%, and management expects further increases in 2000), intense credit card competition that is pressuring response rates and pricing, dependence on securitization markets for funding, and rising operating costs. Interest rate fluctuations and potential regulatory or bankruptcy law changes are also flagged.

  4. How is Capital One funding its growth?

    Funding comes mainly from securitizing consumer loans ($10.3 billion of certificates outstanding), retail deposits of about $3.8 billion, senior bank and corporate notes, and secured borrowings and credit facilities. The company was well-capitalized at year-end, with a Tier 1 leverage ratio of 12.79%.

  5. What is management's outlook and capital return plan for 2000?

    Management targets a 25% return on equity and roughly 30% EPS growth in 2000. Marketing spending is expected to exceed 1999 levels, and charge-offs are expected to rise as delinquencies increase. On February 22, 2000, the board authorized repurchases of up to 10 million additional shares over two years, and the company continued its quarterly dividend of $0.03 per share.

04—Continue

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