How did Capital One perform financially in 1999?

Net income rose 32% to $363.1 million, or $1.72 per diluted share, from $275.2 million, or $1.32, in 1998. Growth came from a larger managed loan book, a wider net interest margin, and higher fee and servicing income, though marketing and operating expenses rose sharply.

What is driving the growth in Capital One's loan book and margins?

Managed consumer loans reached $20.2 billion, and average accounts grew 42% to 19.6 million. The managed net interest margin widened to 10.83% from 9.91%, mainly because consumer loan yields rose to 17.59%, helped by higher past-due fees and a shift toward higher-yielding products.

What are the main risks to future earnings?

Management expects delinquencies to rise moderately through 2000, which would increase charge-offs. Earnings also depend on continued access to securitization and capital markets funding, rising marketing and operating costs, intense competition for customers, and possible changes to credit card, bankruptcy, and privacy regulations.

What are the company's 2000 targets and capital position?

The company targets a 25% return on equity and roughly 30% EPS growth in 2000. The Bank and Savings Bank were both classified as well-capitalized at year-end 1999, with a consolidated Tier 1 leverage ratio of 12.79%. The board also authorized up to 10 million additional share repurchases in February 2000.

Are there any material legal or regulatory issues?

A purported class action in California over collection practices remains pending. Management believes it has meritorious defenses and intends to defend the case vigorously, and it does not expect the aggregate liability from pending matters to have a material adverse effect on consolidated financial condition. The Gramm-Leach-Bliley Act and proposed bankruptcy and privacy legislation could also affect the business.

CAPITAL ONE FINANCIAL CORP 10-K Filed Mar 23, 2000

01—Abstract

Summary

Summary of the 10-K/A filed March 23, 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 of $363.1 million^a, or $1.72 per diluted share, up 32% from $275.2 million ($1.32 per diluted share) in 1998.

Growth was driven by a sharp expansion of its managed consumer loan portfolio, which reached $20.2 billion^b at year-end (up 16% from $17.4 billion), and by a 42% increase in average accounts to roughly 19.6 million. Reported net interest income rose 53% to $1.05 billion, the managed net interest margin widened to 10.83% from 9.91%, and non-interest income grew 59% to $2.37 billion, largely from servicing and securitization income and fee income. Return on average equity was 25.8%, and the company set targets of a 25% ROE and roughly 30% EPS growth for 2000.

The growth came with rising costs and some warning signs. Non-interest expense climbed 68% to $2.46 billion^c, with marketing spend up 64% to $732 million and headcount up roughly 5,000. Management expects delinquencies to rise moderately through 2000, which would push charge-offs higher.

The reported 30+ day delinquency rate rose to 5.92%^d from 4.70%, although the managed net charge-off rate improved to 3.85% from 5.33%. Net income also benefited from a shift in charge-off trends and a large share of earnings from past-due and overlimit fees. Capital remained strong, with both the Bank and the Savings Bank rated well-capitalized, and the company repurchased 2.25 million shares in 1999 and authorized up to 10 million additional shares in February 2000.

For investors, the central question is whether Capital One can sustain its growth and margin expansion while absorbing higher marketing costs and expected credit deterioration. Funding depends heavily on securitizations, which fell to 51% of managed loans from 65%, and on senior notes and deposits, so access to capital markets remains important.

The company also faces intense competition, regulatory and legislative risk, and an unresolved California class action over collection practices. Its international operations in the UK and Canada and its telecommunications unit, America One, add diversification but also risk.

02—Key points

Key Highlights

Net income rose 32% to $363.1 million ($1.72 diluted EPS), with reported net interest income up 53% to $1.05 billion.
Managed consumer loans grew to $20.2 billion (up 16% year over year), and accounts reached 23.7 million (up 42% in average accounts).
Managed net interest margin expanded to 10.83% from 9.91%, driven by higher consumer loan yield (17.59%) from past-due fees and higher-yielding products.
Non-interest income rose 59% to $2.37 billion, while non-interest expense rose 68% to $2.46 billion, including marketing spend of $732 million (up 64%).
Managed net charge-off rate improved to 3.85% from 5.33%, but the reported 30+ day delinquency rate rose to 5.92% and management expects delinquencies and charge-offs to increase in 2000.
Return on average equity was 25.8% and the company targets 25% ROE and roughly 30% EPS growth in 2000; both banking subsidiaries are well-capitalized.
Key risks include reliance on securitization funding, intense credit card competition, a pending California class action, and pending federal bankruptcy and privacy legislation.

03—Questions

Frequently Asked Questions

How did Capital One perform financially in 1999?
Net income rose 32% to $363.1 million, or $1.72 per diluted share, from $275.2 million, or $1.32, in 1998. Growth came from a larger managed loan book, a wider net interest margin, and higher fee and servicing income, though marketing and operating expenses rose sharply.
What is driving the growth in Capital One's loan book and margins?
Managed consumer loans reached $20.2 billion, and average accounts grew 42% to 19.6 million. The managed net interest margin widened to 10.83% from 9.91%, mainly because consumer loan yields rose to 17.59%, helped by higher past-due fees and a shift toward higher-yielding products.
What are the main risks to future earnings?
Management expects delinquencies to rise moderately through 2000, which would increase charge-offs. Earnings also depend on continued access to securitization and capital markets funding, rising marketing and operating costs, intense competition for customers, and possible changes to credit card, bankruptcy, and privacy regulations.
What are the company's 2000 targets and capital position?
The company targets a 25% return on equity and roughly 30% EPS growth in 2000. The Bank and Savings Bank were both classified as well-capitalized at year-end 1999, with a consolidated Tier 1 leverage ratio of 12.79%. The board also authorized up to 10 million additional share repurchases in February 2000.
Are there any material legal or regulatory issues?
A purported class action in California over collection practices remains pending. Management believes it has meritorious defenses and intends to defend the case vigorously, and it does not expect the aggregate liability from pending matters to have a material adverse effect on consolidated financial condition. The Gramm-Leach-Bliley Act and proposed bankruptcy and privacy legislation could also affect the business.

04—Continue

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