01—Abstract
Summary
Summary of the 10-K filed March 29, 2001. Cited figures are marked; the original filing is the authoritative source.
Capital One Financial Corporation's 2000 Form 10-K shows a company in hyper-growth.
Net income rose 29% to $469.6 milliona ($2.24 diluted EPS), and managed consumer loans reached $29.5 billion at year-end, up 46% from $20.2 billion. Total accounts grew to 33.8 million, and the company had 19,247 employees. Reported total assets grew to $18.9 billion, and stockholders' equity reached $1.96 billion, with book value per share of $9.94.
Return on average equity was 27.6% and return on average assets was 3.09%, both strong for a consumer lender. The growth carried clear cost and risk. Reported provisions for loan losses rose 88% to $718 millionb, reflecting 50% growth in average reported loans and a rising reported net charge-off rate of 4.64% (up from 3.59%).
Reported 30+ day delinquencies climbed to 7.26% from 5.92%. Non-interest expense rose 28% to $3.1 billionc, driven by marketing spending of $906 million and a 3,800-person headcount increase. Management guided to a 20% ROE and roughly 30% EPS growth for 2001, but warned that delinquencies and charge-offs are likely to rise in the second half of 2001 as accounts season, that competition is intensifying, and that marketing productivity is declining.
The filing also highlights funding and regulatory dependence. About 49% of managed loans were securitized, and $10.8 billiond of securitized principal is scheduled to amortize in 2001, requiring replacement funding.
Investors should also note the pending California collection-practices class action, which management says is not yet assessable, and the pending OTS proposal on savings and loan holding companies, which could affect future transactions. Both subsidiary banks were rated well-capitalized at year-end.
02—Key points
Key Highlights
- Net income rose 29% to $469.6 million; diluted EPS of $2.24 vs. $1.72 in 1999
- Managed consumer loans grew 46% year-over-year to $29.5 billion; accounts reached 33.8 million
- Reported provision for loan losses rose 88% to $718.2 million; reported net charge-off rate increased to 4.64% from 3.59%
- Non-interest expense up 28% to $3.1 billion, including $906 million in marketing spend
- Return on average equity of 27.6% and managed net interest margin of 10.71%
- Management targets 20% ROE and ~30% EPS growth in 2001, but expects delinquencies and charge-offs to rise in 2H 2001
- About 49% of managed loans securitized; $10.8 billion of securitized principal scheduled to amortize in 2001 requires replacement funding
03—Questions
Frequently Asked Questions
How fast did Capital One grow in 2000, and was it profitable?
Growth was rapid and profitable. Managed consumer loans rose from $20.2 billion to $29.5 billion, and accounts rose 41% on average. Net income increased 29% to $469.6 million, and return on average equity was 27.6%.
What are the main risks to earnings highlighted in the filing?
The main risks are credit quality and funding. Reported delinquencies rose to 7.26% and the reported charge-off rate rose to 4.64%, with management expecting further increases in 2H 2001 as accounts season. The company also depends on securitization and capital markets, with about $10.8 billion of securitized principal amortizing in 2001. Intense competition is pressuring response rates and pricing.
What is management's outlook for 2001?
Management targets a 20% return on equity and about 30% EPS growth in 2001. It expects strong managed loan growth, particularly in prime and superprime segments, and marketing expense above the 2000 level. These targets depend on credit performance, competition, and funding conditions, and the company cautions that actual results could differ materially.
Are there material legal or regulatory issues?
A purported California class action over collection practices remains pending, and management says an assessment of its ultimate outcome cannot be made. The company also faces possible regulatory changes, including a proposed OTS prior-notice rule for savings and loan holding companies and new subprime lending guidance that could require more capital or loan loss reserves. Both subsidiary banks were well-capitalized at year-end 2000.
How is the company funded?
Funding comes from securitizations, retail deposits (interest-bearing deposits of $8.4 billion), senior bank and corporate notes, secured borrowings, and fed funds. In 2001 the company issued a $1.25–1.3 billion senior bank note and raised $412.8 million through a common stock offering in January 2001.
04—Continue