How profitable was Capital One in 2001 and how did it compare to 2000?

Net income was $642.0 million, or $2.91 per diluted share, versus $469.6 million, or $2.24 per diluted share, in 2000. Return on average assets was 2.75% and return on average equity was 23.08%, both slightly lower than 2000 levels (3.09% and 27.61%).

Why did the net interest margin decline so much?

The reported margin fell to 8.03% from 11.99%, mainly because the yield on consumer loans dropped to 15.29% from 19.91%. The decline reflects a shift toward lower-yielding, higher-credit-quality loans, fewer past-due fees, and more low introductory-rate balances.

What are the main credit risks heading into 2002?

Management expects delinquencies and charge-offs to increase in 2002 due to seasoning of accounts and general economic conditions. Credit losses are sensitive to a recession, and the company notes that the Q4 2001 managed charge-off rate rose to 4.42% from 3.92% in Q3.

How dependent is Capital One on securitization and external funding?

Securitization is a major funding source, with about $27.4 billion, or roughly 60%, of total loans subject to securitization. Early amortization triggers, ratings downgrades (one agency rates the company below investment grade), and capital markets conditions could raise funding costs or limit growth.

What is the outlook for 2002?

Capital One targets about a 20% increase in 2002 EPS versus 2001. It expects strong managed loan growth, slower account growth, higher marketing expense than in 2001, and continued expansion in auto finance, international operations, and partnership lending, though results could differ materially.

COF 10-K FY2001 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 22, 2002. Cited figures are marked; the original filing is the authoritative source.

Capital One Financial Corporation (NYSE: COF) reported a strong 2001 with net income of $642.0 million^a, or $2.91 diluted EPS, up 37% from $469.6 million ($2.24) in 2000.

Growth was driven by a sharp expansion in managed loans, which rose 53% to $45.3 billion^b, and accounts, which reached 43.8 million, up 30% year over year. Reported total assets grew to $28.2 billion and stockholders' equity to $3.3 billion, with book value per share rising to $15.40 from $9.94. Management also guided to roughly 20% EPS growth for 2002.

The headline growth came with a notable shift in quality and margin. The reported net interest margin fell to 8.03% from 11.99%, and the managed margin declined to 9.04% from 10.71%, reflecting a mix shift toward lower-yielding, higher-credit-quality loans and a rise in introductory-rate balances. Credit costs also rose: the provision for loan losses climbed 38% to $989.8 million^c, and the managed net charge-off rate edged up to 4.04%.

Management flagged that delinquencies and charge-offs are expected to rise in 2002 as accounts season, and that the fourth-quarter 2001 charge-off rate increased sharply. Growth depends heavily on securitization and market funding. About 54%^d of managed loans sat in off-balance-sheet securitizations, and the company's risk factors highlight exposure to early amortization triggers, ratings actions (one agency rated COF below investment grade), and an economic downturn.

Non-interest expense rose 29% to $4.1 billion, driven by marketing, which Capital One expects to increase further in 2002. Investors should weigh the strong earnings momentum against margin compression, rising credit losses, and funding dependence.

02—Key points

Key Highlights

Net income rose 37% to $642.0 million; diluted EPS increased to $2.91 from $2.24.
Managed consumer loans grew 53% to $45.3 billion, and accounts reached 43.8 million, up roughly 30%.
Reported net interest margin compressed sharply to 8.03% from 11.99%, and managed margin fell to 9.04% from 10.71%.
Provision for loan losses rose 38% to $989.8 million; managed net charge-off rate was 4.04%, with Q4 2001 charge-offs up to 4.42%.
Approximately 54% of managed loans were held in off-balance-sheet securitizations, making securitization a critical funding source.
Non-interest income grew 86% to $4.4 billion, led by servicing and securitizations income of $2.4 billion.
Management targets roughly 20% EPS growth in 2002, while expecting higher delinquencies, charge-offs, and marketing spend.

03—Questions

Frequently Asked Questions

How profitable was Capital One in 2001 and how did it compare to 2000?
Net income was $642.0 million, or $2.91 per diluted share, versus $469.6 million, or $2.24 per diluted share, in 2000. Return on average assets was 2.75% and return on average equity was 23.08%, both slightly lower than 2000 levels (3.09% and 27.61%).
Why did the net interest margin decline so much?
The reported margin fell to 8.03% from 11.99%, mainly because the yield on consumer loans dropped to 15.29% from 19.91%. The decline reflects a shift toward lower-yielding, higher-credit-quality loans, fewer past-due fees, and more low introductory-rate balances.
What are the main credit risks heading into 2002?
Management expects delinquencies and charge-offs to increase in 2002 due to seasoning of accounts and general economic conditions. Credit losses are sensitive to a recession, and the company notes that the Q4 2001 managed charge-off rate rose to 4.42% from 3.92% in Q3.
How dependent is Capital One on securitization and external funding?
Securitization is a major funding source, with about $27.4 billion, or roughly 60%, of total loans subject to securitization. Early amortization triggers, ratings downgrades (one agency rates the company below investment grade), and capital markets conditions could raise funding costs or limit growth.
What is the outlook for 2002?
Capital One targets about a 20% increase in 2002 EPS versus 2001. It expects strong managed loan growth, slower account growth, higher marketing expense than in 2001, and continued expansion in auto finance, international operations, and partnership lending, though results could differ materially.

04—Continue

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