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Capital One Reports Record Earnings Earnings Per Share Increased 21 Percent in 1997

January 15, 1998 at 12:00 AM EST

FALLS CHURCH, Va. (January 15, 1998) -- Capital One Financial Corporation (NYSE: COF) today announced record earnings for 1997. Earnings were $189.4 million, or $2.80 per share, in 1997 compared with earnings of $155.3 million, or $2.32 per share, in 1996. For the fourth quarter of 1997, earnings were $58.2 million, or $.86 per share, versus earnings of $49.3 million, or $.73 per share, for the third quarter of 1997 and $40.3 million, or $.60 per share, for the comparable period in the prior year. The above earnings per share computations are presented on a diluted basis in accordance with a recently revised accounting standard.

"We are extremely pleased with our success in delivering both earnings growth and return on equity in excess of 20 percent for the third consecutive year," said Richard D. Fairbank, Capital One's Chairman and Chief Executive Officer. "Our information-based strategy has consistently delivered superior results despite a challenging consumer credit environment."

For the year, the Company increased managed receivables by $1.4 billion, or 11 percent, and added 3.2 million net new accounts, a 37 percent increase over 1996. During the fourth quarter, Capital One increased its managed portfolio by $758 million to $14.2 billion in outstanding receivables and added 1.1 million net new accounts, bringing the total number of accounts to 11.7 million. Revenue for the year, defined as managed net interest income and non-interest income, exceeded $2 billion, a 41 percent increase from revenues of $1.5 billion in 1996. For the fourth quarter, total revenue rose to $592 million versus $549 million in the third quarter and $437 million for the comparable period in the prior year. Fourth quarter 1997 revenues were reduced by $50 million, as the Company now recognizes in the current period the estimated uncollectible portion of finance charge and fee income receivables.

"We continue to grow at a rapid rate adding over a million accounts this quarter, the second largest quarterly account growth ever. We look forward to continued growth next year as we expand product offerings both in domestic and international markets," said Nigel W. Morris, Capital One's President and Chief Operating Officer.

Managed net interest income for 1997 increased by 28 percent to $1.3 billion in 1997 from $1.0 billion in 1996. Managed net interest income increased to $362 million in the fourth quarter of 1997 from $331 million in the third quarter and $283 million in the fourth quarter of 1996. Managed net interest margin for 1997 increased by 70 basis points to 8.86 percent from 8.16 percent in 1996. The managed net interest margin increased to 9.24 percent in the fourth quarter of 1997 from 9.05 percent in the third quarter and 8.29 percent for the comparable period of 1996.

Managed non-interest income for 1997 increased by 68 percent to $776 million from $460 million in 1996. Managed non-interest income increased to $230 million in the fourth quarter of 1997 from $218 million in the third quarter and $154 million for the comparable quarter of 1996.

During the fourth quarter of 1997 the Company modified its methodology as to the timing of charge-offs of credit card loans. The Company now charges off credit card loans at 180 days past-due versus the prior practice of charging off loans during the next billing cycle after becoming 180 days past-due. The managed net charge-off rate for 1997 was 6.59 percent (6.22 percent excluding the effect of the modification in charge-off policy) compared with 4.24 percent for 1996. The managed net charge-off rate of 6.37 percent in the fourth quarter would have been 6.02 percent without this modification in charge-off policy, which compares favorably with a net charge-off rate of 6.66 percent in the third quarter of 1997. The year-end managed delinquency rate decreased to 6.20 percent (6.97 percent without the modifications in charge-off policy and finance charge and fee income recognition discussed above) versus 6.36 percent as of September 30, 1997 and 6.24 percent as of December 31, 1996. Higher delinquencies reflect fourth quarter billing policy changes and seasonal increases.

Marketing investment for 1997 increased to a record $225 million, up 9 percent from $207 million in 1996. Fourth quarter solicitation expense of $65 million represents the largest quarterly marketing level to date. This amount compares to $61 million in the third quarter of 1997 and $52 million in the comparable period of the prior year. Other non-interest expenses (excluding marketing) were $659 million in 1997, up 30 percent from $507 million in 1996. Other non-interest expenses for the fourth quarter of 1997 were $177 million versus $165 million in the third quarter and $148 million in the comparable period of the prior year. On a per account basis, other non-interest expenses continued to decline.

The allowance for loan losses increased by $36 million during the fourth quarter to $183 million or 3.76 percent of on-balance sheet receivables as of December 31, 1997, compared with 3.40 percent as of September 30, 1997. Capital ratios were strong at quarter-end at 14.00 percent of reported assets and 6.03 percent of managed assets.

Headquartered in Falls Church, Virginia, Capital One Financial Corporation is a financial services company whose principal subsidiaries, Capital One Bank, and Capital One, F.S.B., offer consumer lending products. Capital One's subsidiaries collectively had 11.7 million customers and $14.2 billion in managed loans outstanding at December 31, 1997, and are among the largest providers of MasterCard and Visa credit cards in the world.