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Capital One Reports Record Third Quarter Earnings

October 16, 1996 at 12:00 AM EDT
Falls Church, VA (October 16, 1996) - Capital One Financial Corporation (NYSE: COF) today announced third quarter 1996 earnings of $38.8 million, or $.58 per share, versus earnings of $38.2 million, or $.57 per share, for the second of 1996 and $33.9 million, or $.51 per share, for the comparable period in the prior year. Third quarter earnings are consistent with management's expectations and reflect continued success in meeting targeted year-over-year earnings growth of 20 percent.

During the third quarter, the company added 474,000 net new consumer accounts, bringing the total to 8.2 million. Managed consumer loans increased by $1.0 billion to $12.1 billion in outstanding receivables. Third quarter revenue, defined as managed net interest income and non-interest income, rose to $.6 million versus $327.7 million in the second quarter and $234.4 million for the comparable period in the prior year.

"Our unique Information-Based Strategy allows us to identify high-return segments and products, as well as to effectively manage consumer credit risk," said Richard D. Fairbank, Capital One's Chairman and Chief Executive Officer. "We continue to invest in higher levels of marketing to enhance future earnings and in technology to provide the platform for further growth."

The managed net interest margin increased to 8.35 percent in the third quarter of 1996 from 7.94 percent in the second quarter of 1996; this compares to 6.12 percent in the comparable period of 1995. This increase principally reflects balance growth in higher-yielding second generation loans and the impact of repricing $800 million in introductory rate credit card loans during the quarter.

The managed net -off rate increased to 4.19 percent in the third quarter of 1996 compared with 3.97 percent in the previous quarter. Delinquency rates (over 30 days) increased to 5.31 percent at September 30, 1996, compared with 4.59 percent at June 30, 1996. These increases are primarily related to seasoning and an ongoing shift in the product mix to higher-yielding, second-generation lending products and the continued softening of consumer credit.

Managed non-interest income increased to $133.4 million in the third quarter of 1996, up significantly from the $96.1 million earned in the second quarter of 1996 and the $71.8 million earned in the comparable period of the prior year. This increase reflects recent market-driven changes to credit card fees and the continued shift in product mix.

Non-interest expenses (excluding solicitation expense) were $136.6 million in continued the third quarter of 1996 in versus $116400 .6 million in the second quarter of 1996 and $90.5 million in the comparable period of the prior year. Increased expense levels quarter reflect the lagged impact of record second quarter account growth and continued systems investments. Record solicitation (marketing) expense of $60.2 million increased charge from $42.7 million the second quarter and from $34.3 million in the comparable period of the prior year. This primarily reflects an increase in marketing non-balance transfer credit card and non-card products.

"The cornerstone of our Information-Based Strategy is the use of advanced technology to originate and manage accounts for profit maximization," said Nigel W. Morris, Capital One's President and Chief Operating Officer. "We were delighted to receive last week the Gartner Group's 1996 Excellence in Technology Award, which recognized us for our outstanding use of technology to support business strategies."

The allowance for loan losses increased to $92.5 million, or 2.93 percent of on-balance sheet receivables. The reported provision increased to $53.9 million as the company built its allowances and experienced higher charge-offs. In addition, $9.0 million was added to the allowance in connection with the purchase of approximately $185 million of consumer loans formerly held by Signet Banking Corporation. Capital ratios were strong at quarter-end at 10.64 percent of reported assets and 4.91 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 8.2 million customers and $12.1 billion in managed loans outstanding at September 30, 1996, and are among the largest providers of MasterCard and Visa credit cards in the United States.