Capital One 1997 Annual Report Download - page 38

Impact of Delinquencies, Charge-off Rates
and Attrition
The Company’s earnings are particularly sensitive to delinquencies
and charge-offs on the Company’s portfolio and on the level of
attrition due to competition in the credit card industry. As delin-
quency levels fluctuate, the resulting amount of past-due and over-
limit fees, which are significant sources of revenue for the Company,
will also fluctuate. Further, the timing of revenues from increasing
or decreasing delinquencies precedes the related revenue impact of
higher or lower charge-offs that ultimately result from varying lev-
els of delinquencies. Delinquency and net charge-off rates are not
only impacted by general economic trends in consumer credit per-
formance but also by the continued seasoning of the Company’s
portfolio and the product mix. Charge-off rates are also impacted
by bankruptcies.The Company’s expectations for 1998 earnings are
based on management’s belief in a continued increase in revenues,
together with a moderating level of increases in charge-offs and
attrition. Management, however, cautions that delinquency and
charge-off levels are not always predictable and may vary from pro-
jections. In addition, competition in the credit card industry, as
measured by the volume of mail solicitations, remains very high.
Increased competition can affect the Company’s earnings by
increasing attrition of the Company’s outstanding loans (thereby
reducing interest and fee income) and by making it more difficult to
retain and attract more profitable customers.
Cautionary Factors
The Company’s strategies and objectives outlined above and the
other forward looking statements contained in this section involve a
number of risks and uncertainties.The Company cautions readers
that any forward looking information is not a guarantee of future
performance and that actual results could differ materially. In addi-
tion to the factors discussed above, among the other factors that
could cause actual results to differ materially are the following:
continued intense competition from numerous providers of products
and services which compete with the Company’s businesses; with
respect to financial products, changes in the Company’s aggregate
accounts or consumer loan balances and the growth rate thereof,
including changes resulting from factors such as shifting product
mix, amount of actual marketing expenses made by the Company
and attrition of accounts and loan balances; an increase in credit
losses (including increases due to a worsening of general economic
conditions); difficulties or delays in the development, production,
testing and marketing of new products or services; losses associated
with new products or services; financial, legal, regulatory or other
difficulties that may affect investment in, or the overall perfor-
mance of, a product or business, including changes in existing laws
to regulate further the credit card and consumer loan industry and
the financial services industry, in general; the amount of, and rate of
growth in, the Company’s expenses (including associate and market-
ing expenses) as the Company’s business develops or changes or as
it expands into new market areas; the availability of capital neces-
sary to fund the Company’s new businesses; the ability of the Com-
pany to build the operational and organizational infrastructure
necessary to engage in new businesses or to expand internationally;
the ability of the Company to recruit experienced personnel to assist
in the management and operations of new products and services;
and other factors listed from time to time in the Company’s
SEC reports, including, but not limited to, the Annual Report on
Form 10-K for the year ended December 31, 1997 (Part I, Item 1,
Cautionary Statements).
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