Capital One 1998 Annual Report Download - page 24

22Capital One Financial Corporation
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Reported net interest income for the year ended December 31,
1997 was $383.1 million, compared to $365.5 million for 1996,
representing an increase of $17.6 million, or 5%. Average earning
assets increased 20% to $5.8 billion for the year ended December
31, 1997, from $4.8 billion in 1996. The reported net interest
margin decreased to 6.66% in 1997, from 7.62% in 1996 and
was primarily attributable to a 110 basis point decrease in the yield
on consumer loans to 15.11% for the year ended December 31,
1997, from 16.21% for 1996. The yield on consumer loans
decreased due to the removal from the balance sheet through secu-
ritization of higher yielding credit card products during the fourth
quarter of 1996 and a $24.4 million reduction in reported con-
sumer loan income as a result of modifications in the charge-off
policy and finance charge and fee income recognition previously
discussed. These decreases were offset by an increase in the
amount of past-due fees charged from both a change in terms and
an increase in the delinquency rate as compared to 1996.
The managed net interest margin for the year ended December
31, 1997, increased to 8.86% from 8.16% for the year ended
December 31, 1996. This increase was primarily the result of a 97
basis point increase in consumer loan yield for the year ended
December 31, 1997, offset by an 11 basis point increase in bor-
rowing costs for the same period, as compared to 1996. The
increase in consumer loan yield to 15.73% for the year ended
December 31, 1997, from 14.76% in 1996 principally reflected
the 1997 repricing of introductory rate loans, changes in product
mix and the increase in past-due fees charged on delinquent
accounts noted above. The average rate paid on borrowed funds
increased slightly to 5.95% for the year ended December 31,
1997, from 5.84% in 1996, primarily reflecting a relatively steady
short-term interest rate environment during 1997 and 1996.
Net Interest Income
Net interest income is interest and past-due fees earned from the
Company’s consumer loans and securities less interest expense on
borrowings, which include interest-bearing deposits, other borrow-
ings and borrowings from senior and deposit notes.
Reported net interest income for the year ended December 31,
1998, was $694.8 million compared to $383.1 million for 1997,
representing an increase of $311.6 million, or 81%. Net interest
income increased as a result of growth in earning assets and an
increase in the net interest margin. Average earning assets
increased 26% for the year ended December 31, 1998, to $7.2
billion from $5.8 billion for the year ended December 31, 1997.
The reported net interest margin increased to 9.62% in 1998, from
6.66% in 1997 primarily attributable to a 364 basis point increase
in the yield on consumer loans to 18.75% for the year ended
December 31, 1998, from 15.11% for the year ended December
31, 1997. The yield on consumer loans increased primarily due to
an increase in the amount and frequency of past-due fees as com-
pared to the prior year. In addition, the Company’s continued shift
to higher yielding products, offset by growth in low non-introductory
rate products, contributed to the increase in yield on consumer
loans during the same periods.
The managed net interest margin for the year ended December
31, 1998, increased to 9.95% from 8.86% for the year ended
December 31, 1997. This increase was primarily the result of a
126 basis point increase in consumer loan yield for the year ended
December 31, 1998, offset by an increase of nine basis points in
borrowing costs for the same period, as compared to 1997. The
increase in consumer loan yield to 16.99% for the year ended
December 31, 1998, from 15.73% in 1997 principally reflected
increases in the amount and frequency of changes in past-due fees
and growth in higher yielding loans. The average rate paid on bor-
rowed funds increased slightly to 6.04% for the year ended Decem-
ber 31, 1998, from 5.95% in 1997, reflecting the Company’s shift
to more fixed rate funding to match the increase in fixed rate con-
sumer loan products.