Capital One 1998 Annual Report Download - page 5

In 1998, for the fourth straight year, Capital One
broke records across the board and broke them by
wide margins. We see this long winning streak as
testimony to the power of our Information-Based Strategy,
our success in executing it and the commitment we have
made to innovation in every part of the company.
At the time of our initial public offering in November
1994, we announced two highly ambitious goals for
Capital One: annual per share earnings growth and
annual return on equity of at least 20%. We have
surpassed both goals for four consecutive years and have
already announced that we expect to surpass them again
in 1999. Our consumer franchise now includes one of
every seven U.S. households, and our loan portfolio has
grown to $17.4 billion. We were delighted that a share of
Capital One stock, worth $16 on the day we went public,
traded for $115 on December 31, 1998.
The company’s 1998 net income of $275.2 million,
or $3.96 per share, was up more than 40% from
$189.4 million, or $2.80 per share, in 1997. In addi-
tion, we doubled our marketing investment to $446
million, particularly note-
worthy in a year of such
strong earnings growth.
This investment, which
funds current marketing
efforts and the vast testing we do to find and pursue new
opportunities, generates a steady stream of innovation
and growth for Capital One.
Total revenue (managed net interest income plus non-
interest income) also reached record levels, rising 33% to
$2.8 billion in 1998 from $2.1 billion in 1997. Managed
net interest income was up 31% to $1.7 billion, the result
Fellow Stockholders:
of an increase of 109 basis points in the net interest mar-
gin and a 22% increase in managed loans. Managed non-
interest income was up 38% to $1.1 billion.
For the third consecutive year, Capital One’s rate of
account growth (42%) set a record. We added an impres-
sive 14,000 net new accounts a day. In the last quarter,
the pace accelerated to 20,000 a day. We ended the year
with 16.7 million customers—almost 5 million more
than we had at the end of 1997.
Credit performance was outstanding. Delinquencies
declined throughout the year to 4.70% as of December 31,
1998, compared with 6.20% a year earlier. Charge-offs
improved 186 basis points to 4.51% for the fourth quarter
of 1998, compared with 6.37% in the fourth quarter 1997.
Capital One’s fourth quarter net charge-offs as a percent-
age of managed loans were among the industry’s lowest.
While 1998’s credit performance benefited from an
improved consumer credit environment, it also reflects
the success of Capital One’s approach to credit and mar-
keting. We couple highly sophisticated credit modeling
with credit policies and pricing closely matched to the
risk profile of each cus-
tomer. And our marketing
success with customers
that we have dubbed
“superprime” has signifi-
cantly changed the mix of our loan portfolio: 30% of our
loans now represent borrowings by these customers.
These are high-income, very low-risk customers who are
even more attractive than the “prime” customers that are
the target of most of our industry’s marketing efforts.
Over the last two years, with innovative products designed
for the highly diverse needs of superprime customers, we
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In 1998, for the fourth straight year, Capital
One broke records across the board and
broke them by wide margins.