Capital One 2008 Annual Report Download - page 74

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Company closed approximately 2 million inactive accounts during the second quarter of 2008. See below for a detailed discussion of
the results of the U.S. Card, Auto Finance and International sub-segments.
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
The National Lending segment contributed $2.4 billion of net income during 2007, compared to $2.3 billion during 2006. At
December 31 2007, loans outstanding in the National Lending segment totaled $106.5 billion while deposits outstanding totaled $2.1
billion. Profits are primarily generated from net interest income, which includes past-due fees earned and deemed collectible from our
loans, and non-interest income, which includes fee-based services to customers. Total revenue increased 12% during 2007 primarily
due to growth in the average managed loans held for investment portfolio of 7% and selective pricing and fee changes following
conversion of our cardholder system. Provision for loan and lease losses increased $1.5 billion, or 46%, during 2007, compared to
2006 due to normalization of credit following the unusually favorable credit environment in 2006, selective pricing and fee policy
moves in the U.S. Card sub-segment, the significant pull back from prime revolver marketing in the U.S. Card sub-segment, continued
elevated losses in the Auto Finance sub-segment, and from economic weakening consistent with recently released economic
indicators.
U.S. Card Sub-Segment
Table 4: U.S. Card
As of and for the Year Ended
December 31,
(Dollars in thousands) 2008 2007 2006
Earnings (Managed Basis)
Interest income.............................................................................................
.
$ 8,986,301 $ 9,407,355 $ 8,313,110
Interest expense............................................................................................
.
2,494,215 3,135,436 2,773,610
Net interest income.......................................................................................
.
6,492,086 6,271,919 5,539,500
Non-interest income .....................................................................................
.
4,127,615 4,136,158 3,700,765
Total revenue................................................................................................
.
10,619,701 10,408,077 9,240,265
Provision for loan and lease losses...............................................................
.
5,460,986 3,033,217 2,016,476
Non-interest expense....................................................................................
.
3,618,639 3,934,574 4,100,966
Income before taxes .....................................................................................
.
1,540,076 3,440,286 3,122,823
Income taxes.................................................................................................
.
539,026 1,183,458 1,093,289
Net income ...................................................................................................
.
$ 1,001,050 $ 2,256,828 $ 2,029,534
Selected Metrics (Managed Basis)
Period end loans held for investment ...........................................................
.
$ 70,944,581 $ 69,723,169 $ 68,856,534
Average loans held for investment...............................................................
.
$ 68,634,756 $ 66,774,914 $ 63,774,470
Loans held for investment yield ...................................................................
.
13.09% 14.09% 13.04%
Net interest margin .......................................................................................
.
9.46% 9.39% 8.69%
Revenue margin............................................................................................
.
15.47% 15.59% 14.49%
Risk adjusted margin....................................................................................
.
9.14% 11.59% 11.37%
Non-interest expense as a % of average loans held for investment..............
.
5.27% 5.89% 6.43%
Efficiency ratio.............................................................................................
.
34.07% 37.80% 44.38%
Net charge-off rate .......................................................................................
.
6.33% 4.00% 3.12%
30+ day delinquency rate .............................................................................
.
4.78% 4.28% 3.30%
Purchase Volume(1) .......................................................................................
.
$ 103,035,146 $ 105,875,472 $ 102,079,717
Number of total accounts (000s) ..................................................................
.
37,436 41,044 42,174
(1) Includes purchase transactions net of returns and excludes cash advance transactions.
The U.S. Card sub-segment consists of domestic consumer credit card lending, national small business lending, installment loans and
other unsecured consumer financial service activities.