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Capital One Reports Record Earnings: Raises 1998 Target

FALLS CHURCH, Va. (April 16, 1998) -- Capital One Financial Corporation (NYSE: COF) today announced record first quarter 1998 earnings of $65.7 million, or $.96 per share (diluted), versus earnings of $58.2 million, or $.86 per share (diluted), for the fourth quarter of 1997 and $42.5 million, or $.63 per share (diluted), for the comparable period in the prior year.

"This quarter's record results continue to demonstrate the power of our information-based strategy," said Richard D. Fairbank, Capital One's Chairman and Chief Executive Officer. "We now are targeting our 1998 earnings at $3.90 per share (diluted)."

During the first quarter of 1998, the Company added 927,000 net new accounts, bringing total accounts to 12.7 million. First quarter 1998 revenue, defined as managed net interest income and non-interest income, rose to $637 million versus $592 million in the fourth quarter of 1997 and $468 million for the comparable period in the prior year. For the quarter, Capital One's managed consumer loan balances declined, as expected, by $229 million to $14.0 billion. This modest decline was consistent with previous years and primarily reflected seasonal paydown.

The managed net interest margin increased to 10.40 percent in the first quarter of 1998 versus 10.13 percent in the fourth quarter of 1997 prior to adjustments (9.24% as adjusted). This increase principally reflected a continued shift to higher yielding products. Fourth quarter 1997 adjustments recognize currently the uncollectible finance charge and fee income and the charge-off of credit card loans at 180 days past-due. First quarter 1998 managed net interest margin of 10.40 percent compares to 8.83 percent in the same period of 1997.

The managed net charge-off rate increased only slightly to 6.04 percent for the first quarter of 1998 versus 6.02 percent prior to the adjustment in charge-off policy in the fourth quarter of 1997 (6.37% as adjusted) and 5.84 percent for the comparable period in the prior year. The managed delinquency rate (30+ days) significantly decreased to 5.75 percent as of March 31, 1998, compared with 6.20 percent as of December 31, 1997.

"We continue to be very pleased with the credit quality performance of our portfolio," said Nigel W. Morris, Capital One's President and Chief Operating Officer. "Because of this stable credit picture and the success of our new product innovations, we are bullish on our ability to continue to deliver superior results."

Marketing expense increased in the first quarter of 1998 to a record $75 million versus $65 million in the fourth quarter of 1997 and $54 million in the comparable period of the prior year. Other non-interest expenses (excluding marketing) for the first quarter of 1998 were $214 million versus $177 million for the fourth quarter of 1997 and $160 million in the comparable period of the prior year. These non-interest expenses for the first quarter of 1998 include approximately $32 million for the performance-based stock options granted in December 1997. This expense reflected the 46% stock price increase during the quarter. Excluding this expense, the Company's cost per account has remained stable.

The allowance for loan losses increased by $30 million during the first quarter to $213 million or 4.49 percent of on-balance sheet receivables as of March 31, 1998 from 3.76 percent as of December 31, 1997. Capital ratios were strong as of March 31, 1998 at 15.02 percent of reported assets and 6.59 percent of managed assets.

The Company cautions that its current expectations for earnings are forward-looking statements and actual results could differ materially from current expectations due to a number of factors, including the number of delinquent accounts and the dollar amount of charge-offs actually experienced by the Company's credit card portfolio.

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 12.7 million customers and $14.0 billion in managed loans outstanding as of March 31, 1998, and are among the largest providers of MasterCard and Visa credit cards in the world.