Dear Shareholders,
Capital One had an outstanding year in 2022. We grew revenue at the highest rate in two decades, recorded the second-most profitable year in our history, and returned significant capital to shareholders even as we bolstered our balance sheet to reflect growing global economic uncertainty. We also invested in our future. We delivered one of the strongest years of new account originations in our history. We invested in new products, signed new partners and enhanced our digital experiences to deepen customer relationships and to help them succeed. And we continued our decade-long technology transformation that is unique in banking and at the forefront among large corporations in America.
Our success and our momentum are years in the making. Thirty-five years ago, we founded this company on a belief that technology and information would transform financial services, and that the credit card business was the tip of the spear. Our rallying cry back in 1987 was to build an information-based technology company that does banking, competing against banks that use information and technology but it may not be who they are. We searched the world for elite talent to join us on this journey, going head-to-head against top consulting, banking and technology companies in the quest for great “athletes.” We looked for world-class problem-solvers who had the promise to be great builders, leaders and teammates. After years of building the talent, data and infrastructure to deliver our vision, the business took off and we celebrated our IPO in 1994. In just a few decades, we have become the third-largest credit card company in the United States. And we have expanded our vision beyond the U.S. and built card franchises in the United Kingdom and Canada.
But it was never just about credit cards. It was about changing banking for good by bringing ingenuity, simplicity and humanity to an industry justifiably proud of its heritage and role in the world but increasingly saddled with legacy technology and talent, overly complicated products and policies, and a customer experience that reflected that complexity. In 1998, we entered the auto finance business with a vision of bringing the same information-based solutions to what was a very traditional market. Today we are the largest auto lender in the United States. In 2005, concerned about having a business model reliant on capital markets funding, we entered retail and commercial banking and transformed our balance sheet to become a deposit-funded, diversified bank. We then set out to build the bank of the future with full-service banking capabilities delivered digitally, a lean physical branch presence, café showrooms in iconic locations, and an award-winning digital experience.
All along the way, we continued to adapt our strategic direction based on a core principle by which we manage the company. We don’t start with where we currently are and try to get better. We focus obsessively on where the world is going and where winning is. And then we work backward from that. We know that sometimes that means being a market disrupter. And sometimes that means disrupting ourselves. Success is about identifying waves of change and riding them.
Human history has been driven by seismic waves of change and transformation. Early on, the waves were thousands of years apart. Today, we are witnessing a transformation in the human experience within our lifetimes. The digital revolution has come at a dizzying speed, with the computer in 1946, the personal computer in 1977 and the internet in 1994. These disruptions came only decades apart.
Then in the late 2000s, three waves of innovation swept the world at the very same time. The smartphone made us always on and always connected and ushered in the real-time revolution. Cloud computing brought nearly unlimited compute and storage at very low cost. That explosion of computing capability unleashed the promise of machine learning and artificial intelligence that had laid dormant in the provinces of academia. In isolation, each of these three waves would have been a seismic revolution. But together, the triple revolution of mobile, cloud and machine learning transformed the scale and time frames of our lives. They ushered in the world of big data in real time, powered by machine learning. To consumers, these waves brought us instant solutions, customized for each of us. The triple revolution is transforming how we live and how we work. Everything is at the speed of now. Not two days from now. Not ten minutes from now. Right now. It is the world of mass customization in real time, powered by machine learning. It is transforming everything around us at a pace never seen before in human history. It is what I call the real-time, intelligent revolution.
The revolution is accelerating. We have gone from unlimited, free access to all of humanity’s knowledge to the emergence of generative AI built on transformer models that can create a credible response to the prompt “Write Capital One’s annual Chairman’s Letter.” The real-time, intelligent revolution is transforming how the world works, and few industries will be spared.
We Have Been on a Decade-long Technology Transformation
Despite our becoming one of America’s fastest-growing financial institutions, we have watched with awe the pace of the real-time, intelligent revolution. But, while we were excited to ride that wave, a decade ago we stared at a sobering reality: The technology platform on which Capital One had built its competitive advantage would be obsolete in this new world. We knew that we couldn’t just build incremental new capabilities and simply bolt them on top of our existing infrastructure. To fully enable real-time, intelligent solutions across the company and for our customers, we needed to undertake a discontinuous change. So, 10 years ago, we declared an all-in technology transformation across Capital One.
We began at the bottom of the tech stack and rebuilt our infrastructure. We recruited top technology talent from leading tech companies and college campuses. We brought our engineering talent in-house and moved away from legacy third-party vendors. We transformed how we build software and became early adopters of APIs, microservices, DevOps and automated testing and deployment. We rebuilt the 1,300 applications on which the company operates to make them capable of handling big data in real time. We moved from scattered legacy systems to leveraging enterprise platforms to drive automation and scale. We evolved our data environment, and by 2020, we were fully in the public cloud and had exited our last data centers. In 2021, we fully exited our internal mainframes. And after a decade of transforming our technology, we are well-positioned to harness the promise and opportunity of machine learning and artificial intelligence. This has been a rare journey in corporate America, much less in banking.
Here we are in the 11th year of our technology transformation. When we look at where the world is going and where banking is headed, we see opportunities that all require the same path to get there. We spent years focused on the bottom of the tech stack, miles from where any customer could see our progress. And as we move up the tech stack, we’re finding more and more opportunities. On the shoulders of everything we’ve built, we’re faster to market with new products. Our mass-customized marketing in real time is enhancing our reach and our growth. We’ve reduced credit losses and fraud costs and see positive risk management outcomes all across the company. Our digital experiences are delighting customers. And we are attracting the world’s greatest tech talent to work on hard problems with amazing technology as they share and scale their innovations across the company and out into the world.
Real-Time and Intelligent Digital Experiences
Eno, the Capital One digital assistant, looks out for customers’ money, even when they’re not actively monitoring their accounts—like letting them know if they may have been double charged, overcharged or charged for something they didn’t purchase. And customers can use virtual card numbers through the Eno browser extension to shop more securely online while keeping their actual card number private.
We Delivered Very Strong Financial Results in 2022
This was a great year for Capital One. Driven by loan growth of 13%, we delivered revenue of $34.3 billion, up 12.5% from 2021 and the highest organic revenue growth rate in two decades. Our operating efficiency ratio improved 79 basis points to 44.2% as revenue growth outpaced operating expense growth. We took advantage of attractive growth opportunities across our businesses, and we increased marketing expenses $1.1 billion, or 40%, as compared to 2021. In 2022, we drove strong new account growth and welcomed millions of new customers, and we deepened existing relationships across our franchises. Strong revenue growth combined with higher operating expenses and marketing investments resulted in pre-provision earnings* of $15.1 billion, an 8.8% increase from 2021. As credit performance began to normalize from historically low losses during the pandemic, charge-offs increased and we built our allowance for credit losses to support growth and reflect growing economic uncertainty. Net charge-offs were $4.0 billion, up $1.7 billion (78%) from 2021, and our allowance for credit losses swung from a net decrease of $4.1 billion in 2021 to a net increase of $1.8 billion in 2022.
Fostering a Culture of Innovation
We have built a strong technology and engineering culture. Our business leaders and technology associates have taken center stage at some of the world’s most high-profile technology conferences, including AWS re:Invent and the Snowflake Summit. And in 2022, we launched our first external software product, Capital One Slingshot.
Diluted earnings per share (EPS) were $17.91, the second-highest in Capital One’s history. We continued to be aided by unusually exceptional credit performance during the pandemic. But in 2022 we saw the unmistakable signs of expected credit normalization. Our key businesses delivered strong growth and solid returns. Domestic Card revenue hit $21 billion—$3.5 billion, or 20%, higher than 2021. We welcomed millions of new Card customers, and Card purchase volume hit an all-time high of $569 billion, 17% higher than 2021. Consumer deposits grew by 5.5%, and Auto loans increased 3.4%, despite a decline in loan originations as competitive conditions became less attractive. Commercial loan growth was 11%.
We distributed $5.8 billion in capital to common shareholders through share repurchases and dividends. For our long-term shareholders, our deployment of capital through share repurchases over the past decade—which reduced the number of total common shares outstanding—has significantly increased their ownership stake in Capital One. We continue to believe capital distribution will be an important part of how we create value for our long-term shareholders in the future.
The global economy continued to feel the lingering effects of the pandemic in 2022. The stock market traded down as geopolitical risk, inflation and market fears of recessionary conditions in 2023 all weighed on investors. Banks, consumer lenders and Capital One in particular were negatively impacted. After significantly outperforming banks and the broader market in 2021, Capital One shares ended the year at $92.96, down 35.9% from year-end 2021 versus the KBW Bank Index, which was down 23.7%.
We Are Helping Customers Succeed
When we set out on this journey three decades ago, the quest to change banking for good was not just about transforming the industry with technology and data. It was also a quest to change the customer experience and to bring ingenuity, simplicity and humanity to banking. The Capital One story plays out one customer at a time, across tens of millions of customers who can feel our mission in our products and customer experiences. It’s the story of a first-generation immigrant who gets a chance to build credit in a new country. Or the small-business owner who uses credit card rewards to pay for employee health care. And the commuter in Boston who stops by for a cup of coffee but opens up about their financial goals and dreams. In 2022, our customers remained strong advocates of our brand and attrition remained extremely low. We are here to help our customers succeed, and they can feel it.
Our flagship branded cards—Venture, Quicksilver and Savor—provide clear and compelling rewards with no asterisks or fine print. We expanded our consumer credit card offerings with the announcement of several new products and relationships, including the REI and BJ’s partnership cards. Our premium Venture X card saw strong growth in its first full year on the market, and we continued to build differentiated offerings for heavy-spend customers. We are opening a different kind of airport lounge in some of America’s busiest airports, with an engaging team, welcoming atmosphere and fresh food and drinks. We announced our Premier Hotel collection, a curated selection of hotels and resorts from around the world, for Venture X customers booking through Capital One Travel. We introduced Capital One Dining and Capital One Entertainment, which provide customers access to reservations at elite restaurants and tickets for exclusive events. And we partnered with Uber to offer discounts for Savor and Quicksilver cardholders. We are excited about our journey to go right at the top of the market with distinctive products, digital tools and experiences that are earning accolades from customers and experts alike.
Small businesses continue to be an engine of growth in communities across the country, and we’re focused on making it easier for entrepreneurs to chase their dreams and be rewarded for their success. Spark Cash Plus, our card with no preset spending limit, allows small-business owners greater flexibility in how they run their businesses and manage their money. We also expanded our offerings and partnered with Melio to launch a modern and intuitive bill payment solution for small-business owners, enabling them to better manage cash flow while still earning unlimited rewards and cash back on purchases. These products and investments are being recognized—we were ranked second overall in the J.D. Power 2022 U.S. Small Business Banking Satisfaction Study.
For centuries, banking was about physical buildings, long lines and endless paper. Today, banking is accessible to everyone at any time with the click of a button. As consumers embrace digital tools to understand, monitor and spend their money, Capital One has worked to bring a real-time, intelligent digital experience to meet their diverse needs.
A Different Kind of Airport Lounge
We are opening airport lounges in cities across the U.S., including our inaugural location in Dallas/Fort Worth. Capital One customers can decompress in our relaxation rooms, use free Wi-Fi to stream a show, or even break a sweat in our cycling and yoga studio.
Our simple and intuitive tools, like early paycheck and real-time activity alerts, give customers more control over their financial lives. And in 2022, we continued to expand our CashLoad functionality, which allows customers to deposit cash into their 360 Checking account(s) at CVS pharmacies. This feature is now available at over 8,000 CVS locations nationwide. Capital One cafés are living, breathing examples of how we’re reimagining banking. In 2015, we opened our first Capital One café in Boston. Our vision was to create a comfortable, inviting space for visitors to get a firsthand look at how our products, technology and people come together to create a completely different banking experience. In 2022, we continued to expand our café network, opening five new cafés in new and existing markets across the country. Today we have 54 Capital One cafés in the United States.
At the end of 2021, we became the first top-10 retail bank to announce the elimination of all overdraft and non-sufficient funds fees for consumer banking customers, and in 2022 we fully implemented these policies. Overdraft protection is a valuable and convenient feature and can be an important safety net for individuals and families. And our move to eliminate the fees associated with this service has saved our customers hundreds of millions of dollars over time while providing an important, and now free, service that many customers want and depend on. Our announcement has prompted a number of large banks to take steps to reduce customer fees on checking accounts, though few have gone as far as Capital One has.
We are building a bank of the future with strikingly simple and valuable products, an exceptional digital experience and an iconic physical presence in key markets. And the world is taking notice. We ranked Highest in Customer Satisfaction with Mobile Banking Apps among National Banks by J.D. Power, and our 360 Checking and Savings products were both awarded Best Overall by The Wall Street Journal. And we were excited to see TIME® named Capital One to its TIME® 100 Most Influential Companies List, in part due to our industry-leading move to eliminate overdraft fees.
Our Customers Are Benefiting From Our Technology Transformation
At Capital One, we are building on our technology investments and constantly reimagining what’s next. We seek out products and industries that are ripe for transformation and try to imagine a better way. For a century, the process of buying a car barely changed. But the digital revolution has brought new tools, technologies and expectations to the car-buying experience. Capital One is the largest auto lender in the United States, and we’re working to reimagine the car-buying experience with our Navigator Platform. We continue to build industry-leading technology capabilities, and our innovation is helping transform the car-buying experience for both buyers and dealers. Buyers can search dealers’ inventories, understand their financing options, prequalify for financing without an impact on their credit score, and customize their payment amount and schedule to work best for them. Dealers can create a more transparent, personal experience for customers by understanding their preferences up front.
Online shopping exploded during the pandemic and is expected to continue to gain market share in the future. In 2022, we saw more and more customers fall in love with Capital One Shopping, which has saved customers hundreds of millions of dollars by automatically searching for coupons, better prices and valuable rewards at over 30,000 online retailers. Behind the sleek experience is a machine-learning–driven model that delivers incremental sales to merchants and exceptional deals to consumers.
Innovative Tools to Help Our Customers Succeed
You can save money when you shop online, manage your finances with our award-winning mobile app, and find and finance your next car. Millions of customers are benefiting from our innovation, cloud capabilities and modern tech stack.
Over our decade-long journey to transform our technology, we have been recognized as one of the most cloud-capable companies in the world. As we became an early adopter of the public cloud, we built our own in-house technology tools to better measure, understand and manage our cloud investments. Realizing the value of this technology, we set out to externalize
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