improvement is in spite of the weakness in the U.S. economy over the last few years, as well as softness in the prices of used cars the company has been able to garner in the wholesale used car market when selling repossessed vehicles. However, U.S. unemployment statistics have been rising recently, which could have an adverse impact on our default rates going forward. Despite these pressures, Capital One remains cautiously optimistic that it can continue to steadily and profitably grow market share and profits in the auto finance segment. Likewise, the Company’s credit card products marketed to consumers with less established or higher risk credit profiles continue to experience steady competition. These products generally feature higher annual percentage rates, lower credit lines, and annual membership fees. Additionally, since these borrowers are viewed by issuers as higher risk, they tend to be more likely to pay late or exceed their credit limit, which results in additional fees assessed to their accounts. The Company’s strategy has been, and is expected to continue to be, to offer APRs and annual membership, late and overlimit fees on these accounts that are below those of its competition.  International Segment Auto Finance Segment This segment consists of $5.4 billion of credit card receivables, principally originated and operated in the U.K. and Canada. Additionally, the Company has been testing and plans to continue to test new geographic markets.  The improvement in the Company’s financial performance over the past twelve months is due to the maturation of the Company’s businesses in the U.K. and Canada. Both of these businesses are generating profitable portfolio growth, realizing lower operating expenses and steadily improving risk management. Additionally, price competition in the superprime card business in 2002 appears to have subsided somewhat from the intense levels experienced in 2001 and 2000. In 2002, the Company also launched its “What’s in Your Wallet?” and “No- Hassle” brand campaigns in the U.K. This strong focus on brand marketing activity, combined with industry leading rates and products, has enabled our U.K. business to continually rank among the top three issuers of new credit cards in the U.K. market in terms of managed loans outstanding. The Company is highly committed to diversifying into new geographies and sees the continued success of our International segment as an indication of the global potential of our core IBS strategy. This segment consists of $7.0 billion of U.S. auto loan receivables, marketed to both superprime and subprime customers, via direct and indirect marketing channels. The Company originated approximately two-thirds of our 2002 auto loan growth via direct channels such as the Internet and direct mail, and the remaining one-third via the indirect auto dealer channel. The Company is also testing the auto lending prime market and have an immaterial amount of receivables in this portion of the credit spectrum at this time. It is the Company’s goal to become a full spectrum auto finance lender, much like it has achieved in the U.S. credit card industry. In addition to the competitive advantages of being a full credit spectrum lender discussed above, the scale sensitive nature of the auto finance business generates additional economic leverage for full spectrum competitors. Additionally in 2002, the Company sold $1.5 billion of superprime auto assets in whole loan sale transactions to multiple buyers. The high credit quality of these borrowers leads to very low loss rates on these assets (averaging 15-20 basis points per annum). Additionally, the Company is continuing to service these assets for a fee.  In the fourth quarter of 2002, the Company entered into a forward flow agreement with a purchaser to sell subprime auto loans originated via our subprime auto dealer network. These assets are sold at a premium, servicing released, no recourse, and have an additional performance payment in the future depending on asset performance over time. These assets are originated using the Company’s underwriting policies, and allow for the sale of $65.0 million to $110.0 million of assets per month. The Company expects to sell between $500.0 million and $900.0 million of subprime auto loans under this agreement in 2003. Going forward, the Company anticipates that it will continue to sell auto loans. The benefits of selling our excess origination volume are twofold. First, the Company continues to generate more scale economies from the additional volume. Second, the Company is able to sell loans for a price that exceed the cost of origination, thus whole loan sales have become a profit center for Capital One. Credit quality in the superprime auto finance segment has remained strong, with net chargeoffs in the 15-20bp range in 2003. Net chargeoffs in the sub- prime auto segment have continued to improve, on a static pool basis, in each year that Capital One has participated in the sector. This steady 43