Capital One Financial Corporation · NYSE:COF
Capital One Financial — Q4 2007 Earnings Presentation
20 slides from Capital One Financial's earnings presentation, Jan 23, 2008
Slide 1: Fourth quarter 2007 results
CapitalQyc | fourth quarter 2007 results January 23, 2008
Slide 2: Forward looking statements
Forward looking statements Forward-Looking Information Please note that the following materials containing information regarding Capital One’s financial performance speak only as of the particular date or dates indicated in these materials. Capital One does not undertake any obligation to update or
Slide 3: Fourth quarter 2007 highlights
Fourth quarter 2007 highlights • Diluted EPS of $0.60 in quarter, and $3.97 for full year 2007 – EPS from continuing operations of $0.85 in quarter, and $6.55 for 2007 • We’re acting decisively to manage the company effectively in the face of cyclical economic headwinds Pulling back on growth Managi
Slide 4: Credit metrics reflect weakening in the U.S. economy
Credit metrics reflect weakening in the U.S. economy Monthly Managed Monthly Managed Delinquency Net Charge-off Rate and Non-Performing Loan Rate 8% Bankruptcy 8% Filing Spike 7% 7% 6% Q407: 6% 5.17% 4.73% 5% National Lending 5% 30+ Delinquency Rate 4% 4% 3% 3% National Lending 2% 2% Local Banking:
Slide 5: Strengthening resiliency of our US Card business
We’re taking action to strengthen resiliency and sustain the strong financial returns of our US Card business Net Income After Tax (1) ($M) Highlights $600 $560.8 Q407 NIAT of $522 million, up 55% from Q406 $538.3 $521.9 $495.3 - Revenues up 27% $461.6 - Expenses down 10% $400 - Provision up 65% $33
Slide 6: Repositioning our auto business for improved performance
We’re taking decisive actions to reposition our auto business for improved performance Net Income After Tax (1) ($M) Actions $120 • Scaled back dealer prime $80 – Much smaller network of dealers $44.4 $38.0 $35.3 $33.7 – Focus on dealers with deeper relationships, better $40 credit and profitability
Slide 7: Global Financial Services posted solid loan growth and stable credit performance
Global Financial Services posted solid loan growth and stable credit performance Net Income After Tax (1) ($M) Highlights $140 $118.4 • Net income of $23.3 million $120 $107.2 - Revenue up 16% $100 - Expenses down 7% $82.8 $74.8 - Provision up 43% $80 - Includes $30 million pre-tax gain on sale of S
Slide 8: Local banking continues to make progress on integration
Local banking continues to make progress on integration Net Income After Tax (1,2) ($M) Highlights $190.6 $200 $165.4 $160.9 • NIAT of $111.8 million in Q407, down $144.8 $80M from Q307 $150 $127.0 - Revenues flat $111.8 - Expenses up 3% $100 • Deposits of $73.3 billion, up slightly from $50 Q307 -
Slide 9: Actions to protect the business in a cyclical downturn
We have taken numerous actions to protect the business in the event of a cyclical downturn • Pulled back on lending programs – Tightened underwriting – Increased pricing • Remain cautious on loan growth, bullish on deposit growth – Slowed asset growth, particularly in low resilience segments – Resum
Slide 10: Actions to protect our business against a weakening economy
We continue to take actions to protect our business against a weakening economy Income Statement Balance Sheet • Maintaining high revenue • Maintaining strong liquidity margin • Enhancing already flexible • Taking out cost funding • Provisioning for a weakening • Growing capital levels with economy
Slide 11: Strong revenue margin and operating leverage protect our P&L
Our strong revenue margin, coupled with ongoing operating leverage, helps protect our P&L in an economic downturn Revenue Efficiency Margin Ratio 12% 60% 55% 10% 50% 45% 8% 40% Q107 Q207 Q307 Q407 Q107 Q207 Q307 Q407 11
Slide 12: Allowance built to reflect elevated loss estimates
We have built allowance to reflect elevated loss estimates and continued economic weakness Allowance as % of Allowance as % of Reported Loans Reported 30+ 4% Delinquencies (as of 12/31/07) • US Card: 109% 2.9% 3% • Auto Finance: 46% • GFS: 173% • Local Banking: 94% 2.4% 2% – Consumer: 75% – Commerci
Slide 13: Strengthened balance sheet: liquidity and flexible funding
We have strengthened our balance sheet to manage an economic downturn Strong Liquidity Flexible Funding • $12B cash and unpledged • Restructured legal entities to marketable securities ensure all businesses have access to deposits • $11B undrawn committed conduit • Capacity to securitize credit card
Slide 14: Portfolio expected to remain capital generative
We expect our portfolio to remain capital generative under a variety of economic scenarios • Ended 2007 with 5.8% ratio of tangible common equity to TCE target of tangible managed assets 5.5% to 6.0% • Expect to manage at high-end of, or possibly above, target range in 2008 • High margins with slowe
Slide 15: Expect sound operating metrics in 2008
Expect sound operating metrics in 2008, despite continued credit headwinds 2008 Outlook Commentary Loan/Deposit Low single-digit growth Cautious on loan growth; bullish on deposit growth Growth Revenue Low single digits Positive US Card yield trends in last few quarters Growth will moderate into 200
Slide 16: Appendix
Appendix Capital()y. fourth quarter 2007 results 16
Slide 17: 2007 balance sheet and return metrics from Continuing Operations
2007 balance sheet and return metrics from Continuing Operations Managed Balance Sheet Highlights ($Millions) Q407/Q307 Change Q407 Q307 Q406 $ %/bps Total Deposits $ 82,990 $ 83,343 $ 85,771 $ (353) (0.4) % Total Managed Loans Held for Investment 151,362 144,769 146,151 6,593 4.6 Tangible Assets 18
Slide 18: 2007 managed income statement
2007 managed income statement ($Millions except per share data) Change 2007 2006 $ %/bps Net Interest Income $ 11,019.8 $ 8,932.7 $ 2,087.1 23 % Non-Interest Income 5,765.8 4,907.3 858.5 17 % Total Revenue 16,785.6 13,840.0 2,945.6 21 % Net Charge-offs 4,162.0 3,158.1 1,003.9 32 % Allowance Build 78
Slide 19: Fourth quarter 2007 managed income statement
Fourth quarter 2007 managed income statement Managed Income Statement Highlights ($Millions except per share data) Q407/Q307 Change Q407 Q307 Q406 $ %/bps Net Interest Income $ 3,000.5 $ 2,803.4 $ 2,339.1 $ 197.1 7 % Non-Interest Income 1,566.2 1,518.0 1,210.3 48.2 3 Total Revenue 4,566.7 4,321.4 3,
Slide 20: Charge-offs and allowance for loan losses
With the $643M build in Q407, our allowance for loan losses is consistent with $5.9B of managed charge offs in 2008 Charge-offs and Allowance for Loan Losses ($Millions) Q407/Q307 Change Q407 Q307 Q406 $ %/bps Managed Net Charge-offs 1 $ 1,296.2 $ 1,027.4 $ 927.5 $ 268.8 26 % Allowance Build 1 643.0
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