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    capital one Keefe, Bruyette & Woods, Inc. Diversified Financial Services Conference Presentation capital one Keefe, Bruyette & Woods, Inc. Diversified Financial Services Conference Presentation Presentation Transcript

    • KBW 2008 Diversified Financials Conference Gary Perlin Chief Financial Officer June 5, 2008
    • 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 revise any of the information contained herein whether as a result of new information, future events or otherwise. Certain statements in this presentation and other oral and written statements made by the Company from time to time, are forward-looking statements, including those that discuss strategies, goals, outlook or other non-historical matters; projections, revenues, income, returns, earnings per share or other financial measures for Capital One and/or discuss the assumptions that underlie these projections, including future financial and operating results, and the company’s plans, objectives, expectations and intentions. To the extent that any such information is forward-looking, it is intended to fit within the safe harbor for forward-looking information provided by the Private Securities Litigation Reform Act of 1995. Numerous factors could cause our actual results to differ materially from those described in forward-looking statements, including, among other things: general economic and business conditions in the U.S. and or the UK, including conditions affecting consumer income, spending and repayments, changes in the credit environment in the U.S. and or the UK, including an increase or decrease in credit losses, changes in the interest rate environment; continued intense competition from numerous providers of products and services that compete with our businesses; financial, legal, regulatory or accounting changes or actions; changes in our aggregate accounts or consumer loan balances and the growth rate and composition thereof; the amount of deposit growth; changes in the reputation of the credit card industry and/or the company with respect to practices and products; the risk that Capital One’s acquired businesses will not be integrated successfully; the risk that synergies from such acquisitions may not be fully realized or may take longer to realize than expected; disruption from the acquisitions making it more difficult to maintain relationships with customers, employees or suppliers; the risk that the benefits of the Company’s restructuring initiative, including cost savings, may not be fully realized; our ability to access the capital markets at attractive rates and terms to fund our operations and future growth; losses associated with new products or services; the company’s ability to execute on its strategic and operational plans; any significant disruption in our operations or technology platform; our ability to effectively control our costs; the success of marketing efforts; our ability to recruit and retain experienced management personnel; changes in the labor employment market; general economic conditions in the mortgage industry; and other factors listed from time to time in reports we file with the Securities and Exchange Commission (the “SEC”), including, but not limited to, factors set forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007. You should carefully consider the factors discussed above in evaluating these forward-looking statements. All information in these slides is based on the consolidated results of Capital One Financial Corporation. A reconciliation of any non-GAAP financial measures included in this presentation can be found in the Company’s most recent Form 10-K concerning annual financial results, available on the Company’s website at www.capitalone.com in Investor Relations under “About Capital One.” 2
    • Capital One is: • Top 10 bank A leading • $87.6B in deposits financial institution – 14th largest depository institution in the U.S. – Full service banking in the New York metropolitan area, Louisiana and Texas A top diversified • $148B in managed loans consumer • 5th largest credit card issuer2 lender 1) Deposits total as of Q4 2007; ranking as of Q3 2007. Ranking includes domestic deposits. 3 2) VISA, MasterCard, Amex, Discover reported domestic Outstandings
    • Capital One is a diversified bank that is now primarily funded by deposits Relative Deposit Funding, Q4 2007 Deposits as a Percentage of Managed Liabilities1 100% 12 13 14 16 All Other3 19 19 90% 9 34 34 38 80% 14 Unsecured Debt 6 19 23 9 20 70% 18 Securitizations 28 12 12 60% 7 11 12 20 5 6 50% Other Deposits 9 8 40% 5 23 69 30% 57 55 55 49 28 Core Deposits2 20% 39 39 26 10% 10 0% Bank of Citi JPM Wachovia Wells US SunTrust Regions Capital America Chase Fargo Bancorp One % Deposit Funded: 48% 38% 49% 64% 66% 61% 73% 78% 47% 1. Deposits as a Percent of Managed Liabilities includes all balance sheet liabilities plus off-balance sheet securitizations 4 2. Core Deposits defined as Total Deposits, less jumbo time deposits, foreign deposits, and any unclassified deposits 3. Other includes short-term borrowing and Fed funds Source: Company Reports
    • We are a diversified bank with many different types of assets $B Managed Outstandings $160 $151 $146** $140 Banking 44 $120 $105* $100 Global Financial 29.3 $80 Services $80 $71 $60 Auto 25.1 $60 Loans $45 $40 $30 U.S. $20 $17 52.1 Credit $14 $20 Cards $0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 *For YE 2005, Banking segment was included in “Other” category, and included Hibernia auto loans that were moved to Auto segment in Q1 2006. 5 **For YE 2006, North Fork loans were included in “Other” category
    • Institutions and markets are hit differently U.S. 30 Day+ Delinquency Rate Indexed to Q1 1998 Other Consumer Mortgage-Related Commercial 250% 250% 250% 200% 200% 200% Mortgage C&I 150% 150% 150% Card 100% 100% 100% Auto CRE 50% 50% 50% Home Equity 0% 0% 0% 1998Q1 2000Q1 2002Q1 2004Q1 2006Q1 1998Q1 2000Q1 2002Q1 2004Q1 2006Q1 1998Q1 2000Q1 2002Q1 2004Q1 2006Q1 6 Sources: FFIEC Consolidated reports of Condition and Income, Equifax
    • In the last two recessions, Credit Card delinquency rates moved before increases in unemployment rate Unemp. DQ Rate % Rate % 5.50 8.00 s bp 7.50 0 ps 10 5.00 0b + 7.00 12 s bp + 0 Q4 4.50 6 6.50 + ru th 6.00 4.00 5.50 3.50 5.00 4.50 3.00 Credit Card 30+ DQs* 4.00 2.50 Unemployment Rate 3.50 2.00 3.00 19 1 19 1 19 1 19 1 19 1 19 1 19 1 19 1 19 1 19 1 19 1 20 1 20 1 20 1 20 1 20 1 20 1 20 1 20 1 20 1 1 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 88 89 90 91 92 93 94 95 96 97 98 99 00 05 01 02 03 04 06 07 08 19 7 Credit Card data is Visa/Mastercard $30+ Rate from 1988-2003, and Equifax $30+ rate from 2004-2007
    • Capital One’s credit metrics reflect weakening in the U.S. economy Monthly Managed Monthly Managed Delinquency Net Charge-off Rate and Non-Performing Loan Rate 8% 8% Bankruptcy Filing Spike 7% National Lending 7% Q108: 6% 5.34% 6% 5% National Lending 5% 30+ Delinquency Rate Q108 4% 4% 4.73% 3% 3% 2% 2% Local Banking: Non-performing loans Q108: Local Banking as % of loans 1% 0.31% Q108 1% 0.56% 0% 0% Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 8
    • Given the deteriorating outlook for the US economy, we have increased our loan loss allowance Allowance as % of Reported Quarterly Highlights 30+ Delinquencies 200% • Increased loan loss allowance by $310M to $3.3B US Card 165% 153% 150% • Allowance consistent with managed International charge-offs of approximately $6.7B 129% 134% over the next 12 months 100% Auto 64% 50% 44% 0% Q107 Q207 Q307 Q407 Q108 Allowance as % of Reported 2.3% 2.3% 2.4% 2.9% 3.3% Loans 9 All Guidance as of Q108 earnings call – April 2008
    • Substantial increase in revenue margin year-over-year largely offset the adverse impact of higher credit costs Margins Margin Drivers 12% • Year-over-year: US Card pricing and fee changes drove substantial increase in Revenue Margin revenue margin 10% 10.43% 10.40% 9.20% Risk-Adjusted Margin 8% • Quarter-over-quarter: Reduced US Card 7.45% 6.97% 7.06% fees offset by more active balance sheet 6.78% 6.83% management 6% 6.15% Net Interest Margin 4% 2% 0% Q107 Q207 Q307 Q407 Q108 10
    • We continue to drive efficiency gains Quarterly Highlights Efficiency Ratio • Reduced headcount by 1,600 in Q108; 60% 5,400 since Q107 50.7% 50% 46.2% • Announced UK and Auto Finance restructurings 41.6% 44.2% 40% – Approximately 1000 positions to be 38.6% eliminated 30% Excluding Visa one- time impacts 2008 Expectations 20% • Mid-40%’s or lower efficiency ratio 10% • 2008 operating expenses at least $200M below 2007 0% Q107 Q207 Q307 Q407 Q108 11 All Guidance as of Q108 earnings call – April 2008
    • Revenue and balance sheet management ensure profitability despite credit headwinds Net Income from Continuing Operations ($Millions) Q108 Q407 Q307 Q207 Q107 National Lending US Card $ 491.2 $ 498.7 $ 626.8 $ 592.9 $ 538.5 Auto Finance (82.4) (112.4) (3.8) 38.0 44.4 International 33.3 54.7 47.4 18.2 19.5 SUBTOTAL 442.1 441.0 670.4 649.1 602.3 Local Banking 75.8 103.6 195.5 154.8 139.2 Other 114.6 (223.0) (49.6) (36.3) (55.4) Total Company 632.6 $ 321.6 $ 816.4 $ 767.6 $ 686.1 $ 12
    • We are taking action to strengthen resiliency and sustain the strong financial returns of our US Card business US Card US Card Revenue Margin and Non-Interest Credit Risk Metrics Expenses as a % of Average Loans 7% 20% 17.31% 5.85% 16.42% 16.42% 6% Managed Net 14.67% Charge-off Rate 4.84% 13.92% 15% 5% 3.85% 3.72% 3.56% 4% Non-Interest Expenses as a Revenue Margin % of Average Loans 4.28% 10% 4.04% 3.80% 3% 3.06% 2.98% 2% 5% 6.11% 5.88% Managed 30+ 5.81% 5.76% Delinquency Rate 1% 5.48% 0% 0% Q107 Q207 Q307 Q407 Q108 Q107 Q207 Q307 Q407 Q108 13
    • Despite recent worsening in losses and delinquencies, other indicators remain generally stable in our US Card portfolio Utilization Rate Minimum Payment and Pay-in-Full Rates (indexed) (indexed) % of customers 120% 1. 1. paying in full 120% 2 2 100% 1. 100% 1. 0 0 80% 0. 0. 80% 8 8 60% 0. % of customers 0. 60% 6 6 paying Min Pay 40% 0. 40% 0. 4 4 20% 0. 0. 20% 2 2 0 0% 0% 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Payment Rate (Payment as a % of Outstanding) Percent of Customers taking Cash Advances (indexed) (indexed) 120% 1. 1. 120% 2 2 100% 1. 1. 100% 0 0 0. 80% 0. 8 80% 8 0. 0. 60% 60% 6 6 0. 0. 40% 40% 4 4 0. 0. 20% 20% 2 2 0 0 0% 0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Key 14 All Guidance as of Q108 earnings call – April 2007 2008 ’04-’06 Avg 2008
    • Bank integration was largely completed in the quarter Credit Risk Metrics 2% Managed Net Charge-off Rate Non Performing Loans as a % of Loans 1% 0.56% 0.41% 0.27% 0.19% 0.19% 0.28% 0.31% 0.19% 0.19% 0.15% 0% Q107 Q207 Q307 Q407 Q108 Deposit and Loan Portfolio ($B) • Launched new Capital One logo $80 $74.3 $74.3 $72.8 $73.1 $73.4 $70 • Completed brand conversion of Deposits $60 former North Fork branches $50 $44.0 $44.2 $41.6 $41.9 $42.2 $40 Loans • Consolidated banking operations $30 $20 onto a single deposit platform $10 $0 Q107 Q207 Q307 Q407 Q108 15 All Guidance as of Q108 earnings call – April 2008
    • Despite credit headwinds, we remain capital generative Tangible Common Equity to 2008 Expectations Tangible Managed Assets Ratio • TCE ratio at or above high-end of 5.5%- 8% 6% target range 7% 6.03% 5.83% • Expect to continue $0.375 quarterly 6% Target Range dividend 5% 4% • Share buybacks dependent on economic outlook 3% – 2H08 at the earliest 2% 1% 0% Q107 Q207 Q307 Q407 Q108 16 All Guidance as of Q108 earnings call – April 2008
    • We continue to maintain ample liquidity First Quarter 2008 Highlights Readily Available Liquidity $B • Liquidity position is 5x next 12 months 35 of capital markets funding plan $30B $29B 30 • Moved Auto Finance to be a subsidiary Undrawn FHLB of National Bank Capacity 25 • $5.7B Holding company cash: 20 Unencumbered – Covers parent obligations for over 2 Securities years, including common stock dividends 15 • Maintained strong, diversified funding 10 – Q1 deposit growth of $4.9B Undrawn Conduit – More than $4B AAA US Card ABS YTD 5 • Highly liquid, low risk investment 0 portfolio 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 17 All Guidance as of Q108 earnings call – April 2008
    • We expect sound operating metrics in 2008, despite continued credit headwinds Commentary 2008 Outlook Loan/Deposit Flat loan growth; double-digit Cautious on loan growth; bullish on deposit growth deposit growth Growth Revenue Low-to mid-single digits Revenue margin remains strong Growth Cost Efficiency ratio in the low-to mid- At least $200M Y/Y OpEx reduction vs. 2007 40%’s Management Credit Continued economic weakness Allowance at 3/31/08 consistent with $6.7B in charge- Expectations offs for the next 12 months Capital Manage to the high end or above Expect to continue $0.375 quarterly dividend; share 5.5-6.0% TCE target repurchases dependent on economic outlook; 2H08 at the Management earliest 18 All Guidance as of Q108 earnings call – April 2008