COF2015-10 (1)

Aditi Das Pien-Cheng Wei Sashikanth Yenika Yanan Tan Yin Jen Kao
(NYSE: COF)
Investment Managers:

AGENDA
o Macroeconomic Review
o Capital One Industry and Business Review
o Relevant Stock Market Prospects and Analysis
o Key Assumptions
o Valuation
o Recommendation

MACROECONOMIC FACTORS
Total Pool of Credit Demand
Consumer Credits Commercial Credits
Home Loans
Car Loans
Credit Cards Total Business Sentiments
PMI, Industrial Production, Durable
Goods orders, Interest Rates
Home Sales,
Permits, Price
Index
Sentiments, Salary,
Retail Sales,
Expenditure
Car Sales, Oil
Price, Salary

MACROECONOMIC REVIEW
o Commercial and Industrial Loans
Federal Reserve Bank of St. Louis; Institute for Supply Management, 10/17/15
-4.00%
-2.00%
0.00%
2.00%
4.00%
1/1/00
7/1/01
1/1/03
7/1/04
1/1/06
7/1/07
1/1/09
7/1/10
1/1/12
7/1/13
1/1/15
800
1000
1200
1400
1600
1800
2000
Commercial and Industrial Loans, All Commercial
Banks, Billions of U.S. Dollars, Monthly, Seasonally
Adjusted
Billions $
Growth rate

o Business Sentiment

o Personal Consumption
0.0
2.0
4.0
6.0
8.0
10.0
12.0
0
50000
100000
150000
01/01/48
01/01/52
01/01/56
01/01/60
01/01/64
01/01/68
01/01/72
01/01/76
01/01/80
01/01/84
01/01/88
01/01/92
01/01/96
01/01/00
01/01/04
01/01/08
01/01/12
Labor Market
Total nonfarm payrolls('000) Unemployment rate(%)

o Personal Consumption

0
100
200
300
400
500
600
700
7/1/00
6/1/01
5/1/02
4/1/03
3/1/04
2/1/05
1/1/06
12/1/06
11/1/07
10/1/08
9/1/09
8/1/10
7/1/11
6/1/12
5/1/13
4/1/14
3/1/15
Consumer Loans(Credit Cards and Other Revolving Plans)
Real Estate Loans
o Personal Loans

o Interest Margins
3
3
4
4
5
5
0
2
4
6
8
10
12
1/1/84
9/1/85
5/1/87
1/1/89
9/1/90
5/1/92
1/1/94
9/1/95
5/1/97
1/1/99
9/1/00
5/1/02
1/1/04
9/1/05
5/1/07
1/1/09
9/1/10
5/1/12
1/1/14
FEDFUNDS
Net Interest Margin for all U.S. Banks, Percent, Quarterly, Not Seasonally
Adjusted

MACROECONOMIC RISKS
o Future deterioration of business sentiments can limit
companies from borrowing from banks
o Consumer credit’s growth will get compressed if
salaries do not increase
o Decrease in demand in the housing market causes a
negative effect on the consumer lending business

INDUSTRY REVIEW
15.8%
14.1%
13.2%
10.6%
7.2%
5.6%
Market Share
American Express Company
JPMorgan Chase & Co.
Bank of America Corporation
Capital One Financial Corporation
Citigroup Inc.
Discover Financial Services
34.2
34.3
31.5
Products and Services
Cardholder Fees
Interchange Fees
Interest Income
Key Statistics
Revenues $117.8 Billion
Annual Growth 2.4%
Expected Growth 2.1%
Profit $40.3 Billion
Businesses 454
http://clients1.ibisworld.com/reports/us/industry/ataglance.aspx?entid=1293

INDUSTRY EXTERNAL DRIVERS
Aggregate
Household Debt
Prime Rate Unemployment Rate
Direct Relationship Direct Relationship Indirect Relationship
http://clients1.ibisworld.com/reports/us/industry/currentperformance.aspx?entid=1293; http://data.bls.gov/timeseries/LNS14000000

PORTER’S FIVE FORCES
Rivalry
among
existing
competitors
Power of
Suppliers
Entry to
Barriers
Power of
Buyers
Threat of
Substitute
Products
Low
High
Low
High
High
http://clients1.ibisworld.com/reports/us/industry/competitivelandscape.aspx?entid=1293

COF BUSINESS REVIEW
o Established in 1994, headquarters in McLean, Virginia
o Three Business Segments: Credit Card, Consumer
Banking and Commercial Banking
o No acquisitions or dispositions in 2014
o Revenue Source: Consumer and Commercial Lending
o Expense Source: Operating expenses and Provision for
credit losses
2014 Annual Report Pages 1-3

CURRENT HOLDING
# of Share Cost Value Cost Market Value
100 Shares $7,310 $73.13 $7,490; 5.6%
Yahoo Finance! 10/22/2015

TECHNICAL ANALYSIS
Last Trade: 74.90 1.22(1.66%) Oct 22, 10:08AM EDT
20-day moving average: 73.94
200-day moving average: 80.46
Yahoo Finance! 10/17/2014-10/17/2015

FINANCIAL ANALYSIS
Return on Assets
Tier 1 Leverage RatioTier 1 Common Ratio
Efficiency Ratio
1.52%
1.62%
1.29%
1.46% 1.48%
2010 2011 2012 2013 2014
48.59%
56.70%
55.14% 55.19%
54.64%
2010 2011 2012 2013 2014
8.73%
9.63%
10.93%
12.19% 12.50%
2010 2011 2012 2013 2014
8.10%
10.04%
8.63%
10.06%
10.77%
2010 2011 2012 2013 2014
2014 Annual Report Pages 37-38
Basel 1
Basel 3

COMPARISON ANALYSIS
Implied Share Price: $84.00
Big in size
Diversified Financial Services
Output
Big in size
Presence in similar business
Big in size
Big in size
Similar size
No banking operation
Comparable analysis
Capital One JP Morgan Wells Fargo Citigroup BofA Discover Peer Average Share Price Weights
Trailing P/E 10.5x 10.6x 12.8x 13.3x 11.9x 11.5x 12.0x 83.10$ 30%
Forward P/E 9.6x 10.00 11.9x 9.1x 10.3x 9.8x 10.2x 65.73$ 30%
Price/Sales 2.2x 2.6x 3.2x 2.3x 2.1x 3.4x 2.7x 94.47$ 30%
Price/Book Value 0.9x 1.0x 1.6x 0.8x 0.7x 2.3x 1.3x 110.17$ 10%
Yahoo! Finance; respectively from comparable companies’ financial statement

2015 2016 2017 2018 2019
Growth Rate of Net Interest Income 0.84% 5.18% 5.53% 5.04% 3.57%
Growth Rate of Non-Interest Income 0.36% 2.22% 2.37% 2.16% 1.53%
Provision for credit losses to Net Interest Income 6.00% 6.00% 6.00% 7.00% 7.00%
Non-interest expense to Net Interest Income 60% 60% 60% 60% 60%
AssumptionsCommercial Banking
2015 2016 2017 2018 2019
Non-interest expense to Net Interest Income 68.00% 68.50% 69.00% 68.50% 68.00%
AssumptionsConsumer Banking
2015 2016 2017 2018 2019
AssumptionsCredit Card
KEY ASSUMPTIONS
http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=1293
Assumptions by segments

2015 2016 2017 2018 2019
INCOME STATEMENT
BALANCE SHEET
Net Income To Total Asset 1.39% 1.38% 1.38% 1.43% 1.43%
Dividend Payout Ratio 18.85% 20.35% 21.35% 21.85% 22.85%
Dividend Growth Rate 33.00% 9.26% 8.95% 12.05% 9.75%
Key Assumptions
KEY ASSUMPTIONS (CONT.)
http://www.forbes.com/sites/greatspeculations/2015/03/16/capital-one-shares-jump-4-after-plans-to-return-4-billion-to-shareholders/

I/S PROJECTION
• Net interest income will continue increasing from 2015 to 2019
• Net Income will decrease first because the provision for credit losses and non-
interest expense will increase
Actual
in Millions 2014 2015 2016 2017 2018 2019
Interest income: -2.5% 1.9% 3.4% 3.6% 3.4% 1.4%
Total interest income 19,397 19,774 20,437 21,163 21,873 22,187
% of Net Interest Income 109% 109% 110% 110% 111% 111%
Total interest expense 1,579 1,633 1,858 1,924 2,168 2,199
% of Net Interest Income 9% 9.00% 10.00% 10.00% 11.00% 11.00%
Net interest income 17,818 18,141 18,579 19,239 19,705 19,988
% Growth (2%) 1.81% 2.41% 3.55% 2.42% 1.44%
Provision for credit losses 3,541 3,822 3,970 4,156 4,187 4,248
% of Net Interest Income 20% 21.07% 21.37% 21.60% 21.25% 21.25%
Net interest income after provision for credit losses 14,277 14,319 14,609 15,083 15,518 15,741
Non-interest income:
Total non-interest income 4,472 4,493 4,524 4,569 4,601 4,620
% Growth Rate 5% 0.47% 0.70% 0.99% 0.70% 0.42%
Total Revenue 18,749 18,812 19,133 19,652 20,119 20,361
Non-interest expense:
Total non-interest expense 12,180 12,300 12,647 13,159 13,390 13,492
Income from continuing operations before income taxes 6,569 6,512 6,486 6,493 6,729 6,869
Income tax provision 2,146 2,127 2,119 2,121 2,198 2,244
Income from continuing operations, net of tax 4,423 4,385 4,367 4,372 4,531 4,625
Income (loss) from discontinued operations, net of tax 5 - - - - -
Net income 4,428 4,385 4,367 4,372 4,531 4,625
Forecasted Figures
INCOME STATEMENT

RATIO ANALYSIS
Net Interest Spread Return on Equity
Performance Ratios
2011 2012 2013 2014 2015 2016 2017 2018 2019
Assets Interest Yield 8.5% 8.3% 7.4% 7.2% 7.1% 7.3% 7.5% 7.8% 7.8%
Liabilities Interest Yield 1.5% 1.2% 0.8% 0.7% 0.7% 0.8% 0.8% 0.9% 0.9%
Net Interest Spread 7.0% 7.1% 6.6% 6.5% 6.4% 6.5% 6.7% 6.8% 6.9%
Return on Equity 10.3% 11.2% 10.0% 10.0% 10.2% 9.5% 9.1% 8.6% 8.4%

DIVIDEND DISCOUNT MODEL
1.Calculate the cost of equity and discount rate
2. Calculate projected dividends and the present value of dividends
3. Calculate the terminal value
Terminal Value Calculations
Terminal P/BV Calculations 1.0160x
Terminal Value 59,530
PV of Terminal Value 36,942
Plus: PV of Dividends 4,092
Present Value of Equity 41,034

DDM RESULTS
Implied Stock Price: $75.65
0.92x 0.97x 1.02x 1.07x 1.12x
8.0% 75.27$ 78.95$ 82.62$ 86.29$ 89.97$
9.0% 72.02$ 75.53$ 79.04$ 82.55$ 86.06$
10.0% 68.95$ 72.30$ 75.65$ 79.00$ 82.35$
11.0% 66.03$ 69.23$ 72.43$ 75.64$ 78.84$
12.0% 63.26$ 66.32$ 69.39$ 72.45$ 75.51$
SENSITIVITY ANALYSIS
Present Value of Equity 41,034
Shares Outstanding (in millions) 542.43
Implied Share Price 75.65$
Current Share Price 74.90$
Upside (Downside) Potential 1.0%

FINAL IMPLIED PRICE
Method Share Price Weights
Dividend Discount Model $ 75.70 70%
Comparable Analysis $ 84.00 30%
Weighted Average $ 78.19
Current Price $ 74.90
Upside(Downside) Potential 4.3%

RECOMMENDATION
# of Share Current Value Cost Market Value
100 Shares $7,313 $73.13 $7,490; 5.6%
HOLD
o We recommend HOLD due to the following factors
o Share price increase due to the acquisition of GE’s health care loan
business USD $9bn
o Increased expected dividends with dividend yield increasing from 2.2% in
2015 to 3.3% in 2019 while current Fed Funds rate is close to 0%

Q&A
Aditi Das Pien-Cheng Wei Sashikanth Yenika Yanan Tan Yin Jen Kao
THANK YOU!

COF2015-10 (1)

COF2015-10 (1)

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