Capital One 2013 Annual Report Download - page 67

franchise-enhancing customer relationships create and sustain significant long-term value through low risk-
adjusted credit costs, long and loyal customer relationships and a gradual build in loan balances and revenues
over time. Examples of franchise-enhancing customer relationships include rewards customers and partnerships
in our Credit Card business, retail deposit customers in our Consumer Banking business and primary banking
relationships with commercial customers in our Commercial Banking business. We intend to grow these
customer relationships by continuing to invest in scalable infrastructure and operating platforms, so that we can
meet the heightened risk management expectations facing all banks and deliver a “brand-defining” customer
experience that builds and sustains a valuable, long-term customer franchise.
We expect 2014 pre-provision net revenue, excluding non-recurring items, of approximately $9.8 billion. In
2014, we expect very modest revenue growth, after adjusting for the Portfolio Sale. We also expect operating
expenses in 2014 to be approximately $10.5 billion, excluding non-recurring items. These estimates are expected
to vary within a reasonable margin of error. We anticipate that marketing expenses will rise in 2014, although
actual marketing expenses will depend on our assessment of the market and competitive opportunities. In
addition, we continue to expect portfolio run-off of approximately $1 billion in card loans and $4 billion in home
loans in 2014.
We believe our actions have created a well-positioned balance sheet with strong capital and liquidity. In our
recent submission in the 2014 CCAR cycle, we requested share repurchases that, if approved, would result in a
total payout ratio well above the 2013 industry norm of approximately 50%. See “MD&A—Capital
Management-Capital Planning and Regulatory Stress Testing” for more information.
Business Segment Expectations
•Credit Card: We expect Domestic Card loan growth in the coming quarters to be muted as planned run-off
and other strategic choices we have made continue to mask strong underlying growth in areas we are
emphasizing. We expect loan growth in Domestic Card to resume sometime around the second half of 2014,
when underlying loan growth will begin to more than offset shrinkage in other parts of the business. Trends
in loans and purchase volumes continue to reflect our strategic choices. Overall, we believe that our
Domestic Card business continues to be well-positioned and will continue to deliver strong, sustainable and
resilient returns and generate capital on a strong trajectory.
•Consumer Banking: In our Consumer Banking business, we expect continued run-off in the acquired Home
Loans portfolio to have a significant impact on loan balances. In Auto, we expect credit losses will continue
to increase from the historic lows of the past few years and Auto revenues, margins and returns to continue
to decline, but remain resilient and within ranges that support an attractive business. In addition, we expect
the inexorable impacts of the prolonged low interest rate environment to continue to pressure the economics
of our retail deposit businesses even if rates begin to rise in 2014.
•Commercial Banking: Our Commercial Banking business loan growth, credit and profitability trends remain
healthy. While increasing competition, particularly in middle-market lending, may continue to impact the
pricing and volume of our new loan originations, we expect our focus and specialized approach to deliver
strong results in 2014.
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