Q2 2020 Capital One Financial Corp Earnings Call

[music].

Please standby.

Welcome to the capital one second quarter 2020 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period.

Like to ask a question during this time simply Christy Starkey send the number one on your telephone keypad.

I'd like to withdraw your question. Please press the Starkey send the number two.

Today's conference is being recorded thank you.

I'd now like to turn the call over to Mr., Jeff Norris Senior Vice President of Global Finance, Sir you may begin.

Thanks, very much math and I'd like also welcome everyone to capital into second quarter 2020 earnings Conference call.

As usual, we are webcasting like over the Internet.

The call on the Internet. Please log on to capital one's website couple of one dot com and follow the links from there.

In addition to the press releasing the financials. We've included a presentation summarizing our second quarter 2020 results.

With me. This evening are Mr., Richard Fairbank capital one's Chairman and Chief Executive Officer, Mr., Scott block with capital one's Chief Financial Officer.

Switching Scott will walk you through the presentation.

That's a copy of the presentation and press release. Please go to capital once website click on investors click on quarterly earnings release.

Please note that this presentation may contain forward looking statements.

To make sure regarding capital one's financial performance and any forward looking statements contained in today's discussion in the material.

The only outside of that particular date dates indicated in the materials.

Well the one does not undertake any obligation to update or revise any of this information.

There was a result of words selection future events.

Otherwise.

Various factors could cause our actual results to differ materially from those described in forward looking statements.

For more information on these factors. Please see that's how we should section entitled forward looking information in the earnings release presentation.

And the risk factor section.

Annual and quarterly reports that are accessible at the capital one website and files with the FCC.

Now I'll turn call over to Mr. Buckley Scott.

Thanks, Jeff capital one recorded a net loss for the second quarter was 918 million, where $2 from 21 cents per diluted common share primarily driven by a 2.7 billion allowance build reflecting the economic downturn related to the club at 19 pandemic.

Adjusting items impacted operating expenses during the quarter and totaled 276 million course, 60 cents a share.

Quitting the provision for legal matters as well as costs related to our cyber incident.

Nothing beats adjusting items, our EPS was a loss on the Dollarssixty one per share.

Turning to slide four I'll cover the allowance in more detail.

The second quarter allowance build of 2.7 billion consists of 1.7 billion in card 668 million in auto and 330 million in commercial.

Our allowance is based primarily on an economic forecasts derived from the consensus of third party economists.

That forecast includes unemployment in the second quarter of 16.9% falling to 11.5 person at the end of 2020 and gradually improving over the course of 2021 to end at 8.1%.

Of course, our strong credit performance, so far shows that the normal relationship between unemployment and consumer credit has been significantly altered by lending hardship programs and especially by government stimulus, including direct consumer support through the cares Act.

Looking ahead in our allowance we've assumed no such benefit from further stimulus beyond the residual benefit to the existing legislation, which starts running out after July.

On slide five you can see the impact of our coverage ratios for various businesses.

Our total allowance coverage now stands at 6.7% loans compared to 2.7% Pepe.

And have a year for 2019.

Our domestic coverage ratio.

Domestic card coverage ratio is now 11.6% and our branded card ratio is 13.5% recall that the primary difference between these ratios is driven by loss sharing agreements in our partnership portfolio.

Our auto coverage now stands at 4.3% in our commercial reserve coverage is 2.5%.

Moving to slide six I'd like to discuss our liquidity position as we've talked about for years, we have always focused on conservatively managing capital and liquidity and not serving as well as we navigate the code at 19 pandemic.

You can see that our preliminary average.

Liquidity coverage ratio during the second quarter was 146% up from 145% at the end of the first quarter and well above the 100% regulatory requirement.

Liquidity reserves from cash Securities and Federal home loan bank capacity increase to 149 billion up the ended the second quarter, including about 56 billing and cash driven by strong inflows of consumer deposits.

Turning to slide seven I will cover capital our common equity tier one capital ratio was 12.4% at the ended the second quarter up 40 basis points from the first quarter notwithstanding our large allowance build in the quarter recall that beginning in 2020, RCT one calculation excludes the mark to market impact.

From our available for cell security portfolio.

At quarter end that portfolio had an unrecognized after tax gain of 2.4 billion, which represents approximately 80 basis points of potential regulatory capital.

During the quarter the Federal Reserve released the results of their stress tests, our capital requirement under the stress capital buffer framework as calculated by the Federal reserve was 10.1% or approximately 230 basis points below our current capital levels.

In conjunction with the release of the stress test results. The Federal Reserve also announced an additional fall stress test and a limitation on third quarter dividends based on the average quarterly net income for the prior four quarters.

While our recent see CCAR capital plan included a planned 40 cents quarterly dividend based on defense, New cumulative earnings rule, we expect to reduce our third quarter common stock dividend to 10 cents per share subject to board approval.

Turning to slide eight you can see that our net interest margin was 5.78% in the quarter, which is approximately 100 basis points lower than the first quarter and the prior year linked quarter.

The quarter over quarter decline was largely driven by a shift in our asset mix as average cash increased to 43 billion, an average card balances shrunk by 11%.

In addition to this mix shift the low rate environment further pressured that interest margin.

With the low interest rate environment and continued on the economics.

The continued and the continued economic uncertainty, we expect to maintain elevated levels. Some cash in the near term during the quarter. We deployed approximately 15 billion of cash increase the size of our investment portfolio prepay Federal home loan bank advances and to buy back a portion of our senior unsecured debt in our first.

However debt tender offer.

Even with these actions are cash at the ended the quarter was at an all time high of 56 billion up 25 billion from the ended the first quarter.

The low rate environment is also a headwind to NIM improvement to give you a sense of magnitude are disclosed year end 2019 interest rate sensitivities would suggest and approximately 500 million dollar reduction in annual interest income based on the over 100 basis point decline in yield curve that we've seen year to date.

Looking forward, our NIM trends will depend on how the impacts of the downturn play out across our balance sheet, including asset mix deposit balances and deposit pricing and our cash position.

And with that I'll turn the call over to rich rich.

Thanks Scott.

I'll begin on slide 10, which summarizes second quarter results for our credit card business.

The impacts of the covert 19 pandemic drove second quarter results across all of our business segments.

And our credit card business loan balances purchase volume and revenue declined year over year and as Scott just discussed we posted a significant allowance build.

Credit card segment results are a function of our domestic card results and trends, which are shown on slide 11.

Domestic card ending loan balances shrank by $3.6 billion or 3% year over year, while average loans declined 1%.

Excluding the impact of the Walmart portfolio acquisition.

Ending loans shrank by around 10% year over year, while average loans were down about 8%.

Purchase volume for the quarter declined 15.5 per cent compared to the prior year quarter.

Looking at weekly trends the year over year decline in purchase volume was down 32% in the second week of April.

And as since rebounded over.

Over the last three weeks ended July 17.

The year over year decline has averaged just 3%.

Total company net interchange revenue for the second quarter was down about 18% year over year.

The declines in total excuse me the decline in loan balances and purchase volume.

Our result of several factors.

The broader effects of the pandemic.

Consumer is behaving rationally in response to the cobot economic shutdown.

And our choices to pull back in marketing and tightened underwriting.

As they've done in prior downturns consumers are pulling in their spending and paying down balances.

This cautious behavior is an important driver of both declining volumes and our strong credit performance.

Revenue decreased 7% year over year.

Revenue declined more than average loans as revenue margin decreased 105 basis points compared to the second quarter of 2019.

The majority of the revenue margin decrease was driven by the expected impact of the revenue sharing agreement on the acquired Wal Mart portfolio.

And the revenue benefit in the second quarter of last year from our choice to exit several small partnerships.

Lower net interchange revenue also contributed to the revenue margin decline.

Non interest expense was down $258 million from the second quarter of last year, largely driven by our choice to pull back on marketing.

Provision for credit losses was up by $1.9 billion year over year. As a result is a large cobot driven allowance build.

Second quarter credit results were strikingly strong, especially in the context of the pandemic.

The charge off rate for the quarter.

Was 4.53%, a 33 basis point improvement year over year.

The 30, plus delinquency rate at quarter end was 2.74% 66 basis point improvement from the prior year.

Several factors likely drove the striking improvement.

Credit performance is benefiting from resilience choices, we made before the downturn began.

Consumers are behaving cautiously and paying down debt.

Government stimulus is dramatically altering the normal relationship between the unemployment rate and consumer credit at least in the short term.

And widespread forbearance across the banking industry is helping consumers manage through financial stress.

We're helping domestic card customers, who have been impacted by the code the downturn.

We've provided more detailed information on domestic card forbearance on slide 12.

We currently offer a 30 day skipped pay with an option to renew.

At the end of the second quarter total enrollments were running at about 50000 per week down from more than hundred 50000 per week at the end of the first quarter.

In recent weeks approximately two thirds of weekly enrollments.

Were renewals.

At quarter end first time enrollments were down 87% from the peak in early April.

As of June Thirtyth about 2% of active accounts have enrolled at any time since the pandemic began.

However, most of these customers have since exited the program.

At the end of the quarter about 20 basis points of the customer base were enrolled and eligible to skip their next payment and another 40 basis points were enrolled in the program last month and skipped their payment as permitted.

A portion of these customers may read Reenroll.

Of all customers, who have participated in the program at any point.

Approximately 92% were current.

When they first enrolled.

Over the life of the program, we've seen largely positive customer outcomes.

For customers ending their first 30 day skip pay period more than half has made their required payment in the subsequent month.

At approximately 20% every enrolled for another month.

Customers with multiple enrollments have made payments at a lower but still healthy rate.

Slide 13 summarizes second quarter results for our consumer banking business.

Ending loans increased 11% year over year, while average loans for the second quarter grew 8%.

Driven by our auto business.

When the co bid downturn began we tightened our underwriting box in auto focus on the most resilient assets.

Two factors drove second quarter result.

Second quarter growth.

Well the auto market declined sharply at the end of the first quarter. It is rebounding.

The rebound thus far has been stronger for larger franchise dealers the part of the market where we're focused.

And our digital products and services are driving growth in direct to consumer originations and growth with dealers, who want to provide a touchless car buying experience in response to social distancing.

Our dealer relationship strategy and the digital infrastructure and capabilities, we've built from the bottom up.

Put us in a strong position to grow high quality auto loans, even with tighter underwriting.

Ending deposits in the consumer bank were up $41.6 billion or 20% year over year.

Deposit growth was fueled by the stimulus driven increase in personal savings.

Average deposit interest rate for the quarter decreased 37 basis points compared to the prior year quarter.

Most of our moves to reduce deposit rates occurred late in the quarter in response to the market interest rate environment and competitive dynamics.

Consumer banking revenue decreased 6% from the second quarter of last year.

Underlying revenue growth from higher auto loans and retail deposits was more than offset by differences in the timing of federal reserve rate cuts receding.

Our deposit pricing moves.

Non interest expense in consumer banking was up 3%.

Volume driven growth in expenses was partially offset by our efforts to tightly manage costs.

Second quarter provision for credit losses increased $711 million year over year again, driven by the allowance build that Scott discussed.

Our auto business posted strong credit results in the second quarter.

The charge off rate was up just seven basis points compared to the prior year quarter to 1.16%.

The delinquency rate improved 282 basis points year over year to 3.28%.

This strong performance is the result of.

Forbearance.

Government stimulus.

Cautious consumer behavior.

Resilience choices, we made before the downturn began.

And to better than expected auction values.

We currently offer a 30 day skip pay.

With an option to renewed two our auto customers, who have been impacted by the downturn.

As you can see on page 14.

Enrollments are trending down.

At the end of the second quarter total enrollments were running at about 30000 per week down from over 100000 per week at the end of the first quarter.

In recent weeks approximately 60% of weekly enrollments.

Were renewals.

First time enrollments were down 90% from the peak in early April.

Compared to domestic card a higher percentage of auto customers have enrolled in forbearance.

As of June Thirtyth about 14% of active accounts have enrolled at any time since the pandemic began.

However, most of those customers have since exit as the program.

At the ended the quarter about 1% of auto customers were enrolled and eligible to skip their next payment.

And another 2% were enrolled in the program last month.

And get their payment as permitted a portion of these customers may reenroll.

Approximately 75% of customers were current at the time they first enrolled.

Over the life of the program, we've seen largely positive customer outcome.

For auto customers ending there.

First 30 day skip pay period more than half have made a payment in the subsequent month.

A month.

And a little more than a third have reenrolled for another month.

Customers with multiple enrollments have also made payments at a healthy rate.

Moving to slide 15.

I'll discuss our commercial banking business.

Second quarter, ending loan balances were up 8% year over year, driven by customers drawing down lines late in the first quarter.

After peaking in March line draws have subsided.

Second quarter average loans were up 11% compared to the second quarter a year ago.

Average deposits also increased about 10%.

Second quarter revenue was down 2% from the prior year quarter, well noninterest expense was essentially flat.

Provision for credit losses increased $345 million compared to the second quarter of 2019.

The largest impact was an allowance build.

Given by the factors Scott discussed and by downgrades to credits in industries that are most impacted by coated.

Energy had a modest release this quarter as specific reserves set in the first quarter were converted to charge offs in the second quarter.

We've provided a breakout of our oil and gas portfolio composition and reserves.

On slide 19.

Okay.

The commercial banking charge off rate for the quarter was 0.51%.

Criticized performing loan rate for the quarter increased compared to both.

The prior year and linked quarters.

To 7.7%.

And the criticized nonperforming loan rate rose rose modestly to 0.9%.

I'll close Tonight with some thoughts on our results in the quarter at our positioning for the future.

Capital one's second quarter results were driven by the near term impact of the cobot 19 pandemic.

A significant allowance build and declining revenue drove negative earnings per share.

Consumer credit trends were very strong.

We further fortified liquidity and our C E T ratio.

T T one ratio increased to 12.4%.

Based on the new cumulative earnings rules at the Federal Reserve announced in the quarter, we expect to reduce our third quarter common stock dividends to 10 cents per share subject to our boards approval.

Pulling way up.

Where more than halfway through a year, none of us will ever forget.

Capital one started the year with significant momentum than cobot 19 hit an inflection point in March driving a sudden shutdown of economic activity the sharp increase in unemployment and along with it the biggest and fastest government response since the great depression.

We are well positioned by the choices we made before this downturn started.

Since our founding days, we have hard wired resilient end of the choices, we've made on credit capital and liquidity through good times and bad.

As a result, we entered the downturn with strong and resilient try to credit trends, a four to five balance sheet and deep experience in successfully navigating through prior periods of stress, including the great recession.

Our investments to transform our technology and how we work at our efforts to drive the company to digital our powering our response to the pandemic.

Our technology transformation enables us to develop and scale up compelling digital customer experiences.

[noise] as social distancing increases demand for digital engagement.

Automation facilitates rapid changes and enhancement in underwriting and analytics.

And our cloud based modern technology infrastructure seamlessly supports a virtual work environment, where 80% of our total associate population.

When the pandemic took hold we took immediate actions to protect the well being of our associates customers and communities.

And we took actions to manage credit risk and further strength and resilience, we tightened underwriting and pulled back marketing.

We fortified our liquidity and capital.

And we significantly built our allowance for credit losses.

We continue to lean into resilience to weather the storm with strength and stay ready for opportunities that will emerge as the cycle plays out.

As we manage through the near term challenges. We also continue to focus on the things that create long term value.

One area of continuing focus is efficiency.

Prior to the pandemic, we were on a sustained trajectory of improvement.

We posted improvements in annual operating efficiency ratio in five of the last six years, driven by revenue growth and digital productivity gain.

Well the pandemic is interrupted our progress it has not changed our journey.

Or the milestones along the way.

Based on where we are in the downturn, we don't have the visibility to commit to the specific timing, but we remain committed to getting to 42% annual operating efficiency ratio overtime.

With further improvement from there.

Coven 19 has thrown us and other companies across the economy, a big curve ball, but it hasn't changed where we think our business is headed or the long term strategic opportunities that will be created as digital continues to bring sweeping changes to how we work how we interact with each other and how we experience.

The World every day in fact the pandemic.

Appears to be accelerating digital change everywhere, we look.

We believe that our shareholders customers and associates will be well served by EUR eight years strategic commitment to digital transformation at our steadfast focus on resilient.

We remained what remain well positioned to weather the downturn, you merge with strength and deliver shareholder value over the long term.

And now we'll be happy to answer your questions.

Jeff.

Thank you rich.

Well I'll start QNX session has always as a courtesy to other investors and analysts who may wish to ask a question. Please limit yourself to one question puts a single fall.

If you have any call up questions. After the Q, an exceptionally investor relations team will be available after the call.

Not please start the today.

Thank you once again, if you'd like to ask a question see signaled by pressing star one on your telephone keypad.

Using a speaker phone. Please make sure your mute function is turned off to like you're signaling to reach of equipment.

Once more star one if you'd like to ask a question. Our first question will come from Betsy racing with Morgan Stanley.

Hi, good morning, or good afternoon actually it feels like wearing it separate over here [laughter]. Good afternoon, Betsy I Betsy yeah, sorry about that a couple of questions just for stuff I wanted to understand a little bit about the folks who had enrolled but are no longer enrolled.

You had this nice charts on the auto in the domestic card.

And I wanted to understand the folks that have rolled off what happens there payment history been like and what are you anticipating over the next quarter.

From them.

So betsy the no longer enrolled population includes all customers, who have either made a payment.

For completed a billing cycle following the forbearance period and have not reenroll.

As such it is mostly customers who have resumed irregular payment patterns.

But also includes a much smaller group of customers.

Who have not resumed paying us and our advancing.

In the or tour or would the toward delinquency.

You get visibility to customers in that situation to our normal delinquency reporting.

Yeah. So my follow up is that delinquencies look really good this quarter and we see it every quarter every month, obviously you know when you when you give us much trusted and the managed data. So I guess I'm wondering why you why do you think theres that disconnect and get in the 11% reserve ratio.

You already have set aside against card and the low level of delinquencies you have you seen much. The wafers are built into came first in threeq versus Twoq huh.

That's why don't a why don't we work backwards and I'll I'll go to your question on the allowance.

Yeah with the allowance from here.

It's really going to depend on some of the major drivers of our reserve build on the quarter.

I talked about those being our our economic scenario and our approach to stimulus.

I feel like those had both a conservative by us when I look at them at this point. So I wouldn't say that you know I feel very good about the lots that we've got today given what we've seen since the end of the quarter, but in the future I think it's going to come down to.

50, economic outlook and forecast you know get worse than that would lead to an allowance build.

And then on the other side of that all else being equal if we did see more stimulus that would be a positive two to the allowance and we could see you know an offset to to the potential.

Effects of the economic scenario that we built the allowance on this quarter. So I don't have a specific guide for you as to whether we think it's gonna be going up or down, but hopefully that gives you a sense of what may drive it in the future.

Next question please.

Next question will come from and Nash with Goldman Sachs.

Hi, good evening guys.

Hi, there right.

So maybe first on the dividend.

So it looks like the capacity to keep the dividend was higher for Threeq Q. So I guess are you factoring in that income testing in place beyond this quarter and do you expect to maintain the dividend beyond this quarter and then I guess second if you didn't maintain a 10 cents. It does seem like there's a pretty sizable bounced back in earnings for the.

The back half a year. So can you maybe just clarify what's been baked in and just lastly, how quickly do you think you could reinstate the dividend. Thanks, Ive a follow up yep.

Thanks, Ryan that was about four questions are built into one, but let me give her thoughts.

So on that 10 cents dividend I think if you did the math, which is based off of net income technically I think we could pay about 13 cents dividend. This quarter, we rounded down to a dime and of course, that's subject to you know our board approving that at some point the future.

And in terms of looking forward with Q4 look at this point.

Well I honestly don't know how the fed rules are going to play out into the fourth quarter. We don't know how that income limitation test is going to work at they're going to continue at on you know that that Dave.

Instituted a fall stress test for for all of the 33 banks and she car so I'm not going to give a guide on where the dividends going to be next quarter. We're committed to continuing to have a dividend I. Appreciate how important that is too to a number of our owners and then I would.

Just say with respect to earnings you know, we do have a net loss for the three cumulative quarters ended Q2, I think that we would need to make over $1.1 billion next quarter in order to pay dividends, whether or not that's going to happen. I think is going to be you know really largely driven on what happens with the allowance and I just talked about some of the drivers there.

Ourselves.

Look I'd I don't mean to to not be specific as to whether or not we're going to pay it that I would just leave you with we're committed to two you're not doing the best we can to make sure that we preserve dividend.

Got it and now I'll I'll try to be pretty friend My second one so I guess rich if you think about human bird's eye view of the most impacted verticals consumer as I have card and auto commercial you know couldn't oil and gas and some high impact to commercial real estate.

So what are for us to just talk about your concerns in each of the asset classes, where you're feeling better or worse relative to just three months ago, and then second you talked about forbearance, helping in the near term can you just maybe help us understand how to think about that historical relationship between unemployment and losses, because it seems like your reserving for a lot of history.

Well relationships coming to fruition, but clearly we could see benefits from from the forbearance, helping customers make payments as you showed in the slides.

Okay Ryan so.

Well it a little comparison here.

Let me start with how the the various parts of our business. The industries were in entered the downturn.

Our consumer businesses, we the industries, we felt were worth particularly healthy.

The card card business I'd put it the top of the list in terms of a rational industry conservative underwriting by the players there.

And and the consumer was also given how.

Long and the to the downturn was the consumer will still acting very rationally as well. So all of those things are very different from the great recession, and how we entered it or the industry answer that one you ought to business you know I'd give it pretty high marks going in for.

For similar reasons, a pretty strong consumer at a competitive environment that you know always kind of amplified and bought volatile Bala volatiles, a if you will bye bye dealer being an intermediary in the middle but pretty rational we were concerned.

A much more about the commercial business because of.

Rob practices credit practices and behaviors underwriting.

Behaviors that we saw mostly outside of the banking industry in the institutional marketplace, but which it's hard to you know to avoid having that.

Impact a their commercial banking part of the business as well.

So since then.

To me I bet the thing that I'm most dropped by is.

How.

You know how.

Strong the yet again that consumers steps up and and the rationality is a consumer I'm struck by.

The you know pulling back on on a purchases.

You know savings rates going way up payment rates, which also you know are kind of a hidden factor in wholesale in slowing down growth.

The flipside of a good credit a those behaviors have just been very apparent across our consumer lending businesses.

That does the big and so and I've always you know throughout my you know three decades of a of doing that building this company.

Then very struck by how rational the consumer is and we see that there.

Huge sort of elephant in the room on on that you know on the consumer side, it's an elephant on the commercial side as well is what happens to.

Government stimulus.

And I just make a lot of things have lined up.

That have you know soften the impact for consumers, even really those who have been on employee and so we are seeing this grade paradox of extraordinary credit performance in the middle of you know the worst.

Economy metrics in our lifetimes.

So.

I think that that's that's a hard wanted to prognosticate, where it goes from here, but I'd give you know.

Really high marks to the strength, the consumer and I see a solid continuing underwriting behavior I buy a competitors in that marketplace commercial is really a a you know.

A blend of so many different marketplaces are and so.

On the.

Well you know.

You know we have a lot of but you know there's a lot of healthy.

Industries, we're in and you know where it where do we look with a concern at the top of our list is energy, which was already taking it on the Chen before the downturn and is now.

You know struggling now even more so with what's happening to oil prices.

The places that.

You know I've been places the Oh of course.

In a.

Commercial real estate hotel, we have very small exposure there that you know not bad a good area. We're pleased that we dial back a lot on our retail theory, a exposure. So we feel quite good there.

The you know we have that we have oh and I out on the multifamily side just for the you know what happens.

With the forbearance programs for example in New York, we're coming to the end of the 90 day moratorium on on addictions.

And Andy increased unemployment pay so I think there is uncertainty there. So that's it's a tale of a lot of different cities and commercial but if I pull way up on just you know.

Every month as we go to through the downturn.

With with strong credit performance, that's that's one more month of progress and and you know it limits.

Yeah. It lessens the extent of the of the downside in the rest of the and the rest of the pandemic, but we've got the big wildcard is we referred to you see it reflected.

In our allowance build and therefore, you know, we're managing and be in a very dichotomy situation here that.

Is quite extraordinary to experience.

Next question please.

Next question will come from Rick Shane with JP Morgan.

Hey, guys. Thanks for taking my question. This afternoon, I'm really shrunk inside the difference between the utilization of the customer assistance programs on the auto side in the card side.

That's a reflection in the current environment of the totality of a credit card versus the utility of a car or as a function of the him the amortizing nature of auto loans versus the minimum payment ability on a college.

Okay.

You know I think it is.

Are there there are several things going on.

There there is.

And you know you see this affected capital one and you can also see it across the industry, they're just naturally a lot more ambient demand.

Or forbearance programs in the auto business. Then there is an card by the way you could also add mortgage into that comment that there's a lot of demand there. So.

No. One fundamental reason is that auto payments are typically much higher than card minimum payments and so they're just more likely to be beyond the reach of the given customer whose income is disrupted.

And within both businesses not just as we compare across the two businesses within both businesses, we've straight seen as strong correlation between demand for forbearance programs.

And the size of the payment due.

You know the second reason I think also in that ought to the stakes are higher for the customer and you know, they're very motivated to make sure that they.

Can keep the car.

So we're not surprised by these differences one thing that I think is.

Just a point and Investor point here is that.

This the because a rule a relatively small number of our card customers.

Have in fact raise their hand to opt in to two programs and so many of them are already getting out of them.

I think you're able to have a really clear pretty darn clear window into the.

Credit performance of capital one even inclusive of the forbearance programs.

It's a little harder to you know because the auto forbearance numbers are larger.

It's you know it's not.

Quite as clear in terms of where the the credit numbers over time, we'll go even though we are.

Certainly very bullish about how well the program is performing but I think what I'm, just I send them to steal investors there little bit throwing their heads up and say in a period of with all this forbearance going on as individual companies. How are we able to read the credit metrics I think you know.

There is a high level of clarity on that on the card side in particular at the moment.

Got it and that actually segways perfectly into my follow up which is that when we look then it the reserve or the allowance levels for each of the products. The implied loss frequency on card is substantially higher is the way to think of that the longer this person.

Yes, there is more embedded risk in the card portfolio.

Well I think that the loss rates on card or higher because its good to fund.

You know unsecured product.

Rick I also think that when it comes to you know the the auto business, we have fairly high levels of recovery on the collateral there and then into reserving that we've done this particular quarter in auto a portion of that was actually driven by the girls that we saw there so.

I think there just different asset classes with different characters <unk> characteristics and and certainly the average card book has higher losses than what we see in our auto book.

Next question please.

Your next question will come from Sanjay Sakhrani with KBW.

Thank you I'm glad you guys are doing right I guess.

Two part question. After my two questions on pre provision earnings Oh, Gosh, maybe you could just outline how do you see the NIM and revenue unfolding over the course sitting here and maybe any other and mitigation efforts you might have and then secondly, as far as loan growth is concerned.

Rich talked about the improving trends in purchase volume.

We've also had some of the auto finance kinda other auto finance players talking about OEM production, increasing and that might lead to a more dealer inventory to sell loan growth could you talk about broadly it's sort of loan growth as it unfolds over the.

For the year. Thanks.

[noise] so its onto I'll start off on on some thoughts around NIM.

And you know it certainly feels like NIM is is kind of at the low end of where I would expect it should be for our company and there's a few factors driving that which I talked about my my my comments and talking points, but if you think about where that might be going into future I'd say a couple things. So first of all.

We're working really hard to continue to deploy more of our cash into higher yielding a investments whether that's you know the investment portfolio, where I think we can put some word work there offsetting wholesale funding maturities you know those are some examples but you know candidly and given the current rate environment where are we.

Our in this in this downturn you know I would anticipate that cash levels are going to remain high.

Until we start to see some stabilization there. So you know we'll try to make some progress, but I don't think we'll be able to two really change that dramatically.

On the asset mix effects, you know certainly the decrease in card. This quarter was was a big headwind on our net interest margin I think you know depending on what happens with our opportunities in the market, where we feel comfortable continuing to step in those will be major drivers to what happens to them going forward and then I.

You know on the deposit side.

I think the benchmark rates have fallen more than than what we've seen in our pricing and is rich talked about in his talking point some of our pricing actions happened late in the quarter. So we'll see the full benefit of those coming through next quarter, which should be you know a tailwind for now.

I also think that you know, we're starting to see betas accelerating across the industry and I think there's probably more you know opportunities for for continuing to price downs deposits at this point in the cycle. So that's kind of a where I see NIM going from here.

[noise] lumber.

[noise] on loan growth you know outlook I think that that is a a bit of Ah Ah question Mark about how how this pandemic plays out and where we see opportunities.

We've obviously found that that there's some great opportunities in auto in ways that we feel comfortable with the origination strategy and what we're seeing in there you know with respect to card. There's there's certainly pockets, where we think we can continue to have you know acquire new accounts and we'll have to see how payment rates you didn't play out because that's a major.

Third driver in what happens with Outstandings, we've seen great credit part of that is you know I payment rates. The flip side of that is that that has the tendency to drive down outstanding. So you know on on on loan growth I think that a you know were.

We're a little bit.

Kind of looking at what is available in the market is going to drive you know aren't behavior and you know what's the time now to be to be cautious, but we also you know we're always looking for opportunities to take advantage of you know spots, where we see the market available to us.

Next question please.

Our next question will come from Don Vendetti with Wells Fargo.

Hi, Scott I know, there's some concern around economic weakness when the south and southwest more recently have you seen anything that would suggest there's some pressure.

And also.

On the forbearance and cards.

It looks like it may have ticked up a little bit or just curious with that's continuing to hold studies.

Yes.

So.

Don we have not seen any big geographical effects. We certainly are on the look out.

For them.

I think the.

The b that the government stimulus and the forbearance.

Generally going on in the industry has.

Sort of moderated you know credit issues are broadly across all the geography.

With respect to.

Forbearance.

You know, there's a there's a reasonable amount of variation by state in a way that's intuitive.

Given the differential impacts.

The virus so far.

So for example in our card business.

Florida, New Jersey.

You know your New York certainly yeah earlier on have been stage with some of the highest enrollment rates. So there's a forbearance thing is matches intuition pretty closely.

Okay, and everything just say on Oh, not just one more comment on your question about regional differences you know a lot of the information that we're looking at tends to be backward looking and so at this pandemic is evolving you know we haven't seen anything specific with the south or the southwest just yet but.

That that you know that maybe because we're looking at backwardation data and there may be more coming.

So and then I guess you'd mentioned, there's no additional stimulus built into your reserve build.

600 dollar extra bridge weekly unemployment is pretty material.

I agree that that could have a material impact on your charge offs were.

We're not extended.

Well.

You know by the that's a big part of why our allowance build since then you know decides that they are is that you know we it certainly seems that there has been an effective income or placement with a lot of the unemployment benefits that you talked about as well as you know just other direct to consumer stimulus.

And to the extent that that unemployment you know, it's an offset with with other programs, where even forbearance you know our allowance is built on a premise that that would translate into higher losses at some point to future.

Next question please.

Next question will come from Eric Wasserstrom with you'd be yes.

[laughter] from spending money.

Well, Jim Oh, Scott.

She is about the Las curve I Oh, one model is showing it until you cool and very unusual shape, which is oh, it's pretty flat through the third quarter, then stair steps higher in the fourth and some of that accrual actions of the and then step function entire again in the second quarter.

Your next year when the when the GRC before the based on the assumption that.

Some of those deferred cash flows is on different with other kinds of debt.

HM just give me a sense of what your own view of the loss because it looks like and whether it looks unusual relative to fair value down excuse me Eric.

Excuse me, Eric I'm, So sorry, we're having a great deal of difficulty understanding you.

Okay can you see any better now.

It's I'm still a little.

So a little muddled I'm sorry.

Is it any better now.

That's much better.

Okay.

I'm sorry about that I got my question was just about your expectations for the shape of the loss curve or whether in fact, it still looks like a curve or more like a step function as different levels of forbearance debate, whether it's at your own or whether it's things like GFC forbearance, which many influence how other asset classes perform.

Eric you know one of the challenges that we faced in our allowances. This exact point that you're bringing up you know we've got a delinquency inventory that has incredibly low delinquency.

Embedded in it right now and that unemployment forecasted, suggesting that that's got to you know normalize at some point you know how that's going to work out I think is going to really depend on what happens with stimulus. If we do see some of this stimulus just you know suddenly drop off I think we will see some.

In a function around that starting to translate into delinquencies, you know whether or not how forbearance you know impacts that I'm sure that they'll be some tempering with forbearance that will continue on in those periods, but I I would anticipate that you know the the lack of stimulus would be the major driver in terms of where.

Loss curves would look like here in.

Over time as those benefits way off.

Thank you and then my my follow up is just on an Opex rich obviously, good to hear about the or the reinstitution of the reinstatement of the of the target over the efficiency target, but has there been any change or or or or incremental.

Actions or anything incremental to to the prior target that you're you're looking at given the current circumstances.

So Eric.

You know there there are natural forces in a sharp downturn like this that [noise].

Pressure the revenue trajectory.

Certainly you know with the purchase volume declines the demand for.

Card loans drop.

And and interest rates fall so.

We certainly.

You know the the pressure certainly coming on the revenue.

Side. So in terms of what we're doing the actions that we're taking we talked about you know we're tightening our extension of new credit.

[noise], we've we're pulling back on marketing.

And you know these things naturally.

You know put pressure on loan growth, so I'm kind of to your point [noise].

So what were first of all on the revenue side, we it's not a binary thing to us that well, there's a downturn. So therefore.

One you know hunkers down we have a lot of experience over all these years living through downturns, we added it to US all of our choices are very very.

ER segment and micro segments specific so there's going to be a.

A a real gradient with respect to how we lean into growth opportunities in this environment, but I don't want to lead the impression that.

We're just solely in hunker down mode until the pandemic Ken.

But what we're done as we kind of started the downturn with a.

A pretty broad pull back as the as before it was kind of in perfect free fall.

And then we have really carefully assessed you know by segment what is that what are we getting as the what kind of information we have that can help us.

Predict how consumers are going to do in this particular pandemic what are we seeing with respect to adverse selection.

Or in a few cases, maybe even some paradoxical positive selection that you sometimes see in a downturn like this so that there are our energy is particularly focused on the response the differential response, we're doing.

During the pandemic and and leveraging the you know the the information we have including the ability to get a bunch of information in real time because of our tech transformation in order to you know a sign some good revenue opportunities.

On the expense side.

We are.

You know we are.

Have at really tightened up on hiring for example, that's a very natural thing to do and we have done that we are you know meetings very frequently just working on on overall, how can we manage our expenses are really tightly and this is all in.

The context, where we're still.

Importantly, making the necessary investments to manage the pandemic response, we don't want to certainly cut back on that.

We still expect to benefit from the exit of the Datacenters later this year all of that is not affected.

By the.

Pandemic.

And of course in terms of the total efficiency ratio the reduction in marketing is a good guy for total efficiency ratio. So when we look at the they the.

What it was that drove us to.

Targets of 42% <unk> annual operating efficiency ratio.

All of those same factors and the things happening with our business model and the success of technology and all of that.

All of that is still entirely you know intact with respect to the business model. This is all about timing.

At this point, then and so we we've pulled back on the on the timing of a of our commitment to that target.

But the energy and that what led us.

To achieved the kind of success, we have on the efficiency side, what led us to achieve the tax excess and all the things that have gotten that's where we are on the credit side. All of that energy is a is that we're all in on that.

Our.

Next question please.

Your next question will come from Moshe Orenbuch with credit Suisse.

Great. Thanks.

I guess gotten rich could you talk a little bit about when you think about the level of reserves going forward you talked a lot about Scott talked a lot of stimulus a couple of times.

But.

You know assuming that that's gonna be one.

But when you think about changes, it's it's gonna be changes in unemployment or how much tend to consumer behavior that you've seen that's a positive impact. Your Ah. Yes, you are kind of expectation for how much deserved should be where is it just gonna be based on that and plenty.

Well I think Moshe this thus far a lot of the consumer behavior is driving it what we're seeing in terms of credit performance. So there that's a huge part of that.

You know some of that stimulus, but I think some of it is just you know disciplined behavior by by consumers invite you know a lot of a whole lot of our competitors. The industry you know what I think about going forward.

I do think that as I talked about earlier I think stimulus is going to be a major driver of what happens with the reserve, but you know I do believe that that the consumer has had that experience from the financial crisis, a lot of a lot of wisdom that has been learned there and we've seen it's a lot of disciplined.

In that regard so you know I'm not sure that is I think about where the allowance is going well unemployment is going to be a major driver you know I think that some of the other factors that we've talked about and rich mentioned several of them in his talking points are going to be you know important you know offsets there in terms of what might happen.

In terms of that relationship between unemployment and credit losses as we go forward.

Okay.

And on and following up on the previous question about a marketing I mean, it's kind of pretty stark you think about you'd probably have.

I don't know north of 50% decline in credit card marketing in the quarter and you know you've got volumes actually up double digits in auto.

Hmm can you talk a little bit about what you're seeing you know into two markets that kind of make that the right way to go right now and what would make you want to start marketing again, you know more activity in the current status.

[noise] they'll Moshe let me just.

Let me just talk a little bit about auto and then and move to credit card. So.

You know, we actually in both in both card and auto or our first response was to tighten underwriting and we have had a tighter credit box in both of the businesses.

Yeah, the there a number of things happening in the auto business that.

Sort of are causing.

Better high quality volume to come capital one's way.

Even even with that tighter credit box and so you know were scrutinizing, there's very carefully but you know everything about the.

What we see in this volume in the early performance, but I I wouldn't underestimate the importance of the digital capabilities that we have that have been helpful. During the pandemic, but you know we'll have to see what competition does overtime and we're going to.

Again, really really carefully scrutinize, what becomes and there's also in the auto side, particularly.

And in certain segments of the business <unk> ability to have a lot more information in real time.

Which which.

Ah can allow wanting to have.

You know more clarity on on the customers condition and situation and.

How and where the better gas that on how they may perform.

So on the card side.

Typically in underwriting there is there's less information available.

Its an unsecured loan of course.

And we're even at a time where.

The reliability of credit Bureau information is is likely less over this period of time, just because of certain things about companies not reporting.

On a forbearance during this period of time, so that also.

Make things.

Little bit more challenging now the flip side of that.

No shift for us where we as Dan you know, we always talk about the origination libre and the credit line lever our two separate.

Decisions and we've always said that the real you know for a lot of our business. The real exposure comes on the credit line side not really the origination side. So we have been more leaning in on the origination side and the Conservatives and has particularly Tom.

With respect to credit lines, ER and as you know from having watched us manage that.

You know open.

No through time.

We're trying to continue to build the potential energy as as.

Yeah, you know carried by the [noise].

Originating new accounts hold back for the time being on the credit line and then.

Trying to get as much information as we can on each customer and watching very carefully their situation.

Pick a yeah overtime really Oh, you know open up on the credit lines, but the the loan growth will come more on the credit line side and that is a level and a dial that we're going to be managing.

You know along the way during the downturn.

So when you, but you said the net effect of all of that.

Is something that ends up with you know at this point higher volumes and in card.

And then the final point I want to make is the relationship of course between marketing and all this because you know dial backs in marketing tend to therefore generate a lower volumes.

So what.

You know early on in the downturn like most of the other players we dialed back and marketing what we're doing is.

Like everything is not a one size fits all but it's going to be a sloped a level of marketing.

By channel.

Hi segment byproduct, but you know we're hopeful that we can generate some I'm, saying you know good origination.

Results over time by a very.

Sloped a differential customized effort on the marketing so.

Next question please.

Our next question will come from John Hecht with Jefferies.

Afternoon, Thanks, very much for taking my question.

Rich you pretty has other questions.

Touched on some of the components of the answer this but I forget stocks get anyways manages business do variety of different downturns and pull backs and recognizing that this one is no.

Much different than money and they are different I suppose.

At this point of the downturn, how how do you see yourself and prioritizing corporate objectives.

What kind of opportunities might come out of that.

Compare and contrast, just wanted to get to give the last few downturns.

Yeah.

I think to that.

The.

A few things about this downturn that are different again, I think on the consumer side basket significantly more healthy consumer and marketplace.

Going into this one then the last one.

So the last one had to work its way through so many.

Kind of structural problems on the way to getting to the other side of the downturn. It made a you know the last great recession or you know that that was.

That was tough.

So it's it's a cleaner situation in the err on the consumer side of the business really striking thing about this downturn.

Is how immediate it was you look back at the great recession, I mean lots of the indicators were there and I was seven but this was a rolling downturn that took a lot of months.

Even you know sort of measured in years to hit to play out in this one I'm struck by the fact that.

Everybody sort of goes down the elevator at the same time, we're talking about consumers, we're talking about companies who serve them you know banks.

And the government.

And I think the <unk>.

So because of the vertical.

Drop down the elevator, where it's not clear you know what floor, it's going to stop at.

You saw us such a conservative response by consumers that that the flip side, so that that's bad for volumes, but really good for like credit health.

And savings and all the aspects of that that is really striking in comparison to any downturn I've seen before.

Because of the vertical drop you've also seen companies really you know mobilized in very rational ways and pull back much more quickly than they did in the downturn and that leads to a healthier situation as well.

And then you a you know I think the vertical drop.

Allows the political environment to coalesce around significant stimulus programs that would be so difficult. If this were rolling you know 18 months to have really fully get into this thing.

So.

That.

You know that to me is what is so unique about this and so now it's led to this.

Oh really extraordinary kind of paradoxical situation where.

The actual performance of the customers, you know and I'm, especially talking about the consumer business that the performance is so strong.

And but the economic numbers are are so bad a lot of you know how these things play out is really going to be driven by choices that happened on the government side or perhaps the collective forbearance choices that will be made on the by the banking industry.

And and beyond.

But you know another thing I think it's important just as as a mental thought here is with you know that if they can think about a a metaphor of you know a downturn tends to have.

No it's.

Worsening is like is like a big mountain things go way up and then they come down.

With every month.

You know solid performance by the consumer in a sense, we're burrowing a tunnel.

Through the mountain.

And every month that passes as you get through the mountain in some sense all other things being equal it can serve to limit some of the downside that can come in a even as there is.

You know a fairly rapid a sense or you know if if some of the stimulus for example is removed.

But he had all of this what what.

You know I find this very energizing or you know a time front from a business point of view too.

Look for where the risks where the differential opportunities how can we capitalize on the ability to be real time.

Underwriting and leverage a lot of data in there that that is a payoff of biotech transformation.

And leverage three decades of experience, but also really understand what is unique about this downturn and I think you know we are.

You know on where we are.

You know that's what we're spending so much energy doing right now and I think across our businesses, there's going to be a very sloped kind is amount of.

Growth or shrinkage, depending on the unique opportunity.

I appreciate the thoughts right by the questions were asked and answered that sort of thought before.

Thank you John.

Next question please.

And our final question of even will come from Napoli with William Blair.

Hi, Thank you and and good evening, a strange times, indeed, I used to most of the questions on credit, but I guess, Richard I think.

Just one thing I tend to agree with your.

Comment that the longer this goes the the less.

Risk I think on the consumer side I do you think that the stimulus.

And the consumer reaction has essentially covered some of the charge offs. They would have occurred that they will not occur because of the stimulus funds.

That were available and then.

It seems that some people think that companies such as yours don't make any adjustments to the underwriting side of it in but I like what percentage of your current borrowers in the credit card business are unemployed and when you're making underwriting the loans.

Soon to be loans don't go to people, who are unemployed or you don't extend credit lines to those that are generally unemployed or but do you also carry that further and look by industry and say well I.

I don't think airlines is about to lay off half that their workforce, we probably should be more conservative with airline employees.

Just some thoughts on what do you think there's charge offs are permanently removed because of stimulus potentially up and then just some comments on the underwriting.

How many of your current borrowers are unemployed and how you have changed underwriting.

Yeah, So I.

I I don't think we have a person I don't I don't think we have.

A rigorous measure of how many of our current borrowers are unemployed, but since we have a hey, you know a big chunk of America.

I think that our borrowing base is reflective of America.

And that you know there a lot of people that are in different degrees.

Unemployment or right now and so we even as there's such great credit performance right now what do you know what were obsessing about it is you know kind of looking beyond that.

To a number the things that you've talked about about how to you know.

Underwrite with as much information as we can and as wisely as we can this is you know past performance is not necessarily such a great predictor of future performance at a time like this but.

You know, we we you know we call or whole strategy a capital in the information based strategy. This is a time where data really matters.

And so you know, we're putting a lot of energy into that very tight along the lines as a lot of things that you're talking about so you know marshaling as much information is we can leveraging the capabilities capital one that has beat it is built.

Too you know haven't data is one thing.

Getting data and leveraging in real time is another thing and that you know.

One of the things that we've been focused on with respect to our technology transformation.

And then finally, how do how does one also.

In a world where you you you can't be served as a on the underwriting side, how do we put other mitigating protections in infrastructure of how we build our products and the low line credit the low lying strategy that capital one, particularly.

Is beneficial at a time like this.

You know originating with lower lines, and and saying, we'll wait for a while on on the line increase side of things and but but we will continue to you know.

You know originate the account subject to that the tighter credit box, we talked about on the auto side, we have invested very heavily in real time information based underwriting.

And so and and like I said earlier the amount of data available in the auto underwriting process in real time compared with card is a whole you know level higher I mean, that's partly an industry point and partly.

Some of that a particular places that we've gone at capital one and so.

I think that with with some of the clarity that we're able to see particularly well there.

We can we can make some good choices, but also.

We're able to put in more structures more protection stronger pricing.

Into the underwriting that is just Susan that that's that's a very important thing. In addition to just the prediction of the underlying risk and the consumer themselves.

Great.

Shapes and appreciate your answer.

Yeah I agree.

Yeah, Thanks, very much Bob.

Well and I'd like to thank all of you for joining US on this conference call today and thank you for your continuing interest in capital one remember Investor Relations team will be here. This evening to answer any further questions. You may have her goodnight everyone.

But again that does conclude or call for today. Thank you for your participation you may now disconnect.

[noise].

[noise] mm.

[noise].

[noise] Oh.

Hmm.

[noise].

HM.

[noise] HM.

Oh.

Hmm.

[noise].

Hmm.

Uh huh.

[music].

[music].

Welcome to the capital one second quarter 2020 earnings conference call.

Lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period.

Asked a question during this time simply Christy Starkey than the number one on your telephone keypad.

I'd like to withdraw your question. Please press the Starkey send the number two.

Today's conference is being recorded thank you.

I'd now like to turn the call over to Mr., Jeff Norris Senior Vice President of Global Finance, Sir you may begin.

Thanks, very much rather than I'd like also welcome everyone to couple of one second quarter 2020 earnings Conference call.

As usual, we are what kind of to why wasn't together enough.

That's called on the Internet walk on the capital one's website couple of one dot com and follow the links from that.

In addition to the press releasing the natural we've included a presentation summarizing our second quarter 2020 results.

With me. This evening are Mr., Richard parabolic couple of one's Chairman and Chief Executive Officer, Mr., Scott Walker, a couple of one's Chief Financial Officer.

Richard Scott will walk you through the presentation.

That's a copy of the presentation and press release. Please go to capital once website click on investors that click on quarterly earnings release.

Please note that this presentation may contain forward looking statements.

Make sure regarding capital lunch financial performance and any forward looking statements contained in todays discussion of material.

He called me I've got the particular date dates indicated the materials.

Well the one does not undertake any obligation to update or revise any of this information.

There was a result, the work of actual future events.

Otherwise.

Worst factors could cause our actual results to differ materially proposed subscribing forward looking statements.

For more information on these doctors please see the Tyson section entitled forward looking information in the earnings release presentation, and the risk factor section.

No one quarterly reports for accessible at the capital one website and filed with the FCC.

Now I'll turn the call that Mr. Watson Scott.

Thanks, Jeff capital one recorded a net loss for the second quarter 918 million or $2 from 21 cents per diluted common share primarily driven by 2.7 billion allowance build reflecting the economic downturn related to the carpet 19 pandemic.

Adjusting items impacted operating expenses during the quarter and totaled 276 million course, 60 cents a share.

Quitting the provision for legal matters as well as costs related to our cyber instead.

Nothing beats adjusting items, our S well day loss on the Dollarssixty one per share.

Turning to slide four I'll cover the allowance in more detail.

The second quarter allowance build of 2.7 billion consists of 1.7 billion in park 668 million in auto and 330 million in commercial.

Our allowance is based primarily on an economic forecasts derived from the consensus of third party economists.

Forecast includes unemployment in the second quarter of 16.9% falling to 11.5% at the end of 2020 and gradually improving over the course of 2021 to end at 8.1%.

Of course, our strong credit performance, so far shows that the normal relationship between unemployment and consumer credit has been significantly altered by lending hardship programs and especially by government stimulus, including direct consumer support through the pairs Act.

Looking ahead in our allowance we've assumed no such benefit from further stimulus beyond the residual benefit to the existing legislation, which starts running out after July.

On slide five you can see the impact of our coverage ratios for various businesses.

Our total allowance coverage now stands at 6.7% lungs compared to 2.7% that the.

End of the year for 2019.

Our domestic coverage ratio.

Domestic card coverage ratio is now, 11.6% and our branded card ratio to 13.5%.

Recall that the primary difference between these ratios is driven by loss sharing agreements in our partnership portfolio.

Our auto coverage now stands at 4.3% in our commercial reserve coverage is 2.5%.

Moving to slide six I'd like to discuss our liquidity position as we've talked about for years, we have always focused on conservatively managing capital and liquidity and not serving as well as we navigate the cup at 19 pandemic.

You can see that our preliminary average.

Liquidity coverage ratio during the second quarter was 146% pop from 145% at the end of the first quarter and well above the 100% regulatory requirement.

Liquidity reserves from cash Securities and Federal home loan bank capacity increase to 149 billion up the ended the second quarter, including about 56 billion in cash driven by strong in quotes a consumer deposits.

Turning to slide seven I will cover capital our common equity tier one capital ratio was 12.4% at the end of the second quarter up 40 basis points from the first quarter notwithstanding our large allowance build in the quarter recall that beginning in 2020, RCT one calculation excludes the mark to market impact.

From our available for cell security portfolio.

At quarter end that portfolio had an unrecognized after tax gain of 2.4 billion, which represents approximately 80 basis points of potential regulatory capital.

During the quarter the Federal Reserve released the results of their stress tests, our capital requirement under the stress capital buffer framework as calculated by the Federal reserve was 10.1% or approximately 230 basis points below our current capital levels.

In conjunction with the release of the stress test results. The Federal Reserve also announced an additional fall stress test and the limitation on third quarter dividends based on the average quarterly net income for the prior four quarters.

While our recent see CCAR capital plan included a planned 40 cents quarterly dividend based on defense, New cumulative earnings rule, we expect to reduce our third quarter common stock dividends to 10 cents per share subject to board approval.

Turning to slide eight you can see that our net interest margin was 5.78% in the quarter, which is approximately 100 basis points lower than the first quarter and the prior year linked quarter.

The quarter over quarter decline was largely driven by a shift in our asset mix as average cash increased to 43 billion, an average card balances shrunk by 11%.

In addition to this mix shift the low rate environment further pressured that interest margin.

With the low interest rate environment and continued on the economics.

The continued and the continued economic uncertainty, we expect to maintain elevated levels and cash in the near term during the quarter. We deployed approximately 15 billion of cash increased the size of our investment portfolio prepay Federal home loan bank advances and to buy back a portion of our senior unsecured debt in our first.

However debt tender offer.

Even with these actions are cash at the ended the quarter without an all time high up 56 billion up 25 billion from the ended the first quarter.

The low rate environment. It's also a headwind to NIM improvement to give you a sense of magnitude are disclosed year end 2019 interest rate sensitivities would suggest an approximately 500 million dollar reduction in annual interest income based on the over 100 basis point decline in yield curve that we've seen here today.

Looking forward, our NIM trends will depend on how the impacts of the downturn play out across our balance sheet, including asset next deposit balances and deposit pricing and our cash position.

And with that I'll turn the call over to rich rich.

Thanks Scott.

I'll begin on slide 10, which summarizes second quarter results for our credit card business.

The impacts of the covert 19 pandemic drove second quarter results across all of our business segments.

And our credit card business loan balances purchase volume and revenue declined year over year and as Scott just discussed we posted a significant allowance build.

Credit card segment results are a function of our domestic card results and trends, which are shown on slide 11.

Domestic card ending loan balances shrank by $3.6 billion or 3% year over year, while average loans declined 1%.

Excluding the impact of the Walmart portfolio acquisition.

Ending loans shrank by around 10% year over year, while average loans were down about 8%.

Purchase volume for the quarter declined 15.5 per cent compared to the prior year quarter.

Looking at weekly trends the year over year decline in purchase volume was down 32% in the second week of April.

And as sense rebounded over.

Over the last three weeks ended July 17th.

The year over year decline has averaged just 3%.

Total company net interchange revenue for the second quarter was down about 18% year over year.

The declines in total excuse me the decline in loan balances and purchase volume.

Our result of several factors.

The broader effects of the pandemic.

Consumer is behaving rationally in response to the covert economic shutdown.

As our choices to pull back in marketing and tightened underwriting.

As they've done in prior downturns consumers are pulling in their spending and paying down balances.

This cautious behavior is an important driver of both declining volumes and our strong credit performance.

Revenue decreased 7% year over year.

Revenue declined more than average loans as revenue margin decreased 105 basis points compared to the second quarter of 2019.

The majority of the revenue margin decrease was driven by the expected impact of the revenue sharing agreement on the acquired Wal Mart portfolio.

And the revenue benefit in the second quarter of last year from our choice to exit several small partnerships.

Lower net interchange revenue also contributed to the revenue margin decline.

Noninterest expense was down $258 million from the second quarter of last year, largely driven by our choice to pull back on marketing.

Provision for credit losses was up by $1.9 billion year over year. As a result is a large cobot driven allowance build.

Second quarter credit results were strikingly strong, especially in the context of the pandemic.

The charge off rate for the quarter.

Was 4.53%, a 33 basis point improvement year over year.

The 30, plus delinquency rate at quarter end was 2.74% 66 basis point improvement from the prior year.

Several factors likely drove the striking improvement.

Credit performance is benefiting from resilience choices, we made before the downturn began.

Consumers are behaving cautiously and paying down debt.

Government stimulus is dramatically altering the normal relationship between the unemployment rate and consumer credit at least in the short term.

And widespread forbearance across the banking industry, it's helping consumers manage through financial stress.

We're helping domestic card customers, who have been impacted by the cobot downturn.

We've provided more detailed information on domestic card forbearance on slide 12.

We currently offer a 30 day skip pay with an option to renew.

At the end of the second quarter total enrollments were running at about 50000 per week down from more than 150000 per week at the end of the first quarter.

In recent weeks approximately two thirds of weekly enrollments.

Were renewals.

At quarter end first time enrollments were down 87% from the peak in early April.

As of June Thirtyth about 2% of active accounts have enrolled at any time since the pandemic began.

However, most of these customers have sense exited the program.

At the end of the quarter about 20 basis points of the customer base were enrolled and eligible to skip their next payment at another 40 basis points were enrolled in the program last month and its get their payment as permitted.

A portion of these customers may read Reenroll.

Of all customers, who have participated in the program at any point.

Approximately 92% where current.

When they first enrolled.

Over the life of the program, we've seen largely positive customer outcomes.

For customers ending their first 30 day skip pay period more than half have made their required payment in the subsequent month.

At approximately 20% every enrolled for another month.

Customers with multiple enrollment.

Have made payments at a lower.

Still healthy rate.

Slide 13 summarizes second quarter results for our consumer banking business.

Ending loans increased 11% year over year, while average loans for the second quarter grew 8%.

Driven by our auto business.

When the co bit downturn began we tightened our underwriting box in auto focus on the most resilient assets.

Two factors drove second quarter result, a second quarter growth.

While the auto market declined sharply at the end of the first quarter. It is rebounding.

The rebound thus far has been stronger for larger franchise dealers the part of the market where we're focused.

And our digital products and services are driving growth in direct to consumer originations and growth with dealers, who want to provide a touchless car buying experience in response to social distancing.

Our dealer relationship strategy and the digital infrastructure and capabilities, we've built from the bottom up.

Put us in a strong position to grow high quality auto loans, even with tighter underwriting.

And being deposits in the consumer bank were up $41.6 billion or 20% year over year.

Deposit growth was fueled by the stimulus driven increase in personal savings.

Average deposit interest rate for the quarter decreased 37 basis points compared to the prior year quarter.

Most of our moves to reduce deposit rates occurred late in the quarter in response to the market interest rate environment and competitive dynamics.

Consumer banking revenue decreased 6% from the second quarter of last year.

Underlying revenue growth from higher auto loans and retail deposits was more than offset by differences in the timing of federal reserve rate cuts.

Feeding.

Our deposit pricing moves.

Non interest expense in consumer banking was up 3%.

Volume driven growth in expenses was partially offset by our efforts to tightly manage costs.

Second quarter provision for credit losses increased $711 million year over year again, driven by the allowance build that Scott discussed.

Our auto business posted strong credit results in the second quarter.

The charge off rate was up just seven basis points compared to the prior year quarter to 1.16%.

The delinquency rate improved 282 basis points year over year to 3.28%.

This strong performance is the result of.

Forbearance.

Government stimulus.

Cautious consumer behavior.

Resilience choices, we made before the downturn began.

And to better than expected auction values.

We currently offer a 30 day skip pay.

With an option to renew to our auto customers, who have been impacted by the downturn.

As you can see on page 14.

Enrollments are trending down.

At the end of the second quarter total enrollments were running at about.

30000 per week down from over 100000 per week at the end of the first quarter.

In recent weeks approximately 60% of weekly enrollments.

Were renewals.

First time enrollments were down 90% from the peak in early April.

Compared to domestic card a higher percentage of auto customers have enrolled in forbearance.

As of June Thirtyth about 14% of active accounts have enrolled at any time since the pandemic began.

However, most of those customers have since exited the program.

At the ended the quarter about 1% of auto customers were enrolled and eligible to skip their next payment.

And another 2% were enrolled in the program last month.

And it's get their payment as permitted a portion of the customers may reenroll.

Approximately 75% of customers were current at the time they first enrolled.

Over the life of the program, we've seen largely positive customer outcome.

For auto customers ending there.

First 30 day skip pay period more than half have made a payment in the subsequent month.

A month.

And a little more than a third have reenrolled for another month.

Customers with multiple enrollments have also made payments at a healthy rate.

Moving to slide 15.

I'll discuss our commercial banking business.

Second quarter, ending loan balances were up 8% year over year, driven by customers drawing down line late in the first quarter.

After peaking in March line draws have subsided.

Second quarter average loans were up 11% compared to the second quarter a year ago.

Average deposits also increased about 10%.

Second quarter revenue was down 2% from the prior year quarter, well noninterest expense was essentially flat.

Provision for credit losses increased $345 million compared to the second quarter of 2019.

The largest impact was an allowance build.

Given by the factors Scott discussed and by downgrades to credits in industries that are most impacted by coated.

Energy had a modest release this quarter as specific reserves set in the first quarter were converted to charge offs in the second quarter.

We've provided a breakout of our oil and gas portfolio composition and reserves.

On slide 19.

Okay.

The commercial banking charge off rate for the quarter was 0.51%.

Criticized performing loan rate for the quarter increase compared to both.

The prior year and linked quarters.

To 7.7%.

And the criticized nonperforming loan rate rose rose modestly to 0.9 or set.

I'll close Tonight with some thoughts on our results in the quarter at our positioning for the future.

Capital one second quarter results were driven by the near term impact of the Cobot 19 pandemic.

A significant allowance build and declining revenue drove negative earnings per share.

Consumer credit trends were very strong.

We further fortified liquidity.

And our C E T ratio.

The one ratio increased to 12.4%.

Based on the new cumulative earnings rules at the Federal Reserve announced in the quarter, we expect to reduce our third quarter common stock dividend. The 10 cents per share subject to our board approval.

Pulling way up.

Where more than halfway through a year, none of us we'll ever forget.

Capital one started the year with significant momentum than covert 19 hit an inflection point in March driving a sudden shutdown of economic activity the sharp increase in unemployment and along with it the biggest and fastest government response since the great depression.

We are well positioned by the choices we made before this downturn started.

Since our founding days, we have hard wired resilient end of the choices, we've made on credit capital and liquidity through good times and bad debt.

As a result, we entered the downturn with strong and resilient try to credit trends, a four to five balance sheet and deep experience in successfully navigating through prior periods of stress, including the great recession.

Our investments to transform our technology and how we work at our efforts to drive the company to digital our powering our response to the pandemic.

Our technology transformation enables us to develop and scale up compelling digital customer experiences.

As social distancing increases demand for digital engagement.

Automation facilitates rapid changes and enhancement in underwriting and analytics.

And our cloud based modern technology infrastructure seamlessly supports a virtual work environment, where 80% of our total associate population.

When the pandemic took hold we took immediate actions to protect the well being of our associates customers and communities.

And we took actions to manage credit risk and further strength and resilience, we tightened underwriting and pulled back marketing.

We fortified our liquidity and capital.

And we significantly built our allowance for credit losses.

We continue to lean into resilient to weather the storm with strength and stay ready for opportunities that will emerge as the cycle plays out.

As we manage through the near term challenges. We also continue to focus on the thing that create long term value.

One area of continuing focus is efficiency.

Prior to the pandemic, we were on a sustained trajectory of improvement.

We posted improvements in annual operating efficiency ratio in five of the last six years, driven by revenue growth and digital productivity gain.

Well the pandemic is interrupted our progress it has not changed our journey.

Or the milestones along the way.

Based on where we are in the downturn, we don't have the visibility to commit to the specific timing, but we remain committed to getting to 42% annual operating efficiency ratio overtime.

With further improvement from there.

Kogan 19 has thrown us and other companies across the economy, a big curve ball, but it hasn't changed where we think our business is headed or the long term strategic opportunities that will be created as digital continues to bring sweeping changes to how we work how we interact with each other and how we experience.

The World every day in fact the pandemic.

Appears to be accelerating digital change everywhere, we look.

We believe that our shareholders customers and associates will be well served by EUR eight years strategic commitment to digital transformation at our steadfast focus on resilient.

We remained <unk> remain well positioned to weather the downturn, you merge with strength and deliver shareholder value over the long term.

And now we'll be happy to answer your questions.

Yep.

Thank you rich.

Well I'll start QNX session has always as a courtesy to other investors and analysts who may wish to ask a question. Please limit yourself to one question.

Single fall.

If you have any call up questions. After the Q when they start from the Investor Relations team will be available after the call.

Not pushed up in Canada.

Thank you once again, if you'd like to ask a question signaled by pressing star one on your telephone keypad.

Using a speaker phone. Please make sure your mute function is turned off to the you're signaling to reach our equipment.

Once more star one if you'd like to ask a question. Our first question will come from Betsy racing with Morgan Stanley.

Hi, good morning, or good afternoon actually it feels like wearing it separate over here [laughter]. Good afternoon beds to add that yeah, sorry about that a couple of questions just for stuff I wanted to understand a little bit about the folks who had enrolled but are no longer enrolled.

You had this nice charts on the auto in the domestic card.

And I wanted to understand the folks that rolled off what happens there payment history been like and what are you anticipating over the next quarter.

From them.

So that the the no longer enrolled population includes all customers who have either made a payment.

Or completed a billing cycle following the forbearance period and have not reenroll.

As such it is mostly customers who have resumed irregular payment patterns.

But also includes a much smaller group of customers.

Who have not resumed paying us and our advancing.

In the or tour would the door and delinquency.

You get visibility to customers in that situation do a normal delinquency reporting.

Yeah. So my follow up is that delinquencies look really good this quarter and we see it every quarter every month, obviously you know when you when you give us and that's trusted and the manage data. So I guess I'm wondering why you why you think there's that disconnect and get in the 11% reserve ratio.

You already have satisfied against card and the low level of delinquencies you have you seen much. The labors are felt in kitchen universe in threeq versus Twoq count.

That's why don't a why don't we work backwards and I'll I'll go to your question on the allowance.

Yeah with the allowance from here.

It's really going to depend on some of the major drivers of our reserve build on the quarter.

I talked about those being our our economic scenario and our approach to stimulus and I feel like those had both a conservative by us when I look at them at this point. So I wouldn't say that you know I feel very good about the lots that we've got today, given what we've seen since.

We ended the quarter, but in the future I think it's going to come down to.

50, economic outlook and forecasts, you know get worse than that would lead to an allowance build.

And then on the other side of that all else being equal if we didnt see more stimulus that would be a positive two to the allowance and we could see you know an offset to to the potential.

Sex of the economic scenario that we built the allowance on this quarter. So I don't have a specific guide for you as to whether we think it's going to be going up or down, but hopefully that gives you a sense of what may drive it in the future.

Next question please.

Next question will come from and Nash with Goldman Sachs.

Hi, good evening guys.

Hi, there right.

So maybe first on the dividend.

So it looks like the capacity to keep the dividend was higher for Threeq. You. So I guess are you factoring any <unk> income testing in place beyond this quarter and do you expect to maintain the dividend beyond this quarter and then I guess second can you didn't maintain a 10 cents. It does seem like there's a pretty sizable bounced back in earnings for.

In the back half a year. So can you maybe just clarify what's been baked in and just lastly, how quickly do you think you could reinstate the dividend. Thanks, Ive a follow up yep.

Thanks, Ryan that was about four questions are built into one, but let me give my thoughts.

So on that 10 cents dividend I think if you did the math, which is based off of net income technically I think we could pay about 13 cents dividend. This quarter, we rounded down to a dime and of course, that's subject to our board approving that at some point the future.

And in terms of looking forward with Q4 look at this point.

Well I honestly don't know how the fed rules are going to play out into the fourth quarter. We don't know how that income limitation test is going to work at they're going to continue at on you know that that Dave.

Instituted a fall stress test for for all of the 33 banks and she car so I'm not going to give a guide on where the dividends going to be next quarter. We're committed to continuing to have a dividend I. Appreciate how important that is too to a number of our owners and then I would.

Just say with respect to earnings you know, we do have a net loss for the three cumulative quarters ended Q2, I think that we would need to make over $1.1 billion next quarter in order to pay dividends, whether or not that's going to happen. I think is going to be you know really largely driven on what happens with the allowance and I just talked about some of the drivers there.

So look I'd I don't mean to not be specific as to whether or not we're going to pay it that I would just leave you with we're committed to to doing the best we can to make sure that we preserve and dividends.

Got it and now I'll try to be pre friend My second one so I guess rich you know if you're thinking about it you ever bird's eye view of the most impacted verticals consumer via card and auto commercial you know, including oil and glaring gaps in some high impact to commercial real estate.

Rank order for us to just talked about your concerns in each of the asset classes, where you're feeling better or worse relative to three months ago, and then second you talked about forbearance, helping in the near term can you just maybe help us understand how to think about that historical relationship between unemployment and losses, because it seems like your reserving for a lot of trust.

Local relationships coming to fruition, but clearly we could see benefits from from the forbearance, helping customers make payments as you showed in the slide.

Okay Ryan so.

Well it a little comparison here.

Let me start with how the the various parts of our business. The industries were in entered the downturn our consumer businesses. We the industries. We felt that were worth, particularly healthy the card card business I'd put it that top of the list in terms of a rational industry.

Our conservative underwriting by that the players there.

And and the consumer was also given how.

Long and the to the downturn was the consumer will still acting very rationally as well. So all of those things are very different from the great recession, and how we entered it or the industry answer that one you ought to business you know I'd give it pretty high marks going in for.

For similar reasons, it pretty strong consumer at a competitive environment that you know always kind of amplified as bought volatile Bala volatiles, a if you will bye bye dealer being an intermediary in the middle but pretty rational we were concerned.

A much more about the commercial business because of.

Have a practices credit practices and behaviors underwriting.

Behaviors that we saw mostly outside of the banking industry in the institutional marketplace, but which it's hard to you know not to avoid having that impact.

The commercial banking, a part of the business as well so since then.

To me I bet the thing that I'm most dropped by is how.

You know how.

Strong be yet again that consumers steps up and and the rationality is a consumer on so struck by.

The you know pulling back on on a purchases.

You know savings rates going way up payment rates, which also you know are kind of a hidden factor in hole in slowing down growth what are the flipside of a good credit as those behaviors have just been very apparent across our consumer lending businesses.

The big and so and I've always you know throughout my you know three decades of a of doing that building this company.

Been very struck by how rational the consumer is and we see that there there's a huge sort of elephant in the room on on that.

On the consumer side as an elephant on the commercial side as well is what happens to.

Government stimulus.

And I just make a lot of things have lined up.

That have you know soften the impact for consumers, even really those who have been on employed and so we are seeing this great paradox of extraordinary credit performance in the middle of you know the worse.

Economy metrics in lifetimes.

So.

I think that that that's a hard one to prognosticate, where it goes from here, but I'd give you know.

Really high marks to the strength, the consumer and I see a solid continuing underwriting behavior I buy a competitors in that marketplace commercial is really a a you know a a blend of so many different marketplaces are and so.

On the you know while you know.

You know we have a lot of but you know there's a lot of healthy.

Industries were and then you know where where do we look with a concern at the top of our list is energy, which was already taking it on the Chen before the downturn and is now.

You know struggling now even more so what's happening to oil prices.

The places that.

You know I've been places the Oh of course.

In a.

Commercial real estate hotel, we have very small exposure there that you know not bad a good area. We're pleased that we dial back a lot on our retail DRA exposure. So we feel quite good there.

The you know we have a we have and I out on the multifamily side just for the you know what happened.

With the core Barents programs for example, in New York, we're coming to the end of the 90 day moratorium on on addictions.

And Andy increased unemployment pay so I think there is uncertainty there. So that's a tale of a lot of different cities and commercial but if I pull way up on just you know.

Every month as we go to through the downturn.

With with strong credit performance, that's that's one more month of progress and and you know it it limits.

Yeah. It lessens the extent of the of the downside in the rest of the and the rest of the pandemic, but we've got the big wildcard is we referred to you see it reflected.

In our allowance build and therefore, you know, we're managing and be in a very dichotomy situation here that.

Its quite extraordinary to experience.

Next question please.

Next question will come from Rick Shane with JP Morgan.

Hey, guys. Thanks for taking my question. This afternoon, I'm really shrunk by the difference between the utilization of the customer assistance programs on the auto side of the card side.

That's a reflection in the current environment of the ability of a credit card versus the utility.

A car or as a function of began the amortizing nature of auto loans versus the minimum payment ability on a college.

You know I think it is.

Are there there are several things going on.

There there is.

And you know you see this affected capital one and you can also see it across the industry, they're just naturally a lot more ambient demand.

Or forbearance programs in the auto business then there is in part by the way you could also add mortgage a into that comment that there's a lot of demand there. So.

No. One fundamental reason is that auto payments are typically much higher than card minimum payments and so they're just more likely to be beyond the reach of the given customer whose income it disrupted.

And within both businesses not just as we compare across the two businesses within both businesses, we've straight seen as strong correlation between demand for forbearance programs.

And the size of the payment due.

You know the second reason I think also in that ought to the stakes are higher for the customer and you know, they're very motivated to make sure that they.

Can keep the car.

So we're not surprised by these differences one thing that I think is.

Just a point and Investor point here is that.

This the because a rule a relatively small number of our card customers.

Haven't fact raise their hand to opt in to programs and so many of them are already getting out of them.

I think you're able to have a really clear pretty darn clear window into the.

Credit performance of capital one even inclusive of the forbearance programs.

It's a little harder to you know because the auto forbearance numbers are larger.

It's you know if not.

Quite as clear in terms of where the does the credit numbers over time, we'll go even though we are.

Certainly very bullish about how well the program is performing but I think what I'm, just I send them to steal investors there little bit throwing that has nothing to say in a period of with all this forbearance going on it and digital companies. How are we able to read the credit metrics I think you know.

There is a high level of clarity on that on the card side in particular at the moment.

Got it and that actually segways perfectly into my follow up which is that when we look then it the reserve or the allowance levels or each of the products. The implied loss frequency on card is substantially higher on the way to think of that the longer this person.

Yes, there is more embedded risk in the card portfolio.

Well I think that the loss rates on card or higher because its good to fund.

You know unsecured product.

Rick I also think that when it comes to you know the the auto business, we have fairly high levels of recovery on the collateral there and then into reserving that we've done this particular quarter in auto a portion of that was actually driven by the girls that we saw there so.

I think there just different asset classes with different character is yeah characteristics and certainly the average card book has higher losses than what we see in our auto book.

Next question please.

Your next question will come from Sanjay Sakhrani with KBW.

Thank you I'm glad you guys are doing right I got a.

Two part question. After my two questions on pre provision earnings Oh, Gosh, maybe you could just outline how do you see the NIM and revenue unfolding over the course sitting here and maybe any other and mitigation efforts you might have and then secondly, as far as loan growth is concerned.

Rich talked about the improving trends any purchase volume.

We've also had some of the auto finance kinda other auto finance players talking about OEM production, increasing and that might lead to a more dealer inventory to sell and loan growth [laughter] talk about broadly, it's sort of loan growth as it unfolds over the.

For the year [laughter].

[noise], so Tom I'll start off PON on some thoughts around NIM.

And you know it certainly feels like NIM is is kind of at the low end of where I would expect it should be for our company and there's a few factors driving that which I talked about my my my comments and talking points, but if you think about where that might be going into future I'd say a couple things. So first of all.

We're working really hard to continue to deploy more of our cash into higher yielding a investments whether that's you know the investment portfolio, where I think we can put some word work there offsetting wholesale funding maturities you know those are some examples but you know candidly and given the current rate environment, where we are.

In this in this downturn you know I would anticipate that cash levels are going to remain high.

Until we start to see some stabilization there. So you know we'll try to make some progress, but I don't think we'll be able to two really change that dramatically.

On the asset mix effects, you know certainly the decrease in card. This quarter was was the big headwind on our net interest margin I think you know depending on what happens with our opportunities in the market, where we feel comfortable continuing to step in those will be major drivers are what happens can them going forward and then I.

You know on the deposit side I think the benchmark rates have fallen more than than what we've seen in our pricing and its rich talked about in his talking point some of our pricing actions happened late in the quarter. So we'll see the full benefit of those coming through next quarter, which should be you know a tailwind for now.

I also think that you know, we're starting to see betas accelerating across the industry and I think there's probably more you know opportunities for for continuing to price downs deposits at this point in the cycle. So that's kind of a where I see NIM going from here.

On loan growth you know I look I think that that is a bit of Ah a question Mark about how how this pandemic plays out and where we see opportunities.

We've obviously found that the there's some great opportunities in auto in ways that we feel comfortable with the origination strategy and what we're seeing in there you know with respect to card. There's there's certainly pockets, where we think we can continue to you know acquire new accounts and we'll have to see how payment rates you didn't play out because that's a major.

Her driver what happens with outstanding we've seen great credit part of that is you know I payment rates. The flip side of that is that that has the tendency to drive down outstanding so.

On on on loan growth I think that a you know were.

We're a little bit.

Kind of looking at what is available in the market is going to drive you know our behavior and you know what's the time now to be to be cautious, but we also you know are always looking for opportunities to take advantage of you know spots, where we see the market available to us.

Next question please.

Our next question will come from Don Vendetti with Wells Fargo.

Hi, Scott I know, there's some concern around economic weakness from the south and southwest.

More recently have you seen anything that would suggest there's some pressure and also the forbearance and cards.

It looks like it may have ticked up a little bit.

Just curious with that's continuing to hold studies.

Yes.

Yes.

So.

And on we have not seen any big geographical effects. We certainly are on the look out.

For them.

I.

I think the.

The b that the government stimulus and the forbearance.

Generally going on in the industry has.

Sort of moderated you know credit issues broadly across.

All the geography.

With respect to.

Our Barents.

You know, there's a there's a reasonable amount of variation by state in a way that's intuitive.

Given the differential impacts.

The virus so far.

So for example in our card business.

Florida in New Jersey.

You know New York, New York, certainly yeah earlier on the have been states with some of the highest enrollment rate. So there's a forbearance thing matches intuition pretty closely.