Q1 2024 Capital One Financial Corp Earnings Call

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Operator: Good day, and thank you for standing by. Welcome to the Capital One Q1 2024 earnings call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Norris, Senior Vice President of Finance. Please go ahead.

Good day and thank you for standing by welcome to the capital. One Q1 2024 earnings call. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Jeff Norris Senior Vice President of Finance. Please go ahead.

Jeff Norris: Thanks very much, Josh, and welcome to everyone. We are webcasting live over the Internet this evening. To access the call over the Internet, please log on to Capital One's website at CapitalOne.com and follow the links from there.

Jeff Norris: Thanks, very much Josh and welcome to everyone.

Jeff Norris: We are webcasting live over the Internet at this evening taxes to call on the Internet. Please log on to capital one's website at capital one dot com and follow the links from there.

Jeff Norris: In addition to the press release and financials, we've included a presentation summarizing our first quarter 2024 results. With me this evening are Mr. Richard Fairbank, Capital One's Chairman and Chief Executive Officer, and Mr. Andrew Young, Capital One's Chief Financial Officer. Rich and Andrew are going to walk you through this presentation. To access a copy of the presentation and press release, please go to Capital One's website and click on Investors, then click on Financials, and then click on Quarterly Earnings Release.

Jeff Norris: Addition to the press release and financials. We've included a presentation summarizing our first quarter 2024 results.

Jeff Norris: With me. This evening are Mr. Richard Fairbank capital one's Chairman and Chief Executive Officer, and Mr. Andrew Young capital ones Chief Financial Officer.

Speaker Change: Richard Andrew I'm going to walk you through this presentation.

Jeff Norris: To access a copy of the presentation and press release, please go to capital one's website and click on investors.

Jeff Norris: Then click on financials, and then click on quarterly earnings release.

Jeff Norris: Please note that this presentation may contain forward-looking statements. Information regarding Capital One's financial performance and any forward-looking statements contained in today's discussion in the materials speak only as of the particular date or dates indicated in the materials.

Jeff Norris: Please note that this presentation may contain forward looking statements.

Jeff Norris: Information regarding capital one's financial performance and any forward looking statements contained in today's discussion and the materials.

Jeff Norris: Speak only as of the particular date or dates indicated in the materials.

Jeff Norris: Capital One does not undertake any obligation to update or revise any of this information, whether as a result of new information, future events, or otherwise. Numerous factors could cause our actual results to differ materially from those described in these forward-looking statements. For more information on these factors, please see the section called Forward-Looking Information in the earnings release presentation and the risk factors section of our annual and quarterly reports, accessible on Capital One's website and filed with the SEC. And with that, I'll turn the call over to Rich or to Andrew, Mr. Young. Thanks, Jeff. And good afternoon, everyone.

Jeff Norris: Capital one does not undertake any obligation to update or revise any of this information.

Jeff Norris: Whether is it or is it all from new information future events or otherwise.

Jeff Norris: Numerous factors could cause our actual results to differ materially from those described in forward looking statements for more information on these factors. Please see the section called forward looking information in the earnings release presentation.

Jeff Norris: And the risk factors section of our annual and quarterly reports accessible what capital one's website and filed with the SEC.

Andrew Young: And with that I'll turn the call over to rich Andrew Mr. Young.

Andrew: Thanks, Jeff and good afternoon, everyone I will start on slide three of Tonight's presentation.

Andrew Young: I will start on slide three of tonight's presentation. In the first quarter, Capital One earned $1.3 billion, or $3.13 per diluted common share. Included in the results for the quarter was a $42 million additional accrual for our updated estimate of the FDIC's special assessment. Net of this adjusting item, first quarter earnings per share were $3.21.

Andrew: In the first quarter capital, one earned $1 3 billion or $3 13 per diluted common share.

Andrew: Included in the results for the quarter was a $42 million additional accrual for our updated estimate of the.

Andrew: The FDIC special assessment.

Andrew: Net of this adjusting item first quarter earnings per share were $3 in 'twenty one.

Andrew Young: Relative to the prior quarter, period end loans held for investment decreased 2%, and Period End Deposits increased 1%. Both average loans and average deposits were flat.

Andrew: Relative to the prior quarter.

Andrew: Period end loans held for investment decreased 2%.

Andrew: And period end deposits increased 1%.

Andrew: Both average loans and average deposits were flat.

Andrew Young: Our percentage of FDIC-insured deposits remained at 82% of total deposits. Pre-provision earnings in the first quarter increased 13% from the fourth quarter, or 6% adjusting for the impacts of FDIC special assessments in both quarters. Revenue in the linked quarter declined 1%, largely driven by lower non-interest income. Non-interest expense decreased 6% on an adjusted basis, driven by declines in both operating and marketing expenses.

Andrew: Our percentage of FDIC insured deposits remained at 82% of total deposits.

Andrew: Pre provision earnings in the first quarter increased 13% from the fourth quarter.

Andrew: Or 6% adjusting for the impacts of FDIC special assessment in both quarters.

Andrew: Revenue in the linked quarter declined 1% largely driven by lower noninterest income.

Andrew: Noninterest expense decreased 6% on an adjusted basis driven by declines in both operating and marketing expenses.

Andrew Young: Our provision for credit losses was $2.7 billion in the quarter, a decrease of $174 million compared to the prior quarter. The decrease was driven by $257 million in lower net reserve bills, partially offset by an $83 million increase in net charge-offs. Turning to slide four, I will cover the allowance in greater detail. We built $91 million in the allowance this quarter, bringing the balance to $15.4 billion.

Andrew: Our provision for credit losses was $2 $7 billion in the quarter.

Andrew: A decrease of $174 million compared to the prior quarter.

Andrew: The decrease was driven by 200 $757 million lower net reserve build.

Andrew: Partially offset by an $83 million increase in net charge offs.

Andrew: Turning to slide four I will cover the allowance in greater detail.

Andrew: We built $91 million in allowance this quarter, bringing.

Andrew: Bringing the balance to $15 $4 billion.

Andrew: An increase of less than 1% from the fourth quarter.

Andrew: The slight increase in allowance balance was driven by modest builds in our auto and domestic card portfolios.

Andrew: Our total portfolio coverage ratio increased 11 basis points to 488%.

Andrew Young: An increase of less than 1% from the fourth quarter. The slight increase in allowance balance was driven by modest builds in our auto and domestic card portfolios. Our total portfolio coverage ratio increased 11 basis points to 4.88 percent.

Andrew: I'll cover the drivers of the changes in allowance coverage ratio by segment.

Andrew: On slide five.

Andrew: Our baseline economic forecast modestly improved this quarter compared to what we assumed last quarter, which generally aligns with consensus.

Andrew: We continue to consider a range of economic outcomes in our reserving process.

Andrew Young: I'll cover the drivers of the changes in allowance and coverage ratio by segment on slide five. Our baseline economic forecast modestly improved this quarter compared to what we assumed last quarter, which generally aligns with consensus. We continue to consider a range of economic outcomes in our reserving process. For example, in our domestic card business, the allowance coverage ratio increased by 22 basis points to 7.85%. The increase in coverage was primarily driven by the denominator effect of the runoff of the fourth quarter's seasonal outstanding receivables.

Andrew: In our domestic card business the allowance coverage ratio increased by 22 basis points to 785%.

Andrew: The increase in coverage was primarily driven by the denominator effect of the run off of the fourth quarter's seasonal outstandings.

Andrew: In our consumer banking segment.

Andrew: The allowance increased by $46 million, resulting in a seven basis point increase to the coverage ratio.

Andrew: The allowance increase was primarily driven by a higher level of originations in the auto finance business.

Andrew: And finally, our commercial banking allowance decreased by $7 million, primarily driven by portfolio contraction.

Andrew: Coverage ratio increased by one basis point to 172%.

Andrew Young: In our consumer banking segment, the allowance increased by $46 million, resulting in a seven basis point increase to the coverage ratio. The increase was primarily driven by a higher level of originations in the auto finance business.

Andrew: Turning to page six I'll now discuss liquidity.

Andrew: Okay.

Andrew: Total liquidity reserves in the quarter increased to $127 billion.

Andrew: About $7 billion higher than last quarter.

Andrew: Our cash position ended the quarter at approximately $51 billion up about $8 billion from the prior quarter.

Andrew Young: And finally, our commercial banking allowance decreased by $7 million, primarily driven by portfolio contraction. The coverage ratio increased by one basis point to 1.72%. Turning to page 6, I'll now discuss liquidity. Total liquidity reserves in the quarter increased to $127 billion, about $7 billion higher than last quarter.

Andrew: The increase in cash was driven by continued strong deposit growth in our retail banking business and the seasonality of our card balances.

Andrew: Our average liquidity coverage ratio during the first quarter remained strong and well above regulatory minimums at 164%.

Speaker Change: Turning to page seven I will cover our net interest margin.

Speaker Change: Our first quarter net interest margin was $6 six 9%.

Andrew: Four basis points lower than last quarter and.

Andrew: And nine basis points higher than the year ago quarter.

Andrew: The quarter over quarter decrease in NIM was largely driven by the impact of having one fewer day in the quarter.

Andrew Young: Our cash position ended the quarter at approximately $51 billion, up about $8 billion from the prior quarter. The increase in cash was driven by continued strong deposit growth in our retail banking business and the seasonality of our card balance. Our average liquidity coverage ratio during the first quarter remained strong and well above regulatory minimums at 164%. Turning to page 7, I'll cover our net interest margin. Our first quarter net interest margin was 6.69%, four basis points lower than last quarter and nine basis points higher than the year ago quarter.

Andrew: Modestly higher asset yields were mostly offset by higher funding costs in the quarter.

Speaker Change: Turning to slide eight I will end by discussing our capital position.

Speaker Change: Our common common.

Speaker Change: Common equity tier one capital ratio ended the quarter at 13, 1%.

Andrew: Proximately 20 basis points higher than the prior quarter.

Andrew: Strong earnings and lower risk weighted assets more than offset the impact of seasonal phase in dividends and share repurchases.

Andrew: We repurchased approximately $100 million of shares in the first quarter.

Andrew: Our repurchase activity in the quarter was impacted by blackout restrictions and daily purchase volume limitations related to the announcement of the discover transaction.

Andrew Young: The quarter-over-quarter decrease in NIM was largely driven by the impact of having one fewer day in the quarter. However, modestly higher asset yields were mostly offset by higher funding costs in the quarter. Turning to slide eight, I will end by discussing our capital position. Our common equity tier one capital ratio ended the quarter at 13.1 percent, approximately 20 basis points higher than the prior quarter. However, strong earnings and lower risk-weighted assets more than offset the impact of Cecil Faison dividends and share repurchases. We repurchased approximately $100 million of shares in the first quarter.

Andrew: With that I will turn the call over to rich rich.

Rich: Thanks, Andrew and good evening everyone.

Rich: <unk> 10 shows first quarter results and our credit card business.

Rich: Credit card segment results are largely a function of our domestic card results in trends, which are shown on slide 11.

Rich: Top line growth trends in the domestic card business remained strong in the first quarter year over year purchase volume growth for the first quarter was 6%.

Rich: Ending loan balances increased $12 $9 billion or about 10% year over year average loans increased 11%.

Rich: And first quarter revenue was up 12% year over year, driven by the growth in purchase volume and loans.

Andrew Young: Our repurchase activity in the quarter was impacted by blackout restrictions and daily purchase volume limitations related to the announcement of the Discover transaction. With that, I will turn the call over to Rich. Thanks, Andrew. And good evening, everyone.

Rich: The charge off rate for the quarter was up 190 basis points year over year to $5, 94% about 18% above its pre pandemic level in the first quarter of 2019.

Rich: 30, plus delinquency rate at quarter end increased 82 basis points from the prior year to 4.48% on a sequential quarter basis. The charge off rate was up 59 basis points and the 30 plus delinquency rate.

Richard D. Fairbank: Slide 10 shows first quarter results in our credit card business. Credit card segment results are largely a function of our domestic card results and trends, which are shown on slide 11. Top-line growth trends in the domestic card business remained strong in the first quarter. Year-over-year purchase volume growth for the first quarter was 6%. Ending loan balances increased $12.9 billion, or about 10% year-over-year.

Rich: Was down 13 basis points.

Rich: The linked quarter delinquency and charge off rate trends were modestly worse than what we would expect from normal seasonality. We believe this is largely driven by lower and later tax refund payments to consumers. So far in 2024 relative to what we've historically observed.

Richard D. Fairbank: Average loans increased 11%, and First Quarter revenue was up 12% year over year driven by the growth in purchase volume and loans. The charge-off rate for the quarter was up 190 basis points year-over-year to 5.94 percent, about 18 percent above its pre-pandemic level in the first quarter of 2019. The 30-plus delinquency rate at quarter-end increased 82 basis points from the prior year to 4.48 percent.

Rich: Tax refunds are an important factor in credit seasonality each year, they drive an improvement in delinquency payments and recoveries starting in February our portfolio trends.

Rich: Yeah.

Rich: Generally have a more pronounced seasonal pattern than the industry average.

Rich: Last quarter, our view was that the charge off rate was settling out about 15% above 2019 levels in the near term that was based on an extrapolation of our delinquency inventory and flow rates over three to six months and that was the horizon.

Rich: Our.

Rich: Our estimate is.

Rich: The trend of lower tax refunds sustains it could raise the level of charge offs somewhat in the near term, but this does not change our view that credit is settling out modestly above pre pandemic levels in 2018 in 2019.

Richard D. Fairbank: On a sequential quarter basis, the charge-off rate was up 59 basis points, and the 30-plus delinquency rate was down 13 basis points. The linked quarter delinquency and charge-off rate trends were modestly worse than what we would expect from normal seasonality. We believe this is largely driven by lower and later tax refund payments to consumers so far in 2024 relative to what we've historically observed. Tax refunds are an important factor in credit seasonality. Each year, they drive an improvement in delinquency payments and recoveries, starting in February.

Rich: The continuing deceleration in the pace of credit normalization trends, sometimes referred to as the improving second derivative supports our view the pace of year over year increases in both the charge off rate and the delinquency rate had been steadily declining for several quarters and continue.

Rich: Food to shrink in the first quarter.

Rich: Domestic card non interest expense was up 6% compared to the first quarter of 2023 with increases in both operating expense and marketing expense total company marketing expense of about $1 billion for the quarter was up 13% year over year <unk>.

Rich: It'll company marketing drives growth and builds franchise in our domestic card and consumer banking businesses and builds and leverages the value of our brand.

Richard D. Fairbank: Our portfolio trends generally have a more pronounced seasonal pattern than the industry average. Last quarter, our view was that the charge-off rate was settling out about 15% above 2019 levels in the near term. That was based on an extrapolation of our delinquency inventory and flow rates over three to six months, and that was the horizon of our Estimate. If the trend of lower tax refunds sustains, it could raise the level of charge-off somewhat in the near term.

Rich: Our choices in domestic card are the biggest driver of total company marketing, we continue to see attractive growth opportunities in our domestic card business our opportunities are enhanced by our technology transformation our.

Rich: Our marketing continues to deliver strong new account growth across the domestic card business and in the first quarter domestic card marketing also included.

Rich: Higher early spend bonus is driven by strong new account growth higher media spend and increased marketing for franchise enhancements like our travel portal airport lounges and capital one shopping we continue to lean into marketing to drive resilient growth and enhance our domestic card franchise.

Richard D. Fairbank: But this does not change our view that credit is settling out modestly above pre-pandemic levels in 2018 and 2019. The continuing deceleration in the pace of credit normalization trends, sometimes referred to as the improving second derivative, supports our view. The pace of year-over-year increases in both the charge-off rate and the delinquency rate has been steadily declining for several quarters and continued to shrink in the first quarter. Domestic card non-interest expense was up 6% compared to the first quarter of 2023, with increases in both operating expense and marketing expense. Total company marketing expenses of about $1 billion for the quarter were up 13% year over year.

Rich: <unk>.

Rich: As always we're keeping a close eye on competitor actions and potential marketplace risks.

Rich: Slide 12 shows first quarter results for our consumer banking business in the first quarter auto originations increased 21% from the prior year quarter.

Rich: Our return to growth after several quarters of year over year declines consumer banking ending loans decreased about $3 $1 billion or 4% year over year on a linked quarter basis, ending loans were essentially flat.

Rich: We posted another quarter of year over year growth in consumer deposits.

Rich: First quarter ending deposits in the consumer bank were up just under $10 billion or 3% year over year compared to the sequential quarter ending deposits were up about 2% average deposits were up 6% year over year and up 1% from the sequential quarter.

Richard D. Fairbank: Total company marketing drives growth and builds franchise in our domestic card and consumer banking businesses and builds and leverages the value of our brand. Our choices in domestic cards are the biggest driver of total company marketing. We continue to see attractive growth opportunities in our domestic card business, and our opportunities are enhanced by our technology transformation. Our marketing continues to deliver strong new account growth across the domestic card business. And in the first quarter, domestic card marketing also included higher early spend bonuses driven by strong new account growth, higher media spend, and increased marketing for franchise enhancements like our travel portal, airport lounges, and Capital One shopping.

Rich: Powered by our modern technology, and leading digital capabilities, our digital first national direct banking strategy continues to deliver strong consumer deposit growth.

Rich: Consumer banking revenue for the quarter.

Rich: It was down about 13% year over year, largely driven by lower auto loan balances and higher deposit costs noninterest expense was down about 3% compared to the first quarter of 2023, lower operating expenses were partially offset by an increase in marketing to support our national.

Rich: Digital bank.

Rich: The auto charge off rate for the quarter.

Rich: Was 199% up 46 basis points year over year, the 30, plus delinquency rate was 5.28% up 28 basis points year over year compared to the linked quarter. The charge off rate was down 20 basis points, while the 30 plus delinquency rate was down.

Rich: <unk> 106 basis points.

Rich: The linked quarter charge off rate improvement modestly underperformed the typical seasonal patterns. We've historically observed driven by the tax refund trends I just discussed even with the tax refund effects auto credit performance remains strong.

Richard D. Fairbank: We continue to lean into marketing to drive resilient growth and enhance our domestic card franchise. As always, we're keeping a close eye on competitor actions and potential marketplace risk. Slide 12 shows first quarter results for our consumer banking business. In the first quarter, auto originations increased 21% from the prior year quarter, a return to growth after several quarters of year-over-year decline. Consumer banking ending loans decreased about $3.1 billion, or 4% year-over-

Rich: Slide 13 shows first quarter results for our commercial banking business compared to the linked.

Rich: Quarter, ending loan balances decreased about 1% average loans were also down about 1%.

Rich: <unk> declines are largely the result of choices, we made in 2023 to tightened credit.

Rich: Ending deposits were down about 5% from the linked quarter average deposits were down about 8%. The declines are largely driven by our continued choices to manage down selected less attractive commercial deposit balances.

Richard D. Fairbank: On a linked quarter basis, ending loans were essentially flat. However, we posted another quarter of year-over-year growth in consumer deposits. First quarter ending deposits in the consumer bank were up just under $10 billion, or 3% year-over-year. Compared to the sequential quarter, ending deposits were up about 2%. Average deposits were up 6% year-over-year and up 1% from the sequential quarter. Powered by our modern technology and leading digital capabilities, our digital-first national direct banking strategy continues to deliver strong consumer deposit growth. Consumer Banking Revenue for the quarter was down about 13 percent year-over-year, largely driven by lower auto loan balances and higher deposit costs.

Rich: First quarter revenue was up 2% from the linked quarter noninterest expense was up about 6% the.

Rich: The commercial banking annualized net charge off rate for the first quarter decreased 40 basis points from the sequential fourth quarter to 0.13%. The commercial banking criticized performing loan rate was 839% down 42 basis points compared to the linked quarter.

Rich: The criticized nonperforming loan rate increased 44 basis points to one point to 8% commercial credit risks continue to be.

Rich: Most pronounced in the commercial office portfolio, which is less than 1% of total company loan balances.

Rich: In closing we continued to deliver strong.

Rich: Results in the first quarter, we posted another quarter of topline growth in domestic card revenue purchase volume and loans domestic card credit trends continue to stabilize and auto credit trends remained stable and in line with normal seasonal patterns, we grew consumer deposits.

Richard D. Fairbank: Non-interest expense was down about 3 percent compared to the first quarter of 2023. Lower operating expenses were partially offset by an increase in marketing to support our national digital bank. The auto charge-off rate for the quarter was 1.99%, up 46 basis points year over year. The 30-plus delinquency rate was 5.28%, up 28 basis points year over year.

Rich: And we added liquidity and maintain capital to further strengthen our already strong and resilient balance sheet over the last decade, we've driven significant operating efficiency improvement even as we've invested to transform our technology and we continue to drive for efficiency improvement over time for the full year.

Rich: 2024, we continue to expect annual operating efficiency ratio net of adjustments to be flat to modestly down compared to 2023. Our expectation includes the partial year impact of the proposed CFPB late fee rule, assuming the rule takes effect.

Richard D. Fairbank: Compared to the linked quarter, the charge-off rate was down 20 basis points, while the 30-plus delinquency rate was down 106 basis points. The length quarter charge-off rate improvement modestly underperformed the typical seasonal patterns we've historically observed, driven by the tax refund trends I just discussed. Even with the tax refund effects, auto credit performance remains strong. Slide 13 shows first quarter results for our commercial banking business. Compared to the length of the quarter, ending loan balances decreased about 1%.

Rich: In October 2020 for the timing of the new rule remains uncertain. If the rule were to take effect at an earlier date it would be a headwind to the 2020 for operating efficiency ratio.

Rich: Of course, the biggest news in the quarter was our announcement that we entered into a definitive agreement to acquire discover we've submitted our application for regulatory approval and we are fully mobilized to plan and deliver a successful integration.

Rich: The combination of capital one and discover it creates game changing strategic opportunities the discover payment network positions capital one as a more diversified vertically integrated global payments platform, and adding capital one's debit spending too and a growing portion of our credit card purchase volume too.

Richard D. Fairbank: Average loans were also down about 1%. The modest declines are largely the result of choices we made in 2023 to tighten credit. Ending deposits were down about 5% from the linked quarter, and average deposits were down about 8%.

Rich: The discover network will add significant scale, increasing the network's value to merchants small businesses and consumers and driving enhanced network growth.

Rich: In the credit card business, we're bringing together two proven franchises with complementary strategies and a shared focus on the customer and we can accelerate the growth of our national digital first consumer banking business by adding the discover consumer deposit franchise and the vertical integration.

Richard D. Fairbank: The declines are largely driven by our continued choices to manage down selected, less attractive commercial deposit balances. First quarter revenue was up 2% from the length of the quarter. Non-interest expense was up about 6%. The commercial banking annualized net charge-off rate for the first quarter decreased 40 basis points from the sequential quarter to 0.13%. The commercial banking criticized performing loan rate was 8.39%, down 42 basis points compared to the length quarter.

Rich: Bits of the debit network.

Rich: We will be able to leverage and scale the benefits of our 11 year technology transformation across every business and the network, which will serve as a catalyst for innovation and enhanced capabilities in risk management, and compliance underwriting marketing and customer service pulling way up the ACA.

Rich: <unk> of discover as a singular opportunity it will create a consumer banking and global payments platform with unique capabilities modern technology powerful brands and our franchise of more than 100 million customers. It delivers compelling financial results and it offers the potential to create significant.

Richard D. Fairbank: The criticized non-performing loan rate increased 44 basis points to 1.28%. Commercial credit risks continue to be most pronounced in the commercial office portfolio, which is less than 1% of the total company loan balance. In closing, we continue to deliver strong results in the first quarter. We posted another quarter of top-line growth in domestic card revenue, purchase volume, and loans. Domestic card credit trends continue to stabilize, and auto credit trends remain stable and in line with normal seasonal patterns.

Rich: <unk> value for merchants and customers and an unparalleled strategic and economic upside over the long term and now we'll be happy to answer your questions Jeff.

Jeff Norris: Thank you rich, we'll now start the Q&A session remember as a courtesy to other investors and analysts who may wish to ask a question.

Jeff Norris: Please limit yourself to one question plus a single follow up.

Jeff Norris: Follow up questions. After the Q&A session the Investor Relations team will be available after the call.

Jeff Norris: Josh Please start the Q&A.

Josh: Thank you to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again and as a reminder, please limit yourself to one question and one follow up one moment for questions.

Richard D. Fairbank: We grew consumer deposits, and we added liquidity and maintained capital to further strengthen our already strong and resilient balance sheet. Over the last decade, we've driven significant operating efficiency improvements, even as we've invested to transform our technology. And we continue to drive for efficiency improvement over time. For the full year 2024, we continue to expect the annual operating efficiency ratio, net of adjustments, to be flat to modestly down compared to 2023. Our expectation includes the partial year impact of the proposed CFPB late fee rule, assuming the rule takes effect in October 2024. However, the timing of the new rule remains uncertain.

Josh: Our first question comes from Ryan Nash with Goldman Sachs. You May proceed.

Ryan Nash: Hey, good evening guys.

Ryan Nash: Hey, Ryan evening Ryan.

Ryan Nash: So rich maybe to just start off on credit. It sounds like you are running a little bit ahead of what you had outlined last quarter, but when you put aside the timing of tax refunds can you maybe just talk about what youre seeing from the consumer and do you think we've now reached the inflection where we can more closely follow seasonal patterns.

Ryan Nash: And once the noise settles do you think we're kind of back at that 15% level that you had outlined thank you.

Speaker Change: Thank you Ryan.

Speaker Change: Look I think that.

Speaker Change: The story continues to be one of our.

Speaker Change: Well in terms of.

Speaker Change: There is sort of the consumer itself, let's just talk about the consumer for a second and then let's talk about capital one's credit.

Speaker Change: Performance, but just the health of the consumer I think the U S. Consumer remains a source of strength in the economy, the labor market remains strikingly resilient.

Speaker Change: Rising incomes have kept consumer debt servicing burdens relatively low by historical standards.

Richard D. Fairbank: If the rule were to take effect at an earlier date, it would be a headwind to the 2024 operating efficiency ratio. Of course, the biggest news in the quarter was our announcement that we entered into a definitive agreement to acquire Discover. We've submitted our applications for regulatory approval, and we're fully mobilized to plan and deliver a successful integration. The combination of Capital One and Discover creates game-changing strategic opportunities. The Discover Payment Network positions Capital One as a more diversified, vertically integrated global payments platform.

Speaker Change: You know and when we look at our customers, we see that they have higher bank balances than before the pandemic and this is true across income levels.

Speaker Change: On the other hand of course inflation shrank real incomes for almost two years.

Speaker Change: And in this high interest rate environment, the cost of new borrowing has gone up in every major asset class and I think at the margin these effects.

Speaker Change: Stretch some consumers.

Speaker Change: Actually so but on the whole I'd say consumers are in reasonably good shape relative.

Speaker Change: You know.

Speaker Change: Pretty darn strong shape relative to historical.

Speaker Change: Benchmarks so in terms of capital one's performance, we continue to.

Richard D. Fairbank: And adding Capital One's debit spending and a growing portion of our credit card purchase volume to the Discover Network will add significant scale, increasing the network's value to merchants, small businesses, and consumers and driving enhanced network growth. In the credit card business, we're bringing together two proven franchises with complementary strategies and a shared focus on the customer. And we can accelerate the growth of our national digital-first consumer banking business by adding the Discover Consumer Deposit franchise and the vertical integration benefits of the debit network.

Speaker Change: See a settling out we consider we are.

Speaker Change: Believe that.

Speaker Change: For capital one I can't speak for all card issuers, but you know we definitely have.

Speaker Change: See what we think is sort of a landing and our so we feel very good about them.

Speaker Change: Where the credit is the point that I wanted to make about the tax refunds. It let's just pull up for a second on that.

Speaker Change: The tax tax refunds.

Speaker Change: A R.

Speaker Change: It's something that.

Speaker Change: Okay.

Speaker Change: Nobody knows for sure exactly what's behind seasonality, but I think it's a we believe a very important.

Speaker Change: And driver of seasonality its a bigger effect for us than other players because.

Speaker Change: I think tax refunds, just play a little bit bigger role in collectively across our customer base. So the tax refunds in the very near term.

Richard D. Fairbank: We will be able to leverage and scale the benefits of our 11-year technology transformation across every business and the network, which will serve as a catalyst for innovation and enhanced capabilities in risk management and compliance, underwriting, marketing, and customer service. Pulling way up, the acquisition of Discover is a singular opportunity.

Speaker Change: Effect.

Speaker Change: Credit performance that Ryan what you are referring to the 15%.

Speaker Change: Guidance that we gave that was not an annual guidance number that was saying if we just extrapolate in the very near window of just what we see in terms of delinquencies and delinquency roll rates.

Richard D. Fairbank: It will create a consumer banking and global payments platform with unique capabilities, modern technology, powerful brands, and a franchise of more than 100 million customers. It delivers compelling financial results, and it offers the potential to create significant value for merchants and customers and an unparalleled strategic and economic upside over the long term. And now, we'll be happy to answer your questions, Jeff. Thank you, Rich.

Speaker Change: That's where we would see charge offs and charge offs tend to be higher in the first half of the year. So what we're doing is giving a window to the higher part of charge offs for the year and we were saying they were settling out.

Speaker Change: It looked like around a fifth.

Speaker Change: <unk>, 15% above our 2019 levels.

Speaker Change: Part of that so basically what I'm, saying is that that includes our assumptions about what happens with tax refund and the seasonality effect as as we can see in the government data tax refunds.

Jeff Norris: We'll now start the Q&A session. Please, as a courtesy to other investors and analysts who may wish to ask questions. Please limit yourself to one question plus a single follow-up. And if you have follow-up questions after the Q&A session, the investor relations team will be available after the call. Josh, please start the Q&A. Thank you. To ask a question, please press star one one on your telephone and wait for your name to be announced.

Speaker Change: Our lower and later than by historical patterns, and so that affects our near term credit performance and actually we often talk about well isn't this six month window basically wants to charge offs start bubbling in going through the roll rate buckets.

Speaker Change: We can we can pretty much see where charge offs are going tax refunds actually affect the payment rates in every bucket. So our point was in the very near term it actually.

Operator: To withdraw your question, please press star one one again. And as a reminder, please limit yourself to one question and one follow-up. One moment for questions. Our first question comes from Ryan Nash with Goldman Sachs. You may proceed. Hey, good evening, guys. Good evening, Ryan.

Speaker Change: It leads to a bit of a higher charge off rate than we had guided to over that that near window, but that doesn't.

Speaker Change: <unk> change our view that credit has settled out with the 15% was not our guidance for the year. We don't we haven't really given credit guidance for the year, what we're really saying is we have seen credit.

Ryan Nash: So, Rich, maybe to just start off on credit, it sounds like you're running a little bit ahead of what you had outlined last quarter. But, you know, when you put aside the timing of tax refunds, can you maybe just talk about what you're seeing from the consumer? And do you think we've now reached an inflection point where we can, you know, more closely follow seasonal patterns? And once the noise settles, do you think we're kind of back at that 15% level that you had outlined? Thank you, Ryan.

Speaker Change: Settle out, but we wanted to just flag that both in the credit card business and in our auto business, while credit continues to be very strong and you've seen.

Speaker Change: You know things like really improving delinquencies, we just wanted to point out that in the very near term relative to what we have seen in terms of historical seasonality and kind of confirmed by what we watch as the patterns of.

Speaker Change: Tax refunds, there as it's coming in.

Richard D. Fairbank: Look, I think that, you know, the story continues to be one of, well, in terms of, well, there's sort of the consumer itself. Let's just talk about the consumer for a second, and then let's talk about Capital One's credit performance, but just the health of the consumer. I think the U.S. consumer remains a source of strength in the economy. The labor market remains strikingly resilient. You know, rising incomes have kept consumer debt servicing burdens relatively low by historical standards.

Speaker Change: You know lower and and later and we just wanted to flag that effect because it affects the very near term.

Speaker Change: <unk> that we cited earlier.

Speaker Change: Got it and maybe as my quick follow up for Andrew I guess, given Rich's answer.

Andrew Young: What does that mean for the trajectory of the allowance. It seems like we've heard a handful of other issuers talk about us being at the peak or maybe even coming down and potentially being below where it ended the prior year can you maybe just talk about what.

Andrew Young: What do you think this means for cap one given your credit expectations.

Speaker Change: Yes sure Ryan.

Speaker Change: I'd like to say from my perspective that there's a simple answer but there is not.

Richard D. Fairbank: You know, even when we look at our customers, we see that they have higher bank balances than before the pandemic. And this is true across income levels. You know, on the other hand, of course, inflation shrank real incomes for almost two years, and in this high interest rate environment, the cost of new borrowing has gone up in every major asset class. And I think, at the margin, these effects stretch some consumers financially.

Speaker Change: And then there is a host of things that are going to drive allowance from here not the least of which is is growth, but just focusing on coverage and assuming that's what others are.

Speaker Change: Are pointing to the.

Speaker Change: The first thing I would highlight and I said in my talking points.

Speaker Change: Fourth quarter and seasonal balances they quickly pay off in the first quarter and therefore have negligible coverage, which we see every year. So the coverage ratio this quarter up a bit from from last quarter is really a result of that dynamic, but if you look at coverage ratio now.

Richard D. Fairbank: So, on the whole, you know, I'd say consumers are in reasonably good shape relative, you know, pretty darn good shape relative to historical benchmarks. So, in terms of Capital One's performance, we continue to see a settling out. We consider, you know, we believe that, you know, for Capital One, I can't speak for all card issuers, but, you know, we definitely have. See what we think is sort of a landing and our, so we feel very good about Where the credit is. The point that I wanted to make about tax refunds is, let's just pull up for a second on that. Tax refunds are something that, You know, nobody knows It's a bigger effect for us than other players because I think tax refunds just play a little bit bigger role collectively across our customer base.

Speaker Change: Now.

Speaker Change: It's largely in line with the.

Speaker Change: The proceeding.

Speaker Change: Quarters being the biggest driver as we look ahead are the projected loss rates and as we've been saying for a number of quarters delinquencies are the best.

Speaker Change: A leading indicator of that and so every quarter, we're going to look out over the next 12 months and then the reversion from there.

Speaker Change: Then we're going to take into account to a range of outcomes and uncertainties and so you've.

Speaker Change: And you've seen over the last few quarters, keeping the coverage ratio flat.

Speaker Change: I will note, though even in a period, where projected losses in future quarters or are lower than today and might indicate a release otherwise.

Speaker Change: You could very well see a coverage ratio that remains flat or only modestly declined as we incorporate the uncertainty of that future projection into the allowance. So eventually the projected losses will when theyre lower will flow through the.

Speaker Change: The allowance and bring the coverage ratio down.

Speaker Change: Those uncertainties become more certain and under that scenario you would see a decline but at this point I'm not going to be in the forecasting business of when when that actually is going to take into account because like I said, we really need to take.

Speaker Change: The factor of.

Richard D. Fairbank: So the tax refunds in the very near term affect credit performance. Ryan, what you're referring to, the 15% guidance that we gave, that was not an annual guidance number. That was saying if we just extrapolated into the very near window of just what we see in terms of delinquencies and delinquency roll rates, that's where we would see charge-offs. And charge-offs tend to be higher in the first half of the year. So what we're doing is giving a window into the higher part of charge-offs for the year. And we were saying they were settling out. It looked like around 15% above 2019 levels.

Speaker Change: The uncertainty as we look ahead every quarter that we go through the reserving process.

Speaker Change: Next question please.

Speaker Change: Thank you one moment for questions.

Speaker Change: Our next question comes from Mihir Bhatia with Bank of America You May proceed.

Mihir Bhatia: Alright, thank you.

Mihir Bhatia: Rich if I could switch for a second to the discover acquisition.

Mihir Bhatia: There's been a lot of talk around deal approval.

Mihir Bhatia: Particularly focusing around potential anti trust issues within the card business.

Mihir Bhatia: I was wondering if you could share your thoughts and perspective on that issue if you've heard anything for regulators, but also just how you're thinking about that issue. Thank you.

Speaker Change: Okay. Thank you may here.

Speaker Change: So we have filed our merger applications with both deferred and the OCC and we are engaged with the sorry with the Doj as they of course.

Mihir Bhatia: Play a key role in advising the fed and the OCC on competition question.

Richard D. Fairbank: Part of that, and so basically what I'm saying is that includes our assumptions about what happens with tax refunds and the seasonality effect. As we can see in the government data, tax refunds are lower and later than by historical patterns, and so that affects our near-term credit performance. You know, we can pretty much see where charge-offs are going. Tax refunds actually affect the payment rate in every bucket.

Speaker Change: We believe our applications make a very compelling case for approval.

Mihir Bhatia: We believe strongly that this merger will increase competition among banks credit card issuers and payment networks and provide significant benefits for consumers merchants and the communities that we serve.

Mihir Bhatia: While some have raised concerns about competition, we believe that the facts in favor of the deal will be compelling.

Mihir Bhatia: On the network side, let's remember that we're not currently in that business. If the deal is approved we will still have four networks just like we do today, but we will be adding new customers and scale to the smallest by far of the four networks and be able to leverage our technology.

Richard D. Fairbank: So our point was, in the very near term, it actually leads to a bit of a higher charge-off rate than we had guided to over that near window, but that doesn't change our view that credit has settled out. But the 15% was not guidance for the year.

Mihir Bhatia: <unk> talent and marketing capabilities to greatly enhanced discovers competitive viability.

Mihir Bhatia: Their market share was 6% a decade ago.

Richard D. Fairbank: We haven't really given credit guidance for the year. What we're really saying is we have seen credit settle out, but we wanted to just flag that both in the credit card business and in our auto business, while credit continues to be very strong, and you've seen, you know, things like really improving delinquencies, we just wanted to point out that in the very near term, relative to what we have seen in terms of historical seasonality and kind of confirmed by what we watch as the patterns. Tax refunds, there is, it's coming in, you know, lower and later. And we just wanted to flag that effect because it affects the very near-term numbers that we cited earlier. I got it.

Mihir Bhatia: And sits at just 4% today.

Mihir Bhatia: The significant investments that we're planning will provide substantial benefits for consumers and merchants as we've outlined in our regulatory.

Mihir Bhatia: Applications.

Mihir Bhatia: On the credit card side. The regulators have found every time they've studied it that the credit card market is highly competitive and not at all concentrated in fact, it's less concentrated today than it was 10 years ago consumers can choose from over 4000 issuers all able to.

Mihir Bhatia: For products with similar capabilities.

Mihir Bhatia: Imagine this.

Mihir Bhatia: Card issue issued by a small credit union can be used every place that a card issued by a bank like capital one can be used anywhere in the world.

Mihir Bhatia: That kind of level playing field doesn't exist.

Mihir Bhatia: Any other industry and certainly not in airlines or grocery stores or many of the others.

Andrew Young: As my quick follow-up for Andrew, I guess, given Rich's answer, what does that mean for the trajectory of the allowance? Seems like we've heard a handful of other issuers talk about us being at the peak or maybe even coming down and potentially being below where it ended the prior year. Can you maybe just talk about, you know, what you think this means for Cap One, given your credit expectations? Sure, Ryan. I'd like to say from my perspective that there's a simple answer, but there's not.

Mihir Bhatia: There is a reason that we asked folks what's in your wallet.

Mihir Bhatia: We compete not only with these 4000 other issuers to gain your business in the first place, but also with every other card you likely already own put another way we have to compete every day for every single transaction because our customers can simply choose at any moment.

Mihir Bhatia: To use another card and if they don't like the card they have they can stop using it entirely or close the account or switch to another card with another bank.

Mihir Bhatia: Large or small.

Mihir Bhatia: In minutes.

Mihir Bhatia: We also believe that the facts will show that there are no barriers to entry in the credit card business as thousands of current issuers and the new ones.

Mihir Bhatia: Our forming <unk>.

Mihir Bhatia: All the time.

Andrew Young: And there's a host of things that are going to drive allowances from here, not the least of which is growth, but just focusing on coverage and assuming that's what others are pointing to. The first thing I highlight, and I said in my talking points, that the fourth quarter had seasonal balances. They quickly pay off in the first quarter and therefore have negligible coverage, which we see every year.

Mihir Bhatia: Demonstrate.

Mihir Bhatia: New and incumbent fin techs backed by significant VC funding are able to leverage the infrastructure of.

Mihir Bhatia: Sort of credit card as a service players like marchetta to achieve instant scale and high growth.

Mihir Bhatia: Also any existing bank can choose where in the credit spectrum. They play simply by changing their credit policy.

Mihir Bhatia: Let's also remember that consumers can choose to use another form of payment entirely cash Debbie.

Mihir Bhatia: Debit or.

Mihir Bhatia: Or buy now pay later, which has exploded onto the marketplace.

Andrew Young: So the coverage ratio this quarter, up a bit from last quarter, is really a result of that dynamic. But if you look at the coverage ratio now, it's largely in line with the preceding quarters. The biggest driver as we look ahead are projected loss rates, and as we've been seeing for a number of quarters, delinquencies are the best leading indicator of that. And so every quarter, we're going to look out over the next 12 months and then the reversion from there. Then we're going to take into account a range of outcomes and uncertainties. And so you've seen over the last few quarters, keeping the coverage ratio flat.

Mihir Bhatia: New fintech or entering the payments and small dollar credit space everyday all looking to take market share from traditional credit card players like capital one.

Mihir Bhatia: We faced this competition for years and will continue to face it in the future.

Mihir Bhatia: It's powerful evidence of a healthy and fiercely competitive marketplace.

Mihir Bhatia: But we have been successful by focusing on the needs of our customers and offering credit card and retail banking products with the most straightforward terms and fewest fees in the industry. We're the only major bank, where all of our deposit products come with no fees, no minimums and overdraft fees.

Mihir Bhatia: So pulling way up we believe the facts will show that this transaction is both pro competitive and pro consumer, bringing our best in class products and services to a broader set of consumers and small businesses and greatly enhancing opportunities and benefits for merchants in the end that is what we.

Mihir Bhatia: Believe the regulators will use their very vigorous process to evaluate.

Andrew Young: I will note, though, even in a period where projected losses in future quarters are lower than today and might indicate a release otherwise, you could very well see a coverage ratio that remains flat or only modestly declines as we incorporate the uncertainty of that future projection into the allowance. And so eventually, the projected losses will, when they're lower, blow through the allowance and bring the coverage ratio down as those uncertainties become more certain.

Speaker Change: Thank you that is helpful.

Speaker Change: Just starting to get back to the health of the consumer or something Okay. My follow up if you could just talk a little bit about the environment for card acquisition. You did mention I think that the growth off with do you see good.

Speaker Change: Good growth opportunities in the card business I was wondering if you could expand on that maybe talk about just some of the puts and takes as you consider where to make those investments are that box off the market, where you are being more cautious given the environment. Thank you.

Speaker Change: In here.

Speaker Change: We are leaning in pretty much across the board in the card business.

Speaker Change: You know powered by a healthy consumer and the traction that we're getting in our.

Andrew Young: And under that scenario, you would see a decline. But at this point, I'm not going to be in the forecasting business of when that actually is going to be taken into account because, like I said, we really need to take the factor of, you know, uncertainty as we look ahead every quarter that we go through the reserving process. Next question, please. Thank you.

Speaker Change: Business.

Speaker Change: We are.

Speaker Change:

Speaker Change: You know really all parts of the card business.

Speaker Change: Our.

Speaker Change: Seeing very nice account originations.

Speaker Change: <unk> seen good traction on the purchase volume side and.

Speaker Change: So it's very much a positive time for leaning in as you see reflected in our marketing as you see reflected in some of the growth numbers and and and as I see a numbers behind the numbers that you see just a lot of traction and just.

Operator: One moment for questions. Our next question comes from Mihir Bhatia with Bank of America. He may proceed. Hi, thank you.

Speaker Change: Let's just savor for a second some of the things that are powering that.

Speaker Change: Two things that I would flag is one the continued.

Speaker Change: The investment that we're making to win at the top of the market.

Mihir Bhatia: Rich, could I switch for a second to the Discover acquisition? There's been a lot of talk around deal approval, particularly focusing on potential anti-trust issues within the card business. And I was wondering if you could share your thoughts and perspective on that issue, if you've heard anything from regulators, but also just to hear how you're thinking about that issue. Thank you. Okay. Thank you, Mihir.

Speaker Change: And I think that not only affects our success at the top of the market, but I really believe there is a.

Speaker Change: Lifting all boats.

Speaker Change: From those.

Speaker Change: Those investments and that traction.

Speaker Change: There are also.

Speaker Change: We continue to just get a have a lot of <unk>.

Speaker Change: Success powered by our technology transformation, including.

Speaker Change: Not only the customer experience and some of the product capabilities that we're able to offer but really.

Speaker Change: Impacts on the whole way that we run the business and very notably on.

Richard D. Fairbank: So we have filed our merger applications with both the Fed and the OCC, and we are engaged with the DOJ as they, of course, play a key role in advising the Fed and the OCC on competition questions. We believe our applications make a very compelling case for approval. We believe strongly that this merger will increase competition among banks, credit card issuers, and payment networks and provide significant benefits for consumers, merchants, and the communities that we serve.

Speaker Change: On the credit and marketing side of the business the ability to create mass customized.

Speaker Change: Offerings.

Speaker Change: And real time solutions, just enables us to have more traction on the growth side.

Speaker Change: Also I just want to say that we also you know.

Speaker Change: And are pleased to see things picking up in the auto business and also.

Speaker Change: We continue to have a lot of traction on our National Bank.

Speaker Change: Next question please.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Rick Shane with JP Morgan You May proceed.

Rick Shane: Thanks for taking my questions. This afternoon.

Rick Shane: Rich I wanted to make sure I fully understand what youre describing in terms of.

Richard D. Fairbank: While some have raised concerns about competition, we believe that the facts in favor of the deal will be compelling. On the network side, let's remember that we're not currently in that business. If the deal is approved, we will still have four networks, just like we do today, but we will be adding new customers and scale to the smallest by far of the four networks and be able to leverage our technology, talent, and marketing capabilities to greatly enhance Discover's competitive viability. Their market share was 6% a decade ago, and it is now at just 4% today.

Rick Shane: The.

Rick Shane: Framework is that charge offs rates will be about 15% higher than 18 19 levels in the near term, but now with tax refunds it might be a little bit higher than that.

Speaker Change: That over time, it will converge back towards slightly above 18 19 levels.

Speaker Change: When I look at the delinquencies and one of the things. We've observed is that roll from delinquency to charge off is actually higher than it has been pretty much in any time in recent history does that suggest the delinquencies actually need to get back below.

Speaker Change: 18, 19 levels to achieve that level of charge off performance.

Richard D. Fairbank: The significant investments that we are planning will provide substantial benefits for consumers and merchants, as we've outlined in our regulatory, application. On the credit card side, the regulators have found every time they've studied it, that the credit card market is highly competitive and not at all concentrated. In fact, it's less concentrated today than it was ten years ago. Consumers can choose from over 4,000 issuers, all able to offer products with similar capabilities. Imagine this. A card issued by a small credit union can be used everywhere that a card issued by a bank like Capital One can be used, anywhere in the world.

Speaker Change: So Rick Theres a lot first of all let me.

Speaker Change: Clarified some of the things that.

Speaker Change: You were saying.

Speaker Change: Werent exactly.

Speaker Change: I think as we.

Speaker Change: Intended to state them. So let me just.

Speaker Change: So.

Speaker Change: So we talked about so yes, we talked about credit we've been saying credit settling out we said in the very near term.

Speaker Change: Our charge offs there are tend to be higher in the first half of the year.

Speaker Change: In the near term.

Speaker Change: Based on extrapolation from delinquency.

Speaker Change: Buckets in roll rates.

Speaker Change: We would expect them to settle out.

Speaker Change: At 15% higher than pre pandemic.

Speaker Change: That that was a near term forecast that was not an annual.

Richard D. Fairbank: That kind of level playing field doesn't exist in any other industry and certainly not in airlines or grocery stores or many others. There's a reason that we ask folks, "What's in your wallet?". We compete not only with these 4,000 other issuers to gain your business in the first place but also with every other card you likely already own. Put another way, we have to compete every day for every single transaction because our customers can simply choose, at any moment, to use another card, and if they don't like the card they have, they can stop using it entirely, close the account, or switch to another card with another bank, large or small. In a minute.

Speaker Change: Forecast.

Speaker Change: And then you were you just clarify your comment said and overtime. It will converge back to slightly above 2018, and 2019 I just wanted to say those are your words not ours, we have not given guidance on.

Speaker Change: On full year charge offs, we tend not generally to give guidance on full year charge offs, but we very much like to give you the feel of how things are going so well.

Speaker Change: We are very much see a credit settling out.

Speaker Change: You can see that the trends that continue on the second derivative.

Speaker Change: Of.

Speaker Change: Delinquencies and that's a very positive thing.

Speaker Change: There is another factor that affects.

Speaker Change:

Speaker Change: Charge offs, which is.

Speaker Change: Recoveries.

Speaker Change: Yeah.

Speaker Change: And.

Speaker Change: Yeah.

Speaker Change: You know the recoveries have been we've been saying for quite some time recoveries are lower than usual because of the very low charge offs. We saw over the past three years so that.

Richard D. Fairbank: We also believe that the facts will show that there are no barriers to entry in the credit card business, as thousands of current issuers and new ones are forming all the time. Demonstrate. New and incumbent fintechs backed by significant VC funding are able to leverage the infrastructure of, sort of, credit card as-a-service players like Marquetta to achieve instant scale and high growth. Also, any existing bank can choose where on the credit spectrum they play simply by changing their credit policy.

Speaker Change: All else equal pushes up net losses relative to pre pandemic levels and that impacts probably larger and more prolonged for us than some of our competitors because we tend to have higher recovery rates than the industry, probably as a result of our business mix and our strategy and we.

Speaker Change: Tend to work most of our recoveries in house, rather than selling debt. So we see a longer tale of recoveries from past charge offs.

Speaker Change: Then most do so.

Speaker Change: By the way the recoveries.

Speaker Change: We had talked about you know recoveries there.

Speaker Change: Probably.

Speaker Change: It sort of been at their bottom in terms of that brown out and Ah you know over time, probably heading in a more positive direction, but that also.

Richard D. Fairbank: Let's also remember that consumers can choose to use another form of payment entirely, cash, debit, or Buy Now Pay Later, which has exploded in the marketplace. New fintechs are entering the payments and small-dollar credit space every day, all looking to take market share from traditional credit card players like Capital One.

Speaker Change: Impacts the relationship between charge offs pre pandemic and where they are.

Speaker Change: Today.

Speaker Change:

Speaker Change: So pulling way up we don't have guidance for credit for the year, we continue to be you know.

Speaker Change: Very happy about charge offs the way after years of.

Speaker Change: After a long period of normalization that charge offs are settling out we've given that we just wanted to flag that the seasonality.

Richard D. Fairbank: We have faced this competition for years and will continue to face it in the future. It's powerful evidence of a healthy and fiercely competitive marketplace. But we have been successful by focusing on the needs of our customers and offering credit card and retail banking products with the most straightforward terms and fewest fees in the industry. We're the only major bank where all of our deposit products come with no fees, no minimums, and no overdraft.

Speaker Change: <unk>, let's just comment let's pause for a second on the seasonality.

Speaker Change: It still remains to be seen whether the tax refunds are.

Speaker Change: Just lower.

Speaker Change: End of story or whether they're later.

Speaker Change: The key thing right now is there a lower accumulatively than they have been than they were pre pandemic for this period of time.

Speaker Change: And what will what will.

Speaker Change: Take a look at is how it plays out from here to see how much was just later and how much was lower but what we're saying is to the extent that it.

Speaker Change: Lower than that that impacts in the very near term the charge offs.

Richard D. Fairbank: So pulling way up, we believe the facts will show that this transaction is both pro-competitive and pro-consumer, bringing our best-in-class products and services to a broader set of consumers and small businesses and greatly enhancing opportunities and benefits for merchants. In the end, that is what we believe the regulators will use their very vigorous process to evaluate. Thank you. That is helpful.

Speaker Change: Number is that we had talked about before but it doesn't change our view about credit settling out it doesn't change our view about.

Speaker Change: Very positively about the consumer about credit.

Speaker Change: Performance, but.

Speaker Change: Just something we wanted to flag across both the credit card and auto.

Speaker Change: Business.

Speaker Change: Thank you very helpful.

Speaker Change: Next question please.

Speaker Change: Thank you.

Speaker Change: Our next question comes from John <unk> with.

John: Evercore ISI you May proceed.

John: Good afternoon.

Mihir Bhatia: Just turning back to the health of the consumer for a second for my follow-up. If you could just talk a little bit about the environment for card acquisition. You did mention, I think, that you see good growth opportunities in the card business. So I think if you could expand on that, maybe talk about just some of the puts and takes as you consider where to make those investments. Are there parts of the market where you're being more cautious given the environment? Thank you.

John: I guess back to the discover combination any update to your thoughts around the timing because of the deal close I know the fed the OCC just you extended the comment period.

John: You've put out there you expect to late 'twenty early 'twenty fog. So any change in terms of your expectations around the timing of the close or any of the key financial metrics that you set out.

Speaker Change: Okay. Thanks, John.

Speaker Change: Let me comment on the on the.

Speaker Change: The federal reserve and the OCC extending the comment period.

Speaker Change: It is standard practice for the federal reserve to extend the comment period on bank mergers we.

Richard D. Fairbank: Mihir, we are leaning in pretty much across the board in the card business, uh... powered by a healthy consumer and the traction that we're getting in our business. We are really all parts of the card business are, you know, seeing very nice account originations, and seeing good traction on the purchase volume side. And so it's very much a positive time for leaning in, as you see reflected in our marketing, as you see reflected in some of the growth numbers. And, and, and as I see the numbers behind the numbers that you see, just a lot of traction.

Speaker Change: We expected the extension and we don't take any signaling on our deal from the Feds decision here.

Speaker Change: So with respect to the overall timing the fed and the OCC typically takes several months to work through bank merger applications in consultation with the Doj on competition questions and they engage frequently with our team along the way and of course that process is underway.

Speaker Change: And we continue.

Speaker Change: To have the same our views about the timing.

Speaker Change: Of all of this that that we did at the time of the announcement.

Speaker Change: Okay, Okay, great. Thanks, and then.

Speaker Change: Separately just regarding the.

Richard D. Fairbank: Your expectation on the CET one.

Richard D. Fairbank: And just, let's just savor for a second some of the things that are powering these two things. One is the continued investment that we are making to win at the top of the market. And I think that affects not only our success at the top of the market, but I really believe there's a lifting of all boats from those investments and that traction there. Also, we continue to have a lot of success powered by our technology transformation, including not only the customer experience and some of the product capabilities that we're able to offer, but really impacting the whole way that we run the business, and very notably on the credit and marketing side of the business. The ability to create mass customized offerings and real-time solutions just enables us to have more traction on the growth side.

Richard D. Fairbank: Front for a pro forma.

Speaker Change: Our ratio of about just shy of 14%.

Speaker Change: Any change to that expectation.

Speaker Change: Any change to your thoughts around a buyback activity in the near term could you remain active on that front.

Speaker Change: Yes, John with respect to the deal I'll, just say as we talked about when we announced it at.

Richard D. Fairbank: At the time used a blend of consensus estimates of where we would.

Speaker Change: Have the CET one at the time of close.

Speaker Change: A number of variables that are going to move between now and and legal day, one not just the standalone performance of each of our companies, but you know balance sheet marks some of which are driven by credit and stock price and so you know I'm not going to be in the business of kind of recasting every time.

Speaker Change: Little number moves, but I will say our evaluation of the deal considered a wide range of outcomes and so we remain just as excited today about the financial and strategic benefits of the transaction.

Richard D. Fairbank: Also, I just want to say that we are also, you know, pleased to see things picking up in the auto business. And also, we continue to have a lot of traction on our national bank. Next question, please. Thank you.

Speaker Change: As we did when when we announced the deal with respect to our Standalone repurchases capital ones.

Operator: Our next question comes from Rick Shane with J.P. Morgan. Please proceed. Thanks for taking my questions this afternoon. Hey, Rich, I want to make sure I fully understand what you're describing in terms of the framework that charge-off rates will be about 15% higher than 18, 19 levels in the near term. But now with tax refunds, it might be a little bit higher than that, and over time, it will converge back towards slightly above $18.99.

Speaker Change: Note that.

Speaker Change: The agreement with discovery does not prohibit us.

Speaker Change: From from buying shares I noted in my prepared remarks, we were blacked out for a period, leading up to the deal and afterwards, the SEC Safe Harbor rules that limit the the daily average amount of purchases. We can do for a period of time after the announcement so as a result of.

Speaker Change: Of those limitations Q1.

Rick Shane: When I look at the delinquencies, one of the things we've observed is that the roll from delinquency to charge off is actually higher than it has been pretty much at any time in recent history. Does that suggest that delinquencies actually need to get back below 18, 19 levels to achieve that level of charge off? So well, Rick, there's there's a lot.

Speaker Change: At a pace that was less than what we've done.

Rick Shane: In recent quarters I will also just note that Theres also blackout restrictions on repurchases during the proxy vote period, but again outside of those blackouts.

Speaker Change: We're not prohibited and we're able to to continue repurchasing shares.

Richard D. Fairbank: First of all, let me clarify some of the things that you were saying weren't exactly, I think, as we intended to state them. So, let me just do so. So we talked about, so yes, we talked about credit, and we're saying credit is settling out, we said in the very near term, where charge officers tend to be higher in the first half of the year. In the near term, based on extrapolation from delinquency buckets and roll rates.

Speaker Change: Next question please.

Speaker Change: Yeah.

Speaker Change: Thank you. Our next question comes from Moshe Orenbuch with TD Challenge you May proceed.

Speaker Change: Great. Thanks.

Moshe Ari Orenbuch: Rich putting aside the.

Moshe Ari Orenbuch: You know that.

Moshe Ari Orenbuch: The tax refund thing I mean yours.

Moshe Ari Orenbuch: We're sitting here looking you've still got what has been a somewhat persistently high inflation environments and the potential for increases in unemployment you know given the nature of your portfolio. You've got you know kind of a lower end consumer and hiring consumer.

Richard D. Fairbank: We would expect them to settle out at 15% higher than pre-pandemic, and that that was a near-term forecast that was not an annual forecast. And then, just to clarify, your comment said, and over time, it will converge back to slightly above 2018 and 2019. I just want to say those are your words, not ours. We have not given guidance on full-year charge-offs.

Moshe Ari Orenbuch: Do you think about that those factors.

Moshe Ari Orenbuch: In terms of thinking about.

Moshe Ari Orenbuch: What what type of charge off level, you're going to reach over some some period of time.

Moshe Ari Orenbuch: Particular point in time, but.

Moshe Ari Orenbuch: Some point in the next year or two like.

Moshe Ari Orenbuch: Where do you think about that.

Moshe Ari Orenbuch: Are they driving a higher level of charge off expectations are.

Moshe Ari Orenbuch: How should we think about that.

Moshe Ari Orenbuch: Moshe.

Richard D. Fairbank: So our.

Moshe Ari Orenbuch: Okay.

Moshe Ari Orenbuch: You know I think whats your partly.

Richard D. Fairbank: We tend not generally to give guidance on full-year charge-offs, but we very much like to give you the feel of how things are going. We very much see credit settling out. You can see the trends that continue on the second derivative of delinquencies, and that's a very positive thing. Then, um, there's another factor that affects charge-offs, which is... Recovery.

Richard D. Fairbank: I'm getting at is because we have.

Moshe Ari Orenbuch: Part of our portfolio is.

Moshe Ari Orenbuch: Subprime consumers.

Moshe Ari Orenbuch: How do we feel about how they're performing and sort of in the context of an environment of higher inflation.

Moshe Ari Orenbuch: And so on let me just comment a little bit about the subprime consumer.

Richard D. Fairbank: You know, the recoveries have been, we've been saying for quite some time that recoveries are lower than usual because of the very low charge-offs we saw over the past three years. All Else Equal pushes up net losses relative to pre-pandemic levels, and that impact is probably larger and more prolonged for us than some of our competitors because we tend to have higher recovery rates than the industry, probably as a result of our business mix and our strategy, and we tend to work most of our recoveries in-house rather than selling debt, so we see a longer tail of recoveries from past charge-offs than most do.

Moshe Ari Orenbuch: In the global financial crisis, we observe that credit metrics in subprime moved earlier in both directions subprime.

Moshe Ari Orenbuch:

Moshe Ari Orenbuch: We saw that but then we saw sort of everything move proportionally.

Moshe Ari Orenbuch: Proportionally.

Richard D. Fairbank: In fact, subprime move frankly somewhat less proportionately than prime as multiple but obviously all.

Moshe Ari Orenbuch: Portfolios.

Moshe Ari Orenbuch: Worse in quite a bit during the <unk>.

Moshe Ari Orenbuch: The global financial crisis in the pandemic subprime credit improved more and more quickly than prime but it also began to normalize more quickly too.

Moshe Ari Orenbuch: And of course, that's in the context of lower income consumers seeing disproportionate benefits of government aid and then unwinding that overtime.

Richard D. Fairbank: So, by the way, the recoveries... You know, we had talked about, recoveries there probably sort of being at their bottom in terms of that brownout, and, you know, over time, probably heading in a more positive direction. But that also impacts the relationship between charge-offs pre-pandemic and where they are today. So, yeah, pulling way up. We don't have guidance for credit for the year.

Moshe Ari Orenbuch: And subprime is of course, not synonymous with lower income, although they are somewhat correlated.

Richard D. Fairbank: So.

Moshe Ari Orenbuch: On the other hand, so if we look at how they have been doing.

Moshe Ari Orenbuch:

Moshe Ari Orenbuch: The <unk>.

Moshe Ari Orenbuch: Income growth from it.

Richard D. Fairbank: <unk>.

Moshe Ari Orenbuch: Lower income consumers has been consistently higher over the past several years.

Moshe Ari Orenbuch: And we.

Richard D. Fairbank: <unk> seen a really quite.

Moshe Ari Orenbuch: Other than the tax refund effect.

Richard D. Fairbank: We continue to be, you know, very happy about charge-offs the way after years of, After a long period of normalization, that charge officer settling out, we've given, we just wanted to flag that the seasonality, let's just comment, let's pause for a second on the seasonality. It still remains to be seen whether the tax refunds are just lower. End of story or whether they're later. The key thing right now is that they are lower cumulatively than they were pre-pandemic for this period of time. Take a look at how it plays out from here to see how much was just later and how much was lower.

Moshe Ari Orenbuch: Which does show up more in our lower end are part of our customer base than the higher credit and really we have seen.

Moshe Ari Orenbuch: The subprime performance be very strong at just worsen faster and then on a proportional basis everything caught up with it but it frankly.

Moshe Ari Orenbuch: Always seems to be a first mover and it settled out frankly, a little bit earlier than it started settling out a little bit earlier than the rest of our portfolio. So based on current performance we.

Richard D. Fairbank: We feel very good across the credit spectrum. We also it is certainly catches our attention when we see the inflation.

Richard D. Fairbank: But what we're saying is, to the extent that it's, you know, lower than that, that impacts, in the very near term, the charge-off numbers that we had talked about before, but it doesn't change our view about credit settling out, doesn't change our view about, very positively about the consumer, about credit, credit performance, but is just something we wanted to flag across both the credit card and the auto business. Thank you. Very helpful.

Moshe Ari Orenbuch: Spector sort of.

Moshe Ari Orenbuch: Become greater lately, so we have a real eye on that as you know we continue to look at the marketplace and trim around the edges and so on but I there isn't that impression that I would leave you is we continue to feel very good about.

Moshe Ari Orenbuch:

Richard D. Fairbank: But really the full spectrum of our customers, we continue to lean into the growth opportunities we have for some time just.

Moshe Ari Orenbuch: Been doing some trimming around the edges and just being a little tighter on the credit lines and things like that.

Richard D. Fairbank: Next question, please. Thank you. Our next question comes from John Pancari with Evercore ISI. You may proceed. Good afternoon.

Richard D. Fairbank: Credit line increases.

Moshe Ari Orenbuch: But the impression that I want to leave with you is that we are still.

Moshe Ari Orenbuch: Pretty feel good about this marketplace and the growth opportunities are there.

John Pancari: I guess back to the Discover combination. Any updates, your thoughts around the timing of the deal close? I know the Fed, the OCC just extended the comment period, and I know you put out there you expect late 24, early 25.

Speaker Change: Got it and maybe just as a follow up question you alluded to.

Speaker Change: Andrew alluded to the fact that you expect that.

Speaker Change: You can still kind of achieve your objectives from a.

Richard D. Fairbank: So any change in terms of your expectations around the timing of the close or any of the key financial metrics that you set out? Okay, John. So let me comment on the Federal Reserve and the OCC extending the comment period. It's standard practice for the Federal Reserve to extend the comment period on bank mergers. We expected the extension, and we don't take any signaling on our deal from the Fed's decision here.

Speaker Change: Efficiency ratio, even with the late fee coming into effect, but could you talk a little bit about your thoughts about any mitigating efforts that you are planning or in the process of doing or is it something that you're going to try and use from a competitive standpoint to take share how do you think about it.

Speaker Change: Okay. Thanks Moshe.

Richard D. Fairbank: So.

Speaker Change: Let's just pull up and reflect on the fact that the CFPB rule on late fees is scheduled to take effect on may 14th.

Speaker Change: We are prepared to implement the rule on this timeline if necessary.

Moshe Ari Orenbuch: But ongoing litigation efforts continue to create uncertainty on the ultimate outcome and the timing.

Richard D. Fairbank: So with respect to, you know, the overall timing, the Fed and the OCC typically take several months to work through bank merger applications in consultation with the DOJ on competition questions, and they engage frequently with our team along the way. And, of course, that process is underway. And we continue to have the same views about the timing of all of this that we did at the time of the announcement. Okay, okay, great. Thanks.

Moshe Ari Orenbuch: Of the rule.

Moshe Ari Orenbuch: As we've said before.

Moshe Ari Orenbuch: When the rule is implemented there will be significant impact to our P&L.

Richard D. Fairbank: We expect that this impact will gradually resolve itself within a couple of years from the implementation of our mitigating actions.

Moshe Ari Orenbuch: These mitigating actions include changes to our policies products and investment choices.

Moshe Ari Orenbuch: Some of these mitigating actions have already been implemented and are underway.

Moshe Ari Orenbuch: We are planning on additional actions once we learn more about where the litigation settles out.

Moshe Ari Orenbuch: Ultimately these mitigating actions will play through different line items in the P&L and will mitigate the impact of the late fee rule on our P&L within a couple of years.

Moshe Ari Orenbuch: Their implementation.

Speaker Change: Next question please.

John Pancari: And then separately, just regarding your expectation on the CET-1 front for a pro forma CET-1 ratio of about just shy of 14%. Any change to that expectation? And any change to your thoughts around buyback activity in the near term? Could you remain active on that front?

Speaker Change: Thank you.

Speaker Change: Our next question comes from Don Vendetti with Wells Fargo. You May proceed.

Donald James Fandetti: Yes, rich can you provide your latest thoughts on auto lending I know a lot of folks who've been around cards.

John Pancari: And used car prices have been a little bit lighter recently as well as the Tox issue, maybe talk a bit about a potential pick up there.

Donald James Fandetti: Okay.

Rich: Yeah. So.

Rich: Yeah.

Rich: Ah we're feeling very good about the auto business. So, let's just pull way up auto industry margins have recovered somewhat over the past few quarters.

Andrew Young: Yeah, John, with respect to the deal, I'll just say, as we talked about when we announced it, you know, we at the time used a blend of consensus estimates of where we would have the CET-1 at the time of close. You know, there's a number of variables that are going to move between now and legal day one, not just the standalone performance of each of our companies but, you know, balance sheet marks, some of which are driven by credit and stock price.

Andrew Young: Our origination volumes in Q1 were up 20% on a year over year basis and quarter over quarter basis, and we're pleased with that growth.

Rich: Now there are still headwinds to the auto business affordability remains a concern due to the combined effects of high interest rates and still high car prices.

Speaker Change: And even as car prices have normalized significantly from their peaks they haven't yet reached the new equilibrium.

Moshe Ari Orenbuch: So we anticipated the risks in this business tightening up credit back in 2022.

I think several quarters before some of our competitors.

Moshe Ari Orenbuch: As a result, the performance of recent originations from 22 and 23.

Andrew Young: And so, you know, I'm not going to be in the business of recasting every time a little number moves, but I will say our evaluation of the deal considered a wide range of outcomes. And so we remain just as excited today about the financial and strategic benefits of the transaction.

Richard D. Fairbank: Has.

Speaker Change: No Ben.

Andrew Young: Really strong.

Andrew Young: And frankly.

Andrew Young: Even.

Andrew Young: Better than our pre pandemic originations.

Andrew Young: Vintage over vintage that risk remains stable.

Andrew Young: And as margins have recovered a bit we're seeing an opportunity to lean back in.

Andrew Young: So our our years of investments in industry, leading technology and credit infrastructure have allowed us to remain nimble.

Andrew Young: As we did when we announced the deal, with respect to our standalone repurchases, Capital One's, I'll note that, you know, the agreement with Discover does not prohibit us from buying shares. I noted in my prepared remarks that we were blacked out for a period leading up to the deal, and, you know, afterwards, the SEC has safe harbor rules that limit the daily average amount of purchases we can make for a period of time after the announcement.

Andrew Young: And enabled us to make targeted adjustments to our origination strategies, where we see opportunities for growth or emerging risks.

Andrew Young: So looking ahead.

Moshe Ari Orenbuch: We remain.

Moshe Ari Orenbuch: Confident in the business that we're booking and bullish about the opportunities for growth.

Moshe Ari Orenbuch: So we continue to set pricing and terms that we're comfortable with and feel good about the opportunities that we see in the market and you know after Tom.

Moshe Ari Orenbuch: Talking for really a couple of years about.

Andrew Young: So as a result of those limitations, Q1 had a pace that was less than what we've done in recent quarters. I will also just note that, you know, there are also blackout restrictions on repurchases during the proxy vote period.

Andrew Young: Sort of dialing back I think this is sort of a period where.

Moshe Ari Orenbuch: It's moving more into a leaning into it.

Moshe Ari Orenbuch:

Andrew Young: Asian for capital one and we are I think very benefited by the choices that we may go over the last couple of couple of years and seeing very strong performance in our vintages.

Andrew Young: But again, outside of those blackouts, we're not prohibited, and we're able to continue repurchasing shares. Next question, please. Thank you.

Speaker Change: Thank you.

Andrew Young: Next question please.

Speaker Change: Thank you.

Andrew Young: Our next question comes from Sanjay <unk> with K VW you May proceed.

Speaker Change: Thank you.

Moshe Ari Orenbuch: Our next question comes from Moshe Orenbuch with TD Talent. You may proceed. Great, thanks. You know, Rich, putting aside the, you know, the tax refund thing.

Andrew Young: Rich I think your point on tax refunds, clearly very valid one.

Sanjay: Interestingly, though to your point on the second derivative that's improved quite nicely even into March and I think when I look at the tax refund stats now from the IRS it seemed like.

Richard D. Fairbank: I mean, you're you're, we're sitting here looking, you know, you've still got what has been a somewhat persistently high inflation environment and the potential for increases in unemployment. Given the nature of your portfolio, you've got, you know, kind of a lower end consumer and higher end consumer. How do you think about those factors? terms of thinking about, you know, what type of charge-off level you're going to reach over some, you know, some period of time, not not a particular point in time, but some point in the next year or two, like, you know, where you think about that, you know, is, are they driving a higher level of charge-off expectations or not? How should we? Moshe.. to our own.

Sanjay: You've seen a catch up in refunds and it seems like the average refund numbers have kind of come in line with last year, if not slightly higher. So I think those are improving too is there a lag effect. There. So like should we see that more pronounced if thats the case in April and May.

Richard D. Fairbank: How is it how has it been in the past.

Moshe: Yes, so I can see that you are a student of tax refunds just think of all the.

Richard D. Fairbank: The areas of expertise that that you've developed over the years trying to really get your head around this credit card business things that neither you nor I thought we would.

Richard D. Fairbank: You know we would.

Speaker Change: Really have to learn let me make a couple of comments here. So a key question is what are we benchmarking things too.

Richard D. Fairbank: So relative to if we talked about relative to last year.

Richard D. Fairbank: The.

Speaker Change: Things were even lagging relative to last year and they've actually crossed over very very recently crossed over the curve from last year, which I think you're referring to but then last year really was somewhat of an outlier relative to pre pandemic.

Richard D. Fairbank: You know, I think what you're partly getting at is because we have, you know, part of our portfolio is subprime consumers. You know, how do we feel about how they're performing and, sort of, in the context of an environment of higher inflation and so on? Let me just comment a little bit about the subprime consumer. You know, in the global financial crisis, we observed that credit metrics in subprime moved earlier in both directions. We saw that, but then we saw sort of everything move proportionally. In fact, subprime moved, frankly, somewhat less proportionally than prime as a multiple, but obviously, all portfolios, you know, worsened quite a bit during the global financial crisis.

Speaker Change: Now one might ask well why didn't we just do a you know use last year as the seasonality benchmark last year itself was an odd year end from a credit point of view with all the normalization. It was hard to read things through the noise.

Speaker Change: As we watch the patterns. This year, we're going to really end up comparing by the time it's done.

Richard D. Fairbank: How this year compares to last year and whether collectively this year and last year represent sort of a new.

Richard D. Fairbank: Seasonality that we have to modify relative to the past I think its premature on that and relative to reading seasonality. It's really hard to look at last year's credit metrics, just because there was so much normalization. So we've had an eye on this we have we have you know we attended this.

Richard D. Fairbank: In the pandemic, subprime credit improved more and more quickly than prime, but it also began to normalize more quickly, too. And, of course, that's in the context of lower income consumers seeing disproportionate benefits of government aid and then unwinding that over time. Subprime is, of course, not synonymous with low income, although they are somewhat correlated.

Richard D. Fairbank: Stick with our.

Richard D. Fairbank: Seasonality benchmarks, which are developed over a number of years.

Richard D. Fairbank: And I think when this is when we're done with this period.

Richard D. Fairbank: Well, we'll sit back and look at it and say did we learn something about.

Richard D. Fairbank: The business that were seasonality might be less magnified in a business like ours than it was before I think it is too early to tell but to your other point.

Richard D. Fairbank: On the other hand, so if we look at how they have been doing, income growth for lower income consumers has been consistently higher over the past several years, and we have seen, other than the tax refund effect, which does show up more in our lower end part of our customer base than the higher credit end, we have seen subprime performance be very strong. It just got worse faster, and then on a proportional basis, everything caught up with it.

Richard D. Fairbank: Even relative to last year. It has very recently crossed over in terms of tax refunds and yes to your point. These are things that themselves then add lag effects because people have to get the refunds and then they have to make payments. So.

Speaker Change: This is why I very much we are flagging.

Sanjay: A phenomenon that is sort of in the middle of happening and.

Sanjay: You know the key thing will be by the time, it's done what's the cumulative.

Richard D. Fairbank: What's the cumulative tax refund.

Richard D. Fairbank: Effect and we're just.

Sanjay: You know kind of sharing with you as we go along and the reason I'm, particularly.

Richard D. Fairbank: But it, frankly, always seems to be a first mover, and it settled out, frankly, a little bit earlier than started settling out a little bit earlier than the rest of our portfolio. So based on current performance, we feel very good across the credit spectrum. We also, it certainly attracts our attention when we see the inflation specter sort of becoming greater lately. So we have a real eye on that.

Richard D. Fairbank: Leaning into this particular, one is because last time, we made a very near term sort of extrapolation just from our.

Richard D. Fairbank: Windows delinquency buckets about where the given that in a year that the high part of the year is in the first half of the year. We were just kind of staying in that high part of the year where things.

Richard D. Fairbank: We're.

Sanjay: Sort of settling out and I wanted to give that little bit we're not revising the number but just to say if it.

Sanjay: If the.

Sanjay: You know that the seasonality patterns are probably driven by the tax refund effect, if it doesn't catch up to historical patterns than in the very near term the numbers will.

Richard D. Fairbank: As you know, we continue to look at the marketplace and trim around the edges and so on. But the net impression that I would leave you is that we continue to feel very good about the full spectrum of our customers. We continue to lean into the growth opportunities. We have for some time just, you know, been doing some trimming around the edges and just being a little tighter on the credit lines and things like that, credit line increases. But the impression that I want to leave with you is that we still pretty feel good about this marketplace and the growth opportunities there. Got it. Maybe it's just as a follow up question.

Sanjay: It will be higher than that in this very this window, we're talking about are higher than the 15% number that I said.

Speaker Change: Understood second derivative look good nonetheless for March.

Speaker Change: Can I just I wanted to just see that point.

Richard D. Fairbank: Second derivative it continues to be strong in fact, when you look at sort of all the card players that you can see the strength of capital ones.

Speaker Change: Second derivative theres another topic see you didn't know when you were studying all of that calculus.

Speaker Change: We'd be at the heart of what you do but so you know there's lots of good to pull from this I just wanted to just that.

Sanjay: Clarify that the the tax refund effect, which I think has a little bit more impact on capital one than certain other players and to and to point out that we actually think we see that effect in both of our consumer businesses.

Moshe Ari Orenbuch: You alluded to, you know, or Andrew alluded to the fact that you expect that, lately, you can still kind of achieve your objectives. Transcripts provided by Transcription Outsourcing, LLC. Point to take away. What do you think of that? Okay, thanks, Moshe.

Speaker Change: Just one follow up for Andrew just on the <unk>.

Moshe Ari Orenbuch: Capital return question earlier.

Andrew Young: Can we step up the run rate relative to some of the last quarters. As we look ahead I know theres been a lot of volatility on some of the regulatory proposals on capital, but as we look ahead I know, there's no limitations, but can we see a step up in the level of capital return relative to the past few quarters as we look ahead, given your capital levels today.

Richard D. Fairbank: So... Let's just pull up and reflect on the fact that the CFPB's rule on late fees is scheduled to take effect on May 14th. We are prepared to implement the rule on this timeline if necessary, but ongoing litigation efforts continue to create uncertainty about the ultimate outcome and the timing of the rule.

Speaker Change: Well, there's two parts to that Sanjay. The first is given the the transaction we are in the process of submitting a new capital plan.

Richard D. Fairbank: As we've said before... When the rule is implemented, there will be a significant impact on our P&L. We expect that this impact will gradually resolve itself within a couple of years from the implementation of our mitigating actions, which include changes to our policies, products, and investment choices. Some of these mitigating actions have already been implemented and are underway. We are planning on additional actions once we learn more about where the litigation settles out. Ultimately, these mitigating actions will play through different line items in the P&L and will mitigate the impact of the late fee rule on our P&L within a couple of years of their implementation.

Speaker Change: So that's just a procedural.

Richard D. Fairbank: So once that new capital plan is approved then we have unlimited capacity.

Sanjay: Capacity relative to the SCB in this intervening period, the amount that we repurchase.

Richard D. Fairbank: Is constrained to what we've what we've requested.

Speaker Change: Next question please.

Speaker Change: Thank you.

Sanjay: Our next question comes from Bill Katz, you with Wolfe Research you May proceed.

Speaker Change: Thanks, Good evening Richard Andrew.

Speaker Change: Following up on your comments on auto how much of an advantage is your excess capital position are you seeing competitors, who are capital constrained and perhaps can't take advantage of the attractive market conditions to the same degree and then I'll just ask my follow up now as capital one continues to grow could you speak to your category too.

Don Fandetti: Next question, please. Thank you. Our next question comes from Don Fandetti with Wells Fargo. Okay. You may proceed. Yes, Rich, can you provide your latest thoughts on auto lending? I know a lot of focus has been around cards, but, you know, and used car prices have been a little bit lighter. As well as the tax issue, maybe talk a bit about, you know, a potential PIP. Yeah, so, You know, we were feeling very good about the auto business. So let's just pull it out.

Don Fandetti: Paradise.

Paradise: Yes, I'll start bill with the Goodrich did you want to do the dynamics in auto and auto.

Don Fandetti:

Paradise: Here is my observation about the auto business is what is that.

Don Fandetti: It's still a very competitive marketplace, but.

Don Fandetti: When we see our opportunities to grow.

Don Fandetti: We tend to lag a little bit while others egg and.

Don Fandetti: So we sort of pulled back for a little while and others leaned in and my point is really now I think we're leaning in and others are pulling back a little bit more I hadn't really.

Richard D. Fairbank: Auto industry margins have recovered somewhat over the past few quarters. Our origination volumes in Q1 were up 20% on a year-over-year basis and quarter-over-quarter basis, and we're pleased with that growth. However, there are still headwinds to the auto business. Affordability remains a concern due to the combined effects of high interest rates and still high car prices.

Richard D. Fairbank: Sort of analyzed it in terms of really capital choices really as much as just the very natural rhythms of the marketplace and some of the advantages that capital one has by virtue of our choices that we made over the last couple of years.

Richard D. Fairbank: And even as car prices have normalized significantly from their peaks, they haven't yet reached a new equilibrium. So we anticipated the risks in this business tightening up credit back in 2022, I think several quarters before some of our competitors. As a result, the performance of recent originations from 22 and 23 has, you know, been really strong and frankly, Unknown Speaker Even better than our pre-pandemic origination. And vintage over vintage, that risk remains stable.

Paradise: But.

Speaker Change: You know, we'll have to think about that but I just think this is.

Richard D. Fairbank: I'm, just very much sort of as ive seen numerous times in the past, where there's a little bit of an inflection point for capital one at a.

Paradise: Time, that's a little different and occasionally in a different direction than the inflection points of others.

Speaker Change: And then with respect to category two well first let me just note we're going to be below the $700 billion threshold.

Paradise: At closing and the trigger is really a four quarter average beyond that so I just wanted to.

Richard D. Fairbank: Mentioned, the specifics of what is going to trigger it but within category two to category three there's really three big distinctions. The first one is losing the tailoring benefit for LCR and SLR and you can see based on that.

Richard D. Fairbank: And as margins have recovered a bit, we're seeing an opportunity to lean back in. So our years of investments in industry-leading technology and credit infrastructure have allowed us to remain nimble and enabled us to make targeted adjustments to our origination strategies where we see opportunities for growth or emerging risk. So looking ahead, we remain confident in the business that we're booking and bullish about the opportunities for growth. So we continue to set prices in terms that we're comfortable with and feel good about the opportunities that we see in the market. And, you know, after talking for really for a couple of years about sort of dialing it back.

Richard D. Fairbank: The ratios that we hold there and our conservatism around liquidity, we feel very well.

Richard D. Fairbank: Baird.

Richard D. Fairbank: The other two which are the inclusion of a OCI in regulatory capital and the DTA threshold going from 25 to 10. Those are both already included at least in what was proposed for the Basel III and game rules, we all know that.

Richard D. Fairbank: Those proposals are being debated in and refined them, but ultimately we were looking at those two implications as part of the the proposal anyway and so.

Richard D. Fairbank: I think this is sort of a period where we're moving more into a leaning into it situation for Capital One. And we're, I think, very benefiting from the choices that we made over the last couple of years and seeing very strong performance in our vintages. Next question, please. Thank you. Our next question comes from Sanjay Sakhrani with KVW.

Paradise: We don't really see a big difference in the long term implications are at least as we sit today again the proposal may take a different form but from a planning perspective those were two things that we already had our eye on and so we ultimately feel.

Sanjay Sakhrani: Well prepared.

Paradise: No.

Sanjay Sakhrani: All of the implications of either category, two or the Basel III game proposals if they were to a to go in as currently constructed.

Sanjay Sakhrani: You may proceed. Thank you. Rich, I think your point on tax refunds is clearly a very valid one.

Speaker Change: Next question please.

Paradise: Yes.

Sanjay Sakhrani: Thank you.

Sanjay Sakhrani: And our final question comes from Jeff Adelson with Morgan Stanley You May proceed.

Richard D. Fairbank: Interestingly, though, to your point on the second derivative, that's improved quite nicely, even into March, and I think when I look at the tax refund stats now from the IRS, it seems like you've seen a catch-up in refunds, and it seems like the average refund numbers have kind of come in line with last year, if not slightly higher, so I think those are improving too. Transcription by CastingWords: Yeah, so I can see that you're a student of tax refunds.

Sanjay Sakhrani: Hey, good evening, Thanks for fitting me in.

Speaker Change: Richard I just wanted to circle back on your comment about how you continue to kind of trim around the edges. I think last quarter, you were suggesting that the trimming with sort of abating. After a number of years of trimming, but given your comments today about how you're continuing to lean in how the U S. Consumer remains a strong source how are you thinking about potentially opening it.

Paradise: The credit box, a little bit more from here.

CastingWords: And Relatedly does the pending deal with discover factor into how youre thinking about allocating capital at all into more growth at this point.

Richard D. Fairbank: Just think of all the areas of expertise that you've developed over the years, trying to really get your head around this credit card business, things that neither you nor I thought we would. You know, we would really have to learn.

Speaker Change: Thanks, Jeff.

Speaker Change: We.

Speaker Change: The trimming around the edges is of course, what we do all the time in.

Speaker Change: Reactively to not only what we observe in the marketplace, but what we think may be coming in the marketplace.

Richard D. Fairbank: Let me make a couple of comments here. So, the key question is, what are we benchmarking things against? So relative to, if we talked about relative to last year, things were even lagging relative to last year, and they've actually crossed over very, very recently crossed over the curve from last year, which I think you're referring to. But then last year really was somewhat of an outlier relative to pre-pandemic. Now, you know, one might ask, well, why didn't we just do all, you know, use last year as the seasonality benchmark? Last year itself was an odd year.

Richard D. Fairbank: We are very much sort of in the same place we were.

Richard D. Fairbank: Three months ago, when we've been talking about this in other words, the trimming around the edges and the dialing back was it was a little bit more pronounced.

Speaker Change: In the.

Speaker Change: In the quarters.

Speaker Change: During the big credit normalization than it has been as we see things settling out.

Richard D. Fairbank: And the drivers of that continue to be probably in addition to what I said about the consumer very much also the observing our.

Richard D. Fairbank: And from a credit point of view, with all the normalization, it was hard to read things through the noise. But as we watch the patterns this year, we're going to really end up comparing by the time it's done. How this year compares to last year and whether collectively this year and last year represent sort of a new seasonality that we have to modify relative to the past. I think it's premature to comment on that. And relative to reading seasonality, it's really hard to look at last year's credit metrics just because there was so much normalization.

Richard D. Fairbank: Credit performance not only just the overall portfolio performance, but very much the performance of our originations and.

Richard D. Fairbank: And strikingly our originations continue to come.

Richard D. Fairbank: Our.

Richard D. Fairbank: Generally on top of each other.

Speaker Change: Quarter after quarter, obviously, that's lagged data that we're viewing but where.

Richard D. Fairbank: We've been struck by how long, it's been and how consistently its been that our originations have been.

Richard D. Fairbank: Generally.

Richard D. Fairbank: On top of each other and a lot of that comes from the trimming around the edges that we have been doing even as there has been some underlying a little bit.

Richard D. Fairbank: So we've had an eye on this. We have, you know, tended to stick with our seasonality benchmarks, which have been developed over a number of years. And I think when this is over, when we're done with this period, you know, we'll sit back and look at it and say, did we learn something about the business that seasonality might be less magnified in a business like ours than it was before? I think it is too early to tell, but to your other point, even relative to last year, it has very recently crossed over in terms of tax refunds.

Speaker Change: Sort of.

Richard D. Fairbank: Worsening of overall consumer credit metrics.

Speaker Change: So we're in a very similar place to where we were we feel good about our credit performance and origination performance we are leaning in.

Richard D. Fairbank: Across the credit spectrum with respect to the discover deal it's not really altering our origination strategy. That's very much a you know.

Richard D. Fairbank: Continuing as it was before.

Richard D. Fairbank: And yes, to your point, these are things that themselves have lag effects because people have to get the refunds, and they have to make payments. So this is why, very much, we are flagging a phenomenon that is in the middle of happening. And the key thing will be, by the time it's done, what will be the cumulative tax refund effect?

Speaker Change: Obviously, we're very excited about the discover deal, but I think that with respect to our own strategy.

Richard D. Fairbank: It's really pretty much the same as it was before.

Speaker Change: And I also wanted to just ask really quickly about the small business kind of strategy. I know you recently, just launched that new venture business card recently.

Richard D. Fairbank: And we're just sharing with you as we go along. And the reason I'm particularly leaning into this particular one is because last time we made a very near-term sort of extrapolation just from our windows of delinquency buckets about where the, given that, in a year, the high part of the year is in the first half of the year. We were just kind of saying in that high part of the year where things were sort of settling out.

Richard D. Fairbank: It seems like a really unique value proposition with the charge card component can you just talk a little bit more about the opportunity to drive growth there and maybe how that's going so far any any early reason to the type of customers you are getting.

Speaker Change: Okay, Yes, Jeff.

Jeff Norris: So we launched the venture X business card.

Richard D. Fairbank: Broadly in the third quarter of last year, and we're pleased with the market response and the customer engagement so far.

Richard D. Fairbank: And I wanted to give that little bit, we're not revising the number, but just to say, If the seasonality patterns are, you know, probably driven by the tax refund effect, and if it doesn't catch up to, you know, historical patterns, then in the very near term, the numbers will be higher than that, in this very, this window we're talking about, higher than the 15% number that I said. understood, but the second derivative looked good nonetheless for March. Yeah, look, can I just, I want to just seize that point? The second derivative continues to be strong.

Speaker Change: So venture X business much like our spark cash plus card was developed to help business owners run and invest in their business with no preset spending limit.

Richard D. Fairbank: Great travel benefits and elevated earn everywhere.

Speaker Change: And it's a great example of our businesses.

Speaker Change: Leveraging each other's innovations because we've we've taken many of the industry, leading travel features of our consumer venture X product and combine them with the business grade capabilities of our small business offerings, including the flexible spending capacity that is designed for larger busy.

Richard D. Fairbank: In fact, when you look at, you know, sort of all the card players, you can see the strength of Capital One's, you know, second derivative. There's another topic, see; you didn't know when you were studying all that calculus that this would be at the heart of what you do. But so, you know, there's lots of good to pull from this. I just wanted to, you know, clarify the tax refund effect, which I think has a little bit more impact on Capital One than certain other players and point out that we actually think we see that effect in both of our consumer businesses.

Richard D. Fairbank: Mrs.

Speaker Change: So.

Speaker Change: We have been investing in our small business card program and more broadly to win at the top of the market for years and this launch.

Speaker Change: Stands on the shoulders of all of that investment it stands on the shoulders of our technology transformation.

Richard D. Fairbank: And.

Richard D. Fairbank: As another example in the continuing drive of capital one to win.

Richard D. Fairbank: At the top of the market across consumers and small business.

Speaker Change: I appreciate the question and we certainly are.

Richard D. Fairbank: Great. Just one follow-up question for Andrew, on the capital return question earlier. Can we step up the run rate relative to some of the recent quarters as we look ahead? I know there's been a lot of volatility in some of the regulatory proposals on capital, but as we look ahead, I know there's no limitations, but can we see a step up in the level of capital return relative to the past few quarters as we look ahead, given your capital levels today? Well, there are two parts to that, Sanjay. The first is that, given the transaction, we are in the process of submitting a new capital plan. So that's just a procedural piece.

Speaker Change: Our I'm excited by our continuing progress.

Speaker Change: Thanks, Rich and Andrew Thanks, everybody for joining us this evening and for your continuing interest in capital one.

Speaker Change: Have a great evening.

Speaker Change: Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

Richard D. Fairbank: Yeah.

Richard D. Fairbank: Okay.

Andrew Young: Okay.

Richard D. Fairbank: [music].

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank:

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: [music].

Sanjay Sakhrani: So once that new capital plan is approved, then we have unlimited capacity relative to the SCB in this intervening period, but the amount that we repurchase is constrained to what we've requested. Next question, please. Thank you. Our next question comes from Bill Carcache with Wolf Research. You may proceed. Thanks. Good evening, Rich and Andrew. Following up on your comments in auto, how much of an advantage is your excess capital position? Are you seeing competitors who are capital constrained and perhaps can't take advantage of the attractive market conditions to the same degree?

Speaker Change: Yeah.

Sanjay Sakhrani: [music].

Sanjay Sakhrani: Yes.

Sanjay Sakhrani: Yes.

Sanjay Sakhrani: Yes.

Sanjay Sakhrani: Okay.

Sanjay Sakhrani: <unk>.

Sanjay Sakhrani: [music].

Sanjay Sakhrani: Yes.

Sanjay Sakhrani: Okay.

Bill Carcache: And then I'll just ask my follow-up question now, as Capital One continues to grow, could you speak to your Category Two preparedness? Yeah, I'll start, Bill, with the... Go ahead, Rich. Do you want to do the... Well, I... The dynamics in the auto industry... Well, in the auto industry, I...

Bill Carcache: Okay.

Bill Carcache: Yeah.

Bill Carcache: Yeah.

Bill Carcache: Okay.

Richard D. Fairbank: I'm... Here, my observation about the auto business is, what is that? You know, it's still a very competitive marketplace. But when we see our opportunities to grow, we tend to zig a little bit while others zag. So we sort of pulled back for a little while, and others leaned in, and my point is really now that I think we're leaning in, and others are pulling back a little bit more. I hadn't really, sort of analyzed it in terms of capital choices, really as much as just the very natural rhythms of the marketplace and some of the advantages that Capital One has by virtue of the choices that we made over the last couple of years. But, you know, we'll have to think about that.

Andrew Young: [music].

Richard D. Fairbank: Okay.

Andrew Young: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: [music].

Richard D. Fairbank: Okay.

Richard D. Fairbank: [music].

Richard D. Fairbank: But I just think this is just very much sort of like you've seen numerous times in the past where there's a little bit of an inflection point for Capital One at a time that's a little different and occasionally in a different direction than the inflection points of others. And then, Bill, with respect to Category 2, well, first, let me just, you know, note that we're going to be below the $700 billion threshold at closing. And the trigger is really a four-quarter average beyond that.

Richard D. Fairbank: Yes.

Richard D. Fairbank: [music].

Richard D. Fairbank: Yes.

Richard D. Fairbank: [music].

Richard D. Fairbank: Okay.

Andrew Young: So I just wanted to, you know, mention the specifics of what is going to trigger it. But within Category 2 to Category 3, there are really three big distinctions. You know, the first one is losing the tailoring benefit for LCR and NSFR. And, you know, you can see, based on the ratios that we hold there in our conservatism around liquidity, we feel very well prepared. The other two, which are the inclusion of AOCI in regulatory capital and the DTA threshold going from 25 to 10, are both already included, at least in what was proposed for the Basel III endgame rules.

Andrew Young: Okay.

Andrew Young: Okay.

Andrew Young: [music].

Andrew Young: Yeah.

Andrew Young: [music].

Andrew Young: We all know that those proposals are being debated and refined. But, you know, ultimately, we're looking at those two implications as part of the proposal anyway. And so, you know, we don't really see a big difference in the long-term implications, at least as we sit today.

Andrew Young: Yes.

Andrew Young: Okay.

Andrew Young: Okay.

Andrew Young: Okay.

Andrew Young: [music].

Andrew Young: Again, the proposal may take a different form, but from a planning perspective, those were two things that we already had our eye on. And so we ultimately feel, you know, well prepared for all of the implications of either Category 2 or the Basel III endgame proposals if they were to go in as currently constructed. Next question, please. Thank you. And our final question comes from Jeff Adelson with Morgan Stanley. Please proceed. Hey, good evening.

Andrew Young: Okay.

Andrew Young: Okay.

Andrew Young: [music].

Jeff Adelson: Thanks for fitting me in. Richard, I just wanted to circle back on your comment about how you continue to kind of trim around the edges. I think last quarter you were suggesting that the trimming was sort of abating after a number of years of trimming.

Jeff Adelson: Okay.

Jeff Adelson: Okay.

Jeff Adelson: Okay.

Richard D. Fairbank: But given your comments today about how you're continuing to lean in, how the US consumer remains a strength, how are you thinking about potentially opening up the credit box a little bit more from here? And relatedly, does, you know, the pending deal with Discover factor into how you're thinking about allocating capital at all to more growth at this point? Thanks, Jeff. You know, trimming around the edges is, of course, what we do all the time and reactively to not only what we observe in the marketplace but what we think may be coming in the marketplace.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Yes.

Richard D. Fairbank: [music].

Richard D. Fairbank: Yeah.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: We are very much sort of in the same place we were. Three months ago, when we were talking about this, in other words, the trimming around the edges and the dialing back was a little bit more pronounced in the quarters.

Richard D. Fairbank: Okay.

Richard D. Fairbank: During the big credit normalization, then, it has been as we see things settling out. And, you know, the drivers of that continue to be probably, in addition to what I said about the consumer, very much also our credit performance. Not only just the overall portfolio performance, but very much the performance of our originations. And strikingly, our originations continue to come out generally on top of each other, quarter after quarter.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: [music].

Richard D. Fairbank: Yes.

Richard D. Fairbank: Yeah.

Richard D. Fairbank: [music].

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: [music].

Richard D. Fairbank: Obviously, that's lagged data that we're viewing, but we're, you know, we've been struck by how long it's been and how consistently it's been that our originations have been generally on top of each other. And a lot of that comes from the trimming around the edges that we have been doing, even as there's been some underlying, a bit, sort of worsening of overall consumer credit metrics.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Yeah.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: [music].

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: So we're in a very similar place to where we were. We feel good about our credit performance and origination performance. We are leaning in across the credit spectrum. With respect to the Discover deal, it's not really altering our origination strategy, which is very much continuing as it was before. Obviously, we're very excited about the DISCOVER deal. But I think that, you know, with respect to our own strategy, it's really pretty much the same as it was before.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Jeff Adelson: And I also wanted to just ask really quickly about the small business card strategy. I know you recently launched that new Venture X business card. Seems like a really unique value proposition. The Charge Card Component. Can you just talk a little bit more about the opportunity to drive growth there, maybe how that's going so far, any early reasons for the type of customers you're getting? Okay, yes, Jeff. We launched the VentureX business card broadly in the third quarter of last year, and we're pleased with the market response and the customer engagement so far. Venture X business, much like our Spark Cash Plus card, was developed to help business owners run and invest in their business with no preset spending limit.

Jeff Adelson: Yes.

Jeff Adelson: Okay.

Jeff Adelson: [music].

Jeff Adelson: Okay.

Jeff Adelson: Yes.

Jeff Adelson: Yeah.

Jeff Adelson: Okay.

Jeff Adelson: Okay.

Jeff Adelson: Okay.

Jeff Adelson: Okay.

Jeff Adelson: Yes.

Richard D. Fairbank: Great travel benefits and elevated earnings everywhere, and it's a great example of our businesses leveraging each other's innovations because we've taken many of the industry-leading travel features of our Consumer Venture X product and combined them with the business-grade capabilities of our small business offerings, including the flexible spending capacity that is designed for larger businesses. So, you know, we have been investing in our small business card program and, more broadly, to win at the top of the market for years.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Sure.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yeah.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: [music].

Richard D. Fairbank: Yes.

Richard D. Fairbank: Yeah.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: And this launch stands on the shoulders of all of that investment; it stands on the shoulders of our technology transformation, and is another example of Capital One's continuing drive to win at the top of the market across consumers and small businesses.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Okay.

Richard D. Fairbank: So I appreciate the question, and we certainly are excited by our continuing progress. Thanks, Rich and Andrew. Thanks, everybody, for joining us this evening and for your continuing interest in Capital One. Have a great evening.

Richard D. Fairbank: Okay.

Richard D. Fairbank: Yes.

Richard D. Fairbank: Yeah.

Jeff Norris: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Richard D. Fairbank: Okay.

Jeff Norris: Okay.

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