Q2 2024 Capital One Financial Corp Earnings Call

July 23, 2024

Good day and thank you for standing by. Welcome to the CapitalOne Q2 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.

Operator: 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.

Operator: Please be advised that today's conference is being recorded.

Jeff Norris: I would not 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 everyone to Capital One's second quarter 2024 earnings conference call. As usual, we are webcasting live over the internet. To access the call on the Internet, please log on to Capital One's website at capitalone.com and follow the links from there. In addition to the press release and the financials, we've included a presentation summarizing our second quarter 2024 results.

Jeff Norris: Thanks very much, Josh, and welcome everyone to CapitalOne's second quarter 2024 earnings conference call. As usual, we are webcasting live over the internet. To access the call over the internet, please log on to CapitalOne's website at CapitalOne.com and follow the links from there.

Jeff Norris: Thanks very much, Josh, and welcome, everyone, to CapitalOne's second quarter 2024 earnings conference call. As usual, we are webcasting live over the Internet. To access the call on the Internet, please log on to CapitalOne's website at CapitalOne.com and follow the links from there.

Jeff Norris: In addition to the press release and the financials, we've included a presentation summarizing our second quarter 2024 results. With me this evening are Mr. Richard Fairbank, CapitalOne's Chairman and Chief Executive Officer, and Mr. Andrew Young, CapitalOne's Chief Financial Officer. Rich and Andrew will walk you through the presentation.

Speaker Change: In addition to the press release and the financials, we've included a presentation summarizing our second quarter 2024 results.

Jeff Norris: With me this evening, our Mr. Richard Fairbank, Capital One's Chairman and Chief Executive Officer, and Mr. Andrew Young, Capital One's Chief Financial Officer. Richard and Andrew will walk you through the presentation. To access a copy of the presentation and press release, please go to Capital One's website, click on the Investors, then click on Quarterly Earnings Release.

Speaker Change: With me this evening are Mr. Richard Fairbank, CapitalOne's Chairman and Chief Executive Officer, and Mr. Andrew Young, CapitalOne's Chief Financial Officer.

Jeff Norris: To access a copy of the presentation and press release, please go to CapitalOne's website, click on Investors, then click on Quarterly Earnings Release. Please note that this presentation may contain forward-looking statements. Information regarding CapitalOne's financial performance and any forward-looking statements contained in today's discussion of the material speak only as of the particular date or dates indicated in the material.

Jeff Norris: Rich and Andrew will walk you through the presentation. To access a copy of the presentation and press release, please go to CapitalOne's website, click on Investors, then click on Quarterly Earnings Release.

Jeff Norris: Please note that this presentation will be a 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. 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 forward-looking statements. For more information on these factors, please see the section titled "Forward-looking Information" in the earnings release presentation and the Risk Factor section in our annual and quarterly reports.

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

Jeff Norris: Information regarding CapitalOne'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: CapitalOne 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. And for more information on these factors, please see the section titled Forward-Looking Information in the earnings release presentation and the Risk Factors section in our annual and quarterly reports, accessible on the CapitalOne website and filed with the SEC. And with that done, I'll turn the call over to Mr. Young. Andrew.

Jeff Norris: CapitalOne does not undertake any obligation to update or revise any of this information, whether as a result of 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.

Jeff Norris: And for more information on these factors, please see the section titled Forward-Looking Information in the Earnings Release Presentation and the Risk Factor section in our annual and quarterly reports accessible at the CapitalOne website and filed with the SEC.

Jeff Norris: Accessible at the Capital One website and followed with the SEC.

Jeff Norris: With that done, I'll turn the call over to Mr. Young.

Andrew Young: Andrew. Thanks, Jeff, and good afternoon, everyone. I will start on slide three of tonight's presentation. In the second quarter, Capital One earned $597 million, or $1.38 per diluted common share. Included in the results for the quarter were adjusting items related to the Walmart partnership termination, Discover integration costs, and an accrual for updated estimate of the FDIC's special assessment. Net of these adjusting items, second quarter earnings per share were $3.14. Relative to the prior quarter, period and loans held for investment increased 1% while average loans were flat. Ending deposits were flat versus last quarter, while average deposits increased 1%.

Jeff Norris: And with that done, I'll turn the call over to Mr. Young. Andrew?

Andrew Young: Thanks, Jeff. And good afternoon, everyone. I will start on slide three of tonight's presentation. In the second quarter, CapitalOne earned $597 million, or $1.38 per diluted common share. Included in the results for the quarter were adjusting items related to the Walmart partnership termination, Discover Integration Costs, and an accrual for an updated estimate of the FDIC special assessment. Net of these adjusting items, second quarter earnings per share were $3.14.

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

Andrew Young: In the second quarter, CapitalOne earned $597 million, or $1.38 per diluted common share.

Speaker Change: Included in the results for the quarter were adjusting items related to the Walmart partnership termination, Discover integration costs, and an accrual for updated estimate of the FDIC's special assessment.

Jeff Norris: Net of these adjusting items, second quarter earnings per share were $3.14.

Andrew Young: Relative to the prior quarter, period end loans held for investment increased 1% while average loans were flat. Ending deposits were flat versus the previous quarter, while average deposits increased 1%. Our percentage of FDIC insured deposits increased one percentage point to 83% of total deposits. Pre-provision earnings in the second quarter increased 7% from the first quarter.

Jeff Norris: Relative to the prior quarter, period end loans held for investment increased 1% while average loans were flat.

Jeff Norris: Ending deposits were flat versus last quarter, while average deposits increased 1%.

Andrew Young: Our percentage of FDIC-insured deposits increased 1 percentage point to 83% of total deposits. Pre-prevision earnings in the second quarter increased 7% from the first quarter. Revenue in the linked quarter increased 1% driven by higher net and non-interest income, while non-interest expense decreased 4%, driven by a decline in operating expense. Our provision for credit losses was $3.9 billion in the quarter. The $1.2 billion increase in provision relative to the prior quarter was almost entirely driven by higher allowance. Included in the second quarter was an $826 million allowance bill from the elimination of the loss-sharing provisions that occurred within the termination of the Walmart partnership.

Jeff Norris: Our percentage of FDIC insured deposits increased one percentage point to 83% of total deposits.

Jeff Norris: Pre-provision earnings in the second quarter increased 7% from the first quarter.

Andrew Young: Revenue in the linked quarter increased 1% driven by higher net and non-interest income, while non-interest expense decreased 4% driven by a decline in operating expenses. Our provision for credit losses was $3.9 billion in the quarter. The $1.2 billion increase in provision relative to the prior quarter was almost entirely driven by higher allowances; included in the second quarter was an $826 million allowance billed from the elimination of the loss-sharing provisions that occurred within the termination of the Walmart partnership.

Jeff Norris: Revenue in the linked quarter increased 1 percent, driven by higher net and non-interest income, while non-interest expense decreased 4 percent, driven by a decline in operating expense.

Jeff Norris: Our provision for credit losses was $3.9 billion in the quarter.

Jeff Norris: The $1.2 billion increase in provision relative to the prior quarter was almost entirely driven by higher allowance.

Jeff Norris: Included in the second quarter was an $826 million allowance billed from the elimination of the loss sharing provisions that occurred within the termination of the Walmart partnership.

Andrew Young: The remaining quarter-over-quarter provision increase was driven by $353 million higher net reserve bill and a $28 million increase in net charge-off.

Andrew Young: The remaining quarter over quarter provision increase was driven by a $353 million higher net reserve build and a $28 million increase in net charge-offs. Turning to slide four, I will cover the allowance in greater detail. We built $1.3 billion in the allowance this quarter. The allowance balance now stands at $16.6 billion.

Jeff Norris: The remaining quarter-over-quarter provision increase was driven by a $353 million higher net reserve build and a $28 million increase in net charge-off.

Andrew Young: Turning to slide four, I will cover the allowance in greater detail. We built $1.3 billion in allowance this quarter. The allowance balance now stands at $16.6 billion. Our total portfolio coverage ratio increased 35 basis points to 5.23%. The increase in this quarter's allowance in coverage ratio was largely driven by a build-in-our-card segment.

Jeff Norris: Turning to slide four, I will cover the allowance in greater detail.

Jeff Norris: We built 1.3 billion dollars in allowance this quarter.

Andrew Young: Our total portfolio coverage ratio increased 35 basis points to 5.23%. The increase in this quarter's allowance and coverage ratio was largely driven by a build in our card segment. I'll cover the drivers of the changes in allowance and coverage ratio by segment on slide five. In our domestic car business, the allowance coverage ratio increased by 69 basis points to 8.54%.

Jeff Norris: The allowance balance now stands at $16.6 billion.

Jeff Norris: Our total portfolio coverage ratio increased 35 basis points to 5.23 percent.

Jeff Norris: The increase in this quarters allowance and coverage ratio was largely driven by a build in our card segment.

Andrew Young: I'll cover the drivers of the changes in allowance and coverage ratio by segment on slide five. In our domestic card business, the allowance coverage ratio increased by 69 basis points to 8.54%. The substantial majority of the increase in coverage was driven by the impact of the termination of the Walmart loss-sharing agreement. In our consumer banking segment, the allowance decreased by $23 million, resulting in a five basis point decrease to the coverage ratio. And finally, our commercial banking allowance increased by $6 million. Coverage ratio remained essentially flat at 1.74%.

Jeff Norris: I'll cover the drivers of the changes in allowance and coverage ratio by segment on slide 5.

Jeff Norris: In our domestic card business, the allowance coverage ratio increased by 69 basis points to 8.54%.

Andrew Young: The substantial majority of the increase in coverage was driven by the impact of the termination of the Walmart loss-sharing agreement. In our consumer banking segment, the allowance decreased by $23 million, resulting in a five basis point decrease in the coverage ratio. And finally, our commercial banking allowance increased by $6 million, and the coverage ratio remained essentially flat at 1.74%. Turning to page six, I'll now discuss liquidity. Total liquidity reserves in the quarter decreased by about $5 billion to approximately $123 billion.

Jeff Norris: The substantial majority of the increase in coverage was driven by the impact of the termination of the Walmart loss-sharing agreement.

Jeff Norris: In our consumer banking segment, the allowance decreased by $23 million, resulting in a five basis point decrease to the coverage ratio.

Jeff Norris: And finally, our commercial banking allowance increased by $6 million. Coverage ratio remained essentially flat at 1.74%.

Andrew Young: Turning to page six, I'll now discuss liquidity. Total liquidity reserves in the quarter decreased about $5 billion to approximately $123 billion. Our cash position ended the quarter at approximately $45 billion, down about $6 billion from the prior quarter. The decrease was driven by wholesale funding maturities, loan growth, and declines in our commercial deposits, partially offset by deposit growth in our retail banking business. You can see our preliminary average liquidity coverage ratio during the second quarter was 155%, down from 164% in the first quarter.

Jeff Norris: Turning to page six, I'll now discuss liquidity.

Jeff Norris: Total liquidity reserves in the quarter decreased about $5 billion to approximately $123 billion.

Andrew Young: Our cash position ended the quarter at approximately $45 billion, down about $6 billion from the prior quarter. The decrease was driven by wholesale funding maturities, loan growth, and declines in our commercial deposits, partially offset by deposit growth in our retail banking business. As you can see, our preliminary average liquidity coverage ratio during the second quarter was 155%, down from 164% in the first quarter.

Jeff Norris: Our cash position ended the quarter at approximately $45 billion, down about $6 billion from the prior quarter.

Jeff Norris: The decrease was driven by wholesale funding maturities, loan growth, and declines in our commercial deposits, partially offset by deposit growth in our retail banking business.

Jeff Norris: You can see our preliminary average liquidity coverage ratio during the second quarter was 155%, down from 164% in the first quarter.

Andrew Young: Turning to page seven, I'll cover our net interest margin. Our second quarter net interest margin was 6.7%, one basis point higher than last quarter and 22 basis points higher than the year ago quarter. The relatively flat quarter-over-quarter NIM was the result of largely offsetting factors. NIM in the quarter benefited from the termination of the revenue sharing agreement with Walmart, as well as modestly higher yields in the auto business. These two factors were roughly offset by the seasonal effects on yield in the card portfolio, and a slight increase in the rate paid on retail deposits.

Andrew Young: Turning to page 7, I'll cover our net interest margin. Our second quarter net interest margin was 6.7%, one basis point higher than last quarter and 22 basis points higher than the year ago quarter. The relatively flat quarter-over-quarter NIM was the result of largely offsetting factors. Nim in the quarter benefited from the termination of the revenue-sharing agreement with Walmart, as well as modestly higher yields in the auto business.

Jeff Norris: Turning to page 7, I'll cover our net interest margin.

Jeff Norris: Our second quarter net interest margin was 6.7%, one basis point higher than last quarter and 22 basis points higher than the year ago quarter.

Jeff Norris: The relatively flat quarter-over-quarter NIM was the result of largely offsetting factors.

Jeff Norris: Nim in the quarter benefited from the termination of the revenue sharing agreement with Walmart, as well as modestly higher yields in the auto business.

Andrew Young: These two factors were roughly offset by the seasonal effects on yield in the CARD portfolio and a slight increase in the rate paid on retail deposits. Turning to slide 8, I will end by discussing our capital position. Our common equity tier one capital ratio ended the quarter at 13.2%, 10 basis points higher than the prior quarter. Net income in the quarter was largely offset by the impact of dividends and $150 million of share repurchase.

Jeff Norris: These two factors were roughly offset by the seasonal effects on yield in the card portfolio and a slight increase in the rate paid on retail deposits.

Andrew Young: Turning to slide eight, I will end by discussing our capital position. Our Common Equity Tier 1 Capital Ratio ended the quarter at 13.2%, 10 basis points higher than the prior quarter. Net income in the quarter was largely offset by the impact of dividends and $150 million of share repurchases. During the quarter, the Federal Reserve released the results of their stress test. Our preliminary stress capital buffer requirement is 5.5%, resulting in a CET-1 requirement of 10%. However, as we disclosed in our last 10-K to you, the announcement of the acquisition of Discover constituted a material business change.

Jeff Norris: Turning to slide 8, I will end by discussing our capital position.

Jeff Norris: Our Common Equity Tier 1 Capital Ratio ended the quarter at 13.2%, 10 basis points higher than the prior quarter.

Jeff Norris: Net income in the quarter was largely offset by the impact of dividends and $150 million of share repurchases.

Andrew Young: During the quarter, the Federal Reserve released the results of their stress test. Our preliminary stress capital buffer requirement is 5.5%, resulting in a CET1 requirement of 10%. However, as we disclosed in our last 10Q, the announcement of the acquisition of Discover constituted a material business change. As a result, we are subject to the Federal Reserve's pre-approval of our capital actions until the merger approval process has concluded. With that, I will turn the call over to Rich. Thanks, Andrew. And good evening, everyone.

Jeff Norris: During the quarter, the Federal Reserve released the results of their stress test. Our preliminary stress capital buffer requirement is 5.5 percent, resulting in a CET1 requirement of 10 percent.

Jeff Norris: However, as we disclosed in our last 10Q, the announcement of the acquisition of Discover constituted a material business change.

Andrew Young: As a result, we are subject to the Federal Reserve's pre-approval of our capital actions until the merger approval process has concluded.

Jeff Norris: As a result, we are subject to the Federal Reserve's pre-approval of our capital actions until the merger approval process has concluded. With that, I will turn the call over to Rich. Rich?

Richard Fairbank: With that, I will turn the call over to Rich.

Richard Fairbank: Rich? Thanks, Andrew, and good evening, everyone. Slide 10 shows second 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. In the second quarter, our domestic card business delivered another quarter of strong results as we continue to invest in flagship products and exceptional customer experiences to grow our franchise. Year-over-year purchase volume growth for the quarter was 5%. Ending loan balances increased $11.1 billion or about 8% year over year. Average loans also increased about 8%. And second quarter revenue was up 9% driven by the growth in purchase volume and loans.

Richard D. Fairbank: Slide 10 shows second-quarter results for our credit card segment. However, credit card segment results are largely a function of our domestic card results and trends, which are shown on slide 11. In the second quarter, our domestic card business delivered another quarter of strong results as we continued to invest in flagship products and exceptional customer experiences to grow our franchise. Year over year purchase volume growth for the quarter was 5%. Ending loan balances increased $11.1 billion, or about 8% year over year.

Rich: Thanks Andrew and good evening everyone. Slide 10 shows second quarter results in our credit card business.

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

Rich: In the second quarter, our domestic card business delivered another quarter of strong results as we continued to invest in flagship products and exceptional customer experiences to grow our franchise.

Rich: Year-over-year purchase volume growth for the quarter was 5%. Ending loan balances increased $11.1 billion, or about 8% year-over-year. Average loans also increased about 8%.

Richard D. Fairbank: Average loans also increased about 8%, and second quarter revenue was up 9% driven by the growth in purchase volume and loans. The revenue margin for the quarter remains strong at 17.9%. The revenue margin includes a positive impact of about 18 basis points resulting from the partial quarter effect of the end of the Walmart revenue sharing agreement. The charge-off rate for the quarter was 6.05%.

Rich: And second quarter revenue was up 9% driven by the growth in purchase volume and loans.

Richard Fairbank: Revenue margin for the quarter remains strong at 17.9%. The revenue margin includes a positive impact of about 18 basis points resulting from the partial quarter effect of the end of the Walmart revenue-sharing agreement. The charge-off rate for the quarter was 6.05%. The partial quarter impact of the end of the Walmart lost sharing agreement increased the quarterly charge-off rate by 19 basis points. Excluding this impact, the charge-off rate for the quarter would have been 5.86%, up 148 basis points year over year. The 30 plus delinquency rate at quarter end was 4.14%, up 40 basis points from the prior year.

Rich: Revenue margin for the quarter remains strong at 17.9 percent. The revenue margin includes a positive impact of about 18 basis points resulting from the partial quarter effect of the end of the Walmart revenue sharing agreement.

Richard D. Fairbank: The partial quarter impact of the end of the Walmart loss sharing agreement increased the quarterly charge-off rate by 19 basis points; excluding this impact, the charge-off rate for the quarter would have been 5.86%, up 148 basis points year over year. The 30 plus delinquency rate at quarter end was 4.14%, up 40 basis points from the prior year. As a reminder, the end of the Walmart law sharing agreement did not have a meaningful impact on delinquents. 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 second quarter.

Rich: The charge-off rate for the quarter was 6.05 percent. The partial quarter impact of the end of the Walmart loss-sharing agreement increased the quarterly charge-off rate by 19 basis points.

Rich: Excluding this impact, the charge-off rate for the quarter

Rich: would have been 5.86% up 148 basis points year over year. The 30 plus delinquency rate at quarter end was 4.14%.

Richard Fairbank: As a reminder, the end of the Walmart lost sharing agreement did not have a meaningful impact on the delinquency rate. The pace of year-over-year increases in both the charge-off rate and the delinquency rate have been steadily declining for several quarters and continued to shrink in the second quarter. On a sequential quarter basis, the charge-off rate excluding the Walmart impact was down 8 basis points, and the 30 plus delinquency rate was down 34 basis. Domestic card non-interest expense was up 5% compared to the second quarter of 2023, primarily driven by higher marketing expense. Total company marketing expense in the quarter was $1.1 billion, up 20% year over year.

Rich: up 40 basis points from the prior year. As a reminder, the end of the Walmart law sharing agreement did not have a meaningful impact on delinquency rates.

Rich: The pace of year-over-year increases in both the charge-off rate and the delinquency rate have been steadily declining for several quarters and continued to shrink in the second quarter.

Richard D. Fairbank: On a sequential quarter basis, the charge-off rate excluding the Walmart impact was down eight basis points and the 30 plus delinquency rate was down 34 basis points. Domestic card non-interest expense was up 5% compared to the second quarter of 2023, primarily driven by higher marketing. Total company marketing expense in the quarter was $1.1 billion, up 20% year-over-year. Our choices in the domestic card market are the biggest driver of total company market We continue to see compelling growth opportunities in our domestic card business.

Rich: On a sequential quarter basis, the charge-off rate, excluding the Walmart impact, was down 8 basis points, and the 30-plus delinquency rate was down 34 basis points.

Rich: Domestic card non-interest expense was up 5% compared to the second quarter of 2023, primarily driven by higher marketing expense.

Rich: Total company marketing expense in the quarter was $1.1 billion, up 20% year-over-year. Our choices in domestic card are the biggest driver of total company marketing.

Richard Fairbank: Our choices in domestic card are the biggest driver of total company marketing. We continue to see compelling growth opportunities in our domestic card business. Our marketing continues to deliver strong new account growth across the domestic card business compared to the second quarter of 2023. Domestic card marketing in the quarter included increased marketing to grow originations at the top of the marketplace. Higher media spend an increased investment in differentiated customer experiences like our travel portal, airport lounges, and CapitalOne Shopping. Slide 12 shows second quarter results for our consumer banking business. After returning to positive growth last quarter, auto originations were up 18% year over year in the second quarter.

Rich: We continue to see compelling growth opportunities in our domestic card business. Our marketing continues to deliver strong new account growth across the domestic card business. Compared to the second quarter of 2023,

Richard D. Fairbank: Our marketing continues to deliver strong new account growth across the domestic card business. Domestic card marketing in the quarter included increased marketing to grow originations at the top of the marketplace, higher media spend, and increased investment in differentiated customer experiences, like our travel portal, airport lounges, and CapitalOne shopping.

Rich: Domestic card marketing in the quarter included increased marketing to grow originations

Rich: at the top of the marketplace.

Rich: Higher Media Spend and Increased Investment in Differentiated Customer Experiences.

Rich: like our travel portal, airport lounges, and CapitalOne Shopping.

Richard D. Fairbank: Slide 12 shows second quarter results for our consumer banking. After returning to positive growth last quarter, auto originations were up 18% year over year in the second quarter. Consumer banking ending loans were down $1.6 billion, or 2% year over year, and average loans were down 3%. On a linked quarter basis, ending loans were up 1%, and average loans were flat. Compared to the year ago quarter, ending consumer deposits were up about 7%, and average deposits were up 5%.

Rich: Slide 12 shows second quarter results for our consumer banking business.

Rich: After returning to positive growth last quarter, auto originations were up 18% year-over-year in the second quarter.

Richard Fairbank: Consumer banking ending loans were down $1.6 billion, or 2%, year over year, and average loans were down 3%. On a linked quarter basis, ending loans were up 1% and average loans were flat. Compared to the year-ago quarter, ending consumer deposits were up about 7%, and average deposits were up 5%. Consumer banking revenue for the quarter was down about 9% year over year, largely driven by higher deposit costs and lower average loans compared to the prior year quarter. Non-interest expense was up about 2% compared to the second quarter of 2023, driven by an increase in marketing to support our national digital bank.

Rich: Consumer banking ending loans were down $1.6 billion, or 2% year over year, and average loans were down 3%. On a linked quarter basis, ending loans were up 1% and average loans were flat.

Rich: Compared to the year-ago quarter, ending consumer deposits were up about 7% and average deposits were up 5%.

Richard D. Fairbank: Consumer banking revenue for the quarter was down about 9% year over year, largely driven by higher deposit costs and lower average loans compared to the prior year quarter. Non-interest expense was up about 2% compared to the second quarter of 2023, driven by an increase in marketing to support our national digital bank. The auto charge-off rate for the quarter was 1.81%, up 41 basis points year over year. The 30 plus delinquency rate was 5.67%, up 29 basis points year over year, largely as a result of our choice to tighten credit and pull back in 2022. Auto charge-offs have been strong and stable; slide 13 shows the second quarter results for our commercial banking business. Compared to the linked quarter, ending loan balances decreased by about 1%.

Rich: Consumer banking revenue for the quarter was down about 9% year-over-year, largely driven by higher deposit costs and lower average loans compared to the prior year quarter.

Rich: Non-interest expense was up about 2% compared to the second quarter of 2023, driven by an increase in marketing to support our national digital bank. The auto charge-off rate for the quarter

Richard Fairbank: The auto charge-off rate for the quarter was 1.81%, up 41 basis points year over year. The 30 plus delinquency rate was 5.67%, up 29 basis points year over year. Largely as the result of our choice to tighten credit and pull back in 20 to 22, auto charge-off has been strong and stable. Slide 13 shows second quarter results for our commercial banking business. Compared to the linked quarter, ending loan balances decreased about 1%; 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 6% from the linked quarter.

Rich: was 1.81% up 41 basis points year over year.

Rich: The 30-plus delinquency rate was 5.67%, up 29 basis points year over year.

Rich: Largely as a result of our choice to tighten credit and pull back in 2022, auto charge-offs have been strong and stable.

Rich: Slide 13 shows second quarter results for our commercial banking business.

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 6% from the length of the quarter.

Rich: Compared to the linked quarter, ending loan balances decreased about 1%. Average loans were also down about 1%. The modest declines are largely the result of choices we made in 2023 to tighten credit.

Richard Fairbank: Average deposits were down about 3%. The declines are largely driven by our continued choices to manage down selected less attractive commercial deposit balances. Second quarter revenue was essentially flat from the linked quarter, and non-interest expense was lower by about 6%. percent. The commercial banking annualized net charge-off rate for the second quarter increased two basis points from the sequential quarter to 0.15%. The commercial banking criticized performing loan rate was 8.62%, up 23 basis points compared to the length quarter. The criticized non-performing loan rate increased 18 basis points to 1.46%.

Rich: Ending deposits were down about 6% from the length quarter. Average deposits were down about 3%. The declines are largely driven by our continued choices to manage down selected less attractive commercial deposit balances.

Richard D. Fairbank: Average deposits were down about 3%. The declines are largely driven by our continued choices to manage down selected less attractive commercial deposit balances. Second quarter revenue was essentially flat from the length of the quarter, and non-interest expense was lower by about six. The Commercial Banking annualized net charge-off rate for the second quarter increased two basis points from the sequential quarter to 0.15%. The Commercial Banking Criticized Performing Loan Rate was 8.62%, up 23 basis points compared to the length of the quarter.

Rich: Second quarter revenue was essentially flat from the late quarter and non interest expense was lower by about six percent.

Rich: The commercial banking annualized net charge-off rate for the second quarter increased two basis points from the sequential quarter to 0.15%.

Rich: The Commercial Banking criticized performing loan rate was 8.62%, up 23 basis points compared to the length quarter.

Richard D. Fairbank: The Criticized Non-Performing Loan Rate increased 18 basis points to 1.46%. In closing, we continued to deliver strong results in the second quarter. We delivered another quarter of top-line growth in domestic card loans, purchase volume, and revenue, and a second consecutive quarter of year-over-year growth in auto origination. Consumer credit trends continued to show stability, and our operating efficiency ratio improved. We had guided to the 2024 annual operating efficiency ratio, net of adjusted, to be flat to modestly down compared to 2023.

Rich: The criticized non-performing loan rate increased 18 basis points to 1.46 percent.

Richard Fairbank: In closing, we continued to deliver strong results in the second quarter. We delivered another quarter of top line growth in domestic card loans, purchase volume, and revenue, and a second consecutive quarter of year-over-year growth in auto origination. Consumer credit trends continued to show stability, and our operating efficiency ratio improved. We had guided to 2024 annual operating efficiency ratio, net of adjustment, to be flat to modestly down, compared to 2023, assuming the CFPB latency rule takes effect in October, and we're on a very consistent path with what we expected when we gave that guidance. If the implementation of the rule is delayed, that would be a tailwind to 2024 annual operating efficiency ratio.

Rich: In closing, we continue to deliver strong results in the second quarter.

Speaker Change: We delivered another quarter of top-line growth in domestic card loans, purchase volume, and revenue, and a second consecutive quarter of year-over-year growth in auto origination.

Speaker Change: Consumer credit trends continued to show stability and our operating efficiency ratio improved.

Speaker Change: We had guided to 2024 Annual Operating Efficiency Ratio, Net of Adjustment.

Richard D. Fairbank: Assuming the CFPB late fee rule takes effect in October, and we're on a very consistent path with what we expected when we gave that guide. If the implementation of the rule is delayed, that would be a tailwind to 2020 for annual operating efficiency. One thing that has changed is the Walmart relationship. Our partnership ended in the second quarter, which will increase charge-off rates but have a positive impact on operating efficiency ratio. Including the Walmart impact, we expect full year 2024 operating efficiency ratio net of adjustment to be modestly down compared to 2023.

Speaker Change: to be flat to modestly down.

Speaker Change: compared to 2023, assuming the CFPB late fee rule takes effect in October . And we're on a very consistent path with what we expected when we gave that guidance.

Speaker Change: If the implementation of the rule is delayed, that would be a tailwind to 2020 for annual operating efficiency ratio.

Richard Fairbank: One thing that has changed is the Walmart relationship. Our partnership ended in the second quarter, which will increase charge-off rates, but have a positive impact on operating efficiency ratio. Including the Walmart impact, we expect full year 2024 operating efficiency ratio, net of adjustment, to be modestly down compared to 2023. We continue to lean into marketing, to grow, and to further strengthen our franchise. In the domestic card business, we continue to get traction in originations across our products and channels, and our origination opportunities are enhanced by our technology transformation, which enables us to leverage machine learning at scale to identify the most attractive growth opportunities and customize our marketing offers.

Speaker Change: One thing that has changed is the Walmart relationship. Our partnership ended in the second quarter, which will increase charge off rates, but have a positive impact on operating efficiency ratio.

Speaker Change: Including the Walmart impact, we expect full year 2024 operating efficiency ratio net of adjustments to be modestly down compared to 2023.

Richard D. Fairbank: We continue to lean into marketing to grow and further strengthen our brand. In the domestic card business, we continue to get traction and originations across our products and channels. And our origination opportunities are enhanced by our technology transformation, which enables us to leverage machine learning at scale to identify the most attractive growth opportunities and customize our marketing offering.

Speaker Change: We continue to lean into marketing to grow and to further strengthen our franchise.

Speaker Change: In the domestic card business, we continue to get traction and originations across our products and channels.

Speaker Change: and our origination opportunities are enhanced by our technology transformation, which enables us to leverage machine learning at scale to identify the most attractive growth opportunities and customize our marketing offers.

Richard Fairbank: We're also getting traction in building our franchise at the top of the market with heavy spenders. It is not lost on us that competitive intensity and marketing levels are increasing at the very top of the market, and we know we have important investments to make. We continue and we're building an enduring franchise with anewity-like revenue streams, very low losses, and very low attrition. In consumer banking, our modern technology and leading digital capabilities are powering our digital-first national banking strategy, and we're leaning even harder into marketing to grow our national checking franchise, which has had industry-leading pricing with no fees and industry-leading customer satisfaction.

Richard D. Fairbank: We're also getting traction in building our franchise at the top of the market with heavy spend. It is not lost on us that competitive intensity and marketing levels are increasing at the very top of the market, and we know we have important investments to make. We continue to be pleased to see our investments pay off.

Speaker Change: We're also getting traction in building our franchise at the top of the market with heavy spenders.

Speaker Change: It is not lost on us that competitive intensity and marketing levels are increasing at the very top of the market, and we know we have important investments to make.

Richard D. Fairbank: Customer and Spend Growth and Return. And we're building an enduring franchise with annuity-like revenue streams, very low loss, and very low attrition in Consumer Bank. Our modern technology and leading digital capabilities are powering our digital first national banking strategy.

Speaker Change: We continue to be pleased to see our investments pay off in...

Speaker Change: Customer and Spend Growth and Returns. And we're building an enduring franchise with annuity like revenue streams, very low losses, and very low attrition.

Speaker Change: and Consumer Banking.

Speaker Change: Our modern technology and leading digital capabilities are powering our digital-first national banking strategy.

Richard D. Fairbank: And we're leaning even harder into marketing to grow our national checking franchise, which has industry-leading pricing with no fees and industry-leading customer satisfaction. Pulling up marketing is a key driver of current and future growth and value creation across the company, and we're leaning hard into our marketing investment. We expect total company marketing in the second half of 2024 to be meaningfully higher than the first half, similar to the pattern we saw last year. We are all in and working hard to complete the DISCOVER Act.

Speaker Change: And we're leaning even harder into marketing to grow our national checking franchise, which has had industry-leading pricing with no fees and industry-leading customer satisfaction.

Richard Fairbank: Action. Pulling up, marketing is a key driver of current and future growth and value creation across the company, and we're leaning hard into our marketing investment. We expect total company marketing in the second half of 2024 to be meaningfully higher than the first half, similar to the pattern we saw last year. We are all in and working hard to complete the Discover acquisition. Our applications for regulatory approval are in process, and we're fully mobilized to plan and deliver a successful integration. We continue to expect that we'll be in a position to complete the acquisition late this year or early next year, subject to regulatory and shareholder approval.

Speaker Change: Pulling up marketing is a key driver of current and future growth and value creation across the company and we're leaning hard into our marketing investments.

Speaker Change: We expect total company marketing in the second half of 2024 to be meaningfully higher than the first half, similar to the pattern we saw last year.

Speaker Change: We are all in and working hard to complete the Discover Acquisition.

Richard D. Fairbank: Our applications for regulatory approval are in the process, and we're fully mobilized to plan and deliver a successful integration. We continue to expect that we'll be in a position to complete the acquisition late this year or early next year, subject to regulatory and shareholder approval. The combination of CapitalOne and Discover creates game-changing strategic opportunities for Discover payments network positions CapitalOne as a more diversified vertically integrated global payments platform, and adding CapitalOne'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.

Speaker Change: Our applications for regulatory approval are in process, and we're fully mobilized to plan and deliver a successful integration.

Speaker Change: We continue to expect that we'll be in a position to complete the acquisition late this year or early next year, subject to regulatory and shareholder approval.

Richard Fairbank: The combination of CapitalOne and Discover creates game-changing strategic opportunities. The Discover payments network positions CapitalOne as a more diversified vertically integrated global payments platform, and adding CapitalOne'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 credit cards and consumer banking, we're bringing together proven franchises with complementary strategies and a shared focus on the customer. And we will be able to leverage and scale the benefits of our 11-year technology transformation across every business and the network.

Speaker Change: The combination of CapitalOne and Discover creates game-changing strategic opportunities.

Speaker Change: The Discover Payments Network positions CapitalOne as a more diversified, vertically integrated global payments platform.

Speaker Change: And adding CapitalOne'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.

Richard D. Fairbank: In credit cards and consumer banking, we're bringing together proven franchises with complementary strategies and a shared focus on the customer. And we will be able to leverage and scale the benefits of our 11-year technology transformation across every business and the network. Pulling out the acquisition of Discover is a singular opportunity.

Speaker Change: In credit cards and consumer banking, we're bringing together proven franchises with complementary strategies and a shared focus on the customer.

Speaker Change: And we will be able to leverage and scale the benefits of our 11-year technology transformation across every business and the network.

Richard Fairbank: Pulling way up, the acquisition of Discover is a singular opportunity. 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 offers the potential to create significant value for merchants and customers.

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 offers the potential to create significant value for merchants and customers. And now, we'll be happy to answer your questions, Jeff. Thanks, Rich.

Speaker Change: Pulling way up. The acquisition of Discover is a singular opportunity.

Speaker Change: 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.

Speaker Change: It delivers compelling financial results and offers the potential to create significant value for merchants and customers.

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

Jeff Norris: Jeff? Thanks, Rich.

Speaker Change: And now we'll be happy to answer your questions. Jeff?

Jeff Norris: We'll now start the Q&A session. As a courtesy to other investors and analysts who may wish to ask a question, please limit yourself to one question plus a single follow-up. If you have any 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.

Jeff Norris: Thanks, Rich. We'll now start the Q&A session.

Jeff Norris: As a courtesy to other investors and analysts who may wish to ask a question, please limit yourself to one question plus a single follow-up.

Speaker Change: And if you have any 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. Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for questions.

Operator: To withdraw your question, please press star one one again. One moment for questions. Our first question comes from Sanjay Sakhrani with KVW. You may proceed. Thanks.

Speaker Change: Josh, please start the Q&A.

Josh: Thank you. To ask a question please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 1 again.

Sanjay Sakhrani: Rich, Andrew, just looking at the credit metrics, as Rich mentioned, it seems like the trends are pretty favorable. I mean, in most segments, things are improving, if not stable, and then US card, there's an improving trend in that second derivative. I'm just curious how we should think about reserve rates going forward, because I think even excluding the Walmart impact, the reserve rate went higher. Sure, Sanjay.

Sanjay Sakrani: Our first question comes from Sanjay Sakrani with KBW. You may proceed. Thanks. Rich Andrews is looking at the credit metrics. As Rich mentioned, it seems like the trends are pretty favorable. I mean, in most segments, things are improving, if not stable, and then US card, there's an improving trend in that second derivative.

Speaker Change: One moment for questions. Our first question comes from Sanjay Sakhrani with KBW. You may proceed.

Sanjay Sakhrani: Thanks. Rich, Andrew, just looking at the credit metrics, as Rich mentioned, it seems like

Sanjay Sakhrani: The trends are pretty favorable. I mean, in most segments, things are improving, if not stable. And then U.S. card, there's an improving trend in that second derivative. I'm just curious how we should think about reserve rate going forward, because I think even excluding the Walmart impact, the reserve rate went higher.

Andrew Young: I'm just curious how we should think about reserve rate going forward, because I think even excluding the Walmart impact, the reserve rate went higher. Sure, Sanjay.

Andrew Young: Well, let me start by covering this quarter's allowance, and then I'll talk about the future. So in the quarter, as you said, first, we had the effect of Walmart, the $826 million bill that we spelled out as an adjusting item. We also reserved for the growth we saw in the quarter. Beyond that, coverage in CARD, as you referenced, grew. I think it was just over 10 basis points, which is a little over 1% of the allowance balance.

Andrew Young: Well, let me start by covering this quarter's allowance, and then I'll talk about the future. So, in the quarter, as you said, first we had the effect of Walmart, the $826 million bill that we spelled out as an adjusting item. We also reserved for the growth we saw in the quarter. Beyond that, coverage in card, as you referenced, grew; I think it was just over 10 basis points, which is a little over 1% of the allowance balance. So, as part of that process, each quarter, not only are we rolling forward our baseline forecast, but we're also looking at a range of macroeconomic and consumer behavior uncertainties, including things like the changing seasonal customer behavior we talked about last quarter.

Sanjay Sakhrani: Sure, Sanjay. Well, let me start by covering this quarter's allowance, and then I'll talk about the future.

Sanjay: So, in the quarter, as you said, you know, first we had the effect of Walmart, the $826 million bill that we spelled out as an adjusting item.

Sanjay: We also reserved for the growth we saw in the quarter.

Sanjay: You know, beyond that, coverage in CARD, as you referenced, grew, I think it was just over 10 basis points, which is a little over.

Andrew Young: And so as part of that process, each quarter, not only are we, you know, rolling forward our baseline forecast, but we're also looking at, you know, a range of macroeconomic and consumer behavior uncertainties, including things like the changing seasonal customer behavior we talked about last quarter. And so as a result, this quarter, we increase the qualitative factors to reflect those uncertainties. And that's what drove the modest increase in coverage this quarter.

Sanjay: 1% of the allowance balance. And so as part

Sanjay: of that process each quarter. Not only are we, you know, rolling forward our baseline forecast, but we're also looking at, you know, a range of

Sanjay: macroeconomic and consumer behavior uncertainties including, you know, things like the changing seasonal customer behavior we talked about last quarter.

Andrew Young: And so, as a result, in this quarter, we increase the qualitative factors to reflect those uncertainties, and that's what drove the modest increase in coverage this quarter.

Sanjay: And so, as a result, in this quarter, we increased the qualitative factors to reflect those uncertainties, and that's what drove the modest increase in coverage this quarter.

Andrew Young: as I look ahead and you know talking conceptually here but in a period where projected loss rates in future quarters are projected to stabilize and ultimately decline and might indicate decline in the coverage ratio. I would say you could very well see a coverage ratio that you know remains flat for some period of time as we incorporate the uncertainty of those future projections into the allowance. And you know in a period where forecasted losses are rising, you know we're quick to incorporate those higher forecasted losses and also potentially add qualitative factors for uncertainty, like you saw early in the pandemic. But I would say it is unlikely to be symmetric on the way down.

Andrew Young: As I look ahead, and you know, talking conceptually here, but in a period where projected loss rates in future quarters are projected to stabilize and ultimately decline and might indicate a decline in the coverage ratio, I would say you could very well see a coverage ratio that, you know, remains flat for some period of time as we incorporate the uncertainty of those future projections into the allowance. And, you know, in a period where forecasted losses are rising, we're quick to incorporate those higher forecasted losses and also potentially add qualitative factors for uncertainty like you saw early in the pandemic. But I would say it is unlikely to be symmetric on the way down.

Sanjay: As I look ahead and, you know, talking conceptually here, but in a period where

Sanjay: Projected loss rates in future quarters are projected to stabilize and ultimately decline and might indicate a decline in the coverage ratio. I would say you could very well see a coverage ratio that, you know, remains.

Sanjay: flat for some period of time as we incorporate the uncertainty of those.

Sanjay: future projections into the allowance and you know, in a period where

Sanjay: Forecasted losses are rising, you know, we're quick to incorporate those higher forecasted losses and also potentially add qualitative factors for uncertainty like you saw early in the pandemic, but I would say it is

Andrew Young: And so you know eventually the projected, you know, stabilizing and ultimately lower losses will flow through the allowance, particularly as the uncertainties around that forecast become more certain. But you know, at this point, I'm not going to be in the business of forecasting when that's actually going to take place for us.

Sanjay: unlikely to be symmetric on on the way down.

Richard D. Fairbank: And so, you know, eventually, the projected stabilizing and ultimately lower losses will flow through the allowance, particularly as the uncertainties around that forecast become more certain. But, you know, at this point, I'm not going to be in the business of forecasting when that's actually going to take place for us. And then Rich, maybe you could just talk about the consumer and sort of the uncertainties there. Is there any discernible change that you've seen since the last quarter in terms of the state of the consumer? We've obviously seen the spending trend sort of slow somewhat across the industry. But anything else to sort of point out?

Sanjay: And so, you know, eventually the projected, you know, stabilizing and ultimately lower losses will flow through the allowance.

Sanjay: particularly as the uncertainties around that forecast become more certain, but at this point I'm not going to be in the business of forecasting when that's actually going to take place for us.

Sanjay Sakrani: And then, Rich, maybe you could just talk about the consumer and sort of the uncertainties there. Is there any discernible like change that you've seen since the last quarter in terms of the state of the consumer? We've obviously seen the spending trends sort of slow somewhat across the industry, but anything else to sort of point out. Sanjay, I think what we see is something that's very stable. You know, the US consumer remains a source of strength in the overall economy. Of course, the labor market remains strikingly resilient; rising incomes have kept consumer debt servicing burdens relatively low by historical standards, despite high interest rates.

Sanjay: And then, Rich, maybe you could just talk about the consumer and sort of the uncertainties there. Is there any discernible change that you've seen since the last quarter in terms of the state of the consumer?

Rich: seen the spending trend sort of slow somewhat across the industry, but anything else to sort of point out?

Richard D. Fairbank: Sanjay, I think what we see is something that's very stable. You know, the US consumer remains a source of strength in the overall economy. And, of course, the labor market remains strikingly resilient.

Rich: Sanjay, I think what we see is something that's very stable.

Sanjay: You know, the U.S. consumer remains a source of strength in the overall economy. Of course, the labor market remains strikingly resilient.

Richard D. Fairbank: Rising incomes have kept consumer debt servicing burdens relatively low by historical standards despite high interest rates. When we look at our customers, we see that on average, they have higher bank balances than before the pandemic. And this is true across income levels. You know, on the other hand, inflation shrank real incomes for almost two years, and we've only recently seen real wage growth turn positive again. And, you know, in this high interest rate environment, the cost of new borrowing has gone up for every major asset class, including mortgages, auto loans, and credit cards.

Sanjay: Rising incomes have kept consumer debt servicing burdens relatively low by historical standards despite high interest rates.

Richard Fairbank: You know when we look at our customers, you know we see that on average they have higher bank balances than before the pandemic, and this is true across income levels. You know, on the other hand, inflation shrank real incomes for almost two years, and we've only recently seen real wage growth turn positive again. And you know in this high interest rate environment, the cost of new borrowing has gone up in every major asset class: mortgages, auto loans, and credit cards. So we'll obviously keep an eye on that. And I think it's a margin; these effects are almost certainly stretching some consumers financially, but on the whole, I think I'd say consumers are in reasonably good shape relative to most historical benchmarks. And, you know, as our credit numbers came on and.

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

Speaker Change: You know, on the other hand, inflation shrank real incomes for almost two years, and we've only recently seen real wage growth turn positive again.

Speaker Change: And, you know, in this high interest rate environment, the cost of new borrowing has gone up in every major asset class, mortgages, auto loans.

Richard D. Fairbank: So we'll obviously keep an eye on that, and I think, at the margin, these effects are almost certainly stretching some consumers financially. But on the whole, I think I'd say consumers are in reasonably good shape relative to most historical benchmarks. And, you know, as our credit numbers came in, month by month, the person you're trying to reach is not available. At the tone, please record your message. When you have finished, can you hear me? Can you still hear me?

Speaker Change: and Credit Card, so we'll obviously keep an eye on that. And I think at the margin, these effects are almost certainly stretching some consumers.

Speaker Change: Financially, but on the whole, I'd say consumers are in reasonably good shape relative to most historical benchmarks and you know, as our

Unknown Attendee: The person you're trying to reach is not available. At the tone, please record your message. When you have finished. Can you hear me? Can you still hear me? You can hear me, okay? I just had some cross the message coming in on my phone, but. The, but with respect to credit, we were very pleased with credit performance in the quarter.

Speaker Change: credit numbers came in month by month.

Richard D. Fairbank: You can hear me okay. I just had some cross-talk in the message coming in on my phone, but, the but, with respect to credit, we were very pleased with credit performance in the quarter. You know, we had, we talked a bit about the seasonality, maybe people want to ask questions about that, but we saw basically, we see things settling out nicely in the card business, and their things are very strong in the, Thank you. Our next question comes from Mihir Bhatia with Bank of America. You may proceed. Hi, thanks for taking my question. Maybe just turn to Nim for a second.

Speaker Change: Can you still hear me?

Speaker Change: You can hear me okay. I just had some cross the message coming in on my phone, but

Speaker Change: But with respect to credit, we were very pleased with the credit performance in the quarter.

Richard Fairbank: We had talked a bit about the seasonality; maybe people want to ask questions about that, but we saw basically pulling up, we see things settling out nicely in the card business and their things are very strong in the auto business. Thank you.

Speaker Change: We had talked a bit about seasonality. Maybe people want to ask questions about that. But we saw it basically pulling up. We see things settling out nicely in the car business, and things are very strong in the auto business.

Mihir Bhatia: You know, with the Fed, or at least expectations for rate cuts coming into view, can you just comment on the current backdrop for deposit competition? How do you and what do you expect deposit betas to trend during the early stages of the Fed's rate-cutting cycle? Sure, Mihir.

Speaker Change: Thank you.

Mihir Bhatia: Hi, next question comes from here, Bhatia with Bank of America; you may proceed. Hi, thanks for taking my question. Maybe I'm just starting to nimb for a second, you know, with the Fed, or at least expectations for rate cuts coming into view. Can you just comment on the current backprop for deposit competition? How do you expect deposit betas to trend during the early stages? Of the Fed rate cutting side? Sure, Mihir, what we've seen at least within our walls, and you saw evidence of it this quarter, in a quarter where seasonally you typically see decline in deposit balances. Looking at H8 data, we saw a few, I think it was $4 billion of growth.

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

Mihir Bhatia: Hi, thanks for taking my question. Maybe just turning to Nim for a second. You know, with the Fed,

Mihir Bhatia: or at least expectations for rate cuts coming into view. Can you just comment on the current backdrop for deposit competition? How do you, and how do you expect deposit betas to trend during the early stages of the Fed rate cutting cycle?

Andrew Young: What we've seen, at least within our walls, and you saw evidence of it this quarter, in a quarter where seasonally you typically see a decline in deposit balances, looking at H8 data, we saw a few, I think it was $4 billion of growth. We've been quite pleased over the course of the last couple of years with all of the investments we've made over many years in building a deposit franchise and are certainly benefiting from that.

Mihir Bhatia: Sure, Mihir. What we've seen, at least within our walls, and you saw it, the evidence of it this quarter.

Speaker Change: In a quarter where seasonally you typically see a decline in deposit balances, looking at H8 data, we saw a few, I think it was $4 billion of growth.

Andrew Young: We've been quite pleased over the course of the last couple of years with all of the investment we've made over many years in building a deposit franchise and are certainly benefiting from that. And so, with respect to the beta going forward, you know, first looking at what we saw in the up cycle here in the total cumulative beta that we've seen in this cycle this quarter, I think cumulatively, with 62%. And so, assuming that the Fed's next move is to bring rates down, it's hard to precisely predict what's going to happen to deposit costs and therefore betas.

Speaker Change: We've been quite pleased over the course of the last couple of years with all of the investments we've made over many years in building

Andrew Young: And so with respect to the beta going forward, you know, first looking at what we saw in the upcycle here, the total cumulative beta that we've seen in this cycle this quarter, I think, cumulatively, was 62%. And so assuming that the Fed's next move is to bring rates down, it's hard to precisely predict what's going to happen to deposit costs and, therefore, betas.

Speaker Change: Deposit.

Mihir Bhatia: franchise, and are certainly benefiting from that. And so with respect to the beta going forward,

Speaker Change: You know first looking at what we saw in the up cycle here, you know the the total Cumulative beta that we've seen in this cycle this quarter. I think cumulatively was 62 percent

Speaker Change: And so, assuming that the Fed's next move is to bring rates down, it's...

Mihir Bhatia: Hard to precisely predict.

Andrew Young: And in particular, the pace of those declines because, you know, market dynamics, competitive pricing actions, other actions related to companies looking to potentially preserve NIM are going to drive betas in the future cycle. But, you know, I think you get a pretty good sense for our pricing and mix based on what you saw in the up cycle. And within that backdrop that I just described, that's going to influence what happens to our beta on the way down. Alright, that's helpful.

Andrew Young: And in particular, the pace of those declines because market dynamics, competitive pricing, actions, other actions related to companies looking to potentially preserve NIM. That's going to drive betas in the future cycle, but I think you get a pretty good sense for our pricing and mixed based on what you saw in the up cycle. And within that backdrop that I just described, that's going to influence what happens to our beta on the way down.

Mihir Bhatia: What's going to happen to deposit costs and therefore betas and in particular the pace?

Mihir Bhatia: of those declines because, you know, market dynamics.

Mihir Bhatia: Competitive Pricing Actions.

Mihir Bhatia: Other actions related to companies looking to potentially preserve NIM, that's going to drive betas in the future cycle. But, you know, I think you get a pretty good sense for our pricing and mix based on what you saw in the up...

Mihir Bhatia: cycle and within that backdrop that I just described that's going to influence what happens to our our beta on the way down.

Mihir Bhatia: Thank you. And then just switching back to the health of the customer overall. As you look across your portfolio, you know, we've heard a little bit of talk about people pulling back, particularly on discretionary spend and low income cohorts, etc. Is that a dynamic you are also seeing when you look at your customer base? And then relatedly, you know, Rich mentioned how pleased he is with the progress you're making on the higher income side, if you will, on the big transactor side, in that high, high end transactor balance side. I was just wondering, how does that change your portfolio as you think about it, like over the next few years, like, you know, as you grow that book further? Uh, yes. Well, thank you so much.

Mihir Bhatia: That's helpful, thank you.

Mihir Bhatia: And then just switching back to the health of the customer overall, if you look across your portfolio, you know, we've heard a little bit of talk about people pulling back, particularly on discretionary spend and low-income cohorts, etc. Is that a dynamic you are also seeing when you look at your customer base? And then, relatedly, you know, Rich mentioned how pleased he is with the progress you're making on the higher income side, if you will, on the big on the transactor in that high end transactor balance side. I was just wondering how does that change your portfolio as you think about it, like over the next few years, like, you know, as you grow that photo.

Speaker Change: for that helpful. Thank you. And then just

Speaker Change: Switching back to the health of the festival overall.

Speaker Change: As you look across your portfolio, you know, we've heard a little bit of talk about people pulling back, particularly on discretionary spend and low income cohorts, etc. Is that a dynamic you are also seeing when you look at your customer base? And then relatedly, you know, Rich mentioned,

Rich: How pleased he is with the progress you're making on the

Speaker Change: I'm on the higher income side, if you will, on the big on the transactor, in that high end transactor balance side. I was just wondering, how does that change your portfolio as you think about it, like over the next few years, as you grow that book further?

Richard Fairbank: Yes.

Richard D. Fairbank: Just with respect to spending, you know, we see pretty proportional movement in discretionary versus non-discretionary spending, nothing really striking there with Portfolio Spending. [inaudible] You know, the spend per customer is really pretty flat. You know, when you see spend growth at a company like CapitalOne, the purchase volume growth is really being driven by, you know, new accounts. So things are really pretty stable, flat, and stable healthy, but pretty flat on a per customer basis.

Richard Fairbank: Well, thank you so much. Just with respect to spending, you know, we see pretty proportional movement in discretionary versus non-discretionary spending. Nothing really striking there when we look at the portfolio spending metrics. You know, the spend, the spend per customer is really pretty flat. You know, when you see spend growth at a company like Capital One, the purchase volume growth is really being driven by, you know, the new accounts. So things are really pretty stable, flat and stable, healthy, but pretty flat on a per customer basis.

Speaker Change: Yes, well, thank you so much. Just with respect to...

Speaker Change: Spending, you know, we see pretty proportional movement in discretionary versus non-discretionary spending. Nothing really striking there when we look at the portfolio spending.

Speaker Change: Metrics.

Speaker Change: You know the spend

Speaker Change: The spend per customer is really pretty flat, you know, when you see spend growth at a company like CapitalOne, the purchase volume growth is really being driven by, you know, the new accounts.

Speaker Change: So things are really pretty.

Speaker Change: stable flat and stable healthy but but pretty flat on a per customer basis

Richard D. Fairbank: With respect to the question about the gradual transition of our portfolio to higher-end customers, let me just pull up and talk about that. We have, you know, for decades been a company that sort of serves the mass market, really from the top of the credit spectrum through to, you know, even down to some subprime customers. And we have continued very consistently with this strategy.

Richard Fairbank: With respect to the question about the gradual transition of our portfolio to a higher-end customer, let me just pull up and talk about that. We have, you know, for decades been a company that sort of serves the mass market really from the top of the credit spectrum through to, you know, even down to some subprime customers. And we have continued very consistently with this strategy. Probably the most striking thing, though, that happened over the last 10 or 14 years, I guess 14 years ago, is when we launched the venture card. We have systematically leaned into going after the top of the market, not leaving the other behind, but really as an additive strategy.

Speaker Change: With respect to the question about the

Speaker Change: There.

Speaker Change: gradual transition of our portfolio to a higher end.

Speaker Change: Customer.

Speaker Change: Let me just pull up and talk about that. We have, you know, for decades, been a company that sort of serves the mass market, really from the top of the credit spectrum, through to

Speaker Change: You know, even down to some subprime customers.

Richard D. Fairbank: Probably the most striking thing, though, that's happened over the last 10 or 14 years; I guess 14 years ago is when we launched the venture card. We have systematically leaning into going after the top of the market, not leaving the others behind, but really as an additive strategy. And we have continued through our marketing and through the products that we're offering to just keep moving higher and higher in terms of the target customers and the traction that we're getting. And by the way, even as we're growing purchase volume overall, where we see the highest growth rates in purchase volume are as we go higher in the market. So we're very happy about that.

Speaker Change: And we have continued very consistently with this strategy, probably the most striking thing, though, that's happened over the last ten or...

Speaker Change: 14 years, I guess 14 years ago is when we launched the Venture Card.

Speaker Change: We have systematically leaned into going after

Speaker Change: Bye-bye.

Speaker Change: the top of the market, not leaving the other behind, but really as an additive strategy.

Richard Fairbank: And we have continued through our marketing and through the products that we're offering to just keep moving higher and higher in terms of the target customers and the traction that we're getting. And by the way, we continue even as we're growing purchase volume overall, where we see the highest growth rates in purchase volume are as we go higher in the market. So we're very happy about that. And when we think about the portfolio effects that happened there, this is one thing that we see: payment rates have, along that journey, gone up quite a bit at Capital One. And when we look to see our payment rates coming back to where they were pre-pandemic, they sort of, you know, they probably just aren't going to return all the way because that would be a reflection of the portfolio shift.

Speaker Change: And we have continued, through our marketing and through the products that we're offering,

Speaker Change: just keep moving higher and higher.

Speaker Change: in terms of the target customers and the traction that we're getting. And by the way, we continue.

Speaker Change: Even as we're growing purchase volume overall, where we see the highest growth rates in purchase volume are as we go higher in the market. So we're very happy about that. And when we think about the portfolio effects,

Richard D. Fairbank: And when we think about the portfolio effect, that happened there, this is one thing that we see is that payment rates have, along that journey, gone up quite a bit at Capital One. And when we look to see our payment rates coming back to where they were pre-pandemic, they, sort of, you know, they probably just aren't going to return all the way because that would be a reflection of the portfolio shift.

Speaker Change: that happened there. This is one thing that we see is that.

Speaker Change: payment rates.

Speaker Change: have

Speaker Change: along that journey.

Speaker Change: gone up quite a bit at CapitalOne. And when we look to see our payment rates coming back to where they were pre pandemic, they they sort of, you know, they probably just aren't going to return all the way because that would be a reflection of the portfolio shift.

Richard Fairbank: We just, in general, have had the kind of makeshift that you'd expect with higher payment rates. And just higher levels of spend, higher spend rates in the business, and that's been very successful. But from an outstanding point of view, it doesn't; the top of the market business doesn't have that much impact on outstanding because these folks generally pay in full. So, you know, when you see the outstanding movements of Capital One, it's pretty consistently driven by the mass market part of our business. It's just that inside some of the portfolio metrics are moving because of the makeshift toward more spenders.

Richard D. Fairbank: We just, in general, have had the kind of mix shift that you'd expect with, you know, higher payment rates. Unknown Speaker, just higher levels of spend in the business, and that's been very successful. So, but from an outstanding point of view, it doesn't the top of the market business doesn't have that much impact on outstanding because these folks generally pay in full.

Speaker Change: We just, in general, have had the kind of mixed ship that you'd expect with, you know, higher payment rates.

Speaker Change: just higher levels of spend, higher spend rates.

Speaker Change: in the business, and that's been very successful.

Speaker Change: So, but from an outstandings point of view, it doesn't, the top of the market business doesn't have that much impact on outstandings because these folks generally pay in full.

Richard D. Fairbank: So, you know, when you see the outstanding movement of CapitalOne, it's pretty consistently driven by the mass market part of our business. It's just that inside some of the portfolio metrics are moving because of the makeshift toward more spend. Next question, please. Our next question comes from Rick Shane with JP Morgan. You may proceed.

Speaker Change: So, you know, when you see the, the outstanding movement of CapitalOne, it's

Speaker Change: pretty consistently driven by the mass market part of our business. It's just that inside some of the portfolio metrics are moving because of the mixed shift toward more spenders.

Rick Shane: Next question, please. Our next question comes from Rick Shane with JP Morgan. You may proceed. Thanks for taking my question this afternoon. Look, given the breadth of your reach across the consumer income levels, can you talk a little bit about sort of any patterns that you're seeing? We've heard, for example, some slowdown in spending for lower-income consumers. I'm curious; particularly, you'd made a comment earlier in the quarter about an increase in minimum payment rates. I'm curious if you're seeing anything in terms of payment behavior that we should consider by income level. Yeah, okay.

Speaker Change: Next question, please.

Rick Shane: Thanks for taking my question this afternoon. Um, given the breadth of your reach across consumer income levels, can you talk a little bit about sort of any patterns that you're seeing? We've heard, for example, some slowdown in spending for lower income consumers.

Speaker Change: Our next question comes from Rick Shane with J.P. Morgan. You may proceed.

Rick Shane: Thanks for taking my question this afternoon. Um, look, given the breadth of your

Rick Shane: reach across the consumer income levels. Can you talk a little bit about

Speaker Change: Sort of.

Speaker Change: Any patterns that you're seeing we've heard, for example,

Richard D. Fairbank: I'm curious, particularly you made a comment earlier in the quarter about an increase in minimum payment rates. I'm curious if you're seeing anything in terms of payment behavior that we should consider by income level.

Speaker Change: Some slowdown in spending for lower income consumers.

Speaker Change: I'm curious, particularly, you'd made a comment earlier in the quarter about

Speaker Change: An increase in minimum payment rates. I'm curious if you're seeing anything in terms of payment behavior that we should consider by income level.

Richard Fairbank: So let's just pull up for a minute on just talking about how the subprime consumer is holding up. So, you know, way back in the global financial crisis, we observed that credit metrics in subprime moved earlier in both directions. Subprime also worsened less on a percentage basis than prime, but of course, it, you know, in absolute delcus, it still moved more. In the pandemic, subprime credit moved more and more quickly than prime. It normalized more quickly and appears to be stable and appeared basically to stabilize sooner as well. And, you know, that's in the context of lower income consumers seeing disproportionate benefits of government aid and, you know, for variance on, on financial products and then the unwinding of that over time.

Speaker Change: Yeah, okay, so...

Richard D. Fairbank: Okay, so, let's just pull up for a minute on just talking about how the subprime consumer is holding up. You know, way back in the global financial crisis, we observed that credit metrics and subprime moved earlier in both directions; subprime also worsened less on a percentage basis than prime, but of course, in absolute deltas, it still moved more. In the pandemic, subprime credit moved more and more quickly than price; it normalized more quickly and appears to be stable, and appeared basically to stabilize sooner as well.

Speaker Change: Let's just pull up for a minute on just talking about how the subprime consumer is holding up.

Speaker Change: also worsened less on a percentage basis.

Speaker Change: than prime, but of course it, it, you know, in, in absolute deltas, it's still moved more.

Speaker Change: In the pandemic, subprime credit moved more and more quickly than prime.

Speaker Change: It normalized more quickly and appears to be stable and appeared basically to stabilize sooner as well

Richard D. Fairbank: And, you know, that's in the context of lower income consumers seeing disproportionate benefits of government aid and, you know, forbearance on financial products and then the unwinding of that over time. And so, subprime is, of course, not synonymous with lower income, although they're correlated. And we saw these effects across credit, you know, both in talking about the credit spectrum and also the income gradient.

Speaker Change: And, you know, that's in the context of lower income consumers seeing disproportionate benefits of government aid and, you know, forbearance on financial products, and then the unwinding of that over time.

Richard Fairbank: And so subprime is, of course, not synonymous with lower income, although they're correlated, and we saw these effects across credit, you know, both in talking about the credit spectrum and also the income gradients.

Speaker Change: and so

Speaker Change: Subprime is of course not synonymous with lower income, although they're correlated and we saw these effects across credit, you know, both in talking about the credit spectrum and also the income gradients.

Richard Fairbank: So, you know, on the other end, just a couple of other effects just on the credit side that have happened over the recent years. Subprime consumers have been subject to more industry credit supply, including FinTech competition, during and after the pandemic. So, that's been something we've always kept a close eye on and, you know, worried about whether that was going to disproportionately impact the credit performance of subprime customers. I don't really, I mean, given the overall pretty strong performance in subprime, I think we haven't seen that effect too much. And another thing to point out is that income growth has been consistently higher for lower-income consumers.

Richard D. Fairbank: You know, on the other hand, just a couple of other effects just on the credit side that have happened. Subprime consumers have been subject to more industry credit supply, including FinTech competition during and after the pandemic. So that's been something we've always kept a close eye on and, and, you know, worried about whether that was going to disproportionately impact the credit performance of subprime for customers. I don't really, I mean, given the overall pretty strong performance in subprime, I think we haven't seen that effect too much.

Speaker Change: So

Speaker Change: You know, on the other hand, just a couple of other effects just on the credit side that have happened over the

Speaker Change: Subprime consumers have been subject to more industry credit supply, including FinTech competition during and after the pandemic.

Speaker Change: So that's been something we've always kept a close eye on and, and, you know, worried about whether that that was going to

Speaker Change: disproportionately impact the credit performance of subprime customers. I don't really, I mean, given the overall pretty strong performance in subprime, I think we haven't seen that effect too much.

Richard D. Fairbank: And another thing to point out is that income growth has been consistently higher for lower-income consumers over the past several years, and this is the opposite of what we saw during and after the global financial crisis.

Speaker Change: And another thing to point out is that income growth has been consistently higher for lower income consumers.

Richard Fairbank: on the past several years. And this is the opposite of what we saw during and after the global financial crisis. But, you know, while no two cycles alike, or alike, I think, again, we're seeing that subprime consumers and lower, lower income consumers, again they're not the same thing, but they tend to move earlier, but not necessarily more than the overall market.

Speaker Change: Over the past several years, and this is the opposite of what we saw during and after the global financial crisis.

Richard D. Fairbank: But, you know, while no two cycles are alike, I think, again, we're seeing that subprime consumers and lower income consumers aren't the same thing, but they tend to move earlier, but not necessarily more than the overall market. Now, let's talk a little bit about payment rates. So, throughout the course of the pandemic, payment rates increased, not only for us but across the industry. And more recently, payment rates have drifted down from their post-pandemic highs. As the effects of stimulus have waned, and the payment rate has decreased.

Speaker Change: But, you know, while no two cycles alike, are alike, I think, again, we're seeing that subprime consumers and lower lower income consumers, again, they're not the same thing, but they tend to move earlier.

Speaker Change: but not necessarily more than the overall market.

Richard Fairbank: Now, when you let's talk a little bit about payment rates. So, throughout the course of the pandemic, payment rates increased, not only for us, but across the industry. And more recently, payment rates have dripped it down from pandemic highs, as the effects of stimulus have waned. And the payment rates generally, we have seen this effect. So the effect that we've seen of payment rates going down relative to where they were, you know, one, one to two years ago, relative to their peak, basically. In every part of our business, they have come down, but are still above where they were pre-pandemic. And again, I think part of that is the mix effect that we talked about in the prior question. There's a mix effect not only across our whole portfolio.

Speaker Change: Now, when you, let's talk a little bit about payment rates.

Speaker Change: So.

Speaker Change: Throughout the course of the pandemic, payment rates increased, not only for us, but across the industry. And more recently, payment rates have drifted down from pandemic highs.

Speaker Change: as the effects of stimulus have waned.

Speaker Change: and the payment rates...

Richard D. Fairbank: But generally, we have seen this effect. The effect that we've seen payment rates going down relative to where they were, you know, one to two years ago, relative to their peak, basically. Unknown Speaker, in every part of our business, they have come down, but they are still above where they were pre-pandemic.

Speaker Change: Generally, we have seen this effect, so...

Speaker Change: The effect that we've seen of payment rates.

Speaker Change: going down relative to where they were, you know, one to two years ago, relative to their peak, basically.

Speaker Change: In every part of our business, they have come down.

Richard D. Fairbank: And again, I think part of that is the mix effect that we talked about in the prior question. There's a mix effect not only across our whole portfolio, but even within the segments of our portfolio. We've just had more emphasis on the spender side versus the revolver side internally. And so I think you see some of that showing up in the metrics. One other thing I want to say is that I talked about your question about minimum payment.

Speaker Change: but are still above.

Speaker Change: where they were.

Speaker Change: pre-pandemic. And again...

Speaker Change: I think part of that is the mix effect that we talked about in the prior question, there's a mix effect not only across our whole portfolio, but even within the segments of our portfolio, we've just had more emphasis on the spender side versus the revolver side internally.

Richard Fairbank: But even within the segments of our portfolio, we just had more emphasis on the spender side versus the revolver side internally. And so I think you see some of that showing up in the metrics.

Speaker Change: and so I think you see some of that showing up in the metrics. One other thing I want to say is that

Richard Fairbank: One other thing I want to say is that I talk about your question about minimum payments. So we have simultaneously, we're sort of seeing an effect where payment rates, while they're going down, continue to be well above pre-pandemic levels, even as minimum, the percentage of customers paying minimum payments. This, by the way, is not a subprime effect. This is an portfolio effect I'm talking about. A percent of customers paying minimum payments is also somewhat above pre-pandemic levels. Now it seems a little odd to have both of those effects happening at the same time, but I think in many ways, this is a very natural way that normalization is happening.

Speaker Change: talk about your question about

Richard D. Fairbank: So we have, we have simultaneously, we're sort of seeing an effect where payment rates, while they're going down, continue to be well above pre-pandemic levels, even as the percentage of customers paying minimum payments. This, by the way, is not a subprime effect. This is the portfolio effect I'm talking about. The percent of customers paying minimum payments is also somewhat above the pre-pandemic level. Now, it seems a little odd to have both of those effects happening at the same time.

Speaker Change: Minimum payments.

Speaker Change: So, we have, we have simultaneously, we're sort of seeing an effect where payment rates

Speaker Change: While they're going down, continue to be well above pre-pandemic levels, even as

Speaker Change: Minimum, the percentage of customers paying minimum payments. This, by the way, is not a subprime effect. This is a portfolio effect I'm talking about. The percent of customers paying minimum payments is also

Speaker Change: somewhat above pre-pandemic levels.

Speaker Change: Now, it seems a little odd to have both of those effects happening at the same time, but I think...

Richard D. Fairbank: But I think, in many ways, this is a very natural way that normalization is happening. And you've heard us talk for a long time about what we call the delayed charge-off effect in consumer credit, where so many customers got stimulus and Forbearance that I think a lot of people who otherwise would have charged off were able to avoid that charge-off. Many, hopefully, were able to permanently avoid that.

Richard Fairbank: And you've heard us talk for a long time now about what we call the delayed charge-off effect in consumer credit that so many customers. got stimulus and forbearance that I think a lot of people who otherwise would have charged off were able to avoid that charge off. Many, hopefully, were able to permanently avoid that, but for some we have believed it was more of a deferral of an inevitability. This phenomenon of delayed charge-offs, which can't be separately measured, we believe is a driving factor behind why credit has been settling out higher than pre-pandemic because I think there's just a delayed charge-off effect for some of these customers who otherwise would have charged off earlier. That then would be consistent with a very healthy consumer payment rate, generally even being higher than pre-pandemic, but there's a tail of consumers paying a higher percentage on minimum payments and some of them going through a charge-off that might have otherwise happened a few years earlier.

Speaker Change: In many ways, this is a very natural way that normalization is happening, and you've heard us talk for a long time now about what we call the delayed charge-off effect in consumer credit that

Speaker Change: So many customers.

Speaker Change: got stimulus and

Speaker Change: and forbearance that I think a lot of people who otherwise would have charged off were able to avoid that charge off.

Richard D. Fairbank: But for some, we have believed it was more of a deferral of an inevitability, and this phenomenon of delayed charge-offs, which can't be separately measured, we believe is, is, you know, a driving factor behind why credit has been settling out higher than pre-pandemic because I think there's just a delayed charge-off effect for some of these customers who otherwise would have charged off earlier. And that would then be consistent with a very healthy consumer payment rate, generally even higher than pre-pandemic.

Speaker Change: Many, hopefully, were able to permanently avoid that, but for some we have believed it was more of a deferral of an inevitability.

Speaker Change: And this phenomenon of delayed charge-offs, which can't be separately measured, we believe is, you know, a driving factor behind

Speaker Change: why credit has been settling out higher than pre-pandemic because I think there's just a

Richard D. Fairbank: But there's a tail of consumers paying, you know, a higher percentage on minimum payments, and some of them going through a charge-off that might otherwise have happened a few years earlier. Next question, please. Our next question comes from Ryan Nash with Goldman Sachs. You may proceed. Hey, good afternoon, Rich.

Speaker Change: A delayed charge-off effect for some of these customers who otherwise would have charged off earlier.

Speaker Change: and that then would be consistent with a very healthy consumer, payment rates.

Speaker Change: Generally, even being higher.

Speaker Change: Than pre pandemic, but there is a tale of consumers paying, you know, a higher percentage on minimum payments and some of them going through a charge off that might have otherwise happened a few years earlier.

Unknown Attendee: Next question, please.

Ryan Nash: Our next question comes from Ryan Nash with Goldman Sachs; you may proceed. Good afternoon, Rich. So maybe to ask about marketing, so I think you're the guide that you provided set around $2.6 billion roughly a marketing spend in the second half, and you talked a little bit about the competitive intensity and the top of the market is increasing. You maybe just talk about how much of the increase in marketing is being driven by the investing more to acquire more customers versus competition, pushing up the cost to acquire, and then just give them what you just talked about around low-end consumers.

Speaker Change: Next question, please.

Speaker Change: Our next question comes from Ryan Nash with Goldman Sachs. He may proceed.

Ryan Nash: So maybe I should ask about marketing, so I think the guide that you provided said around 2.6 billion, roughly, of marketing spend in the second half. And you talked a little bit about the competitive intensity in the top of the market increasing. Can you maybe just talk about how much of the increase in marketing is being driven by investing more to acquire more customers versus competition, pushing up the cost to acquire?

Ryan Nash: Hey, good afternoon, Rich.

Ryan Nash: So, maybe to ask about marketing, so I think the guide that you provided said around $2.6 billion roughly of marketing spend in the second half, and you talked a little bit about the competitive intensity in the top of the market is increasing.

Speaker Change: Can you maybe just talk about how much of the increase in marketing is being driven by the, you know, investing more to acquire more customers versus competition, pushing up the cost to acquire? And then just given what you just talked about around low-end consumers, are you pulling back and else anywhere, you know, to cover the increased cost of acquiring?

Ryan Nash: And then just given what you just talked about around low-end consumers, are you pulling back and elsewhere anywhere else, you know, to cover the increased cost of acquiring? Ryan, our, Yeah, our comments about the competitive intensity. Let me just elaborate a little bit more about that.

Richard Fairbank: Are you pulling back and elsewhere to cover the increased cost of acquiring? Ryan, our comments about the competitive intensity; let me just elaborate a little bit more about that. The card business is very competitively intense across the spectrum. It's been consistently intense. Competition has, you know, competition in things like rewards has certainly heated up over the last couple of years. And the thing that I was pointing out is just something that, again, it's not something that is like the realization of the last month or so. It's a phenomenon we've seen from some time, but it is striking, which is at the very top of the market.

Speaker Change: Ryan, our, yeah, our comments about the competitive intensity. Let me just...

Richard D. Fairbank: The card business is very competitively intense, you know, across, of the spectrum. It's been consistently intent, competition has, you know, competition in things like rewards have certainly heated up over the last couple of years. And the the thing that I was pointing out is, is just something that again is not something that is like the the realization of the last month or so it's it's a phenomenon we've seen from some for some time but it is striking, which is at the very top of the We are seeing, you know, for the you know, especially a couple of competitors that we have the most intensely play at the very top of the market, you can just absolutely see they are stepping up, investing more in lounges in experiences in dining, investing in companies, marketing levels, you know, it's, it's, it's, I'm sure all the investors can see it, we can all see it and they talk, and it's not lost on us that, You know, these are strong competitors, and we certainly, you know, have, you know, we already have had very important, you know, investment plans in these areas, and we note that others are investing heavily, too.

Ryan Nash: Let me just elaborate a little bit more about that. The card business is very competitively intense, you know, across

Ryan Nash: The spectrum, it's been consistently intense.

Ryan Nash: And the thing that I was pointing out is...

Ryan Nash: is just something that again, it's not something that is like the the realization of the last month or so it's it's a phenomenon we've seen from some for some time, but it is striking, which is at the very top of the market.

Richard Fairbank: We are seeing, you know, for the, you know, especially a couple of competitors that we have that most intensely play at the very top of the market. You can just absolutely see they are stepping up, investing more in lounges, in experiences, in dining, investing in companies, marketing levels. You know, it's all, I'm sure all the investors can see it. We can all see it. And they talk about it. And it's not lost on us that, you know, these are strong competitors. And we certainly, you know, have, you know, we we already have had very important, you know, investment plans in these areas.

Ryan Nash: We are seeing, you know, for the

Ryan Nash: especially a couple of competitors that we have that most intensely play at the very top of the market. You can just absolutely see they are stepping up, investing more in lounges, in experiences, in dining, investing in companies.

Ryan Nash: Marketing Levels

Ryan Nash: You know, it's, it's, it's, I'm sure all the investors can see it. We can all see it and they talk about it.

Ryan Nash: and it's not lost on us that...

Ryan Nash: You know, these are strong competitors, and we certainly, you know, have

Ryan Nash: You know, we already have had very important, you know, investment plans in these areas, and we note that others are investing heavily too.

Richard Fairbank: And we know that others are investing heavily, too.

Richard Fairbank: So, but with respect to the let me just now kind of pull up now and just talk about the marketing sort of where we are from a marketing point of view. We can continue to see great opportunities and really across our businesses. We remain very excited about the success of our origination activities, especially in our card products and channels. And of course, what's happening in the bank. The two big areas that are driven by marketing spend, you know, this continues to be powered by our technology transformation. And just to savor a little bit because we often point at that, what why does the technology transformation help here?

Richard D. Fairbank: So but with respect to the, let me just kind of pull up now and just talk about marketing, sort of where we are from a marketing point of view. We can continue to see great opportunities and, really across our business. We remain very excited about the success of our origination activities, especially in our card products and channels, and of course, what's happening in the bank. The two big areas that are driven by marketing spend.

Ryan Nash: So, but with respect to the, let me just now kind of pull up now and just talk about the marketing, sort of where we are from a marketing point of view.

Ryan Nash: We continue to see great opportunities and really across our businesses.

Ryan Nash: We remain very excited about the success of our origination activities, especially in our card products and channels, and of course, what's happening in the bank.

Ryan Nash: The two big areas that are driven by marketing spend.

Richard D. Fairbank: You know, this continues to be powered by our technology transformation. And just to savor a little bit, because we often point at that, why does the technology transformation help here, it gives us the ability to leverage more and more data, and machine learning models to identify the most attractive growth and it allows us to increasingly tailor our solutions, to, you know, down to the individual customer level to ensure that we're meeting right where we are. So kind of the first point I would say and key reason we're leaning into the marketing is we're getting a lot of traction and that our tech transformation is certain. Helping to Power More Opportunities.

Ryan Nash: You know, this continues to be powered by our technology transformation, and just to savor a little bit, because we often point at that, why does the technology transformation help here? It gives us the ability to leverage more and more data.

Richard Fairbank: It gives us the ability to leverage more and more data. And machine learning models to identify the most attractive growth opportunities. And it allows us to increasingly tailor our solutions to, you know, down to the individual customer level to ensure that we're meeting them right where we are. So, kind of the first point I would say and key reason we're leaning into the marketing is we're getting a lot of traction, and that our tech transformation is certainly helping to power more opportunities. Secondly, we continue to expand on our success in building a franchise at the top of the market and with heavy, heavy spenders in this quest.

Ryan Nash: and Machine Learning Models to Identify the Most Attractive Growth Opportunities.

Ryan Nash: And it allows us to increasingly tailor our solutions.

Ryan Nash: to, you know, down to the individual customer level to ensure that we're meeting them.

Ryan Nash: right where we are. So kind of the first point I would say and key reason we're leaning into the marketing is we're getting a lot of traction and that our tech transformation is certainly helping to power more opportunities.

Richard D. Fairbank: Secondly, we continue to expand on our success in building a franchise at the top of the market and with heavy, heavy spenders. Well, for years, we've been talking about going after the top of the market every year, as we get more traction, we reach just a little bit higher. These customers are very attractive.

Ryan Nash: Secondly...

Ryan Nash: We continue to expand on our success in building a franchise at the top of the market and with heavy, heavy spenders and this quest, well, for years we've been talking about, you know, going after the top of the market every year as we get more traction, we reach just a little bit higher.

Richard Fairbank: Well, for years we've been talking about, you know, going after the top of the market every year as we get more traction; we reach just a little bit higher. These customers are very attractive. In addition to the obvious spend growth, they generate strong revenue, very low losses, low attrition, and the business helps elevate our brand really across the company. Now, it's also something that, you know, we've known all along is that it's expensive and requires quite a bit of investment to build a business at the top of the market, you know, in the form of upfront costs and also in the form of a sustained commitment to customer benefits and experiences and building a brand.

Richard D. Fairbank: In addition to the obvious spend growth, they generate strong revenue, very low losses, low attrition, and the business helps elevate our brand really across the company. Now, something that we've known all along is that it's expensive and requires quite a bit of investment to build a business at the top of the market, in the form of upfront costs and also in the form of a sustained commitment to customer benefits and experiences and building a brand. So, Yeah, you have early spend bonuses that are an important cost of doing business that shows up in the marketing line item. A brand makes a huge difference.

Ryan Nash: These customers are very attractive. In addition to the obvious spend growth, they generate strong revenue, very low losses, low attrition, and the business helps elevate our brand really across the company.

Ryan Nash: Now, it's also...

Ryan Nash: something that you know we've known all along is that it's expensive and requires quite a bit of investment to build a business at the top of the market.

Ryan Nash: You know in the form of upfront costs and also in the form of a sustained commitment to customer benefits and experiences and and building a brand.

Richard Fairbank: So, yeah, you have early spend bonuses that are important cost of doing business that shows up in the marketing line item. Brand makes a huge difference, and brand, of course, requires a long-term commitment to build. And as we continue to move up the market, we are moving increasingly into areas where consumers are looking for exclusive services and experiences that aren't available in the general marketplaces, such as airport lounges and access to select properties and iconic experiences. So we've seen at the top of the market our two biggest competitors really lean in here. And we, you know, and we certainly are leaning in as well.

Ryan Nash: So...

Speaker Change: Yeah, you have early spend bonuses that are important cost of doing business. That shows up in the marketing line item.

Richard D. Fairbank: And brands, of course, require a long-term commitment to build, and as we continue to move up the market. We are moving increasingly into areas where consumers are looking for exclusive services and experiences that aren't available in the general marketplace, such as places such as airport lounges and access to select properties and an iconic experience. So we've seen at the top of the market, our two biggest competitors really lean in here, we, you know, and we certainly are leaning in as well.

Speaker Change: Brand makes a huge difference, and brand, of course, requires a long-term commitment to build.

Speaker Change: and

Speaker Change: as

Speaker Change: We continue to move up the market. We are moving increasingly into areas where consumers are looking for exclusive services and experiences that aren't available in the general marketplaces, such as airport lounges.

Speaker Change: and Access to Select Properties and Iconic Experiences.

Speaker Change: So, we've seen at the top of the market, our two biggest competitors really lead.

Speaker Change: Union here.

Richard Fairbank: Ryan, I wouldn't. There are sometimes, there are sometimes I've seen over the years that marketing level just rise. And so you just got to market more and more and more, just to hold your own. And I don't, I don't feel that we're in an environment like this. I feel that the certainly competitive intensity is increasing, but when we're talking about in general and the card business where competitive intensities increasing a bit and specifically with respect to these investments at the top of the market. You know, these are just important things that you have to build and win at the top of the market, but we are very pleased with the traction we're getting, the economics of our heavy spender business.

Speaker Change: We, you know, and we certainly are leaning in as well. Ryan, I wouldn't, there are some times, there are some times I've seen over the years that marketing levels just rise. And so you just got to market more and more and more just to hold your own.

Richard D. Fairbank: Ryan, I wouldn't, there are some times I've seen over the years that marketing levels just rise. And so you just got to market more and more and more just to hold your own. And I don't, I don't feel that we're in an environment like this.

Ryan Nash: and I don't feel that we're in an environment like this. I feel that the certainly competitive intensity is increasing, but when we're talking about.

Richard D. Fairbank: I feel that, certainly, competitive intensity is increasing. But when we're talking about, in general, the card business, where competitive intensity is increasing a bit, and specifically, with respect to these investments at the top of the market. You know, these are just important things that we have to build to win at the top of the market, but we are very pleased with the traction we're getting on the economics of our heavy spender business. And so this is, you know, we just, It's just not lost on us.

Ryan Nash: In general, in the card business, where competitive intensity is increasing a bit, and specifically with respect to these investments at the top of the market.

Ryan Nash: These are just important things that we have to build to win at the top of the market, but we are very pleased.

Ryan Nash: With the traction we're getting, the economics of our heavy spender business, and so, this is, you know, we just...

Richard Fairbank: And so this is, you know, we just, it's just not lost on us. A couple of our other competitors are very focused on the same thing. So we continue to lean into growth here, both in terms of upfront customer acquisition and our ongoing investment in brand and exclusive experiences and benefits.

Richard D. Fairbank: A couple of our other competitors are very focused on the same thing. So we continue to lean into growth here both in terms of upfront customer acquisition and our ongoing investment in the brand and exclusive experiences and Benefits. Now, Let me now turn to the third part of our marketing story, which is our investment in building our national brand. This has been a journey that we've been on for many, many years. When we bought ING Direct way back in 2012, we said this was going to be not only a great financial acquisition, but it's going to be a transformational strategic acquisition because now, as a player with a significant branch network and a national direct

Ryan Nash: It's just not lost on us. A couple of our other competitors are very focused on the same thing. So we continue to lean into growth here, both in terms of upfront customer acquisition and our ongoing investment.

Ryan Nash: in Brand and Exclusive Experiences and Benefits. Now, let me now turn to the third part of our marketing story.

Richard Fairbank: Now, let me now turn to the third part of our marketing story, which is our investment in building our national bank. So this has been a journey that we've been on for many, many years. When we bought ING Direct direct way back in 2012, we said this is going to be not only a great financial acquisition, but it's going to be a transformational strategic acquisition. Because now, as a player with a significant branch network and a national direct bank, we have the building blocks to build a unique national bank. And that's what we're building: a digital-first national bank.

Ryan Nash: which is our investment in building our national bank.

Ryan Nash: So this has been a journey that we've been on for many, many years.

Ryan Nash: When we bought ING Direct way back in 2012, we said this is going to be not only a great financial acquisition, but it's going to

Ryan Nash: Transformational Strategic Acquisition because now as a player with a significant branch network and a national direct bank.

Richard D. Fairbank: We have the building blocks to build a unique national bank, and that's what we're building a digital first national bank. We've got smaller physical branch networks, so we lean more on our cafe network, which is in cafes in 21 of the top 25 MSAs, and we lean very heavily into our digital experiences, and, really importantly, without a branch on every corner across the United States.

Ryan Nash: We have the building blocks to build a unique national bank.

Richard Fairbank: We've got smaller physical branch networks, so we lean more on our cafe network, which is in cafes in 21 of the top 25 MSAs. Lee and very heavily into our digital experiences and really importantly, without a branch on every corner across the United States, the role for CapitalOne that marketing and brand play in building this, you know, national banking business is absolutely a central role. So, we are very pleased with the growth that we're getting, the traction, the performance of this business and, you know, the opportunity just gets bigger when we think about in the context of the combined entity now joining force would discover.

Ryan Nash: And that's what we're building, a digital-first national bank. We've got smaller physical branch networks, so we lean more on our cafe network.

Ryan Nash: which is in cafes in 21 of the top 25 MSAs.

Richard D. Fairbank: The role for CapitalOne that marketing and branding play in building this, you know, national banking business is absolutely a central role. So we are very pleased with the growth that we're getting, the traction, and the performance of this business. And, you know, the opportunity just gets bigger when we think about it in the context of the combined entity now joining Forestwood Discover. So these are the compelling opportunities behind our marketing growth. And we continue to feel really good about the success and the opportunities in front of us.

Ryan Nash: really importantly, without a branch on every corner across the United States, the role for CapitalOne that marketing and brand play in building this, you know, national banking business is

Ryan Nash: Absolutely a central role.

Ryan Nash: So we are very pleased with the growth that we're getting, the traction, the performance of this business.

Ryan Nash: And, you know, the opportunity just gets bigger when we think about in the context of the combined entity now joining Forestwood Discover.

Richard Fairbank: So, these are the compelling opportunities behind our marketing growth, and we continue to feel really good about the success and the opportunities in front of us, and that's why we are leaning in very much into the marketing and, and specifically with respect to the rest of the year while why we pointed to, and of course virtually every year at CapitalOne. The second half of the year is quite a bit more marketing than the first half. We pointed to a pattern kind of like what we saw last year in terms of proportional increases in marketing. Thanks, Ryan.

Ryan Nash: So, these are the compelling opportunities behind our marketing growth, and we continue to feel really good about the success and the opportunities in front of us.

Richard D. Fairbank: And that's why we are leaning very much into marketing and, and, and, Specifically with respect to the rest of the year, why we pointed out, and, of course, virtually every year at CapitalOne, the second half of the year has quite a bit more marketing than the first half. We pointed to a pattern kind of like what we saw last year in terms of proportional increases in marketing. Thanks, Ryan. Thanks for the call.

Ryan Nash: And that's why we are leaning in very much into the marketing and, and, and

Ryan Nash: specifically with respect to the rest of the year, why we pointed to, and of course virtually every year at CapitalOne, the second half of the year has quite a bit more marketing than the first half. We pointed to a pattern kind of like

Ryan Nash: What we what what we saw last year in terms of proportional increases in marketing

Unknown Attendee: Thanks for the color.

Ryan Nash: Thanks, Ryan.

Unknown Attendee: Next question, please. Thank you.

Ryan Nash: Thanks for the call.

Bill Carcache: Our next question comes from Bill Karachi with Wolf Research Securities. You may proceed. Thank you. Good evening, Rich and Andrew. Following up on your credit commentary, there had been an expectation among many investors that we would see peak charge-off somewhere around the second half of this year given the link with the trends that you're seeing. Is that a reasonable expectation? And if so, it seems like your credit outlook has de-risked somewhat, given an improving lost trajectory, but higher reserve rate driven by qualitative factors. Is that a fair thought process?

Speaker Change: Next question, please.

Operator: Next question, please. Thank you. Our next question comes from Bill Carache with Wolf Research Securities. You may proceed. Thank you. Good evening, Rich and Andrew.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Bill Carache with Wolf Research Securities. You may proceed.

Bill Carcache: Following up on your credit commentary, there had been an expectation among many investors that we would see peak charge-offs somewhere around the second half of this year, given the delinquency trends that you're seeing. Is that a reasonable expectation? And if so, it seems like your credit outlook has de-risked somewhat given an improving loss trajectory, but a higher reserve rate, you know, driven by qualitative factors. Is that a fair thought process?

Bill Carcache: Thank you. Good evening, Rich and Andrew. Following up on your credit commentary, there had been an expectation among many investors that we would see peak charge-offs somewhere around the second half of this year, given the delinquency trends that you're seeing.

Speaker Change: Is that a reasonable expectation? And if so, it seems like your credit outlook has de-risked.

Speaker Change: Somewhat given an improving loss trajectory, but higher reserve rate.

Bill Carcache: I'll just ask my follow-up question as part of this. You mentioned, Andrew, that your capital return is subject to Fed approval, given the pending acquisition. What should we think about the pace of incremental buybacks as we look ahead at the rest of the year? Thanks.

Bill Carcache: I'll just ask my follow up as part of this. You mentioned, Andrew, that your capital return is subject to federal approval given the pending acquisition. How should we think about the pace of incremental buybacks as we look ahead at the rest of the year? Thanks.

Speaker Change: You know, driven by qualitative factors. Is that a fair thought process? I'll just ask my follow up as part of this. You mentioned, Andrew, that your capital return is subject to Fed approval, given the pending acquisition. How should we think about the pace of incremental buybacks as we look ahead at the rest of the year? Thanks.

Richard Fairbank: Oh, yeah, Bill. Yeah, let me let me make a couple comments on credit.

Richard D. Fairbank: Oh, yeah, Bill. Yeah, let me make a couple of comments on credit. Let me share the moment, in the spirit of Henry Kissinger, who says, I hope you have questions for my answers. Let me just ask myself a question so I can answer it.

Andrew Young: Oh, yeah, Bill. Yeah, let me let me make a couple comments on credit. Let me let me seize a moment.

Richard Fairbank: Let me see the moment in the spirit of Henry Kissinger, who says I hope you have questions for my answers. I let me just ask myself a question, so I can answer it because it's going to set the table for answering your question, which you may remember last quarter. We pointed at tax refund patterns and said that there may be a new seasonality pattern emerging. and it would be too early to call that, but it was making it a little bit, things were not following it closely on a month by month basis to some pre-pandemic delinquency patterns that our hypothesis was three months ago that we're seeing a tax read fund effect.

Speaker Change: In the spirit of Henry Kissinger, who says, I hope you have questions for my answers.

Richard D. Fairbank: Because it's gonna, it's setting the table for answering your question, which you may remember last quarter. We pointed out tax refund patterns and said that there may be a new seasonality pattern emerging. And it would be too early to call that, but things were not following closely on a month by month basis to some pre-pandemic Delinquency Patterns that Our hypothesis was three months ago that we're seeing, a tax refund effect. So, let me just talk about that for a second.

Speaker Change: Let me just ask myself a question so I can answer it, because it's going to set the table for answering your question.

Speaker Change: which you may remember last quarter.

Speaker Change: We

Speaker Change: we pointed at tax refund patterns and said

Speaker Change: that

Speaker Change: that there may be a new seasonality pattern emerging.

Speaker Change: And it would be too early to call that, but it was making it a little bit. Things were not.

Speaker Change: following is closely on a month-by-month basis to some pre-pandemic...

Speaker Change: Delinquency Patterns.

Speaker Change: that

Speaker Change: Our hypothesis was three months ago that we're seeing

Richard D. Fairbank: And then Bill, I'll pull up and talk about just sort of what this means for sort of how I feel about where we are with respect to credit. So then, let's just talk for a second about how seasonality works. We've always seen seasonal credit patterns in our card, and our portfolio trend, you know, they have, in general, been more, they've had more pronounced seasonal patterns than the industry average. I think that's because we have a higher subprime component and because those customers are even more linked, I think, to the seasonal patterns associated with tax refunds.

Richard Fairbank: So let me just talk about that for a second, and then Bill, I'll pull up and talk about just sort of what does this mean for sort of how I feel about where we are with respect to credit. So let's just talk for a second about how seasonality works. We've always seen seasonal credit patterns in our card business and our portfolio trend. They've had more pronounced seasonal patterns than the industry average. I think that's because we have a higher subprime component, and those customers are even more linked. I think, to the seasonal patterns associated with tax refunds.

Speaker Change: a tax refund effect. So let me just talk about that for a second. And then Bill, I'll pull up and talk about just sort of what does this mean for sort of how I feel about where we are with respect to credit.

Speaker Change: So...

Bill: Let's just talk for a second about how seasonality works.

Bill: We've always seen seasonal credit patterns in our card business. And our portfolio trend...

Bill: They've had more pronounced seasonal patterns than the industry average. I think that's because we have a higher subprime component.

Bill: Those customers are even more linked, I think, to the seasonal patterns associated with tax refunds. That would be our hypothesis there.

Richard D. Fairbank: That would be our hypothesis there. Now, the second quarter tends to be the seasonal low point for delinquencies, and Q4 tends to be the seasonal high point for delinquencies. Card losses, however, lag relative to delinquencies. The losses tend to be seasonally lowest in the third quarter and highest in the first quarter.

Richard Fairbank: That would be our hypothesis there. Now the second quarter tends to be the seasonal low point for delinquencies, and Q4 tends to be the seasonal high point for delinquencies. Card losses, lag relative to delinquencies. The losses tend to be seasonally lowest in the third quarter and highest in the first quarter. Now we believe that tax refunds again are a significant driver of these seasonal trends, and tax refunds drive a large seasonal improvement in delinquent payments in the February-March time period, which then flows through to lower delinquent season April and May, and then to lower charge offs.

Bill: Now, the second quarter tends to be the seasonal low point for delinquencies, and Q4 tends to be the seasonal high point for delinquencies.

Bill: Card losses lag relative to delinquencies. The losses tend to be seasonally lowest in the third quarter and highest in the first quarter.

Richard D. Fairbank: Now, we believe that tax refunds, again, are a significant driver of the seasonal trend, and tax refund funds drive a large seasonal improvement in delinquent payments in the February through March time period, which then flows through to lower delinquencies in April and May and then to lower charge-offs. Tax refunds also drive a seasonal uptick in our recovery. So The, the tax code actually new tax, withholding rules went into effect way back in 2020. They were passed in 2019 and went into effect in 2020.

Bill: Now

Bill: We believe that tax refunds, again, are a significant driver of these seasonal trends.

Bill: And tax refund funds drive a large seasonal improvement in delinquent payments in the February-March time period, which then flows through to lower delinquencies in April and May, and then to lower charge-offs.

Richard Fairbank: Tax refunds also drive a seasonal uptick in our recovery. So the tax code actually, new tax withholding rules went into effect way back in 2020. They were passed in 2019, went into effect in 2020, but the pandemic and the normalization since then have kind of swamped seasonality. So we haven't really got been able to get a really good read of it. So we've tended to benchmark to the seasonality of free pandemic, like 2018 and 2019. But we've now had several more months to look at this pattern, and we're seeing a pattern.

Bill: and tax refunds also drive a seasonal uptick in our recoveries.

Bill: So...

Bill: The, the tax code actually, new tax.

Richard D. Fairbank: But the pandemic and the normalization since then have kind of swamped seasonality, so we haven't really been able to get a really good read on it. So we've tended to benchmark to the seasonality of a free pandemic like 2018 and 2019.

Bill: withholding rules went into effect way back in in 2020. They were passed in 2019, went into effect in 2020. But the pandemic and

Bill: The normalization since then have kind of swamped seasonality, so we haven't really been able to get a really good read at it.

Bill: of it, so we've tended to benchmark to the seasonality of a pre-pandemic like 2018 and 2019.

Richard D. Fairbank: We've now had several more months to look at this pattern, and we're seeing a pattern. Well, let me back up. What we've done is what we call detrending of our credit metrics. We, in hindsight, take the trends out of them to the best we can so we can see what the net seasonality effects are, and on a detrended basis, last year showed a seasonality with less amplitude on the high side and the low side than had previously been seen pre-pandemic.

Bill: but

Speaker Change: We've now had several more months to look at this pattern, and we're seeing a pattern. Well, let me back up. What we've done is what we call detrending of our credit metrics.

Richard Fairbank: Well, let me back up. What we've done is what we call detrending of our credit metrics. So we in hindsight take the trends out of them to the best we can so we can see what the net seasonality effects are. And on a detrended basis, last year showed a seasonality with less amplitude on the high side and the low side than had previously been seen pre-pandemic. We assumed that was probably again a manifestation of the new behaviors going in with the new tax refunds. As we now have seen this tax season play out, the seasonality, the payment patterns have been very close to our detrended 2023 line so that we believe that we are seeing, and it's very plausible we are seeing a new seasonality.

Speaker Change: We, in hindsight, take the trends out of them to the best we can so we can see what the net

Speaker Change: seasonality effects are and on a detrended basis last year showed a

Speaker Change: A seasonality with less amplitude on the high side and the low side than had previously been seen pre-pandemic.

Richard D. Fairbank: We assumed that was probably, again, a manifestation of the new behaviors going on in tax refunds, as we now have seen this tax season play out. The seasonality, the payment patterns have been very close to our detrended 2023 line, so we believe that we are seeing, and it's very plausible, a new seasonality. I just want to share that with you.

Speaker Change: We assumed that was probably, again, a manifestation of the new behaviors going in with the new tax refunds.

Speaker Change: As we now have seen this tax season play out.

Speaker Change: The seasonality, the payment patterns have been very close to our de-trended 2023 line so that we believe that we are seeing, and it's very plausible, we are seeing a new seasonality

Richard Fairbank: I just want to share that with investors. So, you know, later tax refunds and later in lower sort of lowered the seasonal improvement in delinquencies, but we think the seasonal increase in delinquencies that we see in the back half of the year. Likely will also be less pronounced going forward than it has been in the past.

Richard D. Fairbank: Investors. So, um.., you know, later tax refunds and later and lower sort of lowered the seasonal improvement in delinquency. But we think the seasonal increase in delinquency that we see in the back half of the year likely will also be less pronounced going forward than it has been in the past. All of this, by the way, happens in auto seasonality, but at an even faster, more concentrated, [inaudible] So what we see, we felt it was a little bit noisy. Last quarter, when we were talking to you, we found that each quarter things were coming in a little bit. I mean, the second derivative was still, you know, doing great things.

Speaker Change: I just want to share that with investors.

Speaker Change: So.

Speaker Change: you know so later tax refunds and later and lower sort of lowered the seasonal improvement in delinquencies

Speaker Change: But we think the seasonal increase in delinquency that we see in the back half of the year

Speaker Change: likely will also be less pronounced going forward than it has been in the past.

Richard Fairbank: All of this, by the way, happens in auto seasonality, but in an even faster, more concentrated way. So, so what we see, we felt it was a little bit noisy last quarter when we were talking to you. We were finding each quarter of things were coming in a little bit. But I mean, the second derivative was still, you know, doing great things, but relative to our sort of close-in expectations based on seasonality, things were a little bit off with the revised seasonality. So, what we see is things very nicely settling out in card credit. And, you know, we feel very good about the last couple of months that came in relative to that new seasonality curve.

Speaker Change: All of this, by the way, happens in auto seasonality, but in an even faster, more concentrated way.

Richard D. Fairbank: But relative to our, sort of close-in expectations based on seasonality, things were a little bit off. With the revised seasonality, what we see is things very nicely settling out in card credit. And, you know, we feel very good about the last couple of months that that came in relative to that new seasonality curve. So I think settling out is the real word from here.

Speaker Change: So we what we see, we felt it was a little bit noisy last quarter, when we were talking to you, we were finding each quarter things were coming in a little bit. I mean, the second derivative was still, you know, doing great things. But relative to our

Speaker Change: sort of close-in expectations based on seasonality. Things were a little bit off.

Speaker Change: With the revised seasonality, what we see is things very nicely settling out in card credit.

Speaker Change: And, you know, we feel very good about the last couple of months that that came in relative to that new seasonality curve. So I think settling out is the real word from here.

Richard Fairbank: So, I think settling out is the real word from here.

Richard Fairbank: Given that, you know, from the teacher question about peak, we're not really going to, we're not giving really forward guidance about declarations of peak. But, you know, from a seasonal point of view, things should head down from here in Q3. And then sort of pop up around October. October's off in a month; we tend to get just a little bit of an October surprise that we'll keep an eye on that.

Richard D. Fairbank: Given that, you know, from your question about peak, we're not really gonna, we're not really giving forward guidance about declarations of peak. But you know, from a seasonal point of view, things should head down from here in Q3 and sort of pop up around October. October is often a month we tend to get just a little bit of an October surprise, so we'll keep an eye on that.

Speaker Change: Given that, you know, from to your question about PEEC, we're not really going to, we're not giving really forward guidance about declarations of PEEC. But, you know, from a seasonal point of view, things should head down from here in Q3.

Speaker Change: and then

Speaker Change: Sort of.

Speaker Change: pop up around October. October is off in a month. We tend to get just a little bit of an October surprise, so we'll keep an eye on that. But the other thing I just want to say about credit...

Richard D. Fairbank: But the other thing I just want to say about credit. [inaudible] Our recoveries inventory is starting to rebuild, and that should be a gradual tailwind to our losses over time, all else being equal.

Richard Fairbank: But the other thing I just want to say about credit is our recovery's inventory is starting to rebuild, and that should be a gradual tailwind to our losses over time, all else being equal. And then, and then other than the economy, I think the other real factor that's going to drive credit performance for us and other issues in the in the next couple of years will be. What is the size of this delayed charge on effects on the pandemic?

Speaker Change: is

Speaker Change: Our recoveries inventory is starting to rebuild and that should be a gradual tailwind.

Andrew Young: And then, and then other than the economy, I think the other real factor that's going to drive credit performance for us and other issuers in the next couple of years will be, What is the size of this delayed charge-off effect from the pen? Thank you. And then Bill, with respect to the de-risk comment, Rich just provided a lot of color on our view of losses. I would just say, given the accounting rules, we forecast losses under a variety of scenarios and use qualitative factors for uncertainties around that.

Speaker Change: to our losses over time, all else being equal. And then other than the economy, I think the other real factor that's gonna drive credit performance for us and other issuers in the next couple of years

Speaker Change: will be

Speaker Change: What is the size of this delayed charge-off effect from the pandemic?

Unknown Attendee: Thank you.

Andrew Young: And then Bill, well, with respect to the de-risk comment, Rich, just provide a lot of color on our view of losses. I would just say, given the accounting rules, we forecast losses under a variety of scenarios and use qualitative factors for uncertainties around that. And I would say, therefore, we are appropriately reserved for all of that. With respect to your question around, repurchases of just note or agreement with Discover doesn't prohibit us from buying shares. The only restriction that will need to be out of the market during the S4 proxy vote period. However, we are not operating under the SCB.

Speaker Change: Thank you.

Speaker Change: And then, Bill, with respect to the de-risk comment, Rich just provided a lot of color on our view of losses, I would just say, given the accounting rules.

Bill: We forecast losses under a variety of scenarios and use qualitative factors for uncertainties around that and I would say therefore like we are appropriately reserved for all of that.

Andrew Young: And I would say, therefore, we are appropriately reserved for all of that. With respect to your question around repurchases, I'll just note our agreement with Discover doesn't prohibit us from buying shares. The only restriction is that we'll need to be out of the market during the S4 proxy vote period. However, we are not operating under the SCB.

Speaker Change: With respect to your question around repurchases, I'll just note our agreement with Discover doesn't prohibit us from buying shares. The only restriction is that we'll need to be out of the market during the S4 proxy vote period. However, we are not operating.

Andrew Young: As I said in my prepared remarks and we laid out in the last queue, the announcement of the intention to acquire Discover did constitute a material business change, and therefore, like we did in this recent quarter, in the second quarter, we're subject to Fed pre-approval of our capital actions until the merger approval process has concluded. And so that's what's going to dictate the pace at which we repurchase until that process has concluded.

Andrew Young: As I said in my prepared remarks and we laid out in the last queue, the announcement of the intention to acquire, Discover, did constitute a material business change and therefore, like we did it in this reef and quarter in the second quarter, we're subject to a Fed pre-approval of our capital actions until the merger approval process has concluded. And so that's what's going to dictate the pace at which we repurchase until that process has concluded.

Speaker Change: Under the SCB, as I said in my prepared remarks, and we laid out in the...

Speaker Change: The last cue, the announcement of the intention to acquire Discover did constitute a material business change and, you know, therefore, like we did it in this recent quarter, in the second quarter, you know, we're subject to Fed pre-approval of our capital actions until the merger.

Speaker Change: Approval process has concluded and so that's what's going to dictate the pace at which we repurchase until that process is concluded.

Don Fandetti: Next question, please. Thank you. Our next question comes from Don Fendetti with Wells Fargo. You may proceed.

Andrew Young: Next question, please. Thank you. Our next question comes from Don Fandetti with Wells Fargo. You may proceed. Yes, Rich, can you talk a bit about how you're seeing loan growth and auto loans and also, you know, as banks potentially come back in, are you seeing or worried about spread or yield compression on new originations? So, hey, Don.

Speaker Change: Next question, please.

Richard Fairbank: Yes, Rich can talk a bit about how you're seeing long growth in auto and also, you know, his bank potentially come back in. Are you seeing or worried about spread or yield compression on new originations? So, hey, Don. You know, it's an interesting thing. We always seem to zag, while there's ZIG, while there's ZIG in the auto business. As we discussed in the last quarter, we have an optimistic outlook on the auto business. We're seeing a lot of success in the auto business, and our investment and infrastructure also reaping a lot of benefits for us.

Speaker Change: Our next question comes from Don Fandetti with Wells Fargo. You may proceed.

Don Fandetti: Yes, Rich, can you talk a bit about how you're seeing loan growth and auto and also, you know, as banks potentially come back in, are you seeing or worried about spread or yield compression on new originations?

Rich: So, hey, Don.

Don Fandetti: You know, it's an interesting thing. We always seem to zag while others zig, and others zag in the auto business. As we discussed in the last quarter, we have an optimistic outlook on the auto business, and we're seeing a lot of success in the auto business. And our investments in infrastructure are also reaping a lot of benefits for us.

Rich: As we discussed in the last quarter, we have an optimistic outlook on the auto business.

Speaker Change: We're seeing a lot of success in the auto business and our investments in infrastructure are also reaping a lot of benefits for us so.

Richard Fairbank: So, just on the numbers, our originations grew 21% versus last year in Q1, and the trend continues in Q2 with 18% growth on the year-over-year quarter. And the loss performance has normalized and it's stable. You know, very importantly, we made intervened and made an adjustment for what we felt was. was credit score inflation that was happening during the pandemic. And so we pulled back in 22 and 23 by just, in a sense, worsening the otherwise scores one would see under a belief that they were artificially inflated. And that enabled our ventages all through this period of time, 22, 23, and all through the normalization performed very well.

Richard D. Fairbank: So, Just on the numbers, our originations grew 21% versus last year and in Q1, and the trend continues in Q2 with 18% growth on the year over year quarter. The loss performance has normalized, and it's stable. We, very importantly, intervened and made an adjustment for what we felt was Credit Score Inflation that was happening during the pandemic. And so we pulled back in 22 and 23 by, in a sense, worsening the otherwise scores one would see under a belief that they were artificially inflated, and that enabled our vintages all through this period of time 22-23 and all through the normalization to perform very well.

Speaker Change: Just on the numbers, our originations grew 21% versus last year in Q1, and the trend continues in Q2 with 18% growth on the year-over-year quarter.

Speaker Change: and the loss performance has normalized and it's stable. You know, we, very importantly, we made, intervened and made an adjustment for what we felt was

Speaker Change: Credit Score Inflation that was happening during the pandemic.

Speaker Change: And so we pulled back in 22 and 23 by just, in a sense,

Speaker Change: worsening the otherwise scores one would would see under a belief that they were artificially inflated.

Speaker Change: And that's enabled our vintages all through this period of time, 22, 23, and all through the normalization to perform very well.

Richard D. Fairbank: We like the economics of the loans originated and were, you know, very satisfied with the performance of the overall portfolio. So, you know, when we think about the headwinds in the business, interest rates remain high. And, of course, that, along with high vehicle values, continue to pressure affordability. And, you know, used car prices, which are still high relative to historical standards.

Richard Fairbank: We liked the economics of the loans that were originated and were, you know, very satisfied with the performance of the overall portfolio.

Speaker Change: We like the economics of the loans were originated and

Speaker Change: were, you know, very satisfied with the performance of the overall portfolio.

Richard Fairbank: So, you know, when we think about the headwinds in the business, interest rates remain high. And of course, that along with high vehicle values continue to pressure affordability. And, you know, auto use car prices, which are still high relative to historical standards, you know, they are probably in a position to gradually be coming down. So we'll have to keep an eye on that. For a long time, we were concerned about the margins in the business because competitors had not passed through higher interest rates into the cost of the auto loans. We pulled back quite a bit, John, as you remember during that period of time. We have seen those margins basically return to where they were.

Speaker Change: So, you know, when we think about the headwinds in the business, interest rates

Speaker Change: remain high. And of course, that along with

Speaker Change: High vehicle values continue to pressure affordability.

Speaker Change: You know,

Richard D. Fairbank: You know, they are probably in a position to gradually be coming down, so we'll have to keep an eye on that. For a long time, we were concerned about the margins in the business because competitors had not passed through higher interest rates into the cost of the auto loans. We pulled back quite a bit, John, as you remember, during that period of time. We have seen those margins basically return to where they were, so I think that's a pretty good sign there. So all things considered, with a with a watchful eye on Used Car Values.

Speaker Change: auto used car prices which are still

Speaker Change: Hi, relative to historical standards, you know, they they are probably in a position to gradually be coming down. So we'll have to keep an eye on that.

Speaker Change: For a long time we were concerned about the margins in the business because competitors had not

Speaker Change: passed through higher interest rates into the cost of the auto loans. We pulled back quite a bit, John , as you remember during that period of time. We have seen those margins basically return.

Richard Fairbank: So I think that's a pretty good sign there. So all things considered, with a watchful eye on used car values, we are seeing enhanced opportunities in the auto business with margins that, you know, have good resilience to them and quite a bit improved relative to the period where we were raising the alarm bells a bit about what was happening to the effective resilience in that business. Thank you.

John: to where they were. So I think that's a pretty good sign there. So all things considered with a with a with a watchful eye on

Richard D. Fairbank: We are seeing enhanced opportunities in the auto business with margins that, you know, have good resilience to them and quite a bit improved relative to the period where we were raising the alarm bells a bit about what was happening to the effective resilience in that business. Thank you.

John: Use car values. We are seeing enhanced opportunities in the auto business with margins that

John: You know, have good resilience to them and quite a bit improved relative to the period where we were raising.

Speaker Change: the alarm bells a bit about what

Speaker Change: was happening to the effective resilience in that business. Thank you.

Moshe Orenbuch: Thank you, please. And our final question this evening comes from the line of Moshe Orenbach with TD Down. You may think about the increase in the reserve rates; you know, not the dollars of the reserve, not the Walmart piece, but the reserve rate itself.

Speaker Change: Thank you.

Speaker Change: Next question please.

Don Fandetti: Thank you. And our final question this evening comes from the line of Moshe Orenbuch with TD Talon. You may proceed. Great, thanks.

Speaker Change: And our final question this evening comes from the line of Moshe Orenbuch with TD Cowan. You may proceed.

Moshe Ari Orenbuch: When, when you talked about the increase in the reserve rates, you know, not the dollars of the reserve, not the Walmart piece, but the reserve rate itself. Andrew, you didn't mention the mix of receivables. Has there been any shift, you know, towards, you know, mass market or subprime from superprime within the card business? Not in any material way that would have a significant impact on the allowance, Moshe.

Moshe Ari Orenbuch: Great, thanks. When you talked about the increase in the reserve rate, you know, not the dollars of the reserve, not the Walmart piece, but the reserve rate itself.

Andrew Young: Andrew, you didn't mention, like, mix of receivables, you know, is it, has there been any shift, you know, towards, you know, mass market or subprime from superprime within the car business? Not in any material way that would have a significant impact on the allowance, Moshe. Got it. Okay.

Moshe Ari Orenbuch: Andrew, you didn't mention like mix of receivables, you know, is it, has there been any shift, you know, towards, you know, mass market or subprime from superprime within the card business?

Moshe Ari Orenbuch: Not in any material way that would have a significant impact on the allowance, Moshe. Got it. Okay, great. And just as a follow-up, Rich,

Andrew Young: Got it. Okay, great. And just as a follow-up, Rich, given what's happened with Walmart and the pending Discover acquisition, could you talk a little about your thoughts on, you know, the partner or private label business, you know, kind of in the current environment? Like, you know, what are your thoughts now in terms of your existing contracts and, you know, their tendency to want to, you know, get new ones? Any thoughts on this? So thank you.

Richard Fairbank: Wait, and just as a follow-up, Rich. You know, given what's happened with Walmart and the pending Discover acquisition, could you talk a little bit about your thoughts on, you know, the partner of private label business, you know, kind of in the current environment, like, you know, what are your thoughts now in terms of your existing contracts and, you know, the tendency to, to want to, you know, to get do ones like any, any thoughts on that in this environment. So thank you. I think the, well, the Walmart partnership is a, it was a very unique one that I think, you know, there's not a lot to extrapolate to other partners on that.

Speaker Change: You know, given what's happened with Walmart and the pending Discover acquisition, could you talk a little bit about your thoughts on, you know, the partner or private label business, you know, kind of in the current environment, like, you know, what are your thoughts now in terms of your existing contracts and, you know, the tendency to want to, uh,

Speaker Change: you know, to get new ones. Any thoughts on that in this environment?

Moshe Ari Orenbuch: I think the Walmart partnership was a bit of a unique one that I think, you know, there's not a lot to extrapolate to other partners on that. I think we've ended up in a situation there where, you know, we, we, the loss share was a very good thing. So we're going to be carrying around, you know, loss rates that are, you know, something on the order of 40 basis points higher on our portfolio for that.

Speaker Change: So, thank you. I think the...

Speaker Change: Well, the Walmart partnership was a very unique one that I think

Richard Fairbank: I think we've ended up in a situation there where, you know, we, we, you know, the loss share was a very good thing. So we're going to be carrying around, you know, loss rates that are, you know, something on the order of 40 basis points higher on our portfolio for that. So, you know, we'll have to make sure we all see that, but we've got the, you know, the full economics on the business increasingly that portfolio. You know, the portfolio we inherited is now very seasoned, and the rest of it is the portfolio we ourselves originated.

Speaker Change: You know, there's not a lot to extrapolate to other partners on that.

Speaker Change: I think we've ended up in a situation there where, you know, we, we, you know, the loss share was a very good thing. So we're going to be carrying around, you know, loss rates that are

Speaker Change: you know, something on the order of 40 basis points higher on our portfolio for that. So, you know, we'll have to just

Richard D. Fairbank: So, you know, we'll have to make sure we all see that, but we've got the full economics of the business, increasingly that portfolio, you know, the portfolio we inherited is now very seasoned, and the rest of it is the portfolio we ourselves originated. So, you know, we know it well. And I think that, you know, we feel very good about that. So the partnership business is a very partner-by-partner business. I think where people get into trouble is feeling they've got to drive to a certain scale.

Speaker Change: Make sure we all see that, but we've got the...

Speaker Change: You know, the full economics on the business.

Speaker Change: Increasingly that portfolio, you know, the portfolio we inherited is now very seasoned and the rest of it is the portfolio we ourselves originated. So, you know, we know it well and I think that, you know, we feel very good about that.

Richard Fairbank: So, you know, we know it well. And I think that, you know, we feel very good about that. So the partnership business is a very partner by partner business. I think where people get into trouble is feeling they've got to drive to a certain scale. We all know scale matters in the credit card business, and scale matters in the partnership business. But here's the thing: we have certainly learned over time how unique or how, how individual different partnerships are. And we've seen great ones. We've seen not so great ones. Here's most show what we, if I pull up on the patterns of what we most look for.

Speaker Change: So, the partnership business is a very partner-by-partner business. I think where people get into trouble

Richard D. Fairbank: We all know scale matters in the credit card business, and scale matters in the partnership business. But here's the thing we have certainly learned over time, how unique or how individual different partnerships are, and we've seen great ones; we've seen not so great ones. Here's Moshe, if I pull up on the patterns of what we most look for. It's, first of all, a healthy franchise, a company that is itself healthy. And that's, that's certainly a good sign.

Speaker Change: is feeling they've got to drive to a certain scale. We all know scale matters in the credit card business and scale matters in the partnership business, but here's the thing. We have certainly learned over time how

Speaker Change: unique or how individual different partnerships are.

Speaker Change: and and we've seen great ones we've seen not so great ones. Here's Moshe, what we if I pull up on the patterns of what we most look for.

Richard Fairbank: It's, first of all, a healthy franchise, a company that is itself healthy. And that's that's certainly a good sign. Now the credit card business does have a pretty good default structure, whereby if a partner runs into trouble and can't continue, we inherit the portfolio, which now Walmart, of course, is a very strong company. But we're here; an example of inheriting the portfolio where I think, you know, things are going to continue very successfully there. But the other thing that we really look for is what is the reason that the partner is driving this either co-brand or private label business.

Richard D. Fairbank: Now, the credit card business does have a pretty good default structure, whereby if a partner runs into trouble and can't continue, we inherit the portfolio. Now Walmart, of course, is a very strong company. But we're here as an example of inheriting a portfolio where I think, you know, things are going to continue very successfully there. The other thing that we really look for is what is the reason that the partner is driving this either co-brand or private label business; is it to is it's the on one end of a continuum, or is it the sheer quest for profit?

Moshe Ari Orenbuch: It's, first of all, a healthy franchise, a company that is itself healthy, and that's

Moshe Ari Orenbuch: That's that's certainly a good sign. Now the credit card business does have a pretty good

Speaker Change: default structure whereby if a partner runs into trouble and can't continue, we inherit the portfolio, which now Walmart, of course, is a very strong company, but we're here's an example of inheriting a portfolio.

Speaker Change: where I think you know things are going to continue very successfully there.

Speaker Change: But the other thing that we really look for is what...

Speaker Change: is the reason that the partner is driving this either co-brand or private label business.

Richard Fairbank: Is it to is is that on one end of a continuum is it's the sheer quest for profit. and on the other end of the continuum, it is having the card partnership at the as a centerpiece in driving a franchise. And the behaviors that a partner has, the incentives that get baked into in the programs, they tend to be very driven by where on that continuum one is. We've walked away from a lot of opportunities over the years. Where things were just too focused on the card partnership as sort of the means to drive profit for the partner at more so than a way to really build a franchise.

Speaker Change: is it to is is the on one end of a continuum is it's the sheer quest for profits?

Richard D. Fairbank: And on the other end of the continuum, it is having the card partnership at the center, as a centerpiece, in driving a franchise, and the behaviors that a partner has, the incentives that get baked into programs, they tend to be very driven by where on that continuum one is. We've walked away from a lot of opportunities over the years where things were just too focused on the card partnership as sort of a means to drive profit for the partner more so than a way to really build a franchise. But those are just some of the patterns. There are always exceptions to every rule.

Speaker Change: And on the other end of the continuum, it is having the card partnership at the

Speaker Change: as a centerpiece in driving a franchise.

Speaker Change: and the behaviors that a partner has, the incentives that get baked into into programs, they tend to be very driven by where on that continuum.

Speaker Change: One is...

Speaker Change: We've walked away from a lot of opportunities over the years where

Speaker Change: Unknown Speaker Things were just too focused on the card partnership as

Speaker Change: sort of the means to drive profit for the partner more so than a way to really build a franchise. But those are some of the patterns. There are always exceptions to every rule, but

Richard Fairbank: But those are some of the patterns that are always exceptions to every rule, but every rule. But so we're still very much a believer in the card partnership business, but the key is we're going to be selective and never knowing that it's an auction-based business. That's the other thing one has to really be willing to walk away when the price is right.

Richard D. Fairbank: So we're still very much a believer in the card partnership business. But the key is we're going to be selective and, and never, you know, knowing that it's an auction-based business. That's the other thing. One has to really be willing to walk away when the price isn't right.

Speaker Change: So we're still very much a believer in the card partnership business but the key is we're going to be selective.

Speaker Change: and never, you know, knowing that it's an auction based business, that's the other thing.

Richard D. Fairbank: So with that, those are my thoughts, Moshe. Thank you, Rich. And thanks, everyone, for joining us on the conference call today. Thank you for your continuing interest in CapitalOne. Have a great evening. Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Unknown Executive, Unknown Attendee, Unknown Attendee, Unknown Attendee, Unknown Attendee, Unknown Attendee, Unknown Attendee, Unknown Attendee, [inaudible] This is a production of the Center for Autonomous Vehicle Research and the Center for Autonomous Vehicle Research and Development. ?? ?? ?? ?? ?? ?? ?? ??

Richard Fairbank: So, with that, those are my thoughts, Mocha. Thank you, Rich.

Speaker Change: One has to really be willing to walk away when the price isn't right. So with that, those are my thoughts, Moshe.

Jeff Norris: And thanks everyone for joining us on the conference call today. Thank you for your continuing interest in Capital One. Have a great evening. Thank you.

Moshe Ari Orenbuch: Thank you, Rich, and thanks everyone for joining us on the conference call today. Thank you for your continuing interest in CapitalOne. Have a great evening.

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

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

Speaker Change: www.capitalone.com

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Speaker Change: [inaudible]

Speaker Change: www.capitalone.com

Speaker Change: [inaudible]

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