CapitalOne Q4 2025 Capital One Financial Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 Capital One Financial Corp Earnings Call
Is that today's conference is being recorded after the speaker's presentation. There will be a question and answer session to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again I would now like to hand, the conference over to your speaker today, Jeff Norris.
Senior Vice President of Finance. Please go ahead.
Thanks, very much Josh and welcome everyone.
Access the live webcast of the call. Please go to the investors section of capital one's website at capital one dot com.
A copy of the earnings presentation press release and financial supplement can also be found in the investors section of capital one's website capital one dot com.
Selecting financials, and then quarterly earnings release.
With me. This evening are Mr. Richard Fairbank capital one's Chairman and Chief Executive Officer, and Mr. Andrew Young capital ones Chief Financial Officer.
Speaker #1: And Mr. Andrew Young, Capital One's Chief Financial Officer. Rich and Andrew are going to walk you through this presentation that summarizes our fourth quarter 2025 results.
Speaker #1: This was $4.1 billion in the quarter. An
Speaker #1: increase of about 1.4 billion
Richard Andrew we're going to walk you through this presentation that summarizes our fourth quarter 2025 results.
Speaker #1: dollars relative to the third
Speaker #1: quarter. The increase was driven
Speaker #1: Please note that this presentation may contain forward-looking statements. Information regarding Capital One's financial performance and any forward-looking statements contained in today's discussion and the
Speaker #1: by an allowance billed of
Speaker #1: of $302 million in the
Please note that this presentation may contain forward looking statements information regarding capital one's financial performance and any forward looking statements contained in today's discussion and 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 rig.
Speaker #1: quarter, versus last quarter's
Speaker #1: release. As well as a
Speaker #1: $360 million increase in net.
Speaker #1: Charge-off. Turning to slide four, I'll now cover the
A lot of new information future events or otherwise.
Speaker #1: balance to 23.4 billion
Speaker #1: dollars. Our total
Numerous factors could cause our actual results to differ materially from those described in forward looking statements and for more information on these factors. Please see the section titled forward looking information in the earnings release presentation.
Speaker #1: portfolio coverage ratio
Speaker #1: decreased five basis points and
Speaker #1: now stands at 5.16 percent.
Speaker #1: now stands at 5.16 percent. I'll points and now stands at cover the drivers of the changes in
Speaker #1: allowance and coverage ratio by
Speaker #1: segment on slide
And the risk factors section of our annual and quarterly reports.
Speaker #1: five. In our
First of all the capital one's website and filed with the SEC.
Speaker #1: domestic card segment, our coverage
Speaker #1: ratio declined by 11 basis
With that I'll turn the call over to Mr. Young Andrew.
Speaker #1: points and now stands at
Thanks, Jeff and good afternoon, everyone.
Speaker #1: 7.17 percent. The 335
Let me begin by saying that we are incredibly excited to announce that we have entered into a definitive agreement to acquire breath.
Speaker #1: million dollar allowance billed was
Speaker #1: largely driven by loan growth in the
Speaker #1: quarter. The allowance balance in our
Rich will talk more about the <unk> acquisition in a moment.
Speaker #1: consumer banking segment was
I'll start tonight's presentation by covering the highlights of our fourth quarter results on slide three.
Speaker #1: largely flat at 1.9
Speaker #1: $1 billion. Growth in the auto business was
Speaker #1: largely offset by continued observed
In the fourth quarter capital, one earned $2 1 billion or $3.26 per diluted common share.
Speaker #1: credit
Speaker #1: favorability. The coverage ratio ended the
Speaker #1: quarter at 2.23
Speaker #1: percent, three basis points
For the full year capital, one earned $2 $5 billion or $4 and <unk> per share.
Speaker #1: quarter. And finally, in our
Speaker #1: commercial banking segment, we
Speaker #1: released 47 million dollars of we released $47 million of allowance. The allowance release
We completed the sale of the $8 8 billion dollar discover home loans portfolio in the quarter.
Speaker #1: was largely driven by charge-offs in the
Speaker #1: quarter. The commercial
After refining our preliminary purchase accounting estimates.
Speaker #1: The banking coverage ratio declined six basis points and now stands at 1.63%. It was 1.73% in the quarter, driven by higher average cash and lower net outflows.
The proceeds resulted in a net gain on sale of $483 million, which is reported in the results for discontinued operations.
Information regarding capital one's financial performance and any forward looking statements contained in today's discussion and 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.
You can find the revised discover purchase consideration walk and amortization schedule in the appendix of tonight's presentation.
Net of the home loan sales and the other adjusting items.
Fourth quarter earnings per share were $3.86.
Numerous factors could cause our actual results to differ materially from those described in 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 of our annual and quarterly reports.
Full year adjusted earnings per share were $19.61.
We also had two notable items in the quarter $200 million of accelerated philanthropy contributions.
First of all the capital one's website and filed with the SEC.
$37 million of pension termination expense.
With that I'll turn the call over to Mr. Young Andrew.
Relative to the prior quarter fourth quarter revenue increased about 1% and noninterest expense increased 13%.
Thanks, Jeff and good afternoon, everyone.
Let me begin by saying that we are incredibly excited to announce that we have entered into a definitive agreement to acquire bricks rich will talk more about the <unk> acquisition in a moment.
Speaker #2: Earnings declined 12%, or 10% net of adjustments. Our
Pre provision earnings declined 12% or 10% net of adjustments.
I'll start tonight's presentation by covering the highlights of our fourth quarter results on slide three.
Speaker #2: provision in the quarter
Our provision for credit losses was $4 $1 billion in the quarter, an increase of about $1.4 billion relative to the third quarter.
Speaker #2: and $4
Speaker #2: billion relative to the third
In the fourth quarter capital, one earned $2 1 billion or $3.26 per diluted common share.
Speaker #2: quarter. The increase
Speaker #2: was driven by an allowance bill of
The increase was driven by an allowance build of $302 million in the quarter versus last quarter's release as well as a $360 million increase in net charge offs.
Speaker #2: $302 million in the
Speaker #2: quarter versus last quarter's
Speaker #2: release. As well as a
For the full year capital, one earned $2 $5 billion or $4 and <unk> per share.
Speaker #2: $360 million increase in net
Speaker #2: charge-off. Turning to slide four, I'll
We completed the sale of the $8 8 billion dollar discover home loans portfolio in the quarter.
Turning to slide four I'll now cover the allowance in greater detail.
Speaker #2: Now, cover the allowance in greater—allowance in greater.
Speaker #2: detail.
Speaker #2: The $302 million allowance
The $302 million allowance build in the quarter brought the allowance balance to $23 $4 billion.
After refining our preliminary purchase accounting estimates.
Speaker #2: Billed in the quarter brought the allowance.
Speaker #2: balance to $23.4
The proceeds resulted in a net gain on sale of $483 million, which is reported in the results for discontinued operations.
Speaker #2: billion. Our
Speaker #2: total portfolio coverage
Our total portfolio coverage ratio decreased five basis points and now stands at 5.16%.
Speaker #2: ratio decreased five basis
Speaker #2: 5.16%. I'll cover the drivers of the changes.
You can find the revised discover purchase consideration walk and amortization schedule in the appendix of tonight's presentation.
I'll cover the drivers of the changes in allowance coverage ratio by segment on slide five.
Speaker #2: In allowance and coverage ratio by
Speaker #2: segment on slide
Speaker #2: five. In our
Net of the home loan sales and the other adjusting items.
Speaker #2: domestic card segment, our coverage
In our domestic card segment, our coverage ratio declined by 11 basis points and now stands at 7.17%.
Speaker #2: ratio declined by 11 basis
Speaker #2: points, and now stands at
Fourth quarter earnings per share were $3.86.
Speaker #2: 7.17%. The
Full year adjusted earnings per share were $19.61.
Speaker #2: $335 million allowance
The 335 million dollar allowance build was largely driven by loan growth in the quarter.
Speaker #2: Bill was largely driven by loan growth in the
Speaker #2: quarter. The allowance balance
Okay.
We also had two notable items in the quarter: $200 million of accelerated philanthropy contributions.
The allowance balance in our consumer banking segment was largely flat at $1 $9 billion.
Speaker #2: in our Consumer Banking segment was
Speaker #2: largely flat at 1.9
Speaker #2: $1 billion. Growth in the auto business was
$37 million of pension termination expense.
Growth in the auto business was largely offset by continued observed credit favorability.
Speaker #2: largely offset by
Relative to the prior quarter, fourth quarter revenue increased about 1%, and noninterest expense increased 13%.
Speaker #2: continued observed credit
Speaker #2: favorability. The coverage ratio ended
The coverage ratio ended the quarter at two point to 3%.
Speaker #2: the quarter at
Speaker #2: 2.23%, three basis
Speaker #2: points lower than the prior
Three basis points lower than the prior quarter.
Speaker #2: quarter. And finally, in our Commercial Banking segment,
And finally in our commercial banking segment, we released $47 million of allowance.
Speaker #2: allowance. The allowance
Speaker #2: Release was largely driven by charge-offs in the
The allowance release was largely driven by charge offs in the quarter.
Speaker #2: Quarter. The commercial banking coverage ratio declined six basis points, and now stands at 1.6%.
The commercial banking coverage ratio declined six basis points and now stands at 1.63%.
Speaker #1: Turning to page seven, I'll cover our net interest margin. Our fourth quarter net interest margin was 8.26%, ten basis points lower than the prior quarter.
Turning to page six I'll now discuss liquidity.
Total liquidity reserves ended the fourth quarter at about $144 billion up modestly from the prior quarter.
Speaker #1: The decline was driven by lower asset yields and a higher cash balance, as the impact of the sale of the Discover Home Loans portfolio more than offset the typical seasonal decline in cash.
Our preliminary average liquidity coverage ratio increased to 173% in the quarter driven by higher average cash and lower net outflows.
Speaker #1: Turning to the quarter. Quarterly earnings were more than offset by $2.5 billion in share repurchases and the increase in risk-weighted assets. With that, I will turn the call over to Rich.
Turning to page seven I will cover our net interest margin.
Our fourth quarter net interest margin was 8.26% 10 basis points lower than the prior quarter.
The decline was driven by lower asset yields and a higher cash balance is the impact of the sale of the discover home loans portfolio more than offset the typical seasonal decline in cash.
Speaker #1: Rich?
Speaker #2: Thanks,
Speaker #2: Andrew. Slide ten shows fourth 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 eleven.
Turning to slide eight I will end by discussing our capital position.
Our common equity tier one capital ratio ended the quarter at 14, 3% approximately 10 basis points lower than the prior quarter.
Quarterly earnings were more than offset by $2 $5 billion in share repurchases and the increase in risk weighted assets.
Speaker #2: In the fourth quarter, the combined domestic card business posted steady top-line growth, strong margins, and stable credit. Year-over-year purchase volume growth for the quarter was 39%, driven primarily, of course, by the addition of Discover purchase volume.
With that I will turn the call over to rich rich.
Yeah.
Ah Thanks, Andrew Slide 10 shows fourth quarter results and our credit card business.
Credit card segment results are largely a function of our domestic card results in trends, which are shown on slide 11.
Speaker #2: Excluding Discover, year-over-year purchase volume growth was about 6.2%. Ending loan balances increased 69% year-over-year, also largely as a result of adding Discover card loans.
In the fourth quarter, the combined domestic card business posted steady topline growth strong margins and stable credit.
Speaker #2: Excluding Discover, ending loans grew about 3.3% year-over-year. While competitive intensity remains high, we continue to see good traction across our legacy card business, with stronger growth results in our heavy spender franchise at the top of the marketplace.
Year over year purchase volume growth for the quarter was 39%.
Operator: For 2025 Earnings Call, please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question-and-answer session. To ask a question, please press star one-one on your telephone and wait for your name to be announced. To withdraw your question, please press star one-one again. I would now like to hand the conference over to your speaker today, Jeff Norris, Senior Vice President of Finance. Please go ahead.
Operator: For 2025 Earnings Call, please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question-and-answer session. To ask a question, please press star one-one on your telephone and wait for your name to be announced. To withdraw your question, please press star one-one again. I would now like to hand the conference over to your speaker today, Jeff Norris, Senior Vice President of Finance. Please go ahead.
Driven primarily of course by the addition of discover purchase volume.
Excluding discover year over year purchase volume growth.
It was about six 2%.
Speaker #2: The legacy Discover Card loans continued to contract slightly and will likely continue to face near-term growth headwinds due to Discover's prior credit policy cutbacks and some trimming around the edges that we're doing.
Ending loan balances increased 69% year over year also largely as a result of adding discover card loans, excluding discover ending loans grew about three 3% year over year.
Jeff Norris: Thanks very much, Josh, and welcome, everyone. To access the live webcast of the call, please go to the investor section of Capital One's website at capitalone.com. A copy of the earnings presentation, press release, and financial supplement can also be found in the investor section of Capital One's website, capitalone.com, by selecting financials and then quarterly earnings release. With me this evening are Mr. Richard Fairbank, Capital One's Chairman and Chief Executive Officer, and Mr. Andrew Young, Capital One's Chief Financial Officer. Rich and Andrew are going to walk you through this presentation that summarizes our Q4 2025 results. Please note that this presentation may contain forward-looking statements. Information regarding Capital One's financial performance and any forward-looking statements contained in today's discussion and the materials speak only as of the particular date or dates indicated in the materials.
Jeff Norris: Thanks very much, Josh, and welcome, everyone. To access the live webcast of the call, please go to the investor section of Capital One's website at capitalone.com. A copy of the earnings presentation, press release, and financial supplement can also be found in the investor section of Capital One's website, capitalone.com, by selecting financials and then quarterly earnings release. With me this evening are Mr. Richard Fairbank, Capital One's Chairman and Chief Executive Officer, and Mr. Andrew Young, Capital One's Chief Financial Officer. Rich and Andrew are going to walk you through this presentation that summarizes our Q4 2025 results. Please note that this presentation may contain forward-looking statements. Information regarding Capital One's financial performance and any forward-looking statements contained in today's discussion and the materials speak only as of the particular date or dates indicated in the materials.
Speaker #2: We continue to see good opportunities to grow the Discover card business on the other side of our tech integration, where we can implement growth expansions powered by our unique technology and underwriting.
While the competitive intensity remains high we continue to see good traction across our legacy card business, where the stronger growth results in our heavy spender franchise at the top of the marketplace.
Our Common Equity Tier 1 capital ratio ended the quarter at 14.3%.
The legacy discover card loans continued to contract slightly.
Approximately 10 basis points lower than the prior quarter.
Speaker #2: Revenue was up 58% from the fourth quarter of 2024, largely driven by the addition of Discover revenue. Excluding Discover, year-over-year revenue growth was about 6.2%, driven by underlying growth in purchase volume and loans.
And will likely continue to face near term growth headwind due to discover prior credit policy cut backs and some trimming around the edges that we're doing.
We continue to see good opportunities to grow the discover card business on the other side of our tech integration, where we can implement growth expansions powered by our unique technology and underwriting.
Speaker #2: Revenue margin for the quarter was steady at 17.3%. The domestic card charge-off rate for the fourth quarter was 4.93%, up 30 basis points from the prior quarter and down 113 basis points from a year ago.
Jeff Norris: Capital One does not undertake any obligation to update or revise any of this information 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 of our annual and quarterly reports accessible at Capital One's website and filed with the SEC. With that, I'll turn the call over to Mr. Young. Andrew?
Capital One does not undertake any obligation to update or revise any of this information 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 of our annual and quarterly reports accessible at Capital One's website and filed with the SEC. With that, I'll turn the call over to Mr. Young. Andrew?
Revenue was up 58% from the fourth quarter of 'twenty 'twenty four largely driven by the addition of discover revenue.
Excluding discover year over year revenue growth was about six 2% driven by underlying growth in purchase volume and loans.
Speaker #2: Our domestic card delinquency rate was 3.99%, up 10 basis points from the prior quarter and down 54 basis points from a year ago. On a sequential quarter basis, both our charge-offs and delinquencies moved in line with normal seasonality. Our credit metrics appear to be settling out after almost a year of steady improvement.
Revenue margin for the quarter was steady at 17.3 per cent.
The domestic card charge off rate for the fourth quarter was 4.93% up 30 basis points from the prior quarter and down 113 basis points from a year ago.
Andrew Young: Thanks, Jeff, and good afternoon, everyone. Let me begin by saying that we are incredibly excited to announce that we have entered into a definitive agreement to acquire Brex. Rich will talk more about the Brex acquisition in a moment. I'll start tonight's presentation by covering the highlights of our fourth quarter results on slide three. In the fourth quarter, Capital One earned $2.1 billion, or $3.26 per diluted common share. For the full year, Capital One earned $2.5 billion, or $4.03 per share. We completed the sale of the $8.8 billion Discover Home Loans portfolio in the quarter. After refining our preliminary purchase accounting estimates, the proceeds resulted in a net gain on sale of $483 million, which is reported in the results for discontinued operations. You can find the revised Discover purchase consideration walk and amortization schedules in the appendix of tonight's presentation.
Andrew Young: Thanks, Jeff, and good afternoon, everyone. Let me begin by saying that we are incredibly excited to announce that we have entered into a definitive agreement to acquire Brex. Rich will talk more about the Brex acquisition in a moment. I'll start tonight's presentation by covering the highlights of our fourth quarter results on slide three. In the fourth quarter, Capital One earned $2.1 billion, or $3.26 per diluted common share. For the full year, Capital One earned $2.5 billion, or $4.03 per share. We completed the sale of the $8.8 billion Discover Home Loans portfolio in the quarter. After refining our preliminary purchase accounting estimates, the proceeds resulted in a net gain on sale of $483 million, which is reported in the results for discontinued operations. You can find the revised Discover purchase consideration walk and amortization schedules in the appendix of tonight's presentation.
Speaker #2: Domestic card non-interest expense was up 60% compared to the fourth quarter of 2024, reflecting a full quarter of combined operations and purchase accounting amortization.
Our domestic card delinquency rate was 3.99% up 10 basis points from the prior quarter and down 54 basis points from a year ago on a sequential quarter basis, both our charge offs and delinquencies moved in line with normal seasonality.
Speaker #2: Operating expense and marketing both increased year-over-year. Total company marketing expense in the quarter was about $1.9 billion, up 41% year-over-year. Our choices in Domestic Card are the biggest driver of total company marketing.
Credit metrics appear to be settling out after almost a year of steady improvement.
Domestic card non interest expense was up 60% compared to the fourth quarter of 'twenty 'twenty, four reflecting a full quarter of combined operations and purchase accounting operate amortization opt.
Speaker #2: Compared to the fourth quarter of 2024, domestic card marketing in the quarter included the addition of Discover marketing, higher media spend, and increased investment in premium benefits and differentiated customer experiences.
Operating expense and marketing both increased year over year.
Total company marketing expense in the quarter was about $1.9 billion up 41% year over year.
Speaker #2: Our marketing continues to deliver strong new account originations and to build an enduring franchise with heavy spenders at the top of the market. Slide twelve.
Andrew Young: Net of the home loan sales and the other adjusting items, Q4 earnings per share were $3.86. Full year adjusted earnings per share were $19.61. We also had two notable items in the quarter: $200 million of accelerated philanthropy contributions and $37 million of pension termination expense. Relative to the prior quarter, Q4 revenue increased about 1%, and non-interest expense increased 13%. Pre-provision earnings declined 12%, or 10% net of adjustments. Our provision for credit losses was $4.1 billion in the quarter, an increase of about $1.4 billion relative to the Q3. The increase was driven by an allowance build of $302 million in the quarter versus last quarter's release, as well as a $360 million increase in net charge-off. Turning to slide 4, I'll now cover the allowance in greater detail. The $302 million allowance build in the quarter brought the allowance balance to $23.4 billion.
Net of the home loan sales and the other adjusting items, Q4 earnings per share were $3.86. Full year adjusted earnings per share were $19.61. We also had two notable items in the quarter: $200 million of accelerated philanthropy contributions and $37 million of pension termination expense. Relative to the prior quarter, Q4 revenue increased about 1%, and non-interest expense increased 13%. Pre-provision earnings declined 12%, or 10% net of adjustments. Our provision for credit losses was $4.1 billion in the quarter, an increase of about $1.4 billion relative to the Q3. The increase was driven by an allowance build of $302 million in the quarter versus last quarter's release, as well as a $360 million increase in net charge-off. Turning to slide 4, I'll now cover the allowance in greater detail. The $302 million allowance build in the quarter brought the allowance balance to $23.4 billion.
Our choices and domestic card or the biggest driver of total company marketing compared to the fourth quarter of 'twenty 'twenty four domestic card marketing in the quarter included. The addition of discover marketing higher media spend and increased investment in premium benefits and.
Speaker #2: Shows fourth quarter results in our consumer banking business. Global payment network transaction volume for the quarter was about $175 billion. Auto originations were up 8% from the prior year quarter.
She hated customer experiences.
Speaker #2: Increased competitor activity in the quarter drove a slowdown in our originations growth, but we continue to be in a strong position to pursue resilient growth in the current marketplace.
Our marketing continues to deliver strong new account originations and to build an enduring franchise with heavy spenders at the top of the market.
Okay.
Speaker #2: Consumer banking ending loan balances increased $6.7 billion, or about 9% year-over-year. Average loans were also up 9%. Compared to the year-ago quarter, ending and average consumer deposits grew about 33%, driven largely by the addition of Discover deposits.
Global payment network transaction volume for the quarter was about $175 billion.
Auto originations were up 8% from the prior year quarter increased competitor activity in the quarter drove a slowdown in our originations growth, but we continue to be in a strong position to pursue resilient growth in the current marketplace.
Speaker #2: Looking through the Discover impact, our digital-first national consumer banking business continues to grow and gain traction. Consumer banking revenue for the quarter was up about 36% year-over-year, driven predominantly by the full quarter of Discover operations as well as Discover revenue synergies and growth in auto loans.
Consumer banking ending loan balances.
Increased $6 $7 billion or about 9% year over year.
Average loans were also up 9%.
Andrew Young: Our total portfolio coverage ratio decreased 5 basis points and now stands at 5.16%. I'll cover the drivers of the changes in allowance and coverage ratio by segment on slide 5. In our domestic card segment, our coverage ratio declined by 11 basis points and now stands at 7.17%. The $335 million allowance build was largely driven by loan growth in the quarter. The allowance balance in our consumer banking segment was largely flat at $1.9 billion. Growth in the auto business was largely offset by continued observed credit favorability. The coverage ratio ended the quarter at 2.23%, 3 basis points lower than the prior quarter. And finally, in our commercial banking segment, we released $47 million of allowance. The allowance release was largely driven by charge-offs in the quarter. The commercial banking coverage ratio declined 6 basis points and now stands at 1.63%.
Our total portfolio coverage ratio decreased 5 basis points and now stands at 5.16%. I'll cover the drivers of the changes in allowance and coverage ratio by segment on slide 5. In our domestic card segment, our coverage ratio declined by 11 basis points and now stands at 7.17%. The $335 million allowance build was largely driven by loan growth in the quarter. The allowance balance in our consumer banking segment was largely flat at $1.9 billion. Growth in the auto business was largely offset by continued observed credit favorability. The coverage ratio ended the quarter at 2.23%, 3 basis points lower than the prior quarter. And finally, in our commercial banking segment, we released $47 million of allowance. The allowance release was largely driven by charge-offs in the quarter. The commercial banking coverage ratio declined 6 basis points and now stands at 1.63%.
Compared to the year ago quarter, ending and average consumer deposits grew about 33%.
Speaker #2: Non-interest expense was up about 48% compared to the fourth quarter of 2024, driven largely by the full quarter of Discover as well as higher marketing to drive growth in our national consumer banking business.
Driven largely by the addition of discover deposits looking through the discover impact our digital first national consumer banking business continues to grow and gain traction.
Speaker #2: Increased auto originations and continued technology investments. The auto charge-off rate for the quarter was 1.82%, down 50 basis points year-over-year and up 28 basis points from the third quarter, in line with expected seasonality.
Consumer banking revenue for the quarter was up about 36% year over year, driven predominantly by the full quarter of discover operations as well as discover revenue synergies and growth in auto loans.
Noninterest expense was up about 48% compared to the fourth quarter of 'twenty 'twenty, four driven largely by the full quarter of discover as well as higher marketing to drive growth in our national consumer banking business.
Speaker #2: Auto charge-offs have been stable near pre-pandemic levels for the past year. The auto delinquency rate increased seasonally in the quarter, up 24 basis points to 5.23%.
Increased auto originations and continued technology investments.
Speaker #2: On a year-over-year basis, our auto delinquencies improved by 72 basis points. Slide thirteen shows fourth quarter results for our Commercial Banking business. Compared to the linked quarter, both ending and average loan balances were flat.
The auto charge off rate for the quarter was 1.82% down 50 basis points year over year and up 28 basis points from the third quarter in line with it with expected seasonality.
Andrew Young: Turning to page 6, I'll now discuss liquidity. Total liquidity reserves ended the fourth quarter at about $144 billion, up modestly from the prior quarter. Our preliminary average Liquidity Coverage Ratio increased to 173% in the quarter, driven by higher average cash and lower net outflows. Turning to page 7, I'll cover our Net Interest Margin. Our fourth quarter Net Interest Margin was 8.26%, 10 basis points lower than the prior quarter. The decline was driven by lower asset yields and a higher cash balance, as the impact of the sale of the Discover Home Loans portfolio more than offset the typical seasonal decline in cash. Turning to slide 8, I will end by discussing our capital position. Our Common Equity Tier 1 capital ratio ended the quarter at 14.3%, approximately 10 basis points lower than the prior quarter.
Turning to page 6, I'll now discuss liquidity. Total liquidity reserves ended the fourth quarter at about $144 billion, up modestly from the prior quarter. Our preliminary average Liquidity Coverage Ratio increased to 173% in the quarter, driven by higher average cash and lower net outflows. Turning to page 7, I'll cover our Net Interest Margin. Our fourth quarter Net Interest Margin was 8.26%, 10 basis points lower than the prior quarter. The decline was driven by lower asset yields and a higher cash balance, as the impact of the sale of the Discover Home Loans portfolio more than offset the typical seasonal decline in cash. Turning to slide 8, I will end by discussing our capital position. Our Common Equity Tier 1 capital ratio ended the quarter at 14.3%, approximately 10 basis points lower than the prior quarter.
Auto charge offs have been stable near pre pandemic levels for the past year, the auto delinquency rate increased seasonally in the quarter up 24 basis points to five points to 3% on a year over year basis, our auto delinquencies improved by 72 basis points.
Speaker #2: Ending deposits were up about 4% from the linked quarter. Average deposits were up 5%. The Commercial Banking annualized net charge-off rate for the fourth quarter increased 22 basis points from the sequential quarter, to 0.43%.
Speaker #2: The commercial criticized performing loan rate was 4.68%, down 45 basis points compared to the linked quarter. The criticized non-performing loan rate was down 3 basis points, to 1.36%.
Slide 13 shows fourth quarter results for our commercial banking business compared to the linked quarter, both ending and average loan balances were flat.
Ending deposits were up about 4% from the linked quarter average deposits were up 5% the.
Speaker #2: In closing, fourth quarter results continued to reflect solid top-line growth and strong and stable credit performance. Continuing capital generation and our strong balance sheet powered increased share repurchases of $2.5 billion in the quarter.
The commercial banking annualized net charge off rate for the fourth quarter increased 22 basis points from the sequential quarter to 0.43%. The commercial criticized performing loan rate was 4.68% down 45 basis points compared to the.
Speaker #2: And we made expected progress on Discover integration and synergies in the quarter. We remain on track to deliver the expected synergies. 2025 was a seminal year for Capital One.
Andrew Young: Quarterly earnings were more than offset by $2.5 billion in share repurchases and the increase in Risk-Weighted Assets. With that, I will turn the call over to Rich. Rich?
Quarterly earnings were more than offset by $2.5 billion in share repurchases and the increase in Risk-Weighted Assets. With that, I will turn the call over to Rich. Rich?
Our linked quarter.
The criticized nonperforming loan rate was down three basis points to 1.36%.
In closing fourth quarter results continued to reflect solid top line growth and strong and stable credit performance continuing capital generation and our strong balance sheet powered increased share repurchases of $2 $5 billion in the quarter.
Speaker #2: In addition to delivering strong performance across our businesses, we completed the acquisition of Discover—a singular transaction that's delivering near-term synergies and unlocking significant strategic opportunity and upside over the long term.
Richard Fairbank: Thanks, Andrew. Slide 10 shows fourth 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 fourth quarter, the combined domestic card business posted steady top-line growth, strong margins, and stable credit. Year-over-year purchase volume growth for the quarter was 39%, driven primarily, of course, by the addition of Discover purchase volume. Excluding Discover, year-over-year purchase volume growth was about 6.2%. Ending loan balances increased 69% year-over-year, also largely as a result of adding Discover card loans. Excluding Discover, ending loans grew about 3.3% year-over-year. While competitive intensity remains high, we continue to see good traction across our legacy card business, with stronger growth results in our heavy spender franchise at the top of the marketplace.
Richard Fairbank: Thanks, Andrew. Slide 10 shows fourth 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 fourth quarter, the combined domestic card business posted steady top-line growth, strong margins, and stable credit. Year-over-year purchase volume growth for the quarter was 39%, driven primarily, of course, by the addition of Discover purchase volume. Excluding Discover, year-over-year purchase volume growth was about 6.2%. Ending loan balances increased 69% year-over-year, also largely as a result of adding Discover card loans. Excluding Discover, ending loans grew about 3.3% year-over-year. While competitive intensity remains high, we continue to see good traction across our legacy card business, with stronger growth results in our heavy spender franchise at the top of the marketplace.
Speaker #2: Our 2025 performance was enabled by years of strategic preparation and our choice to consistently invest to sustain long-term growth and returns. And these same choices put us in a strong position going forward.
And we made expected progress on discover integration and synergies in the quarter, we remain on track to deliver the expected synergies.
2025 was a seminal year for capital one in addition to delivering strong performance across our businesses. We completed the acquisition of discover a singular transaction, that's delivering near term synergies and unlocking significant strategic opportunity and upside.
Speaker #2: As we enter 2026, I'm struck by the number and quality of the opportunities we have before us. We've been investing in many of our opportunities for years, like building our heavy spender franchise with consumers and small businesses at the top of the credit card marketplace, building a national franchise of primary banking relationships in our retail banking business, and building a modern technology and data infrastructure.
Over the long term our 2025 performance was enabled by years of strategic preparation and our choice to consistently invest to sustain long term growth and returns and these same choices put us in a strong position going forward.
Speaker #2: And as we continue to build on foundational tech investments to migrate up the tech stack, we're generating new growth opportunities like Capital One Travel, Capital One Shopping, and Auto Navigator.
As we enter 'twenty 'twenty 'twenty six I'm struck by the number and quality of the opportunities we have before us.
We've been investing in many of our opportunities for years like building, our heavy spender franchise with consumers and small businesses at the top of the credit card marketplace.
Speaker #2: Our tech stack was built from the outset working backwards from the AI revolution, and we are now building AI solutions across our businesses. Many of our opportunities are enhanced by the Discover acquisition, which of course also brings the new opportunity to grow and scale our own global payments network.
Richard Fairbank: The legacy Discover card loans continued to contract slightly and will likely continue to face near-term growth headwinds due to Discover's prior credit policy cutbacks and some trimming around the edges that we're doing. We continue to see good opportunities to grow the Discover card business on the other side of our tech integration, where we can implement growth expansions powered by our unique technology and underwriting. Revenue was up 58% from Q4 2024, largely driven by the addition of Discover revenue. Excluding Discover, year-over-year revenue growth was about 6.2%, driven by underlying growth in purchase volume and loans. Revenue margin for the quarter was steady at 17.3%. The domestic card charge-off rate for Q4 was 4.93%, up 30 basis points from the prior quarter and down 113 basis points from a year ago.
The legacy Discover card loans continued to contract slightly and will likely continue to face near-term growth headwinds due to Discover's prior credit policy cutbacks and some trimming around the edges that we're doing. We continue to see good opportunities to grow the Discover card business on the other side of our tech integration, where we can implement growth expansions powered by our unique technology and underwriting. Revenue was up 58% from Q4 2024, largely driven by the addition of Discover revenue. Excluding Discover, year-over-year revenue growth was about 6.2%, driven by underlying growth in purchase volume and loans. Revenue margin for the quarter was steady at 17.3%. The domestic card charge-off rate for Q4 was 4.93%, up 30 basis points from the prior quarter and down 113 basis points from a year ago.
Building, a national franchise, a primary banking relationships in our retail banking business.
And building, a modern technology and data infrastructure.
And as we continue to build on foundational tech investments.
To migrate up the tech stack.
Speaker #2: To capitalize on these opportunities at this special moment, we need to make significant and sustained investments, and we are leaning into them. Tonight, I'm excited to announce our agreement to acquire Brex for a combination of stock and cash totaling $5.15 billion.
We're generating new growth opportunities like capital, one travel capital one's shopping and auto navigator. Our tech stack was built from the outset working backwards from the AI Revolution, and we are now building AI solutions across our businesses.
Many of our opportunities are enhanced by the discover acquisition, which of course also brings the new opportunity to grow and scale our own global payments network.
Speaker #2: We've included slides in the earnings presentation appendix that summarize key aspects of the transaction. Brex is a pioneer in the dynamically changing business payments space, with industry-leading technology and world-class talent.
To capitalize on these opportunities at this special moment, we need to make significant and sustained investments and we are leaning into them.
Speaker #2: Acquiring Brex accelerates a journey we've been on since our founding days—a quest to build a banking and payments company that's positioned to win where the world is going.
Tonight I am excited to announce our agreement to acquire bricks for a combination of stock and cash totaling $5.15 billion. We've included slides in the earnings presentation appendix that summarized key aspects of the transaction.
Speaker #2: The transaction will create purchase accounting impacts that will need to help investors navigate. Importantly, we expect Brex to have no impact on the Discover integration or expected synergies.
Richard Fairbank: Our domestic card delinquency rate was 3.99%, up 10 basis points from the prior quarter and down 54 basis points from a year ago. On a sequential quarter basis, both our charge-offs and delinquencies moved in line with normal seasonality. Our credit metrics appear to be settling out after almost a year of steady improvement. Domestic card non-interest expense was up 60% compared to the fourth quarter of 2024, reflecting a full quarter of combined operations and Purchase Accounting amortization. Operating expense and marketing both increased year-over-year. Total company marketing expense in the quarter was about $1.9 billion, up 41% year-over-year. Our choices in domestic card are the biggest driver of total company marketing. Compared to the fourth quarter of 2024, domestic card marketing in the quarter included the addition of Discover marketing, higher media spend, and increased investment in premium benefits and differentiated customer experiences.
Our domestic card delinquency rate was 3.99%, up 10 basis points from the prior quarter and down 54 basis points from a year ago. On a sequential quarter basis, both our charge-offs and delinquencies moved in line with normal seasonality. Our credit metrics appear to be settling out after almost a year of steady improvement. Domestic card non-interest expense was up 60% compared to the fourth quarter of 2024, reflecting a full quarter of combined operations and Purchase Accounting amortization. Operating expense and marketing both increased year-over-year. Total company marketing expense in the quarter was about $1.9 billion, up 41% year-over-year. Our choices in domestic card are the biggest driver of total company marketing. Compared to the fourth quarter of 2024, domestic card marketing in the quarter included the addition of Discover marketing, higher media spend, and increased investment in premium benefits and differentiated customer experiences.
<unk> is a pioneer in the dynamically changing business payment space with industry, leading technology and world class talent acquiring bricks accelerates a journey we've been on since our founding days the quest to build the banking and payments company that is positioned to win where the world is going the.
Speaker #2: And the total consideration for the Brex acquisition is around 3.5% of Capital One's market capitalization, so it doesn't change the expected pace or magnitude of our quarterly share repurchases.
Speaker #2: And perhaps most importantly, we still expect our earnings power on the other side of the Discover integration to be consistent with what we expected at the time we announced the Discover deal, inclusive of Brex.
The transaction will create purchase accounting impacts that we'll need to help investors navigate importantly, we expect Brexit to have no impact on the discover integration or expected synergies.
Speaker #2: And now we'll be happy to answer your questions. Jeff?
Thanks, Rich. 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.
The total consideration for the brakes acquisition is around three 5% of capital one's market capitalization. So it doesn't change the expected pace or magnitude of our quarterly share repurchases and perhaps most importantly, we still expect our earnings power on the other side of the disc.
Speaker #2: And if you have follow-up questions after the Q&A session, you can get in touch with the Investor Relations team, and we'll be available to answer them for you.
Speaker #2: Josh, please start the Q&A session.
Cover integration to be consistent with what we expected at the time, we announced the discover deal inclusive of bricks.
Speaker #3: Thank you. As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again.
And now we'll be happy to answer your questions.
Jeff.
Thanks, Rich, 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.
Speaker #3: And our first question comes from Sanjay Sakrani with KBW. You may.
Richard Fairbank: Our marketing continues to deliver strong new account originations and to build an enduring franchise with heavy spenders at the top of the market. Slide 12 shows fourth quarter results in our consumer banking business. Global payment network transaction volume for the quarter was about $175 billion. Auto originations were up 8% from the prior year quarter. Increased competitor activity in the quarter drove a slowdown in our originations growth, but we continue to be in a strong position to pursue resilient growth in the current marketplace. Consumer banking ending loan balances increased $6.7 billion, or about 9% year-over-year. Average loans were also up 9%. Compared to the year-ago quarter, ending and average consumer deposits grew about 33%, driven largely by the addition of Discover deposits. Looking through the Discover impact, our digital-first national consumer banking business continues to grow and gain traction.
Our marketing continues to deliver strong new account originations and to build an enduring franchise with heavy spenders at the top of the market. Slide 12 shows fourth quarter results in our consumer banking business. Global payment network transaction volume for the quarter was about $175 billion. Auto originations were up 8% from the prior year quarter. Increased competitor activity in the quarter drove a slowdown in our originations growth, but we continue to be in a strong position to pursue resilient growth in the current marketplace. Consumer banking ending loan balances increased $6.7 billion, or about 9% year-over-year. Average loans were also up 9%. Compared to the year-ago quarter, ending and average consumer deposits grew about 33%, driven largely by the addition of Discover deposits. Looking through the Discover impact, our digital-first national consumer banking business continues to grow and gain traction.
Speaker #4: Thank you. I want to talk a little bit about the Brex acquisition first. Rich, could you just talk a little bit about the strategic value of adding this capability?
If you have follow up questions after the Q&A session.
You can get in touch with the Investor Relations team will be available to answer them for you John.
Speaker #4: I see how it could really enhance, sort of, your platform in the small business space, especially with a network. Maybe you could just talk a little bit about how you see it coming together over time.
Josh Please start the Q&A session.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker #2: Yes, thank you. Let me just kind of pull up here and talk about the opportunity and Brex holistically. Acquiring Brex builds on and accelerates a journey we've been on since our founding days.
And our first question comes from Sanjay So crony with K B W. You May proceed.
Thank you I wanted to talk a little bit about the brakes acquisition first rich could you just talk a little bit about the strategic value of adding this capability I see how it can really enhance sort of your platform.
The small business space, especially with the network, but maybe you could just talk a little bit about how you see it coming together over time.
Speaker #2: It is the quest to build a banking and payments company that's positioned to win where the world is going. We were the original fintech, years before that term was coined.
Yeah.
Yes.
Thank you.
Speaker #2: And we grew by carefully choosing businesses with attractive industry structures that are at the heart of consumers' financial lives, and also that were ripe for transformation by technology and data.
Let me just.
Kind of pull up here and talk about the <unk>.
Opportunity and bricks holistically.
Acquiring bricks builds on and accelerates the journey, we've been on since our founding days.
Speaker #2: As a result, we aren't in all the businesses that other banks are in. We have focused on a select set of businesses that have relevant scale in the competitive marketplace, and which fit together synergistically.
Richard Fairbank: Consumer banking revenue for the quarter was up about 36% year-over-year, driven predominantly by the full quarter of Discover operations, as well as Discover revenue synergies and growth in auto loans. Non-interest expense was up about 48% compared to the fourth quarter of 2024, driven largely by the full quarter of Discover, as well as higher marketing to drive growth in our national consumer banking business, increased auto originations, and continued technology investments. The auto charge-off rate for the quarter was 1.82%, down 50 basis points year-over-year, and up 28 basis points from the third quarter, in line with expected seasonality. Auto charge-offs have been stable near pre-pandemic levels for the past year. The auto delinquency rate increased seasonally in the quarter, up 24 basis points to 5.23%. On a year-over-year basis, our auto delinquencies improved by 72 basis points.
Consumer banking revenue for the quarter was up about 36% year-over-year, driven predominantly by the full quarter of Discover operations, as well as Discover revenue synergies and growth in auto loans. Non-interest expense was up about 48% compared to the fourth quarter of 2024, driven largely by the full quarter of Discover, as well as higher marketing to drive growth in our national consumer banking business, increased auto originations, and continued technology investments. The auto charge-off rate for the quarter was 1.82%, down 50 basis points year-over-year, and up 28 basis points from the third quarter, in line with expected seasonality. Auto charge-offs have been stable near pre-pandemic levels for the past year. The auto delinquency rate increased seasonally in the quarter, up 24 basis points to 5.23%. On a year-over-year basis, our auto delinquencies improved by 72 basis points.
It is the quest to build the banking and payments company that is positioned to win where the world is going.
We were the original Fintech years before that term was coined.
And we grew by carefully choosing businesses with attractive industry structures that are at the heart of consumers' financial lives.
Speaker #2: A central part of that envelope of activities has been payments. From the founding of the company, we have believed that payments will be the tip of the spear in the transformation of banking and financial services.
And.
Also that were ripe for transformation by technology and data.
As a result, we arent in all the businesses that other banks are in we are focused on a select set of businesses that have relevance scale and the competitive marketplace.
Speaker #2: Over time, we built a payments company encompassing credit cards and banking across consumers and businesses, and recently added one of the nation's only payment networks.
And which fit together synergistically.
Speaker #2: Business payments have been a growing part of our strategy and investment agenda. We have built the nation’s third-largest small business credit card franchise, and we have been investing to grow our small business bank.
A central part of that envelope of activities has been payments.
From the founding of the company, we believe that payments will be the tip of the spear in the transformation of banking and financial services.
Speaker #2: Our announcement today represents an important step change towards our business payments destination in a broader marketplace that we believe is ripe for reinvention. Let's talk about what's happening in the business payments marketplace.
Over time, we built a payments company encompassing credit cards and banking across consumers and businesses.
And recently added one of the nations only payment networks.
Richard Fairbank: Slide 13 shows fourth quarter results for our commercial banking business. Compared to the linked quarter, both ending and average loan balances were flat. Ending deposits were up about 4% from the linked quarter. Average deposits were up 5%. The commercial banking annualized net charge-off rate for the fourth quarter increased 22 basis points from the sequential quarter to 0.43%. The commercial criticized performing loan rate was 4.68%, down 45 basis points compared to the linked quarter. The criticized non-performing loan rate was down 3 basis points to 1.36%. In closing, fourth quarter results continued to reflect solid top-line growth and strong and stable credit performance. Continuing capital generation and our strong balance sheet powered increased share repurchases of $2.5 billion in the quarter, and we made expected progress on Discover integration and synergies in the quarter. We remain on track to deliver the expected synergies.
Slide 13 shows fourth quarter results for our commercial banking business. Compared to the linked quarter, both ending and average loan balances were flat. Ending deposits were up about 4% from the linked quarter. Average deposits were up 5%. The commercial banking annualized net charge-off rate for the fourth quarter increased 22 basis points from the sequential quarter to 0.43%. The commercial criticized performing loan rate was 4.68%, down 45 basis points compared to the linked quarter. The criticized non-performing loan rate was down 3 basis points to 1.36%. In closing, fourth quarter results continued to reflect solid top-line growth and strong and stable credit performance. Continuing capital generation and our strong balance sheet powered increased share repurchases of $2.5 billion in the quarter, and we made expected progress on Discover integration and synergies in the quarter. We remain on track to deliver the expected synergies.
Business payments have been a growing part of our strategy and investment agenda.
Speaker #2: The credit card is an important piece of a bigger customer need. For decades, businesses of all sizes have faced chronic pain points when dealing with payments.
We have built the nation's third largest small business credit card franchise.
And we have been investing to grow our small business bank.
Speaker #2: Including collecting hundreds or thousands of invoices, deciphering what payment vehicles or platforms to use, dealing with approvals, expense budgets, spending policies, booking travel, and tracking employee T&E spending.
Our announcement today represents an important step change towards our business payments destination in a broader market place that we believe is ripe for reinvention.
Let's talk about what's happening in the business payments marketplace.
The credit card is an important piece of a bigger customer need.
Speaker #2: And after all of that, businesses need to reconcile and connect all these transactions with accounting and reporting systems. It's often manual, error-prone, and very time-consuming.
For decades businesses of all sizes have faced.
Connick pain points when dealing with payments.
Including collecting hundreds or thousands of invoices.
Speaker #2: I don't know a single business owner who went into business because they were really passionate about managing the complexity of spending and payments. Solutions and tools to help businesses address these issues have been piecemeal.
<unk>, what payment vehicles or platforms to use.
Dealing with approvals expense budgets spending policies.
Booking travel.
And tracking employee T&D spending and after all of that businesses need to reconcile and connect all these transactions with accounting and reporting systems.
Richard Fairbank: 2025 was a seminal year for Q1. In addition to delivering strong performance across our businesses, we completed the acquisition of Discover, a singular transaction that's delivering near-term synergies and unlocking significant strategic opportunity and upside over the long term. Our 2025 performance was enabled by years of strategic preparation and our choice to consistently invest to sustain long-term growth and returns. These same choices put us in a strong position going forward. As we enter 2026, I'm struck by the number and quality of the opportunities we have before us. We've been investing in many of our opportunities for years, like building our heavy spender franchise with consumers and small businesses at the top of the credit card marketplace, building a national franchise of primary banking relationships in our retail banking business, and building a modern technology and data infrastructure.
2025 was a seminal year for Q1. In addition to delivering strong performance across our businesses, we completed the acquisition of Discover, a singular transaction that's delivering near-term synergies and unlocking significant strategic opportunity and upside over the long term. Our 2025 performance was enabled by years of strategic preparation and our choice to consistently invest to sustain long-term growth and returns. These same choices put us in a strong position going forward. As we enter 2026, I'm struck by the number and quality of the opportunities we have before us. We've been investing in many of our opportunities for years, like building our heavy spender franchise with consumers and small businesses at the top of the credit card marketplace, building a national franchise of primary banking relationships in our retail banking business, and building a modern technology and data infrastructure.
Speaker #2: Banks offer business credit cards and bill pay features. Software companies offer accounts payable and expense management tools. While these solutions are valuable, they only address pieces of the pain and are not integrated or comprehensive.
It's often.
Manual error prone and very time consuming.
I don't know a single.
Business owner, who went into business because they were really passionate about managing the complexity of spending and payments.
Speaker #2: Many are built on legacy technology. The pain points remain, and so does the opportunity to provide a truly integrated, modern solution. Brex was the pioneer of that modern solution.
Solutions and tools to help businesses.
Dressed these issues have been piecemeal.
Banks offer business credit cards, and Bill pay features.
Software companies offer accounts payable and expect expense management tools.
Speaker #2: In 2017, Brex invented the integrated combination of business credit cards, spend management software, and banking together in a single platform. They totally changed the game by delivering breakthrough experiences like customizable credit card limits and controls, automated expense receipt capture, real-time blocks for out-of-policy spend, reconciling spend data with internal budgeting, catching payment fraud and errors by matching invoice data to purchase orders, and enabling businesses to close their books effortlessly through real-time ERP integrations.
While these solutions.
Our valuable they only address pieces of the pain and are not integrated or comprehensive.
Many are built on legacy technology.
The pain points remain.
And so does the opportunity to provide a truly integrated modern solution.
Richard Fairbank: As we continue to build on foundational tech investments to migrate up the tech stack, we're generating new growth opportunities like Capital One Travel, Capital One Shopping, and Auto Navigator. Our tech stack was built from the outset, working backwards from the AI revolution, and we are now building AI solutions across our businesses. Many of our opportunities are enhanced by the Discover acquisition, which, of course, also brings the new opportunity to grow and scale our own global payments network. To capitalize on these opportunities at this special moment, we need to make significant and sustained investments, and we are leaning into them. Tonight, I'm excited to announce our agreement to acquire Brex for a combination of stock and cash totaling $5.15 billion. We've included slides in the earnings presentation appendix that summarize key aspects of the transaction.
As we continue to build on foundational tech investments to migrate up the tech stack, we're generating new growth opportunities like Capital One Travel, Capital One Shopping, and Auto Navigator. Our tech stack was built from the outset, working backwards from the AI revolution, and we are now building AI solutions across our businesses. Many of our opportunities are enhanced by the Discover acquisition, which, of course, also brings the new opportunity to grow and scale our own global payments network. To capitalize on these opportunities at this special moment, we need to make significant and sustained investments, and we are leaning into them. Tonight, I'm excited to announce our agreement to acquire Brex for a combination of stock and cash totaling $5.15 billion. We've included slides in the earnings presentation appendix that summarize key aspects of the transaction.
Rex was the pioneer of that modern solution.
In 2017 breaks invented the integrated combination Ah.
Business credit cards spend management software and banking together in a single platform there.
They totally change the game by delivering breakthrough experiences like <unk>.
Customizable credit.
Card limits and controls <unk>.
Speaker #2: Brex has grown rapidly with companies from startups to large enterprises. Some of the world's most tech-forward companies use Brex today, including Anthropic, Robinhood, TikTok, Coinbase, Scale AI, Toast, CrowdStrike, Cloudflare, and DoorDash.
Automated expense receipt capture.
Real time.
<unk> blocks for out of policy spend.
Reconciling spend data with internal budgeting.
Catching payment fraud, and errors by matching invoice data to purchase orders.
And enabling businesses to close their books effortlessly through real time ERP integrations.
Speaker #2: Brex's heritage began with tech companies, but their solutions are equally valuable to all companies. Over the last two years, 60% of their originations have been to non-tech companies.
Brexit has grown rapidly with companies from startups to large enterprises.
Some of the world's most tech forward companies use breaks today <unk>.
Richard Fairbank: Brex is a pioneer in the dynamically changing business payments space, with industry-leading technology and world-class talent. Acquiring Brex accelerates a journey we've been on since our founding days, the quest to build a banking and payments company that's positioned to win where the world is going. The transaction will create Purchase Accounting impacts that we'll need to help investors navigate. Importantly, we expect Brex to have no impact on the Discover integration or expected synergies. And the total consideration for the Brex acquisition is around 3.5% of Q1's market capitalization, so it doesn't change the expected pace or magnitude of our quarterly share repurchases. And perhaps most importantly, we still expect our earnings power on the other side of the Discover integration to be consistent with what we expected at the time we announced the Discover deal, inclusive of Brex. And now we'll be happy to answer your questions.
Brex is a pioneer in the dynamically changing business payments space, with industry-leading technology and world-class talent. Acquiring Brex accelerates a journey we've been on since our founding days, the quest to build a banking and payments company that's positioned to win where the world is going. The transaction will create Purchase Accounting impacts that we'll need to help investors navigate. Importantly, we expect Brex to have no impact on the Discover integration or expected synergies.
Including.
Anthropic Robin Hood tick Tock coinbase scale AI toast crowd.
Speaker #2: Business cards represent approximately $2 trillion in purchase volume, split roughly between corporate liability, where the business entity is responsible for making payments on the card, and personal liability, where the small business owner is personally responsible for making payments on the card.
Crowd strike.
Cloud fit flare.
And door dash.
Breakfast Heritage began with tech companies.
But their solutions are equally valuable to all companies.
Over the last two years, 60% of their originations have been to non tech companies.
Speaker #2: And that latter space, the personal liability card, is where we primarily play today. Collectively, this business card market is growing at about 9% annually as business payments continue the secular migration from cash and checks to digital payments.
And the total consideration for the Brex acquisition is around 3.5% of Q1's market capitalization, so it doesn't change the expected pace or magnitude of our quarterly share repurchases. And perhaps most importantly, we still expect our earnings power on the other side of the Discover integration to be consistent with what we expected at the time we announced the Discover deal, inclusive of Brex. And now we'll be happy to answer your questions. Jeff?
Yeah.
Business cards represent approximately two trillion dollars in purchase volume split roughly between corporate liability.
Where the business entity is responsible for making payments on the card.
And personal liability, where the small business owner is personally responsible for making payments on the card.
Speaker #2: And companies like Brex have grown even faster. Brex is taking share from banks and software providers alike. The integrated platform solution they pioneered redefines and expands the market opportunity beyond credit cards to business payments, banking, and spend management software.
And that ladder.
Richard Fairbank: Jeff? Thanks, Rich. 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. And if you have follow-up questions after the Q&A session, you can get in touch with the investor relations team, and we'll be available to answer them for you. Josh, please start the Q&A session. Thank you. As a reminder, 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. And our first question comes from Sanjay Sakhrani with KBW. You may proceed. Thank you. I want to talk a little bit about the Brex acquisition first. Rich, could you just talk a little bit about the strategic value of adding this capability?
Jeff Norris: Thanks, Rich. 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. And if you have follow-up questions after the Q&A session, you can get in touch with the investor relations team, and we'll be available to answer them for you. Josh, please start the Q&A session.
Space the personal liability.
Card is where we primarily play today.
Collectively this business card market.
Is growing at about 9% annually as business payments continue the secular migration from cash and checks.
Speaker #2: Brex has been a beacon for us, and we have admired them from afar. As we've gotten closer, we've been even more struck by what they have built.
Operator: Thank you. As a reminder, 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. And our first question comes from Sanjay Sakhrani with KBW. You may proceed.
Digital payments.
And companies like brakes have grown.
Even faster.
Brexit is taking share from banks and software providers alike. The integrated platform solution, they pioneered redefines and expands the market opportunity beyond credit cards.
Speaker #2: The Brex team has amazing talent. They built a full modern tech stack from the bottom up. Their card and banking businesses run on an in-house, fully modern core.
Sanjay Sakhrani: Thank you. I want to talk a little bit about the Brex acquisition first. Rich, could you just talk a little bit about the strategic value of adding this capability? I see how it could really enhance sort of your platform in the small business space, especially with a network. But maybe you could just talk a little bit about how you see it coming together over time.
Business payments banking and spend management software.
Speaker #2: They're 100% in the cloud. While most fintechs we've seen through the years leverage third-party technology solutions to get there faster, Brex has taken the more difficult and rarest of journeys for a fintech.
Richard Fairbank: I see how it could really enhance sort of your platform in the small business space, especially with a network. But maybe you could just talk a little bit about how you see it coming together over time. Yes, thank you. Let me just kind of pull up here and talk about the opportunity and Brex holistically. Acquiring Brex builds on and accelerates a journey we've been on since our founding days. It is the quest to build a banking and payments company that's positioned to win where the world is going. We were the original fintech years before that term was coined, and we grew by carefully choosing businesses with attractive industry structures that are at the heart of consumers' financial lives and also that were ripe for transformation by technology and data. As a result, we aren't in all the businesses that other banks are in.
Brexit has been a beacon for us and we have admired them from afar.
As we've gotten closer we've been even more struck by what they have built.
Richard Fairbank: Yes, thank you. Let me just kind of pull up here and talk about the opportunity and Brex holistically. Acquiring Brex builds on and accelerates a journey we've been on since our founding days. It is the quest to build a banking and payments company that's positioned to win where the world is going. We were the original fintech years before that term was coined, and we grew by carefully choosing businesses with attractive industry structures that are at the heart of consumers' financial lives and also that were ripe for transformation by technology and data. As a result, we aren't in all the businesses that other banks are in.
The <unk> team.
Speaker #2: They've invested in a modern technology infrastructure and data ecosystem that's built to last, and it powers remarkable capabilities. On the shoulders of their technology investments, Brex was able to rapidly develop and launch innovative solutions for a wide range of customers, from startups to large businesses with complex international needs.
Has amazing talent.
They built a full modern tech stack from the bottom up.
Their card and banking businesses run on an in house fully modern core.
They're 100% in the cloud.
Well most fin techs, we've seen through the years leverage third party technology solutions to get there faster breakfast taken the more difficult and rarest of journeys for Fintech.
Speaker #2: For example, Brex's technology enables them to issue business credit cards in local currencies in over 50 countries. This automated platform is the foundation for AI solutions on top of it.
<unk> invested in a modern technology infrastructure and data ecosystem, that's built to last.
And Ed powers remarkable capabilities on the shoulders of their technology investments breaks was able to rapidly develop and launch innovative solutions for a wide range of customers.
Speaker #2: Brex has built and deployed their own in-house AI agents for expense management and audit, and are on the way to procurement, payments, and accounting agents.
From startups to large businesses.
Speaker #2: Brex has grown from a startup into a thriving business with hundreds of millions of dollars in revenue and tens of thousands of customers. As we got to know this company, we kept asking ourselves, how on earth did a startup pull off building a full tech stack from the bottom up?
With complex International needs for example, breakfast technology enables them to issue business credit cards in local currencies.
Richard Fairbank: We have focused on a select set of businesses that have relevant scale in the competitive marketplace and which fit together synergistically. A central part of that envelope of activities has been payments. From the founding of the company, we have believed that payments will be the tip of the spear in the transformation of banking and financial services. Over time, we built a payments company encompassing credit cards and banking across consumers and businesses and recently added one of the nation's only payment networks. Business payments have been a growing part of our strategy and investment agenda. We have built the nation's third-largest small business credit card franchise, and we have been investing to grow our small business bank. Our announcement today represents an important step change towards our business payments destination in a broader marketplace that we believe is ripe for reinvention.
We have focused on a select set of businesses that have relevant scale in the competitive marketplace and which fit together synergistically. A central part of that envelope of activities has been payments. From the founding of the company, we have believed that payments will be the tip of the spear in the transformation of banking and financial services. Over time, we built a payments company encompassing credit cards and banking across consumers and businesses and recently added one of the nation's only payment networks. Business payments have been a growing part of our strategy and investment agenda. We have built the nation's third-largest small business credit card franchise, and we have been investing to grow our small business bank. Our announcement today represents an important step change towards our business payments destination in a broader marketplace that we believe is ripe for reinvention.
In over 50 countries.
This automated platform is the foundation for AI solutions on top of it Brexit is built and deployed their own in house AI agents for expense management and audit and are on the way to procurement.
Speaker #2: Brex has made the right choices. The hard choice is to put themselves in a strong position to grow and win in the marketplace, and to sustain success over the long term.
Payments and accounting agents breaks.
<unk> has grown from a startup into a thriving business with hundreds of millions of dollars in revenue and tens of thousands of customers.
Speaker #2: Along the way, they realized that their exceptional growth opportunity was limited only by their scale and resources. And that brought the two of us together.
As we got to know this company, we kept asking ourselves how on Earth did a startup.
Speaker #2: Several Capital One strengths and capabilities are on the bull's-eye of what Brex needs to fully capitalize on the growth opportunity. We have a compelling and ubiquitous brand.
Pull off building a full tech stack from the bottom up.
Yeah.
Brexit has made the right choices the hard choices to put themselves in a strong position to grow and win in the marketplace and the C suite and to sustain success over the long term.
Speaker #2: Brex has found that when they can get in the door with a potential customer, their success rate is impressive. We believe that our brand and our customers' scale will open many more doors.
Along the way they realized that their exceptional growth opportunity was limited only by their scale and resources.
Richard Fairbank: Let's talk about what's happening in the business payments marketplace. The credit card is an important piece of a bigger customer need. For decades, businesses of all sizes have faced chronic pain points when dealing with payments, including collecting hundreds or thousands of invoices, deciphering what payment vehicles or platforms to use, dealing with approvals, expense budgets, spending policies, booking travel, and tracking employee T&E spending. After all of that, businesses need to reconcile and connect all these transactions with accounting and reporting systems. It's often manual, error-prone, and very time-consuming. I don't know a single business owner who went into business because they were really passionate about managing the complexity of spending and payments. Solutions and tools to help businesses address these issues have been piecemeal. Banks offer business credit cards and bill pay features. Software companies offer accounts payable and expense management tools.
Let's talk about what's happening in the business payments marketplace. The credit card is an important piece of a bigger customer need. For decades, businesses of all sizes have faced chronic pain points when dealing with payments, including collecting hundreds or thousands of invoices, deciphering what payment vehicles or platforms to use, dealing with approvals, expense budgets, spending policies, booking travel, and tracking employee T&E spending. After all of that, businesses need to reconcile and connect all these transactions with accounting and reporting systems. It's often manual, error-prone, and very time-consuming. I don't know a single business owner who went into business because they were really passionate about managing the complexity of spending and payments. Solutions and tools to help businesses address these issues have been piecemeal. Banks offer business credit cards and bill pay features. Software companies offer accounts payable and expense management tools.
And that brought the two of us together.
Speaker #2: Also, we can immediately leverage our marketing machine, bringing massive data scale, targeting models, extensive channels, and a large customer base to enhance the flow of prospects.
Several capital one's strengths and capabilities are on the bull's eye of what breaks needs to fully capitalize on the growth opportunity.
We have a compelling and ubiquitous brand.
Brexit has found that.
Speaker #2: And Capital One's balance sheet, which is primarily funded by federally insured retail deposits, is yet another enabler of growth, returns, and resilience. For Brex, and finally, we can bring additional investment capacity in marketing, sales force expansion, engineering, and AI.
When they can get in the door with a potential customer their success rate.
It is impressive.
We believe that our brand and our customer scale will open many more doors.
Also we can immediately leverage our marketing machine.
Bringing massive data scale targeting models extensive channels and a large customer base to enhance the flow of prospects.
Speaker #2: The striking thing is, most of these benefits from Capital One can be brought right away post-close and do not need to wait for fuller integration down the road.
And capital one's balance sheet, which is primarily funded by federally insured retail deposits is yet another enabler of growth returns and resilience for brakes.
Speaker #2: So we believe we can accelerate Brex's growth almost from day one. As we integrate over time, there is more value to capture, much of it coming from what Brex can bring to us.
And finally, we can bring additional investment capacity in marketing sales force expansion engineering Nai.
Speaker #2: Brex brings exactly what Capital One needs to accelerate what we've been building. Brex opens up the opportunity in the corporate liability part of the marketplace, where our presence is currently much smaller than it is in the personal liability space.
The striking thing is most of these benefits from capital one can be brought right away post close and do not need to wait for full or integrate a fuller integration down the road. So we believe we can accelerate breakfast growth almost from day one.
Speaker #2: Additionally, Capital One can leverage Brex's spend management tools to broaden and enhance our offerings for our existing personal liability card customers. And for our small business bank, which has been mostly a local offering in our branch footprint, Brex gives us the capabilities to unlock a national small business banking opportunity. Brex can also help to propel another important growth business at Capital One, which is our travel business.
Richard Fairbank: While these solutions are valuable, they only address pieces of the pain and are not integrated or comprehensive. Many are built on legacy technology. The pain points remain, and so does the opportunity to provide a truly integrated modern solution. Brex was the pioneer of that modern solution. In 2017, Brex invented the integrated combination of business credit cards, spend management software, and banking together in a single platform. They totally changed the game by delivering breakthrough experiences like customizable credit card limits and controls, automated expense receipt capture, real-time blocks for out-of-policy spend, reconciling spend data with internal budgeting, catching payment fraud and errors by matching invoice data to purchase orders, and enabling businesses to close their books effortlessly through real-time ERP integrations. Brex has grown rapidly with companies from startups to large enterprises.
While these solutions are valuable, they only address pieces of the pain and are not integrated or comprehensive. Many are built on legacy technology. The pain points remain, and so does the opportunity to provide a truly integrated modern solution. Brex was the pioneer of that modern solution. In 2017, Brex invented the integrated combination of business credit cards, spend management software, and banking together in a single platform. They totally changed the game by delivering breakthrough experiences like customizable credit card limits and controls, automated expense receipt capture, real-time blocks for out-of-policy spend, reconciling spend data with internal budgeting, catching payment fraud and errors by matching invoice data to purchase orders, and enabling businesses to close their books effortlessly through real-time ERP integrations. Brex has grown rapidly with companies from startups to large enterprises.
As we integrate over time, there is more value to capture much of it coming from a what breaks can bring to us.
<unk> brings exactly what capital one needs to accelerate what we've been building.
Rex opens up the opportunity in the corporate liability part of the marketplace, where our presence is currently much smaller than it is in the personal liability space.
Additionally, capital one can leverage breakfast spend management tools to broaden and enhance our offerings for our existing personal liability card customers.
Speaker #2: Our travel portal is already on a strong growth trajectory, powered largely by our massive consumer franchise. As we integrate Brex and its spend management platform with our travel portal, businesses will be able to manage their corporate travel expenditures, payments, and travel policies directly on the Capital One Travel portal.
And for our small business bank, which has been mostly a local offering in our branch footprint breaks gives us the capabilities to unlock a national small business banking opportunity.
<unk> can also help to propel another important growth business at capital, one which is our travel business. Our travel portal is already on a strong growth trajectory powered largely by our massive consumer franchise.
Speaker #2: This will open up the opportunity to grow business travel revenues as well as consumer travel. Beyond the remarkably compatible technology and vision of where the world is going, we've also found amazing cultural alignment.
As we integrate bricks.
And it spend management platform with our travel portal.
Speaker #2: We are both founder-led companies with a heritage of innovation and entrepreneurship. We've both disrupted the status quo to reimagine markets and drive transformation. And our strategic choices along the way have been guided by strikingly similar core tenets.
Businesses will be able to manage their corporate travel expenditures payments and travel policies directly on the capital one travel portal.
Richard Fairbank: Some of the world's most tech-forward companies use Brex today, including Anthropic, Robinhood, TikTok, Coinbase, Scale AI, Toast, CrowdStrike, Cloudflare, and DoorDash. Brex's heritage began with tech companies, but their solutions are equally valuable to all companies. Over the last two years, 60% of their originations have been to non-tech companies. Business cards represent approximately $2 trillion in purchase volume, split roughly between corporate liability, where the business entity is responsible for making payments on the card, and personal liability, where the small business owner is personally responsible for making payments on the card. That latter space, the personal liability card, is where we primarily play today. Collectively, this business card market is growing at about 9% annually as business payments continue the secular migration from cash and checks to digital payments. Companies like Brex have grown even faster.
Some of the world's most tech-forward companies use Brex today, including Anthropic, Robinhood, TikTok, Coinbase, Scale AI, Toast, CrowdStrike, Cloudflare, and DoorDash. Brex's heritage began with tech companies, but their solutions are equally valuable to all companies. Over the last two years, 60% of their originations have been to non-tech companies. Business cards represent approximately $2 trillion in purchase volume, split roughly between corporate liability, where the business entity is responsible for making payments on the card, and personal liability, where the small business owner is personally responsible for making payments on the card. That latter space, the personal liability card, is where we primarily play today. Collectively, this business card market is growing at about 9% annually as business payments continue the secular migration from cash and checks to digital payments. Companies like Brex have grown even faster.
This will open up the opportunity to grow business travel revenues as well as consumer travel.
Speaker #2: To invest to sustain growth and returns over the long term. To work backward from where the world is going. To build from the bottom of the tech stack up.
Beyond the remarkably compatible technology and vision of where the world is going.
We've also found amazing cultural alignment.
We are both founder led companies with a heritage of innovation and entrepreneurship.
Speaker #2: And to search the world to find and hire great people, and give them a chance to be great. Pulling way up, acquiring Brex and joining forces to win in the business payments marketplace fits squarely into our more than three-decade quest to build a banking and payments company that's positioned to win where the world is going.
We've both disrupted the status quo to re imagine markets and drive transformation.
And our strategic choices, along the way have been guided by strikingly similar core tenants.
Two invest to sustain growth and returns over the long term.
Okay.
To work backwards from where the world is going.
Speaker #2: It's a hand-in-glove fit that will accelerate and enhance a path that we were already on, propelling us to the frontier of business payments. Capital One and Brex have been on separate paths, working toward the same business payments destination: an integrated platform that combines business payments, spend management, and banking powered by a modern tech stack that's built for and powered by AI.
To build from the bottom of the tech stack up.
And the search the world to find and hire great people.
And give them a chance to be great.
Pulling way up acquiring bricks and joining forces to win in the business payments marketplace fit squarely into our more than three decades quest to build the banking and payments company, that's positioned to win where the world is going.
Speaker #2: Combining our businesses and capabilities onto one shared path will accelerate the journey for both of us. Thank you. Thank you, Rich. That was very interesting and appreciated.
It's a hand in glove fit that will accelerate and enhance a path that we were already on propelling us to the frontier.
Our business payments.
Capital one in bricks have been on separate paths working toward the same business payments destination and integrated platform that combines business payments spend management and banking powered by a modern tech stack, that's built for and powered by AI.
Speaker #2: Maybe just a follow-up question on the 10% credit card cap topic. Obviously, the industry has been quite vocal about the explicit and unintended consequences of it.
Richard Fairbank: Brex is taking share from banks and software providers alike. The integrated platform solution they pioneered redefines and expands the market opportunity beyond credit cards to business payments, banking, and spend management software. Brex has been a beacon for us, and we have admired them from afar. As we've gotten closer, we've been even more struck by what they have built. The Brex team has amazing talent. They built a full modern tech stack from the bottom up. Their card and banking businesses run on an in-house, fully modern core. They're 100% in the cloud. While most fintechs we've seen through the years leverage third-party technology solutions to get there faster, Brex has taken the more difficult and rarest of journeys for a fintech. They've invested in a modern technology infrastructure and data ecosystem that's built to last. It powers remarkable capabilities.
Brex is taking share from banks and software providers alike. The integrated platform solution they pioneered redefines and expands the market opportunity beyond credit cards to business payments, banking, and spend management software. Brex has been a beacon for us, and we have admired them from afar. As we've gotten closer, we've been even more struck by what they have built. The Brex team has amazing talent. They built a full modern tech stack from the bottom up. Their card and banking businesses run on an in-house, fully modern core. They're 100% in the cloud. While most fintechs we've seen through the years leverage third-party technology solutions to get there faster, Brex has taken the more difficult and rarest of journeys for a fintech. They've invested in a modern technology infrastructure and data ecosystem that's built to last. It powers remarkable capabilities.
Speaker #2: I'm just curious to hear your view, and if you've had any discussions with the administration on the—
Combining our businesses and capabilities.
Speaker #2: issue. You know, we
Onto one shared pass will accelerate that journey.
Speaker #3: I appreciate the energy to help consumers with affordability on many aspects of their spending. Let's talk about credit cards. Let me start by saying that we have built a company focused on providing Americans with products that are simple to understand and are accessible.
For both of Us.
Okay.
Thank you. Thank you rich that was a very interesting and I. Appreciate it maybe just a follow up question on the 10% credit card cap.
<unk>.
Obviously, the industry has been quite vocal about the explicit an unintended consequences of it I'm just curious to hear your view and if you've had any discussions with the administration on the issue.
Speaker #3: All of our banking products have no minimum balance requirements and no fees, including no overdraft fees. And we offer many credit cards with no annual fees.
We appreciate the energy to help consumers with affordability.
On many aspects of their spending.
Speaker #3: The credit card industry is intensely competitive, as thousands of banks and credit unions compete directly based on product pricing and other features. Putting a price control in place, such as the proposed rate cap, would not make credit more affordable.
Let's talk about credit cards, let.
Let me start by saying that.
We have built a company focused on providing Americans with products that are simple to understand.
And are accessible.
All of our banking products have no minimum balance requirements and no fees.
Speaker #3: It would make credit much less available for consumers up and down the credit spectrum. This is far more than a subprime issue. This would happen because we and the industry would be compelled to immediately slash credit lines, restrict accounts, and limit new originations to a very small subset of consumers.
Richard Fairbank: On the shoulders of their technology investments, Brex was able to rapidly develop and launch innovative solutions for a wide range of customers, from startups to large businesses with complex international needs. For example, Brex's technology enables them to issue business credit cards in local currencies in over 50 countries. This automated platform is the foundation for AI solutions on top of it. Brex has built and deployed their own in-house AI agents for expense management and audit, and are on the way to procurement, payments, and accounting agents. Brex has grown from a startup into a thriving business with hundreds of millions of dollars in revenue and tens of thousands of customers. As we got to know this company, we kept asking ourselves, how on earth did a startup pull off building a full tech stack from the bottom up?
On the shoulders of their technology investments, Brex was able to rapidly develop and launch innovative solutions for a wide range of customers, from startups to large businesses with complex international needs. For example, Brex's technology enables them to issue business credit cards in local currencies in over 50 countries. This automated platform is the foundation for AI solutions on top of it. Brex has built and deployed their own in-house AI agents for expense management and audit, and are on the way to procurement, payments, and accounting agents. Brex has grown from a startup into a thriving business with hundreds of millions of dollars in revenue and tens of thousands of customers. As we got to know this company, we kept asking ourselves, how on earth did a startup pull off building a full tech stack from the bottom up?
Including no overdraft fees and we offer <unk>.
Many credit cards with no annual fee.
The credit card industry is intensely competitive as.
The banks and credit unions compete directly based on product pricing.
And other.
Features.
Putting a price control.
In place such as the proposed rate cap would not make credit more affordable it would make credit much less available for consumers.
Speaker #3: And consumers are the backbone of the American economy. Seventy percent of GDP is driven by consumer spending, and $6 trillion of that spending is on credit cards.
And down the credit spectrum.
This is far more than a subprime issue.
Speaker #3: A material contraction in available credit would likely cause multiple shocks throughout the economy, as the lack of credit would result in greatly reduced consumer spending and would likely bring on a recession.
This would happen because we and the industry.
We'd be compelled to immediately slash credit lines restrict accounts and limit new originations.
Speaker #3: And let's not forget about the impact to businesses beyond lost sales. Other parts of the economy beyond banks are highly dependent on card programs, from retailers to airlines to hotels.
Two a very small subset of consumers.
Yeah.
And consumers are the backbone of the American economy.
70% of GDP.
Is driven by consumer spending and six trillion dollars of that spending is on credit cards.
Richard Fairbank: Brex has made the right choices, the hard choices, to put themselves in a strong position to grow and win in the marketplace and to sustain success over the long term. Along the way, they realized that their exceptional growth opportunity was limited only by their scale and resources, and that brought the two of us together. Several Capital One strengths and capabilities are on the bullseye of what Brex needs to fully capitalize on the growth opportunity. We have a compelling and ubiquitous brand. Brex has found that when they can get in the door with a potential customer, their success rate is impressive. We believe that our brand and our customer scale will open many more doors. Also, we can immediately leverage our marketing machine, bringing massive data scale, targeting models, extensive channels, and a large customer base to enhance the flow of prospects.
Brex has made the right choices, the hard choices, to put themselves in a strong position to grow and win in the marketplace and to sustain success over the long term. Along the way, they realized that their exceptional growth opportunity was limited only by their scale and resources, and that brought the two of us together. Several Capital One strengths and capabilities are on the bullseye of what Brex needs to fully capitalize on the growth opportunity. We have a compelling and ubiquitous brand. Brex has found that when they can get in the door with a potential customer, their success rate is impressive. We believe that our brand and our customer scale will open many more doors. Also, we can immediately leverage our marketing machine, bringing massive data scale, targeting models, extensive channels, and a large customer base to enhance the flow of prospects.
Speaker #3: In addition, credit cards are many consumers' initial entry point into building a credit history. A reduction in available credit could significantly impact their ability to get auto loans, mortgages, and other forms of credit.
A material contraction in available credit would likely cause multiple shocks throughout the economy as the lack of credit would result in greatly reduced consumer spending and would likely bring on a recession.
And let's not forget about the impact of businesses beyond La Salle.
Speaker #3: And for many consumers, a credit card is their only access to credit. So while we can't predict what will happen next, we feel strongly that a cap on interest rates would catalyze a number of unintended consequences.
There are parts of the economy beyond banks are highly dependent on card programs from retailers to airlines.
Two hotels.
Yeah.
In addition credit cards are many consumers' initial entry point into building a credit history.
Speaker #3: consequences. Next
Speaker #1: question,
A reduction in available credit could significantly impact their ability to.
Speaker #1: Please. And our next question comes from...
Get auto loans mortgages and other forms of credit.
Speaker #2: America Nigerian with UBS. You may proceed.
And for many consumers the credit card is their only access to credit.
Speaker #4: Yes, thank you for taking my question. Rich, pulling up again, another point of discussion that was heavily debated in the past few weeks has been the Credit Card Competition Act.
So while we can't predict what will happen next we feel strongly that a cap on interest rates.
Catalyze a number of unintended consequences.
Richard Fairbank: And Capital One's balance sheet, which is primarily funded by federally insured retail deposits, is yet another enabler of growth, returns, and resilience for Brex. And finally, we can bring additional investment capacity in marketing, sales force expansion, engineering, and AI. The striking thing is most of these benefits from Capital One can be brought right away post-close and do not need to wait for fuller integration down the road. So we believe we can accelerate Brex's growth almost from day one. As we integrate over time, there is more value to capture, much of it coming from what Brex can bring to us. Brex brings exactly what Capital One needs to accelerate what we've been building. Brex opens up the opportunity in the corporate liability part of the marketplace where our presence is currently much smaller than it is in the personal liability space.
And Capital One's balance sheet, which is primarily funded by federally insured retail deposits, is yet another enabler of growth, returns, and resilience for Brex. And finally, we can bring additional investment capacity in marketing, sales force expansion, engineering, and AI. The striking thing is most of these benefits from Capital One can be brought right away post-close and do not need to wait for fuller integration down the road. So we believe we can accelerate Brex's growth almost from day one. As we integrate over time, there is more value to capture, much of it coming from what Brex can bring to us. Brex brings exactly what Capital One needs to accelerate what we've been building. Brex opens up the opportunity in the corporate liability part of the marketplace where our presence is currently much smaller than it is in the personal liability space.
Speaker #4: And given your acquisition of Discover and what the opportunity set could be, maybe help us think through what you think the consequences could be of passing CCCA. And also, maybe the broader question is, as we think about the strategic imperatives over the next year or two, where would you put increasing global acceptance?
Yes.
Yeah.
Next question please.
And our next question goes from Erika Najarian with UBS you May proceed.
Yes, I. Thank you for taking my question rich pulling up again, you know another point of discussion that weighs heavily.
Heavily debated.
Past few weeks has been the credit card competition Act.
Speaker #3: So, Erica, interchange has been around for a long time because it's part of a well-established payments ecosystem in the United States that benefits both retailers and consumers alike.
And given your acquisition.
Acquisition of discover and what the opportunity set could be maybe help us think through you know what you think the consequences could be of passing C. C. C. A and also maybe the broader question is you know as we think about the strategic imperatives over the next year or two where.
Speaker #3: We believe that there is substantial competition in the payments industry already, with banks like Capital One taking a big portion of its interchange revenue and giving it to the consumer in the form of rewards.
Would you put increasing global acceptance.
So.
Erica interchange has been around for a long time, because it's part of a well established payments ecosystem in the United States that benefits, both retailers and consumers alike.
Richard Fairbank: Additionally, Capital One can leverage Brex's spend management tools to broaden and enhance our offerings for our existing personal credit card customers. For our small business bank, which has been mostly a local offering in our branch footprint, Brex gives us the capabilities to unlock a national small business banking opportunity. Brex can also help to propel another important growth business at Capital One, which is our travel business. Our travel portal is already on a strong growth trajectory, powered largely by our massive consumer franchise. As we integrate Brex and its spend management platform with our travel portal, businesses will be able to manage their corporate travel expenditures, payments, and travel policies directly on the Capital One Travel portal. This will open up the opportunity to grow business travel revenues as well as consumer travel.
Additionally, Capital One can leverage Brex's spend management tools to broaden and enhance our offerings for our existing personal credit card customers. For our small business bank, which has been mostly a local offering in our branch footprint, Brex gives us the capabilities to unlock a national small business banking opportunity. Brex can also help to propel another important growth business at Capital One, which is our travel business. Our travel portal is already on a strong growth trajectory, powered largely by our massive consumer franchise. As we integrate Brex and its spend management platform with our travel portal, businesses will be able to manage their corporate travel expenditures, payments, and travel policies directly on the Capital One Travel portal. This will open up the opportunity to grow business travel revenues as well as consumer travel.
Speaker #3: And that then stimulates consumer spending, and the ecosystem thrives. So, pulling up, we believe this is a system that is working well. I think government intervention in this marketplace, in this manner, may have unintended consequences that could harm market participants, including consumers.
We believe that there is substantial competition competition in the payments industry already with banks like capital one.
Taking a <unk>.
Big portion of its interchange revenue and giving it to the consumer in the form of rewards.
Speaker #3: Could you ask your global acceptance question again, Erica?
Speaker #4: Yes. So I guess I'm asking where on your strategic imperatives would increasing global acceptance rank, as investors were thinking that if CCCA goes through, that given that you have a Discover network, that you potentially could be a beneficiary as a second network on the card. But of course, the limitation currently would be global.
Speaker #4: Yes. So I guess I'm asking where, on your strategic imperatives, would increasing global acceptance rank? As investors were thinking that if CCCA goes through, given that you have a Discover network, you potentially could be a beneficiary as a second network on the card. But of course, the limitation currently would be global acceptance.
And that then stimulate consumer spending and the ecosystem thrive.
So pulling up we believe this is a system that is working well.
You know I think government intervention in this marketplace in this matter may have unintended consequences.
That could harm market participants.
Including consumers.
Could you ask again your global acceptance question Erika yes.
Speaker #3: So, Erica, as we have talked about since we announced the Discover deal, the network is the crown jewel in that acquisition. And when we looked at every strategic opportunity to leverage the network, every single one of them we found to capitalize on those opportunities had the same exact shared path.
Yes, so I guess I'm, asking where on your strategic imperatives, which increasing global acceptance Frank as you know investors were thinking that if <unk> goes through that given that you you know given that you have the discover network that you potentially could be a beneficiary.
Richard Fairbank: Beyond the remarkably compatible technology and vision of where the world is going, we've also found amazing cultural alignment. We are both founder-led companies with a heritage of innovation and entrepreneurship. We've both disrupted the status quo to reimagine markets and drive transformation. Our strategic choices along the way have been guided by strikingly similar core tenets: to invest to sustain growth and returns over the long term, to work backward from where the world is going, to build from the bottom of the tech stack up, and to search the world to find and hire great people and give them a chance to be great. Pulling way up, acquiring Brex and joining forces to win in the business payments marketplace fits squarely into our more than three-decade quest to build a banking and payments company that's positioned to win where the world is going.
Beyond the remarkably compatible technology and vision of where the world is going, we've also found amazing cultural alignment. We are both founder-led companies with a heritage of innovation and entrepreneurship. We've both disrupted the status quo to reimagine markets and drive transformation. Our strategic choices along the way have been guided by strikingly similar core tenets: to invest to sustain growth and returns over the long term, to work backward from where the world is going, to build from the bottom of the tech stack up, and to search the world to find and hire great people and give them a chance to be great. Pulling way up, acquiring Brex and joining forces to win in the business payments marketplace fits squarely into our more than three-decade quest to build a banking and payments company that's positioned to win where the world is going.
This is sherry that's a second network on the card.
But of course, the limitation currently would be global acceptance.
Okay.
So Erika M S.
You know we have talked about since we announced the discover deal.
Speaker #3: And that shared path was to raise international acceptance and to build the network brand. And so that is a path that we are already going down—that path.
The network is a crown jewel in that.
Acquisition.
And.
When we looked at every strategic opportunity to leverage the network.
Yeah.
Every single one of them.
Speaker #3: It's a long journey to build acceptance all over the world. And along the way, we are to use a phrase we always use internally: we're sloping the work to put the highest emphasis on the places that Americans travel.
We found them.
To capitalize on those opportunities had the same exact shared path and that shared path.
Was to.
Reyes.
International acceptance and to build the network brand.
Richard Fairbank: It's a hand-in-glove fit that will accelerate and enhance a path that we were already on, propelling us to the frontier of business payments. Capital One and Brex have been on separate paths working toward the same business payments destination, an integrated platform that combines business payments, spend management, and banking powered by a modern tech stack that's built for and powered by AI. Combining our businesses and capabilities onto one shared path will accelerate the journey for both of us. Thank you. Thank you, Rich. That was very interesting, and I appreciate it. Maybe just a follow-up question on the 10% credit card cap topic. Obviously, the industry has been quite vocal about the explicit and unintended consequences of it. I'm just curious to hear your view and if you've had any discussions with the administration on the issue.
It's a hand-in-glove fit that will accelerate and enhance a path that we were already on, propelling us to the frontier of business payments. Capital One and Brex have been on separate paths working toward the same business payments destination, an integrated platform that combines business payments, spend management, and banking powered by a modern tech stack that's built for and powered by AI. Combining our businesses and capabilities onto one shared path will accelerate the journey for both of us.
And so you know that as a path.
Speaker #3: So we believe this, and so there are so many different types of opportunities that we have that all sort of need that same double set of solutions.
We are.
Already going down that path.
It's a long journey to you know too.
Build acceptance.
All over the world.
Speaker #3: And that's why we're investing in that. And that's—I'm struck, it's rare in business where every single thing that you hope to be down the road has the same shared path to get there.
And along the way we are.
To use a phrase we always use internally where sloping the work.
Two.
Put the highest emphasis on the places that are.
Americans travel.
Speaker #3: So, it's why we're really leaning pretty hard into this network opportunity.
So.
Sanjay Sakhrani: Thank you. Thank you, Rich. That was very interesting, and I appreciate it. Maybe just a follow-up question on the 10% credit card cap topic. Obviously, the industry has been quite vocal about the explicit and unintended consequences of it. I'm just curious to hear your view and if you've had any discussions with the administration on the issue.
We believe that this is an <unk>.
So there are so many different types of opportunities that we have that all.
Speaker #1: Next question,
Speaker #1: Please. And our next question comes
You know sort of need that same <unk>.
Double set of solutions and that's why we're investing in that.
Speaker #2: From Ryan Nash with Goldman Sachs. You may proceed.
And that's.
Speaker #5: Hey, good evening, Rich.
And it's I'm struck you know it is rare in business, where every single thing that you hope to be down. The road has the same shared path to get there. So it's well.
Speaker #3: Hey, Ryan.
Speaker #5: So maybe putting aside all the macro stuff, we've spent the last few quarters talking about investing in the business. And maybe just talk a little bit about whether the acceleration that you've been speaking of has made its way into the results yet.
Richard Fairbank: We appreciate the energy to help consumers with affordability on many aspects of their spending. Let's talk about credit cards. Let me start by saying that we have built a company focused on providing Americans with products that are simple to understand and are accessible. All of our banking products have no minimum balance requirements and no fees, including no overdraft fees. We offer many credit cards with no annual fees. The credit card industry is intensely competitive as thousands of banks and credit unions compete directly based on product pricing and other features. Putting a price control in place, such as the proposed rate cap, would not make credit more affordable. It would make credit much less available for consumers up and down the credit spectrum. This is far more than a subprime issue.
Richard Fairbank: We appreciate the energy to help consumers with affordability on many aspects of their spending. Let's talk about credit cards. Let me start by saying that we have built a company focused on providing Americans with products that are simple to understand and are accessible. All of our banking products have no minimum balance requirements and no fees, including no overdraft fees. We offer many credit cards with no annual fees. The credit card industry is intensely competitive as thousands of banks and credit unions compete directly based on product pricing and other features. Putting a price control in place, such as the proposed rate cap, would not make credit more affordable. It would make credit much less available for consumers up and down the credit spectrum. This is far more than a subprime issue.
We're really leaning a pretty hard into this.
Speaker #5: What are some of the areas? And I guess, given the fears of rising efficiency, can you maybe just talk about whether or not you can manage at around these levels over the medium term, fully understanding that could differ over any individual quarter?
Network opportunity.
Next question please.
And our next question comes from Ryan Nash with Goldman Sachs. You May proceed.
Hey, good evening rich.
Speaker #5: Thank you.
Hey, Ryan.
So maybe putting aside all the macro stuff. We've spent the last few quarters talking about investing in the business and can you maybe just talk a little bit about whether the acceleration that you've been speaking of it's made its way into the results. Yet what are some you know what are some of the areas and I guess, given the fears of rising and fish efficiency.
Speaker #3: So, Ryan, yeah, let me just pull up for a moment and reflect on your comment and your question about our investments, just to kind of reset the table here as a result of years of strategic preparation.
Can you maybe just talk about you know you know whether or not you could manage it around these levels over the medium terms, you know fully understanding and I could differ over any individual quarter. Thank you.
Speaker #3: We have the wealth of opportunities today that put us in an advantageous position to grow and win in the marketplace as it continues to change at a breathtaking pace.
Yeah.
So.
Ryan Yeah, let me just pull up in a moment and.
Richard Fairbank: This would happen because we and the industry would be compelled to immediately slash credit lines, restrict accounts, and limit new originations to a very small subset of consumers. Consumers are the backbone of the American economy. 70% of GDP is driven by consumer spending, and $6 trillion of that spending is on credit cards. A material contraction in available credit would likely cause multiple shocks throughout the economy, as the lack of credit would result in greatly reduced consumer spending and would likely bring on a recession. Let's not forget about the impact of businesses beyond lost sales. Other parts of the economy beyond banks are highly dependent on card programs, from retailers to airlines to hotels. In addition, credit cards are many consumers' initial entry point into building a credit history.
This would happen because we and the industry would be compelled to immediately slash credit lines, restrict accounts, and limit new originations to a very small subset of consumers. Consumers are the backbone of the American economy. 70% of GDP is driven by consumer spending, and $6 trillion of that spending is on credit cards. A material contraction in available credit would likely cause multiple shocks throughout the economy, as the lack of credit would result in greatly reduced consumer spending and would likely bring on a recession. Let's not forget about the impact of businesses beyond lost sales. Other parts of the economy beyond banks are highly dependent on card programs, from retailers to airlines to hotels. In addition, credit cards are many consumers' initial entry point into building a credit history.
Reflect on.
Speaker #3: And these investment areas include Discover, and as we just talked about, leaning into international acceptance and building the network brand. We are, of course, continuing—as we have for many years—to lean into the premium credit card space.
Your comment and your question about our investments just.
Two.
Kind of.
Reset the table here you know as a result of years of strategic preparation, we have a wealth of opportunities today that put us in an advantageous position.
To grow and win in the marketplace.
Speaker #3: And there is just so much opportunity in building a franchise of heavy spenders. I do want to comment there that it's very clear that the biggest players in that space are leaning even harder into that.
As it continues to change at a breathtaking pace.
And these investment areas you know that.
Include discover.
Speaker #3: And they're investing, and so we are doing so as well. I think the flip side of all that investment is it's going to be a higher hill for maybe other competitors to climb.
And as.
As we just talked about leaning into international acceptance and building the network brand.
We are of course continue as we have for many years to lean into the premium credit card space.
Speaker #3: But we're climbing that hill and seeing a lot of traction. In fact, our growth in our credit card business and purchase volume—the highest growth is at the very top of the market.
And there is just so much opportunity in building a franchise of heavy spenders I do want to comment there that it's very clear that are the biggest players in that space are leaning even harder into that and they're investing in so we are we are doing so as well.
Richard Fairbank: A reduction in available credit could significantly impact their ability to get auto loans, mortgages, and other forms of credit. And for many consumers, a credit card is their only access to credit. So while we can't predict what will happen next, we feel strongly that a cap on interest rates would catalyze a number of unintended consequences. Next question, please. And our next question comes from Erika Najarian with UBS. You may proceed. Yes. Thank you for taking my question. Rich, pulling up again, another point of discussion that was heavily debated in the past few weeks has been the Credit Card Competition Act. And given your acquisition of Discover and what the opportunity set could be, maybe help us think through what you think the consequences could be of passing CCCA.
A reduction in available credit could significantly impact their ability to get auto loans, mortgages, and other forms of credit. And for many consumers, a credit card is their only access to credit. So while we can't predict what will happen next, we feel strongly that a cap on interest rates would catalyze a number of unintended consequences.
Speaker #3: In retail banking, for years, we've been building a national retail bank. Organically, we're the only major bank building such that doing that organically. That requires a lot of investment in marketing.
I think the flip side of all that investment is it's it's is going to be you know.
Higher Hill for maybe other competitors to climb, but we're climbing that hill and seeing a lot of traction factor.
Speaker #3: And now with the Discover acquisition, we have continued opportunity in that space, and we're leaning pretty much even harder there. As AI continues to transform the world, we are, of course, investing in AI. And being on the top of the tech stack that we built, AI has a really, I think, special high leverage at a company like Capital One.
The our growth in our credit card business in purchase volume and the highest growth is at the very top of the market.
Jeff Norris: Next question, please.
Operator: And our next question comes from Erika Najarian with UBS. You may proceed.
In retail banking for years, we've been building a national retail bank organically, we're the only major bank building such that.
Erika Najarian: Yes. Thank you for taking my question. Rich, pulling up again, another point of discussion that was heavily debated in the past few weeks has been the Credit Card Competition Act. And given your acquisition of Discover and what the opportunity set could be, maybe help us think through what you think the consequences could be of passing CCCA. And also, maybe the broader question is, as we think about the strategic imperatives over the next year or two, where would you put increasing global acceptance?
But doing that organically that requires a lot of investment in marketing.
And now with the.
The discover acquisition. We are you know have continued opportunity.
Speaker #3: And, in fact, as we have moved up the tech stack, we're investing in opportunities that sit on the tech stack like Capital One Shopping, Auto Navigator, and our travel business.
Opportunity in that space, and we're leaning pretty much even harder there.
You know as a I continues.
To transform the world.
We are we are of course are our investing in AI and you know being on the top of the tech stack that we built AI has a.
Richard Fairbank: And also, maybe the broader question is, as we think about the strategic imperatives over the next year or two, where would you put increasing global acceptance? So, Erika, interchange has been around for a long time because it's part of a well-established payments ecosystem in the United States that benefits both retailers and consumers alike. We believe that there is substantial competition in the payments industry already, with banks like Capital One taking a big portion of its interchange revenue and giving it to the consumer in the form of rewards. And that then stimulates consumer spending, and the ecosystem thrives. So pulling up, we believe this is a system that is working well. I think government intervention in this marketplace in this manner may have unintended consequences that could harm market participants, including consumers. Could you ask again your global acceptance question, Erika? Yes.
Speaker #3: And now with Brex, we have a chance to massively accelerate and advance our journey with corporate liability, personal liability, and the small business bank, as we talked about earlier.
Really I think a special.
Richard Fairbank: So, Erika, interchange has been around for a long time because it's part of a well-established payments ecosystem in the United States that benefits both retailers and consumers alike. We believe that there is substantial competition in the payments industry already, with banks like Capital One taking a big portion of its interchange revenue and giving it to the consumer in the form of rewards. And that then stimulates consumer spending, and the ecosystem thrives. So pulling up, we believe this is a system that is working well. I think government intervention in this marketplace in this manner may have unintended consequences that could harm market participants, including consumers. Could you ask again your global acceptance question, Erika?
Especially a high leverage at a company like capital one.
Speaker #3: So let me go back to your question about the efficiency ratio. In recent quarters, we've talked about these opportunities, and we have indicated that collectively, these investments will put upward pressure on the efficiency ratio in the near term.
And in fact <unk>.
As we have moved up the tech stack, where we're investing in opportunities that sit on the tech stack like capital one shopping auto navigator.
Our travel business.
And now with bricks, we have a chance to massively accelerated and advance our journey with corporate liability personal liability the small business bank.
Speaker #3: And we continue to lean into those, and with the acquisition of Brex now, we have additional investments. And those investments we are making are directly in service of driving growth.
As we talked about.
Earlier, So let me go back to your question about our efficiency ratio.
In recent quarters, we've talked about the these opportunities.
And we have indicated that collectively these investments.
Speaker #3: But it's also the case that we already had investment dollars set aside for pursuing this market organically, which will be replaced by the Brex investment.
We will put upward pressure on efficiency ratio in the near term and we continue to.
Speaker #3: So there is some offset there, and we've also tightened up in some other areas. But the net effect of all these investments across Capital One, in pursuit of opportunities that collectively are really as good as I've seen in my journey of founding Capital One and being there for all these years—the net effect will be some upward pressure on efficiency ratio in the near term.
Lean into those.
The.
You know with the acquisition of breakfast now.
Erika Najarian: Yes. So I guess I'm asking where on your strategic imperatives would increasing global acceptance rank, as investors were thinking that if CCCA goes through, that given that you have a Discover Network, that you potentially could be a beneficiary as a second network on the card. But of course, the limitation currently would be global acceptance.
Richard Fairbank: So I guess I'm asking where on your strategic imperatives would increasing global acceptance rank, as investors were thinking that if CCCA goes through, that given that you have a Discover Network, that you potentially could be a beneficiary as a second network on the card. But of course, the limitation currently would be global acceptance. So, Erika, as we have talked about since we announced the Discover deal, the network is a crown jewel in that acquisition. And when we looked at every strategic opportunity to leverage the network, every single one of them we found to capitalize on those opportunities had the same exact shared path. And that shared path was to raise international acceptance and to build the network brand. And so that is a path that we are already going down that path. It's a long journey to build acceptance all over the world.
We have additional investments and they they.
Those investments we are making are directly in service are driving our growth.
But it's also the case that we already had investment dollars set aside for pursuing this market organically, which will be replaced by the brakes investments. So as there is some offset there.
Speaker #3: Now, importantly, we still expect our earnings power on the other side of the Discover integration to be consistent with what we expected at the time we announced the Discover deal, inclusive of Brex.
And we've also tightened up.
Richard Fairbank: So, Erika, as we have talked about since we announced the Discover deal, the network is a crown jewel in that acquisition. And when we looked at every strategic opportunity to leverage the network, every single one of them we found to capitalize on those opportunities had the same exact shared path. And that shared path was to raise international acceptance and to build the network brand. And so that is a path that we are already going down that path. It's a long journey to build acceptance all over the world.
In some other areas.
So, but the net effect of all these investments across capital one in pursuit of opportunities that collectively are are really as good as I've seen in my journey of our founding capital one and being there for all these years the net effect will be some upward pressure.
Speaker #6: Next question, please.
Speaker #7: Our next question comes from Terry Ma with Barclays. You may proceed.
Speaker #8: Hey, thank you. Good evening. Maybe a question for Rich. Credit card delinquencies are now down year-over-year for 13 or 14 months in a row.
An efficiency ratio in the near term.
Now importantly, we still expect our earnings power on the other side of the discover integration to be consistent with what we expected at the time, we announced the discover deal.
Speaker #8: There's consumer stimulus in the form of tax refunds this spring. You re-highlighted some of the comments you made around the loan growth brownout. Maybe just help us tie all that together and just kind of talk about how you think about the outlook for consumer health and growth at Capital One, and any color you can provide on how long the brownout will kind of persist for.
Inclusive.
A bricks.
Next question please.
Our next question goes from Terry MA with Barclays. You May proceed.
Speaker #8: Thank you.
Hey, Thank you good evening, maybe a question for rich credit card delinquencies are now down no year over year or 13 14 months in a row. There is consumer stimulus in the form of tax refunds. This spring.
Speaker #3: Okay, great. Let me actually start with the brownout. So, the brownout that we flagged in prior earnings calls—just to remind ourselves what's driving that—is, first of all, following Discover's credit expansion in the 2022 timeframe, they ran into some issues. So, Discover dialed back their origination programs by a fair amount toward the end of 2023.
You you really highlighted some of the comments you made around the loan growth Brown out maybe just help us tie all that together.
Richard Fairbank: And along the way, we are, to use a phrase we always use internally, we're sloping the work to put the highest emphasis on the places that Americans travel. So we believe this, and so there are so many different types of opportunities that we have that all sort of need that same double set of solutions. And that's why we're investing in that. And I'm struck. It's rare in business where every single thing that you hope to be down the road has the same shared path to get there. So it's why we're really leaning pretty hard into this network opportunity. Next question, please. And our next question comes from Ryan Nash with Goldman Sachs. You may proceed. Hey, good evening, Rich. Hey, Ryan. So maybe putting aside all the macro stuff, we've spent the last few quarters talking about investing in the business.
And along the way, we are, to use a phrase we always use internally, we're sloping the work to put the highest emphasis on the places that Americans travel. So we believe this, and so there are so many different types of opportunities that we have that all sort of need that same double set of solutions. And that's why we're investing in that. And I'm struck. It's rare in business where every single thing that you hope to be down the road has the same shared path to get there. So it's why we're really leaning pretty hard into this network opportunity.
Kind of talk about how you think about the outlook for consumer health and grow such optical one and any color you can provide on how long the brown out will kind of persists for thank you.
Okay great.
Let me actually start.
Art.
With the Brown out.
So.
The the brown out that we flagged in prior earnings calls just to.
Speaker #3: And it continued to run it at a scaled-back level. As a result, they've had some pretty darn good credit, but the flip side of that is they put a whole bunch of vintages in place that are just smaller than prior vintages were.
Just to remind ourselves.
You know what what's driving that.
Is first of all following discovers credit expansion. This in 'twenty in the 'twenty two kind of time frame.
Jeff Norris: Next question, please.
You know they ran into some issues discovered dialed back their origination programs by a fair amount towards the end of 2023 and it continued to run it at a scaled back.
Speaker #3: And that just has an extended impact on the growth. And so that's kind of factor number one. We also—as we, and this is not surprising that we find this—but as we look over Discover's shoulders at their credit policy and things that are now being implemented fully still on the Discover system, we are doing some trimming on the margins of their origination in areas, particularly around higher-balance revolvers, which as we've said for way more than a decade, that's an area that we probably, relative to the industry, are more trying to avoid.
Operator: And our next question comes from Ryan Nash with Goldman Sachs. You may proceed.
Level.
Ryan Nash: Hey, good evening, Rich.
As a result.
Richard Fairbank: Hey, Ryan.
They've had some pretty darn.
Ryan Nash: So maybe putting aside all the macro stuff, we've spent the last few quarters talking about investing in the business. Can you maybe just talk a little bit about whether the acceleration that you've been speaking of has made its way into the results yet? What are some of the areas? And I guess given the fears of rising efficiency, can you maybe just talk about whether or not you can manage at around these levels over the medium terms, fully understanding that could differ over any individual quarter? Thank you.
Good credit, but the flip side of that is.
They put a whole bunch of vintages.
Richard Fairbank: Can you maybe just talk a little bit about whether the acceleration that you've been speaking of has made its way into the results yet? What are some of the areas? And I guess given the fears of rising efficiency, can you maybe just talk about whether or not you can manage at around these levels over the medium terms, fully understanding that could differ over any individual quarter? Thank you. So, Ryan, yeah, let me just pull up for a moment and reflect on your comment and your question about our investments, just to kind of reset the table here. As a result of years of strategic preparation, we have the wealth of opportunities today that put us in an advantageous position to grow and win in the marketplace as it continues to change at a breathtaking pace.
In place that are just smaller than prior vintages were and that just has an extended impact.
On the growth and so that that's kind of factor number one.
We also as we and you know this is not a.
Richard Fairbank: So, Ryan, yeah, let me just pull up for a moment and reflect on your comment and your question about our investments, just to kind of reset the table here. As a result of years of strategic preparation, we have the wealth of opportunities today that put us in an advantageous position to grow and win in the marketplace as it continues to change at a breathtaking pace.
Surprising that we find this but as we look over discovers.
Speaker #3: So there’s been some trimming around the edges that we’re adding on top of their dial-back that they did, that collectively leads to this brownout that we flagged.
Shoulders at their credit policy and things that are now being implemented a fully on still on the discovery system.
We are.
Doing some trimming on the margins of their origination in.
Speaker #3: Now, everything we're talking about is temporary in nature, and the thing that will change that trajectory is getting on the other side of the tech integration of Discover into Capital One. Because now, when Discover is entirely on our platforms and we're able to leverage all of our data, credit policies, the marketing machine of Capital One connected to the technology and everything else, we look forward to being able to resume growth.
Areas, particularly around a higher balance revolvers, which as we've said for way more than a decade. That's an area that we are probably relative to the industry are more you know trying to avoid so there's been some trimming around the edges that we're adding on top.
There.
While back that they did that.
Richard Fairbank: And these investment areas include Discover and, as we just talked about, leaning into international acceptance and building the network brand. We, of course, continue as we have for many years to lean into the premium credit card space. And there is just so much opportunity in building a franchise of heavy spenders. I do want to comment there that it's very clear that the biggest players in that space are leaning even harder into that, and they're investing. And so we are doing so as well. I think the flip side of all that investment is it's going to be a higher hill for maybe other competitors to climb. But we're climbing that hill and seeing a lot of traction. In fact, our growth in our credit card business and purchase volume, the highest growth is at the very top of the market.
And these investment areas include Discover and, as we just talked about, leaning into international acceptance and building the network brand. We, of course, continue as we have for many years to lean into the premium credit card space. And there is just so much opportunity in building a franchise of heavy spenders. I do want to comment there that it's very clear that the biggest players in that space are leaning even harder into that, and they're investing. And so we are doing so as well. I think the flip side of all that investment is it's going to be a higher hill for maybe other competitors to climb. But we're climbing that hill and seeing a lot of traction. In fact, our growth in our credit card business and purchase volume, the highest growth is at the very top of the market.
That collectively leads to.
This brown out that we flag now.
That is.
Everything we're talking about is a temporary in nature and the thing that will change that trajectory.
He is getting on the other side of the tech integration of discover into.
Speaker #3: And we've already identified a bunch of growth opportunities that are natural for Discover's really quite remarkable brand and business position. So we look forward to that on the other side.
Capital one because now.
When Ah.
Discover is entirely on our platforms and we're able to leverage all of our data credit policies are the marketing machine of capital one connected to the technology and everything else.
Speaker #3: So that's the brownout, but that will continue until the card integration is done. Let me turn to your other question on the health of the consumer.
We look forward to being able to resume growth and we've already identified.
Speaker #3: The US consumer and the overall macroeconomy remain resilient. The unemployment rate inched up in 2025 but remains pretty low by historical standards. Layoffs and new unemployment claims are low and stable.
A bunch of growth opportunities that that are natural for discovers really quiet.
Remarkable brand and business position. So we look forward to that on the other side. So that's that's the brown out but that will you know that will.
Richard Fairbank: In retail banking, for years, we've been building a national retail bank organically. We're the only major bank building such that doing that organically. That requires a lot of investment in marketing. And now, with the Discover acquisition, we have continued opportunity in that space, and we're leaning pretty much even harder there. As AI continues to transform the world, we, of course, are investing in AI. And being on the top of the tech stack that we built, AI has a really, I think, special, especially high leverage at a company like Capital One. And in fact, as we have moved up the tech stack, we're investing in opportunities that sit on the tech stack like Capital One Shopping, Auto Navigator, our travel business.
In retail banking, for years, we've been building a national retail bank organically. We're the only major bank building such that doing that organically. That requires a lot of investment in marketing. And now, with the Discover acquisition, we have continued opportunity in that space, and we're leaning pretty much even harder there. As AI continues to transform the world, we, of course, are investing in AI. And being on the top of the tech stack that we built, AI has a really, I think, special, especially high leverage at a company like Capital One. And in fact, as we have moved up the tech stack, we're investing in opportunities that sit on the tech stack like Capital One Shopping, Auto Navigator, our travel business.
Speaker #3: Wages are still growing in real terms, and consumer spending remains robust. Debt servicing burdens remain stable and close to pre-pandemic levels. Because of the budget bill implemented last summer, consumers will see larger tax refunds this year than last year. Tax withholdings will also be lower.
You know that will continue.
Until the card integration is done.
Let me turn to your other question on the health of the consumer.
The U S consumer and the overall macro economy remained resilient.
The unemployment rate inched up in 2025, but remains pretty low by historical standards.
Lay offs and new unemployment claims are low and stable.
Speaker #3: In 2026, I'll come back in a moment to tax refunds, but let me keep going for a moment. But I do think we're still in a period of elevated economic uncertainty.
Wages are still growing in real terms and consumer spending remains robust.
Debt servicing burdens.
<unk> stable and close to pre pandemic levels.
Speaker #3: Inflation remains above the Fed's target. Job creation slowed significantly in the second half of 2025. Some consumers are feeling pressure from the cumulative effects of price inflation and higher interest rates, and many of those relying on the Affordable Care Act for their health insurance will see their premiums going higher—quite sharply in some cases.
Because of the budget Bill implemented last summer.
Consumers will see larger tax refunds this year than last year.
Tax Withholdings will also.
Be lower in 2026.
I'll come back in a moment to tax refunds, but let me keep going for a moment.
Speaker #3: And so I think these uncertainties will hang over the economy and hang over the choices that consumers make. Let me make a comment before I turn to our individual, our portfolio—just to comment on tax refunds.
But I do think we're still in a period of elevated economic uncertainty inflate.
Richard Fairbank: And now, with Brex, we have a chance to massively accelerate and advance our journey with corporate liability, personal liability, the small business bank, as we talked about earlier. So let me go back to your question about Efficiency Ratio. In recent quarters, we've talked about these opportunities, and we have indicated that collectively, these investments will put upward pressure on Efficiency Ratio in the near term. And we continue to lean into those. With the acquisition of Brex now, we have additional investments. And those investments we are making are directly in service of driving growth. But it's also the case that we already had investment dollars set aside for pursuing this market organically, which will be replaced by the Brex investment. So there is some offset there. And we've also tightened up in some other areas.
And now, with Brex, we have a chance to massively accelerate and advance our journey with corporate liability, personal liability, the small business bank, as we talked about earlier. So let me go back to your question about Efficiency Ratio. In recent quarters, we've talked about these opportunities, and we have indicated that collectively, these investments will put upward pressure on Efficiency Ratio in the near term. And we continue to lean into those. With the acquisition of Brex now, we have additional investments. And those investments we are making are directly in service of driving growth. But it's also the case that we already had investment dollars set aside for pursuing this market organically, which will be replaced by the Brex investment. So there is some offset there. And we've also tightened up in some other areas.
Inflation remains above the fed's target job creation slowed significantly in the second half of 2020 five.
Consumers are feeling pressure from the cumulative effects of price inflation higher interest rates.
Speaker #3: Tax refunds are an important driver of the seasonal improvements in delinquent payments that we see around March and April of each year in both card and auto.
And many of those relying on the affordable care Act for their health insurance will see their premiums going higher quite sharply in some cases.
And so I think these uncertainties will hang over the economy and you know hangover the choices that consumers make.
Speaker #3: In 2026, the total amount of tax refunds is expected to be higher than in 2025 because some of the tax cuts in the big, beautiful bill last summer were made effective retroactively to the start of 2025.
Let me make a comment before I turn to our individual port are our portfolio just to comment on tax refunds.
Speaker #3: Tax withholdings will also be lower in 2026. So, all else equal, higher tax refunds will likely be a good guy for consumer credit, especially—and I think this is a really important point—especially when they are higher than consumers expect.
Tax refunds are an important driver of the seasonal improvements in delinquent payments that we see around March and April of each year in both.
Card and auto.
In 2026, the total amount of tax refunds is expected to be higher than in 2025, because some of the tax cuts in the big Beautiful Bill last summer were made effective retroactively to the start of 2025.
Speaker #3: But we believe that this will probably be a one-time benefit because tax withholdings will be lower in 2026. So we won't see another round of higher refunds in 2027.
Tax withholdings will also be lower in 2026.
Richard Fairbank: But the net effect of all these investments across Capital One in pursuit of opportunities that collectively are really as good as I've seen in my journey of founding Capital One and being there for all these years, the net effect will be some upward pressure on Efficiency Ratio in the near term. Now, importantly, we still expect our earnings power on the other side of the Discover integration to be consistent with what we expected at the time we announced the Discover deal, inclusive of Brex. Next question, please. Our next question comes from Terry Ma with Barclays. You may proceed. Hey, thank you. Good evening. Maybe a question for Rich. Credit card delinquencies are now down year-over-year, 13, 14 months in a row. There's consumer stimulus in the form of tax refunds this spring.
But the net effect of all these investments across Capital One in pursuit of opportunities that collectively are really as good as I've seen in my journey of founding Capital One and being there for all these years, the net effect will be some upward pressure on Efficiency Ratio in the near term. Now, importantly, we still expect our earnings power on the other side of the Discover integration to be consistent with what we expected at the time we announced the Discover deal, inclusive of Brex.
Speaker #3: And I think consumers will set their expectations, hopefully not counting on too big a refund coming in 2027. So I think we're looking at a one-time effect—that is our view there.
So all else equal higher tax refunds will likely be a good guy for consumer credit.
Especially and I think this is a really important point, especially when they are higher than consumers expect.
Right.
Speaker #3: Let me turn to our own portfolio. We talked about the improvement in our charge-off rate—it has steadily improved really through most of 2025. And in fact, in the fourth quarter, it was 113 basis points lower than a year ago.
But we believe.
That.
This will probably be a one time benefit because tax withholdings will be lower in 2026. So we won't see another round of higher refunds and 27, and I think consumers will set their expectations hopefully hopefully not a you know counting on too big a.
Jeff Norris: Next question, please.
Operator: Our next question comes from Terry Ma with Barclays. You may proceed.
Refund coming in 2027.
Speaker #3: And our front book of new originations continues to perform well. As we look ahead, delinquencies remain the best leading indicator of credit performance. Our card delinquencies improved steadily beginning in the second half of 2024, all the way through the first half of 2025.
So I think we're looking at a onetime effect that is our view there, let me turn to our own portfolio.
Terry Ma: Hey, thank you. Good evening. Maybe a question for Rich. Credit card delinquencies are now down year-over-year, 13, 14 months in a row. There's consumer stimulus in the form of tax refunds this spring. You re-highlighted some of the comments you made around the loan growth brownout. Maybe just help us tie all that together and just kind of talk about how you think about the outlook for consumer health and growth at Capital One and any color you can provide on how long the brownout will kind of persist for. Thank you.
We talked about the improvement in our charge off rate has steadily improved really through most of 2025.
Richard Fairbank: You re-highlighted some of the comments you made around the loan growth brownout. Maybe just help us tie all that together and just kind of talk about how you think about the outlook for consumer health and growth at Capital One and any color you can provide on how long the brownout will kind of persist for. Thank you. Okay, great. Let me actually start with the brownout. So the brownout that we flagged in prior earnings calls, just to remind ourselves what's driving that is, first of all, following Discover's credit expansion in the 2022 kind of time frame, they ran into some issues. So Discover dialed back their origination programs by a fair amount toward the end of 2023 and continued to run it at a scaled-back level. As a result, they've had some pretty darn good credit.
And in.
In fact in the fourth quarter, it was 113 basis points lower than a year ago.
Speaker #3: But we've now seen two quarters in which they've moved more or less in line with normal seasonality. This has been true both in our legacy domestic card portfolio and for Discover.
And our front book of new originations continues to perform well.
Richard Fairbank: Okay, great. Let me actually start with the brownout. So the brownout that we flagged in prior earnings calls, just to remind ourselves what's driving that is, first of all, following Discover's credit expansion in the 2022 kind of time frame, they ran into some issues. So Discover dialed back their origination programs by a fair amount toward the end of 2023 and continued to run it at a scaled-back level. As a result, they've had some pretty darn good credit.
As we look ahead delinquencies remain the best leading indicator of credit performance.
Speaker #3: And it suggests that credit is settling out after almost a year of steady improvement. In auto, our credit performance has been strong and stable over the past year, with losses back near pre-pandemic levels.
Our card delinquencies improved steadily.
Beginning in the second half of 2024.
All the way through the first half of 2025, but we've now seen two quarters in which they've moved.
Speaker #3: But I think auto, and also both auto and card, are benefited by choices we made several years ago to normalize for the great inflation in credit scores that I think has been a surprise to the industry.
More or less in line with normal seasonality.
This has been true both in our legacy domestic card portfolio and for discover.
And it suggests that credit is settling out after almost a year of steady improvement.
Speaker #3: But pulling way up, we think the health of the overall macroeconomy and of the US consumer is really in a pretty good place. And as a result, we continue to lean into our growth opportunities.
In auto our credit performance has been strong and stable over the past year with losses back near pre pandemic.
<unk> levels.
But I think auto is also both auto and card are benefited by choices, we made several years ago to normalize.
Speaker #2: Next question, please.
Richard Fairbank: But the flip side of that is they put a whole bunch of vintages in place that are just smaller than prior vintages were. And that just has an extended impact on the growth. And so that's kind of factor number one. We also, as we—and this is not surprising that we find this—but as we look over Discover's shoulders at their credit policy and things that are now being implemented fully still on the Discover system, we are doing some trimming on the margins of their origination in areas, particularly around higher balance revolvers, which, as we've said for way more than a decade, that's an area that we probably, relative to the industry, are more trying to avoid. So there's been some trimming around the edges that we're adding on top of their dial-back that they did that collectively leads to this brownout that we flag.
But the flip side of that is they put a whole bunch of vintages in place that are just smaller than prior vintages were. And that just has an extended impact on the growth. And so that's kind of factor number one. We also, as we—and this is not surprising that we find this—but as we look over Discover's shoulders at their credit policy and things that are now being implemented fully still on the Discover system, we are doing some trimming on the margins of their origination in areas, particularly around higher balance revolvers, which, as we've said for way more than a decade, that's an area that we probably, relative to the industry, are more trying to avoid. So there's been some trimming around the edges that we're adding on top of their dial-back that they did that collectively leads to this brownout that we flag.
For the.
Speaker #3: Our next question comes from John Pancari with Evercore. He may—
The great inflation in credit scores that are I think has been a surprise to the industry, but pulling way up we think the health of the overall macro economy and of the U S. Consumer you know it's really.
Speaker #3: proceed. Good afternoon.
Speaker #4: I wanted to see if you could provide some additional detail just around the financial impacts of the Brex deal. Could you possibly share some detail around the tangible book dilution and earnings accretion, and maybe the book value earned back from the transaction?
In a in a pretty good place and.
As a result, we continue to lean into our growth opportunities.
Speaker #4: And then just separately, totally understand the merits of the transaction and the commercial capability, in addition to your product suite, that it provides. But anything just around the timing—like, why now pursue the deal at this point, just given the ongoing effort around the Discover integration?
Next question please.
Our next question comes from John <unk> with Evercore you May proceed.
So that's one.
I Wonder if you could provide some additional detail just wanted financial impacts of the Brexit deal could.
Speaker #4: Thanks.
Could you, possibly share some details on the tangible book dilution and earnings accretion and maybe book value earn back from the transaction and then just separately totally understand the merits of the transaction and the commercial.
Speaker #5: Hey, John. Why don't I first take your question about the metrics? Given the relative size of Brex to Capital One, we don't intend to provide additional metrics.
Speaker #5: We're providing the purchase price and the associated balance sheet marks and integration costs, as we're intending to break those out in our financial statements over the coming quarters.
Capability.
Additionally, a product suite that it provides but anything just around the timing like why now pursue the deal at this point just given the ongoing effort around the discover integration. Thanks.
Speaker #5: So we're providing our current estimates now, and we'll provide revised marks and the quarterly amortization schedule after close. And then I'll turn it to Rich to talk.
[noise], Hey, John why don't I first take your question about the metrics.
Richard Fairbank: Now, everything we're talking about is temporary in nature. And the thing that will change that trajectory is getting on the other side of the tech integration of Discover into Capital One because now when Discover is entirely on our platforms and we're able to leverage all of our data, credit policies, the marketing machine of Capital One connected to the technology and everything else, we look forward to being able to resume growth. And we've already identified a bunch of growth opportunities that are natural for Discover's really quite remarkable brand and business position. So we look forward to that on the other side. So that's the brownout, but that will continue until the card integration is done. Let me turn to your other question on the health of the consumer. The US consumer and the overall macroeconomy remain resilient.
Now, everything we're talking about is temporary in nature. And the thing that will change that trajectory is getting on the other side of the tech integration of Discover into Capital One because now when Discover is entirely on our platforms and we're able to leverage all of our data, credit policies, the marketing machine of Capital One connected to the technology and everything else, we look forward to being able to resume growth. And we've already identified a bunch of growth opportunities that are natural for Discover's really quite remarkable brand and business position. So we look forward to that on the other side. So that's the brownout, but that will continue until the card integration is done. Let me turn to your other question on the health of the consumer. The US consumer and the overall macroeconomy remain resilient.
You know given the relative size of bricks to capital one we don't intend to provide additional metrics, we're providing the purchase price and the associated balance sheet marks and integration costs as we're intending to break those out in our financial statements over the coming quarters. So.
Speaker #5: about your second question. Yeah.
Speaker #2: Thank you, John. To your question of why now, obviously not long ago we did the Discover deal. And we are well down the path of what I think is a very successful integration.
So you know where we're providing our current estimates now and we'll provide revised marks and the quarterly amortization schedule. After close and then I'll turn it to rich to talk about the your second question Yeah. Thank you John.
Speaker #2: We very carefully looked at the impact that doing a deal like this might have on the resources and anything related to the Discover acquisition.
Yes.
To your question of why now.
Speaker #2: We took a very close look at that, because obviously that's just a paramount priority—doing that acquisition well. And it turns out that, for the most part, the business areas that are impacted in this integration are different from the ones primarily in the Discover integration.
The obviously not long ago, we did the discover deal and we are you know well down the path of what I think is a very successful.
Successful integration.
We very carefully looked at the impact that doing a deal like this.
Might have on.
The resources and and anything related to the discover acquisition. We took a very close look at that because obviously, that's just a paramount priority doing that acquisition well.
Speaker #2: Obviously, Discover One was really about pulling consumer business together. This is about pulling business-related businesses together. So we looked long and hard at this from a resources point of view.
Richard Fairbank: The unemployment rate inched up in 2025 but remains pretty low by historical standards. Layoffs and new unemployment claims are low and stable. Wages are still growing in real terms, and consumer spending remains robust. Debt servicing burdens remain stable and close to pre-pandemic levels. Because of the budget bill implemented last summer, consumers will see larger tax refunds this year than last year. Tax withholdings will also be lower in 2026. I'll come back in a moment to tax refunds, but let me keep going for a moment. But I do think we're still in a period of elevated economic uncertainty. Inflation remains above the Fed's target. Job creation slowed significantly in the second half of 2025.
The unemployment rate inched up in 2025 but remains pretty low by historical standards. Layoffs and new unemployment claims are low and stable. Wages are still growing in real terms, and consumer spending remains robust. Debt servicing burdens remain stable and close to pre-pandemic levels. Because of the budget bill implemented last summer, consumers will see larger tax refunds this year than last year. Tax withholdings will also be lower in 2026. I'll come back in a moment to tax refunds, but let me keep going for a moment. But I do think we're still in a period of elevated economic uncertainty. Inflation remains above the Fed's target. Job creation slowed significantly in the second half of 2025.
And Ah it turns out that.
Speaker #2: And we concluded that we think we can do both of these in parallel, and we're very comfortable about that. Then the other aspect is, sort of, financially.
The.
For the most part the business areas that are.
Impacted in this integration are different from the ones are primarily in the discover integration. Obviously discover one was really about pulling consumer business. Together. This is about pulling our business.
Speaker #2: I talked a little bit earlier that we will lean in just in terms of sort of ongoing investment. We will lean into the growth opportunity for Brex.
Related businesses together, so we look long and hard of this at this from a resources point of view and we concluded.
Speaker #2: That's an important reason that Capital One—it's an important value that Capital One could add in the near term, relative to sort of where they were on a standalone basis.
Concluded that we think we can do both of these are in.
In parallel and.
We were very comfortable about that then the other aspect is sort of a financially.
Speaker #2: So, it's a synergy that can happen, be created right away, even without the full integration. It does, financially, it does offset some spending that we were otherwise doing, investing in similar kinds of solutions at Capital One.
I talked a little bit earlier.
The we will lean and just in terms of sort of ongoing investment we will.
Richard Fairbank: Some consumers are feeling pressure from the cumulative effects of price inflation, higher interest rates, and many of those relying on the Affordable Care Act for their health insurance will see their premiums going higher, quite sharply in some cases. So I think these uncertainties will hang over the economy and hang over the choices that consumers make. Let me make a comment before I turn to our portfolio, just to comment on tax refunds. Tax refunds are an important driver of the seasonal improvements in delinquent payments that we see around March and April of each year in both card and auto. In 2026, the total amount of tax refunds is expected to be higher than in 2025 because some of the tax cuts in the big beautiful bill last summer were made effective retroactively to the start of 2025. Tax withholdings will also be lower in 2026.
Some consumers are feeling pressure from the cumulative effects of price inflation, higher interest rates, and many of those relying on the Affordable Care Act for their health insurance will see their premiums going higher, quite sharply in some cases. So I think these uncertainties will hang over the economy and hang over the choices that consumers make. Let me make a comment before I turn to our portfolio, just to comment on tax refunds. Tax refunds are an important driver of the seasonal improvements in delinquent payments that we see around March and April of each year in both card and auto. In 2026, the total amount of tax refunds is expected to be higher than in 2025 because some of the tax cuts in the big beautiful bill last summer were made effective retroactively to the start of 2025. Tax withholdings will also be lower in 2026.
Lean into the growth opportunity for brakes, that's an important reason that capital one it's important value that capital one could add.
Speaker #2: And also, around the company, we've really just been managing things tightly so that we're in a—so that, as we've talked about for the last few quarters, we're in the same position that we were before relative to the earnings power coming out the other side.
In the in the near term.
Relative to sort of where they were on a standalone basis. So it's a it's a synergy that can happen a.
B created right away.
Even without the full integration.
It does it financially it does offset some spending that we were otherwise doing investing in.
In a similar kinds of solutions at capital one and also Hum you know around the company. We really just you know managing things tightly.
Speaker #2: Of the Discover integration. So even as we lean more into the Brex investment, our view of the earnings power out the other side is the same view.
So that you know where we're in a.
Yeah, so that as we've talked about for the last a.
Speaker #2: That we've had all along.
A few quarters, where.
Speaker #4: Next question, please.
Hum in in a the same position that we were before relative to the earnings power.
Speaker #3: Our next question comes from Richard Shane with JP Morgan. You may proceed.
Going out the other side.
Speaker #6: Hey, guys. Thanks for taking my questions this afternoon. Look, one of the unique facets of Capital One—I think this is the seventh acquisition I can name.
Richard Fairbank: So all else equal, higher tax refunds will likely be a good guy for consumer credit, especially, and I think this is a really important point, especially when they are higher than consumers expect. But we believe that this will probably be a one-time benefit because tax withholdings will be lower in 2026, so we won't see another round of higher refunds in 2027. And I think consumers will set their expectations, hopefully not counting on too big a refund coming in 2027. So I think we're looking at a one-time effect. That is our view there. Let me turn to our own portfolio. We talked about the improvement in our charge-off rate. It's steadily improved, really, through most of 2025. And in fact, in Q4, it was 113 basis points lower than a year ago. And our front book of new originations continues to perform well.
So all else equal, higher tax refunds will likely be a good guy for consumer credit, especially, and I think this is a really important point, especially when they are higher than consumers expect. But we believe that this will probably be a one-time benefit because tax withholdings will be lower in 2026, so we won't see another round of higher refunds in 2027. And I think consumers will set their expectations, hopefully not counting on too big a refund coming in 2027. So I think we're looking at a one-time effect. That is our view there. Let me turn to our own portfolio. We talked about the improvement in our charge-off rate. It's steadily improved, really, through most of 2025. And in fact, in Q4, it was 113 basis points lower than a year ago. And our front book of new originations continues to perform well.
Of the discover integration.
So even as we lean more into the brakes investment.
Speaker #6: You have a management team that has a very long-term vision in terms of how you build this business. Rich, when we think about your target efficiency ratios and sort of that 2027 guide, there's always something to invest in with Capital One.
Aw or our view of the earnings power at the other side is.
Is I'm the same view that we've had all along.
Next question please.
Okay.
Our next question comes from Richard Shane with J P. Morgan you May proceed.
Speaker #6: And that's part of the secret sauce here. Do you think that that efficiency ratio will be because you grow the revenues into it, or do you actually think we will see a peak in expenses that will—
Hey, guys. Thanks for taking my questions. This afternoon.
Look.
One of the unique facets of capital one I think this is the seventh acquisition I can name.
You have a management team that has a very long term vision in terms of how you build this business.
Speaker #6: recede? Well, thank you,
Rich when we think about your target of sufficiency ratios.
Speaker #2: Rick, I think just pulling up for a moment on our philosophy and maybe distinguishing it from, I think, a number of banks—as they drive efficiency—they, first and foremost, do it by really trying to dial back and manage expenses extremely tightly.
And sort of that 2027 guide, there's always something to invest in with capital one and that's part of part of the secret sauce here do you think that that.
<unk> efficiency ratio will be because you grow the revenues into it or do you actually think we will see a he can expenses that will recede.
Speaker #2: We try to manage expenses very carefully, too. But our efficiency journey, which we've said is an important part of the value proposition for Capital One—for investors—is, first and foremost, the engine of that is growth.
Well. Thank you Rick you know I think.
Richard Fairbank: As we look ahead, delinquencies remain the best leading indicator of credit performance. Our card delinquencies improved steadily beginning in the second half of 2024 all the way through the first half of 2025. We've now seen 2 quarters in which they've moved more or less in line with normal seasonality. This has been true both in our legacy domestic card portfolio and for Discover. It suggests that credit is settling out after almost a year of steady improvement. In auto, our credit performance has been strong and stable over the past year with losses back near pre-pandemic levels. I think both auto and card are benefited by choices we made several years ago to normalize for the great inflation in credit scores that I think has been a surprise to the industry.
As we look ahead, delinquencies remain the best leading indicator of credit performance. Our card delinquencies improved steadily beginning in the second half of 2024 all the way through the first half of 2025. We've now seen 2 quarters in which they've moved more or less in line with normal seasonality. This has been true both in our legacy domestic card portfolio and for Discover. It suggests that credit is settling out after almost a year of steady improvement. In auto, our credit performance has been strong and stable over the past year with losses back near pre-pandemic levels. I think both auto and card are benefited by choices we made several years ago to normalize for the great inflation in credit scores that I think has been a surprise to the industry.
Just pulling up for a moment on on our philosophy and maybe distinguish it from from.
A number of banks.
As they drive efficiency.
Speaker #2: Revenue growth. And so what we have done since the founding of the company is to absolutely focus on where are the structurally good opportunities in the marketplace?
First and foremost I'd do it by really trying to dial back and manage expenses extremely tightly we try to manage expenses very carefully.
Too, but our efficiency.
Speaker #2: Make sure that we understand where the not-good opportunities are and avoid those, even if other banks are chasing them. But then, where we see the good structural opportunities, we work backwards from how we can capitalize on those.
Germany, which we've said is an important part of the value proposition for capital one for.
For investors.
Is.
First and foremost the engine of that is growth revenue growth and so what we have done since the founding of the company.
Speaker #2: And one of the terms that I've used—you probably remember, Rick—is to have a growth platform. And acquisitions that we have tended to do have been acquisitions of growth platforms to enable us to build a business.
Is to absolutely focus on where are the structurally good opportunities in the marketplace.
Make sure that we.
Richard Fairbank: But pulling way up, we think the health of the overall macroeconomy and of the US consumer; it's really in a pretty good place. And as a result, we continue to lean into our growth opportunities. Next question, please. Our next question comes from John Pancari with Evercore. You may proceed. Good afternoon. I wanted to see if you could provide some additional detail just around the financial impacts of the Brex deal. Could you possibly share some detail around the tangible book dilution and earnings accretion, and maybe book value earned back from the transaction? And then just separately, I totally understand the merits of the transaction and the commercial capability addition to your product suite that it provides. But anything just around the timing? Why now pursue the deal at this point, just given the ongoing effort around the Discover integration? Thanks.
But pulling way up, we think the health of the overall macroeconomy and of the US consumer; it's really in a pretty good place. And as a result, we continue to lean into our growth opportunities.
Understand where theyre not good opportunities are and avoid those even if other banks are chasing them, but then where we see the good structural opportunities.
Speaker #2: And so that we don't have to go from sort of zero to one, in a sense, we can start a bit beyond that and then really leverage the opportunity.
We.
[noise] work backwards from how can we capitalize on those and one of the terms that that I've used you you probably remember Rick is.
Jeff Norris: Next question, please.
Speaker #2: And this acquisition of Brex is a classic case of that. It is right in the heart of our business strategy as a company, which is all about payments.
Operator: Our next question comes from John Pancari with Evercore. You may proceed.
To have a growth platform.
And acquisitions that we have tended to do have been acquisitions of growth platforms to enable us.
John Pancari: Good afternoon. I wanted to see if you could provide some additional detail just around the financial impacts of the Brex deal. Could you possibly share some detail around the tangible book dilution and earnings accretion, and maybe book value earned back from the transaction? And then just separately, I totally understand the merits of the transaction and the commercial capability addition to your product suite that it provides. But anything just around the timing? Why now pursue the deal at this point, just given the ongoing effort around the Discover integration? Thanks.
To build a business and and so that we don't have to go from sort of zero to one in a sense. We can we can start.
Speaker #2: For both consumers and businesses, it is a growth platform which, interestingly, there's a way—as I talked about—we have things that we bring that can enhance Brex's growth significantly and early on.
You know a bit beyond that and then really leverage.
The opportunity.
And the this acquisition of brakes is a classic case of that it is right.
In the.
Speaker #2: And then Brex actually brings things that can strengthen our growth platforms across small business card, our small business bank, and our travel business. So we are in many ways the company that does invest—we've been investing since the founding of the company.
In the heart of a hour.
Business strategy as a company, which is all about.
You know payments for.
Richard Fairbank: Hey, John, why don't I first take your question about the metrics? Given the relative size of Brex to Capital One, we don't intend to provide additional metrics. We're providing the purchase price and the associated balance sheet marks and integration costs as we're intending to break those out in our financial statements over the coming quarter. So we're providing our current estimates now, and we'll provide revised marks and the quarterly amortization schedule after close. And then I'll turn it to Rich to talk about your second question. Yeah. Thank you, John. To your question of why now, obviously, not long ago, we did the Discover deal, and we are well down the path of what I think is a very successful integration. We very carefully looked at the impact that doing a deal like this might have on the resources and anything related to the Discover acquisition.
Andrew Young: Hey, John, why don't I first take your question about the metrics? Given the relative size of Brex to Capital One, we don't intend to provide additional metrics. We're providing the purchase price and the associated balance sheet marks and integration costs as we're intending to break those out in our financial statements over the coming quarter. So we're providing our current estimates now, and we'll provide revised marks and the quarterly amortization schedule after close. And then I'll turn it to Rich to talk about your second question.
For both consumers and businesses it is a growth platform.
Which.
Stingley Theres way it is as I talked about we can we.
Things that we bring that can enhance breakfast grow significantly and early on and then Brexit actually brings things that can.
Speaker #2: But always, it is these are things that have gone along with that from the founding days. We built a rigorous, horizontal accounting framework to rigorously measure before, during, and after investments to see that they actually pay off.
Strength in our growth platforms.
Cros are small business.
<unk> card.
Our small business bank and our travel business. So the we are in many ways the company that does invest.
Speaker #2: We're extremely focused on net present value. We, despite announcing this acquisition today, are built as an organic growth company. So if I pull up on all of those, we are what I've been sharing with investors over the last number of quarters.
Richard Fairbank: Yeah. Thank you, John. To your question of why now, obviously, not long ago, we did the Discover deal, and we are well down the path of what I think is a very successful integration. We very carefully looked at the impact that doing a deal like this might have on the resources and anything related to the Discover acquisition.
We've been investing since the founding of the company.
But always it is.
These are things that have gone along with that from the founding days, we built a rigorous horizontal accounting.
Speaker #2: To say, on a calibration, across decades of building Capital One, I see more opportunities which will drive future revenues than I've seen, in some ways, ever.
Work to rigorously measure before during and after investments to see that they actually pay off we're extremely focused on net present value.
Despite announcing a this this acquisition today, we are built as an organic growth company.
Speaker #2: But certainly, the number and diversity of those—why are they there? Because we built a technology platform from the bottom of the tech stack up.
So if I pull up on all of those.
Richard Fairbank: We took a very close look at that because, obviously, that's just a paramount priority, doing that acquisition well. And it turns out that, for the most part, the business areas that are impacted in this integration are different from the ones primarily in the Discover integration. Obviously, Discover ONE was really about pulling consumer business together. This is about pulling business-related businesses together. So we looked long and hard at this from a resources point of view, and we concluded that we think we can do both of these in parallel. And we're very comfortable about that. Then the other aspect is sort of financially. I talked a little bit earlier. We will lean in just in terms of sort of ongoing investment. We will lean into the growth opportunity for Brex.
We took a very close look at that because, obviously, that's just a paramount priority, doing that acquisition well. And it turns out that, for the most part, the business areas that are impacted in this integration are different from the ones primarily in the Discover integration. Obviously, Discover ONE was really about pulling consumer business together. This is about pulling business-related businesses together. So we looked long and hard at this from a resources point of view, and we concluded that we think we can do both of these in parallel. And we're very comfortable about that. Then the other aspect is sort of financially. I talked a little bit earlier. We will lean in just in terms of sort of ongoing investment. We will lean into the growth opportunity for Brex.
You know.
We are.
What I've been sharing with investors over the last.
Speaker #2: And as we go to the top of the platform, we are in a position to capitalize on opportunities that I think other companies would not be.
A number of quarters is to say on a calibration.
Across decades of building capital one.
I see more opportunities, which will drive future revenues that I've seen.
Speaker #2: Along the way, as these opportunities manifest, we have chosen to lean into investing. Which, as I have said, in the near term, that pressures the efficiency ratio.
You know it you know.
In some ways ever, but certainly the number and diversity of those why are they there because we built a technology platform from the bottom of the tech stack up.
Speaker #2: But while we don't give specific efficiency ratio guidance, all of these investments are in service of driving future revenue growth, which is the engine for efficiency ratio improvement and value creation.
And as we go to the top of the platform.
We are in a position.
To capitalize on opportunities that I think other companies would not be.
Along the way as these opportunities are.
Speaker #2: In the long
Speaker #2: term. Next
Speaker #3: question, please.
Manifest.
We have chosen to lean into investing.
Speaker #4: Go ahead. Yeah.
Speaker #2: Yeah. You still there, Rick?
Which as I have said in the nearer term that pressures efficiency ratio.
Speaker #3: Go ahead.
Speaker #3: Oh, Rick has left the stage.
Speaker #3: sorry, Rick. Our next
But while we don't give specific efficiency ratio guidance. All of these investments are in service of driving future revenue growth, which is the engine for.
Speaker #1: The question comes from Mahir Bhatia with Bank of America. You may proceed.
Richard Fairbank: That's an important reason that Capital One. It's an important value that Capital One could add in the near term relative to sort of where they were on a standalone basis. So it's a synergy that can happen, be created right away, even without the full integration. Financially, it does offset some spending that we were otherwise doing, investing in similar kinds of solutions at Capital One. And also, around the company, we've really just been managing things tightly so that we're in a, so that, as we've talked about for the last few quarters, we're in the same position that we were before relative to the earnings power coming out the other side of the Discover integration. So even as we lean more into the Brex investment, our view of the earnings power out the other side is the same view that we've had all along. Next question, please.
That's an important reason that Capital One. It's an important value that Capital One could add in the near term relative to sort of where they were on a standalone basis. So it's a synergy that can happen, be created right away, even without the full integration. Financially, it does offset some spending that we were otherwise doing, investing in similar kinds of solutions at Capital One. And also, around the company, we've really just been managing things tightly so that we're in a, so that, as we've talked about for the last few quarters, we're in the same position that we were before relative to the earnings power coming out the other side of the Discover integration. So even as we lean more into the Brex investment, our view of the earnings power out the other side is the same view that we've had all along.
Speaker #5: Hi, good afternoon. Thank you for taking my question. I was wondering if you could provide us with an update on how the debit transition to Discover is going.
Sure efficiency ratio improvement and value creation.
Speaker #5: Any learnings from that process as you think about which and when to transition the credit portfolios? And also, just related to that, any initial thoughts on if there's an opportunity to move Brex cards over to Discover?
In the long term.
Yeah.
Next question please.
Yeah.
Yep.
Speaker #5: Thank
Speaker #5: you. Yes,
You still ever it go ahead.
Rick has left the stage.
Oh, sorry.
Speaker #2: Mahir, as we shared at the announcement of the deal, we are moving all of our debit business to the Discover debit network to take full advantage of the synergies that come from vertical integration.
Our next question comes from Mihir Bhatia with Bank of America You May proceed.
Hi, Good afternoon. Thank you for taking my question.
I was wondering if you could provide us with an update on all of the debit transition to discover this going any learnings from that process.
Speaker #2: We've been migrating our debit card holders to the Discover network since August of last year, and we are now nearly complete with our conversion.
Think about rich and wind to transition the credit portfolios and also just related to that.
Initial thoughts on if there is an opportunity to move brick Scott.
Speaker #2: You're starting to see the network synergies and our reported results, and you will see more of those results as we complete the debit conversion.
Thank you.
Yes, I'm here.
As we shared at the announcement of the deal we are moving all of our debit business to the discover debit network to take full advantage of the synergies that come from vertical integration.
Speaker #2: On the credit card side, we plan to do a lot of testing, and by the middle of this year, we will be able to originate Capital One credit cards on the Discover network early next year.
We've been migrating our debit card holders to the discover network since August of last year, and we are now nearly complete with our conversion.
Speaker #2: We will be able to move some existing credit cards to the Discover network. Longer term, we will work on building Discover's international acceptance and strengthening the network brand, which will open the doors for us to have an opportunity to move more business over there.
You're starting to see the network synergies in our reported results and you will see more of those results as we complete the debit conversion.
Jeff Norris: Next question, please.
Richard Fairbank: Our next question comes from Rick Shane with J.P. Morgan. You may proceed. Hey, guys. Thanks for taking my questions this afternoon. Look, one of the unique facets of Capital One, I think this is the seventh acquisition I can name. You have a management team that has a very long-term vision in terms of how you build this business. Rich, when we think about your target efficiency ratios and sort of that 2027 guide, there's always something to invest in with Capital One, and that's part of the secret sauce here. Do you think that that efficiency ratio will be because you grow the revenues into it, or do you actually think we will see a peak in expenses that we'll recede? Well, thank you, Rick.
Operator: Our next question comes from Rick Shane with J.P. Morgan. You may proceed.
On the credit card side, we plan to do a lot of testing and by the middle of this year, we will be able to originate capital one credit cards on the discover network.
Richard Shane: Hey, guys. Thanks for taking my questions this afternoon. Look, one of the unique facets of Capital One, I think this is the seventh acquisition I can name. You have a management team that has a very long-term vision in terms of how you build this business. Rich, when we think about your target efficiency ratios and sort of that 2027 guide, there's always something to invest in with Capital One, and that's part of the secret sauce here. Do you think that that efficiency ratio will be because you grow the revenues into it, or do you actually think we will see a peak in expenses that we'll recede?
Speaker #2: You asked about the learnings. We are really pleased with what we've seen in the conversion in terms of the smoothness of the conversion, the customer take-up on the debit cards, and really pretty much all aspects of this have gone as well, or maybe a little better, than we had expected.
Early next year, we will be able to move some existing credit cards to the discover.
Network.
Longer term, we will work on building discovers international acceptance and strengthening the network brand.
Which will you now open the doors for us to.
We have an opportunity to move more business over there.
You asked about the learnings are.
Speaker #2: But we know that choices to move cards, and everything along with that, is a really important strategic choice and a very, very important thing from a customer experience point of view, which is why we have a big testing agenda in the near term and why we also are working so hard to make sure that we continue to raise the international acceptance and also create a lot of technology-based solutions to make it easier for consumers to move their cards.
We are.
Really pleased with what.
What we've seen in the conversion in terms of.
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Richard Fairbank: Well, thank you, Rick. I think just pulling up for a moment on our philosophy and maybe distinguish it from, I think, a number of banks, as they drive efficiency, first and foremost, do it by really trying to dial back and manage expenses extremely tightly. We try to manage expenses very carefully too. But our efficiency journey, which we've said is an important part of the value proposition for Capital One for investors, is first and foremost, the engine of that is growth, revenue growth.
The smoothness of the conversion the customer take up on the the the the debit cards and are really pretty much all aspects of this.
Richard Fairbank: I think just pulling up for a moment on our philosophy and maybe distinguish it from, I think, a number of banks, as they drive efficiency, first and foremost, do it by really trying to dial back and manage expenses extremely tightly. We try to manage expenses very carefully too. But our efficiency journey, which we've said is an important part of the value proposition for Capital One for investors, is first and foremost, the engine of that is growth, revenue growth. And so what we have done since the founding of the company is to absolutely focus on where are the structurally good opportunities in the marketplace, make sure that we understand where the not good opportunities are, and avoid those even if other banks are chasing them. But then where we see the good structural opportunities, we work backwards from how can we capitalize on those.
Gone as well or maybe a little better than than than we had expected.
But we.
We know that our choices to move cards and everything along with that is it's it's really.
A really important.
Strategic choice and a very very important thing from a customer experience point of view, which is why we have a big testing agenda in the near term and why are we also are working so hard to make sure that we.
Speaker #3: Next question, please.
Speaker #5: Thank you.
Speaker #1: Our next question comes from Moshe Ehrenbach with TD Cowen. You may proceed.
Speaker #1: proceed. Great, thanks.
Speaker #5: I've got, like, one sort of housekeeping-type thing and then a follow-up. The housekeeping question to Andrew: I appreciate that Brex is small relative to Cap One, but could you size for us the small business card portfolio at Cap One, the small business banking, and perhaps maybe revenues from the travel portal that you would expect to be affected, if you will, by the Brex acquisition?
Continue to raise the international acceptance.
And so what we have done since the founding of the company is to absolutely focus on where are the structurally good opportunities in the marketplace, make sure that we understand where the not good opportunities are, and avoid those even if other banks are chasing them. But then where we see the good structural opportunities, we work backwards from how can we capitalize on those.
And also create a lot of technology based solutions to make it easier.
For our consumers to.
To move their cards.
Next question please.
Thank you.
Yeah.
Our next question comes from Moshe Orenbuch with TD Cowen you May proceed.
Speaker #2: Yeah, Moshe, I appreciate the interest there, but those just aren't metrics that we break out in our reporting, and we're not intending to do so at this point either.
Great. Thanks, I've got like one sort of housekeeping type of thing and then a follow up.
Richard Fairbank: And one of the terms that I've used, you probably remember, Rick, is to have a growth platform. And acquisitions that we have tended to do have been acquisitions of growth platforms to enable us to build a business so that we don't have to go from sort of zero to one. In a sense, we can start a bit beyond that and then really leverage the opportunity. And this acquisition of Brex is a classic case of that. It is right in the heart of our business strategy as a company, which is all about payments for both consumers and businesses. It is a growth platform, which, interestingly, there's a way, as I talked about, we have things that we bring that can enhance Brex's growth significantly and early on.
And one of the terms that I've used, you probably remember, Rick, is to have a growth platform. And acquisitions that we have tended to do have been acquisitions of growth platforms to enable us to build a business so that we don't have to go from sort of zero to one. In a sense, we can start a bit beyond that and then really leverage the opportunity. And this acquisition of Brex is a classic case of that. It is right in the heart of our business strategy as a company, which is all about payments for both consumers and businesses. It is a growth platform, which, interestingly, there's a way, as I talked about, we have things that we bring that can enhance Brex's growth significantly and early on.
A housekeeping question Andrew I appreciate the breakfast small relative to the cap one but could you size for us.
Speaker #5: But just, Moshe, just to sort of generally give you as I mentioned earlier, small business card portfolio is number three in purchase volume on the personal liability in the personal liability marketplace.
Size of the small business card portfolio would count as one of the small business banking and perhaps maybe revenues from our travel portal, but you would expect too.
Effect, if you will.
Through the Brexit Brexit acquisition.
Speaker #5: Our small business bank is still mostly a local bank that was built on the shoulders of the local banks that we bought, which are in about 18% of the U.S.
Yeah.
The interests are there.
Tricks that we break out in our reporting and we're not intending to do so at this point either but you know you just yeah Moshe yes, just that.
It's sort of just generally give you in.
As I mentioned earlier small business card portfolio is number three and purchase volume on the personal liability.
Speaker #5: We have, strategically for quite a while, Moshe, felt that the tremendously successful building of our national retail bank—and that there's a parallel opportunity to go national and build our digital-first small business bank, leveraging the capabilities that we now have in the small business space. But what we have lacked, in many ways, is the business tech platform on which to build that.
In the personal liability marketplace.
Our small business.
Bank.
Is.
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Still mostly a local bank that was built.
On the shoulders of the local banks that we bought which serve which are in about 18%.
Of the of the U S.
Richard Fairbank: And then Brex actually brings things that can strengthen our growth platforms across small business card, our small business bank, and our travel business. So we are, in many ways, the company that does invest. We've been investing since the founding of the company. But always, these are things that have gone along with that. From the founding days, we built a rigorous horizontal accounting framework to rigorously measure before, during, and after investments to see that they actually pay off. We're extremely focused on net present value. Despite announcing this acquisition today, we are built as an organic growth company.
And then Brex actually brings things that can strengthen our growth platforms across small business card, our small business bank, and our travel business. So we are, in many ways, the company that does invest. We've been investing since the founding of the company. But always, these are things that have gone along with that. From the founding days, we built a rigorous horizontal accounting framework to rigorously measure before, during, and after investments to see that they actually pay off. We're extremely focused on net present value. Despite announcing this acquisition today, we are built as an organic growth company.
Strategically for quite a while Moshe.
You know.
Felt that the tremendously.
Successful building of our National retail bank.
In that there's a parallel opportunity.
Speaker #5: We didn't have enough scale in our small business bank business, so we didn't feel that we had the scale to build the sort of tech stack fully necessary for that, but that comes along with the BRAC acquisition.
Go national and build our small business.
Digital for small business bank.
Leveraging the capabilities that that we.
Now have in the small business space, but what.
But what we have.
Lacked in many ways is the the business Tech platform.
Speaker #5: So it gives us a chance now to have shoulders to stand on, to accelerate the growth of our Small Business Bank.
On which to build that we had we didn't we didn't have enough scale in our small business.
Speaker #3: Great, thanks. And Rich, you had talked about the broad number of opportunities. Could you just talk a little bit about how both the Discover acquisition and the Brex acquisition might change kind of the priorities, and could you just talk a little bit about what the highest priorities in those investment opportunities are?
Bank business too.
We didn't.
Richard Fairbank: So if I pull up on all of those, what I've been sharing with investors over the last number of quarters is to say, on a calibration across decades of builds in Capital One, I see more opportunities which will drive future revenues than I've seen in some ways ever, but certainly the number and diversity of those. Why are they there? Because we built a technology platform from the bottom of the tech stack up. And as we go to the top of the platform, we are in a position to capitalize on opportunities that I think other companies would not be. Along the way, as these opportunities manifest, we have chosen to lean into investing, which, as I have said, in the near term, that pressures Efficiency Ratio.
So if I pull up on all of those, what I've been sharing with investors over the last number of quarters is to say, on a calibration across decades of builds in Capital One, I see more opportunities which will drive future revenues than I've seen in some ways ever, but certainly the number and diversity of those. Why are they there? Because we built a technology platform from the bottom of the tech stack up. And as we go to the top of the platform, we are in a position to capitalize on opportunities that I think other companies would not be. Along the way, as these opportunities manifest, we have chosen to lean into investing, which, as I have said, in the near term, that pressures Efficiency Ratio.
Feel that we had the scale to be.
Build the sort of our tech stack.
Fully necessary for that but but that comes along.
With the Brac acquisition. So it gives us a chance now to have shoulders to stand on two.
Speaker #3: Thanks.
Speaker #2: Discover and Brex both expand the number of opportunities, and we already had a pretty good list of opportunities, so it was not an accident.
Accelerate the growth.
Small business bank.
Great. Thanks.
Rich you had talked about you don't put it.
Broad number of opportunities.
Speaker #2: We had the opportunities we've had at legacy Capital One because we were working backwards from those opportunities for years as part of the benefit of transforming our technology platform.
Can you just talk a little bit about how it's supposed to discover acquisition of Brookfield infrastructure might change kind of the priorities there.
What are the could you just talk a little bit about what the highest priorities.
Speaker #2: So, along came Discover, and that brings the network opportunity, but also the network investments that we've talked about. And along comes Brex, and that brings the very near-in growth opportunities, but the investments required that go along with that.
Sure.
Thanks.
Hum.
Discover and brakes.
Both expand the number of opportunities and.
You know, we already had a pretty good list of opportunities that it was not an accident. We had the opportunities we've had at legacy capital one because we were working backwards from those opportunities for years as part of the benefit of a.
Speaker #2: So this is, but with respect to the opportunities that we have listed, that I listed earlier, each of those on a standalone basis—our standard is, Moshe, is this a value creation opportunity?
Richard Fairbank: But while we don't give specific efficiency ratio guidance, all of these investments are in service of driving future revenue growth, which is the engine for efficiency ratio improvement and value creation in the long term. Next question, please. Hey, Rick. Yeah. Go ahead. Yeah. You still there, Rick? Go ahead. Rick has left the stage. Oh, sorry, Rick. Our next question comes from Mihir Bhatia with Bank of America. You may proceed. Hi. Good afternoon. Thank you for taking my question. I was wondering if you could provide us with an update on how the debit transition to Discover is going, any learnings from that process as you think about which and when to transition the credit portfolio. And also just related to that, any initial thoughts on if there's an opportunity to move Brex cards over to Discover? Thank you. Yes.
But while we don't give specific efficiency ratio guidance, all of these investments are in service of driving future revenue growth, which is the engine for efficiency ratio improvement and value creation in the long term.
Transforming our technology platform, so along came to discover.
And.
That that brings the.
The network opportunity, but also the network investments that we've talked about.
Jeff Norris: Next question, please.
And along comes a bricks and that brings the very near in.
Richard Fairbank: Hey, Rick.
Richard Shane: Yeah.
Richard Fairbank: Go ahead.
Speaker #2: And we look at the horizontal economics of this. We say, what is the payoff down the road, and what does it take to get there?
Growth opportunities, but the investments required that go along with that.
Richard Shane: Yeah.
Richard Fairbank: You still there, Rick? Go ahead.
Operator: Rick has left the stage.
So.
Richard Fairbank: Oh, sorry, Rick.
Uh huh.
Speaker #2: And so on. And the other ones I've listed—we are very compelled by those opportunities and are continuing to pursue them. The opportunity at the top of the market, the national retail bank, which even got an extra benefit from the Discover deal; the emerging businesses of Capital One Shopping; Auto Navigator on the auto side; our travel business.
Operator: Our next question comes from Mihir Bhatia with Bank of America. You may proceed.
This is.
But with respect to the opportunities that we have listed.
Mihir Bhatia: Hi. Good afternoon. Thank you for taking my question. I was wondering if you could provide us with an update on how the debit transition to Discover is going, any learnings from that process as you think about which and when to transition the credit portfolio. And also just related to that, any initial thoughts on if there's an opportunity to move Brex cards over to Discover? Thank you. Yes.
Earlier.
Each of those on a standalone basis, our standard is Moshe.
You know is this a value creation opportunity.
And we look at the horizontal economics at this we say you know what is the pay off down the road and what does it take to get there and so on.
Speaker #2: These are businesses that, on a standalone basis, we are very compelled by the opportunity. So what we are working to do is try to really manage the company efficiently, even as we pursue a large list of opportunities.
Richard Fairbank: Mihir, as we shared at the announcement of the deal, we are moving all of our debit business to the Discover debit network to take full advantage of the synergies that come from vertical integration. We've been migrating our debit card holders to the Discover network since August of last year, and we are now nearly complete with our conversion. You're starting to see the network synergies in our reported results, and you will see more of those results as we complete the debit conversion. On the credit card side, we plan to do a lot of testing, and by the middle of this year, we will be able to originate Capital One credit cards on the Discover network. Early next year, we will be able to move some existing credit cards to the Discover network.
Richard Fairbank: Mihir, as we shared at the announcement of the deal, we are moving all of our debit business to the Discover debit network to take full advantage of the synergies that come from vertical integration. We've been migrating our debit card holders to the Discover network since August of last year, and we are now nearly complete with our conversion. You're starting to see the network synergies in our reported results, and you will see more of those results as we complete the debit conversion. On the credit card side, we plan to do a lot of testing, and by the middle of this year, we will be able to originate Capital One credit cards on the Discover network. Early next year, we will be able to move some existing credit cards to the Discover network.
And the other ones I've listed were very compelled by those opportunities and are continuing to pursue them.
The opportunity at the top of the market.
The national retail bank, which even got an extra.
Benefit from the discover deal.
The the emerging businesses of capital on shopping auto navigator on it on the auto side or our travel business.
Speaker #2: But these opportunities are opportunities that exist in a particular moment. And that's why we're investing quite a bit to pursue them.
Is your business is that on a standalone basis.
Yeah, we are very compelled by the end of the the opportunity.
What.
What we are working to do is to.
Yeah.
Now to try to really manage the company efficiently even as we pursue.
Speaker #2: them. Next
Richard Fairbank: The longer term, we will work on building Discover's international acceptance and strengthening the network brand, which will open the doors for us to have an opportunity to move more business over there. You asked about the learnings. We are really pleased with what we've seen in the conversion in terms of the smoothness of the conversion, the customer take-up on the debit cards, and really pretty much all aspects of this have gone as well or maybe a little better than we had expected.
The longer term, we will work on building Discover's international acceptance and strengthening the network brand, which will open the doors for us to have an opportunity to move more business over there. You asked about the learnings. We are really pleased with what we've seen in the conversion in terms of the smoothness of the conversion, the customer take-up on the debit cards, and really pretty much all aspects of this have gone as well or maybe a little better than we had expected.
Speaker #3: question,
Speaker #3: please. Our next
A large list of opportunities.
Speaker #4: The question comes from Don Fandetti with Wells Fargo. You may proceed.
But oh, we are.
Speaker #5: Hi, good evening. Rich, as I look around at the card industry, I mean, it just seems like every big bank is trying to grow market share leaning in regionals, fintechs.
These opportunities.
Our opportunities that.
Are.
You know.
Opportunities in a particular moment.
Speaker #5: And I was just curious, how do you think this plays out if the industry is going to remain disciplined? And do you think you can grow your card loans in that type of environment, or could you consider sort of zagging and slowing things down a little?
And.
That's why we're investing.
Quite a bit to pursue them.
Next question please.
Our next question comes from Don Vendetti with Wells Fargo. You May proceed.
Speaker #2: Thanks, Don. I think it is pretty much a certainty that every time the economy is in a pretty good place, the card industry will have more competition, and that competition is really coming from the big players.
Hi, good evening.
As I look around at the card industry of interest like every bank is trying to grow marketshare leaning in regional spin talks and I was just curious.
Richard Fairbank: But we know that choices to move cards and everything along with that, it's a really important strategic choice and a very, very important thing from a customer experience point of view, which is why we have a big testing agenda in the near term and why we also are working so hard to make sure that we continue to raise the international acceptance and also create a lot of technology-based solutions to make it easier for consumers to move their cards. Next question, please. Thank you. Our next question comes from Moshe Orenbuch with TD Cowen. You may proceed. Great. Thanks. I've got one sort of housekeeping-type thing and then a follow-up.
But we know that choices to move cards and everything along with that, it's a really important strategic choice and a very, very important thing from a customer experience point of view, which is why we have a big testing agenda in the near term and why we also are working so hard to make sure that we continue to raise the international acceptance and also create a lot of technology-based solutions to make it easier for consumers to move their cards.
How do you think this plays out if the industry is going to Romania.
Disciplined and do you think you can grow your card loans and that type of environment.
Speaker #2: That competition is coming from fintechs, and it is striking how much the card players are leaning into things. You can see it by turning on TV and seeing the advertisements that are being made; you can look at the products that people are refreshing.
Could you consider sort of dragging and flow.
Slowing things down.
Thanks.
You know I think it is.
Pretty much a.
Certainty that every time, the economies and a pretty good place.
The card industry.
Yeah.
Speaker #2: At the very top of the market, and you can look at some of the early spend bonuses and other things going on. So it is clear that the existing players and the fintechs coming from the side all believe that there is a good opportunity here.
Okay.
Have more competition and that competition is really coming from the big players that competition is coming from.
Fintech.
Jeff Norris: Next question, please.
It is striking.
Mihir Bhatia: Thank you.
How much.
Card players are leaning into things you can see it by turning on television and see that.
Operator: Our next question comes from Moshe Orenbuch with TD Cowen. You may proceed.
Moshe Orenbuch: Great. Thanks. I've got one sort of housekeeping-type thing and then a follow-up.
The advertisements that are being made.
Speaker #2: But I want to give you, Don, a calibration that I share with you from thirty-some years of building Capital One. I feel this is a rational marketplace.
You can look at the products that people are refreshing.
Richard Fairbank: The housekeeping question, Andrew. I appreciate that Brex is small relative to Capital One, but could you size for us the size of the small business card portfolio at Capital One, the small business banking, and perhaps maybe revenues from the travel portal that you would expect to affect, if you will, through the Brex acquisition? I appreciate the interest there, but those just aren't metrics that we break out in our reporting, and we're not intending to do so at this point either. But just to sort of generally give you an, as I mentioned earlier, small business card portfolio is number three in purchase volume on the personal liability in the personal liability marketplace. Our small business bank is still mostly a local bank that was built on the shoulders of the local banks that we bought, which are in about 18% of the US.
The housekeeping question, Andrew. I appreciate that Brex is small relative to Capital One, but could you size for us the size of the small business card portfolio at Capital One, the small business banking, and perhaps maybe revenues from the travel portal that you would expect to affect, if you will, through the Brex acquisition?
At the very top of the market and and you know you can look at some of the.
You know.
Early spend bonuses and other things going on.
Speaker #2: It's definitely striking to see how much competitors are leaning in. But when I look at the choices they're making, when I look at it, the thing I fear the most is reckless credit.
So.
It is clear.
That's it.
The existing players and the fintech coming from that side.
Richard Fairbank: I appreciate the interest there, but those just aren't metrics that we break out in our reporting, and we're not intending to do so at this point either. But just to sort of generally give you an, as I mentioned earlier, small business card portfolio is number three in purchase volume on the personal liability in the personal liability marketplace. Our small business bank is still mostly a local bank that was built on the shoulders of the local banks that we bought, which are in about 18% of the US.
Oh believes that there is a good opportunity here, but I want to give you a calibration that I shared with you from.
Speaker #2: I don't see that. I think that this is a market with opportunity for someone like Capital One. But we have our eyes open with respect to the competition.
30, some years of building capital one.
I feel this is a rational marketplace.
Speaker #2: I think the investment, the table stakes of investment—to your point—I think are higher than they might be at other times. But all of that notwithstanding, I really believe this is a good marketplace, and we are leaning in to capture the
Hum.
It is a you know.
Definitely striking to see.
How much competitors are leaning in but when I looked at the choices, they're making when I look at the the thing I fear. The most is as reckless credit I don't see that.
I think that this is a market with a opportunity for someone like capital one.
Speaker #2: opportunities.
Speaker #5: Thank you. Next question.
Speaker #3: Oh, I'm sorry. Go ahead.
But we have our eyes open with respect to the competition I think the investment the table Stakes of investment to your point I think are higher than they might be at other times.
Speaker #5: I'm all
Speaker #5: set. Next question,
Richard Fairbank: We have strategically, for quite a while, Moshe, felt that the tremendously successful building of our national retail bank, in that there's a parallel opportunity to go national and build our small business digital-first small business bank, leveraging the capabilities that we now have in the small business space. But what we have lacked in many ways is the business tech platform on which to build that. We didn't have enough scale in our small business bank business. We didn't feel that we had the scale to build the sort of tech stack fully necessary for that. But that comes along with the Brex acquisition, so it gives us a chance now to have shoulders to stand on to accelerate the growth of our small business bank. Great. Thanks. And Rich, you had talked about the broad number of opportunities.
We have strategically, for quite a while, Moshe, felt that the tremendously successful building of our national retail bank, in that there's a parallel opportunity to go national and build our small business digital-first small business bank, leveraging the capabilities that we now have in the small business space. But what we have lacked in many ways is the business tech platform on which to build that. We didn't have enough scale in our small business bank business. We didn't feel that we had the scale to build the sort of tech stack fully necessary for that. But that comes along with the Brex acquisition, so it gives us a chance now to have shoulders to stand on to accelerate the growth of our small business bank.
Speaker #4: Our next question comes from Jeff Addison, please, with Morgan Stanley. You may.
Speaker #4: proceed. Hey, good
Speaker #6: Evening. Rich, appreciate all the color on the Brexit acquisition. I'm also just curious how you're thinking about specific benefits and synergies to your Commercial Banking franchise.
But.
All of that notwithstanding I really believe this is a.
A good marketplace.
Speaker #6: I mean, as you start to bring everything under one roof for your business customers, is this really something that could meaningfully accelerate your growth of lending and deposits within that segment?
And we are leaning in to capture the opportunities.
Oh I'm sorry go ahead.
Almost done.
Next question please.
Speaker #6: As you maybe attract more of those customers, or just you're able to do more for those customers under one roof over time?
Our next question goes from here.
Suddenly you May proceed.
Hey, good evening Rich I appreciate all the color on the <unk> acquisition I'm also just curious how youre thinking about.
Speaker #2: So yes, let me, Jeff, I really appreciate that question. I can't remember an acquisition we've done in our history that has had so many connection points to our own business model and the ability to lift so many different parts of the company.
Benefits from synergies here commercial banking franchise I mean, it's just it's just you know as you've started to bring everything under one roof for your business customers. It was really something that could meaningfully salary your growth of lending and deposits within that segment.
Yes, you may be attract more of those customers or just you're able to do more for those customers under one roof over time.
Speaker #2: And you mentioned one that I didn't even list in my list, which was a benefit to the commercial business. But we have a Treasury Management business, like all major commercial banks do.
So.
Yes, let me.
Jeff I really appreciate that question.
I cant.
Can't remember an acquisition we've done.
Moshe Orenbuch: Great. Thanks. And Rich, you had talked about the broad number of opportunities. Could you just talk a little bit about how both the Discover acquisition and the Brex acquisition might change kind of the priorities and where what are the could you just talk a little bit about what the highest priorities in those investment opportunities are? Thanks.
In our history that has had so many connection points to our own.
Speaker #2: And there's a lot of technology that goes into treasury management products. Our TM team has looked closely at this extraordinary tech stack that Brex has built.
Richard Fairbank: Could you just talk a little bit about how both the Discover acquisition and the Brex acquisition might change kind of the priorities and where what are the could you just talk a little bit about what the highest priorities in those investment opportunities are? Thanks. Discover and Brex both expand the number of opportunities, and we already had a pretty good list of opportunities that it was not an accident we had the opportunities we've had at legacy Capital One because we were working backwards from those opportunities for years as part of the benefit of transforming our technology platform. So along came Discover, and that brings the network opportunity, but also the network investments that we've talked about, and along comes Brex, and that brings the very near-in growth opportunities, but the investments required that go along with that.
Business model and the ability to lift so many different parts.
The company.
And Hugh you mentioned one that.
I didn't even.
Richard Fairbank: Discover and Brex both expand the number of opportunities, and we already had a pretty good list of opportunities that it was not an accident we had the opportunities we've had at legacy Capital One because we were working backwards from those opportunities for years as part of the benefit of transforming our technology platform. So along came Discover, and that brings the network opportunity, but also the network investments that we've talked about, and along comes Brex, and that brings the very near-in growth opportunities, but the investments required that go along with that.
List in my life.
Which was a benefit to the commercial.
Speaker #2: And believes that there is an opportunity over time to build on that tech stack. I didn't mention it because I think it's going to be a down-the-road kind of thing.
Business, but we have a treasury management business.
All major commercial banks do.
And.
There's a lot of technology that goes into Treasury management.
Speaker #2: There's going to be—to really kind of pull together an integrated treasury management capability—that was just less of a close-in opportunity. But you've seen me talk over the years: how many times do I talk about building a tech stack from the bottom of the tech stack up.
Products.
Our T M team has.
Look closely at this extraordinary.
Tech stack that Brexit has built.
And believes that there is an opportunity.
Over time too.
Build on that a tech stack.
I didn't mention it because I think it's gonna be it down the road kind of thing there's going to be.
Richard Fairbank: So this is but with respect to the opportunities that we have listed that I listed earlier, each of those on a standalone basis, our standard is, Moshe, is this a value creation opportunity? And we look at the horizontal economics of this. We say, what is the payoff down the road, and what does it take to get there, and so on. And the other ones I've listed, we are very compelled by those opportunities and are continuing to pursue them. The opportunity at the top of the market, the national retail bank, which even got an extra benefit from the Discover deal, the emerging businesses of Capital One Shopping, Auto Navigator on the auto side, our travel business. These are businesses that, on a standalone basis, we are very compelled by the opportunity.
So this is but with respect to the opportunities that we have listed that I listed earlier, each of those on a standalone basis, our standard is, Moshe, is this a value creation opportunity? And we look at the horizontal economics of this. We say, what is the payoff down the road, and what does it take to get there, and so on. And the other ones I've listed, we are very compelled by those opportunities and are continuing to pursue them. The opportunity at the top of the market, the national retail bank, which even got an extra benefit from the Discover deal, the emerging businesses of Capital One Shopping, Auto Navigator on the auto side, our travel business. These are businesses that, on a standalone basis, we are very compelled by the opportunity.
Speaker #2: That is what we've done at Capital One. It is a very long and lonely journey to do it. Most companies build from the top of the tech stack down.
Two.
Really.
Kind of pull together, an integrated treasury management capability is that.
Speaker #2: But the benefits are multiplicative. When you have a tech stack that is modern, right from the core, and moving up from there. What's extraordinary here is that, on the business side of the house, we are bringing in a modern tech stack that has the ability to lift not only business cards, but also all aspects of the business side of Capital One.
It was just less of a.
And the opportunity.
But.
You know you've seen you've seen me talk over the years.
How many times do I talk about building a tech stack from the bottom of the tech stack up.
That is what we've done to capital one is a very.
Long and Lonely journey to do at most companies build from the top of the Tech stack down.
But the benefits are multiplicative when you have a tech stack that is modern right from the core.
Speaker #2: We've spent so much of our time collectively with investors talking about the consumer side of the house. That's a different tech stack. I mean, well, there's a lot of shared aspects about it, but the consumer core is a different thing than commercial.
Moving up from there.
What's extraordinary here is that on the business side of the house, we are bringing in a minute.
Modern tech stack.
Speaker #2: And so I think that Brex is really bringing an opportunity to take some of our activities, particularly those that were lower scale at Capital One, and have the opportunity to accelerate their journey.
Speaker #2: And so I think that Brex is really bringing an opportunity to take some of our activities, particularly those that were lower scale at Capital One, and have the opportunity to accelerate their journey.
That.
Has the ability to lift not only business car.
But also on all aspects of the business side of.
Capital one.
Richard Fairbank: So what we are working to do is to try to really manage the company efficiently, even as we pursue a large list of opportunities. But these opportunities are opportunities that are opportunities in a particular moment, and that's why we're investing quite a bit to pursue them. Next question, please. Our next question comes from Don Fandetti with Wells Fargo. You may proceed. Hi. Good evening. Rich, as I looked around at the card industry, it seems like every big bank is trying to grow market share, leaning into regional fintechs. And I was just curious how you think this plays out if the industry is going to remain disciplined, and do you think you can grow your card loans in that type of environment, or could you consider sort of jagging and slowing things down a little? Thanks, Don.
So what we are working to do is to try to really manage the company efficiently, even as we pursue a large list of opportunities. But these opportunities are opportunities that are opportunities in a particular moment, and that's why we're investing quite a bit to pursue them.
We've spent so much of our time collectively with investors talking about the consumer side of the house.
Speaker #3: Next, okay. Question. Next question, please.
That's a different tech stack.
Sure aspects about it but you know.
Speaker #4: Our next question comes from John Heck with Jefferies. You may proceed.
Our consumer is a different thing.
And so I think that.
Speaker #6: Afternoon. Thanks very much for taking my questions. First one is, you guys have always gone after a barbell strategy, where you're going after super prime and prime on one side, and the non-prime on the other.
Brexit is really bringing an opportunity to take.
Some of our.
Activities, particularly those that were lower scale with capital one.
Have the opportunity to ask.
Speaker #6: You've generally had a mix in a specific range, but I'm wondering whether it's credit card or auto now. Are you guys leaning into any cohorts in that way or leaning away from them?
Accelerate.
Their journey.
Yeah.
Okay next question.
Next question please.
Jeff Norris: Next question, please.
Yeah.
Operator: Our next question comes from Don Fandetti with Wells Fargo. You may proceed.
Our next question comes from John Hecht with Jefferies. You May proceed.
Speaker #6: And, or, is the mix expected to be relatively stable?
Speaker #6: here? John,
Afternoon, Thanks, very much for taking my questions.
Speaker #2: Thanks for your question. The barbell term, I think, was in many ways sort of an investor term over the years to try to, from afar, sort of characterize what they saw at Capital One, because we had clearly pioneered how to safely lend to mainstream America, including subprime, and also that we always were pushing right at the top of the market, going after heavy spenders.
Don Fandetti: Hi. Good evening. Rich, as I looked around at the card industry, it seems like every big bank is trying to grow market share, leaning into regional fintechs. And I was just curious how you think this plays out if the industry is going to remain disciplined, and do you think you can grow your card loans in that type of environment, or could you consider sort of jagging and slowing things down a little?
First one is you.
You guys have always.
Gone after a barbell strategy, where youre going after.
Prime on one side.
Prime up together it generally.
Next in a specific range, but I'm wondering whether it's credit card or auto now do you Guy are you leaning into any cohorts in that in that way, we're leaning away from it or is the mix expected to be relatively stable.
Richard Fairbank: Thanks, Don. I think it is pretty much a certainty that every time the economy is in a pretty good place, the card industry will have more competition, and that competition is really coming from the big players. That competition is coming from fintechs, and it is striking how much the card players are leaning into things. You can see it by turning on TV and see the advertisements that are being made. You can look at the products that people are refreshing at the very top of the market, and you can look at some of the early spend bonuses and other things going on.
Thanks for your question.
The bar Bell term.
Richard Fairbank: I think it is pretty much a certainty that every time the economy is in a pretty good place, the card industry will have more competition, and that competition is really coming from the big players. That competition is coming from fintechs, and it is striking how much the card players are leaning into things. You can see it by turning on TV and see the advertisements that are being made. You can look at the products that people are refreshing at the very top of the market, and you can look at some of the early spend bonuses and other things going on. So it is clear that the existing players and the fintechs coming from the side all believe that there is a good opportunity here. But I want to give you, Don, a calibration that I share with you from 30-some years of building Capital One.
I think.
In many ways sort of and investor term over the years to try to from afar.
Speaker #2: I don't think it ever was as much of a barbell as sort of urban legend would have it, but I do want to say even way before the Discover acquisition, we were a full-spectrum lender, including a significant player right in the middle of the market in prime.
Yeah.
Sort of characterize what they saw at capital one because we are clearly.
You know pioneered.
How to safely land to mainstream America.
Including the subprime and also.
We always were pushing right at the top of the market.
Speaker #2: The one thing that differentiated our strategy in Prime from others is that we were more cautious on the Prime revolver, especially the more high-balance revolver.
Going after heavy spenders.
I don't think it ever was as much of a barbell Ed.
Sort of urban legend would happen.
But I do want to stay even.
Wait before the discover acquisition.
We're a full spectrum lender, including a significant player.
Speaker #2: And so we have always played just a little more cautiously in that space. But we have played the credit spectrum, and in fact, we want to, with our customers—for example, our customers, our mainstream America customers—to grow them, to graduate them, and move them up to being ultimately heavy spenders.
So it is clear that the existing players and the fintechs coming from the side all believe that there is a good opportunity here. But I want to give you, Don, a calibration that I share with you from 30-some years of building Capital One.
Right in the middle of the market.
Right.
The one thing that.
Differentiated our strategy in prime from others is that we were more cautious.
On the prime revolver.
Speaker #2: When Discover joined Capital One, as we said, this is striking. While Capital One has been a full-spectrum lender, Discover has been a very specialized and focused player, more in the prime part of the marketplace.
Richard Fairbank: I feel this is a rational marketplace. It is definitely striking to see how much competitors are leaning in, but when I look at the choices they're making, when I look at the thing I fear the most, is reckless credit. I don't see that. I think that this is a market with opportunity for someone like Capital One, but we have our eyes open with respect to the competition. I think the investment, the table stakes of investment, to your point, I think are higher than they might be at other times. But all of that notwithstanding, I really believe this is a good marketplace, and we are leaning in to capture the opportunities. Next question, Don. I'm sorry. Go ahead. Almost there. Next question, please. Our next question comes from Jeff Adelson with Morgan Stanley. You may proceed. Hey, good evening.
I feel this is a rational marketplace. It is definitely striking to see how much competitors are leaning in, but when I look at the choices they're making, when I look at the thing I fear the most, is reckless credit. I don't see that. I think that this is a market with opportunity for someone like Capital One, but we have our eyes open with respect to the competition. I think the investment, the table stakes of investment, to your point, I think are higher than they might be at other times. But all of that notwithstanding, I really believe this is a good marketplace, and we are leaning in to capture the opportunities.
Especially the.
More high balance revolver, and so we have always played.
More cautiously in that space.
Play the credit spectrum and in fact, we want to.
With our customers for example, where our customers are mainstream America customers to grow them to graduate them and move them to.
Speaker #2: We've now studied their underwriting. We think they underwrite very safely. We are trimming around the edges—we have a little less appetite for the higher-balance revolver than they and the industry do.
To be ultimately heavy spenders when discover them.
Speaker #2: So that's some of the brownout we've talked about. But Discover will fit right in with our full-spectrum strategy. I do want to make a comment on the auto side.
Joining capital.
As we said this is striking well capital one has been a full spectrum lender.
Cover has been a very specialized.
Focused player more.
Speaker #2: We are absolutely a full-spectrum player on the auto side and, in fact, one of the biggest players in the industry—in subprime, in near-prime, and in prime.
A part of the marketplace.
Yeah.
Right.
Underwriting very safely.
We are trimming around the edges with our we have a little less appetite for that higher balance room over there.
Don Fandetti: Thank you.
Jeff Norris: Next question, I'm sorry. Go ahead.
Operator: Almost there.
St.
That's something up round out we've talked about.
Jeff Norris: Next question, please.
Speaker #3: Okay. And then, quick follow-up question. Thanks very much for that detail there. Andrew, I'm wondering, given the forward curve and then timing of quarter end and days in the quarter, and the kind of tax refund situation, can you just give us your perspective on the cadence of seasonality and how it might affect NIM? Or can we look to the past as a good indication of that?
But.
Operator: Our next question comes from Jeff Adelson with Morgan Stanley. You may proceed.
Discoveries.
As you know it will fit right in with our full spectrum strategy I just want to make a comment on the auto side. We are absolutely a full spectrum player on the auto side in fact.
Jeff Adelson: Hey, good evening. Rich, appreciate all the color on the Brex acquisition. I'm also just curious how you're thinking about the specific benefits and synergies to your commercial banking franchise. I mean, is this as you start to bring everything under one roof for your business customers, is this really something that could meaningfully accelerate your growth of lending and deposits within that segment, as you maybe attract more of those customers, or just you're able to do more for those customers under one roof over time?
Richard Fairbank: Rich, appreciate all the color on the Brex acquisition. I'm also just curious how you're thinking about the specific benefits and synergies to your commercial banking franchise. I mean, is this as you start to bring everything under one roof for your business customers, is this really something that could meaningfully accelerate your growth of lending and deposits within that segment, as you maybe attract more of those customers, or just you're able to do more for those customers under one roof over time? So yes. Jeff, I really appreciate that question. I can't remember an acquisition we've done in our history that has had so many connection points to our own business model and the ability to lift so many different parts of the company. And you mentioned one that I didn't even list in my list, which was a benefit to the commercial business.
You know one of the.
Yeah biggest players in the industry.
Yeah.
Prime and near Prime.
And in Prime.
Speaker #2: Yeah, John, as you said, there are seasonal effects that in most quarters actually impact NIM. So I'll touch on that, and then I'll just talk a bit more structurally about our level of NIM. So, looking ahead to the first quarter, there are two seasonal effects.
Okay.
Follow up question. Thank you very much for that detail there Andrew I'm wondering you know given the forward curve.
Richard Fairbank: So yes. Jeff, I really appreciate that question. I can't remember an acquisition we've done in our history that has had so many connection points to our own business model and the ability to lift so many different parts of the company. And you mentioned one that I didn't even list in my list, which was a benefit to the commercial business.
And then.
The timing of quarter end and core.
Yeah.
The kind of tax refund situation.
Situation.
Can you just give us.
Speaker #2: One to fewer days in the quarter, which is roughly, I think, 18 basis points or so of a headwind to that quarterly rate. And then the second is, we are likely to have higher levels of lower-yielding cash because average cash levels just tend to be elevated in Q1 as a result of paydown of seasonal loan balances.
Your perspective on kind of a cadence of seasonality.
It might affect.
At worst.
Past that I think is indication of that.
Yeah.
Okay.
In most quarters actually impact.
Yeah.
Talk a bit more structural about our level of debt. So looking ahead to.
Speaker #2: We have the added effect this year of the cash proceeds from the home loan sale that are unlikely to come all the way down in the immediate term. With respect to the tax effect, we'll have to see how consumers behave—to Rich's earlier comment.
The first quarter.
Richard Fairbank: We have a treasury management business, like all major commercial banks do, and there's a lot of technology that goes into treasury management products. Our TM team has looked closely at this extraordinary tech stack that Brex has built and believes that there is an opportunity over time to build on that tech stack. I didn't mention it because I think it's going to be a down-the-road kind of thing. There's going to be to really kind of pull together an integrated treasury management capability. That was just less of a close-in opportunity. But you've seen me talk over the years. How many times do I talk about building a tech stack from the bottom of the tech stack up? That is what we've done at Capital One. It is a very long and lonely journey to do it.
We have a treasury management business, like all major commercial banks do, and there's a lot of technology that goes into treasury management products. Our TM team has looked closely at this extraordinary tech stack that Brex has built and believes that there is an opportunity over time to build on that tech stack. I didn't mention it because I think it's going to be a down-the-road kind of thing. There's going to be to really kind of pull together an integrated treasury management capability. That was just less of a close-in opportunity. But you've seen me talk over the years. How many times do I talk about building a tech stack from the bottom of the tech stack up? That is what we've done at Capital One. It is a very long and lonely journey to do it.
With that one.
In the quarter, which.
Yeah.
Basis points or so.
[laughter] quarterly rate.
Yeah.
We're likely to have a higher level.
Lower yielding cash because average cash levels.
Speaker #2: So I think that's a little bit more of a wild card. Then, more structurally, I'll point to a couple of things. One is, deposit pricing often lags as Fed funds move.
Yeah.
As a result of pay downs.
Balances.
Yeah.
The cash proceeds.
Speaker #2: So, we could see brief periods of pressure after Fed moves if we were to see them in the coming quarters. But over time, given the relatively neutral position of our balance sheet, that largely corrects itself.
From a loan sale.
Are unlikely to come.
Yeah.
Immediate term.
Yeah.
Uh huh.
Uh huh.
Okay.
Speaker #2: And then the only other thing that is going to impact the ambient level of NIM would just be the relative growth in different asset classes over time, impacting balance sheet mix.
Earlier comments, so I think that's a little bit more.
With card.
Sure.
I'll point to a couple of things.
Deposit pricing.
Speaker #2: But other than that, I don't really foresee any structural things impacting the balance sheet. So it really will be much more of a seasonal effect as we look ahead to the coming quarters.
Right.
So.
Brief periods of pressure after.
Yeah.
Speaker #2: quarters.
In the coming quarters.
Speaker #4: Next question, Wonderful.
Hi.
Speaker #4: please. Our
Our balance sheet that largely corrects itself.
And then the only other thing that.
Speaker #3: Next question comes from Robert Walhack with Autonomous Research. He may.
Richard Fairbank: Most companies build from the top of the tech stack down, but the benefits are multiplicative when you have a tech stack that is modern right from the core and moving up from there. What's extraordinary here is that on the business side of the house, we are bringing in a modern tech stack that has the ability to lift not only business cards but also all aspects of the business side of Capital One. We've spent so much of our time collectively with investors talking about the consumer side of the house. That's a different tech stack. I mean, there's a lot of shared aspects about it, but the consumer core is a different thing than commercial.
Most companies build from the top of the tech stack down, but the benefits are multiplicative when you have a tech stack that is modern right from the core and moving up from there. What's extraordinary here is that on the business side of the house, we are bringing in a modern tech stack that has the ability to lift not only business cards but also all aspects of the business side of Capital One. We've spent so much of our time collectively with investors talking about the consumer side of the house. That's a different tech stack. I mean, there's a lot of shared aspects about it, but the consumer core is a different thing than commercial.
And the level of debt relative.
Speaker #3: proceed. Hi,
Relative.
Speaker #5: Guys, Rich, you mentioned a couple of times earlier that Brex's growth opportunity standalone was limited by scale. Can you just expand on that a little bit more?
Different.
Asset classes.
Impacting our balance sheet.
Other than that.
Speaker #5: Were they lacking scale maybe on the lending side of things, or more on the technology side, or somewhere else? And then, do you see the more attractive growth opportunity for Brex with some of the larger enterprise clients—a number of whom you listed earlier—or more in the SMB space?
Sure thing.
Structural things impacting the balance sheet.
It will be much more of a seasonal effect.
Just a couple of quarters.
Okay.
Okay.
Yeah.
Our next question comes from Robert.
Speaker #5: Thanks.
With Autonomous research you May proceed.
Speaker #2: Thank you, Robert. So let's talk about Brex for a minute. Almost all rapidly growing startups are constrained on investment dollars. Brex has built an amazing company and has big aspirations for what they can be.
Rich you mentioned a couple times.
Breakfast growth opportunity.
By scale.
Expand on that a little bit.
Lacking scale, maybe in Atlanta.
Side of things or more on the technology side or somewhere else and then.
A more attractive growth opportunities for <unk>.
Some of the larger enterprise clients a number of you listed earlier.
Richard Fairbank: And so I think that Brex is really bringing an opportunity to take some of our activities, particularly those that were lower scale at Capital One, and have the opportunity to accelerate their journey. Next question. Next question, please. Our next question comes from John Hecht with Jefferies. You may proceed. Afternoon. Thanks very much for taking my questions. First one is, you guys have always gone after barbell strategy, where you're going after super prime and prime on one side and the non-prime on the other. You've generally had a mix in a specific range, but I'm wondering whether it's credit card or auto now. Are you leaning into any cohorts in that way or leaning away from, or is the mix expected to be relatively stable here? John, thanks for your question.
And so I think that Brex is really bringing an opportunity to take some of our activities, particularly those that were lower scale at Capital One, and have the opportunity to accelerate their journey.
Speaker #2: And achieving those aspirations requires a lot of dollars and also a lot of other capabilities as well. And I think as I've gotten to know Pedro Franceschi, their amazing founder and CEO, and Ben Gammell, their president, and the extraordinary team that they have.
These place.
Got it thank you Robert.
So.
Let's talk about Rex.
Jeff Norris: Next question. Next question, please.
A minute.
Almost all rapidly growing startups are constrained on investment dollars.
Operator: Our next question comes from John Hecht with Jefferies. You may proceed.
Brexit.
Amazing company and has big aspirations for what they can be.
John Hecht: Afternoon. Thanks very much for taking my questions. First one is, you guys have always gone after barbell strategy, where you're going after super prime and prime on one side and the non-prime on the other. You've generally had a mix in a specific range, but I'm wondering whether it's credit card or auto now. Are you leaning into any cohorts in that way or leaning away from, or is the mix expected to be relatively stable here?
Achieving those aspiration.
Speaker #2: It's very clear that they know they have a tiger by the tail. And I think they know they had opportunities to go raise more capital, and they certainly weren't at all looking to go sell a company.
You know requires a.
A lot of dollars in also.
Lot of other capabilities as well.
And.
Yeah.
Got it.
You know Pedro franchisee they are amazing our founder CEO and.
Speaker #2: But I think what captivated them about the unique opportunity of Capital One is that we, as a tech company ourselves with a modern tech stack and the entrepreneurial heritage of having been an original fintech, could be a unique opportunity to bring a lot more resources and capabilities to them while still enabling their dream to stay alive, and the entrepreneurial spirit that, sometimes when one thinks about large companies, might otherwise be hard to maintain.
Camels.
President and.
Richard Fairbank: John, thanks for your question. The barbell term, I think, was in many ways sort of an investor term over the years to try to, from afar, sort of characterize what they saw at Capital One because we had clearly pioneered how to safely lend to mainstream America, including the subprime, and also that we always were pushing right at the top of the market, going after heavy spenders. I don't think it ever was as much of a barbell as sort of urban legend would have it, but I do want to say even way before the Discover acquisition, we were a full-spectrum lender, including a significant player right in the middle of the market in prime.
The extraordinary team that they have.
Richard Fairbank: The barbell term, I think, was in many ways sort of an investor term over the years to try to, from afar, sort of characterize what they saw at Capital One because we had clearly pioneered how to safely lend to mainstream America, including the subprime, and also that we always were pushing right at the top of the market, going after heavy spenders. I don't think it ever was as much of a barbell as sort of urban legend would have it, but I do want to say even way before the Discover acquisition, we were a full-spectrum lender, including a significant player right in the middle of the market in prime.
Yes.
Three.
Clear that.
They are they know they have a tiger by the tail and I think you know.
Opportunities to go raise more capital and.
They certainly weren't at all looking to go sell a company, but I think.
What captivated them about the unique opportunity of capital one.
Is that.
As a tech company or yourself.
You know with a modern tech stack and.
Proprietary heritage having been.
The original Fintech.
Yeah.
We could be.
Speaker #2: But I think they were pretty excited about the ability to have our brand open doors all over the place—and not just open the doors, but also for people to know that they're part of one of the biggest banks in America.
Thank you.
Okay.
To break.
A lot more resources.
And capabilities to them.
While it's still early.
Building their dream too.
Speaker #2: The sophisticated marketing machine, the balance sheet of the bank, the capacity to invest in sales and in marketing and engineering and AI—I think it really was an opportunity in their mind to accelerate the growth while still very much keeping the dream that is Brex alive.
Stay alive, and the entrepreneurial spirit that sometimes.
Richard Fairbank: The one thing that differentiated our strategy in prime from others is that we were more cautious on the prime revolver, especially the more high-balance revolver, and so we have always played just a little more cautiously in that space. But we have played the credit spectrum, and in fact, we want to, with our customers, for example, our customers, our mainstream America customers, to grow them, to graduate them, and move them to being ultimately heavy spenders. When Discover joined Capital One, as we said, this is striking. While Capital One has been a full-spectrum lender, Discover has been a very specialized and focused player more in the prime part of the marketplace. We've now studied their underwriting. We think they underwrite very safely.
The one thing that differentiated our strategy in prime from others is that we were more cautious on the prime revolver, especially the more high-balance revolver, and so we have always played just a little more cautiously in that space. But we have played the credit spectrum, and in fact, we want to, with our customers, for example, our customers, our mainstream America customers, to grow them, to graduate them, and move them to being ultimately heavy spenders. When Discover joined Capital One, as we said, this is striking. While Capital One has been a full-spectrum lender, Discover has been a very specialized and focused player more in the prime part of the marketplace. We've now studied their underwriting. We think they underwrite very safely.
Yeah.
So by and large companies.
My.
Otherwise.
Hard to maintain.
But I think they were pretty excited about.
The ability to have our brand.
To open doors, all over the place and not just opens the doors, but also just you know.
For people to know that they're part of one of the biggest banks in America.
Fifth gated marketing machine the balance sheet of the bank.
Speaker #2: And again, I think that's something that's uniquely possible by pulling these two entrepreneurial companies together. With respect to the customer base, I am really struck at—let's just pull way up and savor a couple of things.
The.
And the like.
Capacity to invest in sales.
And in marketing and engineering.
I B M. I think it really was an opportunity in their mind.
To accelerate that.
To accelerate our growth, while it's still very much keeping the.
Speaker #2: First of all, most times when one looks at a business in a marketplace, you kind of say, well, who would have a need for something like this?
The dream that it's bricks.
And again I think that's it.
Something that's uniquely possible by pulling these two.
Speaker #2: The answer is just about every company in America, if not the world, has a need for this because every company has payables, expenses, and they've got to manage all of the complexity of the ecosystem on the payment side of the business.
Richard Fairbank: We are trimming around the edges with our—we have a little less appetite for the higher-balance revolver than they and the industry do, so that's some of the brownout we've talked about. But Discover will fit right in with our full-spectrum strategy. I do want to make a comment on the auto side. We are absolutely a full-spectrum player on the auto side, and in fact, one of the biggest players in the industry in subprime, in near prime, and in prime. Okay. And a quick follow-up question. Thanks very much for that detail there.
We are trimming around the edges with our—we have a little less appetite for the higher-balance revolver than they and the industry do, so that's some of the brownout we've talked about. But Discover will fit right in with our full-spectrum strategy. I do want to make a comment on the auto side. We are absolutely a full-spectrum player on the auto side, and in fact, one of the biggest players in the industry in subprime, in near prime, and in prime.
Entrepreneurial companies.
Okay.
With respect to the customer.
Customer base.
I'm really struck.
<unk>.
Let's just pull way up and say for a couple of things.
First of all most times when one looks at the business.
Speaker #2: And so, it's a need that has not been really filled in the marketplace with an integrated solution. So it starts with, wow, this thing could be attractive to small companies all the way to really large ones.
In a marketplace, you kind of say well, who would have a need for something like this.
The answer is just about every company in America, if not the world has a need for this because every company.
Yeah.
Payables.
John Hecht: Okay. And a quick follow-up question. Thanks very much for that detail there. Andrew, I'm wondering, given the forward curve and then timing the quarter-end and days and quarter and the kind of tax refund situation, can you just give us your perspective on kind of the cadence of seasonality and how it might affect NIM, or can we look to the past as a good indication of that?
Expenses.
Speaker #2: So if you look at their journey, their journey was one of, in fact, over time, tapping into those. They started with startups, startup tech companies.
Got to manage all of the complexity of the ecosystem.
Richard Fairbank: Andrew, I'm wondering, given the forward curve and then timing the quarter-end and days and quarter and the kind of tax refund situation, can you just give us your perspective on kind of the cadence of seasonality and how it might affect NIM, or can we look to the past as a good indication of that? Yeah, John. There's seasonal effects that in those quarters actually impact NIM. So I'll touch on that, and then I'll just talk a bit more structural about our level of NIM. So looking ahead to Q1, there are two seasonal effects: one, two fewer days in the quarter, which is roughly, I think, 18 basis points or so of a headwind to that quarterly rate.
On the payment side of the business.
And.
Speaker #2: They built an incredible brand, and I think their customer base includes, like, a third of tech companies—kind of thing. I don't—that's not a statement I'm fully grounded in, but let's just say they've had tremendous success with startups.
So.
And if a need that has not been really filled in there.
A marketplace with an integrated disclosure so it starts with Wow This thing could be could be attractive.
Small companies all the way to really.
The large ones.
Andrew Young: Yeah, John. There's seasonal effects that in those quarters actually impact NIM. So I'll touch on that, and then I'll just talk a bit more structural about our level of NIM. So looking ahead to Q1, there are two seasonal effects: one, two fewer days in the quarter, which is roughly, I think, 18 basis points or so of a headwind to that quarterly rate.
So if you look at their journey their journey was one of in fact over time tapping into those they started with.
Speaker #2: But they also on top of this amazing tech stack that they have built, were able to build a lot more capabilities that then makes it made their product attractive to middle-market companies and, in fact, pretty large middle-market companies and companies that have business all over the world and their employees traveling all over the world.
Startups startup tech companies, they built an incredible brand and.
I think I think their customer base and quotes.
Like a third of our tech.
Tech companies kind of thing.
It's not.
A statement I totally grounded but.
Richard Fairbank: And then the second is we are likely to have higher levels of lower-yielding cash because average cash levels just tend to be elevated in Q1 as a result of takedown of seasonal loan balances. We have the added effect this year of the cash proceeds from the home loan sale that are unlikely to come all the way down in the immediate term with respect to the tax effect, efficacy, and how consumers behave, which is earlier comment. So I think that's a little bit more of a wild card. Then more structurally, I'll point to a couple of things. One is deposit pricing often lags as Fed funds move, so we could see brief periods of pressure after Fed moves if we were to see them in the coming quarters. But over time, given the relatively neutral position of our balance sheet, that largely corrects itself.
And then the second is we are likely to have higher levels of lower-yielding cash because average cash levels just tend to be elevated in Q1 as a result of takedown of seasonal loan balances. We have the added effect this year of the cash proceeds from the home loan sale that are unlikely to come all the way down in the immediate term with respect to the tax effect, efficacy, and how consumers behave, which is earlier comment. So I think that's a little bit more of a wild card. Then more structurally, I'll point to a couple of things. One is deposit pricing often lags as Fed funds move, so we could see brief periods of pressure after Fed moves if we were to see them in the coming quarters. But over time, given the relatively neutral position of our balance sheet, that largely corrects itself.
You say, it's been a tremendous success with a start up.
But they also on top of this amazing tech stack that they have built.
People to build a lot more capabilities that then makes it made their product.
Attractive too.
Middle market companies and in fact, you know pretty large.
Middle market companies and.
Companies that.
Have.
Business all over the world and their employees are traveling all over the world.
So I believe that.
They are set up for success.
With small companies.
With medium sized companies and in fact, a pretty large one.
Because their solution.
Spans their needs.
Broader range of customers.
And the elegance and simplicity of the solution.
Richard Fairbank: And then the only other thing that is going to impact the level of NIM would just be the relative growth in different asset classes over time impacting the balance sheet mix. But other than that, I don't really foresee any structural things impacting the balance sheet, so it really will be much more of a seasonal effect as we look ahead to the coming quarters. Wonderful. Next question, please. Our next question comes from Robert Wildhack with Autonomous Research. You may proceed. Hi, guys. Rich, you mentioned a couple of times earlier that Brex's growth opportunity standalone was limited by scale. Can you just expand on that a little bit more? Were they lacking scale, maybe on the lending side of things or more on the technology side or somewhere else?
And then the only other thing that is going to impact the level of NIM would just be the relative growth in different asset classes over time impacting the balance sheet mix. But other than that, I don't really foresee any structural things impacting the balance sheet, so it really will be much more of a seasonal effect as we look ahead to the coming quarters.
Make it something that.
Small and large.
Can implement.
Next question please.
Okay.
And our final question comes from Saul Martinez with HSBC you May proceed.
John Hecht: Wonderful.
Jeff Norris: Next question, please.
Thanks, Chris.
Operator: Our next question comes from Robert Wildhack with Autonomous Research. You may proceed.
Yeah.
John Kerry's question.
Got that.
Modest.
You don't want to give some sort of financial metrics, but.
Robert Wildhack: Hi, guys. Rich, you mentioned a couple of times earlier that Brex's growth opportunity standalone was limited by scale. Can you just expand on that a little bit more? Were they lacking scale, maybe on the lending side of things or more on the technology side or somewhere else?
80% of the purchase prices.
That's not true.
Please go ahead.
I suspect right.
Not profitable.
I mean is that it.
The wrong assumption to use here.
$950 million.
Richard Fairbank: And then do you see as a more attractive growth opportunity for Brex with some of the larger enterprise clients, a number of whom you listed earlier, or more in the SME space? Thanks. Thank you, Robert. So let's talk about Brex for a minute. Almost all rapidly growing startups are constrained on investment dollars. Brex has built an amazing company and has big aspirations for what they can be. And achieving those aspirations requires a lot of dollars and also a lot of other capabilities as well. And I think, as I've gotten to know Pedro Franceschi, their amazing founder, CEO, and Ben Gammell, their president, and the extraordinary team that they have, it's very clear that they know they have a tiger by the tail.
And then do you see as a more attractive growth opportunity for Brex with some of the larger enterprise clients, a number of whom you listed earlier, or more in the SME space? Thanks.
The auction costs and incremental investments.
Is it fair to say that.
Initially we'll be yes.
Tangible book.
Even at a modest amount obviously overall value.
Richard Fairbank: Thank you, Robert. So let's talk about Brex for a minute. Almost all rapidly growing startups are constrained on investment dollars. Brex has built an amazing company and has big aspirations for what they can be. And achieving those aspirations requires a lot of dollars and also a lot of other capabilities as well. And I think, as I've gotten to know Pedro Franceschi, their amazing founder, CEO, and Ben Gammell, their president, and the extraordinary team that they have, it's very clear that they know they have a tiger by the tail.
Accretive to capital one.
So.
So.
You know isolation breaks will result in earnings dilution initially as.
We're buying a business with a growth rate that is multiples.
Of industry growth rates.
We believe this growth dynamic will lead to significant accrete.
Accretion.
Overtime.
Yeah.
Alright fair enough and then I guess just to follow up here is.
You mentioned.
Okay.
So there'll be a quarterly share repurchases, which was put.
Billions of that I mean is that a fair assumption.
It's fair to think that that's sort of the.
You can see is for for buybacks at least.
You know at least.
We stand here today.
Well, so let me clarify the language.
Which is we're saying that the branch transaction itself.
Richard Fairbank: And I think they know they had opportunities to go raise more capital, and they certainly weren't at all looking to go sell a company. But I think what captivated them about the unique opportunity of Capital One is that we, as a tech company ourselves, with a modern tech stack and the entrepreneurial heritage of having been an original fintech, that we could be a unique opportunity to bring a lot more resources and capabilities to them while still enabling their dream to stay alive and the entrepreneurial spirit that sometimes, when one thinks about large companies, might otherwise be hard to maintain. But I think they were pretty excited about the ability to have our brand to open doors all over the place. And not just open the doors, but also just for people to know that they're part of one of the biggest banks in America.
And I think they know they had opportunities to go raise more capital, and they certainly weren't at all looking to go sell a company. But I think what captivated them about the unique opportunity of Capital One is that we, as a tech company ourselves, with a modern tech stack and the entrepreneurial heritage of having been an original fintech, that we could be a unique opportunity to bring a lot more resources and capabilities to them while still enabling their dream to stay alive and the entrepreneurial spirit that sometimes, when one thinks about large companies, might otherwise be hard to maintain. But I think they were pretty excited about the ability to have our brand to open doors all over the place. And not just open the doors, but also just for people to know that they're part of one of the biggest banks in America.
We'll take down our capital by a I think a little more than 40 basis points. So you know a meaningful amount, but certainly not enough to influence our thinking about.
Near term.
Repurchases. So the point, we were making is it's just not going to alter our approach to repurchases and so you know we said last quarter their long term needs of 11% given our current capital position you saw this quarter, we accelerated our returns upping the repurchases.
Two and a half million you cited increased our dividend, 33% to 80 cents. So with respect then to the pace of future buybacks, we're really going to look at a variety of things.
Current and projected capital levels in our balance sheet growth opportunities the economy, the regulatory environment.
And it's not just.
Estimates for those variables, we're going to think about a range of outcomes around them, but given all of that we have L. D capital levels. We've got 14 billion of remaining authorization in and we've got flexibility theater STB. So we're going to take all of those things.
Generation manage.
Our repurchases occur.
Accordingly, but the the brakes transaction itself is just.
Influence.
Richard Fairbank: The sophisticated marketing machine, the balance sheet of the bank, and the capacity to invest in sales and in marketing and engineering and AI, I think it really was an opportunity in their minds to accelerate the growth while still very much keeping the dream that is Brex alive. And again, I think that's something that's uniquely possible by pulling these two entrepreneurial companies together. With respect to the customer base, I am really struck at let's just pull way up and say a couple of things.
The sophisticated marketing machine, the balance sheet of the bank, and the capacity to invest in sales and in marketing and engineering and AI, I think it really was an opportunity in their minds to accelerate the growth while still very much keeping the dream that is Brex alive. And again, I think that's something that's uniquely possible by pulling these two entrepreneurial companies together. With respect to the customer base, I am really struck at let's just pull way up and say a couple of things.
Thinking about that point.
Yeah.
Okay.
Okay. Thank you.
That concludes our Q&A session.
Everybody for joining us on the conference call.
And for your continuing interest in capital and have a great evening.
Thank you. This concludes today's conference call. Thank you for your parties participating.
You may now disconnect.
Richard Fairbank: First of all, most times when one looks at a business in a marketplace, you kind of say, "Well, who would have a need for something like this?" The answer is just about every company in America, if not the world, has a need for this because every company has payables, expenses, and they got to manage all of the complexity of the ecosystem on the payment side of the business. And it's a need that has not been really filled in the marketplace with an integrated solution. So it starts with, "Wow, this thing could be attractive to small companies all the way to really large ones." So if you look at their journey, their journey was one of, in fact, over time tapping into those. They started with startups, startup tech companies. They built an incredible brand.
First of all, most times when one looks at a business in a marketplace, you kind of say, "Well, who would have a need for something like this?" The answer is just about every company in America, if not the world, has a need for this because every company has payables, expenses, and they got to manage all of the complexity of the ecosystem on the payment side of the business. And it's a need that has not been really filled in the marketplace with an integrated solution. So it starts with, "Wow, this thing could be attractive to small companies all the way to really large ones." So if you look at their journey, their journey was one of, in fact, over time tapping into those. They started with startups, startup tech companies. They built an incredible brand.
Richard Fairbank: And I think their customer base includes like 1/3 of tech companies. Kind of thing. That's not a statement I'm fully grounded, but let's just say it's been a tremendous success with startups. But they also, on top of this amazing tech stack that they have built, were able to build a lot more capabilities that then made their product attractive to middle-market companies and, in fact, pretty large middle-market companies and companies that have business all over the world and their employees traveling all over the world. So I believe that they are set up for success with small companies, with medium-sized companies, and in fact, pretty large ones because their solution spans the needs of that broader range of customers, and the elegance and simplicity of the solution make it something that small and large can implement. Next question, please.
And I think their customer base includes like 1/3 of tech companies. Kind of thing. That's not a statement I'm fully grounded, but let's just say it's been a tremendous success with startups. But they also, on top of this amazing tech stack that they have built, were able to build a lot more capabilities that then made their product attractive to middle-market companies and, in fact, pretty large middle-market companies and companies that have business all over the world and their employees traveling all over the world. So I believe that they are set up for success with small companies, with medium-sized companies, and in fact, pretty large ones because their solution spans the needs of that broader range of customers, and the elegance and simplicity of the solution make it something that small and large can implement.
Jeff Norris: Next question, please.
Richard Fairbank: And our final question comes from Saul Martinez with HSBC. You may proceed. Hi. Thanks for tuning in here. One quick follow-up on John and Perry's question. I get that the deal is modest in size, and you don't want to give some of the financial metrics, but 80% of the purchase price is allocated to goodwill. That's not a trivial amount on a $5 billion deal, and I suspect Brex is not profitable. You can correct me if that is the wrong assumption to use here. You do have $950 million of transaction costs and incremental investments. Is it fair to say then that the deal at least initially will be EPS-dilutive and tangible both dilutive, even at a modest amount, obviously, overall value accretive to Capital One?
Operator: And our final question comes from Saul Martinez with HSBC. You may proceed.
Saul Martinez: Hi. Thanks for tuning in here. One quick follow-up on John and Perry's question. I get that the deal is modest in size, and you don't want to give some of the financial metrics, but 80% of the purchase price is allocated to goodwill. That's not a trivial amount on a $5 billion deal, and I suspect Brex is not profitable. You can correct me if that is the wrong assumption to use here. You do have $950 million of transaction costs and incremental investments. Is it fair to say then that the deal at least initially will be EPS-dilutive and tangible both dilutive, even at a modest amount, obviously, overall value accretive to Capital One?
Richard Fairbank: So, Saul, in isolation, Brex will result in earnings dilution initially as we're buying a business with a growth rate that is multiples of industry growth rates. We believe this growth dynamic will lead to significant accretion over time. Okay. All right. Fair enough. And I guess just to follow up here is you mentioned you don't expect to change in the expected base of your quarterly share of purchases, which was $2.5 billion. Is that a fair assumption? Is it fair to think that that's sort of a decent cadence for buybacks, at least as we stand here today? Well, Saul, let me clarify the language a bit, which is we're saying that the Brex transaction itself will take down our capital by, I think, a little more than 40 basis points. So a meaningful amount, but certainly not enough to influence our thinking about near-term repurchases.
Richard Fairbank: So, Saul, in isolation, Brex will result in earnings dilution initially as we're buying a business with a growth rate that is multiples of industry growth rates. We believe this growth dynamic will lead to significant accretion over time. Okay. All right. Fair enough. And I guess just to follow up here is you mentioned you don't expect to change in the expected base of your quarterly share of purchases, which was $2.5 billion. Is that a fair assumption? Is it fair to think that that's sort of a decent cadence for buybacks, at least as we stand here today? Well, Saul, let me clarify the language a bit, which is we're saying that the Brex transaction itself will take down our capital by, I think, a little more than 40 basis points. So a meaningful amount, but certainly not enough to influence our thinking about near-term repurchases.
Richard Fairbank: So the point we were making is it's just not going to alter our approach to repurchases. And so we said last quarter that our long-term need is 11%. Given our current capital position, you saw this quarter we accelerated our returns, upping the repurchases to the $2.5 billion you cited, increased our dividend 33% to $0.80. So with respect then to the pace of future buybacks, we're really going to look at a variety of things, just current and projected capital levels and our balance sheet growth opportunities, the economy, the regulatory environment. And it's not just a point estimate for those variables. We're going to think about a range of outcomes around them. But given all of that, we have healthy capital levels. We've got $14 billion of remaining authorization, and we've got flexibility under SEC.
So the point we were making is it's just not going to alter our approach to repurchases. And so we said last quarter that our long-term need is 11%. Given our current capital position, you saw this quarter we accelerated our returns, upping the repurchases to the $2.5 billion you cited, increased our dividend 33% to $0.80. So with respect then to the pace of future buybacks, we're really going to look at a variety of things, just current and projected capital levels and our balance sheet growth opportunities, the economy, the regulatory environment. And it's not just a point estimate for those variables. We're going to think about a range of outcomes around them. But given all of that, we have healthy capital levels. We've got $14 billion of remaining authorization, and we've got flexibility under SEC.
Richard Fairbank: So we're going to take all of those things into consideration and manage our repurchases accordingly. But the Brex transaction itself is just not influencing our thinking about that planning base. Okay. That concludes our Q&A session this evening. And I want to thank everybody for joining us on the conference call and for your continuing interest in Capital One. Have a great evening. Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.
So we're going to take all of those things into consideration and manage our repurchases accordingly. But the Brex transaction itself is just not influencing our thinking about that planning base.
Saul Martinez: Okay. Thank you.
Jeff Norris: That concludes our Q&A session this evening. And I want to thank everybody for joining us on the conference call and for your continuing interest in Capital One. Have a great evening.
Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.