Q2 2026 Capital One Financial Corp Earnings Call

July 21, 2026

Operator: Good day, and thank you for standing by. Welcome to the Capital One Q2 2026 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.

Speaker #1: Good day, and thank you for standing by. Welcome to the Capital One Q2 2026 earnings call. Please be advised that today's conference is being recorded.

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question, please press *11 on your telephone and wait for your name to be announced.

Speaker #1: To withdraw a 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.

Speaker #1: Please go ahead.

Speaker #2: Thanks very much, Josh, and welcome, everyone. To access the live webcast of this call, please go to the Investors section of Capital One's website, capitalone.com.

Jeff Norris: Thanks very much, Josh, and welcome everyone. To access the live webcast of this call, please go to the Investors section of Capital One's website, capitalone.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 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 summarizing our Q2 results for 2026. 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: A copy of the earnings presentation, press release, and financial supplement can also be found in the Investors section of Capital One's website. 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.

Speaker #2: Richard and Andrew, we're going to walk you through this presentation, summarizing our second quarter results for 2026. Please note that this presentation may contain forward-looking statements.

Speaker #2: Information regarding Capital One's financial performance, and any forward-looking statements contained in today's discussion and materials, speak only as of the particular date or dates indicated in the materials.

Speaker #2: Capital One does not undertake any obligation to update or revise any of this information, whether as a result of new information, future events, or otherwise. Numerous factors could cause our actual results to differ materially from those described in forward-looking statements. For more information on these factors, please see the section titled "Forward-Looking Statements" in the earnings release presentation.

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

Speaker #2: And the risk factors section of our annual and quarterly reports, accessible at Capital One's website and filed with the SEC. Now, I'll turn the call over to Mr. Young.

Speaker #2: Andrew?

Speaker #3: Thanks, Jeff. And good afternoon, everyone. I will start on slide 3 of tonight's presentation. In the second quarter, Capital One earned $3 billion, or $4.73 per diluted common share.

Andrew Young: Thanks, Jeff, and good afternoon, everyone. I will start on slide three of tonight's presentation. In the Q2, Capital One earned $3 billion, or $4.73 per diluted common share. As a reminder, the Brex acquisition closed in early April, and we have provided additional details related to the purchase accounting in the appendix of tonight's presentation. The results for the quarter included several adjusting items related to the Discover and Brex acquisitions, which are outlined on slide three. Net of these adjusting items, Q2 earnings per share were $5.81. Relative to the Q1, revenue increased 4% and non-interest expense grew 7%, resulting in pre-provision earnings growth of 1%. On an adjusted basis, pre-provision earnings were flat quarter over quarter. Our provision for credit losses decreased $1.1 billion, or 27%, to $3 billion in the quarter. The provision reflects $3.7 billion of net charge-offs of $662 million.

Speaker #3: As a reminder, the Brexit acquisition closed in early April, and we have provided additional details related to the purchase accounting in the appendix of tonight's presentation.

Speaker #3: The results for the quarter included several adjusting items related to the Discover and Brexit acquisitions, which are outlined on slide 3. Net of these adjusting items, second quarter earnings per share were $5.81.

Speaker #3: Relative to the first quarter, revenue increased 4 percent, and non-interest expense grew 7 percent, resulting in pre-provision earnings growth of 1 percent. On an adjusted basis, pre-provision earnings were flat quarter over quarter.

Speaker #3: Our provision for credit losses decreased $1.1 billion, or 27 percent, to $3 billion in the quarter. The provision reflects $3.7 billion of net charge-offs, an increase of $662 million.

Speaker #3: Turning to slide 4, I'll cover the allowance in greater detail. The $662 million allowance release in the quarter brought the allowance balance to $23 billion.

Andrew Young: Turning to slide four, I'll cover the allowance in greater detail. The $662 million allowance release in the quarter brought the allowance balance to $23 billion. Our total portfolio coverage ratio decreased 26 basis points and now stands at 5.02%. I'll cover the drivers of the changes in allowance and coverage ratio by segment on slide five. In our Domestic Card segment, we released $705 million of allowance. The coverage ratio decreased by 41 basis points and now stands at 6.99%. The decline in the coverage ratio was driven by continued favorable observed credit in the quarter and a modest decrease in the consideration given to economic uncertainties. In our Consumer Banking segment, we built $115 million of allowance. The allowance build was primarily driven by strong growth in the auto business. The coverage ratio ended the quarter at 2.39%, 3 basis points higher than the Q1.

Speaker #3: Our total portfolio coverage ratio decreased 26 basis points and now stands at 5.02%. I'll cover the drivers of the changes in allowance and coverage ratio by segment on slide 5.

Speaker #3: In our Domestic Card segment, we released $705 million of allowance. The coverage ratio decreased by 41 basis points and now stands at 6.99 percent.

Speaker #3: The decline in the coverage ratio was driven by continued favorable observed credit in the quarter and a modest decrease in the consideration given to economic uncertainties.

Speaker #3: In our consumer banking segment, we built $115 million of allowance. The allowance build was primarily driven by strong growth in the auto business.

Speaker #3: The coverage ratio ended the quarter at 2.39 percent, 3 basis points higher than the first quarter. And finally, in our Commercial Banking segment, we released $59 million of allowance.

Andrew Young: Finally, in our Commercial Banking segment, we released $59 million of allowance. The allowance release was primarily driven by specific reserves on loans that were charged off in the quarter. The Commercial Banking coverage ratio decreased 8 basis points quarter-over-quarter to 1.62%. Turning to page six, I'll now discuss liquidity. Liquidity reserves ended the Q2 at about $144 billion, down $21 billion from the prior quarter. Our ending cash position decreased by about $22 billion to approximately $55 billion. The decrease in cash was primarily driven by growth in our loan portfolio, wholesale funding maturities late in the quarter, and the impacts from Brex. Our preliminary average liquidity coverage ratio was 165%, and our preliminary average net stable funding ratio was 136%. Turning to page seven, I'll cover our net interest margin.

Speaker #3: The allowance release was primarily driven by specific reserves on loans that were charged off in the quarter. The Commercial Banking coverage ratio decreased 8 basis points quarter over quarter to 1.62%.

Speaker #3: Turning to page 6, I'll now discuss liquidity. Liquidity reserves ended the second quarter at about $144 billion, down $21 billion from the prior quarter.

Speaker #3: Our ending cash position decreased by about $22 billion to approximately $55 billion. The decrease in cash was primarily driven by growth in our loan portfolio, wholesale funding maturities late in the quarter, and the impacts from Brex.

Speaker #3: Our preliminary average Liquidity Coverage Ratio was 165 percent, and our preliminary average Net Stable Funding Ratio was 136 percent. Turning to page 7, I'll cover our net interest margin.

Speaker #3: Our second quarter net interest margin was 8.01 percent, 14 basis points higher than the prior quarter. The increase was largely driven by a 9 basis point impact from one additional day in the quarter.

Andrew Young: Our Q2 net interest margin was 8.01%, 14 basis points higher than the prior quarter. The increase was largely driven by a 9 basis point impact from 1 additional day in the quarter. The remaining increase was driven by a lower rate paid on retail deposits and a $5 billion decline in average cash balances. Turning to slide eight, I will end by discussing our capital position. Our common equity tier 1 capital ratio ended the quarter at 13.7%, 70 basis points lower than the Q1. The combination of $2.7 billion of share repurchases, approximately 40 basis point impact from the Brex transaction, and an increase in risk-weighted assets more than offset net income in the quarter. With that, I will turn the call over to Rich. Rich?

Speaker #3: The remaining increase was driven by a lower rate paid on retail deposits and a $5 billion decline in average cash balances. Turning to Slide 8, I will end by discussing our capital position.

Speaker #3: Our common equity Tier 1 capital ratio ended the quarter at 13.7 percent, 70 basis points lower than the first quarter. The combination of $2.7 billion of share repurchases, approximately a 40 basis point impact from the Brexit transaction, and an increase in risk-weighted assets more than offset net income in the quarter.

Speaker #3: With that, I will turn the call over to Rich. Rich?

Speaker #4: Thanks, Andrew. And good evening, everyone. Slide 10 shows second quarter results in our credit card business. Credit card segment results are largely a function of our domestic card results and trends, which are shown on slide 11.

Richard Fairbank: Thanks, Andrew, and good evening, everyone. Slide 10 shows Q2 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. The Domestic Card business posted another quarter of top-line growth and strong credit results. As a reminder, we closed the Discover acquisition on 18 May 2025, so period-end balances for the prior year quarter now include the addition of the Discover portfolio. For items like purchase volume and revenue, we'll still need to discuss the partial quarter impacts of adding Discover. In the Q2, we also added Brex to the Domestic Card business and moved our small legacy corporate credit card business from the Commercial Bank to Domestic Card. Q2 purchase volume grew 26% year-over-year, primarily driven by the addition of a partial quarter of Discover purchase volume.

Speaker #4: The domestic card business posted another quarter of top-line growth and strong credit results. As a reminder, we closed the Discover acquisition on May 18, 2025, so period-end balances for the prior year quarter now include the addition of the Discover portfolio.

Speaker #4: For items like purchase volume and revenue, we'll still need to discuss the partial-quarter impacts of adding Discover. In the second quarter, we also added Brexit to the Domestic Card business and moved our small, legacy corporate credit card business from the Commercial Bank to Domestic Card.

Speaker #4: Second quarter purchase volume grew 26 percent year over year, primarily driven by the addition of a partial quarter of Discover purchase volume. We also posted a modest acceleration in legacy Capital One purchase volume growth and benefited from modest tailwinds from the addition of Brexit and the Corporate Card business.

Richard Fairbank: We also posted a modest acceleration in legacy Capital One purchase volume growth and benefited from modest tailwinds from the addition of Brex and the corporate card business. Legacy Discover purchase volume grew just under 2% year over year. Purchase volume for the legacy Capital One businesses, inclusive of adding Brex and corporate card, grew about 14% year over year, with the significant majority of the increase coming from the acceleration of underlying organic growth before the addition of Brex and corporate card. Ending loan balances increased 2.6% year over year. The legacy Discover card loans shrank 1.5% from the prior year, in line with our expectations for the temporary brownout of Discover loan growth. Excluding Discover, ending loans grew about 5.3% year over year, driven predominantly by a modest acceleration in the organic growth of legacy Capital One loans and aided by the addition of Brex and Corporate Card.

Speaker #4: Legacy Discover purchase volume grew just under 2% year over year. Purchase volume for the legacy Capital One businesses, inclusive of adding BREXIT and Corporate Card, grew about 14% year over year, with the significant majority of the increase coming from the acceleration of underlying organic growth before the addition of BREXIT and Corporate Card.

Speaker #4: Ending loan balances increased 2.6 percent year over year. The legacy Discover Card loans shrank 1.5 percent from the prior year, in line with our expectations for the temporary brownout of Discover loan growth.

Speaker #4: Excluding Discover, ending loans grew about 5.3% year over year, driven predominantly by a modest acceleration in the organic growth of legacy Capital One loans and aided by the addition of Brexit and Corporate Card.

Speaker #4: 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.

Richard Fairbank: 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 30% from Q2 2025, largely driven by the addition of a partial quarter of Discover revenue. Excluding Discover, year-over-year revenue growth was 9.5%, driven predominantly by underlying organic growth in legacy Capital One purchase volume and loans. Revenue margin for the quarter was 17.4%. The domestic card charge-off rate for Q2 was 4.71%, down 39 basis points from the prior quarter and down 54 basis points year over year. The delinquency rate was 3.39% at quarter end, down 31 basis points from the linked quarter and down 21 basis points from a year ago. We're seeing similar credit trends in both the legacy Capital One and legacy Discover portfolios.

Speaker #4: Revenue was up 30 percent from the second quarter of 2025, largely driven by the addition of a partial quarter of Discover revenue. Excluding Discover, year-over-year revenue growth was 9.5 percent, driven predominantly by underlying organic growth in legacy Capital One purchase volume and loans.

Speaker #4: Revenue margin for the quarter was 17.4 percent. The domestic card charge-off rate for the second quarter was 4.71 percent, down 39 basis points from the prior quarter and down 54 basis points year over year.

Speaker #4: The delinquency rate was 3.39 percent at quarter end, down 31 basis points from the linked quarter and down 21 basis points from a year ago.

Speaker #4: We're seeing similar credit trends in both the legacy Capital One and legacy Discover portfolios. Domestic card non-interest expense was up 38 percent compared to the second quarter of 2025, driven by the addition of a partial quarter of Discover as well as continuing technology investments.

Richard Fairbank: Domestic card non-interest expense was up 38% compared to Q2 2025, driven by the addition of a partial quarter of Discover, as well as continuing technology investments. Operating expense and marketing both increased year over year. Our choices in domestic card are the biggest driver of total company marketing, but choices in our consumer banking business have an increasing impact as well. Total company marketing expense in the quarter was about $1.7 billion, up 23% year over year, driven by the addition of Discover as well as higher legacy Capital One direct marketing in our domestic card and consumer banking businesses, increased media spend, and continuing investments in premium benefits.

Speaker #4: Increased year over year. Our choices in domestic card are the biggest driver of total company marketing, but choices in our consumer banking business have an increasing impact as well.

Speaker #4: Total company marketing expense in the quarter was about $1.7 billion, up 23 percent year over year, driven by the addition of Discover as well as higher legacy Capital One direct marketing in our domestic card and consumer banking businesses, increased media spend, and continuing investments in premium benefits.

Speaker #4: Pulling up, our marketing continues to deliver strong new account originations, to build an enduring franchise with heavy spenders at the top of the domestic credit card market, and to grow checking accounts on a national scale in our consumer banking business.

Richard Fairbank: Pulling up, our marketing continues to deliver strong new account originations to build an enduring franchise with heavy spenders at the top of the domestic credit card market and to grow checking accounts on a national scale in our consumer banking business. We continue to lean into marketing to take advantage of these compelling market opportunities. Slide 12 shows Q2 results in our consumer banking business. Global payment network transaction volume for the quarter was approximately $190 billion. Network transaction volume increased 156% compared to the partial quarter of transaction volume in Q2 2025 and the successful completion of the conversion of Capital One debit customers to the Discover network. The sequential quarter increase was about 9%. Auto originations were up 19% from the prior year quarter.

Speaker #4: We continue to lean into marketing to take advantage of these compelling market opportunities. Slide 12 shows second quarter results in our Consumer Banking business.

Speaker #4: Global payment network transaction volume for the quarter was approximately 190 billion dollars. Network transaction volume increased 156 percent compared to the partial quarter of transaction volume in the second quarter of 2025, and the successful completion of Capital One debit customers the conversion of Capital One debit customers to the discover network.

Speaker #4: The sequential quarter increase was about 9%. Auto originations were up 19% from the prior year quarter. We continue to be in a strong position to pursue resilient growth in the current marketplace.

Richard Fairbank: We continue to be in a strong position to pursue resilient growth in the current marketplace. Consumer banking ending loan balances increased $9.2 billion, or about 11% year-over-year. Average loans were also up 11%. Compared to the year-ago quarter, ending consumer deposits grew about 5%. Average deposits were up 19%. Our digital-first national consumer banking business continues to grow and gain traction. Consumer banking revenue for the quarter was up about 26% year-over-year, driven predominantly by the addition of a partial quarter of Discover operations as well as Discover revenue synergies and growth in auto loans. Non-interest expense was up about 24% compared to Q2 2025, driven largely by the addition of a partial quarter of Discover, as well as higher marketing to drive growth in our national consumer banking business, increased auto originations, and continued technology investments.

Speaker #4: Consumer banking ending loan balances increased $9.2 billion, or about 11 percent year over year. Average loans were also up 11 percent. Compared to the year-ago quarter, ending consumer deposits grew about 5 percent.

Speaker #4: Average deposits were up 19 percent. Our digital-first, national consumer banking business continues to grow and gain traction. Consumer banking revenue for the quarter was up about 26 percent year over year, driven predominantly by the addition of a partial quarter of Discover operations, as well as Discover revenue synergies and growth in auto loans.

Speaker #4: Non-interest expense was up about 24 percent compared to the second quarter of 2025, driven largely by the addition of a partial quarter of Discover, as well as higher marketing to drive growth in our national consumer banking business, increased auto originations, and continued technology investments.

Speaker #4: The auto charge-off rate for the quarter was 1.43 percent, up 18 basis points year over year, and down 21 basis points from the sequential quarter.

Richard Fairbank: The auto charge-off rate for the quarter was 1.43%, up 18 basis points year-over-year and down 21 basis points from the sequential quarter. The year-over-year increase is the result of a gradual mix shift in new originations and loans as our subprime mix is returning to pre-pandemic levels. The auto delinquency rate was up 11 basis points from the linked quarter and down 52 basis points from the prior year. Slide 13 shows Q2 results for our commercial banking business. Compared to the linked quarter, both ending and average loan balances were up about 1%. Ending deposits were down about 1% from the linked quarter. Average deposits were essentially flat. The commercial banking net charge-off rate for Q2 increased 24 basis points from the sequential quarter to 0.53%.

Speaker #4: The year-over-year increase is the result of a gradual mix shift in new originations and loans, as our subprime mix is returning to pre-pandemic levels.

Speaker #4: The auto delinquency rate was up 11 basis points from the linked quarter and down 50 basis points from the prior year. Slide 13 shows second quarter results for our Commercial Banking business.

Speaker #4: Compared to the linked quarter, both ending and average loan balances were up about 1 percent. Ending deposits were down about 1 percent from the linked quarter.

Speaker #4: Average deposits were essentially flat. The commercial banking net charge-off rate for the second quarter increased 24 basis points from the sequential quarter to 0.53%.

Speaker #4: The commercial criticized performing loan rate was 4.4 percent, down 55 basis points compared to the linked quarter. The criticized non-performing loan rate was down 8 basis points, to 1.32 percent.

Richard Fairbank: The commercial criticized performing loan rate was 4.4%, down 55 basis points compared to the linked quarter. The criticized non-performing loan rate was down 8 basis points to 1.32%. In closing, Q2 results continued to reflect solid top-line growth and strong credit performance. We are now 14 months into our planned 24-month integration of Discover, and integration is going well. With the successful completion of converting Capital One's debit customers to the Discover Network, Q2 results include the full quarterly run rate debit revenue synergies. Results also include about one-third of the quarterly run rate of the announced OPEX synergies. We remain on track to deliver the full $2.5 billion of announced synergies. For years, we have been working backwards from the dramatic transformation of the business marketplace with modern technology, data, and AI.

Speaker #4: In closing, second quarter results continued to reflect solid top-line growth and strong credit performance. We're now 14 months into our planned 24-month integration of Discover, and integration is going well.

Speaker #4: With the successful completion of converting Capital One's debit customers to the Discover network, second quarter results include the full quarterly run-rate debit revenue synergies.

Speaker #4: Our results also include about one-third of the quarterly run rate of the announced operating expense synergies. We remain on track to deliver the full $2.5 billion of announced synergies.

Speaker #4: For years, we have been working backwards from the dramatic transformation of the business marketplace with modern technology, data, and AI. We are in the 14th year of our technology transformation from the bottom of the tech stack up.

Richard Fairbank: We are in the 14th year of our technology transformation from the bottom of the tech stack up. We are way down that path, and we continue to invest in some very powerful foundational capabilities, as well as AI infrastructure and specific AI experiences. We also continue to invest in growing our heavy spender franchise at the top of the market, including rewards, lounges, unique access to experiences, and breakthrough digital capabilities. We continue to lean into our unique quest to organically build a digital-first, full-service national bank. 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. We continue to invest in network acceptance and technology. As we've discussed, these investments will continue to be reflected in the efficiency ratio. They are also the engine that powers long-term growth and returns.

Speaker #4: We're well down that path, and we continue to invest in some very powerful foundational capabilities, as well as AI infrastructure and specific AI experiences.

Speaker #4: We also continue to invest in growing our heavy spender franchise at the top of the market, including rewards, lounges, unique access to experiences, and breakthrough digital capabilities.

Speaker #4: And we continue to lean into our unique quest to organically build a digital-first, full-service national bank. 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 #4: We continue to invest in network acceptance and technology. As we've discussed, these investments will continue to be reflected in the efficiency ratio. They are also the engine that powers long-term growth and returns.

Speaker #4: Pulling way up, we continue to build momentum from the game-changing acquisition of Discover. Even though some individual variables in our deal model have moved since the announcement—and we have acquired Brex and brought in-house the technology that supports Capital One Travel—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 deal.

Richard Fairbank: Pulling way up, we continue to build momentum from the game-changing acquisition of Discover. Even though some individual variables in our deal model have moved since the announcement, we have acquired Brex and brought in-house the technology that supports Capital One Travel. 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 deal. Now we'll be happy to answer your questions. Jeff?

Speaker #4: And now we'll be happy to answer your questions. Jeff?

Speaker #1: 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.

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. If you have questions after the Q&A session, the investor relations team will be available. Josh, please start the Q&A.

Speaker #1: If you have questions after the Q&A session, the Investor Relations team will be available. Josh, please start the Q&A.

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.

Operator: Thank you. As a reminder, to ask a question, please press * one one on your telephone and wait for your name to be announced. To withdraw your question, please press * one one again. Our first question comes from Terry Ma with Barclays. You may proceed.

Speaker #3: And our first question comes from Terry Ma with Barclays. You may proceed.

Terry Ma: Hey, thank you. Good afternoon. I wanted to start off with Brex. Rich, you had previously indicated that you could accelerate Brex's growth, almost from day one through stepped-up marketing and tech spend. I'm just curious to what extent have those investments already been absorbed into the current expense run rate? Then when should investors see more tangible benefits become more visible? I have a follow-up.

Speaker #5: Hey, thank you. Good afternoon. I wanted to start off with Brex, Rich. You had previously indicated that you could accelerate Brex's growth almost from day one through stepped-up marketing and tech spend.

Speaker #5: So I'm just curious, to what extent have those investments already been absorbed into the current expense run rate, and when should investors see more tangible benefits become more visible?

Speaker #5: I have a follow-up.

Speaker #4: Thank you, Terry. Just to comment on Brex for a second, I don't believe we said from the second we get it, we will be able to accelerate their growth.

Richard Fairbank: Thank you, Terry. Just to comment on Brex for a second. I don't believe we said from the second we get it, we will be able to accelerate their growth. What we said is pretty much from the second that we do this acquisition, we're going to be able to start mobilizing the solutions that many of which don't require full integration, and those solutions can be very beneficial and help us lean in and really accelerate Brex's growth. It's been over 100 days since we closed the deal, and we are as excited as ever about Brex. We acquired Brex because of its success in the attractive corporate card market and for its bottom-of-the-tech stack infrastructure and its world-class talent. We've just continued to be impressed with all of those striking capabilities.

Speaker #4: What we said is, from pretty much the second that we do this acquisition, we're going to be able to start mobilizing the solutions, many of which don't require full integration. And those solutions can be very beneficial and help us lean in and really accelerate Brex's growth.

Speaker #4: So, it's been over 100 days since we closed the deal, and we are as excited as ever about Brex. We acquired Brex because of its success, the attractive corporate card market, its bottom-of-the-tech-stack infrastructure, and its world-class talent.

Speaker #4: We continue to be impressed with all of those striking capabilities, and together, we're making good progress in building out foundational capabilities that will support the business going forward.

Richard Fairbank: Together, we're making good progress in building out foundational capabilities that will support the business going forward. Brex is already experiencing some of the early tailwinds that will come with our brand, and we expect these to only grow stronger over the next few months. They are also benefiting from the cost of funds impact of moving to our balance sheet. We have already stood up a program to share high-potential leads from across our businesses with Brex, and we are seeing very promising early results at the outset. We will scale into this approach more aggressively over time. Now, some other benefits that we bring are going to take a little bit longer. Over the coming months, as we test and learn, we will start leaning in with marketing dollars.

Speaker #4: So Brex is already experiencing some of the early tailwinds that will come with our brand, and we expect these to only grow stronger over the next few months.

Speaker #4: They are also benefiting from the cost-of-funds impact of moving to our balance sheet. We have already stood up a program to share high-potential leads from across our businesses with Brex, and we are seeing very promising early results at the outset.

Speaker #4: We will scale into this approach more aggressively over time. Now, some other benefits that we bring are going to take a little bit longer.

Speaker #4: Over the coming months, as we test and learn, we will start leaning in with marketing dollars. Fully leveraging the marketing machine of Capital One requires a little more technical integration.

Richard Fairbank: Fully leveraging the marketing machine of Capital One requires a little more technical integration. We'll have to set up data pipelines and calibrate our models for Brex's customer base. That will come a little further down the road. For our travel business, we will be focused on the Hopper build-out through the balance of this year, so bringing our travel portal to Brex will likely follow that work. We expect that Brex will also bring many benefits to Capital One, especially bringing Brex capabilities to our small business card business. These benefits will require integration and will be unlocked over time. We are already moving to bring benefits to them. Most of that is not yet reflected in our investment dollars because really most of the work has been sort of working to put capabilities in place.

Speaker #4: We'll have to set up data pipelines and calibrate our models for Brex's customer base, so that will come a little further down the road.

Speaker #4: For our travel business, we will be focused on the Hopper build-out through the balance of this year, so bringing our travel portal to Brex will likely follow that work.

Speaker #4: We expect that Brex will also bring many benefits to Capital One, especially by bringing Brex capabilities to our small business card business. These benefits will require integration and will be unlocked over time.

Speaker #4: So we are already moving to bring benefits to them. Most of that is not yet reflected in our investment dollars, because really most of the work has been sort of putting—.

Speaker #4: Working to put capabilities in place.

Speaker #5: Got it, that's helpful. And then, for my follow-up regarding loan growth—that continues to improve each month. In the card business, even in spite of the Discover brownout. So as we look ahead to Discover originations being fully on Capital One's platform, how should we think about growth in the card business after that?

Terry Ma: Got it. That's helpful. For my follow-up, regarding loan growth, that continues to improve each month in the card business, even in spite of the Discover brownout. As we kind of look ahead to Discover originations being fully on Capital One's platform, how should we think about growth in the card business after that, and then also the associated marketing spend required to kickstart Discover growth again? Thank you.

Speaker #5: And then also the associated marketing spend required to kickstart Discover growth again. Thank you.

Speaker #4: Thanks very much, Terry. So maybe what I'll do with your question is—I think it's really getting at this thing that I proverbially call the "discovery brownout."

Richard Fairbank: Thanks very much, Terry. Maybe what I'll do with your question is I think it's really getting at this thing that I proverbially call the Discover brownout. Let me just comment on that, and then I'll come back and talk about marketing spend. As we mentioned previously, the Discover card portfolio is going through a bit of a loan growth brownout as several factors combine to pressure loan growth in the near term. Following Discover's credit expansion in their card business in 2022 and 2023, they dialed back their origination programs and credit line management by a fair amount toward the end of 2023 and largely sustained those dial backs. Since we took over, we have been trimming on the margins of Discover's credit policy in areas where we are less comfortable with the resiliency of the underlying customers more really with respect to high balance revolvers.

Speaker #4: So let me just comment on that, and then I'll come back and talk about marketing spend. As we mentioned previously, the Discover Card portfolio is going through a bit of a loan growth brownout, as several factors are combining to pressure loan growth in the near term.

Speaker #4: Following Discover's credit expansion in their card business in '22 and '23, they dialed back their origination programs and credit line management by a fair amount toward the end of 2023, and largely sustained those dial-backs.

Speaker #4: Since we took over, we have been trimming on the margins of Discover's credit policy in areas where we are less comfortable with the resiliency of the underlying customers, more really with respect to high-balance revolvers.

Speaker #4: As a result of these collective pullbacks, the portfolio has been contracting and continues to face some headwinds to growth as these more recent, smaller vintages mature.

Richard Fairbank: As a result of these collective pullbacks, the portfolio has been contracting and continues to face some headwinds to growth as these more recent smaller vintages mature. As we mentioned, Discover card outstandings were down 1.5% year-over-year. Now it's worth noting that the flip side of these pullbacks and the brownout has been strong credit performance, and we're glad to see that playing through the system. Let's talk about returning to growth and getting on the other side of this brownout of Discover volume. The brownout is temporary since over time we will bring to bear a number of capabilities as we move Discover originations and existing customers to Capital One's technology. Getting Discover onto Capital One's technology will allow us to unleash our models, full spectrum underwriting, and lean into spender capabilities to power more originations, higher spend volume, and ultimately higher loan volume over time.

Speaker #4: As we mentioned, Discover Card outstandings were down 1.5% year over year. Now, it's worth noting that the flip side of these pullbacks—and the brownout—has been strong credit performance, and we're glad to see that playing through the system.

Speaker #4: So let's talk about returning to growth and getting on the other side of this brownout of Discover volume. The brownout is temporary, since over time we will bring to bear a number of capabilities as we move Discover originations and existing customers to Capital One's technology.

Speaker #4: Getting Discover onto Capital One's technology will allow us to unleash our models, enable full-spectrum underwriting, and lean into spender capabilities to power more originations, higher spend volume, and ultimately higher loan volume over time.

Speaker #4: And so we remain excited about the longer-term potential. Let me just talk a little bit about where we are on that journey. On the Discover front book, 50% of Discover originations are now on Capital One's tech platform, and we expect to be fully on our tech stack for new originations by the end of the third quarter.

Richard Fairbank: We remain excited about the longer-term potential. Let me just talk a little bit about where we are on that journey. On the Discover front book, 50% of Discover originations are now on Capital One's tech platform, and we expect to be fully on our tech stack for new originations by the end of Q3. We're now leaning into a combination of testing and rolling out capabilities that have powered our card growth at Capital One and that we believe will be enhancing to the Discover book and the Discover new flow of applicants. We are already seeing several positive green shoots. It's early. Our early read is confirmatory of our hopes there.

Speaker #4: And we're now leaning into a combination of testing and rolling out capabilities that have powered our card growth at Capital One, and that we believe will be enhancing to the Discover book.

Speaker #4: And the discover new flow of applicants. We are already seeing several positive green shoots; it's early, but our early read is confirmatory of our hopes there.

Speaker #4: On Discover's back book, we will begin the major conversion waves later this month, but we will not be fully on Capital One's tech stack until the first quarter of next year.

Richard Fairbank: On Discover's back book, we will begin the major conversion waves later this month, but we will not be fully on Capital One's tech stack until Q1 of next year, and so we'll have to wait a bit longer to see these benefits fully manifest. Basically, we're migrating the remainder of the back book in waves. A wave in July, a wave in October, a wave in January. These will go in phases. With respect to the brownout, we expect continued contraction in the near term, but as we can unleash more of Capital One's tech and capabilities with Discover on the other side of our conversions, we're looking forward to returning to growth. I do want to also mention in parallel to Discover's dial back of card loans, they also dialed back on personal loans.

Speaker #4: And so we'll have to wait a bit longer to see these benefits fully manifest. Basically, we're migrating the remainder of the backbook in waves wave in July wave in October, wave in January.

Speaker #4: So these are—we'll go in phases. With respect to the brownout, we expect continued contraction in the near term, but as we can unleash more of Capital One's tech and capabilities with Discover on the other side of our conversions, we're looking forward to returning to growth.

Speaker #4: I do want to also mention, in parallel to Discover's dial-back of card loans, they also dialed back on personal loans, and we have also, sort of mechanically during the integration, dialed back a little bit on the personal loans as well.

Richard Fairbank: We have also sort of mechanically during the integration, dialed back a little bit on the personal loans as well. That brownout will continue and in fact increase. The bottom of the brownout will be somewhere around Q4 of this year. We look forward to leaning into that growth over time. Pulling up on the brownouts, they are a natural and temporary part of the deal. None of them are reflective of any concerns we have long term. In fact, all of it is really just part of an integration and an integrating of credit policies. We look forward to stepping on the gas a little bit more gradually in the coming months. You asked, Terry, about marketing spend. We will lean into marketing more on the Discover side as well. Really marketing is really mostly a front book thing.

Speaker #4: So that brownout will continue and in fact, increase and the bottom the bottom sort of the bottom of the brownout will be somewhere around the fourth quarter of this year.

Speaker #4: But then we look forward to leaning into that growth over time. So, pulling up on the brownouts, they are a natural and temporary part of the deal.

Speaker #4: None of them are reflective of any concerns we have long-term. In fact, all of it is really just part of an integration and an integrating of credit policies, and we look forward to stepping on the gas a little bit more gradually in the coming months.

Speaker #4: You asked, Terry, about marketing spend. We will lean into marketing more on the Discover side, as really, marketing is mostly a front book thing.

Speaker #4: So, as we speak, we are leaning more into marketing so that we can now generate a very good flow of applicants to Capital One.

Richard Fairbank: We are, as we speak, leaning more into the marketing so that we can now generate some very good flow of applicants to Capital One. That will be one of the numerous things that we're leaning into over the course of the next year.

Speaker #4: So that will be one of the numerous things that we're leaning into over the course of the next year.

Speaker #1: Next question, please.

Jeff Norris: Next question, please.

Speaker #3: Our next question comes from Sanjay Sakrani with KBW. You may proceed.

Operator: Our next question comes from Sanjay Sakhrani with KBW. You may proceed.

Speaker #5: Thank you. I guess my first question is for Andrew. If I look at the name—and you sort of alluded to this in your prepared remarks—it seems like the liquidity portfolio came down over the course of the quarter, ended lower, but was still high on average.

Sanjay Sakhrani: Thank you. I guess my first question is for Andrew. If I look at the NIM and sort of you alluded to this in your prepared remarks, seems like the liquidity portfolio came down over the course of the quarter, ended lower, but was still high on average. I estimate there was at least a 10 basis point plus drag on the NIM as a result. Is that a safe assumption to make as we enter into the next quarter, you should have a higher NIM going into Q3?

Speaker #5: So I estimate there was at least a 10 basis point plus drag on the NIM as a result. Is that a safe assumption to make? As we enter into the next quarter, should you have a higher NIM going into the third quarter?

Speaker #4: Thanks for the question, Sanjay. Yeah, as you said, in the first quarter we did have elevated cash levels from the Discover Home Loan sale at the end of '25.

Andrew Young: Thanks for the question, Sanjay. Yeah. As you said, in Q1, we did have elevated cash levels from the Discover home loan sale at the end of 2025. We had really strong deposit growth in Q1 that was aided by tax refunds. At that point, we ended the quarter with around $75 billion of cash. In Q2, it came down quite a bit from growth and from the maturities that I had referenced in the Q1 call, as well as the cash impact related to Brex which all of those things drove the ending balance down $20 billion. But average only came down about 5. As you suggest looking ahead, there should be a bit of a NIM catch up that happens in Q3 as the average cash catches up to the ending cash.

Speaker #4: And then we had really strong deposit growth in Q1 that was aided by tax refunds. At that point, we ended the quarter with around $75 billion.

Speaker #4: Of cash. And so in the second quarter, it came down quite a bit, from growth and from the maturities that I had referenced in the Q1 call, as well as the cash impact related to Brex. All of those things drove the ending balance down $20 billion.

Speaker #4: But average only came down about five. So as you suggest, looking ahead, there should be a bit of a NIM catch-up that happens in the third quarter, as the average cash catches up to the ending cash.

Speaker #4: And then, also, as a reminder, in the back half of the year, we have one more day in each of the quarters. So, that adds a nine basis point tailwind to NIM.

Andrew Young: Also as a reminder, in H2, we have 1 more day in each of the quarters. That adds a 9 basis point tailwind to NIM. If I just pull up on all of those things, I'd be remiss if I didn't just highlight clearly any significant changes in our balance sheet could impact NIM over time. Our NII is almost perfectly neutral to rates over time. If and when the Fed moves, there could be an impact to NIM, at least in the short term, given the timing of the repricing of deposits and assets. That effect should level itself out over time. Last quarter, I pointed you to the back half of last year as a pretty decent proxy for a NIM level after we closed on Discover.

Speaker #4: And so, if I just pull up on all of those things, I'd be remiss if I didn't just highlight clearly: any significant changes in our balance sheet could impact NIM over time.

Speaker #4: And our NII is almost perfectly neutral to rates over time, but if and when the Fed moves, there could be an impact to NIM, at least in the short term, given the timing of the repricing of deposits and assets.

Speaker #4: But that effect should level itself out over time. So last quarter, I pointed you to the back half of last year as a pretty decent proxy for a NIM level after we closed on Discover.

Speaker #4: And so there will, of course, be quarterly variability from day count and other seasonal factors, but I continue to point you to that as a pretty good indicator of where our structural NIM is likely to be, at least in the near term.

Andrew Young: There will, of course, be quarterly variability from day count and other seasonal factors. I continue to point you to that as a pretty good indicator of where our structural NIM is going to be likely in at least the near term.

Speaker #5: Okay, perfect. I guess I have the same question from last quarter. Rich, maybe just to go back to Harry's question on expenses. I guess as we think about the incremental expenses for the investment in Brex and marketing and such, should we think about the impact to the adjusted operating efficiency ratio as more marginal on a go-forward basis versus what we've seen with Brex and Hopper now in the run rate?

Sanjay Sakhrani: Okay, perfect. I guess I have the same questions from last quarter. Rich, maybe just to go back to Harry's question on expenses. I guess as we think about the incremental expenses for the investment in Brex and marketing and such, should we think about the impact to adjusted operating efficiency ratio as more marginal on a go-forward basis versus what we've seen with Brex and Hopper now in the run rate? Just trying to get a sense of the margins because you do also have the remaining two-thirds of the OPEX synergies coming as we move into next year as well. Would appreciate some color there. Thanks.

Speaker #5: Just trying to get a sense of the margins, because you do also have the remaining two-thirds of the OpEx synergies coming as we move into next year as well.

Speaker #5: So would appreciate some color there. Thanks.

Speaker #4: Yeah. Thanks, Sanjay. The efficiency ratio will continue to reflect our revenue and expense trends, our investment imperatives, and the realization of synergies. And as we've discussed, the debit revenue synergies are essentially in the numbers.

Richard Fairbank: Yeah. Thanks, Sanjay. The efficiency ratio will continue to reflect our revenue and expense trends, our investment imperatives, and the realization of synergies. As we've discussed, the debit revenue synergies are essentially in the numbers. The operating expense synergies are more backloaded. As we mentioned earlier, we've realized about a third of the operating expense synergies to date. We're on track to achieve the remaining operating expense synergies by H2 2027. Of course, we continue to lean into our investment imperative, including foundational technology, AI, and the longer-term growth opportunities created by our technology transformation, and of course, Discover and Brex. These investments are very important to the sustained growth and returns of the company over time. The efficiency ratio is one of many drivers of the returns of the company.

Speaker #4: The operating expense synergies are more backloaded, and as we mentioned earlier, we've realized about a third of the operating expense synergies to date, and we're on track to achieve the remaining operating expense synergies by the second half of 2027.

Speaker #4: And then, of course, we continue to lean into our investment imperative, including foundational technology, AI, and the longer-term growth opportunities created by our technology transformation and, of course, Discover and Brex.

Speaker #4: So these investments are very important to the sustained growth and returns of the company over time. The efficiency ratio is one of many drivers of the returns of the company. With all the moving pieces, we've chosen to focus our conversation on earnings power.

Richard Fairbank: With all the moving pieces, we've chosen to focus our conversation on earnings power. As we've said, we expect the earnings power of the combined company on the other side of the Discover integration to be consistent with what we expected at the time we announced the Discover acquisition, inclusive of Brex and the insourcing of technology that supports Capital One Travel and inclusive of all these investments we've been leaning into. Implicit in that, there needs to be an efficiency ratio that makes the numbers work. We're not specifically guiding on that. I think that the combined financial performance of the company continues to track with this guidance we've given on earnings power coming out the other side of the integration.

Speaker #4: But as we said, we expect the earnings power of the combined company on the other side of the Discover integration to be consistent with what we expected at the time we announced the Discover acquisition, inclusive of Brex and the insourcing of technology that supports Capital One Travel, and inclusive of all these investments we've been leaning into.

Speaker #4: So, implicit in that, there needs to be an efficiency ratio that makes the numbers work. But we're not specifically guiding on that. I think that the combined financial performance of the company continues to track with this guidance we've given on earnings power coming out the other side.

Speaker #4: Of the integration.

Speaker #2: Next question, please.

Jeff Norris: Next question, please.

Speaker #5: Thank you. Our next question comes from Ryan Nash with Goldman Sachs. You may proceed.

Operator: Thank you. Our next question comes from Ryan Nash with Goldman Sachs. You may proceed.

Speaker #4: Hey, good morning, everyone. Good afternoon, everyone. Rich, maybe to build a little bit on Sanjay's question: If you look back to when the deal was announced and you put the companies together and you lay in the synergies, it got to a return that was 20% plus or minus.

Ryan Nash: Hey, good morning, everyone. Good afternoon, everyone. Rich, maybe to build a little bit on Sanjay's question. If you look back to when the deal was announced and you put the companies together and you layer on synergies, it got to a return that was 20% plus or minus. Given everything that you've shared with us today, it sounds like there's some more investments that you want to make, and understand you want to preserve optionality. Is the right way to think about it, this should be at least a 20% return business, and what are some of the investments that could push it higher or lower in this environment?

Speaker #4: Given everything that you've shared with us today, it sounds like there are some more investments that you want to make, and I understand you want to preserve optionality.

Speaker #4: But is the right way to think about it that this should be at least a 20% return business? And what are some of the investments that could push it higher or lower in this environment?

Speaker #3: So, Ryan, we—there clearly was.

Richard Fairbank: Ryan, Discover brings strong earnings power, and we bring a lot of synergies to this deal. Earnings power has been a very important part of the conversation and a really important part of the value equation with respect to this deal. I just want to savor, there are a number of variables that have moved and are moving as we go along here. The brownout on Discover loan growth which will continue for some time, and we talked about that mitigating in coming quarters. It is still an important factor. The flip side of the loan pullbacks has been better credit performance. Generally, credit has been performing quite well. Capital One margins have had a strength as there's been accelerating retail deposit growth, the full Walmart P&L as part of these things.

Speaker #4: Discover brings strong earnings power, and we bring a lot of synergies to this deal. So, earnings power has been a very important part of the conversation and a really important part of the value equation with respect to this deal.

Speaker #4: There are a number of variables that have moved and are moving as we go along here. I just want to savor that.

Speaker #4: The brownout on Discover loan growth, which will continue for some time—and we talked about that mitigating in coming quarters—but it is still an important factor.

Speaker #4: The flip side of the loan pullbacks has been better credit performance; generally, credit has been performing quite well. Capital One margins have had strength as there’s been accelerating retail deposit growth, and the full Walmart P&L is part of these things.

Speaker #4: And then we've had this investment imperative, which in a sense really has two big categories to it. One category is really the investments in technology and AI to capture the moment, to capitalize over time on an extraordinary transformation that's happening out there. We are way down the path of our technology transformation, but there are still important investments that we are making, and we continue to lean into that.

Richard Fairbank: We've had this investment imperative, which in a sense, really has 2 big categories to it. One category is really the investments in technology and AI to capture the moment to capitalize over time on an extraordinary transformation that's happening out there. We are way down the path of our technology transformation, but there are still important investments that we are making, and we continue to lean in to that. On the other side, we have many of the emerging growth opportunities that are going to be a very important part of the growth and value equation over time. The striking thing in some ways, back to the phrase, the more things change, the more they stay the same. It is striking that out the other side of this, we expect an earnings power very consistent to what we talked about at the outset.

Speaker #4: And then on the other side, we have many of the emerging growth opportunities that are going to be a very important part of the growth and value equation.

Speaker #4: Over time. But the striking thing, in some ways—back to the phrase, "the more things change, the more they stay the same."

Speaker #4: It is striking that, out the other side of this, we expect an earnings power very consistent with what we talked about at the outset.

Speaker #4: We're not branding a precise number because there are a lot of things about Capital One's performance that don't lend themselves to precise settling out with precise numbers, but when we look at the earnings power as reflected in ROSI, we feel we're headed for a performance very consistent with what we expected along the way.

Richard Fairbank: We're not branding a precise number because there are a lot of things about Capital One performance that don't lend themselves to precise settling out with precise numbers. When we look at the earnings power as reflected in ROSI, we feel we're headed for a performance very consistent with what we expected along the way. As part of that, when I talk about the investments that we're making, we are really leaning into that long list of investments that we talked about. With an equal energy, we are driving efficiency in one minus all of that across the company. A bunch of that comes from the flip side of our tech transformation, the ability to save tech costs

Speaker #4: As part of that, when I talk about the investments that we're making, we are really leaning into that long list of investments that we talked about with equal energy.

Speaker #4: We are driving efficiency in one minus all of that across the company. And a bunch of that comes from the flip side of our tech transformation—the ability to save tech costs even as we invest in other tech costs.

Jeff Norris: Even as we invest in other tech costs, the savings of legacy tech costs, the efficiencies that we're driving in the operations across the business. I just want to say that we are kind of living two lives at once here, really leaning into opportunities and really so carefully managing the expenses to be able to simultaneously deliver the earnings power that we expected at the outset of this deal, and to be positioning ourselves to create value for our investors in the extraordinary years that are unfolding in front of us.

Speaker #4: The savings of legacy tech costs, the efficiencies that we're driving in the operations across the business. But I just want to say that we are kind of living two lives at once here—really leaning into opportunities, and really so carefully managing the expenses to be able to simultaneously deliver the earnings power that we expected at the outset of this deal, and to be positioning ourselves to create value for our investors in the extraordinary years that are unfolding in front of us.

Speaker #4: Got it. Maybe as my follow-up, Rich, when I look at the capital in the slides, obviously capital came down almost 70 basis points this quarter, but if you remove the impact to Brex, you brought back a little more stock this quarter yet.

Ryan Nash: Got it. Maybe as my follow-up, Rich, when I look at the capital in the slides, obviously capital came down almost 70 basis points this quarter. If you remove the impact of Brex, you brought back a little more stock this quarter, yet capital ratios were sort of largely unchanged. I guess, now that the deal is closed, do you think we could see a further step up in the buyback from here? How do you think about a path towards the slated capital targets? Thank you.

Speaker #4: Capital ratios were sort of largely unchanged. And I guess now that the deal is closed, do you think we could see a further step up in the buyback from here?

Speaker #4: And how do you think about a path toward the slated capital targets? Thank you.

Speaker #2: Yeah, Ryan, I'll take that one. And let me just start by focusing on the words you ended with, which is the 11% we define as a long-term capital need.

Andrew Young: Yeah, Ryan, I'll take that one. Let me just start by focusing on the word you ended with, which is the 11% we define as a long-term capital need as opposed to a target. We continue to think that need is 11%. We just got the recent CCAR results. Every year when that comes out, we've just seen quite a bit of volatility looking back over the last few years, that going from in the low tens to 7%. Our need is derived by our internal modeling. It's just far more stable and as we've had for a number of years now, we continue to believe that 11% is that need.

Speaker #2: As opposed to a target. And we continue to think that need is 11%. We just got the recent CCAR results, but every year when that comes out, we've just seen quite a bit of volatility. Looking back over the last few years, that's gone from the low 10s to 7%.

Speaker #2: And so our need is derived by our internal modeling. It's just far more stable, and as we've had for a number of years now, we continue to believe that 11% is that need.

Andrew Young: Where we manage our capital at any given moment in time factors in a variety of planning assumptions, including expectations for growth and forecasted capital accretion from earnings, regulatory environment, AOCI, stock price, the macroeconomic environment. I'd also say that beyond that laundry list of specific considerations, there's also a philosophic point that we view capital as having asymmetric value, particularly in times of stress, providing a ton of both offensive and defensive value in those periods. This multi-pronged approach has enabled us to maintain a strong combination of returning capital, but also strong returns and the flexibility to take advantage of growth opportunities over time. We are not in a race to drive it down as quickly as possible to any specific number, but hopefully that gives you a sense of how we're thinking about capital.

Speaker #2: Where we manage our capital at any given moment in time factors in a variety of planning assumptions, including expectations for growth and forecasted capital accretion from earnings, the regulatory environment, AOCI, stock price, and the macroeconomic environment.

Speaker #2: But I’d also say that, beyond that laundry list of specific considerations, there’s also a philosophical point that we view capital as having asymmetric value, particularly in times of stress—providing a ton of both offensive and defensive value in those periods.

Speaker #2: And so, this multi-pronged approach has enabled us to maintain a strong combination of returning capital, but also strong returns and the flexibility to take advantage of growth opportunities over time.

Speaker #2: So, we are not in a race to drive it down as quickly as possible to any specific number, but hopefully that gives you a sense of how we're thinking about capital.

Speaker #1: Next question, please.

Jeff Norris: Next question, please.

Speaker #3: Our next question comes from Darren Beller with Wolf Research. You may proceed.

Operator: Our next question comes from Darrin Peller with Wolfe Research. You may proceed.

Speaker #5: Hey guys, thank you. Look, it looks like you included a partial quarter of Brex as well as the legacy corporate card in the domestic purchase volume.

Darrin Peller: Hey, guys. Thank you. Look, it looks like you included a partial quarter of Brex as well as legacy corporate card in the domestic purchase volume. I'm just trying to triangulate, if you can give us a sense, what would the pro forma domestic card purchase volume growth look like on the quarter, just given the acceleration we've been seeing across the industry? I think we can calculate some of it, but a little help on some of the details would be great.

Speaker #5: So I'm just trying to triangulate. If you can give us a sense, what would the pro forma domestic card purchase volume growth look like for the quarter, just given the acceleration we've been seeing across the industry?

Speaker #5: I think we can calculate some of it, but any help on some of the details would be great.

Speaker #4: Yeah, we didn't provide the breakdown of the specific amount of Brex. We did provide, from a purchase accounting perspective, the closing balance sheet and all the associated amortization schedules.

Andrew Young: Yeah. We didn't provide the breakdown of the specific amount of Brex. We did provide from a purchase accounting perspective the closing balance sheet and all the associated amortization schedules. Given the relatively small percentage of Brex within the context of Capital One, the P&L and balance sheet on a run rate basis just aren't that material. That said, we're incredibly excited about the long-term prospects of adding Brex, and think that the growth that this platform provides will drive significant accretion. We don't intend to break out any of the specifics of the P&L.

Speaker #4: But given the relatively small percentage of Capital One, too, our current relatively small percentage of Brex within the context of Capital One, the P&L and balance sheet on a run-rate basis just aren't that material.

Speaker #4: With that said, we're incredibly excited about the long-term prospects of adding Brex. I think the growth that this platform provides will drive significant accretion.

Speaker #4: But we don't intend to break out any of the specifics of the P&L.

Speaker #5: Okay.

Darrin Peller: Okay. All right.

Speaker #1: I'll just—Darren, let me just remind you of exactly what we said in the call, right? We did say that if you just look at the legacy Capital One domestic card business, there was a modest acceleration.

Jeff Norris: Hey, Darrin, let me just remind you.

Darrin Peller: Right

Jeff Norris: of exactly what we said in the call. We did say that if you just look at the legacy Capital One domestic card business, there was a modest acceleration, and that the combination of that plus the addition of Brex and corporate card was about 14% with a significant majority of that driven by the legacy piece.

Speaker #1: The combination of that, plus the addition of Brex and the corporate card, was about 14%, with a significant majority of that driven by the legacy piece.

Speaker #5: Okay, that's helpful, Jeff. Thanks. Guys, just one quick follow-up. I know last quarter you had mentioned—and there were some comments earlier—about expenses, but more specifically, you mentioned marketing pushed back from the first quarter into the remainder of the year.

Darrin Peller: Okay. That's helpful, Jeff. Thanks. Guys, just one quick follow-up would be, I know last quarter you had mentioned, and there were some comments earlier about expenses, but more specifically, you mentioned marketing pushed back from Q1 into the remainder of the year. Was this still at play in this quarter? If we could just revisit the marketing expense expected more broadly when considering the investments in Discover and Brex in recent quarters. We took the recent quarters and we averaged them out given some of the timing. Is that a good way to think about run rate marketing levels for the company going forward? Thanks again, guys.

Speaker #5: So, just to clarify, was this still in play in this quarter? If we could just revisit the marketing expense expected more broadly, considering the investments in Discover and Brex in recent quarters. We took the recent quarters and averaged them out, given some of the timing.

Speaker #5: Is that a good way to think about run rate marketing levels for the company going forward? Thanks again, guys.

Speaker #4: Yeah, there is seasonality in that, Darren, and if you look back at history, no one year is perfectly the same as another. But there tends to be that upward slope, particularly in the back half of the year relative to the first half. What we were highlighting in the first quarter was just that some of the spend that we had initially anticipated happening in the first quarter was getting pushed into the second.

Andrew Young: Yeah. There is seasonality in that, Darrin. If you look back at history, no one year is perfectly the same as others. There tends to be that upward slope, and particularly in H2 relative to H1. What we were highlighting in Q1 was just that some of the spend that we had initially anticipated happening in Q1 was getting pushed into Q2. We just wanted to make sure that point was well known. Obviously, the actual levels of marketing spend are just going to be dependent on the opportunities that we see in the moment. I don't want to give you a perfect schedule of the percentage of the annual spend in any one quarter.

Speaker #4: And so we just wanted to make sure that that point was well known. But, obviously, the actual levels of marketing spend are just going to be dependent on the opportunities that we see in the moment.

Speaker #4: So I don't want to give you a perfect schedule of the percentage of the annual spend in any one quarter. But if you look back at history, there are some pretty clear trends in terms of the back half relative to the front half.

Andrew Young: If you look back at history, there's some pretty clear trends in terms of H2 relative to H1.

Speaker #1: Next question, please.

Richard Fairbank: Next question, please.

Speaker #3: Our next question comes from Rick Shane with JP Morgan. You may proceed.

Operator: Our next question comes from Richard Shane with J.P. Morgan. You may proceed.

Speaker #6: Hey guys, thanks for taking my question this afternoon. Look, I want to pull the thread a little bit more on Brex. Rich, you've talked about this pretty clearly on the call—that when we think about, and the questions have sort of lined up with this, the optimal outcome for Capital One as a standalone business is optimizing ROTC and margin.

Richard Shane: Hey, guys. Thanks for taking my question this afternoon. Look, I want to pull the thread a little bit more on Brex. Rich, you've talked about this pretty clearly on the call, that when we think about, the questions have sort of lined up with this, the optimal outcome for Capital One as a standalone business is optimizing ROTCE and margin. Brex has existed in a world for most of its life where it was benchmarked exclusively on growth. You sort of now have to balance that within Capital One. How do you optimize the real outcome of Brex with still sort of keeping an eye on what investors really care about or seem to care about in terms of maximizing ROTCE and margin in the near term?

Speaker #6: Brex has existed in a world for most of its life where it was benchmarked exclusively on growth. You sort of now have to balance that within Capital One.

Speaker #6: How do you optimize the real outcome of Brex, while still sort of keeping an eye on what investors really care about—or seem to care about—in terms of maximizing ROTC and margin in the near term?

Speaker #4: Well, I hope the overall objective function of Capital One isn't the maximization of ROTC in the near term. We all have our eyes on it, and we are heading to a very good exit rate on the other side of this integration.

Richard Fairbank: Well, I hope the overall objective function of Capital One isn't the maximization of ROTCE in the near term. We all have our eyes on it, we are heading to a very good exit rate on the other side of this integration. I want to just talk about Brex and value creation. We all know that tech startups have power metrics that are not vertical earnings based. Sometimes they can feel a far cry from how life works in a mature public company. We feel that Brex's approach to creating value is very consistent with Capital One's founding approach when we created the company all the way to today, and that relates to taking a horizontal economic view. In the founding of Capital One, I looked at business, said it's really striking that financial big banks and everything are just so focused on vertical earnings.

Speaker #4: But I want to just talk about Brex and value creation there. We all know that tech startups have power metrics that are not vertically earnings-based.

Speaker #4: And sometimes they can feel a far, far cry from how life works in a mature public company. But we feel that Brex's approach to creating value is very consistent with Capital One's founding approach when we created the company, all the way to today.

Speaker #4: And that relates to taking a horizontal economic view. So, in the founding of Capital One, I looked at business and said, it's really striking that financial big banks and everything are just so focused on vertical earnings.

Speaker #4: But really, banking is an annuity business. One invests quite a bit of money to create annuities that last for a long period of time.

Richard Fairbank: Really, banking is an annuity business. One invests quite a bit of money to create annuities that last for a long period of time. What we did was build a massive horizontal, we called it horizontal accounting, basically, where as we thought about investments or originating a cohort of accounts, we estimated the lifetime economics of that, the cost to create those, et cetera. Before the investment, during as it played out, and then at the end of it all, we measured it to see if indeed value is created. This approach to rigorous financial decision making horizontally, the investing in annuities and creating long-term value is the financial basis of how Capital One works and how we create value. When we looked at Brex, obviously Brex, the world was looking at their power metrics.

Speaker #4: And so what we did was build a massive horizontal—we called it horizontal accounting, basically—where as we thought about investments or originating a cohort of accounts, we estimated the lifetime economics of that, the cost to create those, etc.

Speaker #4: And before the investment, during— as it played out— and then at the end of it all, we measured it to see if, indeed, value is created.

Speaker #4: And this approach to rigorous financial decision making, horizontally, the investing in annuities and creating long-term value, is the financial basis of how Capital One works and how we create value.

Speaker #4: So, when we looked at Brex—obviously, Brex—the world was looking at their power metrics. But we rolled up our sleeves and looked at how Brex was creating valuable annuities over time.

Richard Fairbank: We rolled up our sleeves and looked at how Brex was creating valuable annuities over time. They don't have as deep and rigorous a horizontal accounting system. I wouldn't expect them to. Even as recently as today, I was in a conversation talking about the continuing work we're doing on the Capital One side, looking at Brex investments and how each tranche of investment looks like it's paying off over time. Our observation was, these are very value-creating. Not every tech company's investments are value creating. From everything we've seen, the approach Brex has, especially when we onboard them to a more kind of systematic horizontal accounting system, it will fit right into the value creation philosophy of Capital One.

Speaker #4: They don't have as deep and rigorous a horizontal accounting system. I wouldn't expect them to. But even as recently as today, I was in a conversation talking about the continuing work we're doing on the Capital One side, looking at Brex investments and how each tranche of investment looks like it's paying off over time.

Speaker #4: And our observation was these are very value creating. So not every tech company's investments are value creating, but from everything we've seen, the approach Brex has especially when we onboard them to a more kind of systematic horizontal accounting system, it will fit right into the value creation philosophy of Capital One.

Speaker #4: What we have found in building Capital One, when we have these growth opportunities, is that actually, the more you really go in and measure the value creation opportunity, very often the more we invest because we can validate that these things really create value over time.

Richard Fairbank: What we have found in building Capital One, when we have these growth opportunities is that actually the more you really go in and measure the value creation opportunity, very often, the more we invest because we can validate that these things really create value over time. Brex is in an amazing window of opportunity. They've got a tiger by the tail. They are going after three markets at once. The commercial card market, the payables marketplace, and the expense management business. They're going after it with an integrated solution. Strikingly, that solution is something that is needed from small companies all the way to large corporations. It's an amazingly large market. We are going to lean in and provide the resources and capabilities to help Brex create even more value.

Speaker #4: Brex is in an amazing window of opportunity. They've got a tiger by the tail. They are going after three markets at once: the card—the commercial card market, the payables marketplace, and the expense management business.

Speaker #4: They're going after it with an integrated solution. Strikingly, that solution is something that is needed from small companies all the way to large corporations.

Speaker #4: It's an amazingly large market. So we are going to lean in and provide the resources and capabilities to help Brex create even more value.

Speaker #4: But along the way, we're going to very rigorously measure to be sure that what we're investing in generates value on the other side.

Richard Fairbank: Along the way, we're going to very rigorously measure to be sure that what we're investing in generates the value on the other side. What we see continues to validate our acquisition thesis. I want to say, too, having seen and hung around a lot of young companies over the years, I continue to be amazed at the sophistication of how this business is run and the opportunity to create value here.

Speaker #4: But what we see continues to validate our acquisition thesis. And I want to say, too, having seen and spent time around a lot of young companies over the years, I continue to be amazed at the sophistication with which this business is run.

Speaker #4: And the opportunity to create value here.

Speaker #6: Thank you.

Robert Habaldak: Thank you.

Speaker #5: Next question, please.

Jeff Norris: Next question, please.

Speaker #1: Arden, the next question comes from Robert Wildhack with Autonomous Research. You may proceed.

Operator: Our next question comes from Robert Habaldak with Autonomous Research. You may proceed.

Speaker #5: Hi guys. I wanted to ask about domestic card loan growth over the last several periods, just for Capital One. That's bounced around, I think, in the low threes, and you said 2.6% in the second quarter.

Robert Habaldak: Hi, guys. I wanted to ask about domestic card loan growth over the last several periods, just for Capital One. That's bounced around, I think, the low threes, and you said 2.6% in the Q2. Those have all been below the longer-term trend. Can you just remind us what's behind the slowdown there? Then bigger picture, anything structural besides law of large numbers as to why Capital One domestic card loan growth wouldn't eventually come back to the longer-term average?

Speaker #5: So, those have all been below the longer-term trend. Can you just remind us what's behind the slowdown there? And then, bigger picture, is there anything structural—besides the law of large numbers—as to why Capital One domestic card loan growth wouldn't eventually come back to the longer-term average?

Richard Fairbank: Robert, when you're talking about domestic card, you're talking overall including Discover in our performance. We've talked about Discover is going through a shrinking right now, so that certainly is holding back the loan growth of Capital One. If I separate out the Discover brownout effect, Capital One continues to deliver very consistently solid loan growth. When I look at the various growth metrics and compare them with the industry, looking at legacy Capital One versus a number of the leading players in the industry, on all the growth metrics, Capital One is delivering very strong performance. There is one thing on the loan growth side that I would highlight, and it's the flip side of very good news here.

Speaker #4: So, Robert, when you’re talking about domestic card, you’re talking overall, including Discover, in our performance. So, we've talked about Discover is going through a shrinking right now.

Speaker #4: So that certainly is holding back the loan growth of Capital One. Then, if I separate out the Discover brown-out effect, Capital One continues to deliver very consistently solid loan growth.

Speaker #4: It's not that. There are things—when I look at the various growth metrics and compare them with the industry, looking at legacy Capital One versus a number of the leading players in the industry—on all the growth metrics, Capital One is delivering very strong performance.

Speaker #4: There is one thing on the loan growth side that I would highlight, and it's the flip side of very good news here. Payment rates have come in—continue to come in—pretty high, which we always cheer for because it pays off typically in terms of stronger credit, but it does hold loan growth back a little bit.

Richard Fairbank: Payment rates continue to come in pretty high, which we always cheer for because it pays off typically in terms of stronger credit, it does hold loan growth back a little bit. If we look at the metrics here, not all of which I understand we share with you, we've got Discover is going through a brownout and shrinking. The legacy Capital One is growing strongly on all dimensions and particularly account origination, purchase volume, a lot of the very important metrics. When we look, another thing that we do, it's not something we publish, but we take the originated upmarket part of Capital One. We effectively proxy what the other players in the industry do who just don't go out and intentionally originate in subprime.

Speaker #4: But so, if we look at the metrics here—not all of which, I understand, we share with you—we've got Discover going through a brownout and shrinking the legacy. Capital One is growing strongly on all dimensions, and particularly in account origination, purchase volume, a lot of the very important metrics.

Speaker #4: And then, when we look, another thing that we do—it's not something we publish—but we take the originated upmarket part of Capital One.

Speaker #4: So we effectively proxy what the other players in the industry do, who just don't go out and intentionally originate in subprime. So when we separate and look at the originated upmarket part of Capital One, this thing is absolutely humming and is right up there.

Richard Fairbank: When we separate and look at the originated upmarket part of Capital One, this thing is absolutely humming and is right up there at the top of the league tables in the key growth metrics. That, by the way, is powered by the continued quest to win at the top of the market, to win with heavy spenders, and it's the flip side of our investment agenda that we have on the heavy spender side. Robert, I understand that Discover is going to hold us back for a little bit. Even on the other side of the integration I think it's reasonable that legacy Capital One will be a faster-growing institution than Discover. Why would that be? Just that Discover is a much narrower play in the credit card business.

Speaker #4: We're at the top of the league tables in key growth metrics. That, by the way, is powered by our continued quest to win at the top of the market—to win with heavy spenders—and is the flip side of the investment agenda that we have on the heavy spender side.

Speaker #4: So, but Robert, I understand that Discover is going to hold us back for a little bit. And even on the other side—even on the other side of the integration—I think it’s reasonable that legacy Capital One will be a faster growing institution than Discover.

Speaker #4: Why would that be? Just that Discover is a much narrower play in the credit card business, focused more on the prime side of the marketplace.

Richard Fairbank: It focused on the prime side of the marketplace, and it's been a really great stable play. Legacy Capital One has got so many other growth vectors growing, and card is probably going to continue to lead the way. For right now, we're living with a little bit of a brownout holding our business back. Thank you.

Speaker #4: And it's been a really great, stable play. Capital One is legacy. Capital One has so many other growth vectors, growing in card. It's probably going to continue to lead the way.

Speaker #4: But for right now, we're living with a little bit of a brownout, holding our business back. Thank you.

Speaker #5: Thank you. Next question, please.

Don Fandetti: Thank you.

Jeff Norris: Next question, please.

Speaker #1: Our next question comes from Don Fandetti with Wells Fargo. You may proceed.

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

Speaker #5: Hi, Rich, can you talk a little bit about the credit card migration? I know there's been some testing moving it over to the Discover network.

Don Fandetti: Hi. Rich, can you talk a little bit about the credit card migration? I know there's been some testing moving it over to Discover Network. Where are you on that? Is it encouraging? Then do you see a scenario where maybe you could move a little more volume over than you initially thought when you struck the Discover deal?

Speaker #5: Where are you on that? Is it encouraging? And then, do you see a scenario where maybe you could move a little more volume over than you initially thought when you struck the Discover deal?

Richard Fairbank: Don, you're talking about moving Capital One cards to the Discover network?

Speaker #4: So we're talking about, Don, you're talking about moving Capital One cards to the Discover network.

Speaker #5: Correct.

Don Fandetti: Correct.

Speaker #4: Yeah, so it always gets confusing, because we're also, of course, moving Discover cards onto the Capital One platforms and things. But yes, just to clarify what we're talking about here.

Richard Fairbank: Yes. It always gets confusing because we're also, of course, moving Discover cards on the Capital One platforms and things. Yes, just to clarify what we're talking about here. Earlier this year, we completed the conversion of our debit card business to the Discover Network, and we're very pleased with how that went. I think that thing has just been I would call it a smashing success as we look at this. Now as we think about building credit card volume on the Discover Network, there are two ways to do that, with the front book and the back book. So what we are leaning hard into right now is testing, originating legacy Capital One-branded accounts on the Discover Network, as well as testing the conversion of existing Capital One accounts to the Discover Network.

Speaker #4: Earlier this year, we completed the conversion of our debit card business to the Discover network, and we're very pleased with how that went. I mean, I think that thing has just been, I would call it, a smashing success as we look at this.

Speaker #4: So now, as we think about building credit card volume on the Discover network, there are two ways to do that—with the front book and the back book.

Speaker #4: And so what we are leaning hard into right now is testing originating legacy Capital One-branded accounts on the Discover network, as well as testing the conversion of existing Capital One accounts to the Discover network.

Speaker #4: So as we lean into that, and on the other side of those tests, we will then make our final choices about what credit card volume we're going to move over and the timing.

Richard Fairbank: As we lean into that, and on the other side of those tests, we will then make our final choices about what credit card volume that we're going to move over what timing. In parallel, an important companion, of course, is scaling up the volume of investment in the Network as we increase international acceptance and further build the brand. What we're doing, the way to think about, the quest to build international acceptance will be an always thing. For us, the key is what we want to do is to slope the work. We're going to slope our quest on both sides of this exercise. With respect to acceptance, international acceptance. Well, let me in fact start with domestic acceptance. It just blows my mind how great their domestic acceptance is.

Speaker #4: In parallel, an important companion, of course, is scaling up the volume—the volume of investment in the network as we increase international acceptance and further build the brand.

Speaker #4: And what we're doing, the way to think about it—I mean, the quest to build international acceptance will be an ongoing thing. So for us, the key is, what we want to do is to slope the work.

Speaker #4: So we're going to slope our quest on both sides of this exercise. With respect to acceptance—international acceptance—well, let me, in fact, start with domestic acceptance.

Speaker #4: So, Discover has—it just blows my mind how great their domestic acceptance is. There are a few scattered gaps, and we are just leaning all in to literally close them all.

Richard Fairbank: There are a few scattered gaps. We are just leaning all in to literally close them all. That's a thing that's going great progress and we're so pleased on the domestic side. Internationally, again, it will be a long quest. While we're working to lift everywhere, we're particularly leaning in to lift acceptance to a higher level in the places our customers go the most. Not surprisingly, we find that where do they travel the most? They travel to Mexico, the Caribbean, Canada, the UK, and those are the top four destinations. We're particularly leaning in there to really move the needle and enhance acceptance there. The other sloping that we're working on, combined with our testing, is sloping what we move and focusing more on moving things that customers or products, things that don't involve as much international travel.

Speaker #4: So that's a thing that's going — great progress — and we're so pleased on the domestic side. Internationally, again, it will be a long quest, but what we're doing is, while we're working to lift everywhere, we're particularly leaning in to lift acceptance to a higher level in the places our customers go the most.

Speaker #4: And not surprisingly, we find that—where do they travel the most? They travel to Mexico, the Caribbean, Canada, and the UK, and those are the top four destinations.

Speaker #4: We're particularly leaning in there to really move the needle and enhance acceptance there. The other sloping that we're working on, combined with our testing, is sloping what we move.

Speaker #4: And focusing more on moving things that customers or products, things that don't involve as much international travel. And so that our strategically, we're just working so hard to get as much volume as we can on the network.

Richard Fairbank: Strategically, we're just working so hard to get as much volume as we can on the Network, and we're going to slope the acceptance work and slope the migrations to be able to create great customer experiences and maximize the volume that we move over time.

Speaker #4: And we're going to slope the acceptance work and slope the migrations to be able to create great customer experiences and maximize the volume that we move over time.

Speaker #5: Got it. And do you think you need international issuing ultimately? Some suggest that you do, or is that something you'll solve down the road?

Don Fandetti: Got it. Do you think you need international issuing ultimately? Some suggest that you do, or is that something you'll solve down the road?

Richard Fairbank: International acceptance. There are multiple ways to build that. International issuing, by the way, is a great way to do it because what we're talking about there is having a local player issue our cards. In that way, they can help really drive the acceptance in their own local geography. That is one of four ways to build acceptance internationally. In fact, again, I'm amazed at how Discover, with their relatively small scale, built the impressive international. It's still not yet where we would love it to be as a destination. The ways to get there from here. Discover has used all four of these. One is partnering with other networks. This has been a really important part of Discover's strategy. They have partnered with networks in Japan, China, India.

Speaker #4: International acceptance—there are multiple ways to build that. International issuing, by the way, is a great way to do it because what we're talking about there is having a local player issue our cards.

Speaker #4: And in that way, they can help really drive the acceptance in their own local geography. So that is one of four ways to build acceptance internationally.

Speaker #4: In fact, again, I'm amazed at how Discover, with their relatively small scale, built the impressive international, but it's still not yet where we would love it to be as a destination.

Speaker #4: So, the ways to get there from here—and Discover has used all four of these—one is partnering with other networks. And this has been a really important part of Discover's strategy.

Speaker #4: They have partnered with networks in Japan, China, and India. I mean, there is massive acceptance in some of the biggest countries in the world coming from network partnerships.

Richard Fairbank: There is massive acceptance in some of the biggest countries in the world coming from network partnerships. A second way to do it is with card-issuing financial institutions. American Express has particularly leaned into this approach. It's a great approach. We have some cases of that with Discover. It's been less of a lever for Discover than for Amex, that's another one. By the way, just a small point. As an issuer ourselves in Canada and the UK, we look forward to getting our own issuer boost there on acceptance. A third lever is partnering with merchant acquirers. Finally, the fourth is going directly to merchants. This is the playbook Discover has used. We will continue to invest in this playbook. There's, of course, a flywheel benefit that comes with the more acceptance we get, the more volume we can get.

Speaker #4: A second way to do it is with card-issuing financial institutions. American Express has particularly leaned into this approach. It's a great approach. We have some cases of that with Discover.

Speaker #4: It's been less of a lever for Discover than for Amex, but that's another one. And by the way, just a small point—as an issuer ourselves in Canada and the UK, we look forward to getting our own issuer boost there on acceptance.

Speaker #4: A third lever is partnering with merchant acquirers. And finally, the fourth is going directly to merchants. So, this is the playbook Discover has used.

Speaker #4: We will continue to invest in this playbook, and there's, of course, a flywheel benefit that comes with it—the more acceptance we get, the more volume we can get. That's how that flywheel works.

Richard Fairbank: You know how that flywheel works. Those will be the four levers that we lean into in this journey.

Speaker #4: But those will be the four levers that we lean into in this journey.

Speaker #5: Next question, please.

Jeff Norris: Next question, please.

Speaker #2: Our next question comes from John Bancari with Evercore. You may proceed.

Operator: Our next question comes from John Pancari with Evercore. You may proceed.

Speaker #6: Good evening. Back to the investments that you're making. I understand you're unable to provide us with an efficiency ratio or expense growth expectations regarding your investments into the network. But is there any way you can help us with what inning you're in, in terms of the investments?

John Pancari: Good evening. Back to the investments that you're making. I understand you're unable to provide us with an efficiency ratio or expense growth expectations regarding your investments into the network. Any way you can help us with what inning you're in terms of the investments? I know, Rich, you've said in the past that these would be sustained investments for a number of years. Any additional color on where you stand now that you've been down the path, you've seen the debit migration, you've talked about the testing now, and you've just walked us through in a previous answer of some of the approaches. What inning are you in with how you look at the investment required here?

Speaker #6: I know, Rich, you’ve said in the past that these would be sustained investments for a number of years. Any additional color on where you stand now, now that you’ve been down the path—you’ve seen the debit migration, you’ve talked about the testing—and you’ve just walked us through in that previous answer some of the approaches.

Speaker #6: What inning are you in with how you look at the investment required here?

Speaker #4: Well, the first thing I want to say is, when I give the big list of investments—and I know for, sort of, our whole lives at Capital One, we've always, in some ways, been the company that's investing in our future—but there's certainly been a lot of discussion, as you all have noticed, about the long list of investments that we're leaning into.

Richard Fairbank: Well, the first thing I want to say is when I give the big list of investments, I know for the last sort of our whole lives at Capital One, we've always in some ways been the company that's investing in our future. There's certainly been a lot of discussion, as you all have noticed about the long list of investments that we're leaning into. The first thing I want to say is I wouldn't want anyone to draw the perception that massively moving the needle of Capital One investments is investing in the network or international acceptance. It is an important sustained investment we will do for as far out as we can see.

Speaker #4: The first thing I want to say is, I wouldn't want anyone to draw the perception that massively moving the needle of Capital One investments is investing in the network or international acceptance.

Speaker #4: It is an important, sustained investment. We will do it for as far out as we can see. But I wouldn't want to leave the impression that it's at the top of the list of what we're spending—a lot more money than that—on Capital One technology, AI, and maybe the biggest single item as well. I don't know.

Richard Fairbank: I wouldn't want to leave the impression that's at the top of the list of what we're spending a lot more money than that on Capital One technology, AI, and maybe the biggest single item is, well, I don't know, there are several, investing to win with heavy spenders at the top of the market. I want to say this is just one of the many things on the list. That said, to your point, I believe that for as far out as we can see, we'll be investing in international acceptance. Here's the key thing. Our strategy is not hinging on we have to invest so much to get to a point where then finally we can have this big bang moment and move a whole bunch of customers. This is why I went back to the power of the sloping.

Speaker #4: There are several, but investing to win with heavy spenders, the top of the market. I just want to say this is just one of the many things on the list.

Speaker #4: That said, at the two-year point, I believe that for as far out as we can see, we'll be investing in international acceptance. But here's the key thing.

Speaker #4: Our strategy is not hinging on having to invest so much to get to a point where, finally, we can have this big bang moment and move a whole bunch of customers.

Speaker #4: This is why I went back to the power of the sloping. We take our customers and cards and just analyze what customers are international travelers.

Richard Fairbank: We take our customers and cards and just analyze what customers are international travelers. We can empirically see that. Some customers have never traveled outside of the country for 20 years. We can see and really understand where they're coming from. We have good ways to understand on the front book what is happening. It's partly a customer point and a product that they're choosing point. Then when we look at where customers travel, that also is so sloped. Again, I think that while we will be investing as far out as we can see in the network, by sloping the investment, we can get a lot of progress in a focused way and continue to create the ability to move more customers as soon as we can.

Speaker #4: We can empirically see that. Some customers have never traveled outside of the country for 20 years. I mean, we can see and really understand where they're coming from.

Speaker #4: We have good ways to understand, on the front book, what is happening. And it's partly a customer point and a product—that they're choosing—point.

Speaker #4: And then, when we look at where customers travel, that also is so sloped. So again, I think that while we will be investing as far out as we can see in the network, by sloping the investment, we can get a lot of progress in a focused way and continue to create the ability to move more customers as soon as we can. In that way, we don’t have to wait for someday to try to monetize the power of this network.

Richard Fairbank: In that way, we don't have to wait for some day to try to monetize the power of this network. We're already living it on the debit side, and we can lean into it on the credit card side, and the benefits accrue right along the way with the investment.

Speaker #4: We're already living it on the debit side, and we can lean into it on the credit card side, and the benefits accrue right along the way with the investments.

Speaker #5: Okay. Thank you for that. And then just separately, regarding the migration comments that you answered in the previous question—of the backbook cards that you would ultimately move over, how would you approach the testing and then ultimately moving over, migrating the Capital One backbook over to the Discover network?

John Pancari: Okay. Thank you for that. Then just separately, regarding the migration comments that you answered in the previous question. Of the back book cards that you would ultimately move over, how would you approach the testing and then ultimately moving over migrating Capital One back book over to the Discover Network? Would it start with the basic non-premium cards, and would you only focus on those that are expiring in a given year, and that's how you would focus on the migration of that back book eventually?

Speaker #5: Would it start with the basic, non-premium cards, and would you only focus on those that are expiring in a given year? Is that how you would focus on the migration of that backbook, eventually?

Richard Fairbank: Well, that's a very astute question that you asked there. Let's talk about this. First of all, like we always do in testing, we do a lot of testing just so that we understand what customer reactions to various things are going to be. Our testing is pretty broad so that we can then not find out later we were too narrow because we didn't think expansively enough from a testing point of view. If you look at the factors to consider in migration. First of all, the front book, it's a much more straightforward thing to talk about the front book because we can just put certain cards, certain customers on the Discover Network, and there isn't a migration event. That's a very attractive way to build business. When we're talking about migrating the existing book, which also is attractive.

Speaker #4: So, well, that's a very astute question that you asked there. So let's talk about this. First of all, like we always do in testing, we do a lot of testing just so that we understand what customer reactions to various things are going to be.

Speaker #4: So our testing is pretty broad, so that we can then avoid finding out later that we were too narrow because we didn't think expansively enough from a testing point of view.

Speaker #4: Then if you look at the factors to consider in migration—so, first of all, the front book is a much easier thing.

Speaker #4: Well, it's a much more straightforward thing to talk about the front book, because we can just put certain cards, certain customers on the Discover network, and there isn't a migration event.

Speaker #4: And so, that's a very attractive way to build business. When we're talking about migrating the existing book, which also is attractive, the key leverage there—the key factors to consider—is international travel.

Richard Fairbank: The key factors to consider is international travel. That's at the top of the list. How extensively our cards are on file, because the more cards that the customer has on file, the more friction there is in changing card numbers. One thing we're looking at in some cases is moving at the expiration time because some of those frictional elements would already be there at that time. All of these things are part of our test agenda and our strategic considerations.

Speaker #4: That's at the top of the list. How extensively our cards are on file—because the more cards that the customer has on file, the more friction there is in changing card numbers.

Speaker #4: And a natural and one thing we're looking at in some cases is moving at expiration time, because, one, some of those frictional elements would already be there at that time.

Speaker #4: So, all of these things are part of our test agenda and our strategic considerations.

Speaker #5: Next question, please.

Jeff Norris: Next question, please.

Speaker #2: Our next question comes from Erica Najarian with Bank of America. You may proceed.

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

Speaker #5: Hi, good afternoon, and thank you for squeezing me in here. I wanted to ask about, or touch on, credit for a second, and I'll just ask both parts of my question up front.

Mihir Bhatia: Hi. Good afternoon, thank you for squeezing me in here. I wanted to ask about touch on credit for a second. I'll just ask both the parts of my question upfront. Just firstly, on the June loss rate, it was down quite a bit month-over-month, I think like 45 basis points. Anything to call out there? Was there a sale or something or was that just how much better credit got there? The second part was just pulling up, Rich, if you could just talk about how the consumer is faring, but more importantly, how the Capital One customer is faring. You've been investing a lot in marketing, growing it. Are recent vintages performing in line to what you expected? Just any comments on that. Thank you.

Speaker #5: Just firstly, on the June loss rate—it was down quite a bit month over month, I think like 45 basis points. Anything to call out there?

Speaker #5: Was there a sale or something, or was that just how much better credit got there? And then, just the second part was just pulling up.

Speaker #5: If you could just talk about how the consumer is faring, but more importantly, how the Capital One customer is faring. You've been investing a lot in marketing and growing it.

Speaker #5: Are recent vintages performing in line with what you expected? Any comments on that? Thank you.

Speaker #4: So I may hear, let's start with the June performance. I don't have the June loss rate number right in front of me, but here is a comment about the quarter and about June.

Richard Fairbank: Mihir, let's start with the June performance. I don't have the June loss rate number right in front of me. Here what is comment about the quarter and about June. Obviously, credit continues to come in very strongly. Probably the single indicator we look at the most is delinquencies. In our card business, while the June loss rate was particularly strikingly strong, the June delinquencies for the month moved in line with seasonality. In pretty much every month prior over the course of 2026, the delinquencies have moved a little bit better than our calculated seasonality. June, again, a very strong month, I just want to point out it's the first month that didn't actually beat seasonality. Still there's great strength there and the charge-offs were amazing and all of that.

Speaker #4: So obviously, credit continues to come in very strongly. The probably the single indicator we looked at, we look at the most is delinquencies. And in our card business, the while the June loss rate was particularly strikingly strong, the June delinquencies for the month moved in line with seasonality.

Speaker #4: And by the way, in pretty much every month prior, over the course of 2026, the delinquencies have moved a little bit better than our calculated seasonality.

Speaker #4: So June, again, a very strong month, but I just want to point out it’s the first month that didn’t actually beat seasonality. But still, there’s great strength there, and the charge-offs were amazing, and all of that.

Speaker #4: So again, we just see a very positive credit picture, but I just wanted to make those comments about June.

Richard Fairbank: Again, we just see a very positive credit picture, but I just wanted to make those comments about June.

Speaker #5: Rich, if I could just interject—there’s nothing to call out in the June domestic card charge-off rate.

Jeff Norris: Rich, I could just interject. There's nothing to call out in the June domestic card charge-off rate.

Speaker #4: Okay, yeah. So let's talk about the consumer, and then let's turn to Capital One customers. So, the US consumer and the overall economy remained resilient despite the high energy prices and everything. When you pick up the news every day, one would think the world's falling apart.

Richard Fairbank: Okay. Yeah. Let's talk about the consumer, and then let's turn to Capital One customers. The US consumer and the overall economy remained resilient despite the high energy prices and everything. When you pick up the news every day, one would think the world's falling apart. Actually, the portfolio that the consumer continues to perform remarkably well. The unemployment rate in June was lower than in February before the tariff conflict began. Jobless claims remain low. Job creation has rebounded over the past few months. Consumer spending, that remains strong. As a result of inflation, real wage growth turned negative in April and May on a year-over-year basis, but it was back in positive territory ever so slightly in June as inflation ticked back down.

Speaker #4: But actually, the portfolio that the consumer continues to perform, remarkably well. The unemployment rate in June was lower than in February. Before the year-round conflict began, jobless claims remained low.

Speaker #4: Job creation has rebounded over the past few months. Consumer spending has remained strong. Now, as a result of inflation, real wage growth turned negative in April and May on a year-over-year basis, but it was back in positive territory, ever so slightly, in June as inflation ticked back down.

Speaker #4: When we look at bank balances and debt servicing burdens of our customers, these look a bit stronger than a year ago—across income levels.

Richard Fairbank: When we look at bank balances and debt servicing burdens of our customers, these look a bit stronger than a year ago across income levels. In our domestic card business, our credit metrics continued to improve on a year-over-year basis in the quarter. I've chatted a little bit about that, the strong credit performance we also saw on the auto side. Auto credit metrics are strong as well. What I want to do now is turn to leading indicators when we look at our own customers. We talked about delinquencies, we talked about how strong delinquency performance has been pretty much every quarter this year. Other metrics that we look at, payment rates, I talked about that earlier.

Speaker #4: And our domestic card business, our credit metrics, continued to improve on a year-over-year basis in the quarter. And the I've chatted a little bit about that, but the strong credit performance also the strong credit performance we also saw on the auto side auto credit metrics are strong as well.

Speaker #4: And so what I want to do now is turn to leading indicators when we look at our customers. So, we talked about delinquencies. We talked about how strong delinquency performance has been pretty much every quarter.

Speaker #4: This year, other metrics that we look at—payment rates, I talked about that earlier—they are meaningfully above pre-pandemic levels across all of our customer segments, and while that slows down growth a little bit, it's a healthy sign of customer credit quality.

Richard Fairbank: They are meaningfully above pre-pandemic levels across all of our customer segments, and that slows down growth a little bit, but it's a healthy sign of customer credit quality. Spend levels. We continue to see healthy spend growth driven both by account growth and by steady growth in spend per customer. When we look at revolve rates, revolve rates have stabilized over the past year at close to pre-pandemic levels for our major products and segments. None of these observations are conclusive on their own, I think collectively they paint a picture of strength of the consumer and certainly strength within our own portfolio. Let me turn now to the front book of new originations in our card business. Our front book of new originations continues to perform strikingly well. We're seeing our 2024 and 2025 originations, frankly, in both legacy Capital One and Discover.

Speaker #4: Spend levels: We continue to see healthy spend growth, driven both by account growth and by steady growth in spend per customer. When we look at revolve rates, revolve rates have stabilized over the past year at close to pre-pandemic levels for our major products and segments.

Speaker #4: Now, none of these observations are conclusive on their own, but I think collectively they paint a picture of strength of the consumer, and certainly strength within our own portfolio.

Speaker #4: Let me turn now to the front book of new originations in our card business. Our front book of new originations continues to perform strikingly well.

Speaker #4: We're seeing our '24 and '25 originations—frankly, in both legacy Capital One and Discover—well, let me separate it out. In legacy Capital One, we're seeing our 2024 and 2025 originations coming in better than 2022 and '23.

Richard Fairbank: Well, let me separate it out. In legacy Capital One, we're seeing our 2024 and 2025 originations coming in better than 2022 and 2023, and a bit below pre-pandemic levels, which is pretty striking. That is not a thing that I think is being universally observed in the card business, we have seen strength in our originations for really throughout this whole post-pandemic period. It's one of the things that gives us the confidence to lean into our originations, spend that money on marketing that we talked about, et cetera. One other fact from a credit view is recoveries. Coming out of the pandemic, our recoveries inventory was unusually low, that inventory has increased rapidly over the past couple of years and has contributed to the improvement in our overall loss rate over that time.

Speaker #4: And a bit below pre-pandemic levels, which is pretty striking given—and that is not a thing that I think is being universally observed in the card business—but it's a thing that we have seen strength in our originations for, really, throughout this whole post-pandemic period.

Speaker #4: And it's one of the things that gives us the confidence to lean into our originations, spend that money on marketing that we talked about, etc.

Speaker #4: One other fact line from a credit view is recoveries. Coming out of the pandemic, our recoveries inventory was unusually low. But that inventory has increased rapidly over the past couple of years and has contributed to the improvement in our overall loss rate over that time.

Richard Fairbank: Discover's losses peaked later than legacy Capital One's, they're now seeing the same dynamic be a tailwind to their losses. Looking ahead, our recoveries inventory should taper off a bit in the next year or so because the inventory of recent charge-offs will itself be going down. That's a look at leading indicators. If I pull way up, we see real strength in the consumer and strength across our business performance in card and in auto. That's why while we keep a very wary eye on the economy and international developments, we are leaning in with a lot of positivity into our growth strategies.

Speaker #4: Discover’s losses peaked later than legacy Capital One’s, and they’re now seeing the same dynamic, be it tailwind to their losses. But looking ahead, our recoveries inventory should taper off a bit in the next year or so, because the inventory of recent charge-offs will itself be going down.

Speaker #4: So that's Mahir. That's a look at leading indicators, but if I pull way up, we see real strength in the consumer and strength across our business performance.

Speaker #4: In Card and in Auto, and that's why, while we keep a very wary eye on the economy and the international developments, we are leaning in with a lot of positivity into our growth strategies.

Speaker #5: Next question, please.

Jeff Norris: Next question, please.

Speaker #2: Our next question comes from Erica Nigerian with UBS. You may proceed.

Operator: Our next question comes from Erika Najarian with UBS. You may proceed.

Erika Najarian: Hi. Good evening. I wouldn't prolong this call if this question wasn't important, I think investors really want clarity on this. Rich and Andrew, you keep mentioning that your earnings power is expected to be the same as you anticipated when you first announced the Discover deal. I was hoping to unpack that a bit. I was looking through your disclosures. I wasn't sure what you were using for the baseline, but in 2027, consensus EPS. Sorry, at the deal announcement, consensus EPS for Capital One standalone was about $21. You mentioned over 15% accretion to 2017 EPS at the announcement. That rounds up to, let's call it like $24.50 if we use 16%, 17% accretion. Last quarter, you mentioned that when you were thinking of ROTCE, you weren't thinking of CET1 all the way down to 11%.

Speaker #6: Hi, good evening. I wouldn't prolong this call if this question wasn't important, but I think investors really want clarity on this. Richard and Andrew, you keep mentioning that your earnings power is expected to be the same as you anticipated when you first announced the Discover deals.

Speaker #6: So I was hoping to unpack that a bit. I was looking through your disclosures, and I wasn't sure what you were using for the baseline. But in 2027, consensus EPS—sorry, at the deal announcement, consensus EPS for Capital One standalone was about $21.

Speaker #6: You mentioned over 15% accretion to 2027 EPS at the announcement. That rounds up to, let's call it, $24.50 if we use 16-17% accretion. Last quarter, you mentioned that when you were thinking of ROTC, you weren't thinking of CET1 all the way down to 11%.

Speaker #6: So, if you use 12.5% on the current share count, you can get to a mid-20s ROTC pro forma. What is wrong with that line of logic?

Erika Najarian: If you use 12.5% on the current share count, you can get to a mid-20s ROTCE pro forma. What is wrong with that line of logic?

Speaker #4: Well, Erica, let me just unpack a couple of the assumptions that you made that don't actually tie to things that we've said, and I just want to be really clear here.

Andrew Young: Well, Erika, let me just unpack a couple of the assumptions that you made that don't actually tie to things that we've said, and I just want to be really clear here. First of all, our assumptions that we laid out, and I'd encourage you to go back when we announced the deal in February 2024. What we said was we were taking consensus estimates for both Capital One and Discover, and we made the adjustment to Discover's loss forecast just based on the things that we had seen during diligence. With respect to ROTCE, at the time, the weighted average consensus for CET1 was 12.5%. When Rich last quarter highlighted that we're defining earnings power as ROTCE, we just wanted to remain consistent with that denominator of 12.5 for the sake of doing the math. It is not saying that is our target.

Speaker #4: First of all, our assumptions that we laid out—and I encourage you to go back to when we announced the deal in February of ’24—but what we said was we were taking consensus estimates for both Capital One and Discover, and we made the adjustment to Discover’s loss forecast just based on the things that we had seen during diligence.

Speaker #4: Then, with respect to ROTC at the time, the weighted average consensus for CET1 was 12.5%. So, when Rich last quarter highlighted that we're defining earnings power as ROTC, we just wanted to remain consistent with that denominator of 12.5 for the sake of doing the math.

Speaker #4: It's not saying that that is our target. As I answered before, in terms of what we believe our capital need is, we believe our capital need is 11%. But we're just doing the math on ROTC at 12.5% for the sake of comparability.

Andrew Young: As I answered before, in terms of what we believe our capital need is, we believe our capital need is 11%, but we're just doing the math on ROTCE at 12.5 for the sake of comparability. With respect to EPS, of course, share price assumptions have moved. There's just a number of things that have moved in terms of those assumptions, particularly as they relate to individual line items. That is why we keep coming back to the ROTCE as our definition of earnings power.

Speaker #4: And so, with respect to EPS, of course, share price assumptions have moved. There are just a number of things that have moved in terms of those assumptions, particularly as they relate to individual line items, and that is why we keep coming back to ROTC as our definition of earnings power.

Speaker #5: Next question, please.

Jeff Norris: Next question, please.

Operator: Our final question comes from Moshe Orenbuch with TD Cowen. You may proceed.

Speaker #2: And our final question comes from Moshe Orenbuch with TD Cowen. You may proceed.

Operator: Our final question comes from Moshe Orenbuch with TD Cowen. You may proceed.

Speaker #1: Great, thanks so much. Rich, you talked about growth in non-prime auto and in the high-end card business. Could you talk a little bit about the non-prime card business?

Moshe Orenbuch: Great. Thanks so much. Rich, you talked about growth in the non-prime auto and in the high-end card business. Could you talk a little bit about the non-prime card business? That's been a business when you've grown it, that it hasn't required as much upfront investment as the high end. You've also talked about the consumer doing relatively well. Are there prospects for acceleration there? I've got a follow-up.

Speaker #1: Because that's been a business, when you've grown it, it hasn't required as much upfront investment as the high-end. And you've also talked about the consumer doing relatively well.

Speaker #1: So, are there prospects for acceleration there? And I've got a follow-up.

Richard Fairbank: Moshe, thank you. I know that you are one over the many decades we have worked together that has such an interest in this. It's a very appropriate interest because it is a very important part of Capital One, even though you saw that the percentage is down to what, 26%, did we see it? Because it dropped down a bit because of the Discover portfolio. Just in terms of the portfolio subprime percentage. Well, Moshe, in both card and auto, our strategy has remained very much the same. We continue to get a lot of traction in the business. Performance continues to be strong. When I point at the higher growth at the top of the market, that is really just pointing out the traction that Capital One is getting in our investments at that part of the market.

Speaker #4: Moshe, thank you. I know that you are one of the many—over the decades we have worked together—who has such an interest in this, and it's a very, very appropriate interest because it is a very important part of Capital One. Even though you saw that the percentage is down to, what, 26%, did we see it? Because it dropped down a bit because of the Discover portfolio.

Speaker #4: Just in terms of the portfolio subprime percentage—Moshe, across both card and auto, we continue with our strategy, which remains very much the same.

Speaker #4: We continue to get a lot of traction in the business; performance continues to be strong. When I point at the higher growth at the top of the market, that is really just pointing out the traction that Capital One is getting in our investments at that part of the market. But we continue to be very pleased with how things are going at the lower end of the market.

Richard Fairbank: We continue to be very pleased with how things are going at the lower end of the market. The growth rates are a little lower these days than what we see at the higher end of the market, but we always take what the market has to give us. Performance is stable. Credit performance in that part of the marketplace, I should have mentioned this earlier, is very consistent really across the credit spectrum. We don't, in our own numbers, see this K-shaped economy that a lot of people talk about. Although to be fair, we don't really participate in the lowest end of the marketplace where maybe those things are being experienced in the economy. Moshe, things continue to go very well. We're leaning in.

Speaker #4: The growth rates are a little lower these days. They are lower than what we see at the higher end of the market, but we always take what the market has to give us. Performance is stable.

Speaker #4: Credit performance in that part of the marketplace—I should have mentioned this earlier—is very consistent, really, across the credit spectrum. We don't, in our own numbers, see this K-shaped economy that a lot of people talk about. Although, to be fair, we don't really participate in the lowest end of the marketplace, where maybe those things are being experienced in the economy.

Speaker #4: So, Moshe, things continue to go very well. We're leaning in. The marketing efficiency of that part of the business is—it's a lot less costly to acquire accounts there, and we continue to lean in really very hard there.

Richard Fairbank: The marketing efficiency of that part of the business is a lot less costly to acquire accounts there, and we continue to lean in really very hard there. The growth is very solid. It's a little less than at the high end. It's less than at the high end, but the value creation continues to be high and everything about it seems quite stable. Also one other thing, this part of the marketplace is so benefited by continued investments in technology, data, and the power of machine learning and over time, AI. Because this part of the marketplace is all about data analytics modeling, and that is a power alley of Capital One. While the marketing investment isn't maybe the highest in that part of the marketplace.

Speaker #4: And the growth is very solid. It's a little less than at the high end—it's less than at the high end—but the value creation continues to be high, and everything about it seems quite stable.

Speaker #4: And also, one other thing—this part of the marketplace is so benefited by continued investments in technology, data, and the power of machine learning and, over time, AI.

Speaker #4: Because this is all this part of the marketplace is all about data, analytics, modeling, and that is a power alley of Capital One. So while you the marketing investment isn't maybe the highest in that part of the marketplace, there's a lot of focus in our tech and data and AI investments to be able to be able to be even more successful in that underserved part of the market.

Richard Fairbank: There's a lot of focus in our tech and data and AI investments to be able to be even more successful in that underserved part of the market. Thank you for your question.

Speaker #4: Thank you for your questions.

Speaker #1: Sure. Maybe just as a quick follow-up, you talked earlier about the horizontal P&Ls that you kind of do for each of your products. And when you think about how Capital One as a company is viewed externally, I mean, do you think you get recognition for the streams of earnings that you're creating and the value that that's creating?

Moshe Orenbuch: Sure. Maybe just as a quick follow-up. You talked earlier about the horizontal P&Ls that you do for each of your products. When you think about how Capital One as a company is viewed externally, do you think you get recognition for the streams of earnings that you're creating and the value that that's creating? If not, would there be a way, whether it's some degree of disclosure of examples of that? Do you think that you're getting appropriate recognition in the stock for it, and what could you do about it?

Speaker #1: And if not, would there be a way, whether it's some degree of disclosure of examples of that? Are there is there I mean, do you think that you're getting appropriate recognition in the stock for it and what could you do about it?

Richard Fairbank: Moshe, it's a great question. I believe that we probably don't get appropriate recognition in the stock. I don't think there's an easy way for us to sort of publish the aspects of our horizontal accounting, but I would say this. I'm in my, what is it, 32nd year of running this company. Well, since we had our IPO and 40th year overall in building this franchise. One of the very first things we did was put in horizontal accounting and an NPV-based methodology for everything that we do. I think it's hard to prove the power of that to investors, but I think maybe the power manifests in the three and a half decade history of Capital One and the ability to grow the company so significantly and to generate strong earnings power along the way.

Speaker #4: Moshe, it's a great question. I believe that we probably don't get appropriate recognition in the stock, but I think the and I think it would I don't think there's an easy way for us to sort of publish the aspects of our horizontal accounting, but I would say this.

Speaker #4: When you look at the— I guess, we have— I'm in my, what is it, 32nd year of running this company. Well, since we had our IPO, it's the 40th year overall in building this franchise, and one of the very, very first things we did was put in horizontal accounting and an NPV-based methodology for everything that we do.

Speaker #4: And I think it's hard to prove that the power of that to investors, but I think maybe the power manifests in the three and a half decade history of Capital One and the ability to grow the company so significantly and to generate strong earnings power along the way.

Speaker #4: And the cornerstones of that approach have been starting with strategy, making sure that the businesses that we're in lend themselves to above they are structurally attractive and give the opportunity to generate above-hurdle returns, which is why we don't do half the things other banks do.

Richard Fairbank: The cornerstones of that approach have been starting with strategy, making sure that the businesses that we are in lend themselves to above. They are structurally attractive and give the opportunity to generate above hurdle returns, which is why we do not do half the things other banks do. Secondly, the whole investment philosophy that we have, the strategic philosophy that we focus on long-term value, the financial horizontal P&L investment approach that we use, and the way that over time we have a whole methodology of retrospective measurement of how our various programs are performing and relative to expectation, relative to hurdle rate, all of these kind of things in a way that I think has really demonstrated the power of this. When I then say to investors, we are at a time where we have exceptional opportunity going forward.

Speaker #4: And then secondly, the whole investment philosophy that we have—the strategic philosophy that we focus on long-term value, the financial horizontal P&L investment approach that we use, and the way that over time we have a whole methodology of retrospective measurement of how our various programs are performing, and relative to expectation, relative to hurdle rate, and all of these kinds of things—in a way that I think has really demonstrated the power of this.

Speaker #4: And so, when I then say to investors, "We are at a time where we have exceptional opportunity going forward," that opportunity—there are sort of two different buckets of investment related to what I'm describing as just the extraordinary opportunity we see going forward.

Richard Fairbank: That opportunity, there's sort of two different buckets of investment related to what I'm describing as just extraordinary opportunity we see going forward. One is on the business side, the horizontal P&L measurement of our investments across these emerging businesses and so on. The other thing is a choice that we do at Capital One, which doesn't lend itself to such precise horizontal P&Ls, Moshe, as you know, which is building the technology foundation of the company. I don't know a way to create a horizontal P&L for a data ecosystem or the move to the cloud. There's some things that we do that we work backwards from what is the bone structure that we need to win? We go out and build that, and we are seeing that while it's going to be impossible to measure the return on some of these things.

Speaker #4: One is on the business side, the horizontal P&L measurement of our investments across these emerging businesses and so on. And the other thing is a choice that we make at Capital One, which doesn't lend itself to such precise horizontal P&Ls.

Speaker #4: Moshe, as you know, is building the technology foundation of the company. I don't know a way to create a horizontal P&L for a data ecosystem or for the move to the cloud.

Speaker #4: So there are some things that we do where we work backwards from what is the bone structure that we need to win, and we go out and build that. We are seeing that, while it's going to be impossible to measure the return on some of these things.

Speaker #4: I think if there were a way to do it over time, it would turn out to be the most high-yielding investment that we've ever made.

Richard Fairbank: I think if there were a way to do it over time, it would turn out to be the most high-yielding investment that we've ever made. It's a bit of a tough way to make a living for Capital One and for our investors. I think this approach, Moshe, is a key reason we're here today and a central reason that we have the opportunity set that we have. I look forward to our investors enjoying the returns from patient commitment to this approach. Thank you.

Speaker #4: So it's a bit of a tough way to make a living for Capital One and for our investors, but I think it's a key reason.

Speaker #4: This approach, Moshe, is a key reason we're here today and a central reason that we have the opportunity set that we have. I look forward to our investors enjoying the returns from patient commitment to this approach.

Speaker #4: Thank you.

Jeff Norris: That concludes our Q&A session and our call for this evening. Thank you very much for joining us on this call. Thank you for your interest in Capital One. Have a great evening.

Speaker #1: That concludes our Q&A session and our call for this evening. Thank you very much for joining us. Thank you for your interest in Capital One.

Speaker #1: Have a great evening.

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

Q2 2026 Capital One Financial Corp Earnings Call

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