Capital One Financial Corporation

Good day, ladies and gentlemen. Welcome to the Capital One first quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answered period. If you would like to ask a question during this time, simply press the star key, then the number one on your telephone keypad. If you'd like to withdraw your question from the queue, please press the star key, then the number two. Thank you. I would now like to turn the call over to Mr. Jeff Norris, Senior Vice President of Finance. Sir, you may begin.

Thanks very much, Keith, and welcome everybody to Capital One's first quarter 2021 earnings conference call. As usual, we are webcasting live over the internet. To access the call on the internet, please log on to Capital One's website at CapitalOne.com and follow the links from there. In addition to the press release and financials, we have included a presentation summarizing our first quarter 2021 results. With me today 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 will walk you through this presentation. To access a copy of the presentation and the press release, please go to Capital One's website, click on Investors, then click on Quarterly Earnings Release. Please note that this presentation may contain forward-looking statements. Information regarding Capital One's financial performance and any forward-looking statements contained in today's discussion in the materials speak only as of the particular date or dates indicated in the materials. 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. And for more information on those factors, please see the section titled Forward-Looking Information in the Earnings Release Presentation and the Risk Factors section in our annual and quarterly reports accessible at the Capital One website and filed with the SEC. With that, I'll turn the call over to Mr. Young.

Andrew. Thanks, Jeff, and good afternoon, everyone. I'll start on slide three of tonight's presentation. In the first quarter, Capital One earned $3.3 billion, or $7.03 per diluted common share. Pre-provision earnings increased 1% in the quarter to $3.4 billion, and we recorded a provision benefit of $823 million. After recognizing $535 million of gains during 2021 on our snowflake investment, we had a loss on our position in the first quarter of $75 million, or 12 cents per share. We have now fully exited our position with a cumulative gain of $460 million. Turning to slide four, I will cover the quarterly allowance moves in more detail. In the first quarter, we released $1.6 billion of allowance. The release was driven by strong credit performance across all of our businesses and a more favorable economic outlook that includes the 1.9 trillion stimulus package passed in March. Our allowance continues to assume that the relationship between economic metrics and credit performance reverts to historical patterns. And despite the strong credit performance and more favorable economic outlook, we continue to hold significant qualitative factors to account for a number of remaining uncertainties. Turning to slide five, I'll provide some detail on the allowance coverage by segment. After the impact of the $1.6 billion allowance release, our coverage levels declined modestly across all segments from the prior quarter and remain well above pre-pandemic levels. Our domestic card coverage is now 10.5%, down from 10.8% last quarter. Our branded card coverage is 12.1%. Recall that the difference between branded and domestic coverage is driven by the loss sharing agreement in our partnership portfolio. Coverage in our consumer business declined 38 basis points to 3.6%. And coverage in our commercial banking business fell 23 basis points to 2%. Moving to slide six, I'll discuss liquidity. You can see our preliminary average liquidity coverage ratio during the first quarter was 139%, well above the 100% regulatory requirement. Our liquidity reserves from cash, securities, and federal home loan bank capacity ended the quarter at approximately 151 billion. The 7 billion increase in total liquidity is largely attributable to strong inflows of consumer and commercial deposits in the last few weeks of the quarter. Turning to slide seven, I'll discuss our net interest margin. NIM declined six basis points in the linked quarter due to a 14 basis point headwind from having two less days in the quarter, as well as a higher mix of cash. These factors were partially offset by the full quarter effect of deposit pricing actions we took in the fourth quarter and a modest increase in loan yields. Lastly, turning to slide eight, I will cover our capital position. Our common equity tier one capital ratio was 14.6% at the end of the first quarter, up 90 basis points from the fourth quarter and 260 basis points higher than a year ago. We continue to estimate that our CET1 capital need is around 11%. Recall that in January, our board of directors authorized a repurchase plan of up to 7.5 billion of the company's common stock. In the first quarter, we repurchased 490 million of common stock at an average price of approximately $114 per share. Based on the Fed's extension of the trailing four-quarter average earnings rule, our share repurchase capacity will be limited to approximately 1.7 billion in the second quarter. The timing and amount of all future stock repurchase activity will be a function of any regulatory restrictions, stock trading volumes, and our holistic view of our capital position. With that, I will turn the call over to Rich. Rich?