Capital One Financial Corporation

Good day, ladies and gentlemen. Welcome to the Capital One third 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 answer 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 would like to withdraw your question from the star key, then press 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. Welcome everybody to Capital One's third 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 the financials, we've included a presentation summarizing our third 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 press release, please go to Capital One's website, click on Investors, and 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 and the materials speak only as of the particular date or dates indicated in the materials. Capital One does not undertake any obligation to update or revise any of this information, whether as a result of new information, future events, or otherwise. Numerous factors could cause the actual results to differ materially from those described in forward-looking statements. For more information on these factors, please see the section titled Forward-Looking Information in the earnings release presentation and the risk factors section in 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? Thanks, Jeff, and good afternoon, everyone. I'll start on slide three of tonight's presentation. In the third quarter, Capital One earned $3.1 billion, or $6.78 per diluted common share. Included in our results for the quarter was a $45 million legal reserve bill. Net of this adjusting item, earnings per share in the quarter were $6.86. On a GAAP basis, Pre-provision earnings were $3.6 billion, an increase of 7% relative to a quarter ago. Period end loans held for investment grew $11.8 billion, or 5%, as we had strong loan growth across all of our businesses. Recall that we moved $4.1 billion of loans to held for sale late in the second quarter, so average loans in the third quarter grew more modestly at 3%. Revenue increased 6% in the linked quarter, largely driven by the loan growth I just described, coupled with margin expansion in our card business. Operating expenses grew 3% in the quarter, with total non-interest expense increasing 6%. In addition to strong pre-provision earnings, the P&L was aided by a provision benefit in the quarter, as record low charge-offs were more than offset by an allowance release. Turning to slide four, I will cover the changes in our allowance in greater detail. We released $770 million of allowance in the third quarter as the effects of continued actual strong credit performance and a reduction in qualitative factors drove a decline in allowance balance, which was partially offset by loan growth in the quarter. Turning to slide five, you can see our allowance coverage ratios continue to decline across all of our segments, driven by the factors I just described. Turning to page six, I'll now discuss liquidity. You can see our preliminary average liquidity coverage ratio during the third quarter was 143%. The LCR remains stable and continues to be well above the 100% regulatory requirement. Our liquidity reserves from cash, securities, and federal home loan bank capacity ended the quarter at approximately $124 billion, down $13 billion from the prior quarter as we continued to run off excess liquidity built during the pandemic. The 9% decline in total liquidity was driven by a modest reduction in the size of our investment portfolio and $8 billion in lower ending cash balances, which were used to fund loan growth and share repurchases. The decline in cash balances had an impact on our NIM, which I will discuss in more detail on page seven. You can see that our third quarter net interest margin was 6.35%, 46 basis points higher than Q2, and 67 basis points higher than the year ago quarter. The linked quarter increase in NIM was largely driven by four factors. First, the decline in average cash balances I just described. Second, margin expansion in our domestic card business. Third, loan growth in our domestic card business. And lastly, the benefit of one additional day in the quarter. Turning to slide eight, I will end by covering our capital position. Our common equity tier one capital ratio was 13.8% at the end of the third quarter, down 70 basis points from the prior quarter. Net income in the quarter was more than offset by an increase in risk weighted assets and share repurchases. We repurchased $2.7 billion of common stock in the third quarter and have approximately 2.6 billion remaining of our current board authorization of $7.5 billion. At the beginning of the third quarter, we began operating under the Federal Reserve's stress capital buffer framework, resulting in a minimum CET1 capital requirement of 7% as of October 1st. However, based on our internal modeling, we continue to estimate that our CET1 capital need is around 11%. Before I turn the call over to Rich, let me describe a few items related to our preferred stock. On October 18th, we announced our intention to redeem our outstanding preferred stock Series G and Series H in early December. As a result of the full quarter of recent issuances and a partial quarter of the planned redemptions, we expect fourth quarter preferred dividends to remain elevated at around $74 million. Looking ahead to Q1, we expect the run rate for preferred dividends to decline to approximately $57 million per quarter, barring additional activity. With that, I will turn the call over to Rich. Rich?