Capital One Financial Corporation

Welcome to the Capital One fourth 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, 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 Global Finance. Sir, you may begin.

Thanks very much, Justin, and welcome everyone to Capital One's fourth 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, CapitalOne.com, and follow the links from there. In addition to the press release and financials, we've included a presentation summarizing the our fourth quarter 2021 results. 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 the 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 and the material speak only as of the particular date or dates indicated in the material. 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 these factors, please see the section titled forward-looking information in the earnings release presentation, and the risk factor section in our annual and quarterly report, accessible at the Capital One website and filed with the SEC. With that, I'll turn the call over to Mr. Young. Andrew?

Andrew Young Thanks, Jeff, and good afternoon, everyone. I'll start on slide three of tonight's presentation. In the fourth quarter, Capital One earned $2.4 billion, or $5.41 per diluted common share. For the full year, Capital One earned $12.4 billion, or $26.94 per share. On an adjusted basis, full-year earnings per share were $27.11. Full-year ROTC was 28.4 percent. Included in the results for the fourth quarter was an upgrade to a legacy rewards program, which increased our rewards liability and decreased non-interest income by $92 million. Both period end and average loans held for investment grew 6% on a linked quarter basis. Ending loans grew 10% in domestic card, 7% in commercial, and 1% in consumer banking. Revenue in the linked quarter increased 4%, driven by the loan growth I just described, while total non-interest expense increased 12% in the quarter, driven by increases in both operating and marketing expenses. Provision expense in the quarter was $381 million, as net charge-offs of $527 million were partially offset by a modest allowance release. Turning to slide four, I will cover the changes in our allowance in greater detail. For the total company, we released $145 million of allowance in the fourth quarter, bringing the total allowance balance to $11.4 billion. The total company coverage ratio now stands at 4.12%. Turning to slide five, I'll discuss the allowance of each of our segments in greater detail. As you can see in the graph, our allowance coverage ratio declined in each of our segments. In domestic card, the allowance balance remained flat at $8 billion. The decline in card coverage was driven by the impact of balance growth that I highlighted earlier. In our consumer banking segment, continued strength in auto auction values drove a decline in both the allowance balance and the coverage ratio. And in commercial, the decline in allowance balance was driven by modest credit improvement in the existing portfolio. In addition to the allowance decline, the coverage ratio was also aided by growth in lower loss segments. Turning to page six, I'll now discuss liquidity. You can see our preliminary average liquidity coverage ratio during the fourth quarter was 139%. The LCR remains stable and continues to be well above the 100% regulatory requirement. We continue to gradually run off excess liquidity built during the pandemic. Relative to the prior quarter, ending cash and equivalents were down about $5 billion and investment securities were down about $3 billion. as we used our liquidity to fund loan growth and share buyback. Turning to page seven, I'll cover our net interest margin. You can see that our fourth quarter net interest margin was 6.6%, 25 basis points higher than Q3, and 55 basis points higher than the year-ago quarter. The linked quarter increase in NIM was largely driven by balance sheet mix as we had a reduction in cash and securities, as well as a higher amount of card loans. Outside of quarterly day count effects, the NIM from here will largely be a function of the change in card balances, cash and securities levels, and interest rates. Turning to slide eight, I will end by discussing our capital position. Our common equity tier one capital ratio was 13.1%. at the end of the fourth quarter, down 70 basis points from the prior quarter. Net income in the quarter was more than offset by share repurchases and growth in risk-weighted assets. We continue to estimate that our CET1 capital need is around 11%. In the fourth quarter, we repurchased $2.6 billion of common stock, which completed our $7.5 billion board authorization. Our Board of Directors has approved an additional repurchase authorization of up to $5 billion of the company's common stock. With that, I will turn the call over to Rich. Rich?