Capital One Financial Corporation

Good day, ladies and gentlemen, and welcome to the Capital One first quarter 2022 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'd 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, Keith, and welcome everybody to Capital One's first quarter 2022 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've included a presentation summarizing our first quarter 2022 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 this presentation. To access a copy of the presentation and 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 other forward-looking statements contained in today's discussion and the materials are 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 factor section in our annual and quarterly reports. accessible at the Capital One website and filed with the SEC. Now I'll turn the call over to Mr. Young. Andrew?

Andrew Young Thank you, Jeff, and good afternoon, everyone. I'll start on slide three of tonight's presentation. In the first quarter, Capital One earned $2.4 billion, or $5.62 per diluted common share. The results include one notable item, a $192 million gain, from the sale of two card partnership loan portfolios in the quarter. Period end loans held for investment grew 1% on a linked quarter basis, and average loans grew 3%. Revenue in the linked quarter increased 1%. Non-interest expense decreased 3% in the quarter, driven by declines in both marketing and operating expenses. Provision expense in the quarter was $677 million as net charge-offs of $767 million were partially offset by an allowance release. Turning to slide four, I will cover the changes in our allowance in greater detail. For the total company, we released $119 million of allowance in the first quarter. and the total allowance balance now stands at $11.3 billion. We continue to hold an elevated amount of qualitative factors to account for a number of uncertainties. Our total company coverage ratio is now 4%. Turning to slide five, I'll discuss the allowance and coverage of each of our segments. As you can see in the graph, our allowance coverage ratio was largely flat across each of our business segments. In our total card segment, the allowance balance declined $65 million, driven by our international card businesses. In our domestic card business, the allowance balance remained flat at $8 billion. With the slight decline in ending loans, the flat allowance balance in domestic card resulted in a slight increase in the coverage ratio to 7.38%. In our consumer banking segment, the allowance balance declined by $16 million, which, when coupled with loan growth, resulted in a 10 basis point decline in coverage to 2.37%. And in commercial, the $41 million decline in allowance balance was driven by portfolio credit improvement, The decline in coverage ratio was driven by both the allowance release as well as growth. Turning to page six, I'll now discuss liquidity. You can see our preliminary average liquidity coverage ratio during the first quarter was 140%. The LCR remains stable and continues to be well above the 100% regulatory requirement. The investment portfolio ended the quarter at $89 billion, declining by about $6 billion on a linked quarter basis. Rising rates drove a market value decline of $4.3 billion, with the remaining decline due to our continued efforts to reduce our investment portfolio from the elevated levels during the pandemic. Turning to page seven, I'll cover our net interest margins. Our first quarter net interest margin was 6.49%, 50 basis points higher than the year-ago quarter and 11 basis points lower than Q4. Relative to a year ago, the increase in NIM is largely driven by a balance sheet shift as we deployed excess cash to loans. The linked quarter decrease in NIM was driven by having two fewer days in the first quarter. Normalizing for day count effect, higher yields in both our card business and in our investment portfolio were roughly offset by the impacts of hedges on the balance sheet and lower auto yields. Outside of quarterly day count, the NIM from here will largely be a function of the changes in our balance sheet mix, interest rates, and the impacts of competition on loan yields and deposit betas. Turning to slide eight, I will end by discussing our capital position. Our common equity tier one capital ratio was 12.7% at the end of the first quarter, down 40 basis points from the prior quarter. Net income in the quarter was more than offset by share repurchases, the impact of the CECL transition, and higher risk weighted assets. Recall that the phase in of CECL transition relief began on January 1st. We recognized 25% of our $2.4 billion total after-tax phase-in amount in the first quarter. Also in the quarter, we repurchased $2.4 billion of common stock as part of the $5 billion share authorization that our board approved in January. Earlier this month, In addition to approving our CCAR 2022 submission and our capital plan, our Board of Directors also approved the authorization of up to an additional $5 billion of common stock repurchases that will be available beginning in the third quarter of this year. We continue to estimate that our CET1 capital need is around 11%. With that, I will turn the call over to Rich. Rich?