Capital One Financial Corporation

Good day, and thank you for standing by. Welcome to Capital One Q3 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Norris, Senior Vice President of Finance. Please go ahead.

Thanks very much, Amy, and welcome everyone to Capital One's third quarter 2013 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 have included a presentation summarizing our third quarter 2023 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 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. 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 reports accessible at Capital One website and filed with the SEC. Now I'll turn the call over to Mr. Young. Andrew.

Thanks Jeff and good afternoon everyone. I will start on slide three of tonight's presentation. In the third quarter, Capital One earned $1.8 billion. or $4.45 per diluted common share. Pre-provision earnings of $4.5 billion were up 7% compared to the second quarter and 17% compared to the year-ago quarter. Both period end and average loans held for investment increased 1% relative to the prior quarter, driven by growth in our domestic card business. Period end deposits increased 1% in the quarter, while average deposits were flat. Our percentage of FDIC-insured deposits ended the quarter at 80% of total deposits. We have provided additional details on deposit trends on slide 18 in the appendix. Revenue in the linked quarter increased 4%, driven by both higher net interest and non-interest income. Non-interest expense increased 1% in the quarter, as higher marketing expense was partially offset by lower operating expense. Provision expense was $2.3 billion, with $2 billion of net charge-offs and an allowance bill of $322 million. Turning to slide four, I will cover the allowance balance in greater detail. The $322 million increase in allowance brings our total company allowance balance up to $15 billion as of September 30th. The total company coverage ratio is now 4.75%, up five basis points from the prior quarter. I'll cover the drivers of the changes in allowance and coverage ratio by segment on slide five. Relative to last quarter's assumptions underlying the allowance, the baseline forecast in this quarter for most key economic variables improved. However, we continue to assume several key economic variables worsened from today's levels. In our domestic card business, the allowance balance increased by $349 million. The coverage ratio was largely flat at 7.79%. The predominant driver of the increased allowance was the growth in loans. The positive impact from the modestly improved economic outlook was largely offset by the impact of replacing the lost content of the third quarter of 2023 with a 12-month reasonable and supportable period that now includes the third quarter of 2024. In our consumer banking segment, the allowance balance declined by $136 million. The improved economic outlook and a decline in loan balances drove the release. And in our commercial banking business, the allowance increased by $97 million. The build reflected the impact of rising interest rates and other factors on certain commercial real estate and corporate borrowers, including our commercial office portfolio. On slide 17 in the appendix, we have included additional details on the office portfolio. I'll also note that in the third quarter, we completed the sale of approximately $900 million of loans from our commercial office portfolio that were previously marked as held for sale. The commercial, the coverage ratio in the commercial business increased by 12 basis points and now stands at 1.74%. Turning to page six, I'll now discuss liquidity. You can see our preliminary average liquidity coverage ratio during the third quarter was 155%, up from 150% last quarter and 139% a year ago. Total liquidity reserves in the quarter were largely flat at $118 billion. Higher cash balances were offset by a decline in the market value of our investment securities portfolio. Our cash position ended the quarter at approximately $45 billion, up about $3 billion from the prior quarter. Turning to page 7, I'll cover our net interest margin. Our third quarter net interest margin was 6.69%, 21 basis points higher than last quarter, and 11 basis points lower than the year-ago quarter. The quarter-over-quarter increase in NIM was largely driven by higher card yields, a continued mixed shift towards card loans, and one additional day in the quarter, partially offset by higher rate paid on deposits. Turning to slide eight, I will end by discussing our capital position. Our common equity tier one capital ratio ended the quarter at 13%, approximately 30 basis points higher than the prior quarter. Net income in the quarter was partially offset by an increase in risk-weighted assets, common and preferred dividends, and the share repurchases we completed in the quarter. With that, I will turn the call over to Rich. Rich?