Capital One Financial Corporation

Good day and thank you for standing by. Welcome to the Capital One Q2 2024 earnings call. 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, Josh, and welcome everyone to Capital One's second quarter 2024 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 second quarter 2024 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 the 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 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 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 the Capital One website and filed with the SEC. And with that done, I'll turn the call over to Andrew Young. Andrew?

Thanks, Jeff, and good afternoon, everyone. I will start on slide three of tonight's presentation. In the second quarter, Capital One earned $597 million, or $1.38 per diluted common share. Included in the results for the quarter were adjusting items related to the Walmart partnership termination, Discover integration costs, and an accrual for our updated estimate of the FDIC's special assessment. Net of these adjusting items, second quarter earnings per share were $3.14. Relative to the prior quarter, period end loans held for investment increased 1% while average loans were flat. Ending deposits were flat versus last quarter while average deposits increased 1%. Our percentage of FDIC insured deposits increased one percentage point to 83% of total deposits. Pre-provision earnings in the second quarter increased 7% from the first quarter. Revenue in the linked quarter increased 1%, driven by higher net and non-interest income, while non-interest expense decreased 4%, driven by a decline in operating expense. Our provision for credit losses was $3.9 billion in the quarter. The $1.2 billion increase in provision relative to the prior quarter was almost entirely driven by higher allowance. Included in the second quarter was an $826 million allowance billed from the elimination of the loss sharing provisions that occurred within the termination of the Walmart partnership. The remaining quarter over quarter provision increase was driven by a $353 million higher net reserve build and a $28 million increase in net charge-offs. Turning to slide four, I will cover the allowance in greater detail. We built $1.3 billion in allowance this quarter. The allowance balance now stands at $16.6 billion. Our total portfolio coverage ratio increased 35 basis points to 5.23%. The increase in this quarter's allowance and coverage ratio was largely driven by a build in our card segment. I'll cover the drivers of the changes in allowance and coverage ratio by segment on slide five. In our domestic card business, the allowance coverage ratio increased by 69 basis points to 8.54%. The substantial majority of the increase in coverage was driven by the impact of the termination of the Walmart loss sharing agreement. In our consumer banking segment, the allowance decreased by $23 million, resulting in a five basis point decrease to the coverage ratio. And finally, our commercial banking allowance increased by $6 million. Coverage ratio remained essentially flat at 1.74%. Turning to page six, I'll now discuss liquidity. Total liquidity reserves in the quarter decreased about $5 billion to approximately $123 billion. Our cash position ended the quarter at approximately $45 billion down about $6 billion from the prior quarter. The decrease was driven by wholesale funding maturities, loan growth, and declines in our commercial deposits, partially offset by deposit growth in our retail banking business. You can see our preliminary average liquidity coverage ratio during the second quarter was 155%, down from 164% in the first quarter. Turning to page seven, I'll cover our net interest margin. Our second quarter net interest margin was 6.7%, one basis point higher than last quarter and 22 basis points higher than the year ago quarter. The relatively flat quarter over quarter NIM was the result of largely offsetting factors. NIM in the quarter benefited from the termination of the revenue sharing agreement with Walmart as well as modestly higher yields in the auto business. These two factors were roughly offset by the seasonal effects on yield in the card portfolio and a slight increase in the rate paid on retail deposits. Turning to slide eight, I will end by discussing our capital position. Our common equity tier one capital ratio ended the quarter at 13.2%, 10 basis points higher than the prior quarter. Net income in the quarter was largely offset by the impact of dividends and $150 million of share repurchases. During the quarter, the Federal Reserve released the results of their stress test. Our preliminary stress capital buffer requirement is 5.5%, resulting in a CET-1 requirement of 10%. However, as we disclosed in our last 10Q, The announcement of the acquisition of Discover constituted a material business change. As a result, we are subject to the Federal Reserve's preapproval of our capital actions until the merger approval process has concluded. With that, I will turn the call over to Rich. Rich?