Capital One Financial Corporation

Good day and thank you for standing by. Welcome to the Capital One Q4 2024 earnings call. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. I would now like to hand the conference over to your speaker today, Jeff Norris, Senior Vice President of Finance. Please go ahead.

Thanks, Josh, and welcome, everyone. Just as a reminder, as always, we are webcasting live over the Internet, and 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 our fourth 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 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, and click on Financials, and 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 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 factor section in our annual and quarterly reports that are accessible at Capital One's website filed with the SEC. Now I'll turn the call over to Mr. Young. Andrew?

Thank you, Jeff, and good afternoon, everyone. I will start on slide three of tonight's presentation. In the fourth quarter, Capital One earned $1.1 billion, or $2.67 per diluted common share. For the full year, Capital One earned $4.8 billion, or $11.59 per share. Included in the results for the fourth quarter were adjusting items related to Discover integration costs and a legal reserve bill. Net of these adjusting items, fourth quarter earnings per share were $3.09. Full year adjusted earnings per share were $13.96. We also had one notable item in the quarter, which was $100 million of accelerated philanthropy contributions. Pre-provision earnings of $4.1 billion in the fourth quarter were down 13% from the third quarter, driven by higher non-interest expense. The linked quarter increase in non-interest expense was driven by increases in both operating expense and marketing spend. Revenue in the linked quarter increased 2%, driven by higher non-interest income. Provision for credit losses was $2.6 billion in the quarter, up about $160 million relative to the prior quarter. The quarterly increase in provision was driven by higher net charge-offs, partially offset by a larger allowance release. Turning to slide four, I will cover the allowance in greater detail. We released $245 million in allowance this quarter, and our allowance balance now stands at $16.3 billion. The decrease in this quarter's allowance was driven by releases in our commercial banking and commercial segments. Our total portfolio coverage ratio decreased 20 basis points to 4.96%. I'll cover the drivers of the changes in allowance and coverage ratio by segment on slide five. The allowance balance in our domestic card business was flat. The coverage ratio declined 33 basis points, primarily driven by seasonal balances, as well as favorable near-term credit trends. In our consumer banking segment, we released $131 million in allowance, resulting in a 22 basis point decrease to the coverage ratio. Vehicle values were stable in the quarter, resulting in an improved recovery outlook, which drove the release. And finally, our commercial banking allowance decreased by $130 million, resulting in a 15 basis point decrease to the coverage ratio. The release was primarily driven by the reduction in criticized loans, and to a lesser extent, by charge-offs in the quarter. Turning to page six, I'll now discuss liquidity. Total liquidity reserves in the quarter decreased by about $8 billion to approximately $124 billion. Our cash position ended the quarter at approximately $43 billion, down about $6 billion from the prior quarter. The decline in cash was largely driven by seasonally higher card loans and funding maturities, which were partially offset by continued strong growth in our consumer banking business deposits. Our preliminary average liquidity coverage ratio during the fourth quarter was 155%. Turning to page seven, I'll cover our net interest margin. Our fourth quarter net interest margin was 7.03%, eight basis points lower than last quarter, and 30 basis points higher than the year-ago quarter. The linked quarter decrease in NIM was primarily driven by lower asset yields, which were only partially offset by lower deposit and wholesale funding costs. Turning to slide 8, I will end by discussing our capital position. Our common equity Tier 1 capital ratio ended the quarter at 13.5%, 10 basis points lower than the prior quarter. Net income in the quarter was more than offset by the impact of loan growth, dividends, and $150 million of share repurchases. As a reminder, the announcement of the acquisition of Discover constituted a material business change. Therefore, we continue to be subject to the Federal Reserve's pre-approval of our capital actions until the merger approval process has concluded. With that, I will turn the call over to Rich.