Capital One Financial Corp Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ryan Nash - Goldman Sachs & Co. LLC - Analyst : So Rich, delinquencies have been in line or better for nine straight months losses, and you talked about delinquencies now being down on a year-over-year basis and losses have sort of followed suit, but at a little bit of a slower pace. And you've outlined a lot of the reasons deferred charge-offs, the press recoveries. But when you think about credit from here, just broadly, what are you seeing from the consumer? And how are you thinking about loss performance as well as any other factors that could be impacting losses? And do you think we're on a downward trajectory from here? And I have a follow-up. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 21, 2025 / 10:00PM, COF.N - Q4 2024 Capital One Financial Corp Earnings Call

Question: Ryan Nash - Goldman Sachs & Co. LLC - Analyst : Got it. If I can throw in one high-level follow-up. So Rich, efficiency improvement has been a hallmark of Capital One for the last seven or eight years ex a small period during COVID. You recently talked about investments you wanted to make in the network once the deal hopefully closes at some point in the first quarter. . I guess the question is, do you expect to continue to be on an efficiency journey fully recognizing that the cost saves obviously make it easier? But just curious how you're thinking about efficiency for the consolidated company over the medium term, fully recognizing that there's going to be a lot of noise in the results?

Question: Terry Ma - Barclays Capital, Inc - Analyst : I wanted to follow up on credit first. It seems the trend that we've seen for the second derivative suggest there's room for that to continue to go lower. Is there some sort of framework to think about how much lower DQs and can trend going forward? And is there anything in the near term that can cause the second derivative to inflect higher again? And I have a follow-up.

Question: Terry Ma - Barclays Capital, Inc - Analyst : Got it. That's helpful. Maybe just to talk about the Auto business. You called out the loan book returned to growth this quarter. Should we expect you to lean into that and see loan growth accelerate? And maybe can you just talk about the overall profitability of the loans we're booking today versus what you've seen historically?

Question: Rick Shane - JPMorgan Securities LLC - Analyst : Rich, you did a great job laying out the factors that have caused the historical relationship between labor and credit to weaken. And one of the factors you mentioned was the impact of rates. And it makes sense, credit cards are one of the two largest classes of floating rate consumer debt. As we think about reversion to historical norms, should we expect charge-off rates to be structurally higher as long as interest rates are structurally higher? Or is it possible to get back to historic loss rates in a high interest rate environment?

Question: John Pancari - Evercore ISI - Analyst : Just on the efficiency side, just a follow-up to Ryan's line of questioning. I know you've guided to an operating efficiency ratio in the low 42% range for 2024. Does this 42% range remain the case as you look at 2025? Or do you see a change to the upside or the downside off of this level?

Question: John Pancari - Evercore ISI - Analyst : Got it. Okay. And then one quick second one. I assume this will be a pretty quick answer, but it would be helpful if there's any -- have you made any changes to your expected deal metrics tied to the Discover deal, either the 15% or greater EPS accretion in '27 or the expense efficiencies or the timing of adding the $175 billion in purchase volume to the network? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 21, 2025 / 10:00PM, COF.N - Q4 2024 Capital One Financial Corp Earnings Call

Question: Mihir Bhatia - BofA Securities, Inc - Analyst : I wanted to start first by just talking about NIM a little bit. You called out the Walmart impact this quarter. Any other call-outs for the quarter? It just feels banks have been quite disciplined about lowering saving accounts, interest rates as the Fed has reduced rates. Do you think that continues? Or are you starting to see some demand for deposits or deposit competition ramping as we start contemplating loan growth here in 2025? I guess just related to that, if you could just talk about some of the puts and takes on NIM in 2025, that would be great.

Question: Mihir Bhatia - BofA Securities, Inc - Analyst : Got it. And then maybe just turning quickly to capital return. You've been doing $150 million in buyback the last few quarters. Your CET1 is up to 13.5%. You understand with the deal, you have to get approval, right, for any capital actions. But the question is -- two-part question there, is that approval of keeping you a little conservative right now? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 21, 2025 / 10:00PM, COF.N - Q4 2024 Capital One Financial Corp Earnings Call And two, once the deal is approved, should we assume you'll be pretty aggressive in getting that down? Or would it probably fair to assume it stays elevated for a little bit even post deal as you get through the integration?

Question: Bill Carcache - Wolfe Research, LLC - Analyst : Rich and Andrew. It was good to hear all the references to the capital and arena around the inauguration. I wanted to ask about your ability to better compete against the big banks in debit, assuming the Discover transaction closes as you expect? . We know debit rewards for Visa, Mastercard issuers essentially went away after the force reduction in interchange under Dodd-Frank. But would reintroducing debit rewards be something that you'd consider given the greater flexibility that owning the Discover Network will afford you?

Question: Moshe Orenbuch - TD SECURITIES (USA) LLC - Analyst : Rich, you talked about better growth in auto and card talked about the high-end card. Talk about the nonprime businesses in both card and auto, given the improved credit, how you're thinking about growth in those businesses in the coming quarters? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 21, 2025 / 10:00PM, COF.N - Q4 2024 Capital One Financial Corp Earnings Call

Question: Moshe Orenbuch - TD SECURITIES (USA) LLC - Analyst : Got it. And maybe just as a follow-up. When you think about reserve levels given that you are seeing or likely to see some improvement in credit losses kind of on a core basis or like-for-like? And it sounds like the growth is probably -- growth that you have in the balance sheet is probably going to come in your lower loss categories, not the higher ones. Thoughts about the reserve level as we move forward.

Question: Don Fandetti - Wells Fargo Securities LLC - Analyst : Yes, Rich, your credit card purchase volume growth like account basis has picked up. I'm just trying to get a sense if this is a Q4 blip or are you thinking that the consumer is actually more confident here after the election. Are you seeing that same improvement in Consumer and Small business as well?

Question: Don Fandetti - Wells Fargo Securities LLC - Analyst : Got it. And Andrew, you touched on this, but your '24 vintage, can you talk a little bit about how you're feeling -- how you're seeing that shape up in terms of credit performance? I've seen some industry data that shows delinquencies are still pretty high for '24.

Question: Sanjay Sakhrani - Keefe, Bruyette & Woods, Inc - Analyst : I guess, Rich, just one more on the deal. Given the time line that you've outlined early this year, is it fair to assume like everything is going pretty smoothly in terms of the regulatory approval process and there hasn't been any surprises. I'm also wondering sort of where you guys are in terms of the integration efforts and how much work has been done there.

Question: Sanjay Sakhrani - Keefe, Bruyette & Woods, Inc - Analyst : Okay. Just to follow up on a question Ryan asked some time ago on sort of when you put the companies together and the efficiencies and sort of the investments that need to be made. I guess when you put the two companies together, the efficiency ratio actually goes down. And obviously, there's a lot of synergies, both on revenues and expenses. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 21, 2025 / 10:00PM, COF.N - Q4 2024 Capital One Financial Corp Earnings Call Do you think those are sufficient enough to accomplish -- I'm just trying the question again. Do you think those are sufficient enough to make all of the investments that you sort of outlined? Or do you think that there's others that you might have to make as you peel the onion a bid when you have the company?

Question: John Hecht - Jefferies LLC - Analyst : First question, just thinking about the mix of the overall consumer book, I mean you've got some new cars like the Venture 1 and Quicksilver and some of those are attractive to different demographic groups and then you've got the subprime mix and then you've got auto. Where do we see -- just given kind of inbound customer mix, where do we see that going this year as a stand-alone business? And then, Rich, do you have any comments on what the total portfolio might look like assuming the combination with Discover.