Capital One Financial (COF) 28 Oct 222022 Q3 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Third Quarter 2022 Capital One Financial Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. to Norris, conference Senior like speaker to now Jeff today, Vice would hand over the your I President, Finance. ahead. go Please

Thank welcome, and quarter call. much, Capital very third conference XXXX everyone One’s earnings you to Liz,

usual, links the on Capital from access One’s there. As Internet. at capitalone.com on please call are over the webcasting the we and To log website Internet, to live follow the

Officer. information, forward-looking Capital only as this contained or and One speak materials undertake Numerous in future may forward-looking does or any any a me to included this to materially key materials. website, whether described click those our Financial and In One’s are you One’s Chief differ the new XXXX from could revise release the in access the a have copy presentation walk press we today’s not of on quarter to obligation on Information particular statements in actual of any and Investors summarizing the the Capital One’s and Chief and contain Fairbank, press addition dates are of date forward-looking statements. Earnings that and presentation results. Capital go as Mr. Richard financials, note With cause evening Rich performance events discussion of click Mr. Release. to presentation result Please Chairman Capital factors Capital third financial our and going Andrew One’s statements. Young, this please indicated To a otherwise. update through information, or this results Quarterly Officer; presentation. regarding and to Andrew release, Executive

the accessible Forward-Looking presentation please section the titled, SEC. earnings the reports Capital Factors quarterly website our annual these see For Risk with at more filed the Information on in factors, section release One and information and and the in

call the Andrew. over turn I’ll Now, to

and in X% In loans Domestic driven One linked presentation. Jeff, Card compensation loan growth quarter quarter, moment. in by linked the In interest share. start both across the in quarter a described and businesses. I grew the driven increase a just of or net in $X.XX growth quarter, will Commercial per average revenue interest tonight’s diluted of common income. operating the driver and largely by touch Slide contributed largely The NIM on more Capital on X%, grew the growth NIM income. the the biggest expense Non-interest earned I’ll increase. Thanks, $X.X basis, expansion, the everyone. grew second On and Higher period-end I net X our increase to good costs increased quarter, X%, billion associated by X% loans headcount linked driven an were expenses. afternoon, and single in

items impact of million drove $X.X driven expenses. the collective charge-offs compensation up to $XXX addition build. number a by of quarter In was expense Provision QX expenses, of also billion, smaller million a and $XXX in allowance net the

the quarter in company’s detail. in our balance $XX.X million the Turning brings changes X. billion will as our cover to greater allowance XX. I to The of in allowance up total $XXX September allowance build Slide

Our XX to total coverage points company increased basis X.XX%. ratio

across discuss X. our coverage segments. Slide I’ll allowance each and of to business Turning the

increased to our qualitative modestly normalization by credit increased economy. coverage in economic drove of and in in The balance impact majority economic million, portion a the X of resulting drove uncertainty expectations in partially balance growth coverage of segment, coverage basis $XX I our and $X the allowance worse to loan of The outlook bringing modestly our As a of increased Banking the allowance the by Commercial each basis a A by allowance corporate corporate the mentioned Domestic increased increase of the our X in continued an In our point factors combination can of million, the criticized in quarter increase normalization finally, X.X%. and the X.XX%. just ratio see a segments. business, graph, offset $XXX $XXX driving allowance loan in X.X%. business In to Card modestly to allowance The outlook, you outlook point the Consumer build. our economic coverage loans ratio our allowance allowance growth modestly corporate in the million worse And were drove build. release the linked billion builds. the in uptick of worsening

liquidity. discuss I’ll X, Page to Turning

our XXX%, coverage see billion ratio liquidity quarter can $XX flat reserves about as at normalized our third the the during have XXX% reserves levels. liquidity roughly regulatory requirement. Total preliminary You largely liquidity pre-pandemic was to average above well were

Our portfolio the securities securities driven in pandemic. the rates offset decrease rising by equivalents. and about market The during we $X higher portfolio cash by runoff a decline our by of the was of the cash billion, portfolio outsized and declined from value built combination in primarily planned continued

Turning year to $X up the net quarter margin. billion, Page ago was income Net in interest and up from last X% our X. I’ll XX% interest quarter. quarter cover from the

quarter from day balance to first, linked and driven Our XX higher third, was XX XX benefit continued in than factors: The net shift net to the recognize by assets of quarter equally quarter. in X.X% yield points away higher roughly card extra quarter, increase the basis NIM interest year the margin sheet income an relative basis basis points was than ago last in costs. the quarter; higher and lower-yielding the a higher assets; funding of towards three third points second,

X. will position. discussing our end by capital Turning to I Slide

Tier billion XX equity repurchases. of the assets, up end in basis quarter. offset third over was growth X relative in was ratio The risk-weighted a at the the little dividends common quarter, capital quarter last million about of preliminary in XX.X% income Our to points net by and mostly share $XXX $X.X

call Rich? longer-term around our that, will that need estimate over CETX capital turn Rich. with And to XX%. continue to We is the I

good the XX% XX. purchase XX coupled loans Slide year-over-year, from billion in the and credit in and the begin the Card the quarter, Card or points by X grew I’ll quarter year-over-year. Both third the charge-off Total X.XX%, Strong The on with XX% quarter increase Credit and margin, our of compared quarter quarter. Year-over-year sequential including basis, every basis the the strong the quarter XXXX. rate of year-over-year delinquency strong third quarter for margin. are results Purchase was evening, to Domestic third shown on XXX purchase the the quarter revenue quarter results and increase Andrew, continued rate XXXX, rate our function up The Slide linked quarter. everyone. at up in up about a year-over-year. year-over-year Credit results basis XX the results volume levels delinquency in XX-plus points loan segment revenue XX volume growth expense the with business. XXXX. prior for charge-off down metric expense up quarter, of increased continue In was was company an XX% On and was from driven quarter. drove rate a growth third revenue are was pre-pandemic revenue million line Card and was quarter which to end rate and well $XXX Domestic an was linked Card business. third the in largely the growth Thanks, points. in balances of rate Domestic continued marketing in trends, above Ending XX% volume top XX% basis The X% compared $XX from Card marketing. strong our and loans to in third up Non-interest Ending in as loans as charge-off normalize. basis delinquency well below year. points was up are X.X%,

of the total business, Card Domestic to Domestic In lean marketing drive continue in growth. company our are we choices Card marketing marketing trends. Our into driver to resilient biggest

risks. close keeping and on marketplace actions We’re eye a potential competitor

our and in We’re as focus engagement and driven growth And spenders our the new strong across our includes the and in account strong early marketing quarter, portal heavy continued our decade-long spender well our franchise of with purchase and by Domestic to in marketing spend continued enhancements behaviors spending on growth marketing quarter. and strong In third seeing drive volume, in and travel business. lounges. new Heavy as accounts airport customers. like strong success spend and spender momentum growth strong third the Card investments accounts continued loans both heavy in bonuses existing

of quarters. build dynamics. auto to continued for results business. Many in and originations, of linked rising decline growth Slide But competitive marketing. pricing back in pull decade-long quarter, We previous in sustained it have capital response and increased by shows to XX% originations, is Banking XX% our but declined growing. revenue, to quarter. resilience, pricing they and we others growth market than appear pull franchise third spender heavy levels on not, Driven this have significantly industry XX have decisions, interest which chose rates gained with brought to enduring quarter quest has they’re In and back compelling, credit, franchise to our auto the the Consumer on are benefits Our and pressured in the lenders year-over-year slower from loan margins. Consumer the Banking their auto reflected share third marginal

loans the year were On a flat. ago loans basis, ending to Third essentially quarter linked-quarter ending grew quarter. X%

was capabilities quarter The compared delinquency delinquency the in and digital basis in points points. XX charge-off points deposits Banking effects Banking was rate The completely auto up the continuing the XX the Consumer XXX to year-over-year third up as The Slide the X.XX%, the quarter rate compared was normalize were Non-interest charge-off in deposits quarter ending to up banking rate XX% charge-off and increased a linked Consumer to quarter was XX X% our continued XX margins up shows partially Third our was marketing up digital up investments the overdraft business. loans sequential XXXX, auto national delinquency third and flat year-over-year in businesses rate auto quarter. was Bank to expense points, year-over-year. for retail XX-plus results X% basis Banking our by Commercial year-over-year. year-over-year. and third the XX-plus basis basis of X.XX%, for driven in for third was up auto On the basis, the fees. quarter rate bank. rate our decline of and offset decision the of eliminate quarter. were Consumer by revenue growth

Average Third second X% X% quarter. in quarter from up ending Average the were deposits specialties. loan growth by X% the the X% up Ending from were selected were quarter. industry down quarter. loans in were driven the in balances up deposits sequential quarter,

remained strong Banking was closing, loan levels We The previous another another below expense to Third quarters revenue the and we rates Loan Commercial to business was rate Charge-off in revenue, opportunities The of and Credit auto of up quarter was up revenue increase the basis card normalize. third increase pre-pandemic rates which rate third was Consumer Commercial X.XX%, operating rate second In quarter our of linked was quarter. our credit some quarter. timing of back strong growth. third half in compared charge-off second XX% and a drive in the our expense, the the Non-interest continued originations, – in annualized across see larger and X to drove any strong strong quarter. year non-performing loan XX% Banking continues and Banking was operating the results also – performing XX%. growth than delinquency an businesses. over criticized Commercial points. growth investment credit usual loans from X.XX%. the we criticized quarter the slower This business remain year. typically quarter. purchase of in up posted in on our are Banking was volume as expense pulled from growth year,

last seen smaller this will We average quarter expect five year’s the than quarter linked increase approximately expense increase that over operating on linked we’ve years. the in fourth quarter be X%

to ratio to XXXX operating efficiency we XXXX. ratio. flat roughly be annual operating expect to year Relative in XXXX, Turning and in modestly down efficiency full

value and operating potential digital any shareholder usual, transform expectations long-term expense efficiency modern up, position to as our deliver we’re in banking. items. continues a As adjusting Pulling exclude technology strong way to compelling

to deliver that marketing continue into revenue asset opportunities sustained to growth resilient We lean and annuities. can see

digital by growth enhanced are our Our opportunities transformation.

And technology, range now, continue a we’re assess competitive we’ll broad thrive uncertainty. by questions. managing scenarios. our economic We proprietary product and ourselves capabilities. answer to digital our position economic dynamics your and capital And to of possible closely improving monitor we’re prudently marketing in and in modern to be Jeff? Powered a continuously put to underwriting, happy

Q&A other single courtesy Remember, to wish as We’ll and a the a to to limit ask one you Rich. Please session. may follow-up. yourself investors question. analysts, question a you, Thank start plus now

follow-up If the available call. session, additional team be Liz, you Q&A. after Investor have the Q&A start questions, please after Relations the will

Instructions] the [Operator Kevin Barker line comes of Our with first Sandler. from question Piper

Your open. line now is

for normalization, key rates what Thanks taking appreciate you we’re back in normalization? to to particularly you questions. relative asset credit would classes. point what do and levels, a in a But still comments afternoon. and for year-over-year that the Good some around I fast rate typical at the expect my how say delinquency growth is too pre-pandemic

your question. so you thank Yes, for Kevin,

Let and me just pull up comment on normalization. just

rate in remain metrics. pre-pandemic from we third let the quarters because pre-pandemic we And about And number, saying know Kevin, levels. this, map it what are it – losses we will growth a exactly unmistakably in frankly, It course, delinquencies our glass it’s and normalize, But first been point a of normalizing see then would just shocking rate back. context all, we’ve But would said which the for strongly gradual pace that that What right bound you know now comment, normalizing. that of we’ve not remain – we of is First so you see me were And than long the if a XX% but of of didn’t have often can a to said of really it Card quarter the There road it bunch and below our talking expected, – is, certain and half that. of about of it’s don’t level. the didn’t would. we time, a numbers, are see we as normalizing. and needed we say magnifying and credit this consumer happen. they I definitely generally the certain if started Domestic believe where to a at out be happen. it is normalization more strong, about now, can where talked to it know there you for exceeds you we’ve pull look And delinquencies we now, all,

by certain and with to course, look also micro So our earlier again a for improve front It more in time quickly number what be end because the – more do as more normalizing – would way, periods of also back starters would than of we lead that pressure we there’s segment we, some that the then normalization Lower of us every with originations faster history, is case at well, certain in normalize well. that normalization. are frankly, more It’s books say in – confirm the as inflation. Kevin. of it new that other books book. patterns weren’t front the segment with decision, the may everything than shocking a happening of more how business look the the XXX% if make that faster. of pandemic. this expected, are the it’s what’s the for rather it pronounced and during be look be And like back front those that at and that change. back book normalizing performing. pronounced we normalizing is clearly we more book, And We see, than – consumers gradually so market. the patterns here, of still And We populations course, are here that but of – the and existing of from at income but book our in And seems is lower would the feeling

is the kind the these what leaning quarters bunch the we’re level vast for what book majority and at across general sub-segment of comfortable the of with of been level, vintage very a in see level, marketplace saying – be the surprising. we front at is high a But the way what into segment in. But shouldn’t now. on very is look patterns the see basically, So a to normal we’re at do micro consistent what front we curves and we at book point trends the of with see and terms a operate metrics, both the and what is and – back book on segments level at various we’ve all the the as we and are, that

of We are pockets bit particular have little a a in around – metrics back we’ve done faster. the where bit little normalizing edges, dialing

for of the on time – could the pull risks sort like are see caused we expect brainstorm what places, of risk relative hunt edges, growth. our And at trimming small and are to scale the effects also go book. looks them. we our that we overall business up the we couple around collective We this the pretty of in of all orthogonal a the but bit with amount of And what the what we in trimming through little say, card would have kinds a see, a seen to of is that

maybe have leaning the card in pulled into As pulling business, very know, back for business, we’re another time, question. the we’re the – back. At I’ll auto you the same save auto we the business, that but in

think the at in micro the remarks in anything you’d may follow-up. book anything made you the make level? just side be pulled outlook Okay. mean, would In you – a – at you. Thank there is corporate is from appreciate that your prepared changes a within level, business look macro I granular very I see look But the particular. particular, and the And of some apparent micro not level. what you there a all I that then about at that back on

Sorry, corporate the repeat changes changes that in part, last in the outlook. you corporate can –

were remarks, outlook back prepared may in in your in when allowance. there particular of about that the said to your macroeconomic you corporate that stood part may believe you affected pull I that cause out Was the there outlook? changes you have anything think

time. the micro we, at segment doing one time, – of the course, the of a we’re Well, examination at whole

We on the across are I’ve And everybody this – collectively, world us It’s really none trends. like early business the looking has of nobody at as level inflation. the often lived – really since we ‘XXs. said, call, something striking the this and of macro

especially with want how might that this effects is So looking very here. the with quarters – for impression different last inflation always the – to I’ve be out. we’re can the left would we’re that to leave here time, the Kevin, net But I impression, so much and respect lookout, many play but you the on that same

question, Next please.

comes with Ryan Our from next Goldman Sachs. question Nash

Your line is now open.

Hey, everyone. evening good

Hey, Ryan.

So cost efficiency the maybe to just side, on start Rich. and

hear you’ll on to be back efficiency next good So improvement year. it’s that the journey

question. a guess, I So just two-part

seasonality But OpEx the And it us You the moving back actually we help expect talked marketing Is what in than on driving spend of pulling hiring the improvement side? up with Thanks. – given marketing to second, you of year? the just about the efficiency else? into improvement? spend And should magnitude next something on the the or can has the less then how is shifted ramping market, historical and in terms level hood fourth of under just quarter. see less

a we’re delinquency about comment credit think as consumers. seasonality. here don’t of as of as want and – to marketing a certain declare seasonality I It’s kind thing a that’s I with to not not make like much things So physics –

of technology improvement, and like marketing With as – investment time, declare respect see driver a and seasonality revenue and efficiency productivity that big here are I the business of the and heavy investment our national so drivers the investment path. is XXXX Technology we think legacy of guidance more the drive not well in of that in invested our so focused level And that kind growth – stack, technology to I’m businesses to it productivity been of same of shared opportunities customers XXX opportunities have basis operating high invest the continued know the digital even improvements. building spender our journey and the of driving efficiency technology our we driving the as opportunities. a in in that pattern for efficiency for a continuing marketing. changes we operating The to operating lean in investors continued about pulling growth over at to and I a this a our automation think from from the generates. bank. productivity up tech vendor just have path. this XXXX talking has improvements and our it’s improvement gains of And in in helps on reflection investing on we’ve with achieved about as helps through into that transformation of same comprehensive future course, We’ve very point period time. our costs, modest And the company. mentioned. shared been for while beneath journey we and also modernizing significant And years. driving And surface in the improvement of traction to And that you XXXX eliminating is modernization

margin. the sheet about Andrew. look drivers you drift the fully think to some rate of to the of the details of rate of as to Thanks. Andrew, balance as maybe higher? it rising a next positioning question, understand the a interest perspective? out see And you there’s one component just as can can margin quarters XQ. out the talk Do for just you during you Got pertains cycle? you course from over continue talk of the that couple the maybe about maybe of the a I net laid follow-up it. in it seasonal that guess, drivers But I the

pandemic, pandemic, you’ll was cash loans. more card little Sure, to history sheet we here. progressed of towards start the and Ryan. And largely that compressed as balance securities driven Recall, by to over NIM our than helpful during a a normalize. the skewed begin And you the course that of probably saw with it’s much bit recall, was

a way NIM our I by had in just XX%. card at evidence, prepared And closer year said think, remarks. my so was ago, X.XX%. that to And point, of was, I

Cards and are think cash our and securities like cash to I securities assets just now something to and down and shifted of was be XX%. XX% interest-earning over XX%.

share I say operating we’re is to pandemic. mix. pre-pandemic that So to to where the was similar our now NIM closer in it roughly our And a before spot sheet much balance

about So relative see we’re to your then our point. risk, in you rate slightly can disclosures, forwards. And question keep that’s only Q, in our at rate sensitive this really to risk asset mind

XXX the already of in point next embedded moves baseline. projected that basis of the So neutral are over couple months sort

of the pricing. mix as balance the here a loan but things that largely in future, so about sheet today, on we impact a that have not impacts NIM, margins things deposit and course. And the sit I seasonality, least But competitive run pointed credit revenue, I as think terms to to can past mention at on number pressure in of lot we think their of the there’s

NIM. the forces play hopefully, gives So you sense that some of this with primary

Next question, please.

Betsy Our next Morgan Stanley. Graseck question with comes from

now Your line is open.

evening. good Hi,

Hey, Betsy.

the Just on to follow-up question. that follow-up for

averaged of the here projects So think funding about you’re how loans, of from this which we it prior quarters, stack? down bit, from mix and balance down terms in mix the quarter, $X you maybe bit two noticed the that speak pre-pandemic your $XXX and sheet was because little And could to now should back liquidity funding about on where a I a bit a thoughts buyback million, the billion. to

more us was pre-pandemic? expecting? and it liquidity be go mix understand of should Thanks. going if be how you’re could So what funding kind you loan Should help growth what even we down to than the

I’ll Rich questions talk I in two over take, NIM and buyback. turn the it and is first about then to I’ll Okay. what heard I to funding, think, there, Betsy,

and on were historically, NIM I it back of sheet. will just and securities to look So if you here. the that, I roughly want do XX% balance side the from of drive portion clarify cash think what our asset

use little and the is a that. growth. given it a of the on that But XX% We’re that marketplace I loan needs sheet for size above of opportunities balance range the our for as we portfolio, that. liquidity we side, for dynamics, what bit in think would assumption becomes investment matter Then really something reasonable a the just see of how

more asset growing terms and of card sheet say, could of we a its And But quickly of think so give than, playing I certainly target whether of or rest drift auto indication don’t in that the how have the percentage out, of commercial, we not to the sheet. is there’s balance side up. any want that’s the balance

think, On wholesale the – historically which, sources funding I other then wholesale brokered XX% been a that’s and of of have funding deposits has securitization side, overall around we and funding. deposits, and and to diversified skewed mix funding commercial something, of largely aim to our retail CDs again, funding, we have

would relatively back to so are a over back in look where there. And we similar we’re today, if levels of to kind say you compared pre-pandemic I again, history place

making in growth. heard marginal from but loan I decisions incremental your funding in think just growth fund I we do here how question, for mix, So not

factors, ability weigh our to our needs. going deposit customer We’re build variety them, funding appetite customers’ to a of products of or different for the and relationships the different funding duration economics instruments, with liquidity of

to liability decision-making that to just choices the the process side. all it’s not It’s out I how we’re figure at to our So about about also going funding into margin. those to think think But important throw of fund.

at growth have margin, choices also We the too. asset

going about buybacks. make I’ll And it both just talk total those the look we’re integrated So hand over choices. of sides to to economics sheet Rich to at of balance the to

with so we your repurchase did why share down the Betsy, you Andrew. to pace – this slow quarter. with Thanks, question respect

So growth, in there course, of roughly during CETX our growth quarter. we driven pace of we’ve been conditions, of error of factors, And our of come at shares course, particularly About years point, and factors, the economic economic forecasted this shares a the then, the and around a sizable number $XXX by repurchasing the ago, And million low high ratio uncertainty. CETX we third Since including is, our had XXs. pretty XXs. into repurchased has some X.X of these earnings, bars actual some remains repurchases market dynamics. capital and down

risk new it’s process. It’s to flexibility very so conservative to is lost our maintain on rules, at we’re like this capital us And dynamic actions. capital able with And the decisions. this. under a in be not prudent our management And SCB times

please. question, Next

with Our next KBW. question Sakhrani comes from Sanjay

now is open. line Your

could down eye drill an Thanks. on growing. Rich, next XX keeping lot the months. XX you’ve that fintechs to very given mentioned a it’s you a if obviously, you’re competitors. little wondering had bit just unpredictable your in months space you a on And I’m of just

about well maybe So you Thanks. and you as there? domestic just mentioned a could variables talk number because different auto of card

you it Sanjay, is talk to Well, want competition-driven did those about spaces? in a competition question? me Or

new I impact guess, an might as we you’ve have on competition, as but also look how underwriting some credit players forward had it because well.

Right.

card about the talk past continues But the to then few the it and quarters. largely generally, be let’s So, competition rational in but business. talk and in stable card competition business, about in I’ll the auto high, over business,

certainly the beyond – we major that marketing Now really set competitive to about I’m have card industry, levels banking talking have But the levels. within seen the here, classic returned the really pre-pandemic business.

we certainly that. on eye So, have an

on in along headline the in APRs come competition issuers in generally adjusted rewards card the are but with have the a the – have with, or generally out there’s things rates business that here there, generally – change there prime rate. new space that On side, there’s the people stability

So in margins there’s kind the of stability there. a a

so the of less portfolio by more cards, a pretty running a fintechs And and the issuing times mentioned major the players. others – thing on affect business that might by stable fintechs the like have. loans, we’ve buy-now-pay-later major from so again, that around card loans a like actually number products credit see customers, installment prospective credit we about in of but impact is their can our that card concerned and A environment competitive borrowing the among and customers current other impact the business,

of the many extent example, size number the buy-now-pay-later for measure concerned compounded of fact were we of because to about credit about the talked like of times by fintech extension these So, a the the of pretty folks reporting it, could one not bureaus. credit we’ve many growing no and rapidly it players,

the businesses. other have vendor those that in virtually eye, side of here There’s fintech lending, lower the for thing market. just way enters don’t heaviest enters course, our no side all one the market. They The scale is, enters of every of the that at caught along virtually the thin-margin the right that

be it. course, from the the see that that we were we logically And they’re market, so fintech the is would the best to in accesses lower to watch of something can and that, and there extent see more inferentially pretty end extent of the what we carefully

fintechs just They thing the the intuitively Now that, quite that a seem here cause bit. one thing to have is have that generally is dialed back struggled. helpful to a

volume just So of of there to choices particular in underwriting But thing for pressure is or the make. folks competition eye marketing that the of less another intensity be it’s amount space. here that not is our the out may keep

Another thing drift. basically had population. absolutely of the can that out see eye in Sanjay, And FICO size on have there the we is subprime you our reduction the that,

Now that we and that great news from America that things of how ask pullbacks forbearance, ourselves just a during is shorter-term the happened the all stimulus, has much subprime the pandemic. or really the spending is declined the that can impact size all

those best So, we our ourselves try do underwriting. to effects to our in for normalize

the I And with that would out more so there and credit Gap] lower cards marketplace exist of the risks say, themselves. end that even the are competitive think we [Audio I where in seen have to

more the in anywhere look of you card credit there been market customers the end terms there’s of in lower at than else. highest growth just the been If – has the data,

around So in all the how can portfolio. of talking. and learning do this. numbers signs a do around just do carefully. – let the partly being of any of it early actually but would strategic of every in But good, this incredibly far, from you places. within to expectation edges a few from do course, the things on is our to look of how we monitoring-based pretty for earlier something to using underwriting, we’re and the do watching our to We inflationary logic everything don’t we, expect environment, do from seeing looks the And own asked environment, We’ve about look then look environment. that was trimmed credit time, segment ultimately that what at competitive broad for run we question so to overall, changes performance. We we’re happen And the same combination this methodologies machine just this we at this off

So into the side of that’s window a business. that

number business, room that an auto really talked side competition a well side. risks the the manage to the in of this auto pricing we so very minutes issue carefully resilience players. – the resilient resilience lower a the The elephant don’t point. business, back that I just and in downturns a in really while trying in of on, on with ago not lead at of of lowers as directly our and credit margin margins general is the the is on the to not at issue loans space competition, pull a underwriting business. to amount of credit buffer But of point least couple the by is concern, parts the the about and lowers the us of And – the On keep it it we maximum the that this exist

much. Great. Thanks very

Next question please.

with Orenbuch comes question next Our Moshe Suisse. Credit from

now Your open. line is

rate about – this sort think an And there change earlier XX major so we you delinquency just businesses auto or next the in relationship the different question wondering or rates. whether kind had you normalization? Rich, card of that through credit – as be between any of months I’m in if the loss your worse delinquency different rate I’m two and in a Thanks. go cycle, and of better will

Moshe, Well, that’s a very usual, as question. insightful

little businesses. about on in of the – a of little auto and how a card credit me just a Let think calibration we bit comment bit just

that more originations. in overall, in auto, in point normalizing the in are because business. of applies card strong losses. has new universal businesses. there both thing it’s places. that That’s credit our portfolio of would auto the quickly. first the much faster And overall front pronounced that auto is be the in tends replaces a are in front But Then normalization three more effects across of But losses, – our been normalize the the book But card, quickly normalization front should book to more business. consumer The auto book be, portfolio losses first then both and driving our card

rates are second in higher auto The in card. that than recovery much is

had that Now tend – lagged to performance where be earlier actually we by boosted the exceptionally from recoveries some including was charge-offs. saw auto, recoveries of charge-offs. relative quarter higher But we to negative charge-offs, in so strong the

auto, back byproduct the if the what’s rate for and this an I coming Now back book, in material with auto impact period contributes vehicle in been both contributes between a , year credit the that that used great two it’s and recoveries it’s And effect year, the be normalizing, airtime stays in up an happening there, so effect the sort an news will in And headwind over is card. which levels to lot a values have we’ve of difference for think a down, our book general has much given than likely of record recoveries And both not back the in will, to work which is something rather it prices ago more but where seen in a relative about business. those of years have businesses, a to car charge-offs just the even to in direction you few and of finally, the credit businesses, normalization been of will extended past future recoveries. over pace strong, the low of gets book, But of out definitionally be are of to auto auto. there’s the last that bigger raw if especially down than recovery businesses. terms in to that to is less going also now but are with, that

at it’s follow-up, of guidance see form as seems But Got sensitive. like an to it, expectation or I the of as look And it it. sheet good your asset a improving efficiency still is balance ratio. some

about so growth? doesn’t how with spending right revenue extent the margin expansion, really see improve – ratio impacted just kind spend And a what’s really I wouldn’t I’m think the lot growth of wondering that of about to revenue And So, attendant because positively to expect is costs? think the to come that? naturally impacted efficiency that way that mean, one versus like-for-like to and by

then first sensitivity. I’ll hand me and take let of in to the asset over Rich Moshe, that, of it part terms

Q, relative quarter and a will it an a up number which forwards. You shock shock. again, to expect I XXX quarter’s fairly is be last that’s And NII, XX-month a can point XX basis see of $XXX quarter, NII. like this million something similar basis impact of Last was would to point couple

baseline want quarters. So, the being couple into baked we’ve the Fed additional already over moves talk you sensitive, next when clarify just of about points to our I that us of XXX anticipated, asset call basis it,

think this sensitivity. walk we asset just I neutral from I the around an suggests But achieving what that. point, So described beyond should at are you pretty shock with

provides before So, I Rich broader just the clarify wanted to that answer.

rooting rates, rises – now, you I Moshe, this I’ve we’ve decades three Yes, for sort or have I is on have often of because Moshe. said, business. say, often of working that I’ve the can on said for the the – know and that impact And often in unquantifiable a gosh, I have and said to in do the – paper the rise calculation rates been measure. is aspects look in we rise a rates. good This but together decades of, a against on been things can other two three I’ve we let’s says it that

auto course, But that math no seeing and is about want business. for the the our the benefits about just kind we’re had that to One is that come inflation that we the kind things the of but think out affect there. here just the risk flag I while of that obvious, one Now of just in important metrics I rooting talks conversation many certain couple kind a of business. of

pricing pricing. most like math make industries the charge business. unlike get I operating the compression fee in impacts we’re what’s finance on to can selling can And the it’s from the comes the come. think reserve their and Andrew’s to sold, the put economy in of back goes we’re sold And really of margins, And friend the any into make business of issue goods operating then, of and And particular that course, the this growth want biggest since, cost effectively cost in losing ratio, rates that a we and auto, in the you seeing the swamp their what – their now, course, auto rate of well, the I in complexity growth how groceries of our And think groceries on store, opportunity businesses interest lender is get funds, classic impact auto and that impacts how also and can right into pressures calculates credit the struggle goods that to transfer of is sort most particularly of calculations. pretty potentially to the growth those – clear business the you’re that ratio, that through efficiency much when outcomes. might the through efficiency – credit price with therefore, way through up, things if how margin way world, what it’s its example is at the the struggle this. rising

why to rather ratio might than efficiency higher So we of continue that’s hope rates. over operating I’m spite not many to yes, ways, years of so kind in – an think, the in be more of progress because I the achieve that

Next question please.

from with Arren question Cyganovich Our comes next Citi.

line now open. Your is

maybe Are at heavy all been spend more pulling I I would your talk in acquiring characterize, your, could you’re hoping I was spectrum recently? acquisitions back that have – you that I Venture you’re a revolver the X nonprime card. a then and card little and lender, about section in today you segment? newer but segment guess And with bit the you Thanks. guess, also having of full

Yes.

wouldn’t pursuit heavy the traction And that that the we at market So in of getting top – we’re us have talked in lot business. the call of player spenders. new relatively the about a I the

But close. We’re players that see actually not think in we to one But traction I not there purchase you been growth metrics metrics spender that at we’re bigger getting. we level – space, about certainly biggest, we see point share growth even pretty – the the more getting the even the higher the rate continue each level, significant whenever of kind there. the but rate don’t in volume, about marketplace. we’ve what in the is the faster the And of growth higher spender –

a I that’s our less market, success of So to we’re in the don’t of the to lean all us about to top – leave byproduct we’re the about therefore manifestation also getting. we it’s of a for the an those the opportunity continue to making, elsewhere. but want it’s investments. But enthusiastic And leads comments the enthusiastic both of are that you impression hear investment

credit continue We to across grow the spectrum.

the lower has the lower transformation in have lot sophistication, machine decades been more that and several of be experience our and have end credit the build the more to learning and And of other more of tech the us things in growth to benefits underwriting and stronger of at into market. real allows We allowing quality process. credit more opportunities us better of – data, market the one the end a

the the we There have minimize. period And of one want a and with however, doing places, are frankly about that balance cautious is revolvers. So high time to you continued across long our been for the those success spectrum. impression of of very net is story, I best to leave one

profitable – not growth go even behind that revolver portfolio. of level back revolver, clarify to a And is little that So ties more for it’s us booking a tends balances that grow. about terms customers way be the also one And their it’s across any – just with resilience high we to their to bureau customer been recession, cautious be the quite term customers a in which a segment It there so – term we after concerned growing any But very balances tends what booking about are business. the us, is bit a – with of been balances. downturns. but a great now. total balance have hand years collectively high to And because have that balance her revolvers – the balance what have necessarily we not to great might revolvers, that just is concept to good high and consumer’s that

tended – into that can segment say can balance now we’ve to can’t what is as that, our no balance high I we control a but they try we so out turn for one to because deemphasize enter like And whether years high fully deemphasize, the that. revolvers, revolvers. own customers get whether control of

go So little that’s lightly. we a a little window maybe where into more

you. Thank

Next question, please.

next Our question with Wells comes from Don Fandetti Fargo.

is now Your line open.

your talk Hey, a you on lot we’ve Are on it’s It’s rollout? little that. public move bit heard since the a a new development Rich. still cloud? product like been improving to Can you the bit feeling

lots our it, of Yes. on company it’s quite bringing vendors the of Is in-house, school them – bringing software. the public to it’s more transformation our to move that that industrywide but thousands involving – company salient talent in Probably not of part It’s the part we the vendors, of Well, at so great transforming ecosystem. has the the certainly most inside of is tech within many It’s as the build involved a a applications data – involved cloud. on opposed about investment cloud, engineers transforming our But built. the the how terms legacy expensive. all central which feel reliance of are technology It’s the company, of part. transformation. transformation and going old who to involved involved of modernizing we tech only Don, this involved

with are to on tremendous, our by software are a work are business moving technology just, it journey The benefits tech in this the way benefit where stack delivery the benefits just to starts lot well, So sooner. to really it. happening decade the point continuing teams products can modern there’s automated engineers all getting itself, faster, and into with us software in market cloud many that and been innovations more tech around we’re cloud. ways are a the to And methods not and also tremendous and our your and

to to better experiences continue better. customer and and just get more Our more

very it of Capital Many awards cards, occasional things wins. some dealer instant The the navigator, been – been scores And innovate have Capital I on issuance. notice things that very management, machine that earlier of we the One things real underwriting, behind the ability and net been new learning in promoter a big we’ve Shopping, to One to power has products and get like That scenes virtual the there. improvements leverage benefited in able beneficial. lot and transformational some of fraud mentioned time. data

these we’re that learning the more is work really our new reason One, power changing marketing. Capital inside investing in of Our marketing transformation platforms. also we of marketing how mass days machine driven Part customized the is

tech and the and of it’s been where thing. of to elephant start thing a that lots talent tech one That is the And companies, us lots I productivity need who sit to say it’s to tech I’ve so of modern in see. best-in-class very seen that’s this happen is Capital get a you accelerating. world it’s did the ability room for build as more I the in talent. competitive is talent. opportunities most mentioned the something for final the that business. And that our why the is building stack stacks that why talent. rewards transformation helping order very market would is this on it virtuous the history in very that the of make now enhancing the The competition labor One and we of thing the And scarcest, as we transformation that’s on of good requires drive like invest really canyon other part benefits really was day, biggest So – to went cycle. tech also Don, more a we a a also, corporate to it, why to and attract have America needed tech the is bunch is we side on much talent The and modern, with in terms in and journey, continue legacy tightest we get the transformation we that in really of we of is had there see earlier of And it’s tech of modern the

question, Next please.

question with comes from JPMorgan. Shane next Our Rick

is line now open. Your

guys, Rick Hey it’s Shane.

I think increase guys of factor you economic how are of on change? rate trajectory and of the in up on. the question seen. you about of setting at we outlook? delinquencies year-over-year, portfolio, function delinquencies the quick got Andrew, a now it I’m you sort single for that Context look where increasing when have the forward, the capture curious, delinquencies going can in are slightly fast And reserve is allowance of it think called or incorporated you. rate domestic the of most we’ve is When function growth. ticked build a portfolio was biggest that card the

just the you Rick. the inputs I about it’s the out. ground to just on let think not the the entirety called of the mechanics, that allowance. to start Sure, piece sort me Well, just mechanics, by of important talking

sheet. of of So, size course just balance factor the the first is the

The about, combination second net were really kind recoveries and talking outlook that sheet. is just of aligned to but really of balance for it’s against factors, of that a our future is losses, what you

then expectations assumption And horizon, levels. downsides place a And as gives of is that today, from play to those next, strong of factors after then of point months CECL, normalization then third to a losses going averages. six economic all think, the view that account so under delinquency out. qualitative around starts period, how of apply related which a gradual what say and from of there’s us we the inflation buckets unusually just to that have I good really of looking an revision So against at we the those beyond is an risks. uncertainties assumption historical continued are And in or for

course every And go forward, really allowance so going the replacing quarter we are I the this does we bucket continue yes, the in the which in allowance then secondly, growth the quarters, be as allowance is by today what sheet. in successive going just be primarily that the allowance be quarter through the implies. of we But impact playing when that to the lower think informed with what quarter. will normalize, But higher by delinquencies saw we balance loss quarter. to and each today’s of of forward, about And delinquency we again, future mean, loss content is are going how determined content incorporate current to

that’s really that there’s the play. nature number big So gets a of modest forces of two And to other but question. considerations, at the kind hopefully of your

you the you and path economic that’s really that It trying I in normalization control. Again, what’s does. And follow the to and in expect what terms today understand change. doesn’t we embedded of reserves I’m realize I can’t something if guess that outlook is

follow allowance really what that’s stay that I’m If to expected get mean follow you trying do that the or will, the I along you path static path? does think to.

you’re we’re get now, to from apply have going we quarter allowance along a then that going be the to a allowance that would now. quarter we quantum same in from to to now. the quarter change those going Well, of allowance the to have quantum the of today the when compared exact to is just at things doing because follow And allowance factors of we same from path all a those

question, Next please.

with Research. Carcache comes from question next Our Wolfe Bill

open. now is Your line

Good Andrew. you. Thank Rich evening, and

What of implicit some Following the up hiking the the Fed you’re the the you micro the allowance trends say by One of level that seeing the some currently marrying that credit the some does on and would macro to unemployment normalization view be through with in that proceeds is from risk ultimately discussion? accompanied that degree your cycle? of of Capital degradation earlier extent last question. How will

first followed I’m take quite sure the admit, the don’t and I one, not second. I Why must I

I our So forecast generally or to economic back I’ll I’m followed developing going provide terms of see will Rich specific to if Otherwise metrics come But in as to we’ll say assumptions. for that. unemployment, you not opposed are industry we clarification. consumers of own. Bill, like though,

I of looking So And general that what underlies could consensus all kind variables. assume the followed our those if to roughly think at at of you economic and see views look part the of Rich expectations your for I’m on key approximates he question. second economic variables

same was, question thing. Bill, in different if I to see think, your put just saying going I’m the to I’m it words

Okay.

that? with potentially that we going normalization of normalization that’s some you place. your in certainly terrible about economy wise going the when coming have do or the worsening got by tightening now – right And not Was out a employment meets question? economic Fed now. metrics and in through We’ve significant maybe on an How some feel their catalyzed normalization ways, right

Yes.

to start and questions answering going earnings then by asking just calls doing them. the I’m

be but none normalization. is think us I should look, question a that great and about just – of mathematical So

credit ever a once Now, in lifetime abnormal is talked it normal did pandemic. root place got because about I’ve during how the the to normalization in is this what is that word

in this the I’ve absolutely in said normal times, as So thing – normalize. should

there’s potentially highly certainly the an look gun we it’s the of to in economy. we prediction economy big uncertain things And always that But as should that we done, do way and we barrel that – of at be couple times way is expect we and so what likely continue. down is at that – that a hard the And the at approach. So do many we’ve worse and say, we’ve the and looking look look then we a business. would been maybe

banking a everyone the decades to assumption really mirror just are We bad underwriting overlaying to worsening it that. And I know an and in underwrite rear if that to happen, we three be resilient that be we to try good to and scenarios. this that is to of that I’m it’s how need saying the on of surprise all, assumption heart because things of First a not underwriting be so is worsening. – programs conservative, with view it’d make of looks it bad, at go but in to it would company, over be building could doing tries

often crystal resilience. for at booking. things. is Without Capital time, we kinds all spend that revenue margin to we – and is And the One to of charge-off that looking resilience of in ball the happen you’ll just and of what the thing a about card the of are stressing example, business, hear rates critical lot the going So time, over about talking the a loans resilient what’s word the ratio

underwrite important a we So to That’s very thing. worsening.

our the into we that. of looking is We not problems though, maybe of all also vintages both and of it the doing you than so credit – earliest would sources our look set that’s aberrations said where be management the and of are anomalies decisions a I to machine for of are of Secondly, little course, a for up that We, models they otherwise, that there’s micro coming at from business. can and occur. earlier, look would which And businesses window doing. the have at give variables happened our level – how with like report our faster learning would bit look that all standard me way by we’re let show indications our leverage just at that

standing of all go that of we an so them. been what people in because in appear. a business. trimming different it’s is from be basis approaches worse we’re current be things in monitoring us. learning to things on a this what to modest more just and a and where in – machine go weaknesses but important lot I would real-time have the for like I over the stressed would mentioned saying, be really certainly as – then the back – lately and here, fruit expect then bearing you could around intuition, as of do And we to the go we to but looking a all work – for but not think And and lot we’re think and the basis going And happen, machines let’s the and hunting machine our the environment based worse, And so – wrong, help there’s that to letting will learning-driven the it’s models repetitive, and environment do anomalies have the sorry all gathering we’re on to the on even the expect we some get but environment, expect is – segments gets card active lookout really little any then important place. environment whole we bit And as business auto saying, and because of bigger in going earlier, wrong

intuitive a managing the literally so to combination and and approach risk. marrying most And most the micro big picture it’s of analytical approaches judgmental

Next question, please.

Our next question with comes Bhatia America. Bank from of Mihir

Your now open. line is

Hi, thank you.

earlier a the all I you’re that But the through in how portfolio’s growth think I outsized at comments transactor-type wanted your wondering portion But about follow. potentially been that to growing more bit, focus portion about customers, that ask an that – maybe the spectrum. appreciate change growing – I and I think subsegment recent full of lending spend of has the the you given so little on that higher performance card about the just enthusiastic or is card rate, downturn? was a if cycle just

great question. is That a

before In second I for pull a up fact, answer question. me your let

are harder of business, the just move the spender business, the of side the to very the across business have there the of revolving. gradually across more we to attracted continuing would have We as to with is market. into bunch business side even the been be paralleling the All patterns top and our customers to of most there spending leaning a be spend who whose consistent

the a business, spender but our gradual toward has purposeful been there across So years side. for migration very

– business. the why the And things we in just because terms pound is things when we the And that of losses leading should the be that rates importantly, part of our been that spenders business I’ll that the So we’ve avoidance more thing tends That heavy for impact, comes, evidence down thirdly, avoiding thing there. of to these in spenders just put all and we’ve credit think into business. the been pointing pound high-balance to downturn you’re of the a the of mix then then revolvers. beneficial equal into the increasing we payment there I have second the other a themselves, is experienced is the be more seen during leaned to performance things it that have group. And resilient all

booked. these And the So not the changes effect net have results. think, enhance that the resilience of we while beneficial I credit of controlled be a the think business I it’s to will experiment,

Thank investments you’ve improve ask they you. I just expenses the changes? talk if about to Can And competitive flex that you as macro then Thanks. how just environment making. or tech ability could just been about do your the

on a as Ironically, our less side, cost a An the our make of I flexible – things tech that is explain part little lot the it. increasing built. we company that. a be have me think cost It’s let they structure got fixed to of business expense may to –is –

business. a built variable of wouldn’t more company more have that anything, a business And might so to set sort want that tech it little is an and is not expectation our cost because cost fixed if – stack I tech we our be that

the we tremendously Now enhanced One’s invest they’re within the certainly pulling though on has there of side that, in tech always And create timing what up be way within choices flexibility. there. the on times, tech in more flexibility and But flexibility. investment those stressful investment can overall Capital

turn in credit the quickly choices. Our to marketplace make ability to

legacy look the just back went we in quickly free when possible look respect – that the lived all have we we the did, you before. would to when One of at world world not of the pandemic, into that If more Capital how to – pullbacks in uncertainty fall been the with went in turned some vertical back

and to new marketplace. and about offerings One, flexibility the before. respond flexibility the to – Capital is quickly, the in to managed the So different adapt ability offerings, consumers Everything ability of change speed create ability forbearance, to we have from the create to change the changes to ways of dramatically

done cautious analysis which the sort do than otherwise can paradoxical able the we’re the economy can marketing investors. play have of leaning out respect speed measurement, I to comprehensive resilience a more earlier, allows more downturns us the micro monitoring number about much We say about to lean and I’ve before how And utmost and the and the the these is what be point to capability more made monitoring happening. we one segmentation And that by comprehensive enough informed thing response improved have to why recession have know a probably – most in for also and might to – asked do. this want much allow of will I been of substantially well you what that of how things and root place into with put this cause opportunity? – reasons level gives us real-time risk that’s doing monitoring are are the in businesses, segmentation earlier could are been important that and is we that in point of than on know Rich, about we do you by to you is we

please. Next question,

with from Oppenheimer. Dominick Our comes Gabriele final evening question this

Your open. now line is

can from Dominick hear me? you is This Hey, Oppenheimer.

Yes, Dominick.

Yes.

Okay.

choose they stress, guess in let’s or would pay cycles? And seeing reason default, I a have I any hierarchy you. you’re say, reason, Thank Rich, which in just that to change times the among is expect is – hierarchy you previous of so follow-up. why from that cycle anything payment why there Sorry. around this severe then there any consumer products would

auto mortgages really may view here, hierarchy Dominick, what side their people that’s and the but to from away payment kind of of sort a and loans. question. a I And only that to great can resilience point Recession was on most be auto have a thing what because a saw – and was we more striking people is we the on literally drive universal the – payment Great walking speculate about point global the of still crisis financial from high work. that with hierarchy

probably insight. a that’s sustaining of so more And

that – forgiveness would where to various trends things that’s student payment hierarchy on lower about I the, low that’s end. the ensure in and already and and and days pretty the there think think probably think these we at we’ve I observed got look loans

fintechs just but this this to report opportunity speculate who that one probably on not think would credit is their stealth consumers. probably the I Another enjoyed fintechs. I to the the lost have to add around grow, And may hierarchy the time to year that’s is don’t bureaus

But I from helps be you’ve so to downturn, point not think, think one payment that of consumer healthier of really a the of harder having And in leaned counting that spending anchor and we’ve consumer be a credit is hierarchy it’s into credit card I point view. the making of a from reasons, relationship the on place card that that sure part that got view. a only

go the much. credit you put the Is factors? type growth does you what and do or tech Okay. tech over on the to want what about banks growth – you it talked and the year-over-year And think have think of even And back put changes cycle Is just Great. to as think perhaps I economic country’s NII about investment largest spend? have when can so peers of at – to How and on some it the NIM? do investment you investment the one you that how brakes you find growth of of and changes just you on? you the spend then that just the edges conferences. that it Thank

can not Dominick. how One. questions. have feel investment to the us see how all ability we company, serve these the company them new haven’t And enhance – Thank the are collectively the tech the to pretty products, this ability noticed, tech customers, that’s And a that’s that you deep risk, although comprehensive, so case These great are we inside We the ability I I ability conviction you, here manage how do all create to grow. Capital work, investments, so the of to benefits at just in everywhere. of feel, of about they and benefit

tech investment. productivity And benefits, under on in quite it’s from as effects gain such hand, But I investments. that bit the to so such do into – lean there’s into mentioned we investments earlier, because are tech leaning same the other continuing dramatic. coming we that see a not tech time, sort at and pretty the surface the we the hard And we’re of – are of

manage investments transforming company and of the they the opportunities to downturn the if gradual because to but tech day a to risk like luxury really weather and on over these improvement of – In there’s reduction been very might that sunny We just in times more kind a always close that a get to back tough and there’s opportunity materially operating fact, decade, are on we ability in efficiency. the the what pull investment. are to this viewing investments, motivate not do very ability

conference Well, thank you a answer One. Investor - Relations for evening, be everyone. have. this Capital may you, evening further call the to team Have here questions Remember, us everyone, joining the will good on

concludes for This Thank call. conference participating. you today’s

You may now disconnect.