Capital One Financial Corporation (NYSE:COF) Q2 2019 Earnings Conference Call Transcript

Jul 18, 2019 • 05:00 pm ET

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Capital One Financial Corporation (NYSE:COF) Q2 2019 Earnings Conference Call Transcript

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Presentation
Executive
Scott Blackley

modest increase in charge-offs, coupled with a smaller allowance release in the current quarter compared to the prior year quarter. Let me take a moment to discuss the quarterly movements in our allowance for each of our businesses, which are detailed in Table 8 of the earnings supplement.

Our card business on allowance release of $225 million. The release was driven by the strong economy and stable underlying credit performance as well as the partnership sale, I discussed earlier. In our consumer business, there was a slight release of $7 million driven by our auto portfolio. Reserves in our commercial business increased by $68 -- $66 million, primarily related to a handful of credits.

Turning to Slide 4. Net interest margin was 6.8% in the quarter; 6.80% in the quarter. 14 basis points higher than the prior year quarter. The year-over-year increase is largely driven by the lack of a couple of discrete events that occurred a year ago, including a build to our UK PPI Reserve and the net impact of the sale of our mortgage business, which collectively were a 17 basis point drag on NIM this time last year. These factors were partially offset by higher average deposit costs as we continue to see strong growth in and mix shift towards our -- our Capital One 360 deposit products. Going forward, we continue to expect deposit mix to be a headwind to NIM throughout 2019.

Turning to slide 5, I will cover capital. As previously announced, following the Federal Reserve's non objection of our adjusted CCAR plan, our board authorized repurchase of up to $2.2 billion of common stock through the end of the second quarter of 2020. And we expect to maintain our quarterly dividend of $0.40 per share, which is subject to board approval. Our common equity Tier 1 capital ratio on a Basel III standardized basis was 12.3%. In the near-term, we are well positioned to support the Walmart portfolio acquisition, organic loan growth, the phased-in impacts of CECL and capital distribution. Based on Company performance and the evolution of capital regimes, we continue to believe that our long-term capital need is around 11% CET1. However, we will keep an eye on the impact and timing of the Fed's tailoring and stress capital buffer proposals, CECL and the evolution of CCAR.

We are well along in preparing to adopt CECL on January 1, 2020. We have been running CECL models quarterly and working through accounting elections that we continue to refine. We expect to provide details on the impacts of adopting CECL in our Q3 call.

With that, I will turn the call over to Rich. Rich?

Executive
Richard D. Fairbank

Thank you, Scott. Slide 8 summarizes second quarter results for our credit card business. Pre-tax income was relatively flat compared to the second quarter of 2018. Year-over-year growth in loans and purchase volume drove higher revenue, which was offset by higher non-interest expense. Credit card, segment results and trends are largely driven by the performance of our