Capital One (COF) Q4 2025 Earnings Call Transcript

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DATE

Thursday, January 22, 2026 at 5:00 p.m. ET

CALL PARTICIPANTS

• Chief Financial Officer — Andrew Young
• Chairman and Chief Executive Officer — Richard Fairbank
• Head of Investor Relations — Jeff Norris

TAKEAWAYS

• Net Income -- $2.1 billion, with earnings per diluted common share of $3.26.
• Adjusted EPS -- $3.86, reflecting adjustments for the Discover home loans portfolio sale and other items.
• Full-Year Adjusted EPS -- $19.61, indicating capital generation across the annual period.
• Revenue -- Increased approximately 1% sequentially from Q3, with full-year growth largely impacted by Discover integration.
• Noninterest Expense -- Rose 13% sequentially from Q3, driven by philanthropy contributions, pension expenses, marketing, and Discover operational integration.
• Provision for Credit Losses -- $4.1 billion, up by $1.4 billion from Q3, driven by a $302 million allowance build and a $360 million rise in net charge-offs.
• Total Allowance for Credit Losses -- Ended at $23.4 billion, with a total coverage ratio of 5.16% (down five basis points sequentially).
• Common Equity Tier 1 Capital Ratio -- 14.3%, down approximately 10 basis points from prior quarter after $2.5 billion in share repurchases and higher risk-weighted assets.
• Liquidity Coverage Ratio -- Increased to 173%, supported by higher cash and reduced net outflows, with total liquidity reserves at $144 billion.
• Net Interest Margin -- 8.26% for the quarter, ten basis points lower sequentially due to lower asset yields and higher cash balances after the Discover home loan sale.
• Credit Card Segment — Purchase Volume -- Up 39% year over year, or 6.2% excluding Discover.
• Credit Card Segment — Loan Balances -- Up 69% year over year, or 3.3% excluding Discover.
• Domestic Card Charge-Off Rate -- 4.93%, up thirty basis points sequentially, down 113 basis points year over year.
• Domestic Card Delinquency Rate -- 3.99%, up ten basis points sequentially, down 54 basis points year over year.
• Domestic Card Revenue Margin -- 17.3%, stable compared to the prior year.
• Total Company Marketing Expense -- Reached $1.9 billion, representing a 41% year-over-year increase, primarily driven by card segment investments.
• Consumer Banking — Auto Loan Originations -- Increased 8% year over year; ending loan balances up by $6.7 billion or 9%.
• Consumer Banking Deposits -- Up approximately 33% year over year, primarily from the addition of Discover deposits.
• Consumer Banking Revenue -- Up about 36% year over year, led by Discover and auto growth.
• Consumer Banking Noninterest Expense -- Rose 48% year over year due to Discover integration, marketing, and technology investments.
• Auto Loan Charge-Off Rate -- 1.82%, up 28 basis points sequentially, but down 50 basis points year over year.
• Auto Delinquency Rate -- 5.23%, up 24 basis points sequentially, down 72 basis points year over year.
• Commercial Banking — Loan Balances -- Flat compared to prior quarter; ending deposits increased 4% and average deposits grew 5% sequentially.
• Commercial Banking Net Charge-Off Rate -- 0.43%, up 22 basis points from the prior quarter.
• Commercial Criticized Performing Loan Rate -- 4.68%, improved by 45 basis points sequentially.
• Acquisition of Brex -- Definitive agreement signed for a total consideration of $5.15 billion in stock and cash, equal to about 3.5% of market capitalization.
• Discover Home Loan Portfolio Sale -- Generated $8.8 billion in proceeds and a $483 million net gain on sale.
• Share Repurchases -- $2.5 billion in the quarter; remaining board-authorized capacity stands at $14 billion.
• Dividend -- Increased by 33% to $0.80 per share.
• Brex Integration -- Management stated, "We expect Brex to have no impact on the Discover integration or expected synergies" and confirmed no changes to projected share repurchase pace or earnings projections post-Discover integration, inclusive of Brex.
• Debit Card Network Migration -- Nearly complete migration to the Discover network, with network synergies already visible in reported results.
• Credit Card Network Migration -- Capital One Financial Corporation will be able to originate credit cards on the Discover network by mid-year and transition existing cards early next year, subject to ongoing testing and increased international acceptance.
• Efficiency Ratio Outlook -- Management noted "some upward pressure on efficiency ratio in the near term" due to elevated investment, but maintained long-term earnings power guidance previously communicated at the Discover deal announcement, inclusive of Brex.

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RISKS

• CEO Fairbank said, "in isolation, Brex will result in earnings dilution initially. As we're buying a business with a growth rate that is multiples of industry growth rates. We believe this growth dynamic will lead to significant accretion over time."
• Higher near-term efficiency ratio acknowledged by management, cited as a direct consequence of increased investments and recent acquisitions.
• Management warned that a proposed credit card interest rate cap "would make credit much less available for consumers," and "A material contraction in available credit would likely cause shocks throughout the economy as the lack of credit would result in greatly reduced consumer spending and would likely bring on a recession."
• Noninterest expense rose 13% sequentially, attributed in part to $200 million in accelerated philanthropy contributions and $37 million pension termination expense, impacting quarterly pre-provision earnings.

SUMMARY

Capital One Financial Corporation (NYSE:COF) reported a quarter marked by the announcement of the $5.15 billion Brex acquisition, which management framed as aligning with its long-term business payments strategy and not impacting Discover integration timelines or synergy expectations. Earnings performance included significant gains from the sale of the Discover home loans portfolio and a notable year-over-year increase in revenue and loan balances driven by Discover's contribution across cards, deposits, and consumer banking. Credit trends reflected continued delinquency and charge-off improvement, with metrics appearing to normalize in line with seasonality, and credit allowances and capital ratios remained robust despite increased provision expenses and higher marketing investment. Guidance and commentary signaled continued heavy investment across technology, premium cards, and banking platforms, with management reiterating a commitment to future earnings growth while acknowledging short-term efficiency and EPS dilution from the Brex deal.

• CEO Richard Fairbank described the Brex acquisition as "a hand-in-glove fit," emphasizing immediate growth acceleration opportunities in corporate liability cards, spend management, and national small business banking, with shared technology synergies across business lines.
• Capital migration of debit cards to the Discover network is nearly complete; initiation of new credit card origination on the Discover network is planned for mid-year, with broader migration subject to expanded international acceptance and further testing.
• Management explicitly linked heavy recent and planned marketing outlays to customer acquisition and a strategy targeting "heavy spenders at the top of the market," aligning with revenue growth in those segments.
• Common equity Tier 1 capital ratio remains healthy at 14.3%, with management reiterating a $14 billion repurchase authorization while indicating the Brex acquisition will reduce the ratio by roughly forty basis points but will not alter the buyback pace or dividend strategy.
• Management directly addressed potential regulatory headwinds from proposed credit card interest rate caps and the Credit Card Competition Act, warning of unintended consequences for credit availability, consumer access, and economic stability.

INDUSTRY GLOSSARY

• Coverage Ratio: The proportion of a loan portfolio covered by the allowance for credit losses, expressed as a percentage.
• Criticized Performing Loan Rate: Percentage of commercial loans labeled as "criticized" due to potential weaknesses but still considered performing under regulatory definitions.
• Efficiency Ratio: A measure of noninterest expense as a percentage of revenue, used to assess operating leverage and cost control.
• Net Interest Margin (NIM): The difference between interest income and interest expense, expressed as a percentage of average interest-earning assets.

Full Conference Call Transcript

Rich and Andrew are going to walk you through this presentation that summarizes our fourth quarter 2025 results. Please note that this presentation may contain forward-looking statements. Information regarding Capital One Financial Corporation'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 Financial Corporation 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.

For more information on these factors, please see the section titled Forward-Looking Information in the earnings release presentation and the Risk Factors section of our annual and quarterly reports accessible at Capital One Financial Corporation's website and filed with the SEC. With that, I'll turn the call over to Mr. Young. Andrew?

Andrew Young: Thanks, Jeff, and good afternoon, everyone. Let me begin by saying that we are incredibly excited to announce that we entered into a definitive agreement to acquire Brex. Rich will talk more about the Brex acquisition in a moment. I'll start tonight's presentation by covering the highlights of our fourth quarter results on Slide three. In the fourth quarter, Capital One Financial Corporation earned $2.1 billion or $3.26 per diluted common share. For the full year, Capital One Financial Corporation earned $2.5 billion or $4.3 per share. We completed the sale of the $8.8 billion Discover home loans portfolio in the quarter.

After refining our preliminary purchase accounting estimates, the proceeds resulted in a net gain on sale of $483 million as reported in the results for discontinued operations. You can find the revised Discover purchase consideration walk and amortization schedules in the appendix of tonight's presentation. Net of the home loan sales, and the other adjusting items, fourth quarter earnings per share were $3.86. Full year adjusted earnings per share were $19.61. We also had two notable items in the quarter: $200 million of accelerated philanthropy contributions and $37 million of pension termination expense. Relative to the prior quarter, fourth quarter revenue increased about 1% and noninterest expense increased 13%. Pre-provision earnings declined 12% or 10% net of adjustments.

Our provision for credit losses was $4.1 billion in the quarter, an increase of about $1.4 billion relative to the third quarter. The increase was driven by an allowance build of $302 million in the quarter, versus last quarter's release, as well as a $360 million increase in net charge-offs. Turning to Slide four, I'll now cover the allowance in greater detail. The $302 million allowance build in the quarter brought the allowance balance to $23.4 billion. Our total portfolio coverage ratio decreased five basis points and now stands at 5.16%. I'll cover the drivers of the changes in allowance and coverage ratio by segment on Slide five.

In our domestic card segment, our coverage ratio declined by 11 basis points and now stands at 7.17%. The $335 million allowance build was largely driven by loan growth in the quarter. The allowance balance in our consumer banking segment was largely flat at $1.9 billion. Growth in the auto business was largely offset by continued observed credit favorability. The coverage ratio ended the quarter at 2.23%, three basis points lower than the prior quarter. And finally, in our Commercial Banking segment, we released $47 million of allowance. The allowance release was largely driven by charge-offs in the quarter. The commercial banking coverage ratio declined six basis points and now stands at 1.63%.

Turning to Page six, I'll now discuss liquidity. Total liquidity reserves ended the fourth quarter at about $144 billion, up modestly from the prior quarter. Our preliminary average liquidity coverage ratio increased to 173% in the quarter driven by higher average cash and lower net outflows. Turning to page seven, I'll cover our net interest margin. Our fourth quarter net interest margin was 8.26%, 10 basis points lower than the prior quarter. The decline was driven by lower asset yields and a higher cash balance as the impact of the sale of the Discover Home Loans portfolio more than offset the typical seasonal decline in cash. Turning to Slide eight, I will end by discussing our capital position.

Our common equity Tier one capital ratio ended the quarter at 14.3%, approximately 10 basis points lower than the prior quarter. Quarterly earnings were more than offset by $2.5 billion in share repurchases and the increase in risk-weighted assets. With that, I will turn the call over to Rich. Rich?

Richard Fairbank: Thanks, Andrew. Slide 10 shows fourth quarter results in our credit card business. Credit card segment results are largely a function of our domestic card results and trends, which are shown on slide 11. In the fourth quarter, the combined domestic card business posted steady top-line growth, strong margins, and stable credit. Year-over-year purchase volume growth for the quarter was 39% driven primarily, of course, by the addition of Discover purchase volume. Excluding Discover, year-over-year purchase volume growth was about 6.2%. Ending loan balances increased 69% year-over-year also largely as a result of adding Discover card loans. Excluding Discover, ending loans grew about 3.3% year-over-year.

While competitive intensity remains high, we continue to see good traction across our legacy card business, with stronger growth results in our heavy spender franchise at the top of the marketplace. The legacy Discover card loans continued to contract slightly and will likely continue to face near-term growth headwinds due to Discover's prior credit policy cutbacks and some trimming around the edges that we're doing. We continue to see good opportunities to grow the Discover card business on the other side of our tech integration where we can implement growth expansions powered by our unique technology and underwriting. Revenue was up 58% from 2024 largely driven by the addition of Discover revenue.

Excluding Discover, year-over-year revenue growth was about 6.2% driven by underlying growth in purchase volume and loans. Revenue margin for the quarter was steady at 17.3%. The domestic card charge-off rate for the fourth quarter was 4.93%, up 30 basis points from the prior quarter and down 113 basis points from a year ago. Our domestic card delinquency rate was 3.99%, up 10 basis points from the prior quarter and down 54 basis points from a year ago. On a sequential quarter basis, both our charge-offs and delinquencies moved in line with normal seasonality. Our credit metrics appear to be settling out after almost a year of steady improvement.

Domestic card noninterest expense was up 60% compared to 2024 reflecting a full quarter of combined operations and purchase accounting operate amortization. Operating expense and marketing both increased year-over-year. Total company marketing expense in the quarter was about $1.9 billion, up 41% year-over-year. Our choices in domestic card are the biggest driver of total company marketing. Compared to 2024, domestic card marketing in the quarter included the addition of Discover marketing, higher media spend, and increased investment in premium benefits and differentiated customer experiences. Our marketing continues to deliver strong new account originations and to build an enduring franchise with heavy spenders at the top of the market. Slide 12 shows fourth quarter results in our consumer banking business.

Global payment network transaction volume for the quarter was about $175 billion. Auto originations were up 8% from the prior year quarter. Increased competitor activity in the quarter drove a slowdown in our originations growth. We continue to be in a strong position to pursue resilient growth in the current marketplace. Consumer banking, ending loan balances, increased $6.7 billion or about 9% year-over-year. Average loans were also up 9%. Compared to the year-ago quarter, ending and average consumer deposits grew about 33% driven largely by the addition of Discover deposits. Looking through the Discover impact, our digital-first national consumer banking business continues to grow and gain traction.

Consumer banking revenue for the quarter was up about 36% year-over-year driven predominantly by the full quarter of Discover operations as well as Discover revenue synergies and growth in auto loans. Noninterest expense was up about 48% compared to 2024, driven largely by the full quarter of Discover as well as higher marketing to drive growth in our national consumer banking business, increased auto originations, and continued technology investments. The auto charge-off rate for the quarter was 1.82%, down 50 basis points year-over-year and up 28 basis points from the third quarter, in line with seasonality. Auto charge-offs have been stable near pre-pandemic levels for the past year.

The auto delinquency rate increased seasonally in the quarter, up 24 basis points to 5.23%. On a year-over-year basis, our auto delinquencies improved by 72 basis points. Slide 13 shows fourth quarter results for our commercial banking business. Compared to the linked quarter, both ending and average loan balances were flat. Ending deposits were up about 4% from the linked quarter. Average deposits were up 5%. The commercial banking annualized net charge-off rate for the fourth quarter increased 22 basis points from the sequential quarter to 0.43%. The commercial criticized performing loan rate was 4.68%, down 45 basis points compared to the linked quarter. The criticized nonperforming loan rate was down three basis points to 1.36%.

In closing, fourth quarter results continued to reflect solid top-line growth and strong and stable credit performance. Continuing capital generation and our strong balance sheet powered increased share repurchases of $2.5 billion in the quarter. And we made expected progress on Discover integration and synergies in the quarter. We remain on track to deliver the expected synergies. 2025 was a seminal year for Capital One Financial Corporation. In addition to delivering strong performance across our businesses, we completed the acquisition of Discover, a singular transaction that's delivering near-term synergies and unlocking significant strategic opportunity and upside over the long term.

Our 2025 performance was enabled by years of strategic preparation and our choice to consistently invest to sustain long-term growth and returns. And these same choices put us in a strong position going forward as we enter 2026. I'm struck by the number and quality of the opportunities we have before us. We've been investing in many of our opportunities for years, like building our heavy spender franchise with consumers and small businesses at the top of the credit card marketplace, building a national franchise of primary banking relationships in our retail bank business, and building a modern technology and data infrastructure.

And as we continue to build on foundational tech investments, to migrate up the tech stack, we're generating new growth opportunities like Capital One Travel, Capital One Shopping, and Auto Navigator. Our tech stack was built from the outset working backwards from the AI revolution and we are now building AI solutions across our businesses. Many of our opportunities are enhanced by the Discover acquisition which of course also brings the new opportunity to grow and scale our own global payments network. To capitalize on these opportunities at this special moment, we need to make significant and sustained investments. And we are leaning into them.

Tonight, I'm excited to announce our agreement to acquire Brex for a combination of stock and cash totaling $5.15 billion. We've included slides in the earnings presentation appendix that summarize key aspects of the transaction. Brex is a pioneer in the dynamically changing business payment space with industry-leading technology and world-class talent. Acquiring Brex accelerates a journey we've been on since our founding days, the quest to build a banking and payments company that's positioned to win where the world is going. The transaction will create purchase accounting impacts that we'll need to help investors navigate. Importantly, we expect Brex to have no impact on the Discover integration or expected synergies.

And the total consideration for the Brex acquisition is around 3.5% of Capital One Financial Corporation's market capitalization. It doesn't change the expected pace or magnitude of our quarterly share repurchases. And perhaps most importantly, we still expect our earnings power on the other side of the Discover integration to be consistent with what we expected at the time we announced the Discover deal inclusive of Brex. And now we'll be happy to answer your questions. Jeff?

Jeff Norris: Thanks, Rich. We'll now start the Q and A session. As a courtesy to other investors and analysts who may wish to ask a question, please limit yourself to one question plus a single follow-up. If you have follow-up questions after the Q and A session, you can get in touch with the investor relations team, and we'll be available to answer them for you. Josh, please start the Q and A session.

Operator: Thank you. Press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. And our first question comes from Sanjay Sakhrani with KBW. You may proceed.

Sanjay Sakhrani: Thank you. I wanted to talk a little bit about the Brex acquisition first. Rich, could you just talk a little bit about the strategic value of adding this capability? I see how it could really enhance sort of your platform in the small business space, especially with the network. But maybe you could just talk a little bit about how you see it coming together over time.

Richard Fairbank: Yes, thank you. Let me just, kinda pull up here and talk about the opportunity and Brex holistically. Acquiring Brex builds on and accelerates a journey we've been on since our founding days. It is the quest to build a banking and payments company that's positioned to win where the world is going. We were the original fintech years before that term was coined. And we grew by carefully choosing businesses with attractive industry structures that are at the heart of consumers' financial lives, and also that we're ripe for transformation by technology and data. As a result, we aren't in all the businesses that other banks are in.

We have focused on a select set of businesses that have relevant scale in the competitive marketplace and which fit together synergistically. A central part of that envelope of activities has been payments. From the founding of the company, we have believed that payments will be the tip of the spear in the transformation of banking and financial services. Over time, we built a payments company encompassing credit cards and banking across consumers and businesses and recently added one of the nation's only payment networks. Business payments have been a growing part of our strategy and investment agenda. We have built the nation's third-largest small business credit card franchise and we have been investing to grow our small business bank.

Our announcement today represents an important step change towards our business payments destination in a broader marketplace that we believe is ripe for reinvention. Let's talk about what's happening in the business payments marketplace. The credit card is an important piece of a bigger customer need. For decades, businesses of all sizes have faced chronic pain points when dealing with payments. Including collecting hundreds or thousands of invoices, deciphering what payment vehicles or platforms to use, dealing with approvals, expense budgets, spending policies, booking travel, and tracking employee T&E spending. And after all of that, businesses need to reconcile and connect all these transactions with accounting and reporting systems. It's often manual, error-prone, and very time-consuming.

I don't know a single business owner who went into business because they were really passionate about managing the complexity of spending and payments. Solutions and tools to help businesses address these issues have been piecemeal. Banks offer business credit cards and bill pay features. Software companies offer accounts payable and expense management tools. While these solutions are valuable, they only address pieces of the pain and are not integrated or comprehensive. Many are built on legacy technology. The pain points remain. And so does the opportunity to provide a truly integrated modern solution. Brex was the pioneer of that modern solution.

In 2017, Brex invented the integrated combination of business credit cards, spend management software, and banking together in a single platform. They totally changed the game by delivering breakthrough experiences like customizable credit card limits and controls, automated expense receipt capture, real-time blocks for out-of-policy spend, reconciling spend data with internal budgeting, catching payment fraud and errors by matching invoice data to purchase orders, and enabling businesses to close their books effortlessly through real-time ERP integrations. Brex has grown rapidly with companies from startups to large enterprises. Some of the world's most tech-forward companies use Brex today, including Anthropic, Robin Hood, TikTok, Coinbase, Scale AI, Toast, CrowdStrike, CloudFitFlare, and DoorDash.

Brex's heritage began with tech companies, but their solutions are equally valuable to all companies. Over the last two years, 60% of their originations have been to non-tech companies. Business cards represent approximately $2 trillion in purchase volume split roughly between corporate liability, where the business entity is responsible for making payments on the card, and personal liability, where the small business owner is personally responsible for making payments on the card. And that latter space, the personal liability card, is where we primarily play today. Collectively, this business card market is growing at about 9% annually as business payments continue the secular migration from cash and checks to digital payments. And companies like Brex have grown even faster.

Brex is taking share from banks and software providers alike. The integrated platform solution they pioneered redefines and expands the market opportunity beyond credit cards to business payments, banking, and spend management software. Brex has been a beacon for us and we have admired them from afar. As we've gotten closer, we've been even more struck by what they have built. The Brex team has amazing talent. They built a full modern tech stack from the bottom up. Their card and banking businesses run on an in-house fully modern core. They're 100% in the cloud.

While most fintechs we've seen through the years leverage third-party technology solutions to get there faster, Brex has taken the more difficult and rarest of journeys for a fintech. They've invested in a modern technology infrastructure and data ecosystem that's built to last. And it powers remarkable capabilities. On the shoulders of their technology investments, Brex was able to rapidly develop and launch innovative solutions for a wide range of customers from startups to large businesses with complex international needs. For example, Brex's technology enables them to issue business credit cards in local currencies in over 50 countries.

This automated platform is the foundation for AI solutions on top of Brex has built and deployed their own in-house AI agents for expense management and audit. And are on the way to procurement payments, and accounting agents. Brex has grown from a startup into a thriving business with hundreds of millions of dollars in revenue and tens of thousands of customers. As we got to know this company, we kept asking ourselves, how on earth did a startup pull off building a full tech stack from the bottom up?

Brex has made the right choices, the hard choices, to put themselves in a strong position to grow and win in the marketplace and to sustain success over the long term. Along the way, they realized that their exceptional growth opportunity was limited only by their scale and resources. And that brought the two of us together. Several Capital One Financial Corporation strengths and capabilities are on the bull's eye of what Brex needs to fully capitalize on the growth opportunity. We have a compelling and ubiquitous brand. Brex has found that when they can get in the door with a potential customer, their success rate is impressive.

We believe that our brand and our customer scale will open many more doors. Also, we can immediately leverage our marketing machine bringing massive data scale, targeting models, extensive channels, and a large customer base to enhance the flow of prospects. And Capital One Financial Corporation's balance sheet, which is primarily funded by federally insured retail deposits, is yet another enabler of growth, returns, and resilience for Brex. And finally, we can bring additional investment capacity in marketing, sales force expansion, engineering, and AI. The striking thing is most of these benefits from Capital One Financial Corporation can be brought right away post-close and do not need to wait for fuller integration down the road.

So we believe we can accelerate Brex's growth almost from day one. As we integrate over time, there is more value to capture, much of it coming from what Brex can bring to us. Brex brings exactly what Capital One Financial Corporation needs to accelerate what we've been building. Brex opens up the opportunity in the corporate liability part of the marketplace where our presence is currently much smaller than it is in the personal liability space. Additionally, Capital One Financial Corporation can leverage Brex's spend management tools to broaden and enhance our offerings for our existing personal liability card customers.

And for our small business bank, which has been mostly a local offering in our branch footprint, Brex gives us the capabilities to unlock a national small business banking opportunity. Brex can also help to propel another important growth business at Capital One Financial Corporation, which is our travel business. Our travel portal is already on a strong growth trajectory powered largely by our massive consumer franchise. As we integrate Brex and its spend management platform with our travel portal, businesses will be able to manage their corporate travel expenditures, payments, and travel policies directly on the Capital One Financial Corporation travel portal. This will open up the opportunity to grow business travel revenues as well as consumer travel.

Beyond the remarkably compatible technology and vision of where the world is going, we've also found amazing cultural alignment. We are both founder-led companies with a heritage of innovation and entrepreneurship. We've both disrupted the status quo to reimagine markets and drive transformation. And our strategic choices along the way have been guided by strikingly similar core tenets. To invest to sustain growth and returns over the long term. To work backward, from where the world is going, to build from the bottom of the tech stack up and to search the world to find and hire great people. And give them a chance to be great.

Pulling Way Up, Acquiring and joining forces to win in the business payments marketplace. Fits squarely into our more than three-decade quest to build a banking and payments company that's positioned to win where the world is going. It's a hand-in-glove fit, will accelerate and enhance a path that we were already on propelling us to the frontier of business payments. Capital One Financial Corporation and Brex have been on separate paths working toward the same business payments destination. An integrated platform that combines business payments, spend management, and banking powered by a modern tech stack that's built for and powered by AI. Combining our businesses and capabilities onto one shared path. Will accelerate the journey for both of us.

Thank you.

Sanjay Sakhrani: Thank you, Rich. That was very interesting and I appreciate it. Maybe just a follow-up question on the 10% credit card cap topic. Obviously, the industry has been quite vocal about the explicit and unintended consequences of it. I'm just curious to hear your view and if you've had any discussions with the administration on the issue.

Richard Fairbank: Know, we appreciate the energy to help consumers with affordability. On many aspects of their spending. Let's talk about credit cards. Let me start by saying that we have built a company focused on providing Americans with products that are simple to understand. And are accessible. All of our banking products have no minimum balance requirements and no fees. Including no overdraft fees. And we offer many credit cards with no annual fees. The credit card industry is intensely competitive. As thousands of banks and credit unions compete directly based on product pricing and other features. Putting a price control in place, such as the proposed rate cap, would not make credit more affordable.

It would make credit much less available for consumers. Up and down the credit spectrum. This is far more than a subprime issue. This would happen because we and the industry would be compelled to immediately slash credit lines, restrict accounts, and limit new originations. To a very small subset of consumers. And consumers are the backbone of the American economy. 70% of GDP is driven by consumer spend and $6 trillion of that spending is on credit cards. A material contraction in available credit would likely cause shocks throughout the economy as the lack of credit would result in greatly reduced consumer spending and would likely bring on a recession.

And let's not forget about the impact of businesses beyond lost sales. Other parts of the economy beyond banks are highly dependent on card programs, from retailers to airlines to hotels. In addition, credit cards are many consumers' initial entry point into building a credit history. A reduction in available credit could significantly impact their ability to get auto loans, mortgages, and other forms of credit. And for many consumers, a credit card is their only access to credit. So while we can't predict what will happen next, we feel strongly that a cap on interest rates would catalyze a number of unintended consequences. Next question.

Operator: And our next question comes from Erika Najarian with UBS. You may proceed.

Erika Najarian: Rich, pulling up again, another point of discussion, that was heavily debated in the past few weeks has been the Credit Card Competition Act. And given your acquisition of Discover, and what the opportunity set could be, maybe help us think through what you think the consequences could be of passing CCCA. And also, maybe the broader question is, as we think about the strategic imperatives over the next year or two, where would you put increasing global acceptance?

Richard Fairbank: So Erika, interchange has been around for a long time because part of a well-established payments ecosystem in The United States that benefits both retailers and consumers alike. We believe that there is substantial competition in the payments industry already. With banks like Capital One Financial Corporation taking a big portion of its interchange revenue and giving it to the consumer in the form of rewards. And that then stimulates consumer spending and the ecosystem thrives. So pulling up, we believe this is a system that is working well. I think government intervention in this marketplace in this manner may have unintended consequences that could harm market participants, including consumers. Could you ask again your global acceptance question, Erika?

Erika Najarian: Yes. So I guess I'm asking where on your strategic imperatives would increasing global acceptance rank as investors were thinking that if CCCA goes through, that given that you have a Discover network that you potentially could be a beneficiary as a second network on the card, but, of course, the limitation currently would be global acceptance.

Richard Fairbank: So, Erika, as you know, we have talked about since we announced the Discover deal. The network is a crown jewel in that acquisition. And you know, when we looked at every strategic opportunity to leverage the network, every single one of them we found to capitalize on those opportunities had the same exact shared path. And that shared path was to raise international acceptance and to build the network brand. And so, that is a path that we are already going down that path. It's a long journey to build acceptance all over the world. And along the way, we are to use a phrase we always use internally, we're sloping the work.

To put the highest emphasis on the places that Americans travel. So we believe that this and so there's so many different types of opportunities that we have that all sort of need that same double set of solutions, and that's why we're investing in that. And that's And I'm struck, it's rare in business where every single thing that you hope to be down the road has the same shared path to get there. So it's why we're really leaning pretty hard into this network opportunity. Next question, please.

Operator: Our next question comes from Ryan Nash with Goldman Sachs.

Ryan Nash: Hey. Good evening, Rich.

Richard Fairbank: Hey, Ryan.

Ryan Nash: So maybe putting aside all the macro stuff, we've spent the last few quarters talking about investing in the business. And can you maybe just talk a little bit about whether the acceleration that you've been speaking of has made its way into the results yet? What are some of the areas? And I guess given the fears of rising efficiency, you maybe just talk about whether or not you can manage at around these levels over the medium terms fully understand that I could differ over any individual quarter? Thank you.

Richard Fairbank: So Ryan, yeah, let me just pull up for a moment and reflect on your comment and your question about our investments, just to kind of reset the table here. As a result of years of strategic preparation, we have a wealth of opportunities today that put us in an advantageous position to grow and win in the marketplace as it continues to change at a breathtaking pace. And these investment areas, you know, that include Discover, and as we just talked about, leaning into international acceptance and building the network brand. We, of course, continue as we have for many years, to lean into the premium credit card space.

And there is just so much opportunity in building a franchise of heavy spenders. I do want to comment there that it's very clear that the biggest players in that space are leaning even harder into that. And they're investing. And so we are doing so as well. I think the flip side of all that investment is it's gonna be, you know, a higher hill for maybe other competitors to climb, but we're climbing that hill and seeing a lot of traction. In fact, our growth in our credit card business and purchase volume, the highest growth is at the very top of the market. In retail banking, for years, we've been building a national retail bank organically.

We're the only major bank building such that doing that organically, that requires a lot of investment in marketing. And now with the Discover acquisition, we have continued opportunity in that space, and we're leaning pretty much even harder there. As AI continues to transform the world, we, of course, are investing in AI and you know, being on the top of the tech stack. That we built, AI has a really I think, special high leverage at a company like Capital One Financial Corporation.

And in fact, as we have moved up to tech stack, we're investing in opportunities that sit on the tech stack, like Capital One Shopping, Auto Navigator, our travel business, and now with Brex, we have a chance to massively accelerate and advance our journey with corporate liability, personal liability, the small business bank, as we talked about earlier. So, let me go back to your question about efficiency ratio. In recent quarters, we've talked about these opportunities. And we have indicated that collectively, these investments will put upward pressure on efficiency ratio in the near term, and we continue to lean into those.

With the acquisition of Brex now, we have additional investments, and those investments we are making are directly in service of driving growth. But it's also the case that we already had dollars set aside for pursuing this market organically. Which will be replaced by the Brex investment. So as there is some offset there, and we've also tightened up in some other areas. So but the net effect of all these investments across Capital One Financial Corporation in pursuit of opportunities that collectively are really as good as I've seen in my journey of founding Capital One Financial Corporation and being there for all these years.

The net effect will be some upward pressure on efficiency ratio in the near term. Now importantly, we still expect our earnings power on the other side of the Discover integration. To be consistent with what we expected at the time we announced the Discover deal inclusive of Brex. Next question, please.

Operator: Our next question comes from Terry Ma with Barclays. You may proceed.

Terry Ma: Maybe a question for Rich. Credit card delinquencies are now down year over year, thirteen, fourteen months in a row. There is consumer stimulus in the form of tax refunds this spring. You re-highlighted some of the comments you made around the loan growth brownout. Maybe just help us tie all that together and just kinda talk about how you think about the outlook for consumer health and growth at Capital One Financial Corporation? And any color you can provide on how long the brownout will kind of persist for? Thank you.

Richard Fairbank: Okay. Great. Let me actually start with the brownout. So the brownout that we flagged in prior earnings calls, just to just to remind ourselves you know, what's driving that. Is, first of all, following Discover's credit expansion, this in twin in the '22 kind of time frame. You know, they ran into some issues. So Discover dialed back their origination programs by a fair amount toward the 2023 and continued to run it at a scaled-back level.

As a result, they've had some pretty darn good credit, but the flip side of that is they put a whole bunch of vintages in place that are just smaller than prior vintages were, and that just has an extended impact on the growth in so that's kind of factor number one. We also as we and you know, this is not surprising that we find this, but as we look over Discover's shoulders at their credit policy, and things that are now being implemented fully on still on the Discover system. We are doing some trimming on the margins of their origination in areas, particularly around higher balance revolvers.

Which as we've said for way more than a decade, that's an area that we probably relative to the industry are more trying to avoid. So there's been some trimming around the edges that we're adding on top of their dial-back that they did that collectively leads to this brownout that we flag. Now that is everything we're talking about is temporary in nature.

And the thing that will change that trajectory is getting on the other side of the tech integration of Discover into Capital One Financial Corporation because now when Discover is entirely on our platforms, and we're able to leverage all of our data credit policies, the marketing machine of Capital One Financial Corporation connected to the technology and everything else. We look forward to being able to resume growth. We've already identified a bunch of growth opportunities that are natural for Discover's really quite remarkable brand and business position. So we look forward to that on the other side. So that's the brownout, but that will continue until card integration is done.

Let me turn to your other question on the health of the consumer. The US consumer and the overall macro economy remain resilient. The unemployment rate inched up in 2025, but remains pretty low by historical standards. Layoffs and new unemployment claims are low and stable. Wages are still growing in real terms and consumer spending remains robust. Debt servicing burdens remain stable and close to pre-pandemic levels. Because of the budget bill implemented last summer, consumers will see larger tax refunds this year than last year. Tax withholdings will also be lower in 2026. I'll come back in a moment to tax refunds. But let me keep going for a moment.

But I do think we're still in a period of elevated economic uncertainty. You know, inflation remains above the Fed's target. Job creation slowed significantly in 2025. Some consumers are feeling pressure from the cumulative effects of price inflation, higher interest rates. And many of those relying on the Affordable Care Act for their health insurance will see their premiums going higher quite sharply in some cases. And so I think these uncertainties will hang over the economy and hang over the choices that consumers make. Let me make a comment before I turn to our individual port our portfolio, just to comment on tax refunds.

Tax refunds are an important driver of the seasonal improvements in delinquent payments that we see around March and April of each year. In both card and auto. In 2026, the total amount of tax refunds is expected to be higher than in 2025 because some of the tax cuts in the big beautiful bill last summer were made effective retroactively to the start of 2025. Tax withholdings will also be lower in 2026. So all else equal, higher tax refunds will likely be a good guy for consumer credit. Especially and I think this is a really important point, especially when they are higher than consumers expect.

But we believe that this will probably be a onetime benefit because tax withholdings will be lower in 2026, so we won't see another round of higher refunds in 2027. And I think consumers will set their expectations, hopefully not counting on too big refund coming in 2027. So I think we're looking at a onetime effect that is our view there. Let me turn to our own portfolio we talked about the improvement in our charge-off rate. It's steadily improved really through most of 2025. And, in fact, in the fourth quarter, was 113 basis points lower than a year ago. And our front book of new originations continues to perform well.

As we look ahead, delinquencies remain the leading indicator of credit performance. Our card delinquencies improved steadily beginning in 2024 all the way through 2025. But we've now seen two quarters in which they've moved more or less in line with normal seasonality. This has been true both in our legacy domestic card portfolio and for Discover. And it suggests that credit is settling out after almost a year of steady improvement. In auto, our credit performance has been strong in stable over the past year with losses back near pre-pandemic levels.

But I think auto is also both auto and card are benefited by choices we made several years ago to normalize for the great inflation in credit scores that I think has been a surprise to the industry. But pulling way up, we think the health of the overall macro economy and of The US consumer you know, it's really in a pretty good place. And as a result, we continue to lean into our growth opportunities. Next question, please.

Operator: Our next question comes from John Pancari with Evercore. May proceed.

John Pancari: Good afternoon. If you could provide some additional detail just around the financial impacts of the Brex deal. You know, could you possibly some details on the tangible book dilution and earnings accretion and maybe book value earn back? From the transaction? And then just separately, totally understand the merits of the transaction and the commercial capability, you know, addition to your product suite that it provides. But anything just around the timing, like, why now pursue the deal, at this point just given the ongoing, you know, effort around the Discover integration? Thanks.

Andrew Young: Hey, John. Why don't I first take your question about the metrics? Given the relative size of Brex to Capital One Financial Corporation, we don't intend to provide additional metrics. You know, we're providing the purchase price and the associated balance sheet marks and integration costs. As we're intending to break those out. Our financial statements over the coming quarters. So we're providing our current estimates now and we'll provide revised marks and the quarterly amortization schedule after close. And then I'll turn it to Rich to talk about your second question.

Richard Fairbank: Yeah. Thank you, John. To your question of why now, obviously, not long ago, we did the Discover deal. And we are you know, well down the path of what I think is a very successful integration. We very carefully looked at the impact that doing a deal like this might have on the resources and anything related to the Discover Act acquisition, we took a very close look at that because obviously that's just a paramount priority doing that acquisition well. And it turns out that the for the most part, the business areas that are impacted in this integration are different from the ones primarily in the Discover integration.

Obviously, Discover one was really about pulling consumer business together. This is about pulling a business-related businesses together. So, we look long and hard at this from a resources point of view, and we concluded that we think we can do both of these in parallel and we're very comfortable about that. Then the other aspect is sort of financially I talked a little bit earlier. We will lean in just in terms of sort of ongoing investment we will lean into the growth opportunity for Brex. That's an important reason that Capital One Financial Corporation it's important value that Capital One Financial Corporation could add in the near term.

Relative to sort of where they were on a stand-alone basis. So a synergy that can happen be created right away. Even without the full integration. It does financially, it does offset some spending that we were otherwise doing, investing in similar kinds of solutions at Capital One Financial Corporation. And also you know, around the company, we really just, you know, managing things tightly so that we're in a so that as we've talked about for the last few quarters, we're in the same position that we were before relative to the earnings power coming out the other side. Of the Discover integration.

So even as we lean more into the Brex investment, the, our view of the earnings power out the other side. Is the same view that we've had all along. Next question please.

Operator: Our next question comes from Richard Shane with JPMorgan.

Richard Shane: Look, one of the unique facets of Capital One Financial Corporation, I think this is the seventh acquisition I can name. You have a management team that has a very long-term vision in terms of how you build this business. Rich, when we think about your target efficiency ratios, and sort of that 2027 guide, there's always something to invest in with Capital One Financial Corporation. And that's part of part of the secret sauce here. Do you think that efficiency ratio will be because you grow the revenues into it, or do you actually think we will see a peak in expenses that will recede?

Richard Fairbank: Well, thank you, Rick. You know, I think just pulling up for a moment on, our philosophy and maybe distinguish it from I think a number of banks as they drive efficiency, first and foremost, do it by really trying to dial back and manage expenses, extremely tightly. We try to manage expenses very carefully too, but our efficiency journey, which we've said is an important part of the value proposition for Capital One Financial Corporation, for investors. Is first and foremost, the engine of that is growth. Revenue growth.

And so what we have done since the founding of the company is to absolutely focus on where are the structurally good opportunities in the marketplace make sure that we understand where the not good opportunities are and avoid those even if other banks are chasing them. But then where we see the good structural opportunities, we work backwards from how can we capitalize on those. And one of the terms that I've used, you probably remember, Rick, is to have a growth platform.

And acquisitions that we have tended to do have been acquisitions of growth platforms to enable us to build a business and so that we don't have to go from sort of zero to one in a sense. We can start you know, a bit beyond that and then really leverage opportunity. And this acquisition of Brex is a classic case of that. It is right in the heart of our business strategy as a company which is all about you know, payments. For both consumers and businesses. It is a growth platform which interestingly, there's way as I talked about, we can we have things that we bring that can enhance Brex's growth significantly and early on.

And then Brex actually brings things that can strengthen our growth platforms across small business card, our small business bank, and our travel business. So the we are, in many ways, the company that does invest. We've been investing since the founding of the company. But always, it is these are things that have gone along with that. From the founding days, we built a rigorous horizontal accounting framework to rigorously measure before, during, and after investments to see that they actually pay off. We're extremely focused on net present value. We despite announcing this acquisition today, we are built as an organic growth company.

So if I pull up on all of those, you know, we are what I've been sharing with investors over the last you know, number of quarters. Is to say on a calibration across decades of building Capital One Financial Corporation. I see more opportunities which will drive future revenues than I've seen you know, you know, in some ways ever. But certainly the number and diversity of those. Why are they there? Because we built a technology platform from the bottom of the tech stack up. And as we go to the top of the platform, we are in a position to capitalize on opportunities that I think other companies would not be.

Along the way, as these opportunities manifest, we have chosen to lean into investing. Which, as I have said, in the near term, that pressures efficiency ratio. But while we don't give specific efficiency ratio guidance, all of these investments are in service, of driving future revenue growth, which is the engine for efficiency ratio improvement and value creation. In the long term. Next question, please.

Richard Shane: Yeah. You still there, Rick? Go ahead.

Operator: Rick has left the stage.

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

Mihir Bhatia: I was wondering if you could provide us with an update on how the debit transition to Discover is going. Any learnings from that process as you think about which and when to transition the credit portfolios? And also just related to that, any initial thoughts on if there's an opportunity to move Brex cards? Over to Discover? Thank you.

Richard Fairbank: Yes. Mihir, as we shared the announcement of the deal, we are moving all of our debit business to the Discover debit network to take full advantage of the synergies that come from vertical integration. We've been migrating our debit card holders to the Discover network since August, and we are now nearly complete with our conversion. You're starting to see that network synergies in our reported results, and you will see more of those results as we complete the debit conversion. On the credit card side, we plan to do a lot of testing. And by the middle of this year, we will be able to originate Capital One Financial Corporation credit cards on the Discover network.

Early next year, we will be able to move some existing credit cards to the Discover network. Now longer term, we will work on building Discover's international acceptance and strengthening the network brand. Which will, you know, open the doors for us to have an opportunity to move more business over there. You asked about the learnings. We are really pleased with what we've seen in the conversion in terms of the smoothness of the conversion, the customer take-up on the debit cards, and really pretty much all aspects of this have gone as well or maybe a little better than we had expected.

But we know that choices to move cards and everything along with that is a really important strategic choice and a very, very important thing from a customer experience point of view, which is why we have a big testing agenda in the near term and why we also are working so hard to make sure that we continue to raise the international acceptance and also create a lot of technology-based solutions to make it easier for consumers to move their cards. Next question, please.

Operator: Our next question comes from Moshe Orenbuch with TD Cowen.

Moshe Orenbuch: Great. Thanks. I've got, like, one sort of housekeeping type thing and then a follow-up. The housekeeping question, Andrew, I appreciate that Brexit small relative to Capital One Financial Corporation, but could you size for us the size of the small business card portfolio at Capital One Financial Corporation, the small business banking, and perhaps maybe revenues from the travel portal that, you know, you would expect to, you know, affect, if you will, by, know, through the Brex acquisition.

Andrew Young: Yeah, Moshe, I appreciate the interest there, but those just aren't metrics that we break out in our reporting, and we're not intending to do so at this point either.

Richard Fairbank: You know, just to, Moshe, just to sort of generally give you as I mentioned earlier, small business card portfolio is number three purchase volume on the personal liability in the personal liability marketplace. Our small business bank is still mostly a local bank that was built on the shoulders of the local banks that we bought, which are in about 18% of The US. We have strategically for quite a while, Moshe, felt that the tremendously success building of our national retail bank. And that there's a parallel opportunity to go national and build our small business digital for small business bank, you know, leveraging the capabilities that we now have in the small business space.

But what we have lacked in many ways is the business tech platform on which to build that. We didn't have enough scale in our small business bank business to we didn't feel that we had the scale to build the sort of tech stack fully necessary for that. But that comes along with the Brex acquisition. So it gives us a chance now to have shoulders to stand on to accelerate the growth of small business bank.

Moshe Orenbuch: Great. Thanks. And, you know, Rich, you had talked about, you know, the broad number of opportunities. Could you just talk a little bit about how both of acquisition and the Brex acquisition might change kind of the priorities? And where you know, what are the just talk a little bit about what the highest priorities in the those investment opportunities are? Thanks.

Richard Fairbank: Discover and Brex both expand the number of opportunities. And, you know, we already had a pretty good list of opportunities that it was not an accident. We had the opportunities we've had at Legacy Capital One Financial Corporation because we were working backwards from those opportunities for years as part of the benefit of transforming our technology platform. So along came Discover and that brings you know, the network opportunity, but also the network investments that we've talked about. And along comes Brex, and that brings the very near in growth opportunities, but the investments required that go along with that.

So this is but with respect to opportunities that we have listed that I listed earlier, each of those on a stand-alone basis. Our standard is, Moshe, you know, is this a value creation opportunity? And we look at the horizontal economics of this. We say, what is the payoff down the road, and what does it take to get there? And so on. And the other ones I've listed, we are very compelled by those opportunities and are continuing to pursue them. The opportunity at the top of the market even got an extra. The national retail bank, which benefit from the Discover deal.

The emerging businesses of Capital One Shopping, Auto Navigator on the auto side, our travel business. These are businesses that on a stand-alone basis, we are very compelled by the opportunity. So what we are working to do is to, you know, to try to really manage the company efficiently even as we pursue a large list of opportunities. But we are you know, these opportunities are opportunities that are you know, opportunities in a particular moment. And that's why we're investing quite a bit to pursue them. Next question, please.

Operator: Our next question comes from Don Fandetti with Wells Fargo.

Don Fandetti: Hi, good evening. Rich, as I look around at the card end, industry, I mean, it just seems like every big bank is trying to grow market share. Leaning in regionals, fintechs. I was just curious, how you think this plays out if the industry is going to remain disciplined? And do you think you can grow your card loans in that type of environment? Or, you know, could you consider sorta zagging and slowing things down a little?

Richard Fairbank: Thanks, Don. You know, I think it is pretty much a certainty that every time the economy's in pretty good place, the card industry will have more competition, and that competition is really coming from the big players. That competition is coming from fintechs. And it is striking. How much the card players are leaning into things. You can see it by turning on TV and see the advertisements that are being made you can look at the products that people are refreshing. At the very top of the market and, you know, you can look at some of the early spend bonuses and other things going on.

So it is clear that the existing players and the fintechs, coming from the side all believe that there is a good opportunity here. But I wanna give you, Don, a calibration that I share with you from thirty some years of building Capital One Financial Corporation. I feel this is a rational marketplace. It is you know, it's definitely striking to see how much competitors are leaning in, but when I look at the choices they're making, when I look at the thing I fear the most is reckless credit. I don't see that. I think that this is a market with opportunity for someone like Capital One Financial Corporation.

But we have our eyes open with respect to the competition. I think the investment the table stakes of investment, to your point, I think are higher than they might be at other times. But all of that notwithstanding, I really believe this is a good marketplace. And we are leaning in to capture the opportunities.

Don Fandetti: Thank you. Next question. Oh, I'm sorry. Go ahead. I'm all set.

Operator: Next question, please.

Operator: Our next question comes from Jeffrey Adelson with Morgan Stanley. You may proceed.

Jeffrey Adelson: Hey. Good evening, Rich. Appreciate all the color on the acquisition. I'm also just curious how you're thinking about specific benefits and synergies here commercial banking franchise. I mean, is this as you start to bring everything under one roof for your business customers, is this really something that could meaningfully accelerate your growth of lending and deposits within that segment, as you maybe attract more of those customers or just you're able to do more for those customers under one roof over time?

Richard Fairbank: Mhmm. So yes, let me Jeff, I really appreciate that question. I can't remember an acquisition we've done in our history that has had so many connection points to our own business model and the ability to lift so many different parts of the company. And you mentioned one that you know, I didn't even list in my list, which was a benefit to the commercial business. But we have a treasury management business. Like all major commercial banks do. And you know, there's a lot of technology that goes into treasury management products.

Our TM team has looked closely at this extraordinary tech stack that Brex has built and believes that there is an opportunity over time to build on that tech stack. I didn't mention it because I think it's gonna be a down-the-road kind of thing. There's gonna be two really kind of pull together an integrated treasury management capability is that's that was just less of a close-in opportunity. But you know, you've seen you've seen me talk over the years. How many times do I talk about building a tech stack from the bottom of the tech stack up? That is what we've done at Capital One Financial Corporation.

It is a very long and lonely journey to do it. Most companies build from the top of the tech stack down. But the benefits are multiplicative. When you have a tech stack that is modern right from the core and moving up from there. What's extraordinary here is that on the business side of the house, we are bringing in a modern tech stack that has the ability to lift not only business cards, but also all aspects of the business side of Capital One Financial Corporation. We've spent so much of our time collectively with investors talking about the consumer side of the house. That's a different tech stack.

I mean, well, there's a lot of shared aspects about it, but, you know, a consumer core is a different thing than commercial. And so I think that Brex is really bringing an opportunity to take some of our activities, particularly those that were lower scale at Capital One Financial Corporation, and have the opportunity to accelerate their journey. Your next question. Question, please.

Operator: Our next question comes from John Hecht with Jefferies. Afternoon. Thanks very much for taking my questions. First one is, you guys have always, you know, gone after a barbell strategy where you're going after know, super prime and prime on one side and, you know, the non-prime on the other. You've generally had a mix in a specific range, but I'm wondering whether it's credit card or auto now. Do you guy are you leaning into any cohorts in that in that way or leaning away from? And is or is the mix expected to be relatively stable here?

Richard Fairbank: John, thanks for your question. The barbell term I think, was in many ways sort of an investor term over the years to try to, from afar, sort of characterize what they saw at Capital One Financial Corporation because we had clearly you know, pioneered how to safely lend to mainstream America. Including the subprime, and, also, that we always were pushing right at the top of the market going after heavy spenders. I don't think it ever was as much of a barbell as sort of urban legend would have it.

But I do wanna say even way before the Discover acquisition, we were a full spectrum lender including a significant player right in the middle of the market in prime. The one thing that differentiated our strategy in PRIME from others is that we were more cautious on the prime revolver especially the more high balance revolver. And so we have always played just a little more cautiously in that space. But we have played the credit spectrum, and in fact, we want to with our customers, for example, our mainstream America customers to grow them, to graduate them, and move them up to being ultimately heavy spenders.

When Discover joined Capital One Financial Corporation, As we said, this is striking. While Capital One Financial Corporation has been a full spectrum lender, Discover has been a very specialized and focused player more in the prime part of the marketplace. We've now studied their underwriting. We think they underwrite very safely. We are trimming around the edges with our we have a little less appetite for the higher balance revolver than they and the industry do. So that's some of the brownout we've talked about. But Discover is, you know, will fit right in with our full spectrum strategy. I do wanna make a comment on the auto side.

We are absolutely at full spectrum player on the auto side. And in fact, one of the biggest players in the industry. In subprime. In near prime, and in prime.

John Hecht: Okay. And then quick follow-up question. Thanks very much for that detail there. Andrew, I'm wondering given the forward curve and then yield, the timing of quarter end and days and quarter, and tax the kinda tax refund situation. You know, can you just give us, your perspective on kind of the cadence of seasonality and how it might affect NIM? Or is or can we look to the past as a good indication of that?

Andrew Young: Yeah, John. As you said, there's seasonal effects that in most quarters actually impact NIM. So I'll touch on that, and then I'll just talk a bit more structurally. About our level of NIM. So looking ahead to the first quarter, you know, there are two seasonal effects. One, two fewer days. In the quarter, which is roughly, I think, 18 basis points or so of a headwind to that quarterly rate. And then the second is we are likely to have higher levels of lower-yielding cash, because average cash levels just tend to be elevated in Q1 as a result of pay down of seasonal loan balances.

We have the added effect this year of the cash proceeds from the home loan sale that are unlikely to come all the way down in the immediate term, you know, with respect to the tax effect, we'll have to see how consumers behave to Rich's earlier comments. So I think that's a little bit more of a wild card. Then more structurally, I'll point to a couple of things. You know? One is deposit pricing often lags as fed funds move. So we could see brief periods of pressure after Fed moves if we were to see them in the coming quarters. But over time, given the relatively neutral position of our balance sheet, that largely corrects itself.

And then the only other thing that is gonna impact the ambient level of NIM would just be the relative growth in different asset classes over time impacting balance sheet mix. But other than that, I don't really foresee any structural things impacting the balance sheet. So it really will be much more of a seasonal effect as we look ahead to the coming quarters. Wonderful. Next question, please.

Operator: Next question comes from Robert Wildhack with Autonomous Research. You may proceed.

Robert Wildhack: Rich, you mentioned a couple times earlier that Brexit's growth opportunity standalone was limited by scale. Can you just expand on that a little bit more? Were they lacking scale maybe on the lending side of things or more on the technology side or somewhere else? And then do you see, as the more attractive growth opportunity for Brex with some of the larger enterprise clients, a number whom you listed earlier or more in the SMB space? Thanks.

Richard Fairbank: Thank you, Robert. So let's talk about Brex. For a minute. Almost all rapidly growing startups are constrained on investment dollars. And Brex built an amazing company and has big aspirations for what they can be. Achieving those aspirations requires a lot of dollars and also, you know, a lot of other capabilities as well. And, you know, I think as I've gotten to know Pedro Franceschi, their amazing founder CEO, and Ben Gammel, their president, and the extraordinary team that they have, it's very clear that they know they have a tiger by the tail. And I think, you know, they know they had opportunities to go raise more capital.

And, they certainly weren't at all looking to go sell a company. But I think what captivated them about the unique opportunity of Capital One Financial Corporation is that we, as a tech company, ourselves, you know, with a modern tech stack, and the entrepreneurial heritage of having been an original fintech that we could be a unique opportunity to bring a lot more resources and capabilities to them while still enabling their dream to stay alive and the entrepreneurial spirit, that sometimes you know, when one thinks about large companies, might otherwise be hard to maintain. But I think they were pretty excited about the ability to have our brand. To open doors all over the place.

And not just open the doors, but also just you know, for people to know that they're part of one of the biggest banks in America. The sophisticated marketing machine, the balance sheet of the bank, and the capacity to invest in sales and in marketing and engineering and AI. The, I think it really was an opportunity in their mind to accelerate the growth while still very much keeping the dream that is Brex alive. And, again, I think that's something that's uniquely possible by pulling these two entrepreneurial companies together. With respect to the customer base, I am really struck at let's just pull way up and savor a couple of things.

First of all, most times when one looks at a business, in a marketplace, you kinda say, well, who would have a need for something like this? The answer is just about every company in America, if not the world, has a need for this because every company has, you know, payables, expenses, and they gotta manage, all of the complexity of the ecosystem on the payment side of the business. And so and it's a need that has not been really filled, in the marketplace with an integrated solution. So it starts with wow. This thing could be could be attractive to small companies all the way to really large ones.

So, if you look at their journey, their journey was one of, in fact, over time, tapping into those. They started with startups, startup tech companies. They built an incredible brand. And, you know, I think their customer base includes like, a third of tech companies. Kind of thing. I don't that's not a statement I'm fully grounded, but let's just say they've had tremendous success with startups. But they also on top of this amazing tech stack that they have built, we're able to build a lot more capabilities that then made their product attractive to middle-market companies and, in fact, pretty large middle-market companies.

And companies that have business all over the world and their employees traveling all over the world. So I believe that they are set up for success with small companies with medium-sized companies, and in fact, pretty large ones. Because their solution spans the needs of that broader range of customers. And the elegance and simplicity of the solution make it something that small and large can implement. Next question, please.

Operator: And our final question comes from Saul Martinez with HSBC. May proceed.

Saul Martinez: Wanted to follow-up on John Pancari's question. And I get that the deal is modest in size, and you don't wanna give some of the financial metrics. But you know, 80% of the purchase price is allocated to goodwill. That's not a trivial amount on a $5 billion deal. And I suspect Brex is not profitable. And you can correct me if that is the wrong assumption. To use here. You do have $950 million of transaction costs and incremental investments. Is it fair to say then that the deal at least initially will be EPS dilutive, intangible book dilutive, if even at a modest amount. And, obviously, overall, you know, value accretive to Capital One Financial Corporation.

Richard Fairbank: So Saul, in isolation, Brex will result in earnings dilution initially. As we're buying a business with a growth rate that is multiples of industry growth rates. We believe this growth dynamic will lead to significant accretion over time.

Saul Martinez: Okay. Alright. Fair enough. And then I guess just to follow-up here is you mentioned you expect to change in the expected pace of your quarterly share repurchases, which was $2.5 billion. Is that I mean, is that a fair assumption? Or is that is it fair to think that's sort of a decent cadence for buybacks at least, you know, at least as we stand here today.

Andrew Young: So let me clarify the language a bit, which is we're saying that the Brex transaction itself, will take down our capital by, I think, a little more than 40 basis points. So a meaningful amount, but certainly not enough to influence our thinking about near-term repurchases. So the point we were making is it's just not going to alter our approach to repurchases. And so, you know, we last quarter that our long-term needs 11%, given our current capital position. You saw this quarter we accelerated our returns upping the repurchases to the $2.5 billion you cited increased our dividend 33% to $0.80.

So with respect then to the pace of future buybacks, we're really gonna look at a variety of things, just current and projected capital levels and our balance sheet growth opportunities, the economy, the regulatory environment. And it's not just a point estimate for those variables. We're going to think about a range of outcomes around them. Given all of that, we have healthy capital levels. We've got $14 billion of remaining authorization, and we've got flexibility under SCB. So we're gonna take all of those things into consideration and manage our repurchases accordingly. But the Brex transaction itself is just not influencing our thinking about that plan base.

Jeff Norris: Well, that concludes our Q and A session this evening. I want to thank everybody for joining us on the conference call. And for your continuing interest in Capital One Financial Corporation. Have a great evening.

Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

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