Capital One Financial Corporation Q4 FY2025 earnings call

• Acquired Brex in a stock and cash deal totaling $5.15 billion. • Fourth quarter earnings: $2.1 billion or $3.26 per diluted common share; full year earnings $2.5 billion or $4.3 per share. • Completed sale of $8.8 billion Discover home loans portfolio, resulting in net gain on sale of $483 million. • Fourth quarter revenue up ~1%, noninterest expense up 13%, pre-provision earnings down 12% net of adjustments. • Provision for credit losses $4.1 billion, increase driven by allowance build and net charge-offs. • Allowance balance $23.4 billion, total portfolio coverage ratio 5.16%. Domestic card coverage ratio 7.17%, consumer banking coverage ratio 2.23%, commercial banking coverage ratio 1.63%. • Total liquidity reserves $144 billion, preliminary average liquidity coverage ratio 173%. • Net interest margin 8.26%, down 10 basis points from prior quarter. • Common equity Tier one capital ratio 14.3%, down 10 basis points from prior quarter. • Discussed Discover integration progress and synergies, including debit transition to Discover network.

In the fourth quarter, Capital One's domestic card segment had year-over-year purchase volume growth of 39% (including Discover) and 6.2% excluding Discover. Ending loan balances increased 69% year-over-year (including Discover) and 3.3% excluding Discover. Revenue was up 58% from 2024 (including Discover) and 6.2% excluding Discover. The domestic card charge-off rate was 4.93%, up 30 basis points from prior quarter but down 113 basis points from year ago. Delinquency rate was 3.99%, up 10 basis points from prior quarter but down 54 basis points from year ago. Consumer banking's global payment network transaction volume was about $175 billion, auto originations up 8% year-over-year, ending loan balances increased $6.7 billion or 9% year-over-year, and revenue up about 36% year-over-year. Auto charge-off rate was 1.82%, down 50 basis points year-over-year but up 28 basis points from third quarter. Commercial banking had flat ending and average loan balances, ending deposits up 4% from linked quarter, average deposits up 5%, annualized net charge-off rate increased 22 basis points to 0.43%, criticized performing loan rate down 45 basis points, and criticized nonperforming loan rate down 3 basis points.

• Expect Brex acquisition to accelerate business payments strategy without impacting Discover integration or expected synergies. • Earnings power on the other side of Discover integration expected to be consistent with initial expectations, inclusive of Brex. • No change to expected pace or magnitude of quarterly share repurchases due to Brex acquisition.

• Factors causing actual results to differ from forward-looking statements, including market conditions, regulatory changes, economic uncertainties, and competitive dynamics. • Potential unintended consequences of government interventions in financial markets, such as interest rate caps or credit card competition act.

Q: Talk about strategic value of Brex acquisition.

A: Brex accelerates Capital One's business payments journey, brings modern tech stack, cultural alignment, and opens opportunities in corporate liability, small business banking, and travel.

Q: View on credit card competition act?

A: Believes government intervention may have unintended consequences harming market participants.

Q: Global acceptance of Discover network?

A: Already investing in raising international acceptance, focusing on places Americans travel.

Q: Outlook for consumer health and growth?

A: US consumer resilient but with economic uncertainties; brownout in credit card growth temporary due to Discover tech integration.

Q: Financial impacts of Brex deal?

A: Relative size of Brex means no additional metrics provided, but expects earnings dilution initially with accretion over time.