Capital One Financial (COF) Q4 2024 Earnings Call Transcript

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Capital One Financial (COF 1.17%)
Q4 2024 Earnings Call
Jan 21, 2025, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Capital One Q4 2024 earnings call. Please be advised that today’s conference is being recorded. After the speakers’ presentation, there will be a question-and-answer session.

[Operator instructions] I would now like to hand the conference over to your speaker today, Jeff Norris, senior vice president of finance. Please go ahead.

Jeff Norris — Senior Vice President, Global Finance

Thanks, Josh, and welcome, everyone. Just as a reminder, as always, we are webcasting live over the internet. And to access the call on the internet, please log on to Capital One’s website, capitalone.com, and follow the links from there. In addition to the press release and financials, we’ve included a presentation summarizing our fourth quarter 2024 results.

With me this evening are Mr. Richard Fairbank, Capital One’s chairman and chief executive officer; Mr. Andrew Young, Capital One’s chief financial officer. Rich and Andrew are going to walk you through this presentation.

To access a copy of the presentation and press release, please go to Capital One’s website, click on investors, and click on financials, and then click on quarterly earnings release. Please note that this presentation may contain forward-looking statements. Information regarding Capital One’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 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. And for more information on these factors, please see the section titled forward-looking information in the earnings release presentation and the risk factors section in our annual and quarterly reports that are accessible at Capital One’s website filed with the SEC. Now, I’ll turn the call over to Mr. Young.

Andrew?

Andrew M. Young — Chief Financial Officer

Thank you, and good afternoon, everyone. I will start on Slide 3 of tonight’s presentation. In the fourth quarter, Capital One earned $1.1 billion, or $2.67 per diluted common share. For the full year, Capital One earned $4.8 billion, or $11.59 per share.

Included in the results for the fourth quarter, we’re adjusting items related to Discover integration costs and a legal reserve bill. Net of these adjusting items, fourth quarter earnings per share were $3.09. Full year adjusted earnings per share were $13.96. We also had one notable item in the quarter, which was $100 million of accelerated philanthropy contributions.

Pre-provision earnings of 4.1 billion in the fourth quarter were down 13% from the third quarter, driven by higher noninterest expense. The linked quarter increase in noninterest expense was driven by increases in both operating expense and marketing spend. Revenue in the linked quarter increased 2%, driven by higher noninterest income. Provision for credit losses was $2.6 billion in the quarter, up about $160 million relative to the prior quarter.

The quarterly increase in provision was driven by higher net charge-offs, partially offset by a larger allowance release. Turning to Slide 4, I will cover the allowance in greater detail. We released $245 million in allowance this quarter, and our allowance balance now stands at $16.3 billion. The decrease in this quarter’s allowance was driven by releases in our commercial banking and commercial segments.

Our total portfolio coverage ratio decreased 20 basis points to 4.96%. I’ll cover the drivers of the changes in allowance and coverage ratio by segment on Slide 5. The allowance balance in our domestic card business was flat. The coverage ratio declined 33 basis points, primarily driven by seasonal balances, as well as favorable near-term credit trends.

In our consumer banking segment, we released $131 million in allowance, resulting in a 22 basis-point decrease to the coverage ratio. Vehicle values were stable in the quarter, resulting in an improved recovery outlook, which drove the release. And finally, our commercial banking allowance decreased by $130 million, resulting in a 15 basis-point decrease to the coverage ratio. The release was primarily driven by the reduction in criticized loans and, to a lesser extent, by charge-offs in the quarter.

Turning to Page 6, I’ll now discuss liquidity. Total liquidity reserves in the quarter decreased by about $8 billion to approximately $124 billion. Our cash position ended the quarter at approximately $43 billion, down about $6 billion from the prior quarter. The decline cash was largely driven by seasonally higher card loan and funding maturities, which were partially offset by continued strong growth in consumer banking business deposits.