Capital One Financial Corporation (COF) | Q1 2023 Earnings Call Transcript Summary

Capital One reported its earnings for the second quarter, where it earned $1.4 billion, or $3.52 per diluted common share. Pre-provision earnings of $4.2 billion increased by 7% compared to the previous quarter and 16% compared to the year-ago quarter. Loans held for investment and average loans both increased by 1%, driven by growth in the Domestic Card business. However, period-end deposits declined by 2% due to tax-related outflows.

Revenue increased by 1% driven by non-interest income, while non-interest expense decreased by 3%, driven by declines in operating and marketing expenses. Provision expense was $2.5 billion, with $2.2 billion of net charge-offs and an allowance build of $318 million.

The allowance balance increased by $318 million, bringing the total company allowance balance up to $14.6 billion as of June 30. The total company coverage ratio is now 4.7%, up 6 basis points from the prior quarter. In the Domestic Card business, the allowance balance increased by $544 million, increasing the coverage ratio by 12 basis points to 7.78%.

In the Consumer Banking segment, the allowance balance declined by $20 million, mostly driven by a decline in loans. The coverage ratio was essentially flat at 2.83%. In the Commercial Banking business, the allowance decreased by $218 million due to the potential sale of a portion of the portfolio to reduce future risk. The coverage ratio in the Commercial business decreased by 20 basis points and now stands at 1.62%.

Capital One's preliminary average liquidity coverage ratio during the second quarter was 150%, up from 148% last quarter and 144% a year ago. Total liquidity reserves decreased by about $9 billion to $118 billion, driven by modest declines in both cash and the investment portfolio. The common equity Tier 1 capital ratio ended the quarter at 12.7%, approximately 20 basis points higher than the prior quarter.