Good day and thank you for standing by. Welcome to the Capital One Q2 2026 earnings call. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. I would now like to hand the conference over to your speaker today, Jeff Norris, Senior Vice President of Finance, please go ahead.

Thanks very much, Josh, and welcome, everyone. To access the live webcast of this call, please go to the Investors section of Capital One's website at CapitalOne.com. A copy of the earnings presentation, press release, and financial supplement can also be found in the Investors section of Capital One's website by selecting Financials and then Quarterly Earnings Release. With me this evening are Mr. Richard Fairbank, Capital One's Chairman and Chief Executive Executive Officer, and Mr. Andrew Young, Capital One's Chief Financial Officer. Rich and Andrew are going to walk you through this presentation summarizing our second quarter results for 2026. 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 to 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 statements in the earnings release presentation and the risk factors section of our annual and quarterly reports accessible at Capital One's website and filed with the SEC. Now I'll turn the call over to Mr. Young.

Thanks, Jeff, and good afternoon, everyone. I will start on slide three of tonight's presentation. In the second quarter, Capital One earned $3 billion, or $4.73 per diluted common share. As a reminder, the BREX acquisition closed in early April, and we have provided additional details related to the purchase accounting in the appendix of tonight's presentation. The results for the quarter included several adjusting items related to the Discover and Brex acquisitions, which are outlined on slide three. Net of these adjusting items, second quarter earnings per share were $5.81. Relative to the first quarter, revenue increased 4% and non-interest expense grew 7%, resulting in pre-provision earnings growth of 1%. On an adjusted basis, pre-provision earnings were flat quarter over quarter. Our provision for credit losses decreased $1.1 billion, or 27%, to $3 billion in the quarter. The provision reflects $3.7 billion of net charge-offs of $662 million. Turning to slide four, I'll cover the allowance in greater detail. The $662 million allowance release in the quarter brought the allowance balance to $23 billion. Our total portfolio coverage ratio decreased 26 basis points and now stands at 5.02%. I'll cover the drivers of the changes in allowance and coverage ratio by segment on slide five. In our domestic card segment, we released $705 million of allowance. The coverage ratio decreased by 41 basis points and now stands at 6.99%. The decline in the coverage ratio was driven by continued favorable observed credit in the quarter and a modest decrease in the consideration given to economic uncertainties. In our consumer banking segment, we built $115 million of allowance. The allowance build was primarily driven by strong growth in the auto business. The coverage ratio ended the quarter at 2.39%, three basis points higher than the first quarter. And finally, in our commercial banking segment, we released $59 million of allowance. The allowance release was primarily driven by specific reserves on loans that were charged off in the quarter. The commercial banking coverage ratio decreased eight basis points quarter over quarter to 1.62%. Turning to page 6, I'll now discuss liquidity. Liquidity reserves ended the second quarter at about $144 billion, down $21 billion from the prior quarter. Our ending cash position decreased by about $22 billion to approximately $55 billion. The decrease in cash was primarily driven by growth in our loan portfolio, wholesale funding maturities late in the quarter, and the impacts from BREX. Our preliminary average liquidity coverage ratio was 165 percent, and our preliminary average net stable funding ratio was 136 percent. Turning to page seven, I'll cover our net interest margin. Our second quarter net interest margin was 8.01 percent, 14 basis points higher than the prior quarter. The increase was largely driven by a nine basis point impact from one additional day in the quarter. The remaining increase was driven by a lower rate paid on retail deposits and a $5 billion decline in average cash balances. Turning to slide eight, I will end by discussing our capital position. our common equity tier one capital ratio ended the quarter at 13.7 percent 70 basis points lower than the first quarter the combination of 2.7 billion dollars of share repurchases approximately 40 basis point impact from the brex transaction and an increase in risk weighted assets more than offset net income in the quarter with that i will turn the call over to rich rich Thanks, Andrew, and good evening, everyone.

Slide 10 shows second 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. The domestic card business posted another quarter of top-line growth and strong credit results. As a reminder, we closed the Discover acquisition on May 18, 2025, so period end balances for the prior year quarter now include the addition of the Discover portfolio. For items like purchase volume and revenue, we'll still need to discuss the partial quarter impacts of adding Discover. In the second quarter, we also added Brex to the domestic card business and moved our small legacy corporate credit card business from the commercial bank to domestic card. Second quarter purchase volume grew 26% year over year, primarily driven by the addition of a partial quarter of Discover purchase volume. We also posted a modest acceleration in Legacy Capital One purchase volume growth and benefited from modest tailwinds from the addition of Brex and the corporate card business. Legacy Discover purchase volume grew just under 2% year-over-year. Purchase volume for the Legacy Capital One businesses, inclusive of adding BREX and corporate card grew about 14% year-over-year, with the significant majority of the increase coming from the acceleration of underlying organic growth before the addition of BREX and corporate card. Ending loan balances increased 2.6% year-over-year. The legacy Discover card loans shrank 1.5% from the prior year, in line with our expectations for the temporary brownout of Discover loan growth. Excluding Discover, ending loans grew about 5.3% year over year, driven predominantly by a modest acceleration in the organic growth of legacy Capital One loans and aided by the addition of Brex and corporate card. 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 30% from the second quarter of 2025, largely driven by the addition of a partial quarter of Discover revenue. Excluding Discover year-over-year revenue growth was 9.5 percent, driven predominantly by underlying organic growth in legacy Capital One purchase volume and loans. Revenue margin for the quarter was 17.4 percent. The domestic card charge-off rate for the second quarter was 4.71 percent, down 39 basis points from the prior quarter, and down 54 basis points year over year. The delinquency rate was 3.39% at quarter end, down 31 basis points from the length quarter, and down 21 basis points from a year ago. We're seeing similar credit trends in both the Legacy Capital One and legacy Discover portfolios. Domestic card non-interest expense was up 38% compared to the second quarter of 2025, driven by the addition of a partial quarter of Discover, as well as continuing technology investments. Operating expense and marketing both increased year over year. Our choices in domestic card are the biggest driver of total company marketing, but choices in our consumer banking business have an increasing impact as well. Total company marketing expense in the quarter was about $1.7 billion, up 23% year-over-year, driven by the addition of Discover, as well as higher legacy Capital One direct marketing in our domestic card and consumer banking businesses, increased media spend, and continuing investments in premium benefits. Pulling up, our marketing continues to deliver strong new account originations to build an enduring franchise with heavy spenders at the top of the domestic credit card market and to grow checking accounts on a national scale in our consumer banking business. We continue to lean into marketing to take advantage of these compelling market opportunities. Slide 12 shows second quarter results in our consumer banking business. Global payment network transaction volume for the quarter was approximately $190 billion. Network transaction volume increased 156% compared to the partial quarter of transaction volume in the second quarter of 2025 and the successful completion of Capital One debit customers, the conversion of Capital One debit customers to the Discover network. The sequential quarter increase was about 9%. Auto originations were up 19% from the prior year quarter. We continue to be in a strong position to pursue resilient growth in the current marketplace. Consumer banking ending loan balances increased $9.2 billion, or about 11% year-over-year. Average loans were also up 11%. Compared to the year-ago quarter, ending consumer deposits grew about 5%. Average deposits were up 19%. Our digital-first national consumer banking business continues to grow and gain traction. Consumer banking revenue for the quarter was up about 26% year-over-year, driven predominantly by the addition of a partial quarter of Discover operations, as well as Discover revenue synergies and growth in auto loans. Non-interest expense was up about 24% compared to the second quarter of 2025, driven largely by the addition of a partial 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 1.43%, up 18 basis points year-over-year, and down 21 basis points from the sequential quarter. The year-over-year increase is the result of a gradual mixed shift in new originations and loans as our subprime mix is returning to pre-pandemic levels. The auto delinquency rate was up 11 basis points from the linked quarter and down 52 basis points from the prior year. Slide 13 shows second quarter results for our commercial banking business. Compared to the linked quarter, both ending and average loan balances were up about 1%. Ending deposits were down about 1% from the linked quarter. Average deposits were essentially flat. The commercial banking net charge-off rate for the second quarter increased 24 basis points from the sequential quarter to 0.53%. The commercial criticized performing loan rate was 4.4%, down 55 basis points compared to the linked quarter. The criticized non-performing loan rate was down eight basis points to 1.32%. In closing, second quarter results continued to reflect solid top-line growth and strong credit performance. We're now 14 months into our planned 24-month integration of Discover, and integration is going well. With the successful completion of converting Capital One's debit customers, to the Discover Network. Second quarter results include the full quarterly run rate debit revenue synergies. Our results also include about one-third of the quarterly run rate of the announced operating expense synergies. We remain on track to deliver the full $2.5 billion of announced synergies. For years, we have been working backwards from the dramatic transformation of the business marketplace with modern technology, data, and AI. We are in the 14th year of our technology transformation from the bottom of the tech stack up. We're way down that path, and we continue to invest in some very powerful foundational capabilities, as well as AI infrastructure and specific AI experiences. We also continue to invest in growing our heavy spender franchise at the top of the market, including rewards, lounges, unique access to experiences, and breakthrough digital capabilities. And we continue to lean into our unique quest to organically build a digital-first, full-service national bank. 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. We continue to invest in network acceptance and technology. As we've discussed, these investments will continue to be reflected in the efficiency ratio. They are also the engine that powers long-term growth and returns. Pulling way up, we continue to build momentum from the game-changing acquisition of Discover. Even though some individual variables in our deal model have moved since the announcement, and we have acquired Brex and brought in-house the technology that supports Capital One travel, 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 deal. And now we'll be happy to answer your question. Jeff?

Thanks, Rich. We'll now start the Q&A session. As a courtesy of 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 questions after the Q&A session, the Investor Relations team will be available. Josh, please start the Q&A.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. And our first question comes from Terry Ma with Barclays. You may proceed. Hey, thank you. Good afternoon.

I wanted to start off with Brex. Rich, you had previously indicated that you could accelerate Brex's growth almost from day one through stepped-up marketing and tech spend. So I'm just curious to what extent have those investments already been absorbed into the current expense run rate? and then when should investors see more tangible benefits become more visible and have a follow-up?

Thank you, Terry. Just to comment on Brex for a second, I don't believe we said, you know, from the second we get it we will be able to accelerate their growth. What we said is pretty much from the second that we do this acquisition, we're going to be able to start mobilizing the solutions that many of which don't require full integration, and those solutions can be very beneficial and help us lean in and really accelerate Brex's growth. So it's been over 100 days since we closed the deal, and we are as excited as ever about Brex. We acquired Brex because of its success in the attractive corporate card market and for its bottom-of-the-tech stack infrastructure and its world-class talent. And, you know, we just continued to be impressed with all of those striking capabilities. and together we're making good progress in building out foundational capabilities that will support the business going forward. Brex is already experiencing some of the early tailwinds that will come with our brand, and we expect these to only grow stronger over the next few months. They are also benefiting from the cost of funds impact of moving to our balance sheet. We have already stood up a program to share high potential leads from across our businesses with Brex, and we are seeing very promising early results at the outset. We will scale into this approach more aggressively over time. Now, some other benefits that we bring are going to take a little bit longer. Over the coming months, as we test and learn, we will start leaning in with marketing dollars. Fully leveraging the marketing machine of Capital One requires a little more technical integration. We'll have to set up data pipelines and calibrate our models for Brex's customer base. So that will come a little further down the road. For our travel business, we will be focused on the hopper build-out through the balance of this year. So bringing our travel portal to BREX will likely follow that work. You know, we expect that BREX will also bring many benefits to Capital One, especially bringing BREX capabilities to our small business, card business. These benefits will require integration and will be unlocked over time. So we are already moving to bring benefits to them. Most of that is not yet reflected in our investment dollars because really most of the work has been sort of working to put capabilities in place.

Got it. That's helpful. And then for my follow-up, regarding loan growth, that continues to improve each month in the card business, even in spite of the Discover brownout. So as we kind of look ahead to Discover Originations being fully on Capital One's platform, how should we think about, you know, growth in the card business after that and then also the associated marketing spend required to kickstart Discover Growth again? Thank you.

Thanks very much, Terry. So maybe what I'll do with your question is I think it's really getting at this thing that I proverbially call the Discover brownout. So let me just comment on that, and then I'll come back and talk about marketing spend. So as we mentioned previously, the Discover card portfolio is going through a bit of a loan growth brownout as several factors combine to pressure loan growth in the near term. Following Discover's credit expansion in their card business in 22 and 23, they dialed back their origination programs and credit line management by a fair amount toward the end of 2023 and largely sustained those dialbacks. Since we took over, we have been trimming on the margins of Discover's credit policy in areas where we are less comfortable with the resiliency of the underlying customers, you know, really on the – with respect to high-balance revolvers. As a result of these collective pullbacks, the portfolio has been contracting and continues to face some headwinds to growth as these more recent, smaller vintages mature. You know, as we mentioned, our card outstandings were down 1.5% year over year. Now, it's worth noting that the flip side of these pullbacks and the brownout has been strong credit performance, and we're glad to see that playing through the system. So let's talk about, you know, returning to growth and getting on the other side of this brownout of Discover volume. The brownout is temporary since over time we will bring to bear a number of capabilities as we move Discover originations and existing customers to Capital One's technology. Getting Discover onto Capital One's technology will allow us to unleash our models, full-spectrum underwriting, and lean into spender capabilities to power more originations, higher spend volume, and ultimately higher loan volume over time. and so we you know remain excited about the longer term potential and let me just talk a little bit about where we are on that journey on the discover front book 50 percent of discover originations are now on capital one's tech platform and we expect to be fully on our tech stack for new originations by the end of the third quarter. And we're now leaning into a combination of testing and rolling out capabilities that have powered our card growth at Capital One and that we believe will be enhancing to the Discover book and the Discover, you know, new flow of applicants. We are already seeing several positive green shoots, but it's early, but our early read is confirmatory of our hopes there. On Discover's Backbook, we will begin the major conversion waves later this month, but we will not be fully on Capital One's tech stack until the first quarter of next year, and so we'll have to wait a bit longer to see these benefits fully manifest. Basically, we're migrating the remainder of the back book in waves, a wave in July, a wave in October, a wave in January. So these will go in phases. With respect to the brownout, we expect continued contraction in the near term, but as we can unleash more of Capital One's tech and capabilities with Discover on the other side of our conversions, we're looking forward to returning to growth. I do want to also mention in parallel to Discover's dial back of card loans, they also dial back on personal loans. And, you know, we have also sort of mechanically during the integration dialed back on a little bit on the personal loans as well. So that brownout will continue and, in fact, increase. And the bottom sort of the bottom of the brownout will, you know, will be somewhere around the fourth quarter of this year. But then we look forward to leaning into that growth over time. So pulling up on the brownouts, they are a natural and temporary part of the deal. None of them are reflective of any concerns we have long-term. And, in fact, all of it is really just part of an integration and integrating of credit policies. And we look forward to, you know, stepping on the gas a little bit more gradually in the coming months. You asked Terry about marketing spend. We will lean into marketing more on the Discover side. Well, really, marketing is really mostly a front book thing. So we are, as we speak, leaning more into the marketing so that we can now generate some very good flow of applicants to Capital One. So that will be one of the numerous things that we're leaning into over the course of the next year.

Next question, please.

Our next question comes from Sanjay Sikrani with KBW. You may proceed.

Thank you. i guess my first question is for andrew um if i look at the name and sort of you alluded to this in your prepared remarks seems like the liquidity portfolio came down over the course of the quarter ended lower but was still high on average so i estimate there was at least a 10 basis point plus drag on the nim as a result is that a safe assumption to to to make as we so as we enter into the next quarter you should have a higher nim uh going into the third quarter uh thanks for the question, Sanjay.

Yeah, as you said, in the first quarter, we did have elevated cash levels from the Discover home loan sale at the end of 25. And then we had really strong deposit growth in Q1 that was aided by tax refunds. And at that point, we ended the quarter with around 75 billion of cash. And so in the second quarter, it came down quite a bit from growth and from the maturities that I had referenced in the Q1 call, as well as the cash impact related to Brex, which all of those things drove the ending balance down $20 billion, but average only came down about five. So as you suggest, looking ahead, there should be a bit of a NIM catch-up that happens in the third quarter as the average cash catches up to the ending cash. And then also, as a reminder, in the back half of the year, we have one more day in each of the quarters. So that as a nine basis point tailwind to NIM. And so if I just pull up on all of those things, I'd be remiss if I didn't just highlight, you know, clearly any significant changes in our balance sheet could impact NIM over time. And our NII is almost perfectly neutral to rates over time. But if and when the Fed moves, there could be an impact to NIM, at least in the short term, given the timing of the repricing of deposits and assets. But that effect should level itself out over time. So, you know, last quarter I pointed you to the back half of last year as a pretty decent proxy for a NIM level after we closed on Discover. And so there will, of course, be quarterly variability from, you know, day count and other seasonal factors, but I continue to point you to that as a pretty good indicator of where our structural NIM is going to be likely in at least the near term.

Okay, perfect. I guess I have the same questions from last quarter. Rich, maybe just to go back to Harry's question on expenses, I guess as we think about the incremental expenses for the investment in brecks and marketing and such um should we think about the impact to adjusted operating efficiency ratio as more marginal on a go-forward basis versus what we've seen with brecks and hopper now in the run rate just trying to get a sense of the the margins because you do also have the remaining two-thirds of the opex synergies coming as we move into next tier as well. So we'll appreciate some color there. Thanks.

Yeah, thanks, Sanjay. The efficiency ratio will continue to reflect our revenue and expense trends, our investment imperatives, and the realization of synergies. And, you know, as we've discussed, the debit revenue synergies are essentially in the numbers. The operating expense synergies are more backloaded, and as we mentioned earlier, we've realized about a third of the operating expense synergies to date, and we're on track to achieve the remaining operating expense synergies by the second half of 2027. And then, of course, we continue to lean into our investment imperative, including foundational technology, AI, and the longer-term growth opportunities created by our technology transformation and, of course, you know, Discover and Brex. So these investments are very important to the sustained growth and returns of the company over time. So the efficiency ratio is one of many drivers of the returns of the company. with all the moving pieces. We've chosen to focus our conversation on earnings power. And, you know, as we said, we expect the earnings power of the combined company and the other side of Discover integration to be consistent with what we expected at the time we announced the Discover acquisition, inclusive of Brex and the insourcing of technology that supports Capital One travel and inclusive of all these, you know, investments we've been leaning into. So implicit in that, there needs to be an efficiency ratio that makes the numbers work, but we're not specifically guiding on that. But I think that the combined financial performance of the company continues to track with this guidance we've given on earnings power coming out the other side of the integration.

Next question, please.

Our next question comes from Ryan Nash with Goldman Sachs. You may proceed.

Hey, good morning, everyone. Good afternoon, everyone.

Rich, you know, maybe to build a little bit on Sanjay's question, if you look back to when the deal was announced and you put the companies together and you lay it on Synergy, it got to a return that was, you know, 20% plus or minus. You know, given everything that you've shared with us today, it sounds like there's some more investments that you want to make and understand you want to preserve optionality. But is the right way to think about it, this should be at least a 20% return business? And what are some of the investments that could push it higher or lower in this environment? We, you know, there clearly was, you know, Discover brings strong earnings power, and we bring a lot of synergies to this deal. So earnings power has been a very important part of the conversation and a really important part of the value equation with respect to this deal. You know, a number have – I just want to savor there are a number of variables that have moved and are moving as we go along here. The brownout on Discover loan growth, which will continue for some time, and we talked about, you know, that mitigating, you know, in coming quarters, but it is still an important factor. The flip side of the loan pullbacks has been better credit performance. Generally, credit has been performing quite well. Capital One margins have had a strength as there's been accelerating retail deposit growth, the full Walmart P&L as part of these things. And then we've had this investment imperative, which, you know, in a sense really has two big categories to it. One category is really the investment in technology and AI to, you know, capture the moment to capitalize over time on an extraordinary transformation that's happening out there. And we are way down the path of our technology transformation, but there are still important investments that we are making, and we continue to lean in to that. And then on the other side, we have, you know, many of the emerging growth opportunities that are going to be a very important part of the growth and value equation over time. So, but the striking thing in some ways, back to the phrase, the more things change, the more they stay the same, it is striking that out the other side of this, we, you know, we expect an earnings power very consistent to what we talked about at the outset. We're not branding a precise number because there are a lot of things about Capital One performance that don't lend themselves to, you know, precise, settling out with precise numbers. But when we look at the earnings power as reflected in ROTC, we feel, you know, we're headed for a performance very consistent with what we expected along the way. As part of that, we are, you know, when I talk about the investments that we're making, and we are really leaning into that long list of investments that we talked about, But with an equal energy, we are driving efficiency in one minus all of that across the company. And a bunch of that comes from the flip side of our tech transformation, the ability to save tech costs even as we invest in other tech costs, you know, the savings of legacy tech costs, the efficiencies that we're driving in the operations across the business. But I just want to say that we are kind of living two lives at once here, really leaning into opportunities and really, really so carefully managing the expenses to be able to simultaneously deliver the earnings power that we expected at the outset of this deal and to be positioning ourselves to create value for our investors in the extraordinary years that are unfolding in front of us. Maybe as my follow-up, Rich, when I look at the capital in the slides, obviously capital came down almost 70 base points this quarter, but if you remove the impact of Brex, you brought back a little more stock this quarter, yet capital ratios were sort of largely unchanged. And I guess now that the deal is closed, Do you think we could see a further step up in the buyback from here? And how do you think about a path towards the slated capital targets?

Yeah, Ryan, I'll take that one. And let me just start by focusing on the words you ended with, which is the 11% we define as a long-term capital need as opposed to a target. and we continue to think that need is 11%. We just got the recent CCAR results, but every year when that comes out, we've just seen quite a bit of volatility. Looking back over the last few years, that going from in the low 10s to 7%. And so our need is derived by our internal modeling. It's just far more stable, and as we've had for a number of years now, we continue to believe that 11% is that need. Where we manage our capital at any given moment in time factors in a variety of planning assumptions, including expectations for growth and forecasted capital accretion from earnings, regulatory environment, AOCI, stock price, the macroeconomic environment. But I'd also say that beyond that laundry list of specific considerations, there's also a philosophic point that we view capital as having asymmetric value, particularly in times of stress, providing a ton of both offensive and defensive value in those periods. And so this, you know, multi-pronged approach has enabled us to maintain, you know, a strong combination of returning capital, but also strong returns and the flexibility to take advantage of growth opportunities over time.

So, you know, we are not in a race to drive it down as quickly as possible to any specific number, but hopefully that gives you a sense of how we're thinking about capital. next question please our next question comes from darren fellow with wolf research you may proceed hey guys thank you um look it looks like you included a partial quarter of racks as well as legacy corporate card in the domestic purchase volume so i'm just trying to triangulate if you can give us a sense what would the pro forma domestic card purchase volume growth look like on the quarter just given the acceleration we've been seeing across the industry I think we can calculate some of it, but a little hop on some of the details would be great.

Yeah, we didn't provide the breakdown of the specific amount of BREX. You know, we did provide, from a purchase accounting perspective, the closing balance sheet and all the associated amortization schedules. But, you know, given the relatively small percentage of Capital One to our current relatively small percentage of BREX within the context of Capital One, the P&L and balance sheet on a, you know, run rate basis just aren't that material. And that said, we're incredibly excited about the long-term prospects of adding BREX. and think that the growth that this platform provides will drive significant accretion, but, you know, we don't intend to break out any of the specifics of the P&L.

Okay. I'll just, hey, Darren, let me just remind you of exactly what we said in the call, right? We did say that if you just look at the legacy Capital One domestic car business, there was a modest acceleration, and that the combination of that plus the addition of Brex and Corporate Card was about 14% with a significant majority of that driven by the legacy piece. Okay.

That's all good, Jeff. Thanks. Guys, just one quick follow-up would be I know last quarter you had mentioned and there were some comments earlier about expenses, but more specifically you mentioned marketing pushed back from first quarter into the remainder of the year. So was this still at play in this quarter? If we could just revisit the marketing expense expected more broadly when considering the investments in Discover and Brex in recent quarters. We took the recent quarters and we averaged them out, given some of the timing. Is that a good way to think about run rate marketing levels for the company going forward? Thanks again, guys.

Yeah, there is seasonality in that, Darren. And if you look back at history, no one year is perfectly the same as others, but there tends to be that upward slope, and particularly in the back half of the year, relative to the first half, what we were highlighting in the first quarter was just that some of the spend that we had initially anticipated happening in the first quarter was getting pushed into the second. And so we just wanted to make sure that that point was well known. But obviously the actual levels of marketing spend are just going to be dependent on the opportunities that we see in the moment. So I don't want to give you a perfect schedule of the percentage of the annual spend in any one quarter. But if you look back at history, there's some pretty clear trends in terms of the back half relative to the front half.

Next question, please.

Our next question goes from Rick Shane with J.P. Morgan. You may proceed.

Hey, guys. Thanks for taking my question this afternoon. Look, I want to pull the thread a little bit more on Brex. Rich, you've talked about this pretty clearly on the call, that when we think about, and the questions have sort of lined up with this, the optimal outcome for Capital One as a standalone business is optimizing ROTC and margin. Brex has existed in a world for most of its life where it was benchmarked exclusively on growth. You sort of now have to balance that within Capital One. How do you optimize the real outcome of BRAX with still sort of keeping an eye on what investors really care about or seem to care about in terms of maximizing ROTCE and margin in the near term?

I hope the overall objective function of Capital One isn't the maximization of ROTCE in the near term. We all have our eyes on it, and we are heading to a very good exit rate on the other side of this integration. But I want to just talk about BREX and value creation. You know, we all know that, you know, tech startups have power metrics that are not, you know, vertical earnings based. And sometimes, you know, they can feel a far, far cry from how life works in a mature public company. But we feel that Brex's approach to creating value is very consistent with Capital One's founding approach when we created the company all the way to today. And that relates to taking a horizontal economic view. You know, in the founding of Capital One, I looked at business, said it's really striking that financial, you know, big banks and everything are just so focused on vertical earnings. But really, banking is an annuity business. One invests quite a bit of money to create annuities that last for a long period of time. And so what we did was build a massive horizontal, we called it horizontal accounting, basically, where, you know, as we thought about investments or originating a cohort of accounts, we estimated the lifetime economics of that, the cost to create those, et cetera. And before the investment, during as it played out, and then at the end of it all, we measured it to see if indeed value is created. And this approach to rigorous financial decision-making horizontally, investing in annuities and creating long-term value, is the financial basis of how Capital One works and how we create value. So when we looked at Brex, obviously Brex, the world was, you know, looking at their power metrics, but we rolled up our sleeves and looked at Brex was creating valuable annuities. They don't have as deep and rigorous a horizontal accounting system. I wouldn't expect them to. But even as recently as today, I was in a conversation talking about the continuing work we're doing on the Capital One side, looking at Brex Investments and how each tranche of investment looks like it's paying off over time. And our observation was these are very value-creating. So, you know, not every tech company's investments are value-creating, But from everything we've seen, the approach Brex has, especially when we onboard them to a more kind of systematic horizontal accounting system, it will fit right into the value creation philosophy of Capital One. And what we have found in building Capital One when we have these growth opportunities is that actually the more you really go in and measure the value creation opportunity, very often the more we invest because we can validate that these things really create value over time. Brex is in an amazing window of opportunity. They've got a tiger by the tail. They are going after three markets at once, the commercial card market, the payables marketplace, and the expense management business. They're going after it with an integrated solution. Strikingly, that solution is something that is needed from small companies all the way to large corporations. It's an amazingly large market. So we are going to lean in and provide the resources and capabilities to help Brex, you know, create even more value. But along the way, we're going to very rigorously measure to be sure that what we're investing in generates the value on the other side. But what we see continues to validate our acquisition thesis, and I want to say, too, having seen and hung around a lot of young companies over the years, I continue to be amazed at the sophistication, how this business is run, and the opportunity to create value here.

Thank you. Next question, please.

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

Hi, guys. I wanted to ask about domestic card loan growth over the last several periods, just core Capital One. You know, that's bounced around, I think, the low threes, and you said 2.6% in the second quarter. So those have all been below the longer-term trend. Can you just remind us what's behind the slowdown there and then, like, bigger picture, anything structural besides, you know, law of large numbers as to why Capital One domestic card loan growth wouldn't eventually come back to the longer-term average?

When you're talking about domestic card, you're talking overall including Discover in our performance. So we've talked about Discover is going through a shrinking right now, so that certainly is holding back the loan growth of Capital One. When we, if I separate out the Discover Brownout effect, Capital One continues to deliver very consistently solid loan growth. It's not there's things, you know, when I look at the various growth metrics and compare them with the industry, looking at legacy Capital One versus a number of the leading players in the industry on all the growth metrics, Capital One is delivering, you know, very strong performance. There is one thing on the loan growth side that I would highlight, and it's the flip side of very good news here. Payment rates have come in, continue to come in pretty high, which we always cheer for because it pays off typically in terms of stronger credit, but it does hold loan growth back a little bit. But so if we look at the metrics here, not all of which I understand we share with you, we've got Discover is going through a brownout and shrinking. The Legacy Capital One is growing strongly on all dimensions and particularly, you know, account origination, purchase volume, a lot of the very important metrics. And then when we look, another thing that we do, it's not something we publish, but we take the originated upmarket part of Capital One. So we effectively proxy what the other players in the industry do who just don't go out and intentionally originate in subprime. So when we separate and look at the originated upmarket part of Capital One, this thing is absolutely humming and is, you know, right up there at the top of the league tables in the key growth metrics. And that, by the way, is powered by the continued quest to win at the top of the market, to win with heavy spenders, and it's the flip side of our investment agenda that we have on the heavy spender side. But, Robert, I understand that Discover is going to hold us back for a little bit. And even on the other side, even on the other side of the integration, I think it's reasonable that Capital One, Legacy Capital One, will be a faster-growing institution than Discover. Why would that be? Just that Discover is a much narrower play in the credit card business. It's focused on the prime side of the marketplace, and it's been a really great, stable play. Capital One is, legacy Capital One has got so many other growth vectors growing in CARD, it's probably going to continue to lead the way. But for right now, we're living with a little bit of a brownout holding our business back.

Thank you.

Thank you. Next question, please.

Our next question comes from Don Fandetti with Wells Fargo. You may proceed.

Rich, can you talk a little bit about the credit card migration? I know there's been some testing moving it over to the Discover Network. Where are you on that? Is it encouraging? And then do you see a scenario where maybe you could move a little more volume over than you initially thought when you struck the Discover deal?

We're talking about, Don, you're talking about moving Capital One cards to the Discover Network. Correct. Yes, it always gets confusing because we're also, of course, moving Discover cards on the Capital One platforms and things. But, yes, just to clarify what we're talking about here, earlier this year we completed the conversion of our debit card business to the Discover Network, and we're very pleased with how that went. I mean, I think that thing has just been, I would call it a smashing success as we look at this. So now, you know, as we think about building credit card volume on the Discover network, there's two ways to do that with the front book and the back book. and so what we are leaning hard into right now is testing originating legacy Capital One branded accounts on the Discover Network as well as testing the conversion of existing Capital One accounts to the Discover Network. As we lean into that and on the other side of those tests we will then make our final choices about what credit card volume that we're going to move over what timing. In parallel, an important companion, of course, is scaling up the volume of investment in the network as we increase international acceptance and, you know, further build the brand. And what we're doing, the way to think about, I mean, the quest to build international acceptance will be an always thing. So for us, the key is what we want to do is to slope the work. So we're going to slope our quest on both sides of this exercise with respect to acceptance, international acceptance. Well, let me, in fact, start with domestic acceptance. So Discover has, it just blows my mind how great their domestic acceptance is. There are a few scattered gaps, and we are just leaning all in to literally close them all. So that's a thing that's going great progress, and we're so pleased on the domestic side. Internationally, again, it will be a long quest, but what we're doing is sloping the – And while we're working to lift everywhere, we're particularly leaning in to lift acceptance to a higher level in the places our customers go the most. And not surprisingly, we find that where do they travel the most? They travel to Mexico, the Caribbean, Canada, the U.K., and those are the top four destinations. We're particularly leaning in there to really move the needle and enhance acceptance there. The other sloping that we're working on combined with our testing is sloping what we move and, you know, focusing more on moving things that customers or products, things that don't involve as much international travel. And so strategically we're just working so hard to get as much volume as we can on the network, and we're going to slope the acceptance work and slope the migrations to be able to create great customer experiences and maximize the volume that we move over time. Got it.

And do you think you need international issuing, ultimately? Some suggest that you do, or is that something you'll solve down the road?

International acceptance is there are multiple ways to build that. International issuing, by the way, is a great way to do it because what we're talking about there is having a local player issue our cards. And in that way, they can help really drive the acceptance in their own local geography. So that is one of four ways to build acceptance internationally. In fact, again, I'm amazed at how Discover, with their relatively small scale, built the impressive international acceptance we have, but it's still not yet where we would love it to be as a destination. So the ways to get there from here, and Discover has used all four of these. One is partnering with other networks, and this has been a really important part of Discover's strategy. They have partnered with networks in Japan, China, India. I mean, there is massive acceptance in some of the biggest countries in the world coming from network partnerships. A second way to do it is with card-issuing financial institutions. American Express has particularly leaned into this approach. It's a great approach. We have some cases of that with Discover. It's been less of a lever for Discover than for Amex, But that's another one. And by the way, just a small point, as an issuer ourselves in Canada and the U.K., we look forward to getting our own issuer boost there on acceptance. A third lever is partnering with merchant acquirers. And finally, the fourth is going directly to merchants. So this is the playbook Discover is used. We will continue to invest in this playbook. And there's, of course, you know, a flywheel benefit that comes with the more acceptance we get, the more volume we can get, you know, how that flywheel works. But those will be the four levers that we lean into in this journey.

Next question, please.

Our next question comes from John Fancari with Evercore. You may proceed.

Good evening. Back to the investments that you're making, I understand you're unable to provide us with an efficiency ratio or expense growth expectations regarding your investments into the network. But anyway, you can help us with what inning you're in, in terms of the investments. I know, Rich, you said in the past that these would be sustained investments for a number of years. Any additional color on where you stand now, now that you've been down the path, you've seen the debit migration, you've talked about the testing now, and you've just walked us through in that previous answer of some of the approaches. What inning are you in with how you look at the investment required here?

Well, the first thing I want to say is, you know, when I give the big list of investments, and I know for the last, you know, sort of our whole lives at Capital One, we've always in some ways been the company that's investing in our future, but there's certainly been a lot of discussion, as you all have noticed, about the long list of investments that we're leaning into. The first thing I want to say is I wouldn't want anyone to draw the perception that, like, massively moving the needle of Capital One investments is investing in the network or international acceptance. It is an important, sustained investment we will do for as far out as we can see, but I wouldn't want to leave the impression that's like, you know, at the top of the list of what we're, you know, we're spending a lot more money than that on Capital One technology, AI, and, you know, maybe the biggest single item is, well, I don't know, there are several, but investing to win with heavy spenders at the top of the mark. So I want to say this is just one of the many things on the list. That said, to your point, I believe that for as far out as we can see, we'll be investing in international acceptance. But here's the key thing. Our strategy is not hinging on we have to invest so much to get to a point where then And finally, we can have this big bang moment and move a whole bunch of customers. This is why I went back to the power of the sloping. We take our customers and cards and just analyze what customers are international travelers. We can empirically see that. Some customers have never traveled outside of the country for 20 years. I mean, we can see and really understand where they're coming from. We have good ways to understand on the front book what is happening. And it's partly a customer point and a product that they're choosing point. And then when we look at where customers travel, that also is so sloped. So, again, I think that while we will be investing as far out as we can see in the network, By sloping the investment, we can get a lot of progress in a focused way and continue to, you know, create the ability to move more customers as soon as we can. And in that way, we don't have to wait for some day to try to monetize the power of this network. We're already living it on the debit side, and we can lean into it on the credit card side. And the benefits accrue right along the way with the investment.

Okay, thank you for that. And then just separately, regarding the migration comments that you answered in the previous question, what of the back book cards that you would ultimately move over, How would you approach the testing and then ultimately moving over, migrating Capital One Backbook over to the Discover Network? Would it start with the basic non-premium cards, and would you only focus on those that are expiring in a given year, and that's how you would focus on the migration of that Backbook eventually?

Well, that's a very astute question that you asked there. So let's talk about this. First of all, like we always do in testing, we do a lot of testing just so that we understand what customer reactions to various things are going to be. So our testing is pretty broad so that we can then, you know, not find out later we were too narrow because we didn't think expansively enough from a testing point of view. Then if you look at the factors to consider in migration, so you, first of all, the front book is, it's a much easier thing, well, it's a much more straightforward thing to talk about the front book because we can just put, you know, certain cards, certain customers on the Discover Network and there isn't a migration event. And so that's a very attractive way to build business. When we're talking about migrating the existing book, which also is attractive, the key levers there, the key factors to consider is international travel. That's at the top of the list. How extensively our cards are on file, because the more cards that the customer has on file, the more friction there is in changing card numbers. And a natural, you know, and one thing we're looking at in some cases is moving at expiration time because one would already, some of those frictional elements would already be there at that time. So, all of these things are part of our test agenda and our strategic considerations.

Next question, please.

Our next question comes from Mahir Bhatia with Bank of America. You may proceed.

Good afternoon, and thank you for squeezing me in here. I wanted to ask about, touch on credit for a second, and I'll just ask both the parts of my question up front. And just firstly, on the June loss rate, it was down quite a bit, month over month, I think like 45 basis points. Anything to call out there? Was there a sale or something, or was that just how much better credit got there? And then just the second part was just pulling up, Rich. If you could just talk about how the consumer is faring, but more importantly, how the Capital One customers are faring. You've been investing a lot in marketing, growing it. Are recent vintages performing in line to what you expected? Just any comments on that?

Mihir, let's start with the June performance. I don't have the June loss rate number right in front of me, but here is comment about the quarter and about June. So obviously credit continues to come in very strongly. Probably the single indicator we look at the most is delinquencies. And in our card business, while the June loss rate was particularly strikingly strong, the June delinquencies for the month moved in line with seasonality. And by the way, in pretty much every month prior over the course of 2026, the delinquencies have moved a little bit better than our calculated seasonality. So June, again, a very strong month, but I just want to point out it's the first month that didn't actually beat seasonality, but still there's great strength there, and the charge-offs were amazing and all of that. So, again, we just see a very positive credit picture, but I just wanted to make those comments about June.

Rich, I can just interject. There's nothing to call out in the June domestic card charge-off rate. Okay, yeah.

So let's talk about the consumer, and then let's turn to Capital One customers. So the U.S. consumer and the overall economy remained resilient, resilient despite the high energy prices and everything. When you pick up the news every day, one would think the world's falling apart, but actually the portfolio, the consumer continues to perform remarkably well. The unemployment rate in June was lower than in February before the Iran conflict began. Jobless claims remain low. Job creation has rebounded over the past few months. Consumer spending, that remains strong. Now, as a result of inflation, real wage growth turned negative in April and May on a year-over-year basis, but it was back in positive territory ever so slightly in June as inflation ticked back down. When we look at bank balances and debt servicing burdens of our customers, These look a bit stronger than a year ago across income levels. And our domestic card business, our credit metrics, continued to improve on a year-over-year basis in the quarter. And, you know, I've chatted a little bit about that, but the strong credit performance also, So the strong credit performance we also saw on the auto side, auto credit metrics are strong as well. And so what I want to do now is turn to leading indicators when we look at our own customers. So we talked about delinquencies. We talked about how strong delinquency performance has been pretty much every quarter this year. Other metrics that we look at, payment rates, I talked about that earlier. They are meaningfully above pre-pandemic levels across all of our customer segments, and that slows down growth a little bit, but it's a healthy sign of customer credit quality. Spend levels. We continue to see healthy spend growth driven both by account growth and by steady growth in spend per customer. When we look at revolve rates, revolve rates have stabilized over the past year at close to pre-pandemic levels for our major products and segments. Now, none of these observations are conclusive on their own, but I think collectively they paint a picture of strength of the consumer and certainly strength within our own portfolio. Let me turn now to the front book of new originations in our card business. Our front book of new originations continues to perform strikingly well. We're seeing our 24 and 25 originations. frankly in both legacy capital one and discover um well let me let me separate it out in in legacy capital one we're seeing our 20 20 24 and 2025 originations coming in better than 2022 and 23 and a bit below pre-pandemic levels which is pretty striking given you know and that is not a thing that I think is being universally observed in the card business, but it's a thing that we have seen strength in our originations for really throughout this whole post-pandemic period, and it's one of the things that gives us the confidence to lean into our originations, spend that money on marketing that we talked about, et cetera. One other factor from a credit view is recoveries. Coming out of the pandemic, our recoveries inventory was unusually low, but that inventory has increased rapidly over the past couple of years and has contributed to the improvement in our overall loss rate over that time. Discover's losses peak later than legacy Capital One's, and they're now seeing the same dynamic be a tailwind to their losses. But looking ahead, our recovery's inventory should taper off a bit in the next year or so because the inventory of recent charge-offs will itself be going down. So that's a look at leading indicators. But if I pull way up, we see real strength in the consumer and strength across our business performance in-card and in-auto. And that's why, while we keep a very wary eye on the economy and international development, we are leaning in with a lot of positivity into our growth strategies.

Next question, please.

Our next question comes from Erica Najarian with UBS. You may proceed.

Hi. Good evening. I wouldn't prolong this call if this question wasn't important, but I think investors really want clarity on this. And Rich and Andrew, you keep mentioning that your earnings power is expected to be the same as you anticipated when you first announced a Discover deal. So I was hoping to unpack that a bit. So I was looking through your disclosures. I wasn't sure what you were using for the baseline. But in 2027, consensus EPS, sorry, at the deal announcement, consensus EPS for Capital One standalone was about $21. You mentioned over 15% accretion to 27 EPS at the announcement. That rounds up to, let's call it like $24.50 if we use 16%, 17% accretion. Last quarter, you mentioned that when you were thinking of ROTC, you weren't thinking of CET1 all the way down to 11%. So if you use 12.5% on the current share count, you can get to a mid-20s ROTC pro forma. What is wrong with that line of logic?

Well, Erica, let me just unpack a couple of the assumptions that you made that don't actually tie to things that we've said, I just want to be really clear here. First of all, our assumptions that we laid out, and I'd encourage you to go back when we announced the deal in February of 24, but what we said was we were taking consensus estimates for both Capital One and Discover, and we made the adjustment to Discover's loss forecast just based on the things that we had seen during diligence. Then with respect to ROTC, at the time, the weighted average consensus for CET1 was 12.5%. And so when Rich last quarter highlighted that we're defining earnings power as ROTC, we just wanted to remain consistent with that denominator of 12.5 for the sake of doing the math. It is not saying that that is our target, you know, as I answered before, you know, in terms of what we believe our capital need is. We believe our capital need is 11%, but we're just doing the math on ROTC at 12 and a half for the sake of comparability. And so with respect to EPS, of course, share price assumptions have moved. There's just a number of things that have moved in terms of those assumptions, particularly as they relate to individual line items. And that is why we keep coming back to, like, the ROTC as our definition of earnings power.

Next question, please.

And our final question comes from Moshe Orenbuck with TD Cowan. You may proceed.

Great. Thanks so much. Rich, you talked, you know about growth in the non-prime auto and in the high-end card business could you talk a little bit about the non-prime card business because that's been a business when you've grown it it hasn't required as much upfront investment as uh you know as the high end um just you know and you've also talked about the consumer doing relatively well so are there prospects for acceleration there. And I've got a follow-up.

Moshe, thank you. I know that you are one over the many decades we have worked together that has such an interest in this, and it's a very, very appropriate interest because it is a very important part of Capital One, even though you saw that the percentage is down to, what, 26%? Did we see it? Because it dropped down a bit because of the Discover portfolio, just in terms of the portfolio subprime percentage. But Moshe across – well, in both card and auto, we continue to – our strategy has remained very much the same. We continue to get a lot of traction in the business. Performance continues to be strong. When I point at the higher growth at the top of the market, that is really just pointing out the traction that Capital One is getting in our investments at that part of the market. But we continue to be very pleased with how things are going at the lower end of the market. The growth rates are a little lower these days. They're lower than what we see at the higher end of the market, but we always take what the market has to give us. But performance is stable. Credit performance in that part of the marketplace, I should have mentioned this earlier, is very consistent really across the credit spectrum. We don't, in our own numbers, see this K-shaped economy that a lot of people talk about, although, to be fair, we don't really participate in the lowest end of the marketplace where maybe those things are being experienced in the economy. So, Moshe, things continue to go very well. We're leaning in. The marketing efficiency of that part of the business is, you know, So it's a lot less costly to acquire accounts there. And we continue to lean in really very hard there. And the growth is very solid. It's a little less than at the high end. It's less than at the high end, but the value creation continues to be high, and everything about it seems quite stable. And also one other thing, this part of the marketplace is so benefited by continued investments in technology, data, and the power of machine learning and overtime, AI, because this part of the marketplace is all about data, analytics, modeling. and that is a power alley of Capital One. So, you know, while the marketing investment isn't maybe the highest in that part of the marketplace, you know, there's a lot of focus in our tech and data and AI investments to be able to be even more successful in that underserved part of the market. Thank you for your question.

Sure. Maybe just as a quick follow-up, you talked earlier about the horizontal P&Ls that you kind of do for each of your products. And when you think about how Capital One as a company is viewed externally, I mean, do you think you get recognition for the, for the, you know, for the streams of earnings that you're creating and the value that that's creating? And if not, would there be a way, whether it's some degree of disclosure of examples of that? Like, are there, is, is there, I mean, I mean, do you think that you're getting appropriate recognition in the stock for it? And, and what could you do about it?

Moshe, it's a great question. I believe that we probably don't get appropriate recognition in the stock, but I think the – and I think it would – I don't think there's an easy way for us to sort of publish the aspects of our horizontal accounting, but I would say this. And when you look at the, I guess we have, I'm in my, what is it, 32nd year of, you know, running this company. Oh, well, since we had our IPO in 40th year overall in building this franchise. And one of the very, very first things we did was put in horizontal accounting and an NPV-based methodology for everything that we do. And I think it's hard to prove the power of that to investors, but I think maybe the power manifests in the three and a half decade history of Capital One and the ability to grow the company so significantly and to generate strong earnings power along the way. And the cornerstones of that approach have been starting with strategy, making sure that the businesses that we're in lend themselves to above, you know, they are structurally attractive and give the opportunity to generate above hurdle returns, which is why we don't do half the things other banks do. And then secondly, the whole investment philosophy that we have, the strategic philosophy that we focus on long-term value, the financial horizontal P&L investment approach that we use, and the way that over time we have a whole methodology of retrospective measurement of how our various programs are performing relative to expectation, relative to hurdle rate, and all of these kind of things in a way that I think has really demonstrated the power of this. And so when I then say to investors, we are at a time where we have exceptional opportunity going forward, that opportunity, there's sort of two different buckets of investment related to what I'm describing as just extraordinary opportunity we see going forward. One is on the business side, the, you know, the horizontal P&L measurement of our investments across these emerging businesses and so on. And the other thing is a choice that we do at Capital One, which doesn't lend itself to such precise horizontal P&Ls, Moshe, as you know, which is building the technology foundation of the company. I don't know a way to create a horizontal P&L for a data ecosystem or the move to the cloud. So there's some things that we do that we work backwards from what is the bone structure that we need to win, and we go out and build that. And we are seeing that while it's going to be impossible to measure the return on some of these things, I think if there were a way to do it over time, it would turn out to be the most high-yielding investment that we've ever made. So it's a bit of a tough way to make a living for Capital One and for our investors, but I think it's a key reason. This approach, Moshe, is a key reason we're here today and a central reason that we have the opportunity set that we have, and I look forward to our investors enjoying the returns from patient commitment to this approach.

That concludes our Q&A session and our call for this evening. Thank you very much for joining us on this call. Thank you for your interest in Capital One. Have a great evening.

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