Jeff Norris - Senior Vice President-Global Finance Stephen S. Crawford - Chief Financial Officer Richard D. Fairbank - Chairman, President & Chief Executive Officer.

Ryan M. Nash - Goldman Sachs & Co. Sanjay Sakhrani - Keefe, Bruyette & Woods, Inc. Eric Wasserstrom - Guggenheim Securities LLC Donald Fandetti - Citigroup Global Markets, Inc. (Broker) David Ho - Deutsche Bank Securities, Inc. Bill Carcache - Nomura Securities International, Inc. Chris C. Brendler - Stifel, Nicolaus & Co., Inc. Matthew H.

Burnell - Wells Fargo Securities LLC Moshe A. Orenbuch - Credit Suisse Securities (USA) LLC (Broker) Christopher R. Donat - Sandler O'Neill & Partners LP Elizabeth L. Graseck - Morgan Stanley & Co. LLC Richard B. Shane - JPMorgan Securities LLC Sameer S. Gokhale - Janney Montgomery Scott LLC.

Welcome to the Capital One Second Quarter 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over to Mr. Jeff Norris, Senior Vice President of Global Finance. Sir, you may begin..

Thanks very much, Nancy, and welcome, everybody to Capital One's second quarter 2015 earnings conference call. As usual, we are webcasting live over the Internet. If you'd like to access the call on the Internet, please log on to Capital One's website at capitalone.com and follow the links from there.

In addition to the press release and financials, we have included a presentation summarizing our second quarter 2015 results. With me this evening are Mr. Richard Fairbank, Capital One's Chairman and Chief Executive Officer; and Mr. Steve Crawford, Capital One's Chief Financial Officer. Rich and Steve will walk you through the presentation.

To access a copy of the presentation and press release, please go to Capital One's website, click on Investors, 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 factor section in our annual and quarterly reports accessible at the Capital One website and filed with the SEC.

With that I'll turn the call over to Mr. Crawford.

Steve?.

restructuring expense of $147 million related to the realignment of our workforce that we recently announced internally. We expect a modest amount of incremental non-recurring charges later this year from site closures related to this activity. We also added $78 million to our U.K.

PPI reserve of which $37 million was captured as a contra revenue item and $41 million was captured in non-interest expense. The increase in our U.K. PPI reserve is driven by complaint volumes declining more slowly than we had previously estimated.

The refund of PPI fees and interest is an industry-wide issue and there continues to be uncertainty as to how these exposures will play out. Estimating future complaint levels is difficult and there is the potential that more complaints will be filed in the future than we are currently estimating.

As always, our 10-Q will provide further details on the factors we consider in estimating our reserve. Excluding the impact from the restructuring charges and the build in U.K. PPI reserve, earnings per share in the quarter were $1.78 and our efficiency ratio was 54.6%. Turning to another legal matter.

In the quarter we recorded a $36 million benefit from reducing our reserve for representation and warranty claims. This reduction was driven by a recent High Court ruling in New York regarding the application of statute of limitations.

We also expect that the ruling will result in a decrease to our reasonably profitable rep and warranty exposure by approximately $500 million from the level reported in March of 2015, but that calculation will not be finalized until the 10-Q is filed next month.

As outlined on slide four, reported NIM decreased 1 basis point in the second quarter to 6.56% as lower investment securities and loan yields were partially offset by lower cash balances and additional day to recognize revenue in the second quarter. We continue to be above the fully phased in LCR requirements as of June 30, 2015.

On slide five you can see our common equity Tier 1 capital ratio on a Basel III Standardized basis was 12.1%. On a fully phased in basis we estimate this ratio would be approximately 11.8%. We reduced our net share count in the quarter by 5.5 million shares, or 1%, primarily reflecting our share buyback actions.

We entered parallel run for Basel III Advanced Approaches on January 1 and we continue to estimate that we are above our 8% target. Let me now turn the call over to Rich..

strong revenue growth driven by growth in loans, pre-provision earnings growth more or less in line with revenue growth, higher provision for credit losses creating headwinds for net income, and significant capital distribution subject to regulatory approval with share repurchases reducing share count and aiding earnings per share.

Now Steve and I will be happy to answer your questions.

Jeff?.

Thank you, Rich. We'll now start the Q&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 question. And if you have any follow-up questions after the Q&A session, the Investor Relations team will be available after the call.

Nancy, please start the Q&A session..

Thank you. And we'll go first to Ryan Nash with Goldman Sachs..

Hey. Good evening, guys. Can you maybe just help us better understand the growth math? It seemed like the provision build was significantly higher than any of us had expected coming into the quarter.

So, Steve, maybe you could just walk us through the outlook for charge-offs, expectations for growth and maybe help us just understand the qualitative component.

Should we be thinking about a ramp in provisions from here given the growth that you've generated? Or do you think we're finally getting to the point that provisions could be commensurate with the loan growth profile?.

the loan balances at the end of the period, our 12-month forecast going forward, and qualitative factors for risks that aren't covered in the models. As mentioned, and we've talked about this for a while, we're in a growth period for Card. So that growth, all else equal, is going to be pushing up the allowance.

And even more precisely we've given you a sense for what's going to happen to charge-offs. Our current allowance right now includes the – if you think about it, there's a rotation that happens every quarter. Our current allowance includes expectations for low NACO losses in the third quarter of 2015. We talked in our guidance of around 3%.

And if you think about it, at the end of next quarter we will replace the third quarter of 2015 with the third quarter of 2016. Remember we have guided now consistently – there's not been a change in outlook for our loss content in Card.

We've guided consistently over the last couple of quarters that we're going to be in the mid-to-high 3% in the fourth quarter of 2015 and higher from there. So all else equal, even before loan growth, just a quarter swap would mean an allowance build next quarter. And the same thing happened you can talk about this quarter.

Now I always have to put in that qualifier of all else equal. Changes to our underlying loss expectations can have a real impact on allowance build because it happens over the next kind of four quarters. So it's really the combination of growth and our outlook for charge-offs that's going to ultimately work its way into changes in allowance..

And we'll go to the next question that comes from Sanjay Sakhrani with KBW..

Thank you. I guess you guys have been seeing some good growth in Card. Could you just maybe talk about the types of growth you're seeing, what kind of competition you're seeing, what the loss content of that growth is because that kind of ties into the allowance question? And I'll ask my second question upfront.

I guess there's some changes to the CCAR approach as far as the Advanced Approach is concerned. Maybe, Steve, you could just talk about how that might impact you. Thanks..

Do you want me to go first on the capital?.

(23:56) sure, okay..

Okay. Yes, look, I think the two things that kind of apply to us are they're going to move away from the old Tier 1 common ratio. That's not a big impact for us on CCAR. The other thing is at least for now it feels like CCAR and Advanced Approaches have been delayed indefinitely and that added more uncertainty, which we've talked about.

So those are the two things that will impact us. Obviously it's not a model that we can control and we can't predict entirely what the changes are going be year-over-year, but on balance the biggest change was probably knowing for some period of time there will not be a combination of CCAR and Advanced Approaches.

Rich?.

Yes, Sanjay, the growth in the Card business is a very similar story to what we've been saying for some time now. We're seeing good opportunities and growth across the segments that we are growing and that we are investing in. In our Card business the loss content is similar to originations we've been doing for quite some time.

The losses of new originations are higher than our highly-seasoned back book just because that back book was profoundly seasoned by anybody who survived the great recession and the very extended period of low originations for us and in many ways for the industry.

So off of an unusually low loss back book, we are seeing very good origination opportunities and it's really more of the same that you've seen from us for a long period of time..

Next question please..

Yes. And we'll go next to Eric Wasserstrom with Guggenheim Securities..

Thanks very much. I just wanted to clarify one question on provision and then I have a question about the net interest margin.

There was a reserve build in the Commercial segment, but is that also given the dynamics that you just went through, Steve, as they relate to car, are they similar for Commercial given what's going on there in terms of some of the credit stress? And then my margin question is, can you just walk us through some of the puts and takes in terms of what's going on in yields across the different product areas and maybe what's going on in cost of funds? Thank you..

So the provision in commercial, the drivers of that are primarily the energy and taxi remarks that Rich made earlier.

And I'm sorry, the next question was – what was the question on net interest margin?.

It was just largely about if you could give us some insights into what's going on in terms of yield expectations and what's going on in terms of your cost of funds expectations?.

Well, there's kind of plusses and minuses and a lot of it obviously depends on which side of the balance sheet you're talking about. I mean, in general on the positive side we've moved to a higher mix in Card. That's probably been something that's been a help to net interest margin.

I would say yields more generally across the portfolio have been going in the opposite direction..

Next question please..

Yes. The next question comes from Don Fandetti with Citigroup..

Yes. Rich, you mentioned sub-prime auto competition again this quarter. And I was curious if you're seeing is it an across-the-board pickup in terms of aggressive activity? Or is it more one player because obviously where one participant that's had some strategic changes that has led them to get more active if you could comment on that..

It's not across the board. It's a little more isolated, but it's a similar phenomenon we've been talking about for some time, but we, of course, are making the choice to be very consistent with our own underwriting here..

Okay. And just lastly, are you seeing any impact at all from the online marketplace lenders? My sense is probably not, but I just wanted to check on that..

No. I mean, we're intrigued with frankly all of the startups in the financial services space, one category of which is the online lending and peer-to-peer lending and so on. The numbers involved are small relative to the magnitude of the balance sheets and originations. To most of us it would be probably hard to see that.

I also do want to point out that most of this lending on the consumer side is focused on installment lending and that's not an area we're doing a lot of origination in. So we certainly don't see any direct effect. It would be hard to measure indirect effect.

But even though we may not see much of an effect, we certainly have a real interest in watching what goes on in that space..

We'll go to the next question and it comes from David Ho with Deutsche Bank..

Good afternoon. Just wanted to talk about the 2016 efficiency ratio a little more. A little surprised that it would stay elevated relative to already increased levels for 2015, particularly in light of your asset sensitivity and obviously some growth in digital that should lower your cost of acquisition.

Do you see more flexibility in the event that revenue pressures persist on the cost side, maybe in retail banking or across other areas of the business?.

Let me say a few things about the efficiency ratio. As you know and probably looking at our own conversation over the course of this year, it's hard to precisely predict efficiency ratio, but what we wanted to give investors a sense of that there really are tailwinds and headwinds that are competing pretty strongly with each other.

And the recent growth that we've done in the card business, for example, is certainly a positive force. Offsetting that, of course, is the – what we'll do in terms of investing in card growth during the year next year. And a pretty big component is the digital investment as well and some of the other things that I mentioned.

The – in terms of how these play out, the card growth will ultimately be beneficial to efficiency ratio as growth moderates. And the investment in digital – a lot of banks are talking about digital in the language of whether the expenditure – how the investment in digital compares to the cost saves.

We are not primarily motivated by cost saving with digital because I think that's about fourth on the list of things that the power that digital provides. Right now, it is still a net negative and probably for an extended period of time measured purely by cost, digital will probably be a net negative.

But even then on the cost side, we're seeing benefits already in statement and payment processing, telephone servicing costs, workforce restructuring that you saw, branch efficiency, data storage, a lot of things.

But the bigger benefits are things beyond that that show up in terms of better credit risk management, faster product development, and ultimately, the kind of growth that you're seeing.

So the reason that we took the time here to lay out efficiency ratio guidance was just to give you a sense of the commitment that we have to investing on the digital side and the commitment that we have to seizing the opportunity on the card growth side.

And I think both of those factors are going to be significant enough that we don't see a lot of opportunity for the efficiency ratio to go down in the near term. All of – during the same time, we are working incredibly hard to save costs in one, minus those two areas, and I think today's announcement is a manifestation of some of those efforts..

Okay. Thanks. And going back to Ryan's question a little more on the card loan growth that you're doing, a third of your business is below prime.

How quickly is that growing relative to prime? Are you seeing a bit more migration into those segments as the economy improves?.

Our mix is staying pretty steady. We're growing in all of the areas that we're investing in..

Next question, please..

We'll go next to Bill Carcache with Nomura. And sir, please check your mute function. And Mr. Carcache, please check your mute function..

Hello.

Can you hear me?.

Bill..

Hi.

Can you talk about the IRRs on the new loans that you're originating today versus what those IRRs have looked like over the past several years? And within that, can you give us a sense for what's been happening with customer acquisition costs over time?.

Bill, IRRs are probably on the higher end, but still in the range of the kind of IRRs we've seen going back for an extended number of years now on our originations. The primary thing is the magnitude of origination opportunity that we see.

But it is also the case that the octane measured in terms of pretty much any way we measure it, but most importantly by, ultimately, the NPV, NPV per marketing dollar, IRR and various things is on the higher end..

Do you have a follow-up, Bill?.

No, that's it. Thank you..

Next question, please..

Yes, the next question comes from Chris Brendler with Stifel..

Hi. Thanks. Good evening, and thanks for taking my questions. I guess I want to ask two separate questions, I want to ask them together to make it easier. First, on the Card business, just such an impressive trajectory in your U.S.

Card loan and volume growth, yet it's not seeing nearly the kind of follow-through that we kind of expected on the revenue side. I know you called out some of the payment protection plans as a negative, and I'm also looking at a pretty significant sequential decline in interchange revenue.

And I didn't know if there was anything going on there, just there's a high rewards rate. And also sequentially, it went from like 12% to 6% interchange revenue growth as volumes are accelerating. So can you just talk maybe about that and any other factors that are weighing on U.S. Card growth? And then my second question is for Rich on SMB lending.

Just, I noted your comments about the Alt lenders and can't help, when I look at the small business version of some of these alternative lenders, that their business have changed a bit Capital One's core competencies and direct marketing and mining data and looking for mispriced loan opportunities.

Can you talk at all your appetite for SMB loans that are nationally and directly originated? Thanks..

Okay, Chris. Yeah. Let me start with the interchange. The net interchange metric can have quite a bit of quarter-to-quarter variability because it includes partnership contractual payments, it includes international card. And we periodically adjust our rewards liability based on customer trends and redemption rates and things like that.

So as such in any particular quarter, there tends to be a lot of noise around that. But if you sort of pull up beyond the quarterly noise, you're absolutely right in pointing out that net interchange growth has generally lagged general purpose credit card interchange growth. And – or purchase volume growth. And we would expect this trend to continue.

In many ways, it's really a byproduct of the success that we're seeing. Our rewards programs have been and continue to be enjoying a lot of growth. We are making the choice to upgrade a lot of our customers to these products. And we're also extending reward products to existing customers who don't have rewards.

So if you look at the effect of all of those together, that's why interchange growth is – lags purchase volume growth. And I think that while that will bounce around for quarter-to-quarter, I think – and over the longer run, those two metrics will converge. I think it still will be some time before they fully converge.

And with respect to the alternative lenders, for example, small business lenders, we're very intrigued with some of these startup companies. I think that they have demonstrated a lot of innovation that – from which I think we can learn a lot at Capital One.

The way that they do their underwriting, obviously the digital capabilities that they have, in a number of cases, they're using very sophisticated and interesting data analytics.

The way that they do cash flow-based underwriting, the way that they do the daily collections kind of thing, there's a lot of very creative activities going on in that particular space. We're watching it carefully. And we – and we'll continue to see and learn from the people that are leading in this space..

Next question, please..

Yes, the next question comes from Matt Burnell with Wells Fargo..

Good afternoon. Thanks for taking my question. Rich, maybe first a question for you. You mentioned earlier in the call that on the card side, the card portfolio mix has been pretty steady. But if we take a look at some of your regulatory filings, it appears that the sub-660 FICO cohort within the U.S.

card is growing at a slightly faster rate in terms of the overall proportion of loans with that FICO score.

So I guess I'm just curious, given that you haven't really changed your outlook for credit losses over the next few quarters, what do you need to see? What's the canary in the coal mine, particularly in the subprime side of things, that might make you reassess what your lost content in that particular part of the portfolio might be?.

Well, first of all, Matt, you are right that while overall generally, the mix is about the same, there has been a very small increase in the subprime mix. But overall, when we look at our originations, when we look at the strategy that we have, there's a real consistency.

And the phrase I say, sometimes the more things change, the more they stay the same in terms of how the opportunities we're pursuing and the nature of the growth that we're getting.

When you ask the question what is the canary in the coalmine with respect to this business, obviously we look incredibly carefully at the metrics that begin on the origination side. So we look at the nature of the mix of applicants that we get and that tends to be an indicator of whether there's positive or negative selection.

And then we track very closely every single month all of the metrics and early indicators of whether there are any issues. And at Capital One we predict outcomes before, during and after every single origination. So we monitor this incredibly closely.

You also know that in things like the sub-prime space, we have about more than 15, approaching 20 years' experience in this particular space. So what I would say for it would be the same as I would say for any part of the Card business. We watch very carefully for adverse selection, we monitor the metrics extremely closely.

And we stay mobilized to move and also to let our investors know when things change relative to our own expectations.

But all that said, we continue to see really across the Card business a stability in the competitive environment, a stability in the origination environment, a stability in the consumer and their own behavior and really a stability in the vintages of our originations..

And clearly, if we saw a canary in a coalmine, I don't think you'd be seeing the type of growth that we're currently seeing in the Card business..

Well, if I can follow up with another credit-related question, I guess more on the commercial side and specifically with the oil portfolio, it looks like that was – your outstandings were down about 6% quarter-over-quarter from what you reported in the first quarter.

Can you give us a sense as to, if the commitment trend is roughly similar in that portfolio quarter-over-quarter? And there's been some anecdotal evidence that there's been some increased focus from regulators on that portfolio.

I guess I'm just curious as you head into the fall redetermination, sort of what your thinking is in terms of the potential for provision pressure within that portfolio..

So, obviously, that business we're very, very closely monitoring and on numerous calls recently we have been talking about that segment. One of the benefits of the upstream oil & gas business is the ability to do the borrowing base redetermination.

So loan balances were down 6% from the prior quarter as a result of the spring borrowing base redetermination and our E&P borrowers decreased their balances to conform to the lower commodity prices and oil field services companies reduced their balance sheets.

So we've pretty much seen across the energy business a pretty darn quick reaction by reducing expenses, particularly capital expenditures and taking advantage of the receptive capital markets. So all of that said, obviously you don't have to look very far to notice what's happening in oil prices and the volatility and risks there.

So the allowance builds that we've had for several quarters now have been significantly driven by energy as well as in the taxi business as well, but that one we'll really have to monitor carefully.

But we do like some of the inherent resilience dynamics that exist, particularly in the upstream part of the business as they move quickly to adapt to the oil pricing pressure..

Next question please..

Yes. The next question comes from Moshe Orenbuch with Credit Suisse..

Great. Thanks. Just thinking about some of the comments you made about the revenue in the credit card business. Given that it seems like most of the incremental interchange revenue you're generating is going back to the consumer, could you talk about whether there's a increasing or decreasing percentage of the base that's actually revolving.

And I've got a follow up..

Moshe, I don't have the metrics right in front of me, but I think there is a gradual migration away from a revolving towards the transacting side of the business, but I don't have a metric in front of me, nor do we report that. But just looking as you can see the pretty eye-popping growth in purchase volume, that would be consistent with that..

Got it. And you've made some comments kind of about the fee and finance charge reserve.

I mean that probably three years ago was probably at least $100 million higher, so I'm assuming with the growth in the business that that's a number that probably could be rising over the next couple of quarters? Is that reasonable?.

Yes. All else equal more growth would lead to more of a reserve there..

Okay. Thanks..

Next question, please?.

Yes, the next question comes from Chris Donat with Sandler O'Neill..

Good afternoon. Thanks for taking my question. Steve, I wanted to come back to something you said about the allowance methodology and qualitative factors.

I'm just wondering with the environment we're in where we have like a 40-year low on jobless claims announced today and oil prices and gasoline prices remaining low, are those things you factor in to your outlook? Do you have expectations there? Because it seems like those should be tailwinds or have been tailwinds for credit quality, particularly for sub-prime borrowers for the last few months..

Yes. Look I think the thing that you should really focus on in trying to forecast the primary drivers of provision are obviously charge-offs and allowances. We've given you a little bit of help on charge-offs over the near term.

And the two things I really want you to spend your time on in terms of the allowance builds are really the loan growth expectations and the charge-off replacement phenomenon that I talked about.

Qualitative factors can be important from time to time in terms of adjusting over the next 12 months, but I think if you focus on those two, that's going to be the most important factors..

Next question, please?.

Yes, the next question comes from Betsy Graseck with Morgan Stanley..

Hi. Just a question on payment protection. You indicated 25 bps are going to be gone by 2Q 2016. I just wanted to make sure I understood that we should assume that that's a ratable decline over the next three quarters.

And then, the follow-up is what kind of offsets should we be thinking about that could potentially come through?.

Betsy, so this has been a gradually running off revenue stream ever since we stopped originating new payment protection in 2012. And that will continue to just gradually run off until the event happens over the course of the first quarter. It won't be on a single day.

It'll happen over the course of the first quarter where we basically shut down the back book business. And so from a run rate point of view where you'll see that effect fully is starting with the second quarter. And what we're saying is relative to full-year 2015, this is a 25 basis point effect. I wouldn't look for any specific thing to offset that.

It's one of many, many things that affect revenue over time. Our point is other things being equal, that would take down the revenue margin by 25 basis points. So we have a very healthy revenue margin. We have great things going on in the business, but we are not intervening to do something on the revenue side to offset this.

What we're doing is really just accelerating and getting over with something that was going to happen anyway over the next couple of years..

The next question please..

And the next question comes from Rick Shane with JPMorgan..

Thanks, guys, for taking my question. I'd like to just delve in a little bit to the 11% year-over-year Card growth.

One of the things we're wondering is how much of that's really being driven by average balance growth from seasoned accounts, so say over 12 months, and how much is really driven by net new adds over the last 12 months?.

As you can imagine, it's a very good question, Rick, because of course this is many vintages and various effects all happening on top of each other. I think the best way to think of this is that the majority of our originations and growth is from new account acquisitions.

Just a general observation, the majority is coming from new account origination and the very natural early balance growth associated with that. And a sizeable minority is coming from credit line increases on more seasoned books, but we are approaching an equilibrium with respect to those effects.

I flagged several quarters ago that we had a bit of an outsized credit line increase going on because we had had a brownout for the period preceding that. And we are pretty close to an equilibrium now, maybe just a little bit still of residual from on that credit line increase side.

But what you see is approaching an equilibrium with respect to the mechanics of how growth works..

Great. That's very helpful. Thank you, guys..

You bet..

Next question, please..

And our final question today will come from Sameer Gokhale with Janney Montgomery Scott..

Thank you for taking my questions. Rich, you talked about your incremental investments in digital and as I look at the banks and you guys, it seems like digital is clearly the Wild West to a certain extent.

So when you think about digital investments, how do you think about sizing how much of a budget you want to allocate to those investments? And really how are you thinking about that in terms of investments over the next couple of years? I mean is there a specific earmarked amount or is it just ideas that trickle up that you feel that you can fund on a discretionary basis? It'd just be helpful to see how you're thinking about that.

Thank you..

Well, thank you, Sameer. Digital is becoming so all-encompassing into how life works and how the business works, it's increasingly difficult to even in a sense technically answer your question. But we don't start with a thing that says, okay, we have X million dollars to spend on digital and that is it.

So what we do is we start strategically with the environment and say where is the world going and what does winning entail as the world goes there. And we work backwards and then develop a strategy and we figure out where we need to go as a company. And along the way you can imagine that digital is a centerpiece of that entire strategic agenda.

And so everybody from the bottom-up builds the economics of their business working backwards from where they're trying to go as a business, and all of that adds up to our overall economics. We see if it makes sense. We drive incredibly hard to wring out costs that are not directly related to digital innovation and growth.

I know you can't necessarily see those effects, but they are very significant, as are the digital investments on the other side. But I'd just like to stop and reflect a little bit on what is it that we're investing in, because I think a lot of banks say, and I've heard several of them say it, we're going to sell funds as digital investment.

And so you tell me how much you can save and that's how much we can invest. That is a really, really tough way to take any institution I think to where it needs to go because the marketplace isn't waiting for us to do that on those terms. But on the other hand, we're not just investing in science experiments or seeing what's new and shiny object.

When we talk about digital investment, it starts with talent. We're talking about bringing in top engineers, product managers, designers, data scientists often from tech companies and startups outside of financial services. And this is a very important thing and obviously it costs money to do that, but that's a foundational thing.

We're talking about providing the digital workspaces and the most modern tools for these folks that's essential in terms of recruiting them and essential in terms of leveraging them. So often I think banks when they think about digital, they think I've got to go build apps, we've got to get customer-facing or associate-facing apps.

Most of the leverage is really in infrastructure in terms of things like rationalized and simplified core infrastructure, increasingly we're focusing on cloud computing and building the underlying capabilities such that product development will be faster and faster and more effective over time.

We're obviously investing in terms of product development itself and we're on an accelerating basis shipping product and you can go to the App Store and take a look at some of this stuff. It's pretty highly rated. We're investing in cyber security.

This is an incredibly important area and we are putting a lot of very top talent and a lot of energy and investment into that. But the key thing is, this is not because we think this digital thing is cool and there's opportunities someday. These are delivering benefits right now on many fronts.

While you can't necessarily see it in the numbers that you see, but the enhancements to productivity, the power of innovation, the dramatically growing customer experience benefits and it's inextricably linked to the growth that we are generating right now. So pulling way up from that it doesn't really start with this is the number.

It's really increasingly sort of who we are and how we think about the business. So pulling way up, what we are so focused on is making sure that we can generate very strong returns for our shareholders and continue to invest in a future that has very strong returns for our shareholders over time.

And right now we see right in front of us two very, very big opportunities. One of them is card growth and the other one is this digital opportunity. Both of them involve spending money to make more money later, but at the end of the day, I go back to the thing that we focus on every single day.

How can we create value for our shareholders today and ensure that we can create value for them tomorrow? And the way to do that is to generate well above hurdle-rate returns, to make sure that our investments are very disciplined and driven by a net present value framework to the absolute most rigorous extent possible, and be sure that we are really obsessive guardians of capital, and in the end, distributing capital to our shareholders.

So that's a long answer to your question, but I'm glad you asked because increasingly digital is who we are, and it's where the leverage is..

Terrific. Thanks, Rich. I appreciate the fulsome answer..

Thanks, Sameer, and thank you, everybody, for joining us on this conference call tonight. We thank you for your continuing interest in Capital One. Just a reminder, the Investor Relations team will be here this evening to answer any questions you may have. Have a great evening, everybody. Thanks..

And that concludes today's presentation. Thank you for your participation..