Capital One Financial Corporation (COF) Q3 2012 Earnings Report, Transcript and Summary

Good day, and welcome to the Capital One Third Quarter 2012 Earnings Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] Thank you. At this time, now, I would like to turn the call over to Mr. Jeff Norris, Senior Vice President of Global Finance. Sir, you may begin.

Thanks very much, Linette. Welcome, everybody, to Capital One's Third Quarter 2012 Earnings Conference Call. As usual, we're webcasting live over the Internet. 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 that summarizes our third quarter 2012 results. With me today are Mr. Richard Fairbank, Capital One's Chairman and Chief Executive Officer; and Mr. Gary Perlin, Capital One's Chief Financial Officer. Rich and Gary will walk you through this presentation. To access a copy of the presentation and the 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. 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. And now, I'll turn the call over to Mr. Perlin. Gary?

Thanks, Jeff, and good afternoon to everyone on the call. Third quarter earnings were $1.18 billion or $2.01 per common share. The third quarter was the first one which reflects a full 3 months of both ING Direct and the HSBC U.S. Card business, along with Capital One's underlying business performance. While the absolute level of merger-related accounting impacts was considerably less this quarter as compared with the first 2 quarters of 2012, linked quarter comparisons are obviously affected significantly. Looking ahead, there will be some ongoing impact on revenue and operating expense from merger-related accounting, although quarter-to-quarter movements should be far less exaggerated. In contrast, the impact of merger-related accounting on credit metrics has now largely run its course. After I briefly review a few key items from the third quarter, Rich will speak both to our underlying business performance and what our results this quarter suggest about future trends. I'll discuss our summary income statement on Slide 4. The significant increase in earnings this quarter versus the previous quarter can largely be explained by 3 factors; continued strong performance in our businesses, a full quarter of HSBC operations and a large reduction in acquisition-related credit accounting impacts compared to the previous quarter. Linked quarter pre-provision earnings increased about $800 million, driven largely by moving from a partial quarter to a full-quarter impact of acquired HSBC credit card operations. There was also a substantial reduction in charges related to legal and regulatory matters and in other unique items, which affected second quarter results. Compared to the second quarter, the additional months worth of revenue and expense related to the HSBC Card business increased pre-provision earnings this quarter by approximately $175 million, which is net of about $100 million of acquisition-related accounting effects. After building the finance charge and fee…

Thanks, Gary. I'll begin on Slide 8, which provides an overview of solid business results in the quarter. Our Domestic Card business continues to deliver strong results. Excluding the expected run-off of higher-margin, higher-loss HSBC loans and the continuing run-off of installment loans, domestic revolving credit card loans grew modestly in the quarter, in line with expected seasonal patterns. Excluding HSBC, purchase volumes grew about 9% compared to the third quarter of last year. Revenue margin was unusually strong at 17.1%. I'll discuss the reasons for the elevated third quarter revenue margin and where we see revenue margin going over the next several quarters in just a moment. The charge-off rate was unusually low. For the last couple of quarters, our credit card metrics have been dominated by the addition of HSBC's Card portfolio. HSBC ran at a higher loss rate than Capital One's Card business, but the addition of the HSBC portfolio temporarily improved our combined credit metrics because we took a credit mark on HSBC's severely delinquent loans. The credit mark absorbed the bulk of the charge-offs from the HSBC portfolio in the second and third quarters. Beginning in September, most of the HSBC charge-offs are happening outside of the credit mark, so we expect Domestic Card charge-off rate to increase significantly in the fourth quarter as the impact of the market has largely run its course and because the third quarter is the seasonal low point for the underlying card charge-off rate. Our Domestic Card business remains well positioned to deliver strong and resilient profitability and strengthen its valuable customer franchise. The Consumer Banking business posted another strong quarter. Ending loans declined about $900 million, in line with our expectations. $1.2 billion of continuing growth in Auto loans was more than offset by about $2 billion of…

Thank you, Rich. We'll now start the Q&A session. [Operator Instructions] If you have any follow-up questions after the Q&A session, the Investor Relations staff will be available after the call. Linette, please start the Q&A session.

[Operator Instructions] We'll take your first question from Chris Brendler with Stifel. Christopher Brendler - Stifel, Nicolaus & Co., Inc., Research Division: Just one question on the capital front. As you deal with the phase-in period, how does that impact your near-term plans for capital return to shareholders? How do you think about the balance between these rules going into effect in several years and how the regulators think about that as you look to the next couple years? And then the second question would just be, if there's any more color on the Auto Finance business, pretty significant slowdown in the originations this quarter. I know you've been talking about it. Just give us a little more competitive flavor of what's going on in Auto.

Hey, Chris, it's Gary. Why don't I start out with your question on the capital rules, how they get phased in and how that affects our thinking about the potential for capital distribution. I think, at least, the phase-in approach is pretty clear. It's very clear that the next CCAR process will continue to ask for a stress test that's done exclusively on a Basel I basis. We did very well on that stress test last year. Our Tier 1 common ratio under Basel I has improved. And I do believe that we're obviously well positioned therefore to show continued resilience to stress. The requirement under Basel III, as you know, is more of a requirement that one show trajectory to be able to comfortably get to the necessary capital levels under Basel III during the timeframe that's been made available. And obviously now, there is kind of 2 steps or 3 steps with respect to Basel III. As Rich and I have said, we expect that we will be at our Basel III destination with an assumption about how Basel II will affect us already in the middle of 2013. And so, as a result of that, we believe that we'll be able to very comfortably check both boxes. And obviously, as time goes on, we move a little closer to operating under Basel III, we expect we'll continue to generate capital that will improve that ratio. And obviously, as we become more deeply involved in the Basel II world, we'll obviously be looking at our businesses as many other Basel II banks to try and optimize to get the greatest amount of capital efficiency. I think, all told, we're going on multiple pads but all with the same destination and all pretty much with the same timeframe in mind. Why don't I hand it back to Rich on the Auto business.

Yes, Chris. We continue to have very strong growth in the Auto business, but our originations are down off the extremely high levels that we had, say, in the second quarter. So for example, they're down 9%. In the third quarter, they're still at very high levels and are 15% higher than the third quarter of 2011. So let me just describe what's going on. First of all, there continues to be -- although we're getting to the later stages of it, we -- the strategic growth trajectory we have in Capital One by the geographical expansion and taking the business strategy that's already been proven and taking it into more geographies and more dealers, so that's a very sure-footed thing. We are -- at some point, over the next couple of years, we'll start to reach the full penetration relative to that. On the other hand, we are also are responding, Chris, to the competitive marketplace. There is more intensity in the Auto business. And we watch closely the margins. We look at the margins and LTVs and FICO and terms. And like I said earlier, we don't set growth targets, we very much respond to the marketplace that's there. Overall, I would say it's still a healthy business. I think some of -- the pricing has -- in the prime space, has fallen to pre-recession levels. In subprime, it's relatively healthy, but it is falling somewhat. The -- from an underwriting point of view, the thing that's been loosened up is terms where terms are actually beyond where they were in the boom. In other words, we're talking about the length of the loans themselves. But LTVs have stayed; in fact, have been tightening since 2009. People got very burned with those. Average FICOs are still at strong levels, slightly degrading from an industry point of view. But my overall comment would be we still feel very good about the business. I think there is more competition, which takes a bit off the -- some of the extremely high growth that we've had in the past.

We'll move to Betsy Graseck from Morgan Stanley.

So Gary, is it fair to conclude that you still expect to return capital in 2013 at a level that's above 2012 capital return?

Betsy, just as I've said over the course of the last several quarters, including at your conference, I think we're going to be in a strong position to make that case to the Fed, which gave you a pretty strong description of where we feel we're going to be able to deliver shareholder value and we indicated that would include a meaningful dividend. We don't think we're there yet. So I think, directionally, I think that's what we're working towards. But obviously, we have to go through the entire process until we get there.

Got it. And then can we just talk a little bit about what a good run rate is for expenses. The slide decks said that most of the deal synergies are baked in. So I wanted to see if $3 billion was a good run rate going forward or if there is any other tweaks you'd want us to be aware of?

Let me try my hand at that for you, Betsy. And again, I can't, on mix, the paint of all of the costs that came from the different parts and pieces of what are now Capital One. But let me try and do the math a little bit for you. So at the beginning of this year, we talked about a run rate of about $2 billion or around there, maybe a little bit higher for Capital One Legacy, taking into account all of the investments that are necessary to meet all of the rising bar of regulatory expectations and our own infrastructure needs. So that would get you to about $8 billion on an annual run rate. HSBC and ING Direct, if you look at the performance we've provided, they brought over with them expenses at a rate of about $2 billion a year for HSBC and about $650 million a year for ING Direct. So I'm giving you the annual rates there. So $8 billion legacy, add about $2,650,000,000 for the acquired operations. Next year, remember, purchase accounting is still significant even if it's not moving around a whole lot, it will be there, somewhere in the $550 million to $600 million range. And as Rich said, we have a couple hundred million of integration spend likely to go. If you add all of those up, you'd get to about $11.6 billion synergies. As Rich described, of about $450 million, takes you to about $11.1 billion, $11.2 billion that seems like a reasonable level for 2013. And again, you also have to remember, I'm just talking here about operating expense, not the marketing expense. Rich indicated $1.5 billion is a good estimate for 2013. So if you put all that together, you'd be just over $3 billion of a run rate for total noninterest expense next year. Again, all of it depends on things like marketing opportunities and so forth. But if you are at about $12.5 billion for total NIE next year, more or less, that's a way to add all of this together. And then obviously, once the integration spend passes, we're going to continue to do what we've been doing all along, which is look for efficiencies in our business at the same time that we don't sacrifice the quality of the integrations and the importance of maintaining our infrastructure at the highest possible level.

Rich Shane from JPMorgan has your next question. Richard B. Shane - JP Morgan Chase & Co, Research Division: When we look at the information you guys provided today and there's a lot of really helpful information, the revenue or the margin build or cascade that you show us is particularly helpful. Can you just sort of relate that to what you expected when you acquired HSBC? Is this a little bit better, worse, or in line with the original acquisition assumptions?

It is consistent basically with that. The -- you may remember that we talked about 30 to 35 basis points of actions that we wanted to take to bring HSBC in line with Capital One practices. We had targeted that to happen over the first half. It's actually -- some of that is happening on a little bit of a delayed basis. So -- but this table -- so first of all, the HSBC thing is very consistent with what we expected all along. And so what we've done is tried to take the composite actions that we're taking sort of on a customer point of view and put them together. And in doing it quarterly, please understand that my prior example of the HSBC timing is probably going to slide slightly. We wanted to just make sure that people got the general sense of the magnitude of what we're talking about and the general timing of that and this is consistent with deal assumptions. Of course, there is also legacy Capital One elements within those numbers as well. Richard B. Shane - JP Morgan Chase & Co, Research Division: Great, that's very helpful. And then just to clarify something. Gary, in your response to Chris Brendler's question, it sounded like you indicated that you felt that you would reach the B III 8% ratio, Tier 1 ratio by midyear 2013. That's wasn't necessarily indicated in the slides and I think it's a pretty important distinction. Is that -- am I hearing that correctly?

Look, I think it's going to be in 2013. I can't pinpoint it for you, Rick, but I think let's think back to what Chris' question was all about, which was how does this affect our thinking about capital distribution and our approach to CCAR and so forth. That ratio does not need to be reached for several years. What we need to show is that we are on a strong trajectory to reach it. I think, whenever in 2013, we reach that would be consistent with being on a strong trajectory to reach it. So I wouldn't worry too much about exactly what moment it happens. I think the impact on our thinking would be the same.

Moving on to Sanjay Sakhrani from KBW. Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division: I was hoping to get a little bit more on the revenue margin trajectory. So when we consider its trajectory for the fourth quarter and 2013, should we start at that 17.26% adjusted or like 16.6%, which is the reported number less the seasonality, because that accounting impact stays for 2013, right?

It shrinks over -- so just to be clear, that purchase accounting impact will be running off over the course of the year, that's a result of premium amortization that goes into the debt interest income in the card business. So that's going to be coming down over the course of 2013, and it's about 15% a quarter, it comes down. So that's the purchase accounting impact. Again, remember, the fourth quarter is also a pretty high quarter for revenue margin tends to drop pretty considerably in the first. So you're going to have the combination of the rundown of the negative effect of the purchase accounting, offset, to some degree, by the seasonality, which again, is strongest in a positive way in the third quarter and then, the other actions that we're talking about which Rich described. Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And then just a follow-up on the September charge-off rates. Is it fair to say that, that September charge-off rate of like 3.93%, that didn't have any impact from the mark?

It had a modest impact on the mark. I mean, the -- over the next number of months, the impact of the mark is going to be kind of high-single-digit-kind of basis points. So it's gotten pretty darn small. And September was the first time that, that was the case. Of course, we have all the seasonality effects, as you know, Sanjay, on that. But pretty much, we're now down to single-digit impact from the mark. Can I go back, just talk for a second, about the revenue margin trajectory, Sanjay? So we mixed a couple of things in trying to create some clarity. Let me explain this to you. We -- in creating this adjusted number, we, in a sense, took out the seasonality in the third quarter number. And then we provided some quarterly effects that are known. But I do want to say, of course, the other quarterly effect is the seasonality itself. And just to give you a little bit of insight on that the -- by the effect, in fact, we told you for the third quarter, the revenue margin relative to the average is the biggest in the third quarter. It's modestly above average in the fourth quarter but pretty close to average. Its lowest period is the first quarter and then it's slightly below leverage in the second quarter. So it's -- the Card business, the revenue margin, just is a byproduct of a lot of the other seasonal effects that go on. But given that we're now really trying to take run rates and understand them, we wanted you -- we wanted to do the best we could to tease out that very large effect in the third quarter. But I'd just add this other just general directional indication of the seasonality in the revenue margin.

That will come from Moshe Orenbuch from Crédit Suisse. Moshe Orenbuch - Crédit Suisse AG, Research Division: Actually, I was going to ask also about from a credit loss perspective, when you think about that, you've got -- it sounded like from the prior question that you've got a modest amount remaining of the HSBC losses to come back in. As you kind of think about that movement from August to September, the core portfolio, was that relatively stable? I mean, it looked like there was something of an increase in the Master Trust, so should we be thinking about there being some kind of underlying increase on top of that? And maybe kind of if you could also just discuss how to think about the provision relative to charge-offs into fourth quarter and 2013?

Moshe, the -- so in the third quarter, Domestic Card losses increased 18 basis points. The increase was entirely driven by the purchase accounting impacts. Without these losses, it would've improved by 33 basis points. And legacy, just to give you a little more insight, legacy Domestic Card -- the legacy Domestic Card book decreased 43 basis points in the quarter and this was even better than the normal seasonal improvement we'd expect between the second quarter and the third quarter. And without purchase accounting, HSBC portfolio losses decreased from $5.64 billion to $5.08 billion, modestly better than seasonal expectations.

Moshe, your question was specifically about the monthly move from August to September in the Master Trust. It was up slightly, which I think, we would view in line with normal seasonal patterns from August to September just for the single month.

And as far as your question on overall provision, Moshe, its Gary. What... Moshe Orenbuch - Crédit Suisse AG, Research Division: Well, it certainly is in relation to the credit card portfolio.

Yes, sure. And look, I think, we've certainly had some movements in the coverage ratio because of the impact of the mark. I would say just as the impact of the mark is kind of reached its end, we're getting to a coverage ratio that from here on out is basically going to reflect just our overall view about credit. It should not be significantly impacted by the mark going forward.

That will come from Jason Arnold from RBC Capital.

Rich, just curious if you can talk about the competitive activity in the card space. And then you mentioned also C&I competition. If you could comment on that as well, please?

Yes, Jason. Let me start with the Card business. So first of all, just sort of the demand environment out there. As I'm sure you know, revolving credit has sort of finally sort of gotten back to 0% growth in the last number of months. But industry revolving balances are down over 18% from prerecession highs. And so that's sort of the -- and the flattishness -- the overall flattishness of revolving balances very much feels like the marketplace that we're operating in and we don't have an expectation of any material, I mean, nothing to indicate that it would significantly deviate from that. So let me talk about what's happening on the supply side. Direct mail volumes are down significantly and pretty strikingly this year, frankly. And I think there is some net reduction in supply implied by that but not as much as the -- and I can't -- it's something like down 40%, I mean, depending on where you -- but it's down a fair amount. But some of the marketing has moved to alternative channels, of course. And the day will come when direct mail is more of a distant memory in terms of how marketing used to happen. But I still believe that net, Jason, overall supply is down a bit this year versus last year. But I don't think this is necessarily great news in the sense, maybe opportunities really growing based on that because I think the reduction in supply appears to be sort of an equilibrium as competitors react to what they found out last year in the marketplace. And we saw several competitors kind of do some blitzing last year and are sort of pulling back now. So I think we've more reached sort of a stable equilibrium on the supply…

We'll move next to David Hochstim from Buckingham Research.

Just to clarify, the $9 billion reduction in Home Loans that you've talked about, does that include any securities? And if not, what's going to happen to the securities balances? And related to that is what's the yield on those loans that you expect to run-off?

David, it's Gary. It's going to be kind of a mixed bag because as Rich said, the largest book of loans that's running off is mortgage loans, which of course has the lowest margin of any of our loan products. But there is some amount of card product, including some of the higher loss, higher-margin business out of HSBC, although it's a small number, it packs kind of a lot of wallop when it comes to margin. But it's being replaced, to a large extent, not fully, by Auto and Commercial, which tend to have yields that are more akin, if you put them together, to the average kind of yield on the overall book. And if you think about it, if where we have to put some of our deposit funds, because of the runoff of the mortgage business is in the investment portfolio, the investment portfolio margins are not materially different from mortgage. So I don't necessarily believe that you'll see a dramatic change in overall margins as a result of the decline in loans that Rich described. But again, we'll have to see exactly where the replacement comes from. We'll have to see what we can do to help out the margins on the deposit side and so forth. But you've seen a lot of movement in our NIM over the course of the last year that was driven by the deals. The deal impact is pretty well through. From here on out, hard to predict. But I certainly wouldn't expect anything close to the kind of variability we have seen. But we're going to have to work hard to keep where it's at and we'll see how it works.

Moving on to Chris Kotowski with Oppenheimer. Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division: Just 2 quick questions and I want to make sure I'm understanding this kind of guidance correctly. First of all, in terms of the charge-offs, you said this quarter, $176 million was absorbed by the reserve. So if we take $176 million and add $877 million and then subtract $25 million for the OCC impact that takes me about up to $1,050,000,000. Is that -- am I thinking about the underlying charge-off number in the right way?

Yes, I mean, obviously, you are, Chris, but remember where we are in terms of seasonality and where the overall trend may be going. But your math for Q3 is absolutely on track. Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division: Okay, perfect. And then secondly, in terms of -- I just wanted to take your guidance, put it in my words and see if you agree with it, which is that basically, if we're looking at 2013, that basically, the ongoing purchase accounting benefits should more or less offset the underlying -- the spending on further integration expenses.

Yes. We're in the right ballpark there, Chris, that's true.

Moving next to Don Fandetti from Citigroup.

Just talk a little bit more about the operating expenses. You kind of went through some details. Looking back to Q4, they came in a little higher than I think what people were looking for. Is it -- do you believe that they're sort of trending or your guidance for '13 is sort of where you were thinking? It seems like maybe they're a little bit higher than what was expected?

No. I mean, unfortunately, remember that conversation pretty well, Don, we had a lot of -- talk about it and what we said and again, we have a little bit of variability quarter-to-quarter in operating expense as well. But I think what we said was that if we applied all of the investments that were required to get ourselves up to the kind of level of infrastructure and the level of rigor in terms of being able to meet the regulatory bar with our compliance and everything else, we've said it would be between $2 billion and $2,050,000,000 on a quarterly basis. I still think that's absolutely the same kind of level of intensity that we have now. I'm not suggesting that we won't have further needs. But hopefully, we'll be able to finance those by consolidating the gains that we've had until now. So I'd say it's about the same. Unfortunately, I can't go back and figure out what legacy Capital One would be today because that doesn't exist anymore. But when you add all the pieces together, it's kind of where we would have expected to be. Now unfortunately, the revenues are not necessarily racing ahead. Remember that most of the revenues that we might have expected at the time of deal announcement that we no longer see in 2013 are simply the mirror image of -- starting off with a much better capital position. So instead of discount accretion, we've got a lot of premium amortization. We're going to end up in the same place in terms of capital but we had more of the capital upfront or less capital consumption upfront, and we're not going to rebuild it with the revenues. So all else being equal, I'd love to say that we could dramatically change our…

And just real quickly, I know you talked a lot about capital, but as I look at -- has your enthusiasm about a capital return changed from, let's say, last quarter? And would you still hope to look at both dividend payout and opportunistic share repurchases, like you've talked about in the past? I just want to clarify that.

Don, I wouldn't say our enthusiasm has changed because we've been very enthusiastic. I really want to say that we -- it kind of relates to my point why I think Capital One can be a very successful company even if the economy goes nowhere fast. I mean, we have been and expect to continue to be a very capital-generative company. And we'll continue to invest in organic growth opportunities and I think the strong earnings power is going to well outstrip those opportunities. We've also been working very hard on the, in many ways, mind-blowingly complex Basel II calculations that to try to get an estimate of what the impact of that is going to be and we were able to show you that today. But all along, we have very much known the way value is going to get created in this company is we're going to -- my image about our company is we are going to be a company that should be on the higher end of returns, earnings power of companies, because we have chosen a mix of businesses that tend to, I think, be better on what they can offer in terms of returns and we tend to be at the high end of the players in that business. So -- and underneath it all, I think there's inherent growth trajectory that will certainly manifest itself as these run-off portfolios go down. But in the meantime, earnings power and capital generation is going to be a key way that value gets created. We were as enthusiastic about it last quarter as we are now. And with every passing quarter, we get more capital and more clarity on what the rules of the game are and that puts us in a position to distribute more of it.

That will come from Scott Valentin from FBR. Scott Valentin - FBR Capital Markets & Co., Research Division: Just with regard to the private label performance, you mentioned there's more volatility around balances and seasonality. I'm just curious if you've seen anything else regarding the difference in performance between private label versus general-purpose card?

Yes. The private label business in -- our private label business, now if you look at all the private label businesses out there, this wouldn't necessarily apply to all the ones out there in the marketplace. But ours, meaning what we have built and what we've gotten in terms of HSBC, tend to be characterized by lower returns, somewhat lower returns but well above hurdle, lower credit losses and that's interesting because you'll look elsewhere out in the marketplace and you actually see much higher credit losses often in this. But overall, while in some ways, bringing partnerships on lowers the per unit octane of this earnings machine we have in the Card business, it is incrementally real value creation. We really like it, and the other thing about it, I think, competitively, it is a very scale-driven business and there are 3 players in the private label business that really have that scale. And if you look at the lead tables, it pretty much falls off after that. And this is the scale to have to be able to invest in the customized things that clients need. It's the scale to have the operating cost in what is a bit of a thinner-margin business. And it's the -- it is the -- it gives us an ability to have the credibility with partners to say we've been there, done that and talked to our previous clients kind of thing. So a little bit lower octane but real value-added. And right now, HSBC's partnership business has been shrinking a little bit. We have moved away from a few of the smaller partners. So there's a bit of a kind of shrinkage going on here but we're going to invest more in this business and I think you're going to like the returns. Scott Valentin - FBR Capital Markets & Co., Research Division: Okay. So just to -- you started answering my second question. But additional partnership opportunities I guess you guys are now out there looking for those opportunities and I guess you mentioned those 3 scale players. I mean, how competitive is it to get new partnerships?

Well, the partnership business, we didn't just wake up and discover partnerships when HSBC showed up. I mean, we have watched this business for a long time. And I do want to say, in the last decade, in the decade leading up to the Great Recession, these things started to go for auction prices that were at the nosebleed kind of level. So we selectively involved ourselves in some of these things. But again, we -- to me, this is all about selectivity. And right now, the supply and demand, if you will, of players in that business, is much more sensible. But we know it also can be great over time. Here's the key. We're not setting out to be the biggest. The key word for partnerships is selective, picking a good retailer, in other words, a company who, in its own right, is the kind of the business we'd like to invest in as an investor so to speak. Secondly, a partner with the right motivation where they want to drive their partnership business to generate -- to enhance their franchise as opposed to a way to make just more bucks. And retailers are on both sides of that very key dividing line. And finally, a contract that really works as a win-win for both parties. We have -- so we are both out there in the marketplace selectively looking for new opportunities and we're also reviewing all of our existing partnerships and with a -- each one, we're going to make sure that, that partnership, when the contracts come up for renewal and all of them come up from between now and 2019, as they come up for renewal, we're going to ensure that we have the right relationship and the right structure of contract in place. We have renewed several of the big contracts already and we have -- those negotiations have been very important to establish, that we have it in the right way but -- so we'll continue to be very selective. But in that way, I think, we can create a lot of value and not go off the rails as some people have who have been chasing this business.

Your last question will come from Craig Maurer from CLSA. Craig J. Maurer - Credit Agricole Securities (USA) Inc., Research Division: Just one quick question on your discussion around capital. When these deals were originally announced, you were pretty clear that you didn't think that you would have any SIFI penalty involving your capital levels. So I was wondering what's changed considering you discussed the 50 basis point SIFI buffer.

Craig, it's Gary. I don't remember giving guidance on SIFI buffers way back when and it is for good reason that we gave you an assumed target with an assumed SIFI buffer. I think, if you take a look at banks of our scale, you'll see that they're making reasonably similar assumptions, and so we wanted to make those assumptions absolutely transparent to you. You can make adjustments, if you will, if that required buffer is higher, obviously, we've already suggested that we would have some additional buffers. And again, I think, we will be well in excess or certainly on a trajectory to get well in excess of those levels. So we'll see where it goes. But at this point, I think we're making some pretty realistic assumptions.

Okay. Well, thanks, everyone, for joining us on the conference call this evening and thank you for your continuing interest in Capital One. Investor Relations team will be here tonight to answer any questions you may have following the call. Have a great evening.

And that does conclude today's teleconference. We thank you all for your participation.