Jeff Norris Gary L. Perlin - Chief Financial Officer Richard D. Fairbank - Founder, Executive Chairman, Chief Executive Officer and President

Christopher Brendler - Stifel, Nicolaus & Co., Inc., Research Division Betsy Graseck - Morgan Stanley, Research Division Richard B. Shane - JP Morgan Chase & Co, Research Division Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division Moshe Orenbuch - Crédit Suisse AG, Research Division Jason Arnold - RBC Capital Markets, LLC, Research Division David S. Hochstim - The Buckingham Research Group Incorporated Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division Donald Fandetti - Citigroup Inc, Research Division Scott Valentin - FBR Capital Markets & Co., Research Division Craig J. Maurer - Credit Agricole Securities (USA) Inc., Research Division

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? Gary L. Perlin: 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 reserve by $173 million in Q2 to cover expected non-principal losses on the acquired revolving loan portfolio of HSBC, there was only a $17 million negative effect on revenue in Q3. Revenue continued to be negatively affected in the quarter by $133 million in premium amortization related to both acquisitions. We expect that this impact will decline about 15% per quarter. Operating expense declined modestly in the quarter due to a steep reduction in charges related to legal and regulatory matters and other unique items. While we had an extra month of HSBC-related operational expenses and PCCR amortization compared to the second quarter, this was partially offset by a reduction in merger-related expenses. Amortization of purchase accounting adjustments for intangibles and other assets was about $170 million in the quarter and is expected to decline at about 5% per quarter going forward. The majority of this amortization represents PCCR and CDI, but the total also includes amortization of software and other assets. You can find details on acquisition-related accounting and other items in the financial tables, those that are appended to our earnings press release, and you'll also continue to see detailed breakouts in our quarterly financial reports. Finally, lower provision expense was driven by a significantly lower allowance build related to acquired HSBC credit card loans, offset to a small degree by higher linked quarter charge-offs due to lower absorption of losses by the SOP 03-3 purchase accounting mark. To be specific in this quarter, the mark on impaired loans we acquired from HSBC absorbed approximately $176 million and now stands at $149 million. Net charge-offs also include a one-time charge of about $25 million from the implementation of newly issued OCC guidance regarding the treatment of consumer loans where the borrower has gone through Chapter 7 bankruptcy. Turning to Slide 5. Let's touch briefly on net interest margin. In the quarter, reported NIM was up 93 basis points to 6.97%. The increase in NIM on a linked quarter basis was the result of 2 factors: First, the full-quarter impact of acquired HSBC Card loans and associated reductions in cash and cash equivalents; and second, the benefit of a much lower build in the finance charge and fee reserve related to those acquired HSBC Card loans. As the impact of the acquisitions on this metric have largely played through, we expect significantly less variability in NIM going forward. Quarterly changes from here will depend on the evolution of our asset mix in and among our businesses, ongoing pricing dynamics in the loan and deposit markets and on the general level of interest rates. Before turning the call over to Rich, let me quickly cover off on capital on Slide 6, followed by our initial thoughts on the longer-term impact of Basel III. On Slide 6, you'll see that as of September 30, our Tier 1 common ratio on a Basel I basis was 10.7%. Following the HSBC Card acquisition in the second quarter, we've seen strong capital generation driven by earnings and a corresponding reduction in disallowed deferred tax assets. These favorable movements were partially offset by a nominal increase in risk-weighted assets as acquired mortgage loans continue to amortize and are replaced largely by Commercial and Auto loans that carry a higher risk weighting. With the bulk of acquisition-related accounting impacts now behind us, strong and more stable earnings along with some portfolio shrinkage due to the run-off of acquired loans, we expect to see continued steady capital generation going forward. Turning to Slide 7. And before discussing our Basel III capital destination, it's important that I remind you that starting January 1, 2013, we will formally begin our journey to adopting the advanced approaches required under Basel II for banks exceeding a $250 billion asset threshold. Of course, we have already begun the long and intensive process of building our Basel II models, but it's worth noting that this is a massively complex undertaking and that we will not formally enter the period of calculating capital metrics under the advanced approaches in parallel with standardized approaches until January 2015, nor could we exit that parallel process until at least January 2016. I'm emphasizing this point because we expect to be the only bank not currently running parallel that when Basel III is fully implemented would likely be required to use the Basel II Advanced Approaches. So while estimates using the advanced approaches are essential for calculating our Basel III ratios, we are early in the process especially when compared to all other Basel II banks who had been calculating these ratios in parallel to Basel I for a number of years. Thus, while it's important to all our stakeholders to have a sense of what Basel II means for Capital One as we enter the Basel III world, it's also worth recognizing that we will be refining our models and business judgments for years to come. The recent notice of proposed rule-making regarding the implementation of Basel III and Dodd-Frank capital rules modifies those capital rules under both Basel I or standardized approaches and Basel II or advanced approaches. Assuming that these rules were in effect today and that the Basel II Advanced Approaches were the more binding of our Basel III capital ratios, we estimate that Capital One would have a Tier 1 common ratio in the high 7% range as of the end of the third quarter, which includes the effect of 2 adjustments that incorporate changes in our balance sheet that will occur without any explicit management actions. These are the amortization of PCCR and the expected pay-down of capital punitive investment security positions such as non-agency mortgage-backed securities. All told, we are currently assuming an 8% Tier 1 common ratio target under Basel III. This target assumes a SIFI buffer of 50 basis points and an additional buffer of 50 basis points. Our final long-term target will depend on ongoing regulatory expectations and business judgments. And for many reasons, it's subject to change. Looking through all this complexity, we expect to exceed that 8% Tier 1 common level on a fully phased-in Basel II and Basel III basis in 2013. Based on our current capital strength, our capacity to generate healthy amounts of capital going forward and the expected timing implications of implementing Basel II and Basel III, we continue to believe that returning capital to shareholders will be an increasingly important part of how we deliver shareholder value. With that, let me turn it over to Rich to discuss our underlying business performance. Rich? Richard D. Fairbank: 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 expected mortgage run-off. Average loans declined by a more modest $392 million. Revenues increased from the second quarter driven by the valuation of retained interest in mortgage securitizations and growth in average Auto loans. Excluding the valuation impact, revenues were stable quarter-over-quarter. Provision expense was up with seasonally higher charge-offs and allowance build in our Auto Finance business. Our Consumer Banking business continues to gain traction with national scale Auto lending, local scale banking in attractive markets and growing national reach with the addition of the ING Direct franchise. Our Commercial Banking business continues to deliver strong and steady overall performance. Loans grew 3% in the quarter and 14% year-over-year. Revenues were up 2% in the quarter as loan yields declined modestly. And credit performance continues to improve. We expect the strong and steady performance of our Commercial Banking business to continue. We've said previously that we expected our post-acquisition run rates to emerge in the second half of 2013 after several quarters of significant noise from merger-related items, partial quarter impacts and new baselines for nearly every key income statement line item. Although the most significant merger-related effects are behind us, third quarter results can't yet be viewed as a run rate because of a few remaining merger-related items, which Gary discussed. And taking any single quarter as a run rate requires adjustments for seasonal patterns in loan volumes, credit and revenue margin, particularly in our Domestic Card business. It's not lost on us that investors and analysts are, of course, hard at work, making adjustments to quarterly results in search of our new run rates. Tonight, I hope to provide some additional clarity for our investors by pointing out where the run rates are emerging and where they aren't and where emerging run rates may not be indicative of future trends. I'll discuss several key balance sheet and income statement trends beginning with loan volumes. Our outlook for loan volumes is summarized on Slide 9. The biggest story for loan volumes is the significant run-off we expect over the next couple of years. In our first quarter earnings call, we expressed -- expected run-off in terms of the next 12 months. Well this evening, we're shifting to a simpler view of annual run-off in ending loans balances expected in 2013. We expect that more than $9 billion in low-margin mortgage loans will run off. Mortgage run-off has accelerated slightly in the low interest rate environment. We expect about $2 billion of run-off in Domestic Card, mostly from higher-margin, higher-loss HSBC Card loans. In total, that's more than $11 billion or 5.5% of Capital One's total loans. In contrast, we expect solid growth in businesses where we're investing to grow. We continue to gain traction in the parts of the Domestic Card business that we're investing in. Our Auto Finance business continues to grow loan balances, and the steady growth and success of our Commercial Banking business also continues. However, there are some risks to our underlying growth outlook. We continue to see weak consumer demand for the foreseeable future. Competition is picking up in several businesses, particularly Auto and C&I lending, and our base case assumption is for no meaningful change in the current, uncertain and challenging economic, regulatory and interest rate environment. To be clear, I've been speaking in terms of ending loan volumes, but it's important to internalize the growing divergence between Capital One's trends in ending loans versus average loans. We've learned from our experience with the Kohl's partnership that private-label retail cards have a more pronounced seasonal pattern in loan volumes as compared to general-purpose credit cards. We've seen a sharper ramp-up at the end of the calendar year, coupled with a sharper decline in the first quarter of the calendar year. Now that we have a larger partnership business, we expect that the seasonal pattern will be more pronounced in our broader Domestic Card business and, to some extent, at the overall corporate level as well. Because average balances drive revenues, this is an important distinction. In Domestic Card, we expect full year 2013 average loans will decline modestly from the third quarter levels. We expect that run-off of higher-margin, higher-loss HSBC loans will outpace modest growth elsewhere in Domestic Card. Outside of the run-off portfolio, we remain focused on franchising, enhancing rewards customers that build balances slowly over time but create and sustain significant long-term value through very low credit losses, high spend and very long and loyal customer relationships. We're also focusing on the partnerships business where the HSBC U.S. Card business acquisition catapulted us into a leading scale position in the private-label partnership space. And we continue to target portions of the revolver market that deliver strong and resilient returns through the cycle. Our choice to stay on the sidelines in significant portions of the most balance-intensely prime revolver segments limit balance growth opportunities even as other card metrics show stronger growth. Beyond the Domestic Card business, we expect full year 2013 average loans to decline modestly from third quarter levels as growth in Auto Finance and Commercial average loan balances won't fully offset the significant expected run-off in mortgage loan volumes. As a result, it's likely that our investment portfolio will grow modestly. All told, we expect full year 2013 average loans for the total company to decline modestly from third quarter levels. But excluding the significant expected run-off, our focus on growing franchise, enhancing customer relationships in our Domestic Card, Auto Finance and Commercial Banking continues to drive strong underlying loan growth and the opportunity to gain share in these businesses in which we're investing. I'll discuss margins beginning with Domestic Card revenue margin on Slide 10. Reported revenue margin of 17.1% includes about 60 basis points of negative impacts from purchase accounting. Third quarter revenue margin also benefits from seasonal trends as the third quarter is the seasonal high point for Domestic Card revenue margin as compared to average annual levels. This is because the third quarter is the seasonally best quarter for charge-offs, which drives fewer revenue reversals. At the same time, delinquencies rise seasonally in the third quarter, which drives higher pass-through fees and the third quarter has a higher day count, which drives higher finance charge and interchange revenues. By definition, seasonal patterns are not sustainable throughout the year. Adjusting for the offsetting impacts of purchase accounting and seasonality, the adjusted third quarter revenue margin was about 17.3%. We expect Domestic Card adjusted revenue margin to decline from its current level. Slide 11 shows expected quarterly revenue margin reduction from third quarter levels for factors we can estimate because they are largely driven by our own decisions. Franchise enhancing moves include items we've discussed in the past, such as aligning HSBC's customer practices with our own and the ongoing impact of our decision to stop selling products like Payment Protection. By the fourth quarter of 2013, we expect these moves will result in a 50 basis point reduction from the third quarter of 2012 revenue margin, as shown on the chart. And in 2014, the run-off of another year of Payment Protection products is expected to reduce revenue margin by another 10 basis points versus 2013. We also expect the run-off of higher-margin, higher-loss HSBC loans will change the mix of loans in our Domestic Card business, driving another 15 basis points of reduction from the third quarter revenue margin by the fourth quarter of 2013. As always, other factors, which are much harder to quantify and predict, will also affect revenue margin. These factors, which include market and pricing dynamics, credit trends and competitive intensity, could have positive or negative impact on the revenue margin. Slide 12 summarizes emerging trends for non-interest expense. We expect that third quarter operating expenses are a good approximation of the average quarterly operating expense in 2013. We expect 2013 quarterly expenses will remain similar to third quarter levels for each component of overall operating expense, including purchase accounting, integration expense, run rate synergies and the remaining underlying operating expense levels. As Gary discussed, we expect the operating expense impact of purchase accounting to diminish somewhat, but to remain similar to third quarter levels throughout 2013. We expect average quarterly integration costs in 2013 to rise modestly, but to remain similar to third quarter 2012 levels. To date, we've recognized about $210 million in integration costs for the ING Direct and HSBC U.S. Card acquisitions. We expect to incur most of the remaining $420 million in integration costs by the second -- excuse me, by the end of 2013. In addition to integration costs, we've already recognized deal and transaction costs of about $100 million in 2011 and 2012. We don't expect to incur any further transaction costs. HSBC U.S. Card business acquisition catapulted us to a leading scale position in the private-label partnership space. Both integrations remain on track, and we've already realized the significant portion of expected cost synergies for the combined deals. Of the $90 million in announced ING Direct cost synergies, we've already achieved annual run rate synergies of about $80 million from reduced FDIC premiums and overhead reductions. Of the $350 million in announced HSBC cost synergies, we've already achieved annual run rate synergies of about $270 million. Most of the expected HSBC synergies were realized when we completed the acquisition on May 1 because we didn't bring over all of the overhead from HSBC USA. Third quarter operating expenses already reflect the ING Direct and HSBC synergies that we've realized. On a combined basis, we expect to fully achieve the annual run rate of $440 million in announced synergies in 2013. Third quarter 2012 operating expense already reflects our ongoing investments in infrastructure and customer franchise. We ramped up our investments in these strategically critical efforts through 2011 and have reached relatively stable levels of ongoing investment. We're investing across the company in scalable infrastructure and operating platforms that are appropriate for a bank of our size and business mix. We're investing to ensure we stay ahead of rising regulatory and compliance requirements faced by all banks, and we're investing to deliver a brand-defining customer experience that builds and sustains a valuable long-term customer franchise. We expect that 2013 average quarterly operating expenses related to infrastructure and customer franchise will be similar to the third quarter of 2012. Third quarter operating expense also reflects continuing investments in growth as we hire Commercial bankers and Auto sales teams to help drive the strong growth in these businesses. Because we expect continuing growth in these businesses in 2013, we expect that operating expense investments will continue at levels similar to the third quarter of 2012. Turning to marketing expenses. We expect the fourth quarter marketing expense will increase significantly driven by the timing of year-end campaigns and promotions. For the full year 2013, we expect marketing expense to be about $1.5 billion. I'll conclude my remarks this evening on Slide 13. Capital One delivered strong results in the third quarter of 2012. While loan volumes remain challenged and interest rates remain low, each of our businesses continues to post solid revenues and returns. In our Card and Auto businesses, credit is stable at historically strong levels with normal seasonal patterns. Credit in our Commercial business continues to improve. ING Direct and the HSBC U.S. Card business are making strong contributions to our business results as we expected. With integrations of both deals well underway, we continue to believe that both transactions are financially and strategically compelling. Because the ING Direct and HSBC U.S. Card acquisitions are such key sources of shareholder value, we're committing all the necessary management time and talent to executing sure-footed and effective integrations. We expect to deliver solid performance in a challenging environment in 2013. The combination of Capital One, ING Direct and the HSBC U.S. Card business puts us in a strong position to sustain underlying growth, strong returns and capital generation even in an environment with low industry growth and prolonged low interest rates. We do not manage the growth targets at Capital One. Instead, we take a highly disciplined and rigorous approach that focuses on maximizing NPVs and long-term value creation. But our heritage in building Capital One over the last 20 years has been rooted in strong organic growth. Even in the low demand, low growth environment today, we're delivering strong underlying growth in the businesses and segments we're investing to grow. The upticks of underlying growth are muted by the significant run-off of portfolios we've largely inherited in the acquisitions. In 2013, we expect run-off of 5.5% of total company loans, but we expect to get most of that back through continued growth in businesses with strong and resilient risk-adjusted returns, including Auto Finance, Commercial Banking and key parts of Domestic Card. The ability to deliver high returns and strong capital generation is a particularly important source of shareholder value in a low growth, low interest rate environment. We like our positioning to deliver that value. The mix of businesses we've chosen, our advantage positions in national lending, our great local scale commercial banking and deposit franchises in attractive markets and our national banking reach with ING Direct all position us to deliver and sustain profitability and returns at the higher end of banks. As a result, we're generating capital at a rapid pace. Our Tier 1 common equity ratio improved by 80 basis points in the third quarter of 2012. Our capital position is strong today, and we expect to continue our very strong capital generation trajectory in 2013. As Gary discussed, we expect to reach our assumed Basel II, Basel III targets in 2013 well ahead of requirements. Deploying capital in the interest of our shareholders will be an increasingly important part of how we create shareholder value. We're committed to delivering that value, including distributing capital to shareholders through meaningful dividends and opportunistic share buybacks, consistent with our long-standing commitment to maintaining a strong and resilient capital base. Now Gary and I will be happy to take your questions. Jeff?

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. Gary L. Perlin: 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. Richard D. Fairbank: 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. Betsy Graseck - Morgan Stanley, Research Division: 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? Gary L. Perlin: 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. Betsy Graseck - Morgan Stanley, Research Division: 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? Gary L. Perlin: 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? Richard D. Fairbank: 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? Gary L. Perlin: 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? Gary L. Perlin: 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? Richard D. Fairbank: 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? Gary L. Perlin: 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. Richard D. Fairbank: 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. Gary L. Perlin: 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. Gary L. Perlin: 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. Jason Arnold - RBC Capital Markets, LLC, Research Division: 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? Richard D. Fairbank: 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 side and probably fairly stable on the demand side. Pricing, and by pricing, I'm really talking about go-to pricing here, that's been stable over the past year. And in the segments we compete, we feel that those margins are strong enough to create good, solid, resilient returns. There are important parts of the prime revolver space that we think don't have a high enough go-to rate to really cover the resilience that we would need as we stress our portfolio. I also want to say that you can see teaser lengths creeping up and that's particularly a product in the revolver space, especially in prime revolver. Teaser lengths have crept up by an average of 3 or 4 months over the past year and some competitors are now up to 18 month 0% teasers, which further impacts margins. The competitors are very intensely going after the rewards market. I mean, this is not much change really in this. It's been this competitive pretty much all the way through the Great Recession. People went right at the top of the market and they intensely went after that. But we continue to feel confident in our ability to compete there. We like the results that we're getting from our own transactor cards. So it's certainly a competitive space. So overall, I think, the Card business is settling out in an equilibrium and that would be my description. It's an equilibrium and we can work with that. But the -- as I mentioned, I think competition is heating up in Auto and it's heating up somewhat in the commercial area. So let me turn to the second part of your question. The -- well, first of all, I'll comment on demand for just a second. I think what we feel is demand for credit and commercial has abated a bit since last quarter. And loan demand now is more focused on refinancing existing credit at lower rates and longer tenures or financings that enable tax management in advance of the fiscal cliff here. We're seeing less demand for working capital lines and I think there's a reluctance to expand in the face of uncertain political and economic environment. So that's a modest effect relative to the past but I just wanted to point that out. Now competitively, we do see a difference between C&I and commercial real estate. I've said for years that when you think about the limited number of places that banks can generate assets and all their traumatic experiences in some of the ones -- some of the places they have been, C&I is kind of the go-to place in banks. We have -- we expect that this thing will overheat at some point. Now what I say is you can feel competition intensifying in this landscape. We're seeing some pressure on terms and spreads, covenant light deals are beginning to show up in this indicated market. But this is a yellow flag. We're not throwing a red flag here but in a cross calibration of our opportunities, we do see more heating up in this space than some of our other areas. In commercial real estate, interestingly, we see less structure and price pressure in that market. They're an abundance of stabilized properties that need refinancing and there are fewer lenders that have returned to these markets and those that are active seem to be showing quite a bit of discipline in structures and in pricing. So all in all, kind of pulling way up. If you think about where we are in the cycle, this is a pretty good part of the cycle coming out of the Great Recession, things have stabilized and I think that -- one thing I've always said is while we'd love to see a robust economy, I think we are positioned to succeed and with the choices we're making, even if the economy, in fact, kind of doesn't go anywhere at this point.

We'll move next to David Hochstim from Buckingham Research. David S. Hochstim - The Buckingham Research Group Incorporated: 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? Gary L. Perlin: 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? Richard D. Fairbank: 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. Gary L. Perlin: Yes. We're in the right ballpark there, Chris, that's true.

Moving next to Don Fandetti from Citigroup. Donald Fandetti - Citigroup Inc, Research Division: 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? Gary L. Perlin: 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 cost trajectory in the short run to kind of meet that need. But I think Rich was pretty explicit about where those operating expenses are going. They're going towards integration where we're seeing the synergies, and we're really focused on getting that right. It's going into infrastructure which is both to satisfy the rising bar of compliance, as well as to try and make sure that we're providing really good experience for our customers. And then we've got some of the expenses coming from the tail end of purchase accounting. So I do feel good about our ability to kind of simplify and streamline our business once we complete the integrations. And so I still think we've got some leverage to gain from the operating side. Unfortunately, in the year that's ahead, we can't really back off on what we need to accomplish and we're just going to have to make sure everybody understands that if revenues aren't there because of purchase accounting, it's in the capital, may not be in the income statement, it will be the balance sheet. I think we feel good about where we're headed for 2013. But the work in terms of getting simpler and more efficient will continue beyond that. Donald Fandetti - Citigroup Inc, Research Division: 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. Richard D. Fairbank: 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? Gary L. Perlin: 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? Richard D. Fairbank: 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. Gary L. Perlin: 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. Richard D. Fairbank: 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.