Jeff Norris Stephen S. Crawford - Chief Financial Officer Richard D. Fairbank - Founder, Executive Chairman, Chief Executive Officer and President

Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division Bradley G. Ball - Evercore Partners Inc., Research Division Ryan M. Nash - Goldman Sachs Group Inc., Research Division Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division Brian Foran - Autonomous Research LLP Jason Arnold - RBC Capital Markets, LLC, Research Division Scott Valentin - FBR Capital Markets & Co., Research Division Moshe Orenbuch - Crédit Suisse AG, Research Division Eric Edmund Wasserstrom - SunTrust Robinson Humphrey, Inc., Research Division Daniel Furtado - Jefferies LLC, Research Division

Welcome to the Capital One Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Jeff Norris, Senior Vice President of Investor Relations. Sir, you may begin.

Thanks very much, Justin, and welcome, everybody, to Capital One's Fourth Quarter 2013 Earnings Conference Call. As usual, we are webcasting live over the Internet. And to access the call on the Internet, please log on to Capital One's website at capitalone.com and follow the links from there. In addition to the press release and financials, we have included a presentation summarizing our fourth quarter 2013 results. With me tonight are Mr. Richard Fairbank, Capital One's Chairman and Chief Executive Officer; and Mr. Steve Crawford, Capital One's Chief Financial Officer. Rich and Steve will walk you through this presentation. To access a copy of the presentation and press release, please go to Capital One's website, click on Investors, then click on Quarterly Earnings Release. Please note that this presentation may contain forward-looking statements. Information regarding Capital One's financial performance and any forward-looking statements contained in today's discussion and the materials speak only as of the particular date or dates indicated in the materials. Capital One does not take -- undertake any obligation to update or revise any of this information, whether as a result of new information, future events or otherwise. And 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 Factors section in our annual and quarterly reports accessible at the Capital One website and filed with the SEC. Now I'll turn the call over to Mr. Crawford. Steve? Stephen S. Crawford: Thanks, Jeff, let me begin on Slide 3 this evening. Capital One earned $859 million or $1.45 per share in the fourth quarter. Like last quarter, we have included a reconciliation table in the appendix that shows non-GAAP deal-adjusted net income in the quarter of $1 billion or $1.75 per share. Pre-provision earnings of $2.3 billion were down $240 million from the third quarter, primarily driven by seasonally higher marketing expenses and nonrecurring restructuring expenses. Additionally, linked-quarter revenues were lower, driven by the portfolio sale. Provision expense increased on a linked-quarter basis, as we recognized seasonally higher charge-offs and a smaller allowance release. Consistent with the estimates we provided in January of this year, 2013 pre-provision earnings were approximately $10 billion, excluding nonrecurring items. Operating expenses for 2013 were also in line with our previous estimate, with actual operating expenses coming in a little higher than $11.1 billion. Moving to Slide 4. Let me touch on net interest margin, which decreased 16 basis points in the fourth quarter to 6.73%, primarily driven by the impact of the sale of Best Buy. This was partially offset by higher yields on our investment portfolio. Average interest-earning assets were down quarter-over-quarter, primarily driven by the full-quarter impact of the Best Buy portfolio sale and expected runoff in mortgage loans, partially offset by growth in commercial and auto. Total interest-bearing deposits were down quarter-over-quarter, driven by planned runoff in our legacy direct bank. We continue to expect portfolio runoff of about $1 billion in card and about $4 billion in mortgage in 2014. Moving to Slide 5. Our Tier 1 common ratio on a Basel I basis declined about 50 basis points in the quarter to end at 12.2%, reflecting the completion of our previously announced share buyback program, as well as higher assets in the quarter. We estimate our pro forma fully phased in Basel III standardized Tier 1 common equity ratio to be 10.9% as of December 31. This will become our primary regulatory capital ratio beginning in the first quarter of 2014. While there's still work in progress industry-wide on the final implications for capital under the Basel III advanced approaches, we continue to estimate we are above our target of 8%. Our own estimates of earnings and capital under severely adverse stress scenarios, bolstered by our actual performance in the Great Recession, suggest we have substantial flexibility to return capital to shareholders and remain well capitalized. However, we note that the Fed's modeling under CCAR will potentially result in material lower ratios under stress than our own internal modeling. For some time, we have highlighted for our investors that the Federal Reserve has increasingly done its own modeling in successive CCAR iterations and would take on balance sheet modeling in the 2014 CCAR. On December 16, the Federal Reserve released additional information about how it will independently project banks' balance sheets and risk-weighted assets for the 2014 CCAR process. It appears that the Federal Reserve will assume loan growth of about 2% in loans under severely adverse stress, across the banking industry and across different types of loans. This is particularly noteworthy for credit card and consumer businesses as we would expect significant contraction in loans in our credit card and auto businesses in our stress scenario, consistent with the industry and our own experience in past recessions. All that said, our view of our own capital strength and trajectory and our intent to distribute capital to shareholders have not changed. In our recent 2014 CCAR submission, we requested share repurchases that, if approved, would result in a total payout ratio well above the 2013 industry norm of 50%. Let me close tonight with a brief comment on 2014 expectations. We expect 2014 GAAP pre-provision earnings, excluding nonrecurring items, of approximately $9.8 billion with a reasonable margin of error. We continue to expect 2014 operating expenses of approximately $10.5 billion, again, excluding nonrecurring items. And we expect marketing expenses to rise in 2014, although as always, actual marketing expenses will depend on our assessment of market and competitive opportunities. After adjusting 2013 revenues for the loss of Best Buy, which contributed a little over $630 million in revenues, this year, we expect very modest revenue growth in 2014. There are other important factors, which drive the ultimate earnings to shareholders, Rich will spend more time on credit trends by line of business. In addition, rep and warranty and litigation continue to be a significant source of uncertainty for the industry and Capital One is no exception. With that, let me turn the call over to Rich. Richard D. Fairbank: Thanks, Steve, and good afternoon, everyone. I'll begin on Slide 7 with an overview of the Domestic Card business. Ending loans grew seasonally and were up about 5% from the third quarter, despite the continuing planned runoff. Ending loans declined about 12% year-over-year. Excluding the Best Buy portfolio sale and the planned runoff, the year-over-year decline in ending loans was about 1%. Purchase volume on general purpose credit cards, which excludes private-label cards that don't produce interchange revenue, grew about 8% year-over-year. Looking below the surface, the trends in loans and purchase volumes continue to reflect our strategic choices, which focus on generating attractive, sustainable and resilient returns. We're avoiding high-balance revolvers and allowing the least resilient parts of the acquired HSBC portfolio to runoff. In contrast, we're seeing strong underlying loan growth in many segments, including transactors and revolvers other than high-balance revolvers. New account originations are growing, and we're seeing more opportunities to increase lines for existing customers, which should improve the trajectory of both loan growth and purchase volume growth over time. As we said last quarter, we don't expect these improvements to result in overall Domestic Card loan growth until sometime around the second half of 2014. For the next couple quarters, we expect underlying loan growth will continue to be offset by shrinkage in the parts of the business we're avoiding. Revenue margin for the quarter was 17.3%, down from the third quarter due to the absence of held-for-sale accounting impacts. Recall that the third quarter revenue margin, excluding held-for-sale accounting impacts, was 17.2%. The underlying revenue margin was relatively stable on a linked-quarter basis, as expected seasonal declines were offset by the favorable run rate margin impact from the sale of the Best Buy portfolio. The portfolio sale also drove the quarterly decline in revenue dollars. Noninterest expense improved by $49 million in the quarter, driven by the absence of the third quarter legal reserve addition, partially offset by an increase in marketing expense. On a linked-quarter basis, the charge-off rate increased seasonally by about 22 basis points to 3.89%. Delinquency rate decreased about 3 basis points to 3.43%. Fourth quarter charge-offs and delinquencies were impacted by the temporary increase we discussed last quarter. Recall that in July, we changed a number of customer practices on the HSBC branded card portfolio to align them with Capital One policies and practices. These changes temporarily increased Domestic Card delinquency rate by about 20 basis points in the fourth quarter and temporarily increased the monthly domestic charge-off rate by about 35 basis points in December. We expect the monthly charge-off rate to remain temporarily elevated by about 35 basis points through March, in addition to normal seasonality. We expect the impact will diminish in April and we'll be mostly out of the charge-off rate by the end of the second quarter. To be clear, these estimated impacts are only one of the many factors that will drive charge-offs and are not meant as forecasts for specific quarterly or monthly metrics. Looking beyond the short-term trend, we expect that our focus on resilience and our strong credit risk underwriting will continue to drive relatively stable credit results at historically strong levels with normal seasonal patterns. Our card business remains well positioned. We're delivering strong, sustainable and resilient returns, and we're generating capital on a strong trajectory, which strengthens our balance sheet and enables capital distribution. Moving to Slide 8. The Consumer Banking business delivered another quarter of solid results. Ending loans declined about $500 million from the third quarter. Continuing growth in auto loans was more than offset by expected mortgage runoff. Auto originations declined modestly in the fourth quarter, in line with seasonal trends we've observed in the past. For the full year 2013, subprime originations were relatively stable, while prime originations grew as we captured additional prime share from our existing dealers. More prime originations add to the pressure on margins and partially offset the expected increase in delinquency and charge-off rates. Ending deposit balances declined by about $800 million in the quarter. We have ample deposit funding in a period of relatively low overall loan growth, so we've throttled back on growth, mostly in legacy Capital One direct deposit businesses. Consumer Banking revenue was relatively stable compared to the third quarter. The revenue impact of declining Consumer Banking loan balances and margin compression in Auto Finance was partially offset by an increase in Home Loan yields resulting from higher estimated cash flows that we expect to collect on acquired Home Loans portfolios. Noninterest expense increased $91 million in the quarter, driven by higher marketing in our Retail deposits business and a number of individually small operating expense items, many of which are nonrecurring. Provision expense was stable in the quarter. Auto charge-off rate and delinquencies increased in line with expected seasonal patterns and the continuing cyclical trend we've discussed for several quarters. As we've said before, we are now past the cyclical low point for auto charge-off and delinquency rates. The industry continues to normalize to more business-as-usual underwriting, following significant tightening during the Great Recession. And we expect some softening in historically high used car auction values. As a result, we expect Auto Finance credit losses will continue to gradually increase from the historic lows of the past few years, but will remain comfortably within ranges that support an attractive and resilient business. Home Loans credit trends remain favorable and continue to perform well inside of the assumptions we made when we acquired the mortgage portfolios. The overall Consumer Banking charge-off rate remains strong at about 1%. As we enter 2014, we expect that Auto Finance revenues, margins and returns will continue to decline as we move from exceptional levels to more cycle-average performance. We expect that Auto Finance returns will remain resilient and well above hurdle rate. Additionally, we expect that the inexorable impacts of the prolonged low rate environment will continue to pressure the economics of our Retail deposit businesses, even if rates begin to rise in 2014. As you can see on Slide 9, our Commercial Banking business delivered another quarter of solid growth and profitability. Loans grew 6% in the quarter and 16% year-over-year, driven by growth in specialized industry verticals in C&I lending and CRE. Revenues were up about 12% from the third quarter and about 18% compared to the fourth quarter of last year. The year-over-year increase was mostly the result of growth in loan and deposit balances and spreads. The quarterly increase was driven by ongoing balance growth and the addition of Beech Street Capital on November 1, which increased revenues and noninterest expense in the quarter. Commercial credit continued to improve. While the currency -- excuse me, while the current very low charge-off levels are not necessarily sustainable, we continue to see low levels of nonperforming and criticized loan balances, so we expect the credit performance of our Commercial Banking business to remain very strong. While increasing competition, particularly in middle-market lending, may continue to impact the pricing and volume of new loan originations, we expect our focused and specialized approach to Commercial Banking to deliver strong results. Across our Commercial Banking businesses, loan growth, credit and profitability trends remain healthy. I'll conclude my remarks this evening on Slide 10. Capital One delivered strong results in 2013. We successfully completed the integrations and brand conversions of 2 transformational acquisitions. We made significant progress on operational and infrastructure improvements, including our digital agenda. We expect these improvements will help us stay ahead of rising regulatory demands and achieve cost savings, and to enhance our customer experience and build and sustain the value of our long term customer franchise. We added great talent at every level of the organization, including the Board of Directors and our senior leadership team. We delivered strong financial performance from the company and across our businesses. And we continue to generate capital, increase our dividend and completed a $1 billion share repurchase program. Of course, many of the significant challenges we faced in 2013 will continue in 2014. We still face a difficult growth environment, significant planned runoff, and the revenue impact of selling the Best Buy portfolio. Interest rates remain persistently low, creating ongoing economic pressure, even if rates begin to rise in 2014. And we'll need to stay ahead of regulatory demands, from ongoing Dodd-Frank rulemaking, U.S. regulators implementation of Basel capital and liquidity requirements and the evolving CCAR process. Despite these continuing challenges, Capital One is earning very attractive risk-adjusted returns today, and we expect that will continue in 2014. But we're always focused on the important levers that will sustain and further improve our profitability. We are committed to tightly managing costs across our businesses. We don't view this as a one-off project. It's a major multiyear agenda. And it's a focus in all of our businesses and in every budget cycle. Our credit results are strong, driven by our long-standing discipline in underwriting across our businesses and our continuing focus on resilience. Growth remains a high priority for us, but is always in the context of a preemptive focus on generating attractive, sustainable and resilient returns. We expect planned runoff will drive declining home loan balances. On the other hand, we expect growth in areas we're emphasizing, including Commercial Banking and Auto Finance, will continue. And we expect year-over-year growth in Domestic Card loans to resume in the second half of 2014. Finally, capital management remains an important part of how we expect to deliver superior and sustainable returns to our investors. And Steve affirmed our capital return intentions for 2014. Our capital and liquidity positions remain strong. Our businesses continue to deliver attractive and sustainable returns and generate capital on a strong trajectory. We're comfortable with our strategic footprint, and planned runoff frees up capital. All of these factors support our planned capital distributions in 2014. Now Steve and I will be happy to take your questions. Jeff?

Thank you, Rich. We'll now start the Q&A session. [Operator Instructions] Justin, please start the Q&A session.

[Operator Instructions] And the first question will come from Sanjay Sakhrani with KBW. Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division: A couple questions I'll ask upfront. I was just wondering if you could talk about the marketing budget and kind of where the opportunities are to take that up in 2014. And then just conversely, to the extent that you are going tweak it one way or the other, what factors would determine that? Would it be credit-related? And I guess secondly, on capital, if the Fed were to disagree with your version of the test, do you envision having the opportunity to resubmit? Richard D. Fairbank: Sanjay, let me start with your first question. I'll let Steve take the second one. So the marketing budget for 2014, which is, as we mentioned, is up from the 2013 budget, I think, is a reflection of increased opportunity that we see. And of course, the biggest part of the marketing budget is relative to our card business. I think these opportunities are across the areas that we are investing in, Sanjay. So continued investment in the heavy spender and transactor space, where we feel we're getting very good traction; a continued and increasing investment in the medium- and low-balance revolver part of the business, where we feel we're getting increasing traction as well. So that's -- and what factors will affect that? And you asked, is credit a leading one? Well, big changes in credit obviously can cause significant impacts on that. All you have to do is look at the last Great Recession. But the biggest things are really dialing up and down based on traction we're getting, response from our test cells, how rollouts are going and what do we want to accelerate or slow it down. So it's really mostly response-driven line of scrimmage calls that -- with which we tweak that. Stephen S. Crawford: Then I'd answer on having an opportunity to have a second bite. We believe we would. We passed qualitatively in 2013. The Fed's expectations for people's filings, clearly the standards for that have gone up over the year. We think we've made a substantial investment to continue to improve our processes. So we have every reason to expect that we would have another opportunity.

The next question comes from Brad Ball with Evercore. Bradley G. Ball - Evercore Partners Inc., Research Division: Actually, I have a question for Steve and for Rich. So Steve, the $9.8 billion pre-pre that you guided to, you talked about $630 million of BBY revenues lost, and it's the same, I guess, roughly $600 million of expense savings. What is the main difference going from $10 billion in '13 down to $9.8 billion in '14? And then for Rich, in terms of the outlook for potential card growth in the second half of this year, what areas do you see that growth likely coming in? Are you still focused on prime, the high end of prime, or might you go to the lower end of prime? And what are the implications for the card revenue margin? Are you thinking that card revenue margin will hold in here around the 17% range? Stephen S. Crawford: Yes. At least with respect to forecasts, I think we've kind of gone out as far as we're prepared to go in terms of precision. We gave forecasts in 2013 and kudos to the team for how close we actually came to those forecasts from 12 months ago. And there's obviously a lot of puts and takes, but we wanted to center around the pre-provision. As you've mentioned and like last year, there was some tradeoffs. There could be in the coming year as well. So I think, we've probably been near -- as definitive as we want to be with respect to line items. Richard D. Fairbank: Brad, the card growth is -- we're getting traction pretty much in all the areas we're investing. And so -- and again, the heavy spender/transactor space and the revolver space, excluding the kind of high balance revolver, we are -- it's pretty much across the ranges there where we are continuing to get traction. So I think the nature of our growth will be kind of similar to the kind of mix of growth that we sort of generally have gotten at Capital One. And so I don't think that will be an outsized impact on the revenue margin from the increased traction that we're seeing on the card side.

The next question comes from Ryan Nash with Goldman Sachs. Ryan M. Nash - Goldman Sachs Group Inc., Research Division: Rich and Steve, just following up on the PPNR guidance, I guess. You've told us the implications on revenue. You've given us a good sense on cost. And I look on Slide 10, it says one of the things that you're focused on is improving profitability. So I guess the 2 pieces there are, we could have growth, which clearly you've pointed to in the back half of the year, but credit could also get better. And I guess outside of the 35-basis-point increase, do you think we could see credit continue to get better from the current levels? And my follow question is, just in terms of the capital, with the Fed modeling your balance sheet, you said they're going to assume 2% growth. How much capital volatility relative to your past expectations would that create for you? Richard D. Fairbank: Okay. So on the -- with your question with respect to credit, could credit get better from here? We are at -- we keep saying that we're at cycle lows. And it's quite extraordinary on the consumer side of the business and certainly let's really focus on credit cards here where, I think, probably your question was particularly directed. This is, it's just when you really look at why credit is so good, it's just sort of hard to imagine it getting too much better from here. But on the other hand, I think in many ways, if you strip away the sort of -- if you adjust for seasonality effects and HSBC, temporary effects, there was a slight, slightly better than sort of seasonal effect we saw in the fourth quarter on the delinquency side. I really wouldn't read too much into that. I think what I would take away from all that we observed is that the prospect for really good credit looks very good. I wouldn't really trumpet the upside benefits from here, but what I really like is how solid the prospects are for very strong credit at the kind of best part of the credit cycle here. Stephen S. Crawford: So I don't want to pick out individual pieces of what the Fed is doing and try and isolate what that impact alone could be because, as we've talked with you over time, they're estimating PPNR. They're estimating losses. They're estimating balance sheet. To try and help you out a little bit more though, in the release that they had, they talked about average loan growth that they saw under stress of 1% to 2%. In contrast, if you look at the average bank in the 2013 CCAR, I think the loan decline that they modeled was around 8%. And as you know, we're not the average bank, given our higher concentration in consumer. So you would see naturally more attrition in our loans.

And that will come from Matt Burnell with Wells Fargo Securities. Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division: Just a question about your commercial loan yields. Unlike the rest of the portfolio, and I appreciate that there are one-time items in that, the yield on the commercial portfolio continues to rise. Can you give us a little color as to what's driving that and where you -- what your expectations might be for 2014 yield in the Commercial Banking portfolio? Richard D. Fairbank: So Matt, quarterly loan yields, as you note, they are up 5 basis points. And it's driven by seasonally high originations of equipment leases that earn higher tax-equivalent yields. So there's depreciation benefits of certain leases. They're recognized as an increase in yield. There was a similar seasonal increase in yields in the fourth quarter of 2012. This increase is temporary because tax-equivalent yields normalize after the fourth quarter. Looking at the longer-term trends rather than the temporary fourth quarter increase is a better indicator of the trend in loan yields. And year-over-year, loan yields decreased by 23 basis points. And that's driven by a few factors. Obviously, there's -- competition out there is pretty heavy in certain parts of the marketplace. A little less so in the specialty areas, where we have most of our growth. But still, there is increasing competition. Also, we are shifting our portfolio toward floating-rate loans on an increasing sort of trend there. And then, finally, we're focusing our new originations on loans with higher credit quality. Within the commercial real estate space, there's been -- even if we look at some of the projected losses of the new originations, they are even lower than recent originations. And so there's a bit of a credit offset relative to the tighter yields there. So that's pretty much the picture on loan yields. Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division: I just wanted to ask, you've mentioned runoff a couple of times, have you updated your estimates for what the mortgage portfolio and card portfolio runoff will be in 2014? Richard D. Fairbank: Yes. $4 billion in mortgage, $1 billion in card. Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division: And then presumably that's done by -- the card is done by '15? Richard D. Fairbank: Well, it's a declining number. At some point, we'll kind of stop talking about it.

The next question comes from Brian Foran with Autonomous Research. Brian Foran - Autonomous Research LLP: I was wondering if I could ask about the capital ratios you give up. And specifically, as we look out over the next couple of years, stress test this year, clearly your guiding to the standardized ratio being the key one. Is it still the key one next year? At what point would you kind of expect to flip to the advanced ratio? And also within that, is it given that the advanced ratio versus standardized ratio gap always stays this big or over time, can that roughly 300-basis-point difference kind of shrink? Stephen S. Crawford: So I think we'll be primarily under standardized at least through until 2016. We are relatively early in the parallel run process. And yes, as you've seen, I think, with a lot of peers who are in parallel run and maybe someone will emerge at some point in time, there's an opportunity to incorporate that into the way that the business actually operates. So I think -- while I wouldn't count on it, convergence is a definite possibility.

The next question comes from Jason Arnold with RBC Capital Markets. Jason Arnold - RBC Capital Markets, LLC, Research Division: I was wondering if you could update us on the competitive environment, perhaps both in auto and card, please? Richard D. Fairbank: Okay. Sure, Jason. So in the card business, competition is -- it's really pretty stable. You've seen industry, just in terms of their balances and originations, you've seen them down significantly from the peak, slightly ahead of 2012. But in general, in the last few quarters, we've seen industry balances kind of with 0% year-over-year growth. So things aren't going anywhere fast overall in that space. The direct mail volumes for 2013 were higher than 2012, but only modestly and far from the prerecession highs. But the significant decline we've seen in direct mail volumes has been partially offset competitively by a sizable increase in digital marketing volume. So unfortunately as we all use that index of direct mail volumes, let's just realize that it probably understates -- the trends understate competitive effects because of the digital trends. But all of that said, still we see stability on the pricing side and in really most aspects of the competitive environment. Long-term pricing is rational in the segments that we compete in. And the high-balance revolver space, where we see very long teasers, and we don't believe that the pricing there is, to our own projections, resilient enough. But in the rest of the business, I think it's competitive, but pretty stable. And the reward space is intensely competitive, as we know. But I think it's kind of stable within the context of being intensely competitive. But overall, pulling way up in card. I think it's a fairly rational market that offers the opportunity for us to generate exceptional returns and growth and to grow in the segments where we are choosing to compete. So we feel good about that. And frankly, when I cross calibrate to some of the intensity that you see across all of banking, I think general -- regular old sort of vanilla C&I lending, I think is certainly -- that a lot of banks are just rushing into that. You have quite a run into the auto business as well. I think the card business stands out as a -- in a stable place and one that the survivors in that business can, I think, do well on a stable basis. In the auto business, we had this phenomenon, Jason, of a kind of once-in-a-lifetime set of conditions that existed competitively in the auto business, where a lot of competitors ran for the hills. The consumer -- as the consumer became extremely cautious, the consumer continued to -- you had the consumer being very cautious, but continuing to, of all things, be sure to pay on their auto loans kind of thing. And then finally, you had the -- on the manufacturing side, we had so much reduction in supply. So what's happened competitively in the auto business is just a regression back toward the mean from a once-in-a-lifetime kind of situation. The thing to most -- to keep a look at competitively is really what's happening in underwriting and in pricing. So if I divide between the prime and subprime business in margins. On the prime side, they are -- they're challenged at this point. I'd say, a little bit below cycle average at this point. And that frankly, they're at prerecession levels. In subprime, they're healthy, but slowly falling toward the mean. LTVs that we really have to keep an eye on are stable and healthy in prime. And they're starting to increase moderately in subprime, that's a slight change from last time. We talked about this, but well below peak levels still at this point. FICO scores in both segments are stable. And the terms of loans, there's been some sizable growth of beyond 72-month loans in both prime and even subprime. Overall, prime is -- has intense competition and is overall competitively a little bit below the kind of equilibrium in the cycle. And in the subprime, it is above and a better place than equilibrium, but moving toward that equilibrium.

Our next question comes from Scott Valentin with FBR Capital Markets. Scott Valentin - FBR Capital Markets & Co., Research Division: Just with regard to costs overall, the banking industry is facing revenue challenges and looking to cut costs to kind of offset that. I'm just wondering, I know you have the built-in merger-related cost that go away in '14, but just wondering what other cost-cutting opportunities you see out there? Richard D. Fairbank: Okay. The -- I think the biggest areas for cost management are in digital and in third-party management. Digital is one we're going to be talking about for years and years and years. And the opportunity is -- but it's a subtle and complex one. And by the way, all the work we do in digital isn't first and foremost motivated by cost savings. I think it's a bit of a fool's errand and really off the bull's eye to chase digital for the sake of cost reduction. But it is a byproduct of a transformation of a company and very significant things can come from that. So with respect to digital, how do we generate cost savings? What we need to do is build the capability to offer a great customer experience to our customers. And there's a lot of work for all banks to do that. And we're making a lot of progress in that. When one does that, it's only the beginning of the journey because when you build it, they won't necessarily come. So there's a huge effort to drive customers to digital as well. And we have very comprehensive kind of campaigns with respect to that and building deeper digital relationships with the customers as we do this. Then additionally, we need to make digital how we do business not only with our customers, but also how we operate the company. So the back-office basically, the way we do business, and most importantly at all -- of all, is who we are and how we think about the business. And in the same way, I really want to point out, in the same way that we built an information-based company over these past 20 years, this is a lot different from just getting some smart analysts and some databases and appending it on the side of the company. Really becoming an information company becomes, in the end, really making that who you are. We have set our beacon with respect to digital that aggressively to say in a sense that is our destination of who we are, the type of talent we have and so on. So there's a lot of years in that, but I think there's a lot of economics as a byproduct of that, that come. The other area I really want to kind of highlight is third-party management. Well over half of our operating costs at Capital One are actually cost -- things that we pay to third-party vendors. And there's a lot of work going on comprehensively to -- with respect to the talent side and the governance side and the negotiating side and the whole way that we -- and even in-sourcing a bunch of this stuff to drive better quality and frankly, significant savings out of that. None of this will transform any year's kind of metrics. But our year-after-year emphasis on cost is one that goes far beyond we'll just try to see what we can cut today. This is really comprehensively trying to redesign how we run the business.

And the next question will come from Moshe Orenbuch with Crédit Suisse. Moshe Orenbuch - Crédit Suisse AG, Research Division: So could you give us some idea as to what we could look at from an external standpoint to judge kind of the effectiveness of the marketing? I mean, we sort of don't know that much about accounts. Could you just talk about what we should be looking for? Richard D. Fairbank: Well, Moshe, I think that -- let me, first of all, talk about how we look at it, because I can appreciate that there is no one single metric that you can look at that has a direct link. There are a number of ones that are very important over time. The most important thing to us is the creation of value. So what we do is, as you know, Moshe, everything that we do before, during and after we do it, we measure the net present value of every initiative to generate more business, either be it something with existing accounts or the origination of new accounts. And when we look at our net present value per -- not kind of -- total projected net present value created in a year of originations, what we're projecting, sort of, these days is as high as I've seen in total over versus -- you'd have to go back a long time to see numbers quite as high as this. Now I mean, they're not going to massively show up in metrics tomorrow. A lot of what we're originating is, frankly, more things that are -- that build value in the long term, that have lower attrition, low credit losses and build balances over time. But where you see in the metrics, though, now back to more of the metrics that you see, Moshe, on the purchase volume side, you can see quite a bit of traction there. We try to give you the branded card purchase volume so that it doesn't -- so it can be separated from the private-label side of things. If you look beyond that and actually look at the heavy spender part of our portfolio, we're getting more traction than manifested just on that particular metric. You've also seen that despite the significant runoff portfolio. We're talking now about outstandings growth year-over-year, quarterly outstandings growth returning in -- somewhere in the second half of next year. So we're starting to pick up more traction on the outstandings. But again, relative to some other competitors and relative to some of the older days in Capital One, most of what we're booking is not stuff that is heavily balance intensive. It's really stuff that is more long-term value and a slower balance build over time. But hopefully, that's a bit helpful. But that's how we view it.

And the next question comes from Eric Wasserstrom with SunTrust Robinson Humphrey. Eric Edmund Wasserstrom - SunTrust Robinson Humphrey, Inc., Research Division: My -- I have a question then just to follow up on -- my question is, with respect to your representation and warranty reserve, you have one of the lower reserves relative to outstanding UPBs. So I'm just wondering how you're thinking about that in light of some of the settlements we've seen, and if there's been any increase in your possible loss above current reserves expectation? And then I have a follow-up on the Basel III issue. Stephen S. Crawford: Yes, I don't do that you can look at UPB as an indicator of -- and do that as a ratio. I don't think anybody has done that, of what your potential exposure is. There's so many categorizations under that, that are important. And I think we've done actually a really nice job in our disclosure, which I always point to when anybody want to talk about rep and warranty, kind of taking you through all of the factors which drive kind of where we are and what our reserves are and what the principal factors are, which could amount to changes going forward. And so I don't think just a simple calculation of UPB to exposures is really the way to look at it. This continues to be a source of uncertainty for us and other companies on the mortgage front. And we've tried to keep that front and center. There weren't a lot of changes quarter-over-quarter for us in our numbers. And obviously, a big part of what we try and do in thinking about rep and warranty is making sure we incorporate other things that we see in the marketplace to make sure that, that drives the assumptions we are making with respect to our exposure going forward. Eric Edmund Wasserstrom - SunTrust Robinson Humphrey, Inc., Research Division: And then just to follow up on the Basel III issue. What accounts for such a significant difference in the RWAs between the standardized and advanced approach? Because it seems like the biggest differential for a lot of institutions is the risk weighting on commercial loans. But that's such a small part of your loan balances broadly, so what's accounting for the difference? Stephen S. Crawford: I think that securitized assets are the biggest difference in terms of RWA. You have a different treatment under Basel standardized. It's fairly punitive for the industry relative to the plain Basel I calculation.

Our final question comes from Daniel Furtado with Jefferies & Company. Daniel Furtado - Jefferies LLC, Research Division: I have 2. I guess you would call them follow-up questions. The first is, earlier you said that you expected card growth would come from where it has always come from. But over the last couple of years, we've noticed that you, like many in the industry, have gone substantially upmarket in terms of FICO exposure. So when you say, "Comes from where it always has," should we think over the last couple of years or roll back even further than that? Richard D. Fairbank: Daniel, our profile of originations has -- the span of FICOs has stayed pretty consistent over the years. We haven't denominated our conversation so much by FICO score as much by the nature of how much the customer is borrowing and some of things we talk about with respect to high-balance revolvers. So while yes, we have seen a big effort to penetrate at the top end of the market by Capital One with some of the things you've even seen on TV, our Quicksilver card and our Venture card and so on, we continue very consistently to market across the FICO ranges that we have over the past. And I think there's a little tightening that we've done over the years. But our strategy has stayed pretty consistent. What we were doing prerecession is pretty consistent to what we're doing now. Daniel Furtado - Jefferies LLC, Research Division: The follow-up would be, you had mentioned that you feel like we're past the cyclical low point for auto credit. I understand that we may or may not necessarily be at the cyclical low for credit -- for credit cards. And is the simple reason because of the equilibrium that you talked about earlier getting a little bit, I won't say, overheated but slightly out of balance in the auto space? Or how should we think about the, in essence, mismatch in the cycle low point for auto and card? Richard D. Fairbank: Yes. Thank you, Daniel. I -- sometimes I think that auto may just be the first mover. I think auto was the first mover before the Great Recession and maybe it's a first mover on the other side of this. I don't know. That may be coincidental. I think the conditions in auto were that -- what happened during the auto -- during the Great Recession in the competitive environment and the underwriting environment was a little bit more extreme in auto. So -- and as a result, the auto performance in the wake of the Great Recession was unusually strong, which caused a lot of players to rush in and a lot of players to start changing some of their underwriting standards along the way. And so that's led to more -- a more dramatic reduction in losses and probably an earlier turnaround. I would describe what happened in the card business is that while everyone tightened up in the card business, there's been a consistency and a rationality in this marketplace. I think, overall, every company has kind of gone back, looked through the debris of the Great Recession and kind of picked their spots. But it's been pretty stable, pretty rational. And the bigger issue there has been sort of waiting for more demand to kind of pick up. But -- and the lack of demand in that marketplace was -- the flip side of that is just the conservative consumer. And I think the conservative consumer, conservative banks and a stable environment have just led to exceptional credit that persists to this day and is likely to persist in card for some time.

Well, I'd like to thank everybody for joining us on the conference call today and thanks for your continuing interest in Capital One. Remember, the Investor Relations team will be here this evening to answer any further questions you may have. Have a great evening.

Thank you. That does conclude today's conference. We do thank you for your participation today.