0000927628 us-gaap:LoansReceivableMember cof:InternalRiskRatingConcentrationRiskMember us-gaap:CommercialPortfolioSegmentMember cof:~~CommercialAndMultifamilyRealEstateMember 2017-12-31~~CommercialAndIndustrialMember us-gaap:PassMember 2019-09-30 0000927628 us-gaap:~~NetInvestmentHedgingMember 2018-01-01 2018-09-30~~AvailableforsaleSecuritiesMember us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-01-01 2019-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý ☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019


~~For the quarterly period ended September 30, 2018~~
OR☐
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
~~For the transition period from _______ to _______~~ ~~Commission File No. 1-13300~~

For the transition period from to

Commission File No. 001-13300

CAPITAL ONE FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		54-1719854
(State or ~~Other Jurisdiction~~other jurisdiction of ~~Incorporation~~incorporation or ~~Organization)~~organization)		(I.R.S. Employer Identification No.)
1680 Capital One Drive,
McLean,	Virginia	22102
(Address of ~~Principal Executive Offices)~~principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: ~~(703)~~ (703) 720-1000

(Not applicable)

(Former name, former address and former fiscal year, if changed since last report)

~~(Not applicable)~~

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock (par value $.01 per share)	COF	New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B	COF PRP	New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C	COF PRC	New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series D	COF PRD	New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series F	COF PRF	New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series G	COF PRG	New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series H	COF PRH	New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series I	COF PRI	New York Stock Exchange
0.800% Senior Notes Due 2024	COF24	New York Stock Exchange
1.650% Senior Notes Due 2029	COF29	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~Yes~~ ýYes☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ~~Yes~~ ýYes☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a ~~Shell Company~~shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒

As of September 30, ~~2018,~~2019, there were ~~473,656,501~~465,720,986 shares of the registrant’s Common Stock outstanding.

TABLE OF CONTENTS



		Page
PART I—FINANCIAL INFORMATION		14
Item 1.	Financial Statements and ~~Supplementary Data~~Notes	6166
	Consolidated Statements of Income	6267
	Consolidated Statements of Comprehensive Income	6368
	Consolidated Balance Sheets	6469
	Consolidated Statements of Changes in Stockholders’ Equity	6570
	Consolidated Statements of Cash Flows	6671
	Notes to Consolidated Financial Statements	6772
	Note 1—Summary of Significant Accounting Policies	67
	~~Note 2—Business Developments and Discontinued Operations~~	71
	~~Note 3—Investment Securities~~	72
	~~Note 4—Loans~~	78Note 2—Leases	74
	Note 3—Investment Securities	76
	Note 4—Loans	82
	Note 5—Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments	9094
	Note 6—Variable Interest Entities and Securitizations	9498
	Note 7—Goodwill and Intangible Assets	99102
	Note 8—Deposits and Borrowings	~~101~~104
	Note 9—Derivative Instruments and Hedging Activities	~~103~~105
	Note 10—Stockholders’ Equity	~~110~~
	~~Note 11—Earnings Per Common Share~~	~~114~~
	~~Note 12—Fair Value Measurement~~	115
	Note 11—Earnings Per Common Share	119
	Note 12—Fair Value Measurement	120
	Note 13—Business Segments and Revenue from Contracts with Customers	~~123~~128
	Note 14—Commitments, Contingencies, Guarantees and Others	~~127~~132

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)	14
	Introduction	15
	Summary of Selected Financial Data	36
	Executive Summary and Business Outlook	59
	Consolidated Results of Operations	712
	Consolidated Balance Sheets Analysis	1418
	Off-Balance Sheet Arrangements	1720
	Business Segment Financial Performance	1720
	Critical Accounting Policies and Estimates	2830
	Accounting Changes and Developments	2831
	~~Capital Management~~	28Capital Management
	~~Risk Management~~	32
	~~Credit Risk Profile~~	33Risk Management	37
	~~Liquidity~~ Credit Risk Profile	4438
	~~Market~~ Liquidity Risk Profile	4749
	~~Supervision and Regulation~~	50Market Risk Profile	52
	Supervision and Regulation	56
	Forward-Looking Statements	5156
	Supplemental Table	53
	~~Glossary and Acronyms~~	55
~~Item 3.~~	~~Quantitative and Qualitative Disclosures about Market Risk~~	~~131~~
~~Item 4.~~	~~Controls and Procedures~~	~~131~~59




	i1	Capital One Financial Corporation (COF)




	ii2	Capital One Financial Corporation (COF)

INDEX OF MD&A AND SUPPLEMENTAL TABLES


MD&A Tables:	MD&A Tables:	Page	MD&A Tables:	Page
1	Consolidated Financial Highlights	3	Consolidated Financial Highlights	6
2	Average Balances, Net Interest Income and Net Interest Margin	9	Average Balances, Net Interest Income and Net Interest Margin	13
3	Rate/Volume Analysis of Net Interest Income	11	Rate/Volume Analysis of Net Interest Income	15
4	Non-Interest Income	12	Non-Interest Income	16
5	Non-Interest Expense	13	Non-Interest Expense	17
6	Investment Securities	15	Investment Securities	19
7	Non-Agency Investment Securities Credit Ratings	15	Loans Held for Investment	19
8	Loans Held for Investment	16	Funding Sources Composition	20
9	Funding Sources Composition	16	Business Segment Results	21
10	Business Segment Results	18	Credit Card Business Results	22
10.1			Domestic Card Business Results	24
11	Credit Card Business Results	19	Consumer Banking Business Results	25
11.1	Domestic Card Business Results	20
12	Consumer Banking Business Results	22	Commercial Banking Business Results	27
13	Commercial Banking Business Results	24	Other Category Results	29
14	Other Category Results	27	Capital Ratios under Basel III	34
15	Capital Ratios under Basel III	30	Regulatory Risk-Based Capital Components and Regulatory Capital Metrics	35
16	Preferred Stock Dividends Paid Per Share	31	Preferred Stock Dividends Paid Per Share	36
17	Loans Held for Investment Portfolio Composition	33	Portfolio Composition of Loans Held for Investment	38
18	Commercial Loans by Industry	34	Commercial Loans by Industry	39
19	Credit Score Distribution	35	Credit Score Distribution	39
20	30+ Day Delinquencies	35	30+ Day Delinquencies	40
21	Aging and Geography of 30+ Day Delinquent Loans	36	Aging and Geography of 30+ Day Delinquent Loans	41
22	90+ Day Delinquent Loans Accruing Interest	37	90+ Day Delinquent Loans Accruing Interest	42
23	Nonperforming Loans and Other Nonperforming Assets	37	Nonperforming Loans and Other Nonperforming Assets	42
24	Net Charge-Offs (Recoveries)	39	Net Charge-Offs (Recoveries)	44
25	Troubled Debt Restructurings	39	Troubled Debt Restructurings	45
26	Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity	42	Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity	47
27	Allowance Coverage Ratios	44	Allowance Coverage Ratios	49
28	Liquidity Reserves	44	Liquidity Reserves	49
29	Deposits Composition and Average Deposits Interest Rates	45	Deposits Composition and Average Deposits Interest Rates	51
30	Long-Term Funding	46	Long-Term Funding	52
31	Senior Unsecured Long-Term Debt Credit Ratings	46	Senior Unsecured Long-Term Debt Credit Ratings	52
32	Interest Rate Sensitivity Analysis	50	Interest Rate Sensitivity Analysis	54

Supplemental Table:	Supplemental Table:		Supplemental Table:
A	Reconciliation of Non-GAAP Measures and Calculation of Regulatory Capital Measures	53	Reconciliation of Non-GAAP Measures	59




	~~iii~~3	Capital One Financial Corporation (COF)

Table of Contents

PART I—FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

This discussion contains forward-looking statements that are based upon management’s current expectations and are subject to significant uncertainties and changes in circumstances. Please review “MD&A—Forward-Looking Statements” for more information on the forward-looking statements in this Quarterly Report on Form 10-Q (“this Report”). All statements that address operating performance, events or developments that we expect or anticipate will occur in the future, including those relating to operating results and the Cybersecurity Incident described in “MD&A—Introduction—Cybersecurity Incident” and “Note 14—Commitments, Contingencies, Guarantees and Others” are forward-looking statements. Our actual results may differ materially from those included in these forward-looking statements due to a variety of factors including, but not limited to, those described in “Part ~~II—Item 1A. Risk Factors” in this Report and in “Part~~ I—Item 1A. Risk Factors” in our ~~2017~~2018 Annual Report on Form 10-K (“~~2017~~2018 Form 10-K”) and “Part II—Item 1A. Risk Factors”. Unless otherwise specified, references to notes to our consolidated financial statements refer to the notes to our ~~unaudited~~ consolidated financial statements as of September 30, ~~2018~~2019 included in this Report.

Management monitors a variety of key indicators to evaluate our business results and financial condition. The following MD&A is provided as a supplement to, and should be read in conjunction with, our ~~audited~~ consolidated financial statements and related notes in this Report and the more detailed information contained in our ~~2017~~2018 Form 10-K.

INTRODUCTION

We are a diversified financial services holding company with banking and non-banking subsidiaries. Capital One Financial Corporation and its subsidiaries (the “Company”) offer a broad array of financial products and services to consumers, small businesses and commercial clients through branches, the internet and other distribution channels. As of September 30, ~~2018,~~2019, our principal subsidiaries included:

Capital One Bank (USA), National Association (“COBNA”), which offers credit and debit card products, other lending products and deposit products; and

Capital One, National Association (“CONA”), which offers a broad spectrum of banking products and financial services to consumers, small businesses and commercial clients.

The Company is hereafter collectively referred to as “we,” “us” or “our.” COBNA and CONA are collectively referred to as the “Banks.” Certain business terms used in this document are defined in the “MD&A—Glossary and Acronyms” and should be read in conjunction with the consolidated financial statements included in this Report.

Our consolidated total net revenues are derived primarily from lending to consumer, small business and commercial customers net of funding costs associated with interest on deposits, short-term borrowings and long-term debt. We also earn non-interest income which primarily consists of interchange income net of reward expenses, and service charges and other customer-related fees. Our expenses primarily consist of the provision for credit losses, operating expenses, marketing expenses and income taxes.

Our principal operations are organized for management reporting purposes into three major business segments, which are defined primarily based on the products and services provided or the ~~type~~types of customer served: Credit Card, Consumer Banking and Commercial Banking. The operations of acquired businesses have been integrated into our existing business segments. Certain activities that are not part of a segment, such as management of our corporate investment portfolio, asset/liability management by our centralized Corporate Treasury group and residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments, are included in the Other category.


•	Credit Card: Consists of our domestic consumer and small business card lending, and international card businesses in Canada and the United Kingdom (“U.K.”).


•	Consumer Banking: Consists of our branch-based lending and deposit gathering activities for consumers and small businesses, national deposit gathering and national auto lending.




	14	Capital One Financial Corporation (COF)

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•	Commercial Banking: Consists of our lending, deposit gathering, capital markets and treasury management services to commercial real estate and commercial and industrial customers. Our commercial and industrial customers typically include companies with annual revenues between $20 million and $2 billion.

Business Developments

We regularly explore and evaluate opportunities to acquire financial services and financial assets, including credit card and other loan portfolios, and enter into strategic partnerships as part of our growth strategy. We also explore opportunities to acquire ~~digital~~technology companies and related assets to improve our information technology infrastructure and to deliver on our digital strategy. In addition, we regularly consider the potential disposition of certain of our assets, branches, partnership agreements or lines of business. We may issue equity or debt ~~through one or more public offerings,~~ to fund our acquisitions.

On ~~July 26, 2018,~~September 24, 2019, we ~~announced that we entered into~~launched a new ~~long-term~~ credit card issuance program ~~agreement~~ with Walmart Inc. (“Walmart”)~~. Under the terms of the agreement, we will become~~ and are now the exclusive issuer of Walmart’s cobrand and private label ~~and co-branded~~ credit card program in the U.S. ~~beginning August 1, 2019.~~

In the fourth quarter of 2017, we announced our decision to cease new originations of residential mortgage and home equity loan products within our Consumer Banking business. In the first quarter of 2018, we sold the substantial majority of the mortgage servicing rights related to loans serviced for others. In the second quarter of 2018, we sold the substantial majority of our consumer home loan portfolio and the related servicing. We also transferred the remaining portfolio to loans held for sale as of June 30, 2018. In the third quarter of 2018, we sold substantially all of the remaining consumer home loan portfolio.

On ~~September 25, 2017,~~October 11, 2019, we completed the acquisition ~~from Synovus Bank~~ of the existing portfolio of Walmart’s cobrand and private label credit card ~~assets and related liabilities of World’s Foremost Bank, a wholly-owned subsidiary of Cabela’s Incorporated (“Cabela’s acquisition”). The Cabela’s acquisition~~receivables, which added approximately ~~$5.7~~$8.1 billion to our domestic credit card loans held for investment portfolio as of the acquisition date. ~~On October 5, 2018,~~We estimate an initial allowance build of approximately $85 million for this acquisition.

In the second quarter of 2019, we ~~completed~~made the ~~acquisition~~decision to exit several small partnership portfolios in our Credit Card business. We sold approximately $900 million of ~~the Bass Pro co-brand credit card portfolio (“Bass Pro acquisition”) which added~~receivables and transferred approximately ~~$534~~$100 million to ~~our domestic credit card~~ loans held for ~~investment~~sale as of June 30, 2019, which resulted in a gain on sale of $49 million recognized in other non-interest income and an allowance release of $68 million.

Cybersecurity Incident

On July 29, 2019, we announced that on July 19, 2019, we determined there was unauthorized access by an outside individual who obtained certain types of personal information relating to people who had applied for our credit card products and to our credit card customers (the “Cybersecurity Incident”). The Cybersecurity Incident occurred on March 22 and 23, 2019. We believe that a highly sophisticated individual was able to exploit a specific configuration vulnerability in our infrastructure. The configuration vulnerability was reported to us by an external security researcher on July 17, 2019. We then began our own internal investigation, leading to the July 19, 2019, determination that the Cybersecurity Incident occurred. We immediately fixed the configuration vulnerability that this individual exploited and verified there are no other instances in our environment. Among other things, we also augmented our routine automated scanning to look for this issue on a continuous basis. We promptly began working with federal law enforcement. The person responsible was arrested by the Federal Bureau of Investigation on July 29, 2019 and federal prosecution of the responsible person has commenced. The U.S. Attorney’s Office has stated they believe the data has been recovered and that there is no evidence the data was used for fraud or shared by this individual.

This event affected approximately 100 million individuals in the United States and approximately 6 million in Canada. We believe no credit card account numbers or log-in credentials were compromised. The largest category of information accessed was information on consumers and small businesses as of the ~~acquisition date.~~time they applied for one of our credit card products from 2005 through early 2019. This information included personal information that we routinely collect at the time we receive credit card applications, including names, addresses, zip codes/postal codes, phone numbers, email addresses, dates of birth, and self-reported income. In addition to credit card application data, the individual also obtained portions of credit card customer data, including customer status data (e.g., credit scores, credit limits, balances, payment history, contact information) and fragments of transaction data from a total of 23 days during 2016, 2017 and 2018. Approximately 140,000 Social Security numbers of our credit card customers and approximately 80,000 linked bank account numbers of our secured credit card customers were compromised in this incident. For our Canadian credit card customers, approximately 1 million Social Insurance Numbers were compromised in this incident.

We provided required notification to affected individuals and made free credit monitoring and identity protection available. We retained a leading independent cybersecurity firm that confirmed we correctly identified and fixed the specific configuration vulnerability exploited in the Cybersecurity Incident. We also have retained an outside expert to conduct a review of the root causes of the incident to help further inform our cybersecurity program.

We expect the Cybersecurity Incident to generate certain incremental costs related to the remediation of and response to the incident, largely driven by customer notifications, credit monitoring, technology costs, and professional support. We previously disclosed that we expected to incur approximately $100 million to $150 million of these costs in 2019 and will treat them as adjusting items




	25	Capital One Financial Corporation (COF)

Table of Contents

as it relates to our financial results (“Cyber Adjusting Items”). We now expect the Cyber Adjusting Items to be at the low end of that range, and that some of these costs will be incurred in 2020.

We carry insurance to cover certain costs associated with a cyber risk event. This insurance has a total coverage limit of $400 million and is subject to a $10 million deductible, which was met in the third quarter of 2019, as well as standard exclusions. We expect that a significant portion of the Cyber Adjusting Items will be covered by insurance. Insurance reimbursements will also be treated as adjusting items, and the timing of recognizing insurance reimbursements may differ from the timing of recognizing the associated expenses.

During the third quarter of 2019, we incurred approximately $22 million of net Cybersecurity Incident expenses, consisting of $49 million of expenses, primarily from customer notifications and credit monitoring, and $27 million of probable insurance recoveries, which were treated as an adjusting item.

We continue to invest significantly in cybersecurity and expect to make additional investments as we continue to assess our cybersecurity program. These estimated investments are in addition to the estimated Cyber Adjusting Items and we expect to absorb them within our existing operating efficiency ratio guidance.

Although the ultimate magnitude and timing of expenses or other impacts to our business or reputation related to the Cybersecurity Incident are uncertain, they may be significant, and some of the costs may not be covered by insurance. However, we do not believe that this incident will negatively impact our strategy or our long-term financial health. For more information, see “Note 14—Commitments, Contingencies, Guarantees and Others.”

Our reported results excluding adjusting items, including the Cyber Adjusting Items, and our existing operating efficiency ratio guidance represent non-GAAP measures which we believe help users of our financial information understand the impact of these adjusting items on our reported results as well as provide an alternate measurement of our operating performance.

SUMMARY OF SELECTED FINANCIAL DATA

The following table presents selected consolidated financial data and performance from our results of operations for the third quarter and first nine months of ~~2018~~2019 and ~~2017~~2018 and selected comparative balance sheet data as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. We also provide selected key metrics we use in evaluating our performance, including certain metrics that are computed using non-GAAP measures. We believe these non-GAAP metrics provide useful insight to investors and users of our financial information as they provide an alternate measurement of our performance and assist in assessing ~~the results~~our capital adequacy and level of ~~the Company.~~return generated.

Table 1: Consolidated Financial Highlights

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions, except per share data and as noted) 2018 2017 Change 2018 2017 Change
Income statement
Net interest income $ 5,786
$ 5,700
2 % $ 17,055
$ 16,647
2 %
Non-interest income 1,176
1,285
(8 ) 4,008
3,577
12
Total net revenue 6,962
6,985
—
21,063
20,224
4
Provision for credit losses 1,268
1,833
(31 ) 4,218
5,625
(25 )
Non-interest expense:
Marketing 504
379
33
1,343
1,210
11
Operating expenses 3,269
3,188
3
9,427
9,205
2
Total non-interest expense 3,773
3,567
6
10,770
10,415
3
Income from continuing operations before income taxes 1,921
1,585
21
6,075
4,184
45
Income tax provision 420
448
(6 ) 1,314
1,205
9
Income from continuing operations, net of tax 1,501
1,137
32
4,761
2,979
60
Income (loss) from discontinued operations, net of tax 1
(30 ) **
(7 ) (26 ) (73 )
Net income 1,502
1,107
36
4,754
2,953
61
Dividends and undistributed earnings allocated to participating securities (9 ) (8 ) 13
(32 ) (21 ) 52
Preferred stock dividends (53 ) (52 ) 2
(185 ) (185 ) —
Net income available to common stockholders $ 1,440
$ 1,047
38
$ 4,537
$ 2,747
65
Common share statistics

Basic earnings per common share:
Net income from continuing operations $ 3.01
$ 2.22
36 % $ 9.40
$ 5.73
64 %
Loss from discontinued operations —
(0.06 ) **
(0.01 ) (0.05 ) (80 )
Net income per basic common share $ 3.01
$ 2.16
39
$ 9.39
$ 5.68
65
Diluted earnings per common share:
Net income from continuing operations $ 2.99
$ 2.20
36
$ 9.33
$ 5.68
64
Loss from discontinued operations —
(0.06 ) **
(0.01 ) (0.05 ) (80 )
Net income per diluted common share $ 2.99
$ 2.14
40
$ 9.32
$ 5.63
66
Weighted-average common shares outstanding (in millions):
Basic 477.8
484.9
(1 )% 483.2
483.7
—
Diluted 480.9
489.0
(2 ) 486.7
488.1
—
Common shares outstanding (period-end, in millions) 473.7
484.4
(2 ) 473.7
484.4
(2 )%
Dividends declared and paid per common share $ 0.40
$ 0.40
—
$ 1.20
$ 1.20
—
Tangible book value per common share (period-end)⁽¹⁾
66.15
63.06
5
66.15
63.06
5
Balance sheet (average balances)
Loans held for investment $ 236,766
$ 245,822
(4 )% $ 242,369
$ 243,205
—
Interest-earning assets 330,272
322,015
3
331,318
319,497
4 %
Total assets 360,937
355,191
2
362,293
352,216
3
Interest-bearing deposits 221,431
213,137
4
221,400
213,508
4
Total deposits 246,720
238,843
3
246,932
239,316
3
Borrowings 51,684
54,271
(5 ) 52,858
52,159
1
Common equity 46,407
45,816
1
45,521
44,772
2
Total stockholders’ equity 50,768
50,176
1
49,882
49,132
2



	Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in millions, except per share data and as noted)	2019			2018			Change		2019			2018			Change
Income statement
Net interest income	$	5,737		$	5,786		(1	)%	$	17,274		$	17,055		1	%
Non-interest income	1,222			1,176			4		3,892			4,008			(3	)
Total net revenue	6,959			6,962			—		21,166			21,063			—
Provision for credit losses	1,383			1,268			9		4,418			4,218			5
Non-interest expense:
Marketing	501			504			(1	)	1,564			1,343			16
Operating expense	3,371			3,269			3		9,758			9,427			4
Total non-interest expense	3,872			3,773			3		11,322			10,770			5
Income from continuing operations before income taxes	1,704			1,921			(11	)	5,426			6,075			(11	)
Income tax provision	375			420			(11	)	1,071			1,314			(18	)
Income from continuing operations, net of tax	1,329			1,501			(11	)	4,355			4,761			(9	)
Income (loss) from discontinued operations, net of tax	4			1			**		15			(7		)	**
Net income	1,333			1,502			(11	)	4,370			4,754			(8	)
Dividends and undistributed earnings allocated to participating securities	(10		)	(9		)	11		(34		)	(32		)	6




	36	Capital One Financial Corporation (COF)

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	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in millions, except per share data and as noted)	2018			2017			Change		2018			2017			Change		2019			2018			Change		2019			2018			Change
Preferred stock dividends																	(53		)	(53		)	—		(185		)	(185		)	—
Net income available to common stockholders																	$	1,270		$	1,440		(12	)	$	4,151		$	4,537		(9	)
Common share statistics
Basic earnings per common share:
Net income from continuing operations																	$	2.70		$	3.01		(10	)%	$	8.80		$	9.40		(6	)%
Income (loss) from discontinued operations																	0.01			—			**		0.03			(0.01		)	**
Net income per basic common share																	$	2.71		$	3.01		(10	)	$	8.83		$	9.39		(6	)
Diluted earnings per common share:
Net income from continuing operations																	$	2.68		$	2.99		(10	)%	$	8.76		$	9.33		(6	)%
Income (loss) from discontinued operations																	0.01			—			**		0.03			(0.01		)	**
Net income per diluted common share																	$	2.69		$	2.99		(10	)	$	8.79		$	9.32		(6	)
Weighted-average common shares outstanding (in millions):
Basic																	469.5			477.8			(2	)%	469.9			483.2			(3	)%
Diluted																	471.8			480.9			(2	)	472.1			486.7			(3	)
Common shares outstanding (period-end, in millions)																	465.7			473.7			(2	)	465.7			473.7			(2	)
Dividends declared and paid per common share																	$	0.40		$	0.40		—		$	1.20		$	1.20		—
Tangible book value per common share (period-end)⁽¹⁾																	80.46			66.15			22		80.46			66.15			22
Balance sheet (average balances)
Loans held for investment																	$	246,147		$	236,766		4	%	$	243,602		$	242,369		1	%
Interest-earning assets																	340,949			330,272			3		338,936			331,318			2
Total assets																	374,905			360,937			4		372,148			362,293			3
Interest-bearing deposits																	232,063			221,431			5		230,045			221,400			4
Total deposits																	255,082			246,720			3		253,389			246,932			3
Borrowings																	49,413			51,684			(4	)	50,804			52,858			(4	)
Common equity																	52,566			46,407			13		50,393			45,521			11
Total stockholders’ equity																	57,245			50,768			13		54,861			49,882			10
Selected performance metrics
Purchase volume⁽²⁾	$	97,469		$	84,505		15	%	$	281,406		$	240,781		17	%	$	108,034		$	97,469		11	%	$	308,134		$	281,406		9	%
Total net revenue margin⁽³⁾	8.43		%	8.68		%	(25	)bps	8.48		%	8.44		%	4	bps	8.16		%	8.43		%	(27	)bps	8.33		%	8.48		%	(15	)bps
Net interest margin⁽⁴⁾	7.01			7.08			(7	)	6.86			6.95			(9	)	6.73			7.01			(28	)	6.80			6.86			(6	)
Return on average assets	1.66			1.28			38		1.75			1.13			62		1.42			1.66			(24	)	1.56			1.75			(19	)
Return on average tangible assets⁽⁵⁾	1.74			1.34			40		1.83			1.18			65		1.48			1.74			(26	)	1.63			1.83			(20	)
Return on average common equity⁽⁶⁾	12.40			9.40			3	%	13.31			8.26			5	%	9.63			12.40			(277	)	10.94			13.31			(237	)
Return on average tangible common equity (“TCE”)⁽⁷⁾	18.32			14.11			4		19.88			12.56			7		13.45			18.32			(487	)	15.54			19.88			(434	)
Equity-to-assets ratio⁽⁸⁾	14.07			14.13			(6	)bps	13.77			13.95			(18	)bps	15.27			14.07			120		14.74			13.77			97
Non-interest expense as a percentage of average loans held for investment	6.37			5.80			57		5.92			5.71			21		6.29			6.37			(8	)	6.20			5.92			28
Efficiency ratio⁽⁹⁾	54.19			51.07			3	%	51.13			51.50			—		55.64			54.19			145		53.49			51.13			236
Operating efficiency ratio⁽¹⁰⁾	46.95			45.64			1		44.76			45.52			(1	)%	48.44			46.95			149		46.10			44.76			134
Effective income tax rate from continuing operations	21.9			28.3			(6	)	21.6			28.8			(7	)	22.0			21.9			10		19.7			21.6			(190	)
Net charge-offs	$	1,425		$	1,606		(11	)	$	4,502		$	4,734		(5	)	$	1,462		$	1,425		3	%	$	4,569		$	4,502		1	%
Net charge-off rate⁽¹¹⁾	2.41		%	2.61		%	(20	)bps	2.48		%	2.60		%	(12	)bps	2.38		%	2.41		%	(3	)bps	2.50		%	2.48		%	2	bps


(Dollars in millions, except as noted)	September 30, 2018			December 31, 2017			Change		September 30, 2019			December 31, 2018			Change
Balance sheet (period-end)
Loans held for investment	$	238,761		$	254,473		(6	)%	$	249,355		$	245,899		1	%
Interest-earning assets	331,293			334,124			(1	)	344,643			341,293			1
Total assets	362,909			365,693			(1	)	378,810			372,538			2
Interest-bearing deposits	222,356			217,298			2		234,084			226,281			3
Total deposits	247,195			243,702			1		257,148			249,764			3
Borrowings	52,205			60,281			(13	)	50,149			58,905			(15	)
Common equity	46,277			44,370			4		52,412			47,307			11
Total stockholders’ equity	50,638			48,730			4		58,235			51,668			13
Credit quality metrics
Allowance for loan and lease losses	$	7,219		$	7,502		(4	)%	$	7,037		$	7,220		(3	)%
Allowance as a percentage of loans held for investment (“allowance coverage ratio”)	3.02		%	2.95		%	7	bps	2.82		%	2.94		%	(12	)bps
30+ day performing delinquency rate	3.28			3.23			5		3.28			3.62			(34	)
30+ day delinquency rate	3.48			3.48			—		3.51			3.84			(33	)
Capital ratios
Common equity Tier 1 capital⁽¹²⁾	11.2		%	10.3		%	90	bps	12.5		%	11.2		%	130	bps
Tier 1 capital⁽¹²⁾	12.8			11.8			100		14.4			12.7			170
Total capital⁽¹²⁾	15.2			14.4			80		16.8			15.1			170
Tier 1 leverage⁽¹²⁾	10.6			9.9			70		11.9			10.7			120
Tangible common equity⁽¹³⁾	9.0			8.3			70		10.3			9.1			120
Supplementary leverage⁽¹²⁾	9.0			8.4			60		10.1			9.0			110
Other
Employees (period end, in thousands)	47.6			49.3			(3	)%	52.1			47.6			9	%




	7	Capital One Financial Corporation (COF)

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__________


⁽¹⁾	Tangible book value per common share is a non-GAAP measure calculated based on tangible common equity divided by common shares outstanding. See “MD&A—Table A—Reconciliation of Non-GAAP ~~Measures and Calculation of Regulatory Capital~~ Measures” for additional information on non-GAAP measures.


⁽²⁾	Purchase volume consists of purchase transactions, net of returns, for the period for loans both classified as held for investment and held for sale in our Credit Card business, and excludes cash advance and balance transfer transactions.


⁽³⁾	Total net revenue margin is calculated based on annualized total net revenue for the period divided by average interest-earning assets for the period.


⁽⁴⁾	Net interest margin is calculated based on annualized net interest income for the period divided by average interest-earning assets for the period.


⁽⁵⁾	Return on average tangible assets is a non-GAAP measure calculated based on annualized income from continuing operations, net of tax, for the period divided by average tangible assets for the period. See “MD&A—Table A—Reconciliation of Non-GAAP ~~Measures and Calculation of Regulatory Capital~~ Measures” for additional information on non-GAAP measures.




	4	~~Capital One Financial Corporation (COF)~~

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⁽⁶⁾

Return on average common equity is calculated based on annualized (i) income from continuing operations, net of tax; (ii) less dividends and undistributed earnings allocated to participating securities; (iii) less preferred stock dividends, for the period, divided by average common equity. Our calculation of return on average common equity may not be comparable to similarly-titled measures reported by other companies.

⁽⁷⁾

Return on average tangible common equity is a non-GAAP measure calculated based on annualized (i) income from continuing operations, net of tax; (ii) less dividends and undistributed earnings allocated to participating securities; (iii) less preferred stock dividends, for the period, divided by average TCE. Our calculation of return on average TCE may not be comparable to similarly-titled measures reported by other companies. See “MD&A—Table A—Reconciliation of Non-GAAP ~~Measures and Calculation of Regulatory Capital~~ Measures” for additional information on non-GAAP measures.


⁽⁸⁾	Equity-to-assets ratio is calculated based on average stockholders’ equity for the period divided by average total assets for the period.


⁽⁹⁾	Efficiency ratio is calculated based on non-interest expense for the period divided by total net revenue for the period.


⁽¹⁰⁾	Operating efficiency ratio is calculated based on operating expense for the period divided by total net revenue for the period.


⁽¹¹⁾	Net charge-off rate is calculated by dividing annualized net charge-offs by average loans held for investment for the period for each loan category.


⁽¹²⁾	Capital ratios are calculated based on the Basel III Standardized Approach framework, subject to applicable transition provision. See “MD&A—Capital Management” for additional information.


⁽¹³⁾	Tangible common equity ratio is a non-GAAP measure calculated based on TCE divided by tangible assets. See “MD&A—Table A—Reconciliation of Non-GAAP ~~Measures and Calculation of Regulatory Capital~~ Measures” for the calculation of this measure and reconciliation to the comparative U.S. GAAP measure.


**	Not meaningful.

** Not meaningful.




	8	Capital One Financial Corporation (COF)

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EXECUTIVE SUMMARY AND BUSINESS OUTLOOK

Financial Highlights

We reported net income of $1.3 billion ($2.69 per diluted common share) on total net revenue of $7.0 billion and net income of $4.4 billion ($8.79 per diluted common share) on total net revenue of $21.2 billion for the third quarter and first nine months of 2019, respectively. In comparison, we reported net income of $1.5 billion ($2.99 per diluted common share) on total net revenue of $7.0 billion and net income of $4.8 billion ($9.32 per diluted common share) on total net revenue of $21.1 billion for the third quarter and first nine months of 2018, respectively. In comparison, we reported net income of $1.1 billion ($2.14 per diluted common share) on total net revenue of $7.0 billion and net income of $3.0 billion ($5.63 per diluted common share) on total net revenue of $20.2 billion for the third quarter and first nine months of 2017, respectively.

Our common equity Tier 1 capital ratio as calculated under the Basel III Standardized Approach ~~including transition provisions,~~ was ~~11.2%~~12.5% and ~~10.3%~~11.2% as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. See “MD&A—Capital Management” below for additional information.

We sold the substantial majority of our consumer home loan portfolio and the related servicing in the second quarter of 2018, and transferred the remaining consumer home loan portfolio of $398 million to loans held for sale as of June 30, 2018. These actions resulted in a net gain of approximately $400 million in the second quarter of 2018, including a benefit for credit losses of $46 million, which was reflected in the Other category. In the third quarter of 2018, we sold substantially all of the remaining consumer home loan portfolio and recognized a gain of $99 million in the Other category.

On June ~~28, 2018,~~27, 2019, we announced that our Board of Directors authorized the repurchase of up to ~~$1.2~~$2.2 billion of shares of our common stock (“~~2018~~2019 Stock Repurchase Program”) beginning in the third quarter of ~~2018~~2019 through the end of the second quarter of ~~2019.~~2020. During the third quarter of ~~2018,~~2019, we repurchased approximately ~~$569~~$466 million of shares of our common stock under the ~~2018~~2019 Stock Repurchase Program. See “MD&A—Capital Management—Dividend Policy and Stock Purchases” for additional information.

On July 29, 2019, we announced the Cybersecurity Incident. For more information, see “MD&A—Introduction—Cybersecurity Incident” and “Note 14—Commitments, Contingencies, Guarantees and Others.” Below are additional highlights of our performance in the third quarter and first nine months of ~~2018.~~2019. These highlights are generally based on a comparison between the results of the third quarter and first nine months of ~~2018~~2019 and ~~2017,~~2018, except as otherwise noted. The changes in our financial condition and credit performance are generally based on our financial condition and credit performance as of September 30, ~~2018~~2019 compared to our financial condition and credit performance as of December 31, ~~2017.~~2018. We provide a more detailed discussion of our financial performance in the sections following this “Executive Summary and Business Outlook.”

Total Company Performance


•	Earnings: Our net income decreased by $169 million to $1.3 billion in the third quarter of 2019, primarily driven by:

◦

an increase in our U.K. Payment Protection Insurance customer refund reserve (“U.K. PPI Reserve”) due to significantly elevated claims volume ahead of the August 29, 2019 claims submission deadline. The U.K. PPI Reserve build impacts net interest income, non-interest income and non-interest expense; for more information on our U.K. PPI Reserve see “Note 14—Commitments, Contingencies, Guarantees and Others”;


◦	higher provision for credit losses due to a smaller allowance release in our domestic credit card loan portfolio and charge-offs on certain underperforming energy borrowers in our commercial loan portfolio; and


◦	higher non-interest expense due to expenses related to the Walmart partnership, and continued investments in technology and infrastructure.

These drivers were partially offset by:

◦higher net interchange fees due to higher purchase volume; and


◦	the absence of significant activities that occurred in the third quarter of 2018, including gains from the sales of exited businesses, an impairment charge as a result of repositioning our investment securities portfolio, and a legal reserve build.

Net income decreased by $384 million to $4.4 billion in the first nine months of 2019 primarily driven by:


◦	higher non-interest expense due to continued investments in technology and infrastructure, expenses related to the Walmart partnership, and increased marketing expense;


◦	the impact of the U.K. PPI Reserve build; and


◦	higher provision for credit losses from charge-offs and an allowance build due to credit deterioration in our commercial energy loan portfolio.




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~~Total Company Performance~~These drivers were partially offset by:


•	~~Earnings:~~ ~~Our net income increased by $395 million to $1.5 billion in the third quarter of 2018 primarily driven by:~~


◦	~~lower provision for credit losses~~an increase in net interchange fees driven by ~~allowance releases in our domestic credit card~~higher purchase volume and ~~auto loan portfolios largely due to improvements in credit trends; and~~updated rewards cost estimates;


◦	higher net interest income due to higher yields on interest-earning assets and growth in our ~~domestic credit card~~loan and ~~auto loan~~investment portfolios, ~~and higher yields on interest earning assets as a result of higher interest rates,~~ partially offset by higher ~~interest expense attributable to higher interest rates.~~

~~These drivers are partially offset by:~~


◦	~~higher non-interest expense driven by a legal reserve build~~rates paid and ~~increased marketing expense;~~growth in our deposit products; and


◦	~~lower non-interest income due to~~the absence of significant activities that occurred in the first nine months of 2018, including gains from the sales of our consumer home loan portfolio, an impairment charge as a result of repositioning our investment securities portfolio, ~~partially offset by the net gains from the sales of exited businesses.~~and a legal reserve build.


•	~~Net income increased by $1.8 billion to $4.8 billion in the first nine months of 2018 primarily driven by:~~ Loans Held for Investment:


◦	~~lower provision for credit losses driven by allowance releases in our domestic credit card and auto loan portfolios largely due to improvements in credit trends;~~


◦	higher net interest income due to growth in our domestic credit card and auto loan portfolios and higher yields on interest earning assets as a result of higher interest rates, partially offset by higher interest expense attributable to higher interest rates; and


◦	higher non-interest income largely due to the net gains from the sales of exited businesses including sale of substantially all of our consumer home loan portfolio and an increase in net interchange fees primarily due to higher purchase volume, partially offset by an impairment charge as a result of repositioning our investment securities portfolio.

~~These drivers are partially offset by higher non-interest expense largely driven by a legal reserve build and increased marketing expense.~~

~~Loans Held for Investment:~~

◦

Period-end loans held for investment ~~decreased~~increased by ~~$15.7~~$3.5 billion to ~~$238.8~~$249.4 billion as of September 30, ~~2018~~2019 from December 31, ~~2017~~2018 primarily driven by ~~the sale of substantially all of~~growth in our ~~consumer home~~commercial, domestic credit card and auto loan ~~portfolio and~~portfolios, partially offset by expected seasonal paydowns in our domestic credit card loan portfolio ~~partially offset by growth in our commercial, auto~~ and ~~domestic credit card loan portfolios.~~the sale of certain partnership receivables.

◦

Average loans held for investment ~~decreased~~increased by ~~$9.1~~$9.4 billion to ~~$236.8~~$246.1 billion in the third quarter of ~~2018~~2019 compared to the third quarter of ~~2017~~2018 and increased $1.2 billion to $243.6 billion in the first nine months of 2019 compared to the first nine months of 2018 primarily driven by growth in our commercial, domestic credit card and auto loan portfolios, partially offset by the impact of the sale of ~~substantially all of~~ our consumer home loan ~~portfolio, partially offset by growth in our domestic credit card loan portfolio, mainly due to loans obtained in the Cabela’s acquisition, and growth in our auto loan~~ portfolio. These same factors drove average loans held for investment to decrease by $836 million to $242.4 billion in the first nine months of 2018 compared to the first nine months of 2017 as the impact of the sale of substantially all of our consumer home loan portfolio was largely offset by the growth in our domestic credit card and auto loan portfolios.

•

Net Charge-Off and Delinquency Metrics: Our net charge-off rate decreased by 203 basis points to ~~2.41%~~2.38% in the third quarter of ~~2018~~2019 compared to the third quarter of ~~2017,~~2018 primarily driven by the strong economy and ~~decreased~~stable underlying credit performance in our domestic credit card and auto loan portfolios, partially offset by ~~12 basis points~~higher charge-offs in our commercial energy loan portfolio.

Our net charge-off rate remained substantially flat at 2.50% in the first nine months of 2019 compared to ~~2.48% in~~ the first nine months of 2018 compared to the first nine months of 2017, primarily driven by elevated charge-offs in the third quarter and first nine months of 2017 in our taxi medallion and oil and gas lending portfolios within our Commercial Banking business.

~~Our 30+ day delinquency rate was flat at 3.48% as of September 30, 2018 from December 31, 2017~~ as the impact of lower loan balances from the sale of ~~substantially all of~~ our consumer home loan portfolio was largely offset by ~~improvements in~~the growth of our commercial loan portfolio.

Our 30+ day delinquency rate decreased by 33 basis points to 3.51% as of September 30, 2019 from December 31, 2018 primarily driven by the strong economy and stable underlying credit ~~trends~~performance in our domestic credit card loan ~~portfolio.~~




	6	~~Capital One Financial Corporation (COF)~~

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portfolio as well as growth in our auto loan portfolio and seasonally lower auto delinquency inventories.

•

Allowance for Loan and Lease Losses: Our allowance for loan and lease losses decreased by ~~$283~~$183 million to ~~$7.2~~$7.0 billion and the allowance coverage ratio decreased by 12 basis points to 2.82% as of September 30, ~~2018~~2019 from December 31, ~~2017~~2018 primarily driven by an allowance ~~releases~~release in our domestic credit card ~~and auto~~ loan ~~portfolios~~portfolio largely due to ~~improvements in~~the strong economy, stable underlying credit ~~trends.~~performance and the impact of the sale of certain partnership receivables.

The allowance coverage ratio increased by 7 basis points to 3.02% as of September 30, 2018 from December 31, 2017 primarily driven by lower loan balances largely due to the sale of substantially all of our consumer home loan portfolio, partially offset by allowance releases in our domestic credit card and auto loan portfolios.

Business Outlook

We discuss below our current expectations regarding our total company performance and the performance of our business segments ~~over the near-term~~ based on market conditions, the regulatory environment and our business ~~strategies as of the time we filed this Report.~~strategies. The statements contained in this section are based on our current expectations regarding our outlook for our financial results and business strategies. Our expectations take into account, and should be read in conjunction with, our expectations regarding economic trends and analysis of our business as discussed in “Part I—Item 1. Business” and “Part II—Item 7. MD&A” in our ~~2017~~2018 Form 10-K. Certain statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those in our forward-looking statements. Except as otherwise disclosed, forward-looking statements do not reflect:

any change in current dividend or repurchase strategies;

the effect of any acquisitions, divestitures or similar transactions that have not been previously disclosed; or

any changes in laws, regulations or regulatory interpretations, in each case after the date as of which such statements are ~~made.~~made; or




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the potential impact on our business, operations and reputation from, and expenses and uncertainties associated with, the Cybersecurity Incident, other than the incremental costs related to the incident we expect to incur in 2019 which will be separately reported as an adjusting item as it relates to the Company’s financial results.

See “MD&A—Forward-Looking Statements” in this Report for more information on the forward-looking statements and “Part I—Item 1A. Risk Factors” in our ~~2017~~2018 Form 10-K for factors that could materially influence our results.

Total Company Expectations

Marketing and Efficiency:

We expect ~~our 2018 corporate annual effective tax rate~~marketing expense for full-year 2019 to be ~~around 22% before discrete items.~~modestly higher than marketing expense for full-year 2018.

We expect to achieve modest improvements in full-year operating efficiency ratio, net of adjustments, in both 2019 and 2020, with a larger improvement to 42% in 2021.

We expect this operating efficiency ratio improvement to drive significant improvement in our total efficiency ratio by 2021.

Capital/Current Expected Credit Loss (“CECL”):

We currently estimate that the implementation of the CECL model will increase our reserves for credit losses by approximately 30% to 40%, largely driven by our consumer lending portfolios, and that the phased-in impact of adopting CECL will reduce our 2020 common equity Tier 1 capital ratio by 13 to 18 basis points. See “MD&A—Accounting Changes and Developments” in this Report for additional information related to the CECL adoption impact.

Business Segment Expectations

Domestic Card:

We continue to expect approximately $225 million of cumulative one-time Walmart launch costs in 2019, with the remaining amount occurring in the fourth quarter.

We estimate the acquired Walmart portfolio will have the following impacts to our Domestic Card business in the fourth quarter of 2019:


◦	An initial allowance build of approximately $85 million;


◦	Reduce the net charge-off rate by approximately 25 basis points;


◦	Reduce revenue margin by approximately 35 basis points; and


◦	Increase the 30+ performing delinquency rate by approximately 25 basis points at the end of the fourth quarter.

We estimate the acquired Walmart portfolio will have the following impacts to our Domestic Card business in 2020:


◦	Reduce the full-year 2020 net charge-off rate by approximately 25 basis points, with some quarterly variability;


◦	Reduce revenue margin by approximately 50 basis points in the first three quarters of 2020, and after the revenue share increases in October 2020, approximately 35 basis points in the fourth quarter of 2020; and


◦	Increase the 30+ performing delinquency rate by approximately 15 basis points at the end of 2020.

We expect the net charge-off rate and revenue margin impacts of the acquired Walmart portfolio to diminish after 2020 as the acquired portfolio runs off.

Consumer Banking:

We continue to expect that ~~our full-year 2018 operating efficiency ratio will be roughly flat compared to our 2017 operating efficiency ratio,~~the annual auto net of adjusting items. While efficiency ratio can vary in any given year, over the long term, we continue to believe that we will be able to achieve gradual efficiency improvement driven by growth and digital productivity gains. We expect our long-term improvements in total efficiency ratio will mostly come from an improving operating efficiency ratio.

~~We expect our fourth quarter 2018 marketing expense to be elevated well above the historical seasonal patterns we typically see between the third quarter and fourth quarter.~~

~~We believe the increases in deposit costs will continue, which will be a headwind to net interest margin going forward.~~

~~Business Segment Expectations~~

~~Consumer Banking:~~ In our Consumer Banking business, we expect further increases in average deposit costs driven by higher market rates and increasing competition for deposits, as well as changing product mix as our national banking growth strategy continues to gain traction.

~~Over the longer term, we continue to expect that the~~ charge-off rate ~~in our auto finance business~~ will increase ~~gradually.~~gradually as the cycle plays out.




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CONSOLIDATED RESULTS OF OPERATIONS

The section below provides a comparative discussion of our consolidated financial performance for the third quarter and first nine months of ~~2018~~2019 and ~~2017.~~2018. We provide a discussion of our business segment results in the following section, “MD&A—Business Segment Financial Performance.” You should read this section together with our “MD&A—Executive Summary and Business Outlook,” where we discuss trends and other factors that we expect will affect our future results of operations.




	7	~~Capital One Financial Corporation (COF)~~

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Net Interest Income

Net interest income represents the difference between the interest income, including certain fees, earned on our interest-earning assets and the interest expense paid on our interest-bearing liabilities. Interest-earning assets include loans, investment securities and other interest-earning assets, while our interest-bearing liabilities include interest-bearing deposits, securitized debt obligations, senior and subordinated notes, other borrowings and other interest-bearing liabilities. Generally, we include in interest income any past due fees on loans that we deem collectible. Our net interest margin, based on our consolidated results, represents the difference between the yield on our interest-earning assets and the cost of our interest-bearing liabilities, including the notional impact of non-interest-bearing funding. We expect net interest income and our net interest margin to fluctuate based on changes in interest rates and changes in the amount and composition of our interest-earning assets and interest-bearing liabilities.




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Table 2 below presents, for each major category of our interest-earning assets and interest-bearing liabilities, the average outstanding balance, interest income earned, interest expense incurred and average yield for the third quarter and first nine months of ~~2018~~2019 and ~~2017.~~2018. Nonperforming loans are included in the average loan balances below.

Table 2: Average Balances, Net Interest Income and Net Interest Margin


		Three Months Ended September 30,																Three Months Ended September 30,
		2018								2017								2019								2018
(Dollars in millions)		Average Balance			Interest Income/ Expense⁽³⁾			Average Yield/ Rate⁽³⁾		Average Balance			Interest Income/ Expense⁽³⁾		Average Yield/ Rate⁽³⁾			Average Balance			Interest Income/ Expense			Average Yield/ Rate		Average Balance			Interest Income/ Expense			Average Yield/ Rate
Assets:
Interest-earning assets:
Loans:⁽¹⁾
Credit card		$	109,510		$	4,324		15.79	%	$	102,545		$	3,995	15.58	%		$	112,484		$	4,369		15.54	%	$	109,510		$	4,324		15.79	%
Consumer banking		59,633			1,191			7.99		75,645			1,280		6.77			61,271			1,297			8.47		59,633			1,191			7.99
Commercial banking⁽²⁾		68,913			782			4.54		68,777			684		3.98			73,664			820			4.45		68,913			782			4.54
Other(3)		94			(50		)	(211.75	)	55			1		7.27			—			(57		)	**		94			(50		)	**
Total loans, including loans held for sale		238,150			6,247			10.49		247,022			5,960		9.65			247,419			6,429			10.39		238,150			6,247			10.49
Investment securities		83,894			593			2.83		69,302			431		2.49			80,762			583			2.88		83,894			593			2.83
Cash equivalents and other interest-earning assets		8,228			55			2.66		5,691			29		2.04			12,768			63			2.00		8,228			55			2.66
Total interest-earning assets		330,272			6,895			8.35		322,015			6,420		7.97			340,949			7,075			8.30		330,272			6,895			8.35
Cash and due from banks		3,898								3,336								4,376								3,898
Allowance for loan and lease losses		(7,366		)						(7,180		)						(7,125		)						(7,366		)
Premises and equipment, net		4,157								3,983								4,279								4,157
Other assets		29,976								33,037								32,426								29,976
Total assets		$	360,937							$	355,191							$	374,905							$	360,937
Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Interest-bearing deposits		$	221,431		$	681		1.23	%	$	213,137		$	410	0.77	%		$	232,063		$	901		1.55	%	$	221,431		$	681		1.23	%
Securitized debt obligations		18,917			127			2.68		17,598			85		1.93			16,750			123			2.94		18,917			127			2.68
Senior and subordinated notes		31,660			288			3.63		28,753			194		2.70			31,220			299			3.84		31,660			288			3.63
Other borrowings and liabilities		3,084			13			1.67		9,320			31		1.33			2,698			15			2.14		3,084			13			1.67
Total interest-bearing liabilities		275,092			1,109			1.62		268,808			720		1.07			282,731			1,338			1.89		275,092			1,109			1.62
Non-interest-bearing deposits		25,289								25,706								23,019								25,289
Other liabilities		9,788								10,501								11,910								9,788
Total liabilities		310,169								305,015								317,660								310,169
Stockholders’ equity		50,768								50,176								57,245								50,768
Total liabilities and stockholders’ equity		$	360,937							$	355,191							$	374,905							$	360,937
Net interest income/spread	Net interest income/spread				$	5,786		6.73					$	5,700	6.90		Net interest income/spread				$	5,737		6.41					$	5,786		6.73
Impact of non-interest-bearing funding	Impact of non-interest-bearing funding							0.28							0.18		Impact of non-interest-bearing funding							0.32								0.28
Net interest margin	Net interest margin							7.01	%						7.08	%	Net interest margin							6.73	%							7.01	%




	913	Capital One Financial Corporation (COF)

Table of Contents



	Nine Months Ended September 30,
	2019								2018
(Dollars in millions)	Average Balance			Interest Income/ Expense			Average Yield/ Rate		Average Balance			Interest Income/ Expense			Average Yield/ Rate
Assets:
Interest-earning assets:
Loans:⁽¹⁾
Credit card	$	111,584		$	13,103		15.66	%	$	108,968		$	12,559		15.37	%
Consumer banking	60,072			3,751			8.33		67,086			3,695			7.34
Commercial banking⁽²⁾	73,066			2,517			4.59		67,373			2,209			4.37
Other⁽³⁾	21			(191		)	**		226			(93		)	**
Total loans, including loans held for sale	244,743			19,180			10.45		243,653			18,370			10.05
Investment securities	82,264			1,867			3.03		77,819			1,584			2.71
Cash equivalents and other interest-earning assets	11,929			196			2.19		9,846			174			2.36
Total interest-earning assets	338,936			21,243			8.36		331,318			20,128			8.10
Cash and due from banks	4,281								3,768
Allowance for loan and lease losses	(7,221		)						(7,468		)
Premises and equipment, net	4,275								4,147
Other assets	31,877								30,528
Total assets	$	372,148							$	362,293
Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Interest-bearing deposits	$	230,045		$	2,588		1.50	%	$	221,400		$	1,842		1.11	%
Securitized debt obligations	17,912			405			3.02		19,251			358			2.46
Senior and subordinated notes	30,897			923			3.98		31,452			828			3.51
Other borrowings and liabilities	3,228			53			2.19		4,674			45			1.28
Total interest-bearing liabilities	282,082			3,969			1.88		276,777			3,073			1.49
Non-interest-bearing deposits	23,344								25,532
Other liabilities	11,861								10,102
Total liabilities	317,287								312,411
Stockholders’ equity	54,861								49,882
Total liabilities and stockholders’ equity	$	372,148							$	362,293
Net interest income/spread				$	17,274		6.48					$	17,055		6.61
Impact of non-interest-bearing funding							0.32								0.25
Net interest margin							6.80	%							6.86	%

Nine Months Ended September 30,
2018 2017
(Dollars in millions)
Average
Balance

Interest
Income/
Expense⁽³⁾

Average Yield/
Rate⁽³⁾

Average
Balance

Interest
Income/
Expense⁽³⁾

Average Yield/
Rate⁽³⁾
Assets:
Interest-earning assets:
Loans:⁽¹⁾

Credit card $ 108,968
$ 12,559
15.37 % $ 101,258
$ 11,572
15.24 %
Consumer banking 67,086
3,695
7.34
74,607
3,693
6.60
Commercial banking⁽²⁾
67,373
2,209
4.37
68,171
1,946
3.81
Other 226
(93 ) (54.77 ) 61
44
96.17
Total loans, including loans held for sale 243,653
18,370
10.05
244,097
17,255
9.43
Investment securities 77,819
1,584
2.71
68,862
1,280
2.48
Cash equivalents and other interest-earning assets 9,846
174
2.36
6,538
83
1.69
Total interest-earning assets 331,318
20,128
8.10
319,497
18,618
7.77
Cash and due from banks 3,768
3,378

Allowance for loan and lease losses (7,468 ) (6,894 )
Premises and equipment, net 4,147
3,879

Other assets 30,528
32,356

Total assets $ 362,293
$ 352,216

Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Interest-bearing deposits $ 221,400
$ 1,842
1.11 % $ 213,508
$ 1,145
0.72 %
Securitized debt obligations 19,251
358
2.46
17,726
236
1.78
Senior and subordinated notes 31,452
828
3.51
27,140
522
2.56
Other borrowings and liabilities 4,674
45
1.28
8,434
68
1.08
Total interest-bearing liabilities 276,777
3,073
1.49
266,808
1,971
0.98
Non-interest-bearing deposits 25,532
25,808

Other liabilities 10,102
10,468

Total liabilities 312,411
303,084

Stockholders’ equity 49,882
49,132

Total liabilities and stockholders’ equity $ 362,293
$ 352,216

Net interest income/spread $ 17,055
6.61
$ 16,647
6.79
Impact of non-interest-bearing funding 0.25
0.16
Net interest margin 6.86 % 6.95 %

__________


⁽¹⁾	Past due fees included in interest income totaled approximately $423 million and $1.2 billion in the third quarter and first nine months of 2019, respectively, and $433 million and $1.2 billion in the third quarter and first nine months of 2018, ~~respectively, and $413 million and $1.2 billion in the third quarter and first nine months of 2017,~~ respectively.

⁽²⁾

Some of our commercial loans generate tax-exempt income. Accordingly, we present our Commercial Banking interest income and yields on a ~~taxable-equivalent~~taxable- equivalent basis, calculated using the federal statutory rate ~~(21% and 35% for all periods presented in 2018 and 2017, respectively)~~of 21% and state taxes where applicable, with offsetting reductions to the Other category. Taxable-equivalent adjustments included in the interest income and yield computations for our ~~Commercial banking~~commercial loans totaled approximately $21 million and $62 million in the third quarter and first nine months of 2019, respectively, and $20 million and $61 million in the third quarter and first nine months of 2018, respectively, ~~and $32 million and $96 million in the third quarter and first nine months of 2017, respectively,~~ with corresponding reductions to the Other category.

⁽³⁾

Interest ~~income and interest~~ income/expense ~~and the calculation~~ of ~~average yields on interest-earning assets and average rates on interest-bearing liabilities include~~Other represents the impact of hedge ~~accounting. In~~accounting of our loan portfolios and the ~~first quarter~~offsetting reduction of 2018, we adopted Accounting Standards Update (“ASU”) No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. As a result, interest income and interest expense amounts shown above for the three months ended September 30, 2018 include $2 million and $10 million, respectively, and for the nine months ended September 30, 2018 include $1 million and $36 million, respectively, related to hedge ineffectiveness that would previously have been included in other non-interest income.taxable-equivalent adjustments of our commercial loans as described above.

Not meaningful.




	1014	Capital One Financial Corporation (COF)

Table of Contents

Net interest income ~~increased~~decreased by ~~$86~~$49 million to ~~$5.8~~$5.7 billion in the third quarter of ~~2018~~2019 compared to the third quarter of ~~2017,~~2018, primarily driven by higher rates paid and deposit growth as well as the net interest income impact of the U.K. PPI Reserve build, partially offset by growth in our loan portfolios. Net interest income increased by ~~$408~~$219 million to ~~$17.1~~$17.3 billion in the first nine months of ~~2018~~2019 compared to the first nine months of ~~2017,~~2018, primarily driven by higher ~~interest income due to~~yields on interest-earning assets and growth in our ~~domestic credit card~~loan and ~~auto loan~~investment portfolios, ~~and higher yields as a result of higher interest rates,~~ partially offset by higher ~~interest expense due to higher interest rates.~~rates paid and growth in our deposit products and the impact of the U.K. PPI Reserve build.

Net interest margin decreased by 728 basis points to ~~7.01%~~6.73% in the third quarter of ~~2018~~2019 compared to the third quarter of ~~2017,~~2018 primarily driven by higher rates paid on our deposits and the net interest income impact of the U.K. PPI Reserve build. Net interest margin decreased by 96 basis points to ~~6.86%~~6.80% in the first nine months of ~~2018~~2019 compared to the first nine months of ~~2017, primarily driven by~~2018 as higher ~~interest expense due to higher interest rates, partially~~yields on interest-bearing assets were offset by ~~product mix changes and~~the higher ~~yields in~~rates paid on our ~~interest-earning assets.~~retail deposits.

Table 3 displays the change in our net interest income between periods and the extent to which the variance is attributable to:

changes in the volume of our interest-earning assets and interest-bearing liabilities; or

changes in the interest rates related to these assets and liabilities.

Table 3: Rate/Volume Analysis of Net Interest Income⁽¹⁾


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended September 30,									Nine Months Ended September 30,
	2018 vs. 2017									2018 vs. 2017									2019 vs. 2018									2019 vs. 2018
(Dollars in millions)	Total Variance			Volume			Rate			Total Variance			Volume			Rate			Total Variance			Volume			Rate			Total Variance			Volume			Rate
Interest income:
Loans:⁽¹⁾
Credit card	$	329		$	274		$	55		$	987		$	888		$	99		$	45		$	116		$	(71	)	$	544		$	305		$	239
Consumer banking	(89		)	(270		)	181			2			(372		)	374			106			33			73			56			(386		)	442
Commercial banking⁽²⁾	98			1			97			263			(23		)	286			38			53			(15		)	308			192			116
Other⁽²⁾⁽³⁾	(51		)	(21		)	(30		)	(137		)	(68		)	(69		)	(7		)	(1		)	(6		)	(98		)	50			(148		)
Total loans, including loans held for sale	287			(16		)	303			1,115			425			690			182			201			(19		)	810			161			649
Investment securities	162			98			64			304			175			129			(10		)	(22		)	12			283			94			189
Cash equivalents and other interest-earning assets	26			15			11			91			50			41			8			22			(14		)	22			34			(12		)
Total interest income	475			97			378			1,510			650			860			180			201			(21		)	1,115			289			826
Interest expense:
Interest-bearing deposits	271			17			254			697			44			653			220			34			186			746			74			672
Securitized debt obligations	42			7			35			122			22			100			(4		)	(14		)	10			47			(25		)	72
Senior and subordinated notes	94			21			73			306			91			215			11			(4		)	15			95			(15		)	110
Other borrowings and liabilities	(18		)	(21		)	3			(23		)	(30		)	7			2			(2		)	4			8			(14		)	22
Total interest expense	389			24			365			1,102			127			975			229			14			215			896			20			876
Net interest income	$	86		$	73		$	13		$	408		$	523		$	(115	)	$	(49	)	$	187		$	(236	)	$	219		$	269		$	(50	)

__________

⁽¹⁾

We calculate the change in interest income and interest expense separately for each item. The portion of interest income or interest expense attributable to both volume and rate is allocated proportionately when the calculation results in a positive value. When the portion of interest income or interest expense attributable to both volume and rate results in a negative value, the total amount is allocated to volume or rate, depending on which amount is positive.


⁽²⁾	Some of our commercial loans generate tax-exempt income. Accordingly, we present our Commercial Banking interest income and yields on a ~~taxable-equivalent~~taxable- equivalent basis, calculated using the federal statutory rate ~~(21% and 35% for all periods presented in 2018 and 2017, respectively)~~of 21% and state taxes where applicable, with offsetting reductions to the Other category.


⁽³⁾	Interest income/expense of Other represents the impact of hedge accounting of our loan portfolios and the offsetting reduction of the taxable-equivalent adjustments of our commercial loans as described above.




	1115	Capital One Financial Corporation (COF)

Table of Contents

Non-Interest Income

Table 4 displays the components of non-interest income for the third quarter and first nine months of ~~2018~~2019 and ~~2017.~~2018.

Table 4: Non-Interest Income



	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in millions)	2019		2018			2019		2018
Interchange fees, net	$	790	$	714		$	2,368	$	2,080
Service charges and other customer-related fees	283		410			988		1,233
Net securities gains (losses)	5		(196		)	44		(189		)
Other non-interest income:⁽¹⁾
Mortgage banking revenue	48		151			127		629
Treasury and other investment income	36		16			139		62
Other	60		81			226		193
Total other non-interest income	144		248			492		884
Total non-interest income	$	1,222	$	1,176		$	3,892	$	4,008

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2018 2017 2018 2017
Interchange fees, net $ 714
$ 662
$ 2,080
$ 1,908
Service charges and other customer-related fees 410
414
1,233
1,203
Net securities gains (losses) (196 ) 68
(189 ) 64
Other non-interest income:
Mortgage banking revenue 151
50
629
160
Treasury and other investment income 16
35
62
85
Other 81
56
193
157
Total other non-interest income 248
141
884
402
Total non-interest income $ 1,176
$ 1,285
$ 4,008
$ 3,577
__________


⁽¹⁾	Includes gains on deferred compensation plan investments of $1 million and $39 million for the third quarter and first nine months of 2019, respectively, and $12 million and $17 million for the third quarter and first nine months of 2018, respectively. These amounts have corresponding offsets in salaries and associate benefits expense.

Non-interest income ~~decreased by $109 million to~~remained relatively flat at $1.2 billion in the third quarter of ~~2018 compared~~2019 and decreased by $116 million to $3.9 billion in the ~~third quarter~~first nine months of ~~2017~~2019 primarily driven ~~by an~~by:

the absence of the significant activities that occurred in the first nine months of 2018, including the gains from the sales of our consumer home loan portfolio and the impairment charge as a result of repositioning our investment securities ~~portfolio,~~portfolio; and

lower service charges and other customer-related fees, including the impact of the U.K PPI Reserve build.

These drivers were partially offset ~~by the net gains from the sales of exited businesses.~~

~~Non-interest income increased by $431 million to $4.0 billion in the first nine months of 2018 compared to the first nine months of 2017 primarily driven~~ by:


•	~~the net gains from the sales of exited businesses including sale of substantially all of our consumer home loan portfolio; and~~

an increase in net interchange fees ~~primarily due to~~driven by higher purchase ~~volume.~~volume and updated rewards cost estimates; and

~~These drivers are partially offset by an impairment charge as a result~~the gain on the sale of ~~repositioning our investment securities portfolio.~~certain partnership receivables.

Provision for Credit Losses

Our provision for credit losses in each period is driven by net charge-offs, changes to the allowance for loan and lease losses, and changes to the reserve for unfunded lending commitments. ~~We recorded a~~Our provision for credit losses ~~of $1.3 billion and $4.2~~increased by $115 million to $1.4 billion in the third quarter of 2019 compared to the third quarter of 2018 primarily driven by a smaller allowance release in our domestic credit card loan portfolio and charge-offs on certain underperforming energy borrowers in our commercial loan portfolio. Provision for credit losses increased by $200 million to $4.4 billion in the first nine months of 2019 compared to the first nine months of 2018 ~~respectively, compared~~primarily driven by charge-offs and an allowance build due to ~~$1.8 billion and $5.6 billion~~credit deterioration in ~~the third quarter and first nine months of 2017, respectively.~~ our commercial energy loan portfolio.

The provision for credit losses as a percentage of net interest income was 24.1% and 25.6% in the third quarter and first nine months of 2019, respectively, compared to 21.9% and 24.7% in the third quarter and first nine months of 2018, ~~respectively, compared to 32.2% and 33.8% in the third quarter and first nine months of 2017,~~ respectively.

~~Our provision for credit losses decreased by $565 million in the third quarter of 2018 compared to the third quarter of 2017, and~~ ~~decreased~~ by $1.4 billion in the first nine months of 2018 compared to the first nine months of 2017, primarily driven by allowance releases in our domestic credit card and auto loan portfolios largely due to improvements in credit trends.

We provide additional information on the provision for credit losses and changes in the allowance for loan and lease losses within “MD&A—Credit Risk Profile,” “Note 4—Loans” and “Note 5—Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments.” For information on the allowance methodology for each of our loan categories, see “Note 1—Summary of Significant Accounting Policies” in our ~~2017~~2018 Form 10-K.




	1216	Capital One Financial Corporation (COF)

Table of Contents

Non-Interest Expense

Table 5 displays the components of non-interest expense for the third quarter and first nine months of ~~2018~~2019 and ~~2017.~~2018.

Table 5: Non-Interest Expense


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2018		2017		2018		2017		2019		2018		2019		2018
Salaries and associate benefits(1)	$	1,432	$	1,524	$	4,382	$	4,378	$	1,605	$	1,432	$	4,736	$	4,382
Occupancy and equipment	515		471		1,508		1,416		519		515		1,533		1,508
Marketing	504		379		1,343		1,210		501		504		1,564		1,343
Professional services	275		297		719		823		314		275		919		719
Communications and data processing	311		294		934		871		312		311		944		934
Amortization of intangibles	44		61		131		184		25		44		84		131
Other non-interest expense:
Bankcard, regulatory and other fee assessments	147		156		381		438		100		147		273		381
Collections	105		93		317		266		100		105		291		317
Fraud losses	88		89		274		245		101		88		301		274
Other(2)	352		203		781		584		295		352		677		781
Total other non-interest expense	692		541		1,753		1,533		596		692		1,542		1,753
Total non-interest expense	$	3,773	$	3,567	$	10,770	$	10,415	$	3,872	$	3,773	$	11,322	$	10,770

__________


⁽¹⁾	Includes expenses related to our deferred compensation plan of $1 million and $39 million for the third quarter and first nine months of 2019, respectively, and $12 million and $17 million for the third quarter and first nine months of 2018, respectively. These amounts have corresponding offsets in other non-interest income.


⁽²⁾	Includes $22 million of net Cybersecurity Incident expenses in the third quarter of 2019, consisting of $49 million of expenses and $27 million of probable insurance recoveries.

Non-interest expense increased by ~~$206~~$99 million to ~~$3.8~~$3.9 billion in the third quarter of ~~2018~~2019 compared to the third quarter of ~~2017,~~2018 primarily due to continued investments in technology and infrastructure, expenses related to the Walmart partnership, and the impact of the U.K. PPI Reserve build, partially offset by the absence of the legal reserve build and lower bankcard, regulatory and other fee assessments.

Non-interest expense increased by ~~$355~~$552 million to ~~$10.8~~$11.3 billion in the first nine months of ~~2018~~2019 compared to the first nine months of ~~2017,~~2018 primarily due to ~~a legal reserve~~continued investments in technology and infrastructure, expenses related to the Walmart partnership, the impact of the U.K. PPI Reserve build, and increased marketing ~~expense.~~expenses, partially offset by the absence of the legal reserve build.

Income Taxes

We recorded income tax provisions of $375 million (22.0% effective income tax rate) and $1.1 billion (19.7% effective income tax rate) in the third quarter and first nine months of 2019, respectively, compared to $420 million (21.9% effective income tax rate) and $1.3 billion (21.6% effective income tax rate) in the third quarter and first nine months of 2018, ~~respectively, compared~~respectively. Our effective tax rate on income from continuing operations varies between periods due, in part, to ~~$448 million (28.3%~~fluctuations in our pre-tax earnings, which affects the relative tax benefit of tax-exempt income, tax credits and other permanent tax items.

The effective income tax ~~rate) and $1.2 billion (28.8% effective income tax rate)~~rate remained substantially flat in the third quarter of 2019. The income tax provision and the effective income tax rate decreased in the first nine months of ~~2017, respectively.~~

~~The decrease in our effective income tax rate in~~2019 compared to the ~~third quarter and~~ first nine months of 2018 ~~compared~~primarily due to higher tax credits and lower overall non-deductible expenses relative to our income, and lower discrete tax expense, partially offset by the ~~third quarter and~~non-deductible impact of the U.K. PPI Reserve build.

In addition, we recorded $13 million of discrete tax benefits in the first nine months of ~~2017 was primarily due~~2019 compared to less than $1 million of discrete tax expenses in the ~~federal statutory~~first nine months of 2018, and we recorded $2 million of discrete tax ~~rate decrease from 35%~~expenses in the third quarter of 2019 compared to ~~21% as a result~~$26 million of discrete tax benefits in the ~~Tax Act, partially offset by higher income relative to our tax credits and higher non-deductible expenses.~~third quarter of 2018.




	17	Capital One Financial Corporation (COF)

Table of Contents

We provide additional information on items affecting our income taxes and effective tax rate in “Note 16—Income Taxes” in our ~~2017~~2018 Form 10-K.




	13	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

CONSOLIDATED BALANCE SHEETS ANALYSIS

Total assets ~~decreased~~increased by ~~$2.8~~$6.3 billion to ~~$362.9~~$378.8 billion as of September 30, ~~2018~~2019 from December 31, ~~2017 primarily attributable to a decrease in loans held for investment~~2018 driven by ~~the sale of substantially all of~~an increase in cash and cash equivalents and growth in our ~~consumer home~~commercial, domestic credit card and auto loan ~~portfolio and~~portfolios, partially offset by expected seasonal paydowns in our domestic credit card loan portfolio ~~partially offset by an increase in investment securities~~ and ~~growth in our commercial, auto and domestic credit card loan portfolios.~~the sale of certain partnership receivables.

Total liabilities decreased by ~~$4.7 billion~~$295 million to ~~$312.3~~$320.6 billion as of September 30, ~~2018~~2019 from December 31, ~~2017~~2018 primarily driven by ~~a decrease in~~maturities of our short-term Federal Home Loan Banks (“FHLB”) advances, ~~outstanding, which are included in other debt, partially~~largely offset by deposit ~~growth in our Consumer Banking business.~~growth.

Stockholders’ equity increased by ~~$1.9~~$6.6 billion to ~~$50.6~~$58.2 billion as of September 30, ~~2018~~2019 from December 31, ~~2017~~2018 primarily due to our net income of ~~$4.8~~$4.4 billion, inother comprehensive income of $1.7 billion and the ~~first nine months~~issuance of ~~2018. This driver was~~Preferred Stock Series I, partially offset ~~by:~~

~~treasury stock purchases and~~by dividend payments to our ~~stockholders;~~stockholders and

~~unrealized losses on our available for sale securities and cash flow hedges included in accumulated other comprehensive loss primarily driven by higher interest rates.~~ treasury stock repurchases.

The following is a discussion of material changes in the major components of our assets and liabilities during the first nine months of ~~2018.~~2019. Period-end balance sheet amounts may vary from average balance sheet amounts due to liquidity and balance sheet management activities that are intended to ~~ensure~~support the adequacy of capital while managing ~~the~~our liquidity requirements, ~~of the Company,~~ our customers and our market risk exposure in accordance with our risk appetite.

Investment Securities

Our investment securities portfolio consists primarily of the following: U.S. Treasury securities; U.S. government-sponsored enterprise or agency (“Agency”) and non-agency residential mortgage-backed securities (“RMBS”); Agency commercial mortgage-backed securities (“CMBS”~~); other asset-backed securities (“ABS”~~); and other securities. Agency securities include Government National Mortgage Association (“Ginnie Mae”) guaranteed securities, Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) issued securities. The ~~carrying value of~~U.S. Treasury and Agency securities generally have high credit ratings and low credit risks, and our investments in U.S. Treasury and Agency securities represented 96% ~~and 95%~~ of our total investment securities portfolio, as of both September 30, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018.

The fair value of our available for sale securities portfolio ~~increased by $9.7 billion to $47.4~~remained substantially flat at $46.2 billion as of September 30, ~~2018~~2019 from December 31, ~~2017 primarily~~2018 as the impact of maturities and sales exceeding purchases was offset by the fair value gains due to ~~a one-time transfer of held to maturity securities to available for sale as a result of our adoption of ASU No. 2017-12.~~changes in interest rates. The fair value of our held to maturity securities portfolio ~~increased~~decreased by ~~$4.5~~$1.4 billion to ~~$33.9~~$35.3 billion as of September 30, ~~2018~~2019 from December 31, ~~2017~~2018 primarily driven by maturities outpacing purchases, ~~in the second quarter of 2018 as we invested a portion of the proceeds from the sale of the substantial majority of our consumer home loan portfolio into securities,~~ partially offset by ~~the one-time transfer to available for sale.~~fair value gains as a result of changes in interest rates.




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Table 6 presents the amortized cost, carrying value and fair value for the major categories of our investment securities portfolio as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 6: Investment Securities


	September 30, 2018				December 31, 2017				September 30, 2019				December 31, 2018
(Dollars in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investment securities available for sale:
U.S. Treasury securities	$	6,012	$	6,008	$	5,168	$	5,171	$	4,173	$	4,155	$	6,146	$	6,144
RMBS:
Agency	34,134		32,996		26,013		25,678		33,727		33,713		32,710		31,903
Non-agency	1,495		1,869		1,722		2,114		1,313		1,612		1,440		1,742
Total RMBS	35,629		34,865		27,735		27,792		35,040		35,325		34,150		33,645
Agency CMBS	5,008		4,923		3,209		3,175		5,368		5,396		4,806		4,739
Other ABS	277		275		513		512
Other securities⁽¹⁾	1,319		1,313		1,003		1,005		1,291		1,292		1,626		1,622
Total investment securities available for sale	$	48,245	$	47,384	$	37,628	$	37,655	$	45,872	$	46,168	$	46,728	$	46,150


(Dollars in millions)	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Investment securities held to maturity:
U.S. Treasury securities	—		—		$	200	$	200
Agency RMBS	$	31,265	$	30,663	24,980		25,395		$	30,109	$	31,289	$	33,061	$	32,977
Agency CMBS	3,366		3,237		3,804		3,842		3,785		3,975		3,710		3,642
Total investment securities held to maturity	$	34,631	$	33,900	$	28,984	$	29,437	$	33,894	$	35,264	$	36,771	$	36,619

__________


⁽¹⁾	Includes primarily supranational bonds, ~~and~~ foreign government ~~bonds.~~bonds and other asset-backed securities.

~~Credit Ratings~~

Our portfolio of investment securities continues to be concentrated in securities that generally have high credit ratings and low credit risk, such as securities issued and guaranteed by the U.S. Treasury and Agencies. We categorize the credit ratings of our investment securities based on the credit ratings issued by Standard & Poor’s Ratings Services (“S&P”) as of September 30, 2018 and the lower of the credit ratings issued by S&P and Moody’s Investors Service (“Moody’s”) as of December 31, 2017.

Approximately 97% and 96% of our total investment securities portfolio was rated AA+ or its equivalent, or better, as of September 30, 2018 and December 31, 2017, respectively, while approximately 2% and 3% was below investment grade as of September 30, 2018 and December 31, 2017, respectively.




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~~Table 7 provides information on the credit ratings of our non-agency RMBS, other ABS and other securities in our portfolio as of September 30, 2018 and December 31, 2017.~~

~~Table 7:~~ ~~Non-Agency Investment Securities Credit Ratings~~

September 30, 2018 December 31, 2017
(Dollars in millions) Fair Value AAA
Other
Investment
Grade

Below
Investment
Grade/Not Rated⁽¹⁾
Fair Value AAA
Other
Investment
Grade

Below
Investment
Grade/Not Rated⁽¹⁾
Non-agency RMBS $ 1,869
—
5 % 95 % $ 2,114
—
3 % 97 %
Other ABS 275
57 % —
43
512
100 % —
—
Other securities 1,313
88
12
—
1,005
71
19
10

~~__________~~


⁽¹⁾	Includes investment securities that were not rated by S&P as of September 30, 2018 and investment securities not rated by S&P or Moody’s as of December 31, 2017. There were no new additions nor downgrades to other ABS in the first nine months of 2018.

~~For additional information on our investment securities, see “Note 3—Investment Securities~~.”

Loans Held for Investment

Total loans held for investment consist of both unsecuritized loans and loans held in our consolidated trusts. Table 87 summarizes the carrying value of our ~~portfolio of~~ loans held for investment by portfolio segment, the allowance for loan and lease losses, and net loan ~~balances~~balance as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 8:7: Loans Held for Investment


	September 30, 2018						December 31, 2017						September 30, 2019						December 31, 2018
(Dollars in millions)	Loans		Allowance		Net Loans		Loans		Allowance		Net Loans		Loans		Allowance		Net Loans		Loans		Allowance		Net Loans
Credit Card	$	110,685	$	5,520	$	105,165	$	114,762	$	5,648	$	109,114	$	113,681	$	5,270	$	108,411	$	116,361	$	5,535	$	110,826
Consumer Banking	59,329		1,043		58,286		75,078		1,242		73,836		62,015		1,007		61,008		59,205		1,048		58,157
Commercial Banking	68,747		656		68,091		64,575		611		63,964		73,659		760		72,899		70,333		637		69,696
Other	—		—		—		58		1		57
Total	$	238,761	$	7,219	$	231,542	$	254,473	$	7,502	$	246,971	$	249,355	$	7,037	$	242,318	$	245,899	$	7,220	$	238,679

Loans held for investment ~~decreased~~increased by ~~$15.7~~$3.5 billion to ~~$238.8~~$249.4 billion as of September 30, ~~2018~~2019 from December 31, ~~2017~~2018 primarily driven by ~~the sale of substantially all of~~growth in our ~~consumer home~~commercial, domestic credit card and auto loan ~~portfolio and~~portfolios, partially offset by expected seasonal paydowns in our domestic credit card loan portfolio ~~partially offset by growth in our commercial, auto~~ and ~~domestic credit card loan portfolios.~~the sale of certain partnership receivables.

We provide additional information on the composition of our loan portfolio and credit quality below in “MD&A—Credit Risk Profile,” “MD&A—Consolidated Results of Operations” and “Note 4—Loans.”




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Funding Sources

Our primary source of funding comes from deposits, ~~which provide~~as they are a stable and relatively low cost source of ~~funds.~~funding. In addition to deposits, we also raise funding through the issuance of securitized debt obligations and other debt. Other debt primarily consists of senior and subordinated notes, FHLB advances secured by certain portions of our loan and securities portfolios, and federal funds purchased and securities loaned or sold under agreements to repurchase.




	16	~~Capital One Financial Corporation (COF)~~

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~~Table 9~~8 provides the composition of our primary sources of funding as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 9:8: Funding Sources Composition


	September 30, 2018				December 31, 2017				September 30, 2019				December 31, 2018
(Dollars in millions)	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
Deposits:⁽¹⁾
Consumer Banking	$	196,635	66	%	$	185,842	61	%	$	206,423	67	%	$	198,607	64	%
Commercial Banking	30,474		10		33,938		11		30,923		10		29,480		10
Other(1)	20,086		7		23,922		8		19,802		7		21,677		7
Total deposits	247,195		83		243,702		80		257,148		84		249,764		81
Securitized debt obligations	18,649		6		20,010		7		18,910		6		18,307		6
Other debt	33,556		11		40,271		13		31,239		10		40,598		13
Total funding sources	$	299,400	100	%	$	303,983	100	%	$	307,297	100	%	$	308,669	100	%

__________


⁽¹⁾	Includes brokered deposits of ~~$21.1~~$19.0 billion and ~~$25.1~~$21.2 billion as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Total deposits increased by ~~$3.5~~$7.4 billion to ~~$247.2~~$257.1 billion as of September 30, ~~2018~~2019 from December 31, ~~2017~~2018 primarily driven by strong growth in our deposit products ~~that are offered to both existing and new customers~~as a result of our national banking strategy in our Consumer Banking business.

Securitized debt obligations ~~decreased~~increased by ~~$1.4 billion~~$603 million to ~~$18.6~~$18.9 billion as of September 30, ~~2018~~2019 from December 31, ~~2017, as debt~~2018 primarily driven by issuances from both our credit card and auto securitizations, partially offset by maturities ~~exceeded issuances during~~in the first nine months of ~~2018.~~2019.

Other debt decreased by ~~$6.7~~$9.4 billion to ~~$33.6~~$31.2 billion as of September 30, ~~2018~~2019 from December 31, ~~2017~~2018 primarily driven by ~~a decrease in~~maturities of our short-term FHLB ~~advances outstanding.~~advances.

We provide additional information on our funding sources in “MD&A—Liquidity Risk Profile” and in “Note 8—Deposits and Borrowings.”

OFF-BALANCE SHEET ARRANGEMENTS

In the ordinary course of business, we engage in certain activities that are not reflected on our consolidated balance sheets, generally referred to as off-balance sheet arrangements. These activities typically involve transactions with unconsolidated variable interest entities (“VIEs”) as well as other arrangements, such as letters of credit, loan commitments and guarantees, to meet the financing needs of our customers and support their ongoing operations. We provide additional information regarding these types of activities in “Note 6—Variable Interest Entities and Securitizations” and “Note 14—Commitments, Contingencies, Guarantees and Others.”

BUSINESS SEGMENT FINANCIAL PERFORMANCE

Our principal operations are organized for management reporting purposes into three major business segments, which are defined primarily based on the products and services provided or the ~~type~~types of customer served: Credit Card, Consumer Banking and Commercial Banking. The operations of acquired businesses have been integrated into our existing business segments. Certain activities that are not part of a segment, such as management of our corporate investment portfolio and asset/liability management by our centralized Corporate Treasury group and residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments, are included in the Other category.




	20	Capital One Financial Corporation (COF)

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The results of our individual businesses, which we report on a continuing operations basis, reflect the manner in which management evaluates performance and makes decisions about funding our operations and allocating resources. We provide additional information on the allocation methodologies used to derive our business segment results in “Note 18—Business ~~Segments”~~Segments and Revenue from Contracts with Customers” in our ~~2017~~2018 Form 10-K.

We refer to the business segment results derived from our internal management accounting and reporting process as our “managed” presentation, which differs in some cases from our reported results prepared based on U.S. GAAP. There is no comprehensive




	17	~~Capital One Financial Corporation (COF)~~

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authoritative body of guidance for management accounting equivalent to U.S. GAAP; therefore, the managed presentation of our business segment results may not be comparable to similar information provided by other financial services companies. In addition, our individual business segment results should not be used as a substitute for comparable results determined in accordance with U.S. GAAP.

We summarize our business segment results for the third quarter and first nine months of ~~2018~~2019 and ~~2017~~2018 and provide a comparative discussion of these results, as well as changes in our financial condition and credit performance metrics as of September 30, ~~2018~~2019 compared to December 31, ~~2017.~~2018. We provide a reconciliation of our total business segment results to our reported consolidated results in “Note 13—Business Segments and Revenue from Contracts with Customers.”

Business Segment Financial Performance

Table 109 summarizes our business segment results, which we report based on revenue and ~~net~~ income from continuing operations, for the third quarter and first nine months of ~~2018~~2019 and ~~2017.~~2018.

Table ~~10:~~9: Business Segment Results

Three Months Ended September 30,
2018 2017

Total Net
Revenue⁽¹⁾

Net Income⁽²⁾

Total Net
Revenue⁽¹⁾

Net Income⁽²⁾
(Dollars in millions) Amount % of
Total Amount % of
Total Amount % of
Total Amount % of
Total
Credit Card $ 4,489
65 % $ 1,040
69 % $ 4,305
62 % $ 572
50 %
Consumer Banking 1,791
26
482
32
1,841
26
316
28
Commercial Banking⁽³⁾⁽⁴⁾
728
10
204
14
739
11
179
16
Other⁽³⁾⁽⁴⁾
(46 ) (1 ) (225 ) (15 ) 100
1
70
6
Total $ 6,962
100 % $ 1,501
100 % $ 6,985
100 % $ 1,137
100 %

Nine Months Ended September 30,
2018 2017

Total Net
Revenue⁽¹⁾

Net Income⁽²⁾

Total Net
Revenue⁽¹⁾

Net Income⁽²⁾
(Dollars in millions) Amount % of
Total Amount % of
Total Amount % of
Total Amount % of
Total
Credit Card $ 13,184
63 % $ 2,670
56 % $ 12,558
62 % $ 1,396
47 %
Consumer Banking 5,364
26
1,447
30
5,314
26
840
28
Commercial Banking⁽³⁾⁽⁴⁾
2,209
10
702
15
2,215
11
538
18
Other⁽³⁾⁽⁴⁾
306
1
(58 ) (1 ) 137
1
205
7
Total $ 21,063
100 % $ 4,761
100 % $ 20,224
100 % $ 2,979
100 %

~~________~~



	Three Months Ended September 30,
	2019										2018
	Total Net Revenue⁽¹⁾					Net Income (Loss)⁽²⁾					Total Net Revenue (Loss)⁽¹⁾					Net Income (Loss)⁽²⁾
(Dollars in millions)	Amount			% of Total		Amount			% of Total		Amount			% of Total		Amount			% of Total
Credit Card	$	4,416		63	%	$	734		55	%	$	4,489		65	%	$	1,040		69	%
Consumer Banking	1,847			27		505			38		1,791			26		482			32
Commercial Banking⁽³⁾⁽⁴⁾	707			10		154			12		702			10		184			12
Other⁽³⁾⁽⁴⁾	(11		)	—		(64		)	(5	)	(20		)	(1	)	(205		)	(13	)
Total	$	6,959		100	%	$	1,329		100	%	$	6,962		100	%	$	1,501		100	%



	Nine Months Ended September 30,
	2019										2018
	Total Net Revenue⁽¹⁾					Net Income (Loss)⁽²⁾					Total Net Revenue⁽¹⁾				Net Income⁽²⁾
(Dollars in millions)	Amount			% of Total		Amount			% of Total		Amount		% of Total		Amount		% of Total
Credit Card	$	13,525		64	%	$	2,423		56	%	$	13,184	63	%	$	2,670	56	%
Consumer Banking	5,561			26		1,516			35		5,364		26		1,447		30
Commercial Banking⁽³⁾⁽⁴⁾	2,097			10		457			10		2,121		10		634		13
Other⁽³⁾⁽⁴⁾	(17		)	—		(41		)	(1	)	394		1		10		1
Total	$	21,166		100	%	$	4,355		100	%	$	21,063	100	%	$	4,761	100	%




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__________


⁽¹⁾	Total net revenue consists of net interest income and non-interest income.


⁽²⁾	Net income (loss) for our business segments and the Other category is based on income from continuing operations, net of tax.

⁽³⁾

Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate ~~(21% and 35% for all periods presented in 2018 and 2017, respectively)~~of 21% and state taxes where applicable, with offsetting reductions to the Other category.

⁽⁴⁾

In the first quarter of ~~2018,~~2019, we made a change in how revenue is measured in our Commercial Banking business ~~to include~~by revising the allocation of tax benefits ~~of losses~~ on certain tax-advantaged investments. ~~These tax benefits are included in revenue on a taxable-equivalent basis within our Commercial Banking business,~~As such, prior period results have been recast to conform with ~~an offsetting reduction to~~ the ~~Other category. In addition, all revenue presented on a taxable-equivalent basis in our Commercial Banking business was impacted by the reduction~~current period presentation. The result of ~~the federal tax rate set forth in the Tax Act. The net impact of the~~this measurement change ~~and~~reduced the ~~reduction of the federal tax rate was a decrease of $30 million and $86 million in~~previously reported total net revenue in our Commercial Banking business inby $26 million and $88 million for the third quarter and first nine months of 2018, ~~respectively,~~ with an offsetting ~~impact to~~increase in the Other category.




	18	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

Credit Card Business

The primary sources of revenue for our Credit Card business are net interest income, net interchange income and fees collected from customers. Expenses primarily consist of the provision for credit losses, operating costs and marketing expenses.

Our Credit Card business generated net income from continuing operations of $734 million and $2.4 billion in the third quarter and first nine months of 2019, respectively, and $1.0 billion and $2.7 billion in the third quarter and first nine months of 2018, ~~respectively, and $572 million and $1.4 billion in the third quarter and first nine months of 2017,~~ respectively.

Table 1110 summarizes the financial results of our Credit Card business and displays selected key metrics for the periods indicated.

Table ~~11:~~10: Credit Card Business Results



	Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in millions, except as noted)	2019			2018			Change		2019			2018			Change
Selected income statement data:
Net interest income	$	3,546		$	3,596		(1	)%	$	10,667		$	10,550		1	%
Non-interest income	870			893			(3	)	2,858			2,634			9
Total net revenue⁽¹⁾	4,416			4,489			(2	)	13,525			13,184			3
Provision for credit losses	1,087			1,031			5		3,571			3,658			(2	)
Non-interest expense	2,360			2,103			12		6,784			6,046			12
Income from continuing operations before income taxes	969			1,355			(28	)	3,170			3,480			(9	)
Income tax provision	235			315			(25	)	747			810			(8	)
Income from continuing operations, net of tax	$	734		$	1,040		(29	)	$	2,423		$	2,670		(9	)
Selected performance metrics:
Average loans held for investment⁽²⁾	$	112,371		$	109,510		3		$	111,545		$	108,968		2
Average yield on loans held for investment⁽³⁾	15.55		%	15.79		%	(24	)bps	15.66		%	15.37		%	29	bps
Total net revenue margin⁽⁴⁾	15.72			16.40			(68	)	16.17			16.13			4
Net charge-offs	$	1,151		$	1,137		1	%	$	3,835		$	3,774		2	%
Net charge-off rate	4.09		%	4.15		%	(6	)bps	4.58		%	4.62		%	(4	)bps
Purchase volume⁽⁵⁾	$	108,034		$	97,469		11	%	$	308,134		$	281,406		9	%

(Dollars in millions, except as noted)	September 30, 2019			December 31, 2018			Change
Selected period-end data:
Loans held for investment⁽²⁾	$	113,681		$	116,361		(2	)%
30+ day performing delinquency rate	3.69		%	4.00		%	(31	)bps
30+ day delinquency rate	3.71			4.01			(30	)
Nonperforming loan rate⁽⁶⁾	0.02			0.02			—
Allowance for loan and lease losses	$	5,270		$	5,535		(5	)%
Allowance coverage ratio	4.64		%	4.76		%	(12	)bps

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions, except as noted) 2018 2017 Change 2018 2017 Change
Selected income statement data:
Net interest income $ 3,596
$ 3,440
5 % $ 10,550
$ 10,080
5 %
Non-interest income 893
865
3
2,634
2,478
6
Total net revenue⁽¹⁾
4,489
4,305
4
13,184
12,558
5
Provision for credit losses 1,031
1,466
(30 ) 3,658
4,580
(20 )
Non-interest expense 2,103
1,961
7
6,046
5,808
4
Income from continuing operations before income taxes 1,355
878
54
3,480
2,170
60
Income tax provision 315
306
3
810
774
5
Income from continuing operations, net of tax $ 1,040
$ 572
82
$ 2,670
$ 1,396
91
Selected performance metrics:
Average loans held for investment⁽²⁾
$ 109,510
$ 102,545
7
$ 108,968
$ 101,258
8
Average yield on loans held for investment⁽³⁾
15.79 % 15.58 % 21 bps 15.37 % 15.24 % 13 bps
Total net revenue margin⁽⁴⁾
16.40
16.79
(39 ) 16.13
16.54
(41 )
Net charge-offs $ 1,137
$ 1,155
(2 )% $ 3,774
$ 3,682
2 %
Net charge-off rate 4.15 % 4.51 % (36 )bps 4.62 % 4.85 % (23 )bps
Purchase volume⁽⁵⁾
$ 97,469
$ 84,505
15 % $ 281,406
$ 240,781
17 %

(Dollars in millions, except as noted) September 30, 2018 December 31, 2017 Change
Selected period-end data:
Loans held for investment⁽²⁾
$ 110,685
$ 114,762
(4 )%
30+ day performing delinquency rate 3.78 % 3.98 % (20 )bps

30+ day delinquency rate 3.80
3.99
(19 )
Nonperforming loan rate⁽⁶⁾
0.02
0.02
—

Allowance for loan and lease losses $ 5,520
$ 5,648
(2 )%
Allowance coverage ratio 4.99 % 4.92 % 7 bps

__________

⁽¹⁾

We recognize billed finance charges and fee income on open-ended loans in accordance with the contractual provisions of the credit arrangements and estimate the uncollectible amount on a quarterly basis. The estimated uncollectible amount of billed finance charges and fees is reflected as a reduction in revenue and is not included in our net charge-offs. Total net revenue was reduced by $330 million and $1.0 billion in the third quarter and first nine months of 2019, respectively, and by $305 million and $949 million in the third quarter and first nine months of 2018, respectively, ~~and by $356 million and $990 million in the third quarter and first nine months of 2017, respectively,~~ for the estimated uncollectible ~~amount of billed finance charges and fees and related losses. The finance charge and fee reserve totaled $425 million and $491 million as of September 30, 2018 and December 31, 2017, respectively.~~




	22	Capital One Financial Corporation (COF)

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amount of billed finance charges and fees and related losses. The finance charge and fee reserve totaled $454 million and $468 million as of September 30, 2019 and December 31, 2018, respectively.


⁽²⁾	Period-end loans held for investment and average loans held for investment include billed finance charges and fees, net of the estimated uncollectible amount.


⁽³⁾	Average yield on loans held for investment is calculated by dividing annualized interest income for the period by average loans held for investment during the period. Interest income excludes various allocations including funds transfer pricing that assigns certain balance sheet assets, deposits and other liabilities and their related revenue and expenses attributable to each business segment.


⁽⁴⁾	Total net revenue margin is calculated by dividing annualized total net revenue for the period by average loans held for investment during the period. Interest income also includes interest income on loans held for sale.




	19	~~Capital One Financial Corporation (COF)~~

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⁽⁵⁾	Purchase volume consists of purchase transactions, net of returns, for the period, and excludes cash advance and balance transfer transactions.


⁽⁶⁾	Within our credit card loan portfolio, only certain loans in our international card businesses are classified as nonperforming. See “MD&A—Nonperforming Loans and Other Nonperforming Assets” for additional information.

Key factors affecting the results of our Credit Card business for the third quarter and first nine months of ~~2018~~2019 compared to the third quarter and first nine months of ~~2017,~~2018, and changes in financial condition and credit performance between September 30, ~~2018~~2019 and December 31, ~~2017~~2018 include the following:

•

Net Interest Income: Net interest income ~~increased~~decreased by ~~$156~~$50 million to ~~$3.6~~$3.5 billion in the third quarter of ~~2018 and~~2019 primarily due to the impact of the U.K. PPI Reserve build, partially offset by growth in our domestic credit card loan portfolio. Net interest income increased by ~~$470~~$117 million to ~~$10.6~~$10.7 billion in the first nine months of ~~2018~~2019 primarily driven by ~~loan~~ growth in our ~~Domestic Card business, including loans obtained in~~domestic credit card loan portfolio, partially offset by the ~~Cabela’s acquisition.~~impact of the U.K. PPI Reserve build.

•

Non-Interest Income:Non-interest income ~~increased~~decreased by ~~$28~~$23 million to ~~$893~~$870 million in the third quarter of ~~2018 and~~2019 primarily due to the impact of the U.K. PPI Reserve build, partially offset by an increase in net interchange fees driven by higher purchase volume. Non-interest income increased by ~~$156~~$224 million to ~~$2.6~~$2.9 billion in the first nine months of ~~2018~~2019 primarily ~~driven by~~due to an increase in net interchange fees ~~primarily due to~~driven by higher purchase ~~volume.~~volume and the updated rewards cost estimates as well as a gain on the sale of certain partnership receivables, partially offset by the impact of the U.K. PPI Reserve build.

•

Provision for Credit Losses: The provision for credit losses ~~decreased~~increased by ~~$435~~$56 million to ~~$1.0~~$1.1 billion in the third quarter of ~~2018 and~~2019 primarily driven by a smaller allowance release in our domestic credit card loan portfolio. The provision for credit losses decreased by ~~$922~~$87 million to ~~$3.7~~$3.6 billion in the first nine months of ~~2018~~2019 primarily driven by ~~allowance releases~~the impact of the sale of certain partnership receivables as well as the strong economy and stable underlying credit performance in our domestic credit card loan ~~portfolio due to improvements in credit trends.~~portfolio.

•

Non-Interest Expense: Non-interest expense increased by ~~$142~~$257 million to ~~$2.1~~$2.4 billion in the third quarter of 2019 primarily due to expenses related to the Walmart partnership, the impact of the U.K. PPI Reserve build, and continued investments in technology and infrastructure. Non-interest expense increased by $738 million to $6.8 billion in the first nine months of 2019 primarily driven by expenses related to the Walmart partnership, increased marketing expenses, continued investments in technology and infrastructure, and the impact of the U.K. PPI Reserve build.

Loans Held for Investment:


◦	Period-end loans held for investment decreased by $2.7 billion to $113.7 billion as of September 30, 2019 from December 31, 2018 primarily due to expected seasonal paydowns and the sale of certain partnership receivables, partially offset by growth in our domestic credit card loan portfolio.

◦

Average loans held for investment increased by $2.9 billion to $112.4 billion in the third quarter of 2019 compared to the third quarter of 2018 and increased by ~~$238 million~~$2.6 billion to ~~$6.0~~$111.5 billion in the first nine months of 2019 compared to the first nine months of 2018 primarily ~~driven by higher marketing and operating expenses associated with loan growth and continued investments in technology and infrastructure.~~


•	~~Loans Held for Investment:~~ ~~Period-end loans held for investment decreased by $4.1 billion~~due to ~~$110.7 billion as of September 30, 2018 from December 31, 2017 as expected seasonal paydowns more than offset~~ growth in our domestic credit card loan portfolio.

Average loans held for investment increased by $7.0 billion to $109.5 billion in the third quarter of 2018 compared to the third quarter of 2017 and increased by $7.7 billion to $109.0 billion in the first nine months of 2018 compared to the first nine months of 2017 primarily due to growth in our domestic credit card loan portfolio largely driven by loans obtained in the Cabela’s acquisition.

•

Net Charge-Off and Delinquency Metrics: The net charge-off rate decreased by 366 basis points to ~~4.15%~~4.09% in the third quarter of ~~2018~~2019 compared to the third quarter of ~~2017~~2018, and decreased by 234 basis points to ~~4.62%~~4.58% in the first nine months of ~~2018~~2019 compared to the first nine months of ~~2017~~2018, and the 30+ day delinquency rate decreased by 30 basis points to 3.71% as of September 30, 2019 from December 31, 2018 primarily ~~driven by favorability realized from portfolio seasoning.~~due to the strong economy and stable underlying credit performance in our domestic credit card loan portfolio.

The 30+ day delinquency rate decreased by 19 basis points to 3.80% as of September 30, 2018 from December 31, 2017 primarily driven by improvements in credit trends in our domestic credit card loan portfolio.




	23	Capital One Financial Corporation (COF)

Table of Contents

Domestic Card Business

The Domestic Card business generated net income from continuing operations of $837 million and $2.4 billion in the third quarter and first nine months of 2019, respectively, compared to net income from continuing operations of $966 million and $2.5 billion in the third quarter and first nine months of 2018, ~~respectively, compared to net income from continuing operations of $475 million and $1.2 billion in the third quarter and first nine months of 2017,~~ respectively. In the third quarter and first nine months of 2019 and 2018, ~~and 2017,~~the Domestic Card business accounted for greater than 90% of total net revenue of our Credit Card business.




	20	~~Capital One Financial Corporation (COF)~~

Table ~~of Contents~~

~~Table 11.1~~10.1 summarizes the financial results for Domestic Card business and displays selected key metrics for the periods indicated.

Table ~~11.1:~~10.1: Domestic Card Business Results


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in millions, except as noted)	2018			2017			Change		2018			2017			Change		2019			2018			Change		2019			2018			Change
Selected income statement data:
Net interest income	$	3,280		$	3,132		5	%	$	9,617		$	9,236		4	%	$	3,299		$	3,280		1	%	$	9,792		$	9,617		2	%
Non-interest income	819			787			4		2,411			2,288			5		878			819			7		2,722			2,411			13
Total net revenue⁽¹⁾	4,099			3,919			5		12,028			11,524			4		4,177			4,099			2		12,514			12,028			4
Provision for credit losses	950			1,417			(33	)	3,424			4,381			(22	)	1,010			950			6		3,325			3,424			(3	)
Non-interest expense	1,890			1,754			8		5,405			5,198			4		2,076			1,890			10		6,059			5,405			12
Income from continuing operations before income taxes	1,259			748			68		3,199			1,945			64		1,091			1,259			(13	)	3,130			3,199			(2	)
Income tax provision	293			273			7		745			710			5		254			293			(13	)	729			745			(2	)
Income from continuing operations, net of tax	$	966		$	475		103		$	2,454		$	1,235		99		$	837		$	966		(13	)	$	2,401		$	2,454		(2	)
Selected performance metrics:
Average loans held for investment⁽²⁾	$	100,566		$	93,729		7		$	99,970		$	92,847		8		$	103,426		$	100,566		3		$	102,677		$	99,970		3
Average yield on loans held for investment⁽³⁾	15.73		%	15.51		%	22	bps	15.29		%	15.20		%	9	bps	15.74		%	15.73		%	1	bps	15.67		%	15.29		%	38	bps
Total net revenue margin⁽⁴⁾	16.30			16.72			(42	)	16.04			16.55			(51	)	16.15			16.30			(15	)	16.25			16.04			21
Net charge-offs	$	1,094		$	1,087		1	%	$	3,581		$	3,455		4	%	$	1,065		$	1,094		(3	)%	$	3,599		$	3,581		1	%
Net charge-off rate	4.35		%	4.64		%	(29	)bps	4.78		%	4.96		%	(18	)bps	4.12		%	4.35		%	(23	)bps	4.67		%	4.78		%	(11	)bps
Purchase volume⁽⁵⁾	$	89,205		$	76,806		16	%	$	257,340		$	219,537		17	%	$	99,087		$	89,205		11	%	$	282,878		$	257,340		10	%

(Dollars in millions, except as noted)	September 30, 2018			December 31, 2017			Change										September 30, 2019			December 31, 2018			Change
Selected period-end data:
Loans held for investment⁽²⁾	$	101,564		$	105,293		(4	)%									$	104,664		$	107,350		(3	)%
30+ day delinquency rate	3.80		%	4.01		%	(21	)bps									3.71		%	4.04		%	(33	)bps
Allowance for loan and lease losses	$	5,116		$	5,273		(3	)%									$	4,870		$	5,144		(5	)
Allowance coverage ratio	5.04		%	5.01		%	3	bps									4.65		%	4.79		%	(14	)bps

__________


⁽¹⁾	We recognize billed finance charges and fee income on open-ended loans in accordance with the contractual provisions of the credit arrangements and estimate the uncollectible amount on a quarterly basis. The estimated uncollectible amount of billed finance charges and fees is reflected as a reduction in revenue and is not included in our net charge-offs.


⁽²⁾	Period-end loans held for investment and average loans held for investment include billed finance charges and fees, net of the estimated uncollectible amount.


⁽³⁾	Average yield on loans held for investment is calculated by dividing annualized interest income for the period by average loans held for investment during the period. Interest income excludes various allocations including funds transfer pricing that assigns certain balance sheet assets, deposits and other liabilities and their related revenue and expenses attributable to each business segment.


⁽⁴⁾	Total net revenue margin is calculated by dividing annualized total net revenue for the period by average loans held for investment during the period.


⁽⁵⁾	Purchase volume consists of purchase transactions, net of returns, for the period, and excludes cash advance and balance transfer transactions.




	24	Capital One Financial Corporation (COF)

Table of Contents

Because our Domestic Card business accounts for the substantial majority of our Credit Card business, the key factors driving the results are similar to the key factors affecting our total Credit Card business. Net income for our Domestic Card business ~~increased~~decreased in the third quarter of ~~2018~~2019 compared to the third quarter of ~~2017 and increased in the first nine months of~~ 2018 ~~compared to the first nine months of 2017~~ primarily driven by:

~~lower~~expenses related to the Walmart partnership and continued investments in technology and infrastructure; and

higher provision for credit ~~losses;~~losses due to a smaller allowance release.

These drivers were partially offset by:

an increase in net interchange fees driven by higher purchase volume; and

higher net interest income primarily driven by growth in our loan ~~growth, including loans obtained~~portfolio.

Net income for our Domestic Card business decreased in the ~~Cabela’s acquisition; and~~

~~higher non-interest income~~first nine months of 2019 compared to the first nine months of 2018 primarily driven by expenses related to the Walmart partnership, continued investments in technology and infrastructure, and increased marketing expenses. These drivers were partially offset by:

an increase in net interchange fees ~~primarily due to~~driven by higher purchase ~~volume.~~volume and the updated rewards cost estimates as well as a gain on the sale of certain partnership receivables; and

~~These drivers were partially offset by~~ higher ~~non-interest expense~~net interest income primarily driven by ~~higher marketing and operating expenses associated with~~growth in our loan ~~growth and continued investments in technology and infrastructure.~~portfolio.




	21	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

Consumer Banking Business

The primary sources of revenue for our Consumer Banking business are net interest income from loans and deposits, net interchange income and non-interest income from service charges and customer-related fees. Expenses primarily consist of the provision for credit losses, operating costs and marketing expenses.

Our Consumer Banking business generated net income from continuing operations of $505 million and $1.5 billion in the third quarter and first nine months of 2019, respectively, and $482 million and $1.4 billion in the third quarter and first nine months of 2018, ~~respectively, and $316 million and $840 million in the third quarter and first nine months~~respectively.




	25	Capital One Financial Corporation (COF)

Table of ~~2017, respectively.~~Contents

Table 1211 summarizes the financial results of our Consumer Banking business and displays selected key metrics for the periods indicated.

Table ~~12:~~11: Consumer Banking Business Results



	Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in millions, except as noted)	2019			2018			Change		2019			2018			Change
Selected income statement data:
Net interest income	$	1,682		$	1,636		3	%	$	5,070		$	4,860		4	%
Non-interest income	165			155			6		491			504			(3	)
Total net revenue	1,847			1,791			3		5,561			5,364			4
Provision for credit losses	203			184			10		603			535			13
Non-interest expense	985			979			1		2,981			2,942			1
Income from continuing operations before income taxes	659			628			5		1,977			1,887			5
Income tax provision	154			146			5		461			440			5
Income from continuing operations, net of tax	$	505		$	482		5		$	1,516		$	1,447		5
Selected performance metrics:
Average loans held for investment:
Auto	$	58,517		$	56,297		4		$	57,282		$	55,320		4
Home loan⁽¹⁾	—			—			**		—			8,377			**
Retail banking	2,752			2,923			(6	)	2,790			3,144			(11	)
Total consumer banking	$	61,269		$	59,220		3		$	60,072		$	66,841		(10	)
Average yield on loans held for investment⁽²⁾	8.47		%	8.03		%	44	bps	8.33		%	7.36		%	97	bps
Average deposits	$	204,933		$	194,687		5	%	$	203,404		$	191,942		6	%
Average deposits interest rate	1.31		%	1.00		%	31	bps	1.25		%	0.89		%	36	bps
Net charge-offs	$	251		$	262		(4	)%	$	644		$	683		(6	)%
Net charge-off rate	1.64		%	1.77		%	(13	)bps	1.43		%	1.36		%	7	bps
Auto loan originations	$	8,175		$	6,643		23	%	$	21,723		$	20,345		7	%

(Dollars in millions, except as noted)	September 30, 2019			December 31, 2018			Change
Selected period-end data:
Loans held for investment:
Auto	$	59,278		$	56,341		5	%
Retail banking	2,737			2,864			(4	)
Total consumer banking	$	62,015		$	59,205		5
30+ day performing delinquency rate	6.23		%	6.67		%	(44	)bps
30+ day delinquency rate	6.86			7.36			(50	)
Nonperforming loan rate	0.74			0.81			(7	)
Nonperforming asset rate⁽³⁾	0.83			0.90			(7	)
Allowance for loan and lease losses	$	1,007		$	1,048		(4	)%
Allowance coverage ratio	1.62		%	1.77		%	(15	)bps
Deposits	$	206,423		$	198,607		4	%

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions, except as noted) 2018 2017 Change 2018 2017 Change
Selected income statement data:
Net interest income $ 1,636
$ 1,649
(1 )% $ 4,860
$ 4,744
2 %
Non-interest income 155
192
(19 ) 504
570
(12 )
Total net revenue 1,791
1,841
(3 ) 5,364
5,314
1
Provision for credit losses 184
293
(37 ) 535
840
(36 )
Non-interest expense 979
1,051
(7 ) 2,942
3,152
(7 )
Income from continuing operations before income taxes 628
497
26
1,887
1,322
43
Income tax provision 146
181
(19 ) 440
482
(9 )
Income from continuing operations, net of tax $ 482
$ 316
53
$ 1,447
$ 840
72
Selected performance metrics:
Average loans held for investment:
Auto $ 56,297
$ 52,615
7
$ 55,320
$ 50,711
9
Home loan⁽¹⁾
—
19,302
**
8,377
20,211
(59 )
Retail banking 2,923
3,446
(15 ) 3,144
3,473
(9 )
Total consumer banking $ 59,220
$ 75,363
(21 ) $ 66,841
$ 74,395
(10 )
Average yield on loans held for investment⁽²⁾
8.03 % 6.79 % 124 bps 7.36 % 6.61 % 75 bps
Average deposits $ 194,687
$ 185,072
5 % $ 191,942
$ 185,336
4 %
Average deposits interest rate 1.00 % 0.62 % 38 bps 0.89 % 0.60 % 29 bps
Net charge-offs $ 262
$ 276
(5 )% $ 683
$ 726
(6 )%
Net charge-off rate 1.77 % 1.47 % 30 bps 1.36 % 1.30 % 6 bps
Auto loan originations $ 6,643
$ 7,043
(6 )% $ 20,345
$ 21,521
(5 )%




	22	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~__________

(Dollars in millions, except as noted) September 30, 2018 December 31, 2017 Change
Selected period-end data:
Loans held for investment:
Auto $ 56,422
$ 53,991
5 %
Home loan⁽¹⁾
—
17,633
**

Retail banking 2,907
3,454
(16 )
Total consumer banking $ 59,329
$ 75,078
(21 )
30+ day performing delinquency rate 6.01 % 4.76 % 125 bps
30+ day delinquency rate 6.61
5.34
127

Nonperforming loan rate 0.72
0.78
(6 )
Nonperforming asset rate⁽³⁾
0.82
0.91
(9 )
Allowance for loan and lease losses $ 1,043
$ 1,242
(16 )%
Allowance coverage ratio 1.76 % 1.65 % 11 bps
Deposits $ 196,635
$ 185,842
6 %

~~__________~~


⁽¹⁾	In ~~the first nine months of~~ 2018, we sold ~~substantially~~ all of our consumer home loan portfolio and the related servicing. The impact of ~~the sales~~this sale is reflected in the Other ~~category for the three and nine months ended September 30, 2018.~~ category.


⁽²⁾	Average yield on loans held for investment is calculated by dividing annualized interest income for the period by average loans held for investment during the period. Interest income excludes various allocations including funds transfer pricing that assigns certain balance sheet assets, deposits and other liabilities and their related revenue and expenses attributable to each business segment.


⁽³⁾	Nonperforming assets primarily consist of nonperforming loans ~~real estate owned (“REO”)~~ and ~~other foreclosed~~repossessed assets. The total nonperforming asset rate is calculated based on total nonperforming assets divided by the combined period-end total loans held for investment ~~REO~~ and ~~other foreclosed~~repossessed assets.


**	Not meaningful.




	26	Capital One Financial Corporation (COF)

Table of Contents

Key factors affecting the results of our Consumer Banking business for the third quarter and first nine months of ~~2018~~2019 compared to the third quarter and first nine months of ~~2017,~~2018, and changes in financial condition and credit performance between September 30, ~~2018~~2019 and December 31, ~~2017~~2018 include the following:

•

Net Interest Income:Net interest income ~~remained substantially flat at $1.6~~increased by $46 million to $1.7 billion in the third quarter of ~~2018~~2019 primarily driven by growth and higher yields in our auto loan portfolio, partially offset by the reduction in net interest income from the sale of our consumer home loan portfolio. Net interest income increased by ~~$116~~$210 million to ~~$4.9~~$5.1 billion in the first nine months of ~~2018~~2019 primarily driven by growth and higher yields in our auto loan portfolio as well as higher margin and ~~higher~~ deposit volumes ~~and margins~~ in our ~~retail banking~~Retail Banking business, partially offset by the reduction in net interest income from the sale ~~of substantially all~~ of our consumer home loan portfolio.

Consumer Banking loan ~~yield~~yields increased by ~~124~~44 basis points to ~~8.03%~~8.47% and increased by 7597 basis points to ~~7.36%~~8.33% in the third quarter and first nine months of ~~2018,~~2019, respectively, compared to the third quarter and first nine months of ~~2017~~2018. The increase was primarily driven ~~by:~~by changes in product mix due to the sale of our consumer home loan portfolio and higher yields as a result of higher interest rates.


◦	~~changes in product mix as a result of the sale of substantially all of our consumer home loan portfolio; and~~


◦	~~higher yields as a result of higher interest rates.~~


•	Non-Interest Income:Non-interest income ~~decreased by $37 million to $155~~remained substantially flat at $165 million in the third quarter of ~~2018~~2019 and ~~decreased by $66 million to $504~~$491 million in the first nine months of ~~2018 primarily driven by:~~2019.


◦	~~lower mortgage banking revenue as a result of our decision to cease new originations of home loan lending products in the fourth quarter of 2017; and~~


◦	~~a mortgage representation and warranty reserve release in the first quarter of 2017.~~

•

Provision for Credit Losses: The provision for credit losses ~~decreased~~increased by ~~$109~~$19 million to ~~$184~~$203 million in the third quarter of ~~2018~~2019 and ~~decreased~~increased by ~~$305~~$68 million to ~~$535~~$603 million in the first nine months of ~~2018~~2019 primarily driven by a smaller allowance ~~releases~~release in our auto loan ~~portfolio largely due to improvements in credit trends.~~portfolio.




	23	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~


•	Non-Interest Expense: Non-interest expense ~~decreased by $72 million to $979 million~~remained substantially flat at $1.0 billion in the third quarter of ~~2018~~2019 and ~~decreased by $210 million to $2.9~~$3.0 billion in the first nine months of ~~2018 primarily driven by:~~

◦

~~lower~~2019, as higher operating expenses due to growth in our ~~decision~~auto loan portfolio and increased marketing expense associated with our national banking strategy were largely offset by lower operating expense due to ~~cease new originations of home loan lending products in the fourth quarter of 2017 and~~ the sale ~~of substantially all~~ of our consumer home loan ~~portfolio in the third quarter and first nine months of 2018; and~~portfolio.


◦	~~operating efficiencies in our retail banking business.~~

~~These drivers were largely offset by higher operating expenses driven by growth in our auto loan portfolio.~~

•

Loans Held for Investment: Period-end loans held for investment ~~decreased~~increased by ~~$15.7~~$2.8 billion to ~~$59.3~~$62.0 billion as of September 30, ~~2018 from~~2019 compared to December 31, ~~2017,~~2018 and average loans held for investment ~~decreased~~increased by ~~$16.1~~$2.0 billion to ~~$59.2~~$61.3 billion in the third quarter of ~~2018~~2019 compared to the third quarter of ~~2017 and~~2018 due to growth in our auto loan portfolio. Average loans held for investment decreased by ~~$7.6~~$6.8 billion to ~~$66.8~~$60.1 billion in the first nine months of ~~2018~~2019 compared to the first nine months of ~~2017. These decreases were~~2018 primarily driven by the sale ~~of substantially all~~ of our consumer home loan portfolio, partially offset by growth in our auto loan portfolio.


•	Deposits: Period-end deposits increased by ~~$10.8~~$7.8 billion to ~~$196.6~~$206.4 billion as of September 30, ~~2018~~2019 from December 31, ~~2017 as a result of~~2018 driven by strong growth in our deposit products ~~that are offered to both existing and new customers.~~as a result of our national banking strategy.

•

Net Charge-Off and Delinquency Metrics: The net charge-off rate ~~increased~~decreased by 3013 basis points to ~~1.77%~~1.64% in the third quarter of ~~2018~~2019 compared to the third quarter of ~~2017, and increased by 6 basis points to 1.36% in the first nine months of~~ 2018 ~~compared to the first nine months of 2017. These increases were~~ primarily driven by lower ~~loan balances due to the sale of substantially all of our consumer home loan portfolio, partially offset by improvements in credit trends~~net charge-offs and growth in our auto loan portfolio.

The ~~30+ day delinquency~~net charge-off rate increased by ~~127~~7 basis points to ~~6.61% as~~1.43% in the first nine months of ~~September 30,~~2019 compared to the first nine months of 2018 ~~from December 31, 2017~~ primarily driven by lower loan balances due to the sale of ~~substantially all of~~ our consumer home loan portfolio, partially offset by lower net charge-offs and growth in our auto loan portfolio.

The 30+ day delinquency rate decreased by 50 basis points to 6.86% as of September 30, 2019 from December 31, 2018 primarily attributable to growth in our auto loan portfolio and seasonally lower auto delinquency inventories.

Commercial Banking Business

The primary sources of revenue for our Commercial Banking business are net interest income from loans and deposits and non-interest income from customer fees and other ~~transactions.~~products and services. Because our Commercial Banking business has loans and investments that generate tax-exempt income, tax credits or other tax benefits, we present the revenues on a taxable-equivalent basis. Expenses primarily consist of the provision for credit losses, operating costs and marketing expenses.

Our Commercial Banking business generated net income from continuing operations of ~~$204~~$154 million and ~~$702~~$457 million in the third quarter and first nine months of ~~2018,~~2019, respectively, and ~~$179~~$184 million and ~~$538~~$634 million in the the third quarter and first nine months of ~~2017,~~2018, respectively.




	2427	Capital One Financial Corporation (COF)

Table of Contents

Table 1312 summarizes the financial results of our Commercial Banking business and displays selected key metrics for the periods indicated.

Table ~~13:~~12: Commercial Banking Business Results


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in millions, except as noted)	2018			2017			Change		2018			2017			Change		2019			2018			Change		2019			2018			Change
Selected income statement data:
Net interest income	$	539		$	560		(4	)%	$	1,624		$	1,695		(4	)%	$	486		$	513		(5	)%	$	1,489		$	1,536		(3	)%
Non-interest income	189			179			6		585			520			13		221			189			17		608			585			4
Total net revenue⁽¹⁾⁽²⁾	728			739			(1	)	2,209			2,215			—		707			702			1		2,097			2,121			(1	)
Provision for credit losses⁽³⁾	54			63			(14	)	74			201			(63	)	93			54			72		244			74			230
Non-interest expense	408			394			4		1,220			1,166			5		414			408			1		1,258			1,220			3
Income from continuing operations before income taxes	266			282			(6	)	915			848			8		200			240			(17	)	595			827			(28	)
Income tax provision	62			103			(40	)	213			310			(31	)	46			56			(18	)	138			193			(28	)
Income from continuing operations, net of tax	$	204		$	179		14		$	702		$	538		30		$	154		$	184		(16	)	$	457		$	634		(28	)
Selected performance metrics:
Average loans held for investment:
Commercial and multifamily real estate	$	28,354		$	27,703		2		$	27,406		$	27,235		1		$	29,698		$	28,354		5		$	29,418		$	27,406		7
Commercial and industrial	39,318			39,723			(1	)	38,754			39,804			(3	)	42,807			39,318			9		42,474			38,754			10
Total commercial lending	67,672			67,426			—		66,160			67,039			(1	)	72,505			67,672			7		71,892			66,160			9
Small-ticket commercial real estate	364			433			(16	)	378			453			(17	)	2			364			(99	)	93			378			(75	)
Total commercial banking	$	68,036		$	67,859		—		$	66,538		$	67,492		(1	)	$	72,507		$	68,036		7		$	71,985		$	66,538		8
Average yield on loans held for investment⁽¹⁾⁽⁴⁾	4.55		%	3.98		%	57	bps	4.38		%	3.81		%	57	bps	4.45		%	4.55		%	(10	)bps	4.61		%	4.38		%	23	bps
Average deposits	$	31,061		$	33,197		(6	)%	$	32,679		$	33,890		(4	)%	$	30,693		$	31,061		(1	)%	$	30,957		$	32,679		(5	)%
Average deposits interest rate	0.79		%	0.42		%	37	bps	0.65		%	0.37		%	28	bps	1.25		%	0.79		%	46	bps	1.21		%	0.65		%	56	bps
Net charge-offs	$	27		$	163		(83	)%	$	39		$	322		(88	)%	$	60		$	27		122	%	$	90		$	39		131	%
Net charge-off rate	0.16		%	0.96		%	(80	)bps	0.08		%	0.64		%	(56	)bps	0.33		%	0.16		%	17	bps	0.17		%	0.08		%	9	bps

(Dollars in millions, except as noted)	September 30, 2018			December 31, 2017			Change										September 30, 2019			December 31, 2018			Change
Selected period-end data:
Loans held for investment:
Commercial and multifamily real estate	$	29,064		$	26,150		11	%									$	30,009		$	28,899		4	%
Commercial and industrial	39,325			38,025			3										43,650			41,091			6
Total commercial lending	68,389			64,175			7										73,659			69,990			5
Small-ticket commercial real estate	358			400			(11	)									—			343			**
Total commercial banking	$	68,747		$	64,575		6										$	73,659		$	70,333		5
Nonperforming loan rate	0.38		%	0.44		%	(6	)bps									0.61		%	0.44		%	17	bps
Nonperforming asset rate⁽⁵⁾	0.41			0.52			(11	)									0.61			0.45			16
Allowance for loan and lease losses⁽³⁾	$	656		$	611		7	%									$	760		$	637		19	%
Allowance coverage ratio	0.95		%	0.95		%	—										1.03		%	0.91		%	12	bps
Deposits	$	30,474		$	33,938		(10	)%									$	30,923		$	29,480		5	%
Loans serviced for others	31,302			27,764			13										36,903			32,588			13

__________

⁽¹⁾

⁽²⁾

In the first quarter of ~~2018,~~2019, we made a change in how revenue is measured in our Commercial Banking business ~~to include~~by revising the allocation of tax benefits ~~of losses~~ on certain tax-advantaged investments. ~~These tax benefits are included in~~As such, prior period results have been recast to conform with the current period presentation. The result of this measurement change reduced the previously reported total net revenue ~~on a taxable-equivalent basis within our Commercial Banking business, with an offsetting reduction to the Other category. In addition, all revenue presented on a taxable-equivalent basis~~ in our Commercial Banking business ~~was impacted~~ by $26 million and $88 million for the ~~reduction~~third quarter and first nine months of ~~the federal tax rate set forth~~2018, with an offsetting increase in the ~~Tax Act. The net impact of the measurement change and the reduction of the federal tax rate~~Other category.




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was a decrease of $30 million and $86 million in revenue in our Commercial Banking business in the third quarter and first nine months of 2018, respectively, with an offsetting impact to the Other category.

⁽³⁾

The provision for losses on unfunded lending commitments is included in the provision for credit losses in our consolidated statements of income and the related reserve for unfunded lending commitments is included in other liabilities on our consolidated balance sheets. Our reserve for unfunded lending commitments totaled ~~$106~~ $149 millionand ~~$117~~$118 million as ofSeptember 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.


⁽⁴⁾	Average yield on loans held for investment is calculated by dividing annualized interest income for the period by average loans held for investment during the period. Interest income excludes various allocations including funds transfer pricing that assigns certain balance sheet assets, deposits and other liabilities and their related revenue and expenses attributable to each business segment.


⁽⁵⁾	Nonperforming assets consist of nonperforming loans ~~REO~~ and other foreclosed assets. The total nonperforming asset rate is calculated based on total nonperforming assets divided by the combined period-end total loans held for investment ~~REO~~ and other foreclosed assets.


**	Not meaningful.

Key factors affecting the results of our Commercial Banking business for the third quarter and first nine months of ~~2018~~2019 compared to the third quarter and first nine months of ~~2017,~~2018, and changes in financial condition and credit performance between September 30, ~~2018~~2019 and December 31, ~~2017~~2018 include the following:

•

Net Interest Income: Net interest income decreased by ~~$21~~$27 million to ~~$539~~$486 million in the third quarter of ~~2018~~2019 and decreased by ~~$71~~$47 million to ~~$1.6~~$1.5 billion in the first nine months of ~~2018~~2019 primarily driven by ~~the impact of the reduction of the federal tax rate set forth in the Tax Act~~lower margin on ~~revenue presented on a taxable-equivalent basis,~~loans and deposits, partially offset by ~~the change to include the tax benefit of losses on certain tax-advantaged investments.~~growth across our commercial loan portfolios.


•	Non-Interest Income:Non-interest income increased by ~~$10~~$32 million to ~~$189~~$221 million in the third quarter of ~~2018~~2019 and increased by ~~$65~~$23 million to ~~$585~~$608 million in the first nine months of ~~2018~~2019 primarily driven by higher revenue infrom our capital markets and ~~agency businesses.~~treasury management products.

•

Provision for Credit Losses: ~~The provision~~Provision for credit losses ~~decreased~~increased by $9$39 million to ~~$54~~$93 million in the third quarter of ~~2018~~2019 and ~~decreased~~increased by ~~$127~~$170 million to ~~$74~~$244 million in the first nine months of ~~2018~~2019 primarily driven by ~~elevated~~ charge-offs ~~in the third quarter and first nine months of 2017~~on certain underperforming energy borrowers in our ~~taxi medallion and oil and gas lending portfolios.~~commercial loan portfolio.

•

Non-Interest Expense:Non-interest expense ~~increased by $14 million to $408~~remained substantially flat at $414 million in the third quarter of ~~2018 and~~2019. Non-interest expense increased by ~~$54~~$38 million to ~~$1.2~~$1.3 billion in the first nine months of ~~2018~~2019 primarily driven by higher operating expenses associated with continued investments in technology and other business initiatives.

•

Loans Held for Investment: Period-end loans held for investment increased by ~~$4.2~~$3.3 billion to ~~$68.7~~$73.7 billion as of September 30, ~~2018~~2019 from December 31, ~~2017~~2018, and average loans held for investment increased by $4.5 billion to $72.5 billion in the third quarter of 2019 compared to the third quarter of 2018 and increased by $5.4 billion to $72.0 billion in the first nine months of 2019 compared to the first nine months of 2018 primarily driven by growth across our commercial loan portfolios.

Average loans held for investment remained flat at $68.0 billion in the third quarter of 2018. Average loans held for investment decreased by $954 million to $66.5 billion in the first nine months of 2018 compared to the first nine months of 2017 primarily due to:


◦	~~paydowns in our commercial and industrial loan portfolios; and~~


◦	~~charge-offs in, and the subsequent sale of, the substantial majority of our taxi medallion lending portfolio.~~


•	Deposits: Period-end deposits ~~decreased~~increased by ~~$3.5~~$1.4 billion to ~~$30.5~~$30.9 billion as of September 30, ~~2018~~2019, from December 31, ~~2017~~2018 primarily ~~due to the impact of a rising interest rate environment.~~driven by new business growth.

•

Net Charge-Off and Nonperforming Metrics: The net charge-off rate ~~decreased~~increased by 8017 basis points to ~~0.16%~~0.33% in the third quarter of ~~2018 compared to the third quarter of 2017~~2019 and ~~decreased~~increased by 569 basis points to ~~0.08%~~0.17% in the first nine months of ~~2018 compared to the first nine months of 2017~~2019 primarily driven by ~~elevated~~ charge-offs ~~in the third quarter and first nine months of 2017~~on certain underperforming energy borrowers in our ~~taxi medallion and oil and gas lending portfolios.~~commercial loan portfolio.

The nonperforming loan rate ~~decreased~~increased by 617 basis points to ~~0.38%~~0.61% as of September 30, ~~2018~~2019 from December 31, ~~2017~~2018 primarily driven by ~~paydowns~~downgrades in our ~~oil and gas lending~~commercial energy loan portfolio.




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Other Category

Other includes unallocated amounts related to our centralized Corporate Treasury group activities, such as management of our corporate investment portfolio, asset/liability management and certain capital management activities. Other also includes:

~~foreign exchange-rate fluctuations on foreign currency-denominated balances;~~

unallocated corporate revenue and expenses that do not directly support the operations of the business segments or for which the business segments are not considered financially accountable in evaluating their performance, such as certain restructuring charges;

offsets related to certain line-item reclassifications; ~~and~~

residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business ~~segments.~~segments; and

foreign exchange-rate fluctuations on foreign currency-denominated balances.




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Table 1413 summarizes the financial results of our Other category for the periods indicated.

Table ~~14:~~13: Other Category Results


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in millions)	2018			2017			Change		2018			2017			Change		2019			2018			Change		2019			2018			Change
Selected income statement data:
Net interest income	$	15		$	51		(71	)%	$	21		$	128		(84	)%	$	23		$	41		(44	)%	$	48		$	109		(56	)%
Non-interest income	(61		)	49			**		285			9			**
Non-interest income (loss)																	(34		)	(61		)	(44	)	(65		)	285			**
Total net revenue (loss)⁽¹⁾⁽²⁾	(46		)	100			**		306			137			123		(11		)	(20		)	(45	)	(17		)	394			**
Provision (benefit) for credit losses	(1		)	11			**		(49		)	4			**
Benefit for credit losses																	—			(1		)	**		—			(49		)	**
Non-interest expense(3)	283			161			76		562			289			94		113			283			(60	)	299			562			(47	)
Loss from continuing operations before income taxes	(328		)	(72		)	**		(207		)	(156		)	33		(124		)	(302		)	(59	)	(316		)	(119		)	166
Income tax benefit	(103		)	(142		)	(27	)	(149		)	(361		)	(59	)	(60		)	(97		)	(38	)	(275		)	(129		)	113
Income (loss) from continuing operations, net of tax	$	(225	)	$	70		**		$	(58	)	$	205		**		$	(64	)	$	(205	)	(69	)	$	(41	)	$	10		**

__________

⁽¹⁾

⁽²⁾

In the first quarter of ~~2018,~~2019, we made a change in how revenue is measured in our Commercial Banking business ~~to include~~by revising the allocation of tax benefits ~~of losses~~ on certain tax-advantaged investments. ~~These tax benefits are included in revenue on a taxable-equivalent basis within our Commercial Banking business,~~As such, prior period results have been recast to conform with ~~an offsetting reduction to~~ the ~~Other category. In addition, all revenue presented on a taxable-equivalent basis in our Commercial Banking business was impacted by the reduction~~current period presentation. The result of ~~the federal tax rate set forth in the Tax Act. The net impact of the~~this measurement change ~~and~~reduced the ~~reduction of the federal tax rate was a decrease of $30 million and $86 million in~~previously reported total net revenue in our Commercial Banking business in by $26 million and $88 million for the third quarter and first nine months of 2018, respectively, with an offsetting ~~impact to~~increase in the Other category.


⁽³⁾	Includes $22 million of net Cybersecurity Incident expenses in the third quarter of 2019, consisting of $49 million of expenses and $27 million of probable insurance recoveries.


**	Not meaningful.

Net loss from continuing operations recorded in the Other category was ~~$225~~$64 million in the third quarter of 2019 compared to $205 million in the third quarter of 2018, and ~~$58~~net loss of $41 million in the first nine months of 2019 compared to net income of $10 million in the first nine months of 2018, primarily driven by the absence of the significant activities that occurred in the third quarter and first nine months of 2018, ~~respectively, compared to net income~~including the gains from the sales of ~~$70 million and $205 million in~~our consumer home loan portfolio, the ~~third quarter and first nine months of 2017, respectively.~~

~~The loss in the third quarter of 2018 and the first nine months of 2018 was primarily driven by:~~

an impairment charge as a result of repositioning our investment securities ~~portfolio;~~portfolio, and

a the legal reserve build.

These drivers were partially offset by the net gains from the sales of exited businesses including the sale of substantially all of our consumer home loan portfolio as well as lower operating expenses due to elevated restructuring activities in the third quarter of 2017.




	27	~~Capital One Financial Corporation (COF)~~

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with U.S. GAAP requires management to make a number of judgments, estimates and assumptions that affect the amount of assets, liabilities, income and expenses on the consolidated financial statements. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We provide a summary of our significant accounting policies under “Note 1—Summary of Significant Accounting Policies” in our ~~2017~~2018 Form 10-K.

We have identified the following accounting policies as critical because they require significant judgments and assumptions about highly complex and inherently uncertain matters and the use of reasonably different estimates and assumptions could have a material impact on our results of operations or financial condition. These critical accounting policies govern:

Loan loss reserves

Asset impairment

Fair value of financial instruments

Customer rewards reserve

We evaluate our critical accounting estimates and judgments on an ongoing basis and update them as necessary, based on changing conditions. There have been no changes to our critical accounting policies and estimates described in our ~~2017~~2018 Form 10-K under “MD~~&A—~~&A—Critical Accounting Policies and Estimates.”




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ACCOUNTING CHANGES AND DEVELOPMENTS

Accounting Standards Issued but Not Adopted as of September 30, 2019



Standard	Guidance	Adoption Timing and Financial Statements Impacts
Cloud Computing ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract Issued August 2018	Aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).	Effective January 1, 2020, with early adoption permitted, using either the retrospective or prospective method of adoption. We plan to adopt the standard on its effective date using the prospective method of adoption. We do not expect such adoption to have a material impact on our consolidated financial statements.

Goodwill Impairment Test Simplification ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment Issued January 2017	Eliminates the second step from the current goodwill impairment test. Under the current guidance, the first step compares a reporting unit’s carrying value to its fair value. If the carrying value exceeds fair value, an entity performs the second step, which assigns the reporting unit’s fair value to its assets and liabilities, including unrecognized assets and liabilities, in the same manner as required in purchase accounting. Under the new guidance, any impairment of a reporting unit’s goodwill is determined based on the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the amount of goodwill allocated to the reporting unit.	Effective January 1, 2020, with early adoption permitted, using the prospective method of adoption. We plan to adopt the standard on its effective date and do not expect such adoption to have a material impact on our consolidated financial statements.




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Standard	Guidance	Adoption Timing and Financial Statements Impacts
Current Expected Credit Loss (“CECL”) ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Issued June 2016	Requires use of the current expected credit loss model that is based on expected losses (net of expected recoveries), rather than incurred losses, to determine our allowance for credit losses on financial assets measured at amortized cost, certain net investments in leases and certain off-balance sheet arrangements. Replaces current accounting for purchased credit-impaired (“PCI”) and impaired loans. Amends the other-than-temporary impairment model for available for sale debt securities to require that credit losses be recorded through an allowance approach, rather than through permanent write-downs for credit losses and subsequent accretion of positive changes through interest income over time.	Effective January 1, 2020, with early adoption permitted no earlier than January 1, 2019, using the modified retrospective method of adoption. We plan to adopt the standard on its effective date. We have a company-wide, cross-functional governance structure for our implementation of this standard. We continue to evaluate industry accounting interpretations, data requirements and necessary changes to our credit loss estimation methods, processes, systems and controls. We have made significant progress in accounting policy documentation and model development. We continue to perform model validations, which we expect to complete during 2019. We also continue to perform parallel testing, including multiple tests of our full end-to-end allowance process. We also continue to assess the potential impact of this standard on our consolidated financial statements, related disclosures and regulatory capital. We currently expect an increase to our reserves for credit losses of approximately 30% to 40%, largely driven by our consumer lending portfolios, due to the requirement to record expected losses over the remaining contractual lives of our financial instruments. This preliminary estimate is subject to refinement as we continue to evaluate our planned methodologies for estimating expected credit losses and complete parallel testing and model validations through the remainder of 2019. The actual impact will depend on the characteristics of our financial instruments, economic conditions, and our economic and loss forecasts at the adoption date.

We provide additional information on the impact of adopting CECL in “MD&A—Executive Summary and Business Outlook—Business Outlook.”

See “Note 1—Summary of Significant Accounting Policies” for information on the accounting standards we adopted in ~~2018, as well as recently issued accounting standards not yet required to be adopted and the expected impact of these changes in accounting standards.~~2019.

CAPITAL MANAGEMENT

The level and composition of our capital are determined by multiple factors, including our consolidated regulatory capital requirements and internal risk-based capital assessments such as internal stress testing and economic capital. The level and composition of our capital may also be influenced by rating agency guidelines, subsidiary capital requirements, ~~the~~ business environment, conditions in the financial markets and assessments of potential future losses due to adverse changes in our business and market environments.

Capital Standards and Prompt Corrective Action

We are subject to capital adequacy standards adopted by the Board of Governors of the Federal Reserve System (“Federal Reserve”), Office of the Comptroller of the Currency (“OCC”) and Federal Deposit Insurance Corporation (“FDIC”) (collectively, the “Federal Banking Agencies”), including the capital rules that implemented the Basel III capital framework (“Basel III Capital Rule”) developed by the Basel Committee on Banking Supervision (“Basel Committee”). ~~Moreover, the Banks, as insured depository institutions, are subject to prompt corrective action (“PCA”) capital regulations.~~

In July 2013, the Federal Banking Agencies adopted the Basel III Capital Rule, which, in addition to implementing the Basel III capital framework, also implemented certain Dodd-Frank Act and other capital provisions, and updated the PCA capital framework to reflect the new regulatory capital minimums. The Basel III Capital Rule ~~amended both~~includes the Basel I and Basel II Advanced Approaches frameworks, established a new common equity Tier 1 capital requirement and set higher minimum capital ratio requirements. We refer to the amended Basel I framework as the “Basel ~~III Standardized Approach,” and the amended Advanced Approaches framework as the “Basel III Advanced Approaches.”~~

At the end of 2012, we met one of the two independent eligibility criteria set by banking regulators for becoming subject to the Advanced Approaches capital rules. As a result, we have undertaken a multi-year process of implementing the Advanced Approaches




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~~regime for calculating risk-weighted assets~~III Standardized Approach” and ~~regulatory~~the “Basel III Advanced Approaches.” Moreover, the Banks, as insured depository institutions, are subject to Prompt Corrective Action (“PCA”) capital ~~levels.~~ regulations.

We entered parallel run under Basel III Advanced Approaches on January 1, 2015, during which we are required to calculate capital ratios under both the Basel III Standardized Approach and the Basel III Advanced Approaches, though we continue to use the Standardized Approach for purposes of meeting regulatory capital requirements. Under the Basel III Capital Rule, were we to complete our parallel run for the Advanced Approaches, our minimum risk-based capital requirement would be determined by the greater of our risk-weighted assets under the Basel III Standardized Approach and the Basel III Advanced Approaches.

In October 2019, the Federal Banking Agencies released final rules that provide for tailored application of certain capital, liquidity, and stress testing requirements across different categories of banking institutions (“Tailoring Final Rules”). These categories are determined by an institution’s asset size, with adjustments to a more stringent category possible if the institution meets certain other thresholds. As a bank holding company (“BHC”) with total consolidated assets of at least $250 billion that does not exceed any of the applicable risk-based thresholds, we will be a Category III institution under the Tailoring Final Rules. As such, beginning on the effective date of the Tailoring Final Rules (“Effective Date”), we will no longer be subject to the Basel III Advanced Approaches and certain associated capital requirements, although we will remain subject to the countercyclical capital buffer and supplementary leverage ratio, which are currently required only for Basel III Advanced Approaches institutions. We anticipate that we will not complete parallel run before that Effective Date.

Because we will not be subject to the Basel III Advanced Approaches under the Tailoring Final Rules, on the Effective Date we will become subject to the changes to the Basel III Capital Rule finalized in July 2019 (“Capital Simplification Rule”), as described in our Quarterly Report on Form 10-Q for the period ended June 30, 2019 under “MD&A—Supervision and Regulation”. These changes generally raise the threshold above which institutions subject to the Capital Simplification Rule must deduct certain assets from their common equity Tier 1 capital, including certain deferred tax assets, mortgage servicing assets, and investments in unconsolidated financial institutions. While the higher thresholds will not impact our current capital levels, in stress scenarios they may provide a benefit by enabling us to include more deferred tax assets in our common equity Tier 1 capital. We anticipate that the Tailoring Final Rules and Capital Simplification Rule will, taken together, decrease our capital requirements.

The Basel III Capital Rule also introduced the supplementary leverage ratio for all Advanced Approaches banking organizations with a minimum requirement of 3.0%. The supplementary leverage ratio compares Tier 1 capital to total leverage exposure, which includes all on-balance sheet assets and certain off-balance sheet exposures, including derivatives and unused commitments. ~~Given that we are in our Basel III Advanced Approaches parallel run, we~~We calculate the ratio based on Tier 1 capital under the Basel III Standardized Approach. The minimum requirement for the supplementary leverage ratio became effective as of January 1, 2018. As an Advanced Approaches banking organization, however, we were required to calculate and publicly disclose our supplementary leverage ratio beginning in the first quarter of 2015.approach.

The Market Risk Rule supplements both the Basel III Standardized Approach and the Basel III Advanced Approaches by requiring institutions subject to the Market Risk Rule to adjust their risk-based capital ratios to reflect the market risk in their trading portfolios. ~~The Market Risk Rule generally applies to institutions with aggregate trading assets and liabilities equal to the lesser of (i) 10% or more of total assets or (ii) $1 billion or more.~~ As of September 30, ~~2018,~~2019, the Company and CONA are subject to the Market Risk Rule. See “MD&A—Market Risk Profile” below for additional information.

~~In October 2017,~~For the ~~Federal Banking Agencies proposed certain limited changes to the Basel III Capital Rule. There is uncertainty regarding how any~~description of the ~~proposed changes may impact the Basel III Standardized Approach~~regulatory capital rules we are subject to, see “Part I—Item 1. Business—Supervision and ~~the Basel III Advanced Approaches. Additionally,~~Regulation” in December 2017, the Basel Committee finalized certain modifications to the international Basel III capital standards, which would require rulemaking in the United States prior to becoming effective for United States banking organizations. There is uncertainty around which of those changes may be adopted in the United Statesour 2018 Form 10-K and ~~how those changes may impact the United States capital framework.~~“MD&A—Supervision and Regulation”.




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Table 1514 provides a comparison of our regulatory capital ratios under the Basel III Standardized Approach, ~~subject to the applicable transition provisions,~~ the regulatory minimum capital adequacy ratios and the PCA well-capitalized level for each ratio, where applicable, as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table ~~15:~~14: Capital Ratios under Basel III⁽¹⁾⁽²⁾


	September 30, 2018						December 31, 2017						September 30, 2019						December 31, 2018
	Capital Ratio		Minimum Capital Adequacy		Well- Capitalized		Capital Ratio		Minimum Capital Adequacy		Well- Capitalized		Capital Ratio		Minimum Capital Adequacy		Well- Capitalized		Capital Ratio		Minimum Capital Adequacy		Well- Capitalized
Capital One Financial Corp:
Common equity Tier 1 capital⁽³⁾	11.2	%	4.5	%	N/A		10.3	%	4.5	%	N/A		12.5	%	4.5	%	N/A		11.2	%	4.5	%	N/A
Tier 1 capital⁽⁴⁾	12.8		6.0		6.0	%	11.8		6.0		6.0	%	14.4		6.0		6.0	%	12.7		6.0		6.0	%
Total capital⁽⁵⁾	15.2		8.0		10.0		14.4		8.0		10.0		16.8		8.0		10.0		15.1		8.0		10.0
Tier 1 leverage⁽⁶⁾	10.6		4.0		N/A		9.9		4.0		N/A		11.9		4.0		N/A		10.7		4.0		N/A
Supplementary leverage⁽⁷⁾	9.0		3.0		N/A		8.4		N/A		N/A		10.1		3.0		N/A		9.0		3.0		N/A
COBNA:
Common equity Tier 1 capital⁽³⁾	15.6		4.5		6.5		14.3		4.5		6.5		15.8		4.5		6.5		15.3		4.5		6.5
Tier 1 capital⁽⁴⁾	15.6		6.0		8.0		14.3		6.0		8.0		15.8		6.0		8.0		15.3		6.0		8.0
Total capital⁽⁵⁾	17.9		8.0		10.0		16.9		8.0		10.0		17.8		8.0		10.0		17.6		8.0		10.0
Tier 1 leverage⁽⁶⁾	14.0		4.0		5.0		12.7		4.0		5.0		14.2		4.0		5.0		14.0		4.0		5.0
Supplementary leverage⁽⁷⁾	11.5		3.0		N/A		10.4		N/A		N/A		11.5		3.0		N/A		11.5		3.0		N/A
CONA:
Common equity Tier 1 capital⁽³⁾	13.0		4.5		6.5		12.2		4.5		6.5		14.0		4.5		6.5		13.0		4.5		6.5
Tier 1 capital⁽⁴⁾	13.0		6.0		8.0		12.2		6.0		8.0		14.0		6.0		8.0		13.0		6.0		8.0
Total capital⁽⁵⁾	14.2		8.0		10.0		13.4		8.0		10.0		15.2		8.0		10.0		14.2		8.0		10.0
Tier 1 leverage⁽⁶⁾	9.1		4.0		5.0		8.6		4.0		5.0		9.4		4.0		5.0		9.1		4.0		5.0
Supplementary leverage⁽⁷⁾	8.0		3.0		N/A		7.7		N/A		N/A		8.4		3.0		N/A		8.0		3.0		N/A

__________

⁽¹⁾

Capital ratios are calculated based on the Basel III Standardized Approach framework, subject to applicable transition provisions, such as the inclusion of the unrealized gains and losses on securities available for sale included in accumulated other comprehensive income (“AOCI”) and adjustments related to intangible assets other than goodwill. The inclusion of AOCI and the adjustments related to intangible assets are phased-in at 80% for 2017 and 100% for 2018. Capital requirements that are not applicable are denoted by “N/A.”


⁽²⁾	Ratios asas of September 30, ~~2018~~2019 are preliminary. As we continue to validate our data, the calculations are subject to change until we file our September 30, ~~2018~~2019 Form FR ~~Y-9C—~~Y-9C—Consolidated Financial Statements for Holding Companies and Call Reports.


⁽³⁾	Common equity Tier 1 capital ratio is a regulatory capital measure calculated based on common equity Tier 1 capital divided by risk-weighted assets.


⁽⁴⁾	Tier 1 capital ratio is a regulatory capital measure calculated based on Tier 1 capital divided by risk-weighted assets.


⁽⁵⁾	Total capital ratio is a regulatory capital measure calculated based on total capital divided by risk-weighted assets.


⁽⁶⁾	Tier 1 leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by adjusted average assets.


⁽⁷⁾	Supplementary leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by total leverage exposure.




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Table 15 presents regulatory capital under the Basel III Standardized Approach and regulatory capital metrics as of September 30, 2019 and December 31, 2018.

Table 15: Regulatory Risk-Based Capital Components and Regulatory Capital Metrics



(Dollars in millions)	September 30, 2019			December 31, 2018
Regulatory Capital Under Basel III Standardized Approach
Common equity excluding AOCI	$	51,959		$	48,570
Adjustments:
AOCI⁽¹⁾	453			(1,263		)
Goodwill, net of related deferred tax liabilities	(14,439		)	(14,373		)
Intangible assets, net of related deferred tax liabilities	(180		)	(254		)
Other	(588		)	391
Common equity Tier 1 capital	37,205			33,071
Tier 1 capital instruments	5,823			4,360
Tier 1 capital	43,028			37,431
Tier 2 capital instruments	3,378			3,483
Qualifying allowance for loan and lease losses	3,768			3,731
Tier 2 capital	7,146			7,214
Total capital	$	50,174		$	44,645

Regulatory Capital Metrics
Risk-weighted assets	$	298,130		$	294,950
Adjusted average assets	360,266			350,606
Total leverage exposure	424,648			414,701

__________


⁽¹⁾	Amounts presented are net of tax.

The Company exceeded the minimum capital requirements and each of the Banks exceeded the minimum regulatory requirements and were well capitalized under PCA requirements as of both September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

The Basel III Capital Rule requires banks to maintain a capital conservation buffer, composed of common equity Tier 1 capital, of 2.5% above the regulatory minimum ratios.The capital conservation buffer requirement is being phased in over a transition period that commenced on January 1, 2016 and will be fully phased-in on January 1, 2019. The capital conservation buffer is 1.875% in 2018.

ratios. For banks subject to the Advanced Approaches, including the Company and the Banks, the capital conservation buffer may be supplemented by an incremental countercyclical capital buffer of up to 2.5% ~~(once fully phased-in)~~ composed of common equity Tier 1 capital and set at the discretion of the Federal Banking Agencies. As of September 30, ~~2018,~~2019, the countercyclical capital buffer iswas zero percent in the United States. A determination to increase the countercyclical capital buffer generally would be effective




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twelve months after the announcement of such an increase, unless the Federal Banking Agencies set an earlier effective date. The countercyclical capital buffer, if set to an amount greater than zero percent, would be subject to the same transition period as the capital conservation buffer, which commenced on January 1, 2016.

For ~~2018,~~2019, the minimum capital requirement plus capital conservation buffer and countercyclical capital buffer for common equity Tier 1 capital, Tier 1 capital and total capital ratios is ~~6.375%~~7.0%, ~~7.875%~~8.5% and ~~9.875%~~10.5%, respectively, for the Company and the Banks. A common equity Tier 1 capital ratio, Tier 1 capital ratio, or total capital ratio below the applicable regulatory minimum ratio plus the applicable capital conservation buffer and the applicable countercyclical buffer (if set to an amount greater than zero percent) might restrict a bank’s ability to distribute capital and make discretionary bonus payments. As of September 30, ~~2018,~~2019, the Company and each of the Banks were all above the applicable combined thresholds.

Additionally, banks designated as global systemically important banks (“G-SIBs”) are subject to an additional regulatory capital surcharge above the combined capital conservation and countercyclical capital buffers established by the Basel III Capital Rule. We are currently not designated as a G-SIB and therefore not subject to this surcharge.




	35	Capital One Financial Corporation (COF)

~~Under the Basel III Capital Rule, when we complete our parallel run for the Advanced Approaches, our minimum risk-based capital requirement will be determined by the greater~~

Table of our risk-weighted assets under the Basel III Standardized Approach and the Basel III Advanced Approaches. See “Part I—Item 1. Business—Supervision and Regulation” in our 2017 Form 10-K for additional information. Once we exit parallel run, based on clarification of the Basel III Capital Rule from our regulators, any amount by which our expected credit losses exceed eligible credit reserves, as each term is defined under the Basel III Capital Rule, will be deducted from our Basel III Standardized Approach numerator, subject to transition provisions. Inclusive of this impact, based on current capital rules and our business mix, we estimate that our Basel III Advanced Approaches ratios will be lower than our Basel III Standardized Approach ratios. However, there is uncertainty whether this will remain the case in light of potential changes to the United States capital rules.Contents

Capital Planning and Regulatory Stress Testing

On ~~April 5, 2018, we submitted our capital plan to~~June 27, 2019, the Federal Reserve ~~as part of the 2018~~completed its 2019 Comprehensive Capital Analysis and Review (“CCAR”) ~~cycle. On June 28, 2018, the Federal Reserve informed us that they had “no objection”~~and did not object to our ~~CCAR 2018 Capital Plan submission.~~proposed adjusted capital plan. As a result of this non-objection to our capital plan, the Board of Directors authorized the repurchase of up to ~~$1.2~~$2.2 billion of shares of our common stock beginning in the third quarter of ~~2018~~2019 through the end of the second quarter of ~~2019. The Board of Directors also authorized~~2020. We expect to maintain the quarterly dividend on our common stock of $0.40 per ~~share.~~share, subject to the approval of the Board of Directors. For the description of the regulatory capital planning rules we are subject to, see “Part I—Item 1. Business—Supervision and ~~Regulation”~~Regulation” in our ~~2017~~2018 Form 10-K.

Equity Offerings and Transactions

On September 11, 2019, we issued 60,000,000 depositary shares, each representing a 1/40th interest in a share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series I, $0.01 par value, with a liquidation preference of $25 per depositary share (“Series I Preferred Stock”). The net proceeds of the offering of Series I Preferred Stock were approximately $1.5 billion, after deducting underwriting commissions and offering expenses. Dividends on the Series I Preferred Stock are payable quarterly in arrears at a rate of 5.00% per annum.

On October 21, 2019, we announced that we will redeem all outstanding shares of our Fixed-Rate 6.25% Non-Cumulative Perpetual Preferred Stock Series C and Fixed-Rate 6.70% Non-Cumulative Perpetual Preferred Stock Series D, on December 2, 2019. The redemption will reduce our net income available to common shareholders by approximately $30 million in the fourth quarter of 2019.

Dividend Policy and Stock Purchases

In the first nine months of ~~2018,~~2019, we declared and paid common stock dividends of ~~$587~~$573 million, or $1.20 per share, and preferred stock dividends of $185 ~~million.The~~million. The following table summarizes the dividends ~~declared and~~ paid per share on our various preferred stock series in the first nine months of ~~2018.~~




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2019.

Table 16: Preferred Stock Dividends Paid Per Share


Series	Description	Issuance Date	Per Annum Dividend Rate		Dividend Frequency	2018						Description	Issuance Date	Per Annum Dividend Rate	Dividend Frequency	2019
Series	Description	Issuance Date	Per Annum Dividend Rate		Dividend Frequency	Q3		Q2		Q1		Description	Issuance Date	Per Annum Dividend Rate	Dividend Frequency	Q3	Q2	Q1
Series B	6.00% Non-Cumulative	August 20, 2012	6.00	%	Quarterly	$	15.00	$	15.00	$	15.00	6.00% Non-Cumulative	August 20, 2012	6.00%	Quarterly	$15.00	$15.00	$15.00
Series C	6.25% Non-Cumulative	June 12, 2014	6.25		Quarterly	15.63		15.63		15.63		6.25% Non-Cumulative	June 12, 2014	6.25	Quarterly	15.63	15.63	15.63
Series D	6.70% Non-Cumulative	October 31, 2014	6.70		Quarterly	16.75		16.75		16.75		6.70% Non-Cumulative	October 31, 2014	6.70	Quarterly	16.75	16.75	16.75
Series E	Fixed-to-Floating Rate Non-Cumulative	May 14, 2015	5.55% through 5/31/2020; 3-mo. LIBOR+ 380 bps thereafter		Semi-Annually through 5/31/2020; Quarterly thereafter	—		27.75		—		Fixed-to-Floating Rate Non-Cumulative	May 14, 2015	5.55% through 5/31/2020; 3-mo. LIBOR+ 380 bps thereafter	Semi-Annually through 5/31/2020; Quarterly thereafter	—	27.75	—
Series F	6.20% Non-Cumulative	August 24, 2015	6.20		Quarterly	15.50		15.50		15.50		6.20% Non-Cumulative	August 24, 2015	6.20	Quarterly	15.50	15.50	15.50
Series G	5.20% Non-Cumulative	July 29, 2016	5.20		Quarterly	13.00		13.00		13.00		5.20% Non-Cumulative	July 29, 2016	5.20	Quarterly	13.00	13.00	13.00
Series H	6.00% Non-Cumulative	November 29, 2016	6.00		Quarterly	15.00		15.00		15.00		6.00% Non-Cumulative	November 29, 2016	6.00	Quarterly	15.00	15.00	15.00
Series I												5.00% Non-Cumulative	September 11, 2019	5.00	Quarterly	—	—	—

The declaration and payment of dividends to our stockholders, as well as the amount thereof, are subject to the discretion of our Board of Directors and depend upon our results of operations, financial condition, capital levels, cash requirements, future prospects and other factors deemed relevant by the Board of Directors. As a ~~bank holding company (“BHC”),~~BHC, our ability to pay dividends is largely dependent upon the receipt of dividends or other payments from our subsidiaries. Regulatory restrictions exist that limit the ability of the Banks to transfer funds to our BHC. As of September 30, ~~2018,~~2019, funds available for dividend payments from COBNA and CONA were ~~$3.0~~$2.5 billion and ~~$1.7~~$5.3 billion, respectively. There can be no assurance that we will declare and pay any dividends to stockholders. Consistent with our ~~2018~~2019 Stock Repurchase Program which was announced on June 27, 2019, our Board of Directors authorized the repurchase of up to ~~$1.2~~$2.2 billion of shares of common stock beginning in the third quarter of ~~2018~~2019 through the end of the second




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quarter of ~~2019.~~2020. During the third quarter of ~~2018,~~2019, we repurchased approximately ~~$569~~$466 million of shares of our common stock under the ~~2018~~2019 Stock Repurchase Program.

The timing and exact amount of any future common stock repurchases will depend on various factors, including regulatory approval, market conditions, opportunities for growth, our capital position and the amount of retained earnings. Our stock repurchase program does not include specific price targets, may be executed through open market purchases or privately negotiated transactions, including utilizing Rule 10b5-1 programs, and may be suspended at any time. For additional information on dividends and stock repurchases, see “Part I—Item 1. ~~Business—~~Business—Supervision and ~~Regulation—~~Regulation—Dividends, Stock Repurchases and Transfers of Funds” in our ~~2017~~2018 Form 10-K.

RISK MANAGEMENT

Risk Framework

~~We use a~~The risk framework (the “Framework”) was refined at the end of the second quarter of 2019 to ~~provide~~more fully articulate alignment with applicable regulatory guidance and industry practices.

Our Framework sets consistent expectations for risk management across the Company. It also defines and sets expectations for our “Three Lines of Defense” model. Accountability for overseeing an ~~overall enterprise-wide approach~~effective Framework resides with our Board of Directors either directly or through its committees while management is responsible for ~~effectively managing risk.~~ the development and implementation of the Framework. The Framework consists of the following nine elements:

Governance and Accountability

Strategy and Risk Alignment

Risk Identification

Assessment, Measurement and Response

Monitoring and Testing

Aggregation, Reporting and Escalation

Capital and Liquidity Management (including Stress Testing)

Risk Data and Enabling Technology

Culture and Talent Management

We ~~execute against our~~manage risk ~~framework with~~holistically using the “Three Lines of Defense” ~~risk management~~ model, ~~to demonstrate and structure~~which defines the roles, responsibilities and accountabilities ~~in the organization~~ for taking and managing ~~risk.~~risk across the Company.

The “First Line of Defense” consists of any line of business or function that is ~~comprised~~accountable for risk taking and is responsible for: (i) engaging in activities designed to generate revenue or reduce expenses; (ii) providing operational support or servicing to any business function for the delivery of ~~the business areas that through their day-to-day business activities take risk on our behalf. As the business owner, the~~products or services to customers; or (iii) providing technology services in direct support of first line business areas. Each line of business or first line function is responsible for managing the risks associated with their activities, including identifying, assessing, ~~managing~~measuring, monitoring, controlling, and ~~controlling that risk. This principle places ultimate accountability for~~reporting the ~~management of~~ risks ~~and ownership of risk decisions~~within its business activities, consistent with the ~~CEO and business heads.~~risk framework. The “Second Line of Defense” ~~provides oversight~~consists of ~~first line risk taking and management, and is primarily comprised~~two types of ~~our~~functions: Independent Risk Management ~~organization. The second line assists in determining risk appetite~~(“IRM”) and ~~the strategies, policies~~Support Functions. IRM oversees risk-taking activities and ~~structures for managing risks. The second line is both an “expert advisor” to~~assesses risks and issues independent from the first line ~~and an “effective challenger”~~ of ~~first line risk activities.~~defense. Support Functions are centers of specialized expertise (e.g., Human Resources, Accounting, Legal) that provide support services to the enterprise. The “Third Line of Defense” is comprised of ~~our~~the Internal Audit and Credit Review functions. The third line provides




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independent and objective assurance to senior management and to the Board of Directors that the first and second ~~line risk management and internal control~~lines of defense have systems and ~~its~~ governance processes which are well-designed and working as ~~intended.~~

~~The~~intended, and that the Framework is appropriate for the size, complexity and risk ~~framework is also used to guide design~~profile of ~~risk programs and performance of risk activity within each risk category and across the entire enterprise.~~

~~There are eight elements that comprise the risk framework:~~

~~Establish Governance Processes, Accountabilities and Risk Appetites~~

~~Identify and Assess Risks and Ownership~~

~~Develop and Operate Controls, Monitoring and Mitigation Plans~~

~~Test and Detect Control Gaps and Perform Corrective Action~~

~~Escalate Key Risks and Gaps to Executive Management and, when Appropriate, the Board of Directors~~

~~Calculate and Allocate~~ Capital ~~in Alignment with Risk Management and Measurement Processes (including Stress Testing)~~

~~Support with the Right Culture, Talent and Skills~~

~~Enabled by the Right Data, Infrastructure and Programs~~One.

We provide additional discussion of our risk management principles, roles and responsibilities, framework and risk appetite under “MD&A—Risk Management” in our ~~2017~~2018 Form 10-K.




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CREDIT RISK PROFILE

Our loan portfolio accounts for the substantial majority of our credit risk exposure. Our lending activities are governed under our credit policy and are subject to independent review and approval. Below we provide information about the composition of our loan portfolio, key concentrations and credit performance metrics.

We also engage in certain non-lending activities that may give rise to credit and counterparty settlement risk, including ~~the purchase of~~purchasing securities for our investment securities portfolio, entering into derivative transactions to manage our market risk exposure and to accommodate customers, extending short-term advances on syndication activity (including bridge financing transactions we have underwritten), depositing certain operational cash balances in other financial institutions, executing certain foreign exchange transactions and extending customer overdrafts. We provide additional information on credit risk related to our investment securities portfolio under “MD&A—Consolidated Balance Sheets Analysis—Investment Securities” and credit risk related to derivative transactions in “Note 9—Derivative Instruments and Hedging Activities.”

Portfolio Composition of Loans Held for Investment ~~Portfolio Composition~~

We provide a variety of lending products. Our primary products include credit cards, auto loans and commercial lending products. We sold ~~substantially~~ all of our consumer home loan portfolio and the related servicing during ~~the first nine months of~~ 2018. For information on our lending policies and procedures, including our underwriting criteria for our primary loan products, see “MD&A—Credit Risk ~~Profile”~~Profile” in our ~~2017~~2018 Form 10-K.

Our loan portfolio consists of loans held for investment, including loans held in our consolidated trusts, and loans held for sale. ~~Table 17 presents~~Loans and the ~~composition of our portfolio of loans held for investment by portfolio segment as of September 30, 2018 and December 31, 2017. Table 17 and the~~related credit metrics presented in this section exclude loans held for sale, which are carried at lower of cost or fair value and totaled ~~$1.4~~$1.2 billion as of both September 30, 2019 and ~~$971 million~~December 31, 2018.

Table 17 presents the composition of our portfolio of loans held for investment by portfolio segment as of September 30, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018.

Table 17: Portfolio Composition of Loans Held for Investment



	September 30, 2019				December 31, 2018
(Dollars in millions)	Loans		% of Total		Loans		% of Total
Credit Card:
Domestic credit card	$	104,664	42.0	%	$	107,350	43.6	%
International card businesses	9,017		3.6		9,011		3.7
Total credit card	113,681		45.6		116,361		47.3
Consumer Banking:
Auto	59,278		23.8		56,341		22.9
Retail banking	2,737		1.1		2,864		1.2
Total consumer banking	62,015		24.9		59,205		24.1
Commercial Banking:
Commercial and multifamily real estate	30,009		12.0		28,899		11.8
Commercial and industrial	43,650		17.5		41,091		16.7
Total commercial lending	73,659		29.5		69,990		28.5
Small-ticket commercial real estate	—		—		343		0.1
Total commercial banking	73,659		29.5		70,333		28.6
Total loans held for investment	$	249,355	100.0	%	$	245,899	100.0	%




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~~Table 17:Loans Held for Investment Portfolio Composition~~

September 30, 2018 December 31, 2017
(Dollars in millions) Loans % of Total Loans % of Total
Credit Card:
Domestic credit card $ 101,564
42.6 % $ 105,293
41.4 %
International card businesses 9,121
3.8
9,469
3.7
Total credit card 110,685
46.4
114,762
45.1
Consumer Banking:
Auto 56,422
23.6
53,991
21.2
Home loan —
—
17,633
6.9
Retail banking 2,907
1.2
3,454
1.4
Total consumer banking 59,329
24.8
75,078
29.5
Commercial Banking:
Commercial and multifamily real estate 29,064
12.2
26,150
10.3
Commercial and industrial 39,325
16.5
38,025
14.9
Total commercial lending 68,389
28.7
64,175
25.2
Small-ticket commercial real estate 358
0.1
400
0.2
Total commercial banking 68,747
28.8
64,575
25.4
Other loans —
—
58
—
Total loans held for investment $ 238,761
100.0 % $ 254,473
100.0 %

Commercial Loans

Table 18 summarizes our commercial loans held for investment portfolio by industry classification as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. Industry classifications below are based on our interpretation of the North American Industry Classification System codes as they pertain to each individual loan.

Table 18: Commercial Loans by Industry


(Percentage of portfolio)	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Real estate	41	%	41	%	38	%	40	%
Finance and insurance	15		13
Finance					16		16
Healthcare	12		14		12		12
Business services	5		5		6		5
Oil and gas					5		5
Public administration	4		4		4		4
Oil and gas	4		4
Educational services	4		4		4		4
Retail trade	3		3		3		3
Construction and land	3		3		3		2
Other	9		9		9		9
Total	100	%	100	%	100	%	100	%




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Credit Risk Measurement

We closely monitor economic conditions and loan performance trends to assess and manage our exposure to credit risk. Key metrics we track in evaluating the credit quality of our loan portfolio include delinquency and nonperforming asset rates, as well as net charge-off rates and our internal risk ratings of larger-balance commercial loans. Trends in delinquency rates are one of the primary indicators of credit risk within our consumer loan portfolios, particularly in our credit card loan portfolios, as changes in delinquency rates can provide an early warning of changes in credit losses. The primary indicator of credit risk in our commercial loan portfolios is our internal risk ratings. Because we generally classify loans that have been delinquent for an extended period of time and other loans with significant risk of loss as nonperforming, the level of nonperforming assets represents another indicator of the potential for future credit losses. In addition to delinquency rates, the geographic distribution of our loans provides insight as to the exposure of the portfolio to regional economic conditions.

We underwrite most consumer loans using proprietary models, which are typically based on credit bureau data, including borrower credit scores, along with application information and, where applicable, collateral and deal structure data. We continuously adjust our management of credit lines and collection strategies based on customer behavior and risk profile changes. We also use borrower credit scores for subprime classification, for competitive benchmarking and, in some cases, to drive product segmentation decisions.

~~The following table~~




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Table 19 provides details on the credit scores of our domestic credit card and auto ~~loans held for investment~~loan portfolios as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 19: Credit Score Distribution


(Percentage of portfolio)	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Domestic credit card—Refreshed FICO scores:⁽¹⁾
Greater than 660	67	%	66	%	68	%	67	%
660 or below	33		34		32		33
Total	100	%	100	%	100	%	100	%
Auto—At origination FICO scores:⁽²⁾
Greater than 660	50	%	51	%	48	%	50	%
621-660	19		18
621 - 660					20		19
620 or below	31		31		32		31
Total	100	%	100	%	100	%	100	%

__________

⁽¹⁾

Percentages represent period-end loans held for investment in each credit score category. Domestic card credit scores generally represent FICO scores. These scores are obtained from one of the major credit bureaus at origination and are refreshed monthly thereafter. We approximate non-FICO credit scores to comparable FICO scores for consistency purposes. Balances for which no credit score is available or the credit score is invalid are included in the 660 or below category.


⁽²⁾	Percentages represent period-end loans held for investment in each credit score category. Auto credit scores generally represent average FICO scores obtained from three credit bureaus at the time of application and are not refreshed thereafter. Balances for which no credit score is available or the credit score is invalid are included in the 620 or below category.

We present information in the ~~sections~~section below on the credit performance of our loan portfolio, including the key metrics we use in tracking changes in the credit quality of our loan portfolio.

See “Note 4—Loans” in this Report for additional credit quality information, and see “Note 1—Summary of Significant Accounting Policies” in our ~~2017~~2018 Form 10-K for information on our accounting policies for delinquent and nonperforming loans, ~~net~~ charge-offs and troubled debt restructurings (“TDRs”) for each of our loan categories.

Delinquency Rates

We consider the entire balance of an account to be delinquent if the minimum required payment is not received by the customer’s due date, measured at each balance sheet date. Our 30+ day delinquency metrics include all loans held for investment that are 30 or more days past due, whereas our 30+ day performing delinquency metrics include loans that are 30 or more days past due but are currently classified as performing and accruing interest. The 30+ day delinquency and 30+ day performing delinquency metrics are the same for domestic credit card loans, as we continue to classify these loans as performing until the account is charged off,




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typically when the account is 180 days past due. See “Note 1—Summary of Significant Accounting Policies” in our ~~2017~~2018 Form 10-K for information on our policies for classifying loans as nonperforming for each of our loan categories. We provide additional information on our credit quality metrics above under “MD&A—Business Segment Financial ~~Performance.~~Performance.”




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Table 20 presents our 30+ day performing delinquency rates and 30+ day delinquency rates of our portfolio of loans held for investment, by portfolio segment, as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 20: 30+ Day Delinquencies


	September 30, 2018								December 31, 2017								September 30, 2019								December 31, 2018
	30+ Day Performing Delinquencies				30+ Day Delinquencies				30+ Day Performing Delinquencies				30+ Day Delinquencies				30+ Day Performing Delinquencies				30+ Day Delinquencies				30+ Day Performing Delinquencies				30+ Day Delinquencies
(Dollars in millions)	Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾
Credit Card:
Domestic credit card	$	3,864	3.80	%	$	3,864	3.80	%	$	4,219	4.01	%	$	4,219	4.01	%	$	3,880	3.71	%	$	3,880	3.71	%	$	4,335	4.04	%	$	4,335	4.04	%
International card businesses	324		3.55		338		3.70		344		3.64		359		3.80		318		3.52		334		3.71		317		3.52		333		3.70
Total credit card	4,188		3.78		4,202		3.80		4,563		3.98		4,578		3.99		4,198		3.69		4,214		3.71		4,652		4.00		4,668		4.01
Consumer Banking:
Auto	3,540		6.27		3,880		6.88		3,513		6.51		3,840		7.11		3,834		6.47		4,207		7.10		3,918		6.95		4,309		7.65
Home loan	—		—		—		—		35		0.20		123		0.70
Retail banking	23		0.80		45		1.54		26		0.76		47		1.35		27		1.01		45		1.63		29		1.01		51		1.77
Total consumer banking	3,563		6.01		3,925		6.61		3,574		4.76		4,010		5.34		3,861		6.23		4,252		6.86		3,947		6.67		4,360		7.36
Commercial Banking:
Commercial and multifamily real estate	21		0.07		23		0.08		69		0.26		107		0.41		57		0.19		58		0.19		119		0.41		140		0.49
Commercial and industrial	54		0.14		155		0.39		18		0.05		158		0.42		71		0.16		236		0.54		176		0.43		279		0.68
Total commercial lending	75		0.11		178		0.26		87		0.14		265		0.41		128		0.17		294		0.40		295		0.42		419		0.60
Small-ticket commercial real estate	2		0.55		6		1.83		1		0.21		7		1.55		—		—		—		—		1		0.39		7		1.84
Total commercial banking	77		0.11		184		0.27		88		0.14		272		0.42		128		0.17		294		0.40		296		0.42		426		0.61
Other loans	—		—		—		—		2		3.28		4		6.29
Total	$	7,828	3.28		$	8,311	3.48		$	8,227	3.23		$	8,864	3.48		$	8,187	3.28		$	8,760	3.51		$	8,895	3.62		$	9,454	3.84

__________


⁽¹⁾	Delinquency rates are calculated by dividing delinquency amounts by period-end loans held for investment for each specified loan category, including purchased credit-impaired (“PCI”) loans as applicable.

Table 21 presents our 30+ day delinquent loans, by aging and geography, as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 21: Aging and Geography of 30+ Day Delinquent Loans


	September 30, 2018				December 31, 2017				September 30, 2019				December 31, 2018
(Dollars in millions)	Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾
Delinquency status:
30-59 days	$	3,772	1.58	%	$	3,945	1.55	%
60-89 days	2,197		0.92		2,166		0.85
30 – 59 days									$	4,009	1.60	%	$	4,282	1.73	%
60 – 89 days									2,264		0.91		2,430		0.99
> 90 days	2,342		0.98		2,753		1.08		2,487		1.00		2,742		1.12
Total	$	8,311	3.48	%	$	8,864	3.48	%	$	8,760	3.51	%	$	9,454	3.84	%
Geographic region:
Domestic	$	7,973	3.34	%	$	8,505	3.34	%	$	8,426	3.38	%	$	9,121	3.70	%
International	338		0.14		359		0.14		334		0.13		333		0.14
Total	$	8,311	3.48	%	$	8,864	3.48	%	$	8,760	3.51	%	$	9,454	3.84	%

__________


⁽¹⁾	Delinquency rates are calculated by dividing delinquency amounts by total period-end loans held for investment, including PCI loans as applicable.




	3641	Capital One Financial Corporation (COF)

Table of Contents

Table 22 summarizes loans that were 90+ days delinquent as to interest or principal, and still accruing interest as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. These loans consist primarily of credit card accounts between 90 days and 179 days past due. As permitted by regulatory guidance issued by the Federal Financial Institutions Examination Council, we continue to accrue interest and fees on domestic credit card loans through the date of charge-off, which is typically in the period the account becomes 180 days past due. While domestic credit card loans typically remain on accrual status until the loan is charged off, we reduce the balance of our credit card receivables by the amount of finance charges and fees billed but not expected to be collected and exclude this amount from revenue.

Table 22: 90+ Day Delinquent Loans Accruing Interest


	September 30, 2018				December 31, 2017				September 30, 2019				December 31, 2018
(Dollars in millions)	Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾
Loan category:
Credit card	$	1,903	1.72	%	$	2,221	1.94	%	$	1,992	1.75	%	$	2,233	1.92	%
Commercial banking	5		0.01		12		0.02		31		0.04		—		—
Total	$	1,908	0.80		$	2,233	0.88		$	2,023	0.81		$	2,233	0.91
Geographic region:
Domestic	$	1,790	0.78		$	2,105	0.86		$	1,904	0.79	%	$	2,111	0.89	%
International	118		1.30		128		1.35		119		1.32		122		1.35
Total	$	1,908	0.80		$	2,233	0.88		$	2,023	0.81		$	2,233	0.91

__________


⁽¹⁾	Delinquency rates are calculated by dividing delinquency amounts by period-end loans held for investment for each specified loan category, including PCI loans as applicable.

Nonperforming Loans and Nonperforming Assets

Nonperforming assets consist of nonperforming loans, ~~foreclosed properties and~~ repossessed assets and ~~the net realizable value of certain partially charged off auto loans.~~foreclosed properties. Nonperforming loans include loans that have been placed on nonaccrual status. See ~~“Note~~“Note 1—Summary of Significant Accounting ~~Policies”~~Policies” in our ~~2017~~2018 Form 10-K for information on our policies for classifying loans as nonperforming for each of our loan categories.

Table 23 presents ~~comparative information on~~our nonperforming loans, by portfolio segment, and other nonperforming assets as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. We do not classify loans held for sale as nonperforming, as they are recorded at the lower of cost or fair value. We provide additional information on our credit quality metrics above under “MD&A—Business Segment Financial ~~Performance.~~Performance.”




	3742	Capital One Financial Corporation (COF)

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Table 23: Nonperforming Loans and Other Nonperforming Assets⁽¹⁾


	September 30, 2018				December 31, 2017				September 30, 2019				December 31, 2018
(Dollars in millions)	Amount		Rate		Amount		Rate		Amount		Rate		Amount		Rate
Nonperforming loans held for investment:⁽²⁾
Credit Card:
International card businesses	$	20	0.22	%	$	24	0.25	%	$	23	0.25	%	$	22	0.25	%
Total credit card	20		0.02		24		0.02		23		0.02		22		0.02
Consumer Banking:
Auto	396		0.70		376		0.70		432		0.73		449		0.80
Home loan	—		—		176		1.00
Retail banking	33		1.13		35		1.00		25		0.91		30		1.04
Total consumer banking	429		0.72		587		0.78		457		0.74		479		0.81
Commercial Banking:
Commercial and multifamily real estate	37		0.13		38		0.15		36		0.12		83		0.29
Commercial and industrial	217		0.55		239		0.63		413		0.95		223		0.54
Total commercial lending	254		0.37		277		0.43		449		0.61		306		0.44
Small-ticket commercial real estate	5		1.65		7		1.65		—		—		6		1.80
Total commercial banking	259		0.38		284		0.44		449		0.61		312		0.44
Other loans	—		—		4		7.71
Total nonperforming loans held for investment⁽³⁾	$	708	0.30		$	899	0.35		$	929	0.37		$	813	0.33
Other nonperforming assets:⁽⁴⁾
Foreclosed property	$	21	0.01		$	88	0.03
Other assets	58		0.02		65		0.03
Total other nonperforming assets	79		0.03		153		0.06
Other nonperforming assets⁽⁴⁾									61		0.03		59		0.02
Total nonperforming assets	$	787	0.33		$	1,052	0.41		$	990	0.40		$	872	0.35

__________

⁽¹⁾

We recognized interest income for loans classified as nonperforming of ~~$35~~$37 million and ~~$38~~$35 million in the first nine months of ~~2018~~2019 and ~~2017,~~2018, respectively. Interest income foregone related to nonperforming loans was ~~$44~~$50 million and ~~$43~~$44 million in the first nine months of ~~2018~~2019 and ~~2017,~~2018, respectively. Foregone interest income represents the amount of interest incomein excess of recognized interest income that would have been recorded during the period for nonperforming loans as of the end of the period had the loans performed according to their contractual terms.


⁽²⁾	Nonperforming loan rates are calculated based on nonperforming loans for each category divided by period-end total loans held for investment for each respective category.


⁽³⁾	Excluding the impact of domestic credit card loans, nonperforming loans as a percentage of total loans held for investment was ~~0.52%~~0.64% and ~~0.60%~~0.59% as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.


⁽⁴⁾	The denominators used in calculating nonperforming asset rates consist of total loans held for investment and ~~total~~ other nonperforming assets.




	3843	Capital One Financial Corporation (COF)

Table of Contents

Net Charge-Offs

Net charge-offs consist of the unpaid principal balance of loans held for investment that we determine to be uncollectible, net of recovered amounts. We charge off loans as a reduction to the allowance for loan and lease losses when we determine the loan is uncollectible and record subsequent recoveries of previously charged-off amounts as increases to the allowance for loan and lease losses. Uncollectible finance charges and fees are reversed through revenue and certain fraud losses are recorded in other non-interest expense. Generally, costs to recover charged-off loans are recorded as collection expenses as incurred and included in our consolidated statements of income as a component of other non-interest expense. Our charge-off policy for loans varies based on the loan type. See ~~“Note~~“Note 1—Summary of Significant Accounting ~~Policies”~~Policies” in our ~~2017~~2018 Form 10-K for information on our charge-off policy for each of our loan categories.

Table 24 presents our net charge-off amounts and rates, by portfolio segment, in the third quarter and first nine months of ~~2018~~2019 and ~~2017.~~2018.

Table 24: Net Charge-Offs (Recoveries)


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended September 30,									Nine Months Ended September 30,
	2018					2017				2018					2017				2019				2018					2019				2018
(Dollars in millions)	Amount			Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount			Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount			Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount			Rate⁽¹⁾
Credit Card:
Domestic credit card⁽²⁾	$	1,094		4.35	%	$	1,087	4.64	%	$	3,581		4.78	%	$	3,455	4.96	%	$	1,065	4.12	%	$	1,094		4.35	%	$	3,599	4.67	%	$	3,581		4.78	%
International card businesses	43			1.92		68		3.08		193			2.85		227		3.60		86		3.78		43			1.92		236		3.54		193			2.85
Total credit card⁽²⁾	1,137			4.15		1,155		4.51		3,774			4.62		3,682		4.85		1,151		4.09		1,137			4.15		3,835		4.58		3,774			4.62
Consumer Banking:
Auto	243			1.73		257		1.96		633			1.53		671		1.77		234		1.60		243			1.73		592		1.38		633			1.53
Retail banking																			17		2.55		19			2.62		52		2.51		51			2.18
Home loan	—			—		1		0.02		(1		)	(0.02	)	5		0.03		—		—		—			—		—		—		(1		)	(0.02	)
Retail banking	19			2.62		18		2.10		51			2.18		50		1.91
Total consumer banking	262			1.77		276		1.47		683			1.36		726		1.30		251		1.64		262			1.77		644		1.43		683			1.36
Commercial Banking:
Commercial and multifamily real estate	2			0.04		0		(0.01	)	2			0.01		2		0.01		1		0.02		2			0.04		1		0.01		2			0.01
Commercial and industrial	25			0.25		163		1.64		37			0.13		319		1.07		59		0.55		25			0.25		89		0.28		37			0.13
Total commercial lending	27			0.16		163		0.97		39			0.08		321		0.64
Small-ticket commercial real estate	0			0.56		0		0.12		0			(0.02	)	1		0.33
Total commercial banking	27			0.16		163		0.96		39			0.08		322		0.64		60		0.33		27			0.16		90		0.17		39			0.08
Other loans	(1		)	**		12		86.90		6			34.08		4		9.20		—		—		(1		)	**		—		—		6			**
Total net charge-offs	$	1,425		2.41		$	1,606	2.61		$	4,502		2.48		$	4,734	2.60		$	1,462	2.38		$	1,425		2.41		$	4,569	2.50		$	4,502		2.48
Average loans held for investment	$	236,766				$	245,822			$	242,369				$	243,205			$	246,147			$	236,766				$	243,602			$	242,369

__________


⁽¹⁾	Net charge-off (recovery) ~~rate is~~rates are calculated by dividing annualized net charge-offs (recoveries) by average loans held for investment for the period for each loan ~~category~~.category.

^(2)**

In August 2018, we accelerated charge-off recognition for certain domestic credit card accounts where the cardholder is deceased. This acceleration led to a one-time increase in net charge-offs of approximately $32 million, increasing the net charge-off rate for total credit card and domestic credit card by approximately 12 basis points and 13 basis points, respectively, for the third quarter of 2018, and 4 basis points for both total credit card and domestic credit card for the first nine months of 2018.


**	Not meaningful.




	44	Capital One Financial Corporation (COF)

Table of Contents

Troubled Debt Restructurings

As part of our loss mitigation efforts, we may provide short-term (three to twelve months) or long-term (greater than twelve months) modifications to a borrower experiencing financial difficulty to improve long-term collectability of the loan and to avoid the need for ~~foreclosure~~repossession or ~~repossession~~foreclosure of collateral.




	39	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

Table 25 presents our recorded investment of loans modified in TDRs as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, which excludes loan modifications that do not meet the definition of a TDR, and PCI loans, which we track and report separately.

Table 25: Troubled Debt Restructurings



	September 30, 2019				December 31, 2018
(Dollars in millions)	Amount		% of Total Modifications		Amount		% of Total Modifications
Credit card	$	815	51.1	%	$	855	53.2	%
Consumer banking:
Auto	335		21.0		339		21.1
Retail banking	28		1.7		33		2.1
Total consumer banking	363		22.7		372		23.2
Commercial banking	418		26.2		379		23.6
Total	$	1,596	100.0	%	$	1,606	100.0	%
Status of TDRs:
Performing	$	1,378	86.3	%	$	1,433	89.2	%
Nonperforming	218		13.7		173		10.8
Total	$	1,596	100.0	%	$	1,606	100.0	%

September 30, 2018 December 31, 2017
(Dollars in millions) Amount % of Total Modifications Amount % of Total Modifications
Credit card $ 855
48.6 % $ 812
36.9 %
Consumer banking:
Auto 348
19.8
481
21.9
Home loan —
—
192
8.7
Retail banking 33
1.9
37
1.7
Total consumer banking 381
21.7
710
32.3
Commercial banking 521
29.7
679
30.8
Total $ 1,757
100.0 % $ 2,201
100.0 %
Status of TDRs:
Performing $ 1,541
87.7 % $ 1,850
84.1 %
Nonperforming 216
12.3
351
15.9
Total $ 1,757
100.0 % $ 2,201
100.0 %

In our Credit Card business, the majority of our credit card loans modified in TDRs involve reducing the interest rate on the account and placing the customer on a fixed payment plan not exceeding 60 months. The effective interest rate in effect immediately prior to the loan modification is used as the effective interest rate for purposes of measuring impairment using the present value of expected cash flows. If the customer does not comply with the modified payment terms, then the credit card loan agreement may revert to its original payment terms, generally resulting in any loan outstanding reflected in the appropriate delinquency category and charged off in accordance with our standard charge-off policy.

In our Consumer Banking business, the majority of our loans modified in TDRs receive an extension, an interest rate reduction or principal reduction, or a combination of these concessions. In addition, TDRs also occur in connection with bankruptcy of the borrower. In certain bankruptcy discharges, the loan is written down to the collateral value and the ~~charged off~~charged-off amount is reported as principal reduction. Impairment is determined using the present value of expected cash flows or a collateral evaluation for certain auto ~~and home~~ loans where the collateral value is lower than the recorded investment.

In our Commercial Banking business, the majority of loans modified in TDRs receive an extension, with a portion of these loans receiving an interest rate reduction or a gross balance reduction. The impairment on modified commercial loans is generally determined based on the underlying collateral value.

We provide additional information on modified loans accounted for as TDRs, including the performance of those loans subsequent to modification, in “Note 4—Loans.”

Impaired Loans

A loan is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due from the borrower in accordance with the original contractual terms of the loan. Generally, we report loans as impaired based on the method for measuring impairment in accordance with applicable accounting guidance. Loans defined as individually impaired include larger-balance commercial nonperforming loans and TDRs. Loans held for sale are not reported as impaired, as these loans are recorded at lower of cost or fair value. Impaired loans also exclude PCI loans, which are accounted for based on expected cash flows because this accounting methodology takes into consideration future credit losses expected to be incurred.

Impaired loans totaled $1.9 billion and $2.4 billion as of September 30, 2018 and December 31, 2017, respectively. These amounts include TDRs of $1.8 billion and $2.2 billion as of September 30, 2018 and December 31, 2017, respectively. We provide additional




	4045	Capital One Financial Corporation (COF)

Table of Contents

Impaired loans totaled $1.9 billion and $1.8 billion as of September 30, 2019 and December 31, 2018, respectively. These amounts include TDRs of $1.6 billion as of both September 30, 2019 and December 31, 2018. We provide additional information on our impaired loans, including the allowance for loan and lease losses established for these loans, in “Note 4—Loans” and “Note 5—Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments.”

Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments

Our allowance for loan and lease losses represents management’s best estimate of incurred loan and lease credit losses inherent to our held for investment portfolio as of each balance sheet date. The allowance for loan and lease losses is increased through the provision for credit losses and reduced by net charge-offs. We provide additional information on the methodologies and key assumptions used in determining our allowance for loan and lease losses under “Note 1—Summary of Significant Accounting Policies” in our ~~2017~~2018 Form 10-K.

Table 26 presents changes in our allowance for loan and lease losses and reserve for unfunded lending commitments for the third quarter and first nine months of ~~2018~~2019 and ~~2017,~~2018, and details by portfolio segment for the provision for credit losses, charge-offs and recoveries.




	4146	Capital One Financial Corporation (COF)

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Table 26: Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity


	Three Months Ended September 30, 2018																											Three Months Ended September 30, 2019
	Credit Card									Consumer Banking																		Credit Card									Consumer Banking
(Dollars in millions)	Domestic Card			International Card Businesses			Total Credit Card			Auto			Retail Banking			Total Consumer Banking			Commercial Banking			Other			Total			Domestic Card			International Card Businesses			Total Credit Card			Auto			Retail Banking			Total Consumer Banking			Commercial Banking			Total
Allowance for loan and lease losses:
Balance as of June 30, 2018	$	5,260		$	364		$	5,624		$	1,060		$	60		$	1,120		$	624		—			$	7,368
Balance as of June 30, 2019																												$	4,925		$	417		$	5,342		$	997		$	58		$	1,055		$	736		$	7,133
Charge-offs	(1,403		)	(125		)	(1,528		)	(447		)	(22		)	(469		)	(48		)	$	1		(2,044		)	(1,403		)	(128		)	(1,531		)	(468		)	(21		)	(489		)	(66		)	(2,086		)
Recoveries(1)	309			82			391			204			3			207			21			—			619			338			42			380			234			4			238			6			624
Net charge-offs	(1,094		)	(43		)	(1,137		)	(243		)	(19		)	(262		)	(27		)	1			(1,425		)	(1,065		)	(86		)	(1,151		)	(234		)	(17		)	(251		)	(60		)	(1,462		)
Provision (benefit) for loan and lease losses	950			81			1,031			168			17			185			60			(1		)	1,275
Provision for loan and lease losses																												1,010			77			1,087			189			14			203			84			1,374
Allowance build (release) for loan and lease losses	(144		)	38			(106		)	(75		)	(2		)	(77		)	33			—			(150		)	(55		)	(9		)	(64		)	(45		)	(3		)	(48		)	24			(88		)
Other changes⁽¹⁾⁽²⁾	—			2			2			—			—			—			(1		)	—			1			—			(8		)	(8		)	—			—			—			—			(8		)
Balance as of September 30, 2018	5,116			404			5,520			985			58			1,043			656			—			7,219
Balance as of September 30, 2019																												4,870			400			5,270			952			55			1,007			760			7,037
Reserve for unfunded lending commitments:
Balance as of June 30, 2018	—			—			—			—			5			5			112			—			117
Benefit for losses on unfunded lending commitments	—			—			—			—			(1		)	(1		)	(6		)	—			(7		)
Balance as of September 30, 2018	—			—			—			—			4			4			106			—			110
Combined allowance and reserve as of September 30, 2018	$	5,116		$	404		$	5,520		$	985		$	62		$	1,047		$	762		$	—		$	7,329
Balance as of June 30, 2019																												—			—			—			—			4			4			140			144
Provision for losses on unfunded lending commitments																												—			—			—			—			—			—			9			9
Balance as of September 30, 2019																												—			—			—			—			4			4			149			153
Combined allowance and reserve as of September 30, 2019																												$	4,870		$	400		$	5,270		$	952		$	59		$	1,011		$	909		$	7,190

Nine Months Ended September 30, 2018
Credit Card Consumer Banking
(Dollars in millions) Domestic Card International Card Businesses Total Credit Card Auto
Home Loan⁽²⁾
Retail Banking Total Consumer Banking Commercial Banking
Other⁽²⁾
Total
Allowance for loan and lease losses:
Balance as of December 31, 2017 $ 5,273
$ 375
$ 5,648
$ 1,119
$ 58
$ 65
$ 1,242
$ 611
$ 1
$ 7,502
Charge-offs (4,649 ) (383 ) (5,032 ) (1,250 ) —
(64 ) (1,314 ) (76 ) (7 ) (6,429 )
Recoveries 1,068
190
1,258
617
1
13
631
37
1
1,927
Net charge-offs (3,581 ) (193 ) (3,774 ) (633 ) 1
(51 ) (683 ) (39 ) (6 ) (4,502 )
Provision (benefit) for loan and lease losses 3,424
234
3,658
499
(6 ) 45
538
85
(49 ) 4,232
Allowance build (release) for loan and lease losses (157 ) 41
(116 ) (134 ) (5 ) (6 ) (145 ) 46
(55 ) (270 )
Other changes⁽¹⁾⁽²⁾
—
(12 ) (12 ) —
(53 ) (1 ) (54 ) (1 ) 54
(13 )
Balance as of September 30, 2018 5,116
404
5,520
985
—
58
1,043
656
—
7,219
Reserve for unfunded lending commitments:
Balance as of December 31, 2017 —
—
—
—
—
7
7
117
—
124
Benefit for losses on unfunded lending commitments —
—
—
—
—
(3 ) (3 ) (11 ) —
(14 )
Balance as of September 30, 2018 —
—
—
—
—
4
4
106
—
110
Combined allowance and reserve as of September 30, 2018 $ 5,116
$ 404
$ 5,520
$ 985
$ —
$ 62
$ 1,047
$ 762
$ —
$ 7,329



	Nine Months Ended September 30, 2019
	Credit Card									Consumer Banking
(Dollars in millions)	Domestic Card			International Card Businesses			Total Credit Card			Auto			Retail Banking			Total Consumer Banking			Commercial Banking			Total
Allowance for loan and lease losses:
Balance as of December 31, 2018	$	5,144		$	391		$	5,535		$	990		$	58		$	1,048		$	637		$	7,220
Charge-offs	(4,635		)	(389		)	(5,024		)	(1,318		)	(65		)	(1,383		)	(109		)	(6,516		)
Recoveries⁽¹⁾	1,036			153			1,189			726			13			739			19			1,947
Net charge-offs	(3,599		)	(236		)	(3,835		)	(592		)	(52		)	(644		)	(90		)	(4,569		)
Provision for loan and lease losses	3,325			246			3,571			554			49			603			213			4,387
Allowance build (release) for loan and lease losses	(274		)	10			(264		)	(38		)	(3		)	(41		)	123			(182		)
Other changes⁽²⁾	—			(1		)	(1		)	—			—			—			—			(1		)
Balance as of September 30, 2019	4,870			400			5,270			952			55			1,007			760			7,037
Reserve for unfunded lending commitments:
Balance as of December 31, 2018	—			—			—			—			4			4			118			122
Provision for losses on unfunded lending commitments	—			—			—			—			—			—			31			31
Balance as of September 30, 2019	—			—			—			—			4			4			149			153
Combined allowance and reserve as of September 30, 2019	$	4,870		$	400		$	5,270		$	952		$	59		$	1,011		$	909		$	7,190




	4247	Capital One Financial Corporation (COF)

Table of Contents


	Three Months Ended September 30, 2017																														Three Months Ended September 30, 2018
	Credit Card									Consumer Banking																					Credit Card									Consumer Banking
(Dollars in millions)	Domestic Card			International Card Businesses			Total Credit Card			Auto			Home Loan			Retail Banking			Total Consumer Banking			Commercial Banking			Other⁽³⁾			Total			Domestic Card			International Card Businesses			Total Credit Card			Auto			Retail Banking			Total Consumer Banking			Commercial Banking			Other			Total
Allowance for loan and lease losses:
Balance as of June 30, 2017	$	4,825		$	385		$	5,210		$	1,066		$	59		$	74		$	1,199		$	758		$	3		$	7,170
Balance as of June 30, 2018																															$	5,260		$	364		$	5,624		$	1,060		$	60		$	1,120		$	624		—			$	7,368
Charge-offs	(1,351		)	(120		)	(1,471		)	(411		)	(2		)	(22		)	(435		)	(168		)	(36		)	(2,110		)	(1,403		)	(125		)	(1,528		)	(447		)	(22		)	(469		)	(48		)	$	1		(2,044		)
Recoveries(1)	264			52			316			154			1			4			159			5			24			504			309			82			391			204			3			207			21			—			619
Net charge-offs	(1,087		)	(68		)	(1,155		)	(257		)	(1		)	(18		)	(276		)	(163		)	(12		)	(1,606		)	(1,094		)	(43		)	(1,137		)	(243		)	(19		)	(262		)	(27		)	1			(1,425		)
Provision for loan and lease losses	1,417			49			1,466			274			3			15			292			75			11			1,844
Provision (benefit) for loan and lease losses																															950			81			1,031			168			17			185			60			(1		)	1,275
Allowance build (release) for loan and lease losses	330			(19		)	311			17			2			(3		)	16			(88		)	(1		)	238			(144		)	38			(106		)	(75		)	(2		)	(77		)	33			—			(150		)
Other changes⁽¹⁾⁽²⁾	—			13			13			—			(2		)	—			(2		)	(1		)	—			10			—			2			2			—			—			—			(1		)	—			1
Balance as of September 30, 2017	5,155			379			5,534			1,083			59			71			1,213			669			2			7,418
Balance as of September 30, 2018																															5,116			404			5,520			985			58			1,043			656			—			7,219
Reserve for unfunded lending commitments:
Balance as of June 30, 2017	—			—			—			—			—			7			7			132			—			139
Provision (benefit) for losses on unfunded lending commitments	—			—			—			—			—			1			1			(12		)	—			(11		)
Balance as of September 30, 2017	—			—			—			—			—			8			8			120			—			128
Combined allowance and reserve as of September 30, 2017	$	5,155		$	379		$	5,534		$	1,083		$	59		$	79		$	1,221		$	789		$	2		$	7,546
Balance as of June 30, 2018																															—			—			—			—			5			5			112			—			117
Benefit for losses on unfunded lending commitments																															—			—			—			—			(1		)	(1		)	(6		)	—			(7		)
Balance as of September 30, 2018																															—			—			—			—			4			4			106			—			110
Combined allowance and reserve as of September 30, 2018																															$	5,116		$	404		$	5,520		$	985		$	62		$	1,047		$	762		$	—		$	7,329


	Nine Months Ended September 30, 2017																														Nine Months Ended September 30, 2018
	Credit Card									Consumer Banking																					Credit Card									Consumer Banking
(Dollars in millions)	Domestic Card			International Card Businesses			Total Credit Card			Auto			Home Loan			Retail Banking			Total Consumer Banking			Commercial Banking			Other⁽³⁾			Total			Domestic Card			International Card Businesses			Total Credit Card			Auto			Home Loan⁽³⁾			Retail Banking			Total Consumer Banking			Commercial Banking			Other⁽³⁾			Total
Allowance for loan and lease losses:
Balance as of December 31, 2016	$	4,229		$	377		$	4,606		$	957		$	65		$	80		$	1,102		$	793		$	2		$	6,503
Balance as of December 31, 2017																															$	5,273		$	375		$	5,648		$	1,119		$	58		$	65		$	1,242		$	611		$	1		$	7,502
Charge-offs	(4,289		)	(355		)	(4,644		)	(1,119		)	(9		)	(61		)	(1,189		)	(334		)	(36		)	(6,203		)	(4,649		)	(383		)	(5,032		)	(1,250		)	—			(64		)	(1,314		)	(76		)	(7		)	(6,429		)
Recoveries(1)	834			128			962			448			4			11			463			12			32			1,469			1,068			190			1,258			617			1			13			631			37			1			1,927
Net charge-offs	(3,455		)	(227		)	(3,682		)	(671		)	(5		)	(50		)	(726		)	(322		)	(4		)	(4,734		)	(3,581		)	(193		)	(3,774		)	(633		)	1			(51		)	(683		)	(39		)	(6		)	(4,502		)
Provision for loan and lease losses	4,381			199			4,580			797			1			41			839			210			4			5,633
Provision (benefit) for loan and lease losses																															3,424			234			3,658			499			(6		)	45			538			85			(49		)	4,232
Allowance build (release) for loan and lease losses	926			(28		)	898			126			(4		)	(9		)	113			(112		)	—			899			(157		)	41			(116		)	(134		)	(5		)	(6		)	(145		)	46			(55		)	(270		)
Other changes⁽¹⁾⁽³⁾	—			30			30			—			(2		)	—			(2		)	(12		)	—			16			—			(12		)	(12		)	—			(53		)	(1		)	(54		)	(1		)	54			(13		)
Balance as of September 30, 2017	5,155			379			5,534			1,083			59			71			1,213			669			2			7,418
Balance as of September 30, 2018																															5,116			404			5,520			985			—			58			1,043			656			—			7,219
Reserve for unfunded lending commitments:
Balance as of December 31, 2016	—			—			—			—			—			7			7			129			—			136
Provision (benefit) for losses on unfunded lending commitments	—			—			—			—			—			1			1			(9		)	—			(8		)
Balance as of September 30, 2017	—			—			—			—			—			8			8			120			—			128
Combined allowance and reserve as of September 30, 2017	$	5,155		$	379		$	5,534		$	1,083		$	59		$	79		$	1,221		$	789		$	2		$	7,546
Balance as of December 31, 2017																															—			—			—			—			—			7			7			117			—			124
Benefit for losses on unfunded lending commitments																															—			—			—			—			—			(3		)	(3		)	(11		)	—			(14		)
Balance as of September 30, 2018																															—			—			—			—			—			4			4			106			—			110
Combined allowance and reserve as of September 30, 2018																															$	5,116		$	404		$	5,520		$	985		$	—		$	62		$	1,047		$	762		$	—		$	7,329

__________


⁽¹⁾	The amount and timing of recoveries is impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications, repossession of collateral, the periodic sale of charged-off loans as well as additional strategies, such as litigation.


⁽²⁾	Represents foreign currency translation adjustments and the net impact of loan transfers and sales where applicable.

⁽²⁾⁽³⁾

In ~~the second quarter of~~ 2018, we sold ~~the substantial majority~~all of our consumer home loan ~~portfolio and the related servicing. We also transferred the remaining portfolio to loans held for sale as of June 30, 2018. The~~portfolio.The impact ~~of these actions~~ included a benefit for credit losses of ~~$46~~$46 million in the second quarter of 2018 which iswas reflected in the Other category.


⁽³⁾	~~Includes the legacy loan portfolio of our discontinued GreenPoint mortgage operations.~~




	4348	Capital One Financial Corporation (COF)

Table of Contents

Allowance coverage ratios are calculated based on the allowance for loan and lease losses for each specified portfolio segment divided by period-end loans held for investment within the specified loan category. Table 27 presents the allowance coverage ratios as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 27: Allowance Coverage Ratios

September 30, 2018 December 31, 2017
Total allowance coverage ratio 3.02 % 2.95 %
Allowance coverage ratios by loan category:⁽¹⁾

Credit card (30+ day delinquent loans) 131.35
123.36
Consumer banking (30+ day delinquent loans) 26.58
30.95
Commercial banking (nonperforming loans) 252.89
215.14



	September 30, 2019						December 31, 2018
(Dollars in millions)	Allowance for loan and lease losses		Amount⁽¹⁾		Allowance coverage ratio		Allowance for loan and lease losses		Amount⁽¹⁾		Allowance coverage ratio
Credit Card	$	5,270	$	4,214	125.04	%	$	5,535	$	4,668	118.56	%
Consumer banking	1,007		4,252		23.68		1,048		4,360		24.04
Commercial banking	760		449		169.14		637		312		204.25
Total	$	7,037	249,355		2.82		$	7,220	245,899		2.94

__________

⁽¹⁾

~~Allowance coverage ratios by~~

Represents period-end 30+ day delinquent loans for our credit card and consumer banking loan ~~category are calculated based on the allowance~~portfolios, nonperforming loans for our commercial banking loan portfolio and ~~lease losses for each specified portfolio segment divided by period-end~~total loans held for investment ~~within~~for the ~~specified loan category.~~total ratio.

Our allowance for loan and lease losses decreased by ~~$283~~$183 million to ~~$7.2~~$7.0 billion and the allowance coverage ratio decreased by 12 basis points to 2.82% as of September 30, ~~2018 compared to~~2019 from December 31, ~~2017~~2018 primarily driven by an allowance ~~releases~~release in our domestic credit card ~~and auto~~ loan ~~portfolios largely due to improvements in credit trends.~~

~~The allowance coverage ratio increased by 7 basis points to 3.02% as of September 30, 2018 from December 31, 2017 primarily driven by lower loan balances~~portfolio largely due to the strong economy, stable underlying credit performance and the impact of the sale of ~~substantially all of our consumer home loan portfolio, partially offset by allowance releases in our domestic credit card and auto loan portfolios.~~certain partnership receivables.

LIQUIDITY RISK PROFILE

We have established liquidity practices that are intended to ensure that we have sufficient asset-based liquidity to cover our funding requirements and maintain adequate reserves to withstand the potential impact of deposit attrition or diminished liquidity in the funding markets. In addition to our cash position, we maintain reserves in the form of available for sale securities, held to maturity securities and certain loans that are either readily-marketable or pledgeable.

Table 28 below presents the composition of our liquidity reserves as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 28: Liquidity Reserves


(Dollars in millions)	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
Cash and cash equivalents	$	10,882		$	14,040		$	17,120		$	13,186
Investment securities portfolio:
Investment securities available for sale, at fair value	47,384			37,655			46,168			46,150
Investment securities held to maturity, at fair value	33,900			29,437			35,264			36,619
Total investment securities portfolio	81,284			67,092			81,432			82,769
FHLB borrowing capacity secured by loans	11,065			20,927			10,619			10,003
Outstanding FHLB advances and letters of credit secured by loans	(2,203		)	(9,115		)	(229		)	(9,726		)
Investment securities encumbered for Public Funds and others	(6,309		)	(8,619		)	(5,377		)	(6,631		)
Total liquidity reserves	$	94,719		$	84,325		$	103,565		$	89,601

Our liquidity reserves increased by ~~$10.4~~$14.0 billion to ~~$94.7~~$103.6 billion as of September 30, ~~2018~~2019 from December 31, ~~2017~~2018 primarily driven by a decrease in our FHLB advances outstanding ~~as well as~~and an increase in our ~~investment securities portfolio. The increase in our investment securities portfolio~~cash and ~~the decrease in our FHLB borrowing capacity secured by loans were primarily due to the sale of substantially all of our consumer home loan portfolio in the first nine months of 2018.~~cash equivalents. See “MD&A—Risk Management” in our ~~2017~~2018 Form 10-K for additional information on our management of liquidity risk.




	4449	Capital One Financial Corporation (COF)

Table of Contents

Liquidity Coverage Ratio

We are subject to the Liquidity Coverage Ratio Rule (“LCR Rule”) as implemented by the Federal ~~Banking Agencies.~~Reserve and OCC. The LCR Rule requires us to calculate our LCR daily and to publicly disclose, on a quarterly basis, our LCR, certain related quantitative liquidity metrics, and a qualitative discussion of our LCR. Our average LCR during the third quarter of ~~2018~~2019 exceeded the LCR Rule requirement of 100%. The calculation and the underlying components are based on our interpretations, expectations and assumptions of relevant regulations, as well as interpretations provided by our regulators, and are subject to change based on changes to future regulations and interpretations. Beginning on the Effective Date of the Tailoring Final Rules, we will be subject to a reduced LCR requirement, which we do not expect will have a significant impact on our publicly disclosed LCR. See “Part I—Item 1. Business—Supervision and Regulation” in our 2018 Form 10-K and “MD&A—Supervision and Regulation” ~~in our 2017 Form 10-K~~ for additional information.

Borrowing Capacity

We ~~filed~~maintain a shelf registration ~~statement~~ with the ~~SEC in March 2018, which expires in March 2021. Under this shelf registration,~~U.S. Securities and Exchange Commission (“SEC”) so that we may periodically offer and sell an indeterminate aggregate amount of senior or subordinated debt securities, preferred stock, depositary shares, common stock, purchase contracts, warrants and units. There is no limit under this shelf registration to the amount or number of such securities that we may offer and sell, subject to market conditions. WeIn addition, we also ~~filed~~maintain a shelf registration ~~statement with the SEC in January 2016, which expires in January 2019 and~~that allows us to periodically offer and sell up to ~~$23~~$25 billion of securitized debt obligations from our credit card loan securitization ~~trust.~~trust and a shelf registration that allows us to periodically offer and sell up to $20 billion from our auto loan securitization trusts.

In addition to our issuance capacity under the shelf registration statements, we also have access to FHLB ~~advances. As of September 30, 2018, we pledged both loans~~advances and ~~securities to FHLB to secure a maximum borrowing capacity of $20.4 billion, of which $18.2 billion was still available to us to borrow.~~the Federal Reserve Discount Window. The ability to draw down funding is based on membership status and the amount is dependent upon the Banks’ ability to post collateral. As of September 30, 2019, we pledged both loans and securities to FHLB to secure a maximum borrowing capacity of $19.2 billion, of which $18.9 billion was still available to us to borrow. Our FHLB membership is ~~secured~~supported by our investment in FHLB stock of ~~$104~~$30 million and ~~$360~~$415 million as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, which was determined in part based on our outstanding advances. ~~We also have access~~As of September 30, 2019, we pledged loans to secure a borrowing capacity of $5.8 billion under the Federal Reserve Discount ~~Window through which we had a borrowing capacity of $5.5 billion as of September 30, 2018.~~Window. Our membership with the Federal Reserve is ~~secured~~supported by our investment in Federal Reserve stock, totaling $1.3 billion ~~and $1.2 billion~~ as of both September 30, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018.

Funding

Our primary source of funding comes from deposits, ~~which provide~~as they are a stable and relatively low cost source of ~~funds.~~funding. In addition to deposits, we raise funding through the issuance of senior and subordinated notes, securitized debt obligations, ~~and~~ brokered deposits, ~~as well as~~ federal funds purchased, ~~and~~ securities loaned or sold under agreements to repurchase, and FHLB advances secured by certain portions of our loan and securities portfolios. A key objective in our use of these markets is to maintain access to a diversified mix of wholesale funding sources. See “MD&A—Consolidated Balance ~~Sheet Analysis—~~Sheets Analysis—Funding Sources Composition” for additional information on our primary sources of funding.




	50	Capital One Financial Corporation (COF)

Table of Contents

Deposits

Table 29 provides a comparison of average balances, interest expense and average deposit interest rates for the ~~three~~third quarter and first nine months ~~ended September 30, 2018~~of 2019 and ~~2017.~~2018.

Table 29: Deposits Composition and Average Deposits Interest Rates

Three Months Ended September 30,
2018 2017
(Dollars in millions) Average
Balance Interest
Expense Average
Deposits
Interest Rate Average
Balance Interest
Expense Average
Deposits
Interest Rate
Interest-bearing checking accounts⁽¹⁾
$ 37,485
$ 61
0.64 % $ 44,055
$ 57
0.52 %
Saving deposits⁽²⁾
149,484
422
1.12
143,023
247
0.69
Time deposits less than $100,000 25,350
156
2.44
21,769
91
1.66
Total interest-bearing core deposits 212,319
639
1.19
208,847
395
0.75
Time deposits of $100,000 or more 8,846
42
1.90
3,836
15
1.52
Foreign deposits 266
—
0.45
454
—
0.38
Total interest-bearing deposits $ 221,431
$ 681
1.23
$ 213,137
$ 410
0.77



	Three Months Ended September 30,
	2019						2018
(Dollars in millions)	Average Balance		Interest Expense		Average Deposits Interest Rate		Average Balance		Interest Expense		Average Deposits Interest Rate
Interest-bearing checking accounts⁽¹⁾	$	33,804	$	75	0.87	%	$	37,485	$	61	0.64	%
Saving deposits⁽²⁾	154,442		540		1.39		149,484		422		1.12
Time deposits less than $100,000	28,174		197		2.78		25,350		156		2.44
Total interest-bearing core deposits	216,420		812		1.49		212,319		639		1.19
Time deposits of $100,000 or more	15,643		89		2.25		8,846		42		1.90
Foreign deposits	—		—		—		266		—		0.45
Total interest-bearing deposits	$	232,063	$	901	1.55		$	221,431	$	681	1.23




	45	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~


	Nine Months Ended September 30,												Nine Months Ended September 30,
	2018						2017						2019						2018
(Dollars in millions)	Average Balance		Interest Expense		Average Deposits Interest Rate		Average Balance		Interest Expense		Average Deposits Interest Rate		Average Balance		Interest Expense		Average Deposits Interest Rate		Average Balance		Interest Expense		Average Deposits Interest Rate
Interest-bearing checking accounts⁽¹⁾	$	39,957	$	179	0.60	%	$	45,041	$	168	0.50	%	$	34,437	$	223	0.86	%	$	39,957	$	179	0.60	%
Saving deposits⁽²⁾	148,957		1,135		1.02		144,458		706		0.65		154,168		1,565		1.36		148,957		1,135		1.02
Time deposits less than $100,000	25,416		436		2.29		20,000		230		1.54		26,898		555		2.76		25,416		436		2.29
Total interest-bearing core deposits	214,330		1,750		1.09		209,499		1,104		0.70		215,503		2,343		1.45		214,330		1,750		1.09
Time deposits of $100,000 or more	6,726		91		1.81		3,531		40		1.49		14,542		245		2.25		6,726		91		1.81
Foreign deposits	344		1		0.42		478		1		0.39		—		—		—		344		1		0.42
Total interest-bearing deposits	$	221,400	$	1,842	1.11		$	213,508	$	1,145	0.72		$	230,045	$	2,588	1.50		$	221,400	$	1,842	1.11

__________


⁽¹⁾	Includes negotiable order of withdrawal accounts.


⁽²⁾	Includes money market deposit accounts.

The FDIC limits the acceptance of brokered deposits by well-capitalized insured depository institutions and, with a waiver from the FDIC, by adequately-capitalized institutions. COBNA and CONA were well-capitalized, as defined under the federal banking regulatory guidelines, as of ~~both~~ September 30, ~~2018~~2019 and December 31, ~~2017.~~2018, respectively. See “Part I—Item 1. Business—Supervision and ~~Regulation”~~Regulation” in our ~~2017~~2018 Form 10-K for additional information. We provide additional information on the composition of deposits under “MD&A—Consolidated Balance Sheets ~~Analysis—~~Analysis—Funding Sources Composition” and in “Note 8—Deposits and Borrowings.”

Short-Term Borrowings and Long-Term Debt

We access the capital markets to meet our funding needs through the issuance of senior and subordinated notes, securitized debt obligations, and federal funds purchased and securities loaned or sold under agreements to repurchase. In addition, we may utilize short-term and long-term FHLB advances secured by certain of our investment securities, multifamily real estate loans, and commercial real estate loans. ~~Substantially all of our long-term FHLB advances are structured with either a monthly or a quarterly call option at our discretion.~~

Our short-term borrowings include those borrowings with an original contractual maturity of one year or less and do not include the current portion of long-term debt. The short-term borrowings, which consist of short-term FHLB advances and federal funds purchased, securities loaned or sold under agreements to repurchase, ~~and short-term FHLB advances, increased~~decreased by ~~$1.1~~$8.9 billion to ~~$1.6 billion~~$464 million as of September 30, ~~2018~~2019 from December 31, ~~2017.~~2018 driven by maturities of our short-term FHLB advances.




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Our long-term debt, which primarily consists of securitized debt obligations, senior and subordinated notes, and long-term FHLB advances, ~~decreased by $9.1 billion to $50.6~~remained substantially flat at $49.7 billion as of September 30, ~~2018~~2019 from December 31, ~~2017, primarily driven~~2018 as issuances were largely offset by ~~a decrease~~maturities. We provide more information on our securitization activity in ~~our FHLB advances outstanding~~“Note 6—Variable Interest Entities and ~~maturities in our securitized debt obligations.~~Securitizations.”

The following table summarizes issuances of securitized debt obligations, senior and subordinated notes, and FHLB advances and their respective maturities or redemptions for the ~~three~~third quarter and first nine months ~~ended September 30, 2018~~of 2019 and ~~2017.~~2018.

Table 30: Long-Term Funding



	Issuances				Maturities/Redemptions
	Three Months Ended September 30,				Three Months Ended September 30,
(Dollars in millions)	2019		2018		2019		2018
Securitized debt obligations	$	4,050	—		$	2,096	$	998
Senior and subordinated notes	1,500		—		2,844		1,500
FHLB advances	—		$	750	—		251
Total	$	5,550	$	750	$	4,940	$	2,749



	Issuances				Maturities/Redemptions
	Nine Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2019		2018		2019		2018
Securitized debt obligations	$	6,673	$	1,000	$	6,222	$	2,248
Senior and subordinated notes	4,161		5,250		5,344		4,100
FHLB advances	—		750		251		8,858
Total	$	10,834	$	7,000	$	11,817	$	15,206

Issuances Maturities/Redemptions
Three Months Ended September 30, Three Months Ended September 30,
(Dollars in millions) 2018 2017 2018 2017
Securitized debt obligations⁽¹⁾
$ 0
$ 2,474
$ 998
$ 3,750
Senior and subordinated notes 0
1,300
1,500
1,328
FHLB advances 750
14,625
251
3,602
Total $ 750
$ 18,399
$ 2,749
$ 8,680




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Issuances Maturities/Redemptions
Nine Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2018 2017 2018 2017
Securitized debt obligations⁽¹⁾
$ 1,000
$ 5,474
$ 2,248
$ 7,233
Senior and subordinated notes 5,250
7,800
4,100
2,804
FHLB advances 750
20,025
8,858
24,066
Total $ 7,000
$ 33,299
$ 15,206
$ 34,103

~~__________~~


⁽¹⁾	~~Includes $2.5 billion of securitized debt assumed in the Cabela’s acquisition for~~ ~~the third quarter and first nine months of 2017~~.

Credit Ratings

Our credit ratings impact our ability to access capital markets and our borrowing costs. Rating agencies base their ratings on numerous factors, including liquidity, capital adequacy, asset quality, quality of earnings and the probability of systemic support. Significant changes in these factors could result in different ratings.

Table 31 provides a summary of the credit ratings for the senior unsecured long-term debt of Capital One Financial Corporation, COBNA and CONA as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 31: Senior Unsecured Long-Term Debt Credit Ratings

September 30, ~~2018~~2019

December 31, ~~2017~~2018

Capital One

Financial

Corporation

COBNA

CONA

Capital One

Financial

Corporation

COBNA

CONA

Moody’s

Baa1

S&P

BBB

BBB+

BBB

BBB+

Fitch

A-

As of October ~~31, 2018,~~ 28, 2019, Moody’s Investors Service (“Moody’s”), Standard & Poor’s (“S&P&P”) and Fitch Ratings (“Fitch”) have us on a stable ~~outlook, Moody’s affirmed our senior unsecured long-term debt credit ratings and revised our outlook from negative to stable.~~outlook.

MARKET RISK PROFILE

Market risk is ~~inherent~~the risk of economic loss in the value of our financial instruments ~~associated with our~~due to changes in market factors. Our primary market risk exposures include interest rate risk, foreign exchange risk and commodity pricing risk. We are exposed to market risk primarily from the following operations and activities:

Traditional banking activities of deposit gathering and lending;




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Asset/liability management activities including ~~loans, deposits,~~the management of investment securities, short-term and long-term borrowings and derivatives;

Foreign operations in the U.K. and Canada within our Credit Card business; and

Customer accommodation activities within our Commercial Banking business.

We have enterprise-wide risk management policies and limits, approved by our Board of Directors, which govern our market risk management activities. Our objective is to manage our exposure to market risk in accordance with these policies and limits based on prevailing market conditions and long-term ~~debt and derivatives. Below we~~expectations. We provide additional information below about our primary sources of market risk, our market risk management strategies and the measures that we use to evaluate ~~our market risk exposure.~~these exposures.

~~Primary Market Risk Exposures~~

Our primary source of market risk is interest rate risk. We also have exposure to foreign exchange risk and customer-related trading risk, both of which we believe are minimal after considering the impact of our associated risk management activities discussed below.

Interest Rate Risk

Interest rate risk ~~which~~ represents exposure to financial instruments whose ~~yield or price varies~~value vary with the level or volatility of interest ~~rates, is our most significant source of market risk exposure. Banks~~rates. We are ~~inevitably~~ exposed to interest rate risk ~~due to~~primarily from the differences in the timing between the maturities or re-pricing of assets and liabilities.




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~~Foreign Exchange Risk~~

Foreign exchange risk represents exposure to changes in the values of current holdings and future cash flows denominated in other currencies. Our primary exposure to foreign exchange risk is related to the operations of our international businesses in the U.K. and Canada. The largest foreign exchange exposure arising from these operations is the funding they are provided in the Great British pound (“GBP”) and the Canadian dollar (“CAD”), respectively. We ~~also have foreign exchange exposure through our net equity investments in these operations and through the dollar-denominated value of future earnings and cash flows they generate.~~

Our intercompany funding exposes our consolidated statements of income to foreign exchange transaction risk, while our equity investments in our foreign operations result in translation risk exposure in AOCI and our capital ratios. We manage our transaction risk by entering into forward foreign currency derivative contracts to hedge our exposure to variability in cash flows related to foreign currency-denominated intercompany borrowings. We use foreign currency derivative contracts as net investment hedges to manage our AOCI exposure. We apply hedge accounting to both our intercompany funding hedges and our net investment hedges, with the primary net investments subject to hedging denominated in GBP.

We measure our total exposure from non-dollar-denominated intercompany borrowings to our international businesses by regularly tracking the value of the loans made to our foreign operations and the associated forward foreign currency derivative contracts we use to hedge them. We apply a 1% U.S. dollar appreciation shock against these exposures to measure the impact to our consolidated statements of income from foreign exchange transaction risk. The intercompany borrowings to our international businesses were 772 million GBP and 741 million GBP as of September 30, 2018 and December 31, 2017, respectively, and 6.2 billion CAD and 6.4 billion CAD as of September 30, 2018 and December 31, 2017, respectively.

We measure our total exposure in non-dollar-denominated equity by regularly tracking the value of net equity invested in our foreign operations, the largest of which is in our U.K. and Canadian operations. Our measurement of net equity includes the impact of net investment hedges where applicable. We apply a 30% U.S. dollar appreciation shock against these net investment exposures, which we believe approximates a significant adverse foreign exchange movement over a one-year time horizon. Our gross equity exposures in our U.K. and Canadian operations were 1.7 billion GBP and 1.6 billion GBP as of September 30, 2018 and December 31, 2017, respectively, and 1.2 billion CAD and 1.0 billion CAD as of September 30, 2018 and December 31, 2017, respectively.

~~As a result of our derivative management activities, we believe our net exposure to foreign exchange risk is minimal.~~

~~Customer-Related Trading Risk~~

We offer various interest rate, foreign exchange rate and commodity derivatives as an accommodation to customers within our Commercial Banking business and offset the majority of our exposures through derivative transactions with other counterparties. These exposures are measured and monitored on a daily basis. As a result of offsetting our customer exposures with other counterparties, we believe our net exposure to customer-related trading risk is minimal.

We employ value-at-risk (“VaR”) as the primary method to both measure and monitor the market risk in our customer-related trading activities. VaR is a statistical-based risk measure used to estimate the potential loss from adverse market movements in a normal market environment. We employ a historical simulation approach using the most recent 500 business days and use a 99 percent confidence level and a holding period of one business day. We use internal models to produce a daily VaR measure of the market risk of all customer-related trading exposures.

~~For further information on our customer-related trading exposures, see “Note 9—Derivative Instruments and Hedging Activities~~.”




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~~Market Risk Management~~

~~We employ several techniques to~~ manage our interest rate ~~and foreign exchange~~ risk which include, but are not limited to, altering the duration and re-pricing characteristics of our various assets and liabilities and mitigating the foreign exchange exposure of certain non-dollar-denominated equity or transactions. Derivatives are the primary tools that we use for managing interest rate and foreign exchange risk. Use of derivatives is included in our current market risk management policies. We execute our derivative contracts in both over-the-counter and exchange-traded derivative markets and have exposure to both bilateral and clearinghouse counterparties. Although the majority of our derivatives areprimarily by entering into interest rate swaps ~~we also use a variety of~~and other derivative instruments, including caps, floors, options, futures and forward contracts, to manage both our interest rate and foreign currency risk. The outstanding notional amount of our derivative contracts increased to $212.5 billion as of September 30, 2018 from $196.6 billion as of December 31, 2017 primarily driven by an increase in our customer accommodation activities.

~~Market Risk Measurement~~contracts.

We have risk management policies and limits established by our market risk management policies and approved by the Board of Directors. Our objective is to manage our asset and liability risk position and exposure to market risk in accordance with these policies and prescribed limits based on prevailing market conditions and long-term expectations. Because no single measure can reflect all aspects of market risk, we use various industry standard market risk measurement techniques and ~~analysis~~analyses to measure, assess and manage the impact of changes in interest rates on our net interest income and our economic value of equity and ~~the impact of~~ changes in foreign exchange rates on our non-dollar-denominated ~~earnings~~funding and non-dollar equity investments in foreign operations. ~~We provide additional information below in “Economic Value of Equity.”~~

We consider the impact on both net interest income and economic value of equity in measuring and managing our interest rate risk. As interest rates have increased in 2018, we have incorporated a 150 basis points decline scenario into our interest rate sensitivity analysis. We use this 150 basis points decrease as our largest magnitude declining interest rate scenario and in scenarios where a 150 basis points decline would result in a rate less than 0%, we assume a rate of 0%.

Net Interest Income Sensitivity

~~This~~Our net interest income sensitivity measure estimates the impact on our projected 12-month baseline interest rate-sensitive revenue resulting from movements in interest rates. Interest rate-sensitive revenue consists of net interest income and certain components of other non-interest income significantly impacted by movements in interest rates, including changes in the fair value of ~~free-standing~~freestanding interest rate ~~swaps.~~derivatives. In addition to our existing assets and liabilities, we incorporate expected future business growth assumptions, such as loan and deposit growth and pricing, and plans for projected changes in our funding mix in our baseline forecast. In measuring the sensitivity of interest rate movements on our projected interest rate-sensitive revenue, we assume a hypothetical instantaneous parallel shift in the level of interest rates ~~of +200 basis points, +100 basis points, +50 basis points, -50 basis points, -100 basis points and -150 basis points to spot rates, with the lower rate scenario limited to zero as described above.~~detailed in Table 32 below. At the current level of interest rates, our ~~net~~ interest ~~income~~rate sensitive revenue remains largely unchanged in most scenarios and decreases ~~moderately~~ in the ~~-150~~-100 basis points scenario.

Economic Value of Equity

Our economic value of equity sensitivity measure estimates the impact on the net present value of our assets and liabilities, including derivative ~~hedging activity,~~exposures, resulting from movements in interest rates. Our economic value of equity sensitivity ~~measures are~~measure is calculated based on our existing assets and liabilities, including derivatives, and dodoes not incorporate business growth assumptions or projected ~~plans~~balance sheet changes. Key assumptions used in the calculation include projecting rate sensitive prepayments for ~~funding mix changes.~~mortgage securities, loans and other assets, term structure modeling of interest rates, discount spreads, and deposit volume and pricing assumptions. In measuring the sensitivity of interest rate movements on our economic value of equity, we assume a hypothetical instantaneous parallel shift in the level of interest rates ~~of +200 basis points, +100 basis points, +50 basis points, -50 basis points, -100 basis points and -150 basis points to spot rates, with the lower rate scenario limited to zero as described above.~~

Calculating our economic value of equity and its sensitivity to interest rates requires projecting cash flows for assets, liabilities and derivative instruments and discounting those cash flows at the appropriate discount rates. Key assumptionsdetailed in our economic value of equity calculation include projecting rate sensitive prepayments for mortgage securities, loans and other assets, term structure modeling of interest rates, discount spreads, and deposit volume and pricing assumptions.




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32 below. Our current economic value of equity sensitivity profile demonstrates that our economic value of equity generally decreases as interest rates ~~increase indicating that~~decrease from the ~~economic value~~current levels.




	53	Capital One Financial Corporation (COF)

Table of ~~our assets and derivative positions is more sensitive to interest rate changes than our liabilities.~~Contents

Table 32 shows the estimated percentage impact on our projected baseline net interest income and economic value of equity calculated under the methodology described above as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. Due to decreases in interest rates since December 31, 2018, we lowered our maximum declining interest rate scenario to -100 basis point in our interest rate sensitivity analysis as of September 30, 2019. In instances where a declining interest rate scenario would result in a rate less than 0%, we assume a rate of 0% for that scenario.

Table 32: Interest Rate Sensitivity Analysis


	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Estimated impact on projected baseline net interest income:
+200 basis points	0.0	%	(0.8	)%	0.9	%	(0.8	)%
+100 basis points	0.2		(0.3	)	0.8		(0.2	)
+50 basis points	0.2		0.0		0.6		0.0
–50 basis points	(0.4	)	(0.3	)	(0.9	)	(0.3	)
–100 basis points	(1.1	)	(1.3	)	(2.0	)	(1.0	)
–150 basis points	(2.3	)	N/A		N/A		(2.1	)
–200 basis points					N/A		(3.7	)
Estimated impact on economic value of equity:
+200 basis points	(8.0	)	(7.5	)	0.4		(7.1	)
+100 basis points	(3.7	)	(3.1	)	2.0		(2.9	)
+50 basis points	(1.6	)	(1.2	)	1.7		(1.2	)
–50 basis points	0.9		0.1		(3.5	)	0.2
–100 basis points	0.8		(1.5	)	(8.9	)	(0.8	)
–150 basis points	(1.0	)	N/A		N/A		(3.5	)
–200 basis points					N/A		(8.0	)

In addition to these industry standard measures, we ~~will~~ continue to factor into our internal interest rate risk management decisions, the potential impact of alternative interest rate scenarios, such as stressed rate shocks, as well as steepening and flattening yield curve scenarios.

Limitations of Market Risk Measures

The interest rate risk models that we use in deriving these measures incorporate contractual information, internally-developed assumptions and proprietary modeling methodologies, which project borrower and depositor behavior patterns in certain interest rate environments. Other market inputs, such as interest rates, market prices and interest rate volatility, are also critical components of our interest rate risk measures. We regularly evaluate, update and enhance these assumptions, models and analytical tools as we believe appropriate to reflect our best assessment of the market environment and the expected behavior patterns of our existing assets and liabilities.

There are inherent limitations in any methodology used to estimate the exposure to changes in market interest rates. The sensitivity analysis described above contemplates only certain movements in interest rates and is performed at a particular point in time based on the existing balance sheet and, in some cases, expected future business growth and funding mix assumptions. The strategic actions that management may take to manage our balance sheet may differ significantly from our projections, which could cause our actual earnings and economic value of equity sensitivities to differ substantially from the above sensitivity analysis.

For further information on our interest rate exposures, see “Note 9—Derivative Instruments and Hedging Activities.”

Foreign Exchange Risk

~~SUPERVISION AND REGULATION~~

~~On September 23, 2018, an amendment~~Foreign exchange risk represents exposure to changes in the ~~California Consumer Privacy Act~~values of ~~2018 (the “CCPA”), which was passed on June 28, 2018~~current holdings and ~~explained~~future cash flows denominated in ~~our Quarterly Report on Form 10-Q for the period ended June 30, 2018, became law. The amendment expanded the exemptions~~other currencies. We are exposed to foreign exchange risk primarily from the ~~CCPA, including by stating~~intercompany funding denominated in the pound sterling (“GBP”) and the Canadian dollar (“CAD”) that we provide to our businesses in the ~~CCPA does not apply~~U.K. and Canada and net equity investments in those businesses. We are also exposed to ~~personal information collected, processed, sold, or disclosed pursuant~~foreign exchange risk due to changes in the federal Gramm-Leach-Bliley Act or the California Financial Information Privacy Act. Under the amendment, the California Attorney General has an additional six months, until July 1, 2020, to adopt regulationsdollar-denominated value of future earnings and cash flows from our foreign operations and from our Euro-denominated (“EUR”) borrowings.




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Our non-dollar denominated intercompany funding and EUR-denominated borrowings expose our earnings to ~~further~~foreign exchange transaction risk. We manage these transaction risks by using forward foreign currency derivatives and cross-currency swaps to hedge our exposures. We measure our foreign exchange transaction risk exposures by applying a 1% U.S. dollar appreciation shock against the ~~purpose~~value of the ~~title,~~non-dollar denominated intercompany funding and ~~cannot bring~~EUR-denominated borrowings and their related hedges, which shows the impact to our earnings from foreign exchange risk. Our intercompany funding outstanding was 672 million GBP and 756 million GBP as of September 30, 2019 and December 31, 2018, respectively, and 6.3 billion CAD and 6.5 billion CAD as of September 30, 2019 and December 31, 2018, respectively. Our EUR-denominated borrowings outstanding were 1.3 billion EUR as of September 30, 2019.

Our non-dollar equity investments in foreign operations expose us to translation risk in our Accumulated other comprehensive income (“AOCI”) and capital ratios. We manage our AOCI exposure by entering into foreign currency derivatives designated as net investment hedges. We measure these exposures by applying a 30% U.S. dollar appreciation shock, which we believe approximates a significant adverse shock over a one-year time horizon, against the value of the net equity invested in our foreign operations related net investment hedges where applicable. Our gross equity exposures in our U.K. and Canadian operations were 1.6 billion GBP as of both September 30, 2019 and December 31, 2018, and 1.3 billion CAD and 1.2 billion CAD as of September 30, 2019 and December 31, 2018, respectively.

As a result of our derivative management activities, we believe our net exposure to foreign exchange risk is minimal.

Risk related to Customer Accommodation Derivatives

We offer interest rate, commodity and foreign currency derivatives as an accommodation to our customers within our Commercial Banking business. We offset the majority of the market risk of these customer accommodation derivatives by entering into offsetting derivatives transactions with other counterparties. We use value-at-risk (“VaR”) as the primary method to measure the market risk in our customer accommodation derivative activities on a daily basis. VaR is a statistical risk measure used to estimate the potential loss from movements observed in the recent market environment. We employ an historical simulation approach using the most recent 500 business days and use a 99 percent confidence level and a holding period of one business day. As a result of offsetting our customer exposures with other counterparties, we believe that our net exposure to market risk in our customer accommodation derivatives is minimal. For further information on our risk related to customer accommodation derivatives, see “Note 9—Derivative Instruments and Hedging Activities.”

London Interbank Offered Rate (“LIBOR”) Transition

On July 27, 2017, the U.K. Financial Conduct Authority, the regulator for the administration of LIBOR, announced that LIBOR would be transitioned as an interest rate benchmark and that it will no longer compel banks to contribute LIBOR data beyond December 31, 2021. It is unclear what the effect of any ~~enforcement actions until six months after publication~~such changes may have on the markets for LIBOR-based financial instruments. In the U.S., the Federal Reserve Board and the Federal Reserve Bank of ~~its final regulations~~New York established the Alternative Reference Rates Committee (“ARRC”), a group of private market participants and ex-officio members representing banking and financial sector regulators. ARRC has recommended the Secured Overnight Financing Rate (“SOFR”) as the preferred alternative rate for certain U.S. dollar derivative and cash instruments. We have exposures to LIBOR, including loans, derivative contracts, debt instruments, investment securities, vendor agreements and other instruments with attributes that are either directly or indirectly dependent on LIBOR. To facilitate an orderly transition from LIBOR, we have established a company-wide, cross-functional initiative to oversee and manage our transition away from LIBOR and other Interbank Offered Rates (“IBORs”) to alternative reference rates (“ARRs”). Our transition effort includes but is not limited to:

implementing a robust governance framework and transition planning;

identifying and monitoring our LIBOR exposure;

reviewing legal contracts and updating fallback language for new and existing agreements;

engaging with industry working groups, regulators, and our clients;

assessing internal operational readiness and risk management;

evaluating necessary updates to our infrastructure including systems, models, valuation tools and processes; and

monitoring developments associated with LIBOR alternatives and industry practices related to LIBOR-indexed instruments.




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For a further discussion of the various risks we face in connection with the expected replacement of LIBOR on our operations, see “Part I—Item 1A. Risk Factors—Fluctuations In Market Interest Rates Or Volatility In The Capital Markets Could Adversely Affect Our Income And Expense, The Value Of Assets And Obligations, Our Regulatory Capital, Cost Of Capital Or Liquidity” in our 2018 Form 10-K.

SUPERVISION AND REGULATION

Capital and Liquidity Update

In October 2019, the Federal Banking Agencies released the Tailoring Final Rules that provide for tailored application of certain capital, liquidity, and stress testing requirements across different categories of banking institutions. These categories are determined primarily by an institution’s asset size, with adjustments to a more stringent category possible if the institution exceeds certain other risk-based thresholds. As a BHC with total consolidated assets of at least $250 billion that does not exceed any of the applicable risk-based thresholds, we will be a Category III institution under the Tailoring Final Rules. As such, beginning on the Effective Date, we will no longer be subject to the Basel III Advanced Approaches and certain associated capital requirements, although we will remain subject to the countercyclical capital buffer and supplementary leverage ratio, which are currently required only for Basel III Advanced Approaches institutions. Because we will not be subject to the Basel III Advanced Approaches, on the Effective Date we will become subject to the Capital Simplification Rule finalized in July ~~1, 2020, whichever is sooner.~~2019, as described in our Quarterly Report on Form 10-Q for the period ended June 30, 2019 under “MD&A—Supervision and Regulation,” as those changes become effective.

~~Canada~~Upon the Effective Date, because we will be a Category III institution with less than $75 billion in weighted average short-term wholesale funding, as defined by the rules, we will be subject to a reduced LCR requirement.

~~In August 2018, the Government of Canada announced new voluntary commitments from Visa Canada~~Please see “MD&A—Capital Management” and MasterCard Canada, which will take effect when the original commitments end in 2020. As part of their new commitments, Visa and Mastercard will further reduce interchange fees for consumer credit cards by approximately 10 basis points to an annual average effective rate of 1.4% “MD&A—Liquidity Risk Profile” for a ~~period~~more detailed discussion of ~~five years. Visa~~the Tailoring Final Rules.

Nonbank Activities

In the third quarter of 2019, we acquired United Income, Inc., an SEC-registered investment adviser regulated under the Investment Advisers Act of 1940, and ~~Mastercard will also narrow~~KippsDeSanto & Company, a registered broker-dealer regulated by the ~~range of interchange rates (lowest vs. highest fee) charged to businesses.~~SEC and the Financial Industry Regulatory Authority.

We ~~provide~~provided additional information on our Supervision and Regulation in our ~~2017~~2018 Form 10-K under “Part I—Item 1. Business—Supervision and Regulation” and our Quarterly Reports on Form 10-Q for the period ended March 31, ~~2018~~2019 and for the period ended June 30, ~~2018~~2019 under “MD&A—Supervision and Regulation.”

FORWARD-LOOKING STATEMENTS

From time to time, we have made and will make forward-looking statements, including those that discuss, among other things, strategies, goals, outlook or other non-historical matters; projections, revenues, income, returns, expenses, capital measures, capital allocation plans, accruals for claims in litigation and for other claims against us; earnings per share, efficiency ratio or other financial measures for us; future financial and operating results; our plans, objectives, expectations and intentions; and the assumptions that underlie these matters.

To the extent that any such information is forward-looking, it is intended to fit within the safe harbor for forward-looking information provided by the Private Securities Litigation Reform Act of 1995.

Numerous factors could cause our actual results to differ materially from those described in such forward-looking statements, including, among other things:

general economic and business conditions in the U.S., the U.K., Canada or our local markets, including conditions affecting employment levels, interest rates, tariffs, collateral values, consumer income, credit worthiness and confidence, spending and savings that may affect consumer bankruptcies, defaults, charge-offs and deposit activity;




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an increase or decrease in credit losses, including increases due to a worsening of general economic conditions in the credit environment, and the impact of inaccurate estimates or inadequate reserves;

compliance with financial, legal, regulatory, tax or accounting changes or actions, including the impacts of the Tax Act, the Dodd-Frank Act, and other regulations governing bank capital and liquidity standards;

our ability to manage effectively our capital and liquidity;

developments, changes or actions relating to any litigation, governmental investigation or regulatory enforcement action or matter involving ~~us;~~us, including those relating to U.K. PPI;

the inability to sustain revenue and earnings growth;

increases or decreases in interest ~~rates;~~rates and uncertainty with respect to the interest rate environment;

our ability to access the capital markets at attractive rates and terms to capitalize and fund our operations and future growth;

increases or decreases in our aggregate loan balances or the number of customers and the growth rate and composition thereof, including increases or decreases resulting from factors such as shifting product mix, amount of actual marketing expenses we incur and attrition of loan balances;

the amount and rate of deposit growth;

changes in deposit costs;

our ability to execute on our strategic and operational plans;

~~our~~ restructuring activities or other charges;




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our response to competitive pressures;

changes in retail distribution strategies and channels, including the emergence of new technologies and product delivery systems;

our success in integrating acquired businesses and loan portfolios, and our ability to realize anticipated benefits from announced transactions and strategic partnerships;

the success of our marketing efforts in attracting and retaining customers;

changes in the reputation of, or expectations regarding, the financial services industry or us with respect to practices, products or financial condition;

any significant disruption in our operations or in the technology platforms on which we rely, including cybersecurity, business continuity and related operational risks, as well as other security failures or breaches of our systems or those of our customers, partners, service providers or other third parties;


•	the potential impact to our business, operations and reputation from, and expenses and uncertainties associated with, the Cybersecurity Incident we announced on July 29, 2019 and associated legal proceedings and other inquiries or investigations, as discussed in “MD&A—Introduction—Cybersecurity Incident” and “Note 14—Commitments, Contingencies, Guarantees and Others”;

our ability to maintain a compliance and technology infrastructure suitable for the nature of our business;

our ability to develop and adapt to rapid changes in digital technology to address the needs of our customers and comply with applicable regulatory standards, including ~~our increasing reliance on third party infrastructure and~~ compliance with data protection and privacy standards;

the effectiveness of our risk management strategies;

our ability to control costs, including the amount of, and rate of growth in, our expenses as our business develops or changes or as it expands into new market areas;




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the extensive use, reliability and accuracy of the models and data we rely on in our business;

our ability to recruit and retain talented and experienced personnel;

the impact from, and our ability to respond to, natural disasters and other catastrophic events;

changes in the labor and employment markets;

fraud or misconduct by our customers, employees, business partners or third parties;

merchants’ increasing focus on the fees charged by credit card networks; and

other risk factors identified from time to time in our public disclosures, including in the reports that we file with the SEC.

Forward-looking statements often use words such as “will,” “anticipate,” “target,” “expect,” “estimate,” “intend,” “plan,” “goal,” ~~“believe”~~“believe,” “forecast,” “outlook” or other words of similar meaning. Any forward-looking statements made by us or on our behalf speak only as of the date they are made or as of the date indicated, and we do not undertake any obligation to update forward-looking statements as a result of new information, future events or otherwise. For additional information on factors that could materially influence forward-looking statements included in this Report, see the risk factors set forth under “Part I—Item 1A. Risk ~~Factors”~~Factors” in our ~~2017~~2018 Form ~~10-K.~~10-K and the risk factors set forth under “Part II—Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the period ended June 30, 2019. You should carefully consider the factors discussed above, and in our Risk Factors or other disclosure, in evaluating these forward-looking statements.




	5258	Capital One Financial Corporation (COF)

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SUPPLEMENTAL TABLE

~~We include certain~~Reconciliation of Non-GAAP Measures

The following non-GAAP measures ~~in the following table.~~consist of TCE, tangible assets and metrics computed using these amounts, which include tangible book value per common share, return on average tangible assets, return on average TCE and TCE ratio. We consider these metrics to be key financial performance measures that management uses in assessing capital adequacy and the level of returns generated. While these non-GAAP measures are widely used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies, ~~our measures~~they may not be comparable to similarly-titled measures reported by other companies. ~~These non-GAAP measures are individually identified and calculations are explained in footnotes below the table.~~ The following table presents reconciliations of these non-GAAP measures to the applicable amounts measured in accordance with GAAP.

Table A—Reconciliation of Non-GAAP Measures ~~and Calculation of Regulatory Capital Measures~~

(Dollars in millions, except as noted) September 30, 2018 December 31, 2017
Tangible Common Equity (Period-End)
Stockholders’ equity $ 50,638
$ 48,730
Goodwill and intangible assets⁽¹⁾
(14,945 ) (15,106 )
Noncumulative perpetual preferred stock (4,360 ) (4,360 )
Tangible common equity $ 31,333
$ 29,264
Tangible Common Equity (Quarterly Average)
Stockholders’ equity $ 50,768
$ 50,710
Goodwill and intangible assets⁽¹⁾
(14,982 ) (15,223 )
Noncumulative perpetual preferred stock (4,360 ) (4,360 )
Tangible common equity $ 31,426
$ 31,127
Tangible Assets (Period-End)
Total assets $ 362,909
$ 365,693
Goodwill and intangible assets⁽¹⁾
(14,945 ) (15,106 )
Tangible assets $ 347,964
$ 350,587
Tangible Assets (Quarterly Average)
Total assets $ 360,937
$ 363,045
Goodwill and intangible assets⁽¹⁾
(14,982 ) (15,223 )
Tangible assets $ 345,955
$ 347,822
Non-GAAP Ratio
TCE⁽²⁾
9.0 % 8.3 %
Capital Ratios⁽³⁾

Common equity Tier 1 capital⁽⁴⁾
11.2 % 10.3 %
Tier 1 capital⁽⁵⁾
12.8
11.8
Total capital⁽⁶⁾
15.2
14.4
Tier 1 leverage⁽⁷⁾
10.6
9.9
Supplementary leverage⁽⁸⁾
9.0
8.4
Regulatory Capital Metrics
Risk-weighted assets⁽⁹⁾
$ 288,694
$ 292,225
Adjusted average assets⁽⁷⁾
346,297
348,424
Total leverage exposure⁽⁸⁾
408,238
407,832




	53	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

(Dollars in millions) September 30, 2018 December 31, 2017
Regulatory Capital Under Basel III Standardized Approach
Common equity excluding AOCI $ 48,154
$ 45,296
Adjustments:
AOCI^(10)(11)
(1,877 ) (808 )
Goodwill, net of related deferred tax liabilities (14,345 ) (14,380 )
Intangible assets, net of related deferred tax liabilities⁽¹¹⁾
(284 ) (330 )
Other 817
258
Common equity Tier 1 capital 32,465
30,036
Tier 1 capital instruments 4,360
4,360
Additional Tier 1 capital adjustments 1
—
Tier 1 capital 36,826
34,396
Tier 2 capital instruments 3,468
3,865
Qualifying allowance for loan and lease losses 3,653
3,701
Tier 2 capital 7,121
7,566
Total capital $ 43,947
$ 41,962



(Dollars in millions, except as noted)	September 30, 2019			December 31, 2018
Tangible Common Equity (Period-End)
Stockholders’ equity	$	58,235		$	51,668
Goodwill and intangible assets⁽¹⁾	(14,940		)	(14,941		)
Noncumulative perpetual preferred stock	(5,823		)	(4,360		)
Tangible common equity	$	37,472		$	32,367
Tangible Common Equity (Quarterly Average)
Stockholders’ equity	$	57,245		$	51,114
Goodwill and intangible assets⁽¹⁾	(14,908		)	(14,953		)
Noncumulative perpetual preferred stock	(4,678		)	(4,360		)
Tangible common equity	$	37,659		$	31,801
Tangible Assets (Period-End)
Total assets	$	378,810		$	372,538
Goodwill and intangible assets⁽¹⁾	(14,940		)	(14,941		)
Tangible assets	$	363,870		$	357,597
Tangible Assets (Quarterly Average)
Total assets	$	374,905		$	365,243
Goodwill and intangible assets⁽¹⁾	(14,908		)	(14,953		)
Tangible assets	$	359,997		$	350,290
Non-GAAP Ratio
TCE⁽²⁾	10.3		%	9.1		%

__________


⁽¹⁾	Includes impact of related deferred taxes.


⁽²⁾	TCE ratio is a non-GAAP measure calculated ~~by dividing the period-end~~based on TCE divided by ~~period-end~~ tangible assets.


⁽³⁾	Ratios as of September 30, 2018 are preliminary. As we continue to validate our data, the calculations are subject to change until we file our September 30, 2018 Form FR Y-9C—Consolidated Financial Statements for Holding Companies and Call Reports.


⁽⁴⁾	~~Common equity Tier 1 capital ratio is a regulatory capital measure calculated based on common equity Tier 1 capital divided by risk-weighted assets.~~


⁽⁵⁾	~~Tier 1 capital ratio is a regulatory capital measure calculated based on Tier 1 capital divided by risk-weighted assets.~~


⁽⁶⁾	~~Total capital ratio is a regulatory capital measure calculated based on total capital divided by risk-weighted assets.~~


⁽⁷⁾	Adjusted average assets, for the purpose of calculating our Tier 1 leverage ratio, represent total average assets adjusted for amounts that deducted from Tier 1 capital, predominately goodwill and intangible assets. Tier 1 leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by adjusted average assets.


⁽⁸⁾	~~Supplementary leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by total leverage exposure. See “MD&A—Capital Management” for additional information.~~


⁽⁹⁾	~~Includes credit and market risk weighted assets.~~


⁽¹⁰⁾	~~Amounts presented are net of tax.~~


⁽¹¹⁾	~~Amounts based on transition provisions for regulatory capital deductions and adjustments of 80% for 2017 and 100% for 2018.~~




	5459	Capital One Financial Corporation (COF)

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Glossary and Acronyms

~~2018~~2019 Stock Repurchase Program: On June ~~28, 2018,~~27, 2019, we announced that our Board of Directors authorized the repurchase of up to ~~$1.2~~$2.2 billion of shares of our common stock from the third quarter of ~~2018~~2019 through the end of the second quarter of ~~2019.~~2020.

Annual Report: References to our ~~“2017~~“2018 Form 10-K” or ~~“2017~~“2018 Annual Report” are to our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018.

Banks: Refers to COBNA and CONA.

Basel Committee: The Basel Committee on Banking Supervision.

Basel III Advanced Approaches: The Basel III Advanced Approaches is mandatory for those institutions with consolidated total assets of $250 billion or more or consolidated total on-balance sheet foreign exposure of $10 billion or more. The Basel III Capital Rule modified the Advanced Approaches version of Basel II to create the Basel III Advanced Approaches.

Basel III Capital Rule: The Federal Banking Agencies issued a rule in July 2013 implementing the Basel III capital framework developed by the Basel Committee as well as certain Dodd-Frank Act and other capital provisions.

Basel III Standardized Approach: The Basel III Capital Rule modified Basel I to create the Basel III Standardized Approach, which requires for Basel III Advanced Approaches banking organizations that have yet to exit parallel run to use the Basel III Standardized Approach to calculate regulatory capital, including capital ratios, subject to transition provisions.

~~Bass Pro acquisition:~~Capital One ~~On October 5, 2018, we completed~~or the ~~acquisition of the Bass Pro co-brand credit card portfolio.~~

~~Cabela’s acquisition:~~ ~~On September 25, 2017, we completed the acquisition from Synovus Bank of credit card assets and related liabilities of World’s Foremost Bank, a wholly-owned subsidiary of Cabela’s Incorporated.~~

~~Capital One:~~Company: Capital One Financial Corporation and its subsidiaries.

Carrying value (with respect to loans): The amount at which a loan is recorded on the consolidated balance sheets. For loans recorded at amortized cost, carrying value is the unpaid principal balance net of unamortized deferred loan origination fees and costs, and unamortized purchase premium or discount. For loans that are or have been on nonaccrual status, the carrying value is also reduced by any net charge-offs that have been recorded and the amount of interest payments applied as a reduction of principal under the cost recovery method. For credit card loans, the carrying value also includes interest that has been billed to the customer. For loans classified as held for sale, carrying value is the lower of carrying value as described in the sentences above, or fair value. For PCI loans, carrying value represents the present value of all expected cash flows including interest that has not yet been accrued, discounted at the effective interest rate, including any valuation allowance for impaired loans.

CECL:In June 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected rather than incurred losses, with an anticipated result of more timely loss recognition. This guidance is effective for us on January 1, ~~2020, with early adoption permitted no earlier than January 1, 2019.~~2020.

COBNA: Capital One Bank (USA), National Association, one of our fully owned subsidiaries, which offers credit and debit card products, other lending products and deposit products.

Common equity Tier 1 capital: Calculated as the sum of common equity, related surplus and retained earnings, and accumulated other comprehensive income net of applicable phase-ins, less goodwill and intangibles net of associated deferred tax liabilities and applicable phase-ins, less other deductions, as defined by regulators.

~~Company:~~ ~~Capital One Financial Corporation and its subsidiaries.~~

CONA: Capital One, National Association, one of our fully owned subsidiaries, which offers a broad spectrum of banking products and financial services to consumers, small businesses and commercial clients.

Credit risk: The risk of loss from an obligor’s failure to meet the terms of any contract or otherwise fail to perform as agreed.




	55	~~Capital One Financial Corporation (COF)~~

~~Table~~Cybersecurity Incident: The unauthorized access by an outside individual who obtained certain types of ~~Contents~~personal information relating to people who had applied for our credit card products and to our credit card customers that we announced on July 29, 2019.

Derivative: A contract or agreement whose value is derived from changes in interest rates, foreign exchange rates, prices of securities or commodities, credit worthiness for credit default swaps or financial or commodity indices.

Discontinued operations: The operating results of a component of an entity, as defined by Accounting Standards Codification (“ASC”) 205, that are removed from continuing operations when that component has been disposed of or it is management’s intention to sell the component.




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Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”): Regulatory reform legislation signed into law on July 21, 2010. This law broadly affects the financial services industry and contains numerous provisions aimed at strengthening the sound operation of the financial services sector.

Exchange Act: The Securities Exchange Act of ~~1934.~~1934, as amended.

eXtensible Business Reporting Language (“XBRL”): A language for the electronic communication of business and financial data.

Federal Banking Agencies: The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation.

Federal Reserve: The Board of Governors of the Federal Reserve System.

FICO score: A measure of consumer credit risk provided by credit bureaus, typically produced from statistical modeling software created by FICO (formerly known as “Fair Isaac Corporation”) utilizing data collected by the credit bureaus.

Foreign currency derivative contracts: ~~Agreements~~An agreement to exchange contractual amounts of one currency for another currency at one or more future dates.

Foreign exchange contracts: Contracts that provide for the future receipt or delivery of foreign currency at previously agreed-upon terms.

~~GreenPoint:~~ ~~Refers to our wholesale mortgage banking unit, GreenPoint Mortgage Funding, Inc., which was closed in 2007.~~

GSE or Agency: A government-sponsored enterprise or agency is a financial services corporation created by the United States Congress. Examples of U.S. government agencies include Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”), Government National Mortgage Association (“Ginnie Mae”) and the Federal Home Loan Banks (“FHLB”).

Impaired loans: A loan is considered impaired when, based on current information and events, it is probable that we will not be able to collect all amounts due from the borrower in accordance with the original contractual terms of the loan.

Interest rate sensitivity: The exposure to interest rate movements.

Interest rate swaps: Contracts in which a series of interest rate flows in a single currency are exchanged over a prescribed period. Interest rate swaps are the most common type of derivative contract that we use in our asset/liability management activities.

Investment grade: Represents Moody’s long-term rating of Baa3 or better; and/or a Standard & Poor’s or DBRS long-term rating of BBB- or better; or if unrated, an equivalent rating using our internal risk ratings. Instruments that fall below these levels are considered to be non-investment grade.

Investor entities: Entities that invest in community development entities (“CDE”) that provide debt financing to businesses and non-profit entities in low-income and rural communities.

LCR Rule: In September 2014, the Federal Banking Agencies issued final rules implementing the Basel III Liquidity Coverage Ratio in the United States. The LCR is calculated by dividing the amount of an institution’s high quality, unencumbered ~~high-quality~~ liquid assets by its estimated net cash outflow, as defined and calculated in accordance with ~~the~~Final LCR Rule.

Leverage ratio: Tier 1 capital divided by average assets after certain adjustments, as defined by the regulators.




	56	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

Liquidity risk: The risk that the Company will not be able to meet its future financial obligations as they come due, or invest in future asset growth because of an inability to obtain funds at a reasonable price within a reasonable time period.

Loan-to-value (“LTV”) ratio: The relationship, expressed as a percentage, between the principal amount of a loan and the appraised value of the collateral ~~(e.g., auto)~~ securing the loan.

Managed presentation: A non-GAAP presentation of financial results that includes reclassifications to present revenue on a fully taxable-equivalent basis. Management uses this non-GAAP financial measure at the segment level, because it believes this provides information to enable investors to understand the underlying operational performance and trends of the particular business segment and facilitates a comparison of the business segment with the performance of competitors.

Market risk: The risk that an institution’s earnings or the economic value of equity could be adversely impacted by changes in interest rates, foreign exchange rates or other market factors.

Master netting agreement: An agreement between two counterparties that have multiple contracts with each other that provides for the net settlement of all contracts through a single payment in the event of default or termination of any one contract.




	61	Capital One Financial Corporation (COF)

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Mortgage-backed security (“MBS”): An asset-backed security whose cash flows are backed by the principal and interest payments of a set of mortgage loans.

Mortgage servicing rights (“~~MSR”~~MSRs”): The right to service a mortgage loan when the underlying loan is sold or securitized. Servicing includes collections for principal, interest and escrow payments from borrowers and accounting for and remitting principal and interest payments to investors.

Net interest margin: The result of dividing net interest income by average interest-earning assets.

Nonperforming loans: ~~Loans~~Generally include loans that have been placed on nonaccrual status.

~~North Fork:~~ ~~North Fork Bancorporation, Inc., which was acquired by the Company in 2006.~~ We also do not report loans classified as held for sale as nonperforming.

Option-ARM loans: The option-ARM real estate loan product is an adjustable-rate mortgage (“ARM”) loan that initially provides the borrower with the monthly option to make a fully-amortizing, interest-only or minimum fixed payment. After the initial payment option period, usually five years, the recalculated minimum payment represents a fully-amortizing principal and interest payment that would effectively repay the loan by the end of its contractual term.

Other-than-temporary impairment (“OTTI”): An impairment charge taken on a security whose fair value has fallen below the carrying value on the balance sheet and whose value is not expected to recover through the holding period of the security.

Public ~~Fund~~Funds deposits: Deposits that are derived from a variety of political subdivisions such as school districts and municipalities.

Purchased credit-impaired (“PCI”) loans: Loans acquired in a business combination that were recorded at fair value at acquisition and subsequently accounted for based on cash flows expected to be collected in accordance with ASC 310-30,Loans and Debt Securities Acquired with Deteriorated Credit Quality.

Purchase volume:Consists of purchase transactions, net of returns, for the period, and excludes cash advance and balance transfer transactions.

Rating agency: An independent agency that assesses the credit quality and likelihood of default of an issue or issuer and assigns a rating to that issue or issuer.

Recorded investment: The amount of the investment in a loan which includes any direct write-down of the investment.

Repurchase agreement: An instrument used to raise short-term funds whereby securities are sold with an agreement for the seller to buy back the securities at a later date.

Restructuring charges: Charges associated with the realignment of resources supporting various businesses, primarily consisting of severance and related benefits pursuant to our ongoing benefit programs and impairment of certain assets related to business locations and activities being exited.




	57	~~Capital One Financial Corporation (COF)~~

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Return on average assets: Calculated based on income from continuing operations, net of tax, for the period divided by average total assets for the period.

Return on average common equity: Calculated based on ~~the sum of~~ (i) income from continuing operations, net of tax; (ii) less dividends and undistributed earnings allocated to participating securities; ~~and~~ (iii) less preferred stock dividends, for the period, divided by average common equity. Our calculation of return on average common equity may not be comparable to similarly-titled measures reported by other companies.

Return on average tangible common equity: A non-GAAP financial measure calculated based on ~~the sum of~~ (i) income from continuing operations, net of tax; (ii) less dividends and undistributed earnings allocated to participating securities; ~~and~~ (iii) less preferred stock dividends, for the period, divided by average tangible common equity. Our calculation of return on average tangible common equity may not be comparable to similarly-titled measures reported by other companies.

Risk-weighted assets: ~~Consist of on-~~On- and off-balance sheet assets that are assigned to one of several broad risk categories and weighted by factors representing their risk and potential for default.

Securitized debt obligations: A type of asset-backed security and structured credit product constructed from a portfolio of fixed-income assets.

Subprime: For purposes of lending in our Credit Card business, we generally consider FICO scores of 660 or below, or other equivalent risk scores, to be subprime. For purposes of auto lending in our Consumer Banking business, we generally consider FICO scores of 620 or below to be subprime.




	62	Capital One Financial Corporation (COF)

~~Tax Act:~~Table of Contents

Tailoring Final Rules: ~~The Act to~~In October 2019, the Federal Banking Agencies released final rules that provide for ~~reconciliation pursuant to titles II~~tailored application of certain capital, liquidity, and Vstress testing requirements across different categories of banking institutions. As a bank holding company with total consolidated assets of at least $250 billion that does not exceed any of the ~~concurrent resolution on~~applicable risk-based thresholds, we will be a Category III institution under the ~~budget for fiscal year 2018 enacted on December 22, 2017.~~Tailoring Final Rules.

Tangible common equity (“TCE”): A non-GAAP financial measure. Common equity less goodwill and intangible assets adjusted for deferred tax liabilities associated with non-tax deductible intangible assets and tax deductible goodwill.

Tax Act: The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 enacted on December 22, 2017.

Troubled debt restructuring (“TDR”): A TDR is deemed to occur when the ~~Company modifies the~~ contractual terms of a loan agreement are modified by granting a concession to a borrower that is experiencing financial difficulty.

Unfunded commitments: Legally binding agreements to provide a defined level of financing until a specified future date.

U.K. PPI Reserve: U.K. payment protection insurance customer refund reserve.

U.S. GAAP: Accounting principles generally accepted in the United States of America. Accounting rules and conventions defining acceptable practices in preparing financial statements in the U.S.

~~Unfunded commitments:~~ ~~Legally binding agreements to provide a defined level of financing until a specified future date.~~

Variable interest entity (“VIE”): An entity that (i) lacks enough equity investment at risk to permit the entity to finance its activities without additional financial support from other parties; (ii) has equity owners that lack the right to make significant decisions affecting the entity’s operations; and/or (iii) has equity owners that do not have an obligation to absorb or the right to receive the entity’s losses or return.




	5863	Capital One Financial Corporation (COF)

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Acronyms

~~ABS:~~AML: ~~Asset-backed security~~

~~AFS:~~ ~~Available for sale~~

~~AML:~~Anti-money laundering

AOCI: Accumulated other comprehensive income

~~ARM:~~ ~~Adjustable rate mortgage~~

ASU: Accounting Standards Update

ASC: Accounting Standards Codification

BHC: Bank holding company

bps: Basis points

CAD:Canadian dollar

CCAR:Comprehensive Capital Analysis and Review

CCP: Central Counterparty Clearinghouse, or Central Clearinghouse

~~CCPA:~~ ~~California Consumer Privacy Act of 2018~~

CDE: Community development entities

CECL:Current expected credit loss

CEO: Chief Executive Officer

~~CMBS:~~CFPB: Consumer Financial Protection Bureau

CMBS: Commercial mortgage-backed securities

CME: Chicago Mercantile Exchange

COEP: Capital One (Europe) plc

COF: Capital One Financial Corporation

CVA:Credit valuation adjustment

DVA:Debit valuation adjustment

Fannie Mae:Federal National Mortgage Association

FASB: Financial Accounting Standards Board

FCA:U.K. Financial Conduct Authority

FCM: Futures commission merchant

FDIC: Federal Deposit Insurance Corporation

~~FHFA:~~FHLB: ~~Federal Housing Finance Agency~~

~~FHLB:~~Federal Home Loan Banks

~~FIRREA:~~FinCEN: Financial ~~Institutions Reform, Recovery and~~Crimes Enforcement ~~Act~~Network




	59	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

Fitch:Fitch Ratings

FOS:Financial Ombudsman Service

Freddie Mac: Federal Home Loan Mortgage Corporation

FVC: Fair Value Committee

~~GBP:~~GAAP: Generally accepted accounting principles in the U.S.

GBP: Great British pound

Ginnie Mae: Government National Mortgage Association

~~G-SIBs:~~GSE ~~Global systemically important banks~~

~~GSE~~or or Agency: Government-sponsored enterprise

~~HELOCs:~~IBOR: Interbank Offered Rate

IRM: ~~Home equity lines of credit~~Independent Risk Management

LCH: ~~London Clearing House, or Clearnet~~LCH Group

LCR: Liquidity coverage ratio

LIBOR: London Interbank Offered Rate

Moody’s: Moody’s Investors Service

~~MSR:~~MSRs: Mortgage servicing rights

OCC: Office of the Comptroller of the Currency

OCI: Other comprehensive income




	64	Capital One Financial Corporation (COF)

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OTC:Over-the-counter

OTTI: Other-than-temporary impairment

PCA: Prompt corrective action

PCI:Purchased credit-impaired

PCCR:Purchased credit card relationship

PPI:Payment protection insurance

~~REO:~~RMBS: ~~Real estate owned~~

~~RMBS:~~Residential mortgage-backed securities

S&P: Standard & Poor’s

SEC: U.S. Securities and Exchange Commission

TCE: Tangible common equity

TDR: Troubled debt restructuring

U.K.: United Kingdom

U.S.: United States of America

VAC:Valuations Advisory Committee




	6065	Capital One Financial Corporation (COF)

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Item 1. Financial Statements and Notes
	Page
Consolidated Financial Statements	6166
Consolidated Statements of Income	6267
Consolidated Statements of Comprehensive Income	6368
Consolidated Balance Sheets	6469
Consolidated Statements of Changes in Stockholders’ Equity	6570
Consolidated Statements of Cash Flows	6671
Notes to Consolidated Financial Statements	6772
Note 1—Summary of Significant Accounting Policies	67
~~Note 2—Business Developments and Discontinued Operations~~	71
~~Note 3—Investment Securities~~	72
Note ~~4—Loans~~2—Leases	7874
Note 3—Investment Securities	76
Note 4—Loans	82
Note 5—Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments	9094
Note 6—Variable Interest Entities and Securitizations	9498
Note 7—Goodwill and Intangible Assets	99102
Note 8—Deposits and Borrowings	~~101~~104
Note 9—Derivative Instruments and Hedging Activities	~~103~~105
Note 10—Stockholders’ Equity	~~110~~
~~Note 11—Earnings Per Common Share~~	~~114~~
~~Note 12—Fair Value Measurement~~	115
Note 11—Earnings Per Common Share	119
Note 12—Fair Value Measurement	120
Note 13—Business Segments and Revenue from Contracts with Customers	~~123~~128
Note 14—Commitments, Contingencies, Guarantees and Others	~~127~~132




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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in millions, except per share-related data)	2018			2017			2018			2017			2019			2018			2019			2018
Interest income:
Loans, including loans held for sale	$	6,247		$	5,960		$	18,370		$	17,255		$	6,429		$	6,247		$	19,180		$	18,370
Investment securities	593			431			1,584			1,280			583			593			1,867			1,584
Other	55			29			174			83			63			55			196			174
Total interest income	6,895			6,420			20,128			18,618			7,075			6,895			21,243			20,128
Interest expense:
Deposits	681			410			1,842			1,145			901			681			2,588			1,842
Securitized debt obligations	127			85			358			236			123			127			405			358
Senior and subordinated notes	288			194			828			522			299			288			923			828
Other borrowings	13			31			45			68			15			13			53			45
Total interest expense	1,109			720			3,073			1,971			1,338			1,109			3,969			3,073
Net interest income	5,786			5,700			17,055			16,647			5,737			5,786			17,274			17,055
Provision for credit losses	1,268			1,833			4,218			5,625			1,383			1,268			4,418			4,218
Net interest income after provision for credit losses	4,518			3,867			12,837			11,022			4,354			4,518			12,856			12,837
Non-interest income:
Interchange fees, net	714			662			2,080			1,908			790			714			2,368			2,080
Service charges and other customer-related fees	410			414			1,233			1,203			283			410			988			1,233
Net securities gains (losses)	(196		)	68			(189		)	64			5			(196		)	44			(189		)
Other	248			141			884			402			144			248			492			884
Total non-interest income	1,176			1,285			4,008			3,577			1,222			1,176			3,892			4,008
Non-interest expense:
Salaries and associate benefits	1,432			1,524			4,382			4,378			1,605			1,432			4,736			4,382
Occupancy and equipment	515			471			1,508			1,416			519			515			1,533			1,508
Marketing	504			379			1,343			1,210			501			504			1,564			1,343
Professional services	275			297			719			823			314			275			919			719
Communications and data processing	311			294			934			871			312			311			944			934
Amortization of intangibles	44			61			131			184			25			44			84			131
Other	692			541			1,753			1,533			596			692			1,542			1,753
Total non-interest expense	3,773			3,567			10,770			10,415			3,872			3,773			11,322			10,770
Income from continuing operations before income taxes	1,921			1,585			6,075			4,184			1,704			1,921			5,426			6,075
Income tax provision	420			448			1,314			1,205			375			420			1,071			1,314
Income from continuing operations, net of tax	1,501			1,137			4,761			2,979			1,329			1,501			4,355			4,761
Income (loss) from discontinued operations, net of tax	1			(30		)	(7		)	(26		)	4			1			15			(7		)
Net income	1,502			1,107			4,754			2,953			1,333			1,502			4,370			4,754
Dividends and undistributed earnings allocated to participating securities	(9		)	(8		)	(32		)	(21		)	(10		)	(9		)	(34		)	(32		)
Preferred stock dividends	(53		)	(52		)	(185		)	(185		)	(53		)	(53		)	(185		)	(185		)
Net income available to common stockholders	$	1,440		$	1,047		$	4,537		$	2,747		$	1,270		$	1,440		$	4,151		$	4,537
Basic earnings per common share:
Net income from continuing operations	$	3.01		$	2.22		$	9.40		$	5.73		$	2.70		$	3.01		$	8.80		$	9.40
Loss from discontinued operations	0.00			(0.06		)	(0.01		)	(0.05		)
Income (loss) from discontinued operations													0.01			0.00			0.03			(0.01		)
Net income per basic common share	$	3.01		$	2.16		$	9.39		$	5.68		$	2.71		$	3.01		$	8.83		$	9.39
Diluted earnings per common share:
Net income from continuing operations	$	2.99		$	2.20		$	9.33		$	5.68		$	2.68		$	2.99		$	8.76		$	9.33
Loss from discontinued operations	0.00			(0.06		)	(0.01		)	(0.05		)
Income (loss) from discontinued operations													0.01			0.00			0.03			(0.01		)
Net income per diluted common share	$	2.99		$	2.14		$	9.32		$	5.63		$	2.69		$	2.99		$	8.79		$	9.32
Dividends declared and paid per common share	$	0.40		$	0.40		$	1.20		$	1.20



See Notes to Consolidated Financial Statements.
	6267	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in millions)	2018			2017			2018			2017			2019			2018			2019			2018
Net income	$	1,502		$	1,107		$	4,754		$	2,953		$	1,333		$	1,502		$	4,370		$	4,754
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities available for sale	(23		)	10			(673		)	195			100			(23		)	664			(673		)
Net changes in securities held to maturity	8			26			441			72			8			8			20			441
Net unrealized losses on cash flow hedges	(81		)	(17		)	(512		)	(38		)
Net unrealized gains (losses) on hedging relationships													189			(81		)	1,003			(512		)
Foreign currency translation adjustments	13			38			(4		)	86			(12		)	13			33			(4		)
Other	(1		)	4			(2		)	12			(2		)	(1		)	(4		)	(2		)
Other comprehensive income (loss), net of tax	(84		)	61			(750		)	327			283			(84		)	1,716			(750		)
Comprehensive income	$	1,418		$	1,168		$	4,004		$	3,280		$	1,616		$	1,418		$	6,086		$	4,004



See Notes to Consolidated Financial Statements.
	6368	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(Dollars in millions, except per share-related data)	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
Assets:
Cash and cash equivalents:
Cash and due from banks	$	4,547		$	4,458		$	4,452		$	4,768
Interest-bearing deposits and other short-term investments	6,335			9,582			12,668			8,418
Total cash and cash equivalents	10,882			14,040			17,120			13,186
Restricted cash for securitization investors	746			312			417			303
Investment securities:
Securities available for sale	47,384			37,655			46,168			46,150
Securities held to maturity	34,631			28,984			33,894			36,771
Total investment securities	82,015			66,639			80,062			82,921
Loans held for investment:
Unsecuritized loans held for investment	204,796			218,806			215,892			211,702
Loans held in consolidated trusts	33,965			35,667			33,463			34,197
Total loans held for investment	238,761			254,473			249,355			245,899
Allowance for loan and lease losses	(7,219		)	(7,502		)	(7,037		)	(7,220		)
Net loans held for investment	231,542			246,971			242,318			238,679
Loans held for sale, at lower of cost or fair value	1,402			971			1,245			1,192
Premises and equipment, net	4,149			4,033			4,311			4,191
Interest receivable	1,518			1,536			1,627			1,614
Goodwill	14,513			14,533			14,624			14,544
Other assets	16,142			16,658			17,086			15,908
Total assets	$	362,909		$	365,693		$	378,810		$	372,538

Liabilities:
Interest payable	$	391		$	413		$	370		$	458
Deposits:
Non-interest-bearing deposits	24,839			26,404			23,064			23,483
Interest-bearing deposits	222,356			217,298			234,084			226,281
Total deposits	247,195			243,702			257,148			249,764
Securitized debt obligations	18,649			20,010			18,910			18,307
Other debt:
Federal funds purchased and securities loaned or sold under agreements to repurchase	384			576			464			352
Senior and subordinated notes	31,291			30,755			30,682			30,826
Other borrowings	1,881			8,940			93			9,420
Total other debt	33,556			40,271			31,239			40,598
Other liabilities	12,480			12,567			12,908			11,743
Total liabilities	312,271			316,963			320,575			320,870
Commitments, contingencies and guarantees (see Note 14)
Stockholders’ equity:
Preferred stock (par value $.01 per share; 50,000,000 shares authorized; 4,475,000 shares issued and outstanding as of both September 30, 2018 and December 31, 2017)	0			0
Common stock (par value $.01 per share; 1,000,000,000 shares authorized; 666,908,695 and 661,724,927 shares issued as of September 30, 2018 and December 31, 2017, respectively, 473,656,501 and 485,525,340 shares outstanding as of September 30, 2018 and December 31, 2017, respectively)	7			7
Preferred stock (par value $.01 per share; 50,000,000 shares authorized; 5,975,000 and 4,475,000 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively)							0			0
Common stock (par value $.01 per share; 1,000,000,000 shares authorized; 672,084,002 and 667,969,069 shares issued as of September 30, 2019 and December 31, 2018, respectively, 465,720,986 and 467,717,306 shares outstanding as of September 30, 2019 and December 31, 2018, respectively)							7			7
Additional paid-in capital, net	31,978			31,656			33,826			32,040
Retained earnings	34,883			30,700			39,476			35,875
Accumulated other comprehensive loss	(1,877		)	(926		)
Treasury stock, at cost (par value $.01 per share; 193,252,194 and 176,199,587 shares as of September 30, 2018 and December 31, 2017, respectively)	(14,353		)	(12,707		)
Accumulated other comprehensive income (loss)							453			(1,263		)
Treasury stock, at cost (par value $.01 per share; 206,363,016 and 200,251,763 shares as of September 30, 2019 and December 31, 2018, respectively)							(15,527		)	(14,991		)
Total stockholders’ equity	50,638			48,730			58,235			51,668
Total liabilities and stockholders’ equity	$	362,909		$	365,693		$	378,810		$	372,538



See Notes to Consolidated Financial Statements.
	6469	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in millions) Preferred Stock Common Stock
Additional
Paid-In
Capital
Retained Earnings
Accumulated
Other
Comprehensive
Loss

Treasury
Stock

Total
Stockholders’
Equity
Shares Amount Shares Amount
Balance as of December 31, 2017 4,475,000
$ 0
661,724,927
$ 7
$ 31,656
$ 30,700
$ (926 ) $ (12,707 ) $ 48,730
Cumulative effects from adoption of new accounting standards 201
(201 ) 0
Comprehensive income (loss) 4,754
(750 ) 4,004
Dividends—common stock 31,034
0
3
(587 ) (584 )
Dividends—preferred stock (185 ) (185 )
Purchases of treasury stock (1,646 ) (1,646 )
Issuances of common stock and restricted stock, net of forfeitures 3,568,766
0
137
137
Exercises of stock options and warrants 1,583,968
0
38
38
Compensation expense for restricted stock awards, restricted stock units and stock options 144
144
Balance as of September 30, 2018 4,475,000
$ 0
666,908,695
$ 7
$ 31,978
$ 34,883
$ (1,877 ) $ (14,353 ) $ 50,638



(Dollars in millions)	Preferred Stock			Common Stock			Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders’ Equity
(Dollars in millions)	Shares	Amount		Shares	Amount		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders’ Equity
Balance as of December 31, 2018	4,475,000	$	0	667,969,069	$	7	$	32,040	$	35,875		$	(1,263	)	$	(14,991	)	$	51,668
Cumulative effects from adoption of new lease standard									(11		)							(11		)
Comprehensive income									1,412			603						2,015
Dividends—common stock⁽¹⁾				32,700	0		3		(194		)							(191		)
Dividends—preferred stock									(52		)							(52		)
Purchases of treasury stock															(65		)	(65		)
Issuances of common stock and restricted stock, net of forfeitures				2,641,635	0		52											52
Exercises of stock options				5,000	0		0											0
Compensation expense for restricted stock units and stock options							65											65
Balance as of March 31, 2019	4,475,000	$	0	670,648,404	$	7	$	32,160	$	37,030		$	(660	)	$	(15,056	)	$	53,481
Comprehensive income									1,625			830						2,455
Dividends—common stock⁽¹⁾				8,680	0		1		(189		)							(188		)
Dividends—preferred stock									(80		)							(80		)
Purchases of treasury stock															(2		)	(2		)
Issuances of common stock and restricted stock, net of forfeitures				745,017	0		46											46
Exercises of stock options				4,000	0		0											0
Compensation expense for restricted stock units and stock options							55											55
Balance as of June 30, 2019	4,475,000	$	0	671,406,101	$	7	$	32,262	$	38,386		$	170		$	(15,058	)	$	55,767
Comprehensive income									1,333			283						1,616
Dividends—common stock⁽¹⁾				4,646	0		0		(190		)							(190		)
Dividends—preferred stock									(53		)							(53		)
Purchases of treasury stock															(469		)	(469		)
Issuances of common stock and restricted stock, net of forfeitures				673,255	0		55											55
Exercises of stock options				0	0		0											0
Issuances of preferred stock	1,500,000	0					1,463											1,463
Compensation expense for restricted stock units and stock options							46											46
Balance as of September 30, 2019	5,975,000	$	0	672,084,002	$	7	$	33,826	$	39,476		$	453		$	(15,527	)	$	58,235



(Dollars in millions)	Preferred Stock			Common Stock			Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance as of December 31, 2017	4,475,000	$	0	661,724,927	$	7	$	31,656	$	30,700		$	(926	)	$	(12,707	)	$	48,730
Cumulative effects from adoption of new accounting standards									201			(201		)				0
Comprehensive income (loss)									1,346			(472		)				874
Dividends—common stock⁽¹⁾				22,467	0		2		(199		)							(197		)
Dividends—preferred stock									(52		)							(52		)
Purchases of treasury stock															(273		)	(273		)
Issuances of common stock and restricted stock, net of forfeitures				2,452,786	0		49											49
Exercises of stock options and warrants				675,871	0		14											14
Compensation expense for restricted stock awards, restricted stock units and stock options							58											58
Balance as of March 31, 2018	4,475,000	$	0	664,876,051	$	7	$	31,779	$	31,996		$	(1,599	)	$	(12,980	)	$	49,203
Comprehensive income (loss)									1,906			(194		)				1,712
Dividends—common stock⁽¹⁾				4,371	0		0		(196		)							(196		)
Dividends—preferred stock									(80		)							(80		)
Purchases of treasury stock															(802		)	(802		)
Issuances of common stock and restricted stock, net of forfeitures				571,514	0		41											41
Exercises of stock options and warrants				403,835	0		6											6
Compensation expense for restricted stock awards, restricted stock units and stock options							42											42
Balance as of June 30, 2018	4,475,000	$	0	665,855,771	$	7	$	31,868	$	33,626		$	(1,793	)	$	(13,782	)	$	49,926
Comprehensive income (loss)									1,502			(84		)				1,418
Dividends—common stock⁽¹⁾				4,196	0		1		(192		)							(191		)
Dividends—preferred stock									(53		)							(53		)
Purchases of treasury stock															(571		)	(571		)
Issuances of common stock and restricted stock, net of forfeitures				544,466	0		47											47
Exercises of stock options and warrants				504,262	0		18											18
Compensation expense for restricted stock awards, restricted stock units and stock options							44											44
Balance as of September 30, 2018	4,475,000	$	0	666,908,695	$	7	$	31,978	$	34,883		$	(1,877	)	$	(14,353	)	$	50,638

__________


⁽¹⁾	We declared dividend per share on our common stock of $0.40 in the third quarter of 2019 and 2018, and $1.20 in the first nine months of 2019 and 2018.



See Notes to Consolidated Financial Statements.
	6570	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30,						Nine Months Ended September 30,
(Dollars in millions)	2018			2017			2019			2018
Operating activities:
Income from continuing operations, net of tax	$	4,761		$	2,979		$	4,355		$	4,761
Loss from discontinued operations, net of tax	(7		)	(26		)
Income (loss) from discontinued operations, net of tax							15			(7		)
Net income	4,754			2,953			4,370			4,754
Adjustments to reconcile net income to net cash from operating activities:
Provision for credit losses	4,218			5,625			4,418			4,218
Depreciation and amortization, net	1,721			1,719			2,434			1,721
Deferred tax provision (benefit)	149			(321		)	(72		)	149
Net securities losses (gains)	189			(64		)	(44		)	189
Gain on sales of loans	(539		)	(42		)	(53		)	(539		)
Stock-based compensation expense	153			164			175			153
Other	(51		)	(4		)	0			(51		)
Loans held for sale:
Originations and purchases	(6,285		)	(6,776		)	(8,064		)	(6,285		)
Proceeds from sales and paydowns	5,707			6,387			8,126			5,707
Changes in operating assets and liabilities:
Changes in interest receivable	18			(47		)	(13		)	18
Changes in other assets	(118		)	781			1,852			(118		)
Changes in interest payable	(22		)	(27		)	(88		)	(22		)
Changes in other liabilities	(856		)	(198		)	(522		)	(856		)
Net change from discontinued operations	0			(59		)
Net cash from operating activities	9,038			10,091			12,519			9,038
Investing activities:
Securities available for sale:
Purchases	(11,136		)	(9,565		)	(8,919		)	(11,136		)
Proceeds from paydowns and maturities	5,839			5,493			6,099			5,839
Proceeds from sales	3,512			5,793			4,226			3,512
Securities held to maturity:
Purchases	(16,373		)	(4,731		)	(396		)	(16,373		)
Proceeds from paydowns and maturities	1,839			1,894			3,209			1,839
Loans:
Net changes in loans held for investment	9,646			(7,690		)	(10,555		)	9,646
Principal recoveries of loans previously charged off	1,927			1,469			1,947			1,927
Net purchases of premises and equipment	(669		)	(776		)	(631		)	(669		)
Net cash from acquisition activities	0			(3,220		)	(85		)	0
Net cash from other investing activities	(456		)	(412		)	(781		)	(456		)
Net cash from investing activities	(5,871		)	(11,745		)	(5,886		)	(5,871		)

	Nine Months Ended September 30,						Nine Months Ended September 30,
(Dollars in millions)	2018			2017			2019			2018
Financing activities:
Deposits and borrowings:
Changes in deposits	$	3,667		$	2,268		$	7,072		$	3,667
Issuance of securitized debt obligations	997			2,991			6,656			997
Maturities and paydowns of securitized debt obligations	(2,248		)	(7,233		)	(6,222		)	(2,248		)
Issuance of senior and subordinated notes and long-term FHLB advances	5,977			27,784			4,142			5,977
Maturities and paydowns of senior and subordinated notes and long-term FHLB advances	(12,958		)	(26,871		)	(5,595		)	(12,958		)
Changes in other borrowings	914			(210		)	(8,964		)	914
Common stock:
Net proceeds from issuances	137			124			153			137
Dividends paid	(584		)	(585		)	(569		)	(584		)
Preferred stock:
Net proceeds from issuances							1,463			0
Dividends paid	(185		)	(185		)	(185		)	(185		)
Purchases of treasury stock	(1,646		)	(236		)	(536		)	(1,646		)
Proceeds from share-based payment activities	38			102			0			38
Net cash from financing activities	(5,891		)	(2,051		)	(2,585		)	(5,891		)
Changes in cash, cash equivalents and restricted cash for securitization investors	(2,724		)	(3,705		)	4,048			(2,724		)
Cash, cash equivalents and restricted cash for securitization investors, beginning of the period	14,352			12,493			13,489			14,352
Cash, cash equivalents and restricted cash for securitization investors, end of the period	$	11,628		$	8,788		$	17,537		$	11,628
Supplemental cash flow information:
Non-cash items:
Net transfers from loans held for investment to loans held for sale	$	779		$	449		$	1,494		$	779
Securitized debt obligations assumed in acquisition	0			2,484
Interest paid	2,881			2,080			3,689			2,881
Income tax paid	375			779			364			375



See Notes to Consolidated Financial Statements.
	6671	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Capital One Financial Corporation, a Delaware Corporation established in 1994 and headquartered in McLean, Virginia, is a diversified financial services holding company with banking and non-banking subsidiaries. Capital One Financial Corporation and its subsidiaries (the “Company”) offer a broad array of financial products and services to consumers, small businesses and commercial clients through branches, the internet and other distribution channels. As of September 30, ~~2018,~~2019, our principal subsidiaries included:

Capital One Bank (USA), National Association (“COBNA”), which offers credit and debit card products, other lending products and deposit products; and

Capital One, National Association (“CONA”), which offers a broad spectrum of banking products and financial services to consumers, small businesses and commercial clients.

The Company is hereafter collectively referred to as “we,” “us” or “our.” COBNA and CONA are collectively referred to as the “Banks.”

We also offer products outside of the United States of America (“U.S.”) principally through Capital One (Europe) plc (“COEP”), an indirect subsidiary of COBNA organized and located in the United Kingdom (“U.K.”), and through a branch of COBNA in Canada. COEP has authority, among other things, to provide credit card loans. Our branch of COBNA in Canada also has the authority to provide credit card loans.

Our principal operations are organized for management reporting purposes into ~~three~~3 major business segments, which are defined primarily based on the products and services provided or the ~~type~~types of customer served: Credit Card, Consumer Banking and Commercial Banking. We provide details on our business segments, the integration of recent acquisitions, if any, into our business segments and the allocation methodologies and accounting policies used to derive our business segment results in “Note 13—Business Segments and Revenue from Contracts with Customers.”

Basis of Presentation and Use of Estimates

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”). The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and in the related disclosures. These estimates are based on information available as of the date of the consolidated financial statements. While management makes its best judgments, actual amounts or results could differ from these estimates. In the opinion of management, all normal, recurring adjustments have been included for a fair statement of this interim financial information.Certain prior period amounts have been reclassified to conform to the current period presentation.

These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements, and related notes thereto, included in Capital One Financial Corporation’s ~~2017~~2018 Annual Report on Form 10-K (“~~2017~~2018 Form 10-K”).




	6772	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Newly Adopted Accounting Standards

~~Accounting Implications of~~ During the ~~Tax Cuts and Jobs Act~~

~~In March 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-05, Income Taxes (Topic 740):~~ ~~Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This ASU codifies into existing U.S. GAAP the SEC Staff views expressed in Staff Accounting Bulletin No. 118,~~ ~~Income Tax Accounting Implications of the Tax Cuts and Jobs Act~~. This guidance addresses situations where an entity’s accounting for the income tax effects of the Tax Act is incomplete upon issuance of the entity’s financial statements for the reporting period in which the Tax Act was enacted. In accordance with this guidance, we included certain provisional amounts for these effects in our consolidated financial statements as of and for the year ended December 31, 2017. See “MD&A—Accounting Changes and Developments” in our 2017 Form 10-K for more information. Excluding our accounting for the repatriation tax, we have completed our accounting for the income tax effects of the Tax Act. We continue to assess regulatory guidance and other information related to the repatriation tax, and expect to finalize our assessment and record any required adjustments to the related provisional amounts by December 2018. We did not have any significant measurement period adjustments in the three or nine months endedNine Months Ended September 30, ~~2018.~~2019

~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~

~~In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220):~~ ~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.~~ U.S. GAAP requires the effects of changes in tax rates and laws on deferred tax balances to be recorded in income tax from continuing operations in the period of enactment. This requirement applies even in situations in which the related income tax effects of items in accumulated other comprehensive income (“AOCI”) were originally recognized in other comprehensive income (rather than in income from continuing operations), which results in certain tax effects being stranded in AOCI. This ASU allows a one-time reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Act. Additionally, this ASU requires entities to disclose their accounting policy for releasing stranded tax effects from AOCI, for which ours is to release the effects using a portfolio approach. This ASU provides entities the option to apply the guidance retrospectively or in the period of adoption. We early adopted this ASU in the first quarter of 2018, resulting in a decrease to AOCI and an increase to retained earnings of $173 million.



Standard	Guidance	Adoption Timing and Financial Statements Impacts
Premium Amortization on Callable Debt Accounting Standards Update (“ASU”) No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities Issued March 2017	Shortens the amortization period from the contractual life to the earliest call date for certain purchased callable debt securities held at a premium.	We adopted this guidance in the first quarter of 2019 using the modified retrospective method of adoption. Our ~~reclassification included the effects of the reduction in the federal corporate income tax rate enacted by the Tax Act and the resulting impacts on the federal benefit of deducting state income taxes.~~ ~~Targeted Improvements to Accounting for Hedging Activities~~ ~~In August 2017, the FASB issued ASU~~ ~~No. 2017-12, Derivatives and Hedging (Topic 815):~~ ~~Targeted Improvements to Accounting for Hedging Activities~~. This ASU amends hedge accounting guidance to better align hedge accounting with risk management activities, while reducing the complexity of applying and reporting on hedge accounting. Under this ASU, the concept of separately measuring and reporting hedge ineffectiveness has been eliminated and entities are required to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. In addition, for a closed pool of pre-payable financial assets, entities will be able to hedge an amount that is not expected to be affected by prepayments, defaults and other events under the “last-of-layer” method. The guidance permits a one-time reclassification of debt securities eligible to be hedged under the “last-of-layer” method from held to maturity to available for sale upon adoption. We early adopted this ASU in the first quarter of 2018 under the prescribed modified retrospective transition method. As permitted by this ASU, and in order to optimize the investment portfolio management for capital and risk management considerations, we made a one-time election to transfer $9.0 billion of held to maturity securities eligible to be hedged under the “last-of-layer” method to the available for sale category, resulting in an increase to AOCI of $107 million. See “~~Note 3—Investment Securities” and “Note 9—Derivative Instruments and Hedging Activities” for additional information on the impacts of the transfer, as well as the disclosures required under the new guidance.~~ ~~Classification of Certain Cash Receipts and Cash Payments~~ ~~In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230):~~ ~~Classification of Certain Cash Receipts and Cash Payments.~~ This ASU clarifies certain issues related to classification within the statement of cash flows with the objective of reducing existing diversity in practice. We adopted this ASU in the first quarter of 2018 under the retrospective transition method and our adoption of this standard did not have a material impact on our consolidated financial statements.

Leases ASU No. 2016-02, Leases (Topic 842) Issued February 2016	Requires lessees to recognize right of use assets and lease liabilities on their consolidated balance sheets and disclose key information about all their leasing arrangements, with certain practical expedients.	We adopted this guidance in the first quarter of 2019, using the modified retrospective method of adoption without restating prior periods. We elected the practical expedients that permitted us to not reassess the lease classification of existing leases, whether existing contracts contain a lease or the treatment of initial direct costs on existing leases. Upon adoption, we recorded a lease liability of $1.9 billion and right of use asset of $1.6 billion, which is net of other lease-related balances.




	68	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Recognition and Measurement of Financial Assets and Financial Liabilities~~

~~In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10):~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities.~~ The primary impact of this ASU to us is the requirement to measure equity investments at fair value with changes in fair value recorded through net income, except those accounted for under the equity method of accounting, or those that do not have a readily determinable fair value (for which a measurement alternative can be elected). We adopted this ASU in the first quarter of 2018 under the modified retrospective method and our adoption did not have a material impact on our consolidated financial statements.

~~Revenue from Contracts with Customers~~

~~In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)~~. Topic 606 was amended through subsequent accounting standard updates that resulted in technical corrections, improvements and a one-year deferral of the effective date to January 1, 2018. Topic 606, as amended, is applicable to all entities and replaced significant portions of existing industry and transaction-specific revenue recognition rules with a more principles-based recognition model. Entities were given an option to apply either a full or modified retrospective method of adoption. Most revenue associated with financial instruments, including interest income, loan origination fees and credit card fees, is outside the scope of the guidance. Gains and losses on investment securities, derivatives and sales of financial instruments are similarly excluded from the scope. We determined interchange fees earned on credit and debit card transactions, net of any related customer rewards, are in the scope of the amended guidance. We assessed the impact of the new guidance by evaluating our contracts, identifying our performance obligations, determining when the performance obligations were satisfied to allow us to recognize revenue and determining the amount of revenue to recognize. As a result of this analysis, we determined our recognition, measurement and presentation of interchange fees net of customer rewards costs will not change. We adopted this guidance in the first quarter of 2018 under the modified retrospective transition method and our adoption did not have a material impact on our consolidated financial statements. See “~~Note 13—Business Segments and Revenue from Contracts with Customers” for the new disclosures required under this guidance.~~

~~Recently Issued but Not Yet Adopted Accounting Standards~~

~~Implementation Costs Incurred in a Cloud Computing Arrangement~~

~~In August 2018, the FASB issued ASU No. 2018-15,~~ ~~Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):~~ ~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.~~ This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU. This guidance is effective for us on January 1, 2020, with early adoption permitted, using either the retrospective or prospective method of adoption. We are currently evaluating the impact of adopting this standard.

~~Premium Amortization on Purchased Callable Debt Securities~~

~~In March 2017, the FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20):~~ ~~Premium Amortization on Purchased Callable Debt Securities.~~ This ASU shortens the amortization period to the earliest call date for certain purchased callable debt securities held at a premium. There is no change for accounting for securities held at a discount. Under the existing guidance, the premium is generally amortized as an adjustment to interest income over the contractual life of the debt security. This guidance is effective for us on January 1, 2019, with early adoption permitted, using the modified retrospective method of adoption. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements and plan to adopt the standard on its effective date.




	69	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Simplifying the Test for Goodwill Impairment~~

~~In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350):~~ ~~Simplifying the Test for Goodwill Impairment~~. The guidance in this ASU is intended to reduce the cost and complexity of testing goodwill for impairment by eliminating the second step from the current goodwill impairment test. Under the existing guidance, the first step compares a reporting unit’s carrying value to its fair value. If the carrying value exceeds fair value, an entity performs the second step, which assigns the reporting unit’s fair value to its assets and liabilities, including unrecognized assets and liabilities, in the same manner as required in purchase accounting. Under the new guidance, any impairment of a reporting unit’s goodwill is determined based on the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the amount of goodwill allocated to the reporting unit. This guidance is effective for us on January 1, 2020, with early adoption permitted, using the prospective method of adoption. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements and plan to adopt the standard on its effective date.

~~Measurement of Credit Losses on Financial Instruments~~

~~In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326):~~ ~~Measurement of Credit Losses on Financial Instruments~~. This ASU requires an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected rather than incurred losses, with an anticipated result of more timely loss recognition. The CECL model is applicable to financial assets measured at amortized cost, net investments in leases that are not accounted for at fair value through net income and certain off-balance sheet arrangements. The CECL model will replace our current accounting for purchased credit-impaired (“PCI”) and impaired loans. This ASU also amends the available for sale (“AFS”) debt securities other-than-temporary impairment (“OTTI”) model. Credit losses (and subsequent recoveries) on AFS debt securities will be recorded through an allowance approach, rather than the current U.S. GAAP practice of permanent write-downs for credit losses and accreting positive changes through interest income over time.

This guidance is effective for us on January 1, 2020, with early adoption permitted no earlier than January 1, 2019, using the modified retrospective method of adoption. We plan to adopt the standard on its effective date. We have established a company-wide, cross-functional governance structure for our implementation of this standard. We are in the process of determining key accounting interpretations, data requirements and necessary changes to our credit loss estimation methods, processes and systems. We continue to assess the potential impact on our consolidated financial statements and related disclosures. Due to the significant differences in the revised guidance from existing U.S. GAAP, the implementation of this guidance may result in increases to our reserves for credit losses on financial instruments.

~~Leases~~

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU requires lessees to recognize right of use assets and lease liabilities on their consolidated balance sheets and disclose key information about all their leasing arrangements, with certain practical expedients. This guidance is effective for us on January 1, 2019, with early adoption permitted. We plan to adopt the standard on its effective date using the modified retrospective method of adoption without restating prior periods. We also expect to elect the practical expedients which provide that entities need not reassess whether existing contracts contain a lease, lease classification of existing leases, or the treatment of initial direct costs on existing leases. We are currently in the process of completing our review of lease contracts, evaluating other contracts for potential embedded leases, implementing a new lease accounting and administration software solution, and establishing new processes and internal controls.

Upon adoption, we expect to record a right of use asset and a corresponding lease liability for our operating leases where we are the lessee. The potential impact on our consolidated financial statements is largely based on the present value of future minimum lease payments, the amount of which will depend upon the population of leases in effect at the date of adoption. Future minimum lease payments totaled $2.7 billion as of December 31, 2017, as disclosed in “Note 8—Premises, Equipment and Lease Commitments” of our 2017 Form 10-K. We do not expect material changes to the recognition of operating lease expense in our consolidated statements of income.




	7073	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2—~~BUSINESS DEVELOPMENTS AND DISCONTINUED OPERATIONS~~LEASES

~~Business Developments~~Leases

~~Consumer Home Loan Portfolio Sale~~

We sold the substantial majority of our consumer home loan portfolio and the related servicing in the second quarter of 2018, and transferred the remaining consumer home loan portfolio of $398 million to loans held for sale as of June 30, 2018. These actions resulted in a net gain of approximately $400 million in the second quarter of 2018, including a benefit for credit losses of $46 million, which was reflected in the Other category. In ~~the third quarter of 2018, we sold substantially all of the remaining consumer home loan portfolio and recognized a gain of $99 million in the Other category.~~

~~Restructuring Activities~~

We periodically initiate restructuring activities to support business strategies and enhance our overall operational efficiency. These restructuring activities have primarily consisted of exiting certain business locations and activities as well as the realignment of resources supporting various businesses, including the decisions within our Consumer Banking business to cease new originations of home loan lending products in the fourth quarter of 2017, to sell our online retail brokerage business in the first quarter of ~~2018 and~~2019, we adopted ASU No. 2016-02, Leases (Topic 842), see “Note 1—Summary of Significant Accounting Policies” for the impacts upon adoption. Our primary involvement with leases is in the capacity as a lessee where we lease premises to ~~sell substantially all~~support our business. A majority of our ~~consumer home loan portfolio~~leases are operating leases of office space, retail bank branches and Cafés. For real estate leases, we have elected to account for the lease and non-lease components together as a single lease component. Our operating leases expire at various dates through 2071, and many of them require variable lease payments by us, of property taxes, insurance premiums, common area maintenance and other costs. Certain of these leases also have extension or termination options, and we assess the likelihood of exercising such options. If it is reasonably certain that we will exercise the options, then we include the impact in the ~~second~~measurement of our right-of-use assets and ~~third quarters of 2018. The charges incurred as a result of these restructuring activities have primarily consisted of severance~~lease liabilities.

Our right-of-use assets and ~~related benefits pursuant to our ongoing benefit programs, which~~lease liabilities for operating leases are included in ~~salaries~~other assets and ~~associate benefits~~other liabilities on our consolidated balance sheets. As most of our operating leases do not provide an implicit rate, we use our incremental borrowing rate in determining the present value of lease payments. Our operating lease expense is included in occupancy and equipment within non-interest expense in our consolidated statements of income. Total operating lease expense consists of operating lease cost, which is recognized on a straight-line basis over the lease term, and variable lease cost, which is recognized based on actual amounts incurred. We also sublease certain premises, and sublease income ~~as well as impairment of certain assets related to business locations and activities being exited, which are generally~~is included in ~~occupancy and equipment within~~other non-interest ~~expense.~~

~~There was no restructuring charge recognized~~income in the third quarter of 2018. For the nine months ended September 30, 2018, we recognized restructuring charges of $34 million, which are reflected in the Other category of our business segment results. We had a liability of $20 million associated with restructuring activities, which is recorded in other liabilities on our consolidated ~~balance sheets~~statements of income.

The following tables present information about our operating lease portfolio and the related lease costs as of ~~September 30, 2018. We recognized restructuring charges of $108 million~~and for ~~both~~ the three and nine months ended September 30, 2017. As of September 30, 2018, our online retail brokerage business had liabilities held for sale primarily consisting of customer deposits of $1.5 billion. When the transaction closes, we will transfer these customer deposits2019.

Table 2.1 Operating Lease Portfolio



(Dollars in millions)	September 30, 2019
Right-of-use assets	$	1,448
Lease liabilities	1,745
Weighted-average remaining lease term	9.0 years
Weighted-average discount rate	3.3		%

Table 2.2 Total Operating Lease Expense and ~~an equal cash amount to the third-party purchaser.~~Other Information

~~Discontinued Operations~~



(Dollars in millions)	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost	$	85		$	232
Variable lease cost	10			30
Total lease cost	95			262
Sublease income	(7		)	(19		)
Net lease cost	$	88		$	243
Cash paid for amounts included in the measurement of lease liabilities	$	84		$	246
Right-of-use assets obtained in exchange for lease liabilities	21			47
Right-of-use assets recognized upon adoption of new lease standard	0			1,601

Our discontinued operations consist of the mortgage origination operations of our wholesale mortgage banking unit, GreenPoint Mortgage Funding, Inc. (“GreenPoint”) and the manufactured housing operations of GreenPoint Credit, LLC, a subsidiary of GreenPoint, both of which were acquired as part of the North Fork Bancorporation, Inc. (“North Fork”) acquisition in December 2006. Although the manufactured housing operations were sold to a third party in 2004 prior to our acquisition of North Fork, we acquired certain retained interests and obligations related to those operations as part of the acquisition. Separately, in the third quarter of 2007 we closed the mortgage origination operations of the wholesale mortgage banking unit. The results of both the wholesale banking unit and the manufactured housing operations have been accounted for as discontinued operations and are reported as income or loss from discontinued operations, net of tax, on the consolidated statements of income. Income from discontinued operations, net of tax, was $1 million in the third quarter of 2018, compared to a loss of $30 million in the third quarter of 2017. Loss from discontinued operations, net of tax, was $7 million and $26 million for the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, we had no significant continuing involvement in the operations of our wholesale mortgage banking unit.

In the fourth quarter of 2017, we entered into an agreement with the third-party servicer under which we assumed the obligation to exercise the remaining clean-up calls as they become due on certain manufactured housing securitization transactions. See “~~Note 6—Variable Interest Entities and Securitizations” and “Note 14—Commitments, Contingencies, Guarantees and Others” for information associated with GreenPoint Credit, LLC manufactured housing operations and our mortgage representation and warranty exposure.~~




	7174	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents a maturity analysis of our operating leases and a reconciliation of the undiscounted cash flows to our lease liabilities as of September 30, 2019.

Table 2.3 Maturities of Operating Leases and Reconciliation to Lease Liabilities



(Dollars in millions)	September 30, 2019
2019	$	75
2020	300
2021	269
2022	246
2023	217
Thereafter	946
Total undiscounted lease payments	2,053
Less: Imputed interest	(308		)
Total lease liabilities	$	1,745

As of September 30, 2019, we had approximately $89 million and $93 million of right-of-use assets and lease liabilities, respectively, for finance leases with a weighted-average remaining lease term of 6.0 years. These right-of-use assets and lease liabilities are included in premises and equipment, net and other borrowings, respectively, on our consolidated balance sheets. We recognized $6 million and $17 million of total finance lease expense for the three and nine months ended September 30, 2019, respectively.




	75	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3—INVESTMENT SECURITIES

Our investment securities portfolio consists primarily of the following: U.S. Treasury securities; U.S. government-sponsored enterprise or agency (“Agency”) and non-agency residential mortgage-backed securities (“RMBS”); Agency commercial mortgage-backed securities (“CMBS”~~); other asset-backed securities (“ABS”~~); and other securities. Agency securities include Government National Mortgage Association (“Ginnie Mae”) guaranteed securities, Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) issued securities. The carrying value of our investments in U.S. Treasury and Agency securities represented 96% ~~and 95%~~ of our total investment securities portfolio as of both September 30, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018.

~~In the first quarter~~We classify investment securities as either available for sale or held to maturity. As of both September 30, 2019 and December 31, 2018, we ~~made a one-time transfer~~had investment securities available for sale of $46.2 billion and as of September 30, 2019 and December 31, 2018, we had investment securities held to maturity ~~securities with a carrying value~~ of ~~$9.0~~$33.9 billion ~~to available for sale as a result of our adoption of ASU No. 2017-12. See “Note 1—Summary of Significant Accounting Policies~~” and “~~Note 10—Stockholders’ Equity” for more information.~~$36.8 billion, respectively.

~~The table below presents an overview of our investment securities portfolio as of September 30, 2018 and December 31, 2017.~~

~~Table 3.1: Overview of Investment Securities Portfolio~~

(Dollars in millions) September 30, 2018 December 31, 2017
Securities available for sale, at fair value $ 47,384
$ 37,655
Securities held to maturity, at carrying value 34,631
28,984
Total investment securities $ 82,015
$ 66,639

The table below presents the amortized cost, gross unrealized gains and losses, and fair value of securities available for sale as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table ~~3.2:~~3.1: Investment Securities Available for Sale


	September 30, 2018									September 30, 2019
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses⁽¹⁾			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Investment securities available for sale:
U.S. Treasury securities	$	6,012	$	24	$	(28	)	$	6,008	$	4,173	$	3	$	(21	)	$	4,155
RMBS:
Agency	34,134		32		(1,170		)	32,996		33,727		239		(253		)	33,713
Non-agency	1,495		375		(1		)	1,869		1,313		300		(1		)	1,612
Total RMBS	35,629		407		(1,171		)	34,865		35,040		539		(254		)	35,325
Agency CMBS	5,008		9		(94		)	4,923		5,368		48		(20		)	5,396
Other ABS	277		0		(2		)	275
Other securities⁽²⁾	1,319		4		(10		)	1,313
Other securities⁽¹⁾										1,291		2		(1		)	1,292
Total investment securities available for sale	$	48,245	$	444	$	(1,305	)	$	47,384	$	45,872	$	592	$	(296	)	$	46,168



	December 31, 2018
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Investment securities available for sale:
U.S. Treasury securities	$	6,146	$	15	$	(17	)	$	6,144
RMBS:
Agency	32,710		62		(869		)	31,903
Non-agency	1,440		304		(2		)	1,742
Total RMBS	34,150		366		(871		)	33,645
Agency CMBS	4,806		11		(78		)	4,739
Other securities⁽¹⁾	1,626		2		(6		)	1,622
Total investment securities available for sale	$	46,728	$	394	$	(972	)	$	46,150

__________


⁽¹⁾	Includes primarily supranational bonds, foreign government bonds and other asset-backed securities.




	7276	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017
(Dollars in millions)
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses⁽¹⁾

Fair
Value
Investment securities available for sale:
U.S. Treasury securities $ 5,168
$ 11
$ (8 ) $ 5,171
RMBS:
Agency 26,013
67
(402 ) 25,678
Non-agency 1,722
393
(1 ) 2,114
Total RMBS 27,735
460
(403 ) 27,792
Agency CMBS 3,209
10
(44 ) 3,175
Other ABS 513
0
(1 ) 512
Other securities⁽²⁾
1,003
4
(2 ) 1,005
Total investment securities available for sale $ 37,628
$ 485
$ (458 ) $ 37,655

~~__________~~


⁽¹⁾	~~Includes non-credit-related OTTI that is recorded in AOCI of $1 million as of both September 30, 2018 and December 31, 2017. Substantially all of this amount is related to non-agency RMBS.~~


⁽²⁾	~~Includes primarily supranational bonds and foreign government bonds.~~

The table below presents the amortized cost, carrying value, gross unrealized gains and losses, and fair value of securities held to maturity as of September 30, ~~2018~~2019 and December 31, 2017. In the first quarter of 2018, we made a one-time transfer of held to maturity securities with a carrying value of $9.0 billion to available for sale as a result of our adoption of ASU No. 2017-12. These securities had $535 million pre-tax ($407 million after-tax) of unrealized losses in AOCI prior to the transfer. See “~~Note 10—Stockholders’ Equity” for more information.~~2018.

Table ~~3.3:~~3.2: Investment Securities Held to Maturity



	September 30, 2019
(Dollars in millions)	Amortized Cost		Unrealized Losses Recorded in AOCI			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Agency RMBS	$	30,322	$	(213	)	$	30,109	$	1,194	$	(14	)	$	31,289
Agency CMBS	3,797		(12		)	3,785		191		(1		)	3,975
Total investment securities held to maturity	$	34,119	$	(225	)	$	33,894	$	1,385	$	(15	)	$	35,264

September 30, 2018
(Dollars in millions)
Amortized
Cost

Unrealized
Losses Recorded
in AOCI

Carrying
Value

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value
Agency RMBS $ 31,511
$ (246 ) $ 31,265
$ 112
$ (714 ) $ 30,663
Agency CMBS 3,380
(14 ) 3,366
6
(135 ) 3,237
Total investment securities held to maturity $ 34,891
$ (260 ) $ 34,631
$ 118
$ (849 ) $ 33,900


	December 31, 2017														December 31, 2018
(Dollars in millions)	Amortized Cost		Unrealized Losses Recorded in AOCI			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Unrealized Losses Recorded in AOCI			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities	$	200	$	0		$	200	$	0	$	0		$	200
Agency RMBS	25,741		(761		)	24,980		565		(150		)	25,395		$	33,299	$	(238	)	$	33,061	$	293	$	(377	)	$	32,977
Agency CMBS	3,882		(78		)	3,804		70		(32		)	3,842		3,723		(13		)	3,710		21		(89		)	3,642
Total investment securities held to maturity	$	29,823	$	(839	)	$	28,984	$	635	$	(182	)	$	29,437	$	37,022	$	(251	)	$	36,771	$	314	$	(466	)	$	36,619




	73	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Investment Securities in a Gross Unrealized Loss Position

The table below provides, by major security type, information about our securities available for sale in a gross unrealized loss position and the length of time that individual securities have been in a continuous unrealized loss position as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table ~~3.4:~~3.3: Securities in a Gross Unrealized Loss Position


	September 30, 2018															September 30, 2019
	Less than 12 Months					12 Months or Longer					Total					Less than 12 Months					12 Months or Longer					Total
(Dollars in millions)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Investment securities available for sale:
U.S. Treasury securities	$	732	$	(12	)	$	329	$	(16	)	$	1,061	$	(28	)	$	3,603	$	(21	)	$	0	$	0		$	3,603	$	(21	)
RMBS:
Agency	13,960		(471		)	13,717		(699		)	27,677		(1,170		)	5,205		(21		)	11,155		(232		)	16,360		(253		)
Non-agency	19		0			15		(1		)	34		(1		)	28		(1		)	3		0			31		(1		)
Total RMBS	13,979		(471		)	13,732		(700		)	27,711		(1,171		)	5,233		(22		)	11,158		(232		)	16,391		(254		)
Agency CMBS	2,246		(47		)	1,053		(47		)	3,299		(94		)	1,162		(5		)	1,528		(15		)	2,690		(20		)
Other ABS	65		(1		)	128		(1		)	193		(2		)
Other securities	751		(7		)	132		(3		)	883		(10		)	463		(1		)	176		0			639		(1		)
Total investment securities available for sale in a gross unrealized loss position	$	17,773	$	(538	)	$	15,374	$	(767	)	$	33,147	$	(1,305	)	$	10,461	$	(49	)	$	12,862	$	(247	)	$	23,323	$	(296	)

December 31, 2017
Less than 12 Months 12 Months or Longer Total
(Dollars in millions) Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
Investment securities available for sale:
U.S. Treasury securities $ 2,031
$ (8 ) $ 0
$ 0
$ 2,031
$ (8 )
RMBS:
Agency 8,192
(67 ) 13,175
(335 ) 21,367
(402 )
Non-agency 10
0
10
(1 ) 20
(1 )
Total RMBS 8,202
(67 ) 13,185
(336 ) 21,387
(403 )
Agency CMBS 880
(8 ) 1,236
(36 ) 2,116
(44 )
Other ABS 130
0
95
(1 ) 225
(1 )
Other securities 371
(2 ) 0
0
371
(2 )
Total investment securities available for sale in a gross unrealized loss position $ 11,614
$ (85 ) $ 14,516
$ (373 ) $ 26,130
$ (458 )




	77	Capital One Financial Corporation (COF)

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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	December 31, 2018
	Less than 12 Months					12 Months or Longer					Total
(Dollars in millions)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Investment securities available for sale:
U.S. Treasury securities	$	2,543	$	(3	)	$	1,076	$	(14	)	$	3,619	$	(17	)
RMBS:
Agency	7,863		(260		)	18,118		(609		)	25,981		(869		)
Non-agency	89		(2		)	10		0			99		(2		)
Total RMBS	7,952		(262		)	18,128		(609		)	26,080		(871		)
Agency CMBS	2,004		(31		)	1,540		(47		)	3,544		(78		)
Other securities	244		(1		)	678		(5		)	922		(6		)
Total investment securities available for sale in a gross unrealized loss position	$	12,743	$	(297	)	$	21,422	$	(675	)	$	34,165	$	(972	)

As of September 30, ~~2018,~~2019, the amortized cost of approximately ~~1,380~~700 securities available for sale exceeded their fair value by ~~$1.3 billion,~~$296 million, of which ~~$767~~$247 million related to securities that had been in a loss position for 12 months or longer. As of September 30, ~~2018,~~2019, the carrying value of approximately ~~450~~70 securities classified as held to maturity exceeded their fair value by ~~$849~~$15 million.




	7478	Capital One Financial Corporation (COF)

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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Maturities and Yields of Investment Securities

The table below summarizes, by major security type, the contractual maturities and weighted-average yields of our investment securities as of September 30, ~~2018.~~2019. Because borrowers may have the right to call or prepay certain obligations, the expected maturities of our securities are likely to differ from the scheduled contractual maturities presented below. The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security.

Table ~~3.5:~~3.4: Contractual Maturities and Weighted-Average Yields of Securities


		September 30, 2018															September 30, 2019
(Dollars in millions)		Due in 1 Year or Less			Due > 1 Year through 5 Years			Due > 5 Years through 10 Years			Due > 10 Years			Total			Due in 1 Year or Less			Due > 1 Year through 5 Years			Due > 5 Years through 10 Years			Due > 10 Years			Total
Fair value of securities available for sale:	Fair value of securities available for sale:
U.S. Treasury securities		$	446		$	770		$	4,792		$	0		$	6,008		$	0		$	1,483		$	2,672		$	0		$	4,155
RMBS⁽¹⁾:
Agency		6			27			504			32,459			32,996			1			28			731			32,953			33,713
Non-agency		0			0			0			1,869			1,869			0			0			0			1,612			1,612
Total RMBS		6			27			504			34,328			34,865			1			28			731			34,565			35,325
Agency CMBS⁽¹⁾		10			1,845			1,492			1,576			4,923			11			1,833			2,298			1,254			5,396
Other ABS⁽¹⁾		14			238			0			23			275
Other securities		190			591			532			0			1,313			459			533			300			0			1,292
Total securities available for sale		$	666		$	3,471		$	7,320		$	35,927		$	47,384		$	471		$	3,877		$	6,001		$	35,819		$	46,168
Amortized cost of securities available for sale		$	670		$	3,516		$	7,330		$	36,729		$	48,245		$	471		$	3,877		$	5,992		$	35,532		$	45,872
Weighted-average yield for securities available for sale		1.48		%	2.24		%	2.36		%	2.78		%	2.66		%	1.51		%	2.45		%	2.65		%	3.09		%	2.96		%
Carrying value of securities held to maturity:
Agency RMBS⁽¹⁾		$	0		$	0		$	53		$	31,212		$	31,265		$	0		$	0		$	85		$	30,024		$	30,109
Agency CMBS⁽¹⁾		0			72			388			2,906			3,366			0			59			829			2,897			3,785
Total securities held to maturity		$	0		$	72		$	441		$	34,118		$	34,631		$	0		$	59		$	914		$	32,921		$	33,894
Fair value of securities held to maturity		$	0		$	72		$	418		$	33,410		$	33,900		$	0		$	62		$	974		$	34,228		$	35,264
Weighted-average yield for securities held to maturity		0.00		%	3.53		%	2.83		%	3.29		%	3.28		%	N/A			3.65		%	3.12		%	3.24		%	3.24		%

__________


⁽¹⁾	As of September 30, ~~2018,~~2019, the weighted-average expected maturities of RMBS and Agency CMBS are 5.0 years and ~~other ABS are~~ ~~6.8~~5.4 years,, ~~5.3 years~~ ~~and 1.0 year,~~ respectively.

Other-Than-Temporary Impairment

We evaluate all securities in an unrealized loss position at least ~~on a~~ quarterly, ~~basis,~~ and more often as market conditions require, to assess whether the impairment is other-than-temporary. Our ~~OTTI~~other-than-temporary impairment (“OTTI”) assessment is based on a discounted cash flow analysis which requires careful use of judgments and assumptions. A number of qualitative and quantitative criteria may be considered in our assessment, as applicable, including the size and the nature of the portfolio; historical and projected performance such as prepayment, default and loss severity for the RMBS portfolio; recent credit events specific to the issuer and/or industry to which the issuer belongs; the payment structure of the security; external credit ratings of the issuer and any failure or delay of the issuer to make scheduled interest or principal payments; the value of underlying collateral; our intent and ability to hold the security; and current and projected market and macro-economic conditions.

If we intend to sell a security in an unrealized loss position or it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, the entire difference between the amortized cost basis of the security and its fair value is recognized in earnings. As of September 30, ~~2018,~~2019, we had sold all securities previously designated with the intent to sell, ~~securities with unrealized losses of $200 million~~ and ~~accordingly recognized that amount as OTTI in earnings. We do~~did not intend to sell, nor believe that we will be required to sell, any other ~~securities~~security in an unrealized loss position prior to the recovery of ~~their~~its amortized ~~cost.~~cost basis.




	7579	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For those securities that we do not intend to sell nor expect to be required to sell, an analysis is performed to determine if any of the impairment is due to credit-related factors or whether it is due to other factors, such as interest rates. Credit-related impairment is recognized in earnings, with the remaining unrealized non-credit-related impairment recorded in AOCI. We determine the credit component based on the difference between the security’s amortized cost basis and the present value of its expected cash flows, discounted ~~based on~~at the security’s effective yield.

Realized Gains and Losses on Securities and OTTI Recognized in Earnings

The following table presents the gross realized gains or losses and ~~losses on~~proceeds from the sale ~~and redemption~~ of securities available for sale for the three and nine months ended September 30, ~~2018~~2019 and ~~2017. We also present the proceeds from the sale of securities available for sale for the periods indicated.~~2018. We did not sell any investment securities that ~~are~~were classified as held to maturity.

Table ~~3.6:~~3.5: Realized Gains ~~(Losses)~~and Losses on Securities and OTTI Recognized in Earnings


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in millions)	2018			2017			2018			2017			2019		2018			2019		2018
Realized gains (losses):
Gross realized gains	$	4		$	118		$	12		$	123		$	5	$	4		$	44	$	12
Gross realized losses	0			(49		)	(1		)	(54		)	0		0			0		(1		)
Net realized gains	4			69			11			69
Net realized gains (losses)													5		4			44		11
OTTI recognized in earnings:
Credit-related OTTI	0			(1		)	0			(2		)
Intent-to-sell OTTI	(200		)	0			(200		)	(3		)	0		(200		)	0		(200		)
Total OTTI recognized in earnings	(200		)	(1		)	(200		)	(5		)	0		(200		)	0		(200		)
Net securities gains (losses)	$	(196	)	$	68		$	(189	)	$	64		$	5	$	(196	)	$	44	$	(189	)
Total proceeds from sales	$	2,454		$	2,670		$	3,512		$	5,793		$	243	$	2,454		$	4,226	$	3,512

The cumulative credit loss component of the OTTI losses that have been recognized in our consolidated statements of income related to the securities that we do not intend to sell was ~~$140~~$137 million and ~~$147~~$140 million as of September 30, ~~2018~~2019 and ~~2017,~~December 31, 2018, respectively.

Securities Pledged and Received

~~As part~~We pledged securities available for sale and held to maturity totaling $14.8 billion and $16.3 billion as of ~~our liquidity management strategy, we pledge~~September 30, 2019 and December 31, 2018, respectively. These securities are pledged to primarily secure ~~borrowings from counterparties including~~ Federal Home Loan Banks (“FHLB”)~~. We also pledge securities to secure trust~~ advances and ~~public~~Public Funds deposits, ~~and~~as well as for other purposes as required or permitted by law. We pledged securities available for sale with a fair value of $785 million and $2.8 billion as of September 30, 2018 and December 31, 2017, respectively. We also pledged securities held to maturity with a carrying value of $15.5 billion and $5.7 billion as of September 30, 2018 and December 31, 2017, respectively. We accepted pledges of securities with a fair value of approximately $1 million as of both September 30, ~~2018~~2019 and December 31, ~~2017, primarily~~2018, related to our derivative transactions.

Purchased Credit-Impaired Debt Securities

The table below presents the outstanding balance and carrying value of the purchased credit-impaired debt securities as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table ~~3.7:~~3.6: Outstanding Balance and Carrying Value of Purchased Credit-Impaired Debt Securities

(Dollars in millions) September 30, 2018 December 31, 2017
Outstanding balance $ 1,860
$ 2,131
Carrying value 1,650
1,843



(Dollars in millions)	September 30, 2019		December 31, 2018
Outstanding balance	$	1,586	$	1,784
Carrying value	1,435		1,537




	7680	Capital One Financial Corporation (COF)

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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in Accretable Yield of Purchased Credit-Impaired Debt Securities

The following table presents changes in the accretable yield related to the purchased credit-impaired debt securities for the three and nine months ended September 30, 2019 and 2018.

Table ~~3.8:~~3.7: Changes in the Accretable Yield of Purchased Credit-Impaired Debt Securities


							Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in millions)	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018			2019			2018			2019			2018
Accretable yield, beginning of period	$	768		$	826		$	591		$	768		$	698		$	826
Accretion recognized in earnings	(37		)	(115		)	(41		)	(37		)	(128		)	(115		)
Reduction due to payoffs, disposals, transfers and other	0			(3		)	(1		)	0			(4		)	(3		)
Net reclassifications from nonaccretable difference	42			65
Net reclassifications (to) from nonaccretable difference							(16		)	42			(33		)	65
Accretable yield, end of period	$	773		$	773		$	533		$	773		$	533		$	773




	7781	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4—LOANS

Loan Portfolio Composition

Our loan portfolio consists of loans held for investment, including loans held in our consolidated trusts, and loans held for sale, and is divided into three portfolio segments: credit card, consumer banking and commercial banking. Credit card loans consist of domestic and international credit card loans. Consumer banking loans consist of auto and retail banking loans and in prior periods also consisted of home loans. Commercial banking loans primarily consist of commercial and multifamily real estate as well as commercial and industrial ~~and small-ticket commercial real estate~~ loans. We sold ~~substantially~~ all of our consumer home loan portfolio and the related servicing during ~~the first nine months~~2018. The information presented in this section excludes loans held for sale, which are carried at lower of ~~2018.~~ cost or fair value.

Credit Quality

We closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk. Trends in delinquency rates are an indicator, among other considerations, of credit risk within our loan portfolio. The level of nonperforming loans represents another indicator of the potential for future credit losses. Accordingly, key metrics we track and use in evaluating the credit quality of our loan portfolio include delinquency and nonperforming loan rates, as well as net charge-off rates and our internal risk ratings of ~~larger-balance~~ commercial loans. ~~The credit metrics presented in this section exclude loans held for sale, which are carried at lower of cost or fair value.~~

The table below presents the composition and an aging analysis of our loans held for investment ~~portfolio~~ as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. The delinquency aging includes all past due loans, both performing and nonperforming.

Table 4.1: Loan Portfolio Composition and Aging Analysis


	September 30, 2018																					September 30, 2019
(Dollars in millions)	Current			30-59 Days			60-89 Days			> 90 Days			Total Delinquent Loans			PCI Loans			Total Loans			Current			30-59 Days			60-89 Days			> 90 Days			Total Delinquent Loans			PCI Loans			Total Loans
Credit Card:
Domestic credit card	$	97,700		$	1,202		$	877		$	1,785		$	3,864		$	0		$	101,564		$	100,784		$	1,175		$	832		$	1,873		$	3,880		$	0		$	104,664
International card businesses	8,783			136			78			124			338			0			9,121			8,683			128			81			125			334			0			9,017
Total credit card	106,483			1,338			955			1,909			4,202			0			110,685			109,467			1,303			913			1,998			4,214			0			113,681
Consumer Banking:
Auto	52,542			2,384			1,186			310			3,880			0			56,422			55,071			2,607			1,258			342			4,207			0			59,278
Retail banking	2,857			19			11			15			45			5			2,907			2,690			24			7			14			45			2			2,737
Total consumer banking	55,399			2,403			1,197			325			3,925			5			59,329			57,761			2,631			1,265			356			4,252			2			62,015
Commercial Banking:
Commercial and multifamily real estate	29,018			2			20			1			23			23			29,064			29,930			18			7			33			58			21			30,009
Commercial and industrial	38,835			26			25			104			155			335			39,325			43,404			57			79			100			236			10			43,650
Total commercial lending	67,853			28			45			105			178			358			68,389
Small-ticket commercial real estate	352			3			0			3			6			0			358
Total commercial banking	68,205			31			45			108			184			358			68,747			73,334			75			86			133			294			31			73,659
Other loans	0			0			0			0			0			0			0
Total loans⁽¹⁾	$	230,087		$	3,772		$	2,197		$	2,342		$	8,311		$	363		$	238,761		$	240,562		$	4,009		$	2,264		$	2,487		$	8,760		$	33		$	249,355
% of Total loans	96.37		%	1.58		%	0.92		%	0.98		%	3.48		%	0.15		%	100.00		%	96.5		%	1.6		%	0.9		%	1.0		%	3.5		%	0.0		%	100.0		%




	7882	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	December 31, 2017																					December 31, 2018
(Dollars in millions)	Current			30-59 Days			60-89 Days			> 90 Days			Total Delinquent Loans			PCI Loans			Total Loans			Current			30-59 Days			60-89 Days			> 90 Days			Total Delinquent Loans			PCI Loans			Total Loans
Credit Card:
Domestic credit card	$	101,072		$	1,211		$	915		$	2,093		$	4,219		$	2		$	105,293		$	103,014		$	1,270		$	954		$	2,111		$	4,335		$	1		$	107,350
International card businesses	9,110			144			81			134			359			0			9,469			8,678			127			78			128			333			0			9,011
Total credit card	110,182			1,355			996			2,227			4,578			2			114,762			111,692			1,397			1,032			2,239			4,668			1			116,361
Consumer Banking:
Auto	50,151			2,483			1,060			297			3,840			0			53,991			52,032			2,624			1,326			359			4,309			0			56,341
Home loan	7,235			37			16			70			123			10,275			17,633
Retail banking	3,389			24			5			18			47			18			3,454			2,809			23			8			20			51			4			2,864
Total consumer banking	60,775			2,544			1,081			385			4,010			10,293			75,078			54,841			2,647			1,334			379			4,360			4			59,205
Commercial Banking:
Commercial and multifamily real estate	26,018			41			17			49			107			25			26,150			28,737			101			20			19			140			22			28,899
Commercial and industrial	37,412			1			70			87			158			455			38,025			40,704			135			43			101			279			108			41,091
Total commercial lending	63,430			42			87			136			265			480			64,175			69,441			236			63			120			419			130			69,990
Small-ticket commercial real estate	393			2			1			4			7			0			400			336			2			1			4			7			0			343
Total commercial banking	63,823			44			88			140			272			480			64,575			69,777			238			64			124			426			130			70,333
Other loans	54			2			1			1			4			0			58
Total loans⁽¹⁾	$	234,834		$	3,945		$	2,166		$	2,753		$	8,864		$	10,775		$	254,473		$	236,310		$	4,282		$	2,430		$	2,742		$	9,454		$	135		$	245,899
% of Total loans	92.29		%	1.55		%	0.85		%	1.08		%	3.48		%	4.23		%	100.00		%	96.1		%	1.7		%	1.0		%	1.1		%	3.8		%	0.1		%	100.0		%

__________


⁽¹⁾	Loans, other than PCI loans, include unamortized premiums and discounts, and unamortized deferred fees and costs totaling ~~$803 million~~$1.0 billion and ~~$773~~$818 million as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

We pledged loan collateral of ~~$16.5~~$14.4 billion and ~~$27.3~~$15.8 billion to secure a portion of our FHLB borrowing capacity of ~~$20.4~~$19.2 billion and ~~$21.0~~$19.3 billion as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. We also pledged loan collateral of ~~$6.7~~$7.2 billion and ~~$9.1~~$9.2 billion to secure our Federal Reserve Discount Window borrowing capacity of ~~$5.5~~$5.8 billion and ~~$7.4~~$7.6 billion as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. In addition to loans pledged, we securitized a portion of our credit card ~~loans, see~~and auto loans. See “Note 6—Variable Interest Entities and Securitizations” for additional information.




	79	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following table presents the outstanding balance of loans 90 days or more past due that continue to accrue interest and loans classified as nonperforming as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. Nonperforming loans generally include loans that have been placed on nonaccrual status. PCI loans are excluded from the table below. See “Note 1—Summary of Significant Accounting Policies” in our ~~2017~~2018 Form 10-K for additional information on our policies for nonperforming loans and accounting for PCI loans.

Table 4.2: 90+ Day Delinquent Loans Accruing Interest and Nonperforming Loans

September 30, 2018 December 31, 2017
(Dollars in millions)
> 90 Days and Accruing

Nonperforming
Loans

> 90 Days and Accruing

Nonperforming
Loans
Credit Card:
Domestic credit card $ 1,785
N/A
$ 2,093
N/A
International card businesses 118
$ 20
128
$ 24
Total credit card 1,903
20
2,221
24
Consumer Banking:
Auto 0
396
0
376
Home loan 0
0
0
176
Retail banking 0
33
0
35
Total consumer banking 0
429
0
587
Commercial Banking:
Commercial and multifamily real estate $ 0
$ 37
$ 12
$ 38
Commercial and industrial 5
217
0
239
Total commercial lending 5
254
12
277
Small-ticket commercial real estate 0
5
0
7
Total commercial banking 5
259
12
284
Other loans 0
0
0
4
Total $ 1,908
$ 708
$ 2,233
$ 899
% of Total loans held for investment 0.80 % 0.30 % 0.88 % 0.35 %



	September 30, 2019				December 31, 2018
(Dollars in millions)	> 90 Days and Accruing		Nonperforming Loans		> 90 Days and Accruing		Nonperforming Loans
Credit Card:
Domestic credit card	$	1,873	N/A		$	2,111	N/A
International card businesses	119		$	23	122		$	22
Total credit card	1,992		23		2,233		22
Consumer Banking:
Auto	0		432		0		449
Retail banking	0		25		0		30
Total consumer banking	0		457		0		479




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	September 30, 2019						December 31, 2018
(Dollars in millions)	> 90 Days and Accruing			Nonperforming Loans			> 90 Days and Accruing			Nonperforming Loans
Commercial Banking:
Commercial and multifamily real estate	$	31		$	36		$	0		$	83
Commercial and industrial	0			413			0			223
Total commercial lending	31			449			0			306
Small-ticket commercial real estate	0			0			0			6
Total commercial banking	31			449			0			312
Total	$	2,023		$	929		$	2,233		$	813
% of Total loans held for investment	0.8		%	0.4		%	0.9		%	0.3		%

Credit Card

Our credit card loan portfolio is highly diversified across millions of accounts and numerous geographies without significant individual exposure. We therefore generally manage credit risk based on portfolios with common risk characteristics. The risk in our credit card loan portfolio correlates to broad economic trends, such as unemployment rates and home values, as well as consumers’ financial condition, all of which can have a material effect on credit performance. The primary indicators we assess in monitoring the credit quality and risk of our credit card loan portfolio are delinquency and charge-off trends, including an analysis of loan migration between delinquency categories over time.

The table below displays the geographic profile of our credit card loan portfolio as of September 30, 2019 and December 31, 2018.

Table 4.3: Credit Card Risk Profile by Geographic Region



	September 30, 2019				December 31, 2018
(Dollars in millions)	Amount		% of Total		Amount		% of Total
Domestic credit card:
California	$	11,297	9.9	%	$	11,591	10.0	%
Texas	8,078		7.1		8,173		7.0
New York	7,224		6.4		7,400		6.4
Florida	7,009		6.2		7,086		6.1
Illinois	4,574		4.0		4,761		4.1
Pennsylvania	4,382		3.9		4,575		3.9
Ohio	3,818		3.4		3,967		3.4
New Jersey	3,541		3.1		3,641		3.1
Michigan	3,415		3.0		3,544		3.0
Other	51,326		45.1		52,612		45.3
Total domestic credit card	104,664		92.1		107,350		92.3
International card businesses:
Canada	6,155		5.4		6,023		5.1
United Kingdom	2,862		2.5		2,988		2.6
Total international card businesses	9,017		7.9		9,011		7.7
Total credit card	$	113,681	100.0	%	$	116,361	100.0	%




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below ~~displays the geographic profile of our credit card loan portfolio as of September 30, 2018 and December 31, 2017.~~

~~Table 4.3: Credit Card Risk Profile by Geographic Region~~

September 30, 2018 December 31, 2017
(Dollars in millions) Amount % of Total Amount % of Total
Domestic credit card:
California $ 11,012
9.9 % $ 11,475
10.0 %
Texas 7,699
7.0
7,847
6.8
New York 7,049
6.4
7,389
6.4
Florida 6,648
6.0
6,790
5.9
Illinois 4,520
4.1
4,734
4.1
Pennsylvania 4,313
3.9
4,550
4.0
Ohio 3,723
3.4
3,929
3.4
New Jersey 3,457
3.1
3,621
3.2
Michigan 3,381
3.1
3,523
3.1
Other 49,762
44.9
51,435
44.8
Total domestic credit card 101,564
91.8
105,293
91.7
International card businesses:
Canada 6,119
5.5
6,286
5.5
United Kingdom 3,002
2.7
3,183
2.8
Total international card businesses 9,121
8.2
9,469
8.3
Total credit card $ 110,685
100.0 % $ 114,762
100.0 %

~~The table below~~ presents net charge-offs for the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.

Table 4.4: Credit Card Net Charge-Offs


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended September 30,								Nine Months Ended September 30,
	2018				2017				2018				2017				2019				2018				2019				2018
(Dollars in millions)	Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾
Net charge-offs:⁽¹⁾
Domestic credit card⁽²⁾	$	1,094	4.35	%	$	1,087	4.64	%	$	3,581	4.78	%	$	3,455	4.96	%	$	1,065	4.12	%	$	1,094	4.35	%	$	3,599	4.67	%	$	3,581	4.78	%
International card businesses	43		1.92		68		3.08		193		2.85		227		3.60		86		3.78		43		1.92		236		3.54		193		2.85
Total credit card⁽²⁾	$	1,137	4.15		$	1,155	4.51		$	3,774	4.62		$	3,682	4.85		$	1,151	4.09		$	1,137	4.15		$	3,835	4.58		$	3,774	4.62

__________

⁽¹⁾

Net charge-offs consist of the unpaid principal balance of loans held for investment that we determine to be uncollectible, net of recovered amounts. Net charge-off rate is calculated by dividing annualized net charge-offs by average loans held for investment for the period for each loan category. Net charge-offs and the net charge-off ~~rate~~rates are impacted periodically by fluctuations in recoveries, including loan sales.

⁽²⁾

Consumer Banking

Our consumer banking loan portfolio consists of auto and retail banking ~~loans and in prior periods also consisted of home~~ loans. Similar to our credit card loan portfolio, the risk in our consumer banking loan portfolio correlates to broad economic trends, such as unemployment rates, gross domestic product and home values, as well as consumers’ financial condition, all of which can have a material effect on credit performance. Delinquency, nonperforming loans and charge-off trends are key indicators we assess in monitoring the credit quality and risk of our consumer banking loan portfolio.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below displays the geographic profile of our consumer banking loan portfolio as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 4.5: Consumer Banking Risk Profile by Geographic Region


	September 30, 2018				December 31, 2017				September 30, 2019				December 31, 2018
(Dollars in millions)	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
Auto:
Texas	$	7,282	12.3	%	$	7,040	9.4	%	$	7,541	12.2	%	$	7,264	12.3	%
California	6,351		10.7		6,099		8.1		6,786		10.9		6,352		10.7
Florida	4,618		7.8		4,486		6.0		4,891		7.9		4,623		7.8
Georgia	2,709		4.6		2,726		3.6		2,712		4.4		2,665		4.5
Ohio	2,503		4.2		2,318		3.1		2,633		4.2		2,502		4.2
Pennsylvania									2,286		3.7		2,167		3.7
Illinois									2,210		3.6		2,171		3.7
Louisiana	2,208		3.7		2,236		3.0		2,104		3.4		2,174		3.7
Illinois	2,190		3.7		2,181		2.9
Pennsylvania	2,167		3.7		2,014		2.7
Other	26,394		44.4		24,891		33.1		28,115		45.3		26,423		44.6
Total auto	56,422		95.1		53,991		71.9		59,278		95.6		56,341		95.2
Retail banking:
New York	856		1.5		955		1.3		799		1.3		837		1.4
Louisiana	793		1.3		953		1.3		729		1.2		772		1.3
Texas	649		1.1		717		0.9		604		0.9		647		1.1
New Jersey	197		0.3		221		0.3		194		0.3		201		0.3
Maryland	164		0.3		187		0.2		158		0.3		161		0.3
Virginia	138		0.2		154		0.2		126		0.2		137		0.2
Other	110		0.2		267		0.4		127		0.2		109		0.2
Total retail banking	2,907		4.9		3,454		4.6		2,737		4.4		2,864		4.8
Total home loan	0		0.0		17,633		23.5
Total consumer banking	$	59,329	100.0	%	$	75,078	100.0	%	$	62,015	100.0	%	$	59,205	100.0	%




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The ~~tables~~table below ~~present~~presents net charge-offs in our consumer banking loan portfolio for the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, as well as nonperforming loans as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 4.6: Consumer Banking Net Charge-Offs (Recoveries) and Nonperforming Loans

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(Dollars in millions) Amount
Rate⁽¹⁾
Amount
Rate⁽¹⁾
Amount
Rate⁽¹⁾
Amount
Rate⁽¹⁾
Net charge-offs:
Auto $ 243
1.73 % $ 257
1.96 % $ 633
1.53 % $ 671
1.77 %
Home loan 0
0.00
1
0.02
(1 ) (0.02 ) 5
0.03
Retail banking 19
2.62
18
2.10
51
2.18
50
1.91
Total consumer banking $ 262
1.77
$ 276
1.47
$ 683
1.36
$ 726
1.30


									Three Months Ended September 30,								Nine Months Ended September 30,
	September 30, 2018				December 31, 2017				2019				2018				2019				2018
(Dollars in millions)	Amount		Rate⁽²⁾		Amount		Rate⁽²⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount			Rate⁽¹⁾
Nonperforming loans:
Net charge-offs (recoveries):
Auto	$	396	0.70	%	$	376	0.70	%	$	234	1.60	%	$	243	1.73	%	$	592	1.38	%	$	633		1.53	%
Retail banking									17		2.55		19		2.62		52		2.51		51			2.18
Home loan	0		0.00		176		1.00		0		0.00		0		0.00		0		0.00		(1		)	(0.02	)
Retail banking	33		1.13		35		1.00
Total consumer banking	$	429	0.72		$	587	0.78		$	251	1.64		$	262	1.77		$	644	1.43		$	683		1.36



	September 30, 2019				December 31, 2018
(Dollars in millions)	Amount		Rate⁽²⁾		Amount		Rate⁽²⁾
Nonperforming loans:
Auto	$	432	0.73	%	$	449	0.80	%
Retail banking	25		0.91		30		1.04
Total consumer banking	$	457	0.74		$	479	0.81

__________


⁽¹⁾	Net charge-off (recovery) ~~rate is~~rates are calculated by dividing annualized net charge-offs (recoveries) by average loans held for investment for the period for each loan ~~category~~.category.


⁽²⁾	Nonperforming loan rates are calculated based on nonperforming loans for each category divided by period-end total loans held for investment for each respective category.

Commercial Banking

We evaluate the credit risk of commercial loans using a risk rating system. We assign internal risk ratings to loans based on relevant information about the ability of the borrowers to repay their debt. In determining the risk rating of a particular loan, some of the factors considered are the borrower’s current financial condition, historical and projected future credit performance, prospects for support from financially responsible guarantors, the estimated realizable value of any collateral and current economic trends. The scale based on our internal risk rating system is as follows:


•	Noncriticized: Loans that have not been designated as criticized, frequently referred to as “pass” loans.


•	Criticized performing: Loans in which the financial condition of the obligor is stressed, affecting earnings, cash flows or collateral values. The borrower currently has adequate capacity to meet near-term obligations; however, the stress, left unabated, may result in deterioration of the repayment prospects at some future date.

•

Criticized nonperforming: Loans that are not adequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Loans classified as criticized nonperforming have a well-defined weakness, or weaknesses, which jeopardize the full repayment of the debt. These loans are characterized by the distinct possibility that we will sustain a credit loss if the deficiencies are not corrected and are generally placed on nonaccrual status.

We use our internal risk rating system for regulatory reporting, determining the frequency of credit exposure reviews, and evaluating and determining the allowance for loan and lease losses for commercial loans. Generally, loans that are designated as criticized performing and criticized nonperforming are reviewed quarterly by management to determine if they are appropriately classified/rated and whether any impairment exists. Noncriticized loans are also generally reviewed, at least annually, to determine the appropriate risk rating. In addition, we evaluate the risk rating during the renewal process of any loan or if a loan becomes past due.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the geographic concentration and internal risk ratings of our commercial loan portfolio as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018.

Table 4.7: Commercial Banking Risk Profile by Geographic Region and Internal Risk Rating


	September 30, 2018																September 30, 2019
(Dollars in millions)	Commercial and Multifamily Real Estate		% of Total		Commercial and Industrial		% of Total		Small-Ticket Commercial Real Estate		% of Total		Total Commercial Banking		% of Total		Commercial and Multifamily Real Estate		% of Total		Commercial and Industrial		% of Total		Total Commercial Banking		% of Total
Geographic concentration:⁽¹⁾
Northeast	$	16,412	56.5	%	$	7,768	19.8	%	$	221	61.7	%	$	24,401	35.5	%	$	16,301	54.3	%	$	8,403	19.3	%	$	24,704	33.5	%
Mid-Atlantic	3,087		10.6		4,461		11.3		13		3.6		7,561		11.0		3,080		10.3		5,572		12.8		8,652		11.7
South	4,166		14.3		14,653		37.3		21		5.9		18,840		27.4		4,437		14.8		15,386		35.2		19,823		26.9
Other	5,399		18.6		12,443		31.6		103		28.8		17,945		26.1		6,191		20.6		14,289		32.7		20,480		27.9
Total	$	29,064	100.0	%	$	39,325	100.0	%	$	358	100.0	%	$	68,747	100.0	%	$	30,009	100.0	%	$	43,650	100.0	%	$	73,659	100.0	%
Internal risk rating:⁽²⁾
Noncriticized	$	28,363	97.6	%	$	37,212	94.5	%	$	351	98.0	%	$	65,926	95.9	%	$	29,272	97.5	%	$	41,872	96.0	%	$	71,144	96.6	%
Criticized performing	641		2.2		1,561		4.0		2		0.6		2,204		3.2		680		2.3		1,355		3.1		2,035		2.8
Criticized nonperforming	37		0.1		217		0.6		5		1.4		259		0.4		36		0.1		413		0.9		449		0.6
PCI loans	23		0.1		335		0.9		0		0.0		358		0.5		21		0.1		10		0.0		31		0.0
Total	$	29,064	100.0	%	$	39,325	100.0	%	$	358	100.0	%	$	68,747	100.0	%	$	30,009	100.0	%	$	43,650	100.0	%	$	73,659	100.0	%


	December 31, 2017																December 31, 2018
(Dollars in millions)	Commercial and Multifamily Real Estate		% of Total		Commercial and Industrial		% of Total		Small-Ticket Commercial Real Estate		% of Total		Total Commercial Banking		% of Total		Commercial and Multifamily Real Estate		% of Total		Commercial and Industrial		% of Total		Small-Ticket Commercial Real Estate		% of Total		Total Commercial Banking		% of Total
Geographic concentration:⁽¹⁾
Northeast	$	14,969	57.3	%	$	7,774	20.4	%	$	250	62.4	%	$	22,993	35.7	%	$	15,562	53.8	%	$	7,573	18.4	%	$	213	62.1	%	$	23,348	33.2	%
Mid-Atlantic	2,675		10.2		3,922		10.3		15		3.8		6,612		10.2		3,410		11.8		4,710		11.5		12		3.5		8,132		11.6
South	3,719		14.2		14,739		38.8		22		5.5		18,480		28.6		4,247		14.7		15,367		37.4		20		5.8		19,634		27.9
Other	4,787		18.3		11,590		30.5		113		28.3		16,490		25.5		5,680		19.7		13,441		32.7		98		28.6		19,219		27.3
Total	$	26,150	100.0	%	$	38,025	100.0	%	$	400	100.0	%	$	64,575	100.0	%	$	28,899	100.0	%	$	41,091	100.0	%	$	343	100.0	%	$	70,333	100.0	%
Internal risk rating:⁽²⁾
Noncriticized	$	25,609	98.0	%	$	35,161	92.5	%	$	392	97.9	%	$	61,162	94.7	%	$	28,239	97.7	%	$	39,468	96.1	%	$	336	98.0	%	$	68,043	96.8	%
Criticized performing	478		1.8		2,170		5.7		1		0.3		2,649		4.1		555		1.9		1,292		3.1		1		0.3		1,848		2.6
Criticized nonperforming	38		0.1		239		0.6		7		1.8		284		0.4		83		0.3		223		0.5		6		1.7		312		0.4
PCI loans	25		0.1		455		1.2		0		0.0		480		0.8		22		0.1		108		0.3		0		0.0		130		0.2
Total	$	26,150	100.0	%	$	38,025	100.0	%	$	400	100.0	%	$	64,575	100.0	%	$	28,899	100.0	%	$	41,091	100.0	%	$	343	100.0	%	$	70,333	100.0	%

__________


⁽¹⁾	Geographic concentration is generally determined by the location of the borrower’s business or the location of the collateral associated with the loan. Northeast consists of CT, MA, ME, NH, NJ, NY, PA and VT. Mid-Atlantic consists of DC, DE, MD, VA and WV. South consists of AL, AR, FL, GA, KY, LA, MO, MS, NC, SC, TN and TX.


⁽²⁾	Criticized exposures correspond to the “Special Mention,” “Substandard” and “Doubtful” asset categories defined by bank regulatory authorities.

Impaired Loans

The following table presents information on our impaired loans as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, and for the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018. Impaired loans include loans modified in troubled debt restructurings (“TDRs”), all nonperforming commercial loans and nonperforming home loans with a specific impairment. Impaired loans without an allowance generally represent loans that have been charged down to the fair value of the underlying collateral for which we believe no additional losses have been incurred, or where the fair value of the underlying collateral meets or exceeds the loan’s amortized cost. PCI loans are excluded from the following ~~tables.~~table.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Table 4.8: Impaired Loans

September 30, 2018
(Dollars in millions)
With an
Allowance

Without
an
Allowance

Total
Recorded
Investment

Related
Allowance

Net
Recorded
Investment

Unpaid
Principal
Balance
Credit Card:
Domestic credit card $ 665
$ 0
$ 665
$ 193
$ 472
$ 653
International card businesses 190
0
190
92
98
184
Total credit card⁽¹⁾
855
0
855
285
570
837
Consumer Banking:
Auto⁽²⁾
295
53
348
24
324
468
Retail banking 49
8
57
8
49
62
Total consumer banking 344
61
405
32
373
530
Commercial Banking:
Commercial and multifamily real estate 85
1
86
6
80
87
Commercial and industrial 485
78
563
79
484
623
Total commercial lending 570
79
649
85
564
710
Small-ticket commercial real estate 6
0
6
0
6
8
Total commercial banking 576
79
655
85
570
718
Total $ 1,775
$ 140
$ 1,915
$ 402
$ 1,513
$ 2,085


	December 31, 2017												September 30, 2019
(Dollars in millions)	With an Allowance		Without an Allowance		Total Recorded Investment		Related Allowance		Net Recorded Investment		Unpaid Principal Balance		With an Allowance		Without an Allowance		Total Recorded Investment		Related Allowance		Net Recorded Investment		Unpaid Principal Balance
Credit Card:
Domestic credit card	$	639	$	0	$	639	$	208	$	431	$	625	$	625	$	0	$	625	$	115	$	510	$	615
International card businesses	173		0		173		84		89		167		190		0		190		82		108		185
Total credit card⁽¹⁾	812		0		812		292		520		792		815		0		815		197		618		800
Consumer Banking:
Auto⁽²⁾	363		118		481		30		451		730		294		41		335		26		309		445
Home loan	192		41		233		15		218		298
Retail banking	51		10		61		8		53		66		45		2		47		6		41		52
Total consumer banking	606		169		775		53		722		1,094		339		43		382		32		350		497
Commercial Banking:
Commercial and multifamily real estate	138		2		140		13		127		143		36		33		69		1		68		71
Commercial and industrial	489		222		711		63		648		844		516		141		657		97		560		779
Total commercial lending	627		224		851		76		775		987
Small-ticket commercial real estate	7		0		7		0		7		9
Total commercial banking	634		224		858		76		782		996		552		174		726		98		628		850
Total	$	2,052	$	393	$	2,445	$	421	$	2,024	$	2,882	$	1,706	$	217	$	1,923	$	327	$	1,596	$	2,147



	December 31, 2018
(Dollars in millions)	With an Allowance		Without an Allowance		Total Recorded Investment		Related Allowance		Net Recorded Investment			Unpaid Principal Balance
Credit Card:
Domestic credit card	$	666	$	0	$	666	$	186	$	480		$	654
International card businesses	189		0		189		91		98			183
Total credit card⁽¹⁾	855		0		855		277		578			837
Consumer Banking:
Auto⁽²⁾	301		38		339		22		317			420
Retail banking	42		12		54		5		49			60
Total consumer banking	343		50		393		27		366			480
Commercial Banking:
Commercial and multifamily real estate	92		28		120		5		115		��	121
Commercial and industrial	301		169		470		29		441			593
Total commercial lending	393		197		590		34		556			714
Small-ticket commercial real estate	0		6		6		0		6			9
Total commercial banking	393		203		596		34		562			723
Total	$	1,591	$	253	$	1,844	$	338	$	1,506		$	2,040




	8589	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended September 30,								Nine Months Ended September 30,
	2018				2017				2018				2017				2019				2018				2019				2018
(Dollars in millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Credit Card:
Domestic credit card	$	659	$	15	$	601	$	16	$	653	$	47	$	593	$	47	$	628	$	14	$	659	$	15	$	645	$	43	$	653	$	47
International card businesses	186		3		160		3		182		9		150		8		192		4		186		3		193		11		182		9
Total credit card⁽¹⁾	845		18		761		19		835		56		743		55		820		18		845		18		838		54		835		56
Consumer Banking:
Auto⁽²⁾	366		11		485		13		411		35		498		39		334		10		366		11		338		29		411		35
Home loan	0		0		288		2		114		1		316		4		0		0		0		0		0		0		114		1
Retail banking	59		0		60		0		60		1		59		1		52		0		59		0		53		1		60		1
Total consumer banking	425		11		833		15		585		37		873		44		386		10		425		11		391		30		585		37
Commercial Banking:
Commercial and multifamily real estate	67		1		152		1		86		2		132		3		74		0		67		1		94		1		86		2
Commercial and industrial	583		6		1,130		5		658		16		1,220		13		605		3		583		6		562		11		658		16
Total commercial lending	650		7		1,282		6		744		18		1,352		16		679		3		650		7		656		12		744		18
Small-ticket commercial real estate	5		0		8		0		6		0		7		0		3		0		5		0		5		0		6		0
Total commercial banking	655		7		1,290		6		750		18		1,359		16		682		3		655		7		661		12		750		18
Total	$	1,925	$	36	$	2,884	$	40	$	2,170	$	111	$	2,975	$	115	$	1,888	$	31	$	1,925	$	36	$	1,890	$	96	$	2,170	$	111

__________


⁽¹⁾	The period-end and average recorded investments of credit card loans include finance charges and fees.


⁽²⁾	~~Includes~~2018 amounts include certain TDRs that ~~are~~were recorded as other assets on our consolidated balance sheets.

Troubled Debt Restructurings

Total recorded TDRs were ~~$1.8 billion and $2.2~~$1.6 billion as of both September 30, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018. TDRs classified as performing in our credit card and consumer banking loan portfolios totaled $1.1 billion and ~~$1.3~~$1.2 billion as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. TDRs classified as performing in our commercial banking loan portfolio totaled ~~$395~~$276 million and ~~$574~~$282 million as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Commitments to lend additional funds on loans modified in TDRs totaled ~~$259~~$220 million and ~~$241~~$256 million as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Loans Modified in TDRs

As part of our loan modification programs to borrowers experiencing financial difficulty, we may provide multiple concessions to minimize our economic loss and improve long-term loan performance and collectability. The following tables present the major modification types, recorded investment amounts and financial effects of loans modified in TDRs during the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.




	8690	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Table 4.9: Troubled Debt Restructurings



	Total Loans Modified⁽¹⁾		Three Months Ended September 30, 2019
			Reduced Interest Rate				Term Extension			Balance Reduction
(Dollars in millions)			% of TDR Activity⁽²⁾		Average Rate Reduction		% of TDR Activity⁽²⁾		Average Term Extension (Months)	% of TDR Activity⁽²⁾		Gross Balance Reduction
Credit Card:
Domestic credit card	$	85	100	%	16.76	%	0	%	0	0	%	$	0
International card businesses	43		100		27.08		0		0	0		0
Total credit card	128		100		20.19		0		0	0		0
Consumer Banking:
Auto	66		42		3.51		89		8	1		1
Retail banking	1		9		9.30		0		0	0		0
Total consumer banking	67		42		3.53		88		8	1		1
Commercial Banking:
Commercial and industrial	51		9		1.00		15		14	0		0
Total commercial banking	51		9		1.00		15		14	0		0
Total	$	246	65		16.70		27		9	0		$	1



	Total Loans Modified⁽¹⁾		Nine Months Ended September 30, 2019
			Reduced Interest Rate				Term Extension			Balance Reduction
(Dollars in millions)			% of TDR Activity⁽²⁾		Average Rate Reduction		% of TDR Activity⁽²⁾		Average Term Extension (Months)	% of TDR Activity⁽²⁾		Gross Balance Reduction
Credit Card:
Domestic credit card	$	257	100	%	16.58	%	0	%	0	0	%	$	0
International card businesses	130		100		27.25		0		0	0		0
Total credit card	387		100		20.18		0		0	0		0
Consumer Banking:
Auto	190		41		3.70		90		8	1		1
Retail banking	7		10		10.73		54		3	34		0
Total consumer banking	197		40		3.76		89		7	2		1
Commercial Banking:
Commercial and multifamily real estate	34		100		0.00		0		0	0		0
Commercial and industrial	86		5		0.60		25		9	0		0
Total commercial lending	120		32		0.07		18		9	0		0
Small-ticket commercial real estate	1		0		0.00		0		0	0		0
Total commercial banking	121		32		0.07		18		9	0		0
Total	$	705	72		16.08		28		8	1		$	1

Total Loans
Modified⁽¹⁾
Three Months Ended September 30, 2018
Reduced Interest Rate Term Extension Balance Reduction
(Dollars in millions)
% of
TDR
Activity⁽²⁾
Average
Rate
Reduction
% of
TDR
Activity⁽²⁾
Average
Term
Extension
(Months)
% of
TDR
Activity⁽²⁾
Gross
Balance
Reduction
Credit Card:
Domestic credit card $ 105
100 % 16.01 % 0 % 0 0 % $ 0
International card businesses 46
100
26.95
0
0 0
0
Total credit card 151
100
19.35
0
0 0
0
Consumer Banking:
Auto⁽³⁾
47
51
3.88
85
9 1
0
Retail banking 0
100
10.45
5
12 0
0
Total consumer banking 47
52
3.93
85
9 1
0
Commercial Banking:
Commercial and multifamily real estate 22
0
0.00
61
3 0
0
Commercial and industrial 50
0
0.00
13
8 0
0
Total commercial lending 72
0
0.00
28
5 0
0
Small-ticket commercial real estate 1
0
0.00
0
0 0
0
Total commercial banking 73
0
0.00
28
5 0
0
Total $ 271
65
17.26
22
8 0
$ 0

Total Loans
Modified⁽¹⁾
Nine Months Ended September 30, 2018
Reduced Interest Rate Term Extension Balance Reduction
(Dollars in millions)
% of
TDR
Activity⁽²⁾
Average
Rate
Reduction
% of
TDR
Activity⁽²⁾
Average
Term
Extension
(Months)
% of
TDR
Activity⁽²⁾
Gross
Balance
Reduction
Credit Card:
Domestic credit card $ 314
100 % 15.88 % 0 % 0 0 % $ 0
International card businesses 139
100
26.87
0
0 0
0
Total credit card 453
100
19.25
0
0 0
0
Consumer Banking:
Auto⁽³⁾
153
55
3.91
87
8 1
1
Home loan 6
28
1.78
83
214 0
0
Retail banking 6
14
11.09
48
6 0
0
Total consumer banking 165
53
3.94
86
15 1
1
Commercial Banking:
Commercial and multifamily real estate 41
0
0.00
79
5 0
0
Commercial and industrial 147
0
1.19
47
14 0
0
Total commercial lending 188
0
1.19
54
11 0
0
Small-ticket commercial real estate 3
0
0.00
0
0 0
0
Total commercial banking 191
0
1.19
53
11 0
0
Total $ 809
67
16.79
30
14 0
$ 1




	8791	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total Loans
Modified⁽¹⁾
Three Months Ended September 30, 2017
Reduced Interest Rate Term Extension Balance Reduction
(Dollars in millions)
% of
TDR
Activity⁽²⁾
Average
Rate
Reduction
% of
TDR
Activity⁽²⁾
Average
Term
Extension
(Months)
% of
TDR
Activity⁽²⁾
Gross
Balance
Reduction
Credit Card:
Domestic credit card $ 107
100 % 14.51 % 0 % 0 0 % $ 0
International card businesses 41
100
26.71
0
0 0
0
Total credit card 148
100
17.85
0
0 0
0
Consumer Banking:
Auto⁽³⁾
104
35
3.78
99
5 0
0
Home loan 3
19
1.35
53
292 0
0
Retail banking 7
13
9.30
82
10 0
0
Total consumer banking 114
33
3.88
97
9 0
0
Commercial Banking:
Commercial and multifamily real estate 3
0
0.00
100
6 0
0
Commercial and industrial 202
24
0.24
96
18 0
0
Total commercial lending 205
24
0.24
96
18 0
0
Small-ticket commercial real estate 1
0
0.00
12
0 0
0
Total commercial banking 206
24
0.24
96
18 0
0
Total $ 468
50
11.91
66
15 0
$ 0


	Total Loans Modified⁽¹⁾		Nine Months Ended September 30, 2017											Total Loans Modified⁽¹⁾		Three Months Ended September 30, 2018
			Reduced Interest Rate				Term Extension			Balance Reduction						Reduced Interest Rate				Term Extension			Balance Reduction
(Dollars in millions)			% of TDR Activity⁽²⁾		Average Rate Reduction		% of TDR Activity⁽²⁾		Average Term Extension (Months)	% of TDR Activity⁽²⁾		Gross Balance Reduction				% of TDR Activity⁽²⁾		Average Rate Reduction		% of TDR Activity⁽²⁾		Average Term Extension (Months)	% of TDR Activity⁽²⁾		Gross Balance Reduction
Credit Card:
Domestic credit card	$	291	100	%	14.25	%	0	%	0	0	%	$	0	$	105	100	%	16.01	%	0	%	0	0	%	$	0
International card businesses	124		100		26.46		0		0	0		0		46		100		26.95		0		0	0		0
Total credit card	415		100		17.90		0		0	0		0		151		100		19.35		0		0	0		0
Consumer Banking:
Auto⁽³⁾	240		44		3.83		96		6	3		7		47		51		3.88		85		9	1		0
Home loan	17		49		2.44		79		234	2		0
Retail banking	13		21		5.56		73		10	0		0		0		100		10.45		5		12	0		0
Total consumer banking	270		44		3.77		94		18	3		7		47		52		3.93		85		9	1		0
Commercial Banking:
Commercial and multifamily real estate	29		7		0.02		26		5	0		0		22		0		0.00		61		3	0		0
Commercial and industrial	483		15		0.81		59		18	0		0		50		0		0.00		13		8	0		0
Total commercial lending	512		15		0.79		57		18	0		0		72		0		0.00		28		5	0		0
Small-ticket commercial real estate	2		0		0.00		5		0	0		0		1		0		0.00		0		0	0		0
Total commercial banking	514		15		0.79		57		18	0		0		73		0		0.00		28		5	0		0
Total	$	1,199	51		13.04		45		18	0		$	7	$	271	65		17.26		22		8	0		$	0



	Total Loans Modified⁽¹⁾		Nine Months Ended September 30, 2018
			Reduced Interest Rate				Term Extension			Balance Reduction
(Dollars in millions)			% of TDR Activity⁽²⁾		Average Rate Reduction		% of TDR Activity⁽²⁾		Average Term Extension (Months)	% of TDR Activity⁽²⁾		Gross Balance Reduction
Credit Card:
Domestic credit card	$	314	100	%	15.88	%	0	%	0	0	%	$	0
International card businesses	139		100		26.87		0		0	0		0
Total credit card	453		100		19.25		0		0	0		0
Consumer Banking:
Auto⁽³⁾	153		55		3.91		87		8	1		1
Home loan	6		28		1.78		83		214	0		0
Retail banking	6		14		11.09		48		6	0		0
Total consumer banking	165		53		3.94		86		15	1		1
Commercial Banking:
Commercial and multifamily real estate	41		0		0.00		79		5	0		0
Commercial and industrial	147		0		1.19		47		14	0		0
Total commercial lending	188		0		1.19		54		11	0		0
Small-ticket commercial real estate	3		0		0.00		0		0	0		0
Total commercial banking	191		0		1.19		53		11	0		0
Total	$	809	67		16.79		30		14	0		$	1

__________


⁽¹⁾	Represents the recorded investment of total loans modified in TDRs at the end of the quarter in which they were modified. As not every modification type is included in the table above, the total percentage of TDR activity may not add up to 100%. Some loans may receive more than one type of concession as part of the modification.


⁽²⁾	Due to multiple concessions granted to some troubled borrowers, percentages may total more than 100% for certain loan types.




	8892	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


⁽³⁾	Includes certain TDRs that are recorded as other assets on our consolidated balance sheets.

~~TDRs—~~Subsequent Defaults of Completed TDR Modifications

The following table presents the type, number and recorded investment of loans modified in TDRs that experienced a default during the period and had completed a modification event in the twelve months prior to the default. A default occurs if the loan is either 90 days or more delinquent, has been charged off as of the end of the period presented or has been reclassified from accrual to nonaccrual status.

Table 4.10: ~~TDRs—~~TDRs—Subsequent Defaults


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
(Dollars in millions)	Number of Contracts	Amount		Number of Contracts	Amount		Number of Contracts	Amount		Number of Contracts	Amount		Number of Contracts	Amount		Number of Contracts	Amount		Number of Contracts	Amount		Number of Contracts	Amount
Credit Card:
Domestic credit card	13,983	$	29	13,528	$	28	44,528	$	93	39,555	$	79	10,619	$	22	13,983	$	29	36,227	$	77	44,528	$	93
International card businesses	15,104	25		13,015	24		44,397	78		38,201	67		17,104	26		15,104	25		51,995	82		44,397	78
Total credit card	29,087	54		26,543	52		88,925	171		77,756	146		27,723	48		29,087	54		88,222	159		88,925	171
Consumer Banking:
Auto	1,907	20		2,288	26		5,507	62		7,000	81		1,446	18		1,907	20		3,863	47		5,507	62
Home loan	0	0		5	0		3	1		24	6		0	0		0	0		0	0		3	1
Retail banking	12	2		9	1		21	2		29	4		6	0		12	2		18	1		21	2
Total consumer banking	1,919	22		2,302	27		5,531	65		7,053	91		1,452	18		1,919	22		3,881	48		5,531	65
Commercial Banking:
Commercial and multifamily real estate	1	3		0	0		1	3		0	0		0	0		1	3		0	0		1	3
Commercial and industrial	5	34		141	103		18	79		176	211		0	0		5	34		0	0		18	79
Total commercial lending	6	37		141	103		19	82		176	211		0	0		6	37		0	0		19	82
Small-ticket commercial real estate	0	0		0	0		0	0		2	1
Total commercial banking	6	37		141	103		19	82		178	212		0	0		6	37		0	0		19	82
Total	31,012	$	113	28,986	$	182	94,475	$	318	84,987	$	449	29,175	$	66	31,012	$	113	92,103	$	207	94,475	$	318




	8993	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5—ALLOWANCE FOR LOAN AND LEASE LOSSES AND RESERVE FOR UNFUNDED LENDING COMMITMENTS

Our allowance for loan and lease losses represents management’s best estimate of incurred loan and lease losses inherent in our loans held for investment ~~portfolio~~ as of each balance sheet date. In addition to the allowance for loan and lease losses, we also estimate probable losses related to unfunded lending commitments, such as letters of credit, financial guarantees and binding unfunded loan commitments. The provision for losses on unfunded lending commitments is included in the provision for credit losses in our consolidated statements of income and the related reserve for unfunded lending commitments is included in other liabilities on our consolidated balance sheets. See ~~“Note~~“Note 1—Summary of Significant Accounting ~~Policies”~~Policies” in our ~~2017~~2018 Form 10-K for further discussion of the methodology and policy for determining our allowance for loan and lease losses for each of our loan portfolio segments, as well as information on our reserve for unfunded lending commitments.

Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity

The table below summarizes changes in the allowance for loan and lease losses and reserve for unfunded lending commitments by portfolio segment for the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.

Table 5.1: Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity


	Three Months Ended September 30, 2018															Three Months Ended September 30, 2019
(Dollars in millions)	Credit Card			Consumer Banking			Commercial Banking			Other			Total			Credit Card			Consumer Banking			Commercial Banking			Total
Allowance for loan and lease losses:
Balance as of June 30, 2018	$	5,624		$	1,120		$	624		$	0		$	7,368
Balance as of June 30, 2019																$	5,342		$	1,055		$	736		$	7,133
Charge-offs	(1,528		)	(469		)	(48		)	1			(2,044		)	(1,531		)	(489		)	(66		)	(2,086		)
Recoveries(1)	391			207			21			0			619			380			238			6			624
Net charge-offs	(1,137		)	(262		)	(27		)	1			(1,425		)	(1,151		)	(251		)	(60		)	(1,462		)
Provision (benefit) for loan and lease losses	1,031			185			60			(1		)	1,275
Provision for loan and lease losses																1,087			203			84			1,374
Allowance build (release) for loan and lease losses	(106		)	(77		)	33			0			(150		)	(64		)	(48		)	24			(88		)
Other changes⁽¹⁾⁽²⁾	2			0			(1		)	0			1			(8		)	0			0			(8		)
Balance as of September 30, 2018	5,520			1,043			656			0			7,219
Balance as of September 30, 2019																5,270			1,007			760			7,037
Reserve for unfunded lending commitments:
Balance as of June 30, 2018	0			5			112			0			117
Benefit for losses on unfunded lending commitments	0			(1		)	(6		)	0			(7		)
Balance as of September 30, 2018	0			4			106			0			110
Combined allowance and reserve as of September 30, 2018	$	5,520		$	1,047		$	762		$	0		$	7,329
Balance as of June 30, 2019																0			4			140			144
Provision for losses on unfunded lending commitments																0			0			9			9
Balance as of September 30, 2019																0			4			149			153
Combined allowance and reserve as of September 30, 2019																$	5,270		$	1,011		$	909		$	7,190

Nine Months Ended September 30, 2018
(Dollars in millions) Credit Card
Consumer Banking⁽²⁾
Commercial Banking
Other⁽²⁾
Total
Allowance for loan and lease losses:
Balance as of December 31, 2017 $ 5,648
$ 1,242
$ 611
$ 1
$ 7,502
Charge-offs (5,032 ) (1,314 ) (76 ) (7 ) (6,429 )
Recoveries 1,258
631
37
1
1,927
Net charge-offs (3,774 ) (683 ) (39 ) (6 ) (4,502 )
Provision (benefit) for loan and lease losses 3,658
538
85
(49 ) 4,232
Allowance build (release) for loan and lease losses (116 ) (145 ) 46
(55 ) (270 )
Other changes⁽¹⁾⁽²⁾
(12 ) (54 ) (1 ) 54
(13 )
Balance as of September 30, 2018 5,520
1,043
656
0
7,219
Reserve for unfunded lending commitments:
Balance as of December 31, 2017 0
7
117
0
124
Benefit for losses on unfunded lending commitments 0
(3 ) (11 ) 0
(14 )
Balance as of September 30, 2018 0
4
106
0
110
Combined allowance and reserve as of September 30, 2018 $ 5,520
$ 1,047
$ 762
$ 0
$ 7,329



	Nine Months Ended September 30, 2019
(Dollars in millions)	Credit Card			Consumer Banking			Commercial Banking			Total
Allowance for loan and lease losses:
Balance as of December 31, 2018	$	5,535		$	1,048		$	637		$	7,220
Charge-offs	(5,024		)	(1,383		)	(109		)	(6,516		)
Recoveries⁽¹⁾	1,189			739			19			1,947
Net charge-offs	(3,835		)	(644		)	(90		)	(4,569		)
Provision for loan and lease losses	3,571			603			213			4,387
Allowance build (release) for loan and lease losses	(264		)	(41		)	123			(182		)
Other changes⁽²⁾	(1		)	0			0			(1		)
Balance as of September 30, 2019	5,270			1,007			760			7,037
Reserve for unfunded lending commitments:
Balance as of December 31, 2018	0			4			118			122
Provision for losses on unfunded lending commitments	0			0			31			31
Balance as of September 30, 2019	0			4			149			153
Combined allowance and reserve as of September 30, 2019	$	5,270		$	1,011		$	909		$	7,190




	9094	Capital One Financial Corporation (COF)

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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Three Months Ended September 30, 2017															Three Months Ended September 30, 2018
(Dollars in millions)	Credit Card			Consumer Banking			Commercial Banking			Other⁽³⁾			Total			Credit Card			Consumer Banking			Commercial Banking			Other			Total
Allowance for loan and lease losses:
Balance as of June 30, 2017	$	5,210		$	1,199		$	758		$	3		$	7,170
Balance as of June 30, 2018																$	5,624		$	1,120		$	624		$	0		$	7,368
Charge-offs	(1,471		)	(435		)	(168		)	(36		)	(2,110		)	(1,528		)	(469		)	(48		)	1			(2,044		)
Recoveries(1)	316			159			5			24			504			391			207			21			0			619
Net charge-offs	(1,155		)	(276		)	(163		)	(12		)	(1,606		)	(1,137		)	(262		)	(27		)	1			(1,425		)
Provision for loan and lease losses	1,466			292			75			11			1,844
Provision (benefit) for loan and lease losses																1,031			185			60			(1		)	1,275
Allowance build (release) for loan and lease losses	311			16			(88		)	(1		)	238			(106		)	(77		)	33			0			(150		)
Other changes⁽¹⁾⁽²⁾	13			(2		)	(1		)	0			10			2			0			(1		)	0			1
Balance as of September 30, 2017	5,534			1,213			669			2			7,418
Balance as of September 30, 2018																5,520			1,043			656			0			7,219
Reserve for unfunded lending commitments:
Balance as of June 30, 2017	0			7			132			0			139
Provision (benefit) for losses on unfunded lending commitments	0			1			(12		)	0			(11		)
Balance as of September 30, 2017	0			8			120			0			128
Combined allowance and reserve as of September 30, 2017	$	5,534		$	1,221		$	789		$	2		$	7,546
Balance as of June 30, 2018																0			5			112			0			117
Benefit for losses on unfunded lending commitments																0			(1		)	(6		)	0			(7		)
Balance as of September 30, 2018																0			4			106			0			110
Combined allowance and reserve as of September 30, 2018																$	5,520		$	1,047		$	762		$	0		$	7,329


	Nine Months Ended September 30, 2017															Nine Months Ended September 30, 2018
(Dollars in millions)	Credit Card			Consumer Banking			Commercial Banking			Other⁽³⁾			Total			Credit Card			Consumer Banking⁽³⁾			Commercial Banking			Other⁽³⁾			Total
Allowance for loan and lease losses:
Balance as of December 31, 2016	$	4,606		$	1,102		$	793		$	2		$	6,503
Balance as of December 31, 2017																$	5,648		$	1,242		$	611		$	1		$	7,502
Charge-offs	(4,644		)	(1,189		)	(334		)	(36		)	(6,203		)	(5,032		)	(1,314		)	(76		)	(7		)	(6,429		)
Recoveries(1)	962			463			12			32			1,469			1,258			631			37			1			1,927
Net charge-offs	(3,682		)	(726		)	(322		)	(4		)	(4,734		)	(3,774		)	(683		)	(39		)	(6		)	(4,502		)
Provision for loan and lease losses	4,580			839			210			4			5,633
Provision (benefit) for loan and lease losses																3,658			538			85			(49		)	4,232
Allowance build (release) for loan and lease losses	898			113			(112		)	0			899			(116		)	(145		)	46			(55		)	(270		)
Other changes⁽¹⁾⁽³⁾	30			(2		)	(12		)	0			16			(12		)	(54		)	(1		)	54			(13		)
Balance as of September 30, 2017	5,534			1,213			669			2			7,418
Balance as of September 30, 2018																5,520			1,043			656			0			7,219
Reserve for unfunded lending commitments:
Balance as of December 31, 2016	0			7			129			0			136
Provision (benefit) for losses on unfunded lending commitments	0			1			(9		)	0			(8		)
Balance as of September 30, 2017	0			8			120			0			128
Combined allowance and reserve as of September 30, 2017	$	5,534		$	1,221		$	789		$	2		$	7,546
Balance as of December 31, 2017																0			7			117			0			124
Benefit for losses on unfunded lending commitments																0			(3		)	(11		)	0			(14		)
Balance as of September 30, 2018																0			4			106			0			110
Combined allowance and reserve as of September 30, 2018																$	5,520		$	1,047		$	762		$	0		$	7,329

__________


⁽¹⁾	The amount and timing of recoveries is impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications, repossession of collateral, the periodic sale of charged-off loans as well as additional strategies, such as litigation.


⁽²⁾	Represents foreign currency translation adjustments and the net impact of loan transfers and sales where applicable.

⁽²⁾⁽³⁾

⁽³⁾~~Includes the legacy loan portfolio of our discontinued GreenPoint mortgage operations.~~




	9195	Capital One Financial Corporation (COF)

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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Components of Allowance for Loan and Lease Losses by Impairment Methodology

The table below presents the components of our allowance for loan and lease losses by portfolio segment and impairment methodology as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. See ~~“Note~~“Note 1—Summary of Significant Accounting ~~Policies”~~Policies” in our ~~2017~~2018 Form 10-K for further discussion of allowance methodologies for each of the loan portfolios.

Table 5.2: Components of Allowance for Loan and Lease Losses by Impairment Methodology


	September 30, 2018												September 30, 2019
(Dollars in millions)	Credit Card			Consumer Banking			Commercial Banking			Total			Credit Card			Consumer Banking			Commercial Banking			Total
Allowance for loan and lease losses:
Collectively evaluated	$	5,235		$	1,011		$	571		$	6,817		$	5,073		$	975		$	662		$	6,710
Asset-specific	285			32			85			402			197			32			98			327
Total allowance for loan and lease losses	$	5,520		$	1,043		$	656		$	7,219		$	5,270		$	1,007		$	760		$	7,037
Loans held for investment:
Collectively evaluated	$	109,830		$	58,936		$	67,734		$	236,500		$	112,866		$	61,631		$	72,902		$	247,399
Asset-specific	855			388			655			1,898			815			382			726			1,923
PCI loans	0			5			358			363			0			2			31			33
Total loans held for investment	$	110,685		$	59,329		$	68,747		$	238,761		$	113,681		$	62,015		$	73,659		$	249,355
Allowance coverage ratio⁽¹⁾	4.99		%	1.76		%	0.95		%	3.02		%	4.64		%	1.62		%	1.03		%	2.82		%


	December 31, 2017															December 31, 2018
(Dollars in millions)	Credit Card			Consumer Banking			Commercial Banking			Other			Total			Credit Card			Consumer Banking			Commercial Banking			Total
Allowance for loan and lease losses:
Collectively evaluated	$	5,356		$	1,158		$	529		$	1		$	7,044		$	5,258		$	1,021		$	603		$	6,882
Asset-specific	292			53			76			0			421			277			27			34			338
PCI loans	0			31			6			0			37
Total allowance for loan and lease losses	$	5,648		$	1,242		$	611		$	1		$	7,502		$	5,535		$	1,048		$	637		$	7,220
Loans held for investment:
Collectively evaluated	$	113,948		$	64,080		$	63,237		$	58		$	241,323		$	115,505		$	58,808		$	69,607		$	243,920
Asset-specific	812			705			858			0			2,375			855			393			596			1,844
PCI loans	2			10,293			480			0			10,775			1			4			130			135
Total loans held for investment	$	114,762		$	75,078		$	64,575		$	58		$	254,473		$	116,361		$	59,205		$	70,333		$	245,899
Allowance coverage ratio⁽¹⁾	4.92		%	1.65		%	0.95		%	1.72		%	2.95		%	4.76		%	1.77		%	0.91		%	2.94		%

__________


⁽¹⁾	Allowance coverage ratio is calculated by dividing the period-end allowance for loan and lease losses by period-end loans held for investment within the specified loan category.




	96	Capital One Financial Corporation (COF)

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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Credit Card Partnership Loss Sharing Arrangements

We have certain credit card partnership ~~arrangements,~~agreements that ~~qualify for~~are presented within our consolidated financial statements on a net ~~accounting treatment,~~basis, in which our partner agrees to share a portion of the credit ~~losses.~~losses on the underlying loan portfolio. The expected reimbursements from these partners, which are netted against our allowance for loan and lease losses, result in reductions to net charge-offs and provision for credit losses. See ~~“Note~~“Note 1—Summary of Significant Accounting ~~Policies”~~Policies” in our ~~2017~~2018 Form 10-K for further discussion of our credit card partnership agreements.




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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The table below summarizes the changes in the estimated reimbursements from these partners for the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.

Table 5.3: Summary of Credit Card Partnership Loss Sharing Arrangements Impacts

(Dollars in millions) Estimated Reimbursements from Loss Sharing Partners
Balance as of June 30, 2018 $ 392
Amounts due from partners which reduced net charge-offs (97 )
Amounts estimated to be charged to partners which reduced provision for credit losses 81
Balance as of September 30, 2018 $ 376

Balance as of June 30, 2017 $ 263
Amounts due from partners which reduced net charge-offs (66 )
Amounts estimated to be charged to partners which reduced provision for credit losses 135
Balance as of September 30, 2017 $ 332


				Three Months Ended September 30,
(Dollars in millions)	Estimated Reimbursements from Loss Sharing Partners			2019			2018
Balance as of December 31, 2017	$	380
Estimated reimbursements from partners, beginning of period				$	414		$	392
Amounts due from partners which reduced net charge-offs	(286		)	(100		)	(97		)
Amounts estimated to be charged to partners which reduced provision for credit losses	282			86			81
Balance as of September 30, 2018	$	376

Balance as of December 31, 2016	$	228
Amounts due from partners which reduced net charge-offs	(198		)
Amounts estimated to be charged to partners which reduced provision for credit losses	302
Balance as of September 30, 2017	$	332
Estimated reimbursements from partners, end of period				$	400		$	376



	Nine Months Ended September 30,
(Dollars in millions)	2019			2018
Estimated reimbursements from partners, beginning of period	$	379		$	380
Amounts due from partners which reduced net charge-offs	(313		)	(286		)
Amounts estimated to be charged to partners which reduced provision for credit losses	334			282
Estimated reimbursements from partners, end of period	$	400		$	376




	9397	Capital One Financial Corporation (COF)

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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6—VARIABLE INTEREST ENTITIES AND SECURITIZATIONS

In the normal course of business, we enter into various types of transactions with entities that are considered to be ~~variable interest entities (“VIEs”).~~VIEs. Our primary involvement with VIEs has been related to our securitization transactions in which we transferred assets ~~from our balance sheet~~ to securitization trusts. We have primarily securitized credit card and auto loans, which have provided a source of funding for us and enabled us to transfer a certain portion of the economic risk of the loans or related debt securities to third parties.

The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and is required to consolidate the VIE. The majority of the VIEs in which we are involved have been consolidated in our financial statements.

Summary of Consolidated and Unconsolidated VIEs

The assets of our consolidated VIEs primarily consist of cash, ~~credit card~~ loan receivables and the related allowance for loan and lease losses, which we report on our consolidated balance sheets under restricted cash for securitization investors, loans held in consolidated trusts and allowance for loan and lease losses, respectively. The assets of a particular VIE are the primary source of ~~funding~~funds to settle its obligations. Creditors of these VIEs typically do not have recourse to our general credit. Liabilities primarily consist of debt securities issued by the VIEs, which we report under securitized debt ~~obligations.~~obligations on our consolidated balance sheets. For unconsolidated VIEs, we present the carrying amount of assets and liabilities reflected on our consolidated balance sheets and our maximum exposure to loss. Our maximum exposure to loss is estimated based on the unlikely event that all of the assets in the VIEs become worthless and we are required to meet our maximum remaining funding obligations.

The tables below present a summary of ~~certain~~ VIEs in which we had continuing involvement or held a variable interest, aggregated based on VIEs with similar characteristics as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. We separately present information for consolidated and unconsolidated VIEs.

Table 6.1: Carrying Amount of Consolidated and Unconsolidated VIEs


	September 30, 2018										September 30, 2019
	Consolidated				Unconsolidated						Consolidated				Unconsolidated
(Dollars in millions)	Carrying Amount of Assets		Carrying Amount of Liabilities		Carrying Amount of Assets		Carrying Amount of Liabilities		Maximum Exposure to Loss		Carrying Amount of Assets		Carrying Amount of Liabilities		Carrying Amount of Assets		Carrying Amount of Liabilities		Maximum Exposure to Loss
Securitization-Related VIEs:
Credit card loan securitizations⁽¹⁾	$	33,755	$	19,339	$	0	$	0	$	0	$	30,521	$	16,896	$	0	$	0	$	0
Auto loan securitizations											2,570		2,275		0		0		0
Home loan securitizations	0		0		237		101		601		0		0		66		0		367
Total securitization-related VIEs	33,755		19,339		237		101		601		33,091		19,171		66		0		367
Other VIEs:⁽²⁾
Affordable housing entities	233		11		4,071		1,260		4,071		236		1		4,439		1,206		4,439
Entities that provide capital to low-income and rural communities	1,763		122		0		0		0		1,817		69		0		0		0
Other	0		0		303		0		303		0		0		512		0		512
Total other VIEs	1,996		133		4,374		1,260		4,374		2,053		70		4,951		1,206		4,951
Total VIEs	$	35,751	$	19,472	$	4,611	$	1,361	$	4,975	$	35,144	$	19,241	$	5,017	$	1,206	$	5,318




	9498	Capital One Financial Corporation (COF)

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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	December 31, 2017										December 31, 2018
	Consolidated				Unconsolidated						Consolidated				Unconsolidated
(Dollars in millions)	Carrying Amount of Assets		Carrying Amount of Liabilities		Carrying Amount of Assets		Carrying Amount of Liabilities		Maximum Exposure to Loss		Carrying Amount of Assets		Carrying Amount of Liabilities		Carrying Amount of Assets		Carrying Amount of Liabilities		Maximum Exposure to Loss
Securitization-Related VIEs:
Credit card loan securitizations⁽¹⁾	$	34,976	$	20,651	$	0	$	0	$	0	$	33,574	$	18,885	$	0	$	0	$	0
Home loan securitizations	0		0		455		390		1,057		0		0		211		74		554
Total securitization-related VIEs	34,976		20,651		455		390		1,057		33,574		18,885		211		74		554
Other VIEs:⁽²⁾
Affordable housing entities	226		10		4,175		1,284		4,175		243		17		4,238		1,303		4,238
Entities that provide capital to low-income and rural communities	1,498		129		0		0		0		1,739		117		0		0		0
Other	0		0		318		0		318		0		0		353		0		353
Total other VIEs	1,724		139		4,493		1,284		4,493		1,982		134		4,591		1,303		4,591
Total VIEs	$	36,700	$	20,790	$	4,948	$	1,674	$	5,550	$	35,556	$	19,019	$	4,802	$	1,377	$	5,145

__________


⁽¹⁾	Represents the carrying amount of assets and liabilities owned by the VIE, which includes the seller’s interest and repurchased notes held by other related parties.

⁽²⁾

In certain investment structures, we consolidate a VIE which in turn holds as its primary asset an investment in an unconsolidated VIE. In these instances, we disclose the carrying amount of assets and liabilities on our consolidated balance sheets ~~in the~~as unconsolidated VIEs to avoid duplicating our exposure, as the unconsolidated VIEs are generally the operating entities generating the exposure. The carrying amount of assets and liabilities included in the unconsolidated VIE columns above related to these investment structures were ~~$2.2~~$2.3 billion of assets and ~~$879~~$748 million of liabilities as of September 30, ~~2018~~2019, and ~~$2.2~~$2.3 billion of assets and ~~$901~~$811 million of liabilities as of December 31, ~~2017.~~

2018.

Securitization-Related VIEs

In a securitization transaction, assets are transferred to a trust, which generally meets the definition of a VIE. We engage in securitization activities as an issuer and an investor. Our primary securitization issuance activity ~~is in the form of~~includes credit card and auto securitizations, conducted through securitization trusts which we consolidate. Our continuing involvement in these securitization transactions mainly consists of acting as the primary servicer and holding certain retained interests.

We also transfer multifamily commercial loans that we originate to the government-sponsored enterprises (“GSEs”) and retain the right to service the transferred loans pursuant to the guidelines set forth by the GSEs. Subsequent to such transfers, these loans are commonly securitized into CMBS by the GSEs. ~~We also~~As an investor, we hold RMBS ~~CMBS~~ and ~~ABS~~CMBS in our investment securities portfolio, which represent an interest in the respective securitization trusts employed in the transactions under which those securities were issued.

We do not consolidate the securitization trusts employed in these transactions as we do not have the power to direct the activities that most significantly impact the economic performance of these securitization trusts. ~~We may have exposure associated with contractual obligations to repurchase previously transferred loans due to breaches of representations and warranties. See “Note 14—Commitments, Contingencies, Guarantees and Others” for more information related to our mortgage representation and warranty exposure.~~ Our maximum exposure to loss as a result of our involvement with these VIEs is the carrying value of ~~mortgage~~Mortgage servicing rights (“MSRs”) and investment securities on our consolidated balance sheets. See “Note 7—Goodwill and Intangible Assets” for information related to our MSRs associated with these multifamily commercial loan securitizations and “Note 3—Investment Securities” for more information on the securities held in our investment securities portfolio. We exclude these VIEs from the tables within this note because we do not consider our continuing involvement with these VIEs to be ~~significant;~~significant as we either invest in securities issued by the VIE and were not involved in the design of the VIE or no transfers have occurred between the VIE and us. In addition, where we have certain lending arrangements in the normal course of business with entities that could be VIEs, we have also excluded these VIEs from the tables presented in this note. See “Note 4—Loans” for additional information regarding our lending arrangements in the normal course of business.




	9599	Capital One Financial Corporation (COF)

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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below presents our continuing involvement in certain securitization-related VIEs as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 6.2: Continuing Involvement in Securitization-Related VIEs


			Mortgage
(Dollars in millions)	Credit Card		Option- ARM		GreenPoint HELOCs		GreenPoint Manufactured Housing		Credit Card		Auto		Mortgages
September 30, 2018:
September 30, 2019:
Securities held by third-party investors	$	18,649	$	1,037	$	33	$	303	$	16,637	$	2,273	$	1,017
Receivables in the trust	33,965		1,072		26		305		31,039		2,424		1,034
Cash balance of spread or reserve accounts	0		8		N/A		109		0		7		17
Retained interests	Yes		Yes		Yes		Yes		Yes		Yes		Yes
Servicing retained	Yes		Yes		No		No		Yes		Yes		No
December 31, 2017:
December 31, 2018:
Securities held by third-party investors	$	20,010	$	1,224	$	42	$	508	$	18,307	N/A		$	1,276
Receivables in the trust	35,667		1,266		35		511		34,197		N/A		1,305
Cash balance of spread or reserve accounts	0		8		N/A		116		0		N/A		116
Retained interests	Yes		Yes		Yes		Yes		Yes		N/A		Yes
Servicing retained	Yes		Yes		No		No		Yes		N/A		Yes⁽¹⁾

__________


⁽¹⁾	We retained servicing on a portion of our remaining mortgage loans in mortgage securitizations.

Credit Card Securitizations

We securitize a portion of our credit card loans which provides a source of funding for us. Credit card securitizations involve the transfer of credit card receivables to securitization trusts. These trusts then issue debt securities collateralized by the transferred receivables to third-party investors. We hold certain retained interests in our credit card securitizations and continue to service the receivables in these trusts. ~~As of both September 30, 2018 and December 31, 2017,~~We consolidate these trusts because we ~~were~~are deemed to be the primary beneficiary as we have the power to direct the activities that most significantly impact the economic performance of the trusts, and ~~accordingly, all~~the right to receive benefits or the obligation to absorb losses that could potentially be significant to the trusts.

Auto Securitizations

Similar to our credit card securitizations, we securitize a portion of our auto loans which provides a source of funding for us. Auto securitization involves the transfer of auto loans to securitization trusts. These trusts then issue debt securities collateralized by the transferred loans to third-party investors. We hold certain retained interests and continue to service the loans in these trusts. We consolidate these trusts because we are deemed to be the primary beneficiary as we have ~~been consolidated in our financial statements.~~the power to direct the activities that most significantly impact the economic performance of the trusts, and the right to receive benefits or the obligation to absorb losses that could potentially be significant to the trusts.

Mortgage Securitizations

~~Option-ARM Loans~~

We had previously securitized ~~option adjustable-rate~~ mortgage ~~(“option-ARM”)~~ loans by transferring these loans to securitization trusts that had issued mortgage-backed securities to investors. ~~The outstanding balance~~These mortgage trusts consist of ~~debt securities held by third-party investors related to these~~option-adjustable rate mortgage ~~loan securitization trusts was $1.0 billion~~(“option-ARM”) securitizations and ~~$1.2 billion as~~securitizations from our discontinued operations which include the mortgage origination operations of ~~September 30, 2018~~our wholesale mortgage banking unit, GreenPoint Mortgage Funding, Inc. (“GreenPoint”) and ~~December 31, 2017, respectively.~~the manufactured housing operations of GreenPoint Credit, LLC, a subsidiary of GreenPoint (collectively “GreenPoint securitizations”).

We ~~continue to service a portion of the remaining mortgage loans in these securitizations. We also~~ retain rights to certain future cash flows arising from these ~~securitizations including interest-only bonds issued by the trusts.~~securitizations. We generally estimate the fair value of these retained interests based on the estimated present value of expected future cash flows, using our best estimates of the key assumptions which include credit losses, prepayment speeds and discount rates commensurate with the risks involved. For the mortgage loans that we continue to service, we do not consolidate the ~~related trusts~~mortgage securitizations because we do not have the right to receive the benefits nor the obligation to absorb losses that could potentially be significant to the ~~trusts. For the remaining~~ trusts ~~for which we no longer service the underlying mortgage loans, we do not consolidate these entities since~~or we do not have the power to direct the activities that most significantly impact the economic performance of the trusts.




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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

In connection with the securitization of certain option-ARM loans, a third party is obligated to advance a portion of any “negative amortization” resulting from monthly payments that are less than the interest accrued for that payment period. We have an agreement in place with the third party that mirrors this advance requirement. The amount advanced is tracked through mortgage-backed securities retained as part of the securitization transaction. As advances occur, we record an asset in the form of negative amortization bonds, which are held at fair value in other assets on our consolidated balance sheets. Our maximum exposure is affected by rate caps and monthly payment change caps, but the funding obligation cannot exceed the difference between the original loan balance multiplied by a preset negative amortization cap and the current unpaid principal balance. For the transactions where the negative amortization funding agreements have been terminated, incremental negative amortization is funded through the available cash flow in each transaction.

We have also entered into certain derivative contracts related to the securitization activities. These are classified as free-standing derivatives, with fair value adjustments recorded in non-interest income in our consolidated statements of income. See “~~Note 9—Derivative Instruments and Hedging Activities” for further details on these derivatives.~~

~~GreenPoint Mortgage Home Equity Lines of Credit (“HELOCs”)~~

Our discontinued wholesale mortgage banking unit, GreenPoint Mortgage Funding, Inc. (“GreenPoint”), previously sold HELOCs in whole loan sales that were subsequently securitized by third parties. GreenPoint acquired residual interests in certain of those securitization trusts. We do not consolidate these trusts because we either lack the power to direct the activities that most significantly impact the economic performance of the trusts or because we do not have the right to receive benefits or the obligation to absorb losses that could potentially be significant to the trusts. As the residual interest holder, GreenPoint is required to fund advances on the HELOCs when certain performance triggers are met due to deterioration in asset performance. On behalf of GreenPoint, we have funded cumulative advances of $30 million as of both September 30, 2018 and December 31, 2017. We also have unfunded commitments of $3 million and $4 million related to those interests for our non-consolidated VIEs as of September 30, 2018 and December 31, 2017, respectively.

~~GreenPoint Credit Manufactured Housing~~

We previously had certain retained interests and obligations related to the discontinued manufactured housing operations of GreenPoint Credit, LLC, a subsidiary of GreenPoint. Such discontinued operations, including the related recourse obligations, servicing rights and the primary obligation to execute clean-up calls in certain securitization transactions were sold to a third party in 2004. These securitization trusts were not consolidated because we did not have the power to direct the activities that most significantly impact the economic performance of the trusts as we did not service the loans.

The unpaid principal receivables balances of these manufactured housing securitization transactions were $305 million and $511 million as of September 30, 2018 and December 31, 2017, respectively. In the fourth quarter of 2017, we entered into an agreement with the third-party servicer under which we assumed the obligation to exercise the remaining clean-up calls as they become due on certain securitization transactions, and a forward sale agreement pursuant to which we will sell the underlying loans to a third-party purchaser as the clean-up calls are exercised. Accordingly, we recognized loans held for sale and a corresponding liability on our consolidated balance sheets. We recorded $75 million and $283 million of these loan receivables, with the corresponding liability, which is included as a component of other debt, as of September 30, 2018 and December 31, 2017, respectively.

We were required to fund letters of credit to cover losses on certain manufactured housing securitizations. We have the right to receive any funds remaining in the letters of credit after the securities are released. The fair value of these letters of credit are included in other assets on our consolidated balance sheets and totaled $75 million as of both September 30, 2018 and December 31, 2017. We also have credit exposure on an agreement that we entered into to absorb a portion of the risk of loss on certain manufactured housing securitizations not subject to the funded letters of credit. Our expected future obligation under this agreement included in other liabilities on our consolidated balance sheets was $5 million and $10 million as of September 30, 2018 and December 31, 2017, respectively.




	97100	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other VIEs

Affordable Housing Entities

As part of our community reinvestment initiatives, we invest in private investment funds that make equity investments in ~~multi-family~~multifamily affordable housing properties. We receive affordable housing tax credits for these investments. The activities of these entities are financed with a combination of invested equity capital and debt. We account for certain of our investments in qualified affordable housing projects using the proportional amortization method if certain criteria are met. The proportional amortization method amortizes the cost of the investment over the period in which the investor expects to receive tax credits and other tax benefits, and the resulting amortization is recognized as a component of income tax expense attributable to continuing operations. For the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, we recognized amortization of ~~$365~~$417 million and ~~$347~~$365 million, respectively, and tax credits of ~~$468~~$516 million and ~~$388~~$468 million, respectively, associated with these investments within income tax provision. The carrying value of our equity investments in these qualified affordable housing projects was ~~$4.0~~$4.3 billion and ~~$3.9~~$4.2 billion as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. We are periodically required to provide additional financial or other support during the period of the investments. Our liability for these unfunded commitments was ~~$1.4~~$1.3 billion and $1.5 billion as of ~~both~~ September 30, ~~2018~~2019 and December 31, ~~2017. Predominantly all of this liability~~2018, respectively, and is largely expected to be paid from ~~2018~~2019 to ~~2020.~~2021.

For those investment funds considered to be VIEs, we are not required to consolidate them if we do not have the power to direct the activities that most significantly impact the economic performance of those entities. We record our interests in these unconsolidated VIEs in loans held for investment, other assets and other liabilities on our consolidated balance sheets. Our maximum exposure to these entities is limited to our variable interests in the entities which consisted of assets of approximately ~~$4.1~~$4.4 billion and $4.2 billion as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The creditors of the VIEs have no recourse to our general credit and we do not provide additional financial or other support other than during the period that we are contractually required to provide it. The total assets of the unconsolidated VIE investment funds were approximately ~~$11.0~~$10.7 billion and ~~$11.5~~$10.8 billion as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Entities that Provide Capital to Low-Income and Rural Communities

We hold variable interests in entities (“Investor Entities”) that invest in community development entities (“CDEs”) that provide debt financing to businesses and non-profit entities in low-income and rural communities. Variable interests in the CDEs held by the consolidated Investor Entities are also our variable interests. The activities of the Investor Entities are financed with a combination of invested equity capital and debt. The activities of the CDEs are financed solely with invested equity capital. We receive federal and state tax credits for these investments. We consolidate the VIEs in which we have the power to direct the activities that most significantly impact the VIE’s economic performance and where we have the obligation to absorb losses or right to receive benefits that could be potentially significant to the VIE. We have also consolidated other investments and CDEs that are not considered to be VIEs, but where we hold a controlling financial interest. The assets of the VIEs that we consolidated, which totaled ~~approximately$1.8~~approximately $1.8 billion and ~~$1.5~~$1.7 billion as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, are reflected on our consolidated balance sheets in cash, loans held for investment, and other assets. The liabilities are reflected in other liabilities. The creditors of the VIEs have no recourse to our general credit. We have not provided additional financial or other support other than during the period that we are contractually required to provide it.

Other

Other VIEs include variable interests that we hold in companies that promote renewable energy sources and other equity method investments. We were not required to consolidate these entities because we do not have the power to direct the activities that most significantly impact their economic performance. Our maximum exposure to these entities is limited to the investment on our consolidated balance sheets of ~~$303~~$512 million and ~~$318~~$353 million as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The creditors of the other VIEs have no recourse to our general credit. We have not provided additional financial or other support other than during the period that we are contractually required to provide it.




	98101	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7—GOODWILL AND INTANGIBLE ASSETS

The table below presents our goodwill, intangible assets and MSRs as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. Goodwill is presented separately, while intangible assets and MSRs are included in other assets on our consolidated balance sheets.

Table 7.1: Components of Goodwill, Intangible Assets and MSRs


	September 30, 2018							September 30, 2019
(Dollars in millions)	Carrying Amount of Assets		Accumulated Amortization			Net Carrying Amount		Carrying Amount of Assets		Accumulated Amortization			Net Carrying Amount
Goodwill	$	14,513	N/A			$	14,513	$	14,624	N/A			$	14,624
Intangible assets:
Purchased credit card relationship (“PCCR”) intangibles	2,086		$	(1,920	)	166		1,932		$	(1,844	)	88
Core deposit intangibles	1,149		(1,145		)	4
Other⁽¹⁾	280		(161		)	119		225		(132		)	93
Total intangible assets	3,515		(3,226		)	289		2,157		(1,976		)	181
Total goodwill and intangible assets	$	18,028	$	(3,226	)	$	14,802	$	16,781	$	(1,976	)	$	14,805
Commercial MSRs⁽²⁾	$	431	$	(166	)	$	265	$	528	$	(237	)	$	291

	December 31, 2017							December 31, 2018
(Dollars in millions)	Carrying Amount of Assets		Accumulated Amortization			Net Carrying Amount		Carrying Amount of Assets		Accumulated Amortization			Net Carrying Amount
Goodwill	$	14,533	N/A			$	14,533	$	14,544	N/A			$	14,544
Intangible assets:
PCCR intangibles	2,105		$	(1,844	)	261		2,102		$	(1,952	)	150
Core deposit intangibles	1,149		(1,133		)	16		1,149		(1,148		)	1
Other⁽¹⁾	300		(156		)	144		271		(168		)	103
Total intangible assets	3,554		(3,133		)	421		3,522		(3,268		)	254
Total goodwill and intangible assets	$	18,087	$	(3,133	)	$	14,954	$	18,066	$	(3,268	)	$	14,798
MSRs:
Consumer MSRs⁽³⁾	$	92	N/A			$	92
Commercial MSRs⁽²⁾	355		$	(126	)	229		$	459	$	(185	)	$	274
Total MSRs	$	447	$	(126	)	$	321

__________


⁽¹⁾	Primarily consists of intangibles for sponsorship, customer and merchant relationships, ~~brokerage relationship intangibles,~~ partnership and other contract intangibles and trade name intangibles.


⁽²⁾	Commercial MSRs are accounted for under the amortization method on our consolidated balance sheets.


⁽³⁾	~~Consumer MSRs were carried at fair value on our consolidated balance sheets as of December 31, 2017. In the first quarter of 2018, we sold the substantial majority of these MSRs.~~

Amortization expense for amortizable intangible assets, which is presented separately in our consolidated statements of income, totaled $25 million and $84 million for the three and nine months ended September 30, 2019, respectively, and $44 million and $131 million for the three and nine months ended September 30, 2018, ~~respectively, and $61 million and $184 million for the three and nine months ended September 30, 2017,~~ respectively.




	99102	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill

The following table presents changes in the carrying amount of goodwill ~~as well as goodwill attributable to~~by each of our business segments as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 7.2: Goodwill ~~Attributable to~~by Business Segments


(Dollars in millions)	Credit Card			Consumer Banking		Commercial Banking			Total			Credit Card			Consumer Banking			Commercial Banking		Total
Balance as of December 31, 2017	$	5,032		$	4,600	$	4,901		$	14,533
Balance as of December 31, 2018												$	5,060		$	4,600		$	4,884	$	14,544
Acquisitions												2			45			36		83
Reductions in goodwill related to divestitures	0			0		(17		)	(17		)	0			(1		)	0		(1		)
Other adjustments⁽¹⁾	(3		)	0		0			(3		)	(2		)	0			0		(2		)
Balance as of September 30, 2018	$	5,029		$	4,600	$	4,884		$	14,513
Balance as of September 30, 2019												$	5,060		$	4,644		$	4,920	$	14,624

__________


⁽¹⁾⁽¹⁾	Represents foreign currency translation adjustments.




	~~100~~103	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8—DEPOSITS AND BORROWINGS

Our deposits ~~which are~~represent our largest source of funding for our assets and operations, ~~consist of non-interest-bearing and interest-bearing deposits,~~ which include checking accounts, money market ~~deposit accounts,~~deposits, negotiable order of withdrawals, savings deposits and time deposits.

We also use a variety of other funding sources including short-term borrowings, senior and subordinated notes, securitized debt obligations and other borrowings. In addition, we utilize FHLB advances, which are secured by certain portions of our loan and investment securities portfolios. Securitized debt obligations are presented separately on our consolidated balance sheets, as they represent obligations of consolidated securitization trusts, while federal funds purchased and securities loaned or sold under agreements to repurchase, senior and subordinated notes and other borrowings, including FHLB advances, are included in other debt on our consolidated balance sheets.

~~The following tables summarize the components of our deposits, short-term borrowings and long-term debt as of September 30, 2018 and December 31, 2017.~~ Our total short-term borrowings generally consist of federal funds purchased, securities loaned or sold under agreements to repurchase, and short-term FHLB advances. Our long-term debt consists of borrowings with an original contractual maturity of greater than one year. The following tables summarize the components of our deposits, short-term borrowings and long-term debt as of September 30, 2019 and December 31, 2018. The carrying value presented below for these borrowings ~~include~~includes unamortized debt premiums and discounts, net of debt issuance costs and fair value hedge accounting adjustments.




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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Table 8.1: Components~~8.1: Components of Deposits, Short-Term Borrowings and Long-Term Debt


(Dollars in millions)	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Deposits:
Non-interest-bearing deposits	$	24,839	$	26,404	$	23,064	$	23,483
Interest-bearing deposits⁽¹⁾	222,356		217,298		234,084		226,281
Total deposits⁽²⁾	$	247,195	$	243,702	$	257,148	$	249,764
Short-term borrowings:
Federal funds purchased and securities loaned or sold under agreements to repurchase	$	384	$	576	$	464	$	352
FHLB advances	1,250		0		0		9,050
Total short-term borrowings	$	1,634	$	576	$	464	$	9,402


		September 30, 2018						December 31, 2017			September 30, 2019						December 31, 2018
(Dollars in millions)		Maturity Dates	Stated Interest Rates	Weighted- Average Interest Rate		Carrying Value		Carrying Value			Maturity Dates	Stated Interest Rates	Weighted- Average Interest Rate		Carrying Value		Carrying Value
Long-term debt:
Securitized debt obligations		2018-2025	1.33 - 3.01%	2.19	%	$	18,649	$	20,010		2019-2026	1.66% - 3.01%	2.25	%	$	18,910	$	18,307
Senior and subordinated notes:
Fixed unsecured senior debt(2)		2018-2028	1.85 - 4.75	3.01		23,531		22,776			2020-2028	0.80 - 4.75	3.08		23,457		23,290
Floating unsecured senior debt		2019-2023	2.74 - 3.49	3.11		3,347		3,446			2020-2023	2.59 - 3.42	2.99		2,695		2,993
Total unsecured senior debt	Total unsecured senior debt			3.02		26,878		26,222		Total unsecured senior debt			3.07		26,152		26,283
Fixed unsecured subordinated debt		2019-2026	3.38 - 8.80	4.09		4,413		4,533			2023-2026	3.38 - 4.20	3.78		4,530		4,543
Total senior and subordinated notes	Total senior and subordinated notes					31,291		30,755		Total senior and subordinated notes					30,682		30,826
Other long-term borrowings:
FHLB advances		2018-2023	2.15 - 5.36	2.16		501		8,609			—	—	—		0		251
Other borrowings		2018-2035	1.00 - 17.50	6.77		130		331			2019-2035	2.24 - 12.86	4.20		93		119
Total other long-term borrowings	Total other long-term borrowings					631		8,940		Total other long-term borrowings					93		370
Total long-term debt	Total long-term debt					$	50,571	$	59,705	Total long-term debt					$	49,685	$	49,503
Total short-term borrowings and long-term debt	Total short-term borrowings and long-term debt					$	52,205	$	60,281	Total short-term borrowings and long-term debt					$	50,149	$	58,905

__________


⁽¹⁾	Includes ~~$3.4~~$5.9 billion and ~~$1.3~~$4.0 billion of time deposits in denominations in excess of the $250,000 federal insurance limit as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.


⁽²⁾	Includes ~~approximately~~$~~1.5~~$1.4 billionof ~~held for sale deposits~~EUR-denominated unsecured notes as ofSeptember 30, ~~2018 associated with the anticipated sale of our online retail brokerage business.~~ 2019.




	~~102~~104	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Use of Derivatives and Accounting for Derivatives

We ~~manage asset and liability positions and market risk exposure in accordance with market~~regularly enter into derivative transactions to support our overall risk management ~~policies that are approved by our Board of Directors.~~activities. Our primary market risks stem from the impact on our earnings and economic value of equity ~~from~~due to changes in interest rates and, to a lesser extent, changes in foreign exchange rates. We ~~employ several techniques to~~ manage our interest rate sensitivity by employing several techniques, which include changing the duration and re-pricing characteristics of various assets and liabilities by using interest rate derivatives. ~~Our current policies~~We also ~~include the~~ use ~~of derivatives to hedge exposures denominated in~~ foreign currency ~~which we use~~derivatives to limit our earnings and capital ~~ratio~~ exposures to foreign exchange ~~risk.~~risk by hedging exposures denominated in foreign currencies. In addition to interest rate and foreign currency ~~swaps,~~derivatives, we may also use a variety of other derivative instruments, including caps, floors, options, futures and forward contracts, to manage our interest rate and foreign exchange risks. We designate these risk management derivatives as either qualifying accounting hedges or free-standing derivatives. Qualifying accounting hedges are further designated as fair value hedges, cash flow hedges or net investment hedges. Free-standing derivatives are economic hedges that do not qualify for hedge accounting.

We also offer various interest rate, commodity and foreign ~~exchange~~currency derivatives as an accommodation to our customers within our Commercial Banking ~~business,~~business. We enter into these derivatives with our customers primarily to help them manage interest rate risks, hedge their energy and ~~offset~~other commodities exposures, and manage foreign currency fluctuations. We then enter into offsetting derivative contracts with counterparties to economically hedge the majority of ~~such exposure through derivative transactions with other counterparties. We execute~~ our ~~derivative contracts in both over-the-counter (“OTC”)~~subsequent exposures.

See below for additional information on our use of derivatives and ~~exchange-traded derivative markets. Under the Dodd-Frank Act,~~how we are required to clear eligible derivative transactions through Central Counterparty Clearinghouses (“CCPs”) such as the Chicago Mercantile Exchange (“CME”) and London Clearing House (“LCH”), which are often referred to as “central clearinghouses.”account for them:

•

Fair Value Hedges: We designate derivatives as fair value hedges when they are used to manage our exposure to changes in the fair value of certain financial assets and liabilities, which fluctuate in value as a result of movements in interest rates. Changes in the fair value of derivatives designated as fair value hedges are presented in the same line item on our consolidated statements of income as the earnings effect of the hedged items. Our fair value hedges primarily consist of interest rate swaps that are intended to modify our exposure to interest rate risk on various fixed-rate financial assets and liabilities.

•

Cash Flow Hedges: We designate derivatives as cash flow hedges when they are used to manage our exposure to variability in cash flows related to forecasted transactions. Changes in the fair value of derivatives designated as cash flow hedges are recorded as a component of AOCI. Those amounts are reclassified into earnings in the same period during which the forecasted transactions impact earnings and presented in the same line item on our consolidated statements of income as the earnings effect of the hedged items. Our cash flow hedges use interest rate swaps and floors that are intended to hedge the variability in interest receipts or interest payments on some of our variable-rate financial assets or liabilities. We also enter into foreign currency forward contracts to hedge our exposure to variability in cash flows related to intercompany borrowings denominated in foreign currencies.

•

Net Investment Hedges: We use net investment hedges to manage the foreign currency exposure related to our net investments in foreign operations that have functional currencies other than the U.S. dollar. Changes in the fair value of net investment hedges are recorded in the translation adjustment component of AOCI, offsetting the translation gain or loss from those foreign operations. We execute net investment hedges using foreign currency forward contracts to hedge the translation exposure of the net investment in our foreign operations under the forward method.

•

Free-Standing Derivatives: Our free-standing derivatives primarily consist of our customer accommodation derivatives and other economic hedges. The customer accommodation derivatives and the related offsetting contracts are mainly interest rate, commodity and foreign currency contracts. The other free-standing derivatives are primarily used to economically hedge the risk of changes in the fair value of our commercial mortgage loan origination and purchase commitments as well as other interests held. Changes in the fair value of free-standing derivatives are recorded in earnings as a component of other non-interest income.




	105	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivatives Counterparty Credit Risk

Counterparty Types

Derivative instruments contain an element of credit risk that arises from the potential failure of a counterparty to perform according to the terms of the ~~contract.~~contract, including making payments due upon maturity of certain derivative instruments. We execute our derivative contracts primarily in over-the-counter (“OTC”) markets. We also execute minimal amounts of interest rate and commodity futures in the exchange-traded derivative markets. Our OTC derivatives consist of both centrally cleared and uncleared bilateral contracts. In our centrally cleared contracts, our counterparties are central counterparty clearinghouses (“CCPs”), such as the Chicago Mercantile Exchange (“CME”) and the LCH Group (“LCH”). In our uncleared bilateral contracts, we enter into agreements directly with our derivative counterparties.

Counterparty Credit Risk Management

We manage the counterparty credit risk associated with derivative instruments by entering into legally enforceable master netting arrangements, where possible, and exchanging collateral with our counterparties, typically in the form of cash or high-quality liquid securities. The amount of collateral exchanged is dependent upon the fair value of the derivative instruments as well as the fair value of the pledged collateral. When valuing collateral, an estimate of the variation in price and liquidity over time is subtracted in the form of a “haircut” to discount the value of the collateral pledged. Our exposure to derivative counterparty credit risk, at any point in time, is equal to the amount reported as a derivative asset on our balance ~~sheet, assuming no recoveries~~sheet. The fair value of ~~underlying collateral.~~

~~We clear certain OTC~~our derivatives ~~with central clearinghouses through futures commission merchants (“FCMs”) as part~~is adjusted on an aggregate basis to take into consideration the effects of the regulatory requirement. The use of the CCPs and the FCMs reduces our bilateral counterparty credit exposures while it increases our credit exposures to CCPs and FCMs. We are required by CCPs to post initial and variation margin to mitigate the risk of non-payment through our FCMs. Our FCM agreements governing these derivative transactions generally include provisions that may require us to post more collateral or otherwise change terms in our agreements under certain circumstances. For CME-cleared OTC derivatives, we characterize variation margin cash payments as settlements. Effective January 16, 2018, LCH amended its rulebook to legally characterize variation margin payments as settlements. We adopted this rule change in the first quarter of 2018. As a result, the balances for LCH-cleared derivatives are reduced to reflect the settlement of these positions.

~~We also enter into~~ legally enforceable master netting agreements and any associated cash collateral ~~agreements, where possible,~~received or pledged. See Table 9.3 for our net exposure associated with ~~certain derivative counterparties to mitigate the risk of default on a bilateral basis. These bilateral agreements typically provide the right to offset~~derivatives.

The terms under which we collateralize our exposures differ between cleared exposures and ~~require one counterparty to post collateral on derivative instruments in a net liability position to the other counterparty. Certain of these~~uncleared bilateral agreements include provisions requiring that our debt maintain a credit rating of investment grade or above by each of the major credit rating agencies. In the event of a downgrade of our debt credit rating below investment grade, some of our counterparties would have the right to terminateexposures.

•

CCPs: We clear eligible OTC derivatives with CCPs as part of our regulatory requirements. Futures commission merchants (“FCMs”) serve as the intermediary between CCPs and us. CCPs require that we post initial and variation margin through our FCMs to mitigate the risk of non-payment or default. Initial margin is required upfront by CCPs as collateral against potential losses on our cleared derivative contracts. Variation margin is exchanged on a daily basis to account for mark-to-market changes in the derivative contracts. For CME and LCH-cleared OTC derivatives, we characterize variation margin cash payments as settlements. Our FCM agreements governing these derivative transactions include provisions that may require us to post additional collateral under certain circumstances.

•

Bilateral Counterparties: We enter into legally enforceable master netting agreements and collateral agreements, where possible, with bilateral derivative counterparties to mitigate the risk of default. We review our collateral positions on a daily basis and exchange collateral with our counterparties in accordance with these agreements. These bilateral agreements typically provide the right to offset exposure with the same counterparty and require the party in a net liability position to post collateral. Agreements with certain bilateral counterparties require both parties to maintain collateral in the event the fair values of derivative instruments exceed established exposure thresholds. Certain of these bilateral agreements include provisions requiring that our debt maintain a credit rating of investment grade or above by each of the major credit rating agencies. In the event of a downgrade of our debt credit rating below investment grade, some of our counterparties would have the right to terminate their derivative contract and close out ~~the~~ existing positions.

Credit Risk Valuation Adjustments

We record counterparty credit ~~risk~~ valuation adjustments (“CVAs”) on our derivative ~~contracts~~assets to ~~properly~~ reflect the credit quality of ~~the counterparty.~~our counterparties. We consider collateral and legally enforceable master netting agreements that mitigate our credit exposure to each counterparty in determining ~~the counterparty credit risk valuation adjustment,~~CVAs, which may be adjusted in future periods due to changes in the fair ~~value~~values of the derivative contracts, collateral, and creditworthiness of the counterparty. We also record debit valuation adjustments (“DVAs”) to adjust the fair ~~value~~values of our derivative liabilities to reflect the impact of our own credit quality. ~~We calculate this adjustment by comparing the spreads on our credit default swaps to the discount benchmark curve.~~

~~Accounting for Derivatives~~

Our derivatives are designated as either qualifying accounting hedges or free-standing derivatives. Qualifying accounting hedges are designated as fair value hedges, cash flow hedges or net investment hedges. Free-standing derivatives primarily consist of customer accommodation derivatives and economic hedges that do not qualify for hedge accounting.


•	~~Fair Value Hedges:~~ We designate derivatives as fair value hedges when they are used to manage our exposure to changes in the fair value of certain financial assets and liabilities, which fluctuate in value as a result of movements in interest rates. Changes in the fair value of derivatives designated as fair value hedges are recorded and presented in the same line item as




	~~103~~	~~Capital One Financial Corporation (COF)~~

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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

the earnings effect of the hedged item on our consolidated statements of income. Our fair value hedges consist of interest rate swaps that are intended to modify our exposure to interest rate risk on various fixed-rate assets and liabilities.

•

~~Cash Flow Hedges:~~ We designate derivatives as cash flow hedges when they are used to manage our exposure to variability in cash flows related to forecasted transactions. Changes in the fair value of derivatives designated as cash flow hedges are recorded as a component of AOCI. Those amounts are reclassified into earnings in the same period or periods during which the forecasted transactions impact earnings and are presented in the same line item on our consolidated statements of income as the earnings effect of the hedged items. Our cash flow hedges use interest rate swaps and floors that are intended to hedge the variability in interest receipts or interest payments on some of our variable-rate assets or liabilities. We also enter into foreign currency forward derivative contracts to hedge our exposure to variability in cash flows related to intercompany borrowings denominated in a foreign currency.

•

~~Net Investment Hedges:~~ We use net investment hedges to manage the foreign currency exposure related to our net investments in foreign operations that have functional currencies other than the U.S. dollar. Changes in the fair value of net investment hedges are recorded in the translation adjustment component of AOCI, offsetting the translation gain or loss from those foreign operations. We execute net investment hedges using foreign exchange forward contracts to hedge the translation exposure of the net investment in our foreign operations under the forward method.

•

~~Free-Standing Derivatives:~~ Our free-standing derivatives primarily consist of our customer accommodation derivatives and other economic hedges. The customer accommodation derivatives and the related offsetting contracts are mainly interest rate and commodity contracts. We use derivatives to economically hedge the risk of changes in the fair value of mortgage loan origination and purchase commitments as well as other interests held. Changes in the fair value of free-standing derivatives are recorded in earnings as a component of other non-interest income.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Balance Sheet Presentation

The following table summarizes the notional amounts and fair values of our derivative instruments as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, which are segregated by derivatives that are designated as accounting hedges and those that are not, and are further segregated by type of contract within those two categories. The total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and any associated cash collateral received or pledged. Derivative assets and liabilities are included in other assets and other liabilities, respectively, on our consolidated balance ~~sheets.~~sheets, and their related gains or losses are included in operating activities as changes in other assets and other liabilities in the consolidated statements of cash flows.

Table 9.1: Derivative Assets and Liabilities at Fair Value


		September 30, 2018								December 31, 2017									September 30, 2019								December 31, 2018
		Notional or Contractual Amount		Derivative⁽¹⁾⁽⁴⁾						Notional or Contractual Amount		Derivative⁽¹⁾							Notional or Contractual Amount		Derivative⁽¹⁾						Notional or Contractual Amount		Derivative⁽¹⁾
(Dollars in millions)				Assets			Liabilities					Assets			Liabilities						Assets			Liabilities					Assets			Liabilities
Derivatives designated as accounting hedges:
Interest rate contracts:
Fair value hedges		$	59,615	$	48		$	16		$	56,604	$	102		$	164			$	59,208	$	9		$	34		$	53,413	$	64		$	28
Cash flow hedges		76,650		11			108			77,300		30			125				90,451		433			10			81,200		83			70
Total interest rate contracts		136,265		59			124			133,904		132			289				149,659		442			44			134,613		147			98
Foreign exchange contracts:
Fair value hedges																			1,362		2			20			0		0			0
Cash flow hedges		5,800		50			41			6,086		19			75				5,583		31			36			5,745		184			2
Net investment hedges		2,559		104			3			3,036		1			164				2,640		78			0			2,607		178			0
Total foreign exchange contracts		8,359		154			44			9,122		20			239				9,585		111			56			8,352		362			2
Total derivatives designated as accounting hedges		144,624		213			168			143,026		152			528				159,244		553			100			142,965		509			100
Derivatives not designated as accounting hedges:
Customer accommodation:
Interest rate contracts		48,205		131			437			39,429		316			221				57,080		677			119			49,386		190			256
Commodity contracts		10,129		1,048			1,031			8,111		518			496				14,330		988			941			10,673		797			786
Foreign exchange and other contracts		1,565		14			12			980		14			10				2,720		37			30			1,418		12			11
Total customer accommodation		59,899		1,193			1,480			48,520		848			727				74,130		1,702			1,090			61,477		999			1,053
Other interest rate exposures⁽²⁾		6,744		35			10			3,857		40			8				6,843		55			55			6,427		29			36
Other contracts		1,252		0			11			1,209		0			5				3,552		67			20			1,636		2			12
Total derivatives not designated as accounting hedges		67,895		1,228			1,501			53,586		888			740				84,525		1,824			1,165			69,540		1,030			1,101
Total derivatives		$	212,519	$	1,441		$	1,669		$	196,612	$	1,040		$	1,268			$	243,769	$	2,377		$	1,265		$	212,505	$	1,539		$	1,201
Less: netting adjustment⁽³⁾	Less: netting adjustment⁽³⁾			(436		)	(990		)			(275		)	(662		)	Less: netting adjustment⁽³⁾			(1,173		)	(378		)			(1,079		)	(287		)
Total derivative assets/liabilities	Total derivative assets/liabilities			$	1,005		$	679				$	765		$	606		Total derivative assets/liabilities			$	1,204		$	887				$	460		$	914

__________

⁽¹⁾

~~Derivative assets and liabilities presented above exclude valuation adjustments related to non-performance risk. As of September 30, 2018 and December 31, 2017, the cumulative CVA balances were $5~~

Does not reflect $9 million and $2 million ~~respectively,~~recognized as a net valuation allowance on derivative assets and ~~the cumulative DVA balances were less than $1 million~~liabilities for non-performance risk as of ~~both~~ September 30, ~~2018~~ 2019andDecember 31, ~~2017.~~2018, respectively. Non-performance risk is included in derivative assets and liabilities, which are part of other assets and liabilities on the consolidated balance sheets, and is offset through non-interest income in the consolidated statements of income.


⁽²⁾	Other interest rate exposures include commercial mortgage-related derivatives and interest rate ~~swaps and to-be-announced derivatives.~~swaps.


⁽³⁾	Represents balance sheet netting of derivative assets and liabilities, and related payables and receivables for cash collateral held or placed with the same counterparty.


⁽⁴⁾	Reflects a reduction in derivative assets of $640 million and a reduction in derivative liabilities of $724 million on our consolidated balance sheets as a result of adopting the LCH variation margin rule change in the first quarter of 2018.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the carrying value of our hedged assets and liabilities in fair value hedges and the associated cumulative basis adjustments included in those carrying values, excluding basis adjustments related to foreign currency risk, as of September 30, 2019 and December 31, 2018.

Table 9.2: Hedged Items in Fair Value Hedging Relationships


	September 30, 2018											September 30, 2019										December 31, 2018
	Carrying Amount Assets/(Liabilities)				Cumulative Amount of Basis Adjustments Included in the Carrying Amount							Carrying Amount Assets/(Liabilities)				Cumulative Amount of Basis Adjustments Included in the Carrying Amount						Carrying Amount Assets/(Liabilities)				Cumulative Amount of Basis Adjustments Included in the Carrying Amount
(Dollars in millions)				Total Assets/(Liabilities)				Discontinued-Hedging Relationships							Total Assets/(Liabilities)				Discontinued-Hedging Relationships						Total Assets/(Liabilities)				Discontinued-Hedging Relationships
Line item on our consolidated balance sheets in which the hedged item is included:
Investment securities available for sale⁽¹⁾⁽²⁾	$	15,653			$	(246	)		$	(2	)	$	12,864			$	399			$	24	$	14,067			$	(6	)		$	(2	)
Interest-bearing deposits	(13,436		)		398				0			(15,292		)		(42		)		0		(13,101		)		247				0
Securitized debt obligations	(7,130		)		248				109			(10,249		)		3				78		(5,887		)		168				143
Senior and subordinated notes	(27,170		)		802				393			(27,201		)		(774		)		294		(23,572		)		315				392

__________

⁽¹⁾

These amounts include the amortized cost basis of our investment securities designated in hedging relationships for which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. ~~As of September 30, 2018, the~~The amortized cost basis of this portfolio was ~~$10.1~~$8.2 billion and $8.3 billion, the amount of the designated hedged items was ~~$4.4~~$3.8 billion and $4.0 billion, and the cumulative basis adjustment associated with these hedges was ~~$59 million.~~$141 million and $26 million as of September 30, 2019 and December 31, 2018, respectively.


⁽²⁾	Carrying value represents amortized cost.

Balance Sheet Offsetting of Financial Assets and Liabilities

Derivative contracts and repurchase agreements that we execute bilaterally in the OTC market are generally governed by enforceable master netting arrangements where we generally have the right to offset exposure with the same counterparty. Either counterparty can generally request to net settle all contracts through a single payment upon default on, or termination of, any one contract. We elect to offset the derivative assets and liabilities under netting arrangements for balance sheet presentation where a right of setoff exists. For derivative contracts entered into under master netting arrangements for which we have not been able to confirm the enforceability of the setoff rights, or those not subject to master netting arrangements, we do not offset our derivative positions for balance sheet presentation.

We also maintain collateral agreements with certain derivative counterparties. For bilateral derivatives, we review our collateral positions on a daily basis and exchange collateral with our counterparties in accordance with standard International Swaps and Derivatives Association documentation and other related agreements. Agreements with certain bilateral counterparties require both parties to maintain collateral in the event the fair values of derivative instruments exceed established exposure thresholds. For centrally cleared derivatives, we are subject to initial margin posting and daily variation margin settlement with the central clearinghouses. Acceptable types of collateral are typically in the form of cash or high quality liquid securities.

The exchange of collateral is dependent upon the fair value of the derivative instruments as well as the fair value of the pledged collateral. When valuing collateral, an estimate of the variation in price and liquidity over time is subtracted in the form of a “haircut” to discount the value of the collateral pledged.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents ~~as of September 30, 2018 and December 31, 2017~~ the gross and net fair values of our derivative assets, ~~and~~derivative liabilities, ~~and~~ repurchase agreements ~~as well as~~and the related offsetting amounts permitted under U.S. ~~GAAP.~~GAAP as of September 30, 2019 and December 31, 2018. The table also includes cash and non-cash collateral received or pledged ~~associated~~in accordance with such arrangements. The amount of collateral ~~amounts shown are~~presented, however, is limited to the ~~extent~~amount of the related net derivative fair values or outstanding ~~balances, thus~~balances; therefore, instances of over-collateralization are ~~not shown.~~excluded.

Table 9.3: Offsetting of Financial Assets and Financial Liabilities

Gross
Amounts
Gross Amounts Offset in the Balance Sheet Net Amounts as Recognized Securities Collateral Held Under Master Netting Agreements
(Dollars in millions)
Financial
Instruments
Cash Collateral Received
Net
Exposure
As of September 30, 2018
Derivative assets⁽¹⁾⁽²⁾
$ 1,441
$ (230 ) $ (206 ) $ 1,005
$ 0
$ 1,005
As of December 31, 2017
Derivative assets⁽¹⁾
1,040
(202 ) (73 ) 765
0
765



	Gross Amounts		Gross Amounts Offset in the Balance Sheet						Net Amounts as Recognized		Securities Collateral Held Under Master Netting Agreements
(Dollars in millions)	Gross Amounts		Financial Instruments			Cash Collateral Received			Net Amounts as Recognized		Securities Collateral Held Under Master Netting Agreements		Net Exposure
As of September 30, 2019
Derivative assets⁽¹⁾	$	2,377	$	(333	)	$	(840	)	$	1,204	$	0	$	1,204
As of December 31, 2018
Derivative assets⁽¹⁾	1,539		(205		)	(874		)	460		0		460


	Gross Amounts			Gross Amounts Offset in the Balance Sheet							Net Amounts as Recognized			Securities Collateral Pledged Under Master Netting Agreements						Gross Amounts			Gross Amounts Offset in the Balance Sheet								Net Amounts as Recognized			Securities Collateral Pledged Under Master Netting Agreements
(Dollars in millions)			Financial Instruments				Cash Collateral Pledged						Net Exposure					Financial Instruments					Cash Collateral Pledged						Net Exposure
As of September 30, 2018
As of September 30, 2019
Derivative liabilities⁽²⁾⁽¹⁾	$	1,669		$	(230	)		$	(760	)	$	679			$	0		$	679		$	1,265		$	(333	)		$	(45	)		$	887		$	0		$	887
Repurchase agreements⁽³⁾⁽²⁾	384			0				0			384			(384		)	0			363			0				0				363			(363		)	0
As of December 31, 2017
As of December 31, 2018
Derivative liabilities⁽¹⁾	1,268			(202		)		(460		)	606			0			606			1,201			(205		)		(82		)		914			0			914
Repurchase agreements(2)	576			0				0			576			(576		)	0			352			0				0				352			(352		)	0

__________

⁽¹⁾

We received cash collateral from derivative counterparties totaling ~~$242~~$891 million and ~~$91~~$925 million as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. We also received securities from derivative counterparties with a fair value of approximately $1 million as of both September 30, ~~2018~~2019 and December 31, ~~2017, respectively,~~2018, which we have the ability to re-pledge. We posted ~~$1.3 billion~~$858 million and ~~$966~~$633 million of cash collateral as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.


⁽²⁾	~~Reflects a reduction in derivative assets of$640 millionand a reduction in derivative liabilities of $724 million on our consolidated balance sheets as a result of adopting the LCH variation margin rule change in the first quarter of 2018.~~


⁽³⁾	Represents customer repurchase agreements that mature the next business day. As of September 30, 2019 and December 31, 2018, we pledged collateral with a fair value of ~~$392~~$371 million and $359 million, respectively, under these customer repurchase agreements, which were primarily agency RMBS securities.

Income Statement and AOCI Presentation

Fair Value and Cash Flow Hedges

The net gains (losses) recognized in our consolidated statements of income related to derivatives in fair value and cash flow hedging relationships are presented below for the three and nine months ended September 30, ~~2018~~2019 and ~~2017. Prior period amounts were not reclassified to conform to the current period presentation.~~2018.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Table 9.4: Effects of Fair Value and Cash Flow Hedge Accounting

Three Months Ended September 30, 2018
Net Interest Income Non-Interest Income
(Dollars in millions) Investment Securities Loans, Including Loans Held for Sale Other Deposits Securitized Debt Obligations Senior and Subordinated Notes Other
Total amounts presented in our consolidated statements of income $ 593
$ 6,247
$ 55
$ (681 ) $ (127 ) $ (288 ) $ 248
Fair value hedging relationships:
Interest rate contracts:
Interest recognized on derivatives (5 ) 0
0
(25 ) (21 ) (8 ) 0
Gains (losses) recognized on derivatives 77
0
0
(14 ) (4 ) (148 ) 0
Gains (losses) recognized on hedged items⁽¹⁾
(79 ) 0
0
16
5
136
0
Net income (expense) recognized on fair value hedges (7 ) 0
0
(23 ) (20 ) (20 ) 0
Cash flow hedging relationships:⁽²⁾

Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income (5 ) (31 ) 0
0
0
0
0
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income 0
0
14
0
0
0
0
Net income (expense) recognized on cash flow hedges $ (5 ) $ (31 ) $ 14
$ 0
$ 0
$ 0
$ 0

Nine Months Ended September 30, 2018
Net Interest Income Non-Interest Income
(Dollars in millions) Investment Securities Loans, Including Loans Held for Sale Other Deposits Securitized Debt Obligations Senior and Subordinated Notes Other
Total amounts presented in our consolidated statements of income $ 1,584
$ 18,370
$ 174
$ (1,842 ) $ (358 ) $ (828 ) $ 884
Fair value hedging relationships:
Interest rate contracts:
Interest recognized on derivatives (22 ) 0
0
(48 ) (44 ) 6
0
Gains (losses) recognized on derivatives 260
0
0
(211 ) (122 ) (659 ) 0
Gains (losses) recognized on hedged items⁽¹⁾
(259 ) 0
0
203
118
610
0
Net income (expense) recognized on fair value hedges (21 ) 0
0
(56 ) (48 ) (43 ) 0
Cash flow hedging relationships:⁽²⁾

Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income (9 ) (40 ) 0
0
0
0
0
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income 0
0
33
0
0
0
(1 )
Net income (expense) recognized on cash flow hedges $ (9 ) $ (40 ) $ 33
$ 0
$ 0
$ 0
$ (1 )



	Three Months Ended September 30, 2019
	Net Interest Income																	Non-Interest Income
(Dollars in millions)	Investment Securities			Loans, Including Loans Held for Sale			Other		Interest-bearing Deposits			Securitized Debt Obligations			Senior and Subordinated Notes			Other
Total amounts presented in our consolidated statements of income	$	583		$	6,429		$	63	$	(901	)	$	(123	)	$	(299	)	$	144
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	(3	)	$	0		$	0	$	(26	)	$	(5	)	$	(3	)	$	0
Gains (losses) recognized on derivatives	(80		)	0			0		46			(10		)	216			(60		)
Gains (losses) recognized on hedged items⁽¹⁾	81			0			0		(46		)	(6		)	(261		)	58
Excluded component of fair value hedges⁽²⁾	0			0			0		0			0			(1		)	0
Net expense recognized on fair value hedges	$	(2	)	$	0		$	0	$	(26	)	$	(21	)	$	(49	)	$	(2	)
Cash flow hedging relationships:⁽³⁾
Interest rate contracts:
Realized losses reclassified from AOCI into net income	$	(1	)	$	(43	)	$	0	$	0		$	0		$	0		$	0
Foreign exchange contracts:
Realized gains reclassified from AOCI into net income⁽⁴⁾	0			0			12		0			0			0			1
Net income (expense) recognized on cash flow hedges	$	(1	)	$	(43	)	$	12	$	0		$	0		$	0		$	1




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~_________~~



	Nine Months Ended September 30, 2019
	Net Interest Income																	Non-Interest Income
(Dollars in millions)	Investment Securities			Loans, Including Loans Held for Sale			Other		Interest-bearing Deposits			Securitized Debt Obligations			Senior and Subordinated Notes			Other
Total amounts presented in our consolidated statements of income	$	1,867		$	19,180		$	196	$	(2,588	)	$	(405	)	$	(923	)	$	492
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	(2	)	$	0		$	0	$	(95	)	$	(17	)	$	(24	)	$	0
Gains (losses) recognized on derivatives	(366		)	0			0		295			102			968			(49		)
Gains (losses) recognized on hedged items⁽¹⁾	365			0			0		(289		)	(165		)	(1,092		)	48
Excluded component of fair value hedges⁽²⁾	0			0			0		0			0			(1		)	0
Net expense recognized on fair value hedges	$	(3	)	$	0		$	0	$	(89	)	$	(80	)	$	(149	)	$	(1	)
Cash flow hedging relationships:⁽³⁾
Interest rate contracts:
Realized losses reclassified from AOCI into net income	$	(8	)	$	(158	)	$	0	$	0		$	0		$	0		$	0
Foreign exchange contracts:
Realized gains reclassified from AOCI into net income⁽⁴⁾	0			0			37		0			0			0			0
Net income (expense) recognized on cash flow hedges	$	(8	)	$	(158	)	$	37	$	0		$	0		$	0		$	0




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Three Months Ended September 30, 2018
	Net Interest Income																	Non-Interest Income
(Dollars in millions)	Investment Securities			Loans, Including Loans Held for Sale			Other		Interest-bearing Deposits			Securitized Debt Obligations			Senior and Subordinated Notes			Other
Total amounts presented in our consolidated statements of income	$	593		$	6,247		$	55	$	(681	)	$	(127	)	$	(288	)	$	248
Fair value hedging relationships:
Interest rate contracts:
Interest recognized on derivatives	$	(5	)	$	0		$	0	$	(25	)	$	(21	)	$	(8	)	$	0
Gains (losses) recognized on derivatives	77			0			0		(14		)	(4		)	(148		)	0
Gains (losses) recognized on hedged items⁽¹⁾	(79		)	0			0		16			5			136			0
Net expense recognized on fair value hedges	$	(7	)	$	0		$	0	$	(23	)	$	(20	)	$	(20	)	$	0
Cash flow hedging relationships:⁽³⁾
Interest rate contracts:
Realized losses reclassified from AOCI into net income	$	(5	)	$	(31	)	$	0	$	0		$	0		$	0		$	0
Foreign exchange contracts:
Realized gains reclassified from AOCI into net income⁽⁴⁾	0			0			14		0			0			0			0
Net income (expense) recognized on cash flow hedges	$	(5	)	$	(31	)	$	14	$	0		$	0		$	0		$	0




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Nine Months Ended September 30, 2018
	Net Interest Income																	Non-Interest Income
(Dollars in millions)	Investment Securities			Loans, Including Loans Held for Sale			Other		Interest-bearing Deposits			Securitized Debt Obligations			Senior and Subordinated Notes			Other
Total amounts presented in our consolidated statements of income	$	1,584		$	18,370		$	174	$	(1,842	)	$	(358	)	$	(828	)	$	884
Fair value hedging relationships:
Interest rate contracts:
Interest recognized on derivatives	$	(22	)	$	0		$	0	$	(48	)	$	(44	)	$	6		$	0
Gains (losses) recognized on derivatives	260			0			0		(211		)	(122		)	(659		)	0
Gains (losses) recognized on hedged items⁽¹⁾	(259		)	0			0		203			118			610			0
Net expense recognized on fair value hedges	$	(21	)	$	0		$	0	$	(56	)	$	(48	)	$	(43	)	$	0
Cash flow hedging relationships:⁽³⁾
Interest rate contracts:
Realized losses reclassified from AOCI into net income	$	(9	)	$	(40	)	$	0	$	0		$	0		$	0		$	0
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income⁽⁴⁾	0			0			33		0			0			0			(1		)
Net income (expense) recognized on cash flow hedges	$	(9	)	$	(40	)	$	33	$	0		$	0		$	0		$	(1	)

__________


⁽¹⁾	Includes amortization expense of $60 million and $177 million for the three and nine months ended September 30, 2019, respectively, and amortization expense of $19 million and $25 million for the three and nine months ended September 30, 2018, respectively, related to basis adjustments ~~of the~~on discontinued hedges.


⁽²⁾	Changes in fair values of cross-currency swaps attributable to changes in cross-currency basis spreads are excluded from the assessment of hedge effectiveness and recorded in other comprehensive income. The initial value of the excluded component is recognized in earnings over the life of the swap under the amortization approach.


⁽³⁾	See “Note 10—Stockholders’ Equity” for the effects of cash flow and net investment hedges on AOCI and amounts reclassified to net income, net of tax.

(Dollars in millions) Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
Derivatives designated as fair value hedges:
Fair value interest rate contracts:
Gains (losses) recognized in net income on derivatives $ (23 ) $ 70
Gains (losses) recognized in net income on hedged items 19
(74 )
Net fair value hedge ineffectiveness gains (losses) (4 ) (4 )
Derivatives designated as cash flow hedges:
Gains (losses) reclassified from AOCI into net income:
Interest rate contracts 15
76
Foreign exchange contracts 5
13
Subtotal 20
89
Gains (losses) recognized in net income due to ineffectiveness:

Interest rate contracts 0
3
Net derivative gains (losses) recognized in net income $ 20
$ 92

⁽⁴⁾

We recognized a gain of $71 million and a loss of $224 million for the three and nine months ended September 30, 2019, respectively, and a loss of $142 million and a gain of $34 million for the three and nine months ended September 30, 2018, respectively, on foreign exchange contracts reclassified from AOCI. These amounts were largely offset by the foreign currency transaction gains (losses) on our foreign currency denominated intercompany funding included other non-interest income.

In the next 12 months, we expect to reclassify to earnings net after-tax losses of ~~$200~~$94 million recorded in AOCI as of September 30, ~~2018.~~2019. These amounts will offset the cash flows associated with the hedged forecasted transactions. The maximum length of time over which forecasted transactions were hedged was approximately 57 years as of September 30, ~~2018.~~2019. The amount we expect to reclassify into earnings may change as a result of changes in market conditions and ongoing actions taken as part of our overall risk management strategy.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Free-Standing Derivatives

The net impacts to our consolidated statements of income related to free-standing derivatives are presented below for the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018. These gains or losses are recognized in other non-interest income onin our consolidated statements of income.

Table 9.5: Gains (Losses) on Free-Standing Derivatives


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in millions)	2018			2017		2018			2017		2019			2018			2019			2018
Gains (losses) recognized in other non-interest income:
Customer accommodation:
Interest rate contracts	$	4		$	5	$	18		$	14	$	18		$	4		$	28		$	18
Commodity contracts	0			5		8			10		8			0			17			8
Foreign exchange and other contracts	1			1		5			3		3			1			10			5
Total customer accommodation	5			11		31			27		29			5			55			31
Other interest rate exposures	11			25		32			49		(1		)	11			(15		)	32
Other contracts	(2		)	0		(22		)	0		(7		)	(2		)	(9		)	(22		)
Total	$	14		$	36	$	41		$	76	$	21		$	14		$	31		$	41




	~~109~~114	Capital One Financial Corporation (COF)

Table of Contents

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10—STOCKHOLDERS’ EQUITY

Preferred Stock

The following table summarizes ~~the Company’s~~our preferred stock ~~issued and~~ outstanding as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 10.1: Preferred Stock ~~Issued and~~ Outstanding⁽¹⁾


			Redeemable by Issuer Beginning		Per Annum Dividend Rate		Dividend Frequency		Liquidation Preference per Share					Carrying Value (in millions)								Redeemable by Issuer Beginning		Per Annum Dividend Rate		Dividend Frequency		Liquidation Preference per Share				Carrying Value (in millions)
Series	Description	Issuance Date				Total Shares Outstanding			Liquidation Preference per Share		September 30, 2018			December 31, 2017		Description		Issuance Date				Redeemable by Issuer Beginning	Total Shares Outstanding			Dividend Frequency	September 30, 2019			December 31, 2018
Series B	6.00% Non-Cumulative	August 20, 2012	Redeemable by Issuer Beginning	September 1, 2017	Per Annum Dividend Rate		Dividend Frequency	6.00	%	Quarterly		$	1,000		875,000	$	853		$	853		6.00% Non-Cumulative		Per Annum Dividend Rate	August 20, 2012		September 1, 2017	Liquidation Preference per Share	6.00%		Quarterly	$	1,000	875,000		$	853	$	853
Series C	6.25% Non-Cumulative	June 12, 2014	September 1, 2019		6.25		Quarterly		1,000			500,000		484		484			6.25% Non-Cumulative		June 12, 2014	September 1, 2019		6.25		Quarterly		1,000		500,000		484		484
Series D	6.70% Non-Cumulative	October 31, 2014	December 1, 2019		6.70		Quarterly		1,000			500,000		485		485			6.70% Non-Cumulative		October 31, 2014	December 1, 2019		6.70		Quarterly		1,000		500,000		485		485
Series E	Fixed-to-Floating Rate Non-Cumulative	May 14, 2015	June 1, 2020		5.55% through 5/31/2020; 3-mo. LIBOR+ 380 bps thereafter		Semi-Annually through 5/31/2020; Quarterly thereafter		1,000			1,000,000		988		988			Fixed-to-Floating Rate Non-Cumulative		May 14, 2015	June 1, 2020		5.55% through 5/31/2020; 3-mo. LIBOR+ 380 bps thereafter		Semi-Annually through 5/31/2020; Quarterly thereafter		1,000		1,000,000		988		988
Series F	6.20% Non-Cumulative	August 24, 2015	December 1, 2020		6.20		Quarterly		1,000			500,000		484		484			6.20% Non-Cumulative		August 24, 2015	December 1, 2020		6.20		Quarterly		1,000		500,000		484		484
Series G	5.20% Non-Cumulative	July 29, 2016	December 1, 2021		5.20		Quarterly		1,000			600,000		583		583			5.20% Non-Cumulative		July 29, 2016	December 1, 2021		5.20		Quarterly		1,000		600,000		583		583
Series H	6.00% Non-Cumulative	November 29, 2016	December 1, 2021		6.00		Quarterly		1,000			500,000		483		483			6.00% Non-Cumulative		November 29, 2016	December 1, 2021		6.00		Quarterly		1,000		500,000		483		483
Series I																			5.00% Non-Cumulative		September 11, 2019	December 1, 2024		5.00		Quarterly		1,000		1,500,000		1,463		0
Total														$	4,360	$	4,360															$	5,823	$	4,360

__________


⁽¹⁾	Except for Series E, ownership is held in the form of depositary shares, each representing a 1/40th interest in a share of fixed-rate non-cumulative perpetual preferred stock.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income primarily consists of accumulated net unrealized gains or losses associated with securities available for sale and securities ~~the~~held to maturity, changes in fair value of derivatives ~~designated as cash flow hedges, unrealized gains and losses on securities held to maturity on the transfer date from the available for sale category~~in hedging relationships, and foreign currency translation adjustments. Unrealized gains ~~and~~or losses for securities held to maturity are amortized over the remaining life of the security with no expected impact on future net income as amortization of these gains or losses will be offset by the amortization of the premium or discount created from the transfer of securities from available ~~for~~to sale to held to maturity.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table includes the AOCI impacts from the adoption of accounting standards and the changes in AOCI by component for the three and nine months ended September 30, ~~2018~~2019 and ~~2017. See “Note 1—Summary of Significant Accounting Policies” for more information.~~2018.

Table 10.2: Accumulated Other Comprehensive Income (Loss)


	Three Months Ended September 30, 2018																		Three Months Ended September 30, 2019
(Dollars in millions)	Securities Available for Sale			Securities Held to Maturity			Cash Flow Hedges			Foreign Currency Translation Adjustments⁽¹⁾			Other			Total			Securities Available for Sale			Securities Held to Maturity			Hedging Relationships⁽¹⁾			Foreign Currency Translation Adjustments⁽²⁾			Other			Total
AOCI as of June 30, 2018	$	(630	)	$	(204	)	$	(775	)	$	(155	)	$	(29	)	$	(1,793	)
AOCI as of June 30, 2019																			$	125		$	(178	)	$	396		$	(132	)	$	(41	)	$	170
Other comprehensive income (loss) before reclassifications	(172		)	0			(99		)	13			(1		)	(259		)	103			0			218			(12		)	0			309
Amounts reclassified from AOCI into earnings	149			8			18			0			0			175			(3		)	8			(29		)	0			(2		)	(26		)
Net other comprehensive income (loss)	(23		)	8			(81		)	13			(1		)	(84		)
AOCI as of September 30, 2018	$	(653	)	$	(196	)	$	(856	)	$	(142	)	$	(30	)	$	(1,877	)
Other comprehensive income (loss), net of tax																			100			8			189			(12		)	(2		)	283
AOCI as of September 30, 2019																			$	225		$	(170	)	$	585		$	(144	)	$	(43	)	$	453



	Nine Months Ended September 30, 2019
(Dollars in millions)	Securities Available for Sale			Securities Held to Maturity			Hedging Relationships⁽¹⁾			Foreign Currency Translation Adjustments⁽²⁾			Other			Total
AOCI as of December 31, 2018	$	(439	)	$	(190	)	$	(418	)	$	(177	)	$	(39	)	$	(1,263	)
Other comprehensive income (loss) before reclassifications	697			0			735			33			(1		)	1,464
Amounts reclassified from AOCI into earnings	(33		)	20			268			0			(3		)	252
Other comprehensive income (loss), net of tax	664			20			1,003			33			(4		)	1,716
AOCI as of September 30, 2019	$	225		$	(170	)	$	585		$	(144	)	$	(43	)	$	453

Nine Months Ended September 30, 2018
(Dollars in millions) Securities Available for Sale Securities Held to Maturity Cash Flow Hedges
Foreign Currency Translation Adjustments⁽¹⁾
Other Total
AOCI as of December 31, 2017 $ 17
$ (524 ) $ (281 ) $ (138 ) $ 0
$ (926 )
Cumulative effects from adoption of new accounting standards 3
(113 ) (63 ) 0
(28 ) (201 )
Transfer of securities held to maturity to available for sale⁽²⁾
(325 ) 407
0
0
0
82
Other comprehensive loss before reclassifications (491 ) 0
(525 ) (4 ) 0
(1,020 )
Amounts reclassified from AOCI into earnings 143
34
13
0
(2 ) 188
Net other comprehensive income (loss) (673 ) 441
(512 ) (4 ) (2 ) (750 )
AOCI as of September 30, 2018 $ (653 ) $ (196 ) $ (856 ) $ (142 ) $ (30 ) $ (1,877 )



	Three Months Ended September 30, 2018
(Dollars in millions)	Securities Available for Sale			Securities Held to Maturity			Cash Flow Hedges			Foreign Currency Translation Adjustments⁽²⁾			Other			Total
AOCI as of June 30, 2018	$	(630	)	$	(204	)	$	(775	)	$	(155	)	$	(29	)	$	(1,793	)
Other comprehensive income (loss) before reclassifications	(172		)	0			(206		)	13			(1		)	(366		)
Amounts reclassified from AOCI into earnings	149			8			125			0			0			282
Other comprehensive income (loss), net of tax	(23		)	8			(81		)	13			(1		)	(84		)
AOCI as of September 30, 2018	$	(653	)	$	(196	)	$	(856	)	$	(142	)	$	(30	)	$	(1,877	)

Three Months Ended September 30, 2017
(Dollars in millions) Securities Available for Sale Securities Held to Maturity Cash Flow Hedges
Foreign Currency Translation Adjustments⁽¹⁾
Other Total
AOCI as of June 30, 2017 $ 181
$ (575 ) $ (99 ) $ (174 ) $ (16 ) $ (683 )
Other comprehensive income before reclassifications 52
0
3
38
5
98
Amounts reclassified from AOCI into earnings (42 ) 26
(20 ) 0
(1 ) (37 )
Net other comprehensive income (loss) 10
26
(17 ) 38
4
61
AOCI as of September 30, 2017 $ 191
$ (549 ) $ (116 ) $ (136 ) $ (12 ) $ (622 )



	Nine Months Ended September 30, 2018
(Dollars in millions)	Securities Available for Sale			Securities Held to Maturity			Cash Flow Hedges			Foreign Currency Translation Adjustments⁽²⁾			Other			Total
AOCI as of December 31, 2017	$	17		$	(524	)	$	(281	)	$	(138	)	$	0		$	(926	)
Cumulative effects from adoption of new accounting standards	3			(113		)	(63		)	0			(28		)	(201		)
Transfer of securities held to maturity to available for sale⁽³⁾	(325		)	407			0			0			0			82
Other comprehensive loss before reclassifications	(491		)	0			(498		)	(4		)	0			(993		)
Amounts reclassified from AOCI into earnings	143			34			(14		)	0			(2		)	161
Other comprehensive income (loss), net of tax	(673		)	441			(512		)	(4		)	(2		)	(750		)
AOCI as of September 30, 2018	$	(653	)	$	(196	)	$	(856	)	$	(142	)	$	(30	)	$	(1,877	)

Nine Months Ended September 30, 2017
(Dollars in millions) Securities Available for Sale Securities Held to Maturity Cash Flow Hedges
Foreign Currency Translation Adjustments⁽¹⁾
Other Total
AOCI as of December 31, 2016 $ (4 ) $ (621 ) $ (78 ) $ (222 ) $ (24 ) $ (949 )
Other comprehensive income before reclassifications 235
0
51
86
16
388
Amounts reclassified from AOCI into earnings (40 ) 72
(89 ) 0
(4 ) (61 )
Net other comprehensive income (loss) 195
72
(38 ) 86
12
327
AOCI as of September 30, 2017 $ 191
$ (549 ) $ (116 ) $ (136 ) $ (12 ) $ (622 )
__________


⁽¹⁾	Includes amounts related to cash flow hedges as well as the excluded component of cross-currency swaps designated as fair value hedges where changes in cross-currency basis spreads are excluded from the assessment of hedge effectiveness.


⁽²⁾	Includes other comprehensive gains of $67 million and $86 millionfor the three and nine months ended September 30, 2019, respectively,and other comprehensive gains of $28 million and $91 million for the three and nine months ended September 30, 2018, respectively, from hedging instruments designated as net investment hedges.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~__________~~


⁽¹⁾⁽³⁾	Includes other comprehensive gain of $28 million and loss of $49 million for the three months ended September 30, 2018 and 2017, respectively, and other comprehensive gain of $91 million and loss of $129 million for the nine months ended September 30, 2018 and 2017, respectively, from hedging instruments designated as net investment hedges.


⁽²⁾	In the first quarter of 2018, we made a one-time transfer of held to maturity securities with a carrying value of $9.0 billion to available for sale as a result of our adoption of ASU No. ~~2017-12.~~2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This transfer resulted in an after-tax gain of $82 million ($107 million pre-tax) to AOCI.

The following table presents ~~the impacts on net income of~~ amounts reclassified from each component of AOCI to our consolidated statements of income for the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.

Table 10.3: Reclassifications from AOCI


			Amount Reclassified from AOCI
(Dollars in millions)			Three Months Ended September 30,						Nine Months Ended September 30,								Three Months Ended September 30,						Nine Months Ended September 30,
AOCI Components		Affected Income Statement Line Item	2018			2017			2018			2017				Affected Income Statement Line Item	2019			2018			2019			2018
Securities available for sale:
		Non-interest income	$	(196	)	$	68		$	(188	)	$	64			Non-interest income	$	5		$	(196	)	$	44		$	(188	)
		Income tax provision (benefit)	(47		)	26			(45		)	24				Income tax provision	2			(47		)	11			(45		)
		Net income/(loss)	(149		)	42			(143		)	40				Net income	3			(149		)	33			(143		)
Securities held to maturity:⁽¹⁾
		Interest income	(10		)	(40		)	(44		)	(113		)		Interest income	(10		)	(10		)	(26		)	(44		)
		Income tax benefit	(2		)	(14		)	(10		)	(41		)		Income tax provision	(2		)	(2		)	(6		)	(10		)
		Net loss	(8		)	(26		)	(34		)	(72		)		Net income	(8		)	(8		)	(20		)	(34		)
Cash flow hedges:
Hedging relationships:
Interest rate contracts:		Interest income	(36		)	25			(49		)	122				Interest income	(44		)	(36		)	(166		)	(49		)
Foreign exchange contracts:		Interest income	13			6			33			19				Interest income	12			13			37			33
																Interest expense	(1		)	0			(1		)	0
		Non-interest income	0			1			(1		)	1				Non-interest income	71			(142		)	(224		)	34
		Income (loss) from continuing operations before income taxes	(23		)	32			(17		)	142				Income from continuing operations before income taxes	38			(165		)	(354		)	18
		Income tax provision (benefit)	(5		)	12			(4		)	53				Income tax provision	9			(40		)	(86		)	4
		Net income/(loss)	(18		)	20			(13		)	89				Net income	29			(125		)	(268		)	14
Other:
		Non-interest income and non-interest expense	1			3			3			7				Non-interest income and non-interest expense	3			1			4			3
		Income tax provision	1			2			1			3				Income tax provision	1			1			1			1
		Net income	0			1			2			4				Net income	2			0			3			2
Total reclassifications	Total reclassifications		$	(175	)	$	37		$	(188	)	$	61		Total reclassifications		$	26		$	(282	)	$	(252	)	$	(161	)

__________

~~__________~~

⁽¹⁾

The amortization of unrealized holding gains or losses reported in AOCI for securities held to maturity will be offset by the amortization of premium or discount created from the transfer of securities from available for sale to held to maturity, which occurred at fair value. These unrealized gains or losses will be amortized over the remaining life of the security with no expected impact on future net income.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below summarizes other comprehensive income (loss) activity and the related tax impact for the three and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.

Table 10.4: Other Comprehensive Income (Loss)


	Three Months Ended September 30,																		Three Months Ended September 30,
	2018									2017									2019								2018
(Dollars in millions)	Before Tax			Provision (Benefit)			After Tax			Before Tax			Provision (Benefit)			After Tax			Before Tax			Provision (Benefit)		After Tax			Before Tax			Provision (Benefit)			After Tax
Other comprehensive income (loss):
Net unrealized gains (losses) on securities available for sale	$	(31	)	$	(8	)	$	(23	)	$	16		$	6		$	10		$	132		$	32	$	100		$	(31	)	$	(8	)	$	(23	)
Net changes in securities held to maturity	10			2			8			40			14			26			10			2		8			10			2			8
Net unrealized losses on cash flow hedges	(107		)	(26		)	(81		)	(29		)	(12		)	(17		)
Net unrealized gains (losses) on hedging relationships																			249			60		189			(107		)	(26		)	(81		)
Foreign currency translation adjustments⁽¹⁾	22			9			13			11			(27		)	38			9			21		(12		)	22			9			13
Other	(1		)	0			(1		)	7			3			4			(2		)	0		(2		)	(1		)	0			(1		)
Other comprehensive income (loss)	$	(107	)	$	(23	)	$	(84	)	$	45		$	(16	)	$	61		$	398		$	115	$	283		$	(107	)	$	(23	)	$	(84	)

Nine Months Ended September 30,
2018 2017
(Dollars in millions)
Before
Tax
Provision
(Benefit)
After
Tax

Before
Tax
Provision
(Benefit)
After
Tax
Other comprehensive income (loss):
Net unrealized gains (losses) on securities available for sale $ (888 ) $ (215 ) $ (673 ) $ 299
$ 104
$ 195
Net changes in securities held to maturity 579
138
441
113
41
72
Net unrealized losses on cash flow hedges (674 ) (162 ) (512 ) (61 ) (23 ) (38 )
Foreign currency translation adjustments⁽¹⁾
25
29
(4 ) 12
(74 ) 86
Other (3 ) (1 ) (2 ) 19
7
12
Other comprehensive income (loss) $ (961 ) $ (211 ) $ (750 ) $ 382
$ 55
$ 327



	Nine Months Ended September 30,
	2019									2018
(Dollars in millions)	Before Tax			Provision (Benefit)			After Tax			Before Tax			Provision (Benefit)			After Tax
Other comprehensive income (loss):
Net unrealized gains (losses) on securities available for sale	$	874		$	210		$	664		$	(888	)	$	(215	)	$	(673	)
Net changes in securities held to maturity	26			6			20			579			138			441
Net unrealized gains (losses) on hedging relationships	1,322			319			1,003			(674		)	(162		)	(512		)
Foreign currency translation adjustments⁽¹⁾	61			28			33			25			29			(4		)
Other	(5		)	(1		)	(4		)	(3		)	(1		)	(2		)
Other comprehensive income (loss)	$	2,278		$	562		$	1,716		$	(961	)	$	(211	)	$	(750	)

__________


⁽¹⁾	Includes the impact ~~from~~of hedging instruments designated as net investment hedges.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11—EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per common share.

Table 11.1: Computation of Basic and Diluted Earnings per Common Share


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars and shares in millions, except per share data)	2018			2017			2018			2017			2019			2018			2019			2018
Income from continuing operations, net of tax	$	1,501		$	1,137		$	4,761		$	2,979		$	1,329		$	1,501		$	4,355		$	4,761
Income (loss) from discontinued operations, net of tax	1			(30		)	(7		)	(26		)	4			1			15			(7		)
Net income	1,502			1,107			4,754			2,953			1,333			1,502			4,370			4,754
Dividends and undistributed earnings allocated to participating securities	(9		)	(8		)	(32		)	(21		)	(10		)	(9		)	(34		)	(32		)
Preferred stock dividends	(53		)	(52		)	(185		)	(185		)	(53		)	(53		)	(185		)	(185		)
Net income available to common stockholders	$	1,440		$	1,047		$	4,537		$	2,747		$	1,270		$	1,440		$	4,151		$	4,537

Total weighted-average basic shares outstanding	477.8			484.9			483.2			483.7			469.5			477.8			469.9			483.2
Effect of dilutive securities:
Stock options	1.5			2.2			1.8			2.5			1.3			1.5			1.2			1.8
Other contingently issuable shares	1.1			1.2			1.1			1.2			1.0			1.1			1.0			1.1
Warrants⁽¹⁾	0.5			0.7			0.6			0.7			0.0			0.5			0.0			0.6
Total effect of dilutive securities	3.1			4.1			3.5			4.4			2.3			3.1			2.2			3.5
Total weighted-average diluted shares outstanding	480.9			489.0			486.7			488.1			471.8			480.9			472.1			486.7
Basic earnings per common share:
Net income from continuing operations	$	3.01		$	2.22		$	9.40		$	5.73		$	2.70		$	3.01		$	8.80		$	9.40
Loss from discontinued operations	0.00			(0.06		)	(0.01		)	(0.05		)
Income (loss) from discontinued operations													0.01			0.00			0.03			(0.01		)
Net income per basic common share	$	3.01		$	2.16		$	9.39		$	5.68		$	2.71		$	3.01		$	8.83		$	9.39
Diluted earnings per common share:⁽²⁾
Net income from continuing operations	$	2.99		$	2.20		$	9.33		$	5.68		$	2.68		$	2.99		$	8.76		$	9.33
Loss from discontinued operations	0.00			(0.06		)	(0.01		)	(0.05		)
Income (loss) from discontinued operations													0.01			0.00			0.03			(0.01		)
Net income per diluted common share	$	2.99		$	2.14		$	9.32		$	5.63		$	2.69		$	2.99		$	8.79		$	9.32

__________


⁽¹⁾	Represents warrants issued as part of the U.S. Department of Treasury’s Troubled Assets Relief ~~Program. There were 836 thousand and 1.4 million warrants to purchase common stock outstanding as of September 30, 2018 and 2017, respectively.~~Program which had all been exercised or expired on November 14, 2018.

⁽²⁾

~~There were no anti-dilutive shares excluded from the computation of dilutes earnings per share for the three months ended September 30, 2018.~~ Excluded from the computation of diluted earnings per share were 92 thousand shares related to options with an exercise price of $86.34 for the nine months ended September 30, 2019, and 44 thousand shares related to awards for the nine months ended September 30, 2018, because their inclusion would be anti-dilutive. Also excluded from the computation of diluted earnings per share were 304 thousand shares related to options with exercise prices ranging from $82.08 to $86.34, and 279 thousand shares related to options with exercise prices ranging from $82.08 to $86.34 for the three and nine months ended September 30, 2017, respectively.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12—FAIR VALUE MEASUREMENT

Fair value, also referred to as an exit price, is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level fair value hierarchy for classifying financial instruments. This hierarchy is based on the markets in which the assets or liabilities trade and whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. The fair value measurement of a financial asset or liability is assigned a level based on the lowest level of any input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are described below:



Level 1:		Valuation is based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2:		Valuation is based on observable market-based inputs other than Level 1 prices, such as quoted ~~price~~prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3:		Valuation is generated from techniques that use significant assumptions not observable in the market. Valuation techniques include pricing models, discounted cash flow methodologies or similar techniques.

The accounting guidance for fair value measurements requires that we maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The accounting guidance provides for the irrevocable option to elect, on a contract-by-contract basis, to measure certain financial assets and liabilities at fair value at inception of the contract and record any subsequent changes in fair value in earnings. We have not made any material fair value option elections as of or for the periods disclosed herein.

The determination and classification of financial instruments in the fair value hierarchy is performed at the end of each reporting period. We consider all available information, including observable market data, indications of market liquidity and orderliness, and our understanding of the valuation techniques and significant inputs. For additional information on the valuation techniques used in estimating the fair value of our financial assets and liabilities on a recurring ~~or nonrecurring~~ basis, ~~and for estimating the fair value for financial instruments that are not recorded at fair value,~~ see “Note 17—Fair Value Measurement” in our ~~2017~~2018 Form 10-K.

Fair Value Governance and Control

We have a governance framework and a number of key controls that are intended to ensure that our fair value measurements are appropriate and reliable. Our governance framework provides for independent oversight and segregation of duties. Our control processes include review and approval of new transaction types, price verification, and review of valuation judgments, methods, models, process controls and results.

Groups independent of our trading and investing functions participate in the review and validation process. Tasks performed by these groups include periodic verification of fair value measurements to determine if assigned fair values are reasonable, including comparing prices from vendor pricing services to other available market information.

Our Fair Value Committee (“FVC”), which includes representation from business areas, Risk Management and Finance, ~~divisions,~~ provides guidance and oversight to ensure an appropriate valuation control environment. The FVC regularly reviews and approves our fair valuations to ensure that our valuation practices are consistent with industry standards and adhere to regulatory and accounting guidance.

We have a model policy, established by an independent Model Risk Office, which governs the validation of models and related supporting documentation to ensure the appropriate use of models for pricing and fair value measurements. The Model Risk Office validates all models and provides ongoing monitoring of their performance.

The fair value governance process is set up in a manner that allows the Chairperson of the FVC to escalate valuation disputes that cannot be resolved by the FVC to a more senior committee called the Valuations Advisory Committee (“VAC”) for resolution. The VAC is chaired by the Chief Financial Officer and includes other members of senior management. The VAC ~~is only required to convene~~convenes to review escalated valuation disputes.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table displays our assets and liabilities measured on our consolidated balance sheets at fair value on a recurring basis as of September 30, ~~2018~~2019 and December 31, ~~2017. During the nine months ended September 30, 2018, we had minimal movements between Levels 1 and 2.~~2018.

Table 12.1: Assets and Liabilities Measured at Fair Value on a Recurring Basis


	September 30, 2018													September 30, 2019
	Fair Value Measurements Using						Netting Adjustments⁽¹⁾							Fair Value Measurements Using								Netting Adjustments⁽¹⁾
(Dollars in millions)	Level 1		Level 2		Level 3					Total			Level 1			Level 2			Level 3			Netting Adjustments⁽¹⁾			Total
Assets:							Netting Adjustments⁽¹⁾
Securities available for sale:
U.S. Treasury securities	$	6,008	$	0	$	0	—				$	6,008		$	4,155		$	0		$	0	—				$	4,155
RMBS	0		34,346		519		—				34,865			0			34,873			452		—				35,325
CMBS	0		4,912		11		—				4,923			0			5,388			8		—				5,396
Other ABS	0		275		0		—				275
Other securities	190		1,123		0		—				1,313			189			1,103			0		—				1,292
Total securities available for sale	6,198		40,656		530		—				47,384			4,344			41,364			460		—				46,168
Other assets:
Derivative assets⁽²⁾	0		1,387		54		$	(436	)		1,005			25			2,270			82		$	(1,173	)		1,204
Other⁽³⁾	293		0		162		—				455			321			0			107		—				428
Total assets	$	6,491	$	42,043	$	746	$	(436	)		$	48,844		$	4,690		$	43,634		$	649	$	(1,173	)		$	47,800
Liabilities:
Other liabilities:
Derivative liabilities⁽²⁾	$	0	$	1,628	$	41	$	(990	)		$	679		$	18		$	1,171		$	76	$	(378	)		$	887
Total liabilities	$	0	$	1,628	$	41	$	(990	)		$	679		$	18		$	1,171		$	76	$	(378	)		$	887


	December 31, 2017													December 31, 2018
	Fair Value Measurements Using						Netting Adjustments⁽¹⁾							Fair Value Measurements Using								Netting Adjustments⁽¹⁾
(Dollars in millions)	Level 1		Level 2		Level 3					Total			Level 1			Level 2			Level 3			Netting Adjustments⁽¹⁾			Total
Assets:							Netting Adjustments⁽¹⁾
Securities available for sale:
U.S. Treasury securities	$	5,171	$	0	$	0	—				$	5,171		$	6,144		$	0		$	0	—				$	6,144
RMBS	0		27,178		614		—				27,792			0			33,212			433		—				33,645
CMBS	0		3,161		14		—				3,175			0			4,729			10		—				4,739
Other ABS	0		512		0		—				512
Other securities	320		680		5		—				1,005			219			1,403			0		—				1,622
Total securities available for sale	5,491		31,531		633		—				37,655			6,363			39,344			443		—				46,150
Other assets:
Derivative assets⁽²⁾	1		1,002		37		$	(275	)		765			0			1,501			38		$	(1,079	)		460
Other⁽³⁾	281		0		264		—				545			265			0			158		—				423
Total assets	$	5,773	$	32,533	$	934	$	(275	)		$	38,965		$	6,628		$	40,845		$	639	$	(1,079	)		$	47,033
Liabilities:
Other liabilities:
Derivative liabilities⁽²⁾	$	1	$	1,243	$	24	$	(662	)		$	606		$	0		$	1,153		$	48	$	(287	)		$	914
Total liabilities	$	1	$	1,243	$	24	$	(662	)		$	606		$	0		$	1,153		$	48	$	(287	)		$	914




	~~116~~	~~Capital One Financial Corporation (COF)~~

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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

__________


⁽¹⁾	Represents balance sheet netting of derivative assets and liabilities, and related ~~payable~~payables and receivables for cash collateral held or placed with the same counterparty. See “Note 9—Derivative Instruments and Hedging Activities” for additional information.

⁽²⁾

Does not reflect $4$9 million and $2 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Non-performance risk is included in ~~the~~ derivative assets and liabilities, which are part of other assets and liabilities on the consolidated balance sheets, and is offset through non-interest income in the consolidated statements of income.




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

⁽³⁾

As of September 30, 2019 and December 31, 2018, other includes retained interests in securitizations of ~~$162~~$107 million and $158 million, deferred compensation plan assets of ~~$292~~$317 million and $264 million, and equity securities of ~~$1 million. As of~~ ~~December 31, 2017, other includes consumer MSRs of $92 million, retained interests in securitizations of $172~~$4 million and ~~deferred compensation plan assets of $281 million.~~$1 million, respectively.

Level 3 Recurring Fair Value Rollforward

The table below presents a reconciliation for all assets and liabilities measured and recognized at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, ~~2018~~2019 and ~~2017. When assets and liabilities are transferred between levels, we recognize the transfer as of the end of the period.~~2018. Generally, transfers into Level 3 were primarily driven by the usage of unobservable assumptions in the pricing of these financial instruments as evidenced by wider pricing variations among pricing vendors and transfers out of Level 3 were primarily driven by the usage of assumptions corroborated by market observable information as evidenced by tighter pricing among multiple pricing sources.

Table 12.2: Level 3 Recurring Fair Value Rollforward


		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)																												Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Three Months Ended September 30, 2018																												Three Months Ended September 30, 2019
					Total Gains (Losses) (Realized/Unrealized)																					Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2018⁽¹⁾						Total Gains (Losses) (Realized/Unrealized)																						Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2019⁽¹⁾

(Dollars in millions)		Balance, July 1, 2018				Included in Net Income⁽¹⁾			Included in OCI		Purchases		Sales		Issuances		Settlements			Transfers Into Level 3		Transfers Out of Level 3			Balance, September 30, 2018						Balance, July 1, 2019		Included in Net Income⁽¹⁾			Included in OCI		Purchases		Sales		Issuances			Settlements			Transfers Into Level 3		Transfers Out of Level 3			Balance, September 30, 2019
Securities available for sale:(2)	Securities available for sale:(2)																												Securities available for sale:(2)
RMBS		$	442		$	7		$	2	$	0	$	0	$	0	$	(16	)	$	130	$	(46	)	$	519	$	8			$	515	$	10		$	0	$	0	$	0	$	0		$	(18	)	$	59	$	(114	)	$	452	$	9
CMBS		11			0			0		0		0		0		0			0		0			11		0				9		0			0		0		0		0			(1		)	0		0			8		0
Other securities		5			0			0		0		0		0		(5		)	0		0			0		0
Total securities available for sale		458			7			2		0		0		0		(21		)	130		(46		)	530		8				524		10			0		0		0		0			(19		)	59		(114		)	460		9
Other assets:
Retained interests in securitizations		164			(2		)	0		0		0		0		0			0		0			162		(2		)
Net derivative assets (liabilities)⁽²⁾		(5		)	(2		)	0		0		0		18		2			0		0			13		(2		)
Retained interest in securitizations																														177		(1		)	0		0		0		0			(69		)	0		0			107		(1		)
Net derivative assets (liabilities)⁽³⁾																														6		(1		)	0		0		0		(8		)	12			0		(3		)	6		1



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Nine Months Ended September 30, 2019
				Total Gains (Losses) (Realized/Unrealized)																					Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2019⁽¹⁾
				Total Gains (Losses) (Realized/Unrealized)
(Dollars in millions)	Balance, January 1, 2019			Included in Net Income⁽¹⁾		Included in OCI		Purchases		Sales		Issuances			Settlements			Transfers Into Level 3		Transfers Out of Level 3			Balance, September 30, 2019
Securities available for sale:⁽²⁾
RMBS	$	433		$	27	$	13	$	0	$	0	$	0		$	(43	)	$	173	$	(151	)	$	452	$	26
CMBS	10			0		0		0		0		0			(2		)	0		0			8		0
Total securities available for sale	443			27		13		0		0		0			(45		)	173		(151		)	460		26
Other assets:
Retained interest in securitizations	158			18		0		0		0		0			(69		)	0		0			107		8
Net derivative assets (liabilities)⁽³⁾	(10		)	4		0		0		0		(21		)	39			0		(6		)	6		6




	~~117~~122	Capital One Financial Corporation (COF)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended September 30, 2018
				Total Gains (Losses) (Realized/Unrealized)																					Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2018⁽¹⁾
				Total Gains (Losses) (Realized/Unrealized)
(Dollars in millions)	Balance, July 1, 2018			Included in Net Income⁽¹⁾			Included in OCI		Purchases		Sales		Issuances		Settlements			Transfers Into Level 3		Transfers Out of Level 3			Balance, September 30, 2018
Securities available for sale:
RMBS	$	442		$	7		$	2	$	0	$	0	$	0	$	(16	)	$	130	$	(46	)	$	519	$	8
CMBS	11			0			0		0		0		0		0			0		0			11		0
Other securities	5			0			0		0		0		0		(5		)	0		0			0		0
Total securities available for sale	458			7			2		0		0		0		(21		)	130		(46		)	530		8
Other assets:
Retained interests in securitizations	164			(2		)	0		0		0		0		0			0		0			162		(2		)
Net derivative assets (liabilities)⁽³⁾	(5		)	(2		)	0		0		0		18		2			0		0			13		(2		)

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Nine Months Ended September 30, 2018

Total Gains (Losses)
(Realized/Unrealized)

Net Unrealized
Gains (Losses)
Included in Net
Income Related to Assets and
Liabilities Still Held as of
September 30, 2018⁽¹⁾

(Dollars in millions)
Balance,
January 1,
2018

Included
in Net
Income⁽¹⁾
Included in OCI Purchases Sales Issuances Settlements
Transfers
Into
Level 3

Transfers
Out of
Level 3
Balance, September 30, 2018
Securities available for sale:
RMBS $ 614
$ 25
$ 9
$ 0
$ 0
$ 0
$ (58 ) $ 195
$ (266 ) $ 519
$ 25
CMBS 14
0
0
0
0
0
(3 ) 0
0
11
0
Other securities 5
0
0
0
0
0
(5 ) 0
0
0
0
Total securities available for sale 633
25
9
0
0
0
(66 ) 195
(266 ) 530
25
Other assets:
Consumer MSRs 92
3
0
0
(97 ) 2
0
0
0
0
0
Retained interests in securitizations 172
(10 ) 0
0
0
0
0
0
0
162
(10 )
Net derivative assets (liabilities)⁽²⁾
13
(26 ) 0
0
0
25
0
0
1
13
(26 )

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Three Months Ended September 30, 2017

Total Gains (Losses)
(Realized/Unrealized)

Net Unrealized
Gains (Losses)
Included in Net
Income Related to Assets and
Liabilities Still Held as of
September 30, 2017⁽¹⁾

(Dollars in millions)
Balance,
July 1,
2017

Included
in Net
Income⁽¹⁾
Included in OCI Purchases Sales Issuances Settlements
Transfers
Into
Level 3

Transfers
Out of
Level 3
Balance, September 30, 2017
Securities available for sale:
RMBS $ 429
$ 65
$ (37 ) $ 0
$ (111 ) $ 0
$ (23 ) $ 222
$ (25 ) $ 520
$ 5
CMBS 17
0
0
50
0
0
(1 ) 0
0
66
0
Other securities 9
0
0
0
0
0
0
0
0
9
0
Total securities available for sale 455
65
(37 ) 50
(111 ) 0
(24 ) 222
(25 ) 595
5
Other assets:
Consumer MSRs 85
1
0
0
0
6
(2 ) 0
0
90
1
Retained interests in securitizations 188
(10 ) 0
0
0
0
0
0
0
178
(10 )
Net derivative assets (liabilities)⁽²⁾
25
(2 ) 0
0
0
18
(13 ) 0
(1 ) 27
(2 )




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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)																													Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Nine Months Ended September 30, 2017																													Nine Months Ended September 30, 2018
				Total Gains (Losses) (Realized/Unrealized)																							Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2017⁽¹⁾						Total Gains (Losses) (Realized/Unrealized)																						Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2018⁽¹⁾

(Dollars in millions)		Balance, January 1, 2017			Included in Net Income⁽¹⁾			Included in OCI			Purchases		Sales			Issuances		Settlements			Transfers Into Level 3		Transfers Out of Level 3			Balance, September 30, 2017						Balance, January 1, 2018		Included in Net Income⁽¹⁾			Included in OCI		Purchases		Sales			Issuances		Settlements			Transfers Into Level 3		Transfers Out of Level 3			Balance, September 30, 2018
Securities available for sale:	Securities available for sale:																													Securities available for sale:
RMBS		$	518	$	82		$	(19	)	$	0	$	(116	)	$	0	$	(69	)	$	434	$	(310	)	$	520	$	17			$	614	$	25		$	9	$	0	$	0		$	0	$	(58	)	$	195	$	(266	)	$	519	$	25
CMBS		51		0			0			110		0			0		(3		)	0		(92		)	66		0				14		0			0		0		0			0		(3		)	0		0			11		0
Other securities		9		0			0			0		0			0		0			0		0			9		0				5		0			0		0		0			0		(5		)	0		0			0		0
Total securities available for sale		578		82			(19		)	110		(116		)	0		(72		)	434		(402		)	595		17				633		25			9		0		0			0		(66		)	195		(266		)	530		25
Other assets:
Consumer MSRs		80		(3		)	0			0		0			18		(5		)	0		0			90		(3		)		92		3			0		0		(97		)	2		0			0		0			0		0
Retained interests in securitizations		201		(23		)	0			0		0			0		0			0		0			178		(23		)		172		(10		)	0		0		0			0		0			0		0			162		(10		)
Net derivative assets (liabilities)⁽²⁾⁽³⁾		18		(1		)	0			0		0			45		(28		)	0		(7		)	27		(1		)		13		(26		)	0		0		0			25		0			0		1			13		(26		)

__________

⁽¹⁾

~~Gains~~Realized gains (losses) on securities available for sale are included in net securities gains (losses), and retained interests in securitizations ~~and consumer MSRs~~ are reported as a component of non-interest income in our consolidated statements of income. Gains (losses) on derivatives are included as a component of net interest income or non-interest income in our consolidated statements of income.


⁽²⁾	For the three and nine months ended September 30, 2019, net unrealized gains included in other comprehensive income related to Level 3 securities available for sale still held as of September 30, 2019 were $1 million and $11 million, respectively.


⁽³⁾	Includes derivative assets and liabilities of $82 million and $76 million, respectively, as of September 30, 2019, and $54 million and $41 million, respectively, as of September 30, ~~2018, and $57 million and $30 million, respectively, as of September 30, 2017.~~2018.




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Significant Level 3 Fair Value Asset and Liability ~~Input Sensitivity~~Inputs

~~Changes~~Generally, uncertainties in fair value measurements of financial instruments, such as changes in unobservable inputs, may have a significant impact on fair value. Certain of these unobservable inputs will, in isolation, have a directionally consistent impact on the fair value of the instrument for a given change in that input. Alternatively, the fair value of the instrument may move in an opposite direction for a given change in another input. In general, an increase in the discount rate, default rates, loss severity and credit spreads, in isolation, would result in a decrease in the fair value measurement. In addition, an increase in default rates would generally be accompanied by a decrease in recovery rates, slower prepayment rates and an increase in liquidity spreads.

Techniques and Inputs for Level 3 Fair Value Measurements

The following table presents the significant unobservable inputs used to determine the fair values of our Level 3 financial instruments on a recurring basis. We utilize multiple vendor pricing services to obtain fair value for our securities. Several of our vendor pricing services are only able to provide unobservable input information for a limited number of securities due to software licensing restrictions. Other vendor pricing services are able to provide unobservable input information for all securities for which they provide a valuation. As a result, the unobservable input information for the securities available for sale presented below represents a composite summary of all information we are able to obtain. The unobservable input information for all other Level 3 financial instruments is based on the assumptions used in our internal valuation models.

Table 12.3: Quantitative Information about Level 3 Fair Value Measurements

Quantitative Information about Level 3 Fair Value Measurements

(Dollars in millions)

Fair Value at September 30,
2019

Significant

Valuation

Techniques

Significant

Unobservable

Inputs

Range

Weighted

Average⁽¹⁾

Securities available for sale:

RMBS

452

Discounted cash flows (vendor pricing)

Yield
Voluntary prepayment rate
Default rate
Loss severity

1-15%
0-23%
0-7%
0-85%

4%
6%
3%
68%

CMBS

Discounted cash flows (vendor pricing)

Yield

Other assets:

Retained interests in securitization⁽²⁾

107

Discounted cash flows

Life of receivables (months)
Voluntary prepayment rate
Discount rate
Default rate
Loss severity

2-62
5-14%
3-12%
3-4%
63-95%

N/A

Net derivative assets (liabilities)

Discounted cash flows

Swap rates

1-2%

Quantitative Information about Level 3 Fair Value Measurements

(Dollars in millions)

Fair Value at

December 31,

2018

Significant

Valuation

Techniques

Significant

Unobservable

Inputs

Range

Weighted

Average⁽¹⁾

Securities available for sale:

RMBS

433

Discounted cash flows (vendor pricing)

Yield
Voluntary prepayment rate
Default rate
Loss severity

3-11%
0-17%
0-7%
0-75%

5%
5%
3%
65%

CMBS

Discounted cash flows (vendor pricing)

Yield

Other assets:

Retained interests in securitization⁽²⁾

158

Discounted cash flows

Life of receivables (months)
Voluntary prepayment rate
Discount rate
Default rate
Loss severity

3-56
3-14%
4-6%
2-4%
50-104%

N/A

Net derivative assets (liabilities)

(10

)

Discounted cash flows

Swap rates

__________


⁽¹⁾	Weighted averages are calculated by using the product of the input multiplied by the relative fair value of the instruments.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Table 12.3: Quantitative Information about Level 3 Fair Value Measurements~~

Quantitative Information about Level 3 Fair Value Measurements
(Dollars in millions)
Fair Value at
September 30,
2018

Significant
Valuation
Techniques

Significant
Unobservable
Inputs
Range
Weighted
Average
Securities available for sale:
RMBS $ 519
Discounted cash flows (vendor pricing) Yield
Voluntary prepayment rate
Default rate
Loss severity 2-10%
0-17%
0-7%
0-90% 5%
4%
3%
65%
CMBS 11
Discounted cash flows (vendor pricing) Yield 4% 4%
Other assets:
Retained interests in securitization⁽¹⁾
162
Discounted cash flows Life of receivables (months)
Voluntary prepayment rate
Discount rate
Default rate
Loss severity 1-56
2-13%
3-5%
2-5%
55-111% N/A
Net derivative assets (liabilities) 13
Discounted cash flows Swap rates 3% 3%

Quantitative Information about Level 3 Fair Value Measurements
(Dollars in millions)
Fair Value at
December 31,
2017

Significant
Valuation
Techniques

Significant
Unobservable
Inputs
Range
Weighted
Average
Securities available for sale:
RMBS $ 614
Discounted cash flows (vendor pricing) Yield
Voluntary prepayment rate
Default rate
Loss severity 2-9%
0-15%
0-8%
0-90% 5%
4%
3%
62%
CMBS 14
Discounted cash flows (vendor pricing) Yield
Voluntary prepayment rate 3%
0% 3%
0%
Other securities 5
Discounted cash flows Yield
2% 2%
Other assets:
Consumer MSRs 92
Discounted cash flows Total prepayment rate
Discount rate
Option-adjusted spread rate
Servicing cost ($ per loan) 7-30%
14%
200-1,500 bps
$75-$100 16%
14%
458 bps
$76
Retained interests in securitization⁽¹⁾
172
Discounted cash flows Life of receivables (months) Voluntary prepayment rate
Discount rate
Default rate
Loss severity 6-79
2-12%
3-10%
1-6%
3-115% N/A
Net derivative assets (liabilities) 13
Discounted cash flows Swap rates 2% 2%

~~__________~~


⁽¹⁾⁽²⁾	Due to the nature of the various mortgage securitization structures in which we have retained interests, it is not meaningful to present a consolidated weighted average for the significant unobservable inputs.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We are required to measure and recognize certain assets at fair value on a nonrecurring basis on the consolidated balance sheets. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, from the application of lower of cost or fair value accounting or when we evaluate for impairment).




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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following table presents the carrying value of the assets measured at fair value on a nonrecurring basis and still held as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, and for which a nonrecurring fair value measurement was recorded during the nine and twelve months then ended.

Table 12.4: Nonrecurring Fair Value Measurements


	September 30, 2018						September 30, 2019
	Estimated Fair Value Hierarchy				Total		Estimated Fair Value Hierarchy				Total
(Dollars in millions)	Level 2		Level 3		Total		Level 2		Level 3		Total
Loans held for investment	$	0	$	131	$	131	$	0	$	317	$	317
Loans held for sale	254		0		254		2		0		2
Other assets⁽¹⁾	0		92		92		0		78		78
Total	$	254	$	223	$	477	$	2	$	395	$	397


	December 31, 2017						December 31, 2018
	Estimated Fair Value Hierarchy				Total		Estimated Fair Value Hierarchy				Total
(Dollars in millions)	Level 2		Level 3		Total		Level 2		Level 3		Total
Loans held for investment	$	0	$	182	$	182	$	0	$	129	$	129
Loans held for sale	177		1		178		38		0		38
Other assets⁽¹⁾	0		35		35		0		100		100
Total	$	177	$	218	$	395	$	38	$	229	$	267

__________

⁽¹⁾

As of September 30, 2019, other assets included equity investments accounted for under the measurement alternative of $3 million, repossessed assets of $58 million and long-lived assets held for sale of $17 million. As of December 31, 2018, other assets included equity investments accounted for under the measurement alternative of ~~$17~~$24 million, foreclosed property and repossessed assets of ~~$61~~$57 million and long-lived assets held for sale of ~~$14 million. As of December 31, 2017, other assets included foreclosed property and repossessed assets of $17 million and long-lived assets held for sale of $18~~$19 million.

In the above table, loans held for investment are generally valued based in part on the estimated fair value of the underlying collateral and the non-recoverable rate, which is considered to be a significant unobservable input. The non-recoverable rate ranged from 0% to ~~51%~~50%, with a weighted average of ~~27%~~7%, and from 0% to ~~77%~~84%, with a weighted average of ~~21%~~33%, as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The weighted average non-recoverable rate is calculated based on the estimated market value of the underlying collateral. The significant unobservable inputs and related quantitative information related to fair value of the other assets are not meaningful to disclose as they vary significantly across properties and collateral.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents total nonrecurring fair value measurements for the period, included in earnings, attributable to the change in fair value relating to assets that are still held at September 30, ~~2018~~2019 and ~~2017.~~2018.

Table 12.5: Nonrecurring Fair Value Measurements Included in Earnings


	Total Gains (Losses)						Total Gains (Losses)
	Nine Months Ended September 30,						Nine Months Ended September 30,
(Dollars in millions)	2018			2017			2019			2018
Loans held for investment	$	(99	)	$	(237	)	$	(189	)	$	(99	)
Loans held for sale	(5		)	(5		)	(1		)	(5		)
Other assets⁽¹⁾	(57		)	(7		)	(60		)	(57		)
Total	$	(161	)	$	(249	)	$	(250	)	$	(161	)

__________


⁽¹⁾	Other assets include fair value adjustments related to repossessed assets, long-lived assets held for sale and equity investments accounted for under the measurement ~~alternative,~~alternative. For the nine months ended September 30, 2018, other assets also included foreclosed ~~property, repossessed assets and long-lived assets held for sale.~~property.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value, including the level within the fair value hierarchy, of our financial instruments that are not measured at fair value on a recurring basis on our consolidated balance sheets as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

Table 12.6: Fair Value of Financial Instruments


	September 30, 2018															September 30, 2019
	Carrying Value			Estimated Fair Value			Estimated Fair Value Hierarchy									Carrying Value			Estimated Fair Value			Estimated Fair Value Hierarchy
(Dollars in millions)			Level 1				Level 2			Level 3					Level 1						Level 2			Level 3
Financial assets:
Cash and cash equivalents	$	10,882			$	10,882		$	4,547		$	6,335		$	0		$	17,120		$	17,120		$	4,452		$	12,668		$	0
Restricted cash for securitization investors	746			746			746			0			0			417			417			417			0			0
Securities held to maturity	34,631			33,901			0			33,833			68			33,894			35,264			0			35,258			6
Net loans held for investment	231,542			234,635			0			0			234,635			242,318			243,125			0			0			243,125
Loans held for sale	1,402			1,421			0			1,421			0			1,245			1,261			0			1,261			0
Interest receivable	1,518			1,518			0			1,518			0			1,627			1,627			0			1,627			0
Other investments⁽¹⁾	1,415			1,415			0			1,415			0			1,341			1,341			0			1,341			0
Financial liabilities:
Deposits with defined maturities	34,618			34,552			0			34,552			0			45,241			45,490			0			45,490			0
Securitized debt obligations	18,649			18,735			0			18,735			0			18,910			19,043			0			19,043			0
Senior and subordinated notes	31,291			31,787			0			31,787			0			30,682			31,078			0			31,078			0
Federal funds purchased and securities loaned or sold under agreements to repurchase	384			384			0			384			0			464			464			0			464			0
Other borrowings⁽²⁾	1,826			1,826			0			1,826			0
Interest payable	391			391			0			391			0			370			370			0			370			0


	December 31, 2017															December 31, 2018
	Carrying Value			Estimated Fair Value			Estimated Fair Value Hierarchy									Carrying Value			Estimated Fair Value			Estimated Fair Value Hierarchy
(Dollars in millions)			Level 1				Level 2			Level 3					Level 1						Level 2			Level 3
Financial assets:
Cash and cash equivalents	$	14,040			$	14,040		$	4,458		$	9,582		$	0		$	13,186		$	13,186		$	4,768		$	8,418		$	0
Restricted cash for securitization investors	312			312			312			0			0			303			303			303			0			0
Securities held to maturity	28,984			29,437			200			29,217			20			36,771			36,619			0			36,513			106
Net loans held for investment	246,971			251,468			0			0			251,468			238,679			241,556			0			0			241,556
Loans held for sale	971			952			0			949			3			1,192			1,218			0			1,218			0
Interest receivable	1,536			1,536			0			1,536			0			1,614			1,614			0			1,614			0
Other investments⁽¹⁾	1,689			1,689			0			1,680			9			1,725			1,725			0			1,725			0
Financial liabilities:
Deposits	243,702			243,732			26,404			217,328			0
Deposits with defined maturities																38,471			38,279			0			38,279			0
Securitized debt obligations	20,010			20,122			0			20,122			0			18,307			18,359			0			18,359			0
Senior and subordinated notes	30,755			31,392			0			31,392			0			30,826			30,635			0			30,635			0
Federal funds purchased and securities loaned or sold under agreements to repurchase	576			576			0			576			0			352			352			0			352			0
Other borrowings⁽²⁾	8,892			8,892			0			8,892			0			9,354			9,354			0			9,354			0
Interest payable	413			413			0			413			0			458			458			0			458			0

__________


⁽¹⁾	Other investments ~~as of September 30, 2018~~ include FHLB and Federal Reserve stock. ~~Other investments as of December 31, 2017 include FHLB and Federal Reserve stock, as well as cost method investments.~~ These investments are included in other assets on our consolidated balance sheets.


⁽²⁾	Other borrowings excludes ~~capital~~finance lease ~~obligations.~~liabilities.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13—BUSINESS SEGMENTS AND REVENUE FROM CONTRACTS WITH CUSTOMERS

Our principal operations are organized into ~~three~~3 major business segments, which are defined primarily based on the products and services provided or the ~~type~~types of customer served: Credit Card, Consumer Banking and Commercial Banking. The operations of acquired businesses have been integrated into our existing business segments. Certain activities that are not part of a segment, such as management of our corporate investment portfolio and asset/liability management by our centralized Corporate Treasury group and residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments, are included in the Other category.

Basis of Presentation

We report the results of each of our business segments on a continuing operations basis. ~~See “Note 2—Business Developments and Discontinued Operations” for a discussion of our discontinued operations.~~ The results of our individual businesses reflect the manner in which management evaluates performance and makes decisions about funding our operations and allocating resources.

Business Segment Reporting Methodology

The results of our business segments are intended to present each segment as if it were a stand-alone business. Our internal management and reporting process used to derive our segment results employs various allocation methodologies, including funds transfer pricing, to assign certain balance sheet assets, deposits and other liabilities and their related revenue and expenses directly or indirectly attributable to each business segment. Our funds transfer pricing process provides a funds credit for sources of funds, such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a funds charge for the use of funds by each segment. Due to the integrated nature of our business segments, estimates and judgments have been made in allocating certain revenue and expense items. Transactions between segments are based on specific criteria or approximate third-party rates. We regularly assess the assumptions, methodologies and reporting classifications used for segment reporting, which may result in the implementation of refinements or changes in future periods. We provide additional information on the allocation methodologies used to derive our business segment results in “Note 18—Business ~~Segments”~~Segments and Revenue from Contracts with Customers” in our ~~2017~~2018 Form 10-K.

Segment Results and Reconciliation

We may periodically change our business segments or reclassify business segment results based on modifications to our management reporting methodologies or changes in organizational alignment. In the first quarter of ~~2018,~~2019, we made a change in how revenue is measured in our Commercial Banking business ~~to include~~by revising the allocation of tax benefits ~~of losses~~ on certain tax-advantaged investments. ~~These tax benefits are included~~As such, prior period results have been recast to conform with the current period presentation. The result of this measurement change reduced the previously reported total net revenue in ~~revenue on a taxable-equivalent basis within~~ our Commercial Banking business by $26 million and $88 million for the three and nine months ended September 30, 2018, with an offsetting ~~reduction~~increase in the Other category. This change in measurement of our Commercial Banking revenue did not have any impact to the consolidated financial statements.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following ~~tables present~~table presents our business segment results for the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, selected balance sheet data as of September 30, ~~2018~~2019 and ~~2017,~~2018, and a reconciliation of our total business segment results to our reported consolidated ~~net~~ income from continuing operations, loans held for investment and deposits.

Table 13.1: Segment Results and Reconciliation

Three Months Ended September 30, 2018
(Dollars in millions) Credit
Card Consumer
Banking
Commercial
Banking⁽¹⁾⁽²⁾

Other^(1)(2)(3)
Consolidated
Total
Net interest income $ 3,596
$ 1,636
$ 539
$ 15
$ 5,786
Non-interest income 893
155
189
(61 ) 1,176
Total net revenue (loss) 4,489
1,791
728
(46 ) 6,962
Provision (benefit) for credit losses 1,031
184
54
(1 ) 1,268
Non-interest expense 2,103
979
408
283
3,773
Income (loss) from continuing operations before income taxes 1,355
628
266
(328 ) 1,921
Income tax provision (benefit) 315
146
62
(103 ) 420
Income (loss) from continuing operations, net of tax $ 1,040
$ 482
$ 204
$ (225 ) $ 1,501
Loans held for investment $ 110,685
$ 59,329
$ 68,747
$ 0
$ 238,761
Deposits 0
196,635
30,474
20,086
247,195


	Nine Months Ended September 30, 2018											Three Months Ended September 30, 2019
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking⁽¹⁾⁽²⁾		Other^(1)(2)(3)			Consolidated Total		Credit Card		Consumer Banking		Commercial Banking⁽¹⁾⁽²⁾		Other⁽¹⁾⁽²⁾			Consolidated Total
Net interest income	$	10,550	$	4,860	$	1,624	$	21		$	17,055	$	3,546	$	1,682	$	486	$	23		$	5,737
Non-interest income	2,634		504		585		285			4,008
Total net revenue	13,184		5,364		2,209		306			21,063
Provision (benefit) for credit losses	3,658		535		74		(49		)	4,218
Non-interest income (loss)												870		165		221		(34		)	1,222
Total net revenue (loss)												4,416		1,847		707		(11		)	6,959
Provision for credit losses												1,087		203		93		0			1,383
Non-interest expense	6,046		2,942		1,220		562			10,770		2,360		985		414		113			3,872
Income (loss) from continuing operations before income taxes	3,480		1,887		915		(207		)	6,075		969		659		200		(124		)	1,704
Income tax provision (benefit)	810		440		213		(149		)	1,314		235		154		46		(60		)	375
Income (loss) from continuing operations, net of tax	$	2,670	$	1,447	$	702	$	(58	)	$	4,761	$	734	$	505	$	154	$	(64	)	$	1,329
Loans held for investment	$	110,685	$	59,329	$	68,747	$	0		$	238,761	$	113,681	$	62,015	$	73,659	$	0		$	249,355
Deposits	0		196,635		30,474		20,086			247,195		0		206,423		30,923		19,802			257,148


	Three Months Ended September 30, 2017											Nine Months Ended September 30, 2019
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking⁽¹⁾		Other⁽¹⁾			Consolidated Total		Credit Card		Consumer Banking		Commercial Banking⁽¹⁾⁽²⁾		Other⁽¹⁾⁽²⁾			Consolidated Total
Net interest income	$	3,440	$	1,649	$	560	$	51		$	5,700	$	10,667	$	5,070	$	1,489	$	48		$	17,274
Non-interest income	865		192		179		49			1,285
Total net revenue	4,305		1,841		739		100			6,985
Non-interest income (loss)												2,858		491		608		(65		)	3,892
Total net revenue (loss)												13,525		5,561		2,097		(17		)	21,166
Provision for credit losses	1,466		293		63		11			1,833		3,571		603		244		0			4,418
Non-interest expense	1,961		1,051		394		161			3,567		6,784		2,981		1,258		299			11,322
Income (loss) from continuing operations before income taxes	878		497		282		(72		)	1,585		3,170		1,977		595		(316		)	5,426
Income tax provision (benefit)	306		181		103		(142		)	448		747		461		138		(275		)	1,071
Income from continuing operations, net of tax	$	572	$	316	$	179	$	70		$	1,137
Income (loss) from continuing operations, net of tax												$	2,423	$	1,516	$	457	$	(41	)	$	4,355
Loans held for investment	$	109,130	$	75,564	$	67,670	$	58		$	252,422	$	113,681	$	62,015	$	73,659	$	0		$	249,355
Deposits	0		184,719		32,783		21,560			239,062		0		206,423		30,923		19,802			257,148



	Three Months Ended September 30, 2018
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking⁽¹⁾⁽²⁾		Other⁽¹⁾⁽²⁾			Consolidated Total
Net interest income	$	3,596	$	1,636	$	513	$	41		$	5,786
Non-interest income (loss)	893		155		189		(61		)	1,176
Total net revenue (loss)	4,489		1,791		702		(20		)	6,962
Provision (benefit) for credit losses	1,031		184		54		(1		)	1,268
Non-interest expense	2,103		979		408		283			3,773
Income (loss) from continuing operations before income taxes	1,355		628		240		(302		)	1,921
Income tax provision (benefit)	315		146		56		(97		)	420
Income (loss) from continuing operations, net of tax	$	1,040	$	482	$	184	$	(205	)	$	1,501
Loans held for investment	$	110,685	$	59,329	$	68,747	$	0		$	238,761
Deposits	0		196,635		30,474		20,086			247,195




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Nine Months Ended September 30, 2017											Nine Months Ended September 30, 2018
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking⁽¹⁾		Other⁽¹⁾			Consolidated Total		Credit Card		Consumer Banking		Commercial Banking⁽¹⁾⁽²⁾		Other⁽¹⁾⁽²⁾			Consolidated Total
Net interest income	$	10,080	$	4,744	$	1,695	$	128		$	16,647	$	10,550	$	4,860	$	1,536	$	109		$	17,055
Non-interest income	2,478		570		520		9			3,577		2,634		504		585		285			4,008
Total net revenue	12,558		5,314		2,215		137			20,224		13,184		5,364		2,121		394			21,063
Provision for credit losses	4,580		840		201		4			5,625
Provision (benefit) for credit losses												3,658		535		74		(49		)	4,218
Non-interest expense	5,808		3,152		1,166		289			10,415		6,046		2,942		1,220		562			10,770
Income (loss) from continuing operations before income taxes	2,170		1,322		848		(156		)	4,184		3,480		1,887		827		(119		)	6,075
Income tax provision (benefit)	774		482		310		(361		)	1,205		810		440		193		(129		)	1,314
Income from continuing operations, net of tax	$	1,396	$	840	$	538	$	205		$	2,979	$	2,670	$	1,447	$	634	$	10		$	4,761
Loans held for investment	$	109,130	$	75,564	$	67,670	$	58		$	252,422	$	110,685	$	59,329	$	68,747	$	0		$	238,761
Deposits	0		184,719		32,783		21,560			239,062		0		196,635		30,474		20,086			247,195

__________

⁽¹⁾

⁽²⁾

In the first quarter of ~~2018,~~2019, we made a change in how revenue is measured in our Commercial Banking business ~~to include~~by revising the allocation of tax benefits ~~of losses~~ on certain tax-advantaged investments. ~~These tax benefits are included in revenue on a taxable-equivalent basis within our Commercial Banking business,~~As such, prior period results have been recast to conform with ~~an offsetting reduction to~~ the ~~Other category. In addition, all revenue presented on a taxable-equivalent basis in our Commercial Banking business was impacted by the reduction~~current period presentation. The result of ~~the federal tax rate set forth in the Tax Act. The net impact of the~~this measurement change ~~and~~reduced the ~~reduction of the federal tax rate was a decrease of $30 million and $86 million in~~previously reported total net revenue in our Commercial Banking business inby $26 million and $88 million for the ~~third quarter~~three and ~~first~~ nine months ofended September 30, 2018, ~~respectively,~~ with an offsetting ~~impact to~~increase in the Other category.



⁽³⁾	~~In the second quarter of 2018, we sold the substantial majority of our consumer home loan portfolio and the related servicing.~~We also transferred the remaining portfolio to loans held for sale as of June 30, 2018. These actions resulted in a net gain of $400 million in the second quarter of 2018, including a benefit for credit losses of $46 million, which is reflected in the Other category.~~In the third quarter of 2018, we sold substantially all of the remaining consumer home loan portfolio and recognized a gain of $99 million in the Other category.~~

Revenue from Contracts with Customers

~~In the first quarter of 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) under the modified retrospective transition method.~~ The majority of our revenue from contracts with customers consists of interchange fees in our Credit Card business, ~~and~~ service charges ~~on deposits~~ and other customer-related fees, and other contract revenue in our Consumer Banking and Commercial Banking businesses. Interchange fees are primarily from our Credit Card business and are recognized upon settlement with the interchange networks, net of rewards earned by customers. Service charges and other customer-related fees within our Consumer Banking business are primarily related to fees earned on consumer deposit accounts for account maintenance and various transaction-based services such as overdrafts and ATM usage. Service charges and other customer-related fees within our Commercial Banking business are mostly related to fees earned on treasury management and capital markets services. Other contract revenue consists primarily of revenue earned on certain marketing and promotional events from our auto dealers within our Consumer Banking business. Revenue from contracts with customers is included in non-interest income in our consolidated statements of income.

The following table presents revenue from contracts with customers and a reconciliation to non-interest income by business segment for the three and nine months ended September 30, 2019 and 2018.

Table 13.2: Revenue from Contracts with Customers and Reconciliation to Segments ~~Results~~Result


	Three Months Ended September 30, 2018													Three Months Ended September 30, 2019
(Dollars in millions)	Credit Card			Consumer Banking			Commercial Banking⁽¹⁾		Other⁽¹⁾			Consolidated Total		Credit Card		Consumer Banking		Commercial Banking⁽¹⁾		Other⁽¹⁾			Consolidated Total
Contract revenue:
Interchange fees, net⁽²⁾	$	661		$	46		$	8	$	(1	)	$	714	$	722	$	54	$	15	$	(1	)	$	790
Service charges and other customer-related fees	(6		)	117			33		0			144		0		76		35		(1		)	110
Other														15		26		1		0			42
Total contract revenue	655			163			41		(1		)	858		737		156		51		(2		)	942
Revenue from other sources	238			(8		)	148		(60		)	318		133		9		170		(32		)	280
Total non-interest income	$	893		$	155		$	189	$	(61	)	$	1,176	$	870	$	165	$	221	$	(34	)	$	1,222




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Nine Months Ended September 30, 2018												Nine Months Ended September 30, 2019
(Dollars in millions)	Credit Card			Consumer Banking		Commercial Banking⁽¹⁾		Other⁽¹⁾			Consolidated Total		Credit Card		Consumer Banking		Commercial Banking⁽¹⁾		Other⁽¹⁾			Consolidated Total
Contract revenue:
Interchange fees, net⁽²⁾	$	1,924		$	135	$	23	$	(2	)	$	2,080	$	2,181	$	152	$	39	$	(4	)	$	2,368
Service charges and other customer-related fees	(2		)	367		100		(1		)	464		0		225		88		(1		)	312
Other													47		76		2		0			125
Total contract revenue	1,922			502		123		(3		)	2,544		2,228		453		129		(5		)	2,805
Revenue from other sources	712			2		462		288			1,464		630		38		479		(60		)	1,087
Total non-interest income	$	2,634		$	504	$	585	$	285		$	4,008	$	2,858	$	491	$	608	$	(65	)	$	3,892



	Three Months Ended September 30, 2018
(Dollars in millions)	Credit Card			Consumer Banking			Commercial Banking⁽¹⁾		Other⁽¹⁾			Consolidated Total
Contract revenue:
Interchange fees, net⁽²⁾	$	661		$	46		$	8	$	(1	)	$	714
Service charges and other customer-related fees	0			90			33		0			123
Other	(6		)	27			0		0			21
Total contract revenue	655			163			41		(1		)	858
Revenue from other sources	238			(8		)	148		(60		)	318
Total non-interest income	$	893		$	155		$	189	$	(61	)	$	1,176



	Nine Months Ended September 30, 2018
(Dollars in millions)	Credit Card			Consumer Banking		Commercial Banking⁽¹⁾		Other⁽¹⁾			Consolidated Total
Contract revenue:
Interchange fees, net⁽²⁾	$	1,924		$	135	$	23	$	(2	)	$	2,080
Service charges and other customer-related fees	0			283		99		(1		)	381
Other	(2		)	84		1		0			83
Total contract revenue	1,922			502		123		(3		)	2,544
Revenue from other sources	712			2		462		288			1,464
Total non-interest income	$	2,634		$	504	$	585	$	285		$	4,008

__________


⁽¹⁾	Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reclassifications to the Other category.


⁽²⁾	Interchange fees are presented net of customer ~~reward~~rewards expenses.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14—COMMITMENTS, CONTINGENCIES, GUARANTEES AND OTHERS

Commitments to Lend

Our unfunded lending commitments primarily consist of credit card lines, loan commitments to customers of both our Commercial Banking and Consumer Banking businesses, as well as standby and commercial letters of credit. These commitments, other than credit card lines, are legally binding conditional agreements that have fixed expirations or termination dates and specified interest rates and purposes. The contractual amount of these commitments represents the maximum possible credit risk to us should the counterparty draw upon the commitment. We generally manage the potential risk of unfunded lending commitments by limiting the total amount of arrangements, monitoring the size and maturity structure of these portfolios, and applying the same credit standards for all of our credit activities.

For unused credit card lines, we have not experienced and do not anticipate that all of our customers will access their entire available line at any given point in time. Commitments to extend credit other than credit card lines generally require customers to maintain certain credit standards. Collateral requirements and loan-to-value (“LTV”) ratios are the same as those for funded transactions and are established based on management’s credit assessment of the customer. These commitments may expire without being drawn upon; therefore, the total commitment amount does not necessarily represent future funding requirements.

We also issue letters of credit, such as financial standby, performance standby and commercial letters of credit, to meet the financing needs of our customers. Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party in a borrowing arrangement. Commercial letters of credit are short-term commitments issued primarily to facilitate trade finance activities for customers and are generally collateralized by the goods being shipped to the client. These collateral requirements are similar to those for funded transactions and are established based on management’s credit assessment of the customer. Management conducts regular reviews of all outstanding letters of credit and the results of these reviews are considered in assessing the adequacy of reserves for unfunded lending commitments.

The following table presents the contractual amount and carrying value of our unfunded lending commitments as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. The carrying value represents our reserve and deferred revenue on legally binding commitments.

Table 14.1: Unfunded Lending Commitments: Contractual Amount and Carrying Value


	Contractual Amount				Carrying Value				Contractual Amount				Carrying Value
(Dollars in millions)	September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Credit card lines	$	343,321	$	351,481	N/A		N/A		$	349,896	$	346,186	N/A		N/A
Other loan commitments⁽¹⁾	33,292		31,840		$	86	$	84	35,351		34,449		$	122	$	95
Standby letters of credit and commercial letters of credit⁽²⁾	1,820		2,046		26		43		1,658		1,792		33		29
Total unfunded lending commitments	$	378,433	$	385,367	$	112	$	127	$	386,905	$	382,427	$	155	$	124

__________


⁽¹⁾	Includes ~~$1.3~~$1.7 billion and ~~$1.0~~$1.3 billion of advised lines of credit as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.


⁽²⁾	These financial guarantees have expiration dates ranging from ~~2019~~2020 to 2025 as of September 30, ~~2018.~~2019.

Loss Sharing Agreements ~~and Other Obligations~~

Within our Commercial Banking business, we originate multifamily commercial real estate loans with the intent to sell them to the GSEs. We enter into loss sharing agreements with the GSEs upon the sale of the loans. At inception, we record a liability representing the fair value of our obligation which is subsequently amortized as we are released from risk of payment under the loss sharing agreement. If payment under the loss sharing agreement becomes probable and estimable, an additional liability may be recorded on the consolidated balance sheets and a non-interest expense may be recognized in the consolidated statements of income. The liability recognized on our consolidated balance sheets for ~~our~~these loss sharing agreements was ~~$55~~$70 million and ~~$60~~$59 million as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

See “Note 5—Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments” for more information related to our credit card partnership loss sharing arrangements.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In the fourth quarter of 2017, we entered into an agreement with our third-party servicer under which we assumed the obligation to exercise the remaining clean-up calls as they become due on certain securitization transactions related to our discontinued manufactured housing operations of GreenPoint Credit, LLC, a subsidiary of GreenPoint. We also entered into a forward sale agreement pursuant to which we will sell the underlying loans to a third-party purchaser as the clean-up calls are exercised. Accordingly, we recognized loans held for sale and a corresponding liability on our consolidated balance sheets. Based on the current information and estimates, we expect that we will incur losses associated with this exposure and have recorded a liability of $22 million and $78 million as of September 30, 2018 and December 31, 2017, respectively. See “~~Note 6—Variable Interest Entities and Securitizations” for information related to these transactions.~~

U.K. Payment Protection Insurance

In the U.K., we previously sold payment protection insurance (“PPI”). In response to an elevated level of customer complaints across the industry, heightened media coverage and pressure from consumer advocacy groups, the U.K. Financial Conduct Authority (“FCA”), formerly the Financial Services Authority, investigated and raised concerns about the way the industry has handled complaints related to the sale of these insurance policies. For the past several years, the U.K.’s Financial Ombudsman Service (“FOS”) has been adjudicating customer complaints relating to PPI, escalated to it by consumers who disagree with the rejection of their complaint by firms, leading to customer remediation payments by us and others within the industry. ~~On March 2,~~In August 2017, the FCA issued ~~a statement that sets out~~ final rules and guidance on the PPI ~~complaints~~complaints. This set the deadline ~~which has been set~~for complaints as August 29, 2019. ~~The statement~~It also ~~provides~~provided clarity on how to handle PPI complaints under s.140A of the Consumer Credit Act, including guidance on how redress for such complaints should be calculated. ~~The final rules and guidance came into force on August 29, 2017.~~

In determining our best estimate of incurred losses for future remediation payments, management considers numerous factors, including (i) the number of customer complaints ~~we expect in the future;~~or information requests still to be processed; (ii) our expectation of upholding those complaints; (iii) the expected number of complaints customers escalate to the FOS; (iv) our expectation of the FOS upholding such escalated complaints; (v) the number of complaints that fall under s.140A of the Consumer Credit Act; and (vi) the estimated remediation payout to customers. We monitor these factors each quarter and adjust our reserves to reflect the latest data.

~~Management’s best estimate of incurred losses related to~~Our U.K. PPI reserve totaled ~~$118~~$231 million and ~~$249~~$133 million as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. For the three months ended September 30, ~~2018, no additions were made to our reserve. Other movements were~~2019, we recorded an additional reserve build of $212 million due to ~~a combination of utilization~~significantly elevated claims volume ahead of the ~~reserve through customer refund payments and foreign exchange movements.~~August 29, 2019 claims submission deadline. Our best estimate of reasonably possible future losses beyond our reserve as of September 30, ~~2018~~2019 is approximately ~~$100~~$50 million.

Cybersecurity Incident

We are subject to numerous legal proceedings and other inquiries relating to the Cybersecurity Incident and could be the subject of additional proceedings and inquiries in the future. See “Litigation—Cybersecurity Incident” section of this Note for additional information.

We carry insurance to cover certain costs associated with a cyber risk event. This insurance has a total coverage limit of $400 million and is subject to a $10 million deductible, which was met in the third quarter of 2019, as well as standard exclusions. During the third quarter of 2019, we incurred approximately $22 million of net Cybersecurity Incident expenses, consisting of $49 million of expenses, primarily from customer notifications and credit monitoring, and $27 million of probable insurance recoveries.




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Litigation

In accordance with the current accounting standards for loss contingencies, we establish reserves for ~~litigation related~~litigation-related matters that arise from the ordinary course of our business activities when it is probable that a loss associated with a claim or proceeding has been incurred and the amount of the loss can be reasonably estimated. None of the amounts we currently have recorded individually or in the aggregate are considered to be material to our financial condition. Litigation claims and proceedings of all types are subject to many uncertain factors that generally cannot be predicted with assurance. Below we provide a description of potentially material legal proceedings and claims.

For some of the matters disclosed below, we are able to estimate reasonably possible losses above existing reserves, and for other disclosed matters, such an estimate is not possible at this time. For those matters below where an estimate is possible, management currently estimates the reasonably possible future losses beyond our reserves as of September 30, ~~2018 is~~2019 are approximately ~~$750 million, which includes estimates related to mortgage representation and warranty exposure.~~$1.1 billion. Our reserve and reasonably possible loss estimates involve considerable judgment and reflect that there is still significant uncertainty regarding numerous factors that may impact the ultimate loss levels. Notwithstanding our attempt to estimate a reasonably possible range of loss beyond our current accrual levels for some litigation matters based on current information, it is possible that actual future losses will exceed both the current accrual level and the range of reasonably possible losses disclosed here. Given the inherent uncertainties involved in these matters, especially those involving governmental agencies, and the very large or indeterminate damages sought in some of these matters, there is significant uncertainty as to the ultimate liability we may incur from these litigation matters and an adverse outcome in one or more of these matters could be material to our results of operations or cash flows for any particular reporting period.




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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Interchange

In 2005, a putative class of retail merchants filed antitrust lawsuits against MasterCard and Visa and several issuing banks, including Capital One, seeking both injunctive relief and monetary damages for an alleged conspiracy by defendants to fix the level of interchange fees. Other merchants have asserted similar claims in separate lawsuits, and while these separate cases did not name any issuing banks, Visa, MasterCard and issuers, including Capital One, have entered settlement and judgment sharing agreements allocating the liabilities of any judgment or settlement arising from all interchange-related cases.

The lawsuits were consolidated before the U.S. District Court for the Eastern District of New York for certain purposes and were settled in 2012. The class settlement, however, was invalidated by the United States Court of Appeals for the Second Circuit in June 2016, and the suit was ~~separated~~bifurcated into separate class actions seeking injunctive and monetary relief, respectively. In addition, numerous merchant groups opted out of the 2012 settlement and have pursued their own claims. The claims by the injunctive relief class have not been resolved, but the parties reached a new settlement agreement with the monetary damages class in August 2018, whereby the class would receive up to approximately $6.2 billion collectively from the defendants in exchange for a release of their claims, depending on the percentage of class plaintiffs who opt out. ~~Court proceedings are underway for approval of that settlement.~~The trial court preliminarily approved the settlement in January 2019. Visa and MasterCard have also settled several of the opt-out cases, which required non-material payments from issuing banks, including Capital One. Visa created a litigation escrow account following its ~~IPO~~initial public offering of stock in 2008 that funds settlements for its member banks, and any settlements related to MasterCard-allocated losses have either already been paid or are reflected in ~~Capital One’s~~our reserves.

Mortgage Representation and Warranty

We face residual exposure related to subsidiaries that originated residential mortgage loans and sold these loans to various purchasers, including purchasers who created securitization trusts. In connection with their sales of mortgage loans, these subsidiaries entered into agreements containing varying representations and warranties about, among other things, the ownership of the loan, the validity of the lien securing the loan, the loan’s compliance with any applicable criteria established by the purchaser, including underwriting guidelines and the existence of mortgage insurance, and the loan’s compliance with applicable federal, state and local laws. Each of these subsidiaries may be required to repurchase mortgage loans or indemnify certain purchasers and others against losses they incur in the event of certain breaches of these representations and warranties.

The substantial majority of our representation and warranty exposure has been resolved through litigation, and our remaining representation and warranty exposure is almost entirely litigation-related. Accordingly, we establish litigation reserves for representation and warranty losses that we consider to be both probable and reasonably estimable. The reserve process relies heavily on estimates, which are inherently uncertain, and requires the application of judgment. Our reserves and estimates of




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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

reasonably possible losses could be impacted by claims which may be brought by securitization trustees and sponsors, bond-insurers, investors, and GSEs, as well as claims brought by governmental ~~agencies under the Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”), the False Claims Act or other federal or state statutes.~~

In May, June and July 2012, the Federal Housing Finance Agency (“FHFA”) (acting as conservator for Freddie Mac) filed three summonses with notice in the New York state court against GreenPoint, on behalf of the trustees for three RMBS trusts backed by loans originated by GreenPoint with an aggregate original principal balance of $3.4 billion. In January 2013, the plaintiffs filed an amended consolidated complaint in the name of the three trusts, acting by the respective trustees, alleging breaches of contractual representations and warranties regarding compliance with GreenPoint underwriting guidelines relating to certain loans (“FHFA Litigation”). Plaintiffs seek specific performance of the repurchase obligations with respect to the loans for which they have provided notice of alleged breaches as well as all other allegedly breaching loans, rescissory damages, indemnification, costs and interest. On March 29, 2017, the trial court granted GreenPoint’s motion for summary judgment and dismissed plaintiff’s claims as untimely. In May 2017, the plaintiff appealed the dismissal to the Second Circuit.agencies.

Anti-Money Laundering

~~Capital One is~~We are subject to an open consent order with the Office of the Comptroller of the Currency (“OCC”) dated July 10, 2015 ~~concerning regulatory deficiencies in~~relating to our anti-money laundering (“AML”) program. In October 2018, ~~Capital One agreed to~~we paid a civil monetary penalty of $100 million to resolve the monetary component of the AML consent order. ~~This amount was fully accrued in the third quarter~~

The Department of ~~2018.~~




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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Capital One continues to be investigated by~~Justice and the New York District Attorney’s Office ~~(“NYDA”),~~have closed their investigations into certain former check casher clients of the ~~Department of Justice (“DOJ”)~~Commercial Banking business and our AML program. We are in discussions with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury primarily with respect to certain former check casher clients of the Commercial Banking business and Capital One’s AML program. Capital One is cooperating with all agencies involved in the investigation. We are in discussions with FinCEN to explore a potential regulatory resolution of its ~~investigation.~~investigation into our AML program, which could include a monetary penalty.

Cybersecurity Incident

As a result of the Cybersecurity Incident announced on July 29, 2019, we are subject to numerous legal proceedings and other inquiries and could be the subject of additional proceedings and inquiries in the future.

Consumer class actions. To date, we have been named as a defendant in approximately 70 putative consumer class action cases (60 in U.S. federal courts and 10 in Canadian courts) alleging harm from the Cybersecurity Incident and seeking various remedies, including monetary and injunctive relief. The lawsuits allege breach of contract, negligence, violations of various privacy laws and a variety of other legal causes of action. On October 2, 2019, the U.S. consumer class actions were consolidated for pretrial proceedings before a multi-district litigation panel in the U.S. District Court for the Eastern District of Virginia, Alexandria Division.

Securities class action. The Company and certain officers have also been named as defendants in a putative class action in the U.S. District Court for the Eastern District of New York, which was filed on October 2, 2019, alleging violations of certain federal securities laws in connection with statements and alleged omissions in securities filings relating to our information security standards and practices. The complaint seeks certification of a class of all persons who purchased or otherwise acquired Capital One securities from February 2, 2018 to June 29, 2019, as well as unspecified monetary damages, costs and other relief.

State Attorneys General inquiries. We have received inquiries and requests for information relating to the Cybersecurity Incident from the offices of approximately a dozen state Attorneys General. We are cooperating with these offices and responding to their inquiries.

Taxi Medallion Finance Investigations

We received a subpoena from the New York Attorney General’s office in August 2019 and a subpoena from the U.S. Attorney’s Office for the Southern District of New York, Civil Division, in October 2019 relating to investigations of the taxi medallion finance industry we exited beginning in 2015. The subpoenas seek, among other things, information regarding our lending counterparties and practices. We are cooperating with these investigations.

U.K. PPI Litigation

Some of the claimants in the U.K. PPI regulatory claims process described above have initiated legal proceedings. The significant increase in PPI regulatory claim volumes shortly before the August 29, 2019 claims submission deadline increases the potential exposure for PPI-related litigation, which is not subject to the August 29, 2019 deadline.

Other Pending and Threatened Litigation

In addition, we are commonly subject to various pending and threatened legal actions relating to the conduct of our normal business activities. In the opinion of management, the ultimate aggregate liability, if any, arising out of all such other pending or threatened legal actions, is not expected to be material to our consolidated financial position or our results of operations.




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For a discussion of the quantitative and qualitative disclosures about market risk, see “MD&A—Market Risk Profile.”

Item 4. Controls and Procedures

Overview

We are required under applicable laws and regulations to maintain controls and procedures, which include disclosure controls and procedures as well as internal control over financial reporting, as further described below.

(a) Disclosure Controls and Procedures

Disclosure controls and procedures refer to controls and other procedures designed to provide reasonable assurance that information required to be disclosed in our financial reports is recorded, processed, summarized and reported within the time periods specified by the U.S. Securities and Exchange Commission (“SEC”) rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we must apply judgment in evaluating and implementing possible controls and procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 of the Securities Exchange Act of 1934 (“Exchange Act”), our management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of September 30, ~~2018,~~2019, the end of the period covered by this Report on Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, ~~2018,~~2019, at a reasonable level of assurance, in recording, processing, summarizing and reporting information required to be disclosed within the time periods specified by the SEC rules and forms.

(b) Changes in Internal Control Over Financial Reporting

We regularly review our disclosure controls and procedures and make changes intended to ensure the quality of our financial reporting. There were no changes in internal control over financial reporting that occurred in the third quarter of ~~2018~~2019 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.




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PART II—OTHER INFORMATION

Item 1.Legal Proceedings

The information required by Item 103 of Regulation S-K is included in “Note 14—Commitments, Contingencies, Guarantees and Others.”

Item 1A.Risk Factors

We are not aware of any material changes from the risk factors set forth under “Part I—Item 1A. Risk Factors” in our ~~2017~~2018 Form ~~10-K.~~10-K and “Part II—Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the period ended June 30, 2019.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information related to repurchases of shares of our common stock for each calendar month in the third quarter of ~~2018.~~2019. Commission costs are excluded from the amounts presented below.


(Dollars in millions, except per share information)	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Amount That May Yet be Purchased Under the Plan or Program
							Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Amount That May Yet be Purchased Under the Plan or Program (in millions)
July	4,764	$	91.90	—	$	1,200	4,765	$	92.04	—	$	2,200
August	3,391,532	97.76		3,374,701	870		3,146,932	87.07		3,127,200	1,928
September	2,425,153	98.46		2,425,153	631		2,138,259	90.79		2,138,259	1,734
Total	5,821,449	98.05		5,799,854			5,289,956	88.58		5,265,459

__________

⁽¹⁾

Comprises mainly repurchases of common stock under the ~~2018~~2019 Stock Repurchase Program. There were ~~4,764~~4,765 and ~~16,831~~19,732 shares withheld in July and August, respectively, to cover taxes on restricted stock awards whose restrictions have lapsed. For additional information including our ~~2018~~2019 Stock Repurchase Program, see ~~“MD~~“MD&A—Capital ~~Management~~—Management—Dividend Policy and Stock ~~Purchases”.~~

Purchases.”

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

An index to exhibits has been filed as part of this Report and is incorporated herein by reference.




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EXHIBIT INDEX

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~QUARTERLY REPORT ON FORM 10-Q~~

~~DATED SEPTEMBER 30, 2018~~

~~Commission File No. 1-13300~~

The following exhibits are incorporated by reference or filed herewith. ~~References~~Reference to the “2003 Form 10-K” ~~are~~is to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 5, 2004.



Exhibit No.		Description
3.1		Restated Certificate of Incorporation of Capital One Financial Corporation (as restated April 30, 2015) (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on May 4, 2015).
3.2		Amended and Restated Bylaws of Capital One Financial Corporation, dated October 5, 2015 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on October 5, 2015).
3.3.1		Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B, dated August 16, 2012 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on August 20, 2012).
3.3.2		Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C, dated June 11, 2014 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed June 12, 2014).
3.3.3		Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series D, dated October 29, 2014 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed October 31, 2014).
3.3.4		Certificate of Designations of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series E, dated May 12, 2015 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed May 14, 2015).
3.3.5		Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series F, dated August 20, 2015 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed August 24, 2015).
3.3.6		Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series G, dated July 28, 2016 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed July 29, 2016).
3.3.7		Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series H, dated November 28, 2016 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on November 29, 2016).
3.3.8		Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series I, dated September 10, 2019 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on September 11, 2019).
4.1.1		Specimen certificate representing the common stock of Capital One Financial Corporation (incorporated by reference to Exhibit 4.1 of the 2003 Form 10-K).
4.1.2		Warrant Agreement, dated December 3, 2009, between Capital One Financial Corporation and Computershare Trust Company, N.A. (incorporated by reference to the Exhibit 4.1 of the Form 8-A, filed on December 4, 2009).
4.1.3		Deposit Agreement, dated August 20, 2012 (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K, filed on August 20, 2012).
4.2		Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, copies of instruments defining the rights of holders of long-term debt are not filed. The Company agrees to furnish a copy thereof to the SEC upon request.
12.1*		~~Computation of Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends.~~
31.1*		Certification of Richard D. Fairbank.
31.2*		Certification of R. Scott Blackley.
32.1**		Certification**Certification of Richard D. Fairbank.
32.2**		Certification**Certification of R. Scott Blackley.
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*		Inline XBRL Taxonomy Extension Schema Document.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*		The cover page of Capital One Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL (included within the Exhibit 101 attachments).

__________


*	Indicates a document being filed with this Form 10-Q.

Indicates a document being furnished with this Form 10-Q. Information in this Form 10-Q furnished herewith shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 ~~Act~~ or otherwise subject to the liabilities of that ~~section.~~Section. Such exhibit shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.




	~~133~~138	Capital One Financial Corporation (COF)

Table of Contents

SIGNATURES

Pursuant to the requirements ~~of Section 13~~ of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		CAPITAL ONE FINANCIAL CORPORATION

Date: October 31, ~~2018~~2019	By:	/s/ R. SCOTT BLACKLEY
		R. Scott Blackley
		Chief Financial Officer




	~~134~~139	Capital One Financial Corporation (COF)



	Glossary and Acronyms	60
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	136
Item 4.	Controls and Procedures	136

PART II—OTHER INFORMATION		~~132~~137
Item 1.	Legal Proceedings	~~132~~137
Item 1A.	Risk Factors	~~132~~137
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	~~132~~137
Item 3.	Defaults Upon Senior Securities	~~132~~137
Item 4.	Mine Safety Disclosures	~~132~~137
Item 5.	Other Information	~~132~~137
Item 6.	Exhibits	~~132~~137

EXHIBIT INDEX		~~133~~138
SIGNATURES		~~134~~139



	September 30, 2018		December 31, 2017
Total allowance coverage ratio	3.02	%	2.95	%
Allowance coverage ratios by loan category:⁽¹⁾
Credit card (30+ day delinquent loans)	131.35		123.36
Consumer banking (30+ day delinquent loans)	26.58		30.95
Commercial banking (nonperforming loans)	252.89		215.14

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company