Business Segment Financial Performance

Table 9 summarizes our business segment results, which we report based on revenue and income (loss) from continuing operations, for the third quarter and first nine months of ~~2019~~2020 and ~~2018.~~2019.

Table 9: Business Segment Results


	Three Months Ended September 30,
	2020								2019
	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	$	4,305	58	%	$	1,414	59	%	$	4,416	63	%	$	734	55	%
Consumer Banking	2,011		27		796		33		1,847		27		505		38
Commercial Banking(3)	754		10		309		13		707		10		154		12
Other(3)	311		5		(113)		(5)		(11)		—		(64)		(5)
Total	$	7,381	100	%	$	2,406	100	%	$	6,959	100	%	$	1,329	100	%


	Nine Months Ended September 30,
	2020								2019
	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	$	13,132	62	%	$	(110)	(74)	%	$	13,525	64	%	$	2,423	56	%
Consumer Banking	5,556		26		630		423		5,561		26		1,516		35
Commercial Banking(3)	2,181		10		(220)		(148)		2,097		10		457		10
Other(3)	317		2		(151)		(101)		(17)		—		(41)		(1)
Total	$	21,186	100	%	$	149	100	%	$	21,166	100	%	$	4,355	100	%

__________

(1)Total net revenue (loss) 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 (loss) 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 of 21% and state taxes where applicable, with offsetting reductions to the Other category.

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 %




			2122			Capital One Financial Corporation (COF)

Table of Contents

~~__________~~


⁽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 of 21% and state taxes where applicable, with offsetting reductions to the Other category.

⁽⁴⁾

In the first quarter of 2019, we made a change in how revenue is measured in our Commercial Banking business by revising the allocation of tax benefits on certain tax-advantaged investments. 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 our Commercial Banking business by $26 million ~~and $88 million~~ ~~for the third quarter and first nine months of 2018, with an offsetting increase in the Other category.~~

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 $1.4 billion in the third quarter of 2020 and a net loss of $110 million in the first nine months of 2020, compared to net income 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.

Table 10 summarizes the financial results of our Credit Card business and displays selected key metrics for the periods indicated.

Table 10: Credit Card Business Results


	Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in millions, except as noted)	2020			2019			Change		2020			2019			Change
Selected income statement data:
Net interest income	$	3,292		$	3,546		(7)	%	$	10,363		$	10,667		(3)	%
Non-interest income	1,013			870			16		2,769			2,858			(3)
Total net revenue(1)	4,305			4,416			(3)		13,132			13,525			(3)
Provision for credit losses	450			1,087			(59)		7,096			3,571			99
Non-interest expense	2,003			2,360			(15)		6,180			6,784			(9)
Income (loss) from continuing operations before income taxes	1,852			969			91		(144)			3,170			**
Income tax provision (benefit)	438			235			86		(34)			747			**
Income (loss) from continuing operations, net of tax	$	1,414		$	734		93		$	(110)		$	2,423		**
Selected performance metrics:
Average loans held for investment(2)	$	105,367		$	112,371		(6)		$	112,272		$	111,545		1
Average yield on loans held for investment(3)	13.83		%	15.55		%	(172)	bps	14.03		%	15.66		%	(163)	bps
Total net revenue margin(4)	16.34			15.72			62		15.59			16.17			(58)
Net charge-offs	$	943		$	1,151		(18)	%	$	3,590		$	3,835		(6)	%
Net charge-off rate	3.58		%	4.09		%	(51)	bps	4.26		%	4.58		%	(32)	bps
Purchase volume	$	107,102		$	108,034		(1)	%	$	297,171		$	308,134		(4)	%

(Dollars in millions, except as noted)	September 30, 2020			December 31, 2019			Change
Selected period-end data:
Loans held for investment(2)(5)	$	103,641		$	128,236		(19)	%
30+ day performing delinquency rate	2.20		%	3.89		%	(169)	bps
30+ day delinquency rate	2.21			3.91			(170)
Nonperforming loan rate(6)	0.02			0.02			—
Allowance for credit losses(2)	$	11,612		$	5,395		115	%
Allowance coverage ratio	11.20		%	4.21		%	699	bps

__________

(1)

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

~~__________~~

⁽¹⁾

We recognize ~~billed~~ finance charges and fee income on open-ended loans in accordance with the contractual provisions of the credit arrangements and charge-off uncollectible amounts. Total net revenue was reduced by $235 million and $942 million in the third quarter and first nine months of 2020 for finance charges and fees charged-off as uncollectible and by $330 million and $1.0 billion in the third quarter and first nine months of 2019 for 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, for the estimated uncollectible~~




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

~~Table of Contents~~

amount of billed finance charges and fees and related losses. ~~The~~

(2)Period-end loans held for investment and average loans held for investment include billed finance charges and fees. Concurrent with our adoption of the CECL standard in the first quarter of 2020, we reclassified our finance charge and fee reserve ~~totaled $454 million~~to our allowance for credit losses, with a corresponding increase to credit card loans held for investment.

(3)Average yield on loans held for investment is calculated by dividing 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 ~~$468 million~~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.

(5)We transferred a $2.1 billion partnership loan portfolio to held for sale as of September 30, ~~2019 and December 31, 2018, respectively.~~2020.


⁽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⁾ 23	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.Capital One Financial Corporation (COF)


⁽⁴⁾ Table of Contents (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. ** Not meaningful	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.


⁽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 ~~2019~~2020 compared to the third quarter and first nine months of ~~2018,~~2019, and changes in financial condition and credit performance between September 30, ~~2019~~2020 and December 31, ~~2018~~2019 include the following:

•

•Net Interest Income: Net interest income decreased by $254 million to $3.3 billion in the third quarter of 2020 primarily driven by lower margins and lower average loan balances from customer behavior in response to the COVID-19 pandemic. Net interest income decreased by $304 million to $10.4 billion in the first nine months of 2020 primarily driven by lower margins, partially offset by growth in our domestic credit card loan portfolio, including the acquired Walmart portfolio.

•Non-Interest Income: Non-interest income increased by $143 million to $1.0 billion in the third quarter of 2020 primarily driven by higher revenues from card partnership arrangements and a release in our U.K. PPI reserve in the current quarter compared to a build in the prior year quarter. Non-interest income decreased by $89 million to $2.8 billion in the first nine months of 2020 primarily driven by lower net interchange fees from a decline in purchase volume, partially offset by higher revenues from card partnership arrangements.

•Provision for Credit Losses: Provision for credit losses decreased by $637 million to $450 million in the third quarter of 2020 primarily driven by an allowance release for partnership loans moved to held-for sale and lower loan balances. Provision for credit losses increased by $3.5 billion to $7.1 billion in the first nine months of 2020 driven by allowance builds in the first and second quarters of 2020 due to expectations of economic worsening as a result of the COVID-19 pandemic.

•Non-Interest Expense: Non-interest expense decreased by $357 million to $2.0 billion in the third quarter of 2020 and decreased by $604 million to $6.2 billion in the first nine months of 2020 primarily driven by our decision to decrease marketing spend in the current economic environment. The third quarter of 2020 also benefited from a release in our U.K. PPI reserve compared to a build in the prior year quarter.

• Net interest income decreased by $50 million to $3.5 billion in the third quarter of 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 $117 million to $10.7 billion in the first nine months of 2019 primarily driven by growth in our domestic credit card loan portfolio, partially offset by the impact of the U.K. PPI Reserve build.

•

~~Non-Interest Income:~~ Non-interest income decreased by $23 million to $870 million in the third quarter of 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 $224 million to $2.9 billion in the first nine months of 2019 primarily due to an increase in net interchange fees driven by higher purchase 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 increased by $56 million to $1.1 billion in the third quarter of 2019 primarily driven by a smaller allowance release in our domestic credit card loan portfolio. The provision for credit losses decreased by $87 million to $3.6 billion in the first nine months of 2019 primarily driven by 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.

•

~~Non-Interest Expense:~~ Non-interest expense increased by $257 million to $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 $2.6 billion to $111.5 billion in the first nine months of 2019 compared to the first nine months of 2018 primarily due to growth in our domestic credit card loan portfolio.

•

◦Period-end loans held for investment decreased by $24.6 billion to $103.6 billion as of September 30, 2020 from December 31, 2019 and average loans held for investment decreased by $7.0 billion to $105.4 billion in the third quarter of 2020 compared to the third quarter of 2019 primarily due to a decline in purchase volume and higher payments in response to the COVID-19 pandemic. Period-end loans held for investment also declined due to the transfer of a $2.1 billion partnership loan portfolio to held for sale as of September 30, 2020.

◦Average loans held for investment increased by $727 million to $112.3 billion in the first nine months of 2020 compared to the first nine months of 2019 primarily due to the acquired Walmart portfolio, largely offset by a decline in purchase volume and higher payments in response to the COVID-19 pandemic.

•Net Charge-Off and Delinquency Metrics: The net charge-off rate decreased by 51 basis points to 3.58% in the third quarter of 2020 compared to the third quarter of 2019 and decreased by 32 basis points to 4.26% in the first nine months of 2020 compared to the first nine months of 2019 primarily driven by strong credit performance in Domestic Card due to consumer payment behavior, the impact of the government stimulus, and the impact of the acquired Walmart portfolio.

The 30+ day delinquency rate decreased by 170 basis points to 2.21% as of September 30, 2020 from December 31, 2019 due to lower delinquency inventories in our domestic credit card loan portfolio primarily driven by consumer payment behavior, the impact of government stimulus, and seasonality.

The net charge-off rate decreased by 6 basis points to 4.09% in the third quarter of 2019 compared to the third quarter of 2018, and decreased by 4 basis points to 4.58% in the first nine months of 2019 compared to the first nine months of 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 due to the strong economy and stable underlying credit performance in our domestic credit card loan portfolio.




			2324			Capital One Financial Corporation (COF)

Table of Contents

Domestic Card Business

The Domestic Card business generated net income from continuing operations of $1.3 billion in the third quarter of 2020 and net loss of $192 million in the first nine months of 2020, compared to 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. In the third quarter and first nine months of ~~2019~~2020 and ~~2018,~~2019, the Domestic Card business accounted for greater than 90% of total net revenue of our Credit Card business.

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

Table 10.1: Domestic Card Business Results


	Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in millions, except as noted)	2020			2019			Change		2020			2019			Change
Selected income statement data:
Net interest income	$	2,995		$	3,299		(9)	%	$	9,470		$	9,792		(3)	%
Non-interest income	952			878			8		2,589			2,722			(5)
Total net revenue(1)(2)	3,947			4,177			(6)		12,059			12,514			(4)
Provision for credit losses	378			1,010			(63)		6,748			3,325			103
Non-interest expense	1,802			2,076			(13)		5,562			6,059			(8)
Income (loss) from continuing operations before income taxes	1,767			1,091			62		(251)			3,130			**
Income tax provision (benefit)	419			254			65		(59)			729			**
Income (loss) from continuing operations, net of tax	$	1,348		$	837		61		$	(192)		$	2,401		**
Selected performance metrics:
Average loans held for investment(3)	$	97,306		$	103,426		(6)		$	103,980		$	102,677		1
Average yield on loans held for investment(4)	13.57		%	15.74		%	(217)	bps	13.82		%	15.67		%	(185)	bps
Total net revenue margin(5)	16.22			16.15			7		15.46			16.25			(79)
Net charge-offs	$	885		$	1,065		(17)	%	$	3,359		$	3,599		(7)	%
Net charge-off rate	3.64		%	4.12		%	(48)	bps	4.31		%	4.67		%	(36)	bps
Purchase volume	$	98,107		$	99,087		(1)	%	$	273,215		$	282,878		(3)	%

(Dollars in millions, except as noted)	September 30, 2020			December 31, 2019			Change
Selected period-end data:
Loans held for investment(3)(6)	$	95,541		$	118,606		(19)	%
30+ day performing delinquency rate	2.21		%	3.93		%	(172)	bps
Allowance for credit losses	$	11,062		$	4,997		121	%
Allowance coverage ratio	11.58		%	4.21		%	737	bps

__________

(1)

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 $ 3,299
$ 3,280
1 % $ 9,792
$ 9,617
2 %
Non-interest income 878
819
7
2,722
2,411
13
Total net revenue⁽¹⁾
4,177
4,099
2
12,514
12,028
4
Provision for credit losses 1,010
950
6
3,325
3,424
(3 )
Non-interest expense 2,076
1,890
10
6,059
5,405
12
Income from continuing operations before income taxes 1,091
1,259
(13 ) 3,130
3,199
(2 )
Income tax provision 254
293
(13 ) 729
745
(2 )
Income from continuing operations, net of tax $ 837
$ 966
(13 ) $ 2,401
$ 2,454
(2 )
Selected performance metrics:
Average loans held for investment⁽²⁾
$ 103,426
$ 100,566
3
$ 102,677
$ 99,970
3
Average yield on loans held for investment⁽³⁾
15.74 % 15.73 % 1 bps 15.67 % 15.29 % 38 bps
Total net revenue margin⁽⁴⁾
16.15
16.30
(15 ) 16.25
16.04
21
Net charge-offs $ 1,065
$ 1,094
(3 )% $ 3,599
$ 3,581
1 %
Net charge-off rate 4.12 % 4.35 % (23 )bps 4.67 % 4.78 % (11 )bps
Purchase volume⁽⁵⁾
$ 99,087
$ 89,205
11 % $ 282,878
$ 257,340
10 %

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

~~__________~~We recognize finance charges and fee income on open-ended loans in accordance with the contractual provisions of the credit arrangements and charge-off uncollectible amounts. Finance charges and fees charged-off as uncollectible are reflected as a reduction in total net revenue.


⁽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.~~

(2)We pay bounties to third parties for new accounts, which are considered loan origination costs and therefore deferred and amortized as an offset to revenue. Total net revenue was reduced by $97 million and $370 million in the third quarter and first nine months of 2020 and by $127 million and $333 million in the third quarter and first nine months of 2019 due to the amortization of these bounties. As of September 30, 2020, approximately $95 million of deferred bounty payments remained to be amortized in future periods.

(3)Period-end loans held for investment and average loans held for investment include billed finance charges and fees. Concurrent with our adoption of the CECL standard in the first quarter of 2020, we reclassified our finance charge and fee reserve to our allowance for credit losses, with a corresponding increase to credit card loans held for investment.

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

(6)We transferred a $2.1 billion partnership loan portfolio to held for sale as of September 30, 2020.

** Not meaningful




			2425			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~~Income for our Domestic Card business ~~decreased~~increased in the third quarter of ~~2019~~2020 compared to the third quarter of ~~2018 primarily driven by:~~

~~expenses related to the Walmart partnership~~2019 and ~~continued investments in technology and infrastructure; and~~

~~higher provision for credit 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 portfolio.~~

~~Net income for our Domestic Card business~~ decreased in the first nine months of ~~2019~~2020 compared to the first nine months of ~~2018~~2019 primarily driven ~~by expenses related~~by:

•lower provision for credit losses in the third quarter of 2020 due to an allowance release for partnership loans moved to held-for sale and lower loan balances, and higher provision for credit losses in 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~~first nine months of 2020 driven by ~~higher purchase volume~~allowance builds in the first and ~~the updated rewards cost estimates as well~~second quarters of 2020 due to expectations of economic worsening as a ~~gain on~~result of the ~~sale of certain partnership receivables; and~~COVID-19 pandemic;

~~higher~~•lower net interest income ~~primarily driven~~in the third quarter of 2020 due to lower margins and lower average loan balances from customer behavior in response to the COVID-19 pandemic, and lower net interest income in the first nine months of 2020 due to lower margins, partially offset by growth in our domestic credit card loan ~~portfolio.~~portfolio, including the acquired Walmart portfolio;

•higher non-interest income in the third quarter of 2020 primarily driven by higher revenues from card partnership arrangements, and lower non-interest income in the first nine months of 2020 primarily driven by lower net interchange fees from a decline in purchase volume, partially offset by higher revenues from card partnership arrangements; and

•lower non-interest expense primarily driven by our decision to decrease marketing spend in the current economic environment.



			26			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 $796 million and $630 million in the third quarter and first nine months of 2020, respectively, and $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.




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

~~Table of Contents~~

Table 11 summarizes the financial results of our Consumer Banking business and displays selected key metrics for the periods indicated.

Table 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 %

~~__________~~


⁽¹⁾	~~In 2018, we sold all of our consumer home loan portfolio and the related servicing. The impact of this sale is reflected in the Other 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 and 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 and repossessed assets.


**	~~Not meaningful.~~


	Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in millions, except as noted)	2020			2019			Change		2020			2019			Change
Selected income statement data:
Net interest income	$	1,904		$	1,682		13	%	$	5,226		$	5,070		3	%
Non-interest income	107			165			(35)		330			491			(33)
Total net revenue	2,011			1,847			9		5,556			5,561			—
Provision (benefit) for credit losses	(43)			203			**		1,693			603			181
Non-interest expense	1,011			985			3		3,038			2,981			2
Income from continuing operations before income taxes	1,043			659			58		825			1,977			(58)
Income tax provision	247			154			60		195			461			(58)
Income from continuing operations, net of tax	$	796		$	505		58		$	630		$	1,516		(58)
Selected performance metrics:
Average loans held for investment:
Auto	$	64,476		$	58,517		10		$	62,434		$	57,282		9

Retail banking	3,346			2,752			22		3,023			2,790			8
Total consumer banking	$	67,822		$	61,269		11		$	65,457		$	60,072		9
Average yield on loans held for investment(1)	8.36		%	8.47		%	(11)	bps	8.41		%	8.33		%	8	bps
Average deposits	$	248,418		$	204,933		21	%	$	231,988		$	203,404		14	%
Average deposits interest rate	0.66		%	1.31		%	(65)	bps	0.86		%	1.25		%	(39)	bps
Net charge-offs	$	48		$	251		(81)	%	$	486		$	644		(25)	%
Net charge-off rate	0.28		%	1.64		%	(136)	bps	0.99		%	1.43		%	(44)	bps
Auto loan originations	$	8,979		$	8,175		10	%	$	24,910		$	21,723		15	%

(Dollars in millions, except as noted)	September 30, 2020			December 31, 2019			Change
Selected period-end data:
Loans held for investment:
Auto	$	65,394		$	60,362		8	%
Retail banking	3,294			2,703			22
Total consumer banking	$	68,688		$	63,065		9
30+ day performing delinquency rate	3.62		%	6.63		%	(301)	bps
30+ day delinquency rate	3.90			7.34			(344)
Nonperforming loan rate	0.38			0.81			(43)
Nonperforming asset rate(2)	0.43			0.91			(48)
Allowance for credit losses	$	2,747		$	1,038		165	%
Allowance coverage ratio	4.00		%	1.65		%	235	bps
Deposits	$	249,684		$	213,099		17	%

__________




			2627			Capital One Financial Corporation (COF)

Table of Contents

(1)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.

(2)Nonperforming assets primarily consist of nonperforming loans and 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 and repossessed assets.

** Not meaningful.

Key factors affecting the results of our Consumer Banking business for the third quarter and first nine months of ~~2019~~2020 compared to the third quarter and first nine months of ~~2018,~~2019, and changes in financial condition and credit performance between September 30, ~~2019~~2020 and December 31, ~~2018~~2019 include the following:

•

•Net Interest Income: Net interest income increased by $46 million to $1.7 billion in the third quarter of 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 $210 million to $5.1 billion in the first nine months of 2019 primarily driven by growth and higher yields in our auto loan portfolio as well as higher margin and deposit volumes in our Retail Banking business, partially offset by the reduction in net interest income from the sale of our consumer home loan portfolio.

~~Consumer Banking loan yields~~ increased by ~~44 basis points~~$222 million to ~~8.47% and increased by 97 basis points to 8.33%~~$1.9 billion in the third quarter ~~and first nine months~~ of ~~2019, respectively, compared to the third quarter and first nine months of 2018. The increase was~~2020 primarily driven by ~~changes~~growth in ~~product mix due to the sale of~~ our ~~consumer home~~auto loan ~~portfolio and higher yields as a result of higher~~portfolio. Net interest ~~rates.~~


•	~~Non-Interest Income:~~ ~~Non-interest~~ income ~~remained substantially flat at $165 million in the third quarter of 2019 and $491 million in the first nine months of 2019.~~


•	~~Provision for Credit Losses:~~ The provision for credit losses increased by $19 million to $203 million in the third quarter of 2019 and increased by $68 million to $603 million in the first nine months of 2019 primarily driven by a smaller allowance release in our auto loan portfolio.

•

~~Non-Interest Expense:~~ Non-interest expense remained substantially flat at $1.0 billion in the third quarter of 2019 and $3.0 billion in the first nine months of 2019, as higher operating expenses due to growth in our auto loan portfolio and increased marketing expense associated with our national banking strategy were largely offset by lower operating expense due to the sale of our consumer home loan portfolio.

•

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


•	~~Deposits:~~ Period-end deposits increased by $7.8 billion to $206.4 billion as of September 30, 2019 from December 31, 2018 driven by strong growth in our deposit products as a result of our national banking strategy.


•	~~Net Charge-Off and Delinquency Metrics:~~ The net charge-off rate decreased by 13 basis points to 1.64% in the third quarter of 2019 compared to the third quarter of 2018 primarily driven by lower net charge-offs and growth in our auto loan portfolio.

~~The net charge-off rate~~ increased by ~~7 basis points~~$156 million to ~~1.43%~~$5.2 billion in the first nine months of 2020 primarily driven by growth in our auto loan portfolio, partially offset by lower margins in our Retail Banking business due to a decline in interest rates.

•Non-Interest Income: Non-interest income decreased by $58 million to $107 million in the third quarter of 2020 and decreased by $161 million to $330 million in the first nine months of 2020 primarily driven by lower service charges and fees on deposit accounts as a result of the COVID-19 pandemic.

•Provision for Credit Losses: Provision for credit losses decreased by $246 million to a benefit of $43 million in the third quarter of 2020 due to lower losses due to short-term payment extensions offered to affected auto borrowers in response to the COVID-19 pandemic and an allowance release due to favorable auction prices. Provision for credit losses increased by $1.1 billion to $1.7 billion in the first nine months of 2020 driven by allowance builds in the first and second quarters of 2020 due to expectations of economic worsening as a result of the COVID-19 pandemic.

•Non-Interest Expense: Non-interest expense increased by $26 million to $1.0 billion in the third quarter of 2020 and increased by $57 million to $3.0 billion in the first nine months of 2020 primarily driven by continued investment in technology and infrastructure.

•Loans Held for Investment: Period-end loans held for investment increased by $5.6 billion to $68.7 billion as of September 30, 2020 from December 31, 2019, and average loans held for investment increased by $6.6 billion to $67.8 billion in the third quarter of 2020 compared to the third quarter of 2019 and increased by $5.4 billion to $65.5 billion in the first nine months of 2020 compared to the first nine months of ~~2018~~2019 primarily ~~driven by lower loan balances~~ due to ~~the sale of our consumer home loan portfolio, partially offset by lower net charge-offs and~~ growth in our auto loan portfolio.

•Deposits: Period-end deposits increased by $36.6 billion to $249.7 billion as of September 30, 2020 from December 31, 2019 primarily driven by deposit growth from increased consumer savings aided by the impact of government stimulus.

•Net Charge-Off and Delinquency Metrics: The net charge-off rate decreased by 136 basis points to 0.28% in the third quarter of 2020 compared to the third quarter of 2019 and decreased by 44 basis points to 0.99% in the first nine months of 2020 compared to the first nine months of 2019 primarily driven by the impact of short-term payment extensions offered to affected auto borrowers in response to the COVID-19 pandemic.

•The 30+ day delinquency rate decreased by 50344 basis points to ~~6.86%~~3.90% as of September 30, ~~2019~~2020 from December 31, ~~2018 primarily attributable to growth in our auto loan portfolio and seasonally~~2019 driven by lower auto delinquency ~~inventories.~~inventories resulting from the short-term payment extensions offered to affected auto borrowers in response to the COVID-19 pandemic.



			28			Capital One Financial Corporation (COF)

Table of Contents

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~~transaction fees and other 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 and operating ~~costs and marketing expenses.~~costs.

Our Commercial Banking business generated net income from continuing operations of $309 million in the third quarter of 2020 and a net loss of $220 million in the first nine months of 2020, compared to net income of $154 million and $457 million in the third quarter and first nine months of 2019, ~~respectively, and $184 million and $634 million in the the third quarter and first nine months of 2018,~~ respectively.




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

~~Table of Contents~~

Table 12 summarizes the financial results of our Commercial Banking business and displays selected key metrics for the periods indicated.

~~Table 12:~~
~~Commercial 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 $ 486
$ 513
(5 )% $ 1,489
$ 1,536
(3 )%
Non-interest income 221
189
17
608
585
4
Total net revenue⁽¹⁾⁽²⁾
707
702
1
2,097
2,121
(1 )
Provision for credit losses⁽³⁾
93
54
72
244
74
230
Non-interest expense 414
408
1
1,258
1,220
3
Income from continuing operations before income taxes 200
240
(17 ) 595
827
(28 )
Income tax provision 46
56
(18 ) 138
193
(28 )
Income from continuing operations, net of tax $ 154
$ 184
(16 ) $ 457
$ 634
(28 )
Selected performance metrics:
Average loans held for investment:
Commercial and multifamily real estate $ 29,698
$ 28,354
5
$ 29,418
$ 27,406
7
Commercial and industrial 42,807
39,318
9
42,474
38,754
10
Total commercial lending 72,505
67,672
7
71,892
66,160
9
Small-ticket commercial real estate 2
364
(99 ) 93
378
(75 )
Total commercial banking $ 72,507
$ 68,036
7
$ 71,985
$ 66,538
8
Average yield on loans held for investment⁽¹⁾⁽⁴⁾
4.45 % 4.55 % (10 )bps 4.61 % 4.38 % 23 bps
Average deposits $ 30,693
$ 31,061
(1 )% $ 30,957
$ 32,679
(5 )%
Average deposits interest rate 1.25 % 0.79 % 46 bps 1.21 % 0.65 % 56 bps
Net charge-offs $ 60
$ 27
122 % $ 90
$ 39
131 %
Net charge-off rate 0.33 % 0.16 % 17 bps 0.17 % 0.08 % 9 bps

(Dollars in millions, except as noted) September 30, 2019 December 31, 2018 Change
Selected period-end data:
Loans held for investment:
Commercial and multifamily real estate $ 30,009
$ 28,899
4 %
Commercial and industrial 43,650
41,091
6

Total commercial lending 73,659
69,990
5

Small-ticket commercial real estate —
343
**

Total commercial banking $ 73,659
$ 70,333
5

Nonperforming loan rate 0.61 % 0.44 % 17 bps
Nonperforming asset rate⁽⁵⁾
0.61
0.45
16

Allowance for loan and lease losses⁽³⁾
$ 760
$ 637
19 %
Allowance coverage ratio 1.03 % 0.91 % 12 bps
Deposits $ 30,923
$ 29,480
5 %
Loans serviced for others 36,903
32,588
13

~~__________~~


⁽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 reductions to the Other category.

⁽²⁾




			2829			Capital One Financial Corporation (COF)

Table of Contents

Table 12: Commercial Banking Business Results


	Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in millions, except as noted)	2020			2019			Change		2020			2019			Change
Selected income statement data:
Net interest income	$	517		$	486		6	%	$	1,526		$	1,489		2	%
Non-interest income	237			221			7		655			608			8
Total net revenue(1)	754			707			7		2,181			2,097			4
Provision (benefit) for credit losses(2)	(74)			93			**		1,209			244			**
Non-interest expense	424			414			2		1,261			1,258			—
Income (loss) from continuing operations before income taxes	404			200			102		(289)			595			**
Income tax provision (benefit)	95			46			107		(69)			138			**
Income (loss) from continuing operations, net of tax	$	309		$	154		101		$	(220)		$	457		**
Selected performance metrics:
Average loans held for investment:
Commercial and multifamily real estate	$	30,918		$	29,698		4		$	31,239		$	29,418		6
Commercial and industrial	45,404			42,807			6		46,264			42,474			9
Total commercial lending	76,322			72,505			5		77,503			71,892			8
Small-ticket commercial real estate	—			2			**		—			93			**
Total commercial banking	$	76,322		$	72,507		5		$	77,503		$	71,985		8
Average yield on loans held for investment(1)(3)	2.82		%	4.45		%	(163)	bps	3.23		%	4.61		%	(138)	bps
Average deposits	$	36,278		$	30,693		18	%	$	34,391		$	30,957		11	%
Average deposits interest rate	0.25		%	1.25		%	(100)	bps	0.47		%	1.21		%	(74)	bps
Net charge-offs	$	82		$	60		37	%	$	293		$	90		**
Net charge-off rate	0.43		%	0.33		%	10	bps	0.50		%	0.17		%	33	bps

(Dollars in millions, except as noted)	September 30, 2020			December 31, 2019			Change
Selected period-end data:
Loans held for investment:
Commercial and multifamily real estate	$	31,197		$	30,245		3	%
Commercial and industrial	44,697			44,263			1


Total commercial banking	$	75,894		$	74,508		2
Nonperforming loan rate	1.01		%	0.60		%	41	bps
Nonperforming asset rate(4)	1.01			0.60			41
Allowance for credit losses(2)	$	1,770		$	775		128	%
Allowance coverage ratio	2.33		%	1.04		%	129	bps
Deposits	$	36,783		$	32,134		14	%
Loans serviced for others	41,602			38,481			8

__________

(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 reductions to the Other category.

(2)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 is included in other liabilities on our consolidated balance sheets. Our reserve for unfunded lending commitments totaled $195 million and $130 million as of September 30, 2020 and December 31, 2019, respectively.

(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)Nonperforming assets consist of nonperforming loans 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 and other foreclosed assets.

** Not meaningful.


⁽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 ~~$149 millionand $118 million as ofSeptember 30, 2019 and December 31, 2018, respectively.~~


⁽⁴⁾ 30	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.Capital One Financial Corporation (COF)


⁽⁵⁾ Table of Contents	Nonperforming assets consist of nonperforming loans 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 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 ~~2019~~2020 compared to the third quarter and first nine months of ~~2018,~~2019, and changes in financial condition and credit performance between September 30, ~~2019~~2020 and December 31, ~~2018~~2019 include the following:

•

~~Net Interest Income:~~ Net interest income decreased by $27 million to $486 million in the third quarter of 2019 and decreased by $47 million to $1.5 billion in the first nine months of 2019 primarily driven by lower margin on loans and deposits, partially offset by growth across our commercial loan portfolios.

•Net Interest Income: Net interest income increased by $31 million to $517 million in the third quarter of 2020 and increased by $37 million to $1.5 billion in the first nine months of 2020 as higher average loans and deposits were partially offset by slightly lower loan margins.

•Non-Interest Income: Non-interest income increased by $16 million to $237 million in the third quarter of 2020 primarily driven by higher revenue from our agency business partially offset by lower activity in our capital markets business and increased by $47 million to $655 million in the first nine months of 2020 primarily driven by higher revenue from our agency and capital markets businesses.

•Provision for Credit Losses: Provision for credit losses decreased by $167 million to a benefit of $74 million in the third quarter of 2020 driven by an allowance release primarily due to lower loan balances. Provision for credit losses increased by $965 million to $1.2 billion in the first nine months of 2020 driven by allowance builds in the first and second quarters of 2020 due to expectations of economic worsening as a result of the COVID-19 pandemic as well as credit deterioration in our energy loan portfolio.

•Non-Interest Expense: Non-interest expense remained substantially flat at $424 million in the third quarter of 2020 and $1.3 billion in the first nine months of 2020.

•Loans Held for Investment: Period-end loans held for investment increased by $1.4 billion to $75.9 billion as of September 30, 2020 from December 31, 2019, and average loans held for investment increased by $3.8 billion to $76.3 billion in the third quarter of 2020 compared to the third quarter of 2019 and increased by $5.5 billion to $77.5 billion in the first nine months of 2020 compared to the first nine months of 2019 driven by growth across our commercial loan portfolio.

•Deposits: Period-end deposits increased by $4.6 billion to $36.8 billion as of September 30, 2020 from December 31, 2019 primarily driven by elevated client liquidity.

•Net Charge-Off and Nonperforming Metrics: The net charge-off rate increased by 10 basis points to 0.43% in the third quarter of 2020 primarily driven by isolated charge-offs in our real estate portfolio and increased by 33 basis points to 0.50% in the first nine months of 2020 primarily driven by elevated charge-offs in our energy loan portfolio.


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


•	~~Provision for Credit Losses:~~ ~~Provision for credit losses increased by $39 million to $93 million in the third quarter of 2019 and increased by $170 million to $244 million in the first nine months of 2019 primarily driven by~~ ~~charge-offs on certain underperforming energy borrowers in our commercial loan portfolio.~~


•	~~Non-Interest Expense:~~ Non-interest expense remained substantially flat at $414 million in the third quarter of 2019. Non-interest expense increased by $38 million to $1.3 billion in the first nine months of 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 $3.3 billion to $73.7 billion as of September 30, 2019 from December 31, 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.


•	~~Deposits:~~ ~~Period-end deposits increased by $1.4 billion to $30.9 billion as of September 30, 2019, from December 31, 2018 primarily driven by new business growth.~~


•	~~Net Charge-Off and Nonperforming Metrics:~~ ~~The net charge-off rate increased by 17 basis points to 0.33% in the third quarter of 2019 and increased by 9 basis points to 0.17% in the first nine months of 2019 primarily driven by~~ ~~charge-offs on certain underperforming energy borrowers in our commercial loan portfolio.~~

The nonperforming loan rate increased by 1741 basis points to ~~0.61%~~1.01% as of September 30, ~~2019~~2020 from December 31, ~~2018 primarily~~2019 driven by credit downgrades in ~~our commercial energy loan portfolio.~~industries that are impacted by the COVID-19 pandemic.

Other Category

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

•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;

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

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




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Table 13 summarizes the financial results of our Other category for the periods indicated.

Table 13: Other Category Results


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in millions)	2020		2019		Change		2020		2019		Change
Selected income statement data:
Net interest income (loss)	$	(158)	$	23	**		$	(75)	$	48	**
Non-interest income (loss)	469		(34)		**		392		(65)		**
Total net revenue (loss)(1)	311		(11)		**		317		(17)		**
Provision (benefit) for credit losses	(2)		—		**		2		—		**
Non-interest expense(2)	110		113		(3)	%	568		299		90	%
Income (loss) from continuing operations before income taxes	203		(124)		**		(253)		(316)		(20)
Income tax provision (benefit)	316		(60)		**		(102)		(275)		(63)
Loss from continuing operations, net of tax	$	(113)	$	(64)	77		$	(151)	$	(41)	**

__________

(1)

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2019 2018 Change 2019 2018 Change
Selected income statement data:
Net interest income $ 23
$ 41
(44 )% $ 48
$ 109
(56 )%
Non-interest income (loss) (34 ) (61 ) (44 ) (65 ) 285
**
Total net revenue (loss)⁽¹⁾⁽²⁾
(11 ) (20 ) (45 ) (17 ) 394
**
Benefit for credit losses —
(1 ) **
—
(49 ) **
Non-interest expense⁽³⁾
113
283
(60 ) 299
562
(47 )
Loss from continuing operations before income taxes (124 ) (302 ) (59 ) (316 ) (119 ) 166
Income tax benefit (60 ) (97 ) (38 ) (275 ) (129 ) 113
Income (loss) from continuing operations, net of tax $ (64 ) $ (205 ) (69 ) $ (41 ) $ 10
**

~~__________~~


⁽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 reductions to ~~the Other category.~~

⁽²⁾

In the first quarter of 2019, we made a change in how revenue is measured in our Commercial Banking business by revising the allocation of tax benefits on certain tax-advantaged investments. 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 our Commercial Banking business by $26 million ~~and $88 million~~ ~~for~~ ~~the third quarter and first nine months of 2018, respectively, with an offsetting 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 $64~~category.

(2)Includes legal reserve builds of $40 million ~~in the third quarter of 2019 compared to $205~~and $350 million, ~~in the third quarter of 2018,~~ and net ~~loss~~Cybersecurity Incident expenses of ~~$41~~$6 million ~~in the first nine months of 2019 compared to net income of $10~~and $21 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, including~~2020, respectively.

** Not meaningful.

Net loss from continuing operations was $113 million and $64 million in the ~~gains~~third quarter of 2020 and 2019, respectively, primarily driven by an increase in income tax provision due to changes in expectations in pre-tax income for 2020, partially offset by a gain of $470 million on our equity investment in Snowflake Inc., which recently completed its initial public offering.

Net loss from continuing operations was $151 million and $41 million in the ~~sales~~first nine months of ~~our consumer home loan portfolio, the impairment charge as a result of repositioning our investment securities portfolio,~~2020 and ~~the~~2019, respectively, primarily driven by legal reserve ~~build.~~builds and reduced income tax benefit, partially offset by the gain on our equity investment in Snowflake Inc. noted above.



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 this Report and in our ~~2018~~December 31, 2019 Form 10-K.

We have identified the following accounting ~~policies~~estimates 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~~Our critical accounting policies ~~govern:~~and estimates are as follows:

•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.



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Loan Loss Reserves

In the first quarter of 2020, we adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”) and updated our critical accounting policy and estimate for loan loss reserves. We maintain an allowance for credit losses that represents management’s current estimate of expected credit losses inherent in our credit card, consumer banking and commercial banking loans held for investment as of each balance sheet date. We also separately reserve for unfunded lending commitments that are not unconditionally cancellable. For all such loans and unfunded lending commitments, our estimate of expected credit losses includes a reasonable and supportable forecast period of one year and then reverts over a one-year period to historical losses. We build our allowance for credit losses and reserve for unfunded lending commitments through the provision for credit losses, which is driven by charge-offs, changes in the allowance for credit losses and changes in the reserve for unfunded lending commitments. The allowance for credit losses was $16.1 billion as of September 30, 2020 and $7.2 billion as of December 31, 2019.

We have an established process, using analytical tools and management judgment, to determine our allowance for credit losses. Establishing the allowance each quarter involves evaluating many factors including, but not limited to, historical loss and recovery experience, recent trends in delinquencies and charge-offs, risk ratings, the impact of bankruptcy filings, the value of collateral underlying secured loans, account seasoning, changes in our credit evaluation, underwriting and collection management policies, seasonality, credit bureau scores, current general economic conditions, our reasonable and supportable forecasts of future economic conditions, changes in the legal and regulatory environment and uncertainties in forecasting and modeling techniques used in estimating our allowance for credit losses. Key factors that have a significant impact on our allowance for credit losses include assumptions about employment levels, home prices and the valuation of commercial properties, automobiles and other collateral.

We have a governance framework intended to ensure that our estimate of the allowance for credit losses is appropriate. Our governance framework provides for oversight of methods, models, qualitative adjustments, process controls and results. At least quarterly, representatives from the Finance and Risk Management organizations review and assess our allowance methodologies, key assumptions and the appropriateness of the allowance for credit losses.

Groups independent of our estimation functions participate in the review and validation process. Tasks performed by these groups include periodic review of the rationale for and quantification of inputs requiring judgment as well as adjustments to results.

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 estimating credit losses. The Model Risk Office validates all models and requires ongoing monitoring of their performance.

In addition to the allowance for credit losses, on a quarterly basis, we review and assess our estimate of expected losses related to unfunded lending commitments that are not unconditionally cancellable. The factors impacting our assessment generally align with those considered in our evaluation of the allowance for credit losses for the Commercial Banking business. Changes to the reserve for losses on unfunded lending commitments are recorded through the provision for credit losses in the consolidated statements of income and to other liabilities on the consolidated balance sheets.

Although we examine a variety of externally available data, as well as our internal loan performance data, to determine our allowance for credit losses and reserve for unfunded lending commitments, our estimation process is subject to risks and uncertainties, including a reliance on historical loss and trend information that may not be representative of current conditions and indicative of future performance as well as economic forecasts that may not align with actual future economic conditions. Accordingly, our actual credit loss experience may not be in line with our expectations. We provide additional information on the methodologies and key assumptions used in determining our allowance for credit losses for each of our loan portfolio segments in “Note 1—Summary of Significant Accounting Policies” and changes in our allowance in “Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments.”

Finance Charge and Fee Reserve

Finance charges and fees on credit card loans are recorded in revenue when earned. Billed finance charges and fees on credit card loans are included in loans held for investment while unbilled finance charges and fees are included in interest receivable. We continue to accrue finance charges and fees on credit card loans until the account is charged off. Billed finance charges and fees that are charged-off are reflected as a reduction to revenue.



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Concurrent with our adoption of the CECL standard in the first quarter of 2020, we reclassified our finance charge and fee reserve of $462 million to our allowance for credit losses, with a corresponding increase to credit card loans held for investment. We review and assess the appropriateness of our finance charge and fee reserve on a quarterly basis. Our methodology for estimating the uncollectible portion of finance charges and fees is consistent with the methodology we use to estimate the allowance for credit losses on the principal portion of our credit card loan receivables.

Asset Impairment

In addition to our loan portfolio, we review other assets for impairment on a regular basis in accordance with applicable accounting guidance. This process requires significant management judgment and involves various estimates and assumptions.

Goodwill

We perform our goodwill impairment test annually on October 1 at a reporting unit level. As of our last annual test and as of September 30, 2020, we had four reporting units which included Credit Card, Auto Finance, Other Consumer Banking and Commercial Banking. We are also required to test goodwill for impairment when a triggering event occurs that indicates it is more likely than not that the fair value of a reporting unit is below its carrying amount. The macroeconomic, industry and market factors previously identified in the first quarter of 2020 coinciding with the COVID-19 pandemic have persisted in both the second and third quarters as there continued to be disruption in the economy and interest rates remain low. We determined it was more likely than not that the fair value of our reporting units remained in excess of their carrying values as of September 30, 2020. We will continue to monitor developments regarding the COVID-19 pandemic and measures implemented in response to the COVID-19 pandemic, our market capitalization, overall economic conditions and any other triggering events or circumstances that may cause an impairment of goodwill in the future.

In the first quarter of 2020, we adopted ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment and updated our critical accounting policy for goodwill impairment. Historical guidance for goodwill impairment testing prescribed that the company must compare each 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 to determine the impairment. This ASU eliminates the second step. Under the new guidance, an 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.

There have been no additional changes to our critical accounting policies and estimates described in our ~~2018~~December 31, 2019 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~~

2020

Standard

Guidance

Adoption Timing and Financial Statement Impacts

Reference Rate Reform

ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effect of Reference Rate Reform on Financial Reporting

Issued March 2020

The amendments in this ASU provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

This ASU is effective from March 12, 2020 through December 31, 2022 with early adoption as of January 1, 2020 permitted.

We are evaluating the expected impact of and our operational readiness for this ASU.

Income Tax Accounting Simplification

ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

Issued December 2019

Simplifies various aspects of the guidance on accounting for income taxes.

This ASU is effective January 1, 2021 with early adoption permitted, using the retrospective, modified retrospective and prospective methods of adoption.

We are currently evaluating the impact of adopting this standard.

~~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~~“Note 1—Summary of Significant Accounting ~~Policies~~”Policies” for information on the accounting standards we adopted in ~~2019.~~

2020.



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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, 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”). ~~The Basel III Capital Rule includes the “Basel~~




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~~III Standardized Approach” and the “Basel III Advanced Approaches.”~~ Moreover, the Banks, as insured depository institutions, are subject to Prompt Corrective Action (“PCA”) capital regulations.

The Basel III Capital Rule includes the “Basel III Standardized Approach” and the “Basel III Advanced Approaches.” We entered parallel run under Basel III Advanced Approaches on January 1, 2015, during which we ~~are~~were required to calculate capital ratios under both the Basel III Standardized Approach and the Basel III Advanced Approaches, though we ~~continue to use~~used 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~~amended the Basel III Capital Rule to 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~~are 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~~are no longer be subject to the Basel III Advanced Approaches and certain associated capital requirements ~~although~~and have the option of excluding certain elements of accumulated other comprehensive income (“AOCI”) from our regulatory capital. Effective in the first quarter of 2020, we ~~will remain subject to~~excluded certain elements of AOCI from our regulatory capital as permitted by the ~~countercyclical capital buffer and supplementary leverage ratio, which are currently required only for~~Tailoring Rules.

In July 2019, the Federal Banking Agencies finalized certain changes in the Basel III ~~Advanced Approaches institutions.~~ ~~We anticipate that we will~~Capital Rule for institutions 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~~including Capital ~~Rule finalized in July 2019~~One (“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, effective January 1, 2020, 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~~The Tailoring ~~Final~~ Rules and Capital Simplification Rule ~~will,~~have, taken together, ~~decrease~~decreased our capital requirements.

The Basel III Capital Rule ~~also introduced the supplementary leverage ratio for all Advanced Approaches~~requires 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. We calculate the ratio based on Tier 1 capital under the Basel III Standardized 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. As of September 30, 2019, the Company and CONA are subject to the Market Risk Rule. See “MD&A—~~Market Risk Profile” below for additional information.~~

~~For the description of the regulatory capital rules we are subject to, see “Part I—Item 1. Business—Supervision and Regulation” in our 2018 Form 10-K and “MD&A—Supervision and Regulation”.~~




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Table 14 provides a comparison of our regulatory capital ratios under the Basel III Standardized Approach, the regulatory minimum capital adequacy ratios and the PCA well-capitalized level for each ratio, where applicable, as of September 30, 2019 and December 31, 2018.

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

September 30, 2019 December 31, 2018
Capital
Ratio Minimum
Capital
Adequacy Well-
Capitalized Capital
Ratio Minimum
Capital
Adequacy Well-
Capitalized
Capital One Financial Corp:
Common equity Tier 1 capital⁽³⁾
12.5 % 4.5 % N/A
11.2 % 4.5 % N/A
Tier 1 capital⁽⁴⁾
14.4
6.0
6.0 % 12.7
6.0
6.0 %
Total capital⁽⁵⁾
16.8
8.0
10.0
15.1
8.0
10.0
Tier 1 leverage⁽⁶⁾
11.9
4.0
N/A
10.7
4.0
N/A
Supplementary leverage⁽⁷⁾
10.1
3.0
N/A
9.0
3.0
N/A
COBNA:

Common equity Tier 1 capital⁽³⁾
15.8
4.5
6.5
15.3
4.5
6.5
Tier 1 capital⁽⁴⁾
15.8
6.0
8.0
15.3
6.0
8.0
Total capital⁽⁵⁾
17.8
8.0
10.0
17.6
8.0
10.0
Tier 1 leverage⁽⁶⁾
14.2
4.0
5.0
14.0
4.0
5.0
Supplementary leverage⁽⁷⁾
11.5
3.0
N/A
11.5
3.0
N/A
CONA:

Common equity Tier 1 capital⁽³⁾
14.0
4.5
6.5
13.0
4.5
6.5
Tier 1 capital⁽⁴⁾
14.0
6.0
8.0
13.0
6.0
8.0
Total capital⁽⁵⁾
15.2
8.0
10.0
14.2
8.0
10.0
Tier 1 leverage⁽⁶⁾
9.4
4.0
5.0
9.1
4.0
5.0
Supplementary leverage⁽⁷⁾
8.4
3.0
N/A
8.0
3.0
N/A

~~__________~~


⁽¹⁾	~~Capital requirements that are not applicable are denoted by “N/A.”~~


⁽²⁾	~~Ratios as of September 30, 2019 are preliminary. As we continue to validate our data, the calculations are subject to change until we file our September 30, 2019 Form FR 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, 2019 and December 31, 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. ~~For banks~~In March 2020, the Federal Reserve issued a final rule to implement the stress capital buffer requirement (“Stress Capital Buffer Final Rule”). Pursuant to the Stress Capital Buffer Final Rule, which became effective in May 2020, the Federal Reserve will use the results of its supervisory stress test to determine the size of a banking institution’s stress capital buffer requirement. In particular, a banking institution’s stress capital buffer requirement will equal, subject to a floor of 2.5%, the ~~Advanced Approaches,~~sum of (i) the difference between the banking institution’s starting common equity Tier 1 capital ratio and its lowest projected common equity Tier 1 capital ratio under the severely adverse scenario of the Federal Reserve’s supervisory stress test plus (ii) the ratio of the banking institution’s projected four quarters of common stock dividends (for the fourth to seventh quarters of the planning horizon) to the projected risk-weighted assets for the quarter in which the banking institution’s projected common equity Tier 1 capital ratio reaches its minimum under the supervisory stress test.

In addition, Category III institutions, including the Company and the Banks, ~~the~~are subject to certain capital requirements formerly applicable only to Basel III Advanced Approaches banking organizations. Category III institutions are subject to a supplementary leverage ratio of 3.0% and their capital conservation buffer may be supplemented by an incremental countercyclical capital buffer of up to 2.5% composed of common equity Tier 1 capital and set at the discretion of the Federal Banking Agencies. As of September 30, ~~2019,~~2020, the countercyclical capital buffer was zero percent in the United States. A determination to increase the countercyclical capital buffer generally would be effective twelve months after the announcement of such an increase, unless the Federal Banking Agencies set an earlier effective date.

~~For 2019,~~



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The Market Risk Rule requires institutions subject to the rule to adjust their risk-based capital ratios to reflect the market risk in their trading portfolios. As of September 30, 2020, the Company and CONA are subject to the Market Risk Rule. See “MD&A—Market Risk Profile” below for additional information.

As part of the response to the COVID-19 pandemic, the Federal Banking Agencies adopted a final rule (“2020 CECL Transition Rule”) that provides banking organizations an optional five-year transition period to phase in the impact of CECL on regulatory capital (the “2020 CECL Transition Election”).

Pursuant to the 2020 CECL Transition Rule, banking organizations may elect to delay for two years the estimated impact of CECL on regulatory capital and then phase in the estimated cumulative impact of the initial two-year delay over the next three years. The estimated cumulative impact of CECL, which will be phased in during the three-year transition period, includes the after-tax impact of adopting the CECL standard and the estimated impact of CECL in the initial two years thereafter. The 2020 CECL Transition Rule introduced a uniform “scaling factor” of 25% for estimating the impact of CECL during the initial two years. The 25% “scaling factor” is an approximation of the impact of differences in credit loss allowances reflected under the CECL standard versus the incurred loss methodology. We made the 2020 CECL Transition Election in the first quarter of 2020, and therefore the applicable amounts presented in this Report reflect such election.

As of September 30, 2020, the minimum capital ~~requirement~~requirements plus the capital conservation buffer of 2.5% and the countercyclical capital buffer (currently set as 0%) for common equity Tier 1 capital, Tier 1 capital and total capital ratios iswere 7.0%, 8.5% and 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)~~0%) might restrict a ~~bank’s~~banking organization’s ability to distribute capital and make discretionary bonus payments. ~~As of~~

Under the stress capital buffer framework, our new “standardized approach capital conservation buffer” includes the stress capital buffer requirement, the countercyclical capital buffer and any G-SIB surcharge. Our stress capital buffer requirement is 5.6% for the period from October 1, 2020 through September 30, ~~2019,~~2021, at which point a revised stress capital buffer requirement will be applicable to us based on our 2021 stress testing results, the countercyclical capital buffer is currently set at 0%, and the G-SIB surcharge is not applicable to us. Therefore, the Company’s minimum capital requirements plus the standardized approach capital conservation buffer for common equity Tier 1 capital, Tier 1 capital and total capital ratios under the stress capital buffer framework are 10.1%, 11.6% and 13.6%, respectively, for the period from October 1, 2020 through September 30, 2021. If we fail to maintain our capital ratios above the minimum capital requirements plus the standardized approach capital conservation buffer, we will face increasingly strict limitations on capital distributions and discretionary bonus payments to certain executive officers.

The Company exceeded the minimum capital requirements and each of the Banks exceeded the minimum regulatory requirements and were ~~all above~~well capitalized under PCA requirements as of September 30, 2020 and December 31, 2019, respectively.

For the ~~applicable combined thresholds.~~

description of the regulatory capital rules we are subject to, see “MD&A—Supervision and Regulation” in this Report and our Quarterly Report on Form 10-Q for the period ended March 31, 2020 as well as “Part I—Item 1. Business—Supervision and Regulation” in our 2019 Form 10-K.




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Table 14: Capital Ratios Under Basel III(1)(2)


	September 30, 2020						December 31, 2019
	Ratio		Minimum Capital Adequacy		Well- Capitalized		Ratio		Minimum Capital Adequacy		Well- Capitalized
Capital One Financial Corp:
Common equity Tier 1 capital(3)	13.0	%	4.5	%	N/A		12.2	%	4.5	%	N/A
Tier 1 capital(4)	14.8		6.0		6.0	%	13.7		6.0		6.0	%
Total capital(5)	17.3		8.0		10.0		16.1		8.0		10.0
Tier 1 leverage(6)	10.6		4.0		N/A		11.7		4.0		N/A
Supplementary leverage(7)(8)	10.2		3.0		N/A		9.9		3.0		N/A
COBNA:
Common equity Tier 1 capital(3)	20.3		4.5		6.5		16.1		4.5		6.5
Tier 1 capital(4)	20.3		6.0		8.0		16.1		6.0		8.0
Total capital(5)	22.3		8.0		10.0		18.1		8.0		10.0
Tier 1 leverage(6)	16.2		4.0		5.0		14.8		4.0		5.0
Supplementary leverage(7)	13.0		3.0		N/A		12.1		3.0		N/A
CONA:
Common equity Tier 1 capital(3)	12.1		4.5		6.5		13.4		4.5		6.5
Tier 1 capital(4)	12.1		6.0		8.0		13.4		6.0		8.0
Total capital(5)	13.4		8.0		10.0		14.5		8.0		10.0
Tier 1 leverage(6)	7.4		4.0		5.0		9.2		4.0		5.0
Supplementary leverage(7)	6.7		3.0		N/A		8.2		3.0		N/A

__________

(1)Capital requirements that are not applicable are denoted by “N/A.”

(2)Ratios as of September 30, 2020 are preliminary. As we continue to validate our data, the calculations are subject to change until we file our September 30, 2020 Form FR 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.

(8)Supplementary leverage ratio for the Company as of September 30, 2020 excludes U.S. Treasury securities and deposits with the Federal Reserve Banks pursuant to an interim final rule issued by the Federal Reserve, see “MD&A—Supervision and Regulation” for more information.



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Table 15 presents regulatory capital under the Basel III Standardized Approach and regulatory capital metrics as of September 30, 2020 and December 31, 2019.

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


(Dollars in millions)	September 30, 2020		December 31, 2019
Regulatory Capital Under Basel III Standardized Approach
Common equity excluding AOCI	$	52,839	$	52,001
Adjustments:
AOCI, net of tax(1)	(122)		1,156
Goodwill, net of related deferred tax liabilities	(14,448)		(14,465)
Intangible assets, net of related deferred tax liabilities	(95)		(170)
Other(1)	—		(360)
Common equity Tier 1 capital	38,174		38,162
Tier 1 capital instruments	5,331		4,853

Tier 1 capital	43,505		43,015
Tier 2 capital instruments	3,675		3,377
Qualifying allowance for credit losses	3,775		3,956
Tier 2 capital	7,450		7,333
Total capital	$	50,955	$	50,348

Regulatory Capital Metrics
Risk-weighted assets	$	293,852	$	313,155
Adjusted average assets	409,602		368,511
Total leverage exposure	425,729		435,976

__________

(1)In the first quarter of 2020, we elected to exclude from our regulatory capital ratios certain components of AOCI as permitted under the Tailoring Rules. As such, we revised our presentation herein to only include those components of AOCI that impact our regulatory capital ratios.

Capital Planning and Regulatory Stress Testing

On June ~~27, 2019,~~25, 2020, the Federal Reserve ~~completed its 2019~~released the stress testing results for the 2020 Comprehensive Capital Analysis and Review (“CCAR”) cycle, including additional sensitivity analyses conducted due to the COVID-19 pandemic, and ~~did not object~~required all participating banking organizations, including us, to update and resubmit their capital plans. We resubmitted our ~~proposed adjusted~~updated capital plan on November 2, 2020.

Pursuant to the Federal Reserve’s capital plan rule, a participating banking organization, such as us, is prohibited from making capital distributions without the prior approval of the Federal Reserve following an event requiring the resubmission of its capital plan. ~~As a result of this non-objection to our capital plan, the Board of Directors authorized the repurchase of up to $2.2 billion of shares of our common stock beginning in~~Specifically for the third quarter of 2020, the Federal Reserve required all participating banking organizations, including us, to preserve capital by suspending share repurchases and capping common stock dividend payments to the lower of (i) the amount paid in the second quarter of 2020 and (ii) an amount equal to the average net income across the four preceding calendar quarters. Scheduled payments on additional Tier 1 and Tier 2 capital instruments, such as preferred stock and subordinated debt, were not similarly restricted.

On September 30, 2020, the Federal Reserve announced the extension of capital distribution restrictions through the fourth quarter of 2020 to ensure that large banking organizations maintain a high level of capital resilience. Specifically, for the fourth quarter of 2020, banking organizations with more than $100 billion in total assets, including us, continue to be required by the Federal Reserve to suspend share repurchases and to cap common stock dividends.

We suspended our 2019 Stock Repurchase Program on March 13, 2020 in response to the COVID-19 pandemic through the program’s expiration at the end of the second quarter of 2020. ~~We expect to maintain~~

Consistent with the Federal Reserve’s limitations on common stock dividend payments as described above, we reduced our quarterly dividend on our common stock offrom $0.40 per share ~~subject~~to $0.10 per share for the third quarter of 2020.



			38			Capital One Financial Corporation (COF)

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While our third quarter results would have permitted us to increase our common stock dividend pursuant to the ~~approval~~Federal Reserve’s limitations described above, we decided to maintain our quarterly dividend at $0.10 per share in the fourth quarter of 2020 as the ~~Board of Directors.~~ process surrounding our resubmitted capital plan has not yet completed.

For the description of the regulatory capital planning rules we are subject to, see “MD&A—Supervision and Regulation” in this Report and our Quarterly Report on Form 10-Q for the period ended March 31, 2020 as well as “Part I—Item 1. Business—Supervision and ~~Regulation~~”Regulation” in our ~~2018~~2019 Form 10-K.

Equity Offerings and Transactions

On ~~September 11, 2019,~~January 31, 2020, we issued ~~60,000,000~~50,000,000 depositary shares, each representing a 1/40th interest in a share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series I,J, $0.01 par value, with a liquidation preference of $25 per depositary share (“Series IJ Preferred Stock”). The net proceeds of the offering of Series IJ Preferred Stock were approximately ~~$1.5~~$1.2 billion, after deducting underwriting commissions and offering expenses. Dividends on the Series IJ Preferred Stock are payable quarterly in arrears at a rate of ~~5.00%~~4.80% per annum.

On March 2, 2020, we redeemed all outstanding shares of our Fixed Rate 6.00% Non-Cumulative Perpetual Preferred Stock Series B. The redemption increased our net loss available to common shareholders by $22 million in the first quarter of 2020.

On September 17, 2020, we issued 5,000,000 depositary shares, each representing a 1/40th interest in a share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series K, $0.01 par value, with a liquidation preference of $25 per depositary share (“Series K Preferred Stock”). The net proceeds of the offering of Series K Preferred Stock were approximately $121 million, after deducting underwriting commissions and offering expenses. Dividends on the Series K Preferred Stock are payable quarterly in arrears at a rate of 4.625% per annum.

On October ~~21, 2019,~~22, 2020, we announced that we will redeem all outstanding shares of our ~~Fixed-Rate 6.25%~~Fixed Rate 6.20% Non-Cumulative Perpetual Preferred Stock Series ~~C and Fixed-Rate 6.70% Non-Cumulative Perpetual Preferred Stock Series D,~~F on December ~~2, 2019. The~~1, 2020. We expect this redemption will reduce ~~our~~ net income available to common shareholders by approximately ~~$30~~$17 million in the fourth quarter of ~~2019.~~2020 and will reduce our Tier 1 capital ratio by an estimated 17 basis points.



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Dividend Policy and Stock Purchases

In the first nine months of ~~2019,~~2020, we declared and paid common stock dividends of ~~$573~~$417 million, or ~~$1.20~~$0.90 per share, and preferred stock dividends of ~~$185~~$212 million. The following table summarizes the dividends paid per share on our various preferred stock series in the first nine months of ~~2019.~~2020.

Table 16: Preferred Stock Dividends Paid Per Share


Series	Description	Issuance Date	Per Annum Dividend Rate	Dividend Frequency	2020
					Q3	Q2	Q1
Series B(1)	6.000% Non-Cumulative	August 20, 2012	6.000%	Quarterly	—	—	$15.00


Series E	Fixed-to-Floating Rate Non-Cumulative	May 14, 2015	5.550% through 5/31/2020; 3-mo. LIBOR + 380 bps thereafter	Semi-Annually through 5/31/2020; Quarterly thereafter	$10.61	$27.75	—
Series F	6.200% Non-Cumulative	August 24, 2015	6.200	Quarterly	15.50	15.50	15.50
Series G	5.200% Non-Cumulative	July 29, 2016	5.200	Quarterly	13.00	13.00	13.00
Series H	6.000% Non-Cumulative	November 29, 2016	6.000	Quarterly	15.00	15.00	15.00
Series I	5.000% Non-Cumulative	September 11, 2019	5.000	Quarterly	12.50	12.50	12.50
Series J	4.800% Non-Cumulative	January 31, 2020	4.800	Quarterly	12.00	16.13	—
Series K	4.625% Non-Cumulative	September 17, 2020	4.625	Quarterly	—	—	—

__________

(1)On March 2, 2020, we redeemed all outstanding shares of our preferred stock Series B.

Series Description Issuance Date Per Annum Dividend Rate Dividend Frequency 2019
Q3 Q2 Q1
Series B 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
Series D 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 —
Series F 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
Series H 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, regulatory requirements and other factors deemed relevant by the Board of Directors. As a BHC, our ability to pay dividends is largely dependent upon the receipt of dividends or other payments from our subsidiaries. ~~Regulatory~~The Banks are subject to regulatory restrictions ~~exist~~ that limit ~~the~~their ability ~~of the Banks~~ to transfer funds to our BHC. As of September 30, ~~2019,~~2020, funds available for dividend payments from COBNA and CONA were ~~$2.5~~$2.3 billion and ~~$5.3 billion,~~$917 million, respectively. There can be no assurance that we will declare and pay any dividends to stockholders.

Consistent with our 2019 Stock Repurchase Program which was announced on June 27, 2019, our Board of Directors authorized the repurchase of up to $2.2 billion of shares of common stock beginning in the third quarter of 2019 through the end of the second




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

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quarter of 2020. During the ~~third~~first quarter of ~~2019,~~2020, we repurchased approximately ~~$466~~$312 million of shares of our common stock under the 2019 Stock Repurchase ~~Program.~~Program before suspending further repurchases on March 13, 2020 in response to the COVID-19 pandemic through the program's expiration at the end of the second quarter of 2020. As noted above, for the third quarter of 2020, the Federal Reserve required all participating banking organizations, including us, to suspend share repurchases as a measure of capital preservation.

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 “MD&A—Capital Management—Capital Planning and Regulatory Stress Testing” and “Part I—Item 1.~~Business~~— Business—Supervision and ~~Regulation~~—Regulation—Dividends, Stock Repurchases and Transfers of Funds” in our ~~2018~~2019 Form 10-K.



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RISK MANAGEMENT

Risk Management Framework

~~The risk framework~~Our Risk Management Framework (the “Framework”) ~~was refined at the end of the second quarter of 2019 to 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.~~model, which defines the roles, responsibilities and accountabilities for taking and managing risk across the Company. Accountability for overseeing an effective Framework resides with our Board of Directors either directly or through its ~~committees while management~~committees.

The “First Line of Defense” consists of any line of business or function that is 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 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 ~~development~~risks associated with their activities, including identifying, assessing, measuring, monitoring, controlling, and ~~implementation~~reporting the risks within its business activities, consistent with the risk framework. The “Second Line of Defense” consists of two types of functions: Independent Risk Management (“IRM”) and Support Functions. IRM oversees risk-taking activities and assesses risks and issues independent from the first line of defense. Support Functions are centers of specialized expertise (e.g., Human Resources, Accounting, Legal) that provide support services to the Company. The “Third Line of Defense” is comprised of the ~~Framework.~~Internal Audit and Credit Review functions. The third line provides independent and objective assurance to senior management and to the Board of Directors that the first and second lines of defense have systems and governance processes which are well-designed and working as intended, and that the Framework is appropriate for our size, complexity and risk profile.

Our Framework consists of the following nine elements:

Governance and Accountability

Strategy and Risk Alignment

Risk Identification

Assessment, Measurement

~~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 manage risk holistically using the “Three Lines of Defense” model, which defines the roles, responsibilities and accountabilities for taking and managing risk across the Company.~~

The “First Line of Defense” consists of any line of business or function that is 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 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, measuring, monitoring, controlling, and reporting the risks within its business activities, consistent with the risk framework. The “Second Line of Defense” consists of two types of functions: Independent Risk Management (“IRM”) and Support Functions. IRM oversees risk-taking activities and assesses risks and issues independent from the first line of 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 the Internal Audit and Credit Review functions. The third line provides independent and objective assurance to senior management and to the Board of Directors that the first and second lines of defense have systems and governance processes which are well-designed and working as intended, and that the Framework is appropriate for the size, complexity and risk profile of Capital One.

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



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We provide additional discussion of our risk management principles, roles and responsibilities, framework and risk appetite under “MD&A—Risk Management” in our 2019 Form 10-K.

Risk Categories

We apply our Framework to protect the Company from the major categories of risk that we are exposed to through our business activities. We have seven major categories of risk as noted below. We provide a description of these categories and how we manage them under “MD&A—Risk Management” in our 2019 Form 10-K.

•Compliance risk

•Credit risk

•Liquidity risk

•Market risk

•Operational risk

•Reputation risk

•Strategic risk


CREDIT RISK PROFILE


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

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 ongoing credit and counterparty settlement risk, including 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 related to our investment securities portfolio under “MD&A—Consolidated Balance Sheets Analysis—Investment Securities” and credit risk related to derivative transactions in “Note 8—Derivative Instruments and Hedging Activities.”

Portfolio Composition of Loans Held for Investment

We provide a variety of lending products. Our primary products include credit cards, auto loans and commercial lending products. For information on our lending policies and procedures, including our underwriting criteria for our primary loan products, see “MD&A—Credit Risk Profile” in our 2019 Form 10-K.

Our loan portfolio consists of loans held for investment, including loans held in our consolidated trusts, and loans held for sale. The information presented in this section excludes loans held for sale, which totaled $3.4 billion and $400 million as of September 30, 2020 and December 31, 2019, respectively. Concurrent with our adoption of the CECL standard in the first quarter of 2020, we reclassified our finance charge and fee reserve to our allowance for credit losses, with a corresponding increase to credit card loans held for investment.

~~Table of Contents~~



			42			Capital One Financial Corporation (COF)

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~~CREDIT RISK PROFILE~~

Table 17 presents the composition of our portfolio of loans held for investment by portfolio segment as of September 30, 2020 and December 31, 2019.

Table 17: Portfolio Composition of Loans Held for Investment


	September 30, 2020				December 31, 2019
(Dollars in millions)	Loans		% of Total		Loans		% of Total
Credit Card:
Domestic credit card	$	95,541	38.5	%	$	118,606	44.6	%
International card businesses	8,100		3.3		9,630		3.6
Total credit card	103,641		41.8		128,236		48.2
Consumer Banking:
Auto	65,394		26.3		60,362		22.7
Retail banking(1)	3,294		1.3		2,703		1.0
Total consumer banking	68,688		27.6		63,065		23.7
Commercial Banking:(1)
Commercial and multifamily real estate	31,197		12.6		30,245		11.4
Commercial and industrial	44,697		18.0		44,263		16.7


Total commercial banking	75,894		30.6		74,508		28.1
Total loans held for investment	$	248,223	100.0	%	$	265,809	100.0	%

__________

(1)Includes PPP loans of $966 million and $242 million in our retail and commercial loan portfolios, respectively, as of September 30, 2020. See “MD&A—Credit Risk Profile—COVID-19 Customer Assistance Programs and Loan Modifications” for more information.

Geographic Composition

We market our credit card products throughout the United States, Canada and the United Kingdom. Our credit card loan portfolio is geographically diversified due to our product and marketing approach. The table below presents the geographic profile of our credit card loan portfolio as of September 30, 2020 and December 31, 2019.

Table 18: Credit Card Portfolio by Geographic Region


	September 30, 2020				December 31, 2019
(Dollars in millions)	Amount		% of Total		Amount		% of Total
Domestic credit card:
California	$	9,751	9.4	%	$	12,538	9.8	%
Texas	7,807		7.5		9,353		7.3
Florida	6,616		6.4		8,093		6.3
New York	6,172		6.0		7,941		6.2
Illinois	4,075		3.9		5,195		4.1
Pennsylvania	3,997		3.9		4,979		3.9
Ohio	3,491		3.4		4,388		3.4
New Jersey	3,096		3.0		3,915		3.1
Michigan	2,934		2.8		3,811		3.0
Other	47,602		45.9		58,393		45.4
Total domestic credit card	95,541		92.2		118,606		92.5
International card businesses:
Canada	5,498		5.3		6,493		5.1
United Kingdom	2,602		2.5		3,137		2.4
Total international card businesses	8,100		7.8		9,630		7.5
Total credit card	$	103,641	100.0	%	$	128,236	100.0	%

We also engage in certain non-lending activities that may give rise to credit and counterparty settlement risk, including 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~~

We provide a variety of lending products. Our primary products include credit cards, auto loans and commercial lending products. We sold all of our consumer home loan portfolio and the related servicing during 2018. For information on our lending policies and procedures, including our underwriting criteria for our primary loan products, see “MD&A—~~Credit Risk Profile” in our 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. Loans 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 $1.2 billion as of both September 30, 2019 and December 31, 2018.

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



			43			Capital One Financial Corporation (COF)

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

Our auto loan portfolio is geographically diversified in the United States due to our product and marketing approach. Retail banking includes small business loans and other consumer lending products originated through our branch network. The table below presents the geographic profile of our auto loan and retail banking portfolios as of September 30, 2020 and December 31, 2019.

Table 19: Consumer Banking Portfolio by Geographic Region


	September 30, 2020				December 31, 2019
(Dollars in millions)	Amount		% of Total		Amount		% of Total
Auto:
Texas	$	8,196	11.9	%	$	7,675	12.2	%
California	7,507		10.9		6,918		11.0
Florida	5,474		8.0		5,013		7.9
Georgia	2,976		4.3		2,757		4.4
Ohio	2,791		4.1		2,652		4.2
Pennsylvania	2,549		3.7		2,334		3.7
Illinois	2,415		3.5		2,239		3.6
North Carolina	2,265		3.3		2,060		3.3
Other	31,221		45.5		28,714		45.4
Total auto	65,394		95.2		60,362		95.7
Retail banking:
New York	1,125		1.7		793		1.3
Louisiana	679		1.0		708		1.1
Texas	619		0.9		595		1.0
Maryland	234		0.3		155		0.2
New Jersey	229		0.3		194		0.3
Virginia	189		0.3		125		0.2
Other	219		0.3		133		0.2
Total retail banking	3,294		4.8		2,703		4.3
Total consumer banking	$	68,688	100.0	%	$	63,065	100.0	%

We originate commercial loans in most regions of the United States. The table below presents the geographic profile of our commercial loan portfolio by segment as of September 30, 2020 and December 31, 2019.

Table 20: Commercial Banking Portfolio by Geographic Region


	September 30, 2020
(Dollars in millions)	Commercial and Multifamily Real Estate		% of Total		Commercial and Industrial		% of Total		Total Commercial Banking		% of Total
Geographic concentration:(1)
Northeast	$	17,761	56.9	%	$	8,540	19.1	%	$	26,301	34.7	%
Mid-Atlantic	3,424		11.0		6,311		14.1		9,735		12.8
South	3,524		11.3		15,535		34.8		19,059		25.1
Other	6,488		20.8		14,311		32.0		20,799		27.4
Total	$	31,197	100.0	%	$	44,697	100.0	%	$	75,894	100.0	%

~~Table of Contents~~



			44			Capital One Financial Corporation (COF)

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	December 31, 2019
(Dollars in millions)	Commercial and Multifamily Real Estate		% of Total		Commercial and Industrial		% of Total		Total Commercial Banking		% of Total
Geographic concentration:(1)
Northeast	$	17,139	56.7	%	$	7,899	17.8	%	$	25,038	33.6	%
Mid-Atlantic	3,024		10.0		5,927		13.4		8,951		12.0
South	4,087		13.5		16,403		37.1		20,490		27.5
Other	5,995		19.8		14,034		31.7		20,029		26.9
Total	$	30,245	100.0	%	$	44,263	100.0	%	$	74,508	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.

Commercial Loans by Industry

Table 21 summarizes our commercial loans held for investment portfolio by industry classification as of September 30, 2020 and December 31, 2019. Industry classifications below are based on our interpretation of the North American Industry Classification System codes as they pertain to each individual loan.

Table 21: Commercial Loans by Industry


(Percentage of portfolio)	September 30, 2020		December 31, 2019
Real estate	39	%	39	%
Finance	16		16
Healthcare	11		12
Business services	6		6
Educational services	5		4
Oil and gas	4		5
Public administration	4		4
Retail trade	3		4
Construction and land	3		2
Other	9		8
Total	100	%	100	%

Credit Risk Measurement

We closely monitor economic conditions and loan performance trends to assess and manage our exposure to credit risk. Trends in delinquency rates are the key credit quality indicator for our credit card and retail banking loan portfolios as changes in delinquency rates can provide an early warning of changes in potential future credit losses. The key indicator we monitor when assessing the credit quality and risk of our auto loan portfolio is borrower credit scores as they provide insight into borrower risk profiles, which give indications of potential future credit losses. The key credit quality indicator for our commercial loan portfolios is our internal risk ratings as we generally classify loans that have been delinquent for an extended period of time and other loans with significant risk of loss as nonperforming. In addition to these credit quality indicators, we also manage and monitor other credit quality metrics such as level of nonperforming loans and net charge-off rates.

We underwrite most consumer loans using proprietary models, which typically include credit bureau data, such as borrower credit scores, 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.

~~Commercial Loans~~

Table 18 summarizes our commercial loans held for investment portfolio by industry classification as of September 30, 2019 and December 31, 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,
2019 December 31,
2018
Real estate 38 % 40 %
Finance 16
16
Healthcare 12
12
Business services 6
5
Oil and gas 5
5
Public administration 4
4
Educational services 4
4
Retail trade 3
3
Construction and land 3
2
Other 9
9
Total 100 % 100 %

~~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.



			45			Capital One Financial Corporation (COF)

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

~~Table of Contents~~Table 22 provides details on the credit scores of our domestic credit card and auto loan portfolios as of September 30, 2020 and December 31, 2019.

Table 22: Credit Score Distribution


(Percentage of portfolio)	September 30, 2020		December 31, 2019
Domestic credit card—Refreshed FICO scores:(1)
Greater than 660	69	%	67	%
660 or below	31		33
Total	100	%	100	%
Auto—At origination FICO scores:(2)
Greater than 660	46	%	48	%
621 - 660	20		20
620 or below	34		32
Total	100	%	100	%

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

~~Table 19:~~ ~~Credit Score Distribution~~

(Percentage of portfolio) September 30,
2019 December 31,
2018
Domestic credit card—Refreshed FICO scores:⁽¹⁾

Greater than 660 68 % 67 %
660 or below 32
33
Total 100 % 100 %
Auto—At origination FICO scores:⁽²⁾

Greater than 660 48 % 50 %
621 - 660 20
19
620 or below 32
31
Total 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 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 3—Loans” for additional credit quality information and see “Note 1—Summary of Significant Accounting Policies” for information on our accounting policies for delinquent and nonperforming loans, charge-offs and troubled debt restructurings (“TDRs”) for each of our loan categories.

⁽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 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 2018 Form 10-K for information on our accounting policies for delinquent and nonperforming loans, 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, typically when the account is 180 days past due. See “~~Note~~“Note 1—Summary of Significant Accounting ~~Policies” in our 2018 Form 10-K~~Policies” 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~~in “MD&A—Business Segment Financial ~~Performance~~Performance.” Amounts as of September 30, 2020, include the impacts of COVID-19 customer assistance programs where applicable. See “MD&A—Credit Risk Profile—COVID-19 Customer Assistance Programs and Loan Modifications” for more information.”




			4046			Capital One Financial Corporation (COF)

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Table 2023 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, ~~2019~~2020 and December 31, ~~2018.~~2019.

Table ~~20:~~ 23: 30+ Day Delinquencies


	September 30, 2020								December 31, 2019
	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)
Credit Card:
Domestic credit card	$	2,108	2.21	%	$	2,108	2.21	%	$	4,656	3.93	%	$	4,656	3.93	%
International card businesses	173		2.15		185		2.29		335		3.47		353		3.66
Total credit card	2,281		2.20		2,293		2.21		4,991		3.89		5,009		3.91
Consumer Banking:
Auto	2,461		3.76		2,638		4.03		4,154		6.88		4,584		7.59
Retail banking	27		0.83		44		1.33		28		1.02		43		1.59
Total consumer banking	2,488		3.62		2,682		3.90		4,182		6.63		4,627		7.34
Commercial Banking:
Commercial and multifamily real estate	32		0.10		179		0.57		63		0.21		67		0.22
Commercial and industrial	80		0.18		359		0.80		101		0.23		244		0.55


Total commercial banking	112		0.15		538		0.71		164		0.22		311		0.42
Total	$	4,881	1.97		$	5,513	2.22		$	9,337	3.51		$	9,947	3.74

__________

(1)

September 30, 2019 December 31, 2018
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⁾
Credit Card:
Domestic credit card $ 3,880
3.71 % $ 3,880
3.71 % $ 4,335
4.04 % $ 4,335
4.04 %
International card businesses 318
3.52
334
3.71
317
3.52
333
3.70
Total credit card 4,198
3.69
4,214
3.71
4,652
4.00
4,668
4.01
Consumer Banking:
Auto 3,834
6.47
4,207
7.10
3,918
6.95
4,309
7.65
Retail banking 27
1.01
45
1.63
29
1.01
51
1.77
Total consumer banking 3,861
6.23
4,252
6.86
3,947
6.67
4,360
7.36
Commercial Banking:
Commercial and multifamily real estate 57
0.19
58
0.19
119
0.41
140
0.49
Commercial and industrial 71
0.16
236
0.54
176
0.43
279
0.68
Total commercial lending 128
0.17
294
0.40
295
0.42
419
0.60
Small-ticket commercial real estate —
—
—
—
1
0.39
7
1.84
Total commercial banking 128
0.17
294
0.40
296
0.42
426
0.61
Total $ 8,187
3.28
$ 8,760
3.51
$ 8,895
3.62
$ 9,454
3.84

~~__________~~Delinquency rates are calculated by dividing delinquency amounts by period-end loans held for investment for each specified loan category.


⁽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 2124 presents our 30+ day delinquent loans, by aging and geography, as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

Table ~~21:~~ 24: Aging and Geography of 30+ Day Delinquent Loans


	September 30, 2019				December 31, 2018					September 30, 2020				December 31, 2019
(Dollars in millions)	Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		(Dollars in millions)	Amount		Rate(1)		Amount		Rate(1)
Delinquency status:									Delinquency status:
30 – 59 days	$	4,009	1.60	%	$	4,282	1.73	%	30 – 59 days	$	2,675	1.07	%	$	4,444	1.67	%
60 – 89 days	2,264		0.91		2,430		0.99		60 – 89 days	1,231		0.50		2,537		0.95
> 90 days	2,487		1.00		2,742		1.12		> 90 days	1,607		0.65		2,966		1.12
Total	$	8,760	3.51	%	$	9,454	3.84	%	Total	$	5,513	2.22	%	$	9,947	3.74	%
Geographic region:									Geographic region:
Domestic	$	8,426	3.38	%	$	9,121	3.70	%	Domestic	$	5,328	2.15	%	$	9,594	3.61	%
International	334		0.13		333		0.14		International	185		0.07		353		0.13
Total	$	8,760	3.51	%	$	9,454	3.84	%	Total	$	5,513	2.22	%	$	9,947	3.74	%

__________

~~__________~~(1)


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




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Table 2225 summarizes loans that were 90+ days delinquent as to interest or principal, and still accruing interest as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. 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,~~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:~~ 25: 90+ Day Delinquent Loans Accruing Interest


	September 30, 2019				December 31, 2018					September 30, 2020				December 31, 2019
(Dollars in millions)	Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		(Dollars in millions)	Amount		Rate(1)		Amount		Rate(1)
Loan category:									Loan category:
Credit card	$	1,992	1.75	%	$	2,233	1.92	%	Credit card	$	1,083	1.04	%	$	2,407	1.88	%
Commercial banking	31		0.04		—		—
Consumer banking									Consumer banking	1		—		—		—

Total	$	2,023	0.81		$	2,233	0.91		Total	$	1,084	0.44		$	2,407	0.91
Geographic region:									Geographic region:
Domestic	$	1,904	0.79	%	$	2,111	0.89	%	Domestic	$	1,021	0.42	%	$	2,277	0.89	%
International	119		1.32		122		1.35		International	63		0.78		130		1.34
Total	$	2,023	0.81		$	2,233	0.91		Total	$	1,084	0.44		$	2,407	0.91

__________

~~__________~~(1)Delinquency rates are calculated by dividing delinquency amounts by period-end loans held for investment for each specified loan category.


⁽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, repossessed assets and other foreclosed ~~properties.~~assets. Nonperforming loans include loans that have been placed on nonaccrual status. See “~~Note~~“Note 1—Summary of Significant Accounting ~~Policies” in our 2018 Form 10-K~~Policies” for information on our policies for classifying loans as nonperforming for each of our loan categories.

Table 2326 presents our nonperforming loans, by portfolio segment, and other nonperforming assets as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. We do not classify loans held for sale as ~~nonperforming, as they are recorded at the lower of cost or fair value.~~nonperforming. We provide additional information on our credit quality metrics ~~above under~~in “MD&A—Business Segment Financial ~~Performance~~.Performance.”




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

~~Table of Contents~~

Table ~~23:~~ 26: Nonperforming Loans and Other Nonperforming Assets⁽¹⁾

September 30, 2019 December 31, 2018
(Dollars in millions) Amount Rate Amount Rate
Nonperforming loans held for investment:⁽²⁾

Credit Card:
International card businesses $ 23
0.25 % $ 22
0.25 %
Total credit card 23
0.02
22
0.02
Consumer Banking:
Auto 432
0.73
449
0.80
Retail banking 25
0.91
30
1.04
Total consumer banking 457
0.74
479
0.81
Commercial Banking:
Commercial and multifamily real estate 36
0.12
83
0.29
Commercial and industrial 413
0.95
223
0.54
Total commercial lending 449
0.61
306
0.44
Small-ticket commercial real estate —
—
6
1.80
Total commercial banking 449
0.61
312
0.44
Total nonperforming loans held for investment⁽³⁾
$ 929
0.37
$ 813
0.33
Other nonperforming assets⁽⁴⁾
61
0.03
59
0.02
Total nonperforming assets $ 990
0.40
$ 872
0.35

~~__________~~

⁽¹⁾


	September 30, 2020				December 31, 2019
(Dollars in millions)	Amount		Rate		Amount		Rate
Nonperforming loans held for investment:(2)
Credit Card:
International card businesses	$	21	0.25	%	$	25	0.26	%
Total credit card	21		0.02		25		0.02
Consumer Banking:
Auto	235		0.36		487		0.81
Retail banking	25		0.77		23		0.87
Total consumer banking	260		0.38		510		0.81
Commercial Banking:
Commercial and multifamily real estate	182		0.58		38		0.12
Commercial and industrial	586		1.31		410		0.93


Total commercial banking	768		1.01		448		0.60

Total nonperforming loans held for investment(3)	$	1,049	0.42		$	983	0.37



Other nonperforming assets(4)	38		0.02		63		0.02
Total nonperforming assets	$	1,087	0.44		$	1,046	0.39

__________

(1)We recognized interest income for loans classified as nonperforming of $22 million and $37 million in the first nine months of 2020 and 2019, respectively. Interest income foregone related to nonperforming loans was $40 million and $50 million in the first nine months of 2020 and 2019,

We recognized interest income for loans classified as nonperforming of $37 million and $35 million in the first nine months of 2019 and 2018, respectively. Interest income foregone related to nonperforming loans was $50 million and $44 million in the first nine months of 2019 and 2018, respectively. Foregone interest income represents the amount of interest income~~in 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 0.64% and 0.59% as of September 30, 2019 and December 31, 2018, respectively.


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




			4348			Capital One Financial Corporation (COF)

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respectively. Foregone interest income represents the amount of interest income in 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 0.69% and 0.67% as of September 30, 2020 and December 31, 2019, respectively.

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

Net Charge-Offs

Net charge-offs consist of the ~~unpaid principal balance~~amortized cost basis, excluding accrued interest, 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~~credit losses when we determine the loan is uncollectible and record subsequent recoveries of previously ~~charged-off~~charged off amounts as increases to the allowance for ~~loan and lease~~credit 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” in our 2018 Form 10-K~~Policies” for information on our charge-off policy for each of our loan categories.

Table 2427 presents our net charge-off amounts and rates, by portfolio segment, in the third quarter and first nine months of ~~2019~~2020 and ~~2018.~~2019.

Table 27: Net Charge-Offs


	Three Months Ended September 30,								Nine Months Ended September 30,
	2020				2019				2020				2019
(Dollars in millions)	Amount		Rate(1)		Amount		Rate(1)		Amount		Rate(1)		Amount		Rate(1)
Credit Card:
Domestic credit card	$	885	3.64	%	$	1,065	4.12	%	$	3,359	4.31	%	$	3,599	4.67	%
International card businesses	58		2.89		86		3.78		231		3.71		236		3.54
Total credit card	943		3.58		1,151		4.09		3,590		4.26		3,835		4.58
Consumer Banking:
Auto	36		0.23		234		1.60		445		0.95		592		1.38
Retail banking	12		1.38		17		2.55		41		1.80		52		2.51
Total consumer banking	48		0.28		251		1.64		486		0.99		644		1.43
Commercial Banking:
Commercial and multifamily real estate	32		0.41		1		0.02		39		0.17		1		0.01
Commercial and industrial	50		0.45		59		0.55		254		0.73		89		0.28
Total commercial banking	82		0.43		60		0.33		293		0.50		90		0.17

Total net charge-offs	$	1,073	1.72		$	1,462	2.38		$	4,369	2.28		$	4,569	2.50
Average loans held for investment	$	249,511			$	246,147			$	255,232			$	243,602

__________

~~Table 24:~~ (1)~~Net Charge-Offs (Recoveries)~~

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Dollars in millions) Amount
Rate⁽¹⁾
Amount
Rate⁽¹⁾
Amount
Rate⁽¹⁾
Amount
Rate⁽¹⁾
Credit Card:
Domestic credit card $ 1,065
4.12 % $ 1,094
4.35 % $ 3,599
4.67 % $ 3,581
4.78 %
International card businesses 86
3.78
43
1.92
236
3.54
193
2.85
Total credit card 1,151
4.09
1,137
4.15
3,835
4.58
3,774
4.62
Consumer Banking:
Auto 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 )
Total consumer banking 251
1.64
262
1.77
644
1.43
683
1.36
Commercial Banking:
Commercial and multifamily real estate 1
0.02
2
0.04
1
0.01
2
0.01
Commercial and industrial 59
0.55
25
0.25
89
0.28
37
0.13
Total commercial banking 60
0.33
27
0.16
90
0.17
39
0.08
Other loans —
—
(1 ) **
—
—
6
**
Total net charge-offs $ 1,462
2.38
$ 1,425
2.41
$ 4,569
2.50
$ 4,502
2.48
Average loans held for investment $ 246,147
$ 236,766
$ 243,602
$ 242,369

~~__________~~


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


^**	~~Not meaningful.~~




			4449			Capital One Financial Corporation (COF)

Table of Contents

COVID-19 Customer Assistance Programs and Loan Modifications

In response to the COVID-19 pandemic, the Federal Banking Agencies supported banking organizations that are taking actions to assist customers in a prudent, safe and sound manner, including through loan modifications. As part of our response to the COVID-19 pandemic, we are offering programs to accommodate customer hardship across our lines of business.

•Credit Card

For our domestic card customers excluding certain retail partnership portfolios, we are currently offering a one-month payment deferral program with an option to renew and fee waivers. Card loans enrolled in the deferral program continue to accrue interest. Their delinquency status is generally frozen at the time of enrollment and upon exiting the program, resumes to the status at the time of enrollment. Through September 30, 2020, excluding certain retail partnership portfolios, a total of 2.4% of active accounts representing $3.4 billion of loans outstanding have received a payment deferral at any time through this program (including those who are no longer enrolled). Approximately 91% of these customers were current at the time of their first enrollment. As of September 30, 2020, approximately 0.1% of active accounts, representing $247 million of loans outstanding, have been approved to skip their upcoming payment and have not made that payment.

For our international card customers, we also offer short-term payment deferrals and fee waivers. Loans enrolled in the deferral program continue to accrue interest. As of September 30, 2020, $62 million of loans were enrolled in this program.

•Consumer Banking

For our auto customers, we are currently offering short-term payment extensions with an option to renew and fee waivers. Auto loans enrolled in short-term payment extensions continue to accrue interest. The contractual term of the loan is extended by the length of the short-term payment extension and the delinquency status is updated to reflect the revised terms of the loan. For customers that were delinquent at the time of enrollment, their delinquency status is reduced commensurate with the length of the short-term payment extension. Through September 30, 2020, a total of 16.1% of accounts representing $11.7 billion of loans outstanding have received a short-term payment extension at any time through this program (including those who are no longer enrolled). Approximately 74% of these customers were current at the time of their first enrollment. As of September 30, 2020, approximately 1% of accounts, representing $686 million of loans outstanding, have been approved to skip their upcoming payment and have not made that payment.

For our retail banking customers, we are currently offering fee waivers and short-term payment deferrals. We also offer PPP loans to our small business banking customers. As of September 30, 2020, $44 million of loans were enrolled in the short-term payment deferral program and $966 million of PPP loans were outstanding.

•Commercial Banking

For our commercial banking customers, our offerings are more customized, but generally include short-term payment deferrals. Performing loans enrolled in short-term payment deferrals continue to accrue interest, and principal and interest are due at maturity. Loans remain in their delinquency status as of their modification date through the deferment period. Internal risk ratings are assigned based on relevant information about the ability of the borrower to repay their debt. We also offered PPP loans to our commercial clients. As of September 30, 2020, approximately $108 million of loans were enrolled in the short-term payment deferral program and $242 million of PPP loans were outstanding.

Additional guidance issued by the Federal Banking Agencies and contained in the CARES Act provides banking organizations with TDR relief for modifications of current borrowers impacted by the COVID-19 pandemic. We assessed all loan modifications introduced to current borrowers in response to the COVID-19 pandemic as of September 30, 2020, and followed guidance that such eligible loan modifications made on a temporary and good faith basis are not considered TDRs.



			50			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 repossession or foreclosure of collateral.

Table 2528 presents our recorded investment of loans modified in TDRs as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, which excludes loan modifications that do not meet the definition of a ~~TDR, and PCI loans, which we track and report separately.~~TDR.

Table ~~25:~~ 28: 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, 2020				December 31, 2019
(Dollars in millions)	Amount		% of Total Modifications		Amount		% of Total Modifications
Credit Card:
Domestic credit card	$	537	26.2	%	$	630	38.1	%
International card businesses	192		9.3		201		12.2
Total credit card	729		35.5		831		50.3
Consumer banking:
Auto	546		26.6		346		20.9
Retail banking	19		0.9		24		1.5
Total consumer banking	565		27.5		370		22.4
Commercial banking	761		37.0		451		27.3
Total	$	2,055	100.0	%	$	1,652	100.0	%
Status of TDRs:
Performing	$	1,662	80.9	%	$	1,347	81.5	%
Nonperforming	393		19.1		305		18.5
Total	$	2,055	100.0	%	$	1,652	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 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~~.“Note 3—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.




			4551			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~~Credit Losses and Reserve for Unfunded Lending Commitments

Our allowance for ~~loan and lease~~credit losses represents management’s ~~best~~current estimate of ~~incurred loan and lease~~expected credit losses ~~inherent to~~over the contractual terms of our loans held for investment ~~portfolio~~ as of each balance sheet date. Expected recoveries of amounts previously charged off or expected to be charged off are recognized within the allowance. We also estimate expected credit losses related to unfunded lending commitments that are not unconditionally cancellable. The ~~allowance~~provision for ~~loan and lease~~ losses on unfunded lending commitments is ~~increased through~~included in the provision for credit losses in our consolidated statements of income and ~~reduced by net charge-offs.~~the related reserve for unfunded lending commitments is included in other liabilities on our consolidated balance sheets. We provide additional information on the methodologies and key assumptions used in determining our allowance for ~~loan and lease~~credit losses ~~under~~in “Note 1—Summary of Significant Accounting ~~Policies” in our 2018 Form 10-K.~~Policies.”

Table 2629 presents changes in our allowance for ~~loan and lease~~credit losses and reserve for unfunded lending commitments for the third quarter and first nine months of ~~2019~~2020 and ~~2018,~~2019, and details by portfolio segment for the provision for credit losses, charge-offs and recoveries.

The cumulative effects from adoption of the CECL standard and the change to include our finance charge and fee reserve in the allowance for credit losses are included in Table 29 and Table 30 below.




			4652			Capital One Financial Corporation (COF)

Table of Contents

Table ~~26:~~ 29: Allowance for ~~Loan and Lease~~Credit Losses and Reserve for Unfunded Lending Commitments Activity

Three 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 June 30, 2019 $ 4,925
$ 417
$ 5,342
$ 997
$ 58
$ 1,055
$ 736
$ 7,133
Charge-offs (1,403 ) (128 ) (1,531 ) (468 ) (21 ) (489 ) (66 ) (2,086 )
Recoveries⁽¹⁾
338
42
380
234
4
238
6
624
Net charge-offs (1,065 ) (86 ) (1,151 ) (234 ) (17 ) (251 ) (60 ) (1,462 )
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 (55 ) (9 ) (64 ) (45 ) (3 ) (48 ) 24
(88 )
Other changes⁽²⁾
—
(8 ) (8 ) —
—
—
—
(8 )
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, 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, 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



	Three Months Ended September 30, 2020
	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 credit losses:
Balance as of June 30, 2020	$	11,569	$	522	$	12,091	$	2,726	$	112	$	2,838	$	1,903	$	16,832
Charge-offs	(1,198)		(98)		(1,296)		(280)		(15)		(295)		(88)		(1,679)
Recoveries(1)	313		40		353		244		3		247		6		606
Net charge-offs	(885)		(58)		(943)		(36)		(12)		(48)		(82)		(1,073)
Provision (benefit) for credit losses	378		72		450		(43)		—		(43)		(51)		356
Allowance build (release) for credit losses	(507)		14		(493)		(79)		(12)		(91)		(133)		(717)
Other changes(2)	—		14		14		—		—		—		—		14
Balance as of September 30, 2020	11,062		550		11,612		2,647		100		2,747		1,770		16,129
Reserve for unfunded lending commitments:
Balance as of June 30, 2020	—		—		—		—		—		—		218		218
Benefit for losses on unfunded lending commitments	—		—		—		—		—		—		(23)		(23)

Balance as of September 30, 2020	—		—		—		—		—		—		195		195
Combined allowance and reserve as of September 30, 2020	$	11,062	$	550	$	11,612	$	2,647	$	100	$	2,747	$	1,965	$	16,324


	Nine Months Ended September 30, 2020
	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 credit losses:
Balance as of December 31, 2019	$	4,997	$	398	$	5,395	$	984	$	54	$	1,038	$	775	$	7,208
Cumulative effects from adoption of the CECL standard	2,237		4		2,241		477		25		502		102		2,845
Finance charge and fee reserve reclassification(3)	439		23		462		—		—		—		—		462
Balance as of January 1, 2020	7,673		425		8,098		1,461		79		1,540		877		10,515
Charge-offs	(4,406)		(351)		(4,757)		(1,155)		(52)		(1,207)		(303)		(6,267)
Recoveries(1)	1,047		120		1,167		710		11		721		10		1,898
Net charge-offs	(3,359)		(231)		(3,590)		(445)		(41)		(486)		(293)		(4,369)
Provision for credit losses	6,748		348		7,096		1,631		62		1,693		1,186		9,975
Allowance build for credit losses	3,389		117		3,506		1,186		21		1,207		893		5,606
Other changes(2)	—		8		8		—		—		—		—		8
Balance as of September 30, 2020	11,062		550		11,612		2,647		100		2,747		1,770		16,129
Reserve for unfunded lending commitments:
Balance as of December 31, 2019	—		—		—		—		5		5		130		135
Cumulative effects from adoption of the CECL standard	—		—		—		—		(5)		(5)		42		37
Balance as of January 1, 2020	—		—		—		—		—		—		172		172
Provision for losses on unfunded lending commitments	—		—		—		—		—		—		23		23

Balance as of September 30, 2020	—		—		—		—		—		—		195		195
Combined allowance and reserve as of September 30, 2020	$	11,062	$	550	$	11,612	$	2,647	$	100	$	2,747	$	1,965	$	16,324




			4753			Capital One Financial Corporation (COF)

Table of Contents


	Three 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 June 30, 2019	$	4,925	$	417	$	5,342	$	997	$	58	$	1,055	$	736	$	7,133
Charge-offs	(1,403)		(128)		(1,531)		(468)		(21)		(489)		(66)		(2,086)
Recoveries(1)	338		42		380		234		4		238		6		624
Net charge-offs	(1,065)		(86)		(1,151)		(234)		(17)		(251)		(60)		(1,462)
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	(55)		(9)		(64)		(45)		(3)		(48)		24		(88)
Other changes(2)	—		(8)		(8)		—		—		—		—		(8)
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, 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

Three Months Ended September 30, 2018
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
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
Charge-offs (1,403 ) (125 ) (1,528 ) (447 ) (22 ) (469 ) (48 ) $ 1
(2,044 )
Recoveries⁽¹⁾
309
82
391
204
3
207
21
—
619
Net charge-offs (1,094 ) (43 ) (1,137 ) (243 ) (19 ) (262 ) (27 ) 1
(1,425 )
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 (144 ) 38
(106 ) (75 ) (2 ) (77 ) 33
—
(150 )
Other changes⁽²⁾
—
2
2
—
—
—
(1 ) —
1
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, 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, 2018
Credit Card Consumer Banking
(Dollars in millions) 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, 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⁾
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⁽²⁾⁽³⁾
—
(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

__________

~~__________~~(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.


⁽¹⁾ (2)Represents foreign currency translation adjustments. (3)Concurrent with our adoption of the CECL standard in the first quarter of 2020, we reclassified our finance charge and fee reserve to our allowance for credit losses, with a corresponding increase to credit card loans held for investment.	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.~~


⁽³⁾	~~In 2018, we sold all of our consumer home loan portfolio.The impact included a benefit for credit losses of $46 million in the second quarter of 2018 which was reflected in the Other category.~~




			4854			Capital One Financial Corporation (COF)

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Allowance coverage ratios are calculated based on the allowance for ~~loan and lease~~credit losses for each specified portfolio segment divided by period-end loans held for investment within the specified loan category. Table 2730 presents the allowance coverage ratios as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

Table ~~27:~~ 30: Allowance Coverage Ratios


	September 30, 2020						December 31, 2019
(Dollars in millions)	Allowance for Credit Losses		Amount(1)		Allowance Coverage Ratio		Allowance for Loan and Lease Losses		Amount(1)		Allowance Coverage Ratio
Credit Card	$	11,612	$	2,293	506.38	%	$	5,395	$	5,009	107.70	%
Consumer Banking	2,747		2,682		102.41		1,038		4,627		22.42
Commercial Banking	1,770		768		230.55		775		448		173.20
Total	$	16,129	248,223		6.50		$	7,208	265,809		2.71

__________

(1)

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

~~__________~~Represents period-end 30+ day delinquent loans for our credit card and consumer banking loan portfolios, nonperforming loans for our commercial banking loan portfolio and total loans held for investment for the total ratio.


⁽¹⁾	Represents period-end 30+ day delinquent loans for our credit card and consumer banking loan portfolios, nonperforming loans for our commercial banking loan portfolio and total loans held for investment for the total ratio.

Our allowance for ~~loan and lease~~ credit losses ~~decreased~~increased by ~~$183 million~~$8.9 billion to ~~$7.0~~$16.1 billion, and ~~the~~our allowance coverage ratio ~~decreased~~increased by 12379 basis points to ~~2.82%~~6.50% as of September 30, ~~2019~~2020 from December 31, ~~2018 primarily~~2019, driven by anthe allowance ~~release~~builds in ~~our domestic credit card loan portfolio largely due to~~ the ~~strong economy, stable underlying credit performance~~first and ~~the impact~~second quarters of 2020 from expectations of economic worsening and uncertainty as a result of the ~~sale~~COVID-19 pandemic as well as the adoption of ~~certain partnership receivables.~~the CECL standard in the first quarter of 2020.



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~~investment securities and certain loans that are either readily-marketable or pledgeable.

Table 2831 below presents the composition of our liquidity reserves as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

Table ~~28:~~31: Liquidity Reserves


(Dollars in millions)	September 30, 2019			December 31, 2018			(Dollars in millions)	September 30, 2020		December 31, 2019
Cash and cash equivalents	$	17,120		$	13,186		Cash and cash equivalents	$	44,106	$	13,407
Investment securities portfolio:

Investment securities available for sale, at fair value	46,168			46,150			Investment securities available for sale, at fair value	99,853		79,213
Investment securities held to maturity, at fair value	35,264			36,619
Total investment securities portfolio	81,432			82,769

FHLB borrowing capacity secured by loans	10,619			10,003			FHLB borrowing capacity secured by loans	10,726		10,835
Outstanding FHLB advances and letters of credit secured by loans	(229		)	(9,726		)	Outstanding FHLB advances and letters of credit secured by loans	(131)		(7,210)
Investment securities encumbered for Public Funds and others	(5,377		)	(6,631		)	Investment securities encumbered for Public Funds and others	(6,123)		(5,688)
Total liquidity reserves	$	103,565		$	89,601		Total liquidity reserves	$	148,431	$	90,557

Our liquidity reserves increased by ~~$14.0~~$57.9 billion to ~~$103.6~~$148.4 billion as of September 30, ~~2019~~2020 from December 31, ~~2018~~2019 primarily driven by ~~a decrease~~increases in our ~~FHLB advances outstanding~~investment securities and ~~an increase~~cash balances from deposit growth. See “MD&A—Risk Management” in our ~~cash and cash equivalents. See “MD&A—Risk Management” in our 2018~~2019 Form 10-K for additional information on our management of liquidity risk.




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

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Liquidity Coverage Ratio

We are subject to the Liquidity Coverage Ratio Rule (“LCR Rule”) as implemented by the Federal Reserve and OCC. The LCR Rule requires us to calculate our LCR ~~daily and~~daily. It also requires the Company to publicly disclose, on a quarterly basis, ~~our~~its LCR, certain related quantitative liquidity metrics, and a qualitative discussion of ~~our~~its LCR. Our average LCR during the third quarter of ~~2019~~2020 was 147%, which 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~~”Regulation” in our ~~2018~~2019 Form 10-K and “MD&A—Supervision and Regulation” in our Quarterly Report on Form 10-Q for the period ended March 31, 2020 for additional information.



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Borrowing Capacity

We maintain a shelf registration with the 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. In addition, we also maintain a shelf registration that allows us to periodically offer and sell up to $25 billion of securitized debt obligations from our credit card loan securitization 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 and the Federal Reserve Discount Window. The ability to ~~draw down funding~~borrow utilizing these sources is based on membership status and the amount is dependent upon the Banks’ ability to post collateral. As of September 30, ~~2019,~~2020, we pledged both loans and securities to FHLB to secure a maximum borrowing capacity of ~~$19.2~~$16.2 billion, of which ~~$18.9~~$16.1 billion was still available to us to borrow. Our FHLB membership is supported by our investment in FHLB stock of $30 million and ~~$415~~$328 million as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, which was determined in part based on our outstanding advances. As of September 30, ~~2019,~~2020, we pledged loans to secure a borrowing capacity of ~~$5.8~~$21.0 billion under the Federal Reserve Discount Window. Our membership with the Federal Reserve is supported by our investment in Federal Reserve stock, ~~totaling~~which totaled $1.3 billion as of both September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

Funding

Our primary source of funding comes from deposits, as they are a stable and relatively low cost source of funding. In addition to deposits, we raise funding through the issuance of senior and subordinated notes and securitized debt obligations, ~~brokered deposits,~~ federal funds purchased, 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 Sheets ~~Analysis~~—Analysis—Funding Sources ~~Composition~~”Composition” for additional information on our primary sources of funding.




			5056			Capital One Financial Corporation (COF)

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Deposits

Table 2932 provides a comparison of average balances, interest expense and average deposit interest rates for the third quarter and first nine months of ~~2019~~2020 and ~~2018.~~2019.

Table ~~29:~~32: Deposits Composition and Average Deposits Interest Rates


	Three Months Ended September 30,													Three Months Ended September 30,
	2019						2018							2020						2019
(Dollars in millions)	Average Balance		Interest Expense		Average Deposits Interest Rate		Average Balance		Interest Expense		Average Deposits Interest Rate		(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	%	Interest-bearing checking accounts(1)	$	38,115	$	25	0.26	%	$	33,804	$	75	0.87	%
Saving deposits⁽²⁾	154,442		540		1.39		149,484		422		1.12		Saving deposits(2)	196,575		287		0.58		154,442		540		1.39
Time deposits less than $100,000	28,174		197		2.78		25,350		156		2.44		Time deposits less than $100,000	26,626		112		1.67		28,174		197		2.78
Total interest-bearing core deposits	216,420		812		1.49		212,319		639		1.19		Total interest-bearing core deposits	261,316		424		0.65		216,420		812		1.49
Time deposits of $100,000 or more	15,643		89		2.25		8,846		42		1.90		Time deposits of $100,000 or more	15,023		52		1.40		15,643		89		2.25
Foreign deposits	—		—		—		266		—		0.45

Total interest-bearing deposits	$	232,063	$	901	1.55		$	221,431	$	681	1.23		Total interest-bearing deposits	$	276,339	$	476	0.69		$	232,063	$	901	1.55

Nine 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⁾
$ 34,437
$ 223
0.86 % $ 39,957
$ 179
0.60 %
Saving deposits⁽²⁾
154,168
1,565
1.36
148,957
1,135
1.02
Time deposits less than $100,000 26,898
555
2.76
25,416
436
2.29
Total interest-bearing core deposits 215,503
2,343
1.45
214,330
1,750
1.09
Time deposits of $100,000 or more 14,542
245
2.25
6,726
91
1.81
Foreign deposits —
—
—
344
1
0.42
Total interest-bearing deposits $ 230,045
$ 2,588
1.50
$ 221,400
$ 1,842
1.11

~~__________~~

⁽¹⁾


	Nine Months Ended September 30,
	2020						2019
(Dollars in millions)	Average Balance		Interest Expense		Average Deposits Interest Rate		Average Balance		Interest Expense		Average Deposits Interest Rate
Interest-bearing checking accounts(1)	$	36,201	$	106	0.39	%	$	34,437	$	223	0.86	%
Saving deposits(2)	179,643		1,085		0.81		154,168		1,565		1.36
Time deposits less than $100,000	27,477		407		1.98		26,898		555		2.76
Total interest-bearing core deposits	243,321		1,598		0.88		215,503		2,343		1.45
Time deposits of $100,000 or more	16,310		220		1.81		14,542		245		2.25

Total interest-bearing deposits	$	259,631	$	1,818	0.93		$	230,045	$	2,588	1.50

__________

~~Includes negotiable order of withdrawal accounts.~~


⁽²⁾	~~Includes money market deposit accounts.~~

(1)Includes negotiable order of withdrawal accounts.

(2)Includes money market deposit accounts.

The FDIC limits the acceptance of brokered deposits byto well-capitalized insured depository institutions and, with a waiver from the FDIC, byto adequately-capitalized institutions. COBNA and CONA were well-capitalized, as defined under the federal banking regulatory guidelines, as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. See “Part I—Item 1. Business—Supervision and ~~Regulation~~”Regulation” in our ~~2018~~2019 Form 10-K for additional information. We provide additional information on the composition of deposits ~~under~~in “MD&A—Consolidated Balance Sheets ~~Analysis~~—Analysis—Funding Sources ~~Composition~~”Composition” and in “~~Note 8—~~“Note 7—Deposits and ~~Borrowings~~.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.

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, decreased by ~~$8.9~~$6.6 billion to ~~$464~~$702 million as of September 30, ~~2019~~2020 from December 31, ~~2018~~2019 driven by maturities of our short-term FHLB advances.




			5157			Capital One Financial Corporation (COF)

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Our long-term debt, which primarily consists of securitized debt obligations and senior and subordinated notes, ~~and long-term FHLB advances, remained substantially flat at $49.7~~decreased by $6.3 billion to $42.1 billion as of September 30, ~~2019~~2020 from December 31, ~~2018 as issuances were largely offset by maturities.~~2019 primarily due to the repurchase of a portion of our senior unsecured debt and net maturities in our credit card securitization program. We provide more information on our securitization activity in “~~Note 6—~~“Note 5—Variable Interest Entities and ~~Securitizations~~.Securitizations.”

On October 1, 2020, pursuant to a tender offer, we repurchased approximately $308 million of securitized debt obligations issued through our credit card securitization program.

The following table summarizes issuances of securitized debt obligations, senior and subordinated notes, and FHLB advances and their respective maturities or redemptions for the third quarter and first nine months of ~~2019~~2020 and ~~2018.~~2019.

Table ~~30:~~ 33: 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					Issuances				Maturities/Redemptions
	Nine Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Three Months Ended September 30,
(Dollars in millions)	2019		2018		2019		2018		(Dollars in millions)	2020		2019		2020		2019
Securitized debt obligations	$	6,673	$	1,000	$	6,222	$	2,248	Securitized debt obligations	$	—	$	4,050	$	2,159	$	2,096
Senior and subordinated notes	4,161		5,250		5,344		4,100		Senior and subordinated notes	—		1,500		—		2,844
FHLB advances	—		750		251		8,858		FHLB advances	—		—		—		—
Total	$	10,834	$	7,000	$	11,817	$	15,206	Total	$	—	$	5,550	$	2,159	$	4,940


	Issuances				Maturities/Redemptions
	Nine Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2020		2019		2020		2019
Securitized debt obligations	$	1,250	$	6,673	$	5,752	$	6,222
Senior and subordinated notes	4,000		4,161		7,092		5,344
FHLB advances	—		—		—		251
Total	$	5,250	$	10,834	$	12,844	$	11,817

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 3134 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, ~~2019~~2020 and December 31, ~~2018.~~2019.

Table ~~31:~~ 34: Senior Unsecured Long-Term Debt Credit Ratings

September 30, ~~2019~~2020

December 31, ~~2018~~2019

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 28, ~~2019,~~2020, Moody’s Investors Service (“Moody’s”), Standard & Poor’s (“S&P”), and Fitch Ratings (“Fitch”) have usour credit ratings on a ~~stable~~negative outlook.



MARKET RISK PROFILE

Market risk is the risk of economic loss in the value of our financial instruments 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:



			58			Capital One Financial Corporation (COF)

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•Traditional banking activities of deposit gathering and lending;




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

~~Table of Contents~~•

Asset/liability management activities including 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 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 these exposures.

Interest Rate Risk

Interest rate risk represents exposure to financial instruments whose ~~value~~values vary with the level or volatility of interest rates. We are exposed to interest rate risk primarily from the differences in the timing between the maturities or re-pricing of assets and liabilities. We manage our interest rate risk primarily by entering into interest rate swaps and other derivative instruments, including caps, floors, options, futures and forward contracts.

We use various industry standard market risk measurement techniques and 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 changes in foreign exchange rates on our non-dollar-denominated funding and non-dollar equity investments in foreign operations.

Net Interest Income Sensitivity

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 freestanding interest rate 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 detailed in Table 3235 below. At the current level of interest rates, our interest rate sensitive revenue ~~remains largely unchanged~~is expected to increase in ~~most~~higher rate scenarios and ~~decreases~~decrease modestly in lower rate scenarios. Our current sensitivity to upward shocks has increased relative to December 2019 mainly due to the ~~-100 basis points scenario.~~decline in interest rates and the growth in deposits and cash.

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 exposures, resulting from movements in interest rates. Our economic value of equity sensitivity measure is calculated based on our existing assets and liabilities, including derivatives, and does not incorporate business growth assumptions or projected balance sheet changes. Key assumptions used in the 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. 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 detailed in Table 3235 below. Our current economic value of equity sensitivity profile demonstrates that our economic value of equity ~~generally~~increases in higher rate scenarios and decreases asin lower interest rate scenarios. Similar to the changes in net interest income sensitivity, our current economic value of equity sensitivity to upward shocks has also increased since December 2019 mainly due to the decline in interest rates ~~decrease from~~and the ~~current levels.~~growth in deposits and cash.




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

~~Table of Contents~~

Table 3235 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, ~~2019~~2020 and December 31, 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.



			59			Capital One Financial Corporation (COF)

Table ~~32:~~ of Contents

Table 35: Interest Rate Sensitivity Analysis


	September 30, 2019		December 31, 2018			September 30, 2020		December 31, 2019
Estimated impact on projected baseline net interest income:					Estimated impact on projected baseline net interest income:
+200 basis points	0.9	%	(0.8	)%	+200 basis points	7.3	%	1.8	%

+100 basis points	0.8		(0.2	)	+100 basis points	5.3		1.3
+50 basis points	0.6		0.0		+50 basis points	2.7		1.1
–50 basis points	(0.9	)	(0.3	)	–50 basis points	(0.7)		(0.5)
–100 basis points	(2.0	)	(1.0	)
–150 basis points	N/A		(2.1	)
–200 basis points	N/A		(3.7	)

Estimated impact on economic value of equity:					Estimated impact on economic value of equity:
+200 basis points	0.4		(7.1	)	+200 basis points	10.8		(3.6)

+100 basis points	2.0		(2.9	)	+100 basis points	10.1		0.5
+50 basis points	1.7		(1.2	)	+50 basis points	6.3		0.8
–50 basis points	(3.5	)	0.2		–50 basis points	(11.6)		(2.4)
–100 basis points	(8.9	)	(0.8	)
–150 basis points	N/A		(3.5	)
–200 basis points	N/A		(8.0	)

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

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—~~“Note 8—Derivative Instruments and Hedging ~~Activities~~.Activities.”

Foreign Exchange Risk

Foreign exchange risk represents exposure to changes in the values of current holdings and future cash flows denominated in other currencies. We are exposed to foreign exchange risk primarily from the intercompany funding denominated in the pound sterling (“GBP”) and the Canadian dollar (“CAD”) that we provide to our businesses in the U.K. and Canada and net equity investments in those businesses. We are also exposed to foreign exchange risk due to changes in the dollar-denominated value of future earnings and cash flows from our foreign operations and from our ~~Euro-denominated~~Euro (“EUR”)-denominated borrowings.




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

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Our non-dollar denominated intercompany funding and EUR-denominated borrowings expose our earnings to 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 value of the non-dollar denominated intercompany funding and EUR-denominated borrowings and their related hedges, which shows the impact to our earnings from foreign exchange risk. Our intercompany funding outstanding was ~~672~~430 million GBP and ~~756~~761 million GBP as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, and ~~6.3~~5.2 billion CAD and ~~6.5~~6.6 billion CAD as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Our EUR-denominated borrowings outstanding were 1.3 billion EUR and 1.2 billion EUR as of September 30, ~~2019.~~2020 and December 31, 2019, respectively.



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Our non-dollar equity investments in foreign operations expose usour balance sheet to translation risk in AOCI and 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 net of 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~~2020 and December 31, ~~2018,~~2019, and ~~1.3 billion CAD and 1.2~~1.4 billion CAD as of both September 30, ~~2019~~2020 and December 31, ~~2018, respectively.~~2019.

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—~~“Note 8—Derivative Instruments and Hedging ~~Activities~~.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 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 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. The ARRC has recommended the Secured Overnight Financing Rate (“SOFR”) as the preferred alternative rate for certain U.S. dollar derivative and cash instruments. While the ARRC has recommended SOFR as the replacement rate for LIBOR, there is acknowledgment that the development of a credit-sensitive element could be a complement to SOFR. It is unclear as to the likelihood and timing, but such a development would have impacts to our transition efforts.

We have exposures to LIBOR, including loans, derivative contracts, unsecured debt, ~~instruments, investment securities,~~securitizations, 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~~rates. We have made progress on our transition ~~effort includes but is not limited to:~~efforts as we:

~~implementing~~•implemented a robust governance framework and transition planning;

~~identifying~~•completed an assessment of exposures and are developing exposure reporting for products, legal contracts, systems, models and processes;

•included LIBOR transition language (“fallback language”) for certain new legal contracts and agreements; and

•started issuing securities and originating agency multifamily loans with SOFR-based features in 2020.



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We also continue to focus our transition efforts on:

•monitoring market developments for hardwired language from the ARRC and the International Swaps and Derivatives Association (“ISDA”);

•reviewing existing legal contracts and agreements and assessing fallback language impacts;

•monitoring and reducing 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~~•building internal operational readiness and risk ~~management;~~management processes;

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

•engaging with our clients, industry working groups, and regulators; 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”Uncertainty regarding, and transition away from, LIBOR may adversely affect our business” in our ~~2018~~2019 Form 10-K.



SUPERVISION AND REGULATION

~~Capital~~Dividends and ~~Liquidity~~Stock Repurchases Update

On September 30, 2020, in light of the continued economic uncertainty from the COVID-19 pandemic, the Federal Reserve announced the extension of several capital distribution restrictions through the fourth quarter of 2020 to ensure that large banking organizations maintain a high level of capital resilience. Specifically, for the fourth quarter of 2020, banking organizations with more than $100 billion in total assets, including us, continue to be required by the Federal Reserve to suspend share repurchases and to cap common stock dividends.

In ~~October 2019,~~August 2020, the Federal Banking Agencies ~~released~~adopted as final the ~~Tailoring Final Rules~~interim final rule issued in March 2020 that ~~provide for tailored application~~revised the definition of ~~certain~~“eligible retained income” in the capital ~~liquidity,~~rule to make any required reduction in capital distributions less sudden 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~~severe and more ~~stringent category possible if~~gradual than would have occurred under 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~~original definition 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 Approachesterm. For more information about this interim final rule, see “MD&A—Supervision 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 2019, as describedRegulation” in our Quarterly Report on Form 10-Q for the period ended ~~June 30, 2019 under “MD&A—Supervision~~March 31, 2020.

Net Stable Funding Ratio

The Federal Banking Agencies have finalized a rule to implement the net stable funding ratio (“NSFR”) in the United States (the “NSFR Rule”). The NSFR Rule requires the Company and ~~Regulation,” as those changes become effective.~~

~~Upon~~each of the ~~Effective Date, because we will be~~Banks to maintain an amount of available stable funding, which is a weighted measure of a company’s funding sources over a one-year time horizon, calculated by applying standardized weightings to equity and liabilities based on their expected stability, that is no less than the amount of required stable funding, which is calculated by applying standardized weightings to assets, derivatives exposures and certain other items based on their liquidity characteristics. As a Category III institution, ~~with less than $75 billion in weighted average short-term wholesale funding, as defined by~~we and the ~~rules, we will be~~Banks are subject to an NSFR requirement equal to 85% of the full requirement. These requirements will become effective as of July 1, 2021 and will apply to us and each of the Banks.

CECL Update

In August 2020, the Federal Banking Agencies adopted as final the 2020 CECL Transition Rule that provides banking organizations, including us, an option to mitigate the estimated capital effects of CECL for two years, followed by a ~~reduced~~ ~~LCR requirement.~~

~~Please~~three-year transition period (the “2020 CECL Transition Election”). We made the 2020 CECL Transition Election beginning in the first quarter of 2020. For a description of the 2020 CECL Transition Rule, see “MD&A—~~Capital Management”~~&A—Supervision and ~~“MD&A—Liquidity Risk Profile~~” Regulation” in our Quarterly Report on Form 10-Q for ~~a more detailed discussion~~the period ended March 31, 2020.



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Derivatives Activities Update

Title VII of the ~~Tailoring Final Rules.~~

~~Nonbank Activities~~

InDodd-Frank Act establishes a regulatory framework for the governance of the over-the-counter derivatives market, including swaps and security-based swaps and the registration of certain market participants as a swap dealer (an “SD”). CONA provisionally registered with the Commodity Futures Trading Commission (the “CFTC”) as an SD in the third quarter of ~~2019, we acquired United Income, Inc.,~~this year. Registration as an ~~SEC-registered investment adviser regulated~~SD subjects CONA to an enhanced and heightened regulatory regime with respect to its swaps and other derivatives activities. As a result of CONA’s swap dealer registration, it is subject to the OCC’s rules concerning capital and margin requirements for SDs, including the mandatory exchange of variation margin and initial margin with certain counterparties. Additionally, as a provisionally registered SD, CONA is subject to the CFTC’s rules regarding business conduct standards, recordkeeping obligations, regulatory reporting and procedures relating to swaps trading. CONA’s swaps and other derivatives activities do not require it to register with the SEC as a security-based swap dealer.

FDIC Insurance Assessment

As of June 30, 2020, the Deposit Insurance Fund (“DIF”) reserve ratio fell to 1.30 percent. The FDIC, as required under the ~~Investment Advisers~~Federal Deposit Insurance Act, ~~of 1940, and KippsDeSanto & Company,~~established a ~~registered broker-dealer regulated~~ byplan on September 15, 2020, to restore the ~~SEC and~~DIF reserve ratio to meet or exceed 1.35 percent within eight years. The FDIC’s restoration plan projects the ~~Financial Industry Regulatory Authority~~.reserve ratio to exceed 1.35 percent without increasing the deposit insurance assessment rate, subject to ongoing monitoring over the next eight years.

We provided additional information on our Supervision and Regulation in our ~~2018~~2019 Form 10-K under “Part I—Item 1. Business—Supervision and Regulation” and in our Quarterly Reports on Form 10-Q for the period ended March 31, ~~2019~~2020 and for the period ended June 30, ~~2019~~2020 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, operating 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:

•the impact of the COVID-19 pandemic and related public health measures on our business, financial condition and results of operations;

•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, including those relating to U.K. PPI;~~us;

•the inability to sustain revenue and earnings growth;

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



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•uncertainty regarding, and transition away from, the London Interbank Offered Rate;

•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;

•restructuring activities or other charges;

•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 13—Commitments, Contingencies, Guarantees and Others”; •	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 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;~~on;

•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



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

We expect that the effects of the COVID-19 pandemic will heighten the risks associated with many of these factors.

Forward-looking statements often use words such as “will,” “anticipate,” “target,” “expect,” “estimate,” “intend,” “plan,” “goal,” “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 ~~2018~~2019 Form 10-K and ~~the risk factors set forth under~~ “Part II—Item 1A. Risk ~~Factors~~”Factors” in our Quarterly Report on Form 10-Q for the period ended ~~June 30, 2019.~~March 31, 2020. You should carefully consider the factors discussed above, and in our Risk Factors or other disclosure, in evaluating these forward-looking statements.




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SUPPLEMENTAL TABLE

Reconciliation of Non-GAAP Measures

The following non-GAAP measures 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, they may not be comparable to similarly-titled measures reported by other companies. The following table presents reconciliations of these non-GAAP measures to the applicable amounts measured in accordance with GAAP.

Table A—A—Reconciliation of Non-GAAP Measures


(Dollars in millions, except as noted)	September 30, 2020			December 31, 2019
Tangible Common Equity (Period-End):
Stockholders’ equity	$	58,424		$	58,011
Goodwill and intangible assets(1)	(14,825)			(14,932)
Noncumulative perpetual preferred stock	(5,330)			(4,853)
Tangible common equity	$	38,269		$	38,226
Tangible Common Equity (Quarterly Average):
Stockholders’ equity	$	57,223		$	58,148
Goodwill and intangible assets(1)	(14,867)			(14,967)
Noncumulative perpetual preferred stock	(5,228)			(5,506)
Tangible common equity	$	37,128		$	37,675
Tangible Assets (Period-End):
Total assets	$	421,883		$	390,365
Goodwill and intangible assets(1)	(14,825)			(14,932)
Tangible assets	$	407,058		$	375,433
Tangible Assets (Quarterly Average):
Total assets	$	422,854		$	383,162
Goodwill and intangible assets(1)	(14,867)			(14,967)
Tangible assets	$	407,987		$	368,195
Non-GAAP Ratio:
Tangible common equity(2)	9.4		%	10.2		%

__________

(1)

(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 %

~~__________~~Includes impact of related deferred taxes.


⁽¹⁾ (2)Tangible common equity (“TCE”) ratio is a non-GAAP measure calculated based on TCE divided by tangible assets.	~~Includes impact of related deferred taxes.~~


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



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Glossary and Acronyms

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

Annual Report: References to our ~~“2018~~“2019 Form 10-K” or ~~“2018~~“2019 Annual Report” are to our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019.

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.

Capital One or the Company: Capital One Financial Corporation and its subsidiaries.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”): This was signed into law on March 27, 2020, and among other provisions, authorizes a number of lending programs to support the flow of credit to consumers and businesses.

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~~customer, net of any related reserves. Loans held for sale ~~carrying~~are recorded at either fair value is(if we elect the fair value option) or at the lower of ~~carrying value as described in the sentences above,~~cost 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 Financial Accounting Standards Board (“FASB”) issued 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 iswas effective for us on January 1, 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.

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.

Cybersecurity Incident: The 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 that we announced on July 29, 2019.



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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, 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: 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.

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 liquid assets by its estimated net cash outflow, as defined and calculated in accordance with ~~Final~~the LCR Rule.

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

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 securing the loan.



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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:~~arrangements: 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.




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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 (“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 charge-off rate: Represents (annualized) net charge-offs divided by average loans held for investment for the period.

Net interest margin: ~~The result of dividing~~Represents (annualized) net interest income divided by average interest-earning ~~assets.~~assets for the period.

Net stable funding ratio (“NSFR”): The Federal Banking Agencies issued a rule in October 2020 implementing the NSFR. The NSFR measures the stability of our funding profile and requires us to maintain minimum amounts of stable funding to support our assets, commitments and derivatives exposures over a one-year period.

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

~~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 (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.

~~Return on average tangible common equity:~~ A non-GAAP financial measure calculated based on (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 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: 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.



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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)~~

~~Table of Contents~~

Tailoring ~~Final~~ Rules: In October 2019, the Federal Banking Agencies released final rules that provide for tailored application of certain capital, liquidity and ~~stress testing~~stress-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 applicable risk-based thresholds, we ~~will be~~are a Category III institution under the Tailoring ~~Final~~ Rules.

Tangible common ~~equity (“TCE”):~~equity: 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 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.

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.




			6370			Capital One Financial Corporation (COF)

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Acronyms

AML: Anti-money laundering

AOCI: Accumulated other comprehensive income

ARM:Adjustable rate mortgage

ARRC: Alternative Reference Rates Committee

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

CDE: Community development entities

CECL: Current expected credit loss

~~CEO:~~CFTC: ~~Chief Executive Officer~~

~~CFPB:~~ ~~Consumer Financial Protection Bureau~~Commodity Futures Trading Commission

CMBS: Commercial mortgage-backed securities

CME: Chicago Mercantile Exchange

COEP: Capital One (Europe) plc

COF: Capital One Financial Corporation

CVA: Credit valuation adjustment

DIF: Deposit Insurance Fund

DVA: Debit valuation adjustment

EUR: Euro

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

FFIEC: Federal Financial Institutions Examination Council

FHLB: Federal Home Loan Banks

FinCEN: Financial Crimes Enforcement Network

Fitch: Fitch Ratings

FOS: Financial Ombudsman Service

Freddie Mac: Federal Home Loan Mortgage Corporation

~~FVC:~~ ~~Fair Value Committee~~

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

GBP: Great British pound

Ginnie Mae: Government National Mortgage Association

GSE or Agency: Government-sponsored enterprise

IBOR: Interbank Offered Rate

IRM: Independent Risk Management

LCH: LCH Group

LCR: Liquidity coverage ratio

LIBOR: London Interbank Offered Rate

MDL: Multi-district litigation



			71			Capital One Financial Corporation (COF)

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Moody’s: Moody’s Investors Service

MSRs: Mortgage servicing rights

NSFR: Net stable funding ratio

OCC: Office of the Comptroller of the Currency

~~OCI:~~ ~~Other comprehensive income~~




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

~~Table of Contents~~

OTC: Over-the-counter

~~OTTI:~~ ~~Other-than-temporary impairment~~

PCA: Prompt corrective action

PCD: Purchased credit-deteriorated

PCI: Purchased credit-impaired

PCCR: Purchased credit card relationship

PPI: Payment protection insurance

PPP: Paycheck Protection Program

RMBS: Residential mortgage-backed securities

RSU: Restricted stock unit

S&P: Standard & Poor’s

SD: Swap dealer

SEC: U.S. Securities and Exchange Commission

SLR: Supplementary leverage ratio

SOFR: Secured Overnight Financing Rate

TCE: Tangible common equity

TDR: Troubled debt restructuring

U.K.: United Kingdom

U.S.: United States of America

~~VAC:~~
~~Valuations Advisory Committee~~




			6572			Capital One Financial Corporation (COF)

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Item 1. Financial Statements and Notes
		Page


~~Item 1. Financial Statements and Notes~~
	~~Page~~
Consolidated Financial Statements		6674
Consolidated Statements of Income		6774
Consolidated Statements of Comprehensive Income		6875
Consolidated Balance Sheets		6976
Consolidated Statements of Changes in Stockholders’ Equity		7077
Consolidated Statements of Cash Flows		7179
Notes to Consolidated Financial Statements		7281
Note 1—Summary of Significant Accounting Policies		7281
Note 2—~~Leases~~Investment Securities		7490
Note 3—~~Investment Securities~~Loans		7693
Note 4—~~Loans~~		82
~~Note 5—~~Allowance for ~~Loan and Lease~~Credit Losses and Reserve for Unfunded Lending Commitments	94102
Note 6—5—Variable Interest Entities and Securitizations		98106
Note 7—6—Goodwill and Intangible Assets		~~102~~110

Note 7—Deposits and Borrowings		111
Note 8—~~Deposits and Borrowings~~		~~104~~
~~Note 9—~~Derivative Instruments and Hedging Activities	~~105~~112
Note ~~10—~~9—Stockholders’ Equity		~~115~~122

Note ~~11—~~10—Earnings Per Common Share		~~119~~126



Note 11—Fair Value Measurement		127
Note 12—~~Fair Value Measurement~~		~~120~~
~~Note 13—~~Business Segments and Revenue from Contracts with Customers	~~128~~134
Note ~~14—~~13—Commitments, Contingencies, Guarantees and Others		~~132~~138




			6673			Capital One Financial Corporation (COF)

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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions, except per share-related data)	2020		2019		2020		2019
Interest income:
Loans, including loans held for sale	$	5,758	$	6,429	$	18,120	$	19,180
Investment securities	443		583		1,455		1,867
Other	14		63		67		196
Total interest income	6,215		7,075		19,642		21,243
Interest expense:
Deposits	476		901		1,818		2,588
Securitized debt obligations	43		123		198		405
Senior and subordinated notes	132		299		551		923
Other borrowings	9		15		35		53
Total interest expense	660		1,338		2,602		3,969
Net interest income	5,555		5,737		17,040		17,274
Provision for credit losses	331		1,383		10,000		4,418
Net interest income after provision for credit losses	5,224		4,354		7,040		12,856
Non-interest income:
Interchange fees, net	775		790		2,199		2,368
Service charges and other customer-related fees	320		283		905		988
Net securities gains	25		5		25		44
Other	706		144		1,017		492
Total non-interest income	1,826		1,222		4,146		3,892
Non-interest expense:
Salaries and associate benefits	1,719		1,605		5,050		4,736
Occupancy and equipment	506		519		1,546		1,533
Marketing	283		501		1,047		1,564
Professional services	327		314		918		919
Communications and data processing	310		312		920		944
Amortization of intangibles	14		25		52		84
Other	389		596		1,514		1,542
Total non-interest expense	3,548		3,872		11,047		11,322
Income from continuing operations before income taxes	3,502		1,704		139		5,426
Income tax provision (benefit)	1,096		375		(10)		1,071
Income from continuing operations, net of tax	2,406		1,329		149		4,355
Income (loss) from discontinued operations, net of tax	0		4		(1)		15
Net income	2,406		1,333		148		4,370
Dividends and undistributed earnings allocated to participating securities	(20)		(10)		(5)		(34)
Preferred stock dividends	(67)		(53)		(212)		(185)
Issuance cost for redeemed preferred stock	0		0		(22)		0
Net income (loss) available to common stockholders	$	2,319	$	1,270	$	(91)	$	4,151
Basic earnings per common share:
Net income (loss) from continuing operations	$	5.07	$	2.70	$	(0.20)	$	8.80
Income from discontinued operations	0.00		0.01		0.00		0.03
Net income (loss) per basic common share	$	5.07	$	2.71	$	(0.20)	$	8.83
Diluted earnings per common share:
Net income (loss) from continuing operations	$	5.06	$	2.68	$	(0.20)	$	8.76
Income from discontinued operations	0.00		0.01		0.00		0.03
Net income (loss) per diluted common share	$	5.06	$	2.69	$	(0.20)	$	8.79

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions, except per share-related data) 2019 2018 2019 2018
Interest income:
Loans, including loans held for sale $ 6,429
$ 6,247
$ 19,180
$ 18,370
Investment securities 583
593
1,867
1,584
Other 63
55
196
174
Total interest income 7,075
6,895
21,243
20,128
Interest expense:
Deposits 901
681
2,588
1,842
Securitized debt obligations 123
127
405
358
Senior and subordinated notes 299
288
923
828
Other borrowings 15
13
53
45
Total interest expense 1,338
1,109
3,969
3,073
Net interest income 5,737
5,786
17,274
17,055
Provision for credit losses 1,383
1,268
4,418
4,218
Net interest income after provision for credit losses 4,354
4,518
12,856
12,837
Non-interest income:
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 144
248
492
884
Total non-interest income 1,222
1,176
3,892
4,008
Non-interest expense:
Salaries and associate benefits 1,605
1,432
4,736
4,382
Occupancy and equipment 519
515
1,533
1,508
Marketing 501
504
1,564
1,343
Professional services 314
275
919
719
Communications and data processing 312
311
944
934
Amortization of intangibles 25
44
84
131
Other 596
692
1,542
1,753
Total non-interest expense 3,872
3,773
11,322
10,770
Income from continuing operations before income taxes 1,704
1,921
5,426
6,075
Income tax provision 375
420
1,071
1,314
Income from continuing operations, net of tax 1,329
1,501
4,355
4,761
Income (loss) from discontinued operations, net of tax 4
1
15
(7 )
Net income 1,333
1,502
4,370
4,754
Dividends and undistributed earnings allocated to participating securities (10 ) (9 ) (34 ) (32 )
Preferred stock dividends (53 ) (53 ) (185 ) (185 )
Net income available to common stockholders $ 1,270
$ 1,440
$ 4,151
$ 4,537
Basic earnings per common share:
Net income from continuing operations $ 2.70
$ 3.01
$ 8.80
$ 9.40
Income (loss) from discontinued operations 0.01
0.00
0.03
(0.01 )
Net income per basic common share $ 2.71
$ 3.01
$ 8.83
$ 9.39
Diluted earnings per common share:
Net income from continuing operations $ 2.68
$ 2.99
$ 8.76
$ 9.33
Income (loss) from discontinued operations 0.01
0.00
0.03
(0.01 )
Net income per diluted common share $ 2.69
$ 2.99
$ 8.79
$ 9.32



See Notes to Consolidated Financial Statements.
	6774	Capital One Financial Corporation (COF)

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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions)	2020		2019		2020		2019
Net income	$	2,406	$	1,333	$	148	$	4,370
Other comprehensive income (loss), net of tax:
Net unrealized gains on securities available for sale	1		100		1,447		664
Net unrealized gains (losses) on hedging relationships	(175)		189		1,256		1,003
Foreign currency translation adjustments	28		(12)		(16)		33
Net changes in securities held to maturity	0		8		0		20
Other	(2)		(2)		(2)		(4)
Other comprehensive income (loss), net of tax	(148)		283		2,685		1,716
Comprehensive income	$	2,258	$	1,616	$	2,833	$	6,086

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



See Notes to Consolidated Financial Statements.
	6875	Capital One Financial Corporation (COF)

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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(Dollars in millions, except per share-related data)	September 30, 2020		December 31, 2019
Assets:
Cash and cash equivalents:
Cash and due from banks	$	4,267	$	4,129
Interest-bearing deposits and other short-term investments	39,839		9,278

Total cash and cash equivalents	44,106		13,407
Restricted cash for securitization investors	895		342


Securities available for sale (amortized cost of $96.7 billion and allowance for credit losses of $3 million as of September 30, 2020)	99,853		79,213


Loans held for investment:
Unsecuritized loans held for investment	217,878		231,992
Loans held in consolidated trusts	30,345		33,817
Total loans held for investment	248,223		265,809
Allowance for credit losses	(16,129)		(7,208)
Net loans held for investment	232,094		258,601
Loans held for sale ($1.3 billion and $251 million carried at fair value at September 30, 2020 and December 31, 2019, respectively)	3,433		400
Premises and equipment, net	4,333		4,378
Interest receivable	1,551		1,758
Goodwill	14,648		14,653
Other assets	20,970		17,613
Total assets	$	421,883	$	390,365

Liabilities:
Interest payable	$	332	$	439
Deposits:
Non-interest-bearing deposits	29,633		23,488
Interest-bearing deposits	276,092		239,209
Total deposits	305,725		262,697
Securitized debt obligations	13,566		17,808
Other debt:
Federal funds purchased and securities loaned or sold under agreements to repurchase	702		314
Senior and subordinated notes	28,448		30,472
Other borrowings	79		7,103
Total other debt	29,229		37,889
Other liabilities	14,607		13,521
Total liabilities	363,459		332,354
Commitments, contingencies and guarantees (see Note 13)
Stockholders’ equity:
Preferred stock (par value $0.01 per share; 50,000,000 shares authorized; 5,475,000 and 4,975,000 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively)	0		0
Common stock (par value $0.01 per share; 1,000,000,000 shares authorized; 678,318,329 and 672,969,391 shares issued as of September 30, 2020 and December 31, 2019, respectively; 457,397,091 and 456,562,399 shares outstanding as of September 30, 2020 and December 31, 2019, respectively)	7		7
Additional paid-in capital, net	33,793		32,980
Retained earnings	37,653		40,340
Accumulated other comprehensive income	3,833		1,156
Treasury stock, at cost (par value $0.01 per share; 220,921,238 and 216,406,992 shares as of September 30, 2020 and December 31, 2019, respectively)	(16,862)		(16,472)
Total stockholders’ equity	58,424		58,011
Total liabilities and stockholders’ equity	$	421,883	$	390,365

(Dollars in millions, except per share-related data) September 30,
2019 December 31,
2018
Assets:
Cash and cash equivalents:
Cash and due from banks $ 4,452
$ 4,768
Interest-bearing deposits and other short-term investments 12,668
8,418
Total cash and cash equivalents 17,120
13,186
Restricted cash for securitization investors 417
303
Investment securities:
Securities available for sale 46,168
46,150
Securities held to maturity 33,894
36,771
Total investment securities 80,062
82,921
Loans held for investment:
Unsecuritized loans held for investment 215,892
211,702
Loans held in consolidated trusts 33,463
34,197
Total loans held for investment 249,355
245,899
Allowance for loan and lease losses (7,037 ) (7,220 )
Net loans held for investment 242,318
238,679
Loans held for sale, at lower of cost or fair value 1,245
1,192
Premises and equipment, net 4,311
4,191
Interest receivable 1,627
1,614
Goodwill 14,624
14,544
Other assets 17,086
15,908
Total assets $ 378,810
$ 372,538

Liabilities:
Interest payable $ 370
$ 458
Deposits:
Non-interest-bearing deposits 23,064
23,483
Interest-bearing deposits 234,084
226,281
Total deposits 257,148
249,764
Securitized debt obligations 18,910
18,307
Other debt:
Federal funds purchased and securities loaned or sold under agreements to repurchase 464
352
Senior and subordinated notes 30,682
30,826
Other borrowings 93
9,420
Total other debt 31,239
40,598
Other liabilities 12,908
11,743
Total liabilities 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; 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 33,826
32,040
Retained earnings 39,476
35,875
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 58,235
51,668
Total liabilities and stockholders’ equity $ 378,810
$ 372,538



See Notes to Consolidated Financial Statements.
	6976	Capital One Financial Corporation (COF)

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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 Income (Loss)		Treasury Stock		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount








Balance as of December 31, 2019	4,975,000	$	0	672,969,391	$	7	$	32,980	$	40,340	$	1,156	$	(16,472)	$	58,011
Cumulative effects from adoption of the CECL standard									(2,184)		(8)				(2,192)
Comprehensive income (loss)									(1,340)		2,531				1,191
Dividends—common stock(1)				23,213	0		2		(187)						(185)
Dividends—preferred stock									(55)						(55)
Purchases of treasury stock													(386)		(386)
Issuances of common stock and restricted stock, net of forfeitures				2,618,628	0		63								63
Exercises of stock options				559,333	0		20								20
Issuances of preferred stock	1,250,000	0					1,209								1,209
Redemptions of preferred stock	(875,000)	0					(853)		(22)						(875)
Compensation expense for restricted stock units and stock options							29								29
Balance as of March 31, 2020	5,350,000	$	0	676,170,565	$	7	$	33,450	$	36,552	$	3,679	$	(16,858)	$	56,830
Comprehensive income (loss)									(918)		302				(616)
Dividends—common stock(1)				6,521	0		0		(183)						(183)
Dividends—preferred stock									(90)						(90)
Purchases of treasury stock													(2)		(2)
Issuances of common stock and restricted stock, net of forfeitures				1,041,311	0		58								58
Exercises of stock options				8,410	0		0								0
Compensation expense for restricted stock units and stock options							48								48
Balance as of June 30, 2020	5,350,000	$	0	677,226,807	$	7	$	33,556	$	35,361	$	3,981	$	(16,860)	$	56,045

Comprehensive income (loss)									2,406		(148)				2,258

Dividends—common stock(1)				1,608	0		0		(47)						(47)
Dividends—preferred stock									(67)						(67)
Purchases of treasury stock													(2)		(2)
Issuances of common stock and restricted stock, net of forfeitures				1,073,323	0		63								63
Exercises of stock options				16,591	0		1								1
Issuances of preferred stock	125,000	0					121								121

Compensation expense for restricted stock units and stock options							52								52
Balance as of September 30, 2020	5,475,000	$	0	678,318,329	$	7	$	33,793	$	37,653	$	3,833	$	(16,862)	$	58,424

(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, 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⁾See Notes to Consolidated Financial Statements.
	~~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.~~77	Capital One Financial Corporation (COF)

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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 Income (Loss)		Treasury Stock		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
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

__________

(1)We declared dividend per share on our common stock of $0.10 and $0.40 in the third quarter of 2020 and 2019, respectively, and $0.90 and $1.20 in the first nine months of 2020 and 2019, respectively.


See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30,
(Dollars in millions)	2020		2019
Operating activities:
Income from continuing operations, net of tax	$	149	$	4,355
Income (loss) from discontinued operations, net of tax	(1)		15
Net income	148		4,370
Adjustments to reconcile net income (loss) to net cash from operating activities:
Provision for credit losses	10,000		4,418
Depreciation and amortization, net	2,701		2,434
Deferred tax benefit	(1,420)		(72)
Net securities gains	(25)		(44)
Gain on sales of loans	(15)		(53)
Stock-based compensation expense	128		175
Other (including unrealized gains from equity investments)	(477)		0
Loans held for sale:
Originations and purchases	(6,739)		(8,064)
Proceeds from sales and paydowns	5,833		8,126
Changes in operating assets and liabilities:
Changes in interest receivable	207		(13)
Changes in other assets	1,052		1,852
Changes in interest payable	(107)		(88)
Changes in other liabilities	785		(522)
Net change from discontinued operations	1		0
Net cash from operating activities	12,072		12,519
Investing activities:

Securities available for sale:
Purchases	(35,189)		(8,919)
Proceeds from paydowns and maturities	15,593		6,099
Proceeds from sales	812		4,226
Securities held to maturity:
Purchases	0		(396)
Proceeds from paydowns and maturities	0		3,209
Loans:
Net changes in loans held for investment	9,083		(10,555)
Principal recoveries of loans previously charged off	1,898		1,947
Net purchases of premises and equipment	(543)		(631)
Net cash from acquisition activities	(7)		(85)
Net cash from other investing activities	(564)		(781)
Net cash from investing activities	(8,917)		(5,886)

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

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



See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

~~NOTES TO~~ CONSOLIDATED ~~FINANCIAL~~ STATEMENTS OF CASH FLOWS (UNAUDITED)



	Nine Months Ended September 30,
(Dollars in millions)	2020		2019
Financing activities:
Deposits and borrowings:
Changes in deposits	$	42,763	$	7,072
Issuance of securitized debt obligations	1,248		6,656
Maturities and paydowns of securitized debt obligations	(5,752)		(6,222)
Issuance of senior and subordinated notes and long-term FHLB advances	3,987		4,142
Maturities and paydowns of senior and subordinated notes and long-term FHLB advances	(7,156)		(5,595)
Changes in other borrowings	(6,636)		(8,964)
Common stock:
Net proceeds from issuances	184		153
Dividends paid	(415)		(569)
Preferred stock:
Net proceeds from issuances	1,330		1,463
Dividends paid	(212)		(185)
Redemptions	(875)		0
Purchases of treasury stock	(390)		(536)
Proceeds from share-based payment activities	21		0
Net cash from financing activities	28,097		(2,585)
Changes in cash, cash equivalents and restricted cash for securitization investors	31,252		4,048
Cash, cash equivalents and restricted cash for securitization investors, beginning of the period	13,749		13,489
Cash, cash equivalents and restricted cash for securitization investors, end of the period	$	45,001	$	17,537
Supplemental cash flow information:
Non-cash items:
Net transfers from (to) loans held for investment to (from) loans held for sale	$	2,173	$	1,494



Interest paid	2,944		3,689
Income tax paid	625		364



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

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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 digital channels, branches, ~~the internet~~Cafés and other distribution channels. As of September 30, ~~2019,~~2020, 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 3 major business segments, which are defined primarily based on the products and services provided or the 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—~~“Note 12—Business Segments and Revenue from Contracts with ~~Customers~~.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 ~~2018~~2019 Annual Report on Form 10-K (“~~2018~~2019 Form 10-K”).

Income Taxes

Our effective tax rates in the third quarter and first nine months of 2020 were computed utilizing the estimated annual effective tax rate method and were driven by the relationship of our tax credits in proportion to our pre-tax earnings.

Significant Accounting Policies Impacted by our Adoption of the CECL Standard

In the first quarter of 2020, we adopted ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL standard”) and updated the below significant accounting policies.




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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Investment Securities

We classify securities as available for sale or held to maturity based on our investment strategy and management’s assessment of our intent and ability to hold the securities until maturity. We did not have any securities that were classified as held to maturity as of September 30, 2020.

We report securities available for sale on our consolidated balance sheets at fair value. The amortized cost of investment securities reflects the amount for which the security was acquired, adjusted for accrued interest, amortization of premiums, discounts, and net deferred fees and costs, collection of cash, and charge-offs. We elect to present accrued interest for securities available for sale within interest receivable on our consolidated balance sheets. Unrealized gains or losses are recorded, net of tax, as a component of accumulated other comprehensive income (“AOCI”). Unamortized premiums, discounts and other basis adjustments for available for sale securities are generally recognized in interest income over the contractual lives of the securities using the effective interest method. However, premiums on certain callable investment securities are amortized to the earliest call date. We record purchases and sales of investment securities available for sale on a trade date basis. Realized gains or losses from the sale of debt securities are computed using the first-in first-out method of identification, and are included in non-interest income in our consolidated statements of income.

An individual debt security is impaired when the fair value of the security is less than its amortized cost. If we intend to sell an available for sale 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, any allowance for credit losses is reversed through our provision for credit losses and the difference between the amortized cost basis of the security and its fair value is recognized in our consolidated statements of income.

For impaired debt securities that we have both the intent and ability to hold, the securities are evaluated to determine if a credit loss exists. The allowance for credit losses on our investment securities is recognized through our provision for credit losses and limited by the unrealized losses of a security measured as the difference between the security’s amortized cost and fair value. See further discussion below under the “Allowance for Credit Losses - Available for Sale Investment Securities” section of this Note.

Our investment portfolio also includes certain debt securities that, at the time of purchase, had experienced a more-than-insignificant deterioration in credit quality since origination. Such debt securities are accounted for in accordance with accounting guidance for purchased financial assets with credit deterioration and are herein referred to as purchased credit-deteriorated (“PCD”) securities.

PCD securities require the recognition of an allowance for credit losses at the time of acquisition. The allowance for credit losses is not recognized in earnings. Instead, the purchase price and the initial allowance collectively represent the amortized cost basis of a PCD security. Any noncredit discount or premium at the date of acquisition is amortized into interest income over the remaining life of the security. Subsequent to the date of purchase, we re-measure the allowance for credit losses on the amortized cost basis using the same policies as for other debt securities available for sale and changes are recognized through our provision for credit losses. See further discussion below under the “Allowance for Credit Losses - Available for Sale Investment Securities” section of this Note.

We charge off any portion of an investment security that we determine is uncollectible. The amortized cost basis, excluding accrued interest, is charged off through the allowance for credit losses. Accrued interest is charged off as a reduction to interest income. Recoveries of previously charged off principal amounts are recognized in our provision for credit losses when received.

Loans

Our loan portfolio consists of loans held for investment, including loans underlying our consolidated securitization trusts, and loans held for sale and is divided into three portfolio segments: credit card, consumer banking and commercial banking loans. Credit card loans consist of domestic and international credit card loans. Consumer banking loans consist of auto and retail banking loans. Commercial banking loans consist of commercial and multifamily real estate as well as commercial and industrial loans.



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Loan Classification

Upon origination or purchase, we classify loans as held for investment or held for sale based on our investment strategy and management’s intent and ability with regard to the loans, which may change over time. The accounting and measurement framework for loans differs depending on the loan classification, whether we elect the fair value option, whether the loans are originated or purchased and whether purchased loans are considered to have experienced a more-than-insignificant deterioration in credit quality since origination. The presentation within the consolidated statements of cash flows is based on management’s intent at acquisition or origination. Cash flows related to loans that are acquired or originated with the intent to hold for investment are included in cash flows from investing activities on our consolidated statements of cash flows. Cash flows related to loans that are acquired or originated with the intent to sell are included in cash flows from operating activities on our consolidated statements of cash flows.

Loans Held for Investment

Loans that we have the ability and intent to hold for the foreseeable future and loans associated with consolidated securitization transactions are classified as held for investment. Loans classified as held for investment, except for credit card loans, are reported at their amortized cost basis, excluding accrued interest. For these loans, we elect to present accrued interest within interest receivable on our consolidated balance sheets. For credit card loans, billed finance charges and fees are included in loans held for investment. Unbilled finance charges and fees on credit card loans are included in interest receivable.

Interest income is recognized on performing loans held for investment on an accrual basis. We defer loan origination fees and direct loan origination costs on originated loans, premiums and discounts on purchased loans and loan commitment fees. We recognize these amounts in interest income as yield adjustments over the life of the loan and/or commitment period using the effective interest method. For credit card loans, loan origination fees and direct loan origination costs are amortized on a straight-line basis over a 12-month period. The amortized cost of loans held for investment is subject to our allowance for credit losses methodology described below under the “Allowance for Credit Losses - Loans Held for Investment” section of this Note.

Loans Held for Sale

Loans purchased or originated with the intent to sell or for which we do not have the ability and intent to hold for the foreseeable future are classified as held for sale. Multifamily commercial real estate loans originated with the intent to sell to government-sponsored enterprises are accounted for under the fair value option. We elect the fair value option on these loans as part of our management of interest rate risk with corresponding forward sale commitments. Loan origination fees and direct loan origination costs are recognized as incurred and are reported in other non-interest income in the consolidated statements of income. Interest income is calculated based on the loan's stated rate of interest and is reported in interest income in the consolidated statements of income. Fair value adjustments are recorded in other non-interest income in the consolidated statements of income.

All other loans classified as held for sale are recorded at the lower of cost or fair value. Loan origination fees, direct loan origination costs and any discounts and premiums are deferred until the loan is sold and are then recognized as part of the total gain or loss on sale. The fair value of loans held for sale is determined on an aggregate portfolio basis for each loan type. Fair value adjustments are recorded in other non-interest income in the consolidated statements of income.

If a loan is transferred from held for investment to held for sale, then on the transfer date, any decline in fair value related to credit is recorded as a charge-off and any allowance for credit losses is reversed through our provision for credit losses. The loan is then reclassified to held for sale at its amortized cost at the date of the transfer. A valuation allowance is established, if needed, such that the loan held for sale is recorded at the lower of cost or fair value. Subsequent to transfer, we report write-downs or recoveries in fair value up to the carrying value at the date of transfer and realized gains or losses on loans held for sale in our consolidated statements of income as a component of other non-interest income. We calculate the gain or loss on loan sales as the difference between the proceeds received and the carrying value of the loans sold, net of the fair value of any residual interests retained.

Loans Acquired

All purchased loans, including loans transferred in a business combination, are initially recorded at fair value, which includes consideration of expected future losses, as of the date of the acquisition. To determine the fair value of loans at acquisition, we



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estimate discounted contractual cash flows due using an observable market rate of interest, when available, adjusted for factors that a market participant would consider in determining fair value. In determining fair value, contractual cash flows are adjusted to include prepayment estimates based upon historical payment trends, forecasted default rates and loss severities and other relevant factors. The difference between the fair value and the contractual cash flows is recorded as a loan premium or discount, which may relate to either credit or non-credit factors, at acquisition.

We account for purchased loans under the accounting guidance for purchased financial assets with credit deterioration when, at the time of purchase, the loans have experienced a more-than-insignificant deterioration in credit quality since origination. We also account for loans under this guidance when the loans were previously accounted for under the accounting guidance for purchased credit impaired loans and debt securities (“PCI”) prior to our adoption of Accounting Standards Codification (“ASC”) 326, Financial Instruments-Credit Losses, on January 1, 2020. We refer to these loans which are accounted for under accounting guidance for purchased financial assets with more-than-insignificant deterioration in credit quality since origination as “PCD loans”.

We recognize an allowance for credit losses on purchased loans that have not experienced a more-than-insignificant deterioration in credit quality since origination at the time of purchase through earnings in a manner that is consistent with originated loans. The policies relating to the allowance for credit losses on loans is described below in the “Allowance for Credit Losses - Loans Held for Investment” section of this Note.

Loan Modifications and Restructurings

As part of our loss mitigation efforts, we may provide modifications to a borrower experiencing financial difficulty to improve long-term collectability of the loan and to avoid the need for foreclosure or repossession of collateral, if any. Our loan modifications typically include short-term payment deferrals, an extension of the loan term, a reduction in the interest rate, a reduction in the loan balance, or a combination of these concessions. A loan modification in which a concession is granted to a borrower experiencing financial difficulty is accounted for and reported as a troubled debt restructuring (“TDR”). See “Note 3—Loans” for additional information on our loan modifications and restructurings, including those in response to the COVID-19 pandemic.

Delinquent and Nonperforming Loans

The entire balance of a loan is considered contractually delinquent if the minimum required payment is not received by the first statement cycle date equal to or following the due date specified on the customer’s billing statement. Delinquency is reported on loans that are 30 or more days past due. Interest and fees continue to accrue on past due loans until the date the loan is placed on nonaccrual status, if applicable. For loan modifications, delinquency and nonaccrual status are reported in accordance with the revised terms of the loans. We generally place loans on nonaccrual status when we believe the collectability of interest and principal is not reasonably assured.

Nonperforming loans generally include loans that have been placed on nonaccrual status. We do not report loans classified as held for sale as nonperforming.

Our policies for classifying loans as nonperforming, by loan category, are as follows:

•Credit card loans: As permitted by regulatory guidance issued by the Federal Financial Institutions Examination Council (“FFIEC”), our policy is generally to exempt credit card loans from being classified as nonperforming, as these loans are generally charged off in the period the account becomes 180 days past due. Consistent with industry conventions, we generally continue to accrue interest and fees on delinquent credit card loans until the loans are charged off.

•Consumer banking loans: We classify consumer banking loans as nonperforming when we determine that the collectability of all interest and principal on the loan is not reasonably assured, generally when the loan becomes 90 days past due.

•Commercial banking loans: We classify commercial banking loans as nonperforming as of the date we determine that the collectability of all interest and principal on the loan is not reasonably assured.



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•Modified loans and troubled debt restructurings: Modified loans, including TDRs, that are current at the time of the restructuring remain on accrual status if there is demonstrated performance prior to the restructuring and continued performance under the modified terms is expected. Otherwise, the modified loan is classified as nonperforming.

Interest and fees accrued but not collected at the date a loan is placed on nonaccrual status are reversed against earnings. In addition, the amortization of deferred loan fees, costs, premiums and discounts is suspended. Interest and fee income are subsequently recognized only upon the receipt of cash payments. However, if there is doubt regarding the ultimate collectability of loan principal, cash received is generally applied against the principal balance of the loan. Nonaccrual loans are generally returned to accrual status when all principal and interest is current and repayment of the remaining contractual principal and interest is reasonably assured, or when the loan is both well-secured and in the process of collection and collectability is no longer doubtful.

Charge-Offs - Loans

We charge off loans when we determine that the loan is uncollectible. The amortized cost basis, excluding accrued interest, is charged off as a reduction to the allowance for credit losses based on the time frames presented below. Accrued interest on loans other than credit card loans determined to be uncollectible is reversed as a reduction of interest income when the loan is classified as nonperforming. For credit card loans, accrued interest is charged off simultaneously with the charge off of other components of amortized cost and as a reduction of interest income. When received, recoveries of previously charged off amounts are recorded as an increase to the allowance for credit losses (see the “Allowance for Credit Losses - Loans Held for Investment” section of this Note for information on how we account for expected recoveries). Costs to recover charged off loans are recorded as collection expense and included in our consolidated statements of income as a component of other non-interest expense as incurred. Our charge-off time frames by loan type are presented below.

•Credit card loans: We generally charge off credit card loans in the period the account becomes 180 days past due. We charge off delinquent credit card loans for which revolving privileges have been revoked as part of loan workout when the account becomes 120 days past due. Credit card loans in bankruptcy are generally charged off by the end of the month following 30 days after the receipt of a complete bankruptcy notification from the bankruptcy court. Credit card loans of deceased account holders are generally charged off 5 days after receipt of notification.

•Consumer banking loans: We generally charge off consumer banking loans at the earlier of the date when the account is a specified number of days past due or upon repossession of the underlying collateral. Our charge-off period for auto loans is 120 days past due. Small business banking loans generally charge off at 120 days past due based on the date the amortized cost basis is deemed uncollectible. Auto loans that have not been previously charged off where the borrower has filed for bankruptcy and the loan has not been reaffirmed charge off in the period that the loan is 60 days from the bankruptcy notification date, regardless of delinquency status. Auto loans that have not been previously charged off and have been discharged under Chapter 7 bankruptcy are charged off at the end of the month in which the bankruptcy discharge occurs. Remaining consumer loans generally are charged off within 40 days of receipt of notification from the bankruptcy court. Consumer loans of deceased account holders are charged off by the end of the month following 60 days of receipt of notification.

•Commercial banking loans: We charge off commercial loans in the period we determine that the amortized cost basis is uncollectible.

Allowance for Credit Losses

We maintain an allowance for credit losses (“allowance”) that represents management’s current estimate of expected credit losses over the contractual terms of our loans held for investment and investment securities classified as available for sale. We measure the allowance on a quarterly basis through consideration of past events, including historical experience, current conditions and reasonable and supportable forecasts.

Allowance for Credit Losses - Loans Held for Investment

We measure current expected credit losses over the contractual terms of our loans. The contractual terms are adjusted for expected prepayments but are not extended for renewals or extensions, except when an extension or renewal arises from a borrower option that is not unconditionally cancellable or through a TDR that is reasonably expected to occur.



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We aggregate loans sharing similar risk characteristics into pools for purposes of measuring expected credit losses. Pools are reassessed periodically to confirm that all loans within each pool continue to share similar risk characteristics. Expected credit losses for loans that do not share similar risk characteristics with other financial assets are measured individually.

Expected recoveries of amounts previously charged off or expected to be charged off are recognized within the allowance, with a corresponding reduction to our provision for credit losses. At times expected recoveries may result in a negative allowance. We limit the allowance to amounts previously charged off and expected to be charged off. Charge-offs of uncollectible amounts result in a reduction to the allowance and recoveries of previously charged off amounts result in an increase to the allowance.

When developing an estimate of expected credit losses, we use both quantitative and qualitative methods in considering all available information relevant to assessing collectability. This may include internal information, external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. Significant judgment is applied to the development and duration of reasonable and supportable forecasts used in our estimation of lifetime losses. We estimate expected credit losses over the duration of those forecasts and then revert, on a rational and systematic basis, to historical losses at each relevant loss component of the estimate. Expected losses for contractual terms extending beyond the reasonable and supportable forecast and reversion periods are based on those historical losses.

Management will consider and may qualitatively adjust for conditions, changes and trends in loan portfolios that may not be captured in modeled results. These adjustments are referred to as qualitative factors and represent management’s judgment of the imprecision and risks inherent in the processes and assumptions used in establishing the allowance for credit losses. Management’s judgment may involve an assessment of current and forward-looking conditions including but not limited to changes in lending policies and procedures, nature and volume of the portfolio, external factors, and uncertainty as it relates to economic, model or forecast risks, where not already captured in the modeled results.

Expected credit losses for collateral-dependent loans are based on the fair value of the underlying collateral. When we intend to liquidate the collateral, the fair value of the collateral is adjusted for expected costs to sell. A loan is deemed to be a collateral-dependent loan when (i) we determine foreclosure or repossession of the underlying collateral is probable, or (ii) foreclosure or repossession is not probable, but the borrower is experiencing financial difficulty and we expect repayment to be provided substantially through the operation or sale of the collateral. The allowance for a collateral-dependent loan reflects the difference between the loan’s amortized cost basis and the fair value (less selling costs, where applicable) of the loan's underlying collateral.

Our credit card and consumer banking loan portfolios consist of smaller-balance, homogeneous loans. The consumer banking loan portfolio is divided into 2 primary portfolio segments: auto loans and retail banking loans. The credit card and consumer banking loan portfolios are further divided by our business units into groups based on common risk characteristics, such as origination year, contract type, interest rate, credit bureau score and geography. The commercial banking loan portfolio is primarily composed of larger-balance, non-homogeneous loans. These loans are subject to reviews that result in internal risk ratings. In assessing the risk rating of a particular commercial banking loan, among the factors we consider are the financial condition of the borrower, geography, collateral performance, historical loss experience and industry-specific information that management believes is relevant in determining and measuring expected credit losses. Subjective assessment and interpretation are involved. Emphasizing one factor over another or considering additional factors could impact the risk rating assigned to that commercial banking loan.

For consumer banking and commercial banking loans, the contractual period typically does not include renewals or extensions because the renewals and extensions are generally not at the borrower’s exclusive option to exercise. Management has determined that the undrawn credit exposure that is associated with our credit card loans is unconditionally cancellable. For this reason, expected credit losses are measured based on the drawn balance at each quarterly measurement date, but not on the undrawn exposure. Because credit card loans do not have a defined contractual life, management estimates both the volume and application of payments to determine a contractual life of the drawn balance at the measurement date over which expected credit losses are developed for credit card loans.



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With the exception of credit card loans, we have made a policy election to not measure an allowance on accrued interest for loans held for investment because we reverse uncollectible accrued interest in a timely manner. See the “Delinquent and Nonperforming Loans” and “Charge-Offs - Loans” sections of this Note for information on what we consider timely. For credit card loans, we do not make this election, as we reserve for uncollectible accrued interest relating to credit card loans in the allowance.

The allowance related to credit card and consumer banking loans assessed on a pooled basis is based on a modeled calculation, which is supplemented by management judgment as described above. Because of the homogeneous nature of our consumer loan portfolios, the allowance is based on the aggregated portfolio segment evaluations. The allowance is established through a process that begins with estimates of historical losses in each pool based upon various statistical analyses, with adjustments for current conditions and reasonable and supportable forecasts of conditions, which includes expected economic conditions. Loss forecast models are utilized to estimate expected credit losses and consider several portfolio indicators including, but not limited to, expected economic conditions, historical loss experience, account seasoning, the value of collateral underlying secured loans, estimated foreclosures or defaults based on observable trends, delinquencies, bankruptcy filings, unemployment, credit bureau scores and general business trends. Management believes these factors are relevant in estimating expected credit losses and also considers an evaluation of overall portfolio credit quality based on indicators such as changes in our credit evaluation, underwriting and collection management policies, the effect of other external factors such as competition and legal and regulatory requirements, general economic conditions and business trends, and uncertainties in forecasting and modeling techniques used in estimating our allowance.

The allowance related to commercial banking loans assessed on a pooled basis is based on our historical loss experience for loans with similar risk characteristics and consideration of the current credit quality of the portfolio, which is supplemented by management judgment as described above. These are adjusted for current conditions, and reasonable and supportable forecasts of conditions likely to cause future losses which vary from historical levels. We apply internal risk ratings to commercial banking loans, which we use to assess credit quality and derive a total loss estimate based on an estimated probability of default (“default rate”) and loss given default (“loss severity”). Management may also apply judgment to adjust the loss factors derived, taking into consideration both quantitative and qualitative factors, including general economic conditions, industry-specific and geographic trends, portfolio concentrations, trends in internal credit quality indicators, and current and past underwriting standards that have occurred but are not yet reflected in the historical data underlying our loss estimates.

The allowance related to smaller-balance homogeneous credit card and consumer banking loans whose terms have been modified in a TDR is calculated on a pool basis using historical loss experience, adjusted for current conditions and reasonable and supportable forecasts of conditions likely to cause future losses which vary from historical levels for the respective class of assets. The allowance related to consumer banking loans that are assessed at a loan-level is determined based on key considerations that include the borrower’s overall financial condition, resources and payment history, prospects for support from financially responsible guarantors, and when applicable, the estimated realizable value of any collateral. The allowance related to commercial banking loans that are assessed at a loan-level is generally determined in accordance with our policy for estimating expected credit losses for collateral-dependent loans as described above.

Off-balance sheet credit exposures

In addition to the allowance, we also measure expected credit losses related to unfunded lending commitments that are not unconditionally cancellable in our Commercial Banking business. This reserve is measured using the same measurement objectives as the allowance for loans held for investment and is recorded within other liabilities on our consolidated balance sheets. These commitments are segregated by risk according to our internal risk rating scale, which we use to assess credit quality and derive an expected credit loss estimate. We assess these risk classifications, taking into consideration both quantitative and qualitative factors, including historical loss experience, adjusted for current conditions and reasonable and supportable forecasts of conditions likely to cause future losses which vary from historical levels, and utilization assumptions to estimate the reserve for unfunded lending commitments. Expected credit losses are not measured on unfunded lending commitments that are unconditionally cancellable, including all of our unfunded credit card and consumer banking lending commitments and certain of our unfunded commercial banking lending commitments.



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Determining the appropriateness of the allowance and the reserve for unfunded lending commitments is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in significant changes in the reserve for unfunded lending commitments in future periods. See “Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments” for additional information.

Allowance for Credit Losses - Available for Sale Investment Securities

When an investment security available for sale is impaired due to credit factors, we recognize a provision for credit losses in our consolidated statements of income and an allowance for credit losses on our consolidated balance sheets. Credit losses recognized in the allowance for credit losses are limited to the amount by which the investment security’s amortized cost basis exceeds its fair value. Investment securities in unrealized gain positions do not have an allowance for credit losses as the investment security could be sold at its fair value to prevent realization of credit losses. We exclude accrued interest from the fair value and amortized cost basis of an investment security for purposes of measuring impairment. Charge-offs of uncollectible amounts of investment securities are deducted from the allowance for credit losses.

For certain of our securities available for sale, we have determined that there is no risk of impairment due to credit factors. These investment securities include high quality debt instruments that are issued and guaranteed by the United States government and its agencies or are issued through certain government-sponsored enterprises. Management performs periodic assessments to reevaluate this conclusion by considering any changes in historical losses, current conditions, and reasonable and supportable forecasts.

We evaluate impairment on a quarterly basis at the individual security level and determine whether any portion of the decline in fair value is due to a credit loss. We make this determination through the use of quantitative and qualitative analyses. Our qualitative analysis includes factors such as the extent to which fair value is less than amortized cost, any changes in the security’s credit rating, past defaults or delayed payments, and adverse conditions impacting the security or issuer. A credit loss exists to the extent that management does not expect to recover the amortized cost basis.

For investment securities which require further assessment, we perform a quantitative analysis using a discounted cash flow methodology and compare the present value of expected future cash flows from the security available for sale to the security’s amortized cost basis. Projected future cash flows reflect management’s best estimate and are based on our understanding of past events, current conditions, reasonable and supportable forecasts, and are discounted by the security’s effective interest rate adjusted for prepayments. The allowance for credit losses for investment securities reflects the difference by which the amortized cost basis exceeds the present value of future cash flows and is limited to the amount by which the security’s amortized cost exceeds its fair value. See “Note 2—Investment Securities” for additional information.

Revenue Recognition

Interest Income and Fees

Interest income and fees on loans and investment securities are recognized based on the contractual provisions of the underlying arrangements.

Loan origination fees and costs and premiums and discounts on loans held for investment are deferred and generally amortized into interest income as yield adjustments over the contractual life and/or commitment period using the effective interest method. Costs deferred include direct origination costs such as bounties paid to third parties for new accounts and incentives paid to our network of auto dealers for loan referrals. In certain circumstances, we elect to factor prepayment estimates into the calculation of the constant effective yield necessary to apply the interest method. Prepayment estimates are based on historical prepayment data, existing and forecasted interest rates, and economic data. For credit card loans, loan origination fees and direct loan origination costs are amortized on a straight-line basis over a 12-month period.

Unamortized premiums, discounts and other basis adjustments on investment securities are generally recognized in interest income over the contractual lives of the securities using the effective interest method. However, premiums for certain callable investment securities are amortized to the earliest call date.



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Finance charges and fees on credit card loans are recorded in revenue when earned. Billed finance charges and fees on credit card loans are included in loan receivables. Unbilled finance charges and fees on credit card loans are included in interest receivable on our consolidated balance sheets. Annual membership fees are classified as service charges and other customer-related fees in our consolidated statements of income and are deferred and amortized into income over 12 months on a straight-line basis. We continue to accrue finance charges and fees on credit card loans until the account is charged off.

Newly Adopted Accounting Standards During the Nine Months Ended September 30, ~~2019~~2020

Standard

Guidance

Adoption Timing and Financial ~~Statements~~Statement Impacts

~~Premium Amortization on Callable Debt~~Cloud Computing

~~Accounting Standards Update (“ASU”)~~ASU No. ~~2017-08, Receivables—Nonrefundable Fees~~2018-15, Intangibles—Goodwill and ~~Other Costs~~Other—Internal-Use Software (Subtopic ~~310-20)~~350-40): ~~Premium Amortization on Purchased Callable Debt Securities~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

Issued ~~March 2017~~August 2018

~~Shortens~~Aligns the ~~amortization period from~~requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the ~~contractual life~~requirements for capitalizing implementation costs incurred to ~~the earliest call date for certain purchased callable debt securities held at a premium.~~

develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

We adopted this guidance in the first quarter of ~~2019~~2020 using the ~~modified retrospective~~prospective method of adoption.

Our adoption of this standard did not have a material impact on our consolidated financial statements.

~~Leases~~Goodwill Impairment Test Simplification

ASU No. ~~2016-02, Leases~~2017-04, Intangibles—Goodwill and Other (Topic ~~842)~~350): Simplifying the Test for Goodwill Impairment

Issued ~~February 2016~~January 2017

~~Requires lessees~~

Historical guidance for goodwill impairment testing prescribed that the company must compare each reporting unit’s carrying value to ~~recognize right of use~~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 ~~lease~~ liabilities, including unrecognized assets and liabilities, in the same manner as required in purchase accounting and then records an impairment. This ASU eliminates the second step.

Under the new guidance, an impairment of a reporting unit’s goodwill is determined based on ~~their consolidated balance sheets and disclose key information about all their leasing arrangements, with certain practical expedients.~~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.

We adopted this guidance in the first quarter of ~~2019,~~2020 using the prospective method of adoption.

Our adoption of this standard did not have a material impact on our consolidated financial statements.

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. The new guidance requires 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.

We adopted this guidance in the first quarter of 2020, using the modified retrospective method of ~~adoption without restating prior periods.~~adoption.

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 an increase to our reserves for credit losses of $2.9 billion, an increase to our deferred tax assets of $694 million, and a ~~lease liability~~decrease to our retained earnings of ~~$1.9 billion~~$2.2 billion.

Additionally, we made a prospective change to present our finance charge and ~~right~~fee reserve as a component of ~~use asset~~our allowance for credit losses instead of ~~$1.6 billion, which is net~~as an offset to our loans held for investment. This balance sheet reclassification increased our allowance for credit losses, with a corresponding increase to our loans held for investment by $462 million as of ~~other lease-related balances.~~January 1, 2020.



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

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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 2—~~LEASES~~

~~Leases~~

In the first quarter of 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 support our business. A majority of our 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 measurement of our right-of-use assets and lease liabilities.

Our right-of-use assets and lease liabilities for operating leases are included in other assets and 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 is included in other non-interest income in our consolidated statements of income.

~~The following tables present information about our operating lease portfolio and the related lease costs as of and for the three and nine months ended September 30, 2019.~~

~~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 Other Information~~

(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




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~~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.




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~~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;~~securities, U.S. government-sponsored enterprise or agency (“Agency”) and non-agency residential mortgage-backed securities (“RMBS”);, Agency commercial mortgage-backed securities (“CMBS”); 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% of our total investment securities portfolio as of both September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

~~We classify investment~~In the first quarter of 2020, we adopted the CECL standard. For our purchased credit-deteriorated (“PCD”) securities, which are classified as ~~either~~ available for sale, ~~or held~~this adoption resulted in an increase of their amortized cost basis and related allowance for credit losses. The allowance for credit losses for these PCD securities is limited to ~~maturity. As~~the amount by which the amortized cost basis of ~~both~~ ~~September 30, 2019~~ ~~and December 31, 2018, we had investment securities available~~the security exceeds its fair value. This limitation resulted in an increase of $11 million to our retained earnings with a corresponding decrease in AOCI at adoption.

We exclude accrued interest receivable from the amortized cost disclosed in this note. Our disclosures below reflect these adoption changes. Prior period presentation was not reclassified to conform to the current period presentation. See “Note 1—Summary of Significant Accounting Policies” for ~~sale of $46.2 billion and as of~~ ~~September 30, 2019~~ ~~and December 31, 2018, we had investment securities held to maturity of $33.9 billion and $36.8 billion, respectively.~~additional information.

The table below presents the amortized cost, gross unrealized gains and losses, and fair value of securities available for sale as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. Accrued interest receivable of $251 million as of September 30, 2020 is not included in the below table.

Table ~~3.1:~~2.1: Investment Securities Available for Sale


	September 30, 2019										September 30, 2020
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		(Dollars in millions)	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Investment securities available for sale:										Investment securities available for sale:
U.S. Treasury securities	$	4,173	$	3	$	(21	)	$	4,155	U.S. Treasury securities	$	9,331	$	0	$	14	$	0	$	9,345
RMBS:										RMBS:
Agency	33,727		239		(253		)	33,713		Agency	72,948		0		2,506		(88)		75,366
Non-agency	1,313		300		(1		)	1,612		Non-agency	1,093		(3)		204		(1)		1,293
Total RMBS	35,040		539		(254		)	35,325		Total RMBS	74,041		(3)		2,710		(89)		76,659
Agency CMBS	5,368		48		(20		)	5,396		Agency CMBS	10,953		0		490		(8)		11,435
Other securities⁽¹⁾	1,291		2		(1		)	1,292		Other securities(1)	2,410		0		4		0		2,414
Total investment securities available for sale	$	45,872	$	592	$	(296	)	$	46,168	Total investment securities available for sale	$	96,735	$	(3)	$	3,218	$	(97)	$	99,853


	December 31, 2019
(Dollars in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Investment securities available for sale:
U.S. Treasury securities	$	4,122	$	6	$	(4)	$	4,124
RMBS:
Agency	62,003		1,120		(284)		62,839
Non-agency	1,235		266		(2)		1,499
Total RMBS	63,238		1,386		(286)		64,338
Agency CMBS	9,303		165		(42)		9,426
Other securities(1)	1,321		4		0		1,325
Total investment securities available for sale	$	77,984	$	1,561	$	(332)	$	79,213

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.~~




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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~The table below presents the amortized cost, carrying value, gross unrealized gains~~(1)Includes $1.5 billion and ~~losses, and fair value~~$117 million of asset-backed securities ~~held to maturity~~ as of September 30, ~~2019~~2020, and December 31, ~~2018.~~

~~Table 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

December 31, 2018
(Dollars in millions)
Amortized
Cost
Unrealized Losses Recorded in AOCI Carrying Value
Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value
Agency RMBS $ 33,299
$ (238 ) $ 33,061
$ 293
$ (377 ) $ 32,977
Agency CMBS 3,723
(13 ) 3,710
21
(89 ) 3,642
Total investment securities held to maturity $ 37,022
$ (251 ) $ 36,771
$ 314
$ (466 ) $ 36,619

2019, respectively. The remaining amount is primarily comprised of supranational bonds and foreign government bonds.

Investment Securities in a Gross Unrealized Loss Position

The table below provides ~~by major security type, information about~~the gross unrealized losses and fair value of our securities available for sale ~~in a gross unrealized loss position~~aggregated by major security type and the length of time that individual securities have been in a continuous unrealized loss position as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. The amounts as of September 30, 2020 only include securities available for sale without an allowance for credit losses.

Table ~~3.3:~~2.2: Securities in a Gross Unrealized Loss Position


	September 30, 2019																September 30, 2020
	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			(Dollars in millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Investment securities available for sale:
Investment securities available for sale without an allowance for credit losses:																Investment securities available for sale without an allowance for credit losses:
U.S. Treasury securities	$	3,603	$	(21	)	$	0	$	0		$	3,603	$	(21	)	U.S. Treasury securities	$	0	$	0	$	0	$	0	$	0	$	0
RMBS:																RMBS:
Agency	5,205		(21		)	11,155		(232		)	16,360		(253		)	Agency	6,681		(51)		1,866		(37)		8,547		(88)
Non-agency	28		(1		)	3		0			31		(1		)	Non-agency	14		0		0		0		14		0
Total RMBS	5,233		(22		)	11,158		(232		)	16,391		(254		)	Total RMBS	6,695		(51)		1,866		(37)		8,561		(88)
Agency CMBS	1,162		(5		)	1,528		(15		)	2,690		(20		)	Agency CMBS	916		(4)		257		(4)		1,173		(8)
Other securities	463		(1		)	176		0			639		(1		)
Total investment securities available for sale in a gross unrealized loss position	$	10,461	$	(49	)	$	12,862	$	(247	)	$	23,323	$	(296	)
Other securities(1)																Other securities(1)	442		0		3		0		445		0
Total investment securities available for sale in a gross unrealized loss position without an allowance for credit losses(2)																Total investment securities available for sale in a gross unrealized loss position without an allowance for credit losses(2)	$	8,053	$	(55)	$	2,126	$	(41)	$	10,179	$	(96)


	December 31, 2019
	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	$	2,647	$	(4)	$	0	$	0	$	2,647	$	(4)
RMBS:
Agency	10,494		(92)		10,567		(192)		21,061		(284)
Non-agency	35		(1)		16		(1)		51		(2)
Total RMBS	10,529		(93)		10,583		(193)		21,112		(286)
Agency CMBS	2,580		(23)		1,563		(19)		4,143		(42)
Other securities(1)	126		0		106		0		232		0
Total investment securities available for sale in a gross unrealized loss position	$	15,882	$	(120)	$	12,252	$	(212)	$	28,134	$	(332)

__________

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

(2) Consists of approximately 300 securities in gross unrealized loss positions as of September 30, 2020.




			7791			Capital One Financial Corporation (COF)

Table of Contents

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




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

~~Table of Contents~~

~~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, ~~2019~~.2020. 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 ~~3.4:~~2.3: Contractual Maturities and Weighted-Average Yields of Securities

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
Fair value of securities available for sale:
U.S. Treasury securities $ 0
$ 1,483
$ 2,672
$ 0
$ 4,155
RMBS⁽¹⁾:

Agency 1
28
731
32,953
33,713
Non-agency 0
0
0
1,612
1,612
Total RMBS 1
28
731
34,565
35,325
Agency CMBS⁽¹⁾
11
1,833
2,298
1,254
5,396
Other securities 459
533
300
0
1,292
Total securities available for sale $ 471
$ 3,877
$ 6,001
$ 35,819
$ 46,168
Amortized cost of securities available for sale $ 471
$ 3,877
$ 5,992
$ 35,532
$ 45,872
Weighted-average yield for securities available for sale 1.51 % 2.45 % 2.65 % 3.09 % 2.96 %
Carrying value of securities held to maturity:
Agency RMBS⁽¹⁾
$ 0
$ 0
$ 85
$ 30,024
$ 30,109
Agency CMBS⁽¹⁾
0
59
829
2,897
3,785
Total securities held to maturity $ 0
$ 59
$ 914
$ 32,921
$ 33,894
Fair value of securities held to maturity $ 0
$ 62
$ 974
$ 34,228
$ 35,264
Weighted-average yield for securities held to maturity N/A
3.65 % 3.12 % 3.24 % 3.24 %

~~__________~~


⁽¹⁾	~~As of September 30, 2019, the weighted-average expected maturities of RMBS and Agency CMBS are 5.0 years and 5.4 years, respectively.~~

~~Other-Than-Temporary Impairment~~

We evaluate all securities in an unrealized loss position at least quarterly, and more often as market conditions require, to assess whether the impairment is other-than-temporary. Our 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.


	September 30, 2020
(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
Fair value of securities available for sale:
U.S. Treasury securities	$	101		$	9,244		$	0		$	0		$	9,345
RMBS(1):
Agency	0			73			1,073			74,220			75,366
Non-agency	0			0			0			1,293			1,293
Total RMBS	0			73			1,073			75,513			76,659
Agency CMBS(1)	52			2,766			5,242			3,375			11,435
Other securities	251			1,882			281			0			2,414
Total securities available for sale	$	404		$	13,965		$	6,596		$	78,888		$	99,853
Amortized cost of securities available for sale	$	402		$	13,901		$	6,334		$	76,098		$	96,735
Weighted-average yield for securities available for sale	1.44		%	0.82		%	1.93		%	2.37		%	2.11		%

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. __________

(1)As of September 30, ~~2019, we had sold all securities previously designated with~~2020, the ~~intent to sell,~~weighted-average expected maturities of RMBS and ~~did not intend to sell, nor believe that we will be required to sell, any other security in an unrealized loss position prior to the recovery of its amortized cost basis.~~Agency CMBS are 3.7 years and 5.3 years, respectively.




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

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Net Securities Gains or Losses and Process from Sales

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 basisthree and ~~the present value of its expected cash flows, discounted 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~~nine months ended September 30, 2020, total proceeds from the sale of our securities ~~available for sale for~~were $668 million and $812 million, respectively, with gains of $25 million in both periods. For the three and nine months ended September 30, 2019, ~~and 2018. We did not sell any investment~~total proceeds from sale of our securities ~~that~~ were ~~classified as held to maturity.~~

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

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2019 2018 2019 2018
Realized gains (losses):
Gross realized gains $ 5
$ 4
$ 44
$ 12
Gross realized losses 0
0
0
(1 )
Net realized gains (losses) 5
4
44
11
OTTI recognized in earnings:
Intent-to-sell OTTI 0
(200 ) 0
(200 )
Total OTTI recognized in earnings 0
(200 ) 0
(200 )
Net securities gains (losses) $ 5
$ (196 ) $ 44
$ (189 )
Total proceeds from sales $ 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 $137~~$243 million and ~~$140~~$4.2 billion, with gains of $5 million ~~as of~~ ~~September 30, 2019~~ and ~~December 31, 2018~~,$44 million, respectively.

Securities Pledged and Received

We pledged investment securities ~~available for sale and held to maturity~~ totaling ~~$14.8~~$11.5 billion and ~~$16.3~~$14.0 billion as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. These securities are primarily pledged to ~~primarily~~ secure Federal Home Loan Banks (“FHLB”) advances and Public Funds deposits, as well as for other purposes as required or permitted by law. We accepted pledges of securities with a fair value of approximately $1 million as of both September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 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, 2019 and December 31, 2018.~~

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

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



			92			Capital One Financial Corporation (COF)

Table of Contents



	80	~~Capital One Financial Corporation (COF)~~NOTE 3—LOANS

~~Table of Contents~~

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

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




	81	~~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~~sale. We further divide our loans held for investment 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 loans. ~~We sold all of our consumer home loan portfolio and the related servicing during 2018.~~ The information presented in this section excludes loans held for sale, which are carried at either fair value (if we elect the fair value option) or at the lower of cost or fair value.

~~Credit Quality~~In the first quarter of 2020, we adoptedthe CECL standard. Accordingly, our disclosures below reflect these adoption changes. Prior period presentation was not modified to conform to the current period presentation. See “Note 1—Summary of Significant Accounting Policies” for additional information. Amounts as of September 30, 2020 include the impacts of COVID-19 customer assistance programs where applicable.

~~We closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk. Trends~~

Accrued interest receivable of $1.3 billion as of September 30, 2020 is not included 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~~tables 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 commercial loans.~~

this note. The table below presents the composition and an aging analysis of our loans held for investment portfolio as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. The delinquency aging includes all past due loans, both performing and nonperforming.

Table ~~4.1:~~3.1: Loan Portfolio Composition and Aging Analysis

September 30, 2019
(Dollars in millions) Current
30-59
Days

60-89
Days

> 90
Days

Total
Delinquent
Loans

PCI
Loans

Total
Loans
Credit Card:
Domestic credit card $ 100,784
$ 1,175
$ 832
$ 1,873
$ 3,880
$ 0
$ 104,664
International card businesses 8,683
128
81
125
334
0
9,017
Total credit card 109,467
1,303
913
1,998
4,214
0
113,681
Consumer Banking:
Auto 55,071
2,607
1,258
342
4,207
0
59,278
Retail banking 2,690
24
7
14
45
2
2,737
Total consumer banking 57,761
2,631
1,265
356
4,252
2
62,015
Commercial Banking:
Commercial and multifamily real estate 29,930
18
7
33
58
21
30,009
Commercial and industrial 43,404
57
79
100
236
10
43,650
Total commercial banking 73,334
75
86
133
294
31
73,659
Total loans⁽¹⁾
$ 240,562
$ 4,009
$ 2,264
$ 2,487
$ 8,760
$ 33
$ 249,355
% of Total loans 96.5 % 1.6 % 0.9 % 1.0 % 3.5 % 0.0 % 100.0 %


	September 30, 2020
				Delinquent Loans
(Dollars in millions)	Current			30-59 Days			60-89 Days			> 90 Days			Total Delinquent Loans			Total Loans
Credit Card:
Domestic credit card	$	93,433		$	661		$	427		$	1,020		$	2,108		$	95,541
International card businesses	7,915			77			41			67			185			8,100
Total credit card	101,348			738			468			1,087			2,293			103,641
Consumer Banking:
Auto	62,756			1,810			669			159			2,638			65,394
Retail banking	3,250			23			6			15			44			3,294
Total consumer banking	66,006			1,833			675			174			2,682			68,688
Commercial Banking:
Commercial and multifamily real estate	31,018			29			4			146			179			31,197
Commercial and industrial	44,338			75			84			200			359			44,697
Total commercial banking	75,356			104			88			346			538			75,894
Total loans(1)	$	242,710		$	2,675		$	1,231		$	1,607		$	5,513		$	248,223
% of Total loans	97.8		%	1.1		%	0.5		%	0.6		%	2.2		%	100.0		%




			8293			Capital One Financial Corporation (COF)

Table of Contents

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


	December 31, 2019
				Delinquent Loans
(Dollars in millions)	Current			30-59 Days			60-89 Days			> 90 Days			Total Delinquent Loans			PCI Loans			Total Loans
Credit Card:
Domestic credit card	$	113,857		$	1,341		$	1,038		$	2,277		$	4,656		$	93		$	118,606
International card businesses	9,277			133			84			136			353			0			9,630
Total credit card	123,134			1,474			1,122			2,413			5,009			93			128,236
Consumer Banking:
Auto	55,778			2,828			1,361			395			4,584			0			60,362
Retail banking	2,658			24			8			11			43			2			2,703
Total consumer banking	58,436			2,852			1,369			406			4,627			2			63,065
Commercial Banking:
Commercial and multifamily real estate	30,157			43			20			4			67			21			30,245
Commercial and industrial	44,009			75			26			143			244			10			44,263
Total commercial banking	74,166			118			46			147			311			31			74,508


Total loans(1)	$	255,736		$	4,444		$	2,537		$	2,966		$	9,947		$	126		$	265,809
% of Total loans	96.2		%	1.6		%	1.0		%	1.1		%	3.7		%	0.1		%	100.0		%

December 31, 2018
(Dollars in millions) Current
30-59
Days

60-89
Days

> 90
Days

Total
Delinquent
Loans
PCI Loans
Total
Loans
Credit Card:
Domestic credit card $ 103,014
$ 1,270
$ 954
$ 2,111
$ 4,335
$ 1
$ 107,350
International card businesses 8,678
127
78
128
333
0
9,011
Total credit card 111,692
1,397
1,032
2,239
4,668
1
116,361
Consumer Banking:
Auto 52,032
2,624
1,326
359
4,309
0
56,341
Retail banking 2,809
23
8
20
51
4
2,864
Total consumer banking 54,841
2,647
1,334
379
4,360
4
59,205
Commercial Banking:
Commercial and multifamily real estate 28,737
101
20
19
140
22
28,899
Commercial and industrial 40,704
135
43
101
279
108
41,091
Total commercial lending 69,441
236
63
120
419
130
69,990
Small-ticket commercial real estate 336
2
1
4
7
0
343
Total commercial banking 69,777
238
64
124
426
130
70,333
Total loans⁽¹⁾
$ 236,310
$ 4,282
$ 2,430
$ 2,742
$ 9,454
$ 135
$ 245,899
% of Total loans 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 $1.0 billion and $818 million as of September 30, 2019 and December 31, 2018, respectively.

~~We pledged loan collateral of $14.4 billion~~(1)Loans include unamortized premiums and ~~$15.8 billion to secure a portion of our FHLB borrowing capacity of $19.2 billion~~discounts, and ~~$19.3~~unamortized deferred fees and costs totaling $1.1 billion as of both September 30, ~~2019~~2020 and December 31, 2018, respectively. We also pledged loan collateral of $7.2 billion and $9.2 billion to secure our Federal Reserve Discount Window borrowing capacity of $5.8 billion and $7.6 billion as of September 30, 2019 and December 31, 2018, respectively. In addition to loans pledged, we securitized a portion of our credit card and auto loans. See “~~Note 6—Variable Interest Entities and Securitizations” for additional information.~~2019.

The following table presents ~~the outstanding balance of~~our loans held for investment that are 90 days or more past due that continue to accrue interest and loans that are classified as nonperforming as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. We also present nonperforming loans without an allowance as of September 30, 2020. 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 2018 Form 10-K for additional information on our policies for nonperforming loans and accounting for PCI loans.

Table ~~4.2:~~3.2: 90+ Day Delinquent Loans Accruing Interest and Nonperforming Loans

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


	September 30, 2020									December 31, 2019
(Dollars in millions)	> 90 Days and Accruing			Nonperforming Loans(1)			Nonperforming Loans Without an Allowance			> 90 Days and Accruing			Nonperforming Loans
Credit Card:
Domestic credit card	$	1,020		N/A			$	0		$	2,277		N/A
International card businesses	63			$	21		0			130			$	25
Total credit card	1,083			21			0			2,407			25
Consumer Banking:
Auto	0			235			0			0			487
Retail banking	1			25			0			0			23
Total consumer banking	1			260			0			0			510
Commercial Banking:
Commercial and multifamily real estate	0			182			180			0			38
Commercial and industrial	0			586			243			0			410
Total commercial banking	0			768			423			0			448
Total	$	1,084		$	1,049		$	423		$	2,407		$	983
% of Total loans held for investment	0.4		%	0.4		%	0.2		%	0.9		%	0.4		%

__________




			8394			Capital One Financial Corporation (COF)

Table of Contents

~~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 %

(1)We recognized interest income for loans classified as nonperforming of $4 million and $22 million for the three and nine months ended September 30, 2020, respectively.

Credit Quality Indicators

We closely monitor economic conditions and loan performance trends to assess and manage our exposure to credit risk. We discuss these risks and our credit quality indicator for each portfolio segment below.

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~~key indicator we assess in monitoring the credit quality and risk of our credit card loan portfolio ~~are~~is delinquency ~~and charge-off~~ trends, including an analysis of loan migration between delinquency categories over time.

The table below ~~displays the geographic profile of~~presents our credit card ~~loan~~ portfolio by delinquency status as of September 30, ~~2019 and December 31, 2018.~~2020.

Table ~~4.3:~~3.3: Credit Card ~~Risk Profile by Geographic Region~~Delinquency Status

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 %


	September 30, 2020
(Dollars in millions)	Revolving Loans		Revolving Loans Converted to Term		Total
Credit Card:
Domestic credit card:
Current	$	92,904	$	529	$	93,433
30-59 days	641		20		661
60-89 days	414		13		427
Greater than 90 days	1,004		16		1,020
Total domestic credit card	94,963		578		95,541

International card businesses:
Current	7,845		70		7,915
30-59 days	67		10		77
60-89 days	33		8		41
Greater than 90 days	59		8		67
Total international card businesses	8,004		96		8,100
Total credit card	$	102,967	$	674	$	103,641




			8495			Capital One Financial Corporation (COF)

Table of Contents

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~The table below presents net charge-offs for the three and nine months ended September 30, 2019 and 2018.~~

~~Table 4.4: Credit Card Net Charge-Offs~~

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Dollars in millions) Amount
Rate⁽¹⁾
Amount
Rate⁽¹⁾
Amount
Rate⁽¹⁾
Amount
Rate⁽¹⁾
Net charge-offs:⁽¹⁾

Domestic credit card $ 1,065
4.12 % $ 1,094
4.35 % $ 3,599
4.67 % $ 3,581
4.78 %
International card businesses 86
3.78
43
1.92
236
3.54
193
2.85
Total credit card $ 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 rates are impacted periodically by fluctuations in recoveries, including loan sales.~~

Consumer Banking

Our consumer banking loan portfolio consists of auto and retail banking 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~~The key indicator we monitor when assessing the credit quality and ~~charge-off~~risk of our auto loan portfolio is borrower credit scores as they measure the creditworthiness of borrowers. Delinquency trends are the key ~~indicators~~indicator we assess in monitoring the credit quality and risk of our ~~consumer~~retail banking loan portfolio.




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

~~Table of Contents~~

~~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, 2019~~ ~~and December 31, 2018.~~

~~Table 4.5: Consumer Banking Risk Profile by Geographic Region~~

September 30, 2019 December 31, 2018
(Dollars in millions) Amount % of Total Amount % of Total
Auto:
Texas $ 7,541
12.2 % $ 7,264
12.3 %
California 6,786
10.9
6,352
10.7
Florida 4,891
7.9
4,623
7.8
Georgia 2,712
4.4
2,665
4.5
Ohio 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 2,104
3.4
2,174
3.7
Other 28,115
45.3
26,423
44.6
Total auto 59,278
95.6
56,341
95.2
Retail banking:
New York 799
1.3
837
1.4
Louisiana 729
1.2
772
1.3
Texas 604
0.9
647
1.1
New Jersey 194
0.3
201
0.3
Maryland 158
0.3
161
0.3
Virginia 126
0.2
137
0.2
Other 127
0.2
109
0.2
Total retail banking 2,737
4.4
2,864
4.8
Total consumer banking $ 62,015
100.0 % $ 59,205
100.0 %




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

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The table below presents ~~net charge-offs in~~ our consumer banking ~~loan~~ portfolio of loans held for ~~the three and nine months ended~~investment by credit quality indicator as of September 30, ~~2019 and 2018, as well as nonperforming loans as of~~ ~~September 30, 2019~~2020 and December 31, ~~2018.~~2019. We present our auto loan portfolio by FICO scores at origination and our retail banking loan portfolio by delinquency status, which includes all past due loans, both performing and nonperforming.

Table 3.4: Consumer Banking Portfolio by Credit Quality Indicator


	September 30, 2020
	Term Loans by Vintage Year
(Dollars in millions)	2020		2019		2018		2017		2016		Prior		Total Term Loans		Revolving Loans		Revolving Loans Converted to Term		Total		December 31, 2019

Auto—At origination FICO scores:(1)
Greater than 660	$	10,562	$	9,021	$	5,353	$	3,338	$	1,496	$	333	$	30,103	$	0	$	0	$	30,103	$	28,773
621-660	4,666		4,027		2,264		1,361		597		161		13,076		0		0		13,076		11,924
620 or below	7,875		6,924		3,722		2,283		1,068		343		22,215		0		0		22,215		19,665
Total auto	23,103		19,972		11,339		6,982		3,161		837		65,394		0		0		65,394		60,362

Retail banking—Delinquency status:
Current	1,081		237		231		231		186		576		2,542		699		9		3,250		2,658
30-59 days	0		0		0		2		1		3		6		17		0		23		24
60-89 days	0		0		0		0		1		2		3		3		0		6		8
Greater than 90 days	0		0		0		1		1		4		6		8		1		15		11
Total retail banking(2)	1,081		237		231		234		189		585		2,557		727		10		3,294		2,701
Total consumer banking	$	24,184	$	20,209	$	11,570	$	7,216	$	3,350	$	1,422	$	67,951	$	727	$	10	$	68,688	$	63,063

__________

(1)Amounts 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.

~~Table 4.6: Consumer Banking Net Charge-Offs (Recoveries) and Nonperforming Loans~~(2)

Includes Paycheck Protection Program (“PPP”) loans of $966 million as of September 30, 2020.

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Dollars in millions) Amount
Rate⁽¹⁾
Amount
Rate⁽¹⁾
Amount
Rate⁽¹⁾
Amount
Rate⁽¹⁾
Net charge-offs (recoveries):
Auto $ 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
0
0.00
0
0.00
(1 ) (0.02 )
Total consumer banking $ 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)~~ ~~rates are calculated by dividing annualized net charge-offs (recoveries) by average loans held for investment for the period for each loan 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~~The key credit quality indicator for our commercial loan portfolios is our internal risk ~~of commercial loans using a risk rating system.~~ratings. 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.


•									~~Noncriticized:~~ ~~Loans that have not been designated as criticized, frequently referred to as “pass” loans.~~


•96	~~Criticized performing:~~Capital One Financial Corporation (COF) 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.

•

Table of Contents

•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~~credit 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.

The following table presents our commercial banking portfolio of loans held for investment by internal risk ratings as of September 30, 2020 and December 31, 2019. The internal risk rating status includes all past due loans, both performing and nonperforming.

Table 3.5: Commercial Banking Portfolio by Internal Risk Ratings


	September 30, 2020
	Term Loans by Vintage Year
(Dollars in millions)	2020		2019		2018		2017		2016		Prior		Total Term Loans		Revolving Loans		Revolving Loans Converted to Term		Total
Internal risk rating:(1)
Commercial and multifamily real estate
Noncriticized	$	3,017	$	5,267	$	3,426	$	1,796	$	1,972	$	5,756	$	21,234	$	7,152	$	0	$	28,386
Criticized performing	217		369		438		326		288		935		2,573		56		0		2,629
Criticized nonperforming	0		12		30		0		3		137		182		0		0		182
Total commercial and multifamily real estate	3,234		5,648		3,894		2,122		2,263		6,828		23,989		7,208		0		31,197
Commercial and industrial
Noncriticized	7,467		8,363		4,565		2,932		1,981		3,443		28,751		11,213		183		40,147
Criticized performing	258		732		461		345		91		210		2,097		1,825		42		3,964
Criticized nonperforming	45		78		52		75		9		3		262		324		0		586
Total commercial and industrial	7,770		9,173		5,078		3,352		2,081		3,656		31,110		13,362		225		44,697
Total commercial banking(2)	$	11,004	$	14,821	$	8,972	$	5,474	$	4,344	$	10,484	$	55,099	$	20,570	$	225	$	75,894


	December 31, 2019
(Dollars in millions)	Commercial and Multifamily Real Estate		% of Total		Commercial and Industrial		% of Total		Total Commercial Banking		% of Total






Internal risk rating:(1)
Noncriticized	$	29,625	97.9	%	$	42,223	95.4	%	$	71,848	96.5	%
Criticized performing	561		1.9		1,620		3.7		2,181		2.9
Criticized nonperforming	38		0.1		410		0.9		448		0.6
PCI loans	21		0.1		10		0.0		31		0.0
Total	$	30,245	100.0	%	$	44,263	100.0	%	$	74,508	100.0	%

__________

(1)Criticized exposures correspond to the “Special Mention,” “Substandard” and “Doubtful” asset categories defined by bank regulatory authorities.




			8797			Capital One Financial Corporation (COF)

Table of Contents

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~The following table presents the geographic concentration and internal risk ratings~~(2)Includes PPP loans of ~~our commercial loan portfolio~~$242 million as of September 30, ~~2019~~ ~~and~~ ~~December 31, 2018~~.2020.

~~Table 4.7: Commercial Banking Risk Profile by Geographic Region and Internal Risk Rating~~

September 30, 2019
(Dollars in millions)
Commercial
and
Multifamily
Real Estate

% of
Total

Commercial
and
Industrial

% of
Total

Total
Commercial Banking

% of
Total
Geographic concentration:⁽¹⁾

Northeast $ 16,301
54.3 % $ 8,403
19.3 % $ 24,704
33.5 %
Mid-Atlantic 3,080
10.3
5,572
12.8
8,652
11.7
South 4,437
14.8
15,386
35.2
19,823
26.9
Other 6,191
20.6
14,289
32.7
20,480
27.9
Total $ 30,009
100.0 % $ 43,650
100.0 % $ 73,659
100.0 %
Internal risk rating:⁽²⁾

Noncriticized $ 29,272
97.5 % $ 41,872
96.0 % $ 71,144
96.6 %
Criticized performing 680
2.3
1,355
3.1
2,035
2.8
Criticized nonperforming 36
0.1
413
0.9
449
0.6
PCI loans 21
0.1
10
0.0
31
0.0
Total $ 30,009
100.0 % $ 43,650
100.0 % $ 73,659
100.0 %

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
Geographic concentration:⁽¹⁾

Northeast $ 15,562
53.8 % $ 7,573
18.4 % $ 213
62.1 % $ 23,348
33.2 %
Mid-Atlantic 3,410
11.8
4,710
11.5
12
3.5
8,132
11.6
South 4,247
14.7
15,367
37.4
20
5.8
19,634
27.9
Other 5,680
19.7
13,441
32.7
98
28.6
19,219
27.3
Total $ 28,899
100.0 % $ 41,091
100.0 % $ 343
100.0 % $ 70,333
100.0 %
Internal risk rating:⁽²⁾

Noncriticized $ 28,239
97.7 % $ 39,468
96.1 % $ 336
98.0 % $ 68,043
96.8 %
Criticized performing 555
1.9
1,292
3.1
1
0.3
1,848
2.6
Criticized nonperforming 83
0.3
223
0.5
6
1.7
312
0.4
PCI loans 22
0.1
108
0.3
0
0.0
130
0.2
Total $ 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~~Revolving Loans Converted to Term Loans

~~The following table presents information on our impaired loans as of~~ ~~September 30, 2019 and December 31, 2018, and for~~For the three and nine months ended September 30, ~~2019~~2020, we converted $250 million and ~~2018. Impaired~~$499 million of revolving loans ~~include~~to term loans, ~~modified~~respectively, primarily in ~~troubled debt restructurings (“TDRs”), all nonperforming~~our domestic credit card and 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 table.banking loan portfolios.




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

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Table 4.8: Impaired Loans~~

September 30, 2019
(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 $ 625
$ 0
$ 625
$ 115
$ 510
$ 615
International card businesses 190
0
190
82
108
185
Total credit card⁽¹⁾
815
0
815
197
618
800
Consumer Banking:
Auto 294
41
335
26
309
445
Retail banking 45
2
47
6
41
52
Total consumer banking 339
43
382
32
350
497
Commercial Banking:
Commercial and multifamily real estate 36
33
69
1
68
71
Commercial and industrial 516
141
657
97
560
779
Total commercial banking 552
174
726
98
628
850
Total $ 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




	89	~~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,
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
Credit Card:
Domestic credit card $ 628
$ 14
$ 659
$ 15
$ 645
$ 43
$ 653
$ 47
International card businesses 192
4
186
3
193
11
182
9
Total credit card⁽¹⁾
820
18
845
18
838
54
835
56
Consumer Banking:
Auto⁽²⁾
334
10
366
11
338
29
411
35
Home loan 0
0
0
0
0
0
114
1
Retail banking 52
0
59
0
53
1
60
1
Total consumer banking 386
10
425
11
391
30
585
37
Commercial Banking:
Commercial and multifamily real estate 74
0
67
1
94
1
86
2
Commercial and industrial 605
3
583
6
562
11
658
16
Total commercial lending 679
3
650
7
656
12
744
18
Small-ticket commercial real estate 3
0
5
0
5
0
6
0
Total commercial banking 682
3
655
7
661
12
750
18
Total $ 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⁾	~~2018 amounts include certain TDRs that were recorded as other assets on our consolidated balance sheets.~~

Troubled Debt Restructurings

In response to the COVID-19 pandemic, the Federal Banking Agencies issued an interagency statement that provides banking organizations with additional guidance and relief on accounting for certain customer concessions related to the COVID-19 pandemic. Specifically, TDR accounting relief is available for short-term modifications of loans that were not more than 30 days past due where concessions do not extend beyond six months. We assessed all loan modifications introduced to borrowers as of September 30, 2020 in response to the COVID-19 pandemic and followed guidance that such eligible loan modifications made on a temporary and good faith basis in response to the COVID-19 pandemic are not considered TDRs.

Total recorded TDRs were ~~$1.6~~$2.1 billion and $1.7 billion as of ~~both~~ September 30, ~~2019~~2020 and December 31, ~~2018.~~2019, respectively. TDRs classified as performing in our credit card and consumer banking loan portfolios totaled ~~$1.1~~$1.2 billion and ~~$1.2~~$1.1 billion as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. TDRs classified as performing in our commercial banking loan portfolio totaled ~~$276~~$438 million and ~~$282~~$224 million as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Commitments to lend additional funds on loans modified in TDRs totaled ~~$220~~$168 million and ~~$256~~$178 million as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 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, ~~2019~~2020 and ~~2018.~~

2019.




			9098			Capital One Financial Corporation (COF)

Table of Contents

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Table ~~4.9:~~3.6: Troubled Debt Restructurings


	Total Loans Modified⁽¹⁾		Three Months Ended September 30, 2019												Total Loans Modified(1)		Three Months Ended September 30, 2020
			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		(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:														Credit Card:
Domestic credit card	$	85	100	%	16.76	%	0	%	0	0	%	$	0	Domestic credit card	$	50	100	%	15.53	%	0	%	0	0	%	$	0
International card businesses	43		100		27.08		0		0	0		0		International card businesses	39		100		27.89		0		0	0		0
Total credit card	128		100		20.19		0		0	0		0		Total credit card	89		100		20.94		0		0	0		0
Consumer Banking:														Consumer Banking:
Auto	66		42		3.51		89		8	1		1		Auto	133		3		4.83		94		2	0		1
Retail banking	1		9		9.30		0		0	0		0		Retail banking	1		85		3.24		15		61	0		0
Total consumer banking	67		42		3.53		88		8	1		1		Total consumer banking	134		4		4.75		94		2	0		1
Commercial Banking:														Commercial Banking:
Commercial and multifamily real estate														Commercial and multifamily real estate	57		0		0.00		100		4	0		0
Commercial and industrial	51		9		1.00		15		14	0		0		Commercial and industrial	201		0		0.00		54		32	0		0

Total commercial banking	51		9		1.00		15		14	0		0		Total commercial banking	258		0		0.00		64		23	0		0
Total	$	246	65		16.70		27		9	0		$	1	Total	$	481	19		20.08		61		14	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)		Nine Months Ended September 30, 2020
			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	$	195	100	%	15.92	%	0	%	0	0	%	$	0
International card businesses	118		100		27.33		0		0	0		0
Total credit card	313		100		20.22		0		0	0		0
Consumer Banking:
Auto	393		9		3.68		95		3	0		1
Retail banking	5		9		10.85		15		8	0		0
Total consumer banking	398		9		3.76		94		3	0		1
Commercial Banking:
Commercial and multifamily real estate	85		0		0.00		100		6	0		0
Commercial and industrial	389		0		0.00		52		21	4		7


Total commercial banking	474		0		0.00		61		16	3		7
Total	$	1,185	29		18.49		56		9	1		$	8




			9199			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, 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⁾
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												Total Loans Modified(1)		Nine Months Ended September 30, 2019
			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		(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:														Credit Card:
Domestic credit card	$	314	100	%	15.88	%	0	%	0	0	%	$	0	Domestic credit card	$	257	100	%	16.58	%	0	%	0	0	%	$	0
International card businesses	139		100		26.87		0		0	0		0		International card businesses	130		100		27.25		0		0	0		0
Total credit card	453		100		19.25		0		0	0		0		Total credit card	387		100		20.18		0		0	0		0
Consumer Banking:														Consumer Banking:
Auto⁽³⁾	153		55		3.91		87		8	1		1
Home loan	6		28		1.78		83		214	0		0
Auto														Auto	190		41		3.70		90		8	1		1
Retail banking	6		14		11.09		48		6	0		0		Retail banking	7		10		10.73		54		3	34		0
Total consumer banking	165		53		3.94		86		15	1		1		Total consumer banking	197		40		3.76		89		7	2		1
Commercial Banking:														Commercial Banking:
Commercial and multifamily real estate	41		0		0.00		79		5	0		0		Commercial and multifamily real estate	34		100		0.00		0		0	0		0
Commercial and industrial	147		0		1.19		47		14	0		0		Commercial and industrial	86		5		0.60		25		9	0		0
Total commercial lending	188		0		1.19		54		11	0		0		Total commercial lending	120		32		0.07		18		9	0		0
Small-ticket commercial real estate	3		0		0.00		0		0	0		0		Small-ticket commercial real estate	1		0		0.00		0		0	0		0
Total commercial banking	191		0		1.19		53		11	0		0		Total commercial banking	121		32		0.07		18		9	0		0
Total	$	809	67		16.79		30		14	0		$	1	Total	$	705	72		16.08		28		8	1		$	1

__________

⁽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.

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.~~




			92100			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.~~

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~~—3.7: TDRs—Subsequent Defaults

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Dollars in millions) Number of
Contracts Amount Number of
Contracts Amount Number of
Contracts Amount Number of
Contracts Amount
Credit Card:
Domestic credit card 10,619
$ 22
13,983
$ 29
36,227
$ 77
44,528
$ 93
International card businesses 17,104
26
15,104
25
51,995
82
44,397
78
Total credit card 27,723
48
29,087
54
88,222
159
88,925
171
Consumer Banking:
Auto 1,446
18
1,907
20
3,863
47
5,507
62
Home loan 0
0
0
0
0
0
3
1
Retail banking 6
0
12
2
18
1
21
2
Total consumer banking 1,452
18
1,919
22
3,881
48
5,531
65
Commercial Banking:
Commercial and multifamily real estate 0
0
1
3
0
0
1
3
Commercial and industrial 0
0
5
34
0
0
18
79
Total commercial lending 0
0
6
37
0
0
19
82
Total commercial banking 0
0
6
37
0
0
19
82
Total 29,175
$ 66
31,012
$ 113
92,103
$ 207
94,475
$ 318


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
(Dollars in millions)	Number of Contracts	Amount		Number of Contracts	Amount		Number of Contracts	Amount		Number of Contracts	Amount
Credit Card:
Domestic credit card	6,554	$	14	10,619	$	22	27,022	$	57	36,227	$	77
International card businesses	10,673	17		17,104	26		46,038	68		51,995	82
Total credit card	17,227	31		27,723	48		73,060	125		88,222	159
Consumer Banking:
Auto	1,307	15		1,446	18		3,442	42		3,863	47

Retail banking	3	1		6	0		7	1		18	1
Total consumer banking	1,310	16		1,452	18		3,449	43		3,881	48
Commercial Banking:

Commercial and industrial	4	16		0	0		11	65		0	0


Total commercial banking	4	16		0	0		11	65		0	0
Total	18,541	$	63	29,175	$	66	76,520	$	233	92,103	$	207

Loans Pledged

We pledged loan collateral of $15.0 billion and $14.6 billion to secure the majority of our FHLB borrowing capacity of $16.2 billion and $18.7 billion as of September 30, 2020 and December 31, 2019, respectively. We also pledged loan collateral of $26.6 billion and $6.7 billion to secure our Federal Reserve Discount Window borrowing capacity of $21.0 billion and $5.3 billion as of September 30, 2020 and December 31, 2019, respectively. In addition to loans pledged, we securitized a portion of our credit card and auto loans. See “Note 5—Variable Interest Entities and Securitizations” for additional information.



			101			Capital One Financial Corporation (COF)

Table of Contents



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

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 5—4—ALLOWANCE FOR ~~LOAN AND LEASE~~CREDIT LOSSES AND RESERVE FOR UNFUNDED LENDING COMMITMENTS

In the first quarter of 2020, we adoptedthe CECL standard. Accordingly, our disclosures below reflect these adoption changes. Prior period presentation was not modified to conform to the current period presentation. See “Note 1—Summary of Significant Accounting Policies” for additional information. Concurrent with this adoption, we reclassified our finance charge and fee reserve to our allowance for credit losses, with a corresponding increase to credit card loans held for investment.

Our allowance for ~~loan and lease~~credit losses represents management’s ~~best~~current estimate of ~~incurred loan and lease~~expected credit losses ~~inherent in~~over the contractual terms of our loans held for investment as of each balance sheet date. ~~In addition~~Expected recoveries of amounts previously charged off or expected to be charged off are recognized within the allowance. When developing an estimate of expected credit losses, we use both quantitative and qualitative methods in considering all available information relevant to assessing collectability. This may include internal information, external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. Management will consider and may qualitatively adjust for conditions, changes, and trends in loan portfolios that may not be captured in modeled results. These adjustments are referred to as qualitative factors and represent management’s judgment of the imprecision and risks inherent in the processes and assumptions used in establishing the allowance for ~~loan and lease losses, we also estimate probable losses related to~~credit losses. Significant judgment is applied in our estimation of lifetime credit losses.

We have unfunded lending commitments ~~such~~in our Commercial Banking business that are not unconditionally cancellable by us and for which we estimate expected credit losses in establishing a reserve. This reserve is measured using the same measurement objectives as ~~letters of credit, financial guarantees and binding unfunded loan commitments. The provision~~the allowance for ~~losses on~~loans held for investment. We build or release the reserve for unfunded lending commitments ~~is included in~~through 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 1—Summary of Significant Accounting Policies~~” in our 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~~Credit Losses and Reserve for Unfunded Lending Commitments Activity

The table below summarizes changes in the allowance for ~~loan and lease~~credit losses and reserve for unfunded lending commitments by portfolio segment for the three and nine months ended September 30, 2020 and 2019.The allowance balance as of September 30, 2020 reflects the cumulative effects from adoption of the CECL standard and the change to include finance charge and fee reserve in the allowance for credit losses. The reserve for unfunded lending commitments balance as of September 30, 2020 also reflects the cumulative effects from adoption of the CECL standard, including the component of loss sharing agreements with the government-sponsored enterprises (“GSEs”) on multifamily commercial real estate loans that are within the scope of the CECL standard.

When developing an estimate of expected credit losses, we use both quantitative and qualitative methods in considering all available information relevant to assessing collectability. Management will consider and may make adjustments for qualitative factors, which represent management’s judgment of the imprecision and risks inherent in the processes and assumptions used in establishing the allowance for credit losses. Our allowance for credit losses increased by $8.9 billion to $16.1 billion as of September 30, 2020 from December 31, 2019, primarily driven by the allowance builds in the first and ~~2018.~~second quarters of 2020 from expectations of economic worsening and uncertainty as a result of the COVID-19 pandemic as well as the adoption of the CECL standard.



			102			Capital One Financial Corporation (COF)

Table of Contents

Table ~~5.1:~~4.1: Allowance for ~~Loan and Lease~~Credit Losses and Reserve for Unfunded Lending Commitments Activity

Three Months Ended September 30, 2019
(Dollars in millions) Credit Card Consumer
Banking Commercial Banking Total
Allowance for loan and lease losses:
Balance as of June 30, 2019 $ 5,342
$ 1,055
$ 736
$ 7,133
Charge-offs (1,531 ) (489 ) (66 ) (2,086 )
Recoveries⁽¹⁾
380
238
6
624
Net charge-offs (1,151 ) (251 ) (60 ) (1,462 )
Provision for loan and lease losses 1,087
203
84
1,374
Allowance build (release) for loan and lease losses (64 ) (48 ) 24
(88 )
Other changes⁽²⁾
(8 ) 0
0
(8 )
Balance as of September 30, 2019 5,270
1,007
760
7,037
Reserve for unfunded lending commitments:
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, 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


	Three Months Ended September 30, 2020
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Total
Allowance for credit losses:
Balance as of June 30, 2020	$	12,091	$	2,838	$	1,903	$	16,832
Charge-offs	(1,296)		(295)		(88)		(1,679)
Recoveries(1)	353		247		6		606
Net charge-offs	(943)		(48)		(82)		(1,073)
Provision (benefit) for credit losses	450		(43)		(51)		356
Allowance release for credit losses(2)	(493)		(91)		(133)		(717)
Other changes(3)	14		0		0		14
Balance as of September 30, 2020	11,612		2,747		1,770		16,129
Reserve for unfunded lending commitments:
Balance as of June 30, 2020	0		0		218		218
Benefit for losses on unfunded lending commitments	0		0		(23)		(23)
Balance as of September 30, 2020	0		0		195		195
Combined allowance and reserve as of September 30, 2020	$	11,612	$	2,747	$	1,965	$	16,324


	Nine Months Ended September 30, 2020
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Total
Allowance for credit losses:
Balance as of December 31, 2019	$	5,395	$	1,038	$	775	$	7,208
Cumulative effects from adoption of the CECL standard	2,241		502		102		2,845
Finance charge and fee reserve reclassification(4)	462		0		0		462
Balance as of January 1, 2020	8,098		1,540		877		10,515
Charge-offs	(4,757)		(1,207)		(303)		(6,267)
Recoveries(1)	1,167		721		10		1,898
Net charge-offs	(3,590)		(486)		(293)		(4,369)
Provision for credit losses	7,096		1,693		1,186		9,975
Allowance build for credit losses(2)	3,506		1,207		893		5,606
Other changes(3)	8		0		0		8
Balance as of September 30, 2020	11,612		2,747		1,770		16,129
Reserve for unfunded lending commitments:
Balance as of December 31, 2019	0		5		130		135
Cumulative effects from adoption of the CECL standard	0		(5)		42		37
Balance as of January 1, 2020	0		0		172		172
Provision for losses on unfunded lending commitments	0		0		23		23
Balance as of September 30, 2020	0		0		195		195
Combined allowance and reserve as of September 30, 2020	$	11,612	$	2,747	$	1,965	$	16,324




			94103			Capital One Financial Corporation (COF)

Table of Contents

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


	Three Months Ended September 30, 2019
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Total
Allowance for loan and lease losses:
Balance as of June 30, 2019	$	5,342	$	1,055	$	736	$	7,133
Charge-offs	(1,531)		(489)		(66)		(2,086)
Recoveries(1)	380		238		6		624
Net charge-offs	(1,151)		(251)		(60)		(1,462)
Provision for loan and lease losses	1,087		203		84		1,374
Allowance build (release) for loan and lease losses	(64)		(48)		24		(88)
Other changes(3)	(8)		0		0		(8)
Balance as of September 30, 2019	5,270		1,007		760		7,037
Reserve for unfunded lending commitments:
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

Three Months Ended September 30, 2018
(Dollars in millions) Credit Card Consumer
Banking Commercial Banking Other Total
Allowance for loan and lease losses:
Balance as of June 30, 2018 $ 5,624
$ 1,120
$ 624
$ 0
$ 7,368
Charge-offs (1,528 ) (469 ) (48 ) 1
(2,044 )
Recoveries⁽¹⁾
391
207
21
0
619
Net charge-offs (1,137 ) (262 ) (27 ) 1
(1,425 )
Provision (benefit) for loan and lease losses 1,031
185
60
(1 ) 1,275
Allowance build (release) for loan and lease losses (106 ) (77 ) 33
0
(150 )
Other changes⁽²⁾
2
0
(1 ) 0
1
Balance as of September 30, 2018 5,520
1,043
656
0
7,219
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

Nine Months Ended September 30, 2018
(Dollars in millions) Credit Card
Consumer
Banking⁽³⁾
Commercial Banking
Other⁽³⁾
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⁾
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⁽²⁾⁽³⁾
(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(3)	(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

__________

⁽¹⁾

(2)Includes an allowance release of $327 million for a partnership credit card loan portfolio transferred to held for sale in the third quarter of 2020.

(3)Represents foreign currency translation adjustments.

(4)Concurrent with our adoption of the CECL standard in the first quarter of 2020, we reclassified our finance charge and fee reserve to our allowance for credit losses, with a corresponding increase to credit card loans held for investment.

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.~~


⁽³⁾	~~In 2018, we sold all of our consumer home loan portfolio.The impact included a benefit for credit losses of $46 million in the second quarter of 2018 which was reflected in the Other category.~~




			95104			Capital One Financial Corporation (COF)

Table of Contents

~~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, 2019 and December 31, 2018. See “Note 1—Summary of Significant Accounting Policies” in our 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, 2019
(Dollars in millions)
Credit
Card
Consumer Banking Commercial Banking Total
Allowance for loan and lease losses:
Collectively evaluated $ 5,073
$ 975
$ 662
$ 6,710
Asset-specific 197
32
98
327
Total allowance for loan and lease losses $ 5,270
$ 1,007
$ 760
$ 7,037
Loans held for investment:
Collectively evaluated $ 112,866
$ 61,631
$ 72,902
$ 247,399
Asset-specific 815
382
726
1,923
PCI loans 0
2
31
33
Total loans held for investment $ 113,681
$ 62,015
$ 73,659
$ 249,355
Allowance coverage ratio⁽¹⁾
4.64 % 1.62 % 1.03 % 2.82 %

December 31, 2018
(Dollars in millions) Credit
Card Consumer Banking Commercial Banking Total
Allowance for loan and lease losses:
Collectively evaluated $ 5,258
$ 1,021
$ 603
$ 6,882
Asset-specific 277
27
34
338
Total allowance for loan and lease losses $ 5,535
$ 1,048
$ 637
$ 7,220
Loans held for investment:
Collectively evaluated $ 115,505
$ 58,808
$ 69,607
$ 243,920
Asset-specific 855
393
596
1,844
PCI loans 1
4
130
135
Total loans held for investment $ 116,361
$ 59,205
$ 70,333
$ 245,899
Allowance coverage ratio⁽¹⁾
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)~~

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Credit Card Partnership Loss Sharing Arrangements

We have certain credit card partnership agreements that are presented within our consolidated financial statements on a net basis, in which our partner agrees to share a portion of the credit losses on the underlying loan portfolio. The expected reimbursements from these partners ~~which~~ are netted against our allowance for credit losses. Our methodology for estimating reimbursements is consistent with the methodology we use to estimate the allowance for credit losses on our credit card loan ~~and lease losses,~~receivables. These expected reimbursements result in reductions to net charge-offs and provision for credit losses. See “~~Note~~“Note 1—Summary of Significant Accounting ~~Policies~~”Policies” in our ~~2018~~2019 Form 10-K for further discussion of our credit card partnership agreements.

The table below summarizes the changes in the estimated reimbursements from these partners for the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019.

Table ~~5.3:~~4.2: Summary of Credit Card Partnership Loss Sharing Arrangements Impacts


	Three Months Ended September 30,							Three Months Ended September 30,
(Dollars in millions)	2019			2018			(Dollars in millions)	2020		2019
Estimated reimbursements from partners, beginning of period	$	414		$	392		Estimated reimbursements from partners, beginning of period	$	2,433	$	414
Amounts due from partners which reduced net charge-offs	(100		)	(97		)	Amounts due from partners which reduced net charge-offs	(212)		(100)
Amounts estimated to be charged to partners which reduced provision for credit losses	86			81			Amounts estimated to be charged to partners which reduced provision for credit losses	121		86
Estimated reimbursements from partners, end of period	$	400		$	376		Estimated reimbursements from partners, end of period	$	2,342	$	400

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


	Nine Months Ended September 30,
(Dollars in millions)	2020		2019
Estimated reimbursements from partners, beginning of period(1)	$	2,166	$	379
Amounts due from partners which reduced net charge-offs	(807)		(313)
Amounts estimated to be charged to partners which reduced provision for credit losses	983		334
Estimated reimbursements from partners, end of period	$	2,342	$	400

__________

(1)Includes effects from adoption of the CECL standard in the first quarter of 2020.



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

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 6—5—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 VIEs. Our primary involvement with VIEs has been related to our securitization transactions in which we transferred assets 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, loan receivables and the related allowance for ~~loan and lease~~credit 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~~credit losses, respectively. The assets of a particular VIE are the primary source of 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 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 VIEs in which we had continuing involvement or held a variable interest, aggregated based on VIEs with similar characteristics as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. We separately present information for consolidated and unconsolidated VIEs.

Table ~~6.1:~~5.1: Carrying Amount of Consolidated and Unconsolidated VIEs

September 30, 2019
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
Securitization-Related VIEs:
Credit card loan securitizations⁽¹⁾
$ 30,521
$ 16,896
$ 0
$ 0
$ 0
Auto loan securitizations 2,570
2,275
0
0
0
Home loan securitizations 0
0
66
0
367
Total securitization-related VIEs 33,091
19,171
66
0
367
Other VIEs:⁽²⁾

Affordable housing entities 236
1
4,439
1,206
4,439
Entities that provide capital to low-income and rural communities 1,817
69
0
0
0
Other 0
0
512
0
512
Total other VIEs 2,053
70
4,951
1,206
4,951
Total VIEs $ 35,144
$ 19,241
$ 5,017
$ 1,206
$ 5,318


	September 30, 2020
	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
Securitization-Related VIEs:
Credit card loan securitizations(1)	$	26,586	$	11,218	$	0	$	0	$	0
Auto loan securitizations	2,671		2,344		0		0		0
Home loan securitizations	0		0		56		0		313
Total securitization-related VIEs	29,257		13,562		56		0		313
Other VIEs:(2)
Affordable housing entities	243		18		4,582		1,281		4,582
Entities that provide capital to low-income and rural communities	2,014		69		0		0		0
Other	0		0		466		0		466
Total other VIEs	2,257		87		5,048		1,281		5,048
Total VIEs	$	31,514	$	13,649	$	5,104	$	1,281	$	5,361




			98106			Capital One Financial Corporation (COF)

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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


	December 31, 2019
	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
Securitization-Related VIEs:
Credit card loan securitizations(1)	$	31,112	$	16,113	$	0	$	0	$	0
Auto loan securitizations	2,282		2,012		0		0		0
Home loan securitizations	0		0		66		0		352
Total securitization-related VIEs	33,394		18,125		66		0		352
Other VIEs:(2)
Affordable housing entities	236		7		4,559		1,289		4,559
Entities that provide capital to low-income and rural communities	1,889		69		0		0		0
Other	0		0		502		0		502
Total other VIEs	2,125		76		5,061		1,289		5,061
Total VIEs	$	35,519	$	18,201	$	5,127	$	1,289	$	5,413

__________

December 31, 2018
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
Securitization-Related VIEs:
Credit card loan securitizations⁽¹⁾
$ 33,574
$ 18,885
$ 0
$ 0
$ 0
Home loan securitizations 0
0
211
74
554
Total securitization-related VIEs 33,574
18,885
211
74
554
Other VIEs:⁽²⁾

Affordable housing entities
243
17
4,238
1,303
4,238
Entities that provide capital to low-income and rural communities 1,739
117
0
0
0
Other 0
0
353
0
353
Total other VIEs 1,982
134
4,591
1,303
4,591
Total VIEs $ 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.

⁽¹⁾

(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 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 $2.3 billion of assets and $631 million of liabilities as of September 30, 2020, and $2.3 billion of assets and $741 million of liabilities as of December 31, 2019.

~~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 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 $2.3 billion of assets and $748 million of liabilities as of September 30, 2019, and $2.3 billion of assets and $811 million of liabilities as of December 31, 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 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~~In our multifamily agency business, we originate multifamily commercial real estate loans ~~that we originate~~and transfer them to ~~the government-sponsored enterprises (“GSEs”) and~~securitization trusts of GSEs. We retain the ~~right to~~related Mortgage servicing rights (“MSRs”) and 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.~~ As an investor, we hold primarily RMBS, CMBS, and ~~CMBS~~ABS in our investment securities portfolio, which represent ~~an interest~~variable interests in the respective securitization trusts ~~employed in the transactions under~~from 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. Our maximum exposure to loss as a result of our involvement with these VIEs is the carrying value of 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 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. Our maximum exposure to loss as a result of our involvement with these VIEs is the carrying value of MSRs and contractual obligations under loss sharing arrangements as well as investment securities on our consolidated balance sheets. See “Note 6—Goodwill and Intangible Assets” for information related to our MSRs associated with these securitizations and “Note 2—Investment Securities” for more information on the securities held in our investment securities portfolio. 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~~”“Note 3—Loans” for additional information regarding our lending arrangements in the normal course of business.




			99107			Capital One Financial Corporation (COF)

Table of Contents

~~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, ~~2019~~2020 and December 31, ~~2018.~~2019.

Table ~~6.2:~~5.2: Continuing Involvement in Securitization-Related VIEs


(Dollars in millions)	Credit Card		Auto		Mortgages		(Dollars in millions)	Credit Card		Auto		Mortgages
September 30, 2019:
September 30, 2020:							September 30, 2020:
Securities held by third-party investors	$	16,637	$	2,273	$	1,017	Securities held by third-party investors	$	11,224	$	2,342	$	832
Receivables in the trust	31,039		2,424		1,034		Receivables in the trust	27,797		2,548		838
Cash balance of spread or reserve accounts	0		7		17		Cash balance of spread or reserve accounts	0		10		15
Retained interests	Yes		Yes		Yes		Retained interests	Yes		Yes		Yes
Servicing retained	Yes		Yes		No		Servicing retained	Yes		Yes		No
December 31, 2018:
December 31, 2019:							December 31, 2019:
Securities held by third-party investors	$	18,307	N/A		$	1,276	Securities held by third-party investors	$	15,798	$	2,010	$	962
Receivables in the trust	34,197		N/A		1,305		Receivables in the trust	31,625		2,192		978
Cash balance of spread or reserve accounts	0		N/A		116		Cash balance of spread or reserve accounts	0		7		17
Retained interests	Yes		N/A		Yes		Retained interests	Yes		Yes		Yes
Servicing retained	Yes		N/A		Yes⁽¹⁾		Servicing retained	Yes		Yes		No

~~__________~~


⁽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. We consolidate these trusts because we 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 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 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

We had previously securitized mortgage loans by transferring these loans to securitization trusts that had issued mortgage-backed securities to investors. These mortgage trusts consist of option-adjustable rate mortgage (“option-ARM”) securitizations and securitizations from our discontinued operations which include 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 (collectively “GreenPoint securitizations”).

We retain rights to certain future cash flows arising from these securitizations. We do not consolidate the 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 or we do not have the~~ power to direct the activities that most significantly impact the economic performance of the trusts, and the right to receive the benefits or the obligation to absorb losses that could potentially be significant to the trusts.




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~~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 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



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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, ~~2019~~2020 and ~~2018,~~2019, we recognized amortization of ~~$417~~$428 million and ~~$365~~$417 million, respectively, and tax credits of ~~$516~~$47 million and ~~$468~~$516 million, respectively, associated with these investments within income tax ~~provision.~~provision or benefit. The carrying value of our equity investments in these qualified affordable housing projects was ~~$4.3~~$4.5 billion and ~~$4.2~~$4.4 billion as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 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 ~~$1.3 billion and~~ $1.5 billion as of both September 30, ~~2019~~2020 and December 31, ~~2018, respectively,~~2019, and is largely expected to be paid from ~~2019~~2020 to ~~2021.~~2022.

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 ~~$4.4 billion and $4.2~~$4.6 billion as of both September 30, ~~2019~~2020 and December 31, ~~2018, respectively.~~2019. 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 ~~$10.7~~$10.8 billion and ~~$10.8~~$10.9 billion as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 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~~consolidate 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~~$2.0 billion and ~~$1.7~~$1.9 billion as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 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~~We hold variable interests ~~that we hold~~ in other VIEs, including companies that promote renewable energy sources and other equity method investments. We were not required to consolidate these ~~entities~~VIEs because we do not have the power to direct the activities that most significantly impact their economic performance. Our maximum exposure to these ~~entities~~VIEs is limited to the ~~investment~~investments on our consolidated balance sheets of ~~$512~~$466 million and ~~$353~~$502 million as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 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.



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	~~101~~	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 7—6—GOODWILL AND INTANGIBLE ASSETS

The table below presents our goodwill, intangible assets and MSRs as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. Goodwill is presented separately, while intangible assets and MSRs are included in other assets on our consolidated balance sheets.

Table ~~7.1:~~6.1: Components of Goodwill, Intangible Assets and MSRs


	September 30, 2020
(Dollars in millions)	Carrying Amount of Assets		Accumulated Amortization		Net Carrying Amount
Goodwill	$	14,648	N/A		$	14,648
Intangible assets:
Purchased credit card relationship (“PCCR”) intangibles	157		$	(145)	12

Other(1)	249		(162)		87
Total intangible assets	406		(307)		99
Total goodwill and intangible assets	$	15,054	$	(307)	$	14,747
Commercial MSRs(2)	$	503	$	(177)	$	326

	December 31, 2019
(Dollars in millions)	Carrying Amount of Assets		Accumulated Amortization		Net Carrying Amount
Goodwill	$	14,653	N/A		$	14,653
Intangible assets:
PCCR intangibles	1,932		$	(1,864)	68

Other(1)	246		(140)		106
Total intangible assets	2,178		(2,004)		174
Total goodwill and intangible assets	$	16,831	$	(2,004)	$	14,827
Commercial MSRs(2)	$	555	$	(255)	$	300

__________

(1)

September 30, 2019
(Dollars in millions) Carrying
Amount of
Assets Accumulated Amortization Net
Carrying
Amount
Goodwill $ 14,624
N/A
$ 14,624
Intangible assets:
Purchased credit card relationship (“PCCR”) intangibles 1,932
$ (1,844 ) 88
Other⁽¹⁾
225
(132 ) 93
Total intangible assets 2,157
(1,976 ) 181
Total goodwill and intangible assets $ 16,781
$ (1,976 ) $ 14,805
Commercial MSRs⁽²⁾
$ 528
$ (237 ) $ 291

December 31, 2018
(Dollars in millions) Carrying
Amount of
Assets Accumulated Amortization Net
Carrying
Amount
Goodwill $ 14,544
N/A
$ 14,544
Intangible assets:
PCCR intangibles 2,102
$ (1,952 ) 150
Core deposit intangibles 1,149
(1,148 ) 1
Other⁽¹⁾
271
(168 ) 103
Total intangible assets 3,522
(3,268 ) 254
Total goodwill and intangible assets $ 18,066
$ (3,268 ) $ 14,798
Commercial MSRs⁽²⁾
$ 459
$ (185 ) $ 274

~~__________~~Primarily consists of intangibles for sponsorship, customer and merchant relationships, partnership, trade name and other contract intangibles.


⁽¹⁾ (2)Commercial MSRs are accounted for under the amortization method on our consolidated balance sheets.	~~Primarily consists of intangibles for sponsorship, customer and merchant relationships, partnership and other contract intangibles and trade name intangibles.~~


⁽²⁾	~~Commercial MSRs are accounted for under the amortization method on our consolidated balance sheets.~~

Amortization expense for amortizable intangible assets, which is presented separately in our consolidated statements of income, totaled $14 million and $52 million for the three and nine months ended September 30, 2020, respectively, and $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.




	~~102~~	~~Capital One Financial Corporation (COF)~~

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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Goodwill

The following table presents changes in the carrying amount of goodwill by each of our business segments as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

Table ~~7.2:~~6.2: Goodwill by Business Segments


(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Total







Balance as of December 31, 2019	$	5,088	$	4,645	$	4,920	$	14,653


Other adjustments(1)	(5)		0		0		(5)
Balance as of September 30, 2020	$	5,083	$	4,645	$	4,920	$	14,648

__________

(1)

(Dollars in millions)
Credit
Card

Consumer
Banking
Commercial Banking Total
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
(1 ) 0
(1 )
Other adjustments⁽¹⁾
(2 ) 0
0
(2 )
Balance as of September 30, 2019 $ 5,060
$ 4,644
$ 4,920
$ 14,624

~~__________~~Represents foreign currency translation adjustments and measurement period adjustments on prior period acquisitions.


⁽¹⁾	~~Represents foreign currency translation adjustments.~~




			~~103~~



			110			Capital One Financial Corporation (COF)

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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~



NOTE 8—7—DEPOSITS AND BORROWINGS

Our deposits represent our largest source of funding for our assets and operations, which include checking accounts, money market 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.

Our total short-term borrowings generally consist of federal funds purchased and 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~~2020 and December 31, ~~2018.~~2019. The carrying value presented below for these borrowings includes unamortized debt premiums and discounts, net of debt issuance costs and fair value hedge accounting adjustments.

Table ~~8.1: Components~~7.1: Components of Deposits, Short-Term Borrowings and Long-Term Debt


(Dollars in millions)	September 30, 2019		December 31, 2018		(Dollars in millions)	September 30, 2020		December 31, 2019
Deposits:					Deposits:
Non-interest-bearing deposits	$	23,064	$	23,483	Non-interest-bearing deposits	$	29,633	$	23,488
Interest-bearing deposits⁽¹⁾	234,084		226,281		Interest-bearing deposits(1)	276,092		239,209
Total deposits	$	257,148	$	249,764	Total deposits	$	305,725	$	262,697
Short-term borrowings:					Short-term borrowings:
Federal funds purchased and securities loaned or sold under agreements to repurchase	$	464	$	352	Federal funds purchased and securities loaned or sold under agreements to repurchase	$	702	$	314
FHLB advances	0		9,050		FHLB advances	0		7,000
Total short-term borrowings	$	464	$	9,402	Total short-term borrowings	$	702	$	7,314


	September 30, 2020						December 31, 2019
(Dollars in millions)	Maturity Dates	Stated Interest Rates	Weighted-Average Interest Rate		Carrying Value		Carrying Value
Long-term debt:
Securitized debt obligations	2020-2026	0.50% - 3.01%	1.90	%	$	13,566	$	17,808
Senior and subordinated notes:
Fixed unsecured senior debt(2)	2020-2029	0.80 - 4.75	3.19		21,685		23,302
Floating unsecured senior debt	2020-2023	0.70 - 1.42	1.03		2,008		2,695
Total unsecured senior debt			3.01		23,693		25,997
Fixed unsecured subordinated debt	2023-2026	3.38 - 4.20	3.78		4,755		4,475
Total senior and subordinated notes					28,448		30,472
Other long-term borrowings:

Finance lease liabilities	2020-2031	1.63 - 9.91	3.77		79		103
Total other long-term borrowings					79		103
Total long-term debt					$	42,093	$	48,383
Total short-term borrowings and long-term debt					$	42,795	$	55,697

September 30, 2019 December 31,
2018
(Dollars in millions)
Maturity
Dates
Stated Interest Rates
Weighted-
Average
Interest Rate
Carrying Value Carrying Value
Long-term debt:
Securitized debt obligations 2019-2026
1.66% - 3.01%
2.25 % $ 18,910
$ 18,307
Senior and subordinated notes:
Fixed unsecured senior debt⁽²⁾
2020-2028
0.80 - 4.75
3.08
23,457
23,290
Floating unsecured senior debt 2020-2023
2.59 - 3.42
2.99
2,695
2,993
Total unsecured senior debt 3.07
26,152
26,283
Fixed unsecured subordinated debt 2023-2026
3.38 - 4.20
3.78
4,530
4,543
Total senior and subordinated notes 30,682
30,826
Other long-term borrowings:
FHLB advances —
—
—
0
251
Other borrowings 2019-2035
2.24 - 12.86
4.20
93
119
Total other long-term borrowings 93
370
Total long-term debt $ 49,685
$ 49,503
Total short-term borrowings and long-term debt $ 50,149
$ 58,905
__________

~~__________~~(1)Includes $5.2 billion and $6.5 billion of time deposits in denominations in excess of the $250,000 federal insurance limit as of September 30, 2020 and December 31, 2019, respectively.


⁽¹⁾ (2)Includes $1.5 billion and $1.4 billion of EUR-denominated unsecured notes as of September 30, 2020andDecember 31, 2019, respectively.	~~Includes $5.9 billion and $4.0 billion of time deposits in denominations in excess of the $250,000 federal insurance limit as of September 30, 2019 and December 31, 2018, respectively.~~


⁽²⁾	~~Includes $1.4 billion of EUR-denominated unsecured notes as of September 30, 2019.~~



			111			Capital One Financial Corporation (COF)

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	~~104~~	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 9—8—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Use of Derivatives and Accounting for Derivatives

We regularly enter into derivative transactions to support our overall risk management activities. Our primary market risks stem from the impact on our earnings and economic value of equity due to changes in interest rates and, to a lesser extent, changes in foreign exchange rates. We 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. We also use foreign currency derivatives to limit our earnings and capital exposures to foreign exchange risk by hedging exposures denominated in foreign currencies. ~~In addition to~~We primarily use interest rate and foreign currency derivatives to hedge, but 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 currency derivatives and other contracts as an accommodation to our customers within our Commercial Banking business. We enter into these derivatives with our customers primarily to help them manage their interest rate risks, hedge their energy and other commodities exposures, and manage foreign currency fluctuations. We then enter into ~~offsetting~~ derivative contracts with counterparties to economically hedge ~~the majority~~substantially all of our subsequent exposures.

See below for additional information on our use of derivatives and how we 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 in 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 in 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.

• 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~~112			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, 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~~trades cleared through central counterparty clearinghouses (“CCPs”) and uncleared bilateral contracts. ~~In our centrally cleared contracts, our counterparties are central counterparty clearinghouses (“CCPs”), such as the~~The Chicago Mercantile Exchange (“CME”) and the LCH Group (“LCH”). are our CCPs in our centrally cleared contracts. 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.~~collateral and will vary over time as market variables change. 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. The fair value of our derivatives is 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. See Table ~~9.3~~8.3 for our net exposure associated with derivatives.

The terms under which we collateralize our exposures differ between cleared exposures and uncleared bilateral exposures.

•

•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 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 and variation margin is exchanged on a daily basis to account for mark-to-market changes in those 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 existing positions.

•

~~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 existing positions.

Credit Risk Valuation Adjustments

We record counterparty credit valuation adjustments (“CVAs”) on our derivative assets to reflect the credit quality of our counterparties. We consider collateral and legally enforceable master netting agreements that mitigate our credit exposure to each counterparty in determining CVAs, which may be adjusted ~~in future periods~~ due to changes in the fair values of the derivative contracts, collateral, and creditworthiness of the counterparty. We also record debit valuation adjustments (“DVAs”) to adjust the fair values of our derivative liabilities to reflect the impact of our own credit quality.




			~~106~~113			Capital One Financial Corporation (COF)

Table of Contents

~~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, ~~2019~~2020 and December 31, ~~2018,~~2019, 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, 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:~~8.1: Derivative Assets and Liabilities at Fair Value


	September 30, 2020						December 31, 2019
	Notional or Contractual Amount		Derivative(1)				Notional or Contractual Amount		Derivative(1)
(Dollars in millions)			Assets		Liabilities				Assets		Liabilities
Derivatives designated as accounting hedges:
Interest rate contracts:
Fair value hedges	$	49,703	$	4	$	17	$	57,587	$	11	$	55
Cash flow hedges	82,650		847		9		96,900		321		29
Total interest rate contracts	132,353		851		26		154,487		332		84
Foreign exchange contracts:
Fair value hedges	1,465		90		0		1,402		0		6
Cash flow hedges	4,495		13		99		6,103		0		113
Net investment hedges	2,817		3		76		2,829		0		102
Total foreign exchange contracts	8,777		106		175		10,334		0		221
Total derivatives designated as accounting hedges	141,130		957		201		164,821		332		305
Derivatives not designated as accounting hedges:
Customer accommodation:
Interest rate contracts	68,343		1,623		198		62,268		552		117
Commodity contracts	17,388		1,379		1,219		15,492		758		694
Foreign exchange and other contracts	3,677		47		50		4,674		39		42
Total customer accommodation	89,408		3,049		1,467		82,434		1,349		853
Other interest rate exposures(2)	7,300		90		66		6,729		48		30
Other contracts	2,667		5		5		1,562		0		9
Total derivatives not designated as accounting hedges	99,375		3,144		1,538		90,725		1,397		892
Total derivatives	$	240,505	$	4,101	$	1,739	$	255,546	$	1,729	$	1,197
Less: netting adjustment(3)			(1,622)		(708)				(633)		(523)
Total derivative assets/liabilities			$	2,479	$	1,031			$	1,096	$	674

__________

(1)

September 30, 2019 December 31, 2018

Notional or
Contractual
Amount

Derivative⁽¹⁾

Notional or
Contractual
Amount

Derivative⁽¹⁾
(Dollars in millions) Assets Liabilities Assets Liabilities
Derivatives designated as accounting hedges:
Interest rate contracts:
Fair value hedges $ 59,208
$ 9
$ 34
$ 53,413
$ 64
$ 28
Cash flow hedges 90,451
433
10
81,200
83
70
Total interest rate contracts 149,659
442
44
134,613
147
98
Foreign exchange contracts:
Fair value hedges 1,362
2
20
0
0
0
Cash flow hedges 5,583
31
36
5,745
184
2
Net investment hedges 2,640
78
0
2,607
178
0
Total foreign exchange contracts 9,585
111
56
8,352
362
2
Total derivatives designated as accounting hedges 159,244
553
100
142,965
509
100
Derivatives not designated as accounting hedges:
Customer accommodation:
Interest rate contracts 57,080
677
119
49,386
190
256
Commodity contracts 14,330
988
941
10,673
797
786
Foreign exchange and other contracts 2,720
37
30
1,418
12
11
Total customer accommodation 74,130
1,702
1,090
61,477
999
1,053
Other interest rate exposures⁽²⁾
6,843
55
55
6,427
29
36
Other contracts 3,552
67
20
1,636
2
12
Total derivatives not designated as accounting hedges 84,525
1,824
1,165
69,540
1,030
1,101
Total derivatives $ 243,769
$ 2,377
$ 1,265
$ 212,505
$ 1,539
$ 1,201
Less: netting adjustment⁽³⁾
(1,173 ) (378 ) (1,079 ) (287 )
Total derivative assets/liabilities $ 1,204
$ 887
$ 460
$ 914

~~__________~~Does not reflect $40 million and $12 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of September 30, 2020 and December 31, 2019, respectively. Non-performance risk is included in derivative assets and liabilities, which are part of other assets and other liabilities on the consolidated balance sheets, and is offset through non-interest income in the consolidated statements of income.

⁽¹⁾

(2)Other interest rate exposures include commercial mortgage-related derivatives and interest rate 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.

~~Does not reflect $9 million and $2 million~~ ~~recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as ofSeptember 30, 2019and~~December 31, 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.~~


⁽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.~~




			~~107~~114			Capital One Financial Corporation (COF)

Table of Contents

~~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~~2020 and December 31, ~~2018.~~2019.

Table ~~9.2:~~8.2: Hedged Items in Fair Value Hedging Relationships


	September 30, 2020						December 31, 2019
	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
Line item on our consolidated balance sheets in which the hedged item is included:
Investment securities available for sale(1)(2)	$	9,831	$	629	$	206	$	10,825	$	300	$	52
Interest-bearing deposits	(12,865)		(257)		0		(14,310)		(12)		0
Securitized debt obligations	(8,473)		(208)		34		(9,403)		44		64
Senior and subordinated notes	(21,989)		(1,425)		(700)		(27,777)		(458)		324

__________

(1)

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
(Dollars in millions)
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⁾
$ 12,864
$ 399
$ 24
$ 14,067
$ (6 ) $ (2 )
Interest-bearing deposits (15,292 ) (42 ) 0
(13,101 ) 247
0
Securitized debt obligations (10,249 ) 3
78
(5,887 ) 168
143
Senior and subordinated notes (27,201 ) (774 ) 294
(23,572 ) 315
392

~~__________~~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. In the second quarter of 2020, we terminated all last of layer hedging relationships with cumulative basis adjustments related to these discontinued hedging relationships totaling $206 million as of September 30, 2020. As of December 31, 2019, the amortized cost basis of this portfolio was $5.9 billion, the amount of the designated hedged items was $3.1 billion, and the cumulative basis adjustment associated with these hedges was $75 million.

⁽¹⁾

(2)Carrying value represents amortized cost.

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. The amortized cost basis of this portfolio was $8.2 billion and $8.3 billion, the amount of the designated hedged items was $3.8 billion and $4.0 billion, and the cumulative basis adjustment associated with these hedges was $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 master 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.




	~~108~~	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following table presents the gross and net fair values of our derivative assets, derivative liabilities, resale and repurchase agreements and the related offsetting amounts permitted under U.S. GAAP as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. The table also includes cash and non-cash collateral received or pledged in accordance with such arrangements. The amount of collateral presented, however, is limited to the amount of the related net derivative fair values or outstanding balances; therefore, instances of over-collateralization are excluded.



			115			Capital One Financial Corporation (COF)

Table ~~9.3:~~of Contents

Table 8.3: 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, 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
(Dollars in millions)
Financial
Instruments
Cash Collateral Pledged
Net
Exposure
As of September 30, 2019
Derivative liabilities⁽¹⁾
$ 1,265
$ (333 ) $ (45 ) $ 887
$ 0
$ 887
Repurchase agreements⁽²⁾
363
0
0
363
(363 ) 0
As of December 31, 2018
Derivative liabilities⁽¹⁾
1,201
(205 ) (82 ) 914
0
914
Repurchase agreements⁽²⁾
352
0
0
352
(352 ) 0


	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, 2020
Derivative assets(1)	$	4,101	$	(535)	$	(1,087)	$	2,479	$	0	$	2,479
As of December 31, 2019
Derivative assets(1)	1,729		(347)		(286)		1,096		0		1,096


	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
As of September 30, 2020
Derivative liabilities(1)	$	1,739	$	(535)	$	(173)	$	1,031	$	0	$	1,031
Repurchase agreements(2)	702		0		0		702		(702)		0
As of December 31, 2019
Derivative liabilities(1)	1,197		(347)		(176)		674		0		674
Repurchase agreements(2)	314		0		0		314		(314)		0

__________

~~__________~~(1)We received cash collateral from derivative counterparties totaling $1.2 billion and $347 million as of September 30, 2020 and December 31, 2019, respectively. We also received securities from derivative counterparties with a fair value of approximately $1 millionas of both September 30, 2020 and December 31, 2019, which we have the ability to re-pledge. We posted $1.4 billion and $954 million of cash collateral as of September 30, 2020 and December 31, 2019, respectively.

(2)Under our customer repurchase agreements, which mature the next business day, we pledged collateral with a fair value of $716 million and $320 million as of September 30, 2020 and December 31, 2019, respectively, primarily consisting of agency RMBS securities.


⁽¹⁾									We received cash collateral from derivative counterparties totaling $891 million and $925 million as of September 30, 2019 and December 31, 2018, respectively. We also received securities from derivative counterparties with a fair value of approximately $1 million as of both September 30, 2019 and December 31, 2018, which we have the ability to re-pledge. We posted $858 million and $633 million of cash collateral as of September 30, 2019 and December 31, 2018, respectively.


⁽²⁾ 116	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 $371 million and $359 million, respectively, under these customer repurchase agreements, which were primarily agency RMBS securities.Capital One Financial Corporation (COF)

Table of Contents

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, ~~2019~~2020 and ~~2018.~~




	~~109~~	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

2019.

Table ~~9.4:~~8.4: Effects of Fair Value and Cash Flow Hedge Accounting

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



	Three Months Ended September 30, 2020
	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	$	443	$	5,758	$	14	$	(476)	$	(43)	$	(132)	$	706
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	(23)	$	0	$	0	$	44	$	40	$	56	$	0
Gains (losses) recognized on derivatives	24		0		0		(47)		(48)		(72)		61
Gains (losses) recognized on hedged items(1)	(31)		0		0		48		41		111		(61)
Excluded component of fair value hedges(2)	0		0		0		0		0		(1)		0
Net expense recognized on fair value hedges	$	(30)	$	0	$	0	$	45	$	33	$	94	$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized losses reclassified from AOCI into net income	$	8	$	171	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains reclassified from AOCI into net income(4)	0		0		1		0		0		0		0
Net income (expense) recognized on cash flow hedges	$	8	$	171	$	1	$	0	$	0	$	0	$	0




			~~110~~117			Capital One Financial Corporation (COF)

Table of Contents

~~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


	Nine Months Ended September 30, 2020
	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	$	1,455	$	18,120	$	67	$	(1,818)	$	(198)	$	(551)	$	1,017
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	(51)	$	0	$	0	$	69	$	92	$	166	$	0
Gains (losses) recognized on derivatives	(340)		0		0		249		221		1,057		64
Gains (losses) recognized on hedged items(1)	329		0		0		(248)		(251)		(1,048)		(64)
Excluded component of fair value hedges(2)	0		0		0		0		0		(2)		0
Net income (expense) recognized on fair value hedges	$	(62)	$	0	$	0	$	70	$	62	$	173	$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains reclassified from AOCI into net income	$	17	$	330	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains reclassified from AOCI into net income(4)	0		0		10		0		0		0		(2)
Net income recognized on cash flow hedges	$	17	$	330	$	10	$	0	$	0	$	0	$	(2)




			~~111~~118			Capital One Financial Corporation (COF)

Table of Contents

~~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



	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




			~~112~~119			Capital One Financial Corporation (COF)

Table of Contents

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


	Nine Months Ended September 30, 2018																					Nine Months Ended September 30, 2019
	Net Interest Income																	Non-Interest Income				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			(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		Total amounts presented in our consolidated statements of income	$	1,867	$	19,180	$	196	$	(2,588)	$	(405)	$	(923)	$	492
Fair value hedging relationships:																					Fair value hedging relationships:
Interest rate contracts:
Interest rate and foreign exchange contracts:																					Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	(22	)	$	0		$	0	$	(48	)	$	(44	)	$	6		$	0		Interest recognized on derivatives	$	(2)	$	0	$	0	$	(95)	$	(17)	$	(24)	$	0
Gains (losses) recognized on derivatives	260			0			0		(211		)	(122		)	(659		)	0			Gains (losses) recognized on derivatives	(366)		0		0		295		102		968		(49)
Gains (losses) recognized on hedged items⁽¹⁾	(259		)	0			0		203			118			610			0			Gains (losses) recognized on hedged items(1)	365		0		0		(289)		(165)		(1,092)		48
Excluded component of fair value hedges(2)																					Excluded component of fair value hedges(2)	0		0		0		0		0		(1)		0
Net expense recognized on fair value hedges	$	(21	)	$	0		$	0	$	(56	)	$	(48	)	$	(43	)	$	0		Net expense recognized on fair value hedges	$	(3)	$	0	$	0	$	(89)	$	(80)	$	(149)	$	(1)
Cash flow hedging relationships:⁽³⁾																					Cash flow hedging relationships:(3)
Interest rate contracts:																					Interest rate contracts:
Realized losses reclassified from AOCI into net income	$	(9	)	$	(40	)	$	0	$	0		$	0		$	0		$	0		Realized losses reclassified from AOCI into net income	$	(8)	$	(158)	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:																					Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income⁽⁴⁾	0			0			33		0			0			0			(1		)
Realized gains reclassified from AOCI into net income(4)																					Realized gains reclassified from AOCI into net income(4)	0		0		37		0		0		0		0
Net income (expense) recognized on cash flow hedges	$	(9	)	$	(40	)	$	33	$	0		$	0		$	0		$	(1	)	Net income (expense) recognized on cash flow hedges	$	(8)	$	(158)	$	37	$	0	$	0	$	0	$	0

__________

(1)Includes amortization income of $19 million and expense of $34 million for the three and nine months ended September 30, 2020, respectively, and amortization expense of $60 million and $177 million for the three and nine months ended September 30, 2019, respectively, related to basis adjustments 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 9—Stockholders’ Equity” for the effects of cash flow and net investment hedges on AOCI and amounts reclassified to net income, net of tax.

(4)We recognized a loss of $73 millionand a gain of $20 million for the three and nine months ended September 30, 2020, respectively, and a gain of $71 million and a loss of $224 million for the three and nine months ended September 30, 2019, 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.

⁽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 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.~~

⁽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~~gains of ~~$94~~$644 million recorded in AOCI as of September 30, ~~2019.~~2020. 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 7 years as of September 30, ~~2019.~~2020. 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.




			~~113~~120			Capital One Financial Corporation (COF)

Table of Contents

~~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, ~~2019~~2020 and ~~2018.~~2019. These gains or losses are recognized in other non-interest income in our consolidated statements of income.

Table ~~9.5:~~8.5: 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)	2019			2018			2019			2018			(Dollars in millions)	2020		2019		2020		2019
Gains (losses) recognized in other non-interest income:													Gains (losses) recognized in other non-interest income:
Customer accommodation:													Customer accommodation:
Interest rate contracts	$	18		$	4		$	28		$	18		Interest rate contracts	$	(5)	$	18	$	7	$	28
Commodity contracts	8			0			17			8			Commodity contracts	7		8		23		17
Foreign exchange and other contracts	3			1			10			5			Foreign exchange and other contracts	1		3		5		10
Total customer accommodation	29			5			55			31			Total customer accommodation	3		29		35		55
Other interest rate exposures	(1		)	11			(15		)	32			Other interest rate exposures	17		(1)		1		(15)
Other contracts	(7		)	(2		)	(9		)	(22		)	Other contracts	0		(7)		0		(9)
Total	$	21		$	14		$	31		$	41		Total	$	20	$	21	$	36	$	31



			121			Capital One Financial Corporation (COF)

Table of Contents



	~~114~~	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE ~~10—~~9—STOCKHOLDERS’ EQUITY

Preferred Stock

The following table summarizes our preferred stock outstanding as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

Table ~~10.1:~~9.1: Preferred Stock Outstanding⁽¹⁾

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 September 30, 2019 December 31, 2018
Series B
6.00%
Non-Cumulative
August 20, 2012 September 1, 2017 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
Series D
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
Series F
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
Series H
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 $ 5,823
$ 4,360

~~__________~~

⁽¹⁾


			Redeemable by Issuer Beginning	Per Annum Dividend Rate	Dividend Frequency	Liquidation Preference per Share		Total Shares Outstanding as of September 30, 2020	Carrying Value (in millions)
Series	Description	Issuance Date							September 30, 2020		December 31, 2019
Series B(2)	6.000% Non-Cumulative	August 20, 2012	September 1, 2017	6.000%	Quarterly	$	1,000	0	$	0	$	853


Series E	Fixed-to-Floating Rate Non-Cumulative	May 14, 2015	June 1, 2020	5.550% 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	6.200% Non-Cumulative	August 24, 2015	December 1, 2020	6.200	Quarterly	1,000		500,000	484		484
Series G	5.200% Non-Cumulative	July 29, 2016	December 1, 2021	5.200	Quarterly	1,000		600,000	583		583
Series H	6.000% Non-Cumulative	November 29, 2016	December 1, 2021	6.000	Quarterly	1,000		500,000	483		483
Series I	5.000% Non-Cumulative	September 11, 2019	December 1, 2024	5.000	Quarterly	1,000		1,500,000	1,462		1,462
Series J	4.800% Non-Cumulative	January 31, 2020	June 1, 2025	4.800	Quarterly	1,000		1,250,000	1,209		0
Series K	4.625% Non-Cumulative	September 17, 2020	December 1, 2025	4.625	Quarterly	1,000		125,000	121		0
Total									$	5,330	$	4,853

__________

(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.

(2)On March 2, 2020, we redeemed all outstanding shares of our preferred stock Series B.

~~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 held to maturity,~~ changes in fair value of derivatives in hedging relationships, and foreign currency translation adjustments. Unrealized gains 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 to sale to held to maturity.




	~~115~~	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following table includes the AOCI impacts from the adoption of ~~accounting standards~~the CECL standard and the changes in AOCI by component for the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~

~~Table 10.2: Accumulated Other Comprehensive Income (Loss)~~

Three 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 June 30, 2019 $ 125
$ (178 ) $ 396
$ (132 ) $ (41 ) $ 170
Other comprehensive income (loss) before reclassifications 103
0
218
(12 ) 0
309
Amounts reclassified from AOCI into earnings (3 ) 8
(29 ) 0
(2 ) (26 )
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

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 )

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 )

~~__________~~


⁽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.~~

2019.




			~~116~~122			Capital One Financial Corporation (COF)

Table of Contents

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Table 9.2: Accumulated Other Comprehensive Income (Loss)


	Three Months Ended September 30, 2020
(Dollars in millions)	Securities Available for Sale		Hedging Relationships(1)		Foreign Currency Translation Adjustments(2)		Other		Total








AOCI as of June 30, 2020	$	2,373	$	1,785	$	(151)	$	(26)	$	3,981
Other comprehensive income (loss) before reclassifications	20		(95)		28		0		(47)
Amounts reclassified from AOCI into earnings	(19)		(80)		0		(2)		(101)
Other comprehensive income (loss), net of tax	1		(175)		28		(2)		(148)
AOCI as of September 30, 2020	$	2,374	$	1,610	$	(123)	$	(28)	$	3,833


	Nine Months Ended September 30, 2020
(Dollars in millions)	Securities Available for Sale		Hedging Relationships(1)		Foreign Currency Translation Adjustments(2)		Other		Total










AOCI as of December 31, 2019	$	935	$	354	$	(107)	$	(26)	$	1,156
Cumulative effects from the adoption of the CECL standard	(8)		0		0		0		(8)
Other comprehensive income (loss) before reclassifications	1,466		1,540		(16)		0		2,990
Amounts reclassified from AOCI into earnings	(19)		(284)		0		(2)		(305)
Other comprehensive income (loss), net of tax	1,447		1,256		(16)		(2)		2,685

AOCI as of September 30, 2020	$	2,374	$	1,610	$	(123)	$	(28)	$	3,833


	Three Months Ended September 30, 2019
(Dollars in millions)	Securities Available for Sale		Hedging Relationships(1)		Foreign Currency Translation Adjustments(2)		Securities Held to Maturity		Other		Total
AOCI as of June 30, 2019	$	125	$	396	$	(132)	$	(178)	$	(41)	$	170
Other comprehensive income (loss) before reclassifications	103		218		(12)		0		0		309
Amounts reclassified from AOCI into earnings	(3)		(29)		0		8		(2)		(26)
Other comprehensive income (loss), net of tax	100		189		(12)		8		(2)		283
AOCI as of September 30, 2019	$	225	$	585	$	(144)	$	(170)	$	(43)	$	453


	Nine Months Ended September 30, 2019
(Dollars in millions)	Securities Available for Sale		Hedging Relationships(1)		Foreign Currency Translation Adjustments(2)		Securities Held to Maturity		Other		Total
AOCI as of December 31, 2018	$	(439)	$	(418)	$	(177)	$	(190)	$	(39)	$	(1,263)
Other comprehensive income (loss) before reclassifications	697		735		33		0		(1)		1,464
Amounts reclassified from AOCI into earnings	(33)		268		0		20		(3)		252
Other comprehensive income (loss), net of tax	664		1,003		33		20		(4)		1,716
AOCI as of September 30, 2019	$	225	$	585	$	(144)	$	(170)	$	(43)	$	453

__________

(1)Includes amounts related to cash flow hedges as well as the excluded component of cross-currency swaps designated as fair value hedges.

(2)Includes other comprehensive loss of $75 millionand gain of $59 million for the three and nine months ended September 30, 2020, respectively, and other comprehensive gains of $67 million and $86 million for the three and nine months ended September 30, 2019, respectively, from hedging instruments designated as net investment hedges.


⁽³⁾
	123	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, Derivatives and Hedging (Topic 815): Capital One Financial Corporation (COF)~~Targeted Improvements to Accounting for Hedging Activities. This transfer resulted in an after-tax gain of $82 million ($107 million pre-tax) to AOCI.~~

Table of Contents

The following table presents amounts reclassified from each component of AOCI to our consolidated statements of income for the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019.

Table ~~10.3:~~9.3: Reclassifications from AOCI


(Dollars in millions)		Three Months Ended September 30,				Nine Months Ended September 30,
AOCI Components	Affected Income Statement Line Item	2020		2019		2020		2019
Securities available for sale:
	Non-interest income	$	25	$	5	$	25	$	44
	Income tax provision (benefit)	6		2		6		11
	Net income	19		3		19		33
Hedging relationships:
Interest rate contracts:	Interest income	179		(44)		347		(166)
Foreign exchange contracts:	Interest income	1		12		10		37
	Interest expense	(1)		(1)		(3)		(1)
	Non-interest income	(73)		71		20		(224)
	Income from continuing operations before income taxes	106		38		374		(354)
	Income tax provision (benefit)	26		9		90		(86)
	Net income	80		29		284		(268)
Securities held to maturity:(1)
	Interest income	0		(10)		0		(26)
	Income tax provision (benefit)	0		(2)		0		(6)
	Net income	0		(8)		0		(20)
Other:
	Non-interest income and non-interest expense	2		3		2		4
	Income tax provision (benefit)	0		1		0		1
	Net income	2		2		2		3
Total reclassifications		$	101	$	26	$	305	$	(252)

__________

(1)

(Dollars in millions) Three Months Ended September 30, Nine Months Ended September 30,
AOCI Components Affected Income Statement Line Item 2019 2018 2019 2018
Securities available for sale:
Non-interest income $ 5
$ (196 ) $ 44
$ (188 )
Income tax provision 2
(47 ) 11
(45 )
Net income 3
(149 ) 33
(143 )
Securities held to maturity:⁽¹⁾

Interest income (10 ) (10 ) (26 ) (44 )
Income tax provision (2 ) (2 ) (6 ) (10 )
Net income (8 ) (8 ) (20 ) (34 )
Hedging relationships:
Interest rate contracts: Interest income (44 ) (36 ) (166 ) (49 )
Foreign exchange contracts: Interest income 12
13
37
33
Interest expense (1 ) 0
(1 ) 0
Non-interest income 71
(142 ) (224 ) 34
Income from continuing operations before income taxes 38
(165 ) (354 ) 18
Income tax provision 9
(40 ) (86 ) 4
Net income 29
(125 ) (268 ) 14
Other:
Non-interest income and non-interest expense 3
1
4
3
Income tax provision 1
1
1
1
Net income 2
0
3
2
Total reclassifications $ 26
$ (282 ) $ (252 ) $ (161 )

~~__________~~On December 31, 2019, we transferred our entire portfolio of held to maturity securities to available for sale.

⁽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.




			~~117~~124			Capital One Financial Corporation (COF)

Table of Contents

~~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, ~~2019~~2020 and ~~2018.~~2019.

Table ~~10.4:~~9.4: Other Comprehensive Income (Loss)


	Three Months Ended September 30,
	2020						2019
(Dollars in millions)	Before Tax		Provision (Benefit)		After Tax		Before Tax		Provision (Benefit)		After Tax
Other comprehensive income (loss):
Net unrealized gains on securities available for sale	$	1	$	0	$	1	$	132	$	32	$	100
Net unrealized gains (losses) on hedging relationships	(231)		(56)		(175)		249		60		189
Foreign currency translation adjustments(1)	4		(24)		28		9		21		(12)
Net changes in securities held to maturity	0		0		0		10		2		8
Other	(2)		0		(2)		(2)		0		(2)
Other comprehensive income (loss)	$	(228)	$	(80)	$	(148)	$	398	$	115	$	283

Three 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 $ 132
$ 32
$ 100
$ (31 ) $ (8 ) $ (23 )
Net changes in securities held to maturity 10
2
8
10
2
8
Net unrealized gains (losses) on hedging relationships 249
60
189
(107 ) (26 ) (81 )
Foreign currency translation adjustments⁽¹⁾
9
21
(12 ) 22
9
13
Other (2 ) 0
(2 ) (1 ) 0
(1 )
Other comprehensive income (loss) $ 398
$ 115
$ 283
$ (107 ) $ (23 ) $ (84 )


	Nine Months Ended September 30,																			Nine Months Ended September 30,
	2019									2018										2020						2019
(Dollars in millions)	Before Tax			Provision (Benefit)			After Tax			Before Tax			Provision (Benefit)			After Tax			(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	)
Other comprehensive income:																			Other comprehensive income:
Net unrealized gains on securities available for sale																			Net unrealized gains on securities available for sale	$	1,903	$	456	$	1,447	$	874	$	210	$	664
Net unrealized gains on hedging relationships																			Net unrealized gains on hedging relationships	1,653		397		1,256		1,322		319		1,003
Foreign currency translation adjustments(1)																			Foreign currency translation adjustments(1)	3		19		(16)		61		28		33
Net changes in securities held to maturity	26			6			20			579			138			441			Net changes in securities held to maturity	0		0		0		26		6		20
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	(2)		0		(2)		(5)		(1)		(4)
Other comprehensive income (loss)	$	2,278		$	562		$	1,716		$	(961	)	$	(211	)	$	(750	)
Other comprehensive income																			Other comprehensive income	$	3,557	$	872	$	2,685	$	2,278	$	562	$	1,716

__________


⁽¹⁾ (1)Includes the impact of hedging instruments designated as net investment hedges.	~~Includes the impact of hedging instruments designated as net investment hedges.~~



			125			Capital One Financial Corporation (COF)

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	~~118~~	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE ~~11—~~10—EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per common share.

Table ~~11.1:~~10.1: Computation of Basic and Diluted Earnings per Common Share

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars and shares in millions, except per share data) 2019 2018 2019 2018
Income from continuing operations, net of tax $ 1,329
$ 1,501
$ 4,355
$ 4,761
Income (loss) from discontinued operations, net of tax 4
1
15
(7 )
Net income 1,333
1,502
4,370
4,754
Dividends and undistributed earnings allocated to participating securities (10 ) (9 ) (34 ) (32 )
Preferred stock dividends (53 ) (53 ) (185 ) (185 )
Net income available to common stockholders $ 1,270
$ 1,440
$ 4,151
$ 4,537

Total weighted-average basic shares outstanding 469.5
477.8
469.9
483.2
Effect of dilutive securities:
Stock options 1.3
1.5
1.2
1.8
Other contingently issuable shares 1.0
1.1
1.0
1.1
Warrants⁽¹⁾
0.0
0.5
0.0
0.6
Total effect of dilutive securities 2.3
3.1
2.2
3.5
Total weighted-average diluted shares outstanding 471.8
480.9
472.1
486.7
Basic earnings per common share:
Net income from continuing operations $ 2.70
$ 3.01
$ 8.80
$ 9.40
Income (loss) from discontinued operations 0.01
0.00
0.03
(0.01 )
Net income per basic common share $ 2.71
$ 3.01
$ 8.83
$ 9.39
Diluted earnings per common share:⁽²⁾

Net income from continuing operations $ 2.68
$ 2.99
$ 8.76
$ 9.33
Income (loss) from discontinued operations 0.01
0.00
0.03
(0.01 )
Net income per diluted common share $ 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 which had all been exercised or expired on November 14, 2018.~~


⁽²⁾	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.


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars and shares in millions, except per share data)	2020		2019		2020		2019
Income from continuing operations, net of tax	$	2,406	$	1,329	$	149	$	4,355
Income (loss) from discontinued operations, net of tax	0		4		(1)		15
Net income	2,406		1,333		148		4,370
Dividends and undistributed earnings allocated to participating securities	(20)		(10)		(5)		(34)
Preferred stock dividends	(67)		(53)		(212)		(185)
Issuance cost for redeemed preferred stock	0		0		(22)		0
Net income (loss) available to common stockholders	$	2,319	$	1,270	$	(91)	$	4,151

Total weighted-average basic common shares outstanding	457.8		469.5		457.4		469.9
Effect of dilutive securities:(1)
Stock options	0.4		1.3		0.0		1.2
Other contingently issuable shares	0.3		1.0		0.0		1.0

Total effect of dilutive securities	0.7		2.3		0.0		2.2
Total weighted-average diluted common shares outstanding	458.5		471.8		457.4		472.1
Basic earnings per common share:
Net income (loss) from continuing operations	$	5.07	$	2.70	$	(0.20)	$	8.80
Income from discontinued operations	0.00		0.01		0.00		0.03
Net income (loss) per basic common share	$	5.07	$	2.71	$	(0.20)	$	8.83
Diluted earnings per common share:(1)
Net income (loss) from continuing operations	$	5.06	$	2.68	$	(0.20)	$	8.76
Income from discontinued operations	0.00		0.01		0.00		0.03
Net income (loss) per diluted common share	$	5.06	$	2.69	$	(0.20)	$	8.79

__________

(1)Excluded from the computation of diluted earnings per share were 774 thousand shares related to options with an exercise price ranging from $70.96 to $86.34 for the three months ended September 30, 2020, because their inclusion would be anti-dilutive. In periods of net loss available to common stockholders, dilutive securities are excluded as their inclusion would have an anti-dilutive effect. Accordingly, awards of 762 thousand shares and options of 2.7 million shares with an exercise price ranging from $36.55 to $86.34 were excluded for the nine months ended September 30, 2020. For the nine months ended September 30, 2019, 92 thousand shares related to options with an exercise price of $86.34 were excluded from the computation of diluted earnings per share, because their inclusion would be anti-dilutive.



			126			Capital One Financial Corporation (COF)

Table of Contents



	~~119~~	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE ~~12—~~11—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 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 basis, see “Note ~~17—~~16—Fair Value Measurement” in our ~~2018~~2019 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, 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 convenes to review escalated valuation disputes.




	~~120~~	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

~~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, ~~2019~~2020 and December 31, ~~2018.~~2019.

Table ~~12.1:~~11.1: Assets and Liabilities Measured at Fair Value on a Recurring Basis

September 30, 2019
Fair Value Measurements Using
Netting Adjustments⁽¹⁾

(Dollars in millions) Level 1 Level 2 Level 3 Total
Assets:
Securities available for sale:
U.S. Treasury securities $ 4,155
$ 0
$ 0
—
$ 4,155
RMBS 0
34,873
452
—
35,325
CMBS 0
5,388
8
—
5,396
Other securities 189
1,103
0
—
1,292
Total securities available for sale 4,344
41,364
460
—
46,168
Other assets:
Derivative assets⁽²⁾
25
2,270
82
$ (1,173 ) 1,204
Other⁽³⁾
321
0
107
—
428
Total assets $ 4,690
$ 43,634
$ 649
$ (1,173 ) $ 47,800
Liabilities:
Other liabilities:
Derivative liabilities⁽²⁾
$ 18
$ 1,171
$ 76
$ (378 ) $ 887
Total liabilities $ 18
$ 1,171
$ 76
$ (378 ) $ 887

December 31, 2018
Fair Value Measurements Using
Netting Adjustments⁽¹⁾

(Dollars in millions) Level 1 Level 2 Level 3 Total
Assets:
Securities available for sale:
U.S. Treasury securities $ 6,144
$ 0
$ 0
—
$ 6,144
RMBS 0
33,212
433
—
33,645
CMBS 0
4,729
10
—
4,739
Other securities 219
1,403
0
—
1,622
Total securities available for sale 6,363
39,344
443
—
46,150
Other assets:
Derivative assets⁽²⁾
0
1,501
38
$ (1,079 ) 460
Other⁽³⁾
265
0
158
—
423
Total assets $ 6,628
$ 40,845
$ 639
$ (1,079 ) $ 47,033
Liabilities:
Other liabilities:
Derivative liabilities⁽²⁾
$ 0
$ 1,153
$ 48
$ (287 ) $ 914
Total liabilities $ 0
$ 1,153
$ 48
$ (287 ) $ 914

~~__________~~


⁽¹⁾	~~Represents balance sheet netting of derivative assets and liabilities, and related 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⁾


	September 30, 2020
	Fair Value Measurements Using						Netting Adjustments(1)
(Dollars in millions)	Level 1		Level 2		Level 3				Total
Assets:
Securities available for sale:
U.S. Treasury securities	$	9,345	$	0	$	0	—		$	9,345
RMBS	0		76,185		474		—		76,659
CMBS	0		11,063		372		—		11,435
Other securities	180		2,234		0		—		2,414
Total securities available for sale	9,525		89,482		846		—		99,853
Loans held for sale	0		1,255		0		—		1,255
Other assets:
Derivative assets(2)	255		3,693		153		$	(1,622)	2,479
Other(3)	371		493		56		—		920
Total assets	$	10,151	$	94,923	$	1,055	$	(1,622)	$	104,507
Liabilities:
Other liabilities:
Derivative liabilities(2)	$	236	$	1,394	$	109	$	(708)	$	1,031
Total liabilities	$	236	$	1,394	$	109	$	(708)	$	1,031




			~~121~~127			Capital One Financial Corporation (COF)

Table of Contents

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


	December 31, 2019
	Fair Value Measurements Using						Netting Adjustments(1)
(Dollars in millions)	Level 1		Level 2		Level 3				Total
Assets:
Securities available for sale:
U.S. Treasury securities	$	4,124	$	0	$	0	—		$	4,124
RMBS	0		63,909		429		—		64,338
CMBS	0		9,413		13		—		9,426
Other securities	231		1,094		0		—		1,325
Total securities available for sale	4,355		74,416		442		—		79,213
Loans held for sale	0		251		0		—		251
Other assets:
Derivative assets(2)	84		1,568		77		$	(633)	1,096
Other(3)	344		0		66		—		410
Total assets	$	4,783	$	76,235	$	585	$	(633)	$	80,970
Liabilities:
Other liabilities:
Derivative liabilities(2)	$	17	$	1,129	$	51	$	(523)	$	674
Total liabilities	$	17	$	1,129	$	51	$	(523)	$	674

⁽³⁾

~~As of September 30, 2019 and~~ ~~December 31, 2018, other includes retained interests in securitizations of $107 million and $158 million, deferred compensation plan assets of $317 million and $264 million, and equity securities of $4~~

__________

(1)Represents balance sheet netting of derivative assets and liabilities, and related payables and receivables for cash collateral held or placed with the same counterparty. See “Note 8—Derivative Instruments and Hedging Activities” for additional information.

(2)Does not reflect $40 million and $12 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of September 30, 2020 and December 31, 2019, respectively. Non-performance risk is included in derivative assets and liabilities, which are part of other assets and other liabilities on the consolidated balance sheets, and is offset through non-interest income in the consolidated statements of income.

(3)As of September 30, 2020 and December 31, 2019, other includes retained interests in securitizations of $56 million and $66 million, deferred compensation plan assets of $370 million and $343 million, and equity securities of $494 million (including unrealized gains of $470 million) and $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, ~~2019~~2020 and ~~2018.~~2019. 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:~~11.2: Level 3 Recurring Fair Value Rollforward

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
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, 2019⁽¹⁾

(Dollars in millions)
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⁾

RMBS $ 515
$ 10
$ 0
$ 0
$ 0
$ 0
$ (18 ) $ 59
$ (114 ) $ 452
$ 9
CMBS 9
0
0
0
0
0
(1 ) 0
0
8
0
Total securities available for sale 524
10
0
0
0
0
(19 ) 59
(114 ) 460
9
Other assets:
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⁾

(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


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended September 30, 2020
			Total Gains (Losses) (Realized/Unrealized)																		Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2020(1)
(Dollars in millions)	Balance, July 1, 2020		Included in Net Income(1)		Included in OCI		Purchases		Sales		Issuances		Settlements		Transfers Into Level 3		Transfers Out of Level 3		Balance, September 30, 2020
Securities available for sale:(2)
RMBS	$	474	$	10	$	3	$	0	$	0	$	0	$	(22)	$	56	$	(47)	$	474	$	10
CMBS	282		(1)		1		0		0		0		(8)		98		0		372		(1)

Total securities available for sale	756		9		4		0		0		0		(30)		154		(47)		846		9
Other assets:

Retained interests in securitizations	56		0		0		0		0		0		0		0		0		56		0
Net derivative assets (liabilities)(3)	34		8		0		0		0		13		(2)		0		(9)		44		0




			~~122~~128			Capital One Financial Corporation (COF)

Table of Contents

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Nine Months Ended September 30, 2020
			Total Gains (Losses) (Realized/Unrealized)																		Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2020(1)
(Dollars in millions)	Balance, January 1, 2020		Included in Net Income(1)		Included in OCI		Purchases		Sales		Issuances		Settlements		Transfers Into Level 3		Transfers Out of Level 3		Balance, September 30, 2020
Securities available for sale:(2)(4)
RMBS	$	433	$	19	$	(21)	$	0	$	0	$	0	$	(55)	$	196	$	(98)	$	474	$	20
CMBS	13		(1)		0		0		0		0		(11)		371		0		372		(4)

Total securities available for sale	446		18		(21)		0		0		0		(66)		567		(98)		846		16
Other assets:

Retained interests in securitizations	66		(10)		0		0		0		0		0		0		0		56		(10)
Net derivative assets (liabilities)(3)	26		20		0		0		0		39		(30)		0		(11)		44		18

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⁾

(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																													Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			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⁾					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, 2019(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					(Dollars in millions)		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:
Securities available for sale:(2)																												Securities available for sale:(2)
RMBS	$	614	$	25		$	9	$	0	$	0		$	0	$	(58	)	$	195	$	(266	)	$	519	$	25		RMBS		$	515		$	10	$	0	$	0	$	0	$	0	$	(18)	$	59	$	(114)	$	452			$	9
CMBS	14		0			0		0		0			0		(3		)	0		0			11		0			CMBS		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	633		25			9		0		0			0		(66		)	195		(266		)	530		25			Total securities available for sale		524			10		0		0		0		0		(19)		59		(114)		460			9
Other assets:																												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		)	Retained interests in securitizations		177			(1)		0		0		0		0		(69)		0		0		107			(1)
Net derivative assets (liabilities)⁽³⁾	13		(26		)	0		0		0			25		0			0		1			13		(26		)	Net derivative assets (liabilities)(3)		6			(1)		0		0		0		(8)		12		0		(3)		6			1

~~__________~~


⁽¹⁾	Realized gains (losses) on securities available for sale are included in net securities gains (losses), and retained interests in securitizations 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.~~


	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)
(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 interests 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




			~~123~~129			Capital One Financial Corporation (COF)

Table of Contents

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

__________

(1)Realized gains (losses) on securities available for sale are included in net securities gains (losses), and retained interests in securitizations 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, 2020, included in OCI related to Level 3 securities available for sale still held as of September 30, 2020 were net unrealized gains of $5 million and net unrealized losses of $16 million, respectively. For the three and nine months ended September 30, 2019, net unrealized gains included in OCI 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 $153 million and $109 million, respectively, as of September 30, 2020, $82 million and $76 million, respectively, as of September 30, 2019.

(4)The fair value of RMBS as of January 1, 2020 includes a cumulative adjustment of $4 million from the adoption of the CECL standard.

Significant Level 3 Fair Value Asset and Liability Inputs

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.



			130			Capital One Financial Corporation (COF)

Table ~~12.3:~~of Contents

Table 11.3: 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 8
Discounted cash flows (vendor pricing) Yield
2% 2%
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) 6
Discounted cash flows Swap rates 1-2% 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⁾

(Dollars in millions)

Fair Value at
September 30,
2020

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%

RMBS

474

Discounted cash flows (vendor pricing)

Yield
Voluntary prepayment rate
Default rate
Loss severity

1-12%

5-15%

1-11%

30-100%

68%

CMBS

Discounted cash flows (vendor pricing)

Yield

CMBS

372

Discounted cash flows (vendor pricing)

Yield

1-3%

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

Retained interests in securitizations(2)

Discounted cash flows

Life of receivables (months)
Voluntary prepayment rate
Discount rate
Default rate
Loss severity

36-52

3-13%

2-12%

64-70%

N/A

Net derivative assets (liabilities)

(10

)

Discounted cash flows

Swap rates

Net derivative assets (liabilities)

Discounted cash flows

Swap rates

Quantitative Information about Level 3 Fair Value Measurements

(Dollars in millions)

Fair Value at
December 31,
2019

Significant
Valuation
Techniques

Significant
Unobservable
Inputs

Range

Weighted

Average(1)

Securities available for sale:

RMBS

429

Discounted cash flows (vendor pricing)

Yield
Voluntary prepayment rate
Default rate
Loss severity

2-18%

0-18%

1-6%

30-95%

10%

67%

CMBS

Discounted cash flows (vendor pricing)

Yield

2-3%

Other assets:

Retained interests in securitizations(2)

Discounted cash flows

Life of receivables (months)
Voluntary prepayment rate
Discount rate
Default rate
Loss severity

35-51

4-14%

3-10%

2-3%

74-88%

N/A

Net derivative assets (liabilities)

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.


⁽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.	~~Weighted averages are calculated by using the product of the input multiplied by the relative fair value of the instruments.~~




			~~124~~131			Capital One Financial Corporation (COF)

Table of Contents

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


⁽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).

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, ~~2019~~2020 and December 31, ~~2018,~~2019, and for which a nonrecurring fair value measurement was recorded during the nine and twelve months then ended.

Table ~~12.4:~~11.4: Nonrecurring Fair Value Measurements

September 30, 2019
Estimated Fair Value Hierarchy Total
(Dollars in millions) Level 2 Level 3
Loans held for investment $ 0
$ 317
$ 317
Loans held for sale 2
0
2
Other assets⁽¹⁾
0
78
78
Total $ 2
$ 395
$ 397


	December 31, 2018							September 30, 2020
	Estimated Fair Value Hierarchy				Total			Estimated Fair Value Hierarchy				Total
(Dollars in millions)	Level 2		Level 3				(Dollars in millions)	Level 2		Level 3
Loans held for investment	$	0	$	129	$	129	Loans held for investment	$	0	$	294	$	294
Loans held for sale	38		0		38

Other assets⁽¹⁾	0		100		100		Other assets(1)	0		55		55
Total	$	38	$	229	$	267	Total	$	0	$	349	$	349


	December 31, 2019
	Estimated Fair Value Hierarchy				Total
(Dollars in millions)	Level 2		Level 3
Loans held for investment	$	0	$	294	$	294
Other assets(1)	0		103		103
Total	$	0	$	397	$	397

__________

~~__________~~(1)As of September 30, 2020, other assets included equity investments accounted for under the measurement alternative of $14 million, repossessed assets of $35 million and long-lived assets held for sale of $6 million. As of December 31, 2019, other assets included equity investments accounted for under the measurement alternative of $5 million, repossessed assets of $61 million and long-lived assets held for sale of $37 million.

⁽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 $24 million, foreclosed property and repossessed assets of $57 million and long-lived assets held for sale of $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 39%, with a weighted average of 3%, and from 0% to 50%, with a weighted average of ~~7%, and from 0% to 84%, with a weighted average of 33%~~6%, as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, 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.




	~~125~~	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

~~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, ~~2019~~2020 and ~~2018.~~2019.

Table ~~12.5:~~11.5: Nonrecurring Fair Value Measurements Included in Earnings


	Total Gains (Losses)
	Nine Months Ended September 30,
(Dollars in millions)	2020		2019
Loans held for investment	$	187	$	(189)
Loans held for sale	0		(1)
Other assets(1)	(42)		(60)
Total	$	145	$	(250)

__________

(1)

Total Gains (Losses)
Nine Months Ended September 30,
(Dollars in millions) 2019 2018
Loans held for investment $ (189 ) $ (99 )
Loans held for sale (1 ) (5 )
Other assets⁽¹⁾
(60 ) (57 )
Total $ (250 ) $ (161 )

~~__________~~Other assets include fair value adjustments related to repossessed assets, long-lived assets held for sale and equity investments accounted for under the


⁽¹⁾measurement alternative.	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. For the nine months ended September 30, 2018, other assets also included foreclosed property.




			~~126~~132			Capital One Financial Corporation (COF)

Table of Contents

~~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, ~~2019~~2020 and December 31, ~~2018.~~2019.

Table ~~12.6:~~11.6: Fair Value of Financial Instruments

September 30, 2019

Carrying
Value

Estimated
Fair Value
Estimated Fair Value Hierarchy
(Dollars in millions) Level 1 Level 2 Level 3
Financial assets:
Cash and cash equivalents $ 17,120
$ 17,120
$ 4,452
$ 12,668
$ 0
Restricted cash for securitization investors 417
417
417
0
0
Securities held to maturity 33,894
35,264
0
35,258
6
Net loans held for investment 242,318
243,125
0
0
243,125
Loans held for sale 1,245
1,261
0
1,261
0
Interest receivable 1,627
1,627
0
1,627
0
Other investments⁽¹⁾
1,341
1,341
0
1,341
0
Financial liabilities:
Deposits with defined maturities 45,241
45,490
0
45,490
0
Securitized debt obligations 18,910
19,043
0
19,043
0
Senior and subordinated notes 30,682
31,078
0
31,078
0
Federal funds purchased and securities loaned or sold under agreements to repurchase 464
464
0
464
0
Interest payable 370
370
0
370
0


	December 31, 2018																			September 30, 2020
	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			(Dollars in millions)										Level 1				Level 2			Level 3
Financial assets:																			Financial assets:
Cash and cash equivalents	$	13,186			$	13,186		$	4,768		$	8,418			$	0		Cash and cash equivalents			$	44,106			$	44,106		$	4,267		$	39,839		$	0
Restricted cash for securitization investors	303			303			303			0				0			Restricted cash for securitization investors			895				895			895			0			0
Securities held to maturity	36,771			36,619			0			36,513				106

Net loans held for investment	238,679			241,556			0			0				241,556			Net loans held for investment			232,094				239,525			0			0			239,525
Loans held for sale	1,192			1,218			0			1,218				0			Loans held for sale			2,178				2,277			0			2,277			0
Interest receivable	1,614			1,614			0			1,614				0			Interest receivable			1,551				1,551			0			1,551			0
Other investments⁽¹⁾	1,725			1,725			0			1,725				0			Other investments(1)			1,341				1,341			0			1,341			0
Financial liabilities:																	Financial liabilities:
Deposits with defined maturities	38,471			38,279			0			38,279				0			Deposits with defined maturities			38,973				39,414			0			39,414			0
Securitized debt obligations	18,307			18,359			0			18,359				0			Securitized debt obligations			13,566				13,770			0			13,770			0
Senior and subordinated notes	30,826			30,635			0			30,635				0			Senior and subordinated notes			28,448				28,928			0			28,928			0
Federal funds purchased and securities loaned or sold under agreements to repurchase	352			352			0			352				0			Federal funds purchased and securities loaned or sold under agreements to repurchase			702				702			0			702			0
Other borrowings⁽²⁾	9,354			9,354			0			9,354				0

Interest payable	458			458			0			458				0			Interest payable			332				332			0			332			0


	December 31, 2019
	Carrying Value		Estimated Fair Value		Estimated Fair Value Hierarchy
(Dollars in millions)					Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	13,407	$	13,407	$	4,129	$	9,278	$	0
Restricted cash for securitization investors	342		342		342		0		0
Net loans held for investment	258,601		258,696		0		0		258,696
Loans held for sale	149		149		0		149		0
Interest receivable	1,758		1,758		0		1,758		0
Other investments(1)	1,638		1,638		0		1,638		0
Financial liabilities:
Deposits with defined maturities	44,958		45,225		0		45,225		0
Securitized debt obligations	17,808		17,941		0		17,941		0
Senior and subordinated notes	30,472		31,233		0		31,233		0
Federal funds purchased and securities loaned or sold under agreements to repurchase	314		314		0		314		0
Other borrowings(2)	7,000		7,001		0		7,001		0
Interest payable	439		439		0		439		0

__________

~~__________~~(1)Other investments include FHLB and Federal Reserve stock. These investments are included in other assets on our consolidated balance sheets.


⁽¹⁾ (2)Other borrowings excludes finance lease liabilities.	~~Other investments include FHLB and Federal Reserve stock. These investments are included in other assets on our consolidated balance sheets.~~


⁽²⁾	~~Other borrowings excludes finance lease liabilities.~~



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	~~127~~	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE ~~13—~~12—BUSINESS SEGMENTS AND REVENUE FROM CONTRACTS WITH CUSTOMERS

Our principal operations are organized into 3 major business segments, which are defined primarily based on the products and services provided or the types of ~~customer~~customers 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. 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—~~17—Business Segments and Revenue from Contracts with Customers” in our ~~2018~~2019 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 2019, we made a change in how revenue is measured in our Commercial Banking business by revising the allocation of tax benefits on certain tax-advantaged investments. 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 our Commercial Banking business by $26 million and $88 million for the three and nine months ended September 30, 2018, with an offsetting 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 table presents our business segment results for the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, selected balance sheet data as of September 30, ~~2019~~2020 and ~~2018,~~2019, and a reconciliation of our total business segment results to our reported consolidated income from continuing operations, loans held for investment and deposits.

~~Table 13.1: Segment Results and Reconciliation~~

Three Months Ended September 30, 2019
(Dollars in millions) Credit
Card Consumer
Banking
Commercial
Banking⁽¹⁾⁽²⁾

Other⁽¹⁾⁽²⁾
Consolidated
Total
Net interest income $ 3,546
$ 1,682
$ 486
$ 23
$ 5,737
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 2,360
985
414
113
3,872
Income (loss) from continuing operations before income taxes 969
659
200
(124 ) 1,704
Income tax provision (benefit) 235
154
46
(60 ) 375
Income (loss) from continuing operations, net of tax $ 734
$ 505
$ 154
$ (64 ) $ 1,329
Loans held for investment $ 113,681
$ 62,015
$ 73,659
$ 0
$ 249,355
Deposits 0
206,423
30,923
19,802
257,148

Nine Months Ended September 30, 2019
(Dollars in millions) Credit
Card Consumer
Banking
Commercial
Banking⁽¹⁾⁽²⁾

Other⁽¹⁾⁽²⁾
Consolidated
Total
Net interest income $ 10,667
$ 5,070
$ 1,489
$ 48
$ 17,274
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 3,571
603
244
0
4,418
Non-interest expense 6,784
2,981
1,258
299
11,322
Income (loss) from continuing operations before income taxes 3,170
1,977
595
(316 ) 5,426
Income tax provision (benefit) 747
461
138
(275 ) 1,071
Income (loss) from continuing operations, net of tax $ 2,423
$ 1,516
$ 457
$ (41 ) $ 4,355
Loans held for investment $ 113,681
$ 62,015
$ 73,659
$ 0
$ 249,355
Deposits 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, 2018
(Dollars in millions) Credit
Card Consumer
Banking
Commercial
Banking⁽¹⁾⁽²⁾

Other⁽¹⁾⁽²⁾
Consolidated
Total
Net interest income $ 10,550
$ 4,860
$ 1,536
$ 109
$ 17,055
Non-interest income 2,634
504
585
285
4,008
Total net revenue 13,184
5,364
2,121
394
21,063
Provision (benefit) for credit losses 3,658
535
74
(49 ) 4,218
Non-interest expense 6,046
2,942
1,220
562
10,770
Income (loss) from continuing operations before income taxes 3,480
1,887
827
(119 ) 6,075
Income tax provision (benefit) 810
440
193
(129 ) 1,314
Income from continuing operations, net of tax $ 2,670
$ 1,447
$ 634
$ 10
$ 4,761
Loans held for investment $ 110,685
$ 59,329
$ 68,747
$ 0
$ 238,761
Deposits 0
196,635
30,474
20,086
247,195

~~__________~~


⁽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 reductions to the Other category.

⁽²⁾

In the first quarter of 2019, we made a change in how revenue is measured in our Commercial Banking business by revising the allocation of tax benefits on certain tax-advantaged investments. 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 our Commercial Banking business by $26 million and $88 million for the three and nine months ended September 30, 2018, with an offsetting increase in the Other category.

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Table 12.1: Segment Results and Reconciliation


	Three Months Ended September 30, 2020
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	3,292	$	1,904	$	517	$	(158)	$	5,555
Non-interest income	1,013		107		237		469		1,826
Total net revenue(2)	4,305		2,011		754		311		7,381
Provision (benefit) for credit losses	450		(43)		(74)		(2)		331
Non-interest expense	2,003		1,011		424		110		3,548
Income from continuing operations before income taxes	1,852		1,043		404		203		3,502
Income tax provision	438		247		95		316		1,096
Income (loss) from continuing operations, net of tax	$	1,414	$	796	$	309	$	(113)	$	2,406
Loans held for investment	$	103,641	$	68,688	$	75,894	$	0	$	248,223
Deposits	0		249,684		36,783		19,258		305,725


	Nine Months Ended September 30, 2020
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	10,363	$	5,226	$	1,526	$	(75)	$	17,040
Non-interest income	2,769		330		655		392		4,146
Total net revenue(2)	13,132		5,556		2,181		317		21,186
Provision for credit losses	7,096		1,693		1,209		2		10,000
Non-interest expense	6,180		3,038		1,261		568		11,047
Income (loss) from continuing operations before income taxes	(144)		825		(289)		(253)		139
Income tax provision (benefit)	(34)		195		(69)		(102)		(10)
Income (loss) from continuing operations, net of tax	$	(110)	$	630	$	(220)	$	(151)	$	149
Loans held for investment	$	103,641	$	68,688	$	75,894	$	0	$	248,223
Deposits	0		249,684		36,783		19,258		305,725


	Three Months Ended September 30, 2019
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income	$	3,546	$	1,682	$	486	$	23	$	5,737
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	2,360		985		414		113		3,872
Income (loss) from continuing operations before income taxes	969		659		200		(124)		1,704
Income tax provision (benefit)	235		154		46		(60)		375
Income (loss) from continuing operations, net of tax	$	734	$	505	$	154	$	(64)	$	1,329
Loans held for investment	$	113,681	$	62,015	$	73,659	$	0	$	249,355
Deposits	0		206,423		30,923		19,802		257,148



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	Nine Months Ended September 30, 2019
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income	$	10,667	$	5,070	$	1,489	$	48	$	17,274
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	3,571		603		244		0		4,418
Non-interest expense	6,784		2,981		1,258		299		11,322
Income (loss) from continuing operations before income taxes	3,170		1,977		595		(316)		5,426
Income tax provision (benefit)	747		461		138		(275)		1,071
Income (loss) from continuing operations, net of tax	$	2,423	$	1,516	$	457	$	(41)	$	4,355
Loans held for investment	$	113,681	$	62,015	$	73,659	$	0	$	249,355
Deposits	0		206,423		30,923		19,802		257,148

__________

(2)Total net revenue was reduced by $235 million and $942 million in the three and nine months ended September 30, 2020, respectively, for finance charges and fees charged off as uncollectible.

Revenue from Contracts with Customers

The majority of our revenue from contracts with customers consists of interchange fees, ~~in our Credit Card business,~~ service charges and other customer-related fees, and other contract ~~revenue in our Consumer Banking and Commercial Banking businesses.~~revenue. 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 in our Credit Card business consists primarily of revenue from our partnership arrangements. Other contract revenue in our Consumer Banking business consists primarily of revenue earned on certain marketing and promotional events from our auto ~~dealers within our Consumer Banking business.~~dealers. 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~~2020 and ~~2018.~~2019.

Table ~~13.2:~~12.2: Revenue from Contracts with Customers and Reconciliation to ~~Segments Result~~

Segment Results

Three Months Ended September 30, 2019
(Dollars in millions) Credit
Card Consumer
Banking
Commercial
Banking⁽¹⁾

Other⁽¹⁾
Consolidated
Total
Contract revenue:
Interchange fees, net⁽²⁾
$ 722
$ 54
$ 15
$ (1 ) $ 790
Service charges and other customer-related fees 0
76
35
(1 ) 110
Other 15
26
1
0
42
Total contract revenue 737
156
51
(2 ) 942
Revenue from other sources 133
9
170
(32 ) 280
Total non-interest income $ 870
$ 165
$ 221
$ (34 ) $ 1,222


	Three Months Ended September 30, 2020
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	703	$	54	$	17	$	1	$	775
Service charges and other customer-related fees	0		42		50		0		92
Other	109		5		1		0		115
Total contract revenue	812		101		68		1		982
Revenue from other sources	201		6		169		468		844
Total non-interest income	$	1,013	$	107	$	237	$	469	$	1,826




			~~130~~136			Capital One Financial Corporation (COF)

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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


	Nine Months Ended September 30, 2020
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	2,003	$	152	$	45	$	(1)	$	2,199
Service charges and other customer-related fees	0		137		124		(1)		260
Other	236		27		2		0		265
Total contract revenue	2,239		316		171		(2)		2,724
Revenue from other sources	530		14		484		394		1,422
Total non-interest income	$	2,769	$	330	$	655	$	392	$	4,146


	Nine Months Ended September 30, 2019												Three Months Ended September 30, 2019
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking⁽¹⁾		Other⁽¹⁾			Consolidated Total		(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:												Contract revenue:
Interchange fees, net⁽²⁾	$	2,181	$	152	$	39	$	(4	)	$	2,368	Interchange fees, net(2)	$	722	$	54	$	15	$	(1)	$	790
Service charges and other customer-related fees	0		225		88		(1		)	312		Service charges and other customer-related fees	0		76		35		(1)		110
Other	47		76		2		0			125		Other	15		26		1		0		42
Total contract revenue	2,228		453		129		(5		)	2,805		Total contract revenue	737		156		51		(2)		942
Revenue from other sources	630		38		479		(60		)	1,087		Revenue from other sources	133		9		170		(32)		280
Total non-interest income	$	2,858	$	491	$	608	$	(65	)	$	3,892	Total non-interest income	$	870	$	165	$	221	$	(34)	$	1,222


	Three 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		(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:														Contract revenue:
Interchange fees, net⁽²⁾	$	661		$	46		$	8	$	(1	)	$	714	Interchange fees, net(2)	$	2,181	$	152	$	39	$	(4)	$	2,368
Service charges and other customer-related fees	0			90			33		0			123		Service charges and other customer-related fees	0		225		88		(1)		312
Other	(6		)	27			0		0			21		Other	47		76		2		0		125
Total contract revenue	655			163			41		(1		)	858		Total contract revenue	2,228		453		129		(5)		2,805
Revenue from other sources	238			(8		)	148		(60		)	318		Revenue from other sources	630		38		479		(60)		1,087
Total non-interest income	$	893		$	155		$	189	$	(61	)	$	1,176	Total non-interest income	$	2,858	$	491	$	608	$	(65)	$	3,892

__________

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 reductions to the Other category.


⁽¹⁾ (2)Interchange fees are presented net of customer reward expenses.	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 rewards expenses.~~



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	~~131~~	~~Capital One Financial Corporation (COF)~~

~~Table of Contents~~

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE ~~14—~~13—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.~~customer. 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, ~~2019~~2020 and December 31, ~~2018.~~2019. The carrying value represents our reserve and deferred revenue on legally binding commitments.

Table ~~14.1:~~13.1: Unfunded Lending ~~Commitments: Contractual Amount~~Commitments


	Contractual Amount				Carrying Value
(Dollars in millions)	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Credit card lines	$	350,356	$	363,446	N/A		N/A
Other loan commitments(1)	34,574		36,454		$	142	$	110
Standby letters of credit and commercial letters of credit(2)	1,335		1,574		34		27
Total unfunded lending commitments	$	386,265	$	401,474	$	176	$	137

__________

(1)Includes $1.6 billion of advised lines of credit as of both September 30, 2020 and ~~Carrying Value~~

Contractual Amount Carrying Value
(Dollars in millions) September 30,
2019 December 31,
2018 September 30,
2019 December 31,
2018
Credit card lines $ 349,896
$ 346,186
N/A
N/A
Other loan commitments⁽¹⁾
35,351
34,449
$ 122
$ 95
Standby letters of credit and commercial letters of credit⁽²⁾
1,658
1,792
33
29
Total unfunded lending commitments $ 386,905
$ 382,427
$ 155
$ 124

~~__________~~December 31, 2019.


⁽¹⁾ (2)These financial guarantees have expiration dates ranging from 2020 to 2023 as of September 30, 2020.	~~Includes $1.7 billion and $1.3 billion of advised lines of credit as of September 30, 2019 and December 31, 2018, respectively.~~


⁽²⁾	~~These financial guarantees have expiration dates ranging from 2020 to 2025 as of September 30, 2019.~~

Loss Sharing Agreements

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,~~Beginning January 1, 2020, we ~~record a liability representing~~elected the fair value option on new loss sharing agreements. Unrealized gains and losses are recorded in other non-interest income in our consolidated statements of ~~our obligation which is subsequently amortized~~income. For those loss sharing agreements entered into as of December 31, 2019, we amortize the liability recorded at inception into non-interest income 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~~record our estimate of expected credit losses each period in ~~the~~provision for credit losses in our consolidated statements of income. The liability recognized on our consolidated balance sheets for these loss sharing agreements was ~~$70~~$99 million and ~~$59~~$75 million as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.



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See “~~Note 5—~~“Note 4—Allowance for ~~Loan and Lease~~Credit Losses and Reserve for Unfunded Lending ~~Commitments~~”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~~

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. In August 2017, the FCA issued final rules and guidance on the PPI complaints. This set the deadline for complaints as August 29, 2019. It also 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.

COEP has now materially completed the handling of PPI complaints that were received prior to the deadline set by the FCA. Escalations to the FOS (by customers or their representatives) may still take place until the first quarter of 2021. Throughout this time, the FCA will continue to supervise firms that handle PPI complaints and the supporting processes, people and systems.

Our U.K. PPI reserve declined to a de minimis amount at September 30, 2020 from $188 million as of December 31, 2019. We do 0t believe there are significant reasonably possible future losses beyond our reserve as of September 30, 2020.

In determining our best estimate of incurred losses for future remediation payments, management considers numerous factors, including (i) the number of customer complaints 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.

Our U.K. PPI reserve totaled $231 million and $133 million as of September 30, 2019 and December 31, 2018, respectively. For the three months ended September 30, 2019, we recorded an additional reserve build of $212 million due to significantly elevated claims volume ahead of the August 29, 2019 claims submission deadline. Our best estimate of reasonably possible future losses beyond our reserve as of September 30, 2019 is approximately $50 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.

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 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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~~Table of Contents~~

~~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 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, ~~2019~~2020 are approximately ~~$1.1~~$1.0 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.

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



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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 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~~of $5.5 billion for the monetary damages class ~~in August 2018, whereby the class would receive up to approximately $6.2 billion collectively~~received final approval from the ~~defendants in exchange for a release of their claims, depending on the percentage of class plaintiffs who opt out. The~~ trial court, ~~preliminarily approved~~and has been appealed to the ~~settlement in January 2019.~~U.S. Court of Appeals for the Second Circuit. Visa and MasterCard have also settled ~~several~~a number of the opt-out cases, which required non-material payments from issuing banks, including Capital One. Visa created a litigation escrow account following its 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 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.

Anti-Money Laundering

~~We are subject to an open consent order with the Office of the Comptroller of the Currency (“OCC”) dated July 10, 2015 relating to our anti-money laundering (“AML”) program.~~ In October 2018, we paid a civil monetary penalty of $100 million to resolve the monetary component of a July 2015 Office of the Comptroller of the Currency (“OCC”) consent order relating to our anti-money laundering (“AML”) program. The OCC lifted the AML consent ~~order.~~order in November 2019.

The Department of Justice and the New York District Attorney’s Office have closed their investigations into certain former check casher clients of the 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 to explore a potential regulatory resolution of its 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 7073 putative consumer class action cases ~~(60~~(61 in U.S. federal courts and 1012 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~~The U.S. consumer class actions ~~were~~have been consolidated for pretrial proceedings before a multi-district litigation (“MDL”) panel in the U.S. District Court for the Eastern District of Virginia, Alexandria Division. In the third quarter of 2020, the MDL panel denied in part and granted in part Capital One’s motion to dismiss and permitted pretrial discovery to continue.



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Securities class action. The Company and certain officers have also been named as defendants in a putative class action pending in the ~~U.S. District Court for the Eastern District of New York, which was filed on October 2, 2019,~~MDL 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~~July 23, 2015 to ~~June~~July 29, 2019, as well as unspecified monetary damages, costs and other relief.

~~State Attorneys General~~Governmental inquiries. We have received inquiries and requests for information relating to the Cybersecurity Incident from Congress, federal banking regulators, relevant Canadian regulators, the Department of Justice, and the offices of approximately ~~a dozen~~fourteen state Attorneys General. We are cooperating with these offices and responding to their inquiries.

In August 2020, we entered into consent orders with the Federal Reserve Board of Governors and the OCC resulting from regulatory reviews of the Cybersecurity Incident and relating to ongoing enhancements of our cybersecurity and operational risk management processes. We paid an $80 million penalty to the U.S. Treasury as part of the OCC agreement. The Federal Reserve Board agreement did not contain a monetary penalty.

Taxi Medallion Finance Investigations

WeBeginning in 2019, we have received ~~a subpoena~~subpoenas 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~~and Criminal Divisions, 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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~~CAPITAL ONE FINANCIAL CORPORATION~~

~~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~~.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, ~~2019,~~2020, 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, ~~2019,~~2020, 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 ~~2019~~2020 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—~~“Note 13—Commitments, Contingencies, Guarantees and ~~Others~~.Others.”

Item 1A. Risk Factors

~~Item 1A.~~W~~Risk Factors~~

Wee are not aware of any material changes from the risk factors set forth under “Part I—Item 1A. Risk Factors” in our ~~2018~~2019 Form 10-K and “Part II—Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the period ended June 30, ~~2019.~~2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information related to ~~repurchases of shares~~the withholdings of our common stock for each calendar month in the third quarter of ~~2019.~~2020. Commission costs are excluded from the amounts presented below.


	Total Number of Shares Withheld(1)	Average Price per Share
July	4,765	$	60.70
August	25,152	63.80
September	—	—
Total	29,917	63.31

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 4,765
$ 92.04
—
$ 2,200
August 3,146,932
87.07
3,127,200
1,928
September 2,138,259
90.79
2,138,259
1,734
Total 5,289,956
88.58
5,265,459

__________

~~__________~~(1)Consists of shares withheld to cover taxes on restricted stock units whose restrictions have lapsed. We suspended our 2019 Stock Repurchase Program in March 2020 and the program subsequently expired at the end of the second quarter of 2020, see “MD&A—Capital Management—Dividend Policy and Stock Purchases” for more information.


⁽¹⁾	Comprises mainly repurchases of common stock under the 2019 Stock Repurchase Program. There were 4,765 and 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 2019 Stock Repurchase Program, see “MD&A—Capital Management—Dividend Policy and Stock 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

The following exhibits are incorporated by reference or filed herewith. Reference to the “2003 Form 10-K” 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)~~May 1, 2020) (incorporated by reference to Exhibit ~~3.1~~3.2 of the Current Report on Form 8-K, filed on May 4, ~~2015)~~2020).
3.2		Amended and Restated Bylaws of Capital One Financial Corporation, dated ~~October 5, 2015~~May 1, 2020 (incorporated by reference to Exhibit ~~3.1~~3.3 of the Current Report on Form 8-K, filed on ~~October 5, 2015)~~May 4, 2020).
~~3.3.1~~3.3		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,~~K, dated September ~~10, 2019~~16, 2020 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on September ~~11, 2019)~~17, 2020).
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~~September 17 , 20 ~~2012~~20 (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K, filed on ~~August 20, 2012)~~Sept ember 17, 2020 ).
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.
31.1*		Certification of Richard D. Fairbank.
31.2*		Certification of R. Scott Blackley.
32.1**		Certification of Richard D. Fairbank.
32.2**		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*104		The cover page of Capital One Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2019,~~2020, 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 or otherwise subject to the liabilities of that 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.




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SIGNATURES

Pursuant to the requirements 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: November 2, 2020

By:

~~CAPITAL ONE FINANCIAL CORPORATION~~

~~Date: October 31, 2019~~

~~By:~~

/s/ R. SCOTT BLACKLEY

R. Scott Blackley

Chief Financial Officer




			~~139~~145			Capital One Financial Corporation (COF)



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


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


~~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~~Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series J			~~COF24~~COF PRJ		New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series K			COF PRK		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


	Nine Months Ended September 30,
	2020						2019
(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	$	112,305	$	11,812	14.02	%	$	111,584	$	13,103	15.66	%
Consumer banking	65,457		4,128		8.41		60,072		3,751		8.33
Commercial banking(2)	78,403		1,898		3.23		73,066		2,517		4.59
Other(3)	—		282		**		21		(191)		**
Total loans, including loans held for sale	256,165		18,120		9.43		244,743		19,180		10.45
Investment securities	83,724		1,455		2.32		82,264		1,867		3.03
Cash equivalents and other interest-earning assets	35,152		67		0.25		11,929		196		2.19
Total interest-earning assets	375,041		19,642		6.98		338,936		21,243		8.36
Cash and due from banks	4,913						4,281
Allowance for credit losses	(13,796)						(7,221)
Premises and equipment, net	4,332						4,275
Other assets	37,743						31,877
Total assets	$	408,233					$	372,148
Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Interest-bearing deposits	$	259,631	$	1,818	0.93	%	$	230,045	$	2,588	1.50	%
Securitized debt obligations	16,500		198		1.60		17,912		405		3.02
Senior and subordinated notes	30,371		551		2.42		30,897		923		3.98
Other borrowings and liabilities	3,147		35		1.50		3,228		53		2.19
Total interest-bearing liabilities	309,649		2,602		1.12		282,082		3,969		1.88
Non-interest-bearing deposits	26,611						23,344
Other liabilities	14,171						11,861
Total liabilities	350,431						317,287
Stockholders’ equity	57,802						54,861
Total liabilities and stockholders’ equity	$	408,233					$	372,148
Net interest income/spread			$	17,040	5.86				$	17,274	6.48
Impact of non-interest-bearing funding					0.20						0.32
Net interest margin					6.06	%					6.80	%



	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	%



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



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


				Page
PART I—FINANCIAL INFORMATION				4


				~~Page~~










~~PART I—FINANCIAL INFORMATION~~Item 1.			4
~~Item 1.~~	Financial Statements and Notes~~Notes~~	6673
			Consolidated Statements of Income	6774
			Consolidated Statements of Comprehensive Income	6875
			Consolidated Balance Sheets	6976
			Consolidated Statements of Changes in Stockholders’ Equity	7077
			Consolidated Statements of Cash Flows	7179
			Notes to Consolidated Financial Statements	7281
			Note 1—Summary of Significant Accounting Policies	7281

			Note 2—~~Leases~~Investment Securities	7490
			Note 3—~~Investment Securities~~Loans	7693
			Note 4—~~Loans~~	82
	~~Note 5—~~Allowance for ~~Loan and Lease~~Credit Losses and Reserve for Unfunded Lending Commitments	94102
			Note 6—5—Variable Interest Entities and Securitizations	98106
			Note 7—6—Goodwill and Intangible Assets	~~102~~110
			Note 8—7—Deposits and Borrowings	~~104~~111
			Note 9—8—Derivative Instruments and Hedging Activities	~~105~~112
			Note ~~10—~~9—Stockholders’ Equity	~~115~~122
			Note ~~11—~~10—Earnings Per Common Share	~~119~~126
			Note ~~12—~~11—Fair Value Measurement	~~120~~127
			Note ~~13—~~12—Business Segments and Revenue from Contracts with Customers	~~128~~134
			Note ~~14—~~13—Commitments, Contingencies, Guarantees and Others	~~132~~138





Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)	4
			Introduction	54
			~~Summary of~~ Selected Financial Data	68
			Executive Summary and Business Outlook	911
			Consolidated Results of Operations	1213
			Consolidated Balance Sheets Analysis	1819
			Off-Balance Sheet Arrangements	2021
			Business Segment Financial Performance	2021
			Critical Accounting Policies and Estimates	3032
			Accounting Changes and Developments	3134
			Capital Management	3235
			Risk Management	3741
			Credit Risk Profile	3842
			Liquidity Risk Profile	4955
			Market Risk Profile	5258
			Supervision and Regulation	5662
			Forward-Looking Statements	5663
			Supplemental Table	5966
			Glossary and Acronyms	67


Item 3.		Quantitative and Qualitative Disclosures about Market Risk		142



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






























~~Glossary and Acronyms~~Item 4.			60Controls and Procedures	142


PART II—OTHER INFORMATION				143





Item 1.			Legal Proceedings	143
Item 3.1A.			~~Quantitative and Qualitative Disclosures about Market~~ Risk Factors	~~136~~143
Item 4.2.			~~Controls and Procedures~~	~~136~~

~~PART II—OTHER INFORMATION~~		~~137~~
~~Item 1.~~	~~Legal Proceedings~~	~~137~~
~~Item 1A.~~	~~Risk Factors~~	~~137~~
~~Item 2.~~	Unregistered Sales of Equity Securities and Use of Proceeds	~~137~~143
Item 3.			Defaults Upon Senior Securities	~~137~~143
Item 4.			Mine Safety Disclosures	~~137~~143
Item 5.			Other Information	~~137~~143
Item 6.			Exhibits	~~137~~143

~~EXHIBIT INDEX~~			~~138~~
~~SIGNATURES~~		~~139~~



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

Supplemental Table:
A	Reconciliation of Non-GAAP Measures	59


•	•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.~~



	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


⁽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” for additional information on non-GAAP measures.~~



INTRODUCTION


SELECTED FINANCIAL DATA


⁽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.


⁽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” 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” for the calculation of this measure and reconciliation to the comparative U.S. GAAP measure.~~


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


◦
	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.11	Capital One Financial Corporation (COF)


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


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


◦	higher net interest income due to higher yields on interest-earning assets and growth in our loan and investment portfolios, partially offset by higher rates paid and growth in our deposit products; and


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


◦	~~An initial allowance build of approximately $85 million;~~


◦	~~Reduce the net charge-off rate~~2020, driven 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.~~


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