Item 7A. Quantitative and Qualitative Disclosures about Market Risk

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

For a discussion of the quantitative and qualitative disclosures about market risk, see “Item 7. MD&A—Market Risk Profile.”



			120			Capital One Financial Corporation (COF)


Item 8 . Financial Statements and Supplementary Data
			Page
Management’s Report on Internal Control Over Financial Reporting			122
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting (PCAOB ID 42)			123
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements (PCAOB ID 42)			124
Consolidated Financial Statements			127
Consolidated Statements of Income			127
Consolidated Statements of Comprehensive Income			128
Consolidated Balance Sheets			129
Consolidated Statements of Changes in Stockholders’ Equity			130
Consolidated Statements of Cash Flows			131
Notes to Consolidated Financial Statements			133
Note 1—Summary of Significant Accounting Policies			133
Note 2—Investment Securities			148
Note 3—Loans			151
Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments			164
Note 5—Variable Interest Entities and Securitizations			168
Note 6—Goodwill and Other Intangible Assets			172
Note 7—Premises, Equipment and Leases			175
Note 8 —Deposits and Borrowings			177
Note 9 —Derivative Instruments and Hedging Activities			179
Note 10 —Stockholders’ Equity			188
Note 11—Regulatory and Capital Adequacy			191
Note 1 2 —Earnings Per Common Share			193
Note 13—Stock-Based Compensation Plans			194
Note 14—Employee Benefit Plans			196
Note 15—Income Taxes			198
Note 1 6 —Fair Value Measurement			202
Note 1 7 —Business Segments and Revenue from Contracts with Customers			211
Note 1 8 —Commitments, Contingencies, Guarantees and Others			216
Note 19—Capital One Financial Corporation (Parent Company Only)			220
Note 20—Related Party Transactions			222



			121			Capital One Financial Corporation (COF)

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Capital One Financial Corporation (the “Company” or “Capital One”) is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

Capital One’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, based on the framework in “2013 Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), commonly referred to as the “2013 Framework.”

Based on this assessment, management concluded that, as of December 31, 2023, the Company’s internal control over financial reporting was effective based on the criteria established by COSO in the 2013 Framework. Additionally, based upon management’s assessment, the Company determined that there were no material weaknesses in its internal control over financial reporting as of December 31, 2023.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their accompanying report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023.


/s/ RICHARD D. FAIRBANK
Richard D. Fairbank
Chair and Chief Executive Officer

/s/ ANDREW M. YOUNG
Andrew M. Young
Chief Financial Officer

February 22, 2024



			122			Capital One Financial Corporation (COF)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Capital One Financial Corporation

Opinion on Internal Control Over Financial Reporting

We have audited Capital One Financial Corporation’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Capital One Financial Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria**.**

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and our report dated February 22, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


/s/ Ernst & Young LLP

Tysons, Virginia
February 22, 2024



			123			Capital One Financial Corporation (COF)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Capital One Financial Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Capital One Financial Corporation (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 22, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.



			124			Capital One Financial Corporation (COF)


						Allowance for credit losses – Credit Card
Description of the Matter						On December 31, 2023, the Company’s allowance for credit losses for the credit card portfolio was $11.7 billion. As more fully described in Note 1 and Note 4 of the consolidated financial statements, the allowance for credit losses (ACL or allowance) represents management’s current estimate of expected credit losses over the contractual terms of the Company’s held for investment (HFI) loan portfolios as of the balance sheet date and is comprised of two elements. The first is ‘quantitative’ and involves the use of loss forecasting models based upon various statistical analyses with adjustments for current conditions and reasonable and supportable forecasts of conditions, which includes expected economic conditions. The second is ‘qualitative’ and involves factors that represent management’s judgment of the imprecision and risks inherent in the processes and assumptions used in establishing the allowance for credit losses. Auditing the allowance for the credit card portfolio was especially challenging and highly judgmental due to the significant judgment required in establishing certain components of the qualitative element. The qualitative element requires management to make significant judgments regarding current and forward-looking conditions, internal and external factors, and uncertainty as it relates to economic, model, or forecast risks, where not already captured in the modeled results.
How We Addressed the Matter in Our Audit						We obtained an understanding, evaluated the design, and tested the operating effectiveness of the internal controls over the ACL process, including, among others, controls over the development, operation, and monitoring of loss forecasting models and management review controls over key assumptions and qualitative judgments used in reviewing the final credit card allowance results. Our tests of controls included observation of certain of management’s quarterly ACL governance meetings, at which key management judgments, qualitative adjustments, and final ACL results are subjected to critical challenge by management groups independent of the group responsible for producing the ACL estimate. Our audit response included involving EY specialists to evaluate the conceptual soundness of the comprehensive framework of the ACL, including certain qualitative elements, in addition to evaluating model methodology, model performance, model governance, and testing key modeling assumptions. We also performed testing on data inputs utilized in the qualitative element calculation, as well as recalculated the qualitative element based on the framework. We evaluated the overall credit card ACL, inclusive of qualitative elements, and whether the recorded ACL appropriately reflects expected credit losses on the portfolio. Additionally, we performed searches for contrary evidence, which included reviewing historical loss statistics, peer bank metrics, and subsequent events and considered whether such information indicated that management’s judgements were not reasonable or consistently applied.
						Goodwill Impairment Assessment



			125			Capital One Financial Corporation (COF)


Description of the Matter						At December 31, 2023, the Company’s goodwill was $15.1 billion recorded across four reporting units, of which $5.1 billion related to the commercial banking reporting unit. As more fully described in Note 1 and Note 6 of the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level by comparing the fair value of the reporting unit to its carrying value. Management uses a discounted cash flow analysis (DCF) to calculate the fair value of its reporting units. Auditing the annual goodwill impairment test for the commercial banking reporting unit was especially challenging, and highly judgmental due to the estimation uncertainty involved in determining the fair value of the reporting unit. The fair value estimate and resulting goodwill impairment determination are impacted by various significant assumptions, including prospective financial information (PFI). These PFI assumptions require management to make judgments about future loan and deposit growth, revenue and expenses, and credit losses. Management utilizes a financial forecasting process to estimate the PFI and an estimation process to determine the appropriate discount rates.
How We Addressed the Matter in Our Audit						We obtained an understanding, evaluated the design, and tested the operating effectiveness of the internal controls over the Company’s PFI forecasting process and management’s goodwill impairment assessment process, including controls over the determination of significant assumptions. To test management’s annual goodwill impairment assessment for the commercial banking reporting unit, we evaluated certain of management’s PFI assumptions with historical performance (e.g., trend analysis), current industry and economic trends, changes in the Company’s strategies, and the customer base or product mix. We also evaluated the consistency of the PFI by comparing the projections to other analyses used within the organization and inquiries performed of senior management regarding strategic plans for the reporting unit. We compared prior year forecasts to current year actual performance, as well as fourth quarter 2023 forecasts to actual fourth quarter 2023 results. We performed sensitivity analyses related to the significant assumptions to evaluate the change in the fair value of the reporting unit resulting from changes in the assumptions. Our audit response also included involving EY valuation specialists who assisted in assessing the Company’s DCF methodology, testing of the significant assumptions, developing an independent estimate of the fair value of the commercial banking reporting unit and comparing the result to the Company’s fair value estimate, and evaluating the total fair value of the Company’s reporting units through comparison to the Company’s market capitalization and analysis of the resulting control premium to applicable market transactions.


/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1994.

Tysons, Virginia
February 22, 2024



			126			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME


	Year Ended December 31,
(Dollars in millions, except per share-related data)		2023		2022		2021
Interest income:
Loans, including loans held for sale		$	37,410	$	28,910	$	24,263
Investment securities		2,550		1,884		1,446
Other		1,978		443		60
Total interest income		41,938		31,237		25,769
Interest expense:
Deposits		9,489		2,535		956
Securitized debt obligations		959		384		119
Senior and subordinated notes		2,204		1,074		488
Other borrowings		45		130		35
Total interest expense		12,697		4,123		1,598
Net interest income		29,241		27,114		24,171
Provision for credit losses		10,426		5,847		(1,944)
Net interest income after provision for credit losses		18,815		21,267		26,115
Non-interest income:
Interchange fees, net		4,793		4,606		3,860
Service charges and other customer-related fees		1,667		1,625		1,578
Net securities gains (losses)		(34)		(9)		2
Other		1,120		914		824
Total non-interest income		7,546		7,136		6,264
Non-interest expense:
Salaries and associate benefits		9,302		8,425		7,421
Occupancy and equipment		2,160		2,050		2,003
Marketing		4,009		4,017		2,871
Professional services		1,268		1,807		1,440
Communications and data processing		1,383		1,379		1,262
Amortization of intangibles		82		70		29
Other		2,112		1,415		1,544
Total non-interest expense		20,316		19,163		16,570
Income from continuing operations before income taxes		6,045		9,240		15,809
Income tax provision		1,158		1,880		3,415
Income from continuing operations, net of tax		4,887		7,360		12,394
Income (loss) from discontinued operations, net of tax		0		0		(4)
Net income		4,887		7,360		12,390
Dividends and undistributed earnings allocated to participating securities		(77)		(88)		(105)
Preferred stock dividends		(228)		(228)		(274)
Issuance cost for redeemed preferred stock		0		0		(46)
Net income available to common stockholders		$	4,582	$	7,044	$	11,965
Basic earnings per common share:
Net income from continuing operations		$	11.98	$	17.98	$	27.05
Income (loss) from discontinued operations		0.00		0.00		(0.01)
Net income per basic common share		$	11.98	$	17.98	$	27.04
Diluted earnings per common share:
Net income from continuing operations		$	11.95	$	17.91	$	26.95
Income (loss) from discontinued operations		0.00		0.00		(0.01)
Net income per diluted common share		$	11.95	$	17.91	$	26.94


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

CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Year Ended December 31,
(Dollars in millions)		2023		2022		2021
Net income		$	4,887	$	7,360	$	12,390
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities available for sale		907		(7,973)		(1,889)
Net unrealized gains (losses) on hedging relationships		689		(2,300)		(1,244)
Foreign currency translation adjustments		46		1		10
Other		6		(18)		3
Other comprehensive income (loss), net of tax		1,648		(10,290)		(3,120)
Comprehensive income (loss)		$	6,535	$	(2,930)	$	9,270


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

CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS


(Dollars in millions, except per share-related data)	December 31, 2023		December 31, 2022
Assets:
Cash and cash equivalents:
Cash and due from banks	$	4,903	$	5,193
Interest-bearing deposits and other short-term investments	38,394		25,663
Total cash and cash equivalents	43,297		30,856
Restricted cash for securitization investors	458		400
Securities available for sale (amortized cost of $88.1 billion and $87.0 billion and allowance for credit losses of $4 million and $3 million as of December 31, 2023 and 2022, respectively)	79,117		76,919
Loans held for investment:
Unsecuritized loans held for investment	289,229		283,282
Loans held in consolidated trusts	31,243		29,049
Total loans held for investment	320,472		312,331
Allowance for credit losses	(15,296)		(13,240)
Net loans held for investment	305,176		299,091
Loans held for sale ($347 million and $191 million carried at fair value as of December 31, 2023 and 2022, respectively)	854		203
Premises and equipment, net	4,375		4,351
Interest receivable	2,478		2,104
Goodwill	15,065		14,777
Other assets	27,644		26,548
Total assets	$	478,464	$	455,249

Liabilities:
Interest payable	$	649	$	527
Deposits:
Non-interest-bearing deposits	28,024		32,203
Interest-bearing deposits	320,389		300,789
Total deposits	348,413		332,992
Securitized debt obligations	18,043		16,973
Other debt:
Federal funds purchased and securities loaned or sold under agreements to repurchase	538		883
Senior and subordinated notes	31,248		30,826
Other borrowings	27		33
Total other debt	31,813		31,742
Other liabilities	21,457		20,433
Total liabilities	420,375		402,667
Commitments, contingencies and guarantees (see Note 18)
Stockholders’ equity:
Preferred stock (par value $0.01 per share; 50,000,000 shares authorized; 4,975,000 shares issued and outstanding as of both December 31, 2023 and 2022)	0		0
Common stock (par value $0.01 per share; 1,000,000,000 shares authorized; 696,242,668 and 690,334,422 shares issued as of December 31, 2023 and 2022, respectively; 380,389,609 and 381,318,702 shares outstanding as of December 31, 2023 and 2022, respectively)	7		7
Additional paid-in capital, net	35,541		34,725
Retained earnings	60,945		57,184
Accumulated other comprehensive loss	(8,268)		(9,916)
Treasury stock, at cost (par value $0.01 per share; 315,853,059 and 309,015,720 shares as of December 31, 2023 and 2022, respectively)	(30,136)		(29,418)
Total stockholders’ equity	58,089		52,582
Total liabilities and stockholders’ equity	$	478,464	$	455,249


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

CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


(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, 2020	4,975,000	$	0	679,932,837	$	7	$	33,480	$	40,088	$	3,494	$	(16,865)	$	60,204

Comprehensive income (loss)									12,390		(3,120)				9,270
Dividends—common stock(1)				28,410	0		4		(1,152)						(1,148)
Dividends—preferred stock									(274)						(274)
Purchases of treasury stock													(7,605)		(7,605)
Issuances of common stock and restricted stock, net of forfeitures				4,178,919	0		253								253
Exercises of stock options				917,778	0		55								55
Issuances of preferred stock	2,100,000	0					2,052								2,052
Redemptions of preferred stock	(2,100,000)	0					(2,054)		(46)						(2,100)
Compensation expense for restricted stock units and stock options							322								322
Balance as of December 31, 2021	4,975,000	$	0	685,057,944	$	7	$	34,112	$	51,006	$	374	$	(24,470)	$	61,029
Comprehensive income (loss)									7,360		(10,290)				(2,930)
Dividends—common stock(1)				33,511	0		4		(954)						(950)
Dividends—preferred stock									(228)						(228)
Purchases of treasury stock													(4,948)		(4,948)
Issuances of common stock and restricted stock, net of forfeitures				4,909,173	0		276								276
Exercises of stock options				333,794	0		19								19


Compensation expense for restricted stock units							314								314
Balance as of December 31, 2022	4,975,000	$	0	690,334,422	$	7	$	34,725	$	57,184	$	(9,916)	$	(29,418)	$	52,582




























Cumulative effects of accounting standards adoption (2)(3)									37						37
Comprehensive income									4,887		1,648				6,535
Dividends—common stock(1)				39,420	0		4		(935)						(931)
Dividends—preferred stock									(228)						(228)
Purchases of treasury stock													(718)		(718)
Issuances of common stock and restricted stock, net of forfeitures				5,731,927	0		299								299
Exercises of stock options				136,899	0		10								10


Compensation expense for restricted stock units							503								503
Balance as of December 31, 2023	4,975,000	$	0	696,242,668	$	7	$	35,541	$	60,945	$	(8,268)	$	(30,136)	$	58,089

(1)We declared dividends per share on our common stock of $0.60 in each quarter of 2023 and 2022, and in the fourth quarter of 2021, $1.20 in the third quarter of 2021 and $0.40 in the first two quarters of 2021.

(2)Impact from the adoption of ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures as of January 1, 2023.

(3)We have equity method investments in certain non-public entities which adopted ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) as of January 1, 2023*.* The impact to retained earnings was recorded in the second quarter of 2023, on a one quarter lag consistent with our standard operating procedures for equity method investments.


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

CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
(Dollars in millions)	2023		2022		2021
Operating activities:
Income from continuing operations, net of tax	$	4,887	$	7,360	$	12,394
Income (loss) from discontinued operations, net of tax	0		0		(4)
Net income	4,887		7,360		12,390
Adjustments to reconcile net income (loss) to net cash from operating activities:
Provision (benefit) for credit losses	10,426		5,847		(1,944)
Depreciation and amortization, net	3,226		3,210		3,481
Deferred tax provision (benefit)	(723)		(772)		605
Net securities losses (gains)	34		9		(2)
Loss (gain) on sales of loans	6		(196)		1
Stock-based compensation expense	513		314		331
Other	51		40		46
Loans held for sale:
Originations and purchases	(4,602)		(8,822)		(9,141)
Proceeds from sales and paydowns	4,432		9,679		9,123
Changes in operating assets and liabilities:
Changes in interest receivable	(359)		(641)		17
Changes in other assets	716		(2,973)		(4,114)
Changes in interest payable	122		246		(71)
Changes in other liabilities	1,846		511		1,594
Net change from discontinued operations	0		(3)		(6)
Net cash from operating activities	20,575		13,809		12,310
Investing activities:

Securities available for sale:
Purchases	(10,446)		(14,850)		(27,884)
Proceeds from paydowns and maturities	8,841		19,074		26,969
Proceeds from sales	290		2,570		2,776



Loans:
Net changes in loans originated as held for investment	(17,822)		(35,885)		(33,833)
Principal recoveries of loans previously charged off	2,288		2,091		2,506
Changes in premises and equipment	(961)		(934)		(698)
Net cash used in acquisition activities	(2,785)		(1,176)		(669)
Net cash used in other investing activities	(1,325)		(628)		(668)
Net cash used in investing activities	(21,920)		(29,738)		(31,501)


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

CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
(Dollars in millions)	2023		2022		2021
Financing activities:
Deposits and borrowings:
Changes in deposits	$	15,172	$	22,539	$	5,687
Issuance of securitized debt obligations	3,292		9,728		6,232
Maturities and paydowns of securitized debt obligations	(2,483)		(7,060)		(3,442)
Issuance of senior and subordinated notes and long-term FHLB advances	8,218		21,272		4,486
Maturities and paydowns of senior and subordinated notes and long-term FHLB advances	(8,436)		(15,561)		(3,851)
Changes in other borrowings	(351)		44		129
Common stock:
Net proceeds from issuances	299		276		253
Dividends paid	(931)		(950)		(1,148)
Preferred stock:
Net proceeds from issuances	0		0		2,052
Dividends paid	(228)		(228)		(274)
Redemptions	0		0		(2,100)
Purchases of treasury stock	(718)		(4,948)		(7,605)
Proceeds from share-based payment activities	10		19		55
Net cash from financing activities	13,844		25,131		474
Changes in cash, cash equivalents and restricted cash for securitization investors	12,499		9,202		(18,717)
Cash, cash equivalents and restricted cash for securitization investors, beginning of the period	31,256		22,054		40,771
Cash, cash equivalents and restricted cash for securitization investors, end of the period	$	43,755	$	31,256	$	22,054
Supplemental cash flow information:
Non-cash items:
Net transfers from loans held for investment to loans held for sale	$	1,195	$	697	$	4,843



Interest paid	10,823		3,609		2,158
Income tax paid	1,355		1,852		2,527


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

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Capital One Financial Corporation, a Delaware corporation established in 1994 and headquartered in McLean, Virginia, is a diversified financial services holding company with banking and non-banking subsidiaries. Capital One Financial Corporation and its subsidiaries (the “Company” or “Capital One”) offer a broad array of financial products and services to consumers, small businesses and commercial clients through digital channels, branch locations, cafés and other distribution channels.

As of December 31, 2023, Capital One Financial Corporation’s principal operating subsidiary was Capital One, National Association (“CONA”). On October 1, 2022, the Company completed the merger of Capital One Bank (USA), National Association (“COBNA”), with and into CONA, with CONA as the surviving entity (the “Bank Merger”).

The Company is hereafter collectively referred to as “we,” “us” or “our.” References to the “Bank” shall mean and refer to (i) CONA from and after the Bank Merger and (ii) CONA and COBNA collectively prior to the Bank Merger.

We also offer products outside of the United States of America (“U.S.”) principally through Capital One (Europe) plc (“COEP”), an indirect subsidiary of CONA organized and located in the United Kingdom (“U.K.”), and through a branch of CONA in Canada. Both COEP and our Canadian branch of CONA have the authority to provide credit card loans.

Our principal operations are organized for management reporting purposes into three major business segments, which are defined primarily based on the products and services provided or the types of customer served: Credit Card, Consumer Banking and Commercial Banking. We provide details on our business segments, the integration of any recent material acquisitions into our business segments, and the allocation methodologies and accounting policies used to derive our business segment results in “Note 17—Business Segments and Revenue from Contracts with Customers.”

Basis of Presentation and Use of Estimates

The accompanying 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.

Principles of Consolidation

The consolidated financial statements include the accounts of Capital One Financial Corporation and all other entities in which we have a controlling financial interest. We determine whether we have a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). All significant intercompany account balances and transactions have been eliminated.

Voting Interest Entities

VOEs are entities that have sufficient equity and provide the equity investors voting rights that give them the power to make significant decisions relating to the entity’s operations. Since a controlling financial interest in an entity is typically obtained through ownership of a majority voting interest, we consolidate our majority-owned subsidiaries and other voting interest entities in which we hold, directly or indirectly, more than 50% of the voting rights or where we exercise control through other contractual rights.

Investments in which we do not hold a controlling financial interest but have significant influence over the entity’s financial and operating decisions are accounted for under the equity method. If we do not have significant influence, we measure equity investments at fair value with changes in fair value recorded through net income, except those that do not have a readily determinable fair value (for which a measurement alternative is applied). We report equity investments in other assets on our consolidated balance sheets and include our share of income or loss and dividends from those investments in other non-interest income in our consolidated statements of income. The carrying value of other investments included in other assets, excluding tax advantage investments, totaled $1.0 billion and $901 million as of December 31, 2023 and 2022, respectively, which primarily included equity investments measured using the alternative measurement method and equity method investments. The



			133			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

carrying value of equity investments measured using the alternative measurement method totaled $669 million and $583 million as of December 31, 2023 and 2022, respectively.

Variable Interest Entities

VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties; or (ii) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. The entity that is deemed the primary beneficiary of a VIE is required to consolidate the VIE. An entity is deemed to be the primary beneficiary of a VIE if that entity has both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

In determining whether we are the primary beneficiary of a VIE, we consider both qualitative and quantitative factors regarding the nature, size and form of our involvement with the VIE, such as our role in establishing the VIE and our ongoing rights and responsibilities; our economic interests, including debt and equity investments, servicing fees and other arrangements deemed to be variable interests in the VIE; the design of the VIE, including the capitalization structure, subordination of interests, payment priority, relative share of interests held across various classes within the VIE’s capital structure and the reasons why the interests are held by us.

We perform on-going reassessments to evaluate whether changes in an entity’s capital structure or changes in the nature of our involvement with the entity result in a change to the VIE designation or a change to our consolidation conclusion. See “Note 5—Variable Interest Entities and Securitizations” for further details.

Balance Sheet Offsetting of Financial Assets and Liabilities

Derivative contracts that we execute bilaterally in the over-the-counter (“OTC”) market or are centrally cleared are generally governed by enforceable master netting agreements 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 agreements for balance sheet presentation where a right of setoff exists. For derivative contracts entered into under master netting agreements for which we have not been able to confirm the enforceability of the setoff rights, or those not subject to master netting agreements, we do not offset our derivative positions for balance sheet presentation. See “Note 9—Derivative Instruments and Hedging Activities” for more details.

We also elect to present securities purchased or sold under resale or repurchase agreements on a net basis when a legally enforceable master netting agreement exists and other applicable criteria are met. Security collateral received from or pledged to the counterparties are not eligible for netting and are presented gross in our consolidated balance sheet. See “Note 8—Deposits and Borrowings” and “Note 9—Derivative Instruments and Hedging Activities” for more details.

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks, interest-bearing deposits and other short-term investments, all of which, if applicable, have stated maturities of three months or less when acquired.

Securities Resale and Repurchase Agreements

Securities purchased under resale agreements and securities loaned or sold under agreements to repurchase, principally U.S. government and agency obligations, are not accounted for as sales but as collateralized financing transactions and recorded at the amounts at which the securities were acquired or sold, plus accrued interest. We continually monitor the market value of these securities and deliver additional collateral to or obtain additional collateral from counterparties, as appropriate. See “Note 8—Deposits and Borrowings.”



			134			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investment Securities

Our investment portfolio consists primarily of the following: U.S. Treasury securities; U.S. government-sponsored enterprise or agency (“Agency”) and non-agency residential mortgage-backed securities (“RMBS”); Agency commercial mortgage-backed securities (“CMBS”); and other securities. The accounting and measurement framework for our investment securities differs depending on the security classification.

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 December 31, 2023 and 2022.

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, any applicable fair value hedge accounting adjustments, collection of cash, and charge-offs. 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 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. We elect to present accrued interest for securities available for sale within interest receivable on our consolidated balance sheets.

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.

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.

Allowance for Credit Losses - Available for Sale Investment Securities

We maintain an allowance for credit losses that represents management’s current estimate of expected credit losses over the contractual terms of our investment securities classified as available for sale. When an investment security available for sale is impaired due to credit factors, we recognize that impairment through the provision for credit losses in our consolidated statements of income and correspondingly establish 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 any allowance for credit losses as the investment security could be sold at its fair value to prevent realization of any 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, certain government-sponsored enterprises, and certain foreign sovereign governments or



			135			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

supranational organizations. 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 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.

Loans

Our loan portfolio consists of loans held for investment, including loans held in 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 loans as well as commercial and industrial loans.

Loan Classification

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 classified as held for investment, earned finance charges and fees are included in either loans held for investment (if they have been billed to the customer) or interest receivable (if they have not yet been billed to the customer).

Interest income is recognized on performing loans 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 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 that we intend 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



			136			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 along with the 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 generally determined on an aggregate portfolio basis for each loan type, however, fair value may be determined on an individual basis when circumstances warrant. 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 remaining 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 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 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. These loans are herein referred to as purchased credit-deteriorated (“PCD”) loans and require the recognition of an allowance for credit losses at the time of acquisition.

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

Capital One adopted Accounting Standards Update (“ASU”) No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023, and elected the modified retrospective adoption method. The ASU eliminates the accounting guidance for troubled debt restructurings, and establishes disclosure requirements for certain loan refinancings and restructurings for borrowers experiencing financial difficulty. We provide information on modified loans, including the performance of those loans subsequent to modification, in “Note 3—Loans.”

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. Loan modifications to a borrower experiencing financial difficulty in the form of principal forgiveness, an interest rate reduction, a delay in payment, including payment deferrals or a term extension are reported as a Financial Difficulty Modification (“FDM”). As restructurings offered to borrowers experiencing financial difficulty are typically not at market terms, FDMs are generally accounted for as a continuation of the existing loan. See “Note 3—Loans” for additional information on our loan modifications and restructurings.



			137			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loan Modifications and Restructurings Prior to Adoption of ASU No. 2022-02

In periods prior to 2023, a loan modification in which a concession is granted to a borrower experiencing financial difficulty was accounted for and reported as a troubled debt restructuring (“TDR”). These 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 modifications. See “Note 3—Loans” for additional information on our loan modifications and restructurings.

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 consumer and commercial 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. Loans classified as held for sale are excluded from nonperforming classification consideration.

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, though any amounts deemed uncollectible are reserved for in our allowance for credit losses.
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, which is 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.
Modified loans and troubled debt restructurings: Modified loans, including TDRs for periods ending on or before December 31, 2022 and FDMs for periods beginning on or after January 1, 2023, that are current at the time of the restructuring remain in 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.



			138			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Charge-Offs

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 or 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 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. In certain bankruptcy discharges, the loan is written down to the collateral value and the 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 amortized cost. 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 - Loans Held for Investment

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. We measure the allowance on a quarterly basis through consideration of past events, including historical experience, current conditions and reasonable and supportable forecasts.

We measure current expected credit losses (“CECL”) 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.

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 recovery expectations 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.



			139			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. 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 two primary portfolio segments: auto loans and retail banking loans. We assess our credit card and consumer banking loan portfolios based on common risk characteristics, such as origination year, contract type, interest rate, borrower credit 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. The undrawn credit exposure associated with our credit card loans is unconditionally cancellable. For this reason, expected credit losses are measured based only on the drawn balance at each quarterly measurement date and 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.

For consumer banking and commercial banking 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, and we reserve for uncollectible accrued interest relating to credit card loans in the allowance.



			140			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, borrower credit scores and general business trends. Management 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 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.

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.



			141			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Securitization of Loans

Our loan securitization activities primarily involve the securitization of credit card and auto loans, which provides a source of funding for us. Loan securitization involves the transfer of a pool of loan receivables from our portfolio to a trust. The trust then sells undivided interests in the pool of loan receivables to third-party investors through the issuance of debt securities and transfers the proceeds from the debt issuance to us as consideration for the loan receivables transferred. The debt securities are collateralized by the loan receivables transferred from our portfolio. We remove loans from our consolidated balance sheets if securitizations qualify as sales to unconsolidated VIEs, recognize assets retained and liabilities assumed at fair value and record a gain or loss on the transferred loans. Alternatively, if the transfer does not qualify as a sale but instead is considered a secured borrowing, the assets will remain on our consolidated balance sheets with an offsetting liability recognized for the amount of proceeds received. See “Note 5—Variable Interest Entities and Securitizations” for additional details.

Premises, Equipment and Leases

Premises and Equipment

Premises and equipment, including leasehold improvements, are carried at cost less accumulated depreciation and amortization. Land is carried at cost. We capitalize direct costs incurred during the application development stage of internally developed software projects. Depreciation and amortization expenses are calculated using the straight-line method over the estimated useful lives of the assets. Useful lives for premises and equipment are generally estimated as follows:


Premises and Equipment						Useful Lives
Buildings and improvements						5-39 years
Furniture and equipment						3-10 years
Computer software						3 years
Leasehold improvements						Lesser of the useful life or the remaining lease term

Expenditures for maintenance and repairs are expensed as incurred and gains or losses upon disposition are recognized in our consolidated statements of income as realized. See “Note 7—Premises, Equipment and Leases” for additional information.

Leases

Lease classification is determined at inception for all lease transactions with an initial term greater than one year. Operating leases are included as right-of-use (“ROU”) assets within other assets, and operating lease liabilities are classified as other liabilities on our consolidated balance sheets. Finance leases are included in premises and equipment, and other borrowings on our consolidated balance sheets. Our operating lease expense is included in occupancy and equipment within non-interest expense in our consolidated statements of income. Lease expense for minimum lease payments are recognized on a straight-line basis over the lease term. See “Note 7—Premises, Equipment and Leases” for additional information.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date and is assigned to one or more reporting units at acquisition. A reporting unit is defined as an operating segment, or a business unit that is one level below an operating segment. We have four reporting units: Credit Card, Auto Finance, Other Consumer Banking, and Commercial Banking. Goodwill is not amortized but is tested for impairment at the reporting unit level annually or more frequently if adverse circumstances indicate that it is more likely than not that the carrying amount of a reporting unit exceeds its fair value. These indicators could include a sustained, significant decline in the Company’s stock price, a decline in expected future cash flows, significant disposition activity, a significant adverse change in the economic or business environment, and the testing for recoverability of a significant asset group, among others.

Intangible assets with finite useful lives are amortized on either an accelerated or straight-line basis over their estimated useful lives and are evaluated for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. See “Note 6—Goodwill and Other Intangible Assets” for additional information.



			142			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Mortgage Servicing Rights

Mortgage servicing rights (“MSRs”) are initially recorded at fair value when mortgage loans are sold or securitized in the secondary market and the right to service these loans is retained for a fee. Commercial MSRs are subsequently accounted for under the amortization method. We evaluate for impairment as of each reporting date and recognize any impairment in other non-interest income. See “Note 6—Goodwill and Other Intangible Assets” for additional information.

Foreclosed Property and Repossessed Assets

Foreclosed property and repossessed assets obtained through our lending activities typically include commercial real estate or personal property, such as automobiles, and are recorded at net realizable value. For foreclosed property and repossessed assets, we generally reclassify the loan to repossessed assets upon repossession of the property in satisfaction of the loan. Net realizable value is the estimated fair value of the underlying collateral less estimated selling costs and is based on appraisals, when available. Subsequent to initial recognition, foreclosed property and repossessed assets are recorded at the lower of our initial cost basis or net realizable value, which is routinely monitored and updated. Any changes in net realizable value and gains or losses realized from disposition of the property are recorded in other non-interest expense. See “Note 16—Fair Value Measurement” for details.

Restricted Equity Investments

We have investments in Federal Home Loan Banks (“FHLB”) stock and in Federal Reserve Bank stock. These investments, which are included in other assets on our consolidated balance sheets, are not marketable, are carried at cost, and are reviewed for impairment if there is any indicator of impairment.

Litigation

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. Professional service costs, including fees for attorneys and experts, expected to be incurred in connection with a loss contingency are expensed as services are provided. See “Note 18—Commitments, Contingencies, Guarantees and Others” for additional information.

Customer Rewards Reserve

We offer products, primarily credit cards, which include programs that allow members to earn rewards based on account activity that can be redeemed for cash (primarily in the form of statement credits), gift cards, travel, or covering eligible charges. The amount of reward that a customer earns varies based on the terms and conditions of the rewards program and product. When rewards are earned by a customer, rewards expense is generally recorded as an offset to interchange income, with a corresponding increase to the customer rewards reserve. The customer rewards reserve is computed based on the estimated future cost of earned rewards that are expected to be redeemed and is reduced as rewards are redeemed. In estimating the customer rewards reserve, we consider historical redemption and spending behavior, as well as the terms and conditions of the current rewards programs, among other factors. Our customer rewards reserve assumes the vast majority of all rewards earned will eventually be redeemed.

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, direct loan origination costs, 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 interest method. Costs deferred include, among other things, 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,



			143			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

The unamortized premiums, discounts and other basis adjustments on investment securities are included as components of the investment securities’ carrying value and are generally recognized in interest income as yield adjustments over the contractual lives of the securities using the interest method. However, premiums for certain callable investment securities are amortized to the earliest call date.

Finance charges and fees on credit card loans are recorded in revenue when earned and presented on our consolidated balance sheets within either loan receivables (if they have been billed to the customer) or interest receivable (if they have not yet been billed to the customer). 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.

Interchange Income

Interchange income generally represents fees for standing ready to authorize and providing settlement on credit and debit card transactions processed through the MasterCard® (“MasterCard”) and Visa® (“Visa”) interchange networks. The levels and structure of interchange rates set by MasterCard and Visa can vary based on cardholder purchase volumes, among other factors. We recognize interchange income upon settlement. See “Note 17—Business Segments and Revenue from Contracts with Customers” for additional details.

Card Partnership Agreements

We have contractual agreements with certain retailers and other partners to provide lending and other services to a mutual customer base. We primarily issue private-label and cobrand credit card loans to these customers over the terms of the partnership agreements.

Certain partners assist in or perform marketing activities on our behalf and promote our products and services to their customers. As compensation for providing these services, we often pay royalties, bounties or other special bonuses to these partners. Our payments to partners are generally recorded as reductions of revenue or as marketing expenses, depending on their nature. Our credit card partnership agreements may also provide for profit or revenue sharing payments which are presented as a reduction of the related revenue line item(s) when owed to the partner.

When a partner agrees to share a portion of the credit losses associated with the partnership, we evaluate the contractual provisions for the loss share payments as well as applicable accounting guidance to determine whether to present the sharing of losses on a gross or net basis in our consolidated financial statements. When loss sharing amounts due from partners are presented on a net basis, they are recorded as a reduction to our provision for credit losses in our consolidated statements of income and reduce the charge-off amounts that we report. The allowance for credit losses attributable to these portfolios is also reduced by the expected reimbursements from these partners for loss sharing amounts. See “Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments” for additional information related to our loss sharing arrangements.

Stock-Based Compensation

We are authorized to issue stock–based compensation to employees and directors in various forms, primarily as restricted stock units (“RSUs”) and performance share units (“PSUs”). In addition, we also issue cash-settled RSUs which are not counted against the common shares reserved for issuance or available for issuance because they are settled in cash.

For awards settled in shares, we generally recognize compensation expense on a straight-line basis over the award’s requisite service period based on the fair value of the award at the grant date. If an award settled in shares contains a performance condition with graded vesting, we recognize compensation expense using the accelerated attribution method. Restricted stock units that are cash-settled are accounted for as liability awards which results in quarterly expense fluctuations based on changes in our stock price through the date that the awards are settled. Awards to participants that are eligible for retirement or become eligible during the vesting period are expensed immediately or over the time period between the grant date and when the participant becomes retirement eligible, respectively. Stock-based compensation expense is included in salaries and associate benefits in the consolidated statements of income.



			144			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For RSUs and PSUs, the fair value of stock-based compensation used in determining compensation expense will generally equal the fair market value of our common stock on the date of grant. Certain share-settled awards have discretionary vesting conditions which result in the remeasurement of these awards at fair value each reporting period and the potential for compensation expense to fluctuate with changes in our stock price. See “Note 13—Stock-Based Compensation Plans” for additional details.

Marketing Expenses

Marketing expense includes the cost of our various promotional efforts to attract and retain customers such as advertising, promotional materials, and certain customer incentives, including spend-based bonuses. We expense marketing costs as incurred.

Income Taxes

We recognize the current and deferred tax consequences of all transactions that have been recognized in the financial statements using the provisions of the enacted tax laws. Current income tax expense represents our estimated taxes to be paid or refunded for the current period and includes income tax expense related to our uncertain tax positions, as well as tax-related interest and penalties. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We record valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. We record the effect of remeasuring deferred tax assets and liabilities due to a change in tax rates or laws as a component of income tax expense related to continuing operations for the period in which the change is enacted. We release income tax effects stranded in AOCI when an entire portfolio of the type of item is sold, terminated or extinguished. Income tax benefits are recognized when, based on their technical merits, they are more likely than not to be sustained upon examination. The amount recognized is the largest amount of benefit that is more likely than not to be realized upon settlement. See “Note 15—Income Taxes” for additional details.

Earnings Per Share

Earnings per share is calculated and reported under the “two-class” method. The “two-class” method is an earnings allocation method under which earnings per share is calculated for each class of common stock and participating security considering both dividends declared or accumulated and participation rights in undistributed earnings as if all such earnings had been distributed during the period. We have unvested share-based payment awards which have a right to receive non-forfeitable dividends and are therefore deemed to be participating securities.

We calculate basic earnings per share by dividing net income, after deducting dividends on preferred stock and participating securities as well as undistributed earnings allocated to participating securities, by the average number of common shares outstanding during the period, net of any treasury shares. We calculate diluted earnings per share in a similar manner after consideration of the potential dilutive effect of common stock equivalents on the average number of common shares outstanding during the period. Common stock equivalents include stock options, RSUs and PSUs. Common stock equivalents are calculated based upon the treasury stock method using an average market price of common shares during the period. Dilution is not considered when a net loss is reported. Common stock equivalents that have an antidilutive effect are excluded from the computation of diluted earnings per share. See “Note 12—Earnings Per Common Share” for additional details.

Derivative Instruments and Hedging Activities

All derivative financial instruments, whether designated in a qualifying hedge accounting relationship or not, are reported at their fair value on our consolidated balance sheets as either assets or liabilities. See “Note 9—Derivative Instruments and Hedging Activities” for additional details.



			145			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value

Accounting for Acquisitions

We account for business combinations under the acquisition method of accounting. Under the acquisition method, tangible and intangible identifiable assets acquired, liabilities assumed and any non-controlling interest in the acquiree are recorded at fair value as of the acquisition date, with limited exceptions. Transaction costs and costs to restructure the acquired company are expensed as incurred. Goodwill is recognized as the excess of the acquisition price over the estimated fair value of the identifiable net assets acquired. Likewise, if the fair value of the net assets acquired is greater than the acquisition price, a bargain purchase gain is recognized and recorded in other non-interest income.

If the acquired set of activities and assets do not meet the accounting definition of a business, the transaction is accounted for as an asset acquisition. In an asset acquisition, the assets acquired are recorded at the purchase price plus any transaction costs incurred and no goodwill is recognized.



			146			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounting Standards Adopted During the Twelve Months Ended December 31, 2023


Standard	Guidance	Adoption Timing and Financial Statement Impacts

Modified Borrowings Experiencing Financial Difficulty and Vintage Disclosures ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures Issued March 2022	Eliminates accounting guidance for troubled debt restructurings (“TDRs”) by creditors, and enhances disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Requires an entity to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases.	We adopted this guidance in the first quarter of 2023 using a modified retrospective adoption method, which results in a cumulative-effect adjustment to retained earnings in the period of adoption and prospective application of the enhanced disclosure requirements. Our adoption of this standard did not have a material impact on our consolidated financial statements. See “Note 3—Loans” and “Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments” for additional disclosures.



			147			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2—INVESTMENT SECURITIES

Our investment securities portfolio consists of the following: U.S. government-sponsored enterprise or agency (“Agency”) and non-agency residential mortgage-backed securities (“RMBS”), agency commercial mortgage-backed securities (“CMBS”), U.S. Treasury securities 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 Agency and U.S. Treasury securities represented 97% of our total investment securities portfolio as of both December 31, 2023 and 2022.

The table below presents the amortized cost, allowance for credit losses, gross unrealized gains and losses, and fair value aggregated by major security type as of December 31, 2023 and 2022. Accrued interest receivable of $227 million and $215 million as of December 31, 2023 and 2022, respectively, is not included in the table below.

Table 2.1: Investment Securities Available for Sale


	December 31, 2023
(Dollars in millions)	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Investment securities available for sale:
U.S. Treasury securities	$	5,330	$	0	$	1	$	(49)	$	5,282
RMBS:
Agency	71,294		0		104		(8,450)		62,948
Non-agency	610		(4)		89		(5)		690
Total RMBS	71,904		(4)		193		(8,455)		63,638
Agency CMBS	8,961		0		14		(652)		8,323
Other securities(1)	1,868		0		6		0		1,874
Total investment securities available for sale	$	88,063	$	(4)	$	214	$	(9,156)	$	79,117


	December 31, 2022
(Dollars in millions)	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Investment securities available for sale:
U.S. Treasury securities	$	5,129	$	0	$	2	$	(90)	$	5,041
RMBS:
Agency	71,212		0		53		(9,413)		61,852
Non-agency	653		(3)		93		(6)		737
Total RMBS	71,865		(3)		146		(9,419)		62,589
Agency CMBS	8,626		0		4		(760)		7,870
Other securities(1)	1,427		0		2		(10)		1,419
Total investment securities available for sale	$	87,047	$	(3)	$	154	$	(10,279)	$	76,919

__________

(1)Includes $1.4 billion and $707 million of asset-backed securities (“ABS”) as of December 31, 2023 and 2022, respectively. The remaining amount is primarily comprised of supranational bonds and foreign government bonds.



			148			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investment Securities in a Gross Unrealized Loss Position

The table below provides the gross unrealized losses and fair value of our securities available for sale aggregated by major security type and the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2023 and 2022. The amounts include securities available for sale without an allowance for credit losses.

Table 2.2: Securities in a Gross Unrealized Loss Position


	December 31, 2023
	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 without an allowance for credit losses:
U.S. Treasury securities	$	733	$	0	$	2,242	$	(49)	$	2,975	$	(49)
RMBS:
Agency	3,511		(43)		53,987		(8,407)		57,498		(8,450)
Non-agency	1		0		13		(1)		14		(1)
Total RMBS	3,512		(43)		54,000		(8,408)		57,512		(8,451)
Agency CMBS	547		(7)		6,465		(645)		7,012		(652)
Other securities	276		0		4		0		280		0
Total investment securities available for sale in a gross unrealized loss position without an allowance for credit losses(1)	$	5,068	$	(50)	$	62,711	$	(9,102)	$	67,779	$	(9,152)


	December 31, 2022
	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 without an allowance for credit losses:
U.S. Treasury securities	$	2,464	$	(57)	$	448	$	(33)	$	2,912	$	(90)
RMBS:
Agency	23,271		(1,809)		36,803		(7,604)		60,074		(9,413)
Non-agency	14		(1)		3		0		17		(1)
Total RMBS	23,285		(1,810)		36,806		(7,604)		60,091		(9,414)
Agency CMBS	4,325		(267)		3,214		(493)		7,539		(760)
Other securities	555		(7)		76		(3)		631		(10)
Total investment securities available for sale in a gross unrealized loss position without an allowance for credit losses(1)	$	30,629	$	(2,141)	$	40,544	$	(8,133)	$	71,173	$	(10,274)

(1) Consists of approximately 2,740 and 2,840 securities in gross unrealized loss positions as of December 31, 2023 and 2022, respectively.

Maturities and Yields of Investment Securities

The table below summarizes, as of December 31, 2023, the fair value of our investment securities by major security type and contractual maturity as well as the total fair value, amortized cost and weighted-average yields of our investment securities by contractual maturity. Since 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.



			149			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Table 2.3: Contractual Maturities and Weighted-Average Yields of Securities


	December 31, 2023
(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	$	1,927	$	3,355	$	0	$	0	$	5,282
RMBS(1):
Agency	1		107		1,123		61,717		62,948
Non-agency	0		0		5		685		690
Total RMBS	1		107		1,128		62,402		63,638
Agency CMBS(1)	259		2,623		3,502		1,939		8,323
Other securities	282		1,566		26		0		1,874
Total securities available for sale	$	2,469	$	7,651	$	4,656	$	64,341	$	79,117
Amortized cost of securities available for sale	$	2,491	$	7,840	$	5,038	$	72,694	$	88,063
Weighted-average yield for securities available for sale	3.71%		4.04%		3.45%		2.92%		3.08%

(1)As of December 31, 2023, the weighted-average expected maturities of RMBS and Agency CMBS were 6.8 years and 4.6 years, respectively.

Table 2.4 Net Securities Gains or Losses and Proceeds from Sales

The following table presents the gross realized gains or losses and proceeds from the sale of securities available for sale for the years ended December 31, 2023, 2022 and 2021.


	Year Ended December 31,
(Dollars in millions)	2023		2022		2021
Realized gains (losses):
Gross realized gains	$	0	$	1	$	10
Gross realized losses	(34)		(10)		(8)
Net realized gains (losses)	$	(34)	$	(9)	$	2
Total proceeds from sales	$	290	$	2,570	$	2,776

Securities Pledged and Received

We pledged investment securities totaling $45.1 billion and $21.3 billion as of December 31, 2023 and 2022, respectively. These securities are primarily pledged to support our access to FHLB advances, the Bank Term Funding Program (“BTFP”) and Public Fund Deposits, as well as for other purposes as required or permitted by law. We accepted pledges of securities with a fair value of approximately $16 million and $82 million as of December 31, 2023 and 2022, respectively, related to our derivative transactions.



			150			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3—LOANS

Our loan portfolio consists of loans held for investment, including loans held in our consolidated trusts, and loans held for 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. Commercial banking loans consist of commercial and multifamily real estate as well as commercial and industrial loans. The information presented in the tables in this note 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.

Accrued interest receivable of $2.2 billion and $1.9 billion as of December 31, 2023 and 2022, respectively, is not included in the tables in this note. The table below presents the composition and aging analysis of our loans held for investment portfolio as of December 31, 2023 and 2022. The delinquency aging includes all past due loans, both performing and nonperforming.

Table 3.1: Loan Portfolio Composition and Aging Analysis


	December 31, 2023
			Delinquent Loans
(Dollars in millions)	Current		30-59 Days		60-89 Days		> 90 Days		Total Delinquent Loans		Total Loans
Credit Card:
Domestic credit card	$	140,860	$	1,968	$	1,471	$	3,367	$	6,806	$	147,666
International card businesses	6,552		116		76		137		329		6,881
Total credit card	147,412		2,084		1,547		3,504		7,135		154,547
Consumer Banking:
Auto	68,768		3,268		1,555		484		5,307		74,075
Retail banking	1,329		15		3		15		33		1,362
Total consumer banking	70,097		3,283		1,558		499		5,340		75,437
Commercial Banking:
Commercial and multifamily real estate	34,325		0		14		107		121		34,446
Commercial and industrial	55,861		0		0		181		181		56,042
Total commercial banking	90,186		0		14		288		302		90,488
Total loans(1)	$	307,695	$	5,367	$	3,119	$	4,291	$	12,777	$	320,472
% of Total loans	96.01%		1.68%		0.97%		1.34%		3.99%		100.00%


	December 31, 2022
			Delinquent Loans
(Dollars in millions)	Current		30-59 Days		60-89 Days		> 90 Days		Total Delinquent Loans		Total Loans
Credit Card:
Domestic credit card	$	127,066	$	1,405	$	975	$	2,135	$	4,515	$	131,581
International card businesses	5,895		86		58		110		254		6,149
Total credit card	132,961		1,491		1,033		2,245		4,769		137,730
Consumer Banking:
Auto	73,467		3,101		1,418		387		4,906		78,373
Retail banking	1,518		13		4		17		34		1,552
Total consumer banking	74,985		3,114		1,422		404		4,940		79,925



			151			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	December 31, 2022
			Delinquent Loans
(Dollars in millions)	Current		30-59 Days		60-89 Days		> 90 Days		Total Delinquent Loans		Total Loans
Commercial Banking:
Commercial and multifamily real estate	37,417		0		1		35		36		37,453
Commercial and industrial	56,942		61		55		165		281		57,223
Total commercial banking	94,359		61		56		200		317		94,676
Total loans(1)	$	302,305	$	4,666	$	2,511	$	2,849	$	10,026	$	312,331
% of Total loans	96.79%		1.50%		0.80%		0.91%		3.21%		100.00%

(1)Loans include unamortized premiums, discounts, and deferred fees and costs totaling $1.4 billion as of both December 31, 2023 and 2022.

The following table presents our loans held for investment that are 90 days or more past due that continue to accrue interest, loans that are classified as nonperforming and loans that are classified as nonperforming without an allowance as of December 31, 2023 and 2022. Nonperforming loans generally include loans that have been placed on nonaccrual status.

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


	December 31, 2023									December 31, 2022
(Dollars in millions)	> 90 Days and Accruing			Nonperforming Loans(1)			Nonperforming Loans Without an Allowance			> 90 Days and Accruing			Nonperforming Loans(1)			Nonperforming Loans Without an Allowance
Credit Card:
Domestic credit card	$	3,367		N/A			$	0		$	2,135		N/A			$	0
International card businesses	132			$	9		0			105			$	9		0
Total credit card	3,499			9			0			2,240			9			0
Consumer Banking:
Auto	0			712			0			0			595			0
Retail banking	0			46			19			0			39			8
Total consumer banking	0			758			19			0			634			8
Commercial Banking:
Commercial and multifamily real estate	0			425			335			0			271			246
Commercial and industrial	55			336			193			0			430			294
Total commercial banking	55			761			528			0			701			540
Total	$	3,554		$	1,528		$	547		$	2,240		$	1,344		$	548
% of Total loans held for investment	1.11		%	0.48		%	0.17		%	0.72		%	0.43		%	0.18		%

(1)We recognized interest income for loans classified as nonperforming of $91 million and $66 million for the years ended December 31, 2023 and 2022, respectively.



			152			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 the U.S. unemployment rate and U.S. Real Gross Domestic Product (“GDP”) growth rate, as well as consumers’ financial condition, all of which can have a material effect on credit performance. The key indicator we assess in monitoring the credit quality and risk of our credit card loan portfolio is delinquency trends, including an analysis of loan migration between delinquency categories over time.

The table below presents our credit card portfolio by delinquency status as of December 31, 2023 and 2022.

Table 3.3: Credit Card Delinquency Status


	December 31, 2023						December 31, 2022
(Dollars in millions)	Revolving Loans		Revolving Loans Converted to Term		Total		Revolving Loans		Revolving Loans Converted to Term		Total
Credit Card:
Domestic credit card:
Current	$	140,521	$	339	$	140,860	$	126,811	$	255	$	127,066
30-59 days	1,940		28		1,968		1,388		17		1,405
60-89 days	1,454		17		1,471		964		11		975
Greater than 90 days	3,339		28		3,367		2,121		14		2,135
Total domestic credit card	147,254		412		147,666		131,284		297		131,581

International card businesses:
Current	6,521		31		6,552		5,866		29		5,895
30-59 days	112		4		116		83		3		86
60-89 days	72		4		76		55		3		58
Greater than 90 days	132		5		137		106		4		110
Total international card businesses	6,837		44		6,881		6,110		39		6,149
Total credit card	$	154,091	$	456	$	154,547	$	137,394	$	336	$	137,730



			153			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 as well as consumers’ financial condition, all of which can have a material effect on credit performance. The key indicator we consider when assessing the credit quality and risk of our auto loan portfolio is borrower credit scores as they measure the creditworthiness of borrowers. Delinquency trends are the key indicator we assess in monitoring the credit quality and risk of our retail banking loan portfolio.

The table below presents our consumer banking portfolio of loans held for investment by credit quality indicator as of December 31, 2023 and 2022. We present our auto loan portfolio by Fair Isaac Corporation (“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 Vintage Year


	December 31, 2023
	Term Loans by Vintage Year
(Dollars in millions)	2023		2022		2021		2020		2019		Prior		Total Term Loans		Revolving Loans		Revolving Loans Converted to Term		Total

Auto—At origination FICO scores:(1)
Greater than 660	$	12,219	$	12,593	$	9,505	$	3,124	$	1,213	$	309	$	38,963	$	0	$	0	$	38,963
621-660	4,863		4,432		3,346		1,337		592		192		14,762		0		0		14,762
620 or below	6,647		5,539		4,283		2,349		1,131		401		20,350		0		0		20,350
Total auto	23,729		22,564		17,134		6,810		2,936		902		74,075		0		0		74,075

Retail banking—Delinquency status:
Current	98		157		57		65		117		468		962		363		4		1,329
30-59 days	1		0		1		1		0		1		4		11		0		15
60-89 days	0		0		0		0		0		1		1		2		0		3
Greater than 90 days	0		0		0		0		0		8		8		6		1		15
Total retail banking	99		157		58		66		117		478		975		382		5		1,362
Total consumer banking	$	23,828	$	22,721	$	17,192	$	6,876	$	3,053	$	1,380	$	75,050	$	382	$	5	$	75,437



			154			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	December 31, 2022
	Term Loans by Vintage Year
(Dollars in millions)	2022		2021		2020		2019		2018		Prior		Total Term Loans		Revolving Loans		Revolving Loans Converted to Term		Total

Auto—At origination FICO scores:(1)
Greater than 660	$	17,872	$	14,246	$	5,354	$	2,595	$	1,032	$	328	$	41,427	$	0	$	0	$	41,427
621-660	6,212		5,060		2,257		1,167		513		185		15,394		0		0		15,394
620 or below	7,717		6,501		3,898		2,144		914		378		21,552		0		0		21,552
Total auto	31,801		25,807		11,509		5,906		2,459		891		78,373		0		0		78,373

Retail banking—Delinquency status:
Current	166		128		82		133		127		470		1,106		408		4		1,518
30-59 days	2		1		0		0		0		2		5		8		0		13
60-89 days	0		1		0		0		0		1		2		2		0		4
Greater than 90 days	0		0		0		0		3		8		11		4		2		17
Total retail banking	168		130		82		133		130		481		1,124		422		6		1,552
Total consumer banking	$	31,969	$	25,937	$	11,591	$	6,039	$	2,589	$	1,372	$	79,497	$	422	$	6	$	79,925

(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.



			155			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commercial Banking

The key credit quality indicator for our commercial loan portfolios is our internal risk 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.
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 credit losses. 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 December 31, 2023 and 2022. The internal risk rating status includes all past due loans, both performing and nonperforming.

Table 3.5: Commercial Banking Portfolio by Internal Risk Ratings


	December 31, 2023
	Term Loans by Vintage Year
(Dollars in millions)	2023		2022		2021		2020		2019		Prior		Total Term Loans		Revolving Loans		Revolving Loans Converted to Term		Total
Internal risk rating:(1)
Commercial and multifamily real estate
Noncriticized	$	3,068	$	4,665	$	2,773	$	1,019	$	2,104	$	3,670	$	17,299	$	12,565	$	25	$	29,889
Criticized performing	148		1,494		706		284		463		904		3,999		133		0		4,132
Criticized nonperforming	65		26		124		0		47		163		425		0		0		425
Total commercial and multifamily real estate	3,281		6,185		3,603		1,303		2,614		4,737		21,723		12,698		25		34,446
Commercial and industrial
Noncriticized	6,909		11,935		6,994		3,566		2,359		5,117		36,880		14,822		167		51,869
Criticized performing	353		706		655		237		348		349		2,648		1,189		0		3,837
Criticized nonperforming	13		53		30		18		123		68		305		31		0		336
Total commercial and industrial	7,275		12,694		7,679		3,821		2,830		5,534		39,833		16,042		167		56,042
Total commercial banking	$	10,556	$	18,879	$	11,282	$	5,124	$	5,444	$	10,271	$	61,556	$	28,740	$	192	$	90,488



			156			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	December 31, 2022
	Term Loans by Vintage Year
(Dollars in millions)	2022		2021		2020		2019		2018		Prior		Total Term Loans		Revolving Loans		Revolving Loans Converted to Term		Total
Internal risk rating:(1)
Commercial and multifamily real estate
Noncriticized	$	5,860	$	4,807	$	1,676	$	2,879	$	1,927	$	3,474	$	20,623	$	13,254	$	25	$	33,902
Criticized performing	359		487		212		535		378		1,196		3,167		113		0		3,280
Criticized nonperforming	1		22		0		94		19		135		271		0		0		271
Total commercial and multifamily real estate	6,220		5,316		1,888		3,508		2,324		4,805		24,061		13,367		25		37,453
Commercial and industrial
Noncriticized	13,485		7,993		4,466		3,420		1,797		5,349		36,510		17,187		21		53,718
Criticized performing	482		686		216		336		228		163		2,111		964		0		3,075
Criticized nonperforming	30		29		0		156		82		57		354		76		0		430
Total commercial and industrial	13,997		8,708		4,682		3,912		2,107		5,569		38,975		18,227		21		57,223
Total commercial banking	$	20,217	$	14,024	$	6,570	$	7,420	$	4,431	$	10,374	$	63,036	$	31,594	$	46	$	94,676

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



			157			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Difficulty Modifications to Borrowers

As part of our loss mitigation efforts, we may provide short-term (one 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.

We consider the impact of all loan modifications when estimating the credit quality of our loan portfolio and establishing allowance levels. For our Commercial Banking customers, loan modifications are also considered in the assignment of an internal risk rating.

On January 1, 2023, we adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures using the modified retrospective adoption method. The ASU eliminates the accounting guidance for TDRs and enhances disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The types of modifications we offer borrowers experiencing financial difficulty did not change as a result of ASU 2022-02. Under this new accounting guidance, FDMs are accumulated and the performance of each loan that received a FDM is reported on a rolling twelve month basis. For the reporting period ended December 31, 2023, FDMs and the related borrower performance information pertain to FDMs which occurred in the year ended December 31, 2023. For additional information on FDMs, see “Note 1—Summary of Significant Accounting Policies.”

For the reporting periods prior to adoption of ASU 2022-02, our previous TDR disclosures are included below in the “Troubled Debt Restructurings” section. For additional information on loan modifications classified as a TDR prior to January 1, 2023, see “Note 1—Summary of Significant Accounting Policies.” FDM disclosures are not directly comparable to the prior period TDR disclosures due to differences in the respective accounting guidance and disclosure requirements.



			158			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the major modification types, amortized cost amounts for each modification type and financial effects for all FDMs undertaken during for the year ended December 31, 2023.

Table 3.6: Financial Difficulty Modifications to Borrowers


	Year Ended December 31, 2023
	Credit Card									Consumer Banking									Commercial Banking
(Dollars in millions)	Domestic Card			International Card Businesses			Total Credit Card			Auto			Retail Banking			Total Consumer Banking			Commercial and Multifamily Real Estate			Commercial and Industrial			Total Commercial Banking			Total
Interest rate reduction	$	590		$	97		$	687		—			—			—			—			—			—			$	687
Term extension	—			—			—			$	65		$	6		$	71		$	463		$	436		$	899		970
Principal balance reduction	—			—			—			21			—			21			—			—			—			21
Principal balance reduction and term extension	—			—			—			—			—			—			—			11			11			11
Interest rate reduction and term extension	12			—			12			672			1			673			—			26			26			711

Other(1)	—			—			—			4			3			7			2			451			453			460
Total loans modified	$	602		$	97		$	699		$	762		$	10		$	772		$	465		$	924		$	1,389		$	2,860
% of total class of receivables	0.41		%	1.41		%	0.45		%	1.03		%	0.74		%	1.02		%	1.35		%	1.65		%	1.54		%	0.89		%

(1)Consumer Banking and Commercial Banking consists of modifications other than interest rate reduction, term extension, or principal balance reduction.

Table 3.7: Financial Effects of Financial Difficulty Modifications to Borrowers


	Year Ended December 31, 2023
	Credit Card		Consumer Banking			Commercial Banking
(Dollars in millions)	Domestic Card	International Card Businesses		Auto	Retail Banking		Commercial and Multifamily Real Estate	Commercial and Industrial
Weighted-average interest rate reduction	19.32%	27.10%		8.72%	2.00%		—	0.25%
Payment delay duration (in months)	12	—		5.93	10.35		13.38	6.79
Principal balance reduction	—	—		$1	—		$20	$3



			159			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Performance of Financial Difficulty Modifications to Borrowers

We monitor loan performance trends, including FDMs, to assess and manage our exposure to credit risk. See “Note 1—Summary of Significant Accounting Policies” for additional information on how the allowance for modified loans is calculated for each portfolio segment.

The following table presents FDMs over a rolling 12 month period by delinquency status as of December 31, 2023.

Table 3.8 Delinquency Status of Loan Modifications to Borrowers Experiencing Financial Difficulty**(1)**


	December 31, 2023
			Delinquent Loans
(Dollars in millions)	Current		30-59 Days		60-89 Days		> 90 Days		Total Delinquent Loans		Total Loans
Credit Card:
Domestic credit card	$	384	$	81	$	46	$	91	$	218	$	602
International card businesses	49		9		9		30		48		97
Total credit card	433		90		55		121		266		699
Consumer Banking:
Auto	548		107		76		31		214		762
Retail banking	10		0		0		0		0		10
Total consumer banking	558		107		76		31		214		772
Commercial Banking:
Commercial and multifamily real estate	426		0		0		39		39		465
Commercial and industrial	820		0		0		104		104		924
Total commercial banking	1,246		0		0		143		143		1,389
Total	$	2,237	$	197	$	131	$	295	$	623	$	2,860

(1)Commitments to lend additional funds on FDMs totaled $109 million as of December 31, 2023.



			160			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Subsequent Defaults of Financial Difficulty Modifications to Borrowers

FDMs may subsequently enter default. A default occurs if a FDM is either 90 days or more delinquent, has been charged off, or has been reclassified from accrual to nonaccrual status. Loans that entered a modification program in any stage of delinquency are included in the aging table above. Loans that entered a modification program while in default are not considered to have subsequently defaulted for purposes of this disclosure. The allowance for any FDMs that have subsequently defaulted is measured using the same methodology as the allowance for loans held for investment. See “Note 1—Summary of Significant Accounting Policies” for additional information.

The following table presents FDMs that entered subsequent default for the year ended December 31, 2023.

Table 3.9 Subsequent Defaults of Financial Difficulty Modifications to Borrowers


	Year Ended December 31, 2023
(Dollars in millions)	Interest Rate Reduction		Term Extension		Interest Rate Reduction and Term Extension		Total Loans
Credit Card:
Domestic credit card	$	89	$	0	$	1	$	90
International card businesses	20		0		0		20
Total credit card	109		0		1		110
Consumer Banking:
Auto	0		15		235		250

Total consumer banking	0		15		235		250
Commercial Banking:
Commercial and multifamily real estate	0		46		0		46
Commercial and industrial	0		51		0		51
Total commercial banking	0		97		0		97
Total	$	109	$	112	$	236	$	457



			161			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Troubled Debt Restructurings

We adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023, and elected the modified retrospective adoption method. The ASU eliminates the accounting guidance for TDRs, and establishes disclosure requirements, to be applied prospectively, for loans with FDMs.

The following tables present the major modification types, amortized cost amounts and financial effects of loans modified in a TDR during the years ended December 31, 2022 and 2021.

Table 3.10: Troubled Debt Restructurings**(1)**


			Year Ended December 31, 2022
			Reduced Interest Rate		Term Extension
(Dollars in millions)	Total Loans Modified(2)		% of TDR Activity(3)	Average Rate Reduction	% of TDR Activity(3)	Average Term Extension (Months)
Credit Card:
Domestic credit card	$	306	100%	16.54%	N/A	N/A
International card businesses	127		100	27.42	N/A	N/A
Total credit card	433		100	19.73	N/A	N/A
Consumer Banking:
Auto	1,070		57	8.53	97%	4
Retail banking	7		N/A	N/A	92	13
Total consumer banking	1,077		57	8.53	97	4
Commercial Banking:
Commercial and multifamily real estate	385		8	0.28	84	13
Commercial and industrial	357		N/A	N/A	64	13
Total commercial banking	742		4	0.28	74	13
Total	$	2,252


			Year Ended December 31, 2021
			Reduced Interest Rate		Term Extension		Balance Reduction
(Dollars in millions)	Total Loans Modified(2)		% of TDR Activity(3)	Average Rate Reduction	% of TDR Activity(3)	Average Term Extension (Months)	% of TDR Activity(3)	Gross Balance Reduction
Credit Card:
Domestic credit card	$	154	100%	15.90%	N/A	N/A	N/A	N/A
International card businesses	123		100	27.70	N/A	N/A	N/A	N/A
Total credit card	277		100	21.15	N/A	N/A	N/A	N/A
Consumer Banking:
Auto	371		43	8.72	93%	4	0%	$	1
Retail banking	3		13	2.94	30	42	N/A	N/A
Total consumer banking	374		42	8.70	93	4	0	1
Commercial Banking:
Commercial and multifamily real estate	49		21	1.19	85	11	N/A	N/A
Commercial and industrial	112		N/A	N/A	30	6	N/A	N/A
Total commercial banking	161		6	1.19	46	9	N/A	N/A
Total	$	812

(1)Commitments to lend additional funds on loans modified in TDRs totaled $219 million and $168 million as of December 31, 2022 and 2021, respectively.



			162			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(2)Represents the amortized cost of total loans modified in TDRs at the end of the period 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 modification.

(3)Due to multiple modification types granted to some troubled borrowers, percentages may total more than 100% for certain loan types.

Subsequent Defaults of Completed TDR Modifications

The following table presents the type, number and amortized cost of loans modified in a TDR 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 3.11: TDR—Subsequent Defaults



	Year Ended December 31,
	2022			2021
(Dollars in millions)	Number of Contracts	Amount		Number of Contracts	Amount
Credit Card:
Domestic credit card	37,029	$	75	18,694	$	35
International card businesses	74,432	79		58,914	87
Total credit card	111,461	154		77,608	122
Consumer Banking:
Auto	16,100	285		8,847	136
Retail banking	1	1		9	0
Total consumer banking	16,101	286		8,856	136
Commercial Banking:
Commercial and multifamily real estate	2	27		1	50
Commercial and industrial	5	56		7	120
Total commercial banking	7	83		8	170
Total	127,569	$	523	86,472	$	428

Loans Pledged

We pledged loan collateral of $7.4 billion and $9.8 billion to secure a portion of our FHLB borrowing capacity of $32.1 billion and $19.9 billion as of December 31, 2023 and 2022, respectively. We also pledged loan collateral of $78.3 billion and $34.1 billion to secure our Federal Reserve Discount Window borrowing capacity of $41.4 billion and $19.7 billion as of December 31, 2023 and 2022, respectively. In addition to loans pledged, we have securitized a portion of our credit card and auto loan portfolios. See “Note 5—Variable Interest Entities and Securitizations” for additional information.

Loans Held for Sale

Our total loans held for sale was $854 million and $203 million as of December 31, 2023 and 2022, respectively. We originated for sale $4.4 billion, $8.6 billion and $9.1 billion of commercial multifamily real estate loans in 2023, 2022 and 2021, respectively, and typically retain servicing rights upon the sale of these loans.

Revolving Loans Converted to Term Loans

For the years ended December 31, 2023 and 2022, we converted $617 million and $441 million of revolving loans to term loans, respectively, primarily in our domestic credit card and commercial banking loan portfolios.



			163			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4—ALLOWANCE FOR CREDIT LOSSES AND RESERVE FOR UNFUNDED LENDING COMMITMENTS

Our allowance for credit losses represents management’s current estimate of expected credit losses over the contractual terms of our loans held for investment as of each balance sheet date. Expected recoveries of amounts previously charged off or expected to be charged off are recognized within the allowance. Significant judgment is applied in our estimation of lifetime credit losses. 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. 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 at each relevant loss component of the estimate. 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.

For credit card loans, finance charges and fees are charged off simultaneously with the charge-off of other components of amortized cost as a reduction of revenue. Total net revenue was reduced by $1.9 billion, $946 million and $629 million in 2023, 2022 and 2021, respectively, for finance charges and fees charged-off as uncollectible.

We have unfunded lending commitments 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 the allowance for loans held for investment. We build or release the reserve for unfunded lending commitments 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” for further discussion of the methodology and policies for determining our allowance for credit losses for each of our loan portfolio segments, as well as information on our reserve for unfunded lending commitments.

Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity

The table below summarizes changes in the allowance for credit losses and reserve for unfunded lending commitments by portfolio segment for the years ended December 31, 2023, 2022 and 2021. Our allowance for credit losses increased by $2.1 billion to $15.3 billion as of December 31, 2023 from 2022.

Table 4.1: Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity


	Year Ended December 31, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Total
Allowance for credit losses:
Balance as of December 31, 2020	$	11,191	$	2,715	$	1,658	$	15,564
Charge-offs	(3,481)		(1,211)		(48)		(4,740)
Recoveries(1)	1,525		935		46		2,506
Net charge-offs	(1,956)		(276)		(2)		(2,234)
Benefit for credit losses	(902)		(521)		(489)		(1,912)
Allowance release for credit losses	(2,858)		(797)		(491)		(4,146)
Other changes(2)	12		0		0		12
Balance as of December 31, 2021	8,345		1,918		1,167		11,430
Reserve for unfunded lending commitments:
Balance as of December 31, 2020	0		0		195		195
Provision (benefit) for losses on unfunded lending commitments	0		0		(30)		(30)
Balance as of December 31, 2021	0		0		165		165
Combined allowance and reserve as of December 31, 2021	$	8,345	$	1,918	$	1,332	$	11,595



			164			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Year Ended December 31, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Total
Allowance for credit losses:
Balance as of December 31, 2021	$	8,345	$	1,918	$	1,167	$	11,430
Charge-offs	(4,362)		(1,614)		(88)		(6,064)
Recoveries(1)	1,314		760		17		2,091
Net charge-offs	(3,048)		(854)		(71)		(3,973)
Provision (benefit) for credit losses	4,265		1,173		362		5,800
Allowance build for credit losses	1,217		319		291		1,827
Other changes(2)	(17)		0		0		(17)
Balance as of December 31, 2022	9,545		2,237		1,458		13,240
Reserve for unfunded lending commitments:
Balance as of December 31, 2021	0		0		165		165
Provision for losses on unfunded lending commitments	0		0		53		53
Balance as of December 31, 2022	0		0		218		218
Combined allowance and reserve as of December 31, 2022	$	9,545	$	2,237	$	1,676	$	13,458
Allowance for credit losses:
Balance as of December 31, 2022	$	9,545	$	2,237	$	1,458	$	13,240
Cumulative effects of accounting standards adoption(3)	(63)		0		0		(63)
Balance as of January 1, 2023	9,482		2,237		1,458		13,177
Charge-offs	(7,787)		(2,327)		(588)		(10,702)
Recoveries(1)	1,315		963		10		2,288
Net charge-offs	(6,472)		(1,364)		(578)		(8,414)
Provision for credit losses	8,651		1,169		665		10,485
Allowance build (release) for credit losses	2,179		(195)		87		2,071
Other changes(2)	48		0		0		48
Balance as of December 31, 2023	11,709		2,042		1,545		15,296
Reserve for unfunded lending commitments:
Balance as of December 31, 2022	0		0		218		218
Provision (benefit) for losses on unfunded lending commitments	0		0		(60)		(60)
Balance as of December 31, 2023	0		0		158		158
Combined allowance and reserve as of December 31, 2023	$	11,709	$	2,042	$	1,703	$	15,454

(1)The amount and timing of recoveries are 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)Primarily represents the initial allowance for PCD loans and foreign currency translation adjustments. The initial allowance of PCD loans was $32 million, $10 million and $6 million for the years ended December 31, 2023, 2022 and 2021, respectively.

(3)Impact from the adoption of ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures as of January 1, 2023.

On January 1, 2023, we adopted ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures using the modified retrospective approach, which consists of implementing disclosure requirements prospectively as of the adoption date. The ASU requires public entities to disclose current-period gross charge-offs by year of origination for financing receivables, with an exception for credit cards as they are revolving in nature.



			165			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

The table below presents gross charge-offs for loans held for investment by vintage year during the year ended December 31, 2023.

Table 4.2: Gross Charge-Offs by Vintage Year


	Year Ended December 31, 2023
	Term Loans by Vintage Year
(Dollars in millions)	2023		2022		2021		2020		2019		Prior		Total Term Loans		Revolving Loans		Revolving Loans Converted to Term		Total
Credit Card
Domestic credit card	N/A		N/A		N/A		N/A		N/A		N/A		N/A		$	7,261	$	87	$	7,348
International card business	N/A		N/A		N/A		N/A		N/A		N/A		N/A		425		14		439
Total credit card	N/A		N/A		N/A		N/A		N/A		N/A		N/A		7,686		101		7,787
Consumer Banking
Auto	$	141	$	780	$	710	$	327	$	183	$	111	$	2,252	0		0		2,252
Retail banking	0		0		2		0		0		0		2		72		1		75
Total consumer banking	141		780		712		327		183		111		2,254		72		1		2,327
Commercial Banking
Commercial and multifamily real estate	0		33		60		22		158		219		492		0		0		492
Commercial and industrial	2		9		0		0		57		11		79		17		0		96
Total commercial banking	2		42		60		22		215		230		571		17		0		588
Total	$	143	$	822	$	772	$	349	$	398	$	341	$	2,825	$	7,775	$	102	$	10,702



			166			Capital One Financial Corporation (COF)

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 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 receivables. These expected reimbursements result in reductions in net charge-offs and the provision for credit losses. See “Note 1—Summary of Significant Accounting Policies” for further discussion of our credit card partnership agreements.

The table below summarizes the changes in the estimated reimbursements from these partners for the years ended December 31, 2023, 2022 and 2021.

Table 4.3: Summary of Credit Card Partnership Loss Sharing Arrangements Impacts


	Year Ended December 31,
(Dollars in millions)	2023		2022		2021
Estimated reimbursements from partners, beginning of period	$	1,558	$	1,450	$	2,159
Amounts due from partners for charged off loans	(980)		(515)		(438)
Change in estimated partner reimbursements that decreased (increased) provision for credit losses(1)	1,436		623		(271)
Estimated reimbursements from partners, end of period	$	2,014	$	1,558	$	1,450

(1)Includes adjustments for PCD loans acquired in the first quarter of 2023.



			167			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 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 variable interest entities (“VIEs”). Our primary involvement with VIEs is related to our securitization transactions in which we transfer assets to securitization trusts. We primarily securitize credit card and auto loans, which provide a source of funding for us and enable 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 credit losses, which we report on our consolidated balance sheets under restricted cash for securitization investors, loans held in consolidated trusts and allowance for 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 the maximum amount of any remaining funding obligations.

The tables below present a summary of VIEs in which we had continuing involvement or held a significant variable interest, aggregated based on VIEs with similar characteristics as of December 31, 2023 and 2022. We separately present information for consolidated and unconsolidated VIEs.

Table 5.1: Carrying Amount of Consolidated and Unconsolidated VIEs


	December 31, 2023
	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:(1)
Credit card loan securitizations(2)	$	25,474	$	14,692	$	0	$	0	$	0
Auto loan securitizations	5,019		4,021		0		0		0
Total securitization-related VIEs	30,493		18,713		0		0		0
Other VIEs:(3)
Affordable housing entities	297		23		5,726		2,085		5,726
Entities that provide capital to low-income and rural communities	2,498		10		0		0		0
Other(4)	0		0		449		0		449
Total other VIEs	2,795		33		6,175		2,085		6,175
Total VIEs	$	33,288	$	18,746	$	6,175	$	2,085	$	6,175



			168			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	December 31, 2022
	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:(1)
Credit card loan securitizations(2)	$	23,620	$	13,877	$	0	$	0	$	0
Auto loan securitizations	4,863		4,002		0		0		0
Total securitization-related VIEs	28,483		17,879		0		0		0
Other VIEs:(3)
Affordable housing entities	261		19		4,944		1,596		4,944
Entities that provide capital to low-income and rural communities	2,301		10		0		0		0
Other(4)	0		0		337		0		337
Total other VIEs	2,562		29		5,281		1,596		5,281
Total VIEs	$	31,045	$	17,908	$	5,281	$	1,596	$	5,281

(1)Excludes insignificant VIEs from previously exited businesses.

(2)Represents the carrying amount of assets and liabilities of the VIE, which includes the seller’s interest and repurchased notes held by other related parties.

(3)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 $2.6 billion of assets and $989 million of liabilities as of December 31, 2023 and $2.3 billion of assets and $616 million of liabilities as of December 31, 2022.

(4)Primarily consists of variable interests in companies that promote renewable energy sources and other equity method investments.

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.

In our multifamily agency business, we originate multifamily commercial real estate loans and transfer them to government-sponsored enterprises (“GSEs”) who may, in turn, securitize them. We retain the related MSR and service the transferred loans pursuant to the guidelines set forth by the GSEs. As an investor, we hold primarily RMBS, CMBS, and ABS in our investment securities portfolio, which represent variable interests in the respective securitization trusts 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. 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 solely 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 ourselves. Our maximum exposure to loss as a result of our involvement with these VIEs is the carrying value of the MSRs and investment securities on our consolidated balance sheets as well as our contractual obligations under loss sharing arrangements. See “Note 18—Commitments, Contingencies, Guarantees and Others” for information about the loss sharing agreements, “Note 6—Goodwill and Other 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 3—Loans” for additional information regarding our lending arrangements in the normal course of business.



			169			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below presents our continuing involvement in certain securitization-related VIEs as of December 31, 2023 and 2022.

Table 5.2: Continuing Involvement in Securitization-Related VIEs


(Dollars in millions)	Credit Card		Auto
December 31, 2023:
Securities held by third-party investors	$	14,029	$	4,014
Receivables in the trusts	26,404		4,839
Cash balance of spread or reserve accounts	0		19
Retained interests	Yes		Yes
Servicing retained	Yes		Yes
December 31, 2022:
Securities held by third-party investors	$	12,976	$	3,997
Receivables in the trusts	24,367		4,682
Cash balance of spread or reserve accounts	0		23
Retained interests	Yes		Yes
Servicing retained	Yes		Yes

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 securitizations involve 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.

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 our investments in qualified affordable housing projects using the proportional amortization method, where costs of the investment are amortized 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 year ended December 31, 2023 and 2022, we recognized amortization of $682 million and $637 million, respectively, and tax credits of $721 million and $664 million, respectively, associated with these investments within income tax provision. The carrying value of our equity investments in these qualified affordable housing projects was $5.5 billion and $4.9 billion as of December 31, 2023 and 2022, 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 $2.3 billion and $1.8 billion as of December 31, 2023 and 2022 respectively, and is largely expected to be paid from 2024 to 2027.



			170			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 $5.7 billion and $4.9 billion as of December 31, 2023 and 2022, respectively. The creditors of the VIEs have no recourse to our general credit and we do not provide additional financial or other support other than during the period that we are contractually required to provide it. The total assets of the unconsolidated VIE investment funds were approximately $18.6 billion and $12.5 billion as of December 31, 2023 and 2022, 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 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 $2.5 billion and $2.3 billion as of December 31, 2023 and 2022, 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

We hold variable interests in other VIEs, including companies that promote renewable energy sources and other equity method investments. We are not required to consolidate these VIEs because we do not have the power to direct the activities that most significantly impact their economic performance. Our maximum exposure to these VIEs is limited to the investments on our consolidated balance sheets of $449 million and $337 million as of December 31, 2023 and 2022, 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.



			171			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS

The table below presents our goodwill, other intangible assets and MSRs as of December 31, 2023 and 2022. Goodwill is presented separately, while other intangible assets and MSRs are included in other assets on our consolidated balance sheets.

Table 6.1: Components of Goodwill, Other Intangible Assets and MSRs


	December 31, 2023
(Dollars in millions)	Carrying Amount of Assets		Accumulated Amortization		Net Carrying Amount		Weighted Average Remaining Amortization Period
Goodwill	$	15,065	N/A		$	15,065	N/A
Other intangible assets:
Purchased credit card relationship (“PCCR”) intangibles	369		$	(96)	273		7.1 years

Other(1)	171		(134)		37		5.7 years
Total other intangible assets	540		(230)		310		6.9 years
Total goodwill and other intangible assets	$	15,605	$	(230)	$	15,375
Commercial MSRs(2)	$	653	$	(263)	$	390

	December 31, 2022
(Dollars in millions)	Carrying Amount of Assets		Accumulated Amortization		Net Carrying Amount		Weighted Average Remaining Amortization Period
Goodwill	$	14,777	N/A		$	14,777	N/A
Other intangible assets:
Purchased credit card relationship (“PCCR”) intangibles	147		$	(26)	121		7.8 years

Other(1)	195		(157)		38		5.4 years
Total other intangible assets	342		(183)		159		7.3 years
Total goodwill and other intangible assets	$	15,119	$	(183)	$	14,936
Commercial MSRs(2)	$	660	$	(223)	$	437

(1)Primarily consists of intangibles for sponsorship, customer and merchant relationships, domain names and licenses.

(2)Commercial MSRs are accounted for under the amortization method under which we recorded $88 million and $93 million of amortization expense for the years ended December 31, 2023 and 2022, respectively.



			172			Capital One Financial Corporation (COF)

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 for the years ended December 31, 2023, 2022 and 2021. We did not recognize any goodwill impairment during 2023, 2022 and 2021.

Table 6.2: Goodwill by Business Segments


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




Balance as of December 31, 2020	$	5,088	$	4,645	$	4,920	$	14,653
Acquisitions	0		0		130		130

Other adjustments(1)	(1)		0		0		(1)
Balance as of December 31, 2021	$	5,087	$	4,645	$	5,050	$	14,782
Other adjustments(1)	(9)		0		4		(5)
Balance as of December 31, 2022	5,078		4,645		5,054		14,777
Acquisitions	273		0		0		273

Other adjustments(1)	15		0		0		15
Balance as of December 31, 2023	$	5,366	$	4,645	$	5,054	$	15,065

(1)Primarily represents foreign currency translation adjustments and measurement period adjustments.

The goodwill impairment test is performed as of October 1 of each year. 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.

The fair value of reporting units is calculated using a discounted cash flow methodology, a form of the income approach. The calculation uses projected cash flows based on each reporting unit’s internal forecast and uses the perpetuity growth method to calculate terminal values. These cash flows and terminal values are then discounted using appropriate discount rates, which are largely based on our external cost of equity with adjustments for risk inherent in each reporting unit. The carrying amount for a reporting unit is the sum of its respective capital requirements, goodwill and other intangibles balances. Capital is allocated based on each reporting unit’s specific regulatory capital requirements, economic capital requirements, and underlying risks. Consolidated stockholder’s equity in excess of the sum of all reporting unit’s capital requirements that is not identified for future capital needs, such as dividends, share buybacks, or other strategic initiatives, is allocated to the reporting units and the Other category and assumed distributed to equity holders in future periods. Our discounted cash flow analysis requires management to make judgments about future loan and deposit growth, revenue growth, credit losses, and capital rates. The reasonableness of our fair value calculation is assessed by reference to a market-based approach using comparable market multiples and recent market transactions where available.



			173			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Intangible Assets

In connection with our acquisitions, we recorded intangible assets that include PCCR, sponsorship, customer and merchant relationships, partnership, trade names, and other customer contract intangibles. At acquisition, the PCCR intangibles reflect the estimated value of existing credit card holder relationships. There were no impairments of intangible assets in 2023 and 2021. There was a $10 million impairment of intangible assets in 2022.

Intangible assets are typically amortized over their respective estimated useful lives on either an accelerated or straight-line basis. The following table summarizes the actual amortization expense recorded for the years ended December 31, 2023, 2022, 2021 and the estimated future amortization expense for intangible assets as of December 31, 2023:

Table 6.3: Amortization Expense


(Dollars in millions)	Amortization Expense
Actual for the year ended December 31,
2021	$	29
2022	60
2023	82
Estimated future amounts for the year ending December 31,
2024	77
2025	65
2026	52
2027	41
2028	31
Thereafter	36
Total estimated future amounts	$	302



			174			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7—PREMISES, EQUIPMENT AND LEASES

Premises and Equipment

The following table presents our premises and equipment as of December 31, 2023 and 2022.

Table 7.1 Components of Premises and Equipment


(Dollars in millions)	December 31, 2023		December 31, 2022
Land	$	305	$	320
Buildings and improvements	4,297		4,345
Furniture and equipment	1,800		1,831
Computer software	2,863		2,213
In progress	291		646
Total premises and equipment, gross	9,556		9,355
Less: Accumulated depreciation and amortization	(5,181)		(5,004)
Total premises and equipment, net	$	4,375	$	4,351

Depreciation and amortization expense was $939 million, $790 million and $775 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Leases

Our primary involvement with leases is in the capacity as a lessee where we lease premises to support our business. The majority of our leases are operating leases of office space, retail bank branches and cafés. Our operating leases expire at various dates through 2071, although some 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 future 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 years ended December 31, 2023 and 2022.

Table 7.2 Operating Lease Portfolio


(Dollars in millions)	December 31, 2023			December 31, 2022
Right-of-use assets	$	1,009		$	1,128
Lease liabilities	1,312			1,458
Weighted-average remaining lease term	8.2 years			8.4 years
Weighted-average discount rate	3.2		%	3.1		%



			175			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Table 7.3 Total Operating Lease Expense and Other Information


	Year Ended December 31,
(Dollars in millions)	2023		2022
Operating lease cost	$	241	$	280
Variable lease cost	47		42

Total lease cost	288		322
Sublease income	(18)		(16)
Net lease cost	$	270	$	306
Cash paid for amounts included in the measurement of lease liabilities	$	285	$	320
Right-of-use assets obtained in exchange for lease liabilities	83		221

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 December 31, 2023.

Table 7.4 Maturities of Operating Leases and Reconciliation to Lease Liabilities


(Dollars in millions)	December 31, 2023
2024	$	241
2025	212
2026	194
2027	170
2028	151
Thereafter	541
Total undiscounted lease payments	1,509
Less: Imputed interest	197
Total lease liabilities	$	1,312

As of December 31, 2023, we had approximately $15 million and $27 million of right-of-use assets and lease liabilities, respectively, for finance leases with a weighted-average remaining lease term of 4.1 years. As of December 31, 2022, we had approximately $22 million and $33 million of right-of-use assets and lease liabilities, respectively, for finance leases with a weighted-average remaining lease term of 3.3 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 $16 million and $14 million of total finance lease expense for the years ended December 31, 2023 and 2022, respectively.



			176			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8—DEPOSITS AND BORROWINGS

Our deposits, which include checking accounts, money market deposits, negotiable order of withdrawals, savings deposits and time deposits, represent our largest source of funding for our assets and operations. We also use a variety of other funding sources including short-term borrowings, senior and subordinated notes, securitized debt obligations and other borrowings. 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, securities loaned or sold under agreements to repurchase and 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 December 31, 2023 and 2022. The carrying value presented below for these borrowings includes any unamortized debt premiums and discounts, net of debt issuance costs and fair value hedge accounting adjustments.

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


(Dollars in millions)	December 31, 2023		December 31, 2022
Deposits:
Non-interest-bearing deposits	$	28,024	$	32,203
Interest-bearing deposits(1)	320,389		300,789
Total deposits	$	348,413	$	332,992
Short-term borrowings:
Federal funds purchased and securities loaned or sold under agreements to repurchase	$	538	$	883

Total short-term borrowings	$	538	$	883


	December 31, 2023					December 31, 2022
(Dollars in millions)	Maturity Dates	Stated Interest Rates	Weighted-Average Interest Rate	Carrying Value		Carrying Value
Long-term debt:
Securitized debt obligations	2024-2028	0.55% - 6.21%	3.01%	$	18,043	$	16,973
Senior and subordinated notes:
Fixed unsecured senior debt(2)	2024-2034	0.80 - 7.62	4.45	27,168		24,134
Floating unsecured senior debt	2025	6.75	6.75	349		1,597
Total unsecured senior debt			4.48	27,517		25,731
Fixed unsecured subordinated debt	2025-2032	2.36 - 4.20	3.57	3,731		5,095
Total senior and subordinated notes				31,248		30,826
Other long-term borrowings	2024-2031	0.36 - 9.91	6.51	27		33
Total long-term debt				$	49,318	$	47,832
Total short-term borrowings and long-term debt				$	49,856	$	48,715

(1)Some customers have time deposits in excess of the federal deposit insurance limit, making a portion of the deposit uninsured. As of December 31, 2023, the total time deposit amount with some portion in excess of the insured amount was $15.8 billion and the portion of total time deposits estimated to be uninsured was $9.0 billion. As of December 31, 2022, the total time deposit amount with some portion in excess of the insured amount was $6.1 billion and the portion of total time deposits estimated to be uninsured was $2.0 billion.

(2)Includes $1.3 billion and $1.2 billion of Euro (“EUR”) denominated unsecured notes as of December 31, 2023 and 2022, respectively.



			177			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the carrying value of our interest-bearing time deposits with contractual maturities, securitized debt obligations and other debt by remaining contractual maturity as of December 31, 2023.

Table 8.2: Maturity Profile of Borrowings


(Dollars in millions)	2024		2025		2026		2027		2028		Thereafter		Total
Interest-bearing time deposits	$	60,838	$	10,971	$	3,232	$	5,932	$	1,747	$	294	$	83,014
Securitized debt obligations	4,085		6,519		3,607		1,621		2,211		0		18,043
Federal funds purchased and securities loaned or sold under agreements to repurchase	538		0		0		0		0		0		538
Senior and subordinated notes	3,026		4,480		4,407		4,198		2,862		12,275		31,248
Other borrowings	9		6		5		3		3		1		27
Total	$	68,496	$	21,976	$	11,251	$	11,754	$	6,823	$	12,570	$	132,870



			178			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9—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. We primarily use interest rate and foreign currency swaps to perform these hedging activities, 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 interest rate, commodity, 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 offset the substantial majority of the market risk exposure of our customer accommodation derivatives through derivative transactions with other counterparties.

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. We enter into receive-fixed, pay-float interest rate swaps to hedge changes in the fair value of outstanding fixed rate debt and deposits due to fluctuations in market interest rates. We also enter into pay-fixed, receive-float interest rate swaps to hedge changes in the fair value of fixed rate investment securities.

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 hedged 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. We enter into receive-fixed, pay-float interest rate swaps and interest rate floors to modify the interest rate characteristics of designated credit card and commercial loans from floating to fixed in order to reduce the impact of changes in forecasted future cash flows due to fluctuations in market interest rates. 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.



			179			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivatives Counterparty Credit Risk

Counterparty Types

Derivative instruments contain an element of credit risk that stems 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 OTC markets. We also execute interest rate and commodity futures in the exchange-traded derivative markets. Our OTC derivatives consist of both trades cleared through central counterparty clearinghouses (“CCPs”) and uncleared bilateral contracts. The Chicago Mercantile Exchange (“CME”), the Intercontinental Exchange (“ICE”) and the LCH Group (“LCH”) are our CCPs for 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 agreements, where applicable, and exchanging collateral with our counterparties, typically in the form of cash or high-quality liquid securities. We exchange collateral in two primary forms: variation margin, which mitigates the risk of changes in value due to daily market movements and is exchanged daily, and initial margin, which mitigates the risk of potential future exposure of a derivative and is exchanged at the outset of a transaction and adjusted daily. We exchange variation margin and initial margin on our cleared derivatives. For uncleared bilateral derivatives executed after September 1, 2021 and in scope for initial margin, we exchange variation margin and initial margin.

The amount of collateral exchanged for variation margin is dependent upon the fair value of the derivative instruments as well as the fair value of the pledged collateral and will vary over time as market variables change. The amount of the initial margin exchanged is dependent upon 1) the calculation of initial margin exposure, as prescribed by 1(a) the U.S. prudential regulators’ margin rules for uncleared derivatives (“PR Rules”) or 1(b) the CCPs for cleared derivatives and 2) the fair value of the pledged collateral; it 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 collateral received or pledged. See Table 9.3 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. We also clear exchange-traded instruments, like futures, with CCPs. 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 by CCPs as collateral against potential losses on our exchange-traded and 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, ICE and LCH-cleared OTC derivatives, variation margin cash payments are required to be characterized 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 master netting agreements and collateral agreements with bilateral derivative counterparties, where applicable, to mitigate the risk of default. 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 uncleared derivatives 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.



			180			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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.

Balance Sheet Presentation

The following table summarizes the notional amounts and fair values of our derivative instruments as of December 31, 2023 and 2022, 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: Derivative Assets and Liabilities at Fair Value


	December 31, 2023						December 31, 2022
	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	$	68,987	$	18	$	26	$	60,956	$	3	$	53
Cash flow hedges	70,350		216		23		30,350		0		451
Total interest rate contracts	139,337		234		49		91,306		3		504
Foreign exchange contracts:
Fair value hedges	1,380		0		113		1,338		0		211
Cash flow hedges	2,488		0		66		2,175		4		14
Net investment hedges	4,870		1		89		4,147		78		91
Total foreign exchange contracts	8,738		1		268		7,660		82		316
Total derivatives designated as accounting hedges	148,075		235		317		98,966		85		820
Derivatives not designated as accounting hedges:
Customer accommodation:
Interest rate contracts	103,489		1,188		1,382		91,601		1,140		1,873
Commodity contracts	33,495		1,161		1,147		28,935		1,756		1,738
Foreign exchange and other contracts	5,153		50		47		4,926		74		78
Total customer accommodation	142,137		2,399		2,576		125,462		2,970		3,689
Other interest rate exposures(2)	872		21		31		1,135		34		22
Other contracts	2,955		20		8		2,238		9		19
Total derivatives not designated as accounting hedges	145,964		2,440		2,615		128,835		3,013		3,730
Total derivatives	$	294,039	$	2,675	$	2,932	$	227,801	$	3,098	$	4,550
Less: netting adjustment(3)			(1,005)		(597)				(1,134)		(1,235)
Total derivative assets/liabilities			$	1,670	$	2,335			$	1,964	$	3,315

(1)Does not reflect $2 million and $4 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of December 31, 2023 and 2022, 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.

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



			181			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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.

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 December 31, 2023 and 2022.

Table 9.2: Hedged Items in Fair Value Hedging Relationships


	December 31, 2023								December 31, 2022
	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)	$	6,108		$	(8)		$	126	$	3,983	$	(80)	$	200
Interest-bearing deposits	(17,374)			277			0		(17,280)		500		(1)
Securitized debt obligations	(13,375)			503			0		(11,921)		748		0
Senior and subordinated notes	(30,899)			971			(372)		(24,544)		1,542		(527)

(1)These amounts include the amortized cost basis of our investment securities designated in hedging relationships for which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. The amortized cost basis of this portfolio was $2.2 billion and $236 million as of December 31, 2023 and 2022, respectively. The amount of the designated hedged items was $1.5 billion and $225 million as of December 31, 2023 and 2022, respectively. The cumulative basis adjustments associated with these hedges was $33 million and $13 million as of December 31, 2023 and 2022, 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 agreements 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 agreements for balance sheet presentation where a right of setoff exists. For derivative contracts entered into under master netting agreements for which we have not been able to confirm the enforceability of the setoff rights, or those not subject to master netting agreements, we do not offset our derivative positions for balance sheet presentation.

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 December 31, 2023 and 2022. 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.



			182			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Table 9.3: Offsetting of Financial Assets and Financial Liabilities


	Gross Amounts			Gross Amounts Offset in the Balance Sheet					Net Amounts as Recognized		Securities Collateral Held Under Master Netting Agreements		Net Exposure
(Dollars in millions)			Financial Instruments			Cash Collateral Received
As of December 31, 2023
Derivative assets(1)	$	2,675		$	(433)		$	(572)	$	1,670	$	(22)	$	1,648
As of December 31, 2022
Derivative assets(1)	3,098			(759)			(375)		1,964		(96)		1,868


	Gross Amounts			Gross Amounts Offset in the Balance Sheet					Net Amounts as Recognized		Securities Collateral Pledged Under Master Netting Agreements		Net Exposure
(Dollars in millions)			Financial Instruments			Cash Collateral Pledged
As of December 31, 2023
Derivative liabilities(1)	$	2,932		$	(433)		$	(164)	$	2,335	$	(13)	$	2,322
Repurchase agreements(2)	538			0			0		538		(538)		0
As of December 31, 2022
Derivative liabilities(1)	4,550			(759)			(476)		3,315		(85)		3,230
Repurchase agreements(2)	883			0			0		883		(883)		0

(1)We received cash collateral from derivative counterparties totaling $858 million and $608 million as of December 31, 2023 and 2022, respectively. We also received securities from derivative counterparties with a fair value of approximately $16 million and $82 million as of December 31, 2023 and 2022, respectively, which we have the ability to re-pledge. We posted $1.7 billion and $2.3 billion of cash collateral as of December 31, 2023 and 2022, respectively.

(2)Under our customer repurchase agreements, which mature the next business day, we pledged collateral with a fair value of $549 million and $900 million as of December 31, 2023 and 2022, respectively, primarily consisting of agency RMBS securities.



			183			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 years ended December 31, 2023, 2022 and 2021.

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


	Year Ended December 31, 2023
	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	$	2,550	$	37,410	$	1,978	$	(9,489)	$	(959)	$	(2,204)	$	1,120
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	158	$	0	$	0	$	(385)	$	(414)	$	(1,036)	$	0
Gains (losses) recognized on derivatives	(149)		0		0		220		244		733		42
Gains (losses) recognized on hedged items(1)	72		0		0		(223)		(245)		(575)		(42)
Excluded component of fair value hedges(2)	0		0		0		0		0		(3)		0
Net income (expense) recognized on fair value hedges	$	81	$	0	$	0	$	(388)	$	(415)	$	(881)	$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income	$	0	$	(1,205)	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income(4)	0		0		11		0		0		0		0
Net income (expense) recognized on cash flow hedges	$	0	$	(1,205)	$	11	$	0	$	0	$	0	$	0



			184			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Year Ended December 31, 2022
	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	$	1,884	$	28,910	$	443	$	(2,535)	$	(384)	$	(1,074)	$	914
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	48	$	0	$	0	$	2	$	(48)	$	(197)	$	0
Gains (losses) recognized on derivatives	276		0		0		(542)		(698)		(1,893)		(84)
Gains (losses) recognized on hedged items(1)	(366)		0		0		546		699		2,059		83
Excluded component of fair value hedges(2)	0		0		0		0		0		(3)		0
Net income (expense) recognized on fair value hedges	$	(42)	$	0	$	0	$	6	$	(47)	$	(34)	$	(1)
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains reclassified from AOCI into net income	$	0	$	(121)	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains reclassified from AOCI into net income(4)	0		0		3		0		0		0		(1)
Net income (expense) recognized on cash flow hedges	$	0	$	(121)	$	3	$	0	$	0	$	0	$	(1)



			185			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	Year Ended December 31, 2021
	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	$	1,446	$	24,263	$	60	$	(956)	$	(119)	$	(488)	$	824
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	(92)	$	0	$	0	$	126	$	123	$	209	$	0
Gains (losses) recognized on derivatives	207		0		0		(168)		(237)		(799)		(106)
Gains (losses) recognized on hedged items(1)	(299)		0		0		167		220		941		106
Excluded component of fair value hedges(2)	0		0		0		0		0		(3)		0
Net income (expense) recognized on fair value hedges	$	(184)	$	0	$	0	$	125	$	106	$	348	$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains reclassified from AOCI into net income	$	38	$	919	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income(4)	0		0		1		0		0		0		1
Net income (expense) recognized on cash flow hedges	$	38	$	919	$	1	$	0	$	0	$	0	$	1

(1)Includes amortization benefit of $79 million, $78 million and $39 million for the years ended December 31, 2023, 2022 and 2021, 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 (“OCI”). 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 loss of $66 million and $17 million for the year ended December 31, 2023 and 2022, and gain of $163 million for year ended December 31, 2021, 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 in other non-interest income on our consolidated statements of income.

In the next 12 months, we expect to reclassify into earnings an after-tax loss of $712 million recorded in AOCI as of December 31, 2023 associated with cash flow hedges of forecasted transactions. This amount will largely offset the cash flows associated with the forecasted transactions hedged by these derivatives. The maximum length of time over which forecasted transactions were hedged was approximately 9.2 years as of December 31, 2023. 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.



			186			Capital One Financial Corporation (COF)

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 years ended December 31, 2023, 2022 and 2021. These gains or losses are recognized in other non-interest income on our consolidated statements of income.

Table 9.5: Gains (Losses) on Free-Standing Derivatives


	Year Ended December 31,
(Dollars in millions)		2023		2022		2021
Gains (losses) recognized in other non-interest income:
Customer accommodation:
Interest rate contracts		$	34	$	40	$	32
Commodity contracts		39		49		28
Foreign exchange and other contracts		16		14		7
Total customer accommodation		89		103		67
Other interest rate exposures		264		76		(5)
Other contracts		(29)		(38)		(12)
Total		$	324	$	141	$	50



			187			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10—STOCKHOLDERS’ EQUITY

Preferred Stock

The following table summarizes our preferred stock outstanding as of December 31, 2023 and 2022.

Table 10.1: Preferred Stock Outstanding**(1)**


			Redeemable by Issuer Beginning	Per Annum Dividend Rate	Dividend Frequency		Liquidation Preference per Share			Total Shares Outstanding as of December 31, 2023	Carrying Value (in millions)
Series	Description	Issuance Date				December 31, 2023			December 31, 2022



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		1,209
Series K	4.625% Non-Cumulative	September 17, 2020	December 1, 2025	4.625	Quarterly		1,000			125,000	122		122
Series L	4.375% Non-Cumulative	May 4, 2021	September 1, 2026	4.375	Quarterly		1,000			675,000	652		652
Series M	3.950% Fixed Rate Reset Non-Cumulative	June 10, 2021	September 1, 2026	3.950% through 8/31/2026; resets 9/1/2026 and every subsequent 5 year anniversary at 5-Year Treasury Rate +3.157%	Quarterly		1,000			1,000,000	988		988
Series N	4.250% Non-Cumulative	July 29, 2021	September 1, 2026	4.250%	Quarterly		1,000			425,000	412		412
Total											$	4,845	$	4,845

(1)Except for Series M, 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.



			188			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accumulated Other Comprehensive Income

AOCI primarily consists of accumulated net unrealized gains or losses associated with securities available for sale, changes in fair value of derivatives in hedging relationships and foreign currency translation adjustments.

The following table presents the changes in AOCI by component for the years ended December 31, 2023, 2022 and 2021.

Table 10.2: AOCI


(Dollars in millions)	Securities Available for Sale		Hedging Relationships(1)		Foreign Currency Translation Adjustments (2)		Other		Total
AOCI as of December 31, 2020	$	2,186	$	1,362	$	(31)	$	(23)	$	3,494
Other comprehensive income (loss) before reclassifications	(1,887)		(396)		10		7		(2,266)
Amounts reclassified from AOCI into earnings	(2)		(848)		0		(4)		(854)
Other comprehensive income (loss), net of tax	(1,889)		(1,244)		10		3		(3,120)
AOCI as of December 31, 2021	297		118		(21)		(20)		374
Other comprehensive income (loss) before reclassifications	(7,980)		(2,404)		1		(17)		(10,400)
Amounts reclassified from AOCI into earnings	7		104		0		(1)		110
Other comprehensive income (loss), net of tax	(7,973)		(2,300)		1		(18)		(10,290)
AOCI as of December 31, 2022	(7,676)		(2,182)		(20)		(38)		(9,916)
Other comprehensive income (loss) before reclassifications	881		(268)		46		7		666
Amounts reclassified from AOCI into earnings	26		957		0		(1)		982
Other comprehensive income, net of tax	907		689		46		6		1,648
AOCI as of December 31, 2023	$	(6,769)	$	(1,493)	$	26	$	(32)	$	(8,268)

(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 losses of $126 million and gains of $305 million and $22 million for the years ended December 31, 2023, 2022 and 2021, respectively, from hedging instruments designated as net investment hedges.



			189			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents amounts reclassified from each component of AOCI to our consolidated statements of income for the years ended December 31, 2023, 2022 and 2021.

Table 10.3: Reclassifications from AOCI


(Dollars in millions)		Year Ended December 31,
AOCI Components	Affected Income Statement Line Item		2023		2022		2021
Securities available for sale:
	Non-interest income (loss)		$	(34)	$	(9)	$	2
	Income tax provision (benefit)		(8)		(2)		0
	Net income (loss)		(26)		(7)		2
Hedging relationships:
Interest rate contracts:	Interest income (loss)		(1,205)		(121)		957
Foreign exchange contracts:	Interest income		11		3		1
	Interest expense		(3)		(3)		(3)
	Non-interest income (loss)		(66)		(17)		163
	Income (loss) from continuing operations before income taxes		(1,263)		(138)		1,118
	Income tax provision (benefit)		(306)		(34)		270
	Net income (loss)		(957)		(104)		848
Other:
	Non-interest income and non-interest expense		1		1		5
	Income tax provision (benefit)		0		0		1
	Net income		1		1		4
Total reclassifications			$	(982)	$	(110)	$	854

The table below summarizes other comprehensive income (loss) activity and the related tax impact for the years ended December 31, 2023, 2022 and 2021.

Table 10.4: Other Comprehensive Income (Loss)


	Year Ended December 31,
	2023						2022						2021
(Dollars in millions)	Before Tax		Provision (Benefit)		After Tax		Before Tax		Provision (Benefit)		After Tax		Before Tax		Provision (Benefit)		After Tax
Other comprehensive income (loss):
Net unrealized gains (losses) on securities available for sale	$	1,183	$	276	$	907	$	(10,516)	$	(2,543)	$	(7,973)	$	(2,486)	$	(597)	$	(1,889)
Net unrealized gains (losses) on hedging relationships	906		217		689		(3,032)		(732)		(2,300)		(1,640)		(396)		(1,244)
Foreign currency translation adjustments(1)	6		(40)		46		98		97		1		17		7		10
Other	8		2		6		(24)		(6)		(18)		4		1		3
Other comprehensive income (loss)	$	2,103	$	455	$	1,648	$	(13,474)	$	(3,184)	$	(10,290)	$	(4,105)	$	(985)	$	(3,120)

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



			190			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11—REGULATORY AND CAPITAL ADEQUACY

Regulation and Capital Adequacy

The Company and the Bank are subject to the regulatory capital requirements established by the Board of Governors of the Federal Reserve System (“Federal Reserve”) and the Office of the Comptroller of the Currency (“OCC”), respectively (the “Basel III Capital Rules”). The Basel III Capital Rules implement certain capital requirements published by the Basel Committee on Banking Supervision (“Basel Committee”), along with certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) and other capital provisions.

As a bank holding company (“BHC”) with total consolidated assets of at least $250 billion but less than $700 billion and not exceeding any of the applicable risk-based thresholds, the Company is a Category III institution under the Basel III Capital Rules.

The Bank, as a subsidiary of a Category III institution, is a Category III bank. Moreover, the Bank, as an insured depository institution, is subject to prompt corrective action (“PCA”) capital regulations.

Under the Basel III Capital Rules, we must maintain a minimum common equity Tier 1 (“CET1”) capital ratio of 4.5%, a Tier 1 capital ratio of 6.0% and a total capital ratio of 8.0%, in each case in relation to risk-weighted assets. In addition, we must maintain a minimum leverage ratio of 4.0% and a minimum supplementary leverage ratio of 3.0%. We are also subject to the capital conservation buffer requirement and countercyclical capital buffer requirement, each as described below. Our capital and leverage ratios are calculated based on the Basel III standardized approach framework.

We have elected to exclude certain elements of accumulated other comprehensive income (“AOCI”) from our regulatory capital as permitted for a Category III institution. For information on the recognition of AOCI in regulatory capital under the proposed changes to the Basel III Capital Rules, see “Part I—Item 1. Business—Supervision and Regulation—Basel III Finalization Proposal.”

The Federal Reserve, OCC, and the Federal Deposit Insurance Corporation (“FDIC”) (collectively, “Federal Banking Agencies”) adopted a final rule (“CECL Transition Rule”) that provides banking institutions an optional five-year transition period to phase in the impact of the CECL standard on their regulatory capital (the “CECL Transition Election”). We adopted the CECL standard (for accounting purposes) as of January 1, 2020, and made the CECL Transition Election (for regulatory capital purposes) in the first quarter of 2020. Therefore, the applicable amounts presented in this Report reflect such election.

Pursuant to the CECL Transition Rule, a banking institution could elect to delay the estimated impact of adopting CECL on its regulatory capital through December 31, 2021 and then phase in the estimated cumulative impact from January 1, 2022 through December 31, 2024. For the “day 2” ongoing impact of CECL during the initial two years, the Federal Banking Agencies used a uniform “scaling factor” of 25% as an approximation of the increase in the allowance under the CECL standard compared to the prior incurred loss methodology. Accordingly, from January 1, 2020 through December 31, 2021, electing banking institutions were permitted to add back to their regulatory capital an amount equal to the sum of the after-tax “day 1” CECL adoption impact and 25% of the increase in the allowance since the adoption of the CECL standard. From January 1, 2022 through December 31, 2024, the after-tax “day 1” CECL adoption impact and the cumulative “day 2” ongoing impact are being phased in to regulatory capital at 25% per year. The following table summarizes the capital impact delay and phase in period on our regulatory capital from years 2020 to 2025.


	Capital Impact Delayed		Phase In Period
	2020	2021	2022	2023	2024	2025
“Day 1” CECL adoption impact	Capital impact delayed to 2022		25% Phased In	50% Phased In	75% Phased In	Fully Phased In
Cumulative “day 2” ongoing impact	25% scaling factor as an approximation of the increase in allowance under CECL

As of December 31, 2021, we added back an aggregate amount of $2.4 billion to our regulatory capital pursuant to the CECL Transition Rule. Consistent with the rule, we have phased in 50% of this amount as of December 31, 2023. The remaining $1.2 billion will be phased in on January 1, 2024 and 2025 at $600 million per year. As of December 31, 2023, the Company’s



			191			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CET1 capital ratio, reflecting the CECL Transition Rule, was 12.9% and would have been 12.6% excluding the impact of the CECL Transition Rule (or “on a fully phased-in basis”).

For additional information about the regulatory capital rules to which we are subject, including recent proposed amendments to these rules, see “Part I—Item 1. Business—Supervision and Regulation.”

The following table provides a comparison of our regulatory capital amounts and ratios under the Basel III standardized approach subject to the applicable transition provisions, the regulatory minimum capital adequacy ratios and the applicable well-capitalized standard for each ratio as of December 31, 2023 and 2022.

Table 11.1: Capital Ratios Under Basel III**(1)**


	December 31, 2023							December 31, 2022
(Dollars in millions)	Capital Amount		Capital Ratio		Minimum Capital Adequacy		Well- Capitalized	Capital Amount		Capital Ratio		Minimum Capital Adequacy		Well- Capitalized
Capital One Financial Corp:
Common equity Tier 1 capital(2)	$	47,615	12.9	%	4.5	%	N/A	$	44,731	12.5	%	4.5	%	N/A
Tier 1 capital(3)	52,460		14.2		6.0		6.0%	49,576		13.9		6.0		6.0%
Total capital(4)	59,124		16.0		8.0		10.0	56,714		15.8		8.0		10.0
Tier 1 leverage(5)	52,460		11.2		4.0		N/A	49,576		11.1		4.0		N/A
Supplementary leverage(6)	52,460		9.6		3.0		N/A	49,576		9.5		3.0		N/A
CONA:
Common equity Tier 1 capital(2)	47,933		13.1		4.5		6.5	46,630		13.1		4.5		6.5
Tier 1 capital(3)	47,933		13.1		6.0		8.0	46,630		13.1		6.0		8.0
Total capital(4)	52,636		14.3		8.0		10.0	51,165		14.4		8.0		10.0
Tier 1 leverage(5)	47,933		10.3		4.0		5.0	46,630		10.5		4.0		5.0
Supplementary leverage(6)	47,933		8.8		3.0		N/A	46,630		9.0		3.0		N/A

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

(2)CET1 capital ratio is a regulatory capital measure calculated based on CET1 capital divided by risk-weighted assets.

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

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

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

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

We exceeded the minimum capital requirements and the Bank exceeded the minimum regulatory requirements and was well-capitalized under PCA requirements as of both December 31, 2023 and 2022.

Regulatory restrictions exist that limit the ability of CONA to transfer funds to our BHC. As of December 31, 2023, funds available for dividend payments from the Bank were $5.2 billion. Applicable provisions that may be contained in our borrowing agreements or the borrowing agreements of our subsidiaries may limit our subsidiaries’ ability to pay dividends to us or our ability to pay dividends to our stockholders. There can be no assurance that we will declare and pay any dividends to stockholders.



			192			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12—EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per common share for the years ended December 31, 2023, 2022 and 2021. Dividends and undistributed earnings allocated to participating securities represent the application of the “two-class” method as described in “Note 1—Summary of Significant Accounting Policies.”

Table 12.1: Computation of Basic and Diluted Earnings per Common Share


	Year Ended December 31,
(Dollars and shares in millions, except per share data)		2023		2022		2021
Income from continuing operations, net of tax		$	4,887	$	7,360	$	12,394
Income (loss) from discontinued operations, net of tax		0		0		(4)
Net income		4,887		7,360		12,390
Dividends and undistributed earnings allocated to participating securities		(77)		(88)		(105)
Preferred stock dividends		(228)		(228)		(274)
Issuance cost for redeemed preferred stock		0		0		(46)
Net income available to common stockholders		$	4,582	$	7,044	$	11,965

Total weighted-average basic common shares outstanding		382.4		391.8		442.5
Effect of dilutive securities:(1)
Stock options		0.1		0.3		0.7
Other contingently issuable shares		0.9		1.1		1.0
Total effect of dilutive securities		1.0		1.4		1.7
Total weighted-average diluted common shares outstanding		383.4		393.2		444.2
Basic earnings per common share:
Net income from continuing operations		$	11.98	$	17.98	$	27.05
Income (loss) from discontinued operations		0.00		0.00		(0.01)
Net income per basic common share		$	11.98	$	17.98	$	27.04
Diluted earnings per common share:(1)
Net income from continuing operations		$	11.95	$	17.91	$	26.95
Income (loss) from discontinued operations		0.00		0.00		(0.01)
Net income per diluted common share		$	11.95	$	17.91	$	26.94

(1)Excluded from the computation of diluted earnings per share were awards of 27 thousand shares, 24 thousand shares and 26 thousand shares for the years ended December 31, 2023, 2022 and 2021, respectively, because their inclusion would be anti-dilutive. There were no options excluded from the computation for the years ended December 31, 2023, 2022 and 2021.



			193			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13—STOCK-BASED COMPENSATION PLANS

Stock Plans

We have one active stock-based compensation plan available for the issuance of shares to employees and directors. As of December 31, 2023, under the Amended and Restated 2004 Stock Incentive plan (“2004 Plan”), we are authorized to issue 81 million common shares in various forms, primarily share-settled RSUs, PSUs and non-qualified stock options. Of this amount, approximately 23 million shares remain available for future issuance as of December 31, 2023. The 2004 Plan permits the use of newly issued shares or treasury shares upon the settlement of options and stock-based incentive awards, and we generally settle by issuing new shares.

We also issue cash-settled restricted stock units. These cash-settled units are not counted against the common shares authorized for issuance or available for issuance under the 2004 Plan. Cash-settled units vesting during 2023, 2022 and 2021 resulted in cash payments to associates of $4 million, $8 million and $7 million, respectively. There was no unrecognized compensation cost for unvested cash-settled units as of December 31, 2023.

Total stock-based compensation expense recognized during 2023, 2022 and 2021 was $513 million, $314 million and $331 million, respectively. The total income tax benefit for stock-based compensation recognized during 2023, 2022 and 2021 was $99 million, $75 million and $62 million, respectively.

In addition, we maintain an Associate Stock Purchase Plan (“Purchase Plan”), which is a compensatory plan under the accounting guidance for stock-based compensation. Related to the Purchase Plan, we recognized compensation expense of $39 million, $36 million and $33 million for 2023, 2022 and 2021, respectively. We also maintain a Dividend Reinvestment and Stock Purchase Plan, which allows participating stockholders to purchase additional shares of our common stock through automatic reinvestment of dividends or optional cash investments.

Restricted Stock Units and Performance Share Units

RSUs represent share-settled awards that do not contain performance conditions and are granted to certain employees at no cost to the recipient. RSUs generally vest over three years from the date of grant; however, some RSUs cliff vest on or shortly after the first or third anniversary of the grant date. RSUs are subject to forfeiture until certain restrictions have lapsed, including continued employment for a specified period of time.

PSUs represent share-settled awards that contain performance conditions and are granted to certain employees at no cost to the recipient. PSUs generally vest over three years from the date of grant; however, some PSUs cliff vest on or shortly after the third anniversary of the grant date. The number of PSUs that vest over three years can be reduced by 50% or 100% depending on whether specific performance goals are met during the vesting period. The number of three-year cliff vesting PSUs that will ultimately vest is contingent upon meeting specific performance goals over a three-year period. These PSUs also include an opportunity to receive from 0% to 150% of the target number of common shares.

A recipient of an RSU or PSU is entitled to receive a share of common stock after the applicable restrictions lapse and is generally entitled to receive cash payments or additional shares of common stock equivalent to any dividends paid on the underlying common stock during the period the RSU or PSU is outstanding, but is not entitled to voting rights. Generally, the value of RSUs and PSUs will equal the fair value of our common stock on the date of grant and the expense is recognized over the vesting period. Certain PSUs have discretionary vesting conditions and are remeasured at fair value each reporting period.



			194			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents a summary of 2023 activity for RSUs and PSUs.

Table 13.1: Summary of Restricted Stock Units and Performance Share Units


	Restricted Stock Units			Performance Share Units(1)
(Shares/units in thousands)	Units	Weighted-Average Grant Date Fair Value per Unit		Units	Weighted-Average Grant Date Fair Value per Unit
Unvested as of January 1, 2023	5,056	$	124.92	1,703	$	125.55
Granted(2)	3,716	113.08		1,081	115.09
Vested	(2,078)	124.81		(811)	111.80
Forfeited	(247)	124.11		(18)	123.92
Unvested as of December 31, 2023	6,447	$	118.16	1,955	$	125.49

(1)Granted and vested include adjustments for achievement of specific performance goals for PSUs granted in prior periods.

(2)The weighted-average grant date fair value of RSUs was $141.71 and $127.37 in 2022 and 2021, respectively. The weighted-average grant date fair value of PSUs was $139.00 and $112.51 in 2022 and 2021, respectively.

The total fair value of RSUs that vested during 2023, 2022 and 2021 was $233 million, $248 million and $202 million, respectively. The total fair value of PSUs that vested was $91 million, $127 million and $94 million in 2023, 2022 and 2021, respectively. As of December 31, 2023, the unrecognized compensation expense related to unvested RSUs is $411 million, which is expected to be amortized over a weighted-average period of approximately 1.8 years; and the unrecognized compensation related to unvested PSUs was $46 million, which is expected to be amortized over a weighted-average period of approximately 1.1 years.

Stock Options

Stock options have a maximum contractual term of 10 years. Generally, the exercise price of stock options will equal the fair market value of our common stock on the date of grant. Option vesting is determined at the time of grant and may be subject to the achievement of any applicable performance conditions. Options generally become exercisable over three years beginning on the first anniversary of the date of grant; however, some option grants cliff vest on or shortly after the first or third anniversary of the grant date.

The following table presents a summary of 2023 activity for stock options and the balance of stock options exercisable as of December 31, 2023.

Table 13.2: Summary of Stock Options Activity


(Shares in thousands, and intrinsic value in millions)	Shares Subject to Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding as of January 1, 2023	541	$	75.12
Granted	0	0.00
Exercised	(137)	74.10
Forfeited	0	0.00
Expired	0	0.00
Outstanding and Exercisable as of December 31, 2023	404	$	75.46	2.18 years	$	22

There were no stock options granted in 2023, 2022 and 2021. The total intrinsic value of stock options exercised during 2023, 2022 and 2021 was $5 million, $18 million and $80 million, respectively.



			195			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 14—EMPLOYEE BENEFIT PLANS

Defined Contribution Plan

We sponsor a contributory Associate Savings Plan (the “Plan”) in which all full-time and part-time associates over the age of 18 are eligible to participate. We make non-elective contributions to each eligible associate’s account and match a portion of associate contributions. We also sponsor a voluntary non-qualified deferred compensation plan in which select groups of employees are eligible to participate. We make contributions to this plan based on participants’ deferral of salary, bonuses and other eligible pay. In addition, we match participants’ excess compensation (compensation over the Internal Revenue Service (“IRS”) compensation limit) less deferrals. We contributed a total of $492 million, $444 million and $378 million to these plans during the years ended December 31, 2023, 2022 and 2021, respectively.

Defined Benefit Pension and Other Postretirement Benefit Plans

We sponsor several frozen plans, including a qualified defined benefit pension plan, several non-qualified defined benefit pension plans, and a plan that provides other postretirement benefits, including medical and life insurance coverage. Our pension plans and the other postretirement benefit plan are valued using December 31 as the measurement date each year. Our policy is to amortize prior service amounts on a straight-line basis over the average remaining years of service to full eligibility for benefits of active plan participants.

The following table sets forth, on an aggregated basis, changes in the benefit obligation and plan assets, the funded status and how the funded status is recognized on our consolidated balance sheets.

Table 14.1: Changes in Benefit Obligation and Plan Assets


	Defined Pension Benefits				Other Postretirement Benefits
(Dollars in millions)	2023		2022		2023		2022
Change in benefit obligation:
Accumulated benefit obligation as of January 1,	$	128	$	163	$	12	$	16
Service cost	1		1		0		0
Interest cost	7		4		0		0
Benefits paid	(10)		(11)		(2)		(1)
Actuarial loss (gain)	1		(29)		0		(3)
Accumulated benefit obligation as of December 31,	$	127	$	128	$	10	$	12
Change in plan assets:
Fair value of plan assets as of January 1,	$	222	$	273	$	5	$	6
Actual return on plan assets	23		(41)		1		(1)
Employer contributions	1		1		1		1
Benefits paid	(10)		(11)		(2)		(1)
Fair value of plan assets as of December 31,	$	236	$	222	$	5	$	5
Over (under) funded status as of December 31,	$	109	$	94	$	(5)	$	(7)


	Defined Pension Benefits				Other Postretirement Benefits
(Dollars in millions)	2023		2022		2023		2022
Balance sheet presentation as of December 31,
Other assets	$	117	$	102	$	0	$	0
Other liabilities	(8)		(8)		(5)		(7)
Net amount recognized as of December 31,	$	109	$	94	$	(5)	$	(7)



			196			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net periodic benefit gain for our defined benefit pension plans and other postretirement benefit plan totaled $6 million, $8 million and $12 million in 2023, 2022 and 2021, respectively. We recognized pre-tax gains of $9 million in 2023, pre-tax losses of $24 million in 2022 and pre-tax gains of $4 million in AOCI for our defined benefit pension plans and other postretirement benefit plan in 2021.

Pre-tax amounts recognized in AOCI that have not yet been recognized as a component of net periodic benefit cost consist of net actuarial losses of $47 million and $57 million for our defined benefit pension plans as of December 31, 2023 and 2022, respectively, and net actuarial gains of $2 million and $3 million for our other postretirement benefit plan as of December 31, 2023 and 2022, respectively. There was no meaningful prior service cost recognized in AOCI.

Plan Assets and Fair Value Measurement

Plan assets are invested using a total return investment approach whereby a mix of equity securities and debt securities are used to preserve asset values, diversify risk and enhance our ability to achieve our benchmark for long-term investment return. Investment strategies and asset allocations are based on careful consideration of plan liabilities, the plan’s funded status and our financial condition. Investment performance and asset allocation are measured and monitored on a daily basis.

As of December 31, 2023 and 2022, our plan assets totaled $241 million and $227 million, respectively. We invested substantially all our plan assets in common collective trusts, which primarily consist of domestic and international equity securities, government securities and corporate and municipal bonds. Our plan assets were classified as Level 2 in the fair value hierarchy as of December 31, 2023 and 2022. For information on fair value measurements, including descriptions of Level 1, 2 and 3 of the fair value hierarchy, see “Note 16—Fair Value Measurement.”

Expected Future Benefit Payments

As of December 31, 2023, the benefits expected to be paid in the next ten years totaled $105 million for our defined pension benefit plans and $10 million for our other postretirement benefit plan, respectively.



			197			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15—INCOME TAXES

The following table presents significant components of the provision for income taxes attributable to continuing operations for the years ended December 31, 2023, 2022 and 2021.

Table 15.1: Significant Components of the Provision for Income Taxes Attributable to Continuing Operations


	Year Ended December 31,
(Dollars in millions)	2023		2022		2021
Current income tax provision:
Federal taxes	$	1,423	$	2,125	$	2,173
State taxes	382		423		485
International taxes	76		104		152
Total current provision	$	1,881	$	2,652	$	2,810
Deferred income tax provision (benefit):
Federal taxes	$	(547)	$	(662)	$	490
State taxes	(145)		(112)		91
International taxes	(31)		2		24
Total deferred provision (benefit)	(723)		(772)		605
Total income tax provision	$	1,158	$	1,880	$	3,415

The international income tax provision is related to pre-tax earnings from foreign operations of approximately $230 million, $462 million and $677 million in 2023, 2022 and 2021, respectively.

Total income tax provision does not reflect the tax effects of items that are included in AOCI, which include a tax provision of $455 million in 2023, and a tax benefit of $3.2 billion and $985 million in 2022 and 2021, respectively. See “Note 10—Stockholders’ Equity” for additional information.



			198			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the reconciliation of the U.S. federal statutory income tax rate to the effective income tax rate applicable to income from continuing operations for the years ended December 31, 2023, 2022 and 2021.

Table 15.2: Effective Income Tax Rate


	Year Ended December 31,
	2023		2022		2021
Income tax at U.S. federal statutory tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	3.4		3.1		3.1
Non-deductible expenses	1.4		0.6		0.4
Affordable housing, new markets and other tax credits	(6.8)		(4.2)		(2.3)
Tax-exempt interest and other nontaxable income	(0.8)		(0.4)		(0.3)

Changes in valuation allowance	0.8		1.0		0.4
Other, net	0.2		(0.8)		(0.7)
Effective income tax rate	19.2	%	20.3	%	21.6	%

The following table presents significant components of our deferred tax assets and liabilities as of December 31, 2023 and 2022. The valuation allowance below represents the adjustment of our foreign tax credit carryforward, certain state deferred tax assets and net operating loss carryforwards to the amount we have determined is more likely than not to be realized.

Table 15.3: Significant Components of Deferred Tax Assets and Liabilities


(Dollars in millions)	December 31, 2023		December 31, 2022
Deferred tax assets:
Allowance for credit losses	$	3,538	$	3,025
Security and loan valuations	2,223		2,497
Rewards programs	801		790
Net operating loss and tax credit carryforwards	514		437
Net unrealized loss on derivatives	470		689
Compensation and employee benefits	444		411
Lease liabilities	314		346



Fixed assets and leases	278		190
Partnership investments	272		253
Other assets	388		317
Subtotal	9,242		8,955
Valuation allowance	(496)		(446)
Total deferred tax assets	8,746		8,509
Deferred tax liabilities:
Right-of-use assets	253		284
Original issue discount	121		241
Partnership investments	148		119
Mortgage servicing rights	85		95
Loan Fees & Expenses	48		52


Goodwill and intangibles	57		0
Other liabilities	95		59
Total deferred tax liabilities	807		850
Net deferred tax assets	$	7,939	$	7,659



			199			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our gross federal net operating loss carryforwards were $7 million and $13 million as of December 31, 2023 and 2022, respectively. These operating loss carryforwards were attributable to acquisitions, and all of $7 million is expected to be utilized. Under IRS rules, our ability to utilize these losses against future income is limited. The net tax values of our state net operating loss carryforwards were $273 million and $267 million as of December 31, 2023 and 2022, respectively, and they will expire from 2024 to 2042. Our foreign tax credit carryforwards were $207 million and $166 million as of December 31, 2023 and 2022, respectively, and they will expire from 2029 to 2033.

Our valuation allowance increased by $50 million to $496 million as of December 31, 2023 compared to $446 million as of December 31, 2022. Of the total increase, $41 million is related to the current year increase in our foreign tax credit carryforwards that will not be realized prior to expiration and $8 million is related to reducing state net operating losses and interest carryforwards to the amount we have determined is more likely than not to be realized.

We recognize accrued interest and penalties related to income taxes as a component of income tax expense. We recognized a $1 million tax expense in 2023, $1 million and $30 million tax benefit in 2022 and 2021, respectively.

The following table presents the accrued balance of tax, interest and penalties related to unrecognized tax benefits.

Table 15.4: Reconciliation of the Change in Unrecognized Tax Benefits


(Dollars in millions)	Gross Unrecognized Tax Benefits		Accrued Interest and Penalties		Gross Tax, Interest and Penalties
Balance as of January 1, 2021	$	451	$	46	$	497

Additions for tax positions related to prior years	1		4		5
Reductions for tax positions related to prior years due to IRS and other settlements	(47)		(36)		(83)
Balance as of December 31, 2021	405		14		419
Additions for tax positions related to the current year	3		0		3
Additions for tax positions related to prior years	14		6		20
Reductions for tax positions related to prior years due to IRS and other settlements	(381)		(10)		(391)
Balance as of December 31, 2022	41		10		51
Additions for tax positions related to the current year	2		0		2
Additions for tax positions related to prior years	10		4		14
Reductions for tax positions related to prior years due to IRS and other settlements	(20)		(7)		(27)
Balance as of December 31, 2023	$	33	$	7	$	40
Portion of balance at December 31, 2023 that, if recognized, would impact the effective income tax rate	$	27	$	6	$	33

We are subject to examination by the IRS and other tax authorities in certain countries and states in which we operate. The tax years subject to examination vary by jurisdiction. During 2023, we continued to participate in the IRS Compliance Assurance Process (“CAP”) for our open federal income tax return years and have been accepted into CAP for 2024. During 2023, the IRS continued examining our 2021 federal income tax return for only two issues listed for review post-filing that we expect to be completed by June 30, 2024. We also expect that the IRS review of our 2022 federal income tax return will be completed in 2024. We also expect that the IRS review of our 2023 federal income tax return will be substantially completed in 2024 prior to its filing.

It is reasonably possible that further adjustments to the Company’s unrecognized tax benefits may be made within 12 months of the reporting date as a result of future judicial or regulatory interpretations of existing tax laws. At this time, an estimate of the potential changes to the amount of unrecognized tax benefits cannot be made.

As of December 31, 2023, the Company had approximately $1.8 billion of unremitted earnings of subsidiaries operating outside the U.S. that upon repatriation would have no additional U.S. income taxes. In accordance with the guidance for accounting for income taxes in special areas, nearly all these earnings are considered by management to be invested indefinitely.



			200			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2023, U.S. income taxes of $70 million have not been provided for approximately $287 million of previously acquired thrift bad debt reserves created for tax purposes as of December 31, 1987. These amounts, acquired as a result of previous mergers and acquisitions, are subject to recapture in the unlikely event that CONA, as the successor to the merged and acquired entities, makes distributions in excess of earnings and profits, redeems its stock or liquidates.



			201			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16—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 (“DCF”) 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. 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. Based upon the specific facts and circumstances of each instrument or instrument category, judgments are made regarding the significance of the observable or unobservable inputs to the instruments’ fair value measurement in its entirety. If unobservable inputs are considered significant, the instrument is classified as Level 3. The process for determining fair value using unobservable inputs is generally more subjective and involves a high degree of management judgment and assumptions. 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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following describes the valuation techniques used in estimating the fair value of our financial assets and liabilities recorded at fair value on a recurring basis. The determination of the leveling of financial instruments in the fair value hierarchy is performed at the end of each reporting period.

Investment Securities

We measure the fair value of our U.S. Treasury securities using quoted prices in active markets. For the majority of securities in other investment categories, we utilize multiple vendor pricing services to obtain fair value measurements. We use a waterfall of pricing vendors determined using our annual assessment of pricing service performance. A pricing service may be considered as the preferred or primary pricing provider depending on how closely aligned its prices are to other vendor prices, and how consistent the prices are with other available market information. The price of each security is confirmed by comparing such price to other vendor prices before it is finalized.

RMBS and CMBS are generally classified as Level 2 or 3. When significant assumptions are not consistently observable, fair values are derived using the best available data. Such data may include quotes provided by dealers, valuation from external pricing services, independent pricing models, or other model-based valuation techniques, for example, calculation of the present values of future cash flows incorporating assumptions such as benchmark yields, spreads, prepayment speeds, credit ratings and losses. Generally, the external pricing services utilize observable market data to the extent available. Pricing models may be used, which can vary by asset class, and may also incorporate available trade, bid and other market information. Across asset classes, information such as trader/dealer inputs, credit spreads, forward curves and prepayment speeds are used to help determine appropriate valuations. Because many fixed income securities do not trade on a daily basis, the pricing models may apply available information through processes such as benchmarking curves, grouping securities based on their characteristics and using matrix pricing to prepare valuations. In addition, model processes are used by the pricing services to develop prepayment assumptions.



			202			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We validate the pricing obtained from the primary pricing providers through comparison of pricing to additional sources, including other pricing services, dealer pricing indications in transaction results and other internal sources. Pricing variances among different pricing sources are analyzed. Additionally, on an on-going basis, we request more detailed information from the valuation vendors to understand the pricing methodology and assumptions used to value the securities.

Derivative Assets and Liabilities

We use both exchange-traded and OTC derivatives to manage our interest rate, foreign currency and commodity risk exposures. When quoted market prices are available and used to value our exchange-traded derivatives, we classify them as Level 1. However, the majority of our derivatives do not have readily available quoted market prices. Therefore, we value most of our derivatives using vendor-based models. We primarily rely on market observable inputs for these models, including, for example, interest rate yield curves, credit curves, option volatility and currency rates. These inputs can vary depending on the type of derivatives and nature of the underlying rate, price or index upon which the value of the derivative is based. We typically classify derivatives as Level 2 when significant inputs can be observed in a liquid market and the model itself does not require significant judgment. When instruments are traded in less liquid markets and significant inputs are unobservable, such as interest rate swaps whose remaining terms do not correlate with market observable interest rate yield curves, such derivatives are classified as Level 3. We consider the impact of credit risk valuation adjustments when measuring the fair value of derivative contracts in order to reflect the credit quality of the counterparty and our own credit quality. Our internal pricing is compared against additional pricing sources such as external valuation agents and other internal sources. Pricing variances among different pricing sources are analyzed and validated. These derivatives are included in other assets or other liabilities on our consolidated balance sheets.

Loans Held for Sale

In our commercial business, we originate multifamily commercial real estate loans with the intent to sell them to GSEs. We elect the fair value option for such loans as part of our management of interest rate risk in our multifamily agency business. These held for sale loans are valued based on market observable inputs and are therefore classified as Level 2. Unrealized gains and losses on these loans are recorded in other non-interest income in our consolidated statements of income.

Retained Interests in Securitizations

We have retained interests in various mortgage securitizations from previous acquisitions. Our retained interests primarily include interest-only bonds and negative amortization bonds. We record these retained interests at fair value using market indications and valuation models to calculate the present value of future cash flows. Due to the use of significant unobservable inputs such as prepayment and discount rate assumptions, retained interests in securitizations are classified as Level 3 under the fair value hierarchy.

Deferred Compensation Plan Assets

We offer a voluntary non-qualified deferred compensation plan to eligible associates. In addition to participant deferrals, we make contributions to the plan. Participants invest these contributions in a variety of publicly traded mutual funds. The plan assets, which consist of those publicly traded mutual funds, are classified as Level 1.



			203			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table displays our assets and liabilities measured on our consolidated balance sheets at fair value on a recurring basis as of December 31, 2023 and 2022.

Table 16.1: Assets and Liabilities Measured at Fair Value on a Recurring Basis


	December 31, 2023
	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	$	5,282	$	0	$	0	0			$	5,282
RMBS	0		63,492		146		0			63,638
CMBS	0		8,191		132		0			8,323
Other securities	126		1,748		0		0			1,874
Total securities available for sale	5,408		73,431		278		0			79,117
Loans held for sale	0		347		0		0			347
Other assets:
Derivative assets(2)	788		1,001		886		$	(1,005)		1,670
Other(3)	589		3		35		0			627
Total assets	$	6,785	$	74,782	$	1,199	$	(1,005)		$	81,761
Liabilities:
Other liabilities:
Derivative liabilities(2)	$	449	$	1,655	$	828	$	(597)		$	2,335
Total liabilities	$	449	$	1,655	$	828	$	(597)		$	2,335


	December 31, 2022
	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	$	5,041	$	0	$	0	0			$	5,041
RMBS	0		62,353		236		0			62,589
CMBS	0		7,728		142		0			7,870
Other securities	186		1,233		0		0			1,419
Total securities available for sale	5,227		71,314		378		0			76,919
Loans held for sale	0		191		0		0			191
Other assets:
Derivative assets(2)	474		2,545		79		$	(1,134)		1,964
Other(3)	464		3		36		0			503
Total assets	$	6,165	$	74,053	$	493	$	(1,134)		$	79,577
Liabilities:
Other liabilities:
Derivative liabilities(2)	$	823	$	3,653	$	74	$	(1,235)		$	3,315
Total liabilities	$	823	$	3,653	$	74	$	(1,235)		$	3,315

(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)Does not reflect approximately $2 million and $4 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of December 31, 2023 and 2022, respectively. Non-performance risk is included in the measurement of derivative assets and liabilities on our consolidated balance sheets, and is recorded through non-interest income in the consolidated statements of income.

(3)As of December 31, 2023 and 2022, other includes retained interests in securitizations of $35 million and $36 million, deferred compensation plan assets of $578 million and $453 million, and equity securities of $14 million (including unrealized gains of $5 million) and $14 million (including unrealized losses of $23 million), respectively.



			204			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 years ended December 31, 2023, 2022 and 2021. 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 16.2: Level 3 Recurring Fair Value Rollforward


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Year Ended December 31, 2023
			Total Gains (Losses) (Realized/Unrealized)																		Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of December 31, 2023(1)
(Dollars in millions)	Balance, January 1, 2023		Included in Net Income(1)		Included in OCI		Purchases		Sales		Issuances		Settlements		Transfers Into Level 3		Transfers Out of Level 3		Balance, December 31, 2023
Securities available for sale:(2)
RMBS	$	236	$	8	$	(2)	$	0	$	0	$	0	$	(20)	$	49	$	(125)	$	146	$	7
CMBS	142		(1)		(4)		0		0		0		(5)		0		0		132		(1)

Total securities available for sale	378		7		(6)		0		0		0		(25)		49		(125)		278		6
Other assets:

Retained interests in securitizations	36		(1)		0		0		0		0		0		0		0		35		(1)
Net derivative assets (liabilities)(3)(4)	5		(14)		0		0		0		166		69		(167)		(1)		58		63



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Year Ended December 31, 2022
			Total Gains (Losses) (Realized/Unrealized)																		Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of December 31, 2022(1)
(Dollars in millions)	Balance, January 1, 2022		Included in Net Income(1)		Included in OCI		Purchases		Sales		Issuances		Settlements		Transfers Into Level 3		Transfers Out of Level 3		Balance, December 31, 2022
Securities available for sale:(2)
RMBS	$	258	$	18	$	(32)	$	0	$	0	$	0	$	(60)	$	123	$	(71)	$	236	$	10
CMBS	9		(1)		(3)		0		0		0		(15)		190		(38)		142		(1)

Total securities available for sale	267		17		(35)		0		0		0		(75)		313		(109)		378		9
Other assets:

Retained interests in securitizations	41		(5)		0		0		0		0		0		0		0		36		(5)
Net derivative assets (liabilities)(3)	19		(65)		0		0		0		36		3		(28)		40		5		(33)



			205			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Year Ended December 31, 2021
			Total Gains (Losses) (Realized/Unrealized)																		Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of December 31, 2021(1)
(Dollars in millions)	Balance, January 1, 2021		Included in Net Income(1)		Included in OCI		Purchases		Sales		Issuances		Settlements		Transfers Into Level 3		Transfers Out of Level 3		Balance, December 31 2021
Securities available for sale:(2)
RMBS	$	328	$	18	$	5	$	0	$	0	$	0	$	(91)	$	106	$	(108)	$	258	$	15
CMBS	111		0		(2)		0		0		0		(7)		0		(93)		9		0

Total securities available for sale	439		18		3		0		0		0		(98)		106		(201)		267		15
Other assets:

Retained interests in securitizations	55		(14)		0		0		0		0		0		0		0		41		(14)
Net derivative assets (liabilities)(3)	31		(43)		0		0		0		68		(37)		6		(6)		19		(20)

(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)Net unrealized losses included in other comprehensive income related to Level 3 securities available for sale still held as of December 31, 2023 were $5 million. Net unrealized losses included in other comprehensive income related to Level 3 securities available for sale still held as of December 31, 2022 were $57 million. Net unrealized losses included in other comprehensive income related to Level 3 securities available for sale still held as of December 31, 2021 were $4 million.

(3)Includes derivative assets and liabilities of $886 million and $828 million, respectively, as of December 31, 2023 and $79 million and $74 million, respectively, as of December 31, 2022, and $84 million and $65 million, respectively, as of December 31, 2021.

(4)Transfers into Level 3 primarily consist of term Secured Overnight Financing Rate (“SOFR”)-indexed interest rate derivatives.

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 or 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, and would lead to a decrease in the fair value measurement.

Techniques and Inputs for Level 3 Fair Value Measureme****nts

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.



			206			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Table 16.3: Quantitative Information about Level 3 Fair Value Measurements


	Quantitative Information about Level 3 Fair Value Measurements
(Dollars in millions)	Fair Value at December 31, 2023		Significant Valuation Techniques	Significant Unobservable Inputs	Range	Weighted Average(1)
Securities available for sale:
RMBS	$	146	Discounted cash flows (vendor pricing)	Yield Voluntary prepayment rate Default rate Loss severity	2-19% 0-12% 0-10% 30-80%	7% 7% 1% 61%
CMBS	132		Discounted cash flows (vendor pricing)	Yield	5-7%	5%
Other assets:
Retained interests in securitizations(2)	35		Discounted cash flows	Life of receivables (months) Voluntary prepayment rate Discount rate Default rate Loss severity	33-69 9% 5-14% 2% 53-163%	N/A
Net derivative assets (liabilities)	58		Discounted cash flows	Swap rates	3-5%	4%


	Quantitative Information about Level 3 Fair Value Measurements
(Dollars in millions)	Fair Value at December 31, 2022		Significant Valuation Techniques	Significant Unobservable Inputs	Range	Weighted Average(1)
Securities available for sale:
RMBS	$	236	Discounted cash flows (vendor pricing)	Yield Voluntary prepayment rate Default rate Loss severity	3-12% 4-20% 0-11% 30-80%	7% 8% 2% 58%
CMBS	142		Discounted cash flows (vendor pricing)	Yield	4-5%	5%
Other assets:
Retained interests in securitizations(2)	36		Discounted cash flows	Life of receivables (months) Voluntary prepayment rate Discount rate Default rate Loss severity	30-43 9-18% 4-7% 1% 62-291%	N/A
Net derivative assets (liabilities)	5		Discounted cash flows	Swap rates	3-4%	4%

(1)Weighted averages are calculated by using the product of the input multiplied by the relative fair value of the instruments.

(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 describes the valuation techniques used in estimating the fair value of our financial assets and liabilities recorded at fair value on a nonrecurring basis.

Net Loans Held for Investment

Loans held for investment that are recorded at fair value on our consolidated balance sheets on a nonrecurring basis largely consist of impaired loans for which impairment is measured based upon the fair value of the underlying collateral. The fair value is determined using appraisal values that are obtained from independent appraisers, broker pricing opinions or other available market information, adjusted for the estimated cost to sell. Due to the use of significant unobservable inputs, these



			207			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

loans are classified as Level 3 under the fair value hierarchy. Fair value adjustments for individually impaired collateralized loans held for investment are recorded in provision for credit losses in the consolidated statements of income.

Loans Held for Sale

Loans held for sale for which we have not elected the fair value option are carried at the lower of aggregate cost, net of deferred fees and deferred origination costs, or fair value. These loans held for sale are valued based on market observable inputs and are therefore classified as Level 2. Fair value adjustments to these loans are recorded in other non-interest income in our consolidated statements of income.

Other Assets

Other assets subject to nonrecurring fair value measurements include equity investments accounted for under the measurement alternative, other repossessed assets and long-lived assets held for sale. The assets held for sale are carried at the lower of the carrying amount or fair value less costs to sell. The fair value is determined based on the appraisal value, listing price of the property or collateral provided by independent appraisers, and is adjusted for the estimated costs to sell. Due to the use of significant unobservable inputs, these assets are classified as Level 3 under the fair value hierarchy. Fair value adjustments for these assets are recorded in other non-interest expense in the consolidated statements of income.

The following table presents the carrying value of the assets measured at fair value on a nonrecurring basis and still held as of December 31, 2023 and 2022, and for which a nonrecurring fair value measurement was recorded during the year then ended.

Table 16.4: Nonrecurring Fair Value Measurements


	December 31, 2023
	Estimated Fair Value Hierarchy				Total
(Dollars in millions)	Level 2		Level 3
Loans held for investment	$	0	$	545	$	545
Loans held for sale	37		0		37
Other assets(1)	0		214		214
Total	$	37	$	759	$	796


	December 31, 2022
	Estimated Fair Value Hierarchy				Total
(Dollars in millions)	Level 2		Level 3
Loans held for investment	$	0	$	284	$	284
Loans held for sale	11		0		11
Other assets(1)	0		220		220
Total	$	11	$	504	$	515

(1)As of December 31, 2023, other assets included investments accounted for under measurement alternative of $46 million, repossessed assets of $45 million, and long-lived assets held for sale and right-of-use assets totaling $123 million. As of December 31, 2022, other assets included investments accounted for under measurement alternative of $4 million, cost method investments of $3 million, repossessed assets of $55 million and long-lived assets held for sale and right-of-use assets totaling $158 million.



			208			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 100%, with a weighted average of 18%, and from 0% to 43%, with a weighted average of 20%, as of December 31, 2023 and 2022, 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.

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 December 31, 2023 and 2022.

Table 16.5: Nonrecurring Fair Value Measurements Included in Earnings


	Total Gains (Losses)
	Year Ended December 31,
(Dollars in millions)	2023		2022
Loans held for investment	$	(244)	$	30
Loans held for sale	(1)		0
Other assets(1)	(58)		(38)
Total	$	(303)	$	(8)

(1)Other assets include fair value adjustments related to repossessed assets, long-lived assets held for sale and right-of-use assets, and equity investments accounted for under the measurement alternative.

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 December 31, 2023 and 2022.

Table 16.6: Fair Value of Financial Instruments


	December 31, 2023
	Carrying Value		Estimated Fair Value		Estimated Fair Value Hierarchy
(Dollars in millions)			Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	43,297	$	43,297	$	4,903	$	38,394	$	0
Restricted cash for securitization investors	458		458		458		0		0

Net loans held for investment	305,176		308,044		0		0		308,044
Loans held for sale	507		515		0		515		0
Interest receivable	2,478		2,478		0		2,478		0
Other investments(1)	1,329		1,329		0		1,329		0
Financial liabilities:
Deposits with defined maturities	83,014		82,990		0		82,990		0
Securitized debt obligations	18,043		18,067		0		18,067		0
Senior and subordinated notes	31,248		31,524		0		31,524		0
Federal funds purchased and securities loaned or sold under agreements to repurchase	538		538		0		538		0

Interest payable	649		649		0		649		0



			209			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	December 31, 2022
	Carrying Value		Estimated Fair Value		Estimated Fair Value Hierarchy
(Dollars in millions)			Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	30,856	$	30,856	$	5,193	$	25,663	$	0
Restricted cash for securitization investors	400		400		400		0		0
Net loans held for investment	299,091		302,920		0		0		302,920
Loans held for sale	11		11		0		11		0
Interest receivable	2,104		2,104		0		2,104		0
Other investments(1)	1,326		1,326		0		1,326		0
Financial liabilities:
Deposits with defined maturities	45,858		45,531		0		45,531		0
Securitized debt obligations	16,973		16,918		0		16,918		0
Senior and subordinated notes	30,826		30,744		0		30,744		0
Federal funds purchased and securities loaned or sold under agreements to repurchase	883		883		0		883		0

Interest payable	527		527		0		527		0

(1)Other investments include FHLB and Federal Reserve stock. These investments are included in other assets on our consolidated balance sheets.



			210			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 17—BUSINESS SEGMENTS AND REVENUE FROM CONTRACTS WITH CUSTOMERS

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

Credit Card: Consists of our domestic consumer and small business card lending, and international card businesses in the United Kingdom and Canada.
Consumer Banking: Consists of our deposit gathering and lending activities for consumers and small businesses, and national auto lending.
Commercial Banking: Consists of our lending, deposit gathering, capital markets and treasury management services to commercial real estate and commercial and industrial customers. Our customers typically include companies with annual revenues between $20 million and $2 billion.

*•*Other category: Includes the residual impact of the allocation of our centralized Corporate Treasury group activities, such as management of our corporate investment portfolio, asset/liability management and oversight of our funds transfer pricing process, to our business segments. Accordingly, net gains and losses on our investment securities portfolio and certain trading activities are included in the Other category. The Other category also includes unallocated corporate 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, as well as residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments.

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 revenues and expenses directly or indirectly attributable to each business segment. Our funds transfer pricing process managed by our centralized Corporate Treasury group provides a funds credit for sources of funds, such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a charge for the use of funds by each segment. The allocation is unique to each business segment and acquired business and is based on the composition of assets and liabilities. The funds transfer pricing process considers the interest rate and liquidity risk characteristics of assets and liabilities and off-balance sheet products. Periodically the methodology and assumptions utilized in the funds transfer pricing process are adjusted to reflect economic conditions and other factors, which may impact the allocation of net interest income to the business segments. 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 market 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.

The following is additional information on the principles and methodologies used in preparing our business segment results.

*•*Net interest income: Interest income from loans held for investment and interest expense from deposits and other interest-bearing liabilities are reflected within each applicable business segment. Because funding and asset/liability management are managed centrally by our Corporate Treasury group, net interest income for our business segments also



			211			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

includes the results of a funds transfer pricing process that is intended to allocate a cost of funds used or credit for funds provided to all business segment assets and liabilities, respectively, using a matched funding concept. The taxable-equivalent benefit of tax-exempt products is also allocated to each business unit with a corresponding increase in income tax expense.

*•*Non-interest income: Non-interest fees and other revenue associated with loans or customers managed by each business segment and other direct revenues are accounted for within each business segment.

*•*Provision for credit losses: The provision for credit losses is directly attributable to the business segment in accordance with the loans each business segment manages.

*•*Non-interest expense: Non-interest expenses directly managed and incurred by a business segment are accounted for within each business segment. We allocate certain non-interest expenses indirectly incurred by business segments, such as corporate support functions, to each business segment based on various factors, including the actual cost of the services from the service providers, the utilization of the services, the number of employees or other relevant factors.

*•*Goodwill and other intangible assets: Goodwill and other intangible assets are assigned to one or more segments at acquisition. Intangible amortization is included in the results of the applicable segment.

*•*Income taxes: Income taxes are assessed for each business segment based on a standard tax rate with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in the Other category.

*•*Loans held for investment: Loans are reported within each business segment based on product or customer type served by that business segment.

Deposits: Deposits are reported within each business segment based on product or customer type served by that business segment.

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. The following table presents our business segment results for the years ended December 31, 2023, 2022 and 2021, selected balance sheet data as of December 31, 2023 and 2022, and a reconciliation of our total business segment results to our reported consolidated income from continuing operations, loans held for investment and deposits.



			212			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Table 17.1: Segment Results and Reconciliation


	Year Ended December 31, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	19,729	$	8,713	$	2,518	$	(1,719)	$	29,241
Non-interest income	5,940		589		1,002		15		7,546
Total net revenue (loss)(2)	25,669		9,302		3,520		(1,704)		36,787
Provision for credit losses	8,651		1,169		605		1		10,426
Non-interest expense	12,490		5,178		2,011		637		20,316
Income (loss) from continuing operations before income taxes	4,528		2,955		904		(2,342)		6,045
Income tax provision (benefit)	1,071		697		213		(823)		1,158
Income (loss) from continuing operations, net of tax	$	3,457	$	2,258	$	691	$	(1,519)	$	4,887
Loans held for investment	$	154,547	$	75,437	$	90,488	$	0	$	320,472
Deposits	0		296,171		32,712		19,530		348,413


	Year Ended December 31, 2022
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	16,584	$	8,965	$	2,461	$	(896)	$	27,114
Non-interest income (loss)	5,771		469		1,129		(233)		7,136
Total net revenue (loss)(2)	22,355		9,434		3,590		(1,129)		34,250
Provision (benefit) for credit losses	4,265		1,173		415		(6)		5,847
Non-interest expense	11,627		5,312		2,070		154		19,163
Income (loss) from continuing operations before income taxes	6,463		2,949		1,105		(1,277)		9,240
Income tax provision (benefit)	1,536		699		262		(617)		1,880
Income (loss) from continuing operations, net of tax	$	4,927	$	2,250	$	843	$	(660)	$	7,360
Loans held for investment	$	137,730	$	79,925	$	94,676	$	0	$	312,331
Deposits	0		270,592		40,808		21,592		332,992



			213			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Year Ended December 31, 2021
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	14,074	$	8,448	$	2,153	$	(504)	$	24,171
Non-interest income (loss)	4,806		554		1,148		(244)		6,264
Total net revenue (loss)(2)	18,880		9,002		3,301		(748)		30,435
Benefit for credit losses	(902)		(521)		(519)		(2)		(1,944)
Non-interest expense	9,621		4,711		1,815		423		16,570
Income (loss) from continuing operations before income taxes	10,161		4,812		2,005		(1,169)		15,809
Income tax provision (benefit)	2,403		1,136		473		(597)		3,415
Income (loss) from continuing operations, net of tax	$	7,758	$	3,676	$	1,532	$	(572)	$	12,394
Loans held for investment	$	114,772	$	77,646	$	84,922	$	0	$	277,340
Deposits	0		256,407		44,809		9,764		310,980

(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)Total net revenue was reduced by $1.9 billion, $946 million and $629 million for the years ended December 31, 2023, 2022 and 2021, respectively, for credit card 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, service charges and other customer-related fees, and other contract 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 automated teller machine (“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. 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 years ended December 31, 2023, 2022 and 2021.

Table 17.2: Revenue from Contracts with Customers and Reconciliation to Segment Results


	Year Ended December 31, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	4,333	$	367	$	91	$	2	$	4,793
Service charges and other customer-related fees	0		86		222		(2)		306
Other	413		102		31		0		546
Total contract revenue (loss)	4,746		555		344		0		5,645
Revenue from other sources	1,194		34		658		15		1,901
Total non-interest income	$	5,940	$	589	$	1,002	$	15	$	7,546



			214			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Year Ended December 31, 2022
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	4,178	$	320	$	109	$	(1)	$	4,606
Service charges and other customer-related fees	0		91		236		0		327
Other	395		74		16		(1)		484
Total contract revenue (loss)	4,573		485		361		(2)		5,417
Revenue (reduction) from other sources	1,198		(16)		768		(231)		1,719
Total non-interest income (loss)	$	5,771	$	469	$	1,129	$	(233)	$	7,136


	Year Ended December 31, 2021
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	3,497	$	267	$	96	$	0	$	3,860
Service charges and other customer-related fees	0		171		287		(1)		457
Other	383		75		5		0		463
Total contract revenue (loss)	3,880		513		388		(1)		4,780
Revenue (reduction) from other sources	926		41		760		(243)		1,484
Total non-interest income (loss)	$	4,806	$	554	$	1,148	$	(244)	$	6,264

(2)Interchange fees are presented net of customer reward expenses of $8.2 billion, $7.6 billion and $6.4 billion for the years ended December 31, 2023, 2022 and 2021, respectively.



			215			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 18—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 and certain other unconditionally cancellable lines of credit, 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 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 December 31, 2023 and 2022. The carrying value represents our reserve and deferred revenue on legally binding commitments.

Table 18.1: Unfunded Lending Commitments


	Contractual Amount				Carrying Value
(Dollars in millions)	December 31, 2023		December 31, 2022		December 31, 2023		December 31, 2022
Credit card lines	$	392,867	$	359,507	N/A		N/A
Other loan commitments(1)	46,951		48,405		$	99	$	176
Standby letters of credit and commercial letters of credit(2)	1,465		1,402		23		28
Total unfunded lending commitments	$	441,283	$	409,314	$	122	$	204

(1)Includes $4.7 billion and $4.4 billion of advised lines of credit as of December 31, 2023 and 2022, respectively.

(2)These financial guarantees have expiration dates that range from 2024 to 2027 as of December 31, 2023.

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 these originated loans. Beginning January 1, 2020, we elected the fair value option on new loss sharing agreements entered into. Unrealized gains and losses are recorded in other non-interest income in our consolidated statements of income. For those loss sharing agreements entered into as of and prior to December 31, 2019, we amortize the liability recorded at inception into non-interest income as we are released from risk of having to make a payment and record our estimate of expected credit losses each period through 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 $137 million and $82 million as of December 31, 2023 and 2022, respectively. See “Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments” for information related to our credit card partnership loss sharing arrangements.



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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Litigation

In accordance with the current accounting standards for loss contingencies, we establish reserves for litigation related 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 December 31, 2023 are approximately $200 million. 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, 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 Litigation

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. The networks and issuing banks entered into 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.

The monetary relief class action settled for $5.5 billion. The settlement received final approval from the district court in December 2019. The Second Circuit affirmed the settlement in March 2023, and it is now final. Some of the merchants that opted out of the monetary relief class have brought cases, and some of those cases have settled and some remain pending. Visa created a litigation escrow account following its initial public offering of stock in 2008 that funds the portion of these settlements attributable to Visa-allocated transactions. Any settlement amounts based on MasterCard-allocated transactions that have not already been paid are reflected in our reserves. The claims by the injunctive relief class have not been resolved.

Cybersecurity Incident

On July 29, 2019, we announced that on March 22 and 23, 2019 an outside individual gained unauthorized access to our systems. This individual obtained certain types of personal information relating to people who had applied for our credit card products and to our credit card customers (the “2019 Cybersecurity Incident”). As a result of the 2019 Cybersecurity Incident, we have been subject to numerous legal proceedings and other inquiries and could be the subject of additional proceedings and inquiries in the future.

Consumer class actions. We are named as a defendant in 5 putative consumer class action cases in Canadian courts alleging harm from the 2019 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. In August 2021, a trial court in Ontario dismissed with prejudice one of these putative class actions, and on January 31, 2024, the Court of Appeals of Ontario affirmed the trial court’s decision. The Plaintiffs have sixty days to seek leave to appeal the decision to the Supreme Court of Canada should they seek an appeal. In the second quarter of 2022, a trial court in British Columbia preliminarily certified a class of all impacted Canadian consumers except those in Quebec, which would allow the case to proceed with discovery on a classwide basis. The preliminary certification decision in British Columbia has been appealed. In the third quarter of 2023, a trial court in Quebec preliminarily authorized a class of all impacted consumers in



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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Quebec. This decision also has been appealed. The final two putative class actions, both of which are pending in Alberta, are continuing in parallel, but remain at a preliminary stage.

Governmental inquiries. In August 2020, we entered into consent orders with the Federal Reserve and the OCC resulting from regulatory reviews of the 2019 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 agreement did not contain a monetary penalty. The OCC lifted its consent order on August 31, 2022 and the Federal Reserve lifted its consent order on July 5, 2023. Canada’s Office of Privacy Commissioner’s (“OPC”) investigation into the 2019 Cybersecurity Incident is still open.

Walmart Litigation

On April 7, 2023, Walmart filed a lawsuit in the Southern District of New York seeking a declaratory judgment that it has the contractual right to early termination of the credit card partnership agreement under which we are the exclusive issuer of Walmart’s private label and co-branded credit card program in the U.S. and share in certain related economics. On May 2, 2023, Walmart filed an amended complaint in which it also alleges breach of contract and seeks damages caused by any delay in termination. On May 4, 2023, we filed an Answer and Counterclaim to Walmart’s amended complaint, denying that Walmart has any right to terminate the partnership and alleging that Walmart has breached its contractual obligations to Capital One.

U.K. PPI Litigation

In the U.K., we previously sold payment protection insurance (“PPI”). For several years leading up to the claims submission deadline of August 29, 2019 (as set by the U.K. Financial Conduct Authority (“FCA”)), we received customer complaints and regulatory claims relating to PPI. COEP has materially resolved the PPI complaints and regulatory claims received prior to the deadline. Some of the claimants in the U.K. PPI regulatory claims process have subsequently initiated legal proceedings, seeking additional redress. We are responding to these proceedings as we receive them.

Savings Account Litigation

In July 2023, Capital One was sued in a putative class action in the Eastern District of Virginia by savings account holders alleging breach of contract and a variety of other causes of action relating to Capital One’s introduction of a new savings account product with a higher interest rate than existing savings account products. On November 9, 2023, we filed a motion to dismiss the lawsuit. In February 2024, Capital One was sued in similar putative class actions in the Central District of California and the Southern District of Ohio alleging breach of contract and other causes of action. Capital One intends to file a motion to dismiss the lawsuits.

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.

Other Contingencies

Deposit Insurance Assessments

On November 16, 2023, the FDIC finalized a rule to implement a special assessment to recover the loss to the Deposit Insurance Fund (“DIF”) arising from the protection of uninsured depositors in connection with the systemic risk determination announced on March 12, 2023, following the closures of Silicon Valley Bank and Signature Bank. The FDIC will collect the special assessment at an annual rate of approximately 13.4 basis points (“bps”) over eight quarterly assessment periods, beginning with the first quarter of 2024 with the first payment due on June 28, 2024. The FDIC may shorten or extend the assessment period based on adjustments to its loss estimates for the resolutions of Silicon Valley Bank and Signature Bank. The special assessment base is equal to an insured depository institution’s estimated uninsured deposits reported on its Consolidated Reports of Condition and Income as of December 31, 2022 (“2022 Call Report”), adjusted to exclude the first $5 billion of uninsured deposits. We recognized $289 million in operating expense in the fourth quarter of 2023 associated with the special assessment based on our 2022 Call Report, which was revised and refiled during 2023.



			218			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In the preamble to the final rule, the FDIC announced that it will conduct a review of the reporting methodology for estimated uninsured deposits and related items. It is reasonably possible amendments will be needed to our 2022 Call Report due to legal and regulatory developments, which could result in additional expenses associated with the special assessment that we estimate could be as much as $150 million. The ultimate amount of expenses associated with the special assessment will also be impacted by the finalization of the losses incurred by the FDIC in the resolutions of Silicon Valley Bank and Signature Bank.



			219			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 19—CAPITAL ONE FINANCIAL CORPORATION (PARENT COMPANY ONLY)

Financial Information

The following parent company only financial statements are prepared in accordance with Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”).

Table 19.1: Parent Company Statements of Income


	Year Ended December 31,
(Dollars in millions)	2023		2022		2021
Interest income	$	1,715	$	595	$	151
Interest expense	2,160		969		392
Benefit for Credit Losses	(1)		(1)		(1)
Dividends from subsidiaries	3,300		4,352		13,970
Non-interest income (loss)	91		(15)		(26)
Non-interest expense	70		35		36
Income before income taxes and equity in undistributed earnings of subsidiaries	2,877		3,929		13,668
Income tax benefit	(73)		(181)		(82)
Equity in undistributed earnings of subsidiaries	1,937		3,250		(1,360)
Net income	4,887		7,360		12,390
Other comprehensive income (loss), net of tax	1,648		(10,290)		(3,120)
Comprehensive income (loss)	$	6,535	$	(2,930)	$	9,270

Table 19.2: Parent Company Balance Sheets


(Dollars in millions)	December 31, 2023		December 31, 2022
Assets:
Cash and cash equivalents	$	25,647	$	22,006
Investments in subsidiaries	54,324		50,523
Loans to subsidiaries	6,338		6,710
Securities available for sale	380		395
Other assets	2,526		2,281
Total assets	$	89,215	$	81,915

Liabilities:
Senior and subordinated notes	$	30,817	$	28,970

Accrued expenses and other liabilities	309		363
Total liabilities	31,126		29,333
Total stockholders’ equity	58,089		52,582
Total liabilities and stockholders’ equity	$	89,215	$	81,915



			220			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Table 19.3: Parent Company Statements of Cash Flows


	Year Ended December 31,
(Dollars in millions)	2023		2022		2021
Operating activities:
Net income	$	4,887	$	7,360	$	12,390
Adjustments to reconcile net income to net cash from operating activities:
Equity in undistributed earnings of subsidiaries	(1,936)		(3,250)		1,360
Other operating activities	623		(2,429)		(4,523)
Net cash from operating activities	3,574		1,681		9,227
Investing activities:
Changes in investments in subsidiaries	0		0		3,521
Proceeds from paydowns and maturities of securities available for sale	103		96		141
Purchases of securities available for sale	(69)		(10)		—
Changes in loans to subsidiaries	371		1,139		(1,925)
Net cash from investing activities	405		1,225		1,737
Financing activities:
Borrowings:

Issuance of senior and subordinated notes	8,219		9,271		4,487
Maturities and paydowns of senior and subordinated notes	(6,989)		(1,250)		(2,750)
Common stock:
Net proceeds from issuances	299		276		253
Dividends paid	(931)		(950)		(1,148)
Preferred stock:
Net proceeds from issuances	0		0		2,052
Dividends paid	(228)		(228)		(274)
Redemptions	0		0		(2,100)
Purchases of treasury stock	(718)		(4,948)		(7,605)
Proceeds from share-based payment activities	10		19		55
Net cash from financing activities	(338)		2,190		(7,030)
Changes in cash and cash equivalents	3,641		5,096		3,934
Cash and cash equivalents, beginning of the period	22,006		16,910		12,976
Cash and cash equivalents, end of the period	$	25,647	$	22,006	$	16,910



			221			Capital One Financial Corporation (COF)

CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 20—RELATED PARTY TRANSACTIONS

In the ordinary course of business, we may have loans issued to our executive officers, directors and principal stockholders. Pursuant to our policy, such loans are issued on the same terms as those prevailing at the time for comparable loans to unrelated persons and do not involve more than the normal risk of collectability.


NOTE 21—SUBSEQUENT EVENTS

On February 19, 2024, the Company entered into an agreement and plan of merger (the “Merger Agreement”), by and among Capital One, Discover Financial Services, a Delaware corporation (“Discover”) and Vega Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of the Company (“Merger Sub”), pursuant to which (a) Merger Sub will merge with and into Discover, with Discover as the surviving entity in the merger (the “Merger”); (b) immediately following the Merger, Discover, as the surviving entity, will merge with and into Capital One, with Capital One as the surviving entity in the second-step merger (the “Second Step Merger”); and (c) immediately following the Second Step Merger, Discover Bank, a Delaware-chartered and wholly owned subsidiary of Discover, will merge with and into CONA, with CONA as the surviving entity in the merger (the “CONA Bank Merger,” and collectively with the Merger and the Second Step Merger, the “Transaction”). The Merger Agreement was unanimously approved by the Boards of Directors of each of Capital One and Discover.

At the effective time of the Merger, each share of common stock of Discover outstanding immediately prior to the effective time of the Merger, other than certain shares held by Discover or Capital One, will be converted into the right to receive 1.0192 shares of common stock of Capital One. Holders of Discover common stock will receive cash in lieu of fractional shares. At the effective time of the Second Step Merger, each share of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series C, of Discover, and each share of 6.125% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series D, of Discover, in each case outstanding immediately prior to the effective time of the Second Step Merger, will be converted into the right to receive a share of newly created series of preferred stock of Capital One having terms that are not materially less favorable than the applicable series of Discover preferred stock. The closing of the Transaction is subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals and approval by the stockholders of each of Capital One and Discover.



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