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Created and produced by Capital One and the following:
Design: Elevation
Executive Portrait: Vedros & Associates
Printing: Allied Printing Services, Inc.
Café Mural, Boston, MA: Caleb Neelon
Café Mural, Richmond, VA: Hamilton Glass
Stairwell Sculpture: Adrien Segal
Neon Artwork: Meryl Pataky
1600 Capital One Drive
McLean, VA 22102
(703) 720-1000
www.capitalone.com
2 0 1 8 A N N UA L R E P O R T
Welcome to
Banking Reimagined®
Los Angeles, CA
Richmond, VA
Washington, DC
Boston, MA
Austin, TX
Miami, FL
Portland, OR
Denver, CO
Bellevue, WA
Corporate Information
Corporate Office
1600 Capital One Drive, McLean, VA 22102
Common Stock
Listed on New York Stock Exchange®
1600 Capital One Drive, McLean, VA 22102
Outside the U.S., Canada, & Puerto Rico
Tel: (703) 720-1000
www.capitalone.com
Annual Meeting
Thursday, May 2, 2019
10:00 a.m. Eastern Time
Capital One Campus
Principal Investor Contacts
Jeff Norris
Senior Vice President, Finance
or
Danielle Dietz
Vice President, Investor Relations
Capital One Financial Corporation
1600 Capital One Drive, McLean, VA 22102
Tel: (703) 720-2455
Stock Symbol COF
Member of S&P 500®
Corporate Registrar/Transfer Agent
Computershare
P.O. Box 505000, Louisville, KY 40233
Tel: (888) 985-2057
Tel: (781) 575-2725
Hearing impaired: (800) 952-9245
Email: shareholder@computershare.com
Internet: www.computershare.com
By Overnight Courier to:
Computershare
462 South 4th Street, Suite 1600, Louisville, KY 40202
Independent Registered Public Accounting Firm
Ernst & Young LLP
Copies of Form 10-K filed with the Securities and Exchange Commission are available without charge at www.capitalone.com. The
most recent certifications by our Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 are filed as exhibits to the Form 10-K. We have also filed with the New York Stock Exchange the most recent Annual CEO
Certification as required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual.
ABOUT CAPITAL ONE
Capital One Financial Corporation (www.capitalone.com) is a financial holding company whose subsidiaries, which include Capital One, N.A., and Capital One Bank (USA),
N.A., had $249.8 billion in deposits and $372.5 billion in total assets as of December 31, 2018. Headquartered in McLean, Virginia, Capital One offers a broad spectrum of
financial products and services to consumers, small businesses and commercial clients through a variety of channels. Capital One, N.A. has branches located primarily in
New York, Louisiana, Texas, Maryland, Virginia, New Jersey and the District of Columbia. A Fortune 500 company, Capital One trades on the New York Stock Exchange
under the symbol “COF” and is included in the S&P 100 index.
Capital One cautions readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those
described in the forward-looking statements as a result of various factors including, among other things: general economic and business conditions in the U.S., the U.K.,
Canada or Capital One’s local markets, including conditions affecting employment levels, interest rates, tariffs, collateral values, consumer income, credit worthiness and
confidence, spending and savings that may affect consumer bankruptcies, defaults, charge-offs and deposit activity; an increase or decrease in credit losses, including
increases due to a worsening of general economic conditions in the credit environment, and the impact of inaccurate estimates or inadequate reserves; compliance with
financial, legal, regulatory, tax or accounting changes or actions, including the impacts of the Tax Act, the Dodd-Frank Act, and other regulations governing bank capital
and liquidity standards; Capital One’s ability to manage effectively its capital and liquidity; developments, changes or actions relating to any litigation, governmental
investigation or regulatory enforcement action or matter involving Capital One; the inability to sustain revenue and earnings growth; increases or decreases in interest rates
and uncertainty with respect to the interest rate environment; Capital One’s ability to access the capital markets at attractive rates and terms to capitalize and fund its
operations and future growth; increases or decreases in Capital One’s aggregate loan balances or the number of customers and the growth rate and composition thereof,
including increases or decreases resulting from factors such as shifting product mix, amount of actual marketing expenses Capital One incurs and attrition of loan balances;
the amount and rate of deposit growth; changes in deposit costs; Capital One’s ability to execute on its strategic and operational plans; restructuring activities or other
charges; Capital One’s response to competitive pressures; changes in retail distribution strategies and channels, including the emergence of new technologies and product
delivery systems; Capital One’s success in integrating acquired businesses and loan portfolios, and Capital One’s ability to realize anticipated benefits from announced
transactions and strategic partnerships; the success of Capital One’s marketing efforts in attracting and retaining customers; changes in the reputation of, or expectations
regarding, the financial services industry or Capital One with respect to practices, products or financial condition; any significant disruption in Capital One’s operations
or in the technology platforms on which Capital One relies, including cybersecurity, business continuity and related operational risks, as well as other security failures or
breaches of Capital One’s systems or those of Capital One’s customers, partners, service providers or other third parties; Capital One’s ability to maintain a compliance and
technology infrastructure suitable for the nature of Capital One’s business; Capital One’s ability to develop and adapt to rapid changes in digital technology to address the
needs of Capital One’s customers and comply with applicable regulatory standards, including compliance with data protection and privacy standards; the effectiveness
of Capital One’s risk management strategies; Capital One’s ability to control costs, including the amount of, and rate of growth in, its expenses as its business develops
or changes or as it expands into new market areas; the extensive use, reliability and accuracy of the models and data Capital One relies on in its business; Capital One’s
ability to recruit and retain talented and experienced personnel; the impact from, and Capital One’s ability to respond to, natural disasters and other catastrophic events;
changes in the labor and employment markets; fraud or misconduct by Capital One’s customers, employees, business partners or third parties; merchants’ increasing focus
on the fees charged by credit card networks; and other risk factors identified from time to time in reports that Capital One files with the SEC, including, but not limited to,
the Annual Report on Form 10-K for the year ended December 31, 2018.
All Capital One trademarks are owned by Capital One Financial Corporation. All third party trademarks in this report are the property of their respective owners. © 2019 Capital One Services, LLC.
Boston, MA
San Francisco, CA
This is not your typical bank. This is a Capital One® Café.
Across the country, our Capital One Cafés are living, breathing examples of how we’re reimagining banking. In our Cafés, visitors
get a firsthand look at how our products, technology, and people come together to create a banking experience that’s simple,
straightforward, and unlike anything else. The Cafés are comfortable, inviting spaces where everyone is welcome—whether
you are a Capital One customer or not. Community groups can use our space free of charge. And visitors can grab cash or make
deposits, get answers to questions about their account, explore our digital tools and apps, meet one-on-one with a Capital One
Money Coach, or just kick back and relax with Peet’s Coffee® and free WiFi. Welcome to Banking Reimagined®
Philadelphia, PA
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We remain focused on building a company that
can generate and sustain solid growth in EPS and
tangible book value per share, as well as strong
returns on tangible common equity. We believe
our investments in products, technology, brand,
and resilience will drive growth, improved efficiency,
increased earnings power, and strong capital
generation over time. Last year was the latest
chapter in an exciting journey.
An Improbable Story
This year we will celebrate our 25th anniversary as
a public company. We were founded on the belief
that the banking industry would be revolutionized
by information and technology, beginning with
credit cards. Back then, credit cards were a one-
size-fits-all business that relied on judgmental
decision-making by underwriters and marketers.
There were few data-driven decisions and a whole
lot of conventional wisdom. But we saw credit cards
as an information-based technology business rather
than a lending business, one powered by world-
class analysts leveraging the latest technology,
massive amounts of information, statistical
modeling, and the scientific testing of thousands
of ideas. We set out to turn one-size-fits-all into
“mass customization,” delivering the right product
to the right customer at the right time and at the
right price. We believed that by de-averaging the
market, we could smash the price of credit and
also democratize it.
Our vision wasn’t just about credit cards. We
thought that credit cards would be the first banking
product to be transformed because they were
direct-marketed, national in scope, and there
was great financial leverage in getting marketing
and credit risk decisions right. We believed that if we
created a company with these capabilities, we would
be positioned at the forefront of the digital
revolution that would ultimately sweep across all of
the banking industry. Our rallying cry was, “Build a
technology company that does banking, and compete
against banks that use technology.”
Capital One Was
the Original “FinTech”
It didn’t come easy at first. We had more passion
than customers and more belief than believers.
The term didn’t exist yet, but in the early days of
Capital One, we were a FinTech. For a while it was
unclear if our little company would get a chance to
make a big impact. We were a start-up: recruiting
talent, building modern technology from scratch,
conducting tests, and incubating results. And all
along the way, we worked to keep the dream alive.
While the initial idea came quickly, it took five lonely
years until we had our first success. Against all
odds, it finally worked, and we haven’t looked back.
We built one of the nation’s largest credit card
businesses and then did the same thing in auto
finance and small business cards. We expanded to
the United Kingdom and Canada. A decade after
our IPO, we decided to take on the part of banking
that will be the last to evolve, retail banking. We are
now the nation’s fifth-largest consumer bank and
eighth-largest bank overall.
We’re Building a Technology
Company that Does Banking
As the world healed from the wounds of the Great
Recession, technology continued its march into every
corner of our lives. Entire industries disappeared, and
some of America’s greatest brands fell victim to the
digital revolution. New industries were born, and their
leaders are now the most valuable companies in the
world. But the digital revolution didn’t just create new
industries. Advances in technology were having a
profound effect on all businesses, and the banking
industry was no exception. As the digital revolution
accelerated, we cheered. Because Capital One was
built to capitalize on the changing industry structure.
That’s who we are.
In 2012, as Capital One rounded the corner of
the economic crisis and absorbed two large and
successful acquisitions, we took stock of the
accelerating change that was happening all around us.
Chairman’s Letter to
Shareholders and Friends
It’s an extraordinary time to be at Capital One.
In 2018, we advanced our quest to build an
enduringly great franchise with the scale, brand,
capabilities, and talent to succeed in a world being
revolutionized by technology and data. Capital One
delivered record revenues and profits, even as
we continued our investments in a bold, strategic
agenda. We welcomed millions of new customers
and announced an exciting partnership with
Walmart. Thousands of talented and diverse
professionals, from interns to executives, joined
Capital One and we are consistently cited as
one of the best places to work in America. We
accelerated our progress on our transformational
journey, and we are now one of the most cloud-
capable companies in the world.
Our financial results in 2018 were rooted in years
of previous choices about growth, investments, and
risk management. Those choices often resulted in
near-term costs, but they also planted the seeds
of future growth and financial returns. In 2018,
the seeds of our investments bore fruit. Capital One
delivered strong growth in earnings and returns.
We posted record revenue of $28.1 billion and
record earnings per share (EPS) of $11.82. EPS net
of adjustments was $10.88, up 41% from 2017.*
Our return on average tangible common equity
was 18.6%, up from 6.2% in 2017, or 12.0% as
adjusted for the impact of the U.S. tax reform of
$1.77 billion. Our tangible book value per share
increased 14.8% to $69.20.
Financial markets, however, had a challenging year in
2018. All major stock, bond, and commodity indexes
declined. It was worse for bank stocks. The KBW
Bank Index declined 19.6% in 2018 and fell by 15.5%
in December alone, its worst month since February
2009. Consumer lenders were hit even harder.
Our one-year total shareholder return (TSR), which
includes the combined effect of share price change
plus common dividends, was negative 22.8%, modestly
lower than the KBW Bank Index TSR of negative 17.7%.
From our IPO in 1994 to the end of 2018, an investment
in Capital One has delivered a TSR of 1,700%.
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We Are Building a
Technology Company
We’re reimagining and reinventing our talent
model, infrastructure, data, tools, and customer
experience. In 2018, we accelerated our
technology transformation and continued to be
a leading voice in the technology community.
And again, we took an outsider’s view. To see the
future of banking, we didn’t look at how banking
worked or what other banks were doing. We looked
instead at how technology was changing our lives.
We reveled in the miracle that Google could find
any information, anywhere in the world, in a fraction
of a second. We saw how Waze could instantly find
the fastest route and immediately adapt it if traffic
changed. And we marveled at how Netflix could
somehow find a movie you love, even though you
had never heard of it and weren’t looking for it in the
first place. These remarkable capabilities share the
same DNA and are indicative of the destination for all
customer experiences: real-time and intelligent. In the
consumer’s language, they bring instant solutions,
customized for you, wherever and whenever you want
them. Banking is an inherently digital product, and its
destination will inexorably be the same. Consumers
will demand instant solutions customized to them.
That is where winning is.
But banks aren’t built to deliver real-time and
intelligent solutions. In fact, they are built for just
the opposite. They are built on legacy technology
optimized for batch processing. They employ
complex, manual processes that operate in
organizational silos. And many have corporate
cultures that are resistant to change. Even
Capital One, which two decades before had been
designed around technology and information, was
not designed for a world that was rapidly moving
to real-time and intelligent solutions. And so
years ago, as we internalized the acceleration
of technology into every corner of our society, two
truths became clear. First, the digital revolution
would change everything in banking. And second,
to capitalize on it, we would need to rebuild our
bank from the bottom of the tech stack up. Despite
our having done that very thing twenty years
before, the world had moved so much that we—
and pretty much all of corporate America—had
been stranded with insufficient tech talent and
antiquated foundational technology, data
ecosystems, and methods of working. The
common approach in corporate America is to work
forward from where you are rather than backward
from what technology enables. That leads to simply
digitizing analog activities or building customer-
facing apps on top of outdated infrastructure.
Companies are bolting new technology capabilities
onto legacy operations or trying to quarantine
their modern technology and innovation to select
pockets of the organization. But to win, we know
that we need to rethink how banking works and
build a technology company that does banking.
Strikingly, our rallying cry today is the same as it
was in the beginning: “Build a technology company
that does banking, and compete against banks that
use technology.”
the “Highest in Overall U.S. Banking App Satisfaction.”
If you’re a customer and you haven’t experienced how
our mobile app can make your life easier, download
it today and see what people are talking about.
Our consumer digital experiences are not limited
to our mobile app. CreditWise® is a free app available
to everyone. It monitors your credit score, helps you
understand and improve your score, and protects
against identity theft and fraud. We are harnessing
credit card transaction data and machine learning
to deliver proactive insights to customers about
their spending and to help detect problems they
might miss. Was the double charge at the pharmacy
an accident? Did the 22% increase to last month’s
cable bill make sense? Did you mean to leave that
huge tip at dinner last night?
Capital One provides real-time purchase notifications
every time your card is used, and you can instantly lock
your card if it’s misplaced or stolen. We provide virtual
Modern Digital Tools
All customer experiences—
inside and outside of banking—
will be real-time and intelligent.
Capital One’s digital tools help
customers understand their
spending, improve their credit
score, protect their identity—
or even find their next car.
And so we went all in. For years, we have been
building a leading technology company that
can thrive in a world being revolutionized by
software and data. Today, 85% of our technology
workforce are engineers. Capital One has embraced
advanced technology strategies and modern data
environments. We have adopted agile management
practices, and not just for software delivery. Teams
across Capital One—even in places like Legal and
Audit—are deploying innovative approaches to get
work done and drive results. We employ a DevOps
culture with a “You Built It, You Own It” mindset.
We harness highly flexible APIs and use microservices
to deliver and deploy software. We’ve been building
APIs for years, and today we have thousands that
serve as the backbone for billions of customer
transactions every year. The vast majority of our
operating and customer-facing applications operate
in the cloud, which unleashes our associates to
design real-time, intelligent experiences that work
backwards from our customers’ needs. We are
now considered one of the most cloud-forward
companies in the world. In 2018, we made significant
progress on our technology journey, and we will
continue to invest to transform our infrastructure,
data, and technology tools.
We’re Empowering
Customers with Great
Digital Experiences
Building on years of foundational investments,
we continued to accelerate the delivery of brand-
defining customer experiences in 2018. Each month,
tens of millions of customers visit Capital One’s online
and mobile customer servicing platform. Our tools
provide an exceptional customer experience and have
earned some of our highest net promoter scores we
have ever measured. For the second year in a row,
Capital One was awarded the J.D. Power® award for
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credit card numbers—numbers that are integrated
into your Capital One account but are unique and
merchant-specific—so customers can safely shop
online without sharing their real credit card numbers.
We have features that help online shoppers save
money by automatically searching for the best prices
across the internet, finding online coupons, and
offering merchant-funded rewards. Across the
company, we’re building customer experiences that
are real-time and intelligent.
Our Businesses Are
Well-Positioned to Thrive
At Capital One, we started our journey 100 years later
than most banks. In order to succeed, we didn’t
try doing what other banks do. We carefully chose
which banking businesses to be in and focused
on building scale positions where scale mattered
most. For each of our businesses, we tried to
identify the winning model of the future and then tried
to build that. In 2018, our lines of business delivered
resilient growth and strong profitability, and they
are well-positioned to thrive in the years ahead.
Our credit card business is powered by data and
analytics and a passion to help people use credit
wisely. We serve tens of millions of customers
across the credit spectrum. We continue to invest
heavily in rewards products, marketing programs,
and digital experiences to attract and serve heavy
spenders. In 2018, our card business delivered
record returns, resilient growth, and continued
operating efficiency gains. In July, we announced
a long-term agreement to be the exclusive issuer
of co-branded and private-label credit cards for
Walmart, the world’s largest retailer. And in January
2019, we announced an agreement to acquire
approximately $9 billion of existing Walmart credit
card loans at a favorable price and terms. We’re eager
to work with Walmart to deliver amazing value,
deepen customer relationships, and use technology
and digital innovation to create exceptional
experiences for customers across America.
One of the last parts of banking to be transformed
will be local banking and deposits. On the shoulders
of our technology transformation, we are building the
retail bank of the future. There are almost 100,000
bank branches in America, and in many cities and
Dynamic Work Spaces
We’re enabling great talent with great spaces.
Our award-winning office designs promote
creativity and collaboration. In 2018, we opened
our new headquarters in McLean, Virginia, where
engineers, designers, and data scientists work
side by side to imagine the next great chapter
of Capital One.
communities you will still find a bank on every
corner. But with virtually every banking service now
available online or in our mobile app, we’re making
digital banking easy. From any computer or
smartphone, you can open a Capital One checking
or savings account in five minutes. You can earn one
of the best savings rates in the country, a free debit
card with access to thousands of fee-free ATMs, and
the power of Capital One’s award-winning mobile
app. Physical presence is important too, but its role
is changing. Instead of having a branch on every
corner to service transactions, we are building
Capital One Cafés: iconic showrooms in iconic urban
locations, where customers can experience the best
of Capital One’s products, technology, people, and
service. Visitors can explore our digital experiences,
meet with a Capital One Money Coach, or relax and
enjoy free WiFi and a cup of Peet’s Coffee®. Our
traditional branches will be convenient and
accessible for important customer service needs
and complex transactions.
In the late 1990s, we saw that auto lending was
ripe for transformation. It was an information-rich
business where success was driven by predicting
consumers’ creditworthiness and the likely value
of their cars in the future. But the industry was
based on judgmental decision-making and rules
of thumb, and we realized that leveraging our
information-based strategy would allow Capital One
to minimize credit losses and thereby provide better
deals for consumers and better solutions for auto
dealers. We made our first auto loan in 1998, and
twenty years later we are one of the largest auto
lenders in America. We serve dealers and consumers
across the country and are investing in technology
to enhance the customer experience for both
groups. The technology transformation of the
industry will only accelerate from here. Consumers
now go online to research cars and shop for the
best price. But until recently, they couldn’t find out
what the financing would be—based on their own
financial circumstances. Now, Auto Navigator® from
Capital One® allows consumers to search millions of
cars at dealers across the country, and instantly get
pre-qualified for financing, customized to them.
Clear and Compelling
Products
Millions of new customers joined Capital One
in 2018, and they are making Capital One
their card of choice. Customers are earning
amazing rewards with no limits, gotchas, or
fine print. What’s in your wallet?®
Online or on your phone, Auto Navigator gives car
buyers the knowledge and confidence to find the
car they want and know exactly what they’re paying,
before they ever step foot on a dealer’s lot.
For decades, commercial banking worked the same
way: loan underwriting was manual and subjective,
and banks served local needs with generalist
bankers. But commercial banking is being
transformed by technology, and an industry
once built on local generalists is moving to one
based on national specialists who deeply
understand the business and risks of their clients.
We’re building a commercial bank for the future,
with scale and specialized capabilities in areas
like healthcare lending, REITs, and multifamily
real estate. Specialized expertise and technology
are helping Capital One manage risk and unlock
growth opportunities. We’re grateful to the
thousands of businesses across the country that
depend on our teams and our capital to help them
succeed and grow.
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Savor Rewards
from Capital One
Earn unlimited 4% cash back on dining and
entertainment. 4% at the movies. 4% at the
big game. 4% on a first date. Whether it’s food
or fun, when you go out, you cash in with the
Capital One Savor Card.
We Invested to
Grow Our Franchise
In 2018, we spent $2.2 billion on hard-hitting
marketing and advertising to bring our innovative
products to life. Our investments drove solid
customer and deposit growth in the retail bank,
strong credit card account growth, and 15%
growth in Domestic Card purchase volume. In
2018, we introduced Savor®, a credit card that pays
4% unlimited rewards on dining and entertainment.
Our distinctive marketing helped drive strong
results and we welcomed new and engaged
upmarket customers. At the same time, our “Banking
Reimagined” advertising campaign touted our
digital banking tools and the Capital One Café
experience. In our Spark ® small business card
marketing, we used real Capital One small business
customers to provide powerful testimonials about
how 2% unlimited rewards are helping them invest
in their businesses. Jennifer Garner and Samuel L.
Jackson continued to make the clear, persuasive
case that Venture® and Quicksilver® cards should
be in your wallet. With Venture, travel lovers earn
unlimited 2X miles on every purchase, every day.
And with Quicksilver, you earn unlimited 1.5% cash
back. These cards are simple, compelling products
with some of the highest rewards in the industry.
Millions of customers are earning billions of dollars
of rewards, making Capital One their card of choice.
We expanded our customer rewards programs,
providing access to sporting events and exclusive
travel, food, and music experiences. And we became
the sponsor of the Capital One Arena in our
hometown of Washington, D.C. The Capitals’ run
to the Stanley Cup helped boost Capital One’s local
and national exposure, and fans and associates
enjoyed two months of late-night (and nail-biting)
excitement during the NHL playoffs.
As people change how they consume media and
interact with brands, we continued to improve the
efficiency and efficacy of our marketing through
investments in data and technology. Brands and
marketers are at an inflection point, and the winners
will have both a great story to tell and highly targeted
opportunities to engage consumers in more relevant
ways, spend efficiently at scale, and measure and
maximize their investments in real-time.
Join Us on Our Journey
Our highest calling has always been to attract and
inspire the world’s best talent. Our people are the
heart of Capital One. The phone representative who
helps calm a distraught fraud victim. The commercial
banker who helps an entrepreneur open a new
location. And the Capital One data scientist who
volunteers to teach coding to Washington, D.C.,
third-graders. Our associates bring diverse
experiences and perspectives to the office, and they
serve our customers and communities with
generosity and ingenuity. They make Capital One
special, and I am incredibly fortunate to lead such a
talented team.
In 2018, over 9,000 associates joined Capital One.
Of those, more than 1,000 were recent college
graduates who made Capital One their first job. We
hired thousands of engineers, data scientists,
designers, product managers, and cyber professionals
who joined our existing team to challenge the
conventions of traditional banking. Thousands of
others brought experience and expertise in areas
such as finance, operations, and customer care.
Our technology transformation over the last six
years has been accelerated by talented digital
associates. We have one of the most highly regarded
technology internship programs in the nation.
And our Technology Development Program (TDP),
a two-year rotational accelerator for high-performing
software, data, and cybersecurity engineers, is
launching hundreds of careers across the company
for our college and graduate school hires. If you’re
searching for your first job or your next job, come
see us on campus; find our associates at technology
forums like Grace Hopper, SXSW, or AWS re:Invent;
or check us out at www.capitalonecareers.com.
Since the beginning of 2018, we welcomed
three new independent board members whose
experiences and expertise are rooted in technology
and innovation. Aparna Chennapragada is Vice
President, Augmented Reality at Google, and she is
a respected expert in artificial intelligence, machine
learning, and mobile strategy. Eli Leenaars is
Vice Chairman of the Global Wealth Management
Division at UBS Group AG with 30 years of experience
in financial services, including overseeing the
remarkable growth of ING Direct in the U.S. He
brings tremendous perspective about how our
industry will be reinvented through the use of data,
technology, and brand. François Locoh-Donou is
the President and CEO of F5 Networks, Inc., and brings
nearly two decades of experience in enterprise
technology and building and managing a wide
range of global products, teams, and operations.
We are thrilled to welcome these leaders to
Capital One, and their breadth of experiences will
be invaluable as we continue our transformative
technology and digital journey.
We’re Empowering
Our Associates to
Do Their Best Work
Attracting great talent is only part of the Capital One
story. Since our founding days, we have invested in
the growth and development of every associate, from
college interns to experienced executives. We provide
base pay at a minimum of $15 per hour for all
U.S.-based roles. We are focused on increasing
the representation of women and people of color
across the organization and building a diverse and
inclusive workplace. We have seven thriving Business
Resource Groups (BRGs), communities of associates,
partners, and allies that support Capital One’s
growing diverse and underrepresented populations.
These organizations provide opportunities for
development, education, and networking that help
associates fulfill their potential.
Diversity and Inclusion
Is a Cornerstone
of Our Culture
Our differences make us more innovative, nimble,
and resilient. Our seven Business Resource Groups
were created to support Capital One’s growing
diverse populations. These groups help attract,
retain, and develop diverse talent: people who are
driving our company forward.
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We are widely recognized as a great place to work,
and our working environment and employment
practices continue to garner recognition. We were
once again named one of Fortune magazine’s
“100 Best Companies to Work For” (#17), our twelfth
time on this prestigious list, and we ranked #37 on
Fortune’s annual list of the “Best Workplaces for
Diversity.” We were recognized by Disability:IN as
a “Best Place to Work for Disability Inclusion” with a
100% Disability Equality Index, and we were ranked
as the #3 “Best Adoption-Friendly Workplace” by the
Dave Thomas Foundation for Adoption. We were
recognized for our support of our military, including
being named by Military Times as “Best for Vets.”
We also earned external recognition for strengthening
our communities, caring for associates and their
families, providing flexibility and work-life balance,
and creating innovative workspaces.
We continue to look for ways to improve our
associate experience and are focused on promoting
leadership, improving inclusion, expanding skills
training, and helping associates to develop their
careers. Each year, we survey all of our associates
and they share with me how they feel about
working at Capital One. Morale and engagement
scores continued to be strong in 2018. As we
turn the corner on our technology transformation,
Our People Practices
Continue to Earn
Recognition
©2018 Time Inc. Used under license.
we are reimagining how we work. Great companies
must be both well-managed and nimble and we
are focused on making it faster and easier to build
software, serve our customers, and imagine the
next bold chapter of Capital One.
We Make Our
Communities Better
Capital One has a direct impact on improving millions
of lives in communities across our associate and
customer footprint. Our associates are spread across
hundreds of local communities in the U.S., Canada,
the U.K., and the Philippines. In addition to tens of
millions of dollars of financial support, our associates
love to volunteer their time with nonprofit groups in
the communities where they work and live.
In 2018, we continued to help people build the skills
necessary to work and succeed in a digital economy
through our five-year, $150 million Future Edge®
technology training program. We expanded our
Capital One Coders initiative, bringing technology
training to over 1,300 middle school students by
partnering with schools and community leaders
nationwide to help kids embrace software
engineering. We were once again named as one
of America’s most civic-minded companies with our
inclusion on The Civic 50, a prestigious list sponsored
by the Points of Light Foundation. We achieved
“Outstanding” ratings on exams related to the
Community Reinvestment Act, and we continued to
serve low- and moderate-income communities across
the United States. We are one of the nation’s largest
community development lenders. In 2018 alone, we
provided loans and investment capital to build over
10,000 new affordable housing units in the U.S.
We continued to engage with community advocates
and policymakers on a range of issues, including
emerging technologies, access to finance, privacy
and data sharing, and responsible innovation.
We have a strong track record of environmental
sustainability. For the second year in a row, we met
our goal for 100% renewable energy. We publicly
reiterated our commitment by joining the RE100,
Building Strong
Communities
Capital One’s philanthropic giving and community
engagement make our communities stronger and change
people’s lives. Our associates share their time and talent
with thousands of organizations, and our Future Edge
initiative prepares people for the digital jobs of tomorrow.
a global initiative of 154 leading companies
committed to 100% renewable power. In 2018, we
achieved carbon neutrality on direct greenhouse
gas emissions. All new office construction and large
renovations are certified LEED® Silver or higher, and
our new corporate headquarters in McLean, Virginia,
will be certified LEED Gold in 2019. Capital One’s
Corporate Social Responsibility report, available
on our website, provides greater detail about our
sustainability efforts and social impact.
change in our culture and our society, but the
change that took place over Capital One’s first
25 years will pale in comparison to the quarter
century that’s about to unfold. And we are well-
positioned to thrive as technology changes
everything. I am inspired by our customers who trust
us to serve them each day with both wisdom and
humanity. And I am humbled by the opportunity
to lead 50,000 associates who are all-in to change
banking for good.
The Opportunity
In our 25 years as a public company, Capital One
has come a long way. We have grown from a small,
credit card start-up into one of the largest, fastest-
growing, and most dynamic companies in America.
The Capital One story is built upon millions of little
stories. An immigrant building her credit and buying
a home. A 22-year-old software engineer accepting
a job to join a bank (of all things!) after graduation.
And a small business owner using his Spark rewards
card to pay for his employees’ healthcare. We’ve
helped transform cities and communities by
attracting incredibly talented associates with the
audacity to think they can change the world and
the humility to understand they need a whole lot
of help to make it happen. We’ve seen enormous
Richard D. Fairbank
Chairman, CEO and President
*Adjusted earnings per share are non-GAAP measures that reflect the adjustments
to exclude $615 million of net gains on the sales of exited businesses, $284 million
of benefit as a result of tax methodology change on rewards cost, $170 million
of legal reserve build, $99 million of U.K. Payment Protection Insurance customer
refund reserve builds (“U.K. PPI Reserve”), and $34 million of restructuring
charges in 2018, as well as 2017 adjustments of $1.77 billion due to the impact of
the U.S. tax reform, $184 million of restructuring charges, $130 million from U.K.
PPI Reserve builds, and $117 million of charges related to the acquisition on
September 25, 2017, from Synovus Bank of credit card assets and related liabilities
from World’s Foremost Bank, a wholly-owned subsidiary of Cabela’s Incorporated.
10
11
Financial Summary
Loans Held for Investment ($ in Billions)
$246
’94
’95
’96
’97
’98
’99
’00
’01
’02
’03
’04
’05
’06
’07
’08
’09
’10
’11
’12
’13
’14
’15
’16
’17
’18
Source: COF Forms 10-K published at sec.gov
Total Revenue ($ in Millions)
$28,076
’94
’95
’96
’97
’98
’99
’00
’01
’02
’03
’04
’05
’06
’07
’08
’09
’10
’11
’12
’13
’14
’15
’16
’17
’18
Source: COF Forms 10-K published at sec.gov
Note: Figures prior to 2005 do not include the effects of securitization transactions qualifying as sales under GAAP
Diluted Earnings Per Share (Dollars)
$11.82
’94
’95
’96
’97
’98
’99
’00
’01
’02
’03
’04
’05
’06
’07
’08
’09
’10
’11
’12
’13
’14
’15
’16
’17
’18
Source: COF Forms 10-K and earnings release materials published at sec.gov
Note: 2017 net income per diluted share as reported under GAAP was $3.49 per share. The amount above has been adjusted to exclude the $1.77 billion
($3.59 per share) non-cash impact of US tax reform, which reflects our estimate as of December 31, 2017, as may be adjusted during the measurement period
ending December 2018. 2008 loss as reported under GAAP was $0.21 per share. The amount above has been adjusted to exclude an $811 million ($2.14 per
share) non-cash goodwill impairment, and the associated $7 million tax effect of the impairment ($0.01 per share), related to our Auto Finance business.
Dollars in millions, except per share data
Income Statement:
Net interest income
Non-interest income
Total revenue
Provision for credit losses
Non-interest expense
Income from continuing operations before income taxes
Income tax provision
Income from continuing operations, net of tax
Income (loss) from discontinued operations, net of tax
Net income
Dividends and undistributed earnings allocated to participating securities
Preferred stock dividends
Net income available to common stockholders
Common Share Statistics:
Basic earnings per share:
Income from continuing operations, net of tax
Income (loss) from discontinued operations, net of tax
Net income per common share
Diluted earnings per common share:
Income from continuing operations, net of tax
Income (loss) from discontinued operations, net of tax
Net income per common share
Dividends per common share
Balance Sheet:
Loans held for investment
Interest-earning assets
Total assets
Interest-bearing deposits
Total deposits
Borrowings
Common equity
Total stockholders’ equity
Average Balances:
Loans held for investment
Interest-earning assets
Total assets
Interest-bearing deposits
Total deposits
Borrowings
Common equity
Total stockholders’ equity
Credit Quality Metrics:
Allowance for loan and lease losses
Allowance as a % of loans held for investment
Net charge-offs
Net charge-off rate
30+ day performing delinquency rate
30+ day total delinquency rate
Performance Metrics:
Purchase volume
Total net revenue margin
Net interest margin
Return on average assets
Return on average common equity
Return on average tangible common equity
Efficiency ratio
Operating efficiency ratio
Effective income tax rate on continuing operations
Employees (in thousands), period end
Capital Ratios:
Common equity Tier 1 capital ratio
Tier 1 risk-based capital ratio
Total risk-based capital ratio
Tier 1 leverage ratio
Tangible common equity ratio
$
$
$
$
$
$
$
$
$
$
$
$
2018
2017
$
$
$
$
$
$
$
$
$
$
$
$
22,875
5,201
28,076
5,856
14,902
7,318
1,293
6,025
(10)
6,015
(40)
(265)
$5,710
11.92
(0.02)
11.90
11.84
(0.02)
11.82
1.60
245,899
341,293
372,538
226,281
249,764
58,905
47,307
51,668
242,118
332,738
363,036
221,760
247,117
53,144
45,831
50,192
7,220
2.94 %
6,112
2.52 %
3.62
3.84
387,102
8.44 %
6.87
1.66
12.48
18.56
53.08
45.33
17.7
47.6
11.2 %
12.7
15.1
10.7
9.1
22,460
4,777
27,237
7,551
14,194
5,492
3,375
2,117
(135)
1,982
(13)
(265)
$1,704
3.80
(0.28)
3.52
3.76
(0.27)
3.49
1.60
254,473
334,124
365,693
217,298
243,702
60,281
44,370
48,730
245,565
322,330
354,924
213,949
239,882
53,659
45,170
49,530
7,502
2.95 %
6,562
2.67 %
3.23
3.48
336,440
8.45 %
6.97
0.6
4.07
6.16
52.11
45.98
61.5
49.3
10.3 %
11.8
14.4
9.9
8.3
12
13
Capital One Financial Corporation
Directors and Executive Officers
Board of Directors
Executive Officers
Richard D. Fairbank
Chairman, CEO and President
Capital One Financial Corporation
Aparna Chennapragada C, R
Vice President, Augmented Reality
Google
Ann Fritz Hackett C, G, R
Partner and Co-Founder
Personal Pathways, LLC
Peter Thomas Killalea C, R
Owner and President
Aoinle, LLC
Cornelis Petrus Adrianus Joseph
“Eli” Leenaars A, R
Vice Chairman, Global Wealth Management Division
UBS Group AG
Pierre E. Leroy A, C
Managing Partner
Aspiture, LLC
François Locoh-Donou
President, CEO and Director
F5 Networks, Inc.
Peter E. Raskind G, R
Former Chairman, President and CEO
National City Corporation
Mayo A. Shattuck III C, G
Chairman
Exelon Corporation
Bradford H. Warner A, R
Former President of Premier
and Small Business Banking
Bank of America Corporation
Catherine G. West A, R
Former Special Advisor
Promontory Financial Group
A Audit Committee
C Compensation Committee
G Governance and Nominating Committee
R Risk Committee
Richard D. Fairbank
Chairman, CEO and President
Robert M. Alexander
Chief Information Officer
Jory A. Berson
Chief Human Resources Officer
R. Scott Blackley
Chief Financial Officer
Kevin S. Borgmann
Senior Advisor to the CEO
Matthew W. Cooper
General Counsel
Lia Dean
Head of Bank Marketing and Retail
John G. Finneran, Jr.
Senior Advisor to the CEO and
Corporate Secretary
Sheldon “Trip” Hall
Chief Risk Officer
Celia Karam
Chief Audit Officer
Frank G. LaPrade, III
Chief Enterprise Services Officer and
Chief of Staff to the CEO
Christopher T. Newkirk
President, Small Business, International
and Walmart
Kleber Santos
President, Retail and Direct Banking
Michael C. Slocum
President, Commercial Banking
Michael J. Wassmer
President, U.S. Card
Sanjiv Yajnik
President, Financial Services
14
_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________
FORM 10-K
____________________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 001-13300
____________________________________
CAPITAL ONE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
____________________________________
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
Delaware
54-1719854
1680 Capital One Drive,
McLean, Virginia
(Address of Principal Executive Offices)
22102
(Zip Code)
Registrant’s telephone number, including area code: (703) 720-1000
____________________________________
Securities registered pursuant to section 12(b) of the act:
Title of Each Class
Common Stock (par value $.01 per share)
Name of Each Exchange on
Which Registered
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series D
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series F
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series G
New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series H
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
No
Securities registered pursuant to section 12(g) of the act: None
____________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the voting stock held by non-affiliates of the registrant as of the close of business on June 30, 2018 was approximately $43.1 billion. As of January
31, 2019, there were 467,880,673 shares of the registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Proxy Statement for the annual meeting of stockholders to be held on May 2, 2019, are incorporated by reference into Part III.
_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
TABLE OF CONTENTS
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operations and Business Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supervision and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Summary of Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) . . .
Executive Summary and Business Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Off-Balance Sheet Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business Segment Financial Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Critical Accounting Policies and Estimates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounting Changes and Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit Risk Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidity Risk Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market Risk Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Glossary and Acronyms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
4
4
4
5
6
6
15
15
16
19
34
34
34
34
35
35
38
41
41
43
48
51
51
63
67
67
72
76
88
92
96
103
110
110
114
115
116
117
118
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 1—Summary of Significant Accounting Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 2—Business Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 3—Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 4—Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 5—Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments .
Note 6—Variable Interest Entities and Securitizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 7—Goodwill and Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 8—Premises, Equipment and Lease Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 9—Deposits and Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 10—Derivative Instruments and Hedging Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 11—Stockholders’ Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 12—Regulatory and Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 13—Earnings Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 14—Stock-Based Compensation Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 15—Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 16—Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 17—Fair Value Measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 18—Business Segments and Revenue from Contracts with Customers . . . . . . . . . . . . . . . . . . .
Note 19—Commitments, Contingencies, Guarantees and Others . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 20—Capital One Financial Corporation (Parent Company Only) . . . . . . . . . . . . . . . . . . . . . . . .
Note 21—Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. . . .
Item 13. Certain Relationships and Related Transactions and Director Independence. . . . . . . . . . . . . . . . . . . . . . . . .
Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16. Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
120
120
137
138
144
156
159
163
166
167
169
176
180
182
183
188
191
194
204
208
212
214
215
215
215
216
216
216
216
216
216
217
217
217
218
222
1
Capital One Financial Corporation (COF)
2
Capital One Financial Corporation (COF)
MD&A Tables:
INDEX OF MD&A AND SUPPLEMENTAL TABLES
1
2
3
4
5
6
7
8
9
9.1
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
Average Balances, Net Interest Income and Net Interest Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate/Volume Analysis of Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans Held for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funding Sources Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business Segment Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit Card Business Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Card Business Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Banking Business Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Banking Business Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Category Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Ratios under Basel III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory Risk-Based Capital Components and Regulatory Capital Metrics . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred Stock Dividends Paid Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans Held for Investment Portfolio Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Loans by Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan Maturity Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit Score Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30+ Day Delinquencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aging and Geography of 30+ Day Delinquent Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90+ Day Delinquent Loans Accruing Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming Loans and Other Nonperforming Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Charge-Offs (Recoveries) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Troubled Debt Restructurings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity . . . . . . . .
Allowance Coverage Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidity Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits Composition and Average Deposits Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities of Large-Denomination Domestic Time Deposits—$100,000 or More . . . . . . . . . . . . . . . . . . . . . .
Long-Term Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Unsecured Long-Term Debt Credit Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Rate Sensitivity Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
44
45
46
47
49
50
50
52
52
55
56
59
62
69
70
71
78
79
79
80
80
81
82
82
84
85
87
88
88
90
90
91
91
91
95
Supplemental Tables:
A
B
C
D
E
F
G
Loans Held for Investment Portfolio Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performing Delinquencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming Loans and Other Nonperforming Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Charge-Offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary of Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments. . . . .
Reconciliation of Non-GAAP Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Quarterly Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96
97
98
99
100
101
102
PART I
Item 1. Business
OVERVIEW
General
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 branches, the internet, and other distribution channels.
As of December 31, 2018, our principal subsidiaries included:
•
•
Capital One Bank (USA), National Association (“COBNA”), which offers credit and debit card products, other lending
products and deposit products; and
Capital One, National Association (“CONA”), which offers a broad spectrum of banking products and financial services
to consumers, small businesses and commercial clients.
The Company is hereafter collectively referred to as “we,” “us” or “our.” COBNA and CONA are collectively referred to as the
“Banks.” References to “this Report” or our “2018 Form 10-K” or “2018 Annual Report” are to our Annual Report on Form 10-
K for the fiscal year ended December 31, 2018. All references to 2018, 2017, 2016, 2015 and 2014, refer to our fiscal years ended,
or the dates, as the context requires, December 31, 2018, December 31, 2017, December 31, 2016, December 31, 2015 and
December 31, 2014, respectively. Certain business terms used in this document are defined in the “MD&A—Glossary and
Acronyms” and should be read in conjunction with the Consolidated Financial Statements included in this Report.
As one of the nation’s ten largest banks based on deposits as of December 31, 2018, we service banking customer accounts through
the internet and mobile banking, as well as through branch locations, ATMs and Cafés primarily across New York, Louisiana,
Texas, Maryland, Virginia, New Jersey and the District of Columbia. We also operate as one of the largest online direct banks in
the United States (“U.S.”) by deposits. In addition to bank lending, treasury management and depository services, we offer credit
and debit card products, auto loans and other consumer lending products in markets across the United States. We were the third
largest issuer of Visa® (“Visa”) and MasterCard® (“MasterCard”) credit cards in the U.S. based on the outstanding balance of credit
card loans as of December 31, 2018.
We also offer products outside of the U.S. principally through Capital One (Europe) plc (“COEP”), an indirect subsidiary of
COBNA organized and located in the United Kingdom (“U.K.”), and through a branch of COBNA in Canada. Both COEP and
our branch of COBNA in Canada have the authority to provide credit card loans.
Business Developments
We regularly explore and evaluate opportunities to acquire financial services and financial assets, including credit card and other
loan portfolios, and enter into strategic partnerships as part of our growth strategy. We also explore opportunities to acquire digital
companies and related assets to improve our information technology infrastructure and to deliver on our digital strategy. In addition,
we regularly consider the potential disposition of certain of our assets, branches, partnership agreements or lines of business. We
may issue equity or debt to fund our acquisitions.
On July 26, 2018, we announced that we entered into a new, long-term credit card program agreement with Walmart Inc. (“Walmart”).
Under the terms of the agreement, we will become the exclusive issuer of Walmart’s cobrand and private label credit card program
in the U.S. On January 22, 2019, we announced that we entered into a definitive agreement to acquire the existing portfolio of
Walmart’s cobrand and private label credit card receivables. At closing, we expect the portfolio will consist of approximately $9
billion of receivables. We expect to launch the new issuance program and close on the acquired portfolio late in the third quarter
or early in the fourth quarter of 2019.
In the fourth quarter of 2017, we announced our decision to cease new originations of residential mortgage and home equity loan
products within our Consumer Banking business. In 2018, we sold all of our consumer home loan portfolio and mortgage servicing
rights related to loans serviced for others.
3
Capital One Financial Corporation (COF)
4
Capital One Financial Corporation (COF)
On September 25, 2017, we completed the acquisition from Synovus Bank of credit card assets and related liabilities of World’s
Foremost Bank, a wholly-owned subsidiary of Cabela’s Incorporated (“Cabela’s acquisition”). The Cabela’s acquisition added
approximately $5.7 billion to our domestic credit card loans held for investment portfolio as of the acquisition date. On October
5, 2018, we completed the acquisition of the Bass Pro cobrand credit card portfolio (“Bass Pro acquisition”) which added
approximately $534 million to our domestic credit card loans held for investment portfolio as of the acquisition date.
For additional information on our business segments, including the financial performance of each business, see “Part II—Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)—Executive Summary and
Business Outlook,” “MD&A—Business Segment Financial Performance” and “Note 18—Business Segments and Revenue from
Contracts with Customers” of this Report.
Additional Information
COMPETITION
Our common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “COF” and is included in the Standard
& Poor’s (“S&P”) 100 Index. We maintain a website at www.capitalone.com. Documents available under Corporate Governance
in the Investor Relations section of our website include:
•
•
•
our Code of Business Conduct and Ethics;
our Corporate Governance Guidelines; and
charters for the Audit, Compensation, Governance and Nominating, and Risk Committees of the Board of Directors.
These documents also are available in print to any stockholder who requests a copy. We intend to disclose future amendments to
certain provisions of our Code of Business Conduct and Ethics, and waivers of our Code of Business Conduct and Ethics granted
to executive officers and directors, on the website within four business days following the date of the amendment or waiver.
In addition, we make available free of charge through our website all of our U.S. Securities and Exchange Commission (“SEC”)
filings, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports, as soon as reasonably practicable after electronically filing or furnishing such material to the SEC
at www.sec.gov.
OPERATIONS AND BUSINESS SEGMENTS
Our consolidated total net revenues are derived primarily from lending to consumer and commercial customers net of funding
costs associated with our deposits, short-term borrowings and long-term debt. We also earn non-interest income which primarily
consists of interchange income, net of reward expenses, service charges and other customer-related fees. Our expenses primarily
consist of the provision for credit losses, operating expenses, marketing expenses and income taxes.
Our principal operations are organized for management reporting purposes into three major business segments, which are defined
primarily based on the products and services provided or the types of customers served: Credit Card, Consumer Banking and
Commercial Banking. The operations of acquired businesses have been integrated into our existing business segments. Certain
activities that are not part of a segment, such as management of our corporate investment portfolio, asset/liability management by
our centralized Corporate Treasury group and residual tax expense or benefit to arrive at the consolidated effective tax rate that is
not assessed to our primary business segments, are included in the Other category.
• Credit Card: Consists of our domestic consumer and small business card lending, and international card businesses in
Canada and the United Kingdom.
• Consumer Banking: Consists of our branch-based deposit gathering and lending activities for consumers and small
businesses, national deposit gathering 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 commercial and industrial customers typically include
companies with annual revenues between $20 million and $2 billion.
Customer usage and payment patterns, credit quality, levels of marketing expense and operating efficiency all affect our profitability.
In our Credit Card business, we experience fluctuations in purchase volume and the level of outstanding loan receivables due to
seasonal variances in consumer spending and payment patterns which, for example, are highest around the winter holiday season.
Net charge-off rates for our credit card loan portfolio also have historically exhibited seasonal patterns as well and generally tend
to be the highest in the first and fourth quarters of the year. No individual quarter in 2018, 2017 or 2016 accounted for more than
30% of our total revenues in any of these fiscal years.
Each of our business segments operates in a highly competitive environment, and we face competition in all aspects of our business
from numerous bank and non-bank providers of financial services.
Our Credit Card business competes with international, national, regional and local issuers of Visa and MasterCard credit cards, as
well as with American Express®, Discover Card®, private-label card brands, and, to a certain extent, issuers of debit cards. In
general, customers are attracted to credit card issuers largely on the basis of price, credit limit, reward programs and other product
features.
Our Consumer Banking and Commercial Banking businesses compete with national, state and direct banks for deposits, commercial
and auto loans, as well as with savings and loan associations and credit unions for loans and deposits. Our competitors also include
automotive finance companies, commercial mortgage banking companies and other financial services providers that provide loans,
deposits, and other similar services and products. In addition, we compete against non-depository institutions that are able to offer
these products and services. Securities firms and insurance companies that elect to become financial holding companies may
acquire banks and other financial institutions. Combinations of this type could significantly change the competitive environment
in which we conduct business. The financial services industry is also likely to become more competitive as further technological
advances enable more companies to provide financial services. These technological advances may diminish the importance of
depository institutions and other financial intermediaries in the transfer of funds between parties. In addition, competition among
direct banks is intense because online banking provides customers the ability to rapidly deposit and withdraw funds and open and
close accounts in favor of products and services offered by competitors.
Our businesses generally compete on the basis of the quality and range of their products and services, transaction execution,
innovation and price. Competition varies based on the types of clients, customers, industries and geographies served. Our ability
to compete depends, in part, on our ability to attract and retain our associates and on our reputation. There can be no assurance,
however, that our ability to market products and services successfully or to obtain adequate returns on our products and services
will not be impacted by the nature of the competition that now exists or may later develop, or by the broader economic environment.
For a discussion of the risks related to our competitive environment, please refer to “Part I—Item 1A. Risk Factors.”
SUPERVISION AND REGULATION
General
Capital One Financial Corporation is a bank holding company (“BHC”) and a financial holding company (“FHC”) under the Bank
Holding Company Act of 1956, as amended (“BHC Act”), and is subject to the requirements of the BHC Act, including approval
requirements for investments in or acquisitions of banking organizations, capital adequacy standards and limitations on nonbanking
activities. As a BHC and FHC, we are subject to supervision, examination and regulation by the Board of Governors of the Federal
Reserve System (“Federal Reserve”). Permissible activities for a BHC include those activities that are so closely related to banking
as to be a proper incident thereto. In addition, a FHC is permitted to engage in activities considered to be financial in nature
(including, for example, securities underwriting and dealing and merchant banking activities), incidental to financial activities or,
if the Federal Reserve determines that they pose no risk to the safety or soundness of depository institutions or the financial system
in general, activities complementary to financial activities.
To become and remain eligible for FHC status, a BHC and its subsidiary depository institutions must meet certain criteria, including
capital, management and Community Reinvestment Act (“CRA”) requirements. Failure to meet such criteria could result, depending
on which requirements were not met, in restrictions on new financial activities or acquisitions or being required to discontinue
existing activities that are not generally permissible for BHCs.
The Banks are national associations chartered under the laws of the United States and the deposits of which are insured by the
Deposit Insurance Fund (“DIF”) of the Federal Deposit Insurance Corporation (“FDIC”) up to applicable limits. The Banks are
5
Capital One Financial Corporation (COF)
6
Capital One Financial Corporation (COF)
subject to comprehensive regulation and periodic examination by the Office of the Comptroller of the Currency (“OCC”), the
FDIC and the Consumer Financial Protection Bureau (“CFPB”).
We are also registered as a financial institution holding company under the laws of the Commonwealth of Virginia and, as such,
we are subject to periodic examination by the Virginia Bureau of Financial Institutions. We also face regulation in the international
jurisdictions in which we conduct business. See “Regulation of Businesses by Authorities Outside the United States” below for
additional details.
Regulation of Business Activities
The business activities of the Company and the Banks are also subject to regulation and supervision under various laws and
regulations.
Regulations of Consumer Lending Activities
The activities of the Banks as consumer lenders are subject to regulation under various federal laws, including, for example, the
Truth in Lending Act (“TILA”), the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the CRA, the Servicemembers
Civil Relief Act and the Military Lending Act, as well as under various state laws. TILA, as amended, imposes a number of
restrictions on credit card practices impacting rates and fees, requires that a consumer’s ability to pay be taken into account before
issuing credit or increasing credit limits, and imposes revised disclosures required for open-end credit.
Depending on the underlying issue and applicable law, regulators may be authorized to impose penalties for violations of these
statutes and, in certain cases, to order banks to compensate customers. Borrowers may also have a private right of action for certain
violations. Federal bankruptcy and state debtor relief and collection laws may also affect the ability of a bank, including the Banks,
to collect outstanding balances owed by borrowers.
Debit Interchange Fees
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) requires that the amount of any interchange
fee received by a debit card issuer with respect to debit card transactions be reasonable and proportional to the cost incurred by
the issuer with respect to the transaction. Rules adopted by the Federal Reserve to implement these requirements limit interchange
fees per debit card transaction to $0.21 plus five basis points of the transaction amount and provide for an additional $0.01 fraud
prevention adjustment to the interchange fee for issuers that meet certain fraud prevention requirements.
Privacy
We are subject to multiple federal and state laws concerning data privacy, such as the Gramm-Leach Bliley Act. This area has seen
increasing legislative and regulatory activity. For example, in 2018, the State of California passed the California Consumer Privacy
Act (“CCPA”), which creates obligations on covered companies to, among other things, share certain information they have
collected about individuals who are California residents with those individuals, subject to some exceptions. The California Attorney
General is engaged in a public comment period on the law and will issue CCPA regulations by July 1, 2020. We continue to analyze
the CCPA to determine its applicability and impact to our business, and we continue to monitor data privacy legal developments
in other federal and state jurisdictions.
Bank Secrecy Act and USA PATRIOT Act of 2001
The Bank Secrecy Act and the USA PATRIOT Act of 2001 (“Patriot Act”) require financial institutions, among other things, to
implement a risk-based program reasonably designed to prevent money laundering and to combat the financing of terrorism,
including through suspicious activity and currency transaction reporting, compliance, record-keeping and customer due diligence.
In May 2016, the United States Department of the Treasury’s Financial Crimes Enforcement Network issued a final rule making
customer due diligence a required, stand-alone part of the anti-money laundering programs financial institutions must maintain
under the Bank Secrecy Act. For these purposes, the term “customer due diligence” refers to customer identification and verification,
beneficial ownership identification and verification, understanding the nature and purpose of customer relationships to develop a
customer risk profile, ongoing monitoring for reporting suspicious transactions and, on a risk-adjusted basis, maintaining and
updating customer information. The rule required full compliance by May 11, 2018 for Capital One and all other covered financial
institutions.
The Patriot Act also contains financial transparency laws and provides enhanced information collection tools and enforcement
mechanisms to the U.S. government, including due diligence and record-keeping requirements for private banking and
correspondent accounts; standards for verifying customer identification at account opening; rules to produce certain records upon
request of a regulator or law enforcement agency; and rules to promote cooperation among financial institutions, regulators and
law enforcement agencies in identifying parties that may be involved in terrorism, money laundering and other crimes.
Funding
Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), as discussed in “MD&A—Liquidity
Risk Profile,” only well capitalized and adequately capitalized institutions may accept brokered deposits. Adequately capitalized
institutions, however, must obtain a waiver from the FDIC before accepting brokered deposits, and such institutions may not pay
rates that significantly exceed the rates paid on deposits of similar maturity obtained from the institution’s normal market area or,
for deposits obtained from outside the institution’s normal market area, the national rate on deposits of comparable maturity. The
FDIC is authorized to terminate a bank’s deposit insurance upon a finding by the FDIC that the bank’s financial condition is unsafe
or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order
or condition enacted or imposed by the bank’s regulatory agency. The termination of deposit insurance would likely have a material
adverse effect on a bank’s liquidity and earnings.
Nonbank Activities
Certain of our nonbank subsidiaries are subject to supervision and regulation by various other federal and state authorities. Capital
One Advisors, LLC is an investment adviser registered with the SEC and regulated under the Investment Advisers Act of 1940.
Capital One Securities, Inc. and Capital One Investing, LLC are registered broker-dealers regulated by the SEC and the Financial
Industry Regulatory Authority. Our broker-dealer subsidiaries are subject, among other things, to net capital rules designed to
measure the general financial condition and liquidity of a broker-dealer. Under these rules, broker-dealers are required to maintain
the minimum net capital deemed necessary to meet their continuing commitments to customers and others, and to keep a substantial
portion of their assets in relatively liquid form. These rules also limit the ability of a broker-dealer to transfer capital to its parent
companies and other affiliates. Broker-dealers are also subject to regulations covering their business operations, including sales
and trading practices, public offerings, publication of research reports, use and safekeeping of client funds and securities, capital
structure, record-keeping and the conduct of directors, officers and employees.
Derivatives Activities
The Commodity Futures Trading Commission (“CFTC”) and the SEC have jointly issued final rules further defining the Dodd-
Frank Act’s “swap dealer” definitions. Based on these rules, no Capital One entity is currently required to register with the CFTC
or SEC as a swap dealer. The Dodd-Frank Act also requires all swap market participants to keep certain swap transaction records
and report pertinent information to swap data repositories on a real-time and on-going basis. Further, each swap, group, category,
type or class of swap that the CFTC or SEC determines must be cleared through a derivatives clearinghouse (unless the swap is
eligible for a clearing exemption) must also be executed on a designated contract market (“DCM”), exchange or swap execution
facility (“SEF”), unless no DCM, exchange or SEF has made the swap available for trading.
Volcker Rule
We and each of our subsidiaries, including the Banks, are subject to the “Volcker Rule,” a provision of the Dodd-Frank Act that
contains prohibitions on proprietary trading and certain investments in, and relationships with, covered funds (hedge funds, private
equity funds and similar funds), subject to certain exemptions, in each case as the applicable terms are defined in the Volcker Rule
and the implementing regulations. The implementing regulations also require that we establish and maintain an enhanced
compliance program designed to ensure that we comply with the requirements of the regulations.
In May 2018, the Federal Reserve, OCC, FDIC (collectively, the “Federal Banking Agencies”), along with the SEC and CFTC,
proposed changes to the regulations implementing the Volcker Rule intended to simplify and tailor the regulations. There is
uncertainty regarding the timing and form of any final rule implementing Volcker Rule changes.
Capital and Liquidity Regulation
The Company and the Banks are subject to capital adequacy guidelines adopted by the Federal Reserve and OCC. For a further
discussion of the capital adequacy guidelines, see “MD&A—Capital Management,” “MD&A—Liquidity Risk Profile” and
“Note 12—Regulatory and Capital Adequacy.”
7
Capital One Financial Corporation (COF)
8
Capital One Financial Corporation (COF)
Basel III and United States Capital Rules
•
$1 billion or more.
In December 2010, the Basel Committee on Banking Supervision (“Basel Committee”) published a framework for additional
capital and liquidity requirements (“Basel III”), which included detailed capital ratios and buffers, subject to transition periods.
As of December 31, 2018, the Company and CONA are subject to the Market Risk Rule. See “MD&A—Market Risk Profile”
below for additional information.
The Federal Banking Agencies have issued regulations (“Basel III Capital Rule”) that implement certain capital and liquidity
requirements published by the Basel Committee, along with certain Dodd-Frank Act and other capital provisions. The Basel III
Capital Rule includes the “Basel III Standardized Approach” and the “Basel III Advanced Approaches.”
The Basel III Advanced Approaches are mandatory for institutions with total consolidated assets of $250 billion or more or total
consolidated on-balance sheet foreign exposure of $10 billion or more. Prior to full implementation of the Basel III Advanced
Approaches, however, a covered institution must complete a qualification period, known as parallel run, during which it must
demonstrate that it meets the requirements of the rule to the satisfaction of its primary U.S. banking regulator. We entered parallel
run on January 1, 2015.
Notwithstanding the Basel III Advanced Approaches, the Basel III Capital Rule also established a capital floor so that organizations
subject to the Basel III Advanced Approaches may not hold less capital than would be required using the Basel III Standardized
Approach capital calculations.
The Basel III Capital Rule revised the definition of regulatory capital, established a new common equity Tier 1 capital requirement,
set higher minimum capital ratio requirements, introduced a new capital conservation buffer of 2.5%, and introduced a new
countercyclical capital buffer (currently set at 0.0%). Compliance with certain aspects of the Basel III Capital Rule went into effect
for Capital One as of January 1, 2014, and other provisions have gone or will go into effect according to various start dates and
phase-in periods. As of January 1, 2014, the minimum risk-based and leverage capital requirements for Advanced Approaches
banking organizations included a common equity Tier 1 capital ratio of at least 4.0%, a Tier 1 risk-based capital ratio of at least
5.5%, a total risk-based capital ratio of at least 8.0% and a Tier 1 leverage capital ratio of at least 4.0%. On January 1, 2015, the
minimum risk-based capital ratio requirements increased to 4.5% for the common equity Tier 1 capital ratio and to 6.0% for the
Tier 1 risk-based capital ratio, and the minimum requirements for the total risk-based capital ratio and Tier 1 leverage capital ratio
remained the same. Both the capital conservation buffer and the countercyclical capital buffer were phased-in over a transition
period that ended January 1, 2019. On January 1, 2014, we began to use the Basel III Capital Rule, with transition provisions, to
calculate our regulatory capital, including for purposes of calculating our regulatory capital ratios. On January 1, 2015, we began
to use the Basel III Standardized Approach for calculating our risk-weighted assets in our regulatory capital ratios.
The Basel III Capital Rule also introduced a new supplementary leverage ratio for all Advanced Approaches banking organizations
with a minimum requirement of 3.0%. The supplementary leverage ratio compares Tier 1 capital to total leverage exposure, which
includes all on-balance sheet assets and certain off-balance sheet exposures, including derivatives and unused commitments. Given
that we are in our Basel III Advanced Approaches parallel run, we calculate the ratio based on Tier 1 capital under the Basel III
Standardized Approach. The minimum requirement for the supplementary leverage ratio became effective on January 1, 2018.
For further information, see “MD&A—Capital Management.”
Global systemically important banks (“G-SIBs”) that are based in the U.S. are subject to an additional common equity Tier 1
capital requirement (“G-SIB Surcharge”). We are not a G-SIB based on the most recent available data and thus we are not subject
to a G-SIB Surcharge.
In December 2018, the Federal Banking Agencies issued a final rule to address regulatory capital treatment of credit loss allowances
under the current expected credit loss (“CECL”) model. The CECL model will be applicable to Capital One as of January 1, 2020.
The rule (“CECL Capital Rule”) revises the Federal Banking Agencies’ regulatory capital rules to identify which credit loss
allowances under the CECL model are eligible for inclusion in regulatory capital and to provide banking organizations the option
to phase in over three years the day-one adverse effects on regulatory capital that may result from the adoption of the CECL model.
The effects of the CECL Capital Rule on our capital requirements are currently uncertain.
Market Risk Rule
The “Market Risk Rule” supplements both the Basel III Standardized Approach and the Basel III Advanced Approaches by requiring
institutions subject to the Market Risk Rule to adjust their risk-based capital ratios to reflect the market risk in their trading portfolios.
The Market Risk Rule generally applies to institutions with aggregate trading assets and liabilities equal to the lesser of:
•
10% or more of total assets; or
Basel III and United States Liquidity Rules
The Basel Committee has published a liquidity framework that includes two standards for liquidity risk supervision, each subject
to observation periods and transitional arrangements. One standard, the liquidity coverage ratio (“LCR”), seeks to promote short-
term resilience by requiring organizations to hold sufficient high-quality liquid assets to survive a stress scenario lasting for 30
days. The other standard, the net stable funding ratio (“NSFR”), seeks to promote longer-term resilience by requiring sufficient
stable funding over a one-year period based on the liquidity characteristics of its assets and activities.
The Company and the Banks are subject to the LCR as implemented by the Federal Reserve and OCC (“LCR Rule”). The LCR
Rule requires the Company and each of the Banks to hold an amount of eligible high-quality, liquid assets that equals or exceeds
100% of their respective projected net cash outflows over a 30-day period, each as calculated in accordance with the LCR Rule.
The LCR Rule requires us to calculate the LCR daily. Each company subject to the LCR Rule is required to make quarterly public
disclosures of its LCR and certain related quantitative liquidity metrics, along with a qualitative discussion of its LCR. The Company
became subject to these disclosure requirements beginning April 1, 2018.
In April 2016, the Federal Banking Agencies issued an interagency notice of proposed rulemaking regarding the U.S.
implementation of the Basel III NSFR (the “Proposed NSFR”), which would apply to the same institutions subject to the LCR
Rule. The Proposed NSFR would require us to maintain a sufficient amount of stable funding in relation to our assets, derivatives
exposures and commitments over a one-year horizon period. Although the Proposed NSFR is generally consistent with the Basel
NSFR standard, it is more stringent in certain areas. The financial and operational impact on us of a final NSFR rule remains
uncertain until a final rule is published. There is uncertainty regarding the timing and form of any final rule implementing the
NSFR in the United States.
U.S. implementation of the above capital and liquidity rules would generally result in increased capital and liquidity requirements
for us.
Proposed Changes to Capital and Liquidity Requirements
In October 2018, the Federal Banking Agencies proposed to provide tailored requirements for certain of the capital and liquidity
rules discussed above for different categories of banking institutions (“Tailoring Proposed Rule”). As proposed, these categories
would be determined by an institution’s asset size, with adjustments to a more stringent category possible if the institution meets
certain other thresholds. As a BHC with total consolidated assets of at least $250 billion, we would be a Category III institution
under the Tailoring Proposed Rule. As such, we would no longer be subject to the Basel III Advanced Approaches and certain
associated capital requirements, although we would remain subject to the countercyclical capital buffer and supplementary leverage
ratio, which are currently required only for Basel III Advanced Approaches institutions. Because we would be a Category III
institution with less than $75 billion in weighted average short-term wholesale funding, the Tailoring Proposed Rule would modify
the amount of high-quality liquid assets we must hold under the LCR Rule, and would modify the required stable funding amount
for us under the Proposed NSFR. The financial and operational impact on us of the Tailoring Proposed Rule remains uncertain
until a final rule is published.
In addition, in October 2017, the Federal Banking Agencies proposed certain more limited changes to the Basel III Capital Rule.
In light of the Tailoring Proposed Rule, there is uncertainty regarding how any of the proposed changes may impact the Basel III
Standardized Approach and the Basel III Advanced Approaches. Also, in December 2017, the Basel Committee finalized certain
modifications to the international Basel III capital standards, which would require rulemaking in the U.S. prior to becoming effective
for U.S. banking organizations. There is uncertainty around which of those changes may be adopted in the U.S. and how those
changes may impact the U.S. capital framework.
We will continue to monitor implementation by the Federal Banking Agencies of the new capital and liquidity rules and assess
the potential impact to us.
9
Capital One Financial Corporation (COF)
10
Capital One Financial Corporation (COF)
FDICIA and Prompt Corrective Action
The FDICIA requires the Federal Banking Agencies to take “prompt corrective action” for banks that do not meet minimum capital
requirements. The FDICIA establishes five capital ratio levels: well capitalized; adequately capitalized; undercapitalized;
significantly undercapitalized; and critically undercapitalized. The three undercapitalized categories are based upon the amount
by which a bank falls below the ratios applicable to an adequately capitalized institution. The capital categories are determined
solely for purposes of applying the FDICIA’s prompt corrective action (“PCA”) provisions, and such capital categories may not
constitute an accurate representation of the Banks’ overall financial condition or prospects.
The Basel III Capital Rule updated the PCA framework to reflect new, higher regulatory capital minimums. For an insured depository
institution to be well capitalized, it must maintain a total risk-based capital ratio of 10% or more; a Tier 1 capital ratio of 8% or
more; a common equity Tier 1 capital ratio of 6.5% or more; and a leverage ratio of 5% or more. An adequately capitalized
depository institution must maintain a total risk-based capital ratio of 8% or more; a Tier 1 capital ratio of 6% or more; a common
equity Tier 1 capital ratio of 4.5% or more; a leverage ratio of 4% or more; and, for Basel III Advanced Approaches institutions,
a supplementary leverage ratio, which incorporates a broader set of exposures as noted above, of 3% or more. The revised PCA
requirements became effective on January 1, 2015, other than the supplementary leverage ratio, which became effective on
January 1, 2018.
Under applicable regulations for 2014, before the revised PCA requirements became effective, an insured depository institution
was considered to be well capitalized if it maintained a total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital
ratio of at least 6%, a Tier 1 leverage capital ratio of at least 5% and was not subject to any supervisory agreement, order or directive
to meet and maintain a specific capital level for any capital measure. The PCA provisions also authorize the Federal Banking
Agencies to reclassify a bank’s capital category or take other action against banks that are determined to be in an unsafe or unsound
condition or to have engaged in unsafe or unsound banking practices.
As an additional means to identify problems in the financial management of depository institutions, the FDICIA required the
Federal Banking Agencies to establish certain non-capital safety and soundness standards. The standards relate generally to
operations and management, asset quality, interest rate exposure and executive compensation. The Federal Banking Agencies are
authorized to take action against institutions that fail to meet such standards.
Enhanced Prudential Standards and Other Requirements Under the Dodd-Frank Act
We are a “covered company” subject under the Dodd-Frank Act to certain enhanced prudential standards, including requirements
that may be recommended by the Financial Stability Oversight Council (“FSOC”) and implemented by the Federal Reserve and
other regulators. We remain a covered company under the amendments to the Dodd-Frank Act made by the Economic Growth,
Regulatory Relief, and Consumer Protection Act (“EGRRCPA”), which provided reduced enhanced prudential standards for
institutions with less than $250 billion in assets. As a result, we are subject to more stringent standards and requirements than those
applicable to institutions that are not covered companies. The FSOC may also issue recommendations to the Federal Reserve or
other primary financial regulatory agencies to apply new or enhanced standards to certain financial activities or practices.
The Federal Reserve and FDIC have issued rules requiring the Company to implement resolution planning for orderly resolution
in the event the covered company faces material financial distress or failure. The FDIC issued similar rules regarding resolution
planning applicable to the Banks. In addition, the OCC has issued revised rules requiring banks with assets of $250 billion or more
to develop recovery plans detailing the actions they would take to remain a going concern when they experience considerable
financial or operational stress, but have not deteriorated to the point that resolution is imminent.
The Federal Reserve established a rule that implements the requirement in the Dodd-Frank Act that the Federal Reserve conduct
annual stress tests on the capacity of our capital to absorb losses as a result of adverse economic conditions. The stress test rule
also implements the requirement that we conduct our own semi-annual stress tests and publish the results of the stress tests on our
website or other public forum. The OCC adopted a similar stress test rule to implement the requirement that each of the Banks
conduct annual stress tests. In December 2018 and January 2019, the Federal Banking Agencies proposed rules consistent with
EGRRCPA amendments to the Dodd-Frank Act that would exclude banks with less than $250 billion in assets, including COBNA,
from an obligation to conduct their own tests, and permit CONA to conduct a company-run stress tests every two years rather than
annually. In addition, the Tailoring Proposed Rule would permit the Company to conduct a company-run stress test every two
years rather than annually.
The Federal Reserve also established rules implementing other aspects of the enhanced prudential standards under the Dodd-Frank
Act (“Enhanced Standards Rule”). Under the Enhanced Standards Rule, the Company must meet liquidity risk management
standards, conduct internal liquidity stress tests, and maintain a 30-day buffer of highly liquid assets, in each case, consistent with
the requirements of the Enhanced Standards Rule. These requirements are in addition to the LCR, discussed above in “Basel III
and United States Liquidity Rules.” The Enhanced Standards Rule also requires that the Company comply with, and hold capital
commensurate with, the requirements of, any regulations adopted by the Federal Reserve relating to capital planning and stress
tests. Stress testing and capital planning regulations are discussed further below under “Dividends, Stock Repurchases and Transfers
of Funds.” The Enhanced Standards Rule also requires that the Company establish and maintain an enterprise-wide risk management
framework that includes a risk committee and a chief risk officer.
Although not a requirement of the Dodd-Frank Act, the OCC established regulatory guidelines (“Heightened Standards Guidelines”)
that apply heightened standards for risk management to large institutions subject to its supervision, including the Banks. The
Heightened Standards Guidelines establish standards for the development and implementation by the Banks of a risk governance
framework.
Investment in the Company and the Banks
Certain acquisitions of our capital stock may be subject to regulatory approval or notice under federal or state law. Investors are
responsible for ensuring that they do not, directly or indirectly, acquire shares of our capital stock in excess of the amount that can
be acquired without regulatory approval, including under the BHC Act and the Change in Bank Control Act (“CIBC Act”).
Federal law and regulations prohibit any person or company from acquiring control of the Company or the Banks without, in most
cases, prior written approval of the Federal Reserve or the OCC, as applicable. Control exists if, among other things, a person or
company acquires more than 25% of any class of our voting stock or otherwise has a controlling influence over us. For a publicly
traded BHC such as ourselves, a rebuttable presumption of control arises under the CIBC Act if a person or company acquires
more than 10% of any class of our voting stock.
Additionally, COBNA and CONA are “banks” within the meaning of Chapter 13 of Title 6.1 of the Code of Virginia governing
the acquisition of interests in Virginia financial institutions (“Financial Institution Holding Company Act”). The Financial Institution
Holding Company Act prohibits any person or entity from acquiring, or making any public offer to acquire, control of a Virginia
financial institution or its holding company without making application to, and receiving prior approval from, the Virginia Bureau
of Financial Institutions.
Dividends, Stock Repurchases and Transfers of Funds
Under the Federal Reserve’s capital planning rules (commonly referred to as Comprehensive Capital Analysis and Review or
“CCAR”), “covered BHCs,” including ourselves, must submit a capital plan to the Federal Reserve on an annual basis that contains
a description of all planned capital actions, including dividends or stock repurchases, over a nine-quarter planning horizon beginning
with the fourth quarter of the calendar year prior to the submission of the capital plan (“CCAR cycle”). A covered BHC may take
the proposed capital actions if the Federal Reserve does not object to the plan.
Dodd-Frank Act stress testing, described above in “Enhanced Prudential Standards and Other Requirements under the Dodd-Frank
Act,” is a complementary exercise to CCAR. It is a forward-looking exercise conducted by the Federal Reserve and covered
financial companies to help assess whether a company has sufficient capital to absorb losses and support operations during adverse
economic conditions. The supervisory stress test, after incorporating a firm’s planned capital actions, is used for quantitative
assessment in CCAR.
As part of its evaluation of a large BHC’s capital plan, the Federal Reserve will consider how comprehensive the plan is, the
reasonableness of the assumptions, analysis and methodologies used therein to assess capital adequacy and the ability of the BHC
to maintain capital above each minimum regulatory capital ratio on a pro-forma basis under expected and stressful conditions
throughout a planning horizon of at least nine quarters. The annual CCAR cycle measures our capital levels under the Basel III
Standardized Approach. The Federal Reserve has indefinitely delayed incorporation of the Basel III Advanced Approaches into
the capital planning and stress testing process. The Company must file its capital plan and stress testing results with the Federal
Reserve by April 5, 2019, using data as of the end of the prior calendar year. The Federal Reserve is expected to provide its objection
or non-objection to that capital plan in June of that year. The Federal Reserve’s objection or non-objection applies to planned
capital actions from the third quarter of the year the capital plan is submitted through the end of the second quarter of the following
year. The Company, along with other BHCs subject to the supplementary leverage ratio, must incorporate an estimate of its
supplementary leverage ratio into its capital plan and stress tests.
11
Capital One Financial Corporation (COF)
12
Capital One Financial Corporation (COF)
The current capital planning and stress testing rules place supervisory focus on quarterly capital issuances and distributions by
establishing a cumulative net distribution requirement. Under a “de minimis” exception, if a company does not receive an objection
to its capital plan, it may in certain cases distribute up to 0.25% of its Tier 1 capital above the distributions in its capital plan. With
certain limited exceptions, to the extent a BHC does not issue the amount of a given class of regulatory capital instrument that it
projected in its capital plan, as measured on an aggregate basis beginning in the third quarter of the planning horizon, the BHC
must reduce its capital distributions.
In April 2018, the Federal Reserve issued a proposed rule (“Stress Capital Buffer Proposed Rule”) that would implement a firm-
specific “stress capital buffer” requirement and a “stress leverage buffer” requirement. Under the Stress Capital Buffer Proposed
Rule, a firm’s stress capital buffer would have a floor of 2.5% of total risk-weighted assets, replacing the existing 2.5% capital
conservation buffer, and would equal, as a percentage of total risk-weighted assets, the sum of (i) the difference between a firm’s
starting common equity Tier 1 capital ratio and the low point under the severely adverse scenario of the Federal Reserve’s supervisory
stress test plus (ii) the ratio of the firm’s projected four quarters of common stock dividends to risk-weighted assets as projected
under CCAR (for the fourth to seventh quarters of the planning horizon). A firm’s new “Standardized Approach capital conservation
buffer” would include its stress capital buffer, any G-SIB surcharge, and any applicable countercyclical capital buffer (currently
set at zero in the United States). The consequences of breaching the stress capital buffer requirement would be consistent with the
current capital conservation buffer framework and would result in increasingly strict limitations on capital distributions and
discretionary bonus payments. The Stress Capital Buffer Proposed Rule also replaces the current CCAR post-stress leverage ratio
requirement with a stress leverage buffer requirement, which would be equal to the sum of (i) the difference between the firm’s
starting and lowest projected Tier 1 leverage ratios under the severely adverse scenario in CCAR plus (ii) the ratio of the same
four quarters of projected dividend payments as for the stress capital buffer to the leverage ratio denominator. Additionally, the
proposal would modify certain CCAR assumptions relating to prefunding of dividends and balance sheet growth. The proposed
stress buffer requirements would also eliminate the CCAR quantitative objection. The Federal Reserve has indicated that these
changes, if finalized, would not go into effect until at least the 2020 stress testing cycle.
In December 2018, the Federal Reserve released a statement outlining how it would incorporate CECL into its supervisory stress
tests and its assessment of company-run stress tests. In the statement, the Federal Reserve said that it planned to maintain its current
framework for calculating allowances on loans in the supervisory stress test for the 2020 and 2021 supervisory stress testing cycles.
The Federal Reserve stated further that although bank holding companies required to perform company-run stress tests as part of
CCAR will be required to incorporate CECL into those stress tests starting in the 2020 cycle, it will not issue supervisory findings
on those firms’ allowance estimations in the CCAR exercise through 2021. The effects of CECL and the CECL Capital Rule on
our capital planning and stress testing processes are currently uncertain.
Historically, dividends from the Company’s direct and indirect subsidiaries have represented a major source of the funds we have
used to pay dividends on our stock, make payments on corporate debt securities and meet our other obligations. There are various
federal law limitations on the extent to which the Banks can finance or otherwise supply funds to us through dividends and loans.
These limitations include minimum regulatory capital requirements, federal banking law requirements concerning the payment of
dividends out of net profits or surplus, provisions of Sections 23A and 23B of the Federal Reserve Act and Regulation W governing
transactions between an insured depository institution and its affiliates, as well as general federal regulatory oversight to prevent
unsafe or unsound practices. In general, federal and applicable state banking laws prohibit insured depository institutions, such as
the Banks, from making dividend distributions without first obtaining regulatory approval if such distributions are not paid out of
available earnings or would cause the institution to fail to meet applicable capital adequacy standards.
Deposit Insurance Assessments
Each of CONA and COBNA, as an insured depository institution, is a member of the DIF maintained by the FDIC. Through the
DIF, the FDIC insures the deposits of insured depository institutions up to prescribed limits for each depositor. The FDIC sets a
Designated Reserve Ratio (“DRR”) for the DIF. To maintain the DIF, member institutions may be assessed an insurance premium,
and the FDIC may take action to increase insurance premiums if the DRR falls below its required level.
Source of Strength and Liability for Commonly Controlled Institutions
Under regulations issued by the Federal Reserve, a BHC must serve as a source of financial and managerial strength to its subsidiary
banks (the so-called “source of strength doctrine”). The Dodd-Frank Act codified this doctrine.
anticipated to be incurred, by the FDIC in connection with the default of, or FDIC assistance to, any commonly controlled insured
depository institution. The Banks are commonly controlled within the meaning of the FIRREA cross-guarantee provision.
FDIC Orderly Liquidation Authority
The Dodd-Frank Act provides the FDIC with liquidation authority that may be used to liquidate nonbank financial companies and
BHCs if the Treasury Secretary, in consultation with the President and based on the recommendation of the Federal Reserve and
another federal agency, determines that doing so is necessary, among other criteria, to mitigate serious adverse effects on U.S.
financial stability. Upon such a determination, the FDIC would be appointed receiver and must liquidate the company in a way
that mitigates significant risks to financial stability and minimizes moral hazard. The costs of a liquidation of a financial company
would be borne by shareholders and unsecured creditors and then, if necessary, by risk-based assessments on large financial
companies. The FDIC has issued rules implementing certain provisions of its liquidation authority and may issue additional rules
in the future.
Regulation of Businesses by Authorities Outside the United States
COBNA is subject to regulation in foreign jurisdictions where it operates, currently in the United Kingdom and Canada.
United Kingdom
In the United Kingdom, COBNA operates through COEP, which was established in 2000 and is an authorized payment institution
regulated by the Financial Conduct Authority (“FCA”) under the Payment Services Regulations 2009 and the Financial Services
and Markets Act 2000. COEP’s indirect parent, Capital One Global Corporation, is wholly-owned by COBNA and is subject to
regulation by the Federal Reserve as an “agreement corporation” under the Federal Reserve’s Regulation K.
Regulatory focus on Payment Protection Insurance (“PPI”) complaint handling has continued, and PPI continues to be a key driver
of consumer complaints to the Financial Ombudsman Service (“FOS”). Having set a deadline of August 29, 2019 for the submission
of PPI complaints, the FCA has completed three of four parts of its advertising campaign designed to raise consumer awareness
of the deadline. Given the increase in complaint volumes that this has created, and in order to monitor operational resilience across
the industry, the FCA has closely supervised large PPI distributors’ handling of complaints (including COEP) through a weekly
review of PPI inquiries and complaints data, detailed requests for information focused on the handling of PPI inquiries and
complaints, and the treatment of vulnerable customers in the PPI complaints process.
The FCA’s rules on persistent debt and early intervention were published in February 2018 and became effective in September
2018. The new rules are designed to re-balance incentives so that both firms and customers are encouraged to avoid credit card
debt becoming persistent, and customers who cannot afford to repay their debt in a timely manner are given assistance.
The Payment Services Regulations 2017 (“PSD2”) came into force on January 13, 2018. The principal focus of PSD2 is to improve
consumer protection and to promote competition, innovation and the development of innovative mobile and internet payments in
Europe. PSD2 requires COEP to adopt specific procedures for responding to Payments Services complaints. The next core phase
of PSD2 is the implementation of the European Banking Authority Regulated Technical Standards on Secure Customer
Authentication. These standards must be implemented by September 2019 and are designed to enhance consumer protection by
making electronic payments more secure.
The General Data Protection Regulation (“GDPR”) came into force on May 25, 2018. COEP has focused on GDPR implementation,
which involved updating privacy notices and improving its ability to demonstrate compliance with GDPR on an ongoing basis.
Due to the increased regulatory powers in relation to fines and external focus on data privacy, the potential for there to be data
related complaints and regulatory action is heightened.
In July 2018, the FCA published near final rules that extended the Senior Manager and Certification Regime (“SM&CR”) to almost
all regulated firms, including COEP. The SM&CR focuses on senior managers and individual accountability within financial
services firms by raising the standards of conduct for individuals in the financial services industry and by increasing senior
individuals responsibility and accountability for their conduct, actions and competence. The SM&CR will replace the Approved
Persons Regime currently applicable to COEP. Because there is a phased-in compliance period, the first of these new rules will
be effective for COEP in December 2019.
Under the “cross-guarantee” provision of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”),
insured depository institutions such as the Banks may be liable to the FDIC with respect to any loss incurred, or reasonably
The U.K. held a referendum in June 2016 and voted to exit the European Union (“Brexit”). The U.K. government and the European
Union (“EU”) have negotiated a Withdrawal Agreement, which establishes the terms of the U.K.’s departure. The U.K. Parliament
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is still considering the Government’s proposal. The effects of Brexit on COEP’s operations are currently unclear. For a discussion
of the risks associated with Brexit, please refer to “Part I—Item 1A. Risk Factors” under the heading “Changes And Instability In
The Macroeconomic Environment May Adversely Affect Our Industry, Business, Results Of Operations And Financial Condition.”
Canada
In Canada, COBNA operates as an authorized foreign bank pursuant to the Bank Act (Canada) (“Bank Act”) and is permitted to
conduct its credit card business in Canada through its Canadian branch, Capital One Bank (Canada Branch) (“Capital One Canada”).
The primary regulator of Capital One Canada is the Office of the Superintendent of Financial Institutions. Other regulators include
the Financial Consumer Agency of Canada (“FCAC”), the Office of the Privacy Commissioner of Canada, and the Financial
Transactions and Reports Analysis Centre of Canada. Capital One Canada is subject to regulation under various Canadian federal
laws, including the Bank Act and its regulations, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the
Personal Information Protection and Electronic Documents Act.
In August 2018, the Government of Canada announced new voluntary commitments from Visa Canada and MasterCard Canada,
which will take effect when the original commitments end in 2020. As part of their new commitments, Visa and Mastercard will
further reduce interchange fees for consumer credit cards by approximately 10 basis points to an annual average effective rate of
1.4% for a period of five years. Visa and Mastercard will also narrow the range of interchange rates (lowest vs. highest fee) charged
to businesses.
On December 13, 2018, Bill C-86, Budget Implementation Act, 2018, No. 2 was passed by Parliament. Among other things, Bill
C-86 amends the Bank Act (Canada) to consolidate and strengthen provisions that apply to banks and authorized foreign banks in
the areas of consumer protection, corporate governance, business practices, public reporting, disclosure of information and access
to basic banking services. Bill C-86 also amends the FCAC Act to enhance the role and powers of the FCAC by, among other
things, increasing the maximum penalty for a violation of the consumer protection provisions of the Bank Act from 50,000 Canadian
dollars (“CAD”) for natural persons and 500,000 CAD in the case of financial institutions or a payment card network to 1 million
CAD and 10 million CAD, respectively. We are continuing to analyze the impacts of Bill C-86 in order to determine its applicability
and impact to our business.
EMPLOYEES
A central part of our philosophy is to attract and retain highly capable staff. We had approximately 47,600 employees, whom we
refer to as “associates,” as of December 31, 2018. None of our associates are covered under a collective bargaining agreement,
and management considers our associate relations to be satisfactory.
ADDITIONAL INFORMATION
Technology/Systems
We leverage information and technology to achieve our business objectives and to develop and deliver products and services that
satisfy our customers’ needs. A key part of our strategic focus is the development and use of efficient, flexible computer and
operational systems, such as cloud technology, to support complex marketing and account management strategies, the servicing
of our customers, and the development of new and diversified products. We believe that the continued development and integration
of these systems is an important part of our efforts to reduce costs, improve quality and security and provide faster, more flexible
technology services. Consequently, we continuously review capabilities and develop or acquire systems, processes and
competencies to meet our unique business requirements.
As part of our continuous efforts to review and improve our technologies, we may either develop such capabilities internally or
rely on third-party outsourcers who have the ability to deliver technology that is of higher quality, lower cost, or both. We continue
to rely on third-party outsourcers to help us deliver systems and operational infrastructure. These relationships include (but are
not limited to): Amazon Web Services, Inc. (“AWS”) for our cloud infrastructure, Total System Services, Inc. (“TSYS”) for
processing services for our North American and U.K. portfolios of consumer, commercial and small business credit card accounts,
Fidelity Information Services (“FIS”) for certain of our banking systems and International Business Machines Corporation (“IBM”)
for mainframe managed services.
We safeguard our customers’ and our own information and technology, implement backup and recovery systems, and generally
require the same of our third-party service providers. We take measures that mitigate against known attacks and use internal and
external resources to scan for vulnerabilities in platforms, systems, and applications necessary for delivering Capital One products
and services. For a discussion of the risks associated with our use of technology systems, please refer to “Part I—Item 1A. Risk
Factors” under the headings “We Face Risks Related To Our Operational, Technological And Organizational Infrastructure” and
“We Could Incur Increased Costs, Reductions In Revenue, And Suffer Reputational Damage And Business Disruptions In The
Event Of The Theft, Loss Or Misuse Of Information, Including As A Result Of A Cyber-Attack.”
Intellectual Property
As part of our overall and ongoing strategy to protect and enhance our intellectual property, we rely on a variety of protections,
including copyrights, trademarks, trade secrets, patents and certain restrictions on disclosure, solicitation and competition. We also
undertake other measures to control access to, or distribution of, our other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use certain intellectual property or proprietary information without
authorization. Our precautions may not prevent misappropriation or infringement of our intellectual property or proprietary
information. In addition, our competitors and other third parties also file patent applications for innovations that are used in our
industry. The ability of our competitors and other third parties to obtain patents may adversely affect our ability to compete and
our financial results. Conversely, our ability to obtain patents may increase our competitive advantage, preserve our freedom to
operate, and allow us to enter into licensing (e.g., cross-licenses) or other arrangements with third parties. There can be no assurance
that we will be successful in such efforts, or that the ability of our competitors to obtain such patents may not adversely impact
our financial results. For a discussion of risks associated with intellectual property, please refer to “Part I—Item 1A. Risk Factors”
under the heading “If We Are Not Able To Protect Our Intellectual Property, Our Revenue And Profitability Could Be Negatively
Affected.”
FORWARD-LOOKING STATEMENTS
From time to time, we have made and will make forward-looking statements, including those that discuss, among other things,
strategies, goals, outlook or other non-historical matters; projections, revenues, income, returns, expenses, capital measures, capital
allocation plans, accruals for claims in litigation and for other claims against us; earnings per share, efficiency ratio or other
financial measures for us; future financial and operating results; our plans, objectives, expectations and intentions; and the
assumptions that underlie these matters.
To the extent that any such information is forward-looking, it is intended to fit within the safe harbor for forward-looking information
provided by the Private Securities Litigation Reform Act of 1995.
Numerous factors could cause our actual results to differ materially from those described in such forward-looking statements,
including, among other things:
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general economic and business conditions in the U.S., the U.K., Canada or our local markets, including conditions affecting
employment levels, interest rates, tariffs, collateral values, consumer income, credit worthiness and confidence, spending
and savings that may affect consumer bankruptcies, defaults, charge-offs and deposit activity;
an increase or decrease in credit losses, including increases due to a worsening of general economic conditions in the
credit environment, and the impact of inaccurate estimates or inadequate reserves;
compliance with financial, legal, regulatory, tax or accounting changes or actions, including the impacts of the Tax Act,
the Dodd-Frank Act, and other regulations governing bank capital and liquidity standards;
our ability to manage effectively our capital and liquidity;
developments, changes or actions relating to any litigation, governmental investigation or regulatory enforcement action
or matter involving us;
the inability to sustain revenue and earnings growth;
increases or decreases in interest rates and uncertainty with respect to the interest rate environment;
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our ability to access the capital markets at attractive rates and terms to capitalize and fund our operations and future
growth;
Factors” in this report. You should carefully consider the factors discussed above, and in our Risk Factors or other disclosure, in
evaluating these forward-looking statements.
increases or decreases in our aggregate loan balances or the number of customers and the growth rate and composition
thereof, including increases or decreases resulting from factors such as shifting product mix, amount of actual marketing
expenses we incur and attrition of loan balances;
the amount and rate of deposit growth;
changes in deposit costs;
our ability to execute on our strategic and operational plans;
restructuring activities or other charges;
our response to competitive pressures;
changes in retail distribution strategies and channels, including the emergence of new technologies and product delivery
systems;
our success in integrating acquired businesses and loan portfolios, and our ability to realize anticipated benefits from
announced transactions and strategic partnerships;
the success of our marketing efforts in attracting and retaining customers;
changes in the reputation of, or expectations regarding, the financial services industry or us with respect to practices,
products or financial condition;
any significant disruption in our operations or in the technology platforms on which we rely, including cybersecurity,
business continuity and related operational risks, as well as other security failures or breaches of our systems or those of
our customers, partners, service providers or other third parties;
our ability to maintain a compliance and technology infrastructure suitable for the nature of our business;
our ability to develop and adapt to rapid changes in digital technology to address the needs of our customers and comply
with applicable regulatory standards, including compliance with data protection and privacy standards;
the effectiveness of our risk management strategies;
our ability to control costs, including the amount of, and rate of growth in, our expenses as our business develops or
changes or as it expands into new market areas;
the extensive use, reliability and accuracy of the models and data we rely on in our business;
our ability to recruit and retain talented and experienced personnel;
the impact from, and our ability to respond to, natural disasters and other catastrophic events;
changes in the labor and employment markets;
fraud or misconduct by our customers, employees, business partners or third parties;
• merchants’ increasing focus on the fees charged by credit card networks; and
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other risk factors identified from time to time in our public disclosures, including in the reports that we file with the SEC.
Forward-looking statements often use words such as “will,” “anticipate,” “target,” “expect,” “estimate,” “intend,” “plan,” “goal,”
“believe,” “forecast,” “outlook” or other words of similar meaning. Any forward-looking statements made by us or on our behalf
speak only as of the date they are made or as of the date indicated, and we do not undertake any obligation to update forward-
looking statements as a result of new information, future events or otherwise. For additional information on factors that could
materially influence forward-looking statements included in this Report, see the risk factors set forth under “Part I—Item 1A. Risk
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Item 1A. Risk Factors
Regulatory Risk
This section highlights specific risks that could affect our business. Although we have tried to discuss all material risks of which
we are aware at the time this Report has been filed, other risks may prove to be important in the future, including those that are
not currently ascertainable. In addition to the factors discussed elsewhere in this Report, other factors that could cause actual results
to differ materially from our forward-looking statements include:
General Economic and Market Risks
Changes And Instability In The Macroeconomic Environment May Adversely Affect Our Industry, Business, Results Of
Operations And Financial Condition.
We offer a broad array of financial products and services to consumers, small businesses and commercial clients. We market our
credit card products throughout the United States, Canada and the United Kingdom and offer banking and other services in many
regions within the United States. A prolonged period of economic volatility, slow growth, or a significant deterioration in economic
conditions, in the United States or one of these other countries, could have a material adverse effect on our financial condition and
results of operations as customers default on their loans or maintain lower deposit levels or, in the case of credit card accounts,
carry lower balances and reduce credit card purchase activity.
Some of the risks we may face in connection with adverse changes and instability in macroeconomic environment include the
following:
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Payment patterns may change, causing increases in delinquencies and default rates, which could have a negative impact on
our results of operations. In addition, changes in consumer confidence levels and behavior, including decreased consumer
spending, lower demand for credit and a shift in consumer payment behavior towards avoiding late fees, finance charges
and other fees, could have a negative impact on our results of operations.
Increases in bankruptcies could cause increases in our charge-off rates, which could have a negative impact on our results
of operations. Our ability to recover debt that we have previously charged-off may be limited, which could have a negative
impact on our results of operations.
• The process and models we use to estimate our allowance for loan and lease losses may become less reliable if volatile
economic conditions, changes in the competitive environment, significant changes in customer behavior or other unexpected
variations in key inputs and assumptions cause actual losses to diverge from the projections of our models. As a result, our
estimates for credit losses may become increasingly subject to management’s judgment and high levels of volatility over
short periods of time, which could negatively impact our results of operations. See “There Are Risks Resulting From The
Extensive Use Of Models and Data In Our Business.”
• Risks associated with financial market instability and volatility could cause a material adverse effect on our liquidity, our
funding costs and profitability. For example, fluctuations in interest rates and our credit spreads could negatively impact
our results of operations. Both shorter-term and longer-term interest rates remain below long-term historical averages and
the yield curve has been relatively flat compared to past periods. A flat yield curve combined with low interest rates generally
leads to lower revenue and reduced margins because it tends to limit our ability to increase the spread between asset yields
and funding costs. Sustained periods of time with a flat yield curve coupled with low interest rates, or an inversion of the
yield curve, could have a material adverse effect on our net interest margin and earnings.
• Our ability to borrow from other financial institutions or to engage in funding transactions on favorable terms or at all could
be adversely affected by disruptions in the capital markets or other events, including actions by rating agencies and
deteriorating investor expectations, which could limit our access to funding.
The impact of Brexit and its full effects on us are uncertain and will depend on the terms of withdrawal and the post-Brexit
relationships that the U.K. implements with the EU and countries that are not a part of the EU. While Capital One does not have
operations in any other EU jurisdictions, increased market volatility and global economic deterioration resulting from an
uncontrolled Brexit could have a negative impact on credit conditions in the U.K. and negatively affect our business and financial
condition.
Compliance With New And Existing Laws, Regulations And Regulatory Expectations May Increase Our Costs, Reduce Our
Revenue, Limit Our Ability To Pursue Business Opportunities And Increase Compliance Challenges.
Regulation and oversight of the financial services industry is expansive and complex. A wide array of banking and consumer
lending laws apply to almost every aspect of our business. Failure to comply with these laws and regulations could result in
financial, structural and operational penalties, including significant fines and criminal sanctions, and could result in negative
publicity or damage to our reputation with regulators or the public. In addition, establishing and maintaining compliance-related
systems, infrastructure and processes is expensive and can limit our ability to pursue certain business opportunities. Regulatory
changes have led to higher expectations for the amount of capital and liquidity we must maintain than were required before the
enactment of the Dodd-Frank Act (as discussed in more detail below under the heading “We May Not Be Able To Maintain Adequate
Capital Or Liquidity Levels, Which Could Have A Negative Impact On Our Financial Results And Our Ability To Return Capital
To Our Stockholders”) and higher operational costs, which may further increase as regulators continue to implement such reforms.
Furthermore, applicable rules and regulations may affect us in an unforeseen manner, or may have a disproportionate impact on
us as compared to our competitors.
We are subject to heightened regulatory oversight by the federal banking regulators to ensure that we build systems and processes
that are commensurate with the nature of our business and that meet the heightened risk management and enhanced prudential
standards issued by our regulators. For example, over the last several years, state and federal regulators have focused on compliance
with the Bank Secrecy Act and anti-money laundering laws, data integrity and security, use of service providers, fair lending and
other consumer protection issues. In July 2015, Capital One entered into a consent order with the OCC to address concerns about
our anti-money laundering (“AML”) program (“AML Program”) and in October 2018, Capital One paid a civil monetary penalty
assessed by the OCC relating to our AML Program. Although we are making substantial progress in taking the steps and making
the improvements required by the OCC consent order, we expect heightened oversight of our AML Program will continue for the
foreseeable future, and could result in additional governmental fines or penalties.
We have a large number of customer accounts in our credit card and auto lending businesses and we have made the strategic choice
to originate and service subprime credit cards and auto loans which typically have higher delinquencies and charge-offs than prime
customers. Accordingly, we have significant involvement with credit bureau reporting and the collection and recovery of delinquent
and charged-off debt, primarily through customer communications, the filing of litigation against customers in default, the periodic
sale of charged-off debt and vehicle repossession. The banking industry is subject to enhanced legal and regulatory scrutiny
regarding credit bureau reporting and debt collection practices from regulators, courts and legislators. Any future changes to our
business practices in these areas, including our debt collection practices, whether mandated by regulators, courts, legislators or
otherwise, or any legal liabilities resulting from our business practices, including our debt collection practices, could have a material
adverse impact on our financial condition.
The legislative and regulatory environment is beyond our control, may change rapidly and unpredictably and may negatively
influence our revenue, costs, earnings, growth, liquidity and capital levels. In addition, some rules and regulations may be subject
to litigation or other challenges that delay or modify their implementation and impact on us. Adoption of new technologies, such
as distributed ledger technologies, can present unforeseen challenges in applying and relying on existing compliance systems. In
the United Kingdom and Europe, continued regulatory uncertainty or changes arising from Brexit negotiations could adversely
affect our U.K. operations.
Certain laws and regulations, and any interpretations and applications with respect thereto, may benefit consumers, borrowers and
depositors, but not stockholders. Our success depends on our ability to maintain compliance with both existing and new laws and
regulations. For a description of the material laws and regulations to which we are subject, please refer to “Part I—Item 1. Business
—Supervision and Regulation.”
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Credit Risk
We May Experience Increased Delinquencies, Credit Losses, Inaccurate Estimates And Inadequate Reserves.
Like other lenders, we face the risk that our customers will not repay their loans. A customer’s ability and willingness to repay us
can be negatively impacted by increases in their payment obligations to other lenders, whether as a result of higher debt levels or
rising interest rates, by restricted availability of credit generally, or by the business performance of the obligor. We may fail to
quickly identify customers that are likely to default on their payment obligations and reduce our exposure by closing credit lines
and restricting authorizations, which could adversely impact our financial condition and results of operations. Our ability to manage
credit risk also may be adversely affected by legal or regulatory changes (such as restrictions on collections, bankruptcy laws,
minimum payment regulations and re-age guidance), competitors’ actions and consumer behavior, as well as inadequate collections
staffing, techniques and models.
Rising losses or leading indicators of rising losses (such as higher delinquencies, higher rates of nonperforming loans, higher
bankruptcy rates, lower collateral values, elevated unemployment rates or changing market terms) may require us to increase our
allowance for loan and lease losses, which may degrade our profitability if we are unable to raise revenue or reduce costs to
compensate for higher losses. In particular, we face the following risks in this area:
• Missed Payments: Our customers may miss payments. Loan charge-offs (including from bankruptcies) are generally
preceded by missed payments or other indications of worsening financial condition for our customers. Customers are more
likely to miss payments during an economic downturn or prolonged periods of slow economic growth. In addition, we face
the risk that consumer and commercial customer behavior may change (for example, an increase in the unwillingness or
inability of customers to repay debt, which may be heightened by increasing interest rates or levels of consumer debt
generally), causing a long-term rise in delinquencies and charge-offs.
• Estimates of Inherent Losses: The credit quality of our portfolio can have a significant impact on our earnings. We allow
for and reserve against credit risks based on our assessment of credit losses inherent in our loan portfolios. This process,
which is critical to our financial condition and results of operations, requires complex judgments, including forecasts of
economic conditions. We may underestimate our inherent losses and fail to hold an allowance for loan and lease losses
sufficient to account for these losses. Incorrect assumptions could lead to material underestimations of inherent losses and
inadequate allowance for loan and lease losses. In cases where we modify a loan, if the modifications do not perform as
anticipated we may be required to build additional allowance on these loans. The build or release of allowances impacts
our current financial results.
• Underwriting: Our ability to accurately assess the creditworthiness of our customers may diminish, which could result in
an increase in our credit losses and a deterioration of our returns. See “Our Risk Management Strategies May Not Be Fully
Effective In Mitigating Our Risk Exposures In All Market Environments Or Against All Types Of Risk.”
• Business Mix: We engage in a diverse mix of businesses with a broad range of potential credit exposure. Our business mix
could change in ways that could adversely affect the credit quality of our portfolio. Because we originate a relatively greater
proportion of consumer loans in our loan portfolio compared to other large bank peers and originate both prime and subprime
credit card accounts and auto loans, we may experience higher delinquencies and a greater number of accounts charging
off compared to other large bank peers, which could result in increased credit losses, operating costs and regulatory scrutiny.
• Charge-off Recognition / Allowance for Loan and Lease Losses: We account for the allowance for loan and lease losses
according to accounting and regulatory guidelines and rules, including Financial Accounting Standards Board (“FASB”)
standards and the Federal Financial Institutions Examination Council (“FFIEC”) Account Management Guidance. In June
2016, the FASB issued revised guidance for impairments on financial instruments. The guidance, which becomes effective
on January 1, 2020, requires use of a CECL model that is based on expected rather than incurred losses. Adoption of the
CECL model could require changes in our account management or allowance for loan and lease losses practices. We currently
expect such adoption will result, on the date of adoption, in an increase to our reserves for credit losses on financial instruments
with a resulting negative adjustment to retained earnings. The actual impact of CECL will depend on the characteristics of
our financial instruments, economic conditions, and our economic and loss forecasts at the adoption date. Because credit
cards represent a significant portion of our product mix, we could be disproportionately affected by use of the CECL model,
as compared to other large banks with a different product mix. See “Note 1—Summary of Significant Accounting Policies”
for additional information.
• Collateral: The collateral we have on secured loans could be insufficient to compensate us for loan losses. When customers
default on their secured loans, we attempt to recover collateral where permissible and appropriate. However, the value of
the collateral may not be sufficient to compensate us for the amount of the unpaid loan, and we may be unsuccessful in
recovering the remaining balance from our customers. Decreases in real estate and asset values adversely affect the collateral
value for our commercial lending activities, while the auto business is similarly exposed to collateral risks arising from the
auction markets that determine used car prices. Therefore, the recovery of such property could be insufficient to compensate
us for the value of these loans. Borrowers may be less likely to continue making payments on loans if the value of the
property used as collateral for the loan is less than what the borrower owes, even if the borrower is still financially able to
make the payments. In our auto business, business and economic conditions that negatively affect household incomes,
housing prices and consumer behavior related to our businesses could decrease (i) the demand for new and used vehicles
and (ii) the value of the collateral underlying our portfolio of auto loans, which could cause the number of consumers who
become delinquent or default on their loans to increase.
• Geographic and Industry Concentration: Although our consumer lending is geographically diversified, approximately 27%
of our commercial loan portfolio is concentrated in the tri-state area of New York, New Jersey and Connecticut. The regional
economic conditions in the tri-state area affect the demand for our commercial products and services as well as the ability
of our customers to repay their commercial loans and the value of the collateral securing these loans. An economic downturn
or prolonged period of slow economic growth in, or a catastrophic event that disproportionately affects, the tri-state area
could have a material adverse effect on the performance of our commercial loan portfolio and our results of operations. In
addition, our Commercial Banking strategy includes an industry-specific focus. If any of the industries that we focus on
experience changes, we may experience increased credit losses and our results of operations could be adversely impacted.
For example, as of December 31, 2018, healthcare and healthcare-related real estate loans represented approximately 18%
of our total commercial loan portfolio. If healthcare-related industries or any of the other industries that we focus on
experience adverse changes, we may experience increased credit losses and our results of operations could be adversely
impacted.
Capital and Liquidity Risk
We May Not Be Able To Maintain Adequate Capital Or Liquidity Levels, Which Could Have A Negative Impact On Our Financial
Results And Our Ability To Return Capital To Our Stockholders.
Financial institutions are subject to capital and liquidity requirements, which have increased as a result of the Dodd-Frank Act and
the United States implementation of international accords. Although United States regulators have finalized regulations for many
of these requirements, they have recently issued new proposals and continued uncertainty remains as to the manner in which these
requirements ultimately will apply to us. As a result, it is possible that these requirements could have a negative impact on our
ability to lend, grow deposit balances or make acquisitions and limit our ability to make most capital distributions. Higher capital
levels also lower our return on equity.
In April 2016, the Federal Banking Agencies issued an interagency notice of proposed rulemaking regarding the U.S.
implementation of the Basel III NSFR (“Proposed NSFR”). See “Part I—Item 1. Business—Supervision and Regulation” for
further details regarding the Proposed NSFR. The financial and operational impact on us of a final NSFR rule remains uncertain
until a final rule is published, and there is uncertainty as to the combined impact of the existing Liquidity Coverage Ratio and any
final NSFR on how we manage our business. See “Note 12—Regulatory and Capital Adequacy” and “Part I—Item 1. Business
—Supervision and Regulation—Dividends, Stock Repurchases and Transfers of Funds” for additional information regarding recent
developments in capital and liquidity requirements.
In April 2018, the Federal Reserve issued a proposed rule (“Stress Capital Buffer Proposed Rule”) that would implement a firm-
specific “stress capital buffer” requirement and a “stress leverage buffer” requirement. See “Part I—Item 1. Business—Supervision
and Regulation” for further details regarding the Stress Capital Buffer Proposed Rule. In addition, in October 2018, the United
States Federal Banking Agencies proposed to provide tailored requirements for certain capital and liquidity rules for each of five
categories of banking institutions (“Tailoring Proposed Rule”). As proposed, these categories would be determined by an
institution’s asset size, with adjustments to a more stringent category possible if the institution meets certain other thresholds. As
a bank holding company with total consolidated assets of at least $250 billion, we would be a Category III institution under the
Tailoring Proposed Rule. As such, we would no longer be subject to the Basel III Advanced Approaches and certain associated
capital requirements, although we would remain subject to the countercyclical capital buffer and supplementary leverage ratio,
which are currently required only for Basel III Advanced Approaches institutions. The Tailoring Proposed Rule would modify the
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amount of high-quality liquid assets we must hold under the Liquidity Coverage Ratio Rule, and would modify the required stable
funding amount for us under the Proposed NSFR.
The overall financial and operational impact on us of the Stress Capital Buffer Proposed Rule and the Tailoring Proposed Rule
remain uncertain until final rules are published. In addition, there is uncertainty on the effect of the CECL model on our capital
planning and stress testing requirements.
We consider various factors in the management of capital, including the impact of stress on our capital levels, as determined by
both our internal modeling and the Federal Reserve’s modeling of our capital position in supervisory stress tests and CCAR. There
can be significant differences between our modeling and the Federal Reserve’s estimates for a given scenario and between the
capital needs suggested by our internal bank holding company scenarios relative to the supervisory scenarios. Therefore, although
our estimated capital levels under stress disclosed as part of the CCAR or DFAST processes may suggest that we have substantial
capacity to return capital to stockholders and remain well capitalized under stress, the Federal Reserve’s modeling, our own
modeling of another scenario or other factors related to our capital management process may result in a materially lower capacity
to return capital to stockholders than that indicated by the projections released in the CCAR or DFAST processes. This in turn
could lead to restrictions on our ability to pay dividends and engage in share repurchase transactions. See “Part I—Item 1. Business
—Supervision and Regulation” for additional information.
Operational Risk
We Face Risks Related To Our Operational, Technological And Organizational Infrastructure.
Our ability to retain and attract new customers depends on our ability to develop and maintain necessary operational, technological
and organizational infrastructure and to adapt to rapid technological advances involving such infrastructure. In addition, our
businesses are dependent on our ability to process, record and monitor a large number of complex transactions. Digital technology,
data and software development are deeply embedded into our business model and how we work.
Similar to other large corporations, we are exposed to operational risk that can manifest itself in many ways, such as errors related
to failed or inadequate processes, inaccurate models, faulty or disabled computer systems, fraud by employees or persons outside
of our company and exposure to external events. In addition, we are heavily dependent on the security, capability and continuous
availability of the technology systems that we use to manage our internal financial and other systems, monitor risk and compliance
with regulatory requirements, provide services to our customers, develop and offer new products and communicate with
stakeholders.
If any of our financial, accounting or other data processing systems fail or have other significant shortcomings, our business and
reputation could be materially adversely affected. We may also be subject to disruptions of our operating systems arising from
events that are wholly or partially beyond our control, which may include, for example, computer viruses, electrical or
telecommunications outages, design flaws in foundational components or platforms, availability and quality of vulnerability patches
from key vendors, cyber-attacks (including Distributed Denial of Service (“DDOS”) attacks discussed below), natural disasters,
other damage to property or physical assets, or events arising from local or larger scale politics, including terrorist acts. Any of
these occurrences could diminish our ability to operate our businesses, service customer accounts and protect customers’
information, or result in potential liability to customers, reputational damage, regulatory intervention and customers’ loss of
confidence in our businesses, any of which could result in a material adverse effect.
We also rely on the business infrastructure and systems of third parties with which we do business and to whom we outsource the
operation, maintenance and development of our information technology and communications systems. We have migrated
substantially all, and intend to migrate all, of our core information technology systems and customer-facing applications to third-
party cloud infrastructure platforms, principally AWS. If we do not complete the transition or fail to administer these new
environments in a well-managed, secure and effective manner, or if AWS platforms become unavailable for any reason, we may
experience unplanned service disruption or unforeseen costs which could result in material harm to our business and operating
results. We must successfully implement information, financial reporting, data-protection and other controls adapted to our reliance
on outside platforms and providers. In addition, AWS, or other service providers, could experience system breakdowns or failures,
outages, downtime, cyber-attacks, adverse changes to financial condition, bankruptcy, or other adverse conditions, which could
have a material adverse effect on our business and reputation. Thus, the substantial amount of our infrastructure that we outsource
to the cloud or to other third parties may increase our risk exposure.
Any disruptions, failures or inaccuracies of our operational and technology systems and models, including those associated with
improvements or modifications to such systems and models, could cause us to be unable to market and manage our products and
services, manage our risk, meet our regulatory obligations or report our financial results in a timely and accurate manner, all of
which could have a negative impact on our results of operations. In addition, our ongoing investments in infrastructure, which are
necessary to maintain a competitive business, integrate acquisitions and establish scalable operations, may increase our expenses.
As our business develops, changes or expands, additional expenses can arise as a result of a reevaluation of business strategies,
management of outsourced services, asset purchases or other acquisitions, structural reorganization, compliance with new laws or
regulations, or the integration of newly acquired businesses. If we are unable to successfully manage our expenses, our financial
results will be negatively affected.
We Could Incur Increased Costs, Reductions In Revenue, And Suffer Reputational Damage And Business Disruptions In The
Event Of The Theft, Loss Or Misuse Of Information, Including As A Result Of A Cyber-Attack.
Our products and services involve the gathering, authentication, management, processing, storage and transmission of sensitive
and confidential information regarding our customers and their accounts, our employees and third parties with which we do
business. Our ability to provide such products and services, many of which are web-based, depends upon the management and
safeguarding of information, software, methodologies and business secrets. To provide these products and services to, as well as
communicate with, our customers, we rely on information systems and infrastructure, including digital technologies, computer
and email systems, software, networks and other web-based technologies, that we and third-party service providers operate. We
also have arrangements in place with third parties through which we share and receive information about their customers who are
or may become our customers.
Like other financial services firms, technologies, systems, networks and devices of Capital One or our customers, employees,
service providers or other third parties with whom we interact continue to be the subject of attempted unauthorized access,
mishandling or misuse of information, denial-of-service attacks, computer viruses, website defacement, hacking, malware,
ransomware, phishing or other forms of social engineering, and other forms of cyber-attacks designed to obtain confidential
information, destroy data, disrupt or degrade service, sabotage systems or cause other damage, and other events. These threats
may derive from human error, fraud or malice on the part of our employees, insiders or third parties or may result from accidental
technological failure. Any of these parties may also attempt to fraudulently induce employees, customers, or other third-party users
of our systems to disclose sensitive information in order to gain access to our data or that of our customers or third parties with
whom we interact. Further, cyber and information security risks for large financial institutions like us have generally increased in
recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies
to conduct financial transactions, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers,
terrorists, activists, formal and informal instrumentalities of foreign governments and other external parties. In addition, our
customers access our products and services using computers, smartphones, tablets, and other mobile devices that are beyond our
security control systems.
The methods and techniques employed by perpetrators of fraud and others to attack, disable, degrade or sabotage platforms, systems
and applications change frequently, are increasingly sophisticated and often are not fully recognized or understood until after they
have occurred, and some techniques could occur and persist for an extended period of time before being detected. As a result, we
and our third-party service providers and partners may be unable to anticipate or identify certain attack methods in order to
implement effective preventative measures or mitigate or remediate the damages caused in a timely manner. We may also be unable
to hire and develop talent capable of detecting, mitigating or remediating these risks. Although we believe we have a robust suite
of authentication and layered information security controls, including our cyber threat analytics, data encryption and tokenization
technologies, anti-malware defenses and vulnerability management program, any one or combination of these controls could fail
to detect, mitigate or remediate these risks in a timely manner. We may face an increasing number of attempted cyber-attacks as
we expand our mobile- and other internet-based products and services, as well as our usage of mobile and cloud technologies and
as we provide more of these services to a greater number of retail clients.
A disruption or breach, including as a result of a cyber-attack, or media reports of perceived security vulnerabilities at Capital One
or at third-party service providers, could result in significant legal and financial exposure, regulatory intervention, remediation
costs, card reissuance, supervisory liability, damage to our reputation or loss of confidence in the security of our systems, products
and services that could adversely affect our business. We and other U.S. financial services providers continue to be targeted with
evolving and adaptive cybersecurity threats from sophisticated third parties. Although we have not experienced any material losses
relating to cyber incidents, there can be no assurance that unauthorized access or cyber incidents will not occur or that we will not
suffer such losses in the future. Unauthorized access or cyber incidents could occur more frequently and on a more significant
scale. If future attacks like these are successful or if customers are unable to access their accounts online for other reasons, it could
adversely impact our ability to service customer accounts or loans, complete financial transactions for our customers or otherwise
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operate any of our businesses or services. In addition, a breach or attack affecting one of our third-party service providers or
partners could harm our business even if we do not control the service that is attacked.
In addition, the increasing prevalence and the evolution of cyber-attacks and other efforts to breach or disrupt our systems or those
of our partners, retailers or other market participants has led, and will likely continue to lead, to increased costs to us with respect
to preventing, mitigating and remediating these risks, as well as any related attempted fraud. We may be required to expend
significant additional resources to continue to modify or strengthen our protective security measures, investigate and remediate
any vulnerabilities of our information systems and infrastructure or invest in new technology designed to mitigate security risks.
For example, various retailers have continued to be victims of cyber-attacks in which customer data, including debit and credit
card information, was obtained. In these situations, we incur a variety of costs, including those associated with replacing the
compromised cards and remediating fraudulent transaction activity. Further, successful cyber-attacks at other large financial
institutions or other market participants, whether or not we are impacted, could lead to a general loss of customer confidence in
financial institutions that could negatively affect us, including harming the market perception of the effectiveness of our security
measures or the financial system in general which could result in reduced use of our financial products. Though we have insurance
against some cyber-risks and attacks, it may not be sufficient to offset the impact of a material loss event.
Our Exposure To Potential Data Protection And Privacy Incidents, And Our Required Compliance With Regulations Related
To These Areas, May Increase Our Costs, Reduce Our Revenue And Limit Our Ability To Pursue Business Opportunities.
If our information systems or infrastructure or those of our customers, partners, service providers or other market participants
experience a significant disruption or breach, it could lead, depending on the nature of the disruption or breach, to the unauthorized
access to and release, gathering, monitoring, misuse, loss or destruction of personal or confidential data about our customers,
employees or other third parties in our possession. Any party that obtains this personal or confidential data through a breach or
disruption may use this information for ransom, to be paid by us or a third-party, as part of a fraudulent activity that is part of a
broader criminal activity, or for other illicit purposes. Further, such disruption or breach could also result in unauthorized access
to our proprietary information, intellectual property, software, methodologies and business secrets and in unauthorized transactions
in Capital One accounts or unauthorized access to personal or confidential information maintained by those entities. For example,
there has been a significant proliferation of consumer information available on the internet resulting from breaches of third-party
entities, including personal information, log-in credentials and authentication data. While we were not directly involved in these
third-party breach events, the stolen information can create a vulnerability for our customers if their Capital One log-in credentials
are the same as or similar to the credentials that have been compromised on other sites. This vulnerability could include the risk
of unauthorized account access, data loss and fraud. The use of artificial intelligence, “bots” or other automation software, can
increase the velocity and efficacy of these types of attacks. A data protection incident, or media reports of perceived security
vulnerabilities at Capital One or at third-party service providers, could result in significant legal and financial exposure, regulatory
intervention, remediation costs, card reissuance, supervisory liability, damage to our reputation or loss of confidence in the security
of our systems, products and services that could adversely affect our business.
We regularly move data across national borders to conduct our operations, and consequently are subject to a variety of continuously
evolving and developing laws and regulations in the United States and abroad regarding privacy, data protection and data security,
including those related to the collection, storage, handling, use, disclosure, transfer and security of personal data. Significant
uncertainty exists as privacy and data protection laws may be interpreted and applied differently from country to country and may
create inconsistent or conflicting requirements. For example, the GDPR, applies EU data protection law to all companies processing
data of EU residents, regardless of the company’s location. The law imposes strict requirements regarding the handling and retention
of personal data, with severe monetary penalties for violations. Our efforts to comply with GDPR and other privacy and data
protection laws entail substantial expenses, may divert resources from other initiatives and projects, and could limit the services
we are able to offer. Furthermore, enforcement actions and investigations by regulatory authorities related to data security incidents
and privacy violations continue to increase. The enactment of more restrictive laws, rules, regulations, or future enforcement
actions or investigations could impact us through increased costs or restrictions on our business, and noncompliance could result
in monetary or other penalties and significant legal liability.
There Are Risks Resulting From The Extensive Use Of Models And Data In Our Business.
We rely on quantitative models, and our ability to manage data and our ability to aggregate data in an accurate and timely manner,
to assess and manage our various risk exposures and to estimate certain financial values. Models may be used in such processes
as determining the pricing of various products, grading loans and extending credit, measuring interest rate and other market risks,
predicting losses, assessing capital adequacy and calculating economic and regulatory capital levels, as well as to estimate the
value of financial instruments and balance sheet items. Our risk reporting and management, including business decisions based
on information incorporating models, depend on the effectiveness of our models and our policies, programs, processes and practices
governing how data is acquired, validated, stored, protected, processed and analyzed. Any issues with the quality or effectiveness
of our data aggregation and validation procedures, as well as the quality and integrity of data inputs, could result in ineffective
risk management practices or inaccurate risk reporting. For example, models based on historical data sets might not be accurate
predictors of future outcomes and their ability to appropriately predict future outcomes may degrade over time. While we
continuously update our policies, programs, processes and practices, many of our data management and aggregation processes are
manual and subject to human error or system failure. Failure to manage data effectively and to aggregate data in an accurate and
timely manner may limit our ability to manage current and emerging risk, to produce accurate financial, regulatory and operational
reporting as well as to manage changing business needs. If our risk management framework is ineffective, we could suffer
unexpected losses which could materially adversely affect our results of operation or financial condition. Also, any information
we provide to the public or to our regulators based on poorly designed or implemented models could be inaccurate or misleading.
Some of the decisions that our regulators make, including those related to capital distribution to our stockholders, could be affected
adversely due to the perception that the quality of the models used to generate the relevant information is insufficient.
Legal Risk
Our Businesses Are Subject To The Risk Of Increased Litigation, Government Investigations And Regulatory Enforcement.
Our businesses are subject to increased litigation, government investigations and other regulatory enforcement risks as a result of
a number of factors and from various sources, including the highly regulated nature of the financial services industry, the focus
of state and federal prosecutors on banks and the financial services industry and the structure of the credit card industry. Given
the inherent uncertainties involved in litigation, government investigations and regulatory enforcement decisions, and the very
large or indeterminate damages sought in some matters asserted against us, there can be significant uncertainty as to the ultimate
liability we may incur from these kinds of matters. The finding, or even the assertion, of substantial legal liability against us could
have a material adverse effect on our business and financial condition and could cause significant reputational harm to us, which
could seriously harm our business.
In addition, financial institutions, such as ourselves, face significant regulatory scrutiny, which can lead to public enforcement
actions. We and our subsidiaries are subject to comprehensive regulation and periodic examination by the Federal Reserve, the
SEC, OCC, FDIC and CFPB. We have been subject to enforcement actions by many of these and other regulators and may continue
to be involved in such actions, including governmental inquiries, investigations and enforcement proceedings, including by the
OCC, Department of Justice, Financial Crimes Enforcement Network (“FinCEN”) and state Attorneys General. We expect that
regulators and governmental enforcement bodies will continue taking formal enforcement actions against financial institutions in
addition to addressing supervisory concerns through non-public supervisory actions or findings, which could involve restrictions
on our activities, among other limitations that could adversely affect our business. In addition, a violation of law or regulation by
another financial institution is likely to give rise to an investigation by regulators and other governmental agencies of the same or
similar practices by us. In addition, a single event may give rise to numerous and overlapping investigations and proceedings.
These and other initiatives from governmental authorities and officials may subject us to further judgments, settlements, fines or
penalties, or cause us to restructure our operations and activities or to cease offering certain products or services, all of which could
harm our reputation or lead to higher operational costs. Litigation, government investigations and other regulatory actions could
involve restrictions on our activities, generally subject us to significant fines, increased expenses, restrictions on our activities and
damage to our reputation and our brand, and could adversely affect our business, financial condition and results of operations. For
additional information regarding legal and regulatory proceedings that we are subject to, see “Note 19—Commitments,
Contingencies, Guarantees and Others.”
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Other Business Risks
We Face Intense Competition In All Of Our Markets.
We operate in a highly competitive environment, whether in making loans, attracting deposits or in the global payments industry,
and we expect competitive conditions to continue to intensify with respect to most of our products. We compete on the basis of
the rates we pay on deposits and the rates and other terms we charge on the loans we originate or purchase, as well as the quality
and range of our customer service, products, innovation and experience. This increasingly competitive environment is primarily
a result of changes in technology, product delivery systems and regulation, as well as the emergence of new or significantly larger
financial service providers, all of which may affect our customers’ expectations and demands.
Some of our competitors, including new and emerging competitors in the digital and mobile payments space and other financial
technology providers, are not subject to the same regulatory requirements or legislative scrutiny to which we are subject, which
also could place us at a competitive disadvantage, in particular in the development of new technology platforms or the ability to
rapidly innovate. We compete with many forms of payments offered by both bank and non-bank providers, including a variety of
new and evolving alternative payment mechanisms, systems and products, such as aggregators and web-based and wireless payment
platforms or technologies, digital or “crypto” currencies, prepaid systems and payment services targeting users of social networks,
communications platforms and online gaming. If we are unable to continue to keep pace with innovation, or prohibited from or
unwilling to enter emerging areas of competition, our business and results of operations could be adversely affected.
Some of our competitors are substantially larger than we are, which may give those competitors advantages, including a more
diversified product and customer base, the ability to reach out to more customers and potential customers, operational efficiencies,
broad-based local distribution capabilities, lower-cost funding and larger existing branch networks. Many of our competitors are
also focusing on cross-selling their products and developing new products or technologies, which could affect our ability to maintain
or grow existing customer relationships or require us to offer lower interest rates or fees on our lending products or higher interest
rates on deposits. Price competition for loans might result in origination of fewer loans or earning less on our loans.
As of December 31, 2018, we operate as one of the largest online direct banks in the U.S. by deposits. While direct banking
represents a significant opportunity to attract new customers that value greater and more flexible access to banking services at
reduced costs, we face strong and increasing competition in the direct banking market. Aggressive pricing throughout the industry
may adversely affect the retention of existing balances and the cost-efficient acquisition of new deposit funds and may affect our
growth and profitability. Customers could also close their online accounts or reduce balances or deposits in favor of products and
services offered by competitors for other reasons. These shifts, which could be rapid, could result from general dissatisfaction with
our products or services, including concerns over pricing, online security or our reputation. The potential consequences of this
competitive environment are exacerbated by the flexibility of direct banking and the financial and technological sophistication of
our online customer base.
In our credit card business, competition for rewards customers may result in higher rewards expenses, or we may fail to attract
new customers or retain existing rewards customers due to increasing competition for these consumers. We have expanded our
credit card partnership business over the past several years with the additions of a number of credit card partnerships. The market
for key business partners, especially in the credit card business, is very competitive, and we may not be able to grow or maintain
these partner relationships. We face the risk that we could lose partner relationships, even after we have invested significant
resources, time and expense into acquiring and developing the relationships. The loss of any of our key business partners could
have a negative impact on our results of operations, including lower returns, excess operating expense and excess funding capacity.
We depend on our partners to effectively promote our cobrand and private label products and integrate the use of our credit cards
into their retail operations. The failure by our partners to effectively promote and support our products as well as changes they
may make in their business models could negatively impact card usage. In addition, if our partners do not adhere to the terms of
our program agreements and standards, or otherwise diminish the value of our brand, we may suffer reputational damage and
customers may be less likely to use our products.
Some of our competitors have developed, or may develop, substantially greater financial and other resources than we have, may
offer richer value propositions or a wider range of programs and services than we offer or may use more effective advertising,
marketing or cross-selling strategies to acquire and retain more customers, capture a greater share of spending and borrowings,
attain and develop more attractive cobrand card programs and maintain greater merchant acceptance than we have. We may not
be able to compete effectively against these threats or respond or adapt to changes in consumer spending habits as effectively as
our competitors.
In such a competitive environment, we may lose entire accounts or may lose account balances to competing firms, or we may find
it more costly to maintain our existing customer base. Customer attrition from any or all of our lending products, together with
any lowering of interest rates or fees that we might implement to retain customers, could reduce our revenues and therefore our
earnings. Similarly, unexpected customer attrition from our deposit products, in addition to an increase in rates or services that we
may offer to retain deposits, may increase our expenses and therefore reduce our earnings.
Our Business, Financial Condition And Results Of Operations May Be Adversely Affected By Merchants’ Increasing Focus
On The Fees Charged By Credit Card Networks And By Regulation And Legislation Impacting Such Fees.
Credit card interchange fees are generally one of the largest components of the costs that merchants pay in connection with the
acceptance of credit cards and are a meaningful source of revenue for our credit card businesses. Interchange fees are the subject
of significant and intense global legal, regulatory and legislative focus, and the resulting decisions, regulations and legislation may
have a material adverse impact on our overall business, financial condition and results of operations.
Regulators and legislative bodies in a number of countries are seeking to reduce credit card interchange fees through legislation,
competition-related regulatory proceedings, central bank regulation and or litigation. Interchange reimbursement rates in the United
States are set by credit card networks such as MasterCard and Visa. In some jurisdictions, such as Canada and certain countries
in the European Union, interchange fees and related practices are subject to regulatory activity that has limited the ability of certain
networks to establish default rates, including in some cases imposing caps on permissible interchange fees. We have already
experienced these impacts in our international card businesses. Legislators and regulators around the world are aware of each
other’s approaches to the regulation of the payments industry. Consequently, a development in one country, state or region may
influence regulatory approaches in another, such as our primary market, the United States.
In addition to this regulatory activity, merchants are also seeking avenues to reduce interchange fees. During the past few years,
merchants and their trade groups have filed numerous lawsuits against Visa, MasterCard, American Express and their card-issuing
banks, claiming that their practices toward merchants, including interchange and similar fees, violate federal antitrust laws. In
2005, a number of entities filed antitrust lawsuits against MasterCard and Visa and several member banks, including our subsidiaries
and us, alleging among other things, that the defendants conspired to fix the level of interchange fees. In December 2013, the U.S.
District Court for the Eastern District of New York granted final approval of the proposed class settlement. The settlement provided,
among other things, that merchants would be entitled to join together to negotiate lower interchange fees. The settlement was
appealed to the Second Circuit Court of Appeals, which rejected the settlement in June 2016; a revised settlement was reached in
the second half of 2018, and the trial court approved the settlement in January 2019. See “Note 19—Commitments, Contingencies,
Guarantees and Others” for further details.
Some major retailers may have sufficient bargaining power to independently negotiate lower interchange fees with MasterCard
and Visa, which could, in turn, result in lower interchange fees for us when our cardholders undertake purchase transactions with
these retailers. In 2016, some of the largest merchants individually negotiated lower interchange rates with MasterCard and/or
Visa. These and other merchants also continue to lobby aggressively for caps and restrictions on interchange fees and there can
be no assurance that their efforts will not be successful or that they will not in the future bring legal proceedings against us or other
credit card and debit card issuers and networks.
Beyond pursuing litigation, legislation and regulation, merchants may also promote forms of payment with lower fees, such as
ACH-based payments, or seek to impose surcharges at the point of sale for use of credit or debit cards. New payment systems,
particularly mobile-based payment technologies, could also gain widespread adoption and lead to issuer transaction fees or the
displacement of credit card accounts as a payment method.
The heightened focus by merchants and regulatory and legislative bodies on the fees charged by credit and debit card networks,
and the ability of certain merchants to successfully negotiate discounts to interchange fees with MasterCard and Visa or develop
alternative payment systems, could result in a reduction of interchange fees. Any resulting loss in income to us could have a material
adverse effect on our business, financial condition and results of operations.
If We Are Not Able To Invest Successfully In And Introduce Digital And Other Technological Developments Across All Our
Businesses, Our Financial Performance May Suffer.
Our industry is subject to rapid and significant technological changes and our ability to meet our customers’ needs and expectations
is key to our ability to grow revenue and earnings. We expect digital technologies to have a significant impact on banking over
time. Consumers expect robust digital experiences from their financial services providers. The ability for customers to access their
accounts and conduct financial transactions using digital technology, including mobile applications, is an important aspect of the
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financial services industry and financial institutions are rapidly introducing new digital and other technology-driven products and
services that aim to offer a better customer experience and to reduce costs. We continue to invest in digital technology designed
to attract new customers, facilitate the ability of existing customers to conduct financial transactions and enhance the customer
experience related to our products and services.
Our continued success depends, in part, upon our ability to address the needs of our customers by using digital technology to
provide products and services that efficiently meet their expectations in a cost-effective manner. The development and launch of
new digital products and services depends in large part on our capacity to invest in and build the technology platforms that can
enable them. We actively invest in such technology platforms, however, we may fail to implement the correct technology, or may
fail to do so in a timely manner as discussed in more detail above under the headings “We Face Intense Competition In All Of Our
Markets” and “We Face Risks Related To Our Operational, Technological And Organizational Infrastructure.”
Some of our competitors are substantially larger than we are, which may allow those competitors to invest more money into their
technology infrastructure and digital innovation than we do. In addition, we face intense competition from smaller companies
which experience lower cost structures and different regulatory requirements and scrutiny than we do, and which may allow them
to innovate more rapidly than we can. See “We Face Intense Competition In All Of Our Markets.” Further, our success depends
on our ability to attract and retain strong digital and technology leaders, engineers and other talent, and competition for such talent
is intense. If we are unable to attract and retain digital and technology talent, our ability to offer digital products and services and
build the necessary technology infrastructure could be negatively affected, which could negatively impact our business and financial
results. A failure to maintain or enhance our competitive position with respect to digital products and services, whether because
we fail to anticipate customer expectations or because our technological developments fail to perform as desired or are not
implemented in a timely or successful manner, could negatively impact our business and financial results.
We May Fail To Realize All Of The Anticipated Benefits Of Our Mergers, Acquisitions And Strategic Partnerships.
We have engaged in merger and acquisition activity and entered into strategic partnerships over the past several years and may
continue to engage in such activity in the future. We continue to evaluate and anticipate engaging in, among other merger and
acquisition activity, additional strategic partnerships and selected acquisitions of financial institutions and other financial assets,
including credit card and other loan portfolios. There can be no assurance that we will be able to identify and secure future acquisition
targets on terms and conditions that are acceptable to us, or successfully complete within the anticipated time frame and achieving
the anticipated benefits of proposed mergers, acquisitions and strategic partnerships, which could impair our growth.
Any merger, acquisition or strategic partnership we undertake entails certain risks, which may materially and adversely affect our
results of operations. If we experience greater than anticipated costs to integrate acquired businesses into our existing operations,
or are not able to achieve the anticipated benefits of any merger, acquisition or strategic partnership, including cost savings and
other synergies, our business could be negatively affected. In addition, it is possible that the ongoing integration processes could
result in the loss of key employees, errors or delays in systems implementation, exposure to cybersecurity risks associated with
acquired businesses, exposure to additional regulatory oversight, the disruption of our ongoing businesses or inconsistencies in
standards, controls, procedures and policies that adversely affect our ability to maintain relationships with partners, clients,
customers, depositors and employees or to achieve the anticipated benefits of any merger, acquisition or strategic partnership.
Integration efforts also may divert management attention and resources. These integration matters may have an adverse effect on
us during any transition period.
In addition, we may face the following risks in connection with any merger, acquisition or strategic partnership:
• New Businesses and Geographic or Other Markets: Our merger, acquisition or strategic partnership activity may involve
our entry into new businesses and new geographic areas or other markets which present risks resulting from our relative
inexperience in these new businesses or markets. These new businesses or markets may change the overall character of our
consolidated portfolio of businesses and could react differently to economic and other external factors. We face the risk that
we will not be successful in these new businesses or in these new markets.
•
Identification and Assessment of Merger and Acquisition Targets and Deployment of Acquired Assets: We may not be able
to identify or acquire suitable financial assets or institutions to supplement our organic growth through acquisitions or
strategic partnerships. In addition, we may incorrectly assess the asset quality and value of, or liabilities associated with,
the particular assets or institutions we acquire. Further, our ability to achieve the anticipated benefits of any merger,
acquisition or strategic partnership will depend on our ability to assess the asset quality and value of the particular assets
or institutions we partner with, merge with or acquire. We may be unable to profitably deploy any assets we acquire.
• Accuracy of Assumptions: In connection with any merger, acquisition or strategic partnership, we may make certain
assumptions relating to the proposed merger, acquisition or strategic partnership that may be, or may prove to be, inaccurate,
including as a result of the failure to realize the expected benefits of any merger, acquisition or strategic partnership. The
inaccuracy of any assumptions we may make could result in unanticipated consequences that could have a material adverse
effect on our results of operations or financial condition.
•
Target-specific Risk: Assets and companies that we acquire, or companies that we enter into strategic partnerships with,
will have their own risks that are specific to a particular asset or company. These risks include, but are not limited to,
particular or specific regulatory, accounting, operational, reputational and industry risks, any of which could have a material
adverse effect on our results of operations or financial condition. For example, we may face challenges associated with
integrating other companies due to differences in corporate culture, compliance systems or standards of conduct.
Indemnification rights, if any, may be insufficient to compensate us for any losses or damages resulting from such risks. In
addition to regulatory approvals discussed below, certain of our merger, acquisition or partnership activity may require
third-party consents in order for us to fully realize the anticipated benefits of any such transaction.
• Conditions to Regulatory Approval: Certain acquisitions may not be consummated without obtaining approvals from one
or more of our regulators. We cannot be certain when or if, or on what terms and conditions, any required regulatory approvals
will be granted. Consequently, we might be required to sell portions of acquired assets as a condition to receiving regulatory
approval or we may not obtain regulatory approval for a proposed acquisition on acceptable terms or at all, in which case
we would not be able to complete the acquisition despite the time and expenses invested in pursuing it.
Reputational Risk And Social Factors May Impact Our Results And Damage Our Brand.
Our ability to originate and maintain accounts is highly dependent upon the perceptions of consumer and commercial borrowers
and deposit holders and other external perceptions of our business and compliance practices or our financial health. In addition,
our brand has historically been, and we expect it to continue to be, very important to us. Maintaining and enhancing our brand
will depend largely on our ability to continue to provide high-quality products and services. Adverse perceptions regarding our
reputation in the consumer, commercial and funding markets could lead to difficulties in generating and maintaining accounts as
well as in financing them. In particular, negative public perceptions regarding our reputation could lead to decreases in the levels
of deposits that consumer and commercial customers and potential customers choose to maintain with us or significantly increase
the costs of attracting and retaining customers. In addition, negative perceptions regarding certain industries, partners or clients
could also prompt us to cease business activities associated with those entities.
Negative public opinion or damage to our brand could also result from actual or alleged conduct in any number of activities or
circumstances, including lending practices, regulatory compliance, security breaches (including the use and protection of customer
information), corporate governance and sales and marketing, and from actions taken by regulators or other persons in response to
such conduct. Such conduct could fall short of our customers’ and the public’s heightened expectations of companies of our size
with rigorous data, privacy and compliance practices, and could further harm our reputation. In addition, our cobrand and private
label partners or other third parties with whom we have important relationships may take actions over which we have limited
control that could negatively impact perceptions about us or the financial services industry. The proliferation of social media may
increase the likelihood that negative public opinion from any of the events discussed above will impact our reputation and business.
In addition, a variety of social factors may cause changes in borrowing activity, including credit card use, payment patterns and
the rate of defaults by accountholders and borrowers domestically and internationally. These social factors include changes in
consumer confidence levels, the public’s perception regarding the banking industry and consumer debt, including credit card use,
and changing attitudes about the stigma of bankruptcy. If consumers develop or maintain negative attitudes about incurring debt,
or if consumption trends decline or if we fail to maintain and enhance our brand, or we incur significant expenses in this effort,
our business and financial results could be materially and negatively affected.
If We Are Not Able To Protect Our Intellectual Property, Our Revenue And Profitability Could Be Negatively Affected.
We rely on a variety of measures to protect and enhance our intellectual property, including copyrights, trademarks, trade secrets,
patents and certain restrictions on disclosure, solicitation and competition. We also undertake other measures to control access to
and distribution of our other proprietary information. These measures may not prevent misappropriation of our proprietary
information or infringement of our intellectual property rights and a resulting loss of competitive advantage. In addition, our
competitors or other third parties may file patent applications for innovations that are used in our industry or allege that our systems,
processes or technologies infringe on their intellectual property rights. If our competitors or other third parties are successful in
29
Capital One Financial Corporation (COF)
30
Capital One Financial Corporation (COF)
obtaining such patents or prevail in intellectual property-related litigation against us, we could lose significant revenues, incur
significant license, royalty or technology development expenses, or pay significant damages.
Our Risk Management Strategies May Not Be Fully Effective In Mitigating Our Risk Exposures In All Market Environments
Or Against All Types Of Risk.
Management of risk, including market, credit, liquidity, compliance and strategic risks, requires, among other things, policies and
procedures to properly record and verify a large number of transactions and events. See “MD&A—Risk Management” for further
details. We have devoted significant resources to developing our risk management policies and procedures and expect to continue
to do so in the future. Nonetheless, our risk management strategies may not be fully effective in identifying and mitigating our
risk exposure in all market environments or against all types of risk, including risks that are unidentified or unanticipated, even if
our models for assessing risk are properly designed and implemented.
Some of our methods of managing risk are based upon our use of observed historical market behavior and management’s judgment.
These methods may not accurately predict future exposures, which could be significantly greater than the historical measures
indicate and market conditions, particularly during a period of financial market stress can involve unprecedented dislocations.
Credit risk is inherent in the financial services business and results from, among other things, extending credit to customers. Our
ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage
and underwrite our consumer and commercial customers become less predictive of future charge-offs due, for example, to rapid
changes in the economy, including tariff rates and international trade relations.
While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments
that accompany their application cannot anticipate every economic and financial outcome or the timing of such outcomes. For
example, our ability to implement our risk management strategies may be hindered by adverse changes in the volatility or liquidity
conditions in certain markets and as a result, may limit our ability to distribute such risks (for instance, when we seek to syndicate
exposure in bridge financing transactions we have underwritten). We may, therefore, incur losses in the course of our risk
management or investing activities.
Changes In Consumer Behavior And Their Adoption of Digital Technology May Change Retail Distribution Strategies And
May Adversely Impact Our Investments In Our Bank Premises And Equipment And Other Retail Distribution Assets, Leading
To Increased Expenditures And Expose Us To Additional Risk.
We have significant investments in bank premises and equipment for our branch network and other branch banking assets including
our banking centers and our retail work force. Advances in technology such as digital and mobile banking, in-branch self-service
technologies, proximity or remote payment technologies, as well as changing customer preferences for these other methods of
banking, could decrease the value of our branch network or other retail distribution assets. As a result, we may need to further
change our retail distribution strategy and close, sell and/or renovate additional branches or parcels of land held for development
and restructure or reduce our remaining branches and work force. These actions could lead to losses on these assets or could
adversely impact the carrying value of other long-lived assets, reduce our revenues, increase our expenditures, dilute our brand
and/or reduce customer demand for our products and services.
Further, to the extent that we change our retail distribution strategy and as a result expand into new business areas, we may face
more competitors with more experience in the new business areas and more established relationships with relevant customers,
regulators and industry participants, which could adversely affect our ability to compete. Our competitors may also be subject to
less burdensome regulations. See “We Face Intense Competition In All Our Markets.”
Fluctuations In Market Interest Rates Or Volatility In The Capital Markets Could Adversely Affect Our Income And Expense,
The Value Of Assets And Obligations, Our Regulatory Capital, Cost Of Capital Or Liquidity.
Like other financial institutions, our business is sensitive to market interest rate movement and the performance of the capital
markets. Disruptions, uncertainty or volatility across the capital markets could negatively impact market liquidity and limit our
access to funding required to operate and grow our business. In addition, changes in interest rates or in valuations in the debt or
equity markets could directly impact us. For example, we borrow money from other institutions and depositors, which we use to
make loans to customers and invest in debt securities and other earning assets. We earn interest on these loans and assets and pay
interest on the money we borrow from institutions and depositors. The interest rates that we pay on the securities we have issued
are also influenced by, among other things, applicable credit ratings from recognized rating agencies. A downgrade to any of these
credit ratings could affect our ability to access the capital markets, increase our borrowing costs and have a negative impact on
our results of operations. Increased charge-offs, rising London Interbank Offering Rate (“LIBOR”) or other applicable reference
rates and other events may cause our securitization transactions to amortize earlier than scheduled, which could accelerate our
need for additional funding from other sources. Fluctuations in interest rates, including changes in the relationship between short-
term rates and long-term rates and in the relationship between our funding basis rate and our lending basis rate, may have negative
impacts on our net interest income and therefore our earnings.
In addition, interest rate fluctuations and competitor responses to those changes may affect the rate of customer prepayments for
auto and other term loans and may affect the balances customers carry on their credit cards. For example, increases in interest rates
increase debt service requirements for some of our borrowers, which may adversely affect those borrowers’ ability to pay as
contractually obligated. This could result in additional delinquencies or charge-offs and negatively impact our results of operations.
These changes can reduce the overall yield on our earning asset portfolio. Changes in interest rates and competitor responses to
these changes may also impact customer decisions to maintain balances in the deposit accounts they have with us. An inability to
attract or maintain deposits could materially affect our ability to fund our business and our liquidity position. Many other financial
institutions have increased their reliance on deposit funding and, as such, we expect continued competition in the deposit markets.
We cannot predict how this competition will affect our costs. If we are required to offer higher interest rates to attract or maintain
deposits, our funding costs will be adversely impacted. Changes in valuations in the debt and equity markets could have a negative
impact on the assets we hold in our investment portfolio. Such market changes could also have a negative impact on the valuation
of assets for which we provide servicing. Finally, the Basel III Capital Rule requires that certain amounts reported in Accumulated
Other Comprehensive Income (“AOCI”), including unrealized gains and losses on securities designated as available for sale, be
included in our regulatory capital calculations. Changes in interest rates or market valuations that result in unrealized losses on
components of AOCI could therefore impact our regulatory capital ratios negatively.
On July 27, 2017, the U.K. Financial Conduct Authority announced that LIBOR would be transitioned as an interest rate benchmark
by December 31, 2021, and that it will no longer compel or persuade banks to contribute to LIBOR. It is unclear whether LIBOR
will continue to be viewed as an acceptable market benchmark rate, what rate or rates may develop as accepted alternatives to
LIBOR, or what the effect of any such changes may have on the markets for LIBOR-based financial instruments. Uncertainty as
to the nature of potential changes, alternative reference rates or other reforms may adversely affect market liquidity, the pricing
of LIBOR-based instruments, and the availability and cost of associated hedging instruments and borrowings. In addition, we have
loans, derivative contracts, unsecured debt, securitizations, vendor agreements and other instruments with attributes that are either
directly or indirectly dependent on LIBOR. Payments under contracts referencing new reference rates may differ from those
referencing LIBOR. The transition may change our market risk profile and require changes to risk and pricing models, valuation
tools, product design and hedging strategies. Although we are unable to assess the ultimate impact of the transition from LIBOR
given the uncertain nature of the potential changes, failure to adequately manage the transition could have a material adverse effect
on our reputation, business, financial condition and results of operations.
We assess our interest rate risk by estimating the effect on our earnings, economic value and capital under various scenarios that
differ based on assumptions about the direction and the magnitude of interest rate changes. We take risk mitigation actions based
on those assessments. We face the risk that changes in interest rates could materially reduce our net interest income and our earnings,
especially if actual conditions turn out to be materially different than those we assumed. See “MD&A—Market Risk Profile” for
additional information.
Our Business Could Be Negatively Affected If We Are Unable To Attract, Retain And Motivate Skilled Employees.
Our success depends, in large part, on our ability to retain key senior leaders and to attract and retain skilled employees, particularly
employees with expertise in credit, risk and digital technologies. Competition for such senior leaders and employees is intense
and may increase the costs associated with attracting and retaining them. Regulation or regulatory guidance restricting executive
compensation, as well as evolving investor expectations, may limit the types of compensation arrangements that we may enter
into with our most senior leaders and could have a negative impact on our ability to attract, retain and motivate such leaders in
support of our long-term strategy. These laws and regulations may not apply in the same manner to all financial institutions, and
we therefore may face more restrictions than other institutions and companies with which we compete for talent. These laws and
regulations may also hinder our ability to compete for talent with other industries. We rely upon our senior leaders not only for
business success, but also to lead with integrity. To the extent our senior leaders behave in a manner that does not comport with
our values, the consequences to our brand and reputation could be severe and could adversely affect our financial condition and
results of operations. If we are unable to attract and retain talented senior leadership and employees with advanced technological
skills, our business could be negatively affected.
31
Capital One Financial Corporation (COF)
32
Capital One Financial Corporation (COF)
We Face Risks From Unpredictable Catastrophic Events.
Despite the business contingency plans we have in place, there can be no assurance that such plans will fully mitigate all potential
business continuity risks to us. The impact from natural disasters and other catastrophic events may have a negative effect on our
business and infrastructure, including our information technology systems and those of third-parties that we rely on. Our ability
to conduct business may be adversely affected by a disruption in the infrastructure that supports our business and the communities
where we are located, which are concentrated in the Northern Virginia and New York metropolitan areas, as well as Richmond,
Virginia and Plano, Texas. This may include a disruption involving physical site access, cyber incidents, terrorist activities, disease
pandemics, catastrophic events, natural disasters, extreme weather events, electrical outage, environmental hazard, computer
servers, communications or other services we use, our employees or third parties with whom we conduct business. In addition, if
a natural disaster or other catastrophic event occurs in certain regions where our business and customers are concentrated, such
as the mid-Atlantic, New York or Texas metropolitan areas, we could be disproportionately impacted as compared to our competitors.
The impact of such events and other catastrophes on the overall economy may also adversely affect our financial condition and
results of operations.
We Face Risks From The Use Of Or Changes To Assumptions Or Estimates In Our Financial Statements.
Pursuant to generally accepted accounting principles in the U.S. (“U.S. GAAP”), we are required to use certain assumptions and
estimates in preparing our financial statements, including determining our allowance for loan and lease losses, the fair value of
certain assets and liabilities, and asset impairment, among other items. In addition, the FASB, the SEC and other regulatory bodies
may change the financial accounting and reporting standards, including those related to assumptions and estimates we use to
prepare our financial statements, in ways that we cannot predict and that could impact our financial statements. For example, in
June 2016, the FASB issued revised guidance for impairments on financial instruments. The guidance, which becomes effective
on January 1, 2020, requires use of a CECL model that is based on expected rather than incurred losses. We are currently assessing
the potential impact of this guidance, which may be material to our accounting for credit losses on financial instruments. If actual
results differ from the assumptions or estimates underlying our financial statements or if financial accounting and reporting standards
are changed, we may experience unexpected material losses. For a discussion of our use of estimates in the preparation of our
consolidated financial statements, see “MD&A—Critical Accounting Policies and Estimates” and “Note 1—Summary of
Significant Accounting Policies.”
concentration with respect to the financial services industry overall. As a result, defaults by, or even rumors or questions about,
one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems
and could lead to losses or defaults by us or by other institutions.
Likewise, adverse developments affecting the overall strength and soundness of our competitors, the financial services industry
as a whole and the general economic climate or sovereign debt could have a negative impact on perceptions about the strength
and soundness of our business even if we are not subject to the same adverse developments. In addition, adverse developments
with respect to third parties with whom we have important relationships also could negatively impact perceptions about us. These
perceptions about us could cause our business to be negatively affected and exacerbate the other risks that we face.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate and banking real estate portfolio consists of approximately 15.9 million square feet of owned or leased office and
retail space, used to support our business. Of this overall portfolio, approximately 12.8 million square feet of space is dedicated
for various corporate office uses and approximately 3.1 million square feet of space is for bank branches and related offices.
Our 12.8 million square feet of corporate office space consists of approximately 5.7 million square feet of leased space and 7.1
million square feet of owned space. Our headquarters is located in McLean, Virginia, and is included in our corporate office space.
We maintain corporate office space primarily in Virginia, New York, Illinois, Texas, Maryland and Delaware.
Our 3.1 million square feet of bank branch, Café and office space consists of approximately 1.7 million square feet of leased space
and 1.4 million square feet of owned space, including branch locations primarily across New York, Louisiana, Texas, Maryland,
Virginia, New Jersey and the District of Columbia. See “Note 8—Premises, Equipment and Lease Commitments” for information
about our premises.
Item 3. Legal Proceedings
Limitations On Our Ability To Receive Dividends From Our Subsidiaries Could Affect Our Liquidity And Ability To Pay
Dividends And Repurchase Common Stock.
The information required by Item 103 of Regulation S-K is included in “Note 19—Commitments, Contingencies, Guarantees and
Others.”
Item 4. Mine Safety Disclosures
Not applicable.
We are a separate and distinct legal entity from our subsidiaries, including the Banks. Dividends to us from our direct and indirect
subsidiaries, including the Banks, have represented a major source of funds for us to pay dividends on our common and preferred
stock, repurchase common stock, make payments on corporate debt securities and meet other obligations. There are various federal
law limitations on the extent to which the Banks can finance or otherwise supply funds to us through dividends and loans. These
limitations include minimum regulatory capital requirements, federal banking law requirements concerning the payment of
dividends out of net profits or surplus, Sections 23A and 23B of the Federal Reserve Act and Regulation W governing transactions
between an insured depository institution and its affiliates, as well as general federal regulatory oversight to prevent unsafe or
unsound practices. If our subsidiaries’ earnings are not sufficient to make dividend payments to us while maintaining adequate
capital levels, our liquidity may be affected and we may not be able to make dividend payments to our common or preferred
stockholders, repurchase our common stock, make payments on outstanding corporate debt securities or meet other obligations,
each and any of which could have a material adverse impact on our results of operations, financial position or perception of financial
health.
The Soundness Of Other Financial Institutions And Other Third Parties Could Adversely Affect Us.
Our ability to engage in routine funding and other transactions could be adversely affected by the stability and actions of other
financial services institutions. Financial services institutions are interrelated as a result of trading, clearing, servicing, counterparty
and other relationships. We have exposure to an increasing number of financial institutions and counterparties. These counterparties
include institutions that may be exposed to various risks over which we have little or no control, including European or U.S.
sovereign debt that is currently or may become in the future subject to significant price pressure, rating agency downgrade or
default risk.
In addition, we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers,
commercial banks, investment banks, mutual and hedge funds and other institutional clients, resulting in a significant credit
33
Capital One Financial Corporation (COF)
34
Capital One Financial Corporation (COF)
PART II
Common Stock Performance Graph
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is listed on the NYSE and is traded under the symbol “COF.” As of January 31, 2019, there were 10,541 holders
of record of our common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
The following graph shows the cumulative total stockholder return on our common stock compared to an overall stock market
index, the S&P Composite 500 Stock Index (“S&P 500 Index”), and a published industry index, the S&P Financial Composite
Index (“S&P Financial Index”), over the five-year period commencing December 31, 2013 and ending December 31, 2018. The
stock performance graph assumes that $100 was invested in our common stock and each index and that all dividends were reinvested.
The stock price performance on the graph below is not necessarily indicative of future performance.
Information relating to compensation plans under which our equity securities are authorized for issuance is presented in this Report
under “Part III—Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Comparison of 5-Year Cumulative Total Return
(Capital One, S&P 500 Index and S&P Financial Index)
250
$250
$200
$150
$100
$50
0
$0
2013
$136
$134
$108
2014
2015
2016
2017
2018
Capital One
S&P 500 Index
S&P Financial Index
Capital One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 100.00
$ 109.46
$
97.52
$ 120.68
$ 140.37
$ 108.40
S&P 500 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&P Financial Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.00
100.00
111.39
113.10
110.58
109.17
121.13
131.16
144.65
157.42
135.63
134.34
2013
2014
2015
2016
2017
2018
December 31,
35
Capital One Financial Corporation (COF)
36
Capital One Financial Corporation (COF)
Recent Sales of Unregistered Securities
We did not have any sales of unregistered equity securities in 2018.
Issuer Purchases of Equity Securities
The following table presents information related to repurchases of shares of our common stock for each calendar month in the
fourth quarter of 2018. Commission costs are excluded from the amounts presented below.
Number
of Shares
Purchased(1)
Average
Price Paid
per Share
Number of
Shares Purchased as
Part of Publicly
Announced Plans
Maximum
Amount That May
Yet be Purchased
Under the Plan
or Program
(in millions)
October . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,785,677
$
November . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,160,575
53,317
6,999,569
92.00
89.31
89.68
91.15
4,785,677
$
2,138,052
—
6,923,729
191
—
—
__________
(1) Comprises mainly repurchases of common stock under the 2018 Stock Repurchase Program. There were 22,523 and 53,317 shares withheld in November
and December, respectively, to cover taxes on restricted stock units whose restrictions have lapsed. For additional information including our 2018 Stock
Repurchase Program, see “MD&A—Capital Management—Dividend Policy and Stock Purchases.”
Item 6. Summary of Selected Financial Data
The following table presents selected consolidated financial data and performance metrics for the five-year period ended
December 31, 2018. Certain prior period amounts have been recast to conform to the current period presentation. We prepare our
consolidated financial statements based on U.S. GAAP. This data should be reviewed in conjunction with our audited consolidated
financial statements and related notes and with the MD&A included in this Report. The historical financial information presented
may not be indicative of our future performance.
Five-Year Summary of Selected Financial Data
(Dollars in millions, except per share data and as noted)
2018
2017
2016
2015
2014
Year Ended December 31,
Change
2018 vs.
2017
2017 vs.
2016
Income statement
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense:
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations, net of tax . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends and undistributed earnings allocated to
participating securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to common stockholders. . . . . . . . . . .
Common share statistics
Basic earnings per common share:
Net income from continuing operations . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . .
Net income per basic common share. . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share:
Net income from continuing operations . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . .
Net income per diluted common share . . . . . . . . . . . . . . . . . . .
Common shares outstanding (period-end, in millions) . . . . . . .
Dividends declared and paid per common share. . . . . . . . . . . .
Tangible book value per common share (period-end)(1) . . . . . .
Common dividend payout ratio(2) . . . . . . . . . . . . . . . . . . . . . . .
Stock price per common share at period end . . . . . . . . . . . . . .
$
27,176
$
25,222
$
22,891
$
20,459
$
19,397
4,301
22,875
5,201
28,076
5,856
2,174
12,728
14,902
7,318
1,293
6,025
(10)
6,015
(40)
(265)
2,762
22,460
4,777
27,237
7,551
1,670
12,524
14,194
5,492
3,375
2,117
(135)
1,982
(13)
(265)
2,018
20,873
4,628
25,501
6,459
1,811
11,747
13,558
5,484
1,714
3,770
(19)
3,751
(24)
(214)
1,625
18,834
4,579
23,413
4,536
1,744
11,252
12,996
5,881
1,869
4,012
38
4,050
(20)
(158)
1,579
17,818
4,472
22,290
3,541
1,561
10,619
12,180
6,569
2,146
4,423
5
4,428
(18)
(67)
$
5,710
$
1,704
$
3,513
$
3,872
$
4,343
$
$
$
$
$
11.92
(0.02)
11.90
11.84
(0.02)
11.82
467.7
1.60
69.20
$
$
$
$
$
$
$
$
$
$
3.80
(0.28)
3.52
3.76
(0.27)
3.49
485.5
1.60
60.28
7.00
(0.04)
6.96
6.93
(0.04)
6.89
480.2
1.60
57.76
13.45%
45.45%
22.99%
$
75.59
$
99.58
$
87.24
98.95
$
$
$
$
$
$
$
$
$
$
$
$
7.08
0.07
7.15
7.00
0.07
7.07
527.3
1.50
53.65
20.98%
72.18
89.67
7.70
0.01
7.71
7.58
0.01
7.59
553.4
1.20
50.32
15.56%
82.55
81.41
41,893
38,061
45,683
8%
56
2
9
3
(22)
30
2
5
33
(62)
185
(93)
**
**
—
**
**
(93)%
**
**
(93)
**
(4)
—
15
(32)
(24)
10
(27)
10%
37
8
3
7
17
(8)
7
5
—
97
(44)
**
(47)
(46)
24
(51)
(46)%
**
(49)
(46)
**
(49)
1
—
4
22
14
1
15
Book value per common share at period end . . . . . . . . . . . . . .
Total market capitalization at period end . . . . . . . . . . . . . . . . .
110.47
35,353
100.37
48,346
Balance sheet (average balances)
Loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 242,118
$ 245,565
$ 233,272
$ 210,745
$ 197,925
(1)%
5%
332,738
363,036
221,760
247,117
53,144
45,831
50,192
322,330
354,924
213,949
239,882
53,659
45,170
49,530
307,796
339,974
198,304
223,714
56,878
45,162
48,753
282,581
313,474
185,677
210,989
45,420
45,072
47,713
267,174
297,659
181,036
205,675
38,882
43,055
44,268
3
2
4
3
(1)
1
1
5
4
8
7
(6)
—
2
37
Capital One Financial Corporation (COF)
38
Capital One Financial Corporation (COF)
(Dollars in millions, except per share data and as noted)
2018
2017
2016
2015
2014
Year Ended December 31,
$ 387,102
$ 336,440
$ 307,138
$ 271,167
$ 224,750
8.44%
8.45%
8.29%
8.29%
8.34%
6.87
1.66
1.73
12.48
18.56
13.83
6.15
53.08
45.33
17.7
6.97
0.60
0.62
4.07
6.16
13.96
5.78
52.11
45.98
61.5
6.78
1.11
1.16
7.82
11.93
14.34
5.81
53.17
46.06
31.3
6.66
1.28
1.35
8.51
12.87
15.22
6.17
55.51
48.06
31.8
6.67
1.49
1.57
10.08
15.79
14.87
6.15
54.64
47.64
32.7
$
6,112
$
6,562
$
5,062
$
3,695
$
3,414
Change
2018 vs.
2017
2017 vs.
2016
15%
(1)bps
(10)
106
111
8%
12
10%
16bps
19
(51)
(54)
(4)%
(6)
(13)bps
(38)bps
37
97
(65)
(44)%
(7)
(3)
(106)
(8)
30%
30
(7) Return on average common equity is calculated based on (i) income from continuing operations, net of tax; (ii) less dividends and undistributed earnings
allocated to participating securities; (iii) less preferred stock dividends, for the period, divided by average common equity. Our calculation of return on
average common equity may not be comparable to similarly-titled measures reported by other companies.
(8) Return on average tangible common equity is a non-GAAP measure calculated based on (i) income from continuing operations, net of tax; (ii) less dividends
and undistributed earnings allocated to participating securities; (iii) less preferred stock dividends, for the period, divided by average TCE. Our calculation
of return on average TCE may not be comparable to similarly-titled measures reported by other companies. See “MD&A—Table F—Reconciliation of Non-
GAAP Measures” for additional information on non-GAAP measures.
(9)
Equity-to-assets ratio is calculated based on average stockholders’ equity for the period divided by average total assets for the period.
(10) Efficiency ratio is calculated based on non-interest expense for the period divided by total net revenue for the period.
(11) Operating efficiency ratio is calculated based on operating expense for the period divided by total net revenue for the period.
(12) Net charge-off rate is calculated by dividing net charge-offs by average loans held for investment for the period for each loan category.
(13) Capital ratios are calculated based on the Basel III Standardized Approach framework, subject to applicable transition provision. See “MD&A—Capital
Management” for additional information.
(14) Tangible common equity ratio is a non-GAAP measure calculated based on TCE divided by tangible assets. See “MD&A—Table F—Reconciliation of Non-
GAAP Measures” for the calculation of this measure and reconciliation to the comparative U.S. GAAP measure.
** Change is not meaningful.
Selected performance metrics
Purchase volume(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue margin(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average tangible assets(6) . . . . . . . . . . . . . . . . . . . . .
Return on average common equity(7). . . . . . . . . . . . . . . . . . . . .
Return on average tangible common equity (“TCE”)(8) . . . . . .
Equity-to-assets ratio(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense as a percentage of average loans held
for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Efficiency ratio(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating efficiency ratio(11) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate from continuing operations . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-off rate(12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Dollars in millions, except as noted)
Balance sheet (period-end)
2.52%
2.67%
2.17%
1.75%
1.72%
(15)bps
50bps
December 31,
2018
2017
2016
2015
2014
Change
2018 vs.
2017
2017 vs.
2016
Loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 245,899
$ 254,473
$ 245,586
$ 229,851
$ 208,316
(3)%
4%
Interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit quality metrics
341,293
372,538
226,281
249,764
58,905
47,307
51,668
334,124
365,693
217,298
243,702
60,281
44,370
48,730
321,807
357,033
211,266
236,768
60,460
43,154
47,514
302,007
334,048
191,874
217,721
59,115
43,990
47,284
277,849
308,167
180,467
205,548
48,457
43,231
45,053
2
2
4
2
(2)
7
6
Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . . .
$
7,220
$
7,502
$
6,503
$
5,130
$
4,383
(4)%
Allowance as a percentage of loans held for investment
(“allowance coverage ratio”). . . . . . . . . . . . . . . . . . . . . . . . . . .
30+ day performing delinquency rate . . . . . . . . . . . . . . . . . . . .
30+ day delinquency rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital ratios
Common equity Tier 1 capital(13). . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital(13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total capital(13). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 leverage(13). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible common equity(14). . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplementary leverage(13) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Employees (period end, in thousands) . . . . . . . . . . . . . . . . . . .
2.94%
2.95%
2.65%
2.23%
2.10%
(1)bps
3.62
3.84
3.23
3.48
2.93
3.27
2.69
3.00
2.62
2.91
39
36
11.2%
10.3%
10.1%
11.1%
12.5%
90bps
20bps
12.7
15.1
10.7
9.1
9.0
47.6
11.8
14.4
9.9
8.3
8.4
49.3
11.6
14.3
9.9
8.1
8.6
47.3
12.4
14.6
10.6
8.9
9.2
45.4
13.2
15.1
10.8
9.5
N/A
90
70
80
80
60
20
10
—
20
(20)
46.0
(3)%
4%
4
2
3
3
—
3
3
15%
30bps
30
21
__________
(1)
Tangible book value per common share is a non-GAAP measure calculated based on tangible common equity divided by common shares outstanding. See
“MD&A—Table F —Reconciliation of Non-GAAP Measures” for additional information on non-GAAP measures.
(2) Common dividend payout ratio is calculated based on dividends per common share for the period divided by basic earnings per common share for the period.
(3)
Purchase volume consists of purchase transactions, net of returns, for the period for loans both classified as held for investment and held for sale in our Credit
Card business, and excludes cash advance and balance transfer transactions.
(4)
Total net revenue margin is calculated based on total net revenue for the period divided by average interest-earning assets for the period.
(5) Net interest margin is calculated based on net interest income for the period divided by average interest-earning assets for the period.
(6) Return on average tangible assets is a non-GAAP measure calculated based on income from continuing operations, net of tax, for the period divided by
average tangible assets for the period. See “MD&A—Table F—Reconciliation of Non-GAAP Measures” for additional information on non-GAAP measures.
39
Capital One Financial Corporation (COF)
40
Capital One Financial Corporation (COF)
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
This discussion contains forward-looking statements that are based upon management’s current expectations and are subject to
significant uncertainties and changes in circumstances. Please review “Part I—Item 1. Business—Forward-Looking Statements”
for more information on the forward-looking statements in this 2018 Annual Report on Form 10-K (“this Report”). Our actual
results may differ materially from those included in these forward-looking statements due to a variety of factors including, but not
limited to, those described in “Part I—Item 1A. Risk Factors” in this Report. Unless otherwise specified, references to notes to
our consolidated financial statements refer to the notes to our consolidated financial statements as of December 31, 2018 included
in this Report.
Management monitors a variety of key indicators to evaluate our business results and financial condition. The following MD&A
is intended to provide the reader with an understanding of our results of operations, financial condition and liquidity by focusing
on changes from year to year in certain key measures used by management to evaluate performance, such as profitability, growth
and credit quality metrics. MD&A is provided as a supplement to, and should be read in conjunction with, our audited consolidated
financial statements as of and for the year ended December 31, 2018 and accompanying notes. MD&A is organized in the following
sections:
• Executive Summary and Business Outlook
• Consolidated Results of Operations
• Consolidated Balance Sheets Analysis
• Off-Balance Sheet Arrangements
• Business Segment Financial Performance
• Critical Accounting Policies and Estimates
• Capital Management
• Risk Management
• Credit Risk Profile
• Liquidity Risk Profile
• Market Risk Profile
• Supplemental Tables
• Accounting Changes and Developments
• Glossary and Acronyms
EXECUTIVE SUMMARY AND BUSINESS OUTLOOK
Financial Highlights
We reported net income of $6.0 billion ($11.82 per diluted common share) on total net revenue of $28.1 billion for 2018. In
comparison, we reported net income of $2.0 billion ($3.49 per diluted common share) on total net revenue of $27.2 billion for
2017, and $3.8 billion ($6.89 per diluted common share) on total net revenue of $25.5 billion for 2016.
Our common equity Tier 1 capital ratio as calculated under the Basel III Standardized Approach, including transition provisions,
was 11.2% and 10.3% as of December 31, 2018 and 2017, respectively. See “MD&A—Capital Management” below for additional
information.
On June 28, 2018, we announced that our Board of Directors authorized the repurchase of up to $1.2 billion of shares of our
common stock (“2018 Stock Repurchase Program”) beginning in the third quarter of 2018 through the end of the second quarter
of 2019. We completed the 2018 Stock Repurchase Program in the fourth quarter of 2018. See “MD&A—Capital Management
—Dividend Policy and Stock Purchases” for additional information.
Below are additional highlights of our performance in 2018. These highlights are generally based on a comparison between the
results of 2018 and 2017, except as otherwise noted. The changes in our financial condition and credit performance are generally
based on our financial condition and credit performance as of December 31, 2018 compared to our financial condition and credit
performance as of December 31, 2017.
Total Company Performance
• Earnings: Our net income increased by $4.0 billion to $6.0 billion in 2018 compared to 2017 primarily driven by:
lower income tax provision largely due to elevated charges associated with the impacts of the Tax Act in the fourth
quarter of 2017 and a tax benefit related to a tax methodology change on rewards costs;
lower provision for credit losses driven by allowance releases in our domestic credit card and auto loan portfolios
largely due to improvements in credit trends;
higher non-interest income largely due to the net gains from the sales of exited businesses including sale of our
consumer home loan portfolio and an increase in net interchange fees primarily due to higher purchase volume,
partially offset by an impairment charge as a result of repositioning our investment securities portfolio; and
higher net interest income due to growth in our domestic credit card and auto loan portfolios and higher yields on
interest-earning assets as a result of higher interest rates, partially offset by higher interest expense attributable to
higher interest rates.
These drivers were partially offset by higher non-interest expense largely due to increased marketing expense and a legal
reserve build.
•
Loans Held for Investment:
Period-end loans held for investment decreased by $8.6 billion to $245.9 billion as of December 31, 2018 from
December 31, 2017 primarily driven by the sale of our consumer home loan portfolio, partially offset by growth in
our commercial, auto and domestic credit card portfolios.
Average loans held for investment decreased by $3.4 billion to $242.1 billion in 2018 compared to 2017 primarily
driven by the sale of our consumer home loan portfolio, partially offset by the growth in our domestic credit card
portfolio including loans obtained in the Cabela’s acquisition, and growth in our auto loan portfolio.
• Net Charge-Off and Delinquency Metrics: Our net charge-off rate decreased by 15 basis points to 2.52% in 2018 compared
to 2017 primarily driven by elevated charge-offs in our taxi medallion portfolio in 2017 within our Commercial Banking
business.
Our 30+ day delinquency rate increased by 36 basis points to 3.84% as of December 31, 2018 from December 31, 2017
primarily driven by the impact of lower loan balances from the sale of our consumer home loan portfolio and higher
delinquencies in our auto loan portfolio.
• Allowance for Loan and Lease Losses: Our allowance for loan and lease losses decreased by $282 million to $7.2 billion
as of December 31, 2018 from December 31, 2017 primarily driven by allowance releases in our domestic credit card and
auto loan portfolios largely due to improvements in credit trends.
The allowance coverage ratio remained substantially flat at 2.94% as of December 31, 2018 as allowance releases in our
domestic credit card and auto loan portfolios were offset by lower loan balances largely due to the sale of our consumer
home loan portfolio.
Business Outlook
We discuss below our current expectations regarding our total company performance and the performance of each of our business
segments over the near-term based on market conditions, the regulatory environment and our business strategies as of the time
this Report was filed. The statements contained in this section are based on our current expectations regarding our outlook for our
financial results and business strategies. Our expectations take into account, and should be read in conjunction with, our expectations
regarding economic trends and analysis of our business as discussed in “Part I—Item 1. Business” and “Part II—Item 7. MD&A”
in this Report. Certain statements are forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. Actual results could differ materially from those in our forward-looking statements. Except as otherwise disclosed,
forward-looking statements do not reflect:
•
any change in current dividend or repurchase strategies;
41
Capital One Financial Corporation (COF)
42
Capital One Financial Corporation (COF)
•
•
the effect of any acquisitions, divestitures or similar transactions that have not been previously disclosed; or
any changes in laws, regulations or regulatory interpretations, in each case after the date as of which such statements are
made.
See “Part I—Item 1. Business—Forward-Looking Statements” in this Report for more information on the forward-looking
statements included in this Report and “Part I—Item 1A. Risk Factors” in this Report for factors that could materially influence
our results.
Total Company Expectations
We expect that our full-year 2019 operating efficiency ratio, net of adjustments, will improve modestly, excluding the $225 million
one-time Walmart launch and integration expenses.
While efficiency ratio can vary in any given year, over the long term, we continue to believe that we will be able to achieve gradual
efficiency improvement driven by growth and digital productivity gains.
We believe we have sufficient capital and earnings to support growth, the Walmart portfolio acquisition, the phased-in impact of
adopting CECL on January 1, 2020, as well as the potential for a meaningful capital distribution in the 2019 CCAR window.
We continue to believe increases in deposit costs and deposit product mix changes will have a negative impact on our net interest
margin going forward.
Business Segment Expectations
Domestic Card: In our Domestic Card business, we expect to incur approximately $225 million in one-time expenses in 2019 to
launch the new Walmart originations programs and integrate the acquired portfolio. We expect these costs will ramp up over the
course of 2019.
We currently estimate the initial allowance build for the acquired Walmart portfolio will be approximately $120 million. The actual
impact will depend on the amount and characteristics of the receivables as well as economic conditions and our loss forecasts at
the acquisition date.
Consumer Banking: In our Consumer Banking business, we expect further increases in average deposit interest rate as product
mix shift continues. Increasing competition for deposits will also put upward pressure on deposit rates.
Over the longer-term, we continue to expect that the charge-off rate in our auto finance business will increase gradually.
CONSOLIDATED RESULTS OF OPERATIONS
The section below provides a comparative discussion of our consolidated financial performance for 2018 and 2017. We provide
a discussion of our business segment results in the following section, “MD&A—Business Segment Financial Performance.” You
should read this section together with our “MD&A—Executive Summary and Business Outlook,” where we discuss trends and
other factors that we expect will affect our future results of operations.
Net Interest Income
Net interest income represents the difference between the interest income, including certain fees, earned on our interest-earning
assets and the interest expense paid on our interest-bearing liabilities. Interest-earning assets include loans, investment securities
and other interest-earning assets, while our interest-bearing liabilities include interest-bearing deposits, securitized debt obligations,
senior and subordinated notes, other borrowings and other interest-bearing liabilities. Generally, we include in interest income any
past due fees on loans that we deem collectible. Our net interest margin, based on our consolidated results, represents the difference
between the yield on our interest-earning assets and the cost of our interest-bearing liabilities, including the notional impact of
non-interest-bearing funding. We expect net interest income and our net interest margin to fluctuate based on changes in interest
rates and changes in the amount and composition of our interest-earning assets and interest-bearing liabilities.
Table 1 below presents, for each major category of our interest-earning assets and interest-bearing liabilities, the average outstanding
balance, interest income earned, interest expense incurred and average yield for 2018, 2017 and 2016. Nonperforming loans are
included in the average loan balances below.
Table 1: Average Balances, Net Interest Income and Net Interest Margin
2018
2017
2016
Year Ended December 31,
Average
Balance
Interest
Income/
Expense(3)
Average
Yield/
Rate(3)
Average
Balance
Interest
Income/
Expense(3)
Average
Yield/
Rate(3)
Average
Balance
Interest
Income/
Expense(3)
Average
Yield/
Rate(3)
(Dollars in millions)
Assets:
Interest-earning assets:
Loans:(1)
Credit card . . . . . . . . . . . . . . . . . . . . . . . .
$ 109,820
$ 16,948
15.43% $ 103,468
$ 15,735
15.21% $ 96,596
$ 14,173
14.67%
Consumer banking . . . . . . . . . . . . . . . . . .
Commercial banking(2). . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65,146
68,221
184
4,904
3,033
7.53
4.45
(157)
(85.03)
Total loans, including loans held for sale. . . .
243,371
Investment securities . . . . . . . . . . . . . . . . . . .
79,224
24,728
2,211
Cash equivalents and other interest-earning
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,143
237
Total interest-earning assets. . . . . . . . . . . . . .
332,738
27,176
10.16
2.79
2.33
8.17
Cash and due from banks. . . . . . . . . . . . . . . .
Allowance for loan and lease losses . . . . . . .
Premises and equipment, net . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . .
3,877
(7,404)
4,163
29,662
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 363,036
Liabilities and stockholders’ equity:
Interest-bearing liabilities:
74,865
68,150
130
246,613
68,896
4,984
2,630
6.66
3.86
39
30.00
23,388
1,711
71,631
66,033
78
234,338
66,260
4,537
2,290
6.33
3.47
203
260.26
21,203
1,599
9.48
2.48
1.80
7.82
6,821
123
322,330
25,222
3,457
(7,025)
3,931
32,231
$ 354,924
7,198
89
307,796
22,891
3,235
(5,675)
3,671
30,947
$339,974
9.05
2.41
1.24
7.44
Interest-bearing deposits . . . . . . . . . . . . .
$ 221,760
$
2,598
1.17% $ 213,949
$
1,602
0.75% $198,304
$
1,213
0.61%
Securitized debt obligations. . . . . . . . . . .
Senior and subordinated notes . . . . . . . . .
Other borrowings and liabilities. . . . . . . .
19,014
31,295
4,028
Total interest-bearing liabilities . . . . . . . . . . .
276,097
Non-interest-bearing deposits . . . . . . . . . . . .
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . .
25,357
11,390
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . .
312,844
Stockholders’ equity. . . . . . . . . . . . . . . . . . . .
50,192
Total liabilities and stockholders’ equity . . . .
$ 363,036
496
1,125
82
4,301
2.61
3.60
2.04
1.56
18,237
27,866
8,917
327
731
102
268,969
2,762
1.79
2.62
1.14
1.03
16,576
22,417
18,736
216
476
113
256,033
2,018
1.30
2.12
0.60
0.79
25,933
10,492
305,394
49,530
$ 354,924
25,410
9,778
291,221
48,753
$339,974
Net interest income/spread . . . . . . . . . . . . . . . . . . . . . . . . .
$ 22,875
Impact of non-interest-bearing funding . . . . . . . . . . . . . . . . . . . . . . . . .
6.61
0.26
Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.87%
$ 22,460
6.79
0.18
6.97%
$ 20,873
6.65
0.13
6.78%
__________
(1)
Past due fees included in interest income totaled approximately $1.7 billion, $1.6 billion and $1.5 billion in 2018, 2017 and 2016, respectively.
(2)
(3)
Some of our commercial loans generate tax-exempt income. Accordingly, we present our Commercial Banking interest income and yields on a taxable-
equivalent basis, calculated using the federal statutory rate (21% for 2018 and 35% for 2017 and 2016) and state taxes where applicable, with offsetting
reductions to the Other category. Taxable-equivalent adjustments included in the interest income and yield computations for our Commercial banking loans
totaled approximately $82 million, $129 million and $126 million in 2018, 2017 and 2016, respectively, with corresponding reductions to Other category.
Interest income and interest expense and the calculation of average yields on interest-earning assets and average rates on interest-bearing liabilities include
the impact of hedge accounting. In the first quarter of 2018, we adopted Accounting Standards Update (“ASU”) No. 2017-12, Derivatives and Hedging
(Topic 815): Targeted Improvements to Accounting for Hedging Activities. As a result, interest income and interest expense amounts shown above for the
year ended December 31, 2018 includes $2 million and $38 million, respectively, related to hedge ineffectiveness that would previously have been included
in other non-interest income.
43
Capital One Financial Corporation (COF)
44
Capital One Financial Corporation (COF)
Net interest income increased by $415 million to $22.9 billion in 2018 compared to 2017, primarily driven by higher interest
income due to growth in our domestic credit card and auto loan portfolios, and higher yields as a result of higher interest rates,
partially offset by higher interest expense due to higher interest rates and the reduction in net interest income from the sale of our
consumer home loan portfolio.
Net interest margin decreased by 10 basis points to 6.87% in 2018 compared to 2017, primarily driven by higher interest expense
due to higher interest rates, partially offset by product mix changes and higher yields in our interest-earning assets.
Net interest income increased by $1.6 billion to $22.5 billion in 2017 compared to 2016. Net interest margin increased by 19 basis
points to 6.97% in 2017 compared to 2016. These increases were primarily driven by:
•
•
•
growth in our credit card and commercial loan portfolios;
higher yields as a result of higher interest rates;
partially offset by higher interest expense due to the net effect of higher interest rates, as well as growth and mix changes
in our interest-bearing liabilities.
Table 2 displays the change in our net interest income between periods and the extent to which the variance is attributable to:
•
•
changes in the volume of our interest-earning assets and interest-bearing liabilities; or
changes in the interest rates related to these assets and liabilities.
Table 2: Rate/Volume Analysis of Net Interest Income(1)
Non-Interest Income
Table 3 displays the components of non-interest income for 2018, 2017 and 2016. Certain prior period amounts have been recast
to conform to the current period presentation.
Table 3: Non-Interest Income
(Dollars in millions)
Year Ended December 31,
2018
2017
2016
Interchange fees, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,823
$
2,573
$
Service charges and other customer-related fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net securities gains (losses). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-interest income:
Mortgage banking revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury and other investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,585
(209)
661
49
292
Total other non-interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,002
1,597
65
201
126
215
542
2,452
1,646
(11)
166
83
292
541
Total non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5,201
$
4,777
$
4,628
Non-interest income increased by $424 million to $5.2 billion in 2018 compared to 2017 primarily due to:
•
•
the net gains from the sales of exited businesses including the sale of our consumer home loan portfolio; and
an increase in net interchange fees primarily due to higher purchase volume.
2018 vs. 2017
2017 vs. 2016
Total
Variance
Volume
Rate
Total
Variance
Volume
Rate
These drivers are partially offset by an impairment charge as a result of repositioning our investment securities portfolio.
Non-interest income increased by $149 million to $4.8 billion in 2017 compared to 2016 primarily driven by:
(Dollars in millions)
Interest income:
Loans:
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial banking(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans, including loans held for sale . . . . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash equivalents and other interest-earning assets. . . . . . . . . . . .
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense:
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securitized debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior and subordinated notes. . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings and liabilities . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,213
$
977
$
(80)
403
(196)
1,340
500
114
1,954
996
169
394
(20)
1,539
$
415
$
(647)
3
(46)
287
273
69
629
61
14
98
(56)
117
512
236
567
400
(150)
1,053
227
45
$
1,562
$
1,031
$
447
340
(164)
2,185
112
34
210
75
16
1,332
65
(5)
1,325
2,331
1,392
935
155
296
36
1,422
389
111
255
(11)
744
101
23
128
(59)
193
$
(97) $
1,587
$
1,199
$
531
237
265
(180)
853
47
39
939
288
88
127
48
551
388
__________
(1) We calculate the change in interest income and interest expense separately for each item. The portion of interest income or interest expense attributable to
both volume and rate is allocated proportionately when the calculation results in a positive value. When the portion of interest income or interest expense
attributable to both volume and rate results in a negative value, the total amount is allocated to volume or rate, depending on which amount is positive.
(2)
Some of our commercial loans generate tax-exempt income. Accordingly, we present our Commercial Banking interest income and yields on a taxable-
equivalent basis, calculated using the federal statutory rate (21% for 2018 and 35% for 2017 and 2016) and state taxes where applicable, with offsetting
reductions to the Other category.
•
•
an increase in net interchange fees primarily due to higher purchase volume; and
gains from the sale of investment securities as a result of portfolio repositioning.
Provision for Credit Losses
Our provision for credit losses in each period is driven by net charge-offs, changes to the allowance for loan and lease losses, and
changes to the reserve for unfunded lending commitments. We recorded a provision for credit losses of $5.9 billion, $7.6 billion
and $6.5 billion in 2018, 2017 and 2016, respectively. The provision for credit losses as a percentage of net interest income was
25.6%, 33.6% and 30.9% in 2018, 2017 and 2016, respectively.
Our provision for credit losses decreased by $1.7 billion in 2018 compared to 2017 primarily driven by allowance releases in our
domestic credit card and auto loan portfolios largely due to improvements in credit trends.
Our provision for credit losses increased by $1.1 billion in 2017 compared to 2016 primarily driven by:
•
•
•
higher charge-offs in our domestic credit card loan portfolio due to growth and portfolio seasoning;
higher charge-offs in our auto loan portfolio due to growth; and
partially offset by lower provision in our commercial banking loan portfolio primarily driven by stabilizing industry
conditions impacting our oil and gas lending portfolio compared to adverse industry conditions in the prior year.
We provide additional information on the provision for credit losses and changes in the allowance for loan and lease losses within
“MD&A—Credit Risk Profile,” “Note 4—Loans” and “Note 5—Allowance for Loan and Lease Losses and Reserve for Unfunded
Lending Commitments.” For information on the allowance methodology for each of our loan categories, see “Note 1—Summary
of Significant Accounting Policies.”
45
Capital One Financial Corporation (COF)
46
Capital One Financial Corporation (COF)
Non-Interest Expense
The decrease in our income tax provision and effective income tax rate in 2018 compared to 2017 was primarily due to:
Table 4 displays the components of non-interest expense for 2018, 2017 and 2016.
Table 4: Non-Interest Expense
(Dollars in millions)
Salaries and associate benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications and data processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-interest expense:
Bankcard, regulatory and other fee assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fraud losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2018
2017
2016
$
5,727
$
5,899
$
2,118
2,174
1,145
1,260
174
490
413
364
1,037
2,304
1,939
1,670
1,097
1,177
245
626
364
334
843
2,167
$
14,902
$
14,194
$
5,202
1,944
1,811
1,075
1,169
386
540
313
331
787
1,971
13,558
Non-interest expense increased by $708 million to $14.9 billion in 2018 compared to 2017 primarily due to higher marketing
expense and a legal reserve build.
Non-interest expense increased by $636 million to $14.2 billion in 2017 compared to 2016, primarily due to:
higher operating expenses associated with loan growth, as well as continued investments in technology and infrastructure;
•
•
•
discrete tax benefits in 2018 as compared to discrete tax expenses largely due to the charges of $1.8 billion in the fourth
quarter of 2017 associated with the estimated impacts of the Tax Act; and
•
decrease in the federal statutory tax rate from 35% to 21% as a result of the Tax Act.
These decreases were partially offset by higher income relative to our tax credits and higher non-deductible expenses.
The increase in our income tax provision and effective income tax rate in 2017 compared to 2016 was primarily due to charges of
$1.8 billion associated with the impacts of the Tax Act, partially offset by a relative increase in the amount of tax credits and tax-
exempt income.
We provide additional information on items affecting our income taxes and effective tax rate in “Note 16—Income Taxes.”
CONSOLIDATED BALANCE SHEETS ANALYSIS
Total assets increased by $6.8 billion to $372.5 billion as of December 31, 2018 from December 31, 2017 primarily driven by an
increase in investment securities and growth in our commercial, auto and domestic credit card portfolios, partially offset by the
sale of our consumer home loan portfolio.
Total liabilities increased by $3.9 billion to $320.9 billion as of December 31, 2018 from December 31, 2017 primarily driven by
deposit growth, partially offset by lower securitized debt obligations due to maturities outpacing issuances.
Stockholders’ equity increased by $2.9 billion to $51.7 billion as of December 31, 2018 from December 31, 2017 primarily due
to our net income of $6.0 billion in 2018, partially offset by stock repurchases and dividend payments to our stockholders.
The following is a discussion of material changes in the major components of our assets and liabilities during 2018. Period-end
balance sheet amounts may vary from average balance sheet amounts due to liquidity and balance sheet management activities
that are intended to support the adequacy of capital while managing our liquidity requirements, our customers and our market risk
exposure in accordance with our risk appetite.
restructuring activities, which primarily consisted of severance and related benefits pursuant to our ongoing benefit programs,
that are the result of exiting certain business activities and locations; and
Investment Securities
•
partially offset by lower marketing expenses and lower amortization of intangibles.
Income Taxes
We recorded income tax provisions of $1.3 billion (17.7% effective income tax rate), $3.4 billion (61.5% effective income tax
rate) and $1.7 billion (31.3% effective income tax rate) in 2018, 2017 and 2016, respectively. In the fourth quarter of 2018, we
completed our assessment of the impacts of the Tax Act and there were no material adjustments made to the previously recorded
charges of $1.8 billion in the fourth quarter 2017.
We recorded discrete tax benefits of $318 million in 2018 primarily driven by a tax benefit of $284 million related to a tax
methodology change on rewards costs, discrete tax expenses of $1.7 billion in 2017 primarily consisting of the charges of $1.8
billion for the estimated impacts of the Tax Act, and discrete tax benefits of $2 million in 2016. Our effective income tax rate,
excluding the impact of discrete tax items, was 22.0%, 29.9% and 31.3% in 2018, 2017 and 2016, respectively.
Our investment securities portfolio consists primarily of the following: U.S. Treasury securities; U.S. government-sponsored
enterprise or agency (“Agency”) and non-agency residential mortgage-backed securities (“RMBS”); Agency commercial mortgage-
backed securities (“CMBS”); 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 U.S. Treasury and Agency securities generally have high credit ratings and
low credit risks, and our investments in U.S. Treasury and Agency securities represented 96% and 95% of our total investment
portfolio, as of December 31, 2018 and 2017, respectively.
The fair value of our available for sale securities portfolio increased by $8.5 billion to $46.2 billion as of December 31, 2018 from
December 31, 2017 primarily due to a one-time transfer of held to maturity securities to available for sale as a result of our adoption
of ASU No. 2017-12. The fair value of our held to maturity securities portfolio increased by $7.2 billion to $36.6 billion as of
December 31, 2018 from December 31, 2017 primarily driven by purchases in the second quarter of 2018 as we invested a portion
of the proceeds from the sale of our consumer home loan portfolio into securities, partially offset by the one-time transfer to
available to sale.
47
Capital One Financial Corporation (COF)
48
Capital One Financial Corporation (COF)
Table 5 presents the amortized cost, carrying value and fair value for the major categories of our investment securities portfolio
as of December 31, 2018, 2017 and 2016.
2018
December 31,
2017
2016
Table 6: Loans Held for Investment
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
December 31, 2018
December 31, 2017
Loans Held for Investment
Total loans held for investment consists of both unsecuritized loans and loans held in our consolidated trusts. Table 6 summarizes
the carrying value of our portfolio of loans held for investment by portfolio segment, the allowance for loan and lease losses, and
net loan balance as of December 31, 2018 and 2017.
Table 5: Investment Securities
(Dollars in millions)
Investment securities available for sale:
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6,146
$
6,144
$
5,168
$
5,171
$
5,103
$
5,065
RMBS:
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total RMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agency CMBS
Other securities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investment securities available for sale . . . . . . . . . . . . . .
32,710
1,440
34,150
4,806
1,626
31,903
1,742
33,645
4,739
1,622
26,013
1,722
27,735
3,209
1,516
25,678
2,114
27,792
3,175
1,517
26,830
2,349
29,179
5,011
1,440
26,527
2,722
29,249
4,988
1,435
$ 46,728
$ 46,150
$ 37,628
$ 37,655
$ 40,733
$ 40,737
(Dollars in millions)
Investment securities held to maturity:
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
— $
200
$
200
$
199
$
199
Agency RMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 33,061
$ 32,977
Agency CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,710
3,642
24,980
3,804
25,395
3,842
22,125
3,388
22,573
3,424
Total investment securities held to maturity . . . . . . . . . . . . . . .
$ 36,771
$ 36,619
$ 28,984
$ 29,437
$ 25,712
$ 26,196
__________
(1)
Includes primarily supranational bonds, foreign government bonds and other asset-backed securities.
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
We provide additional information on the composition of our loan portfolio and credit quality below in “MD&A—Credit Risk
Profile,” “MD&A—Consolidated Results of Operations” and “Note 4—Loans.”
(Dollars in millions)
Credit Card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans
$ 116,361
59,205
70,333
—
$ 245,899
Allowance Net Loans
$ 110,826
$
58,157
69,696
—
$ 238,679
5,535
1,048
637
—
7,220
$
Loans
$ 114,762
75,078
64,575
58
$ 254,473
Allowance Net Loans
$ 109,114
$
73,836
63,964
57
$ 246,971
5,648
1,242
611
1
7,502
$
Loans held for investment decreased by $8.6 billion to $245.9 billion as of December 31, 2018 from December 31, 2017 primarily
driven by the sale of our consumer home loan portfolio, partially offset by growth in our commercial, auto and domestic credit
card portfolios.
Funding Sources
Our primary source of funding comes from deposits, which provide a stable and relatively low cost of funds. In addition to deposits,
we also raise funding through the issuance of securitized debt obligations and other debt. Other debt primarily consists of senior
and subordinated notes, Federal Home Loan Banks (“FHLB”) advances secured by certain portions of our loan and securities
portfolios, and federal funds purchased and securities loaned or sold under agreements to repurchase.
Table 7 provides the composition of our primary sources of funding as of December 31, 2018 and 2017.
Table 7: Funding Sources Composition
(Dollars in millions)
Deposits:(1)
December 31, 2018
December 31, 2017
Amount
% of Total
Amount
% of Total
Consumer Banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securitized debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total funding sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 198,607
64% $ 185,842
61%
29,480
21,677
249,764
18,307
40,598
10
7
81
6
13
33,938
23,922
243,702
20,010
40,271
11
8
80
7
13
$ 308,669
100% $ 303,983
100%
__________
(1)
Includes brokered deposits of $21.2 billion and $25.1 billion as of December 31, 2018 and 2017, respectively.
Total deposits increased by $6.1 billion to $249.8 billion as of December 31, 2018 from December 31, 2017 primarily driven by
strong growth in our deposit products as a result of our national banking growth strategy in our Consumer Banking business,
partially offset by a decrease in deposits from Commercial Banking business due to deposit customers rotating out of deposit
products and into higher-yielding investments.
Securitized debt obligations decreased by $1.7 billion to $18.3 billion as of December 31, 2018 from December 31, 2017, as debt
maturities exceeded issuances during the year ended of 2018.
Other debt remained substantially flat at $40.6 billion as of December 31, 2018.
49
Capital One Financial Corporation (COF)
50
Capital One Financial Corporation (COF)
We provide additional information on our funding sources in “MD&A—Liquidity Risk Profile” and in “Note 9—Deposits and
Borrowings.”
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.
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities represent decreases or increases in taxes expected to be paid in the future because of future
reversals of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net
operating loss and tax credit carryforwards. Deferred tax assets are recognized subject to management’s judgment that these future
deductions are more likely than not to be realized. We evaluate the recoverability of these future tax deductions by assessing the
adequacy of expected taxable income from all sources, including taxable income in carryback years, reversal of taxable temporary
differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates.
We use our historical experience and our short and long-range business forecasts to provide insight.
Deferred tax assets, net of deferred tax liabilities and valuation allowances, were approximately $2.1 billion as of December 31,
2018, a decrease of $719 million from December 31, 2017. The decrease in our net deferred tax assets was primarily driven by a
tax benefit of $284 million as a result of an approval from the Internal Revenue Service (IRS) related to a tax methodology change
on rewards costs and the reversal of certain other items related to the sale of our consumer home loan portfolio.
We have recorded valuation allowances of $245 million and $226 million as of December 31, 2018 and 2017, respectively. We
expect to fully realize the 2018 net deferred tax asset amounts in future periods. If changes in circumstances lead us to change our
judgment about our ability to realize deferred tax assets in future years, we will adjust our valuation allowances in the period that
our change in judgment occurs and record a corresponding increase or charge to income.
We provide additional information on income taxes in “MD&A—Consolidated Results of Operations” and in “Note 16—Income
Taxes.”
OFF-BALANCE SHEET ARRANGEMENTS
In the ordinary course of business, we engage in certain activities that are not reflected on our consolidated balance sheets, generally
referred to as off-balance sheet arrangements. These activities typically involve transactions with unconsolidated variable interest
entities (“VIEs”) as well as other arrangements, such as letters of credit, loan commitments and guarantees, to meet the financing
needs of our customers and support their ongoing operations. We provide additional information regarding these types of activities
in “Note 6—Variable Interest Entities and Securitizations” and “Note 19—Commitments, Contingencies, Guarantees and Others.”
BUSINESS SEGMENT FINANCIAL PERFORMANCE
Our principal operations are organized for management reporting purposes into three major business segments, which are defined
primarily based on the products and services provided or the type of customer served: Credit Card, Consumer Banking and
Commercial Banking. The operations of acquired businesses have been integrated into our existing business segments. Certain
activities that are not part of a segment, such as management of our corporate investment portfolio, asset/liability management by
our centralized Corporate Treasury group and residual tax expense or benefit to arrive at the consolidated effective tax rate that is
not assessed to our primary business segments, are included in the Other category.
The results of our individual businesses, which we report on a continuing operations basis, reflect the manner in which management
evaluates performance and makes decisions about funding our operations and allocating resources. We may periodically change
our business segments or reclassify business segment results based on modifications to our management reporting methodologies
and changes in organizational alignment. Our business segment results are intended to reflect each segment as if it were a stand-
alone business. We use an internal management and reporting process to derive our business segment results. Our internal
management and reporting process employs various allocation methodologies, including funds transfer pricing, to assign certain
balance sheet assets, deposits and other liabilities and their related revenue and expenses directly or indirectly attributable to each
business segment. Total interest income and non-interest income are directly attributable to the segment in which they are reported.
The net interest income of each segment reflects the results of our funds transfer pricing process, which is primarily based on a
matched maturity method that takes into consideration market interest rates. Our funds transfer pricing process provides a funds
credit for sources of funds, such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a
charge for the use of funds by each segment. The allocation process is unique to each business segment and acquired businesses.
We refer to the business segment results derived from our internal management accounting and reporting process as our “managed”
presentation, which differs in some cases from our reported results prepared based on U.S. GAAP. There is no comprehensive
authoritative body of guidance for management accounting equivalent to U.S. GAAP; therefore, the managed presentation of our
business segment results may not be comparable to similar information provided by other financial services companies. In addition,
our individual business segment results should not be used as a substitute for comparable results determined in accordance with
U.S. GAAP.
We summarize our business segment results for the years ended December 31, 2018, 2017 and 2016 and provide a comparative
discussion of these results, as well as changes in our financial condition and credit performance metrics as of December 31, 2018
compared to December 31, 2017 and 2016. We provide a reconciliation of our total business segment results to our reported
consolidated results in “Note 18—Business Segments and Revenue from Contracts with Customers.”
Business Segment Financial Performance
Table 8 summarizes our business segment results, which we report based on revenue and income from continuing operations, for
the years ended December 31, 2018, 2017 and 2016. We provide information on the allocation methodologies used to derive our
business segment results in “Note 18—Business Segments and Revenue from Contracts with Customers.”
Table 8: Business Segment Results
2018
Year Ended December 31,
2017
2016
Total Net
Revenue(1)
Net Income(2)
Total Net
Revenue(1)
Net Income
(Loss)(2)
Total Net
Revenue(1)
Net Income(2)
(Dollars in millions)
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
Credit Card . . . . . . . . . . . . . . .
$ 17,687
63% $ 3,191
53% $ 16,973
62% $ 1,920
91% $ 16,015
62% $ 2,160
58%
Consumer Banking . . . . . . . . .
Commercial Banking(3)(4) . . . .
Other(3)(4). . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . .
7,212
2,896
281
26
10
1
1,800
889
145
30
15
2
7,129
2,969
166
26
11
1
1,090
676
51
32
(1,569)
(74)
6,562
2,794
130
26
11
1
870
575
165
23
15
4
$ 28,076
100% $ 6,025
100% $ 27,237
100% $ 2,117
100% $ 25,501
100% $ 3,770
100%
__________
(1)
Total net revenue consists of net interest income and non-interest income.
(2) Net income for our business segments and the Other category is based on income from continuing operations, net of tax.
(3)
(4)
Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue
and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate (21% for 2018 and 35% for 2017 and 2016) and state taxes where
applicable, with offsetting reductions to the Other category.
In the first quarter of 2018, we made a change in how revenue is measured in our Commercial Banking business to include the tax benefits of losses on
certain tax-advantaged investments. These tax benefits are included in revenue on a taxable-equivalent basis within our Commercial Banking business, with
an offsetting reduction to the Other category. In addition, all revenue presented on a taxable-equivalent basis in our Commercial Banking business was
impacted by the reduction of the federal tax rate set forth in the Tax Act. The net impact of the measurement change and the reduction of the federal tax rate
was a decrease of $126 million in revenue in our Commercial Banking business for the year ended December 31, 2018, with an offsetting impact to the Other
category.
Credit Card Business
The primary sources of revenue for our Credit Card business are interest income, net interchange income and fees collected from
customers. Expenses primarily consist of the provision for credit losses, operating costs and marketing expenses.
Our Credit Card business generated net income from continuing operations of $3.2 billion, $1.9 billion and $2.2 billion in 2018,
2017 and 2016, respectively.
51
Capital One Financial Corporation (COF)
52
Capital One Financial Corporation (COF)
Table 9 summarizes the financial results of our Credit Card business and displays selected key metrics for the periods indicated.
• Non-Interest Income: Non-interest income increased by $195 million to $3.5 billion in 2018 primarily driven by an increase
Table 9: Credit Card Business Results
(Dollars in millions, except as noted)
Selected income statement data:
Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations, net of tax . . . . . . . . . . . . . . .
Selected performance metrics:
Average loans held for investment(2) . . . . . . . . . . . . . . . . . . . . . . .
Average yield on loans held for investment(3) . . . . . . . . . . . . . . . .
Total net revenue margin(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-off rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase volume(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Dollars in millions, except as noted)
Selected period-end data:
Loans held for investment(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30+ day performing delinquency rate . . . . . . . . . . . . . . . . . . . . . .
30+ day delinquency rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming loan rate(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan and lease losses. . . . . . . . . . . . . . . . . . . . . . . .
Allowance coverage ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
Change
2018
2017
2016
2018 vs.
2017
2017 vs.
2016
4%
6
4
(18)
8
39
(9)
66
6
22bps
(29)
—
(26)bps
15%
8%
(2)
6
23
3
(12)
(13)
(11)
7
53bps
(19)
28%
79bps
10%
$
$
14,167
3,520
17,687
4,984
8,542
4,161
970
3,191
$ 109,820
15.43%
16.11
5,069
4.62%
$
$ 387,102
$
$
$
$
$
13,648
3,325
16,973
6,066
7,916
2,991
1,071
1,920
$ 12,635
3,380
16,015
4,926
7,703
3,386
1,226
2,160
$
103,468
$ 96,560
15.21%
16.40
5,054
4.88%
$
14.68%
16.59
3,953
4.09%
336,440
$ 307,138
December 31,
2018
December 31,
2017
Change
$ 116,361
$
114,762
4.00%
4.01
0.02
5,535
4.76%
$
3.98%
3.99
0.02
5,648
4.92%
$
1%
2bps
2
—
(2)%
(16)bps
__________
(1) We recognize billed finance charges and fee income on open-ended loans in accordance with the contractual provisions of the credit arrangements and
estimate the uncollectible amount on a quarterly basis. The estimated uncollectible amount of billed finance charges and fees is reflected as a reduction in
revenue and is not included in our net charge-offs. Total net revenue was reduced by $1.3 billion, $1.4 billion and $1.1 billion in 2018, 2017 and 2016,
respectively, for the estimated uncollectible amount of billed finance charges and fees and related losses. The finance charge and fee reserve totaled $468
million and $491 million as of December 31, 2018 and 2017, respectively.
(2)
Period-end loans held for investment and average loans held for investment include billed finance charges and fees, net of the estimated uncollectible amount.
(3) Average yield on loans held for investment is calculated by dividing interest income for the period by average loans held for investment during the period.
Interest income excludes various allocations including funds transfer pricing that assigns certain balance sheet assets, deposits and other liabilities and their
related revenue and expenses attributable to each business segment.
(4)
(5)
Total net revenue margin is calculated by dividing total net revenue for the period by average loans held for investment during the period. Interest income
also includes interest income on loans held for sale.
Purchase volume consists of purchase transactions, net of returns, for the period, and excludes cash advance and balance transfer transactions.
in net interchange fees largely due to higher purchase volume.
• Provision for Credit Losses: The provision for credit losses decreased by $1.1 billion to $5.0 billion in 2018 primarily driven
by allowance releases in our domestic credit card loan portfolio due to improvements in credit trends.
• Non-Interest Expense: Non-interest expense increased by $626 million to $8.5 billion in 2018, primarily driven by increased
marketing expense as well as higher operating expenses associated with continued investments in technology and
infrastructure.
•
Loans Held for Investment:
Period-end loans held for investment increased by $1.6 billion to $116.4 billion as of December 31, 2018 from
December 31, 2017 primarily driven by growth in our domestic credit card loan portfolio.
Average loans held for investment increased by $6.4 billion to $109.8 billion in 2018 compared to 2017 primarily
due to growth in our domestic credit card loan portfolio including loans obtained in the Cabela’s acquisition.
• Net Charge-Off and Delinquency Metrics: The net charge-off rate decreased by 26 basis points to 4.62% in 2018 compared
to 2017 primarily driven by favorability realized from portfolio seasoning.
The 30+ day delinquency rate remained substantially flat at 4.01% as of December 31, 2018.
Key factors affecting the results of our Credit Card business for 2017 compared to 2016, and changes in financial condition and
credit performance between December 31, 2017 and December 31, 2016 include the following:
• Net Interest Income: Net interest income increased by $1.0 billion to $13.6 billion in 2017 primarily driven by loan growth
in our Domestic Card business.
• Non-Interest Income: Non-interest income was substantially flat at $3.3 billion in 2017 primarily driven by:
lower service charges and other customer-related fees, including the impact of the exit of our legacy payment protection
products in our Domestic Card business during the first quarter of 2016; and
the absence of a gain recorded in the second quarter of 2016 related to the exchange of our ownership interest in Visa
Europe with Visa Inc. as a result of Visa Inc.’s acquisition of Visa Europe.
These drivers were largely offset by an increase in net interchange fees primarily due to higher purchase volume.
• Provision for Credit Losses: The provision for credit losses increased by $1.1 billion to $6.1 billion in 2017 primarily driven
by:
higher charge-offs in our domestic credit card loan portfolio due to growth and portfolio seasoning; and
a larger allowance build in our domestic credit card loan portfolio primarily due to increasing losses from recent
vintages and portfolio seasoning.
• Non-Interest Expense: Non-interest expense increased by $213 million to $7.9 billion in 2017, primarily driven by higher
operating expenses associated with loan growth and continued investments in technology and infrastructure.
(6) Within our credit card loan portfolio, only certain loans in our international card businesses are classified as nonperforming. See “MD&A—Nonperforming
This driver was partially offset by:
Loans and Other Nonperforming Assets” for additional information.
Key factors affecting the results of our Credit Card business for 2018 compared to 2017, and changes in financial condition and
credit performance between December 31, 2018 and December 31, 2017 include the following:
lower marketing expenses; and
lower amortization of intangibles.
• Net Interest Income: Net interest income increased by $519 million to $14.2 billion in 2018 primarily driven by loan growth
•
Loans Held for Investment:
in our Domestic Card business, including loans obtained in the Cabela’s acquisition.
Period-end loans held for investment increased by $9.2 billion to $114.8 billion as of December 31, 2017 from
December 31, 2016 primarily due to:
53
Capital One Financial Corporation (COF)
54
Capital One Financial Corporation (COF)
(3) Average yield on loans held for investment is calculated by dividing interest income for the period by average loans held for investment during the period.
Interest income excludes various allocations including funds transfer pricing that assigns certain balance sheet assets, deposits and other liabilities and their
related revenue and expenses attributable to each business segment.
(4)
(5)
Total net revenue margin is calculated by dividing total net revenue for the period by average loans held for investment during the period.
Purchase volume consists of purchase transactions, net of returns, for the period, and excludes cash advance and balance transfer transactions.
Because our Domestic Card business accounts for the substantial majority of our Credit Card business, the key factors driving the
results are similar to the key factors affecting our total Credit Card business. Net income for our Domestic Card business increased
in 2018 compared to 2017 primarily driven by:
•
•
•
lower provision for credit losses;
higher net interest income primarily driven by loan growth, including loans obtained in the Cabela’s acquisition; and
higher non-interest income driven by an increase in net interchange fees primarily due to higher purchase volume.
These drivers were partially offset by higher non-interest expense primarily driven by increased marketing expense as well as
higher operating expenses associated with continued investments in technology and infrastructure.
Net income for our Domestic Card business decreased in 2017 compared to 2016 primarily driven by:
•
•
higher provision for credit losses; and
higher operating expenses associated with loan growth and continued investments in technology and infrastructure.
These drivers were partially offset by:
•
•
higher net interest income primarily driven by loan growth; and
lower marketing expenses.
Consumer Banking Business
The primary sources of revenue for our Consumer Banking business are net interest income from loans and deposits and non-
interest income from service charges and customer-related fees. Expenses primarily consist of the provision for credit losses,
operating costs and marketing expenses.
Our Consumer Banking business generated net income from continuing operations of $1.8 billion, $1.1 billion and $870 million
in 2018, 2017 and 2016, respectively.
growth in our domestic credit card loan portfolio, largely driven by loans obtained in the Cabela’s acquisition;
and
the impact of foreign exchange rates in our international card businesses driven by the weakening of the
U.S. dollar in 2017.
Average loans held for investment increased by $6.9 billion to $103.5 billion in 2017 compared to 2016 primarily
due to growth in our Domestic Card business.
• Net Charge-Off and Delinquency Metrics: The net charge-off rate increased by 79 basis points to 4.88% in 2017 compared
to 2016 primarily driven by growth and seasoning of recent domestic credit card loan originations. The 30+ day delinquency
rate increased by 5 basis points to 3.99% as of December 31, 2017 from December 31, 2016 primarily due to growth and
seasoning of recent domestic credit card loan originations, partially offset by loans obtained in the Cabela’s acquisition.
Domestic Card Business
The Domestic Card business generated net income from continuing operations of $3.0 billion, $1.7 billion and $2.1 billion in 2018,
2017 and 2016, respectively. In 2018, 2017 and 2016, Domestic Card accounted for greater than 90% of total net revenue of our
Credit Card business.
Table 9.1 summarizes the financial results for Domestic Card and displays selected key metrics for the periods indicated.
Table 9.1: Domestic Card Business Results
(Dollars in millions, except as noted)
Selected income statement data:
Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations, net of tax . . . . . . . . . . . . . . .
Selected performance metrics:
Average loans held for investment(2) . . . . . . . . . . . . . . . . . . . . . . .
Average yield on loans held for investment(3) . . . . . . . . . . . . . . . .
Total net revenue margin(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-off rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase volume(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Dollars in millions, except as noted)
Selected period-end data:
Loans held for investment(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30+ day delinquency rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan and lease losses. . . . . . . . . . . . . . . . . . . . . . . .
Allowance coverage ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
Change
2018
2017
2016
2018 vs.
2017
2017 vs.
2016
3%
6
4
(20)
8
43
(8)
73
6
20bps
(38)
1%
(25)bps
15%
8%
(2)
6
27
3
(16)
(16)
(16)
7
54bps
(21)
29%
83bps
9%
$
$
12,926
3,239
16,165
4,653
7,621
3,891
907
2,984
$ 100,832
15.36%
16.03
4,782
4.74%
$
$ 354,158
$
$
$
$
$
12,504
3,069
15,573
5,783
7,078
2,712
990
1,722
$ 11,571
3,116
14,687
4,555
6,895
3,237
1,178
2,059
$
94,923
$ 88,394
15.16%
16.41
4,739
4.99%
$
14.62%
16.62
3,681
4.16%
306,824
$ 280,637
December 31,
2018
December 31,
2017
Change
$ 107,350
$
4.04%
5,144
4.79%
$
$
105,293
4.01%
5,273
5.01%
2%
3bps
(2)%
(22)bps
__________
(1) We recognize billed finance charges and fee income on open-ended loans in accordance with the contractual provisions of the credit arrangements and
estimate the uncollectible amount on a quarterly basis. The estimated uncollectible amount of billed finance charges and fees is reflected as a reduction in
revenue and is not included in our net charge-offs.
(2)
Period-end loans held for investment and average loans held for investment include billed finance charges and fees, net of the estimated uncollectible amount.
55
Capital One Financial Corporation (COF)
56
Capital One Financial Corporation (COF)
Table 10 summarizes the financial results of our Consumer Banking business and displays selected key metrics for the periods
indicated.
Key factors affecting the results of our Consumer Banking business for 2018 compared to 2017, and changes in financial condition
and credit performance between December 31, 2018 and December 31, 2017 include the following:
Table 10: Consumer Banking Business Results
(Dollars in millions, except as noted)
Selected income statement data:
Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations, net of tax . . . . . . . . . . . . . . .
Selected performance metrics:
Average loans held for investment:
Auto. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home loan(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average yield on loans held for investment(2) . . . . . . . . . . . . . . . .
Average deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average deposits interest rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-off rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auto loan originations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Dollars in millions, except as noted)
Selected period-end data:
Loans held for investment:
Year Ended December 31,
Change
2018
2017
2016
2018 vs.
2017
2017 vs.
2016
$
$
$
$
6,549
663
7,212
838
4,027
2,347
547
1,800
55,610
6,266
3,075
64,951
7.54%
$ 193,053
0.95%
981
1.51%
26,276
$
$
$
$
$
$
$
$
$
6,380
749
7,129
1,180
4,233
1,716
626
1,090
51,477
19,681
3,463
74,621
$
$
$
$
5,829
733
6,562
1,055
4,139
1,368
498
870
44,521
23,358
3,543
71,422
6.67%
6.34%
185,201
$ 177,129
0.62%
1,038
1.39%
27,737
$
$
0.56%
820
1.15%
25,719
December 31,
2018
December 31,
2017
Change
3%
(11)
1
(29)
(5)
37
(13)
65
8
(68)
(11)
(13)
87bps
4%
33bps
(5)%
12bps
(5)%
9%
2
9
12
2
25
26
25
16
(16)
(2)
4
33bps
5%
6bps
27%
24bps
8%
Auto. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home loan(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30+ day performing delinquency rate . . . . . . . . . . . . . . . . . . . . . .
30+ day delinquency rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming loan rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming asset rate(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan and lease losses. . . . . . . . . . . . . . . . . . . . . . . .
Allowance coverage ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
56,341
—
2,864
59,205
6.67%
7.36
0.81
0.90
1,048
1.77%
$ 198,607
$
$
$
$
53,991
17,633
3,454
75,078
4.76%
5.34
0.78
0.91
1,242
1.65%
185,842
4%
**
(17)
(21)
191bps
202
3
(1)
(16)%
12bps
7%
__________
(1)
In 2018, we sold all of our consumer home loan portfolio and the related servicing. The impact of this sale is reflected in the Other category for the year
ended 2018.
(2) Average yield on loans held for investment is calculated by dividing interest income for the period by average loans held for investment during the period.
Interest income excludes various allocations including funds transfer pricing that assigns certain balance sheet assets, deposits and other liabilities and their
related revenue and expenses attributable to each business segment.
(3) Nonperforming assets consist of nonperforming loans, real estate owned (“REO”) and other foreclosed assets. The total nonperforming asset rate is calculated
based on total nonperforming assets divided by the combined period-end total loans held for investment, REO and other foreclosed assets.
** Not meaningful.
• Net Interest Income: Net interest income increased by $169 million to $6.5 billion in 2018 primarily driven by growth in
our auto loan portfolio and higher deposit volumes and margins in our retail banking business, partially offset by the reduction
in net interest income from the sale of our consumer home loan portfolio.
Consumer Banking loan yield increased by 87 basis points to 7.54% in 2018 compared to 2017. The increase was primarily
driven by:
changes in product mix as a result of the sale of our consumer home loan portfolio; and
higher yields as a result of higher interest rates.
• Non-Interest Income: Non-interest income decreased by $86 million to $663 million in 2018 primarily driven by:
lower mortgage banking revenue as a result of our decision to cease new originations of home loan lending products
in the fourth quarter of 2017; and
a mortgage representation and warranty reserve release in the first quarter of 2017.
• Provision for Credit Losses: The provision for credit losses decreased by $342 million to $838 million in 2018 primarily
driven by allowance releases in our auto loan portfolio largely due to improvements in credit trends.
• Non-Interest Expense: Non-interest expense decreased by $206 million to $4.0 billion in 2018 primarily driven by:
lower operating expenses due to our decision to cease new originations of home loan lending products in the fourth
quarter of 2017 and the sale of our consumer home loan portfolio in 2018; and
operating efficiencies in our retail banking business.
These drivers were largely offset by higher operating expenses driven by growth in our auto loan portfolio.
•
Loans Held for Investment: Period-end loans held for investment decreased by $15.9 billion to $59.2 billion as of
December 31, 2018 from December 31, 2017, and average loans held for investment decreased by $9.7 billion to $65.0
billion in 2018 compared to 2017. These decreases were primarily driven by the sale of our consumer home loan portfolio,
partially offset by growth in our auto loan portfolio.
• Deposits: Period-end deposits increased by $12.8 billion to $198.6 billion as of December 31, 2018 from December 31,
2017 driven by strong growth in our deposit products as a result of our national banking growth strategy.
• Net Charge-Off and Delinquency Metrics: The net charge-off rate increased by 12 basis points to 1.51% in 2018 compared
to 2017. This increase was primarily driven by lower loan balances due to the sale of our consumer home loan portfolio,
partially offset by improvements in credit trends in our auto loan portfolio.
The 30+ day delinquency rate increased by 202 basis points to 7.36% as of December 31, 2018 from December 31, 2017
primarily driven by lower loan balances due to the sale of our consumer home loan portfolio and higher auto delinquency
inventories, partially offset by growth in our auto loan portfolio.
Key factors affecting the results of our Consumer Banking business for 2017 compared to 2016, and changes in financial condition
and credit performance between December 31, 2017 and December 31, 2016 include the following:
• Net Interest Income: Net interest income increased by $551 million to $6.4 billion in 2017 primarily driven by growth in
our auto loan portfolio and higher deposit volumes and margins in our retail banking business.
Consumer Banking loan yield increased by 33 basis points to 6.7% in 2017 compared to 2016. The increase was primarily
driven by changes in the product mix in Consumer Banking as a result of growth in our auto loan portfolio and run-off of
our acquired home loan portfolio.
57
Capital One Financial Corporation (COF)
58
Capital One Financial Corporation (COF)
• Non-Interest Income: Non-interest income was substantially flat at $749 million in 2017 as a mortgage representation and
warranty reserve release in the first quarter of 2017 had a similar impact as the customer rewards reserve release within our
retail banking business in the first quarter of 2016 related to the discontinuation of certain debit card and deposit products.
• Provision for Credit Losses: The provision for credit losses increased by $125 million to $1.2 billion in 2017 primarily
driven by higher losses in our auto loan portfolio due to growth.
• Non-Interest Expense: Non-interest expense increased by $94 million to $4.2 billion in 2017 primarily due to higher operating
expenses driven by growth in our auto loan portfolio and continued investment in technology and infrastructure, partially
offset by operating efficiencies.
•
Loans Held for Investment: Period-end loans held for investment increased by $2.0 billion to $75.1 billion as of December 31,
2017 from December 31, 2016, and average loans held for investment increased by $3.2 billion to $74.6 billion in 2017
compared to 2016. These increases were due to growth in our auto loan portfolio, partially offset by run-off of our acquired
home loan portfolio.
• Deposits: Period-end deposits increased by $3.9 billion to $185.8 billion as of December 31, 2017 from December 31, 2016.
• Net Charge-Off and Delinquency Metrics: The net charge-off rate increased by 24 basis points to 1.39% in 2017 compared
to 2016. This increase was primarily driven by:
higher losses in our auto loan portfolio due to changes in our charge-off practices for certain bankrupt accounts and
growth; and
a greater portion of auto loans in our total consumer banking loan portfolio, which generally have higher charge-off
rates than other products within this portfolio.
The 30+ day delinquency rate increased by 67 basis points to 5.34% as of December 31, 2017 from December 31, 2016
primarily attributable to higher auto delinquency inventories.
Commercial Banking Business
The primary sources of revenue for our Commercial Banking business are net interest income from loans and deposits and non-
interest income from customer fees and other products and services. Because our Commercial Banking business has loans and
investments that generate tax-exempt income, tax credits or other tax benefits, we present the revenues on a taxable-equivalent
basis. Expenses primarily consist of the provision for credit losses, operating costs and marketing expenses.
Our Commercial Banking business generated net income from continuing operations of $889 million, $676 million and $575
million in 2018, 2017 and 2016, respectively.
Table 11 summarizes the financial results of our Commercial Banking business and displays selected key metrics for the periods
indicated.
Table 11: Commercial Banking Business Results
(Dollars in millions, except as noted)
Selected income statement data:
Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue(1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations, net of tax . . . . . . . . . . . . . . .
Selected performance metrics:
Average loans held for investment:
Commercial and multifamily real estate . . . . . . . . . . . . . . . . . .
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial lending. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Small-ticket commercial real estate . . . . . . . . . . . . . . . . . . . . .
Total commercial banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average yield on loans held for investment(1)(4) . . . . . . . . . . . . . . .
Average deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average deposits interest rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-off rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
Year Ended December 31,
Change
2018
2017
2016
2018 vs.
2017
2017 vs.
2016
2,152
744
2,896
83
1,654
1,159
270
889
27,771
39,188
66,959
371
67,330
4.46%
32,175
0.72%
56
0.08%
$
$
$
$
$
$
2,261
708
2,969
301
1,603
1,065
389
676
$
$
2,216
578
2,794
483
1,407
904
329
575
27,370
39,606
66,976
442
67,418
$ 25,821
38,852
64,673
548
$ 65,221
3.87%
3.47%
33,947
$ 33,841
0.39%
465
0.69%
$
0.28%
292
0.45%
(5)%
5
(2)
(72)
3
9
(31)
32
1
(1)
—
(16)
—
59bps
(5)%
33bps
(88)%
(61)bps
2%
22
6
(38)
14
18
18
18
6
2
4
(19)
3
40bps
—
11bps
59%
24bps
(Dollars in millions, except as noted)
Selected period-end data:
Loans held for investment:
December 31,
2018
December 31,
2017
Change
Commercial and multifamily real estate . . . . . . . . . . . . . . . . . .
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial lending. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Small-ticket commercial real estate . . . . . . . . . . . . . . . . . . . . .
Total commercial banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming loan rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming asset rate(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan and lease losses(3) . . . . . . . . . . . . . . . . . . . . . .
Allowance coverage ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans serviced for others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
28,899
41,091
69,990
343
70,333
0.44%
0.45
637
0.91%
29,480
32,588
$
$
$
$
26,150
38,025
64,175
400
64,575
0.44%
0.52
611
0.95%
33,938
27,764
11%
8
9
(14)
9
—
(7)bps
4%
(4)bps
(13)%
17
__________
(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 (21% for 2018 and 35% for 2017 and 2016) and state taxes where
applicable, with offsetting reductions to the Other category.
(2)
In the first quarter of 2018, we made a change in how revenue is measured in our Commercial Banking business to include the tax benefits of losses on
certain tax-advantaged investments. These tax benefits are included in revenue on a taxable-equivalent basis within our Commercial Banking business, with
an offsetting reduction to the Other category. In addition, all revenue presented on a taxable-equivalent basis in our Commercial Banking business was
impacted by the reduction of the federal tax rate set forth in the Tax Act. The net impact of the measurement change and the reduction of the federal tax rate
59
Capital One Financial Corporation (COF)
60
Capital One Financial Corporation (COF)
(3)
was a decrease of $126 million in revenue in our Commercial Banking business for the year ended December 31, 2018, with an offsetting impact to the Other
category.
The provision for losses on unfunded lending commitments is included in the provision for credit losses in our consolidated statements of income and the
related reserve for unfunded lending commitments is included in other liabilities on our consolidated balance sheets. Our reserve for unfunded lending
commitments totaled $118 million, $117 million and $129 million as of December 31, 2018, 2017 and 2016, respectively.
(4) Average yield on loans held for investment is calculated by dividing interest income for the period by average loans held for investment during the period.
Interest income excludes various allocations including funds transfer pricing that assigns certain balance sheet assets, deposits and other liabilities and their
related revenue and expenses attributable to each business segment.
(5) Nonperforming assets consist of nonperforming loans, REO and other foreclosed assets. The total nonperforming asset rate is calculated based on total
nonperforming assets divided by the combined period-end total loans held for investment, REO and other foreclosed assets.
Key factors affecting the results of our Commercial Banking business for 2018 compared to 2017, and changes in financial condition
and credit performance between December 31, 2018 and December 31, 2017 include the following:
• Net Interest Income: Net interest income decreased by $109 million to $2.2 billion in 2018 primarily driven by the impact
of the reduction of the federal tax rate set forth in the Tax Act on revenue presented on a taxable-equivalent basis, partially
offset by the change to include the tax benefit of losses on certain tax-advantaged investments.
• Non-Interest Income: Non-interest income increased by $36 million to $744 million in 2018 primarily driven by higher
revenue in our capital markets and agency businesses.
• Provision for Credit Losses: The provision for credit losses decreased by $218 million to $83 million in 2018 primarily
driven by elevated charge-offs in 2017 in our taxi medallion portfolio.
• Non-Interest Expense: Non-interest expense increased by $51 million to $1.7 billion in 2018 primarily driven by higher
operating expenses associated with growth and continued investments in technology and other business initiatives.
•
Loans Held for Investment:
Period-end loans held for investment increased by $5.8 billion to $70.3 billion as of December 31, 2018 from
December 31, 2017 primarily driven by growth across our commercial loan portfolios.
Average loans held for investment remained flat at $67.3 billion in 2018 compared to 2017.
• Deposits: Period-end deposits decreased by $4.5 billion to $29.5 billion as of December 31, 2018 primarily due to deposit
customers rotating out of deposit products and into higher-yielding investments.
• Net Charge-Off and Nonperforming Metrics: The net charge-off rate decreased by 61 basis points to 0.08% in 2018 compared
to 2017 primarily driven by elevated charge-offs in 2017 in our taxi medallion portfolio.
The nonperforming loan rate remained flat at 0.44% as of December 31, 2018 and December 31, 2017.
Key factors affecting the results of our Commercial Banking business for 2017 compared to 2016, and changes in financial condition
and credit performance between December 31, 2017 and December 31, 2016 include the following:
• Net Interest Income: Net interest income was substantially flat at $2.3 billion in 2017.
• Non-Interest Income: Non-interest income increased by $130 million to $708 million in 2017 primarily driven by:
higher revenue from our commercial investments that generate tax credits; and
higher service charges and other customer-related fees as a result of increased activity across a broad range of products
and services provided to our commercial customers.
• Provision for Credit Losses: The provision for credit losses decreased by $182 million to $301 million in 2017 primarily
driven by stabilizing industry conditions impacting our oil and gas lending portfolio compared to adverse industry conditions
in the prior year.
• Non-Interest Expense: Non-interest expense increased by $196 million to $1.6 billion in 2017 primarily driven by higher
operating expenses associated with growth and continued investments in technology and other business initiatives.
•
Loans Held for Investment: Period-end loans held for investment decreased by $2.3 billion to $64.6 billion as of December 31,
2017 from December 31, 2016 primarily due to:
paydowns in our commercial and industrial loan portfolios;
charge-offs in our taxi medallion lending portfolio; and
the transfer of the substantial majority of our remaining taxi medallion lending portfolio from loans held for investment
to loans held for sale.
Average loans held for investment increased by $2.2 billion to $67.4 billion in 2017 compared to 2016 primarily driven by
growth across our commercial loan portfolios.
• Deposits: Period-end deposits were substantially flat at $33.9 billion as of December 31, 2017.
• Net Charge-Off and Nonperforming Metrics: The net charge-off rate increased by 24 basis points to 0.69% in 2017 compared
to 2016 primarily driven by higher charge-offs in our taxi medallion lending portfolio resulting from declines in taxi medallion
values.
The nonperforming loan rate decreased by 109 basis points to 0.44% as of December 31, 2017 from December 31, 2016
primarily due to:
a combination of improved credit risk ratings, charge-offs and paydowns in our oil and gas portfolio; and
charge-offs in our taxi medallion lending portfolio resulting from declines in taxi medallion values and the impact
of transferring the substantial majority of our remaining taxi medallion lending portfolio, which was downgraded to
nonperforming classification in the third quarter of 2017, from loans held for investment to loans held for sale.
Other Category
Other includes unallocated amounts related to our centralized Corporate Treasury group activities, such as management of our
corporate investment portfolio, asset/liability management and certain capital management activities. Other also includes:
•
•
•
•
foreign exchange-rate fluctuations on foreign currency-denominated balances;
unallocated corporate revenue and expenses that do not directly support the operations of the business segments or for which
the business segments are not considered financially accountable in evaluating their performance, such as certain
restructuring charges;
offsets related to certain line-item reclassifications; and
residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business
segments.
61
Capital One Financial Corporation (COF)
62
Capital One Financial Corporation (COF)
Table 12 summarizes the financial results of our Other category for the periods indicated.
Table 12: Other Category Results
(Dollars in millions)
Selected income statement data:
Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue(1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for credit losses . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations before income taxes. . . . . . . . . .
Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations, net of tax . . . . . . . . . .
$
$
Year Ended December 31,
Change
2018
2017
2016
2018 vs.
2017
2017 vs.
2016
7
274
281
(49)
679
(349)
(494)
145
$
$
$
171
(5)
166
4
442
(280)
1,289
(1,569) $
193
(63)
130
(5)
309
(174)
(339)
165
(96)%
**
69
**
54
25
**
**
(11)%
(92)
28
**
43
61
**
**
__________
(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 (21% for 2018 and 35% for 2017 and 2016) and state taxes where
applicable, with offsetting reductions to the Other category.
(2)
In the first quarter of 2018, we made a change in how revenue is measured in our Commercial Banking business to include the tax benefits of losses on
certain tax-advantaged investments. These tax benefits are included in revenue on a taxable-equivalent basis within our Commercial Banking business, with
an offsetting reduction to the Other category. In addition, all revenue presented on a taxable-equivalent basis in our Commercial Banking business was
impacted by the reduction of the federal tax rate set forth in the Tax Act. The net impact of the measurement change and the reduction of the federal tax rate
was a decrease of $126 million in revenue in our Commercial Banking business for the year ended December 31, 2018, with an offsetting impact to the Other
category.
** Not meaningful.
Net income from continuing operations recorded in the Other category was $145 million in 2018 compared to net loss of $1.6
billion in 2017. The income in 2018 was primarily driven by net gains from the sales of exited businesses, including gains of $499
million on the sale of our consumer home loan portfolio and a tax benefit of $284 million related to a tax methodology change on
rewards costs.
The net gains were partially offset by:
•
•
an impairment charge as a result of repositioning our investment securities portfolio; and
a legal reserve build.
Net loss from continuing operations recorded in the Other category was $1.6 billion in 2017 compared to net income of $165
million in 2016. The loss in 2017 was primarily driven by:
•
•
charges associated with the estimated impacts of the Tax Act; and
higher operating expenses associated with restructuring activities, which primarily consisted of severance and related benefits
pursuant to our ongoing benefit programs, that are the result of exiting certain business activities and locations, as well as
the realignment of resources supporting our businesses.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with U.S. GAAP requires management to make a number of judgments,
estimates and assumptions that affect the amount of assets, liabilities, income and expenses on the consolidated financial statements.
Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these
policies is integral to understanding our financial statements. We provide a summary of our significant accounting policies under
“Note 1—Summary of Significant Accounting Policies.”
We have identified the following accounting policies as critical because they require significant judgments and assumptions about
highly complex and inherently uncertain matters and the use of reasonably different estimates and assumptions could have a
material impact on our results of operations or financial condition. These critical accounting policies govern:
• Loan loss reserves
• Asset impairment
•
Fair value of financial instruments
• Customer rewards reserve
We evaluate our critical accounting estimates and judgments on an ongoing basis and update them as necessary based on changing
conditions. Management has discussed our critical accounting policies and estimates with the Audit Committee of the Board of
Directors.
Loan Loss Reserves
We maintain an allowance for loan and lease losses that represents management’s estimate of incurred loan and lease losses inherent
in our credit card, consumer banking and commercial banking loans held for investment as of each balance sheet date. We also
separately reserve for binding unfunded lending commitments, letters of credit and financial guarantees. We build our allowance
for loan and lease losses and reserve for unfunded lending commitments through the provision for credit losses, which is driven
by charge-offs, changes in the allowance for loan and lease losses and changes in the reserve for unfunded lending commitments.
The allowance totaled $7.2 billion as of December 31, 2018, compared to $7.5 billion as of December 31, 2017.
We have an established process, using analytical tools and management judgment, to determine our allowance for loan and lease
losses. At least quarterly, the Chief Risk Officer, Chief Financial Officer, Controller and representatives from Finance and Risk
Management review and assess our allowance methodologies and the adequacy of the allowance for loan and lease losses. This
assessment involves evaluating many factors including, but not limited to, historical loss and recovery experience, recent trends
in delinquencies and charge-offs, risk ratings, the impact of bankruptcy filings, the value of collateral underlying secured loans,
account seasoning, changes in our credit evaluation, underwriting and collection management policies, seasonality, general
economic conditions, changes in the legal and regulatory environment and uncertainties in forecasting and modeling techniques
used in estimating our allowance for loan and lease losses. Key factors that have a significant impact on our allowance for loan
and lease losses include assumptions about unemployment rates, home prices and the valuation of commercial properties, consumer
real estate, automobiles and other collateral.
In addition to the allowance for loan and lease losses, we review and assess our estimate of probable losses related to binding
unfunded lending commitments, such as letters of credit and financial guarantees, and unfunded loan commitments on a quarterly
basis. The factors impacting our assessment generally align with those considered in our evaluation of the allowance for loan and
lease losses for the Commercial Banking business. Changes to the reserve for losses on unfunded lending commitments are recorded
through the provision for credit losses in the consolidated statements of income and to other liabilities on the consolidated balance
sheets.
Although we examine a variety of externally available data, as well as our internal loan performance data, to determine our
allowance for loan and lease losses and reserve for unfunded lending commitments, our estimation process is subject to risks and
uncertainties, including a reliance on historical loss and trend information that may not be representative of current conditions and
indicative of future performance. Accordingly, our actual credit loss experience may not be in line with our expectations. We
provide additional information on the methodologies and key assumptions used in determining our allowance for loan and lease
losses for each of our loan portfolio segments in “Note 1—Summary of Significant Accounting Policies.” We provide information
on the components of our allowance, disaggregated by impairment methodology, and changes in our allowance in “Note 5—
Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments.”
Finance Charge and Fee Reserves
Finance charges and fees on credit card loans are recorded in revenue when earned. Billed finance charges and fees on credit card
loans are included in loan receivables net of amounts that we consider uncollectible. Unbilled finance charges and fees on credit
card loans are included in interest receivable. We continue to accrue finance charges and fees on credit card loans until the account
is charged-off. However, when we do not expect full payment of billed finance charges and fees, we reduce the balance of our
63
Capital One Financial Corporation (COF)
64
Capital One Financial Corporation (COF)
credit card loan receivables and revenue by the amount of finance charges and fees billed but not expected to be collected. Total
net revenue was reduced by $1.3 billion, $1.4 billion and $1.1 billion in 2018, 2017 and 2016, respectively, for the estimated
uncollectible amount of billed finance charges and fees. The finance charge and fee reserve totaled $468 million and $491 million
as of December 31, 2018 and December 31, 2017, respectively.
We review and assess the adequacy of the uncollectible finance charge and fee reserve on a quarterly basis. Our methodology for
estimating the uncollectible portion of billed finance charges and fees is consistent with the methodology we use to estimate the
allowance for incurred losses on the principal portion of our credit card loan receivables.
Asset Impairment
In addition to our loan portfolio, we review other assets for impairment on a regular basis in accordance with applicable accounting
guidance. This process requires significant management judgment and involves various estimates and assumptions. Below we
describe our process for assessing impairment of goodwill and intangible assets and the key estimates and assumptions involved
in this process.
Assumptions used in estimating the fair value of a reporting unit are judgmental and inherently uncertain. A significant change in
the economic conditions of a reporting unit, such as declines in business performance, increases in credit losses, increases in capital
requirements, deterioration of market conditions, adverse impacts of regulatory or legislative changes or increases in the estimated
cost of capital, could cause the estimated fair values of our reporting units to decline in the future, and increase the risk of a
goodwill impairment in a future period.
Intangible Assets
Intangible assets with definitive useful lives are amortized over their estimated lives and evaluated for potential impairment
whenever events or changes in circumstances suggest that an asset’s or asset group’s carrying amount may not be fully recoverable.
An impairment loss is recognized if the sum of the estimated undiscounted cash flows relating to the asset or asset group is less
than the corresponding carrying amount. There were no meaningful impairments of intangible assets in 2018 and 2017. We recorded
an impairment charge of $17 million in 2016 related primarily to our brokerage relationship intangibles.
See “Note 7—Goodwill and Intangible Assets” for additional information.
Goodwill and Intangible Assets
Fair Value
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. Intangible assets,
which we report on our consolidated balance sheets as a component of other assets, consist primarily of purchased credit card
relationships (“PCCR”) and other intangibles.
Goodwill totaled $14.5 billion as of both December 31, 2018 and 2017. The net carrying amount of intangible assets decreased
to $254 million as of December 31, 2018, from $421 million as of December 31, 2017 primarily due to amortization. We did not
recognize any goodwill impairment in 2018, 2017 or 2016. See “Note 7—Goodwill and Intangible Assets” for additional
information.
Goodwill
We perform our goodwill impairment test annually on October 1 at a reporting unit level. We are also required to test goodwill for
impairment whenever events or circumstances make it more-likely-than-not that impairment may have occurred. We have four
reporting units: Credit Card, Auto, Other Consumer Banking and Commercial Banking.
Fair value, also referred to as an exit price, is defined as the price that would be received for an asset or paid to transfer a liability
in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a
three-level fair value hierarchy for classifying financial instruments. This hierarchy is based on the markets in which the assets or
liabilities trade and whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. The
fair value measurement of a financial asset or liability is assigned a level based on the lowest level of any input that is significant
to the fair value measurement in its entirety. The three levels of the fair value hierarchy are described below:
Level 1: Valuation is based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Valuation is based on observable market-based inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
Level 3: Valuation is generated from techniques that use significant assumptions not observable in the market. Valuation
techniques include pricing models, discounted cash flow methodologies or similar techniques.
The goodwill impairment test is a two-step process. The first step involves a comparison of the estimated fair value of a reporting
unit to its carrying amount, including goodwill. If the estimated fair value exceeds its carrying amount, goodwill of the reporting
unit is not impaired. If the estimated fair value of a reporting unit is below its carrying amount, management must estimate the
fair value of the assets and liabilities of that reporting unit’s balance sheet based on applicable accounting guidance in order to
measure the impairment.
The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the
availability of quoted prices in active markets or observable market parameters. When quoted prices and observable data in active
markets are not fully available, management judgment is necessary to estimate fair value. Changes in market conditions, such as
reduced liquidity in the capital markets or changes in secondary market activities, may reduce the availability and reliability of
quoted prices or observable data used to determine fair value.
For the purpose of our goodwill impairment testing, we calculate the carrying amount of a reporting unit using an allocated capital
approach based on each reporting unit’s specific regulatory capital requirements, economic capital requirements, and underlying
risks. The carrying amount for a reporting unit is the sum of its respective capital requirements, goodwill and intangibles balances.
We then compare the carrying amount to our total consolidated stockholders’ equity to assess the reasonableness of our methodology.
The total carrying amount of our four reporting units was $43.3 billion, as compared to consolidated stockholder’s equity of $50.6
billion as of October 1, 2018. The $7.3 billion excess in consolidated stockholder’s equity was primarily attributable to capital
allocated to our Other category and other future capital needs such as dividends or other strategic initiatives.
Determining the fair value of a reporting unit and the associated assets, liabilities and intangible assets, is a subjective process that
requires the use of estimates and the exercise of significant judgment. We calculated the fair value of our reporting units using a
discounted cash flow (“DCF”) calculation, a form of the income approach. This income approach calculation used projected cash
flows based on each reporting unit’s internal forecast and the perpetuity growth method to calculate terminal values. Our DCF
analysis required management to make estimates about future loan, deposit and revenue growth, as well as credit losses and capital
rates. These cash flows and terminal values were then discounted using discount rates based on our external cost of capital with
adjustments for the risk inherent in each reporting unit. The reasonableness of the DCF approach was assessed by reference to a
market-based approach using comparable market multiples and recent market transactions where available. The results of the 2018
annual impairment test for the Credit Card, Auto, Other Consumer Banking and Commercial Banking reporting units indicated
that the estimated fair values of these four reporting units substantially exceeded their carrying amounts.
We have developed policies and procedures to determine when markets for our financial assets and liabilities are inactive if the
level and volume of activity has declined significantly relative to normal conditions. If markets are determined to be inactive, it
may be appropriate to adjust price quotes received. When significant adjustments are required to price quotes or inputs, it may be
appropriate to utilize an estimate based primarily on unobservable inputs.
Significant judgment may be required to determine whether certain financial instruments measured at fair value are classified as
Level 2 or Level 3. In making this determination, we consider all available information that market participants use to measure
the fair value of the financial instrument, including observable market data, indications of market liquidity and orderliness, and
our understanding of the valuation techniques and significant inputs used. Based upon the specific facts and circumstances of each
instrument or instrument category, judgments are made regarding the significance of the Level 3 inputs to the instruments’ fair
value measurement in its entirety. If Level 3 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. We discuss changes in the valuation inputs and assumptions used in determining the fair value of our
financial instruments, including the extent to which we have relied on significant unobservable inputs to estimate fair value and
our process for corroborating these inputs, in “Note 17—Fair Value Measurement.”
We have a governance framework and a number of key controls that are intended to ensure that our fair value measurements are
appropriate and reliable. Our governance framework provides for independent oversight and segregation of duties. Our control
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Capital One Financial Corporation (COF)
processes include review and approval of new transaction types, price verification, and review of valuation judgments, methods,
models, process controls and results.
Groups independent of our trading and investing functions participate in the review and validation process. Tasks performed by
these groups include periodic verification of fair value measurements to determine if assigned fair values are reasonable, including
comparing prices from vendor pricing services to other available market information.
Our Fair Value Committee (“FVC”), which includes representation from business areas, Risk Management and Finance, provides
guidance and oversight to ensure an appropriate valuation control environment. The FVC regularly reviews and approves our fair
valuations to ensure that our valuation practices are consistent with industry standards and adhere to regulatory and accounting
guidance.
We have a model policy, established by an independent Model Risk Office, which governs the validation of models and related
supporting documentation to ensure the appropriate use of models for pricing and fair value measurements. The Model Risk Office
validates all models and provides ongoing monitoring of their performance.
The fair value governance process is set up in a manner that allows the Chairperson of the FVC to escalate valuation disputes that
cannot be resolved by the FVC to a more senior committee called the Valuations Advisory Committee (“VAC”) for resolution.
The VAC is chaired by the Chief Financial Officer and includes other members of senior management. The VAC convenes to
review escalated valuation disputes.
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 rewards that a customer earns varies based on the terms and conditions of the rewards program and product. The majority
of our rewards do not expire and there is no limit on the amount of rewards an eligible card member can earn. Customer rewards
costs, which we generally record as an offset to interchange income, are driven by various factors such as card member purchase
volume, the terms and conditions of the rewards program and rewards redemption cost. We establish a customer rewards reserve
that reflects management’s judgment regarding rewards earned that are expected to be redeemed and the estimated redemption
cost.
We use financial models to estimate ultimate redemption rates of rewards earned to date by current card members based on historical
redemption trends, current enrollee redemption behavior, card product type, year of program enrollment, enrollment tenure and
card spend levels. Our current assumption is that the vast majority of all rewards earned will eventually be redeemed. We use a
weighted-average redemption cost during the previous twelve months, adjusted as appropriate for recent changes in redemption
costs, including the mix of rewards redeemed, to estimate future redemption costs. We continually evaluate our reserve and
assumptions based on developments in redemption patterns, changes to the terms and conditions of the rewards program and other
factors. We recognized customer rewards expense of $4.4 billion, $3.7 billion and $3.2 billion in 2018, 2017 and 2016, respectively.
Our customer rewards reserve, which is included in other liabilities on our consolidated balance sheets, totaled $4.3 billion and
$3.9 billion as of December 31, 2018 and 2017, respectively.
ACCOUNTING CHANGES AND DEVELOPMENTS
See “Note 1—Summary of Significant Accounting Policies” for information on the accounting standards we adopted in 2018 and
the expected impacts of accounting standards issued but not adopted as of December 31, 2018.
CAPITAL MANAGEMENT
The level and composition of our capital are determined by multiple factors, including our consolidated regulatory capital
requirements and internal risk-based capital assessments such as internal stress testing and economic capital. The level and
composition of our capital may also be influenced by rating agency guidelines, subsidiary capital requirements, business
environment, conditions in the financial markets and assessments of potential future losses due to adverse changes in our business
and market environments.
Capital Standards and Prompt Corrective Action
We are subject to capital adequacy standards adopted by the Federal Banking Agencies, including the Basel III Capital Rule.
Moreover, the Banks, as insured depository institutions, are subject to PCA capital regulations.
We entered parallel run under Basel III Advanced Approaches on January 1, 2015, during which we are required to calculate capital
ratios under both the Basel III Standardized Approach and the Basel III Advanced Approaches, though we continue to use the
Standardized Approach for purposes of meeting regulatory capital requirements. Under the Basel III Capital Rule, when we
complete our parallel run for the Advanced Approaches, our minimum risk-based capital requirement will be determined by the
greater of our risk-weighted assets under the Basel III Standardized Approach and the Basel III Advanced Approaches. Once we
exit parallel run, based on clarification of the Basel III Capital Rule from our regulators, any amount by which our expected credit
losses exceed eligible credit reserves, as each term is defined under the Basel III Capital Rule, will be deducted from our Basel
III Standardized Approach numerator, subject to transition provisions. Inclusive of this impact, based on current capital rules and
our business mix, we estimate that our Basel III Advanced Approaches ratios will be lower than our Basel III Standardized Approach
ratios. However, there is uncertainty whether this will remain the case in light of potential changes to the United States capital
rules.
The Basel III Capital Rule also introduced the supplementary leverage ratio for all Advanced Approaches banking organizations
with a minimum requirement of 3.0%. The supplementary leverage ratio compares Tier 1 capital to total leverage exposure, which
includes all on-balance sheet assets and certain off-balance sheet exposures, including derivatives and unused commitments. Given
that we are in our Basel III Advanced Approaches parallel run, we calculate the ratio based on Tier 1 capital under the Standardized
Approach. The minimum requirement for the supplementary leverage ratio became effective as of January 1, 2018.
The Market Risk Rule supplements both the Basel III Standardized Approach and the Basel III Advanced Approaches by requiring
institutions subject to the Market Risk Rule to adjust their risk-based capital ratios to reflect the market risk in their trading portfolios.
As of December 31, 2018, the Company and CONA are subject to the Market Risk Rule. See “MD&A—Market Risk Profile”
below for additional information.
In October 2018, the Federal Banking Agencies proposed to provide tailored requirements for certain of the capital rules for
different categories of banking institutions. As proposed, these categories would be determined by an institution’s asset size, with
adjustments to a more stringent category possible if the institution meets certain other thresholds. As a BHC with total consolidated
assets of at least $250 billion, we would be a Category III institution under the Tailoring Proposed Rule. As such, we would no
longer be subject to the Basel III Advanced Approaches and certain associated capital requirements, although we would remain
subject to the countercyclical capital buffer and supplementary leverage ratio, which are currently required only for Basel III
Advanced Approaches institutions. The financial and operational impact on us of the Tailoring Proposed Rule remains uncertain
until a final rule is published.
In December 2018, the Federal Banking Agencies issued a final rule to address regulatory capital treatment under the CECL model.
The CECL model will be applicable to Capital One as of January 1, 2020. The CECL Capital Rule revises the Federal Banking
Agencies’ regulatory capital rules to identify which credit loss allowances under the CECL model are eligible for inclusion in
regulatory capital and to provide banking organizations the option to phase in over three years the day-one adverse effects on
regulatory capital that may result from the adoption of the CECL model. The effects of the CECL Capital Rule on our capital
requirements are currently uncertain.
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Capital One Financial Corporation (COF)
Table 13 provides a comparison of our regulatory capital ratios under the Basel III Standardized Approach subject to the applicable
transition provisions, the regulatory minimum capital adequacy ratios and the PCA well-capitalized level for each ratio, where
applicable, as of December 31, 2018 and 2017.
Table 13: Capital Ratios under Basel III(1)
Capital One Financial Corp:
Common equity Tier 1 capital(2) . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total capital(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 leverage(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplementary leverage(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COBNA:
Common equity Tier 1 capital(2) . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total capital(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 leverage(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplementary leverage(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CONA:
Common equity Tier 1 capital(2) . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total capital(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 leverage(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplementary leverage(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018
December 31, 2017
Capital
Ratio
Minimum
Capital
Adequacy
Well-
Capitalized
Capital
Ratio
Minimum
Capital
Adequacy
Well-
Capitalized
11.2%
4.5%
12.7
15.1
10.7
9.0
15.3
15.3
17.6
14.0
11.5
13.0
13.0
14.2
9.1
8.0
6.0
8.0
4.0
3.0
4.5
6.0
8.0
4.0
3.0
4.5
6.0
8.0
4.0
3.0
N/A
6.0%
10.0
N/A
N/A
6.5
8.0
10.0
5.0
N/A
6.5
8.0
10.0
5.0
N/A
10.3%
4.5%
11.8
14.4
9.9
8.4
14.3
14.3
16.9
12.7
10.4
12.2
12.2
13.4
8.6
7.7
6.0
8.0
4.0
N/A
4.5
6.0
8.0
4.0
N/A
4.5
6.0
8.0
4.0
N/A
N/A
6.0%
10.0
N/A
N/A
6.5
8.0
10.0
5.0
N/A
6.5
8.0
10.0
5.0
N/A
__________
(1) Capital ratios are calculated based on the Basel III Standardized Approach framework, subject to applicable transition provisions, such as the inclusion of
the unrealized gains and losses on securities available for sale included in AOCI and adjustments related to intangible assets other than goodwill. The inclusion
of AOCI and the adjustments related to intangible assets are phased-in at 80% for 2017 and 100% for 2018. Capital requirements that are not applicable are
denoted by “N/A.”
(2) Common equity Tier 1 capital ratio is a regulatory capital measure calculated based on common equity Tier 1 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)
(5)
(6)
Total capital ratio is a regulatory capital measure calculated based on total capital divided by risk-weighted assets.
Tier 1 leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by adjusted average assets.
Supplementary leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by total leverage exposure.
Table 14 presents regulatory capital under Basel III Standardized Approach and regulatory capital metrics as of December 31,
2018 and 2017.
Table 14: Regulatory Risk-Based Capital Components and Regulatory Capital Metrics
(Dollars in millions)
Regulatory Capital Under Basel III Standardized Approach
December 31, 2018
December 31, 2017
Common equity excluding AOCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
48,570
$
45,296
Adjustments:
AOCI(1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, net of related deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net of related deferred tax liabilities(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Tier 1 capital adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 2 capital instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualifying allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 2 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,263)
(14,373)
(254)
391
33,071
4,360
—
37,431
3,483
3,731
7,214
Total capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
44,645
$
Regulatory Capital Metrics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
294,950
$
Adjusted average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total leverage exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
350,606
414,701
__________
(1) Amounts presented are net of tax.
(2) Amounts based on transition provisions for regulatory capital deductions and adjustments of 80% for 2017 and 100% for 2018.
(808)
(14,380)
(330)
258
30,036
4,360
—
34,396
3,865
3,701
7,566
41,962
292,225
348,424
407,832
The Company exceeded the minimum capital requirements and each of the Banks exceeded the minimum regulatory requirements
and were well capitalized under PCA requirements as of both December 31, 2018 and 2017.
The Basel III Capital Rule requires banks to maintain a capital conservation buffer, composed of common equity Tier 1 capital,
of 2.5% above the regulatory minimum ratios. The capital conservation buffer was 1.875% in 2018 and is fully phased-in at 2.5%
as of January 1, 2019.
For banks subject to the Advanced Approaches, including the Company and the Banks, the capital conservation buffer may be
supplemented by an incremental countercyclical capital buffer of up to 2.5% composed of common equity Tier 1 capital and set
at the discretion of the Federal Banking Agencies. As of December 31, 2018, the countercyclical capital buffer was zero percent
in the United States. A determination to increase the countercyclical capital buffer generally would be effective twelve months
after the announcement of such an increase, unless the Federal Banking Agencies set an earlier effective date.
For 2018, the minimum capital requirement plus capital conservation buffer and countercyclical capital buffer for common equity
Tier 1 capital, Tier 1 capital and total capital ratios were 6.375%, 7.875% and 9.875%, respectively, for the Company and the
Banks. A common equity Tier 1 capital ratio, Tier 1 capital ratio, or total capital ratio below the applicable regulatory minimum
ratio plus the applicable capital conservation buffer and the applicable countercyclical buffer (if set to an amount greater than zero
percent) might restrict a bank’s ability to distribute capital and make discretionary bonus payments. As of December 31, 2018, the
Company and each of the Banks were all above the applicable combined thresholds.
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Capital One Financial Corporation (COF)
Capital Planning and Regulatory Stress Testing
On April 5, 2018, we submitted our capital plan to the Federal Reserve as part of the 2018 CCAR cycle. On June 28, 2018, the
Federal Reserve informed us that they had “no objection” to our CCAR 2018 Capital Plan submission. As a result of this non-
objection to our capital plan, the Board of Directors authorized the repurchase of up to $1.2 billion of shares of our common stock
beginning in the third quarter of 2018 through the end of the second quarter of 2019. The Board of Directors also authorized the
dividend on our common stock of $0.40 per share in each quarter in 2018. For the description of the regulatory capital planning
rules we are subject to, see “Part I—Item 1. Business—Supervision and Regulation.”
Dividend Policy and Stock Purchases
For the year ended December 31, 2018, we declared and paid common stock dividends of $776 million, or $1.60 per share, and
preferred stock dividends of $265 million. The following table summarizes the dividends paid per share on our various preferred
stock series in each quarter of 2018.
Table 15: Preferred Stock Dividends Paid Per Share
Series
Series B
Series C
Series D
Series E
Series F
Series G
Series H
Description
6.00%
Non-Cumulative
6.25%
Non-Cumulative
6.70%
Non-Cumulative
Fixed-to-Floating
Rate Non-
Cumulative
6.20%
Non-Cumulative
5.20%
Non-Cumulative
6.00%
Non-Cumulative
Issuance Date
August 20, 2012
June 12, 2014
October 31, 2014
May 14, 2015
Per Annum
Dividend Rate
6.00%
6.25
6.70
Dividend Frequency
Quarterly
Q4
$15.00
Q3
$15.00
Q2
$15.00
Q1
$15.00
2018
Quarterly
15.63
15.63
15.63
15.63
Quarterly
16.75
16.75
16.75
16.75
5.55% through
5/31/2020;
3-mo. LIBOR+ 380
bps thereafter
Semi-Annually
through 5/31/2020;
Quarterly thereafter
27.75
— 27.75
—
August 24, 2015
July 29, 2016
November 29, 2016
6.20
5.20
6.00
Quarterly
15.50
15.50
15.50
15.50
Quarterly
13.00
13.00
13.00
13.00
Quarterly
15.00
15.00
15.00
15.00
The declaration and payment of dividends to our stockholders, as well as the amount thereof, are subject to the discretion of our
Board of Directors and depend upon our results of operations, financial condition, capital levels, cash requirements, future prospects
and other factors deemed relevant by the Board of Directors. As a BHC, our ability to pay dividends is largely dependent upon
the receipt of dividends or other payments from our subsidiaries. Regulatory restrictions exist that limit the ability of the Banks
to transfer funds to our BHC. As of December 31, 2018, funds available for dividend payments from COBNA and CONA were
$3.2 billion and $2.2 billion, respectively. There can be no assurance that we will declare and pay any dividends to stockholders.
Consistent with our 2018 Stock Repurchase Program, our Board of Directors authorized the repurchase of up to $1.2 billion of
shares of common stock beginning in the third quarter of 2018 through the end of the second quarter of 2019. We completed the
2018 Stock Repurchase Program in the fourth quarter of 2018.
The timing and exact amount of any future common stock repurchases will depend on various factors, including regulatory approval,
market conditions, opportunities for growth, our capital position and the amount of retained earnings. Our stock repurchase program
does not include specific price targets, may be executed through open market purchases or privately negotiated transactions,
including utilizing Rule 10b5-1 programs, and may be suspended at any time. For additional information on dividends and stock
repurchases, see “PART I—Item 1. Business—Supervision and Regulation—Dividends, Stock Repurchases and Transfers of
Funds.”
RISK MANAGEMENT
Risk Framework
We use a risk framework to provide an overall enterprise-wide approach for effectively managing risk. We execute against our
risk framework with the “Three Lines of Defense” risk management model to demonstrate and structure the roles, responsibilities
and accountabilities in the organization for taking and managing risk.
The “First Line of Defense” is comprised of the business areas that through their day-to-day business activities take risk on our
behalf. As the business owner, the first line is responsible for identifying, assessing, managing and controlling that risk. This
principle places ultimate accountability for the management of risks and ownership of risk decisions with the CEO and business
heads. The “Second Line of Defense” provides oversight of first line risk taking and management, and is primarily comprised of
our Risk Management organization. The second line assists in determining risk appetite and the strategies, policies and structures
for managing risks. The second line is both an “expert advisor” to the first line and an “effective challenger” of first line risk
activities. The “Third Line of Defense” is comprised of our Internal Audit and Credit Review functions. The third line provides
independent and objective assurance to senior management and to the Board of Directors that first and second line risk management
and internal control systems and its governance processes are well-designed and working as intended.
The risk framework is also used to guide design of risk programs and performance of risk activity within each risk category and
across the entire enterprise.
Our risk framework, which is built around governance, processes and people, consists of the following eight key elements:
Establish Governance Processes, Accountabilities and Risk Appetites
The starting point of our risk framework is the establishment of governance processes, accountabilities and risk appetites. Our
Board of Directors and senior management establish the tone at the top regarding the importance of internal control, including
standards of conduct and the integrity and ethical values of the Company. Management reinforces expectations at the various levels
of the organization. This portion of the framework sets the foundation for the methods for governing risk taking, the interactions
within and among the lines of defense, and the risk appetites and tolerance limits for risk taking.
Identify and Assess Risks and Ownership
Identifying and assessing risks and ownership is the beginning of the more detailed day-to-day process of managing risk. This
portion of the framework clarifies the importance of strong first-line management and accountability for identifying and assessing
risk while specifying the role of the second line to identify and assess risk, particularly when taking on new initiatives.
Develop and Operate Controls, Monitoring and Mitigation Plans
We develop, operate and monitor controls to manage risk within tolerance levels. The first line develops controls to oversee and
manage identified risks. Controls may prevent risks from occurring or measure the amount of risk being taken so that the amount
may be proactively managed. Whenever possible, plans are implemented to mitigate risks or reduce them to lower levels. The first
line leads mitigation, control and monitoring actions. The second line is a consultant on control design when needed.
Test and Detect Control Gaps and Perform Corrective Action
While the first line is principally accountable for taking, controlling and monitoring risk, the second line oversees and monitors
first line risk taking, including the effectiveness of first line controls, and the third line independently tests and oversees first and
second line risk taking. These activities provide the second and third lines of defense with the ability to reduce the likelihood of
unauthorized or unplanned risk taking within the organization. Control gaps are closed by first line corrective action.
Escalate Key Risks and Gaps to Executive Management and When Appropriate, the Board of Directors
Escalation is an important component of our risk framework. Use of escalation is encouraged and does not necessarily indicate a
failure on the part of first, second, or third line risk management. Through escalation in the first line, decisions requiring judgment
can be raised to executives who have the broadest possible context and experience to make challenging decisions. Escalation in
the second and third lines of defense can also demonstrate part of their core responsibilities of effective challenge. If appropriate,
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risks are escalated to the Board of Directors to ensure alignment with the most material risk decisions and/or transparency to the
largest risks facing the organization.
• Market Risk: Market risk is the risk that an institution’s earnings or the economic value of equity could be adversely impacted
by changes in interest rates, foreign exchange rates, or other market factors;
Calculate and Allocate Capital in Alignment with Risk Management and Measurement Processes (including Stress Testing)
Capital ultimately is held to protect the company from unforeseen risks or unexpected risk severity. As such, it is important that
capital planning processes be well linked with risk management practices to ensure the appropriate capital protections are in place
for the safety and soundness of the company. Stress testing and economic capital measurement, both of which incorporate inputs
from across the risk spectrum, are key tools for evaluating our capital position and risk adjusted returns.
Support with the Right Culture, Talent and Skills
The right culture, talent and skills are critical to effective risk management. Our risk framework is supported with the right culture
that promotes the foundation and values of the risk management organization. Skills necessary to effectively manage risk are
reinforced through performance management systems. When needed, risk talent is augmented through recruitment of industry
experts as well as training and development of internal associates.
Enabled by the Right Data, Infrastructure and Programs
Data, infrastructure and programs are key enablers of our risk management processes and practices. These core requirements enable
effective risk modeling, efficient first, second and third line risk activity performance, and cross-line interaction. In addition,
effective program design of each risk category is regularly assessed to ensure risk practices continue to evolve with leading industry
practices, and continue to interact across categories as desired for a strong overall risk management program.
Risk Appetite
Risk appetite defines the parameters for taking and accepting risks and are used by management and our Board of Directors to
make business decisions. Risk appetite refers to the level of risk our business is willing to take in pursuit of our corporate business
objectives. The Board of Directors approves our risk appetite including risk appetite statements and associated metrics, Board
Notification Thresholds, and Board Limits for each of our eight risk categories. We communicate risk appetite statements, limits
and thresholds to the appropriate levels in the organization and monitor adherence. While first line executives manage risk on a
day-to-day basis, the Chief Risk Officer provides effective challenge and independent oversight to ensure that risks are within the
appetite and specific limits established by the Board of Directors. The Chief Risk Officer reports to the Board of Directors regularly
on the nature and level of risk across all eight risk categories. In addition to his broader management responsibilities, our Chief
Executive Officer is responsible for developing the strategy and mission of our organization, determining and leading our culture,
and reviewing and providing input into our risk appetite.
Risk Categories
We apply our risk framework to protect our company from the eight major categories of risk that we are exposed to through our
business activities. Our eight major categories of risk are:
• Compliance Risk: Compliance risk is the risk to current or anticipated earnings or capital arising from violations of laws,
rules, or regulations. Compliance risk can also arise from nonconformance with prescribed practices, internal policies and
procedures, contractual obligations, or ethical standards that reinforce those laws, rules, or regulations;
• Credit Risk: Credit risk is the risk to current or projected financial condition and resilience arising from an obligor’s failure
to meet the terms of any contract with the Company or otherwise perform as agreed;
•
•
Legal Risk: Legal risk is the risk of material adverse impact due to: new and changed laws and regulations; interpretations
of law; drafting, interpretation and enforceability of contracts; adverse decisions/consequences arising from litigation or
regulatory action; the establishment, management and governance of our legal entity structure; and the failure to seek/follow
appropriate legal counsel when needed;
Liquidity Risk: Liquidity risk is the risk that the Company will not be able to meet its future financial obligations as they
come due, or invest in future asset growth because of an inability to obtain funds at a reasonable price within a reasonable
time period;
• Operational Risk: Operational risk is the risk of loss, capital impairment, adverse customer experience, or reputational
impact resulting from failure to comply with policies and procedures, failed internal processes or systems, or from external
events;
• Reputation Risk: Reputation risk is the risk to market value, recruitment and retention of talented associates and maintenance
of a loyal customer base due to the negative perceptions of our internal and external constituents regarding our business
strategies and activities; and
•
Strategic Risk: Strategic risk is the risk of a material impact on current or anticipated earnings, capital, franchise or enterprise
value arising from: (i) the Company’s competitive and market position and evolving forces in the industry that can affect
that position; (ii) lack of responsiveness to these conditions; (iii) strategic decisions to change the Company’s scale, market
position or operating model; or (iv) failure to appropriately consider implementation risks inherent in the Company’s strategy.
Below we provide an overview of how we manage our eight primary risk categories.
Compliance Risk Management
We recognize that compliance requirements for financial institutions are increasingly complex and that there are heightened
expectations from our regulators and our customers. In response, we continuously evaluate the regulatory environment and
proactively adjust our compliance risk program to fully address these expectations.
Our Compliance Management Program establishes expectations for determining compliance requirements, assessing the risk of
new product offerings, creating appropriate controls and training to address requirements, monitoring for control performance,
and independently testing for adherence to compliance requirements. The program also establishes regular compliance reporting
to senior business leaders, the executive committee and the Board of Directors.
The Chief Compliance Officer is responsible for establishing and overseeing our Compliance Risk Management Program. Business
areas incorporate compliance requirements and controls into their business policies, standards, processes and procedures. They
regularly monitor and report on the efficacy of their compliance controls and Corporate Compliance periodically independently
tests to validate the effectiveness of business controls.
Credit Risk Management
We recognize that we are exposed to cyclical changes in credit quality. Consequently, we try to ensure our credit portfolio is resilient
to economic downturns. Our most important tool in this endeavor is sound underwriting. In unsecured consumer loan underwriting,
we generally assume that loans will be subject to an environment in which losses are higher than those prevailing at the time of
underwriting. In commercial underwriting, we generally require strong cash flow, collateral, covenants and guarantees. In addition
to sound underwriting, we continually monitor our portfolio and take steps to collect or work out distressed loans.
The Chief Risk Officer, in conjunction with the Consumer and Commercial Chief Credit Officers, is responsible for establishing
credit risk policies and procedures, including underwriting and hold guidelines and credit approval authority, and monitoring credit
exposure and performance of our lending related transactions. These responsibilities are fulfilled by the Chief Consumer Credit
Officer and the Chief Commercial Credit Officer who are responsible for evaluating the risk implications of credit strategy and
for oversight of credit for both the existing portfolio and any new credit investments. The Chief Consumer Credit Officer and the
Chief Commercial Credit Officer have formal approval authority for various types and levels of credit decisions, including individual
commercial loan transactions. Division Presidents within each segment are responsible for managing the credit risk within their
divisions and maintaining processes to control credit risk and comply with credit policies and guidelines. In addition, the Chief
Risk Officer establishes policies, delegates approval authority and monitors performance for non-loan credit exposure entered into
with financial counterparties or through the purchase of credit sensitive securities in our investment portfolio.
Our credit policies establish standards in five areas: customer selection, underwriting, monitoring, remediation and portfolio
management. The standards in each area provide a framework comprising specific objectives and control processes. These standards
are supported by detailed policies and procedures for each component of the credit process. Starting with customer selection, our
goal is to generally provide credit on terms that generate above hurdle returns. We use a number of quantitative and qualitative
factors to manage credit risk, including setting credit risk limits and guidelines for each of our lines of business. We monitor
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performance relative to these guidelines and report results and any required mitigating actions to appropriate senior management
committees and our Board of Directors.
Legal Risk Management
The General Counsel provides legal evaluation and guidance to the enterprise and business areas and partners with other risk
management functions such as Compliance and Internal Audit. This evaluation and guidance is based on an assessment of the type
and degree of legal risk associated with the internal business area practices and activities and of the controls the business has in
place to mitigate legal risks.
Liquidity Risk Management
We manage liquidity risk by applying our Liquidity Adequacy Framework (the “Framework”). The Framework uses internal and
regulatory stress testing and the evaluation of other balance sheet metrics to confirm that we maintain a fortified balance sheet
that is resilient to uncertainties that may arise as a consequence of systemic or idiosyncratic liquidity events. We continuously
monitor market and economic conditions to evaluate emerging stress conditions and appropriate action plans in accordance with
our Contingency Funding Plan, which includes the Company’s policies, procedures and action plans for managing liquidity stress
events. The Framework enables us to manage our liquidity risk in accordance with regulatory requirements.
Additionally, the Framework establishes governing principles that apply to the management of liquidity risk. We use these principles
to monitor, measure and report liquidity risk; to develop funding and investment strategies that enable us to maintain an adequate
level of liquidity to support our businesses and satisfy regulatory requirements; and to protect us from a broad range of liquidity
events should they arise.
The Chief Risk Officer, in conjunction with the Chief Market and Liquidity Risk Officer, is responsible for the establishment of
liquidity risk management policies and standards for governance and monitoring of liquidity risk at a corporate level. We assess
liquidity strength by evaluating several different balance sheet metrics under severe stress scenarios to ensure we can withstand
significant funding degradation through idiosyncratic, systemic, and combined liquidity stress scenarios. Management reports
liquidity metrics to appropriate senior management committees and our Board of Directors no less than quarterly.
We seek to mitigate liquidity risk strategically and tactically. From a strategic perspective, we have acquired and built deposit
gathering businesses and actively monitor our funding concentration. From a tactical perspective, we have accumulated a sizable
liquidity reserve comprised of cash and cash equivalents, high-quality, unencumbered securities and committed collateralized
credit lines. We also continue to maintain access to secured and unsecured debt markets through regular issuance. This combination
of stable and diversified funding sources and our stockpile of liquidity reserves enable us to maintain confidence in our liquidity
position.
Market Risk Management
The Chief Financial Officer and the Chief Risk Officer are responsible for the establishment of market risk management policies
and standards for the governance and monitoring of market risk at a corporate level. Market risk is inherent from the financial
instruments associated with our business operations and activities including loans, deposits, securities, short-term borrowings,
long-term debt and derivatives. We manage market risk exposure, which is principally driven by balance sheet interest rate risk,
centrally and establish quantitative risk limits to monitor and control our exposure.
We recognize that interest rate and foreign exchange risk is inherent in the banking business due to the nature of the assets and
liabilities of banks. Banks typically manage the trade-off between near-term earnings volatility and market value volatility by
targeting moderate levels of each. In addition to using industry accepted techniques to analyze and measure interest rate and foreign
exchange risk, we perform sensitivity analysis to identify our risk exposures under a broad range of scenarios. Investment securities
and derivatives are the main levers for the management of interest rate and foreign exchange risk.
The market risk positions for the Company and each of the Banks are calculated separately and in aggregate, and analyzed against
pre-established limits. Results are reported to the Asset Liability Committee monthly and to the Risk Committee of the Board of
Directors no less than quarterly. Management is authorized to utilize financial instruments as outlined in our policy to actively
manage market risk exposure.
Operational Risk Management
We recognize the criticality of managing operational risk on both a strategic and day-to-day basis and that there are heightened
expectations from our regulators and our customers. We have implemented appropriate operational risk management policies,
standards, processes and controls to enable the delivery of high quality and consistent customer experiences and to achieve business
objectives in a controlled manner.
The Chief Operational Risk Officer is responsible for establishing and overseeing our Operational Risk Management Program. In
accordance with Basel III Advanced Approaches requirements, the program establishes practices for assessing the operational risk
profile and executing key control processes for operational risks. Corporate Operational Risk Management enforces these practices
and delivers reporting of operational risk results to senior business leaders, the executive committee and the Board of Directors.
Reputation Risk Management
We recognize that reputation risk is of particular concern for financial institutions and, increasingly, technology companies, in the
current environment. Areas of concern have expanded to include company policies, practices and values and, with the growing
use of social and digital platforms, public corporations face a new level of scrutiny and channels for activism and advocacy. The
heightened expectations of internal and external stakeholders have made corporate culture, values and conduct pressure points for
individuals and advocates voicing concerns or seeking change. We manage both strategic and tactical reputation issues and build
our relationships with government officials, media, community and consumer advocates, customers and other constituencies to
help strengthen the reputations of both our company and industry. Our actions include implementing pro-customer practices in
our business and serving low to moderate income communities in our market area consistent with a quality bank and an innovative
technology leader. The Executive Vice President of External Affairs is responsible for managing our overall reputation risk program.
Day-to-day activities are controlled by the frameworks set forth in our Reputation Risk Management Policy and other risk
management policies.
Strategic Risk Management
We monitor external market and industry developments to identify potential areas of strategic opportunity or risk. These items
provide input for development of the Company’s strategy led by the Chief Executive Officer and other senior executives. Through
the ongoing development and vetting of the corporate strategy, the Chief Risk Officer identifies and assesses risks associated with
the strategy across all risk categories and monitors them throughout the year.
CREDIT RISK PROFILE
Our loan portfolio accounts for the substantial majority of our credit risk exposure. Our lending activities are governed under our
credit policy and are subject to independent review and approval. Below we provide information about the composition of our
loan portfolio, key concentrations and credit performance metrics.
We also engage in certain non-lending activities that may give rise to credit and counterparty settlement risk, including the purchase
of securities for our investment securities portfolio, entering into derivative transactions to manage our market risk exposure and
to accommodate customers, short-term advances on syndication activity (including bridge financing transactions we have
underwritten), certain operational cash balances in other financial institutions, foreign exchange transactions and customer
overdrafts. We provide additional information on credit risk related to our investment securities portfolio under “MD&A—
Consolidated Balance Sheets Analysis—Investment Securities” and credit risk related to derivative transactions in “Note 10—
Derivative Instruments and Hedging Activities.”
Primary Loan Products
We provide a variety of lending products. Our primary loan products include credit cards, auto loans and commercial lending
products. We sold all of our consumer home loan portfolio and the related servicing during 2018.
• Credit cards: We originate both prime and subprime credit cards through a variety of channels. Our credit cards generally
have variable interest rates. Credit card accounts are primarily underwritten using an automated underwriting system based
on predictive models that we have developed. The underwriting criteria, which are customized for individual products and
marketing programs, are established based on an analysis of the net present value of expected revenues, expenses and losses,
subject to further analysis using a variety of stress conditions. Underwriting decisions are generally based on credit bureau
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information, including payment history, debt burden and credit scores, such as FICO, and on other factors, such as applicant
income. We maintain a credit card securitization program and selectively sell charged-off credit card loans.
• Auto: We originate both prime and subprime auto loans through a network of auto dealers and direct marketing. Our auto
loans generally have fixed interest rates and loan terms of 75 months or less, but can go up to 84 months. Loan size limits
are customized by program and are generally less than $75,000. Similar to credit card accounts, the underwriting criteria
are customized for individual products and marketing programs and based on analysis of net present value of expected
revenues, expenses and losses, subject to maintaining resilience under a variety of stress conditions. Underwriting decisions
are generally based on an applicant’s income, estimated debt-to-income ratio, and credit bureau information, along with
collateral characteristics such as loan-to-value (“LTV”) ratio. We generally retain all of our auto loans, though we have
securitized and sold auto loans in the past and may do so in the future.
• Commercial: We offer a range of commercial lending products, including loans secured by commercial real estate and loans
to middle market commercial and industrial companies. Our commercial loans may have a fixed or variable interest rate;
however, the majority of our commercial loans have variable rates. Our underwriting standards require an analysis of the
borrower’s financial condition and prospects, as well as an assessment of the industry in which the borrower operates. Where
relevant, we evaluate and appraise underlying collateral and guarantees. We maintain underwriting guidelines and limits
for major types of borrowers and loan products that specify, where applicable, guidelines for debt service coverage, leverage,
LTV ratio and standard covenants and conditions. We assign a risk rating and establish a monitoring schedule for loans
based on the risk profile of the borrower, industry segment, source of repayment, the underlying collateral and guarantees,
if any, and current market conditions. Although we generally retain commercial loans, we may syndicate positions for risk
mitigation purposes, including bridge financing transactions we have underwritten. In addition, we originate and service
multifamily commercial real estate loans which are sold to government-sponsored enterprises.
Loans Held for Investment Portfolio Composition
Our loan portfolio consists of loans held for investment, including loans held in our consolidated trusts, and loans held for sale. Table
16 presents the composition of our portfolio of loans held for investment by portfolio segment as of December 31, 2018 and 2017.
Table 16 and the credit metrics presented in this section exclude loans held for sale, which are carried at lower of cost or fair value
and totaled $1.2 billion and $971 million as of December 31, 2018 and 2017, respectively.
Table 16: Loans Held for Investment Portfolio Composition
(Dollars in millions)
Credit Card:
December 31, 2018
December 31, 2017
Loans
% of
Total
Loans
% of
Total
Domestic credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 107,350
43.6% $ 105,293
41.4%
International card businesses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,011
Total credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
116,361
Consumer Banking:
Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56,341
Home loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Banking:
Commercial and multifamily real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Small-ticket commercial real estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2,864
59,205
28,899
41,091
69,990
343
Total commercial banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70,333
Other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
3.7
47.3
22.9
—
1.2
24.1
11.8
16.7
28.5
0.1
28.6
—
9,469
114,762
53,991
17,633
3,454
75,078
26,150
38,025
64,175
400
64,575
58
3.7
45.1
21.2
6.9
1.4
29.5
10.3
14.9
25.2
0.2
25.4
—
Total loans held for investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 245,899
100.0% $ 254,473
100.0%
We market our credit card products throughout the United States, Canada and the United Kingdom. Our credit card loan portfolio
is geographically diversified due to our product and marketing approach, with higher concentrations in California, Texas, New
York, Florida, Illinois, Pennsylvania and Ohio.
Our auto loan portfolio is originated in most regions of the United States with a concentration in Texas, California, Florida, Georgia,
Ohio, Louisiana and Illinois. Retail banking includes small business loans and other consumer lending products originated through
our branch network with a concentration in New York, Louisiana, Texas, New Jersey, Maryland and Virginia.
Our commercial banking loan portfolio is originated in most regions of the United States with a concentration in the tri-state area
of New York, New Jersey and Connecticut, as well as in Texas, California and Virginia.
We provide additional information on the geographic concentration, by loan category, of our loan portfolio in “Note 4—Loans.”
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Commercial Loans
Credit Risk Measurement
Table 17 summarizes our commercial loans held for investment portfolio by industry classification as of December 31, 2018 and
2017. Industry classifications below are based on our interpretation of the North American Industry Classification System codes
as they pertain to each individual loan.
Table 17: Commercial Loans by Industry
(Percentage of portfolio)
Real estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Healthcare. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oil and gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Public administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Educational services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction and land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
December 31,
2017
40%
16
12
5
5
4
4
3
2
9
41%
13
14
5
4
4
4
3
3
9
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
100%
Loan Maturity Profile
Table 18 presents the maturities of our loans held for investment portfolio as of December 31, 2018.
Table 18: Loan Maturity Schedule
(Dollars in millions)
Fixed rate:
Credit card(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total fixed-rate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable rate:
Credit card(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total variable-rate loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018
Due Up to
1 Year
> 1 Year
to 5 Years
> 5 Years
Total
675
915
2,735
100,690
1,092
55,437
157,219
37,205
$
20,219
5,755
57,485
7,866
28,085
58,099
14,536
88,305
1
13
356
370
—
100,691
1
4
5
1,106
55,797
157,594
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 159,954
$
57,855
$
28,090
$ 245,899
__________
(1) Due to the revolving nature of credit card loans, we report the majority of our variable-rate credit card loans as due in one year or less. We report fixed-rate
credit card loans with introductory rates that expire after a certain period of time as due in one year or less. We assume that the rest of our remaining fixed-
rate credit card loans will mature within one to three years.
We closely monitor economic conditions and loan performance trends to assess and manage our exposure to credit risk. Key metrics
we track in evaluating the credit quality of our loan portfolio include delinquency and nonperforming asset rates, as well as net
charge-off rates and our internal risk ratings of larger-balance commercial loans. Trends in delinquency rates are one of the primary
indicators of credit risk within our consumer loan portfolios, particularly in our credit card loan portfolios, as changes in delinquency
rates can provide an early warning of changes in credit losses. The primary indicator of credit risk in our commercial loan portfolios
is our internal risk ratings. Because we generally classify loans that have been delinquent for an extended period of time and other
loans with significant risk of loss as nonperforming, the level of nonperforming assets represents another indicator of the potential
for future credit losses. In addition to delinquency rates, the geographic distribution of our loans provides insight as to the exposure
of the portfolio to regional economic conditions.
We underwrite most consumer loans using proprietary models, which are typically based on credit bureau data, including borrower
credit scores, along with application information and, where applicable, collateral and deal structure data. We continuously adjust
our management of credit lines and collection strategies based on customer behavior and risk profile changes. We also use borrower
credit scores for subprime classification, for competitive benchmarking and, in some cases, to drive product segmentation decisions.
Table 19 provides details on the credit scores of our domestic credit card and auto loans held for investment portfolios as of
December 31, 2018 and 2017.
Table 19: Credit Score Distribution
(Percentage of portfolio)
Domestic credit card—Refreshed FICO scores:(1)
Greater than 660. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
660 or below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auto—At origination FICO scores:(2)
Greater than 660. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
621 - 660 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
620 or below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
December 31,
2017
67%
33
100%
50%
19
31
100%
66%
34
100%
51%
18
31
100%
__________
(1)
Percentages represent period-end loans held for investment in each credit score category. Domestic card credit scores generally represent FICO scores. These
scores are obtained from one of the major credit bureaus at origination and are refreshed monthly thereafter. We approximate non-FICO credit scores to
comparable FICO scores for consistency purposes. Balances for which no credit score is available or the credit score is invalid are included in the 660 or
below category.
(2)
Percentages represent period-end loans held for investment in each credit score category. Auto credit scores generally represent average FICO scores obtained
from three credit bureaus at the time of application and are not refreshed thereafter. Balances for which no credit score is available or the credit score is
invalid are included in the 620 or below category.
We present information in the section below on the credit performance of our loan portfolio, including the key metrics we use in
tracking changes in the credit quality of our loan portfolio.
See “Note 4—Loans” in this Report for additional credit quality information, and see “Note 1—Summary of Significant Accounting
Policies” for information on our accounting policies for delinquent and nonperforming loans, charge-offs and troubled debt
restructurings (“TDRs”) for each of our loan categories.
Delinquency Rates
We consider the entire balance of an account to be delinquent if the minimum required payment is not received by the customer’s
due date, measured at each balance sheet date. Our 30+ day delinquency metrics include all loans held for investment that are 30
or more days past due, whereas our 30+ day performing delinquency metrics include loans that are 30 or more days past due but
are currently classified as performing and accruing interest. The 30+ day delinquency and 30+ day performing delinquency metrics
are the same for domestic credit card loans, as we continue to classify these loans as performing until the account is charged off,
typically when the account is 180 days past due. See “Note 1—Summary of Significant Accounting Policies” for information on
$
1,145
$
14,525
— $
15,670
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79
Capital One Financial Corporation (COF)
80
Capital One Financial Corporation (COF)
Table 22 summarizes loans that were 90+ days delinquent as to interest or principal, and still accruing interest as of December 31,
2018 and 2017. These loans consist primarily of credit card accounts between 90 days and 179 days past due. As permitted by
regulatory guidance issued by the Federal Financial Institutions Examination Council, we continue to accrue interest and fees on
domestic credit card loans through the date of charge-off, which is typically in the period the account becomes 180 days past due.
While domestic credit card loans typically remain on accrual status until the loan is charged off, we reduce the balance of our
credit card receivables by the amount of finance charges and fees billed but not expected to be collected and exclude this amount
from revenue.
Table 22: 90+ Day Delinquent Loans Accruing Interest
(Dollars in millions)
Loan category:
December 31, 2018
December 31, 2017
Amount
Rate(1)
Amount
Rate(1)
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Geographic region:
Domestic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
2,233
—
2,233
2,111
122
2,233
1.92% $
—
0.91
0.89
1.35
0.91
$
$
$
2,221
12
2,233
2,105
128
2,233
1.94%
0.02
0.88
0.86
1.35
0.88
__________
(1) Delinquency rates are calculated by dividing delinquency amounts by period-end loans held for investment for each specified loan category, including PCI
loans as applicable.
Nonperforming Loans and Nonperforming Assets
Nonperforming assets consist of nonperforming loans, foreclosed properties, repossessed assets, and the net realizable value of
certain partially charged off auto loans. Nonperforming loans include loans that have been placed on nonaccrual status. See “Note
1—Summary of Significant Accounting Policies” for information on our policies for classifying loans as nonperforming for each
of our loan categories.
Table 23 presents comparative information on nonperforming loans, by portfolio segment, and other nonperforming assets as of
December 31, 2018 and 2017. We do not classify loans held for sale as nonperforming, as they are recorded at the lower of cost
or fair value. We provide additional information on our credit quality metrics above under “MD&A—Business Segment Financial
Performance.”
our policies for classifying loans as nonperforming for each of our loan categories. We provide additional information on our credit
quality metrics above under “MD&A—Business Segment Financial Performance.”
Table 20 presents our 30+ day performing delinquency rates and 30+ day delinquency rates of our portfolio of loans held for
investment, by portfolio segment, as of December 31, 2018 and 2017.
Table 20: 30+ Day Delinquencies
(Dollars in millions)
Credit Card:
December 31, 2018
December 31, 2017
30+ Day Performing
Delinquencies
30+ Day
Delinquencies
30+ Day Performing
Delinquencies
30+ Day
Delinquencies
Amount
Rate(1)
Amount
Rate(1)
Amount
Rate(1)
Amount
Rate(1)
Domestic credit card . . . . . . . . . . . . . . . . . . . . . .
$ 4,335
4.04% $ 4,335
4.04% $ 4,219
4.01% $ 4,219
4.01%
International card businesses . . . . . . . . . . . . . . . .
Total credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . .
317
4,652
Consumer Banking:
Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,918
Home loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
29
Total consumer banking . . . . . . . . . . . . . . . . . . . . . .
3,947
Commercial Banking:
Commercial and multifamily real estate . . . . . . .
Commercial and industrial. . . . . . . . . . . . . . . . . .
Total commercial lending . . . . . . . . . . . . . . . . .
Small-ticket commercial real estate. . . . . . . . . . .
Total commercial banking. . . . . . . . . . . . . . . . . . . . .
Other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
119
176
295
1
296
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,895
3.52
4.00
6.95
—
1.01
6.67
0.41
0.43
0.42
0.39
0.42
—
3.62
333
4,668
4,309
—
51
4,360
140
279
419
7
426
—
$ 9,454
3.70
4.01
7.65
—
1.77
7.36
0.49
0.68
0.60
1.84
0.61
—
3.84
344
4,563
3,513
35
26
3,574
69
18
87
1
88
2
$ 8,227
3.64
3.98
6.51
0.20
0.76
4.76
0.26
0.05
0.14
0.21
0.14
3.28
3.23
359
4,578
3,840
123
47
4,010
107
158
265
7
272
4
$ 8,864
3.80
3.99
7.11
0.70
1.35
5.34
0.41
0.42
0.41
1.55
0.42
6.29
3.48
__________
(1) Delinquency rates are calculated by dividing delinquency amounts by period-end loans held for investment for each specified loan category, including
purchased credit-impaired (“PCI”) loans as applicable.
Table 21 presents our 30+ day delinquent loans, by aging and geography, as of December 31, 2018 and 2017.
Table 21: Aging and Geography of 30+ Day Delinquent Loans
(Dollars in millions)
Delinquency status:
December 31, 2018
December 31, 2017
Amount
Rate(1)
Amount
Rate(1)
30 – 59 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
60 – 89 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> 90 days. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Geographic region:
Domestic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
4,282
2,430
2,742
9,454
9,121
333
9,454
1.73% $
0.99
1.12
3.84% $
3.70% $
0.14
3.84% $
3,945
2,166
2,753
8,864
8,505
359
8,864
1.55%
0.85
1.08
3.48%
3.34%
0.14
3.48%
__________
(1) Delinquency rates are calculated by dividing delinquency amounts by total period-end loans held for investment, including PCI loans as applicable.
81
Capital One Financial Corporation (COF)
82
Capital One Financial Corporation (COF)
Table 23: Nonperforming Loans and Other Nonperforming Assets(1)
Net Charge-Offs
(Dollars in millions)
Nonperforming loans held for investment:(2)
Credit Card:
International card businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total credit card. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Consumer Banking:
Auto(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Banking:
Commercial and multifamily real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Small-ticket commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonperforming loans held for investment(4) . . . . . . . . . . . . . . . . . . . . . . . . . .
Other nonperforming assets:(5)
Foreclosed property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
December 31, 2018
December 31, 2017
Amount
Rate
Amount
Rate
22
22
449
—
30
479
83
223
306
6
312
—
813
2
57
59
872
0.25% $
0.02
0.80
—
1.04
0.81
0.29
0.54
0.44
1.80
0.44
—
0.33
$
24
24
376
176
35
587
38
239
277
7
284
4
899
— $
0.02
0.02
0.35
$
88
65
153
1,052
0.25%
0.02
0.70
1.00
1.00
0.78
0.15
0.63
0.43
1.65
0.44
7.71
0.35
0.03
0.03
0.06
0.41
__________
(1) We recognized interest income for loans classified as nonperforming of $60 million and $52 million in 2018 and 2017, respectively. Interest income foregone
related to nonperforming loans was $53 million and $44 million in 2018 and 2017, respectively. Foregone interest income represents the amount of interest
income that would have been recorded during the period for nonperforming loans as of the end of the period had the loans performed according to their
contractual terms.
(2) Nonperforming loan rates are calculated based on nonperforming loans for each category divided by period-end total loans held for investment for each
respective category.
(3) Beginning in the first quarter of 2017, partially charged-off auto loans previously presented within other assets were prospectively included within loans
held for investment. Other assets includes repossessed assets obtained in satisfaction of auto loans and the net realizable value of certain partially charged-
off auto loans, which will continue to decline over time.
(4)
(5)
Excluding the impact of domestic credit card loans, nonperforming loans as a percentage of total loans held for investment was 0.59% and 0.60% as of
December 31, 2018 and 2017, respectively.
The denominators used in calculating nonperforming asset rates consist of total loans held for investment and total other nonperforming assets.
Net charge-offs consist of the unpaid principal balance of loans held for investment that we determine to be uncollectible, net of
recovered amounts. We charge off loans as a reduction to the allowance for loan and lease losses when we determine the loan is
uncollectible and record subsequent recoveries of previously charged-off amounts as increases to the allowance for loan and lease
losses. Uncollectible finance charges and fees are reversed through revenue and certain fraud losses are recorded in other non-
interest expense. Generally, costs to recover charged-off loans are recorded as collection expenses as incurred and included in our
consolidated statements of income as a component of other non-interest expense. Our charge-off policy for loans varies based on
the loan type. See “Note 1—Summary of Significant Accounting Policies” for information on our charge-off policy for each of
our loan categories.
Table 24 presents our net charge-off amounts and rates, by portfolio segment, in 2018, 2017 and 2016.
Table 24: Net Charge-Offs (Recoveries)
(Dollars in millions)
Credit Card:
Domestic credit card. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International card businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Banking:
Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Banking:
Commercial and multifamily real estate. . . . . . . . . . . . . . . . . . . .
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Small-ticket commercial real estate . . . . . . . . . . . . . . . . . . . . . . .
Total commercial banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average loans held for investment. . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2018
2017
2016
Amount
Rate(1)
Amount
Rate(1)
Amount
Rate(1)
$
4,782
4.74% $
4,739
4.99% $
3,681
4.16%
287
5,069
3.19
4.62
912
(1)
70
981
2
54
56
—
56
6
$
6,112
$242,118
1.64
(0.02)
2.26
1.51
0.01
0.14
0.08
0.02
0.08
34.09
2.52
315
5,054
957
15
66
1,038
1
463
464
1
465
5
$
6,562
$245,565
3.69
4.88
1.86
0.08
1.92
1.39
—
1.17
0.69
0.24
0.69
9.70
2.67
272
3,953
752
14
54
820
3.33
4.09
1.69
0.06
1.53
1.15
(3)
(0.01)
293
290
2
292
0.75
0.45
0.30
0.45
(3)
(3.89)
$
5,062
$233,272
2.17
__________
(1) Net charge-off rate is calculated by dividing net charge-offs (recoveries) by average loans held for investment for the period for each loan category.
83
Capital One Financial Corporation (COF)
84
Capital One Financial Corporation (COF)
Troubled Debt Restructurings
As part of our loss mitigation efforts, we may provide short-term (three to twelve months) or long-term (greater than twelve months)
modifications to a borrower experiencing financial difficulty to improve long-term collectability of the loan and to avoid the need
for foreclosure or repossession of collateral.
Table 25 presents our recorded investment of loans modified in TDRs as of December 31, 2018 and 2017, which excludes loan
modifications that do not meet the definition of a TDR, and PCI loans, which we track and report separately.
Table 25: Troubled Debt Restructurings
December 31, 2018
December 31, 2017
Amount
% of Total
Modifications
Amount
(Dollars in millions)
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Consumer banking:
Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Status of TDRs:
Performing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonperforming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
855
339
—
33
372
379
1,606
1,433
173
1,606
53.2% $
21.1
—
2.1
23.2
23.6
100.0% $
89.2% $
10.8
100.0% $
% of Total
Modifications
36.9%
21.9
8.7
1.7
32.3
30.8
812
481
192
37
710
679
2,201
100.0%
1,850
351
2,201
84.1%
15.9
100.0%
Impaired loans totaled $1.8 billion and $2.4 billion as of December 31, 2018 and 2017, respectively. These amounts include TDRs
of $1.6 billion and $2.2 billion as of December 31, 2018 and 2017, respectively. We provide additional information on our impaired
loans, including the allowance for loan and lease losses established for these loans, in “Note 4—Loans” and “Note 5—Allowance
for Loan and Lease Losses and Reserve for Unfunded Lending Commitments.”
Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments
Our allowance for loan and lease losses represents management’s best estimate of incurred loan and lease credit losses inherent
to our held for investment portfolio as of each balance sheet date. The allowance for loan and lease losses is increased through the
provision for credit losses and reduced by net charge-offs. We provide additional information on the methodologies and key
assumptions used in determining our allowance for loan and lease losses under “Note 1—Summary of Significant Accounting
Policies.”
Table 26 presents changes in our allowance for loan and lease losses and reserve for unfunded lending commitments for 2018 and
2017, and details by portfolio segment for the provision for credit losses, charge-offs and recoveries.
In our Credit Card business, the majority of our credit card loans modified in TDRs involve reducing the interest rate on the account
and placing the customer on a fixed payment plan not exceeding 60 months. The effective interest rate in effect immediately prior
to the loan modification is used as the effective interest rate for purposes of measuring impairment using the present value of
expected cash flows. If the customer does not comply with the modified payment terms, then the credit card loan agreement may
revert to its original payment terms, generally resulting in any loan outstanding reflected in the appropriate delinquency category
and charged off in accordance with our standard charge-off policy.
In our Consumer Banking business, the majority of our loans modified in TDRs receive an extension, an interest rate reduction
or principal reduction, or a combination of these concessions. In addition, TDRs also occur in connection with bankruptcy of the
borrower. In certain bankruptcy discharges, the loan is written down to the collateral value and the charged-off amount is reported
as principal reduction. Impairment is determined using the present value of expected cash flows or a collateral evaluation for
certain auto and home loans where the collateral value is lower than the recorded investment.
In our Commercial Banking business, the majority of loans modified in TDRs receive an extension, with a portion of these loans
receiving an interest rate reduction or a gross balance reduction. The impairment on modified commercial loans is generally
determined based on the underlying collateral value.
We provide additional information on modified loans accounted for as TDRs, including the performance of those loans subsequent
to modification, in “Note 4—Loans.”
Impaired Loans
A loan is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect
all amounts due from the borrower in accordance with the original contractual terms of the loan. Generally, we report loans as
impaired based on the method for measuring impairment in accordance with applicable accounting guidance. Loans defined as
individually impaired include larger-balance commercial nonperforming loans and TDRs. Loans held for sale are not reported as
impaired, as these loans are recorded at lower of cost or fair value. Impaired loans also exclude PCI loans, which are accounted
for based on expected cash flows because this accounting methodology takes into consideration future credit losses expected to
be incurred.
85
Capital One Financial Corporation (COF)
86
Capital One Financial Corporation (COF)
Table 26: Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity
(Dollars in millions)
Allowance for loan and lease losses:
Credit Card
International
Card
Businesses
Total
Credit
Card
Domestic
Card
Consumer Banking
Auto
Home
Loan
Retail
Banking
Total
Consumer
Banking
Commercial
Banking
Other(1)(2)
Total
Balance as of December 31, 2016 . . . . . . . .
$ 4,229
$
377
$ 4,606
$
957
$
65
$
80
$ 1,102
$
793
$
2
$ 6,503
Charge-offs . . . . . . . . . . . . . . . . . . . . . . .
(5,844)
(477)
(6,321)
(1,573)
(22)
(82)
(1,677)
(481)
(34)
(8,513)
Recoveries(3) . . . . . . . . . . . . . . . . . . . . . .
1,105
162
1,267
616
7
16
639
16
29
1,951
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . .
(4,739)
(315)
(5,054)
(957)
(15)
(66)
(1,038)
(465)
(5)
(6,562)
Provision for loan and lease losses. . . . . . . .
Allowance build (release) for loan and
lease losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Other changes(4) . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2017 . . . . . . . .
Reserve for unfunded lending
commitments:
Balance as of December 31, 2016 . . . . . . . .
Benefit for losses on unfunded lending
commitments . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2017 . . . . . . . .
Combined allowance and reserve as of
December 31, 2017 . . . . . . . . . . . . . . . . . . .
Allowance for loan and lease losses:
5,783
1,044
—
5,273
—
—
—
283
6,066
1,119
(32)
1,012
30
30
162
—
375
5,648
1,119
—
—
—
—
—
—
—
—
—
10
(5)
(2)
58
—
—
—
51
1,180
(15)
142
—
65
7
—
7
(2)
1,242
7
—
7
313
(152)
(30)
611
129
(12)
117
4
7,563
(1)
1,001
—
1
—
—
—
(2)
7,502
136
(12)
124
$ 5,273
$
375
$ 5,648
$ 1,119
$
58
$
72
$ 1,249
$
728
$
1
$ 7,626
Allowance coverage ratios are calculated based on the allowance for loan and lease losses for each specified portfolio segment
divided by period-end loans held for investment within the specified loan category. Table 27 presents the allowance coverage ratios
as of December 31, 2018 and 2017.
Table 27: Allowance Coverage Ratios
(Dollars in millions)
Credit Card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018
December 31, 2017
Allowance
for loan
and lease
losses
Allowance
coverage
ratio
Allowance
for loan
and lease
losses
Amount(1)
Amount(1)
$
5,535
$
1,048
637
7,220
4,668
4,360
312
245,899
118.56% $
5,648
$
24.04
204.25
2.94
1,242
611
7,502
4,578
4,010
284
254,473
Allowance
coverage
ratio
123.36%
30.95
215.14
2.95
__________
(1) Represents period-end 30+ day delinquent loans for our credit card and consumer banking loan portfolios, nonperforming loans for our commercial banking
loan portfolio and total loans held for investment for the total ratio.
Our allowance for loan and lease losses decreased by $282 million to $7.2 billion as of December 31, 2018 compared to
December 31, 2017 primarily driven by allowance releases in our domestic credit card and auto loan portfolios largely due to
improvements in credit trends.
The allowance coverage ratio remained substantially flat at 2.94% as of December 31, 2018 from December 31, 2017 as allowance
releases in our domestic credit card and auto loan portfolios were offset by lower loan balances largely due to the sale of our
consumer home loan portfolio.
Balance as of December 31, 2017 . . . . . . . .
$ 5,273
$
375
$ 5,648
$ 1,119
$
58
$
65
$ 1,242
$
611
$
1
$ 7,502
LIQUIDITY RISK PROFILE
Charge-offs . . . . . . . . . . . . . . . . . . . . . . .
(6,152)
(505)
(6,657)
(1,746)
Recoveries(3) . . . . . . . . . . . . . . . . . . . . . .
1,370
218
1,588
834
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . .
(4,782)
(287)
(5,069)
(912)
Provision (benefit) for loan and lease losses
4,653
331
4,984
783
Allowance build (release) for loan and
lease losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Other changes(1)(4). . . . . . . . . . . . . . . . . . . . .
(129)
—
44
(28)
(85)
(28)
Balance as of December 31, 2018 . . . . . . . .
5,144
391
5,535
Reserve for unfunded lending
commitments:
Balance as of December 31, 2017 . . . . . . . .
Provision (benefit) for losses on unfunded
lending commitments . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2018 . . . . . . . .
Combined allowance and reserve as of
December 31, 2018 . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
1
1
(6)
(5)
(53)
—
—
—
—
(86)
(1,832)
(119)
(7)
(8,615)
16
851
(70)
(981)
64
(6)
(1)
841
(140)
(54)
63
(56)
82
26
—
58
1,048
637
7
(3)
4
7
(3)
4
117
1
118
1
2,503
(6)
(6,112)
(49)
5,858
(55)
(254)
54
—
—
—
—
(28)
7,220
124
(2)
122
(129)
—
990
—
—
—
$ 5,144
$
391
$ 5,535
$
990
$ — $
62
$ 1,052
$
755
$ — $ 7,342
__________
(1)
In 2018, we sold all of our consumer home loan portfolio and recognized a gain of approximately $499 million in the Other category, including a benefit for
credit losses of $46 million.
(2)
(3)
Includes the legacy loan portfolio of our discontinued GreenPoint mortgage operations.
The amount and timing of recoveries is impacted by our collection strategies, which are based on customer behavior and risk profile and include direct
customer communications, repossession of collateral, the periodic sale of charged-off loans as well as additional strategies, such as litigation.
(4) Represents foreign currency translation adjustments and the net impact of loan transfers and sales where applicable.
We have established liquidity practices that are intended to ensure that we have sufficient asset-based liquidity to cover our funding
requirements and maintain adequate reserves to withstand the potential impact of deposit attrition or diminished liquidity in the
funding markets. In addition to our cash position, we maintain reserves in the form of available for sale securities, held to maturity
securities and certain loans that are either readily-marketable or pledgeable.
Table 28 below presents the composition of our liquidity reserves as of December 31, 2018 and 2017.
Table 28: Liquidity Reserves
(Dollars in millions)
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
December 31,
2017
$
13,186
$
14,040
Investment securities portfolio:
Investment securities available for sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities held to maturity, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investment securities portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FHLB borrowing capacity secured by loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding FHLB advances and letters of credit secured by loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities encumbered for Public Funds and others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liquidity reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,150
36,619
82,769
10,003
(9,726)
(6,631)
37,655
29,437
67,092
20,927
(9,115)
(8,619)
$
89,601
$
84,325
Our liquidity reserves increased by $5.3 billion to $89.6 billion as of December 31, 2018 from December 31, 2017 primarily driven
by an increase in our investment securities portfolio. The increase in our investment securities portfolio and the decrease in our
FHLB borrowing capacity secured by loans were primarily due to the sale of our consumer home loan portfolio during 2018. See
“MD&A—Risk Management” for additional information on our management of liquidity risk.
87
Capital One Financial Corporation (COF)
88
Capital One Financial Corporation (COF)
Liquidity Coverage Ratio
Deposits
We are subject to the Liquidity Coverage Ratio Rule (“LCR Rule”) as implemented by the Federal Reserve and OCC. The LCR
Rule requires us to calculate our LCR daily and to publicly disclose, on a quarterly basis, our LCR, certain related quantitative
liquidity metrics, and a qualitative discussion of our LCR. Our average LCR during the fourth quarter of 2018 exceeded the LCR
requirement of 100%. The calculation and the underlying components are based on our interpretations, expectations and assumptions
of relevant regulations, as well as interpretations provided by our regulators, and are subject to change based on changes to future
regulations and interpretations. See “Part I—Item 1. Business—Supervision and Regulation” for additional information.
Borrowing Capacity
We maintain a shelf registration with the SEC that we may periodically offer and sell an indeterminate aggregate amount of senior
or subordinated debt securities, preferred stock, depositary shares, common stock, purchase contracts, warrants and units. There
is no limit under this shelf registration to the amount or number of such securities that we may offer and sell, subject to market
conditions. In addition, we also maintain a shelf registration that allows us to periodically offer and sell up to $25 billion of
securitized debt obligations from our credit card loan securitization trust and a shelf registration that allows us to periodically offer
and sell up to $20 billion in securitized auto loans.
In addition to our issuance capacity under the shelf registration statements, we also have access to FHLB advances. The ability to
draw down funding is based on membership status and the amount is dependent upon the Banks’ ability to post collateral. As of
December 31, 2018, we pledged both loans and securities to FHLB to secure a maximum borrowing capacity of $19.3 billion, of
which $9.5 billion was still available to us to borrow. Our FHLB membership is supported by our investment in FHLB stock of
$415 million and $360 million as of December 31, 2018 and 2017, respectively, which was determined in part based on our
outstanding advances. In addition, we have access to the Federal Reserve Discount Window through which we had a borrowing
capacity of $7.6 billion as of December 31, 2018. Our membership with the Federal Reserve is supported by our investment in
Federal Reserve stock, totaling $1.3 billion and $1.2 billion as of December 31, 2018 and 2017, respectively.
Funding
Our primary source of funding comes from deposits, which provide a stable and relatively low cost of funds. In addition to deposits,
we raise funding through the issuance of senior and subordinated notes, securitized debt obligations and brokered deposits, as well
as federal funds purchased, securities loaned or sold under agreements to repurchase, and FHLB advances secured by certain
portions of our loan and securities portfolios. A key objective in our use of these markets is to maintain access to a diversified mix
of wholesale funding sources. See “MD&A—Consolidated Balance Sheets Analysis—Funding Sources Composition” for
additional information on our primary sources of funding.
Table 29 provides a comparison of average balances, interest expense and average deposit interest rates for the years ended
December 31, 2018, 2017 and 2016.
Table 29: Deposits Composition and Average Deposits Interest Rates
Year Ended December 31,
(Dollars in millions)
Interest-bearing checking accounts(1).
Saving deposits(2) . . . . . . . . . . . . . . . .
Time deposits less than $100,000 . . .
Total interest-bearing core deposits.
Time deposits of $100,000 or more . .
Foreign deposits . . . . . . . . . . . . . . . . .
Total interest-bearing deposits . . . . . .
2018
Average
Balance
Interest
Expense
$ 38,843
$
245
149,443
25,535
213,821
7,672
267
1,603
606
2,454
143
1
$ 221,760
$ 2,598
__________
(1)
Includes negotiable order of withdrawal accounts.
(2)
Includes money market deposit accounts.
Average
Deposits
Interest
Average
Rate
Balance
0.63% $ 44,537
1.07
144,273
Average
Deposits
Interest
Average
Rate
Balance
0.51% $ 45,339
0.68
137,753
2017
Interest
Expense
$
227
982
337
2016
Interest
Expense
$
218
814
144
2.37
1.15
1.87
0.41
1.17
21,030
209,840
1,546
3,661
448
54
2
$ 213,949
$ 1,602
1.60
0.74
1.50
0.38
0.75
12,062
195,154
1,176
2,511
639
35
2
$ 198,304
$ 1,213
Average
Deposits
Interest
Rate
0.48%
0.59
1.19
0.60
1.39
0.35
0.61
The FDIC limits the acceptance of brokered deposits by well-capitalized insured depository institutions and, with a waiver from
the FDIC, by adequately-capitalized institutions. COBNA and CONA were well-capitalized, as defined under the federal banking
regulatory guidelines, as of December 31, 2018 and 2017, respectively. See “Part I—Item 1. Business—Supervision and
Regulation” for additional information. We provide additional information on the composition of deposits under “MD&A—
Consolidated Balance Sheets Analysis—Funding Sources Composition” and in “Note 9—Deposits and Borrowings.”
Table 30 presents the contractual maturities of large-denomination domestic time deposits of $100,000 or more as of December 31,
2018 and 2017. Our funding and liquidity management activities factor into the expected maturities of these deposits.
Table 30: Maturities of Large-Denomination Domestic Time Deposits—$100,000 or More
December 31,
2018
2017
(Dollars in millions)
Amount % of Total
Amount % of Total
Up to three months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
> 3 months to 6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> 6 months to 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,494
3,034
4,328
2,493
13.2% $
26.7
38.1
22.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 11,349
100.0% $
577
469
1,030
2,254
4,330
13.3%
10.8
23.8
52.1
100.0%
Short-Term Borrowings and Long-Term Debt
We access the capital markets to meet our funding needs through the issuance of senior and subordinated notes, securitized debt
obligations, and federal funds purchased and securities loaned or sold under agreements to repurchase. In addition, we may utilize
short-term and long-term FHLB advances secured by certain of our investment securities, multifamily real estate loans, and
commercial real estate loans. Substantially all of our long-term FHLB advances are structured with either a monthly or a quarterly
call option at our discretion.
Our short-term borrowings include those borrowings with an original contractual maturity of one year or less and do not include
the current portion of long-term debt. The short-term borrowings, which consist of short-term FHLB advances and federal funds
purchased, securities loaned or sold under agreements to repurchase, increased by $8.8 billion to $9.4 billion as of December 31,
2018 from December 31, 2017 driven by an increase in our short-term FHLB advances outstanding.
89
Capital One Financial Corporation (COF)
90
Capital One Financial Corporation (COF)
Our long-term debt, which primarily consists of securitized debt obligations, senior and subordinated notes, and long-term FHLB
advances, decreased by $10.2 billion to $49.5 billion as of December 31, 2018 from December 31, 2017, primarily driven by a
decrease in our long-term FHLB advances outstanding and maturities in our securitized debt obligations.
The following table summarizes issuances of securitized debt obligations, senior and subordinated notes, and FHLB advances and
their respective maturities or redemptions for the years ended December 31, 2018 and 2017.
Table 31: Long-Term Funding
(Dollars in millions)
Securitized debt obligations(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior and subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuances
Maturities/Redemptions
Year Ended December 31,
Year Ended December 31,
2018
2017
2018
2017
$
1,000
$
8,474
$
2,673
$
5,250
750
10,300
25,180
5,055
9,108
7,233
2,804
33,750
43,787
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
7,000
$
43,954
$
16,836
$
_________
(1)
Includes $2.5 billion of securitized debt assumed in the Cabela’s acquisition for the year ended December 31, 2017.
Credit Ratings
Our credit ratings impact our ability to access capital markets and our borrowing costs. Rating agencies base their ratings on
numerous factors, including liquidity, capital adequacy, asset quality, quality of earnings and the probability of systemic support.
Significant changes in these factors could result in different ratings.
Table 32 provides a summary of the credit ratings for the senior unsecured long-term debt of Capital One Financial Corporation,
COBNA and CONA as of December 31, 2018 and 2017.
Table 32: Senior Unsecured Long-Term Debt Credit Ratings
Moody’s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fitch. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018
December 31, 2017
Capital One
Financial
Corporation
Baa1
BBB
A-
COBNA
CONA
Baa1
BBB+
A-
Baa1
BBB+
A-
Capital One
Financial
Corporation
Baa1
BBB
A-
COBNA
CONA
Baa1
BBB+
A-
Baa1
BBB+
A-
Table 33: Contractual Obligations
(Dollars in millions)
Interest-bearing time deposits(1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securitized debt obligations(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt:
Federal funds purchased and securities loaned or sold under agreements
to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior and subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other debt(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
__________
(1)
Includes only those interest-bearing deposits which have a contractual maturity date.
December 31, 2018
Up to
1 Year
> 1 Years
to 3 Years
> 3 Years
to 5 Years
> 5 Years
Total
$ 22,548
$ 10,589
$
5,212
$
6,845
7,564
3,245
122
653
$ 38,471
18,307
352
5,314
9,060
14,726
352
357
—
9,270
316
9,586
588
427
—
6,667
11
6,678
462
91
—
9,575
33
9,608
949
131
352
30,826
9,420
40,598
2,351
1,006
$ 44,828
$ 28,754
$ 15,688
$ 11,463
$ 100,733
(2)
These amounts represent the carrying value of the obligations and do not include amounts related to contractual interest obligations. Total contractual interest
obligations were approximately $5.7 billion as of December 31, 2018, and represent forecasted net interest payments based on interest rates as of December 31,
2018. These forecasts use the contractual maturity date of each liability and include the impact of hedge accounting where applicable.
(3) Other borrowings primarily consists of FHLB advances.
(4) Represents substantial agreements to purchase goods or services that are enforceable and legally binding and specify all significant terms. Purchase obligations
are included through the termination date of the agreements even if the contract is renewable.
MARKET RISK PROFILE
Market risk is inherent in the financial instruments associated with our operations and activities, including loans, deposits, securities,
short-term borrowings, long-term debt and derivatives. Below we provide additional information about our primary sources of
market risk, our market risk management strategies and the measures we use to evaluate our market risk exposure.
Primary Market Risk Exposures
Our primary source of market risk is interest rate risk. We also have exposure to foreign exchange risk and customer-related trading
risk, both of which we believe are minimal after considering the impact of our associated risk management activities discussed
below.
As of February 15, 2019, Moody’s Investors Service (“Moody’s”), S&P and Fitch Ratings (“Fitch”) have us on a stable outlook.
Interest Rate Risk
Contractual Obligations
In the normal course of business, we enter into various contractual obligations that may require future cash payments that affect
our short-term and long-term liquidity and capital resource needs. Our future cash outflows primarily relate to deposits, borrowings
and operating leases. Table 33 summarizes, by remaining contractual maturity, our significant contractual cash obligations as of
December 31, 2018. The actual timing and amounts of future cash payments may differ from the amounts presented below due to
a number of factors, such as discretionary debt repurchases. Table 33 excludes short-term obligations such as trade payables,
commitments to fund certain equity investments, obligations for pension and post-retirement benefit plans, and representation and
warranty reserves, which are discussed in more detail in “Note 6—Variable Interest Entities and Securitizations,” “Note 15—
Employee Benefit Plans” and “Note 19—Commitments, Contingencies, Guarantees and Others.”
Interest rate risk, which represents exposure to instruments whose yield or price varies with the volatility of interest rates, is our
most significant source of market risk exposure. Banks are inevitably exposed to interest rate risk due to differences in the timing
between the maturities or re-pricing of assets and liabilities.
Foreign Exchange Risk
Foreign exchange risk represents exposure to changes in the values of current holdings and future cash flows denominated in other
currencies. Our primary exposure to foreign exchange risk is related to the operations of our international businesses in the U.K.
and Canada. The largest foreign exchange exposure arising from these operations is the funding they are provided in the Great
British pound (“GBP”) and the Canadian dollar (“CAD”), respectively. We also have foreign exchange exposure through our net
equity investments in these operations and through the dollar-denominated value of future earnings and cash flows they generate.
Our intercompany funding exposes our consolidated statements of income to foreign exchange transaction risk, while our equity
investments in our foreign operations result in translation risk exposure in our AOCI and capital ratios. We manage our transaction
risk by entering into forward foreign currency derivative contracts to hedge our exposure to variability in cash flows related to
foreign currency-denominated intercompany borrowings. We use foreign currency derivative contracts as net investment hedges
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Capital One Financial Corporation (COF)
to manage our AOCI exposure. We apply hedge accounting to both our intercompany funding hedges and our net investment
hedges, with the primary net investments subject to hedging denominated in GBP.
We measure our total exposure from non-dollar-denominated intercompany borrowings to our international businesses by regularly
tracking the value of the loans made to our foreign operations and the associated forward foreign currency derivative contracts we
use to hedge them. We apply a 1% U.S. dollar appreciation shock against these exposures to measure the impact to our consolidated
statements of income from foreign exchange transaction risk. The intercompany borrowings to our international businesses were
756 million GBP and 741 million GBP as of December 31, 2018 and 2017, respectively, and 6.5 billion CAD and 6.4 billion CAD
as of December 31, 2018 and 2017, respectively.
We measure our total exposure in non-dollar-denominated equity by regularly tracking the value of net equity invested in our
foreign operations largely in the U.K. and Canada. Our measurement of net equity includes the impact of net investment hedges
where applicable. We apply a 30% U.S. dollar appreciation shock against these net investment exposures, which we believe
approximates a significant adverse foreign exchange movement over a one-year time horizon. Our gross equity exposures in our
U.K. and Canadian operations were 1.6 billion GBP as of both December 31, 2018 and 2017, and 1.2 billion CAD and 1.0 billion
CAD as of December 31, 2018 and 2017, respectively.
We consider the impact on both net interest income and economic value of equity in measuring and managing our interest rate
risk. As interest rates have increased in 2018, we have incorporated a 200 basis points decline scenario into our interest rate
sensitivity analysis. We use this 200 basis points decrease as our largest magnitude declining interest rate scenario and in scenarios
where a 200 basis points decline would result in a rate less than 0%, we assume a rate of 0%.
Net Interest Income Sensitivity
This sensitivity measure estimates the impact on our projected 12-month baseline interest rate-sensitive revenue resulting from
movements in interest rates. Interest rate-sensitive revenue consists of net interest income and certain components of other non-
interest income significantly impacted by movements in interest rates, including changes in the fair value of free-standing interest
rate swaps. In addition to our existing assets and liabilities, we incorporate expected future business growth assumptions, such as
loan and deposit growth and pricing, and plans for projected changes in our funding mix in our baseline forecast. In measuring
the sensitivity of interest rate movements on our projected interest rate-sensitive revenue, we assume a hypothetical instantaneous
parallel shift in the level of interest rates of +200 basis points, +100 basis points, +50 basis points, -50 basis points, -100 basis
points and -200 basis points to spot rates, with the lower rate scenario limited to zero as described above. At the current level of
interest rates, our net interest income remains largely unchanged in most scenarios and decreases in the -200 basis points scenario.
As a result of our derivative management activities, we believe our net exposure to foreign exchange risk is minimal.
Economic Value of Equity
Our economic value of equity sensitivity measure estimates the impact on the net present value of our assets and liabilities, including
derivative hedging activity, resulting from movements in interest rates. Our economic value of equity sensitivity measures are
calculated based on our existing assets and liabilities, including derivatives, and do not incorporate business growth assumptions
or projected plans for funding mix changes. In measuring the sensitivity of interest rate movements on our economic value of
equity, we assume a hypothetical instantaneous parallel shift in the level of interest rates of +200 basis points, +100 basis points,
+50 basis points, -50 basis points, -100 basis points and -200 basis points to spot rates, with the lower rate scenario limited to zero
as described above.
Calculating our economic value of equity and its sensitivity to interest rates requires projecting cash flows for assets, liabilities
and derivative instruments and discounting those cash flows at the appropriate discount rates. Key assumptions in our economic
value of equity calculation include projecting rate sensitive prepayments for mortgage securities, loans and other assets, term
structure modeling of interest rates, discount spreads, and deposit volume and pricing assumptions.
Our current economic value of equity sensitivity profile demonstrates that our economic value of equity generally decreases as
interest rates increase indicating that the economic value of our assets and derivative positions is more sensitive to interest rate
changes than our liabilities.
Customer-Related Trading Risk
We offer various interest rate, foreign exchange rate and commodity derivatives as an accommodation to customers within our
Commercial Banking business and offset the majority of these exposures through derivative transactions with other counterparties.
These exposures are measured and monitored on a daily basis. As a result of offsetting our customer exposures with other
counterparties, we believe our net exposure to customer-related trading risk is minimal.
We employ value-at-risk (“VaR”) as the primary method to both measure and monitor the market risk in our customer-related
trading activities. VaR is a statistical-based risk measure used to estimate the potential loss from adverse market movements in a
normal market environment. We employ a historical simulation approach using the most recent 500 business days and use a 99
percent confidence level and a holding period of one business day. We use internal models to produce a daily VaR measure of the
market risk of all customer-related trading exposures.
For further information on our customer-related trading exposures, see “Note 10—Derivative Instruments and Hedging Activities.”
Market Risk Management
We employ several techniques to manage our interest rate and foreign exchange risk, which include, but are not limited to, altering
the duration and re-pricing characteristics of our various assets and liabilities and mitigating the foreign exchange exposure of
certain non-dollar-denominated equity or transactions. Derivatives are the primary tools that we use for managing interest rate and
foreign exchange risk. Use of derivatives is included in our current market risk management policies. We execute our derivative
contracts in both over-the-counter and exchange-traded derivative markets and have exposure to both bilateral and clearinghouse
counterparties. Although the majority of our derivatives are interest rate swaps, we also use a variety of other derivative instruments,
including caps, floors, options, futures and forward contracts, to manage both our interest rate and foreign currency risk. The
outstanding notional amount of our derivative contracts increased to $212.5 billion as of December 31, 2018 from $196.6 billion
as of December 31, 2017 primarily driven by an increase in our customer accommodation activities.
Market Risk Measurement
We have risk management policies and limits established by our market risk management policies and approved by the Board of
Directors. Our objective is to manage our asset and liability risk position and exposure to market risk in accordance with these
policies and prescribed limits based on prevailing market conditions and long-term expectations. Because no single measure can
reflect all aspects of market risk, we use various industry standard market risk measurement techniques and analysis to measure,
assess and manage the impact of changes in interest rates on our net interest income and our economic value of equity and the
impact of changes in foreign exchange rates on our non-dollar-denominated earnings and non-dollar equity investments in foreign
operations. We provide additional information below in “Economic Value of Equity.”
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Capital One Financial Corporation (COF)
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Capital One Financial Corporation (COF)
Table 34 shows the estimated percentage impact on our projected baseline net interest income and economic value of equity
calculated under the methodology described above as of December 31, 2018 and 2017.
SUPPLEMENTAL TABLES
Table 34: Interest Rate Sensitivity Analysis
Table A—Loans Held for Investment Portfolio Composition
Estimated impact on projected baseline net interest income:
+200 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+100 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+50 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–50 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–100 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–200 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated impact on economic value of equity:
+200 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+100 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+50 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–50 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–100 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–200 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
December 31,
2017
(0.8)%
(0.8)%
(0.2)
0.0
(0.3)
(1.0)
(3.7)
(7.1)
(2.9)
(1.2)
0.2
(0.8)
(8.0)
(0.3)
0.0
(0.3)
(1.3)
—
(7.5)
(3.1)
(1.2)
0.1
(1.5)
—
In addition to these industry standard measures, we will continue to factor into our internal interest rate risk management decisions,
the potential impact of alternative interest rate scenarios, such as stressed rate shocks, as well as steepening and flattening yield
curve scenarios.
Limitations of Market Risk Measures
The interest rate risk models that we use in deriving these measures incorporate contractual information, internally-developed
assumptions and proprietary modeling methodologies, which project borrower and depositor behavior patterns in certain interest
rate environments. Other market inputs, such as interest rates, market prices and interest rate volatility, are also critical components
of our interest rate risk measures. We regularly evaluate, update and enhance these assumptions, models and analytical tools as
we believe appropriate to reflect our best assessment of the market environment and the expected behavior patterns of our existing
assets and liabilities.
There are inherent limitations in any methodology used to estimate the exposure to changes in market interest rates. The sensitivity
analysis described above contemplates only certain movements in interest rates and is performed at a particular point in time based
on the existing balance sheet and, in some cases, expected future business growth and funding mix assumptions. The strategic
actions that management may take to manage our balance sheet may differ significantly from our projections, which could cause
our actual earnings and economic value of equity sensitivities to differ substantially from the above sensitivity analysis.
(Dollars in millions)
Credit Card:
December 31,
2018
2017
2016
2015
2014
Domestic credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$107,350
$105,293
$ 97,120
$ 87,939
$ 77,704
International card businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,011
9,469
8,432
8,186
8,172
Total credit card. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
116,361
114,762
105,552
96,125
85,876
Consumer Banking:
Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56,341
—
2,864
53,991
17,633
3,454
47,916
21,584
3,554
41,549
25,227
3,596
37,824
30,035
3,580
Total consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59,205
75,078
73,054
70,372
71,439
Commercial Banking:
Commercial and multifamily real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Small-ticket commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,899
41,091
69,990
343
26,150
38,025
64,175
400
26,609
39,824
66,433
483
25,518
37,135
62,653
613
23,137
26,972
50,109
781
Total commercial banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70,333
64,575
66,916
63,266
50,890
Other loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
58
64
88
111
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$245,899
$254,473
$245,586
$229,851
$208,316
95
Capital One Financial Corporation (COF)
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Capital One Financial Corporation (COF)
Table B—Performing Delinquencies
Table C—Nonperforming Loans and Other Nonperforming Assets
2018
2017
December 31,
2016
2015
2014
(Dollars in millions)
December 31,
2018
2017
2016
2015
2014
(Dollars in millions)
Delinquent loans:
Loans(1)(2)
Rate(3)
Loans(1)(2)
Rate(3)
Loans(1)(2)
Rate(3)
Loans(1)(2)
Rate(3)
Loans(1)(2)
Rate(3)
30 – 59 days . . . . . . . . . . . . . . . .
$
4,255
1.73% $
3,908
1.53% $
3,416
1.39% $
3,042
1.33% $
2,803
1.34%
60 – 89 days . . . . . . . . . . . . . . . .
2,406
90 – 119 days . . . . . . . . . . . . . . .
120 – 149 days . . . . . . . . . . . . . .
150 or more days . . . . . . . . . . . .
866
736
632
0.98
0.35
0.30
0.26
2,086
862
734
637
0.82
0.34
0.29
0.25
1,833
771
628
537
0.75
0.31
0.26
0.22
1,636
603
493
409
0.71
0.26
0.21
0.18
1,394
508
409
346
0.67
0.24
0.20
0.17
Total . . . . . . . . . . . . . . . . . . . . . . . . .
$
8,895
3.62% $
8,227
3.23% $
7,185
2.93% $
6,183
2.69% $
5,460
2.62%
By geographic area:
Domestic. . . . . . . . . . . . . . . . . . .
$
8,578
3.49% $
7,883
3.10% $
6,902
2.81% $
5,939
2.58% $
5,220
International . . . . . . . . . . . . . . . .
317
0.13
344
0.13
283
0.12
244
0.11
240
Total . . . . . . . . . . . . . . . . . . . . . . . . .
$
8,895
3.62% $
8,227
3.23% $
7,185
2.93% $
6,183
2.69% $
5,460
Total loans held for investment . . . .
$245,899
$254,473
$245,586
$229,851
$208,316
2.50%
0.12
2.62%
__________
(1) Credit card loan balances are reported net of the finance charge and fee reserve, which totaled $468 million, $491 million, $402 million, $262 million and
$216 million as of December 31, 2018, 2017, 2016, 2015 and 2014, respectively.
(2)
Performing loan modifications and restructuring totaled $1.4 billion, $1.9 billion, $1.6 billion, $1.4 billion and $1.2 billion as of December 31, 2018, 2017,
2016, 2015 and 2014, respectively.
(3) Delinquency rates are calculated by dividing loans in each delinquency status category and geographic region as of the end of the period by the total loan
portfolio.
Nonperforming loans held for investment:
Credit Card:
International card businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Total credit card. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Banking:
Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Banking:
Commercial and multifamily real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Small-ticket commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonperforming loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . .
Other nonperforming assets:
Foreclosed property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonperforming loans(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total nonperforming assets(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
22
449
—
30
479
83
223
306
6
312
—
813
2
57
59
$
$
$
24
24
376
176
35
587
38
239
277
7
284
4
$
42
42
223
273
31
527
30
988
1,018
4
1,022
8
$
53
53
219
311
28
558
7
538
545
5
550
9
899
$ 1,599
$ 1,170
88
65
153
$
75
205
280
$
126
198
324
$
$
$
70
70
197
330
22
549
62
106
168
7
175
15
809
139
183
322
$
$
$
872
$ 1,052
$ 1,879
$ 1,494
$ 1,131
0.33%
0.35
0.35%
0.41
0.65%
0.76
0.51%
0.65
0.39%
0.54
__________
(1) Beginning in the first quarter of 2017, partially charged-off auto loans previously presented within other assets were prospectively included within loans
held for investment. Other assets includes repossessed assets obtained in satisfaction of auto loans and the net realizable value of certain partially charged-
off auto loans, which will continue to decline over time.
(2) Nonperforming loan rate is calculated based on total nonperforming loans divided by period-end total loans held for investment.
(3)
The denominator used in calculating the total nonperforming assets ratio consists of total loans held for investment and total other nonperforming assets.
97
Capital One Financial Corporation (COF)
98
Capital One Financial Corporation (COF)
Table D—Net Charge-Offs
Table E—Summary of Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments
(Dollars in millions)
2018
2017
2016
2015
2014
(Dollars in millions)
2018
2017
2016
2015
2014
December 31,
December 31,
Average loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,112
6,562
5,062
Net charge-off rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.52%
2.67%
2.17%
$242,118
$ 245,565
$ 233,272
$ 210,745
$ 197,925
Allowance for loan and lease losses:
3,695
1.75%
3,414
1.72%
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charge-offs:
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries:
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance build (release) for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . .
Other changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for unfunded lending commitments:
$ 7,502
$ 6,503
$ 5,130
$ 4,383
$ 4,315
(6,657)
(1,832)
(119)
(7)
(8,615)
1,588
851
63
1
2,503
(6,112)
5,858
(254)
(28)
$ 7,220
(6,321)
(1,677)
(481)
(34)
(8,513)
1,267
639
16
29
1,951
(6,562)
7,563
1,001
(2)
$ 7,502
(5,019)
(1,226)
(307)
(3)
(6,555)
1,066
406
15
6
1,493
(5,062)
6,491
1,429
(56)
$ 6,503
(4,028)
(1,082)
(76)
(7)
(5,193)
1,110
351
29
8
1,498
(3,695)
4,490
795
(48)
$ 5,130
(3,963)
(989)
(34)
(10)
(4,996)
1,235
314
24
9
1,582
(3,414)
3,515
101
(33)
$ 4,383
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 124
$
136
$
168
$
113
$
Provision (benefit) for losses on unfunded lending commitments . . . . . . . . . . . . . .
Other changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2)
—
122
(12)
—
124
(32)
—
136
46
9
168
87
26
—
113
Combined allowance and reserve at end of period . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan and lease losses as a percentage of loans held for investment . .
$ 7,342
$ 7,626
$ 6,639
$ 5,298
$ 4,496
2.94%
2.95%
2.65%
2.23%
2.10%
Combined allowance and reserve by geographic distribution:
Domestic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Combined allowance and reserve by portfolio segment:
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,951
391
$ 7,342
$ 5,535
1,052
755
—
$ 7,342
$ 7,251
375
$ 7,626
$ 5,648
1,249
728
1
$ 7,626
$ 6,262
377
$ 6,639
$ 4,606
1,109
922
2
$ 6,639
$ 4,999
299
$ 5,298
$ 3,654
875
765
4
$ 5,298
$ 4,170
326
$ 4,496
$ 3,204
786
501
5
$ 4,496
99
Capital One Financial Corporation (COF)
100
Capital One Financial Corporation (COF)
Reconciliation of Non-GAAP Measures
The following non-GAAP measures consist of TCE, tangible assets and metrics computed using these amounts, which include
tangible book value per common share, return on average tangible assets, return on average TCE and TCE ratio. We consider these
metrics to be key financial performance measures that management uses in assessing capital adequacy and the level of returns
generated. While these non-GAAP measures are widely used by investors, analysts and bank regulatory agencies to assess the
capital position of financial services companies, our measures may not be comparable to similarly-titled measures reported by
other companies. The following tables present reconciliations of these non-GAAP measures to the applicable amounts measured
in accordance with GAAP.
Table F—Reconciliation of Non-GAAP Measures
(Dollars in millions, except as noted)
Tangible Common Equity (Period-End):
2018
2017
2016
2015
2014
December 31,
Stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible assets(1) . . . . . . . . . . . . . . . . . . . . . . . . .
Noncumulative perpetual preferred stock . . . . . . . . . . . . . . . . . .
$ 51,668
$
48,730
$
47,514
$
47,284
$
45,053
(14,941)
(4,360)
(15,106)
(4,360)
(15,420)
(4,360)
(15,701)
(3,294)
(15,383)
(1,822)
Tangible common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 32,367
$
29,264
$
27,734
$
28,289
$
27,848
Tangible Common Equity (Average):
Stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible assets(1) . . . . . . . . . . . . . . . . . . . . . . . . .
Noncumulative perpetual preferred stock . . . . . . . . . . . . . . . . . .
$ 50,192
$
49,530
$
48,753
$
47,713
$
44,268
(15,017)
(4,360)
(15,308)
(4,360)
(15,550)
(3,591)
(15,273)
(2,641)
(15,575)
(1,213)
Tangible common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 30,815
$
29,862
$
29,612
$
29,799
$
27,480
Tangible Assets (Period-End):
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible assets(1) . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 372,538
$ 365,693
$ 357,033
$ 334,048
$ 308,167
(14,941)
(15,106)
(15,420)
(15,701)
(15,383)
$ 357,597
$ 350,587
$ 341,613
$ 318,347
$ 292,784
Tangible Assets (Average)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible assets(1) . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 363,036
$ 354,924
$ 339,974
$ 313,474
$ 297,659
(15,017)
(15,308)
(15,550)
(15,273)
(15,575)
$ 348,019
$ 339,616
$ 324,424
$ 298,201
$ 282,084
Non-GAAP Ratio:
TCE(2)
__________
(1)
Includes impact of related deferred taxes.
(2)
TCE ratio is a non-GAAP measure calculated based on TCE divided by tangible assets.
9.1%
8.3%
8.1%
8.9%
9.5%
Balance sheet (average balances):
Table G—Selected Quarterly Financial Information
(Dollars in millions, except per share data and as noted)
(unaudited)
Summarized results of operations:
2018
2017
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
7,048
$
6,895
$
6,596
$
6,637
$
6,604
$
6,420
$
6,128
$
6,070
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income after provision for credit losses . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . .
Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations, net of tax . . . . .
Income (loss) from discontinued operations, net of tax . . .
1,228
5,820
1,638
4,182
1,193
4,132
1,243
(21)
1,264
(3)
1,109
5,786
1,268
4,518
1,176
3,773
1,921
420
1,501
1
1,045
5,551
1,276
4,275
1,641
3,424
2,492
575
1,917
(11)
919
5,718
1,674
4,044
1,191
3,573
1,662
319
1,343
3
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,261
1,502
1,906
1,346
Dividends and undistributed earnings allocated to
participating securities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . .
(9)
(80)
(9)
(53)
(12)
(80)
(10)
(52)
791
5,813
1,926
3,887
1,200
3,779
1,308
2,170
(862)
(109)
(971)
(1)
(80)
720
5,700
1,833
3,867
1,285
3,567
1,585
448
1,137
655
5,473
1,800
3,673
1,231
3,414
1,490
443
1,047
(30)
(11)
1,107
1,036
(8)
(52)
(8)
(80)
596
5,474
1,992
3,482
1,061
3,434
1,109
314
795
15
810
(5)
(53)
Net income (loss) available to common stockholders. . . . .
$
1,172
$
1,440
$
1,814
$
1,284
$ (1,052) $
1,047
$
948
$
752
Common share statistics:
Basic earnings per common share:(1)
Net income (loss) from continuing operations . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . .
Net income (loss) per basic common share. . . . . . . . . . . . .
Diluted earnings per common share:(1)
Net income (loss) from continuing operations . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . .
Net income (loss) per diluted common share . . . . . . . . . . .
Weighted-average common shares outstanding
(in millions):
$
$
$
$
2.50
(0.01)
2.49
2.49
(0.01)
2.48
$
$
$
$
3.01
—
3.01
2.99
—
2.99
$
$
$
$
3.76
(0.02)
3.74
3.73
(0.02)
3.71
$
$
$
$
2.63
0.01
2.64
2.61
0.01
2.62
$
$
$
$
(1.95) $
2.22
(0.22)
(0.06)
(2.17) $
2.16
(1.95) $
2.20
(0.22)
(0.06)
(2.17) $
2.14
$
$
$
$
1.98
(0.02)
1.96
1.96
(0.02)
1.94
$
$
$
$
1.53
0.03
1.56
1.51
0.03
1.54
Basic common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .
470.0
472.7
477.8
480.9
485.1
488.3
486.9
490.8
485.7
485.7
484.9
489.0
484.0
488.1
482.3
487.9
Loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . .
$241,371
$236,766
$240,758
$249,726
$252,566
$245,822
$242,241
$241,505
Interest-earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
334,714
330,272
333,495
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
365,243
360,937
363,929
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . .
222,827
221,431
223,079
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
247,663
246,720
248,790
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . .
53,994
46,753
51,114
51,684
46,407
50,768
52,333
45,466
49,827
330,183
362,049
219,670
245,270
54,588
44,670
49,031
330,742
322,015
318,078
318,358
363,045
355,191
349,891
351,641
215,258
213,137
214,412
212,973
241,562
238,843
240,550
238,550
58,109
46,350
50,710
54,271
45,816
50,176
48,838
44,645
49,005
53,357
43,833
48,193
__________
(1) Dividends and undistributed earnings allocated to participating securities and earnings per share are computed independently for each period. Accordingly,
the sum of each quarterly amount may not agree to the year-to-date total.
101
Capital One Financial Corporation (COF)
102
Capital One Financial Corporation (COF)
Glossary and Acronyms
2018 Stock Repurchase Program: On June 28, 2018, we announced that our Board of Directors authorized the repurchase of up
to $1.2 billion of shares of our common stock from the third quarter of 2018 through the end of the second quarter of 2019.
Annual Report: References to our “2018 Form 10-K” or “2018 Annual Report” are to our Annual Report on Form 10-K for the
fiscal year ended December 31, 2018.
Banks: Refers to COBNA and CONA.
Basel Committee: The Basel Committee on Banking Supervision.
Basel III Advanced Approaches: The Basel III Advanced Approaches is mandatory for those institutions with consolidated total
assets of $250 billion or more or consolidated total on-balance sheet foreign exposure of $10 billion or more. The Basel III Capital
Rule modified the Advanced Approaches version of Basel II to create the Basel III Advanced Approaches.
Basel III Capital Rule: The Federal Banking Agencies issued a rule in July 2013 implementing the Basel III capital framework
developed by the Basel Committee as well as certain Dodd-Frank Act and other capital provisions.
Basel III Standardized Approach: The Basel III Capital Rule modified Basel I to create the Basel III Standardized Approach,
which requires for Basel III Advanced Approaches banking organizations that have yet to exit parallel run to use the Basel III
Standardized Approach to calculate regulatory capital, including capital ratios, subject to transition provisions.
Bass Pro acquisition: On October 5, 2018, we completed the acquisition of the Bass Pro cobrand credit card portfolio.
Cabela’s acquisition: On September 25, 2017, we completed the acquisition from Synovus Bank of credit card assets and the
related liabilities of World’s Foremost Bank, a wholly-owned subsidiary of Cabela’s Incorporated.
Capital One: Capital One Financial Corporation and its subsidiaries.
Carrying value (with respect to loans): The amount at which a loan is recorded on the consolidated balance sheets. For loans
recorded at amortized cost, carrying value is the unpaid principal balance net of unamortized deferred loan origination fees and
costs, and unamortized purchase premium or discount. For loans that are or have been on nonaccrual status, the carrying value is
also reduced by any net charge-offs that have been recorded and the amount of interest payments applied as a reduction of principal
under the cost recovery method. For credit card loans, the carrying value also includes interest that has been billed to the customer.
For loans classified as held for sale, carrying value is the lower of carrying value as described in the sentences above, or fair value.
For PCI loans, carrying value represents the present value of all expected cash flows including interest that has not yet been accrued,
discounted at the effective interest rate, including any valuation allowance for impaired loans.
CECL: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments. This ASU requires an impairment model (known as the current expected credit loss
(“CECL”) model) that is based on expected rather than incurred losses, with an anticipated result of more timely loss recognition.
This guidance is effective for us on January 1, 2020, with early adoption permitted no earlier than January 1, 2019.
COBNA: Capital One Bank (USA), National Association, one of our fully owned subsidiaries, which offers credit and debit card
products, other lending products and deposit products.
Common equity Tier 1 capital: Calculated as the sum of common equity, related surplus and retained earnings, and accumulated
other comprehensive income net of applicable phase-ins, less goodwill and intangibles net of associated deferred tax liabilities
and applicable phase-ins, less other deductions, as defined by regulators.
Company: Capital One Financial Corporation and its subsidiaries.
CONA: Capital One, National Association, one of our fully owned subsidiaries, which offers a broad spectrum of banking products
and financial services to consumers, small businesses and commercial clients.
Credit risk: The risk of loss from an obligor’s failure to meet the terms of any contract or otherwise fail to perform as agreed.
Derivative: A contract or agreement whose value is derived from changes in interest rates, foreign exchange rates, prices of
securities or commodities, credit worthiness for credit default swaps or financial or commodity indices.
Discontinued operations: The operating results of a component of an entity, as defined by Accounting Standards Codification
(“ASC”) 205, that are removed from continuing operations when that component has been disposed of or it is management’s
intention to sell the component.
Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”): Regulatory reform legislation signed
into law on July 21, 2010. This law broadly affects the financial services industry and contains numerous provisions aimed at
strengthening the sound operation of the financial services sector.
Exchange Act: The Securities Exchange Act of 1934, as amended.
eXtensible Business Reporting Language (“XBRL”): A language for the electronic communication of business and financial
data.
Federal Banking Agencies: The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance
Corporation.
Federal Reserve: The Board of Governors of the Federal Reserve System.
FICO score: A measure of consumer credit risk provided by credit bureaus, typically produced from statistical modeling software
created by FICO (formerly known as “Fair Isaac Corporation”) utilizing data collected by the credit bureaus.
Foreign currency derivative contracts: An agreement to exchange contractual amounts of one currency for another currency at
one or more future dates.
Foreign exchange contracts: Contracts that provide for the future receipt or delivery of foreign currency at previously agreed-
upon terms.
GSE or Agency: A government-sponsored enterprise or agency is a financial services corporation created by the United States
Congress. Examples of U.S. government agencies include Federal National Mortgage Association (“Fannie Mae”), Federal Home
Loan Mortgage Corporation (“Freddie Mac”), Government National Mortgage Association (“Ginnie Mae”) and the Federal Home
Loan Banks (“FHLB”).
Impaired loans: A loan is considered impaired when, based on current information and events, it is probable that we will not be
able to collect all amounts due from the borrower in accordance with the original contractual terms of the loan.
Interest rate sensitivity: The exposure to interest rate movements.
Interest rate swaps: Contracts in which a series of interest rate flows in a single currency are exchanged over a prescribed period.
Interest rate swaps are the most common type of derivative contract that we use in our asset/liability management activities.
Investment grade: Represents Moody’s long-term rating of Baa3 or better; and/or a Standard & Poor’s or DBRS long-term rating
of BBB- or better; or if unrated, an equivalent rating using our internal risk ratings. Instruments that fall below these levels are
considered to be non-investment grade.
Investor entities: Entities that invest in community development entities (“CDE”) that provide debt financing to businesses and
non-profit entities in low-income and rural communities.
LCR Rule: In September 2014, the Federal Banking Agencies issued final rules implementing the Basel III Liquidity Coverage
Ratio in the United States. The LCR is calculated by dividing the amount of an institution’s high quality, unencumbered liquid
assets by its estimated net cash outflow, as defined and calculated in accordance with Final LCR Rule.
Leverage ratio: Tier 1 capital divided by average assets after certain adjustments, as defined by the regulators.
Liquidity risk: The risk that the Company will not be able to meet its future financial obligations as they come due, or invest in
future asset growth because of an inability to obtain funds at a reasonable price within a reasonable time period.
Loan-to-value (“LTV”) ratio: The relationship, expressed as a percentage, between the principal amount of a loan and the
appraised value of the collateral securing the loan.
Managed presentation: A non-GAAP presentation of financial results that includes reclassifications to present revenue on a fully
taxable-equivalent basis. Management uses this non-GAAP financial measure at the segment level, because it believes this provides
information to enable investors to understand the underlying operational performance and trends of the particular business segment
and facilitates a comparison of the business segment with the performance of competitors.
103
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Market risk: The risk that an institution’s earnings or the economic value of equity could be adversely impacted by changes in
interest rates, foreign exchange rates or other market factors.
Master netting agreement: An agreement between two counterparties that have multiple contracts with each other that provides
for the net settlement of all contracts through a single payment in the event of default or termination of any one contract.
Mortgage-backed security (“MBS”): An asset-backed security whose cash flows are backed by the principal and interest payments
of a set of mortgage loans.
Mortgage servicing rights (“MSR”): The right to service a mortgage loan when the underlying loan is sold or securitized.
Servicing includes collections for principal, interest and escrow payments from borrowers and accounting for and remitting principal
and interest payments to investors.
Subprime: For purposes of lending in our Credit Card business, we generally consider FICO scores of 660 or below, or other
equivalent risk scores, to be subprime. For purposes of auto lending in our Consumer Banking business, we generally consider
FICO scores of 620 or below to be subprime.
Tangible common equity (“TCE”): A non-GAAP financial measure. Common equity less goodwill and intangible assets adjusted
for deferred tax liabilities associated with non-tax deductible intangible assets and tax deductible goodwill.
Tax Act: The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year
2018 enacted on December 22, 2017.
Troubled debt restructuring (“TDR”): A TDR is deemed to occur when the contractual terms of a loan agreement are modified
by granting a concession to a borrower that is experiencing financial difficulty.
Net interest margin: The result of dividing net interest income by average interest-earning assets.
Unfunded commitments: Legally binding agreements to provide a defined level of financing until a specified future date.
U.K. PPI Reserve: U.K. payment protection insurance customer refund reserve.
U.S. GAAP: Accounting principles generally accepted in the United States of America. Accounting rules and conventions defining
acceptable practices in preparing financial statements in the U.S.
Variable interest entity (“VIE”): An entity that (i) lacks enough equity investment at risk to permit the entity to finance its
activities without additional financial support from other parties; (ii) has equity owners that lack the right to make significant
decisions affecting the entity’s operations; and/or (iii) has equity owners that do not have an obligation to absorb or the right to
receive the entity’s losses or return.
Nonperforming loans: Generally include loans that have been placed on nonaccrual status. We also do not report loans classified
as held for sale as nonperforming.
Option-ARM loans: The option-ARM real estate loan product is an adjustable-rate mortgage loan that initially provides the
borrower with the monthly option to make a fully-amortizing, interest-only or minimum fixed payment. After the initial payment
option period, usually five years, the recalculated minimum payment represents a fully-amortizing principal and interest payment
that would effectively repay the loan by the end of its contractual term.
Other-than-temporary impairment (“OTTI”): An impairment charge taken on a security whose fair value has fallen below the
carrying value on the balance sheet and whose value is not expected to recover through the holding period of the security.
Public Funds deposits: Deposits that are derived from a variety of political subdivisions such as school districts and municipalities.
Purchased credit-impaired (“PCI”) loans: Loans acquired in a business combination that were recorded at fair value at acquisition
and subsequently accounted for based on cash flows expected to be collected in accordance with ASC 310-30, Loans and Debt
Securities Acquired with Deteriorated Credit Quality.
Purchase volume: Consists of purchase transactions, net of returns, for the period, and excludes cash advance and balance transfer
transactions.
Rating agency: An independent agency that assesses the credit quality and likelihood of default of an issue or issuer and assigns
a rating to that issue or issuer.
Recorded investment: The amount of the investment in a loan which includes any direct write-down of the investment.
Repurchase agreement: An instrument used to raise short-term funds whereby securities are sold with an agreement for the seller
to buy back the securities at a later date.
Restructuring charges: Charges associated with the realignment of resources supporting various businesses, primarily consisting
of severance and related benefits pursuant to our ongoing benefit programs and impairment of certain assets related to business
locations and activities being exited.
Return on average assets: Calculated based on income from continuing operations, net of tax, for the period divided by average
total assets for the period.
Return on average common equity: Calculated based on (i) income from continuing operations, net of tax; (ii) less dividends
and undistributed earnings allocated to participating securities; (iii) less preferred stock dividends, for the period, divided by
average common equity. Our calculation of return on average common equity may not be comparable to similarly-titled measures
reported by other companies.
Return on average tangible common equity: A non-GAAP financial measure calculated based on (i) income from continuing
operations, net of tax; (ii) less dividends and undistributed earnings allocated to participating securities; (iii) less preferred stock
dividends, for the period, divided by average tangible common equity. Our calculation of return on average tangible common
equity may not be comparable to similarly-titled measures reported by other companies.
Risk-weighted assets: On- and off-balance sheet assets that are assigned to one of several broad risk categories and weighted by
factors representing their risk and potential for default.
Securitized debt obligations: A type of asset-backed security and structured credit product constructed from a portfolio of fixed-
income assets.
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Acronyms
AWS: Amazon Web Services, Inc.
ABS: Asset-backed security
AML: Anti-money laundering
AOCI: Accumulated other comprehensive income
ARM: Adjustable rate mortgage
ASU: Accounting Standards Update
ASC: Accounting Standards Codification
BHC: Bank holding company
bps: Basis points
CAD: Canadian dollar
CAP: Compliance assurance process
CCAR: Comprehensive Capital Analysis and Review
CCP: Central Counterparty Clearinghouse, or Central Clearinghouse
CCPA: California Consumer Privacy Act of 2018
CDE: Community development entities
CECL: Current expected credit loss
CEO: Chief Executive Officer
CFPB: Consumer Financial Protection Bureau
CFTC: Commodity Futures Trading Commission
CMBS: Commercial mortgage-backed securities
CME: Chicago Mercantile Exchange
COEP: Capital One (Europe) plc
COF: Capital One Financial Corporation
COSO: Committee of Sponsoring Organizations of the Treadway Commission
CRA: Community Reinvestment Act
CVA: Credit valuation adjustment
DCF: Discounted cash flow
DCM: Designated contract market
DDOS: Distributed denial of service
DIF: Deposit insurance fund
DRP: Dividend Reinvestment and Stock Purchase Plan
DRR: Designated reserve ratio
DUS: Delegated Underwriting and Servicing
DVA: Debit valuation adjustment
EGRRCPA: Economic Growth, Regulatory Relief, and Consumer Protection Act
EU: European Union
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FCA: U.K. Financial Conduct Authority
FCAC: Financial Consumer Agency of Canada
FCM: Futures commission merchant
FDIC: Federal Deposit Insurance Corporation
FDICIA: The Federal Deposit Insurance Corporation Improvement Act of 1991
FFIEC: Federal Financial Institutions Examination Council
FHC: Financial holding company
FHFA: Federal Housing Finance Agency
FHLB: Federal Home Loan Banks
FIS: Fidelity Information Services
FIRREA: Financial Institutions Reform, Recovery and Enforcement Act
Fitch: Fitch Ratings
FOS: Financial Ombudsman Service
Freddie Mac: Federal Home Loan Mortgage Corporation
FSOC: Financial Stability Oversight Council
FVC: Fair Value Committee
GBP: Great British pound
GDPR: General Data Protection Regulation
Ginnie Mae: Government National Mortgage Association
G-SIBs: Global systemically important banks
GSE or Agency: Government-sponsored enterprise
LCH: LCH Group
LCR: Liquidity coverage ratio
LIBOR: London Interbank Offered Rate
Moody’s: Moody’s Investors Service
MSR: Mortgage servicing rights
NSFR: Net stable funding ratio
NYSE: New York Stock Exchange
OCC: Office of the Comptroller of the Currency
OCI: Other comprehensive income
OTC: Over-the-counter
OTTI: Other-than-temporary impairment
PCA: Prompt corrective action
PCAOB: Public Company Accounting Oversight Board (United States)
PCI: Purchased credit-impaired
PCCR: Purchased credit card relationship
PPI: Payment protection insurance
PSA: Performance share award
PSD2: The Payment Services Regulations 2017
PSU: Performance share unit
REO: Real estate owned
RMBS: Residential mortgage-backed securities
RSA: Restricted stock award
RSU: Restricted stock unit
S&P: Standard & Poor’s
SEC: U.S. Securities and Exchange Commission
SEF: Swap execution facility
TCE: Tangible common equity
TDR: Troubled debt restructuring
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TILA: Truth in Lending Act
TSYS: Total Systems Services, Inc.
U.K.: United Kingdom
U.S.: United States of America
VAC: Valuations Advisory Committee
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
For a discussion of the quantitative and qualitative disclosures about market risk, see “MD&A—Risk Management—Market Risk
Management” and “MD&A—Market Risk Profile.”
Item 8. Financial Statements and Supplementary Data
Management’s Report on Internal Control Over Financial Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements. . . . . . . . . . . . . . .
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 1—Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 2—Business Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 3—Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 4—Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 5—Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments . . . . . . . . . . . . .
Note 6—Variable Interest Entities and Securitizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 7—Goodwill and Intangible Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 8—Premises, Equipment and Lease Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 9—Deposits and Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 10—Derivative Instruments and Hedging Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 11—Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 12—Regulatory and Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 13—Earnings Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 14—Stock-Based Compensation Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 15—Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 16—Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 17—Fair Value Measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 18—Business Segments and Revenue from Contracts with Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 19—Commitments, Contingencies, Guarantees and Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 20—Capital One Financial Corporation (Parent Company Only) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 21—Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Capital One Financial Corporation (COF)
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Capital One Financial Corporation (COF)
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2018, 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, 2018, 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, 2018.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, 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, 2018.
/s/ RICHARD D. FAIRBANK
Richard D. Fairbank
Chair, Chief Executive Officer and President
/s/ R. SCOTT BLACKLEY
R. Scott Blackley
Chief Financial Officer
February 20, 2019
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, 2018, 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, 2018, 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 Capital One Financial Corporation as of December 31, 2018 and 2017, and 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, 2018, and the related notes, of the Company and our report dated February 20, 2019
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.
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.
/s/ Ernst & Young LLP
Tysons, Virginia
February 20, 2019
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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, 2018 and 2017, and 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, 2018, and the related notes (collectively referred
to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated
financial position of the Company at December 31, 2018 and 2017, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 2018, 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, 2018, 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 20, 2019 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.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1994.
Tysons, Virginia
February 20, 2019
CAPITAL ONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share-related data)
Interest income:
Year Ended December 31,
2018
2017
2016
Loans, including loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
24,728
$
23,388
$
21,203
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,211
237
1,711
123
1,599
89
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,176
25,222
22,891
Interest expense:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securitized debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior and subordinated notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income after provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest income:
Interchange fees, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service charges and other customer-related fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net securities gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense:
Salaries and associate benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications and data processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,598
496
1,125
82
4,301
22,875
5,856
17,019
2,823
1,585
(209)
1,002
5,201
5,727
2,118
2,174
1,145
1,260
174
2,304
1,602
1,213
327
731
102
2,762
22,460
7,551
14,909
2,573
1,597
65
542
216
476
113
2,018
20,873
6,459
14,414
2,452
1,646
(11)
541
4,777
4,628
5,899
1,939
1,670
1,097
1,177
245
2,167
5,202
1,944
1,811
1,075
1,169
386
1,971
Total non-interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,902
14,194
13,558
Income from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends and undistributed earnings allocated to participating securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to common stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per common share:
Net income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per basic common share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share:
Net income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per diluted common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,318
1,293
6,025
(10)
6,015
(40)
(265)
5,710
11.92
(0.02)
11.90
11.84
(0.02)
11.82
$
$
$
$
$
5,492
3,375
2,117
(135)
1,982
(13)
(265)
1,704
3.80
(0.28)
3.52
3.76
(0.27)
3.49
$
$
$
$
$
5,484
1,714
3,770
(19)
3,751
(24)
(214)
3,513
7.00
(0.04)
6.96
6.93
(0.04)
6.89
$
$
$
$
$
113
Capital One Financial Corporation (COF)
114
Capital One Financial Corporation (COF)
See Notes to Consolidated Financial Statements.
CAPITAL ONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
CAPITAL ONE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
Year Ended December 31,
2018
2017
2016
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6,015
$
1,982
$
3,751
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net changes in securities held to maturity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized losses on cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(459)
447
(74)
(39)
(11)
(136)
21
97
(203)
84
24
23
(166)
104
(198)
(79)
6
(333)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5,879
$
2,005
$
3,418
(Dollars in millions, except per share-related data)
Assets:
Cash and cash equivalents:
December 31,
2018
December 31,
2017
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,768
$
Interest-bearing deposits and other short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash for securitization investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities:
Securities available for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities held to maturity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for investment:
Unsecuritized loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held in consolidated trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale, at lower of cost or fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,418
13,186
303
46,150
36,771
82,921
211,702
34,197
245,899
(7,220)
238,679
1,192
4,191
1,614
14,544
15,908
4,458
9,582
14,040
312
37,655
28,984
66,639
218,806
35,667
254,473
(7,502)
246,971
971
4,033
1,536
14,533
16,658
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
372,538
$
365,693
Liabilities:
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
458
$
413
Deposits:
Non-interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securitized debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt:
Federal funds purchased and securities loaned or sold under agreements to repurchase . . . . . . . . . . . . . . . . . . . . . . . . .
Senior and subordinated notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,483
226,281
249,764
18,307
352
30,826
9,420
40,598
11,743
26,404
217,298
243,702
20,010
576
30,755
8,940
40,271
12,567
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
320,870
316,963
Commitments, contingencies and guarantees (see Note 19)
Stockholders’ equity:
Preferred stock (par value $.01 per share; 50,000,000 shares authorized; 4,475,000 shares issued and outstanding as of
both December 31, 2018 and 2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock (par value $.01 per share; 1,000,000,000 shares authorized; 667,969,069 and 661,724,927 shares issued
as of December 31, 2018 and 2017, respectively, 467,717,306 and 485,525,340 shares outstanding as of December 31,
2018 and 2017, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost (par value $.01 per share; 200,251,763 and 176,199,587 shares as of December 31, 2018 and
2017, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
7
32,040
35,875
(1,263)
(14,991)
51,668
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
372,538
$
0
7
31,656
30,700
(926)
(12,707)
48,730
365,693
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
115
Capital One Financial Corporation (COF)
116
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
CAPITAL ONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
Shares
Amount
Shares
Amount
Preferred Stock
Common Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Stockholders’
Equity
Balance as of December 31, 2015
3,375,000
$
0
648,317,395
$
6
$ 29,655
$ 27,045
$
(616) $ (8,806) $
47,284
Comprehensive income (loss) . . . .
Dividends—common stock(1). . . . .
Dividends—preferred stock . . . . . .
Purchases of treasury stock . . . . . .
Issuances of common stock and
restricted stock, net of forfeitures .
Exercise of stock options, tax
effects of exercises and restricted
stock vesting. . . . . . . . . . . . . . . . . .
Issuances of preferred stock
(Series G and Series H) . . . . . . . . .
Compensation expense for
restricted stock awards, restricted
stock units and stock options . . . . .
52,338
3,272,745
2,094,129
0
1
0
4
130
102
1,066
200
1,100,000
0
(333)
3,751
(816)
(214)
(3,661)
3,418
(812)
(214)
(3,661)
131
102
1,066
200
Balance as of December 31, 2016
4,475,000
$
0
653,736,607
$
7
$ 31,157
$ 29,766
$
(949) $(12,467) $
47,514
Comprehensive income . . . . . . . . .
Dividends—common stock(1). . . . .
Dividends—preferred stock . . . . . .
Purchases of treasury stock . . . . . .
Issuances of common stock and
restricted stock, net of forfeitures .
Exercise of stock options and
warrants . . . . . . . . . . . . . . . . . . . . .
Compensation expense for
restricted stock awards, restricted
stock units and stock options . . . . .
42,613
4,057,555
3,888,152
0
0
0
3
164
124
208
23
1,982
(783)
(265)
(240)
2,005
(780)
(265)
(240)
164
124
208
Balance as of December 31, 2017
4,475,000
$
0
661,724,927
$
7
$ 31,656
$ 30,700
$
(926) $(12,707) $
48,730
Cumulative effects from adoption
of new accounting standards . . . . .
Comprehensive income (loss) . . . .
Dividends—common stock(1). . . . .
Dividends—preferred stock . . . . . .
Purchases of treasury stock . . . . . .
Issuances of common stock and
restricted stock, net of forfeitures .
Exercises of stock options and
warrants . . . . . . . . . . . . . . . . . . . . .
Compensation expense for
restricted stock awards, restricted
stock units and stock options . . . . .
35,813
4,183,783
2,024,546
0
0
0
3
175
38
168
(201)
(136)
201
6,015
(776)
(265)
(2,284)
0
5,879
(773)
(265)
(2,284)
175
38
168
Balance as of December 31, 2018
4,475,000
$
0
667,969,069
$
7
$ 32,040
$ 35,875
$
(1,263) $(14,991) $
51,668
__________
(1) Common stock dividends declared were $0.40 in each quarter of 2018, 2017 and 2016.
(Dollars in millions)
Operating activities:
Year Ended December 31,
2018
2017
2016
Income from continuing operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6,025
$
2,117
$
3,770
Loss from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash from operating activities:
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net securities losses (gains) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sales of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale:
Originations and purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales and paydowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Changes in interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in interest payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities:
Securities available for sale:
(10)
6,015
5,856
2,396
714
209
(548)
170
(125)
(9,039)
8,442
(74)
476
45
(1,553)
(6)
12,978
(135)
1,982
7,551
2,440
1,434
(65)
(72)
244
(8)
(8,929)
9,595
(157)
(714)
85
1,157
(361)
(19)
3,751
6,459
2,428
(686)
11
(80)
239
(11)
(8,645)
8,390
(159)
(1,907)
28
2,013
25
14,182
11,856
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(14,022)
(12,412)
(14,154)
Proceeds from paydowns and maturities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities held to maturity:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from paydowns and maturities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans:
Net changes in loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal recoveries of loans previously charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net purchases of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash from acquisition activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash from other investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,510
6,399
(19,166)
2,419
1,015
2,503
(874)
(600)
(802)
7,213
8,181
(5,885)
2,594
7,867
4,146
(3,787)
2,681
(12,315)
(22,036)
1,951
(1,018)
(3,187)
(663)
1,493
(779)
(629)
(432)
Net cash from investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15,618)
(15,541)
(25,630)
See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements.
117
Capital One Financial Corporation (COF)
118
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
Financing activities:
Deposits and borrowings:
Year Ended December 31,
2018
2017
2016
Changes in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6,077
$
6,993
$
19,031
Issuance of securitized debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities and paydowns of securitized debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of senior and subordinated notes and long-term FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . .
997
(2,673)
5,977
5,983
(7,233)
35,426
6,259
(3,540)
22,984
Maturities and paydowns of senior and subordinated notes and long-term FHLB advances . . . . . . . . . . . . .
(14,163)
(36,554)
(24,170)
Changes in other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,671
Common stock:
Net proceeds from issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock:
Net proceeds from issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from share-based payment activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in cash, cash equivalents and restricted cash for securitization investors . . . . . . . . . . . . . . . . . . . . . . .
Cash, cash equivalents and restricted cash for securitization investors, beginning of the period. . . . . . . . . . . . .
175
(773)
0
(265)
(2,284)
38
1,777
(863)
14,352
(400)
164
(780)
0
(265)
(240)
124
3,218
1,859
12,493
11
131
(812)
1,066
(214)
(3,661)
142
17,227
3,453
9,040
Cash, cash equivalents and restricted cash for securitization investors, end of the period . . . . . . . . . . . . . . . . . .
$
13,489
$
14,352
$
12,493
Supplemental cash flow information:
Non-cash items:
Net transfers from loans held for investment to loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
855
$
674
$
552
Securitized debt obligations assumed in acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale acquired by assuming other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
0
3,933
407
2,484
283
2,772
1,187
0
0
2,250
2,121
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Capital One Financial Corporation, a Delaware Corporation established in 1994 and headquartered in McLean, Virginia, is a
diversified financial services holding company with banking and non-banking subsidiaries. Capital One Financial Corporation
and its subsidiaries (the “Company”) offer a broad array of financial products and services to consumers, small businesses and
commercial clients through branches, the internet and other distribution channels. As of December 31, 2018, our principal
subsidiaries included:
• Capital One Bank (USA), National Association (“COBNA”), which offers credit and debit card products, other lending
products and deposit products; and
• Capital One, National Association (“CONA”), which offers a broad spectrum of banking products and financial services
to consumers, small businesses and commercial clients.
The Company is hereafter collectively referred to as “we,” “us” or “our.” COBNA and CONA are collectively referred to as the
“Banks.”
We also offer products outside of the United States of America (“U.S.”) principally through Capital One (Europe) plc (“COEP”),
an indirect subsidiary of COBNA organized and located in the United Kingdom (“U.K.”), and through a branch of COBNA in
Canada. COEP has authority, among other things, to provide credit card loans. Our branch of COBNA in Canada also has the
authority to provide credit card loans.
Our principal operations are organized for management reporting purposes into three major business segments, which are defined
primarily based on the products and services provided or the type of customer served: Credit Card, Consumer Banking and
Commercial Banking. We provide details on our business segments, the integration of recent acquisitions, if any, into our business
segments and the allocation methodologies and accounting policies used to derive our business segment results in “Note 18—
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 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. Certain prior period
amounts have been reclassified to conform to the current period presentation.
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 entities where we do not have a controlling financial interest but we have significant influence over the entity’s
financial and operating decisions (generally defined as owning a voting interest of 20% to 50%) are accounted for under the equity
method. If we own less than 20% of a voting interest entity, we generally measure equity investments at fair value with changes
See Notes to Consolidated Financial Statements.
119
Capital One Financial Corporation (COF)
120
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in fair value recorded through net income, except those that do not have a readily determinable fair value (for which a measurement
alternative can be elected). 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.
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 has a controlling financial interest in a VIE is
referred to as the primary beneficiary and 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 6—
Variable Interest Entities and Securitizations” for further 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 9—
Deposits and Borrowings” for further details.
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. Securities that we may sell
prior to maturity in response to changes in our investment strategy, liquidity needs, interest rate risk profile or for other reasons
are classified as available for sale. Securities that we have the intent and ability to hold until maturity are classified as held to
maturity.
We report securities available for sale on our consolidated balance sheets at fair value with unrealized gains or losses recorded,
net of tax, as a component of accumulated other comprehensive income (“AOCI”). We report securities held to maturity on our
consolidated balance sheets at carrying value, which generally equals amortized cost. Amortized cost reflects historical cost adjusted
for amortization of premiums, accretion of discounts and any previously recorded impairments. Investment securities transferred
into the held to maturity category from the available for sale category are recorded at fair value at the date of transfer. Any unrealized
gains or losses at the transfer date are thereafter included in AOCI. Such unrealized gains or losses are accreted over the remaining
life of the security and are expected to offset the amortization of the related premium or discount created upon the investment
securities transfer into the held to maturity category, with no expected impact on future net income.
Unamortized premiums, discounts and other basis adjustments are recognized in interest income over the contractual lives of the
securities using the effective interest method. We record purchases and sales of investment securities 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. 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,
the entire difference between the amortized cost basis of the security and its fair value is recognized in our consolidated statements
of income.
We regularly evaluate our securities whose fair values have declined below amortized cost to assess whether the decline in fair
value represents an other than temporary impairment (“OTTI”). We discuss our assessment and accounting for OTTI in “Note 3
—Investment Securities.” We discuss the techniques we use in determining the fair value of our investment securities in “Note 17
—Fair Value Measurement.”
Our investment portfolio also includes certain acquired debt securities that were deemed to be credit impaired at the acquisition
date, and therefore are accounted for in accordance with accounting guidance for purchased credit-impaired (“PCI”) loans and
debt securities. These securities are recorded at fair value at the acquisition date using the estimated cash flows we expect to collect
discounted by the prevailing market interest rate. The difference between the contractually required payments due and the
undiscounted cash flows we expect to collect at acquisition, considering the impact of prepayments, is referred to as the
nonaccretable difference. The nonaccretable difference reflects estimated future credit losses expected to be incurred over the life
of the security, and is recorded as a discount to the related debt security on our consolidated balance sheet. The excess of the
undiscounted cash flows expected to be collected over the estimated fair value of credit-impaired debt securities at acquisition is
referred to as the accretable yield, which is accreted into interest income using an effective yield method over the remaining life
of the security. Further decreases in expected cash flows attributable to credit result in the recognition of OTTI. Significant increases
in expected cash flows are recognized prospectively over the remaining life of the security as an adjustment to the accretable yield.
See “Loans Acquired” section of this Note for further discussion of accounting guidance for PCI loans and debt securities.
Loans
Our loan portfolio consists of loans held for investment, including loans underlying our consolidated securitization trusts, and
loans held for sale, and is divided into three portfolio segments: credit card, consumer banking and commercial banking loans.
Credit card loans consist of domestic and international credit card loans. Consumer banking loans consist of auto and retail banking
loans (see “Note 2—Business Developments” for information about our consumer home loan portfolio sale in 2018). Commercial
banking loans consist of commercial and multifamily real estate, commercial and industrial, and small-ticket commercial real
estate loans.
Loan Classification
Upon origination or purchase, we classify loans as held for investment or held for sale based on our investment strategy and
management’s intent and ability with regard to the loans which may change over time. The accounting and measurement framework
for loans differs depending on the loan classification, whether the loans are originated or purchased and whether purchased loans
are considered credit-impaired at the date of acquisition. The presentation within the consolidated statements of cash flows is based
on management’s intent at acquisition or origination. Cash flows related to loans held for investment are included in cash flows
from investing activities on our consolidated statements of cash flows. Cash flows related to loans held for sale 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 PCI loans described below, are
reported at their amortized cost, which is the outstanding principal balance, adjusted for any unearned income, unamortized deferred
fees and costs, unamortized premiums and discounts and charge-offs. Credit card loans also include billed finance charges and
fees, net of the estimated uncollectible amount.
Interest income is recognized on performing loans held for investment on an accrual basis. We defer loan origination fees and
direct loan origination costs on originated loans, premiums and discounts on purchased loans and loan commitment fees. We
recognize these amounts in interest income as yield adjustments over the life of the loan and/or commitment period using the
121
Capital One Financial Corporation (COF)
122
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
effective interest method. For credit card loans, loan origination fees and direct loan origination costs are amortized on a straight-
line basis over a 12-month period. Loans held for investment are subject to our allowance for loan and lease losses methodology
described below under “Allowance for Loan and Lease Losses.”
Loans Held for Sale
Loans purchased or originated with the intent to sell or for which we do not have the ability and intent to hold for the foreseeable
future are classified as held for sale. These loans are recorded at the lower of cost or fair value. Loan origination fees, direct loan
origination costs and any discounts and premiums are deferred until the loan is sold and are then recognized as part of the total
gain or loss on sale. The fair value of loans held for sale is determined on an aggregate portfolio basis for each loan type.
If a loan is transferred from held for investment to held for sale, on the transfer date, any decline in fair value related to credit is
recorded as a charge-off. Subsequent to transfer, we report write-downs or recoveries in fair value up to the carrying value at the
date of transfer and realized gains or losses on loans held for sale in our consolidated statements of income as a component of
other non-interest income. We calculate the gain or loss on loan sales as the difference between the proceeds received and the
carrying value of the loans sold, net of the fair value of any residual interests retained.
Loans Acquired
All purchased loans, including loans transferred in a business combination, are initially recorded at fair value, which includes
consideration of expected future losses, as of the date of the acquisition. To determine the fair value of loans at acquisition, we
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 trends in default rates and loss severities. The difference between the fair value and
the contractual cash flows is recorded as a loan discount or premium at acquisition. Subsequent to acquisition, the loans are
classified and accounted for as either held for investment or held for sale based on management’s ability and intent with regard to
the loans. Loans held for investment are subject to our allowance for loan and lease losses methodology described below under
“Allowance for Loan and Lease Losses.” We account for purchased loans under the accounting guidance for purchased credit-
impaired loans and debt securities, which is based upon expected cash flows, if the purchased loans have a discount attributable,
at least in part, to credit deterioration and they are not specifically scoped out of the guidance. We refer to these purchased loans
that are subsequently accounted for based on expected cash flows to be collected as “PCI loans.” Other purchased loans that do
not meet the criteria described above or are specifically scoped out of this guidance are accounted for based on contractual cash
flows.
Loans Acquired and Accounted for Based on Expected Cash Flows
For PCI loans, the excess of cash flows expected to be collected over the estimated fair value of purchased loans is referred to as
the accretable yield. This amount is not recorded on our consolidated balance sheets, but is accreted into interest income over the
life of the loan, or pool of loans, using the effective interest method. The difference between total contractual payments on the
loans and all expected cash flows represents the nonaccretable difference or the amount of principal and interest not considered
collectible. We may aggregate loans acquired in the same fiscal quarter into one or more pools if the loans have common risk
characteristics. A pool is then accounted for as a single asset, with a single composite interest rate and an aggregate fair value and
expected cash flows.
Subsequent to acquisition, changes in the estimated cash flows expected to be collected may result in changes in the accretable
yield and nonaccretable difference or reclassifications from the nonaccretable difference to the accretable yield. Decreases in
expected cash flows resulting from credit deterioration subsequent to acquisition will generally result in an impairment charge
recognized in our provision for credit losses and an increase in the allowance for loan and lease losses. Significant increases in
the cash flows expected to be collected would first reduce any previously recorded allowance for loan and lease losses. The excess
over the recorded allowance for loan and lease losses would result in a reclassification to the accretable yield from the nonaccretable
difference and an increase in interest income recognized over the remaining life of the loan or pool of loans. Disposals of loans in
the form of sales to third parties, receipt of payment in full or in part by the borrower, and foreclosure of the collateral, result in
removal of the loan from the PCI loans portfolio. See “Note 4—Loans” for additional information.
Loan Modifications and Restructurings
As part of our loss mitigation efforts, we may provide modifications to a borrower experiencing financial difficulty to improve
long-term collectability of the loan and to avoid the need for foreclosure or repossession of collateral. A loan modification in which
a concession is granted to a borrower experiencing financial difficulty is accounted for and reported as a troubled debt restructuring
(“TDR”). Our loan modifications typically include an extension of the loan term, a reduction in the interest rate, a reduction in the
loan balance, or a combination of these concessions. We describe our accounting for and measurement of impairment on TDR
loans below under “Impaired Loans.” See “Note 4—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. We generally place loans on nonaccrual status when we believe the collectability of interest and
principal is not reasonably assured.
Nonperforming loans generally include loans that have been placed on nonaccrual status, but we do not report loans classified as
held for sale as nonperforming.
Our policies for classifying loans as nonperforming, by loan category, are as follows:
• Credit card loans: As permitted by regulatory guidance issued by the Federal Financial Institutions Examination Council
(“FFIEC”), our policy is generally to exempt credit card loans from being classified as nonperforming, as these loans are
generally charged off in the period the account becomes 180 days past due. Consistent with industry conventions, we
generally continue to accrue interest and fees on delinquent credit card loans until the loans are charged-off.
• Consumer banking loans: We classify consumer banking loans as nonperforming when we determine that the collectability
of all interest and principal on the loan is not reasonably assured, generally when the loan becomes 90 days past due.
• Commercial banking loans: We classify commercial banking loans as nonperforming as of the date we determine that the
collectability of all interest and principal on the loan is not reasonably assured.
• Modified loans and troubled debt restructurings: Modified loans, including TDRs, that are current at the time of the
restructuring remain on accrual status if there is demonstrated performance prior to the restructuring and continued
performance under the modified terms is expected. Otherwise, the modified loan is classified as nonperforming.
• PCI loans: PCI loans are not classified as delinquent or 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 net deferred loan fees is suspended. Interest and fee income is 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.
Impaired Loans
A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all
amounts due from the borrower in accordance with the original contractual terms of the loan. Generally, we report loans as impaired
based on the method for measuring impairment in accordance with applicable accounting guidance. Loans held for sale are not
reported as impaired, as these loans are recorded at lower of cost or fair value. Impaired loans also exclude PCI loans, as these
loans are accounted for based on expected cash flows at acquisition because this accounting methodology takes into consideration
future credit losses.
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Loans defined as individually impaired, based on applicable accounting guidance, include larger-balance nonperforming loans
and TDR loans. Loans modified in a TDR continue to be reported as impaired until maturity. Our policies for identifying loans as
individually impaired, by loan category, are as follows:
• Credit card loans: Credit card loans that have been modified in a troubled debt restructuring are identified and accounted
for as individually impaired.
• Consumer banking loans: Consumer loans that have been modified in a troubled debt restructuring are identified and
accounted for as individually impaired.
• Commercial banking loans: Commercial loans classified as nonperforming and commercial loans that have been modified
in a troubled debt restructuring are reported as individually impaired.
The majority of individually impaired loans are evaluated for an asset-specific allowance. We generally measure impairment and
the related asset-specific allowance for individually impaired loans based on the difference between the recorded investment of
the loan and the present value of the expected future cash flows, discounted at the original effective interest rate of the loan at the
time of modification. If the loan is collateral dependent, we measure impairment based upon the fair value of the underlying
collateral, which we determine based on the current fair value of the collateral less estimated selling costs. Loans are identified as
collateral dependent if we believe the collateral will be the primary source of repayment.
Charge-Offs
We charge off loans as a reduction to the allowance for loan and lease losses when we determine the loan is uncollectible and
record subsequent recoveries of previously charged off amounts as an increase to the allowance for loan and lease losses. We
exclude accrued and unpaid finance charges and fees and certain fraud losses from charge-offs. 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 charged-off by the end of the month following 60 days of 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 time frame is 180 days
for home loans and 120 days for auto loans. Small business banking loans generally charge off at 120 days past due based
on when unpaid principal loan amounts are deemed uncollectible. We calculate the initial charge-off amount for home loans
based on the excess of our recorded investment in the loan over the fair value of the underlying property less estimated
selling costs as of the date of the charge-off. We update our home value estimates on a regular basis and may recognize
additional charge-offs for subsequent declines in home values. Auto and home loans where the borrower has filed for
bankruptcy and the loan has not been reaffirmed charge off in the period that the loan is 60 days from the bankruptcy
notification date, regardless of delinquency status. Auto and home loans that have not been charged off and have been
discharged under Chapter 7 bankruptcy are charged off at the end of the month in which the bankruptcy discharge occurs.
Remaining consumer loans generally are charged off within 40 days of receipt of notification from the bankruptcy court.
Consumer loans of deceased account holders are charged off by the end of the month following 60 days of receipt of
notification.
• Commercial banking loans: We charge off commercial loans in the period we determine that the unpaid principal loan
amounts are uncollectible.
• PCI loans: We do not record charge-offs on PCI loans that are meeting or exceeding our performance expectations as of
the date of acquisition, as the fair values of these loans already reflect a discount for expected future credit losses. We record
charge-offs on PCI loans only if actual losses exceed estimated credit losses incorporated into the fair value recorded at
acquisition.
Allowance for Loan and Lease Losses
We maintain an allowance for loan and lease losses (“allowance”) that represents management’s best estimate of incurred loan
and lease losses inherent in our held for investment portfolio as of each balance sheet date. The provision for credit losses reflects
credit losses we believe have been incurred and will eventually be recognized over time in our charge-offs. Charge-offs of
uncollectible amounts are deducted from the allowance and subsequent recoveries are added back.
Management performs a quarterly analysis of our loan portfolio to determine if impairment has occurred and to assess the adequacy
of the allowance based on historical and current trends as well as other factors affecting credit losses. We apply documented
systematic methodologies to separately calculate the allowance for our consumer loan and commercial loan portfolios. Our
allowance for loan and lease losses consists of three components that are allocated to cover the estimated probable losses in each
loan portfolio based on the results of our detailed review and loan impairment assessment process: (i) a component for loans
collectively evaluated for impairment; (ii) an asset-specific component for individually impaired loans; and (iii) a component
related to PCI loans that have experienced significant decreases in expected cash flows subsequent to acquisition. Each of our
allowance components is supplemented by an amount that represents management’s qualitative judgment of the imprecision and
risks inherent in the processes and assumptions used in establishing the allowance. Management’s judgment involves an assessment
of subjective factors, such as process risk, modeling assumption and adjustment risks and probable internal and external events
that will likely impact losses.
Our credit card and consumer loan portfolios consist of smaller-balance, homogeneous loans. The consumer loan portfolio is
divided into two primary portfolio segments: auto loans and retail banking loans (see “Note 2—Business Developments” for
information about our consumer home loan portfolio sale in 2018). The credit card and consumer loan portfolios are further divided
by our business units into groups based on common risk characteristics, such as origination year, contract type, interest rate and
geography, which are collectively evaluated for impairment. The commercial loan portfolio is primarily composed of larger-
balance, non-homogeneous loans. These loans are subject to individual reviews that result in internal risk ratings. In assessing the
risk rating of a particular 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
the occurrence of a loss event and measuring impairment. These factors are based on an evaluation of historical and current
information, and involve subjective assessment and interpretation. Emphasizing one factor over another or considering additional
factors could impact the risk rating assigned to that loan.
The component of the allowance related to credit card and consumer loans that we collectively evaluate for impairment is based
on a statistical 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 incurred losses in each pool based upon various statistical analyses.
Loss forecast models are utilized to estimate probable losses incurred and consider several portfolio indicators including, but not
limited to, historical loss experience, account seasoning, the value of collateral underlying secured loans, estimated foreclosures
or defaults based on observable trends, delinquencies, bankruptcy filings, unemployment, credit bureau scores and general economic
and business trends. Management believes these factors are relevant in estimating probable losses incurred and also considers an
evaluation of overall portfolio credit quality based on indicators such as changes in our credit evaluation, underwriting and collection
management policies, the effect of other external factors such as competition and legal and regulatory requirements, general
economic conditions and business trends, and uncertainties in forecasting and modeling techniques used in estimating our allowance.
We update our credit card and consumer loss forecast models and portfolio indicators on a quarterly basis to incorporate information
reflective of the current economic environment.
The component of the allowance for commercial loans that we collectively evaluate for impairment 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. We apply internal risk ratings to commercial 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.
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The asset-specific component of the allowance covers smaller-balance homogeneous credit card and consumer loans whose terms
have been modified in a TDR and larger-balance nonperforming, non-homogeneous commercial loans. As discussed above under
“Impaired Loans,” we generally measure the asset-specific component of the allowance based on the difference between the
recorded investment of individually impaired loans and the present value of expected future cash flows. The asset-specific
component of the allowance for smaller-balance impaired loans is calculated on a pool basis using historical loss experience for
the respective class of assets. The asset-specific component of the allowance for larger-balance impaired loans is individually
calculated for each loan. Key considerations in determining the allowance 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.
Applicable accounting guidance prohibits the carry over or creation of valuation allowances in the initial accounting for impaired
loans acquired. See “Note 4—Loans” for information on loan portfolios associated with acquisitions.
In addition to the allowance, we also estimate probable losses related to contractually binding unfunded lending commitments,
such as letters of credit, financial guarantees, and binding unfunded loan commitments. The provision for unfunded lending
commitments is included in the provision for credit losses in our consolidated statements of income and the related reserve is
included in other liabilities on our consolidated balance sheets. Unfunded lending commitments are subject to individual reviews
and are analyzed and segregated by risk according to our internal risk rating scale, which we use to assess credit quality and derive
a total loss estimate. We assess these risk classifications, taking into consideration both quantitative and qualitative factors, including
historical loss experience, utilization assumptions, current economic conditions, performance trends within specific portfolio
segments and other pertinent information to estimate the reserve for unfunded lending commitments.
Determining the appropriateness of the allowance 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 allowance and the reserve for unfunded lending commitments in future periods. See “Note 5—Allowance
for Loan and Lease Losses and Reserve for Unfunded Lending Commitments” for additional information.
Securitization of Loans
Our loan securitization activities primarily involve the securitization of credit card loans, which provides a source of funding for
us. See “Note 6—Variable Interest Entities and Securitizations” for additional details. Loan securitization involves the transfer of
a pool of loan receivables from our portfolio to a trust. The trust then sells an undivided interest 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 receivables transferred from our portfolio. We
remove loans from our consolidated balance sheets when securitizations qualify as sales to non-consolidated VIEs, recognize
assets retained and liabilities assumed at fair value and record a gain or loss on the transferred loans. Alternatively, when 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.
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 8—Premises, Equipment and Lease Commitments” for additional
information.
Goodwill and Intangible Assets
Goodwill represents the excess of the acquisition price of an acquired business over the fair value of assets acquired and liabilities
assumed and is assigned to one or more reporting units at the date of 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, 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 7—Goodwill and Intangible Assets” for additional information.
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. Subsequently, our consumer MSRs are carried at fair value on our
consolidated balance sheets with changes in fair value recognized in non-interest income. Our commercial MSRs are subsequently
accounted for under the amortization method and are periodically evaluated for impairment, which is recognized as a reduction
in non-interest income. See “Note 7—Goodwill and Intangible Assets” and “Note 17—Fair Value Measurement” for additional
information.
Foreclosed Property and Repossessed Assets
Foreclosed property and repossessed assets obtained through our lending activities typically include commercial and residential
real estate or personal property, such as automobiles, and are recorded at net realizable value. For home loans collateralized by
residential real estate, we reclassify loans to foreclosed property at the earlier of when we obtain legal title to the residential real
estate property or when the borrower conveys all interest in the property to us. 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 17—Fair Value Measurement” for details.
Premises and Equipment
Restricted Equity Investments
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 estimated as follows:
Premises and Equipment
Buildings and improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Useful Lives
5-39 years
3-10 years
3 years
Lesser of the useful life or the
remaining
fixed non-cancelable lease term
We have investments in Federal Home Loan Banks (“FHLB”) stock and in the Board of Governors of the Federal Reserve System
(“Federal Reserve”) 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.
Litigation
In accordance with the current accounting standards for loss contingencies, we establish reserves for litigation-related matters,
including mortgage representation and warranty 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. See “Note 19—Commitments, Contingencies, Guarantees and Others” for additional information.
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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. We expect the vast majority of all rewards earned will eventually be redeemed. The customer rewards reserve,
which is included in other liabilities on our consolidated balance sheets, totaled $4.3 billion and $3.9 billion as of December 31,
2018 and 2017, respectively.
Revenue Recognition
Interest Income and Fees
Interest income and fees on loans and investment securities are recognized based on the contractual provisions of the underlying
arrangements.
Loan origination fees and costs and premiums and discounts on loans held for investment are deferred and generally amortized
into interest income as yield adjustments over the contractual life and/or commitment period using the effective interest method.
In certain circumstances, we elect to factor prepayment estimates into the calculation of the constant effective yield necessary to
apply the interest method. Prepayment estimates are based on historical prepayment data, existing and forecasted interest rates,
and economic data. For credit card loans, loan origination fees and direct loan origination costs are amortized on a straight-line
basis over a 12-month period.
Unamortized premiums, discounts and other basis adjustments on investment securities are recognized in interest income over the
contractual lives of the securities using the effective interest method.
Finance charges and fees on credit card loans are recorded in revenue when earned. Billed finance charges and fees on credit card
loans are included in loan receivables net of amounts that we consider uncollectible. Unbilled finance charges and fees on credit
card loans are included in interest receivables. Annual membership fees are deferred and amortized into income over 12 months
on a straight-line basis. We continue to accrue finance charges and fees on credit card loans until the account is charged-off. Our
methodology for estimating the uncollectible portion of billed finance charges and fees is consistent with the methodology we use
to estimate the allowance for incurred principal losses on our credit card loan receivables.
Interchange Income
Interchange income 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 are set by MasterCard and Visa and can vary based on cardholder purchase volumes. We recognize interchange
income upon settlement with the interchange networks. See “Note 18—Business Segments and Revenue from Contracts with
Customers” for additional details.
Card Partnership Agreements
Our partnership agreements relate to alliances with retailers and other partners to provide lending and other services to mutual
customers. We primarily issue private-label and cobrand credit card loans to these customers over the term of the partnership
agreements, which typically range from two years to ten years.
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. Depending
upon the nature of the payments, they are recorded as a reduction of revenue, marketing expenses or other operating expenses.
Credit card partnership agreements may also provide for profit or revenue sharing which are presented as a reduction of the related
revenue line item when owed to the partner.
When a partner agrees to share a portion of the credit losses associated with the partnership, we must determine whether to report
the sharing of losses on a gross or net basis in our consolidated financial statements. We evaluate the contractual provisions for
the loss share payments and applicable accounting guidance to determine the manner in which to report the impact of the
partnership agreement in our consolidated financial statements. Our consolidated net income is the same regardless of whether
revenue and loss sharing arrangements are reported on a gross or net basis.
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 loan
and lease losses attributable to these portfolios is also reduced by the expected reimbursements from these partners for loss sharing
amounts. See “Note 5—Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments” for additional
information related to our loss sharing arrangements. For loss sharing arrangements presented on a gross basis, any loss share
payments due from the partner are recorded as a part of revenue, and the allowance for loan and lease losses is not reduced by the
expected loss share reimbursements.
Collaborative Arrangements
A collaborative arrangement is a contractual arrangement that involves a joint operating activity between two or more parties that
are active participants in the activity. These parties are exposed to significant risks and rewards based upon the economic success
of the joint operating activity. We assess each of our partnership agreements with profit, revenue or loss sharing payments to
determine if a collaborative arrangement exists and, if so, how revenue generated from third parties, costs incurred and transactions
between participants in the collaborative arrangement should be accounted for and reported on our consolidated financial statements.
We currently have one partnership agreement that meets the definition of a collaborative agreement.
We share a fixed percentage of revenues, consisting of finance charges and late fees, with the partner, and the partner is required
to reimburse us for a fixed percentage of credit losses incurred. Revenues and losses related to the partner’s credit card program
and partnership agreement are reported on a net basis in our consolidated financial statements. Revenue sharing amounts attributable
to the partner are recorded as an offset against total net revenue in our consolidated statements of income. Interest income was
reduced by $1.3 billion in 2018 and $1.2 billion in both 2017 and 2016, for amounts earned by the partner, as part of the partnership
agreement. The impact of all of our loss sharing arrangements that are presented on a net basis is included in “Note 5—Allowance
for Loan and Lease Losses and Reserve for Unfunded Lending Commitments.”
Stock-Based Compensation
We reserve common shares for issuance to employees, directors and third-party service providers, in various forms, including
stock options, stock appreciation rights, restricted stock awards and units and performance share awards and units. In addition,
we also issue cash equity units and cash-settled restricted stock units 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. Equity units and 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 that continue to vest after retirement are expensed
over the shorter of the time period between the grant date and the final vesting period or between the grant date and when the
participant becomes retirement eligible. Awards to participants who are retirement eligible at the grant date are subject to immediate
expense recognition. Stock-based compensation expense is included in salaries and associate benefits in the consolidated statements
of income.
Stock-based compensation expense for equity classified stock options is based on the grant date fair value, which is estimated
using a Black-Scholes option pricing model. Significant judgment is required when determining the inputs into the fair value
model. For awards other than stock options, 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 14—Stock-Based Compensation Plans” for additional
details.
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Marketing Expenses
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 subsequently release income tax effects
stranded in AOCI using a portfolio approach. 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 16—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 nonforfeitable dividends. These
share-based payment awards are 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 warrants, stock options, restricted stock awards and units, and performance
share awards and units. 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 13—Earnings Per Common
Share” for additional details.
Derivative Instruments and Hedging Activities
All derivative financial instruments, whether designated for hedge accounting or not, are reported at their fair value on our
consolidated balance sheets as either assets or liabilities, with consideration of legally enforceable master netting arrangements
that allow us to net settle positive and negative positions and offset cash collateral with the same counterparty. We report net
derivatives in a gain position, or derivative assets, on our consolidated balance sheets as a component of other assets. We report
net derivatives in a loss position, or derivative liabilities, on our consolidated balance sheets as a component of other liabilities.
See “Note 10—Derivative Instruments and Hedging Activities” for additional details.
Fair Value
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 whether the inputs to the valuation
techniques used to measure fair value are observable or unobservable. Fair value measurement of a financial asset or liability is
assigned to a level based on the lowest level of any input that is significant to the fair value measurement in its entirety. The three
levels of the fair value hierarchy are described below:
Level 1: Valuation is based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Valuation is based on observable market-based inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Valuation is generated from techniques that use significant assumptions not observable in the market. Valuation
techniques include pricing models, discounted cash flow methodologies or similar techniques.
The accounting guidance for fair value requires that we maximize the use of observable inputs and minimize the use of unobservable
inputs in determining fair value. The accounting guidance also 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
to fair value in the consolidated statements of income. We have not made any material fair value option elections as of and for the
years ended December 31, 2018, 2017 and 2016. See “Note 17—Fair Value Measurement” for additional information.
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 noncontrolling 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.
131
Capital One Financial Corporation (COF)
132
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Adoption Timing and Financial Statements
Impacts
We adopted this standard in the first quarter
of 2018.
In accordance with Staff Accounting
Bulletin No. 118, we included certain
provisional amounts for the income tax
effects of the Tax Act in our consolidated
financial statements as of and for the year
ended December 31, 2017.
As of December 2018, we completed our
accounting for the income tax effects of the
Tax Act.
We did not have any significant
measurement period adjustments in the year
ended December 31, 2018.
We early adopted this standard in the first
quarter of 2018, resulting in a decrease to
AOCI and an increase to retained earnings
of $173 million.
Our reclassification included the effects of
the reduction in the federal corporate income
tax rate enacted by the Tax Act and the
resulting impacts on the federal benefit of
deducting state income taxes.
Standard
Guidance
Recognition and Measurement
ASU No. 2016-01, Financial Instruments—
Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and
Financial Liabilities
Requires entities to measure equity
investments at fair value with changes in fair
value recorded through net income, except
those accounted for under the equity method
of accounting, or those that do not have a
readily determinable fair value (for which a
measurement alternative can be elected).
Adoption Timing and Financial Statements
Impacts
We adopted this standard in the first quarter
of 2018 under the modified retrospective
transition method and our adoption did not
have a material impact on our consolidated
financial statements.
Issued January 2016
Revenue Recognition
ASU No. 2014-09, Revenue from Contracts
with Customers (Topic 606)
Issued May 2014
Replaces significant portions of existing
industry and transaction-specific revenue
recognition rules with a more principles-
based recognition model.
Most revenue associated with financial
instruments, including interest income, loan
origination fees and credit card fees, is
outside the scope of the guidance. Gains and
losses on investment securities, derivatives
and sales of financial instruments are
similarly excluded from the scope.
We adopted this standard in the first quarter
of 2018 under the modified retrospective
transition method.
We determined interchange fees earned on
credit and debit card transactions, net of any
related customer rewards, are in the scope of
the amended guidance. We assessed the
impact of the new guidance by evaluating
our contracts, identifying our performance
obligations, determining when the
performance obligations were satisfied to
allow us to recognize revenue and
determining the amount of revenue to
recognize. As a result of this analysis, we
determined our recognition, measurement
and presentation of interchange fees net of
customer rewards costs will remain
consistent with our past practices.
Our adoption did not have a material impact
on our consolidated financial statements.
See “Note 18—Business Segments and
Revenue from Contracts with Customers”
for the new disclosures required under this
guidance.
Newly Adopted Accounting Standards
Standard
Guidance
Accounting Implications of the Tax Act
Accounting Standards Update (“ASU”) No.
2018-05, Income Taxes (Topic 740):
Amendments to SEC Paragraphs Pursuant
to SEC Staff Accounting Bulletin No. 118
Issued March 2018
Codifies the SEC Staff views expressed in
Staff Accounting Bulletin No. 118, Income
Tax Accounting Implications of the Tax Cuts
and Jobs Act.
Addresses situations where an entity’s
accounting for the income tax effects of the
Tax Act is incomplete upon issuance of the
entity’s financial statements for the reporting
period in which the Tax Act was enacted.
Allows a one-time reclassification from
AOCI to retained earnings for tax effects
stranded in AOCI as a result of the Tax Act.
Reclassification of Stranded Tax Effects
ASU No. 2018-02, Income Statement—
Reporting Comprehensive Income (Topic
220): Reclassification of Certain Tax Effects
from Accumulated Other Comprehensive
Income
Issued February 2018
Hedge Accounting Improvements
ASU No. 2017-12, Derivatives and Hedging
(Topic 815): Targeted Improvements to
Accounting for Hedging Activities
Issued August 2017
Eliminates the concept of separately
measuring and reporting hedge
ineffectiveness.
We early adopted this standard in the first
quarter of 2018 under the modified
retrospective transition method.
Requires entities to present the earnings
effect of a hedging instrument in the same
income statement line item in which the
earnings effect of the hedged item is
reported.
For a closed pool of pre-payable financial
assets, allows entities to hedge an amount
that is not expected to be affected by
prepayments, defaults and other events
under the “last-of-layer” method.
Permits a one-time reclassification of debt
securities eligible to be hedged under the
“last-of-layer” method from held to maturity
to available for sale upon adoption.
As permitted by this standard, and in order
to optimize our investment portfolio
management for capital and risk
management considerations, we made a one-
time election to transfer $9.0 billion of held
to maturity securities eligible to be hedged
under the “last-of-layer” method to the
available for sale category, resulting in an
increase to AOCI of $82 million after-tax
($107 million pre-tax). See “Note 3—
Investment Securities” and “Note 10—
Derivative Instruments and Hedging
Activities” for additional information on the
impacts of the transfer, as well as the
disclosures required under the new
guidance.
Statement of Cash Flows Classification
ASU No. 2016-15, Statement of Cash Flows
(Topic 230): Classification of Certain Cash
Receipts and Cash Payments
Clarifies or creates guidance for eight
specific transactions to reduce the identified
diversity in practice when presenting or
classifying the transactions in the statement
of cash flows.
We adopted this standard in the first quarter
of 2018 under the retrospective transition
method and our adoption did not have a
material impact on our consolidated
financial statements.
Issued August 2016
133
Capital One Financial Corporation (COF)
134
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Standards Issued but Not Adopted as of December 31, 2018
Standard
Guidance
Cloud Computing
ASU No. 2018-15, Intangibles—Goodwill
and Other—Internal-Use Software (Subtopic
350-40): Customer’s Accounting for
Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service
Contract
Issued August 2018
Aligns the requirements for capitalizing
implementation costs incurred in a hosting
arrangement that is a service contract with
the requirements for capitalizing
implementation costs incurred to develop or
obtain internal-use software (and hosting
arrangements that include an internal-use
software license).
Accounting Standards Issued but Not Adopted
as of December 31, 2018
Effective January 1, 2020, with early
adoption permitted, using either the
retrospective or prospective method of
adoption.
We plan to adopt the standard on its
effective date and are currently evaluating
the expected impact of such adoption.
Premium Amortization on Callable Debt
ASU No. 2017-08, Receivables—
Nonrefundable Fees and Other Costs
(Subtopic 310-20): Premium Amortization
on Purchased Callable Debt Securities
Issued March 2017
Goodwill Impairment Test Simplification
ASU No. 2017-04, Intangibles—Goodwill
and Other (Topic 350): Simplifying the Test
for Goodwill Impairment
Issued January 2017
Shortens the amortization period from the
contractual life to the earliest call date for
certain purchased callable debt securities
held at a premium.
We adopted this guidance in the first quarter
of 2019 using the modified retrospective
method of adoption.
Our adoption of this standard did not have a
material impact on our consolidated
financial statements.
Effective January 1, 2020, with early
adoption permitted, using the prospective
method of adoption.
We plan to adopt the standard on its
effective date and do not expect such
adoption to have a material impact on our
consolidated financial statements.
Eliminates the second step from the current
goodwill impairment test.
Under the current guidance, the first step
compares a reporting unit’s carrying value to
its fair value. If the carrying value exceeds
fair value, an entity performs the second
step, which assigns the reporting unit’s fair
value to its assets and liabilities, including
unrecognized assets and liabilities, in the
same manner as required in purchase
accounting.
Under the new guidance, any impairment of
a reporting unit’s goodwill is determined
based on the amount by which the reporting
unit’s carrying value exceeds its fair value,
limited to the amount of goodwill allocated
to the reporting unit.
Standard
Guidance
Current Expected Credit Loss (“CECL”)
ASU No. 2016-13, Financial Instruments—
Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments
Issued June 2016
Requires the use of current expected credit
loss model that is based on expected rather
than incurred losses to determine our
allowance for credit losses on financial
assets measured at amortized cost, certain
net investments in leases and certain off-
balance sheet arrangements.
Replaces current accounting for PCI and
impaired loans.
Amends the other-than-temporary
impairment model for available for sale debt
securities to require that credit losses (and
subsequent recoveries) be recorded through
an allowance approach, rather than through
permanent write-downs for credit losses and
subsequent accretion of positive changes
through interest income over time.
Leases
ASU No. 2016-02, Leases (Topic 842)
Issued February 2016
Requires lessees to recognize right of use
assets and lease liabilities on their
consolidated balance sheets and disclose key
information about all their leasing
arrangements, with certain practical
expedients.
Accounting Standards Issued but Not Adopted
as of December 31, 2018
Effective January 1, 2020, with early
adoption permitted no earlier than January 1,
2019, using the modified retrospective
method of adoption.
We plan to adopt the standard on its
effective date.
We have established a company-wide, cross-
functional governance structure for our
implementation of this standard. We are in
the process of determining key accounting
interpretations, data requirements and
necessary changes to our credit loss
estimation methods, processes and systems.
We continue to assess the potential impact
on our consolidated financial statements and
related disclosures.
We currently expect our adoption of this
guidance will result in an increase to our
reserves for credit losses on financial
instruments due to the requirement to record
expected losses over the remaining
contractual lives of our financial
instruments; however, the actual impact will
depend on the characteristics of our financial
instruments, economic conditions, and our
economic and loss forecasts at the adoption
date.
We adopted this guidance in the first quarter
of 2019, using the modified retrospective
method of adoption without restating prior
periods.
We elected the practical expedients that
permitted us to not reassess the lease
classification of existing leases, whether
existing contracts contain a lease or the
treatment of initial direct costs on existing
leases.
Upon adoption, we recorded a lease liability
of $1.9 billion and right of use asset of $1.6
billion, which is net of other lease-related
balances.
We do not expect material changes to the
recognition of operating lease expense in our
consolidated statements of income as a
result of adopting this guidance.
135
Capital One Financial Corporation (COF)
136
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2—BUSINESS DEVELOPMENTS
Business Developments
We periodically initiate restructuring activities to support business strategies and enhance our overall operational efficiency. These
restructuring activities have primarily consisted of exiting certain business locations and activities as well as the realignment of
resources supporting various businesses, including the decisions within Consumer Banking business to cease new originations of
home loan lending products in the fourth quarter of 2017, to sell our online retail brokerage business in the first quarter of 2018
and to sell all of our consumer home loan portfolio in 2018. The charges incurred as a result of these restructuring activities have
primarily consisted of severance and related benefits pursuant to our ongoing benefit programs, which are included in salaries and
associate benefits within non-interest expense in our consolidated statements of income, as well as impairment of certain assets
related to business locations and activities being exited, which are generally included in occupancy and equipment within non-
interest expense. During 2018 and 2017, we recognized restructuring charges of $34 million and $184 million, respectively, which
are reflected in the Other category of our business segment results.
In 2018, we sold all of our consumer home loan portfolio and recognized a net gain of approximately $499 million in the Other
category, including a benefit for credit losses of $46 million. The impact of the sale of our consumer home loan portfolio in our
consolidated statements of cash flows is included in net changes in loans held for investment. We also sold our online retail
brokerage business in 2018 and transferred approximately $1.4 billion of customer deposits and an equal cash amount to the third-
party purchaser. The impact of the sale of our online retail brokerage business is included in net cash from other investing activities
in our consolidated statements of cash flows.
NOTE 3—INVESTMENT SECURITIES
Our investment securities portfolio consists primarily of the following: U.S. Treasury securities; U.S. government-sponsored
enterprise or agency (“Agency”) and non-agency RMBS; Agency CMBS; and other securities. Agency securities include
Government National Mortgage Association (“Ginnie Mae”) guaranteed securities, Federal National Mortgage Association
(“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) issued securities. The carrying value of our
investments in U.S. Treasury and Agency securities represented 96% and 95% of our total investment securities as of December
31, 2018 and 2017, respectively.
We classify investment securities as either available for sale or held to maturity. As of December 31, 2018 and 2017, we had
investment securities available for sale of $46.2 billion and $37.7 billion, respectively, and securities held to maturity of $36.8
billion and $29.0 billion, respectively.
The table below presents the amortized cost, gross unrealized gains and losses, and fair value of securities available for sale as of
December 31, 2018 and 2017.
Table 3.1: Investment Securities Available for Sale
(Dollars in millions)
December 31, 2018
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
Investment securities available for sale:
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6,146
$
15
$
(17) $
6,144
RMBS:
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total RMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agency CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investment securities available for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,710
1,440
34,150
4,806
1,626
62
304
366
11
2
(869)
(2)
(871)
(78)
(6)
31,903
1,742
33,645
4,739
1,622
$
46,728
$
394
$
(972) $
46,150
(Dollars in millions)
December 31, 2017
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
Investment securities available for sale:
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5,168
$
11
$
(8) $
5,171
RMBS:
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total RMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agency CMBS
Other securities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investment securities available for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,013
1,722
27,735
3,209
1,516
67
393
460
10
4
(402)
(1)
(403)
(44)
(3)
25,678
2,114
27,792
3,175
1,517
$
37,628
$
485
$
(458) $
37,655
__________
(1)
Includes primarily supranational bonds, foreign government bonds and other asset-backed securities.
137
Capital One Financial Corporation (COF)
138
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents the amortized cost, carrying value, gross unrealized gains and losses, and fair value of securities held to
maturity as of December 31, 2018 and 2017. In the first quarter of 2018, we made a one-time transfer of held to maturity securities
with a carrying value of $9.0 billion to available for sale as a result of our adoption of ASU No. 2017-12. These securities had pre-
tax unrealized losses of $535 million ($407 million after-tax) in AOCI prior to the transfer. See “Note 1—Summary of Significant
Accounting Policies” and “Note 11—Stockholders’ Equity” for more information.
Investment Securities in a Gross Unrealized Loss Position
The table below provides, by major security type, information about our securities available for sale in a gross unrealized loss
position and the length of time that individual securities have been in a continuous unrealized loss position as of December 31,
2018 and 2017.
Table 3.2: Investment Securities Held to Maturity
Table 3.3: Securities in a Gross Unrealized Loss Position
(Dollars in millions)
Agency RMBS . . . . . . . . . . . . . . . . . . . . . . . . .
Agency CMBS . . . . . . . . . . . . . . . . . . . . . . . . .
Total investment securities held to maturity . . .
Amortized
Cost
Unrealized
Losses Recorded
in AOCI
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
$
33,299
3,723
37,022
$
$
(238) $
33,061
(13)
3,710
(251) $
36,771
$
$
293
21
314
$
$
(377) $
32,977
(89)
3,642
(466) $
36,619
December 31, 2018
(Dollars in millions)
U.S. Treasury securities . . . . . . . . . . . . . . . . . .
Agency RMBS . . . . . . . . . . . . . . . . . . . . . . . . .
Agency CMBS . . . . . . . . . . . . . . . . . . . . . . . . .
Total investment securities held to maturity . . .
Amortized
Cost
Unrealized
Losses Recorded
in AOCI
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
$
200
$
0
$
200
$
0
$
0
$
25,741
3,882
(761)
(78)
24,980
3,804
565
70
(150)
(32)
Fair
Value
200
25,395
3,842
$
29,823
$
(839) $
28,984
$
635
$
(182) $
29,437
December 31, 2017
(Dollars in millions)
Investment securities available for sale:
December 31, 2018
Less than 12 Months
12 Months or Longer
Total
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
U.S. Treasury securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,543
$
(3) $
1,076
$
(14) $
3,619
$
(17)
RMBS:
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total RMBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agency CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investment securities available for sale in a gross
unrealized loss position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Dollars in millions)
Investment securities available for sale:
U.S. Treasury securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RMBS:
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total RMBS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agency CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investment securities available for sale in a gross
unrealized loss position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,863
89
7,952
2,004
244
(260)
(2)
(262)
(31)
(1)
18,118
10
18,128
1,540
678
(609)
25,981
0
99
(609)
26,080
(47)
(5)
3,544
922
(869)
(2)
(871)
(78)
(6)
$ 12,743
$
(297) $ 21,422
$
(675) $ 34,165
$
(972)
December 31, 2017
Less than 12 Months
12 Months or Longer
Total
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
$
2,031
$
(8) $
0
$
0
$
2,031
$
(8)
8,192
10
8,202
880
501
(67)
0
(67)
(8)
(2)
13,175
10
13,185
1,236
95
(335)
(1)
(336)
(36)
(1)
21,367
20
21,387
2,116
596
(402)
(1)
(403)
(44)
(3)
$ 11,614
$
(85) $ 14,516
$
(373) $ 26,130
$
(458)
As of December 31, 2018, the amortized cost of approximately 1,390 securities available for sale exceeded their fair value by $972
million, of which $675 million related to securities that had been in a loss position for 12 months or longer. As of December 31,
2018, the carrying value of approximately 360 securities classified as held to maturity exceeded their fair value by $466 million.
139
Capital One Financial Corporation (COF)
140
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturities and Yields of Investment Securities
The table below summarizes, by major security type, the contractual maturities and weighted-average yields of our investment
securities as of December 31, 2018. Because borrowers may have the right to call or prepay certain obligations, the expected
maturities of our securities are likely to differ from the scheduled contractual maturities presented below. The weighted-average
yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security.
Table 3.4: Contractual Maturities and Weighted-Average Yields of Securities
(Dollars in millions)
Fair value of securities available for sale:
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RMBS(1):
Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total RMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agency CMBS(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total securities available for sale . . . . . . . . . . . . . . . . . . . . . .
Amortized cost of securities available for sale. . . . . . . . . .
Weighted-average yield for securities available for sale . .
Carrying value of securities held to maturity:
Agency RMBS(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agency CMBS(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total securities held to maturity . . . . . . . . . . . . . . . . . . . . . . .
Fair value of securities held to maturity . . . . . . . . . . . . . .
December 31, 2018
Due in
1 Year or
Less
Due > 1 Year
through
5 Years
Due > 5 Years
through
10 Years
Due > 10
Years
Total
$
447
$
784
$
4,913
$
0
$
6,144
6
0
6
7
233
693
695
1.46%
0
0
0
0
$
$
$
$
$
23
0
23
1,778
1,027
3,612
3,642
2.29%
0
69
69
70
$
$
$
$
$
724
0
724
1,687
342
7,666
7,680
2.49%
51
449
500
487
$
$
$
$
$
31,150
1,742
32,892
1,267
20
34,179
34,711
2.95%
33,010
3,192
36,202
36,062
$
$
$
$
$
31,903
1,742
33,645
4,739
1,622
46,150
46,728
2.80%
33,061
3,710
36,771
36,619
$
$
$
$
$
Weighted-average yield for securities held to maturity . .
0.00%
3.53%
2.95%
3.31%
3.30%
__________
(1) As of December 31, 2018, the weighted-average expected maturities of RMBS and CMBS are 6.6 years and 5.3 years, respectively.
Other-Than-Temporary Impairment
We evaluate all securities in an unrealized loss position at least quarterly, and more often as market conditions require, to assess
whether the impairment is other-than-temporary. Our OTTI assessment is based on a discounted cash flow analysis which requires
careful use of judgments and assumptions. A number of qualitative and quantitative criteria may be considered in our assessment,
as applicable, including the size and the nature of the portfolio; historical and projected performance such as prepayment, default
and loss severity for the RMBS portfolio; recent credit events specific to the issuer and/or industry to which the issuer belongs;
the payment structure of the security; external credit ratings of the issuer and any failure or delay of the issuer to make scheduled
interest or principal payments; the value of underlying collateral; our intent and ability to hold the security; and current and projected
market and macro-economic conditions.
If we intend to sell a security in an unrealized loss position or it is more likely than not that we will be required to sell the security
prior to recovery of its amortized cost basis, the entire difference between the amortized cost basis of the security and its fair value
is recognized in earnings. As of December 31, 2018, we had sold all securities previously designated with the intent to sell, and
did not intend to sell, nor believe that we will be required to sell, any other security in an unrealized loss position prior to the
recovery of its amortized cost basis.
For those securities that we do not intend to sell nor expect to be required to sell, an analysis is performed to determine if any of
the impairment is due to credit-related factors or whether it is due to other factors, such as interest rates. Credit-related impairment
is recognized in earnings, with the remaining unrealized non-credit-related impairment recorded in AOCI. We determine the credit
component based on the difference between the security’s amortized cost basis and the present value of its expected cash flows,
discounted at the security’s effective yield.
Realized Gains and Losses on Securities and OTTI Recognized in Earnings
The following table presents the gross realized gains and losses on the sale of securities available for sale, and the OTTI losses
recognized in earnings for the years ended December 31, 2018, 2017 and 2016. We also present the proceeds from the sale of
securities available for sale for the periods presented. We did not sell any investment securities that are classified as held to maturity.
Table 3.5: Realized Gains (Losses) on Securities and OTTI Recognized in Earnings
(Dollars in millions)
Realized gains (losses):
Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gains (losses). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTTI recognized in earnings:
Credit-related OTTI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intent-to-sell OTTI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total OTTI recognized in earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net securities gains (losses). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2018
2017
2016
$
13
$
144
$
(21)
(8)
(1)
(200)
(201)
(209) $
(74)
70
(2)
(3)
(5)
65
6,399
$
8,181
$
$
$
$
12
(6)
6
(11)
(6)
(17)
(11)
4,146
The cumulative credit loss component of the OTTI losses that have been recognized in our consolidated statements of income
related to the securities that we do not intend to sell was $140 million and $147 million as of December 31, 2018 and 2017,
respectively.
Securities Pledged and Received
We pledged securities available for sale and held to maturity totaling $16.3 billion and $8.5 billion as of December 31, 2018 and
2017, respectively. These securities are pledged to primarily secure FHLB advances and Public Funds deposits, as well as for other
purposes as required or permitted by law. We accepted pledges of securities with a fair value of $1 million as of both December 31,
2018 and 2017, primarily related to our derivative transactions.
Purchased Credit-Impaired Debt Securities
The table below presents the outstanding balance and carrying value of the purchased credit-impaired debt securities as of
December 31, 2018 and 2017.
Table 3.6: Outstanding Balance and Carrying Value of Purchased Credit-Impaired Debt Securities
(Dollars in millions)
Outstanding balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018
December 31, 2017
$
1,784
$
1,537
2,131
1,843
141
Capital One Financial Corporation (COF)
142
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in Accretable Yield of Purchased Credit-Impaired Debt Securities
The following table presents changes in the accretable yield related to the purchased credit-impaired debt securities for the years
ended December 31, 2018, 2017 and 2016.
Table 3.7: Changes in the Accretable Yield of Purchased Credit-Impaired Debt Securities
(Dollars in millions)
Accretable yield, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion recognized in earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduction due to payoffs, disposals, transfers and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net reclassifications (to) from nonaccretable difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretable yield, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2018
2017
2016
$
826
$
1,173
$
1,237
(153)
(3)
28
(182)
(157)
(8)
(206)
(2)
144
$
698
$
826
$
1,173
NOTE 4—LOANS
Loan Portfolio Composition
Our loan portfolio consists of loans held for investment, including loans held in our consolidated trusts, and loans held for sale,
and is divided into three portfolio segments: credit card, consumer banking and commercial banking. Credit card loans consist of
domestic and international credit card loans. Consumer banking loans consist of auto and retail banking loans and in prior periods
also consisted of home loans. Commercial banking loans consist of commercial and multifamily real estate, commercial and
industrial, and small-ticket commercial real estate loans. We sold all of our consumer home loan portfolio and the related servicing
during 2018.
Credit Quality
We closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk. Trends
in delinquency rates are an indicator, among other considerations, of credit risk within our loan portfolio. The level of nonperforming
loans represents another indicator of the potential for future credit losses. Accordingly, key metrics we track and use in evaluating
the credit quality of our loan portfolio include delinquency and nonperforming loan rates, as well as net charge-off rates and our
internal risk ratings of larger-balance commercial loans. The credit metrics presented in this section exclude loans held for sale,
which are carried at lower of cost or fair value.
The table below presents the composition and an aging analysis of our loans held for investment portfolio as of December 31,
2018 and 2017. The delinquency aging includes all past due loans, both performing and nonperforming.
Table 4.1: Loan Portfolio Composition and Aging Analysis
(Dollars in millions)
Credit Card:
Domestic credit card . . . . . . . . . . . . . . . . .
International card businesses . . . . . . . . . .
Total credit card . . . . . . . . . . . . . . . . . . . . . . .
Consumer Banking:
Auto. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . . . . . . . . . .
Commercial Banking:
Commercial and multifamily real estate . .
Commercial and industrial . . . . . . . . . . . .
Total commercial lending. . . . . . . . . . . .
Small-ticket commercial real estate . . . . .
Total commercial banking . . . . . . . . . . . . . . .
Total loans(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Total loans . . . . . . . . . . . . . . . . . . . . . . .
Current
30-59
Days
60-89
Days
> 90
Days
Total
Delinquent
Loans
PCI
Loans
Total
Loans
December 31, 2018
$103,014
$ 1,270
$
8,678
111,692
52,032
2,809
54,841
28,737
40,704
69,441
336
69,777
127
1,397
2,624
23
2,647
101
135
236
2
238
954
78
1,032
1,326
8
1,334
20
43
63
1
64
$ 2,111
$ 4,335
$
128
2,239
359
20
379
19
101
120
4
124
333
4,668
4,309
51
4,360
140
279
419
7
426
$236,310
$ 4,282
$ 2,430
$ 2,742
$ 9,454
$
1
0
1
0
4
4
22
108
130
0
130
135
$107,350
9,011
116,361
56,341
2,864
59,205
28,899
41,091
69,990
343
70,333
$245,899
96.1%
1.7%
1.0%
1.1%
3.8%
0.1%
100.0%
143
Capital One Financial Corporation (COF)
144
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Current
30-59
Days
60-89
Days
> 90
Days
Total
Delinquent
Loans
PCI Loans
Total
Loans
December 31, 2017
(Dollars in millions)
Commercial Banking:
December 31, 2018
December 31, 2017
> 90 Days and
Accruing
Nonperforming
Loans
> 90 Days and
Accruing
Nonperforming
Loans
(Dollars in millions)
Credit Card:
Domestic credit card . . . . . . . . . . . . . . . . .
International card businesses. . . . . . . . . . .
Total credit card . . . . . . . . . . . . . . . . . . . . . . .
$101,072
$
1,211
$
9,110
110,182
144
1,355
915
81
996
$
2,093
$
4,219
$
Consumer Banking:
Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home loan . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . . . . . . . . . .
Commercial Banking:
Commercial and multifamily real estate . .
Commercial and industrial . . . . . . . . . . . .
Total commercial lending . . . . . . . . . . . .
Small-ticket commercial real estate. . . . . .
Total commercial banking . . . . . . . . . . . . . . .
Other loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Total loans . . . . . . . . . . . . . . . . . . . . . . .
50,151
7,235
3,389
60,775
26,018
37,412
63,430
393
63,823
54
2,483
1,060
37
24
16
5
2,544
1,081
41
1
42
2
44
2
17
70
87
1
88
1
134
2,227
297
70
18
385
49
87
136
4
140
1
359
4,578
3,840
123
47
2
0
2
0
10,275
18
4,010
10,293
107
158
265
7
272
4
25
455
480
0
480
0
$105,293
9,469
114,762
53,991
17,633
3,454
75,078
26,150
38,025
64,175
400
64,575
58
$234,834
$
3,945
$
2,166
$
2,753
$
8,864
$ 10,775
$254,473
92.3%
1.5%
0.9%
1.1%
3.5%
4.2%
100.0%
__________
(1)
Loans, other than PCI loans, include unamortized premiums and discounts, and unamortized deferred fees and costs totaling $818 million and $773 million
as of December 31, 2018 and 2017, respectively.
We pledged loan collateral of $15.8 billion and $27.3 billion to secure a portion of our FHLB borrowing capacity of $19.3 billion
and $21.0 billion as of December 31, 2018 and 2017, respectively. We also pledged loan collateral of $9.2 billion and $9.1 billion
to secure our Federal Reserve Discount Window borrowing capacity of $7.6 billion and $7.4 billion as of December 31, 2018 and
2017, respectively. In addition to loans pledged, we securitized a portion of our credit card loans, see “Note 6—Variable Interest
Entities and Securitizations” for additional information.
The following table presents the outstanding balance of loans 90 days or more past due that continue to accrue interest and loans
classified as nonperforming as of December 31, 2018 and 2017. Nonperforming loans generally include loans that have been
placed on nonaccrual status. PCI loans are excluded from the table below.
Table 4.2: 90+ Day Delinquent Loans Accruing Interest and Nonperforming Loans
(Dollars in millions)
Credit Card:
December 31, 2018
December 31, 2017
> 90 Days and
Accruing
Nonperforming
Loans
> 90 Days and
Accruing
Nonperforming
Loans
Domestic credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International card businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total credit card. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,111
122
$
2,233
Consumer Banking:
Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
0
0
0
N/A $
22
22
449
0
30
479
2,093
128
$
2,221
0
0
0
0
N/A
24
24
376
176
35
587
Commercial and multifamily real estate . . . . . . . . . . . . . . . . . . . . .
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Small-ticket commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Total loans held for investment. . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0
0
0
0
0
0
$
2,233
$
83
223
306
6
312
0
813
$
$
12
0
12
0
12
0
$
2,233
$
38
239
277
7
284
4
899
0.91%
0.33%
0.88%
0.35%
Credit Card
Our credit card loan portfolio is highly diversified across millions of accounts and numerous geographies without significant
individual exposure. We therefore generally manage credit risk based on portfolios with common risk characteristics. The risk in
our credit card loan portfolio correlates to broad economic trends, such as unemployment rates and home values, as well as
consumers’ financial condition, all of which can have a material effect on credit performance. The primary indicators we assess
in monitoring the credit quality and risk of our credit card portfolio are delinquency and charge-off trends, including an analysis
of loan migration between delinquency categories over time.
The table below displays the geographic profile of our credit card loan portfolio as of December 31, 2018 and 2017.
Table 4.3: Credit Card Risk Profile by Geographic Region
(Dollars in millions)
Domestic credit card:
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New York. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Jersey. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total domestic credit card. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International card businesses:
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total international card businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018
December 31, 2017
Amount
% of
Total
Amount
% of
Total
$
11,591
8,173
7,400
7,086
4,761
4,575
3,967
3,641
3,544
52,612
107,350
6,023
2,988
9,011
10.0% $
7.0
6.4
6.1
4.1
3.9
3.4
3.1
3.0
45.3
92.3
5.1
2.6
7.7
11,475
10.0%
7,847
7,389
6,790
4,734
4,550
3,929
3,621
3,523
51,435
105,293
6,286
3,183
9,469
6.8
6.4
5.9
4.1
4.0
3.4
3.2
3.1
44.8
91.7
5.5
2.8
8.3
$
116,361
100.0% $
114,762
100.0%
145
Capital One Financial Corporation (COF)
146
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents net charge-offs for the years ended December 31, 2018, 2017 and 2016.
The table below displays the geographic profile of our consumer banking loan portfolio as of December 31, 2018 and 2017.
Table 4.4: Credit Card Net Charge-Offs
Table 4.5: Consumer Banking Risk Profile by Geographic Region
(Dollars in millions)
Net charge-offs:(1)
Year Ended December 31,
2018
2017
2016
Amount
Rate(1)
Amount
Rate(1)
Amount
Rate(1)
(Dollars in millions)
Auto:
December 31, 2018
December 31, 2017
Amount
% of
Total
Amount
% of
Total
Domestic credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International card businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total credit card. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,782
287
4.74% $ 4,739
3.19
315
$ 5,069
4.62
$ 5,054
4.99% $ 3,681
4.16%
3.69
4.88
272
$ 3,953
3.33
4.09
__________
(1) Net charge-offs consist of the unpaid principal balance of loans held for investment that we determine to be uncollectible, net of recovered amounts. Net
charge-off rate is calculated by dividing net charge-offs by average loans held for investment for the period for each loan category. Net charge-offs and the
net charge-off rate are impacted periodically by fluctuations in recoveries, including loan sales.
Consumer Banking
Our consumer banking loan portfolio consists of auto and retail banking loans and in prior periods also consisted of home loans.
Similar to our credit card loan portfolio, the risk in our consumer banking loan portfolio correlates to broad economic trends, such
as unemployment rates, gross domestic product and home values, as well as consumers’ financial condition, all of which can have
a material effect on credit performance. Delinquency, nonperforming loans and charge-off trends are key indicators we assess in
monitoring the credit quality and risk of our consumer banking loan portfolio.
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Louisiana. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,264
6,352
4,623
2,665
2,502
2,174
2,171
2,167
26,423
56,341
Retail banking:
New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Louisiana. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total retail banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total home loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
837
772
647
201
161
137
109
2,864
0
$ 59,205
12.3% $ 7,040
10.7
6,099
7.8
4.5
4.2
3.7
3.7
3.7
44.6
95.2
1.4
1.3
1.1
0.3
0.3
0.2
0.2
4.8
4,486
2,726
2,318
2,236
2,181
2,014
24,891
53,991
955
953
717
221
187
154
267
3,454
9.4%
8.1
6.0
3.6
3.1
3.0
2.9
2.7
33.1
71.9
1.3
1.3
0.9
0.3
0.2
0.2
0.4
4.6
0.0
17,633
100.0% $ 75,078
23.5
100.0%
147
Capital One Financial Corporation (COF)
148
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents net charge-offs in our consumer banking loan portfolio for the years ended December 31, 2018, 2017
and 2016, as well as nonperforming loans as of December 31, 2018 and 2017.
The following table presents the geographic concentration and internal risk ratings of our commercial loan portfolio as of
December 31, 2018 and 2017.
Table 4.6: Consumer Banking Net Charge-Offs and Nonperforming Loans
Table 4.7: Commercial Banking Risk Profile by Geographic Region and Internal Risk Rating
December 31, 2018
Rate(2)
Amount
December 31, 2017
Rate(2)
Amount
Total . . . . . . . . . . . . . . . . . . . . . . . . .
Internal risk rating:(2)
$ 28,899
100.0% $ 41,091
100.0% $
343
100.0% $ 70,333
100.0%
(Dollars in millions)
Net charge-offs (recoveries):
Year Ended December 31,
2018
2017
2016
Amount
Rate(1)
Amount
Rate(1)
Amount
Rate(1)
Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
912
(1)
70
$
981
(Dollars in millions)
Nonperforming loans:
1.64% $
(0.02)
2.26
1.51
957
1.86% $
752
1.69%
15
66
$ 1,038
0.08
1.92
1.39
14
54
$
820
0.06
1.53
1.15
Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
449
0
30
479
0.80% $
0.00
1.04
0.81
$
376
176
35
587
0.70%
1.00
1.00
0.78
__________
(1) Net charge-off (recovery) rate is calculated by dividing net charge-offs (recoveries) by average loans held for investment for the period for each loan category.
(2) Nonperforming loan rates are calculated based on nonperforming loans for each category divided by period-end total loans held for investment for each
respective category.
Commercial Banking
We evaluate the credit risk of commercial loans using a risk rating system. We assign internal risk ratings to loans based on relevant
information about the ability of the borrowers to repay their debt. In determining the risk rating of a particular loan, some of the
factors considered are the borrower’s current financial condition, historical and projected future credit performance, prospects for
support from financially responsible guarantors, the estimated realizable value of any collateral and current economic trends. The
scale based on our internal risk rating system is as follows:
• Noncriticized: Loans that have not been designated as criticized, frequently referred to as “pass” loans.
• Criticized performing: Loans in which the financial condition of the obligor is stressed, affecting earnings, cash flows or
collateral values. The borrower currently has adequate capacity to meet near-term obligations; however, the stress, left
unabated, may result in deterioration of the repayment prospects at some future date.
• Criticized nonperforming: Loans that are not adequately protected by the current net worth and paying capacity of the
obligor or the collateral pledged, if any. Loans classified as criticized nonperforming have a well-defined weakness, or
weaknesses, which jeopardize the full repayment of the debt. These loans are characterized by the distinct possibility that
we will sustain a credit loss if the deficiencies are not corrected and are generally placed on nonaccrual status.
We use our internal risk rating system for regulatory reporting, determining the frequency of credit exposure reviews, and evaluating
and determining the allowance for loan and lease losses for commercial loans. Generally, loans that are designated as criticized
performing and criticized nonperforming are reviewed quarterly by management to determine if they are appropriately classified/
rated and whether any impairment exists. Noncriticized loans are also generally reviewed, at least annually, to determine the
appropriate risk rating. In addition, we evaluate the risk rating during the renewal process of any loan or if a loan becomes past
due.
Commercial
and
Multifamily
Real Estate
% of
Total
Commercial
and
Industrial
% of
Total
Small-
Ticket
Commercial
Real Estate
% of
Total
Total
Commercial
Banking
% of
Total
December 31, 2018
(Dollars in millions)
Geographic concentration:(1)
Northeast. . . . . . . . . . . . . . . . . . .
$ 15,562
53.8% $
Mid-Atlantic . . . . . . . . . . . . . . . .
South . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . .
3,410
4,247
5,680
11.8
14.7
19.7
7,573
4,710
15,367
13,441
18.4% $
213
62.1% $ 23,348
33.2%
11.5
37.4
32.7
12
20
98
3.5
5.8
28.6
8,132
19,634
19,219
11.6
27.9
27.3
Noncriticized. . . . . . . . . . . . . . . .
$ 28,239
97.7% $ 39,468
96.1% $
336
98.0% $ 68,043
96.8%
Criticized performing . . . . . . . . .
Criticized nonperforming . . . . . .
PCI loans. . . . . . . . . . . . . . . . . . .
555
83
22
1.9
0.3
0.1
1,292
223
108
3.1
0.5
0.3
1
6
0
0.3
1.7
0.0
1,848
312
130
2.6
0.4
0.2
Total . . . . . . . . . . . . . . . . . . . . . . . . .
$ 28,899
100.0% $ 41,091
100.0% $
343
100.0% $ 70,333
100.0%
(Dollars in millions)
Geographic concentration:(1)
Commercial
and
Multifamily
Real Estate
% of
Total(1)
Commercial
and
Industrial
% of
Total
Small-
Ticket
Commercial
Real Estate
% of
Total
Total
Commercial
Banking
% of
Total
December 31, 2017
Northeast. . . . . . . . . . . . . . . . . . .
$ 14,969
57.3% $
Mid-Atlantic . . . . . . . . . . . . . . . .
South . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . .
2,675
3,719
4,787
10.2
14.2
18.3
7,774
3,922
14,739
11,590
10.3
38.8
30.5
Total . . . . . . . . . . . . . . . . . . . . . . . . .
Internal risk rating:(2)
$ 26,150
100.0% $ 38,025
100.0% $
20.4% $
250
62.4% $ 22,993
35.7%
15
22
113
400
3.8
5.5
28.3
6,612
18,480
16,490
10.2
28.6
25.5
100.0% $ 64,575
100.0%
Noncriticized. . . . . . . . . . . . . . . .
$ 25,609
98.0% $ 35,161
92.5% $
392
97.9% $ 61,162
94.7%
Criticized performing . . . . . . . . .
Criticized nonperforming . . . . . .
PCI loans. . . . . . . . . . . . . . . . . . .
478
38
25
1.8
0.1
0.1
2,170
239
455
5.7
0.6
1.2
1
7
0
0.3
1.8
0.0
2,649
284
480
4.1
0.4
0.8
Total . . . . . . . . . . . . . . . . . . . . . . . . .
$ 26,150
100.0% $ 38,025
100.0% $
400
100.0% $ 64,575
100.0%
__________
(1) Geographic concentration is generally determined by the location of the borrower’s business or the location of the collateral associated with the loan. Northeast
consists of CT, MA, ME, NH, NJ, NY, PA and VT. Mid-Atlantic consists of DC, DE, MD, VA and WV. South consists of AL, AR, FL, GA, KY, LA, MO,
MS, NC, SC, TN and TX.
(2) Criticized exposures correspond to the “Special Mention,” “Substandard” and “Doubtful” asset categories defined by bank regulatory authorities.
Impaired Loans
The following table presents information on our impaired loans as of December 31, 2018 and 2017, and for the years ended
December 31, 2018, 2017 and 2016. Impaired loans include loans modified in troubled debt restructurings (“TDRs”), all
nonperforming commercial loans and nonperforming home loans with a specific impairment. Impaired loans without an allowance
generally represent loans that have been charged down to the fair value of the underlying collateral for which we believe no
additional losses have been incurred, or where the fair value of the underlying collateral meets or exceeds the loan’s amortized
cost. PCI loans are excluded from the following tables.
149
Capital One Financial Corporation (COF)
150
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Table 4.8: Impaired Loans
(Dollars in millions)
Credit Card:
December 31, 2018
With an
Allowance
Without
an
Allowance
Total
Recorded
Investment
Related
Allowance
Net
Recorded
Investment
Unpaid
Principal
Balance
(Dollars in millions)
Credit Card:
2018
Year Ended December 31,
2017
2016
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
Domestic credit card . . . . . . . . . . . . . . . . . . . . . . . . .
$
International card businesses . . . . . . . . . . . . . . . . . . .
Total credit card(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Banking:
Auto(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Banking:
Commercial and multifamily real estate . . . . . . . . . .
Commercial and industrial. . . . . . . . . . . . . . . . . . . . .
Total commercial lending . . . . . . . . . . . . . . . . . . . .
Small-ticket commercial real estate . . . . . . . . . . . . . .
Total commercial banking. . . . . . . . . . . . . . . . . . . . . . . .
$
666
189
855
301
42
343
92
301
393
0
393
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,591
$
0
0
0
38
12
50
28
169
197
6
203
253
$
666
189
855
339
54
393
120
470
590
6
596
$
186
$
480
$
91
277
22
5
27
5
29
34
0
34
98
578
317
49
366
115
441
556
6
562
654
183
837
420
60
480
121
593
714
9
723
$
1,844
$
338
$
1,506
$
2,040
Domestic credit card . . . . . . . . . . . . . . . . . . . . . . . . .
$
International card businesses . . . . . . . . . . . . . . . . . . .
Total credit card(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Banking:
Auto(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Banking:
Commercial and multifamily real estate . . . . . . . . . .
Commercial and industrial. . . . . . . . . . . . . . . . . . . . .
Total commercial lending . . . . . . . . . . . . . . . . . . . .
Small-ticket commercial real estate . . . . . . . . . . . . . .
Total commercial banking. . . . . . . . . . . . . . . . . . . . . . . .
$
655
184
839
397
91
59
547
93
621
714
5
719
$
63
12
75
45
1
2
48
2
20
22
0
22
$
602
154
756
495
299
59
853
134
1,118
1,252
7
1,259
$
63
11
74
53
5
1
59
4
18
22
0
22
$
540
133
673
501
361
62
924
111
1,215
1,326
7
1,333
58
10
68
86
5
2
93
3
13
16
0
16
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,105
$
145
$
2,868
$
155
$
2,930
$
177
December 31, 2017
With an
Allowance
Without
an
Allowance
Total
Recorded
Investment
Related
Allowance
Net
Recorded
Investment
Unpaid
Principal
Balance
__________
(1)
The period-end and average recorded investments of credit card loans include finance charges and fees.
(2)
Includes certain TDRs that are recorded as other assets on our consolidated balance sheets.
(Dollars in millions)
Credit Card:
$
Domestic credit card . . . . . . . . . . . . . . . . . . . . . . . . .
International card businesses . . . . . . . . . . . . . . . . . . .
Total credit card(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Banking:
Auto(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Banking:
Commercial and multifamily real estate . . . . . . . . . .
Commercial and industrial. . . . . . . . . . . . . . . . . . . . .
Total commercial lending . . . . . . . . . . . . . . . . . . . .
Small-ticket commercial real estate . . . . . . . . . . . . . .
Total commercial banking. . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
639
173
812
363
192
51
606
138
489
627
7
634
$
$
0
0
0
118
41
10
169
2
222
224
0
224
393
639
173
812
481
233
61
775
140
711
851
7
858
$
208
$
431
$
84
292
30
15
8
53
13
63
76
0
76
89
520
451
218
53
722
127
648
775
7
782
625
167
792
730
298
66
1,094
143
844
987
9
996
Troubled Debt Restructurings
Total recorded TDRs were $1.6 billion and $2.2 billion as of December 31, 2018 and 2017, respectively. TDRs classified as
performing in our credit card and consumer banking loan portfolios totaled $1.2 billion and $1.3 billion as of December 31, 2018
and 2017, respectively. TDRs classified as performing in our commercial banking loan portfolio totaled $282 million and $574
million as of December 31, 2018 and 2017, respectively. Commitments to lend additional funds on loans modified in TDRs totaled
$256 million and $241 million as of December 31, 2018 and 2017, respectively.
Loans Modified in TDRs
As part of our loan modification programs to borrowers experiencing financial difficulty, we may provide multiple concessions
to minimize our economic loss and improve long-term loan performance and collectability. The following tables present the major
modification types, recorded investment amounts and financial effects of loans modified in TDRs during the years ended December
31, 2018, 2017 and 2016.
$
2,052
$
$
2,445
$
421
$
2,024
$
2,882
151
Capital One Financial Corporation (COF)
152
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Table 4.9: Troubled Debt Restructurings
Year Ended December 31, 2018
Reduced Interest Rate
Term Extension
Balance Reduction
Total Loans
Modified(1)
% of
TDR
Activity(2)
Average
Rate
Reduction
% of
TDR
Activity(2)
Average
Term
Extension
(Months)
% of
TDR
Activity(2)
Gross
Balance
Reduction
(Dollars in millions)
Credit Card:
Domestic credit card . . . . . . . . .
International card businesses . . .
Total credit card. . . . . . . . . . . . . . . .
$
Consumer Banking:
Auto(3) . . . . . . . . . . . . . . . . . . . .
Home loan . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . .
Commercial Banking:
Commercial and multifamily
real estate . . . . . . . . . . . . . . . . . .
Commercial and industrial. . . . .
Total commercial lending . . . .
Small-ticket commercial real
estate . . . . . . . . . . . . . . . . . . . . .
Total commercial banking. . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . .
(Dollars in millions)
Credit Card:
Domestic credit card . . . . . . . . .
International card businesses . . .
Total credit card. . . . . . . . . . . . . . . .
$
Consumer Banking:
Auto(3) . . . . . . . . . . . . . . . . . . . .
Home loan . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . .
Commercial Banking:
Commercial and multifamily
real estate . . . . . . . . . . . . . . . . . .
Commercial and industrial. . . . .
Total commercial lending . . . .
Small-ticket commercial real
estate . . . . . . . . . . . . . . . . . . . . .
Total commercial banking. . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . .
412
184
596
227
6
8
241
43
170
213
3
406
169
575
324
19
13
356
29
557
586
3
216
1,053
$
589
1,520
$
100%
15.93%
0%
100
100
49
28
16
48
0
0
0
0
0
68
26.96
19.34
3.88
1.78
10.92
3.93
0.00
1.03
1.03
0.00
1.03
16.84
0
0
89
83
43
87
80
54
60
0
59
32
0
0
0
8
214
12
13
5
13
11
0
11
12
0% $
0
0
1
0
0
1
0
0
0
0
0
0
$
0
0
0
1
0
0
1
0
0
0
0
0
1
Year Ended December 31, 2017
Reduced Interest Rate
Term Extension
Balance Reduction
Total Loans
Modified(1)
% of
TDR
Activity(2)
Average
Rate
Reduction
% of
TDR
Activity(2)
Average
Term
Extension
(Months)
% of
TDR
Activity(2)
Gross
Balance
Reduction
100%
14.50%
100
100
26.51
18.02
0%
0
0
44
48
22
44
7
19
18
0
18
55
3.82
2.77
5.77
3.79
0.02
0.80
0.79
0.00
0.79
13.19
95
78
73
93
26
59
57
4
57
44
0
0
0
6
233
10
16
5
17
16
0
16
16
0% $
0
0
2
2
0
2
0
0
0
0
0
0
$
0
0
0
7
0
0
7
0
0
0
0
0
7
Year Ended December 31, 2016
Reduced Interest Rate
Term Extension
Balance Reduction
Total Loans
Modified(1)
% of
TDR
Activity(2)
Average
Rate
Reduction
% of
TDR
Activity(2)
Average
Term
Extension
(Months)
% of
TDR
Activity(2)
Gross
Balance
Reduction
(Dollars in millions)
Credit Card:
Domestic credit card . . . . . . . . .
International card businesses. . .
Total credit card . . . . . . . . . . . . . . .
$
Consumer Banking:
Auto(3) . . . . . . . . . . . . . . . . . . . .
Home loan . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . .
Commercial Banking:
Commercial and multifamily
real estate . . . . . . . . . . . . . . . . . .
Commercial and industrial . . . .
Total commercial lending . . . .
Small-ticket commercial real
estate . . . . . . . . . . . . . . . . . . . . .
Total commercial banking . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . .
312
138
450
356
48
18
422
38
743
781
1
782
1,654
$
100%
13.19%
100
100
44
64
23
46
0
5
4
0
4
25.87
17.09
3.91
2.25
7.89
3.73
0.00
0.09
0.09
0.00
0.09
41
12.42
0%
0
0
74
87
68
75
67
57
57
0
57
46
0
0
0
7
243
10
38
6
20
19
0
19
27
0% $
0
0
25
2
9
22
32
7
8
0
8
9
0
0
0
78
0
1
79
3
26
29
0
29
108
$
__________
(1) Represents the recorded investment of total loans modified in TDRs at the end of the quarter in which they were modified. As not every modification type
is included in the table above, the total percentage of TDR activity may not add up to 100%. Some loans may receive more than one type of concession as
part of the modification.
(2) Due to multiple concessions granted to some troubled borrowers, percentages may total more than 100% for certain loan types.
(3)
Includes certain TDRs that are recorded as other assets on our consolidated balance sheets.
Subsequent Defaults of Completed TDR Modifications
The following table presents the type, number and recorded investment of loans modified in TDRs that experienced a default
during the period and had completed a modification event in the twelve months prior to the default. A default occurs if the loan is
either 90 days or more delinquent, has been charged off as of the end of the period presented or has been reclassified from accrual
to nonaccrual status.
153
Capital One Financial Corporation (COF)
154
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Table 4.10: TDR—Subsequent Defaults
(Dollars in millions)
Credit Card:
2018
Year Ended December 31,
2017
2016
Number of
Contracts
Amount
Number of
Contracts
Amount
Number of
Contracts
Amount
Domestic credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International card businesses . . . . . . . . . . . . . . . . . . . . . . . .
Total credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61,070
$
61,014
122,084
Consumer Banking:
Auto. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consumer banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Banking:
Commercial and multifamily real estate . . . . . . . . . . . . . . . .
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . . . . .
Total commercial lending. . . . . . . . . . . . . . . . . . . . . . . . . .
Small-ticket commercial real estate . . . . . . . . . . . . . . . . . . .
Total commercial banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,980
3
26
7,009
1
26
27
0
27
129,120
$
126
106
232
79
1
2
82
3
120
123
0
123
437
55,121
$
51,641
106,762
111
93
204
42,250
$
40,498
82,748
9,446
109
8,587
28
41
7
4
56
48
9,515
120
8,691
0
244
244
2
246
116,523
$
0
269
269
1
270
594
1
150
151
7
158
91,597
$
73
82
155
96
7
9
112
1
281
282
1
283
550
Finance Charge and Fee Reserve
We continue to accrue finance charges and fees on credit card loans until the account is charged off. Our methodology for estimating
the uncollectible portion of billed finance charges and fees is consistent with the methodology we use to estimate the allowance
for incurred principal losses on our credit card loan receivables. Total net revenue was reduced by $1.3 billion, $1.4 billion and
$1.1 billion in 2018, 2017 and 2016, respectively, for the estimated uncollectible amount of billed finance charges and fees and
related losses. The finance charge and fee reserve, which is recorded as a contra asset on our consolidated balance sheets, totaled
$468 million and $491 million as of December 31, 2018 and 2017, respectively.
Loans Held for Sale
Our total loans held for sale was $1.2 billion and $971 million as of December 31, 2018 and 2017, respectively. We originated for
sale $8.7 billion of commercial multifamily real estate loans in 2018, $8.4 billion and $7.6 billion of conforming residential
mortgage loans and commercial multifamily real estate loans in 2017 and 2016, respectively. We retained servicing on approximately
100% of multifamily real estate loans. In 2018, we sold mortgage servicing rights related to loans serviced for others.
NOTE 5—ALLOWANCE FOR LOAN AND LEASE LOSSES AND RESERVE FOR UNFUNDED LENDING
COMMITMENTS
Our allowance for loan and lease losses represents management’s best estimate of incurred loan and lease losses inherent in our
loans held for investment portfolio as of each balance sheet date. In addition to the allowance for loan and lease losses, we also
estimate probable losses related to unfunded lending commitments, such as letters of credit, financial guarantees and binding
unfunded loan commitments. The provision for losses on unfunded lending commitments is included in the provision for credit
losses in our consolidated statements of income and the related reserve for unfunded lending commitments is included in other
liabilities on our consolidated balance sheets. See “Note 1—Summary of Significant Accounting Policies” for further discussion
of our methodology and policy for determining the allowance for loan and lease losses for each of our loan portfolio segments, as
well as information on our reserve for unfunded lending commitments.
Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity
The table below summarizes changes in the allowance for loan and lease losses and reserve for unfunded lending commitments
by portfolio segment for the years ended December 31, 2018, 2017 and 2016.
Table 5.1: Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity
(Dollars in millions)
Allowance for loan and lease losses:
Balance as of December 31, 2015. . . . . . . . . . . . . . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for loan and lease losses. . . . . . . . . . . . . . . . . .
Allowance build (release) for loan and lease losses . . . . . . . . . . . .
Other changes(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2016. . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for unfunded lending commitments:
Balance as of December 31, 2015. . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit for losses on unfunded lending commitments . . . . . . . . . .
Balance as of December 31, 2016. . . . . . . . . . . . . . . . . . . . . . . . . .
Combined allowance and reserve as of December 31, 2016 . . .
Allowance for loan and lease losses:
Balance as of December 31, 2016. . . . . . . . . . . . . . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance build (release) for loan and lease losses . . . . . . . . . . . .
Other changes(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2017. . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for unfunded lending commitments:
Balance as of December 31, 2016. . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit for losses on unfunded lending commitments . . . . . . . . . .
Balance as of December 31, 2017. . . . . . . . . . . . . . . . . . . . . . . . . .
Combined allowance and reserve as of December 31, 2017 . . .
Credit Card
Consumer
Banking
Commercial
Banking
Other(1)(2)
Total
$
$
$
$
$
$
$
3,654
(5,019)
1,066
(3,953)
4,926
973
(21)
4,606
0
0
0
4,606
4,606
(6,321)
1,267
(5,054)
6,066
1,012
30
5,648
$
$
$
868
(1,226)
406
(820)
1,055
235
(1)
1,102
7
0
7
1,109
1,102
(1,677)
639
(1,038)
1,180
142
(2)
1,242
0
0
0
5,648
$
7
0
7
1,249
$
604
(307)
15
(292)
515
223
(34)
793
161
(32)
129
922
793
(481)
16
(465)
313
(152)
(30)
611
129
(12)
117
728
$
$
$
$
$
$
$
4
(3)
6
3
(5)
(2)
0
2
0
0
0
2
2
(34)
29
(5)
4
(1)
0
1
0
0
0
1
$
5,130
(6,555)
1,493
(5,062)
6,491
1,429
(56)
6,503
168
(32)
136
6,639
6,503
(8,513)
1,951
(6,562)
7,563
1,001
(2)
7,502
136
(12)
124
7,626
155
Capital One Financial Corporation (COF)
156
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
Allowance for loan and lease losses:
Balance as of December 31, 2017. . . . . . . . . . . . . . . . . . . . . . . . . .
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for loan and lease losses. . . . . . . . . . . . . . . . . .
Allowance build (release) for loan and lease losses . . . . . . . . . . . .
Other changes(1)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2018. . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for unfunded lending commitments:
Balance as of December 31, 2017. . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for losses on unfunded lending commitments .
Balance as of December 31, 2018. . . . . . . . . . . . . . . . . . . . . . . . . .
Combined allowance and reserve as of December 31, 2018 . . .
Credit Card
Consumer
Banking
Commercial
Banking
Other(1)(2)
Total
$
$
5,648
(6,657)
1,588
(5,069)
4,984
(85)
(28)
5,535
0
0
0
5,535
$
$
$
1,242
(1,832)
851
(981)
841
(140)
(54)
1,048
7
(3)
4
1,052
$
611
(119)
63
(56)
82
26
0
637
117
1
118
755
$
$
1
(7)
1
(6)
(49)
(55)
54
0
0
0
0
0
$
$
7,502
(8,615)
2,503
(6,112)
5,858
(254)
(28)
7,220
124
(2)
122
7,342
__________
(1)
In 2018, we sold all of our consumer home loan portfolio and recognized a gain of approximately $499 million in the Other category, including a benefit for
credit losses of $46 million.
Includes the legacy loan portfolio of our discontinued GreenPoint mortgage operations.
The amount and timing of recoveries is impacted by our collection strategies, which are based on customer behavior and risk profile and include direct
customer communications, repossession of collateral, the periodic sale of charged-off loans as well as additional strategies, such as litigation.
(2)
(3)
(4) Represents foreign currency translation adjustments and the net impact of loan transfers and sales where applicable.
Components of Allowance for Loan and Lease Losses by Impairment Methodology
The table below presents the components of our allowance for loan and lease losses by portfolio segment and impairment
methodology as of December 31, 2018 and 2017. See “Note 1—Summary of Significant Accounting Policies” for further discussion
of allowance methodologies for each of the loan portfolios.
(Dollars in millions)
Allowance for loan and lease losses:
December 31, 2017
Credit
Card
Consumer
Banking
Commercial
Banking
Other
Total
Collectively evaluated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5,356
$
1,158
$
529
$
Asset-specific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
292
0
Total allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . .
$
5,648
Loans held for investment:
Collectively evaluated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 113,948
Asset-specific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
812
2
$
$
53
31
1,242
64,080
705
10,293
$
$
76
6
611
63,237
858
480
$
$
1
0
0
1
$
7,044
421
37
$
7,502
58
$ 241,323
0
0
2,375
10,775
Total loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance coverage ratio(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 114,762
$
75,078
$
64,575
$
58
$ 254,473
4.92%
1.65%
0.95%
1.72%
2.95%
__________
(1) Allowance coverage ratio is calculated by dividing the period-end allowance for loan and lease losses by period-end loans held for investment within the
specified loan category.
We have certain credit card partnership agreements that are presented within our consolidated financial statements on a net basis,
in which our partner agrees to share a portion of the credit losses on the underlying loan portfolio. The expected reimbursements
from these partners, which are netted against our allowance for loan and lease losses, result in reductions to net charge-offs and
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,
2018, 2017 and 2016.
Table 5.3: Summary of Loss Sharing Arrangements Impacts
Table 5.2: Components of Allowance for Loan and Lease Losses by Impairment Methodology
(Dollars in millions)
(Dollars in millions)
Allowance for loan and lease losses:
December 31, 2018
Credit
Card
Consumer
Banking
Commercial
Banking
Total
Collectively evaluated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-specific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . .
Loans held for investment:
Collectively evaluated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-specific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PCI loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance coverage ratio(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
$
5,258
277
5,535
115,505
855
1
$
$
$
1,021
27
1,048
58,808
393
4
$
$
$
603
34
637
69,607
596
130
6,882
338
7,220
243,920
1,844
135
116,361
$
59,205
$
70,333
$
245,899
4.76%
1.77%
0.91%
2.94%
Balance as of December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Amounts due from partners which reduced net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts estimated to be charged to partners which reduced provision for credit losses. . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts due from partners which reduced net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts estimated to be charged to partners which reduced provision for credit losses. . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts due from partners which reduced net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts estimated to be charged to partners which reduced provision for credit losses. . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
194
(229)
263
228
(285)
437
380
(382)
381
379
157
Capital One Financial Corporation (COF)
158
Capital One Financial Corporation (COF)
Estimated
Reimbursements from
Loss Sharing Partners
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6—VARIABLE INTEREST ENTITIES AND SECURITIZATIONS
In the normal course of business, we enter into various types of transactions with entities that are considered to be VIEs. Our
primary involvement with VIEs has been related to our securitization transactions in which we transferred assets to securitization
trusts. We have primarily securitized credit card loans, which have provided a source of funding for us and enabled us to transfer
a certain portion of the economic risk of the loans or related debt securities to third parties.
The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and is required to consolidate
the VIE. The majority of the VIEs in which we are involved have been consolidated in our financial statements.
Summary of Consolidated and Unconsolidated VIEs
The assets of our consolidated VIEs primarily consist of cash, credit card loan receivables and the related allowance for loan and
lease losses, which we report on our consolidated balance sheets under restricted cash for securitization investors, loans held in
consolidated trusts and allowance for loan and lease losses, respectively. The assets of a particular VIE are the primary source of
funds to settle its obligations. Creditors of these VIEs typically do not have recourse to our general credit. Liabilities primarily
consist of debt securities issued by the VIEs, which we report under securitized debt obligations on our consolidated balance sheets.
For unconsolidated VIEs, we present the carrying amount of assets and liabilities reflected on our consolidated balance sheets and
our maximum exposure to loss. Our maximum exposure to loss is estimated based on the unlikely event that all of the assets in
the VIEs become worthless and we are required to meet our maximum remaining funding obligations.
The tables below present a summary of VIEs in which we had continuing involvement or held a variable interest, aggregated based
on VIEs with similar characteristics as of December 31, 2018 and 2017. We separately present information for consolidated and
unconsolidated VIEs.
(Dollars in millions)
Securitization-Related VIEs:
Credit card loan securitizations(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home loan securitizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total securitization-related VIEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other VIEs:(2)
Affordable housing entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Entities that provide capital to low-income and rural communities.
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other VIEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total VIEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2017
Consolidated
Unconsolidated
Carrying
Amount
of Assets
Carrying
Amount of
Liabilities
Carrying
Amount
of Assets
Carrying
Amount of
Liabilities
Maximum
Exposure to
Loss
$
34,976
$
20,651
$
0
$
0
$
0
0
34,976
20,651
226
1,498
0
1,724
10
129
0
139
455
455
4,175
0
318
4,493
390
390
1,284
0
0
1,284
$
36,700
$
20,790
$
4,948
$
1,674
$
0
1,057
1,057
4,175
0
318
4,493
5,550
__________
(1) Represents the carrying amount of assets and liabilities owned by the VIE, which includes the seller’s interest and repurchased notes held by other related
parties.
(2)
In certain investment structures, we consolidate a VIE which in turn holds as its primary asset an investment in an unconsolidated VIE. In these instances,
we disclose the carrying amount of assets and liabilities on our consolidated balance sheets as unconsolidated VIEs to avoid duplicating our exposure, as the
unconsolidated VIEs are generally the operating entities generating the exposure. The carrying amount of assets and liabilities included in the unconsolidated
VIE columns above related to these investment structures were $2.3 billion of assets and $811 million of liabilities as of December 31, 2018 and $2.2 billion
of assets and $901 million of liabilities as of December 31, 2017.
Table 6.1: Carrying Amount of Consolidated and Unconsolidated VIEs
Securitization-Related VIEs
(Dollars in millions)
Securitization-Related VIEs:
December 31, 2018
Consolidated
Unconsolidated
Carrying
Amount
of Assets
Carrying
Amount of
Liabilities
Carrying
Amount
of Assets
Carrying
Amount of
Liabilities
Maximum
Exposure to
Loss
Credit card loan securitizations(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home loan securitizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total securitization-related VIEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other VIEs:(2)
Affordable housing entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Entities that provide capital to low-income and rural communities.
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other VIEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total VIEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
33,574
$
18,885
$
0
$
0
0
33,574
18,885
243
1,739
0
1,982
17
117
0
134
211
211
4,238
0
353
4,591
$
0
74
74
1,303
0
0
1,303
$
35,556
$
19,019
$
4,802
$
1,377
$
0
554
554
4,238
0
353
4,591
5,145
In a securitization transaction, assets are transferred to a trust, which generally meets the definition of a VIE. Our primary
securitization activity is in the form of credit card securitizations, conducted through securitization trusts which we consolidate.
Our continuing involvement in these securitization transactions mainly consists of acting as the primary servicer and holding
certain retained interests.
We transfer multifamily commercial loans that we originate to the government-sponsored enterprises (“GSEs”) and retain the right
to service the transferred loans pursuant to the guidelines set forth by the GSEs. Subsequent to such transfers, these loans are
commonly securitized into CMBS by the GSEs. We also hold RMBS and CMBS in our investment securities portfolio, which
represent an interest in the respective securitization trusts employed in the transactions under which those securities were issued.
We do not consolidate the securitization trusts employed in these transactions as we do not have the power to direct the activities
that most significantly impact the economic performance of these securitization trusts. Our maximum exposure to loss as a result
of our involvement with these VIEs is the carrying value of MSRs and investment securities on our consolidated balance sheets.
See “Note 7—Goodwill and Intangible Assets” for information related to our MSRs associated with these multifamily commercial
loan securitizations and “Note 3—Investment Securities” for more information on the securities held in our investment securities
portfolio. We exclude these VIEs from the tables within this note because we do not consider our continuing involvement with
these VIEs to be significant as we either invest in securities issued by the VIE and were not involved in the design of the VIE or
no transfers have occurred between the VIE and us. In addition, where we have certain lending arrangements in the normal course
of business with entities that could be VIEs, we have also excluded these VIEs from the tables presented in this note. See “Note 4
—Loans” for additional information regarding our lending arrangements in the normal course of business.
159
Capital One Financial Corporation (COF)
160
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2018 and 2017.
Table 6.2: Continuing Involvement in Securitization-Related VIEs
(Dollars in millions)
December 31, 2018:
Credit
Card
Mortgages
Securities held by third-party investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables in the trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash balance of spread or reserve accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Servicing retained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2017:
Securities held by third-party investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables in the trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash balance of spread or reserve accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Servicing retained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
18,307
$
34,197
0
Yes
Yes
$
20,010
$
35,667
0
Yes
Yes
1,276
1,305
116
Yes
Yes(1)
1,774
1,812
124
Yes
Yes(1)
__________
(1) We retain servicing on a portion of our remaining mortgage loans in mortgage securitizations.
Credit Card Securitizations
We securitize a portion of our credit card loans which provides a source of funding for us. The credit card securitizations involve
the transfer of credit card receivables from our balance sheet 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.
the resulting amortization is recognized as a component of income tax expense attributable to continuing operations. For the years
ended December 31, 2018 and 2017, we recognized amortization of $477 million and $582 million, respectively, and tax credits
of $529 million and $504 million, respectively, associated with these investments within income tax provision. The carrying value
of our equity investments in these qualified affordable housing projects was $4.2 billion and $3.9 billion as of December 31, 2018
and 2017, respectively. We are periodically required to provide additional financial or other support during the period of the
investments. Our liability for these unfunded commitments was $1.5 billion and $1.4 billion as of December 31, 2018 and 2017,
respectively and is largely expected to be paid from 2019 to 2021.
For those investment funds considered to be VIEs, we are not required to consolidate them if we do not have the power to direct
the activities that most significantly impact the economic performance of those entities. We record our interests in these
unconsolidated VIEs in loans held for investment, other assets and other liabilities on our consolidated balance sheets. Our maximum
exposure to these entities is limited to our variable interests in the entities which consisted of assets of approximately $4.2 billion
as of both December 31, 2018 and 2017. The creditors of the VIEs have no recourse to our general credit and we do not provide
additional financial or other support other than during the period that we are contractually required to provide it. The total assets
of the unconsolidated VIE investment funds were approximately $10.8 billion and $11.5 billion as of December 31, 2018 and
2017, respectively.
Entities that Provide Capital to Low-Income and Rural Communities
We hold variable interests in entities (“Investor Entities”) that invest in community development entities (“CDEs”) that provide
debt financing to businesses and non-profit entities in low-income and rural communities. Variable interests in the CDEs held by
the consolidated Investor Entities are also our variable interests. The activities of the Investor Entities are financed with a
combination of invested equity capital and debt. The activities of the CDEs are financed solely with invested equity capital. We
receive federal and state tax credits for these investments. We consolidate the VIEs in which we have the power to direct the
activities that most significantly impact the VIE’s economic performance and where we have the obligation to absorb losses or
right to receive benefits that could be potentially significant to the VIE. We have also consolidated other investments and CDEs
that are not considered to be VIEs, but where we hold a controlling financial interest. The assets of the VIEs that we consolidated,
which totaled approximately $1.7 billion and $1.5 billion as of December 31, 2018 and 2017, 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.
Mortgage Securitizations
Other
We had previously securitized mortgage loans by transferring these loans to securitization trusts that had issued mortgage-backed
securities to investors. These mortgage trusts consist of option-adjustable rate mortgage (“option-ARM”) securitizations and
securitizations from our discontinued operations which include the mortgage origination operations of our wholesale mortgage
banking unit, GreenPoint Mortgage Funding, Inc. (“GreenPoint”) and the manufactured housing operations of GreenPoint Credit,
LLC, a subsidiary of GreenPoint (collectively “GreenPoint securitizations”).
We continue to service a portion of the remaining mortgage loans in the option-ARM securitizations and also retain rights to certain
future cash flows arising from these securitizations. We also retain servicing on a portion of the remaining mortgage loans in the
GreenPoint securitizations and have the right to receive any funds remaining in the pre-funded letters of credit after the securities
are released. We do not consolidate the mortgage securitizations because we do not have the right to receive the benefits nor the
obligation to absorb losses that could potentially be significant to the trusts or we do not have the power to direct the activities
that most significantly impact the economic performance of the trusts.
Other VIEs
Affordable Housing Entities
As part of our community reinvestment initiatives, we invest in private investment funds that make equity investments in multifamily
affordable housing properties. We receive affordable housing tax credits for these investments. The activities of these entities are
financed with a combination of invested equity capital and debt. We account for certain of our investments in qualified affordable
housing projects using the proportional amortization method if certain criteria are met. The proportional amortization method
amortizes the cost of the investment over the period in which the investor expects to receive tax credits and other tax benefits, and
Other VIEs include variable interests that we hold in companies that promote renewable energy sources and other equity method
investments. We were not required to consolidate these entities because we do not have the power to direct the activities that most
significantly impact their economic performance. Our maximum exposure to these entities is limited to the investment on our
consolidated balance sheets of $353 million and $318 million as of December 31, 2018 and 2017, 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.
161
Capital One Financial Corporation (COF)
162
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7—GOODWILL AND INTANGIBLE ASSETS
Goodwill
The table below presents our goodwill, intangible assets and MSRs as of December 31, 2018 and 2017. Goodwill is presented
separately, while intangible assets and MSRs are included in other assets on our consolidated balance sheets.
Table 7.1: Components of Goodwill, Intangible Assets and MSRs
The following table presents changes in the carrying amount of goodwill by each of our business segments as of December 31,
2018 and 2017. We did not recognize any goodwill impairment during 2018, 2017 or 2016.
Table 7.2: Goodwill by Business Segments
December 31, 2018
(Dollars in millions)
Credit
Card
Consumer
Banking
Commercial
Banking
Total
(Dollars in millions)
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets:
Purchased credit card relationship (“PCCR”) intangibles . . . . . . . .
Core deposit intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial MSRs(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Dollars in millions)
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets:
Carrying
Amount of
Assets
Accumulated
Amortization
Net
Carrying
Amount
Remaining
Amortization
Period
$
14,544
N/A $
14,544
N/A
2,102
$
1,149
271
3,522
(1,952)
(1,148)
(168)
(3,268)
150
1
103
254
3.7 years
0.2 years
7.1 years
5.0 years
$
$
18,066
459
$
$
(3,268) $
14,798
(185) $
274
December 31, 2017
Carrying
Amount of
Assets
Accumulated
Amortization
Net
Carrying
Amount
Remaining
Amortization
Period
$
14,533
N/A $
14,533
N/A
PCCR intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
MSRs:
Consumer MSRs(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial MSRs(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total MSRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
2,105
$
1,149
300
3,554
(1,844)
(1,133)
(156)
(3,133)
261
16
144
421
3.6 years
1.0 years
7.8 years
4.9 years
18,087
$
(3,133) $
14,954
92
355
447
$
$
N/A $
(126)
(126) $
92
229
321
__________
(1)
Primarily consists of intangibles for sponsorship relationships, partnership and other contract intangibles and trade name intangibles.
(2) Commercial MSRs are accounted for under the amortization method on our consolidated balance sheets. We recorded $59 million and $44 million of
amortization expense for the years ended December 31, 2018 and 2017, respectively.
(3) Consumer MSRs were carried at fair value on our consolidated balance sheets as of December 31, 2017. In the first quarter of 2018, we sold the substantial
majority of these MSRs.
Balance as of December 31, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,997
$
4,600
$
4,883
$
14,480
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustments(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustments(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions in goodwill related to divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustments(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36
(15)
0
0
18
0
54
(15)
5,018
4,600
4,901
14,519
6
8
0
0
0
0
6
8
5,032
4,600
4,901
14,533
33
0
(5)
0
0
0
0
(17)
0
33
(17)
(5)
$
5,060
$
4,600
$
4,884
$
14,544
__________
(1) Represents foreign currency translation adjustments.
The goodwill impairment test, performed as of October 1 of each year, is a two-step test. The first step identifies whether there is
potential impairment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value
of a reporting unit is less than its carrying amount, the second step of the impairment test is required to measure the amount of
any potential impairment loss.
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. Cash flows are adjusted, as
necessary, in order to maintain each reporting unit’s equity capital requirements. Our discounted cash flow analysis requires
management to make judgments about future loan and deposit growth, revenue growth, credit losses, and capital rates. The key
inputs into the discounted cash flow analysis were consistent with market data, where available, indicating that assumptions used
were within a reasonable range of observable market data.
Intangible Assets
In connection with our acquisitions, we recorded intangible assets that include PCCR intangibles, core deposit intangibles, brokerage
relationship intangibles, partnership contract intangibles, other contract intangibles and trademark intangibles. At acquisition, the
PCCR intangibles reflect the estimated value of existing credit card holder relationships and the core deposit intangibles reflect
the estimated value of deposit relationships. There were no meaningful impairments of intangible assets in 2018 and 2017. We
recorded an impairment charge of $17 million in 2016 related primarily to our brokerage relationship intangibles.
163
Capital One Financial Corporation (COF)
164
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8—PREMISES, EQUIPMENT AND LEASE COMMITMENTS
Premises and Equipment
The following table presents our premises and equipment as of December 31, 2018 and 2017.
Amortization
Expense
Table 8.1: Components of Premises and Equipment
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, 2018, 2017 and 2016
and the estimated future amortization expense for intangible assets as of December 31, 2018:
Table 7.3: Amortization Expense
(Dollars in millions)
Actual for the year ended December 31,
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated future amounts for the year ended December 31,
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
386
245
174
109
58
28
20
14
17
Total estimated future amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
246
(Dollars in millions)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total premises and equipment, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
386
$
3,994
2,018
1,847
482
8,727
(4,536)
Total premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,191
$
406
3,302
1,901
1,753
902
8,264
(4,231)
4,033
December 31,
2018
2017
Depreciation and amortization expense was $728 million, $662 million and $710 million for the years ended December 31, 2018,
2017 and 2016, respectively.
Lease Commitments
Certain premises and equipment are leased under agreements that expire at various dates through 2071, without taking into
consideration available renewal options. Many of these leases provide for payment by us, as the lessee, of variable costs including
property taxes, insurance premiums, cost of maintenance and other costs. Total rent expense was $322 million, $307 million and
$330 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Future minimum rental commitments as of December 31, 2018, for all non-cancellable operating leases with initial or remaining
terms of one year or more are as follows:
Table 8.2: Lease Commitments
(Dollars in millions)
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated Future
Minimum Rental
Commitments
$
$
352
309
279
249
213
949
2,351
The table above does not include minimum sublease rental income of $183 million expected to be received in future years under
all non-cancellable leases.
165
Capital One Financial Corporation (COF)
166
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9—DEPOSITS AND BORROWINGS
Table 9.1: Components of Deposits, Short-Term Borrowings and Long-Term Debt
Our deposits, which are our largest source of funding for our assets and operations, consist of non-interest-bearing and interest-
bearing deposits, which include checking accounts, money market deposit accounts, negotiable order of withdrawals, savings
deposits and time deposits.
We use a variety of other funding sources including short-term borrowings, senior and subordinated notes, securitized debt
obligations and other borrowings. In addition, we utilize FHLB advances, which are secured by certain portions of our loan and
investment securities portfolios. Securitized debt obligations are presented separately on our consolidated balance sheets, as they
represent obligations of consolidated securitization trusts, while federal funds purchased and securities loaned or sold under
agreements to repurchase, senior and subordinated notes and other borrowings, including FHLB advances, are included in other
debt on our consolidated balance sheets.
The following tables summarize the components of our deposits, short-term borrowings and long-term debt as of December 31,
2018 and 2017. Our total short-term borrowings consist of federal funds purchased, securities loaned or sold under agreements to
repurchase, and short-term FHLB advances. Our long-term debt consists of borrowings with an original contractual maturity of
greater than one year. The carrying value presented below for these borrowings includes unamortized debt premiums and discounts,
net of debt issuance costs and fair value hedge accounting adjustments.
(Dollars in millions)
Deposits:
Non-interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings:
Federal funds purchased and securities loaned or sold under agreements to repurchase . . . . . . . . . . . . . . .
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
December 31,
2017
$
$
$
$
23,483
226,281
249,764
352
9,050
9,402
$
$
$
$
26,404
217,298
243,702
576
0
576
(Dollars in millions)
Long-term debt:
Securitized debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior and subordinated notes:
December 31, 2018
December 31,
2017
Maturity
Dates
Stated
Interest Rates
Weighted-
Average
Interest Rate
Carrying
Value
Carrying
Value
2019-2025
1.33 - 3.31%
2.31% $
18,307
$
20,010
Fixed unsecured senior debt . . . . . . . . . . . . . . . . . . . . . . .
Floating unsecured senior debt . . . . . . . . . . . . . . . . . . . . .
2019-2028
2019-2023
1.85 - 4.75
2.97 - 3.72
Total unsecured senior debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed unsecured subordinated debt. . . . . . . . . . . . . . . . . .
2019-2026
3.38 - 8.80
3.03
3.39
3.08
4.09
Total senior and subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term borrowings:
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020-2023
2.48 - 5.36
2019-2035
1.00 - 13.63
2.49
6.16
Total other long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total short-term borrowings and long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,290
2,993
26,283
4,543
30,826
251
119
370
$
$
49,503
58,905
$
$
22,776
3,446
26,222
4,533
30,755
8,609
331
8,940
59,705
60,281
__________
(1)
Includes $4.0 billion and $1.3 billion of time deposits in denominations in excess of the $250,000 federal insurance limit as of December 31, 2018 and 2017,
respectively.
The following table presents the carrying value of our interest-bearing time deposits, securitized debt obligations and other debt
by remaining contractual maturity as of December 31, 2018.
Table 9.2: Maturity Profile of Borrowings
(Dollars in millions)
2019
2020
2021
2022
2023
Thereafter
Total
Interest-bearing time deposits . . . . . . . . . . . . . . . .
$ 22,548
$
6,524
$
4,065
$
4,036
$
1,176
$
Securitized debt obligations . . . . . . . . . . . . . . . . .
6,845
5,266
2,298
2,531
Federal funds purchased and securities loaned or
sold under agreements to repurchase . . . . . . . . . .
Senior and subordinated notes . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . .
352
5,314
9,060
0
4,350
310
714
0
0
0
4,920
2,504
4,163
6
6
5
122
653
$ 38,471
18,307
0
9,575
33
352
30,826
9,420
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 44,119
$ 16,450
$ 11,289
$
9,077
$
6,058
$ 10,383
$ 97,376
167
Capital One Financial Corporation (COF)
168
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Use of Derivatives and Accounting for Derivatives
We regularly enter into derivative transactions to support our overall risk management activities. Our primary market risks stem
from the impact on our earnings and economic value of equity due to changes in interest rates and, to a lesser extent, changes in
foreign exchange rates. We manage our interest rate sensitivity by employing several techniques, which include changing the
duration and re-pricing characteristics of various assets and liabilities by using interest rate derivatives. We also use foreign currency
derivatives to limit our earnings and capital exposures to foreign exchange risk by hedging exposures denominated in foreign
currencies. In addition to interest rate and foreign currency derivatives, we may also use a variety of other derivative instruments,
including caps, floors, options, futures and forward contracts, to manage our interest rate and foreign exchange risks. We designate
these risk management derivatives as either qualifying accounting hedges or free-standing derivatives. Qualifying accounting
hedges are further designated as fair value hedges, cash flow hedges or net investment hedges, and free-standing derivatives are
economic hedges that do not qualify for hedge accounting.
We also offer various interest rate, commodity and foreign currency derivatives as accommodation to our customers within our
Commercial Banking business. We enter into these derivatives with our customers primarily to help them manage interest rate
risks, hedge their energy and other commodities exposures, and manage foreign currency fluctuations. We then enter into offsetting
derivative contracts with counterparties to economically hedge the majority of our subsequent exposures.
See below for additional information on our use of derivatives and how we account for them:
• Fair Value Hedges: We designate derivatives as fair value hedges when they are used to manage our exposure to changes
in the fair value of certain financial assets and liabilities, which fluctuate in value as a result of movements in interest rates.
Changes in the fair value of derivatives designated as fair value hedges are presented in the same line item on our consolidated
statements of income as the earnings effect of the hedged items. Our fair value hedges consist of interest rate swaps that
are intended to modify our exposure to interest rate risk on various fixed-rate financial assets and liabilities.
• Cash Flow Hedges: We designate derivatives as cash flow hedges when they are used to manage our exposure to variability
in cash flows related to forecasted transactions. Changes in the fair value of derivatives designated as cash flow hedges are
recorded as a component of AOCI. Those amounts are reclassified into earnings in the same period during which the
forecasted transactions impact earnings and presented in the same line item on our consolidated statements of income as
the earnings effect of the hedged items. Our cash flow hedges use interest rate swaps and floors that are intended to hedge
the variability in interest receipts or interest payments on some of our variable-rate financial assets or liabilities. We also
enter into foreign currency forward contracts to hedge our exposure to variability in cash flows related to intercompany
borrowings denominated in a foreign currency.
• Net Investment Hedges: We use net investment hedges to manage the foreign currency exposure related to our net investments
in foreign operations that have functional currencies other than the U.S. dollar. Changes in the fair value of net investment
hedges are recorded in the translation adjustment component of AOCI, offsetting the translation gain or loss from those
foreign operations. We execute net investment hedges using foreign 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.
In the first quarter of 2018, we adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities. The disclosures below reflect the adoption changes.
Derivatives Counterparty Credit Risk
Counterparty Types
Derivative instruments contain an element of credit risk that arises from the potential failure of a counterparty to perform according
to the terms of the contract. We execute our derivative contracts primarily in over-the-counter (“OTC”) markets. We also execute
minimal amounts of interest rate and commodity futures in the exchange-traded derivative markets. Our OTC derivatives consist
of both centrally cleared and uncleared bilateral contracts. In our centrally cleared contracts, our counterparties are central
counterparty clearinghouses (“CCPs”), such as the Chicago Mercantile Exchange (“CME”) and the LCH Group (“LCH”). In our
uncleared bilateral contracts, we enter into agreements directly with our derivative counterparties.
Counterparty Credit Risk Management
We generally manage our counterparty credit risk associated with derivative instruments by entering into legally enforceable master
netting arrangements, where possible, and exchanging margin and collateral with our counterparties, typically in the form of cash
or high-quality liquid securities. The amount of collateral exchanged is dependent upon the fair value of the derivative instruments
as well as the fair value of the pledged collateral. When valuing collateral, an estimate of the variation in price and liquidity over
time is subtracted in the form of a “haircut” to discount the value of the collateral pledged. Our exposure to derivative counterparty
credit risk, at any point in time, is equal to the amount reported as a derivative asset on our balance sheet. The fair value of
derivatives is adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements
and any associated cash collateral received or pledged. See Table 10.3 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 as part of our regulatory requirements 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 upfront by CCPs as collateral against
potential losses on our cleared derivative contracts. Variation margin is exchanged on a daily basis to account for mark-to-
market changes in the derivative contracts. For CME-cleared OTC derivatives, we characterize variation margin cash
payments as settlements. Effective January 16, 2018, LCH amended its rulebook to legally characterize variation margin
payments as settlements. We adopted this rule change in the first quarter of 2018. As a result, the balances for the LCH-
cleared OTC derivatives are reduced to reflect the settlement of these positions. Our FCM agreements governing these
derivative transactions include provisions that may require us to post additional collateral.
• Bilateral Counterparties: We generally enter into legally enforceable master netting agreements and collateral agreements,
where possible, with bilateral derivative counterparties to mitigate the risk of default. We review our collateral positions
on a daily basis and exchange collateral with our counterparties in accordance with these agreements. These bilateral
agreements typically provide the right to offset exposure with the same counterparty and require the party in a net liability
position to post collateral. Agreements with certain bilateral counterparties require both parties to maintain collateral in the
event the fair values of derivative instruments exceed established exposure thresholds. Certain of these bilateral agreements
include provisions requiring that our debt maintain a credit rating of investment grade or above by each of the major credit
rating agencies. In the event of a downgrade of our debt credit rating below investment grade, some of our counterparties
would have the right to terminate the derivative contract and close out the existing positions.
Credit Risk Valuation Adjustments
We record counterparty credit valuation adjustments (“CVAs”) on our derivative assets to properly reflect the credit quality of the
counterparty. We consider collateral and legally enforceable master netting agreements that mitigate our credit exposure to each
counterparty in determining CVA, which may be adjusted in future periods due to changes in the fair values of the derivative
contracts, collateral and creditworthiness of the counterparty. We also record debit valuation adjustments (“DVAs”) to adjust the
fair values of our derivative liabilities to reflect the impact of our own credit quality. We calculate this adjustment by comparing
the spreads on our credit default swaps to the discount benchmark curve.
169
Capital One Financial Corporation (COF)
170
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet Presentation
The following table summarizes the notional and fair values of our derivative instruments as of December 31, 2018 and 2017,
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.
Table 10.1: Derivative Assets and Liabilities at Fair Value
(Dollars in millions)
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 as of December 31, 2018.
Table 10.2: Hedged Items in Fair Value Hedging Relationships
December 31, 2018
Cumulative Amount of Basis
Adjustments Included in the
Carrying Amount
Total
Assets/
(Liabilities)
Discontinued-
Hedging
Relationships
Carrying
Amount
Assets/
(Liabilities)
(Dollars in millions)
Derivatives designated as accounting hedges:
Interest rate contracts:
Fair value hedges. . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . .
Total interest rate contracts. . . . . . . . . . . . . . . . . . . . . .
Foreign exchange contracts:
Cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . .
Net investment hedges . . . . . . . . . . . . . . . . . . . . . .
Total foreign exchange contracts . . . . . . . . . . . . . . . . .
Total derivatives designated as accounting hedges . . .
Derivatives not designated as accounting hedges:
Customer accommodation:
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . .
Commodity contracts . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange and other contracts. . . . . . . . . . .
Total customer accommodation . . . . . . . . . . . . . . . . . .
Other interest rate exposures(3) . . . . . . . . . . . . . . . . . . .
Other contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
53,413
$
81,200
134,613
5,745
2,607
8,352
142,965
49,386
10,673
1,418
61,477
6,427
1,636
64
83
147
184
178
362
509
190
797
12
999
29
2
December 31, 2018
December 31, 2017
Notional or
Contractual
Amount
Derivative(1)(2)
Assets
Liabilities
Notional or
Contractual
Amount
Derivative(1)
Assets
Liabilities
$
56,604
$
102
$
30
132
19
1
20
152
316
518
14
848
40
0
164
125
289
75
164
239
528
221
496
10
727
8
5
$
28
70
98
2
0
2
77,300
133,904
6,086
3,036
9,122
100
143,026
256
786
11
1,053
36
12
1,101
39,429
8,111
980
48,520
3,857
1,209
53,586
1,201
$ 196,612
(287)
914
Total derivatives not designated as accounting hedges
Total derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 212,505
Less: netting adjustment(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total derivative assets/liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69,540
$
$
1,030
1,539
(1,079)
460
$
$
888
1,040
(275)
765
$
$
740
1,268
(662)
606
$
$
Line item on our consolidated balance sheets in which the hedged item is included:
Investment securities available for sale(1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securitized debt obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior and subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
14,067
$
(6) $
(13,101)
(5,887)
(23,572)
247
168
315
(2)
0
143
392
__________
(1)
These amounts include the amortized cost basis of our investment securities designated in hedging relationships for which the hedged item is the last layer
expected to be remaining at the end of the hedging relationship. As of December 31, 2018, the amortized cost basis of this portfolio was $8.3 billion, the
amount of the designated hedged items was $4.0 billion, and the cumulative basis adjustment associated with these hedges was $26 million.
(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 governed by enforceable master
netting arrangements where we generally have the right to offset exposure with the same counterparty. Either counterparty can
generally request to net settle all contracts through a single payment upon default on, or termination of, any one contract. We elect
to offset the derivative assets and liabilities under netting arrangements for balance sheet presentation where a right of setoff exists.
For derivative contracts entered into under master netting arrangements for which we have not been able to confirm the enforceability
of the setoff rights, or those not subject to master netting arrangements, we do not offset our derivative positions for balance sheet
presentation.
__________
(1) Derivative assets and liabilities presented above exclude valuation adjustments related to non-performance risk. As of December 31, 2018 and 2017, the
cumulative CVA balances were $3 million and $2 million, respectively, and the cumulative DVA balances were approximately $1 million as of both
December 31, 2018 and 2017.
(2) Reflects a reduction in derivative assets of $431 million and a reduction in derivative liabilities of $397 million on our consolidated balance sheets as a result
of adopting the LCH variation margin rule change in the first quarter of 2018.
(3) Other interest rate exposures include commercial mortgage-related derivatives and interest rate swaps.
(4) Represents balance sheet netting of derivative assets and liabilities, and related payables and receivables for cash collateral held or placed with the same
counterparty.
171
Capital One Financial Corporation (COF)
172
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents as of December 31, 2018 and 2017 the gross and net fair values of our derivative assets and liabilities
and repurchase agreements, as well as the related offsetting amounts permitted under U.S. GAAP. 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.
Table 10.3: Offsetting of Financial Assets and Financial Liabilities
(Dollars in millions)
As of December 31, 2018
Gross Amounts Offset in the
Balance Sheet
Gross
Amounts
Financial
Instruments
Cash Collateral
Received
Net Amounts
as Recognized
Securities
Collateral Held
Under Master
Netting
Agreements
Derivative assets(1)(2). . . . . . . . . . . . . . . .
$
1,539
$
(205) $
(874) $
460
$
As of December 31, 2017
Derivative assets(1) . . . . . . . . . . . . . . . . .
1,040
(202)
(73)
765
Net
Exposure
$
460
765
0
0
(Dollars in millions)
As of December 31, 2018
Gross Amounts Offset in the
Balance Sheet
Gross
Amounts
Financial
Instruments
Cash Collateral
Pledged
Net Amounts
as Recognized
Securities
Collateral Pledged
Under Master
Netting
Agreements
Net
Exposure
Derivative liabilities(1)(2) . . . . . . . . . . . . .
Repurchase agreements(3) . . . . . . . . . . . .
$
1,201
$
(205) $
352
0
As of December 31, 2017
Derivative liabilities(1) . . . . . . . . . . . . . .
Repurchase agreements . . . . . . . . . . . . .
1,268
576
(202)
0
(82) $
0
(460)
0
$
914
352
606
576
0
$
(352)
0
(576)
914
0
606
0
__________
(1) We received cash collateral from derivative counterparties totaling $925 million and $91 million as of December 31, 2018 and 2017, respectively. We also
received securities from derivative counterparties with a fair value of $1 million as of both December 31, 2018 and 2017, which we have the ability to re-
pledge. We posted $633 million and $966 million of cash collateral as of December 31, 2018 and 2017, respectively.
(2) Reflects a reduction in derivative assets of $431 million and a reduction in derivative liabilities of $397 million on our consolidated balance sheets as a result
of adopting the LCH variation margin rule change in the first quarter of 2018.
(3) Represents customer repurchase agreements that mature the next business day. As of December 31, 2018, we pledged collateral with a fair value of $359
million under these customer repurchase agreements, which were primarily agency RMBS securities.
Income Statement and AOCI Presentation
Fair Value and Cash Flow Hedges
The net gains (losses) recognized in our consolidated statements of income related to derivatives in fair value and cash flow hedging
relationships are presented below for the years ended December 31, 2018, 2017 and 2016. Prior period amounts were not reclassified
to conform to the current period presentation.
Table 10.4: Effects of Fair Value and Cash Flow Hedge Accounting
(Dollars in millions)
Total amounts presented in our
consolidated statements of income . . .
Fair value hedging relationships:
Interest rate contracts:
Interest recognized on derivatives. . .
Gains (losses) recognized on
derivatives . . . . . . . . . . . . . . . . . . . . .
Gains (losses) recognized on hedged
items(1) . . . . . . . . . . . . . . . . . . . . . . . .
Net income (expense) recognized on
fair value hedges. . . . . . . . . . . . . . . . . . .
Cash flow hedging relationships:(2)
Interest rate contracts:
Realized gains (losses) reclassified
from AOCI into net income . . . . . . .
Foreign exchange contracts:
Realized gains (losses) reclassified
from AOCI into net income(3) . . . . . .
Year Ended December 31, 2018
Net Interest Income
Non-Interest
Income
Investment
Securities
Loans,
Including
Loans Held
for Sale
Other
Deposits
Securitized
Debt
Obligations
Senior and
Subordinated
Notes
Other
$
2,211
$
24,728
$
237
$
(2,598) $
(496) $
(1,125) $
1,002
(23)
34
(33)
(22)
0
0
0
0
(9)
(82)
0
0
0
0
0
0
0
47
(76)
(60)
52
(84)
(53)
(61)
38
(76)
2
(212)
131
(79)
0
0
0
$
0
0
0
$
0
0
0
$
0
0
0
0
0
(2)
(2)
Net income (expense) recognized on
cash flow hedges . . . . . . . . . . . . . . . . . .
$
(9) $
(82) $
47
$
__________
(1)
Includes amortization expense of $75 million for the year ended December 31, 2018 related to basis adjustments on discontinued hedges.
(2)
(3)
See “Note 11—Stockholders’ Equity” for the effects of cash flow and net investment hedges on AOCI and amounts reclassified to net income, net of tax.
The amount recognized in non-interest income represents the net impact of $191 million of realized gains on foreign exchange contracts reclassified from
AOCI into net income to offset $193 million of foreign currency transaction losses on our foreign currency denominated inter-company borrowings for the
year ended December 31, 2018.
(Dollars in millions)
Derivatives designated as fair value hedges:
Fair value interest rate contracts:
Gains (losses) recognized in net income on derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains (losses) recognized in net income on hedged items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net fair value hedge ineffectiveness gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives designated as cash flow hedges:
Gains (losses) reclassified from AOCI into net income:
Interest rate contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains (losses) recognized in net income due to ineffectiveness:
Interest rate contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net derivative gains (losses) recognized in net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Year Ended December 31,
2017
2016
$
(212) $
216
4
91
17
108
2
110
$
(613)
603
(10)
192
3
195
(4)
191
173
Capital One Financial Corporation (COF)
174
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the next 12 months, we expect to reclassify to earnings net after-tax losses of $167 million recorded in AOCI as of December 31,
2018. These amounts will offset the cash flows associated with the hedged forecasted transactions. The maximum length of time
over which forecasted transactions were hedged was approximately five years as of December 31, 2018. 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.
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, 2018, 2017 and 2016. These gains or losses are recognized in other non-interest income on our consolidated
statements of income.
Table 10.5: Gains (Losses) on Free-Standing Derivatives
(Dollars in millions)
Gains (losses) recognized in other non-interest income:
Customer accommodation:
Year Ended December 31,
2018
2017
2016
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Commodity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange and other contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total customer accommodation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest rate exposures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
25
16
7
48
33
(21)
60
$
20
13
5
38
61
0
99
$
$
24
10
3
37
67
(9)
95
NOTE 11—STOCKHOLDERS’ EQUITY
Preferred Stock
The following table summarizes the Company’s preferred stock issued and outstanding as of December 31, 2018 and 2017.
Table 11.1: Preferred Stock Issued and Outstanding(1)
Series
Description
Issuance Date
Series B
Series C
Series D
6.00%
Non-Cumulative
6.25%
Non-Cumulative
6.70%
Non-Cumulative
August 20,
2012
June 12, 2014
October 31,
2014
Redeemable
by Issuer
Beginning
September 1,
2017
September 1,
2019
December 1,
2019
Fixed-to-
Floating Rate
Series E
Non-Cumulative May 14, 2015
June 1, 2020
Per Annum
Dividend Rate
Dividend
Frequency
Liquidation
Preference
per Share
Carrying Value
(in millions)
Total Shares
Outstanding
December 31,
2018
December 31,
2017
6.00% Quarterly
$
1,000
875,000
$
853
$
6.25
Quarterly
1,000
500,000
6.70
Quarterly
1,000
500,000
5.55%
through
5/31/2020;
3-mo.
LIBOR+ 380
bps
thereafter
Semi-
Annually
through
5/31/2020;
Quarterly
thereafter
1,000
1,000,000
484
485
988
484
583
483
$
4,360
$
853
484
485
988
484
583
483
4,360
6.20%
Non-Cumulative
5.20%
Non-Cumulative
August 24,
2015
July 29, 2016
6.00%
Non-Cumulative
November 29,
2016
December 1,
2020
December 1,
2021
December 1,
2021
6.20
Quarterly
1,000
500,000
5.20
Quarterly
1,000
600,000
6.00
Quarterly
1,000
500,000
Series F
Series G
Series H
Total
__________
(1)
Except for Series E, ownership is held in the form of depositary shares, each representing a 1/40th interest in a share of fixed-rate non-cumulative perpetual
preferred stock.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income primarily consists of accumulated net unrealized gains or losses associated with available
for sale securities, the changes in fair value of derivatives designated as cash flow hedges, unrealized gains and losses on securities
held to maturity on the transfer date from the available for sale category and foreign currency translation adjustments. Unrealized
gains and losses for securities held to maturity are amortized over the remaining life of the security with no expected impact on
future net income as amortization of these gains or losses will be offset by the amortization of premium or discount created from
the transfer of securities from available to sale to held to maturity.
175
Capital One Financial Corporation (COF)
176
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table includes the AOCI impacts from the adoption of accounting standards and the changes in AOCI by component
for the years ended December 31, 2018, 2017 and 2016.
The following table presents the impacts on net income of amounts reclassified from each component of AOCI for the years ended
December 31, 2018, 2017 and 2016.
Table 11.2: Accumulated Other Comprehensive Income (Loss)
Table 11.3: Reclassifications from AOCI
(Dollars in millions)
Securities
Available
for Sale
Securities
Held to
Maturity
Cash
Flow
Hedges
Foreign
Currency
Translation
Adjustments(1)
Other
Total
AOCI as of December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
162
$
(725) $
120
$
(143) $
(30) $
(616)
Other comprehensive income (loss) before reclassifications . . . . . . . . . . .
Amounts reclassified from AOCI into earnings . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . . . . .
AOCI as of December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before reclassifications . . . . . . . . . . .
Amounts reclassified from AOCI into earnings . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . . . . .
AOCI as of December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effects from adoption of new accounting standards . . . . . . . .
Transfer of securities held to maturity to available for sale(2) . . . . . . . . . . .
Other comprehensive income (loss) before reclassifications . . . . . . . . . . .
Amounts reclassified from AOCI into earnings . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . . . . .
(172)
6
(166)
(4)
62
(41)
21
17
3
(325)
(293)
159
(459)
0
104
104
(621)
0
97
97
(524)
(113)
407
0
40
447
(3)
(195)
(198)
(78)
(95)
(108)
(203)
(281)
(63)
0
38
(112)
(74)
(79)
0
(79)
(222)
84
0
84
(138)
0
0
(39)
0
(39)
7
(1)
6
(24)
30
(6)
24
0
(28)
0
(8)
(3)
(247)
(86)
(333)
(949)
81
(58)
23
(926)
(201)
82
(302)
84
(11)
(136)
AOCI as of December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(439) $
(190) $
(418) $
(177) $
(39) $ (1,263)
__________
(1)
Includes other comprehensive gain of $150 million, loss of $143 million and gain of $280 million for the years ended December 31, 2018, 2017 and 2016,
respectively, from hedging instruments designated as net investment hedges.
(2)
In the first quarter of 2018, we made a one-time transfer of held to maturity securities with a carrying value of $9.0 billion to available for sale as a result of
our adoption of ASU No. 2017-12. This transfer resulted in an after-tax gain of $82 million ($107 million pre-tax) to AOCI.
(Dollars in millions)
AOCI Components
Securities available for sale:
Affected Income Statement Line Item
Year Ended December 31,
2018
2017
2016
Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(209) $
Securities held to maturity:(1)
Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow hedges:
Interest rate contracts:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange contracts:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other:
Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest income and non-interest expense . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(50)
(159)
(53)
(13)
(40)
(91)
47
191
147
35
112
4
1
3
$
65
24
41
(150)
(53)
(97)
145
27
1
173
65
108
9
3
6
Total reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(84) $
58
$
(10)
(4)
(6)
(164)
(60)
(104)
306
6
(2)
310
115
195
2
1
1
86
__________
(1)
The amortization of unrealized holding gains or losses reported in AOCI for securities held to maturity will be offset by the amortization of premium or
discount created from the transfer of securities from available for sale to held to maturity, which occurred at fair value. These unrealized gains or losses will
be amortized over the remaining life of the security with no expected impact on future net income.
177
Capital One Financial Corporation (COF)
178
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below summarizes other comprehensive income (loss) activity and the related tax impact for the years ended December
31, 2018, 2017 and 2016.
Table 11.4: Other Comprehensive Income (Loss)
NOTE 12—REGULATORY AND CAPITAL ADEQUACY
Regulation and Capital Adequacy
(Dollars in millions)
Other comprehensive income (loss):
Net unrealized gains (losses) on
securities available for sale . . . . . . . . . .
Net changes in securities held to
maturity . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized losses on cash flow
hedges . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation
adjustments(1) . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2018
2017
2016
Before
Tax
Provision
(Benefit)
After
Tax
Before
Tax
Provision
(Benefit)
After
Tax
Before
Tax
Provision
(Benefit)
After
Tax
$ (605) $
(146) $ (459) $
23
$
2
$
21
$ (254) $
(88) $ (166)
588
141
447
150
53
97
164
60
104
(98)
9
(15)
(24)
(74)
(325)
(122)
(203)
(315)
(117)
(198)
48
(4)
(39)
(11)
3
38
(81)
14
84
24
23
86
10
165
4
(79)
6
$ (309) $
24
$ (333)
Other comprehensive income (loss). . . .
$ (121) $
15
$ (136) $ (111) $
(134) $
__________
(1)
Includes the impact of hedging instruments designated as net investment hedges.
Bank holding companies (“BHCs”) and national banks are subject to capital adequacy standards adopted by the Federal Reserve,
Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation (collectively, the “Federal Banking
Agencies”), including the Basel III Capital Rule. Moreover, the Banks, as insured depository institutions, are subject to prompt
corrective action (“PCA”) capital regulations, which require the Federal Banking Agencies to take prompt corrective action for
banks that do not meet PCA capital requirements. We entered parallel run under Advanced Approaches on January 1, 2015, during
which we calculate capital ratios under both the Basel III Standardized Approach and the Basel III Advanced Approaches, though
we continue to use the Standardized Approach for purposes of meeting regulatory capital requirements.
Under the Basel III Capital Rule, the regulatory minimum risk-based and leverage capital requirements for Advanced Approaches
banking organizations include a common equity Tier 1 capital ratio of at least 4.5%, a Tier 1 capital ratio of at least 6.0%, a total
capital ratio of at least 8.0% and a Tier 1 leverage capital ratio of at least 4.0%. The Basel III Capital Rule introduced a supplementary
leverage ratio for all Advanced Approaches banking organizations, which compares Tier 1 capital to total leverage exposure, which
includes all on-balance sheet assets and certain off-balance sheet exposures, including derivatives and unused commitments. Given
that we are in our Basel III Advanced Approaches parallel run, we calculate the ratio based on Tier 1 capital under the Standardized
Approach. The supplementary leverage ratio minimum requirement of 3.0% became effective on January 1, 2018.
For additional information about the capital adequacy guidelines we are subject to, see “PART I —Item 1. Business—Supervision
and Regulation.”
179
Capital One Financial Corporation (COF)
180
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 PCA well-capitalized level
for each ratio,where applicable, as of December 31, 2018 and 2017.
Table 12.1: Capital Ratios Under Basel III(1)
(Dollars in millions)
Capital One Financial Corp:
Common equity Tier 1 capital(2) . . . . . .
Tier 1 capital(3) . . . . . . . . . . . . . . . . . . .
Total capital(4) . . . . . . . . . . . . . . . . . . . .
Tier 1 leverage(5) . . . . . . . . . . . . . . . . . .
Supplementary leverage(6) . . . . . . . . . .
COBNA:
Common equity Tier 1 capital(2) . . . . . .
Tier 1 capital(3) . . . . . . . . . . . . . . . . . . .
Total capital(4) . . . . . . . . . . . . . . . . . . . .
Tier 1 leverage(5) . . . . . . . . . . . . . . . . . .
Supplementary leverage(6) . . . . . . . . . .
CONA:
Common equity Tier 1 capital(2) . . . . . .
Tier 1 capital(3) . . . . . . . . . . . . . . . . . . .
Total capital(4) . . . . . . . . . . . . . . . . . . . .
Tier 1 leverage(5) . . . . . . . . . . . . . . . . . .
Supplementary leverage(6) . . . . . . . . . .
December 31, 2018
December 31, 2017
Capital
Amount
Capital
Ratio
Minimum
Capital
Adequacy
Well-
Capitalized
Capital
Amount
Capital
Ratio
Minimum
Capital
Adequacy
Well-
Capitalized
$ 33,071
11.2%
4.5%
N/A
$ 30,036
10.3%
4.5%
N/A
37,431
44,645
37,431
37,431
16,378
16,378
18,788
16,378
16,378
25,637
25,637
27,912
25,637
25,637
12.7
15.1
10.7
9.0
15.3
15.3
17.6
14.0
11.5
13.0
13.0
14.2
9.1
8.0
6.0
8.0
4.0
3.0
4.5
6.0
8.0
4.0
3.0
4.5
6.0
8.0
4.0
3.0
6.0% 34,396
10.0
N/A
N/A
6.5
8.0
10.0
5.0
N/A
6.5
8.0
10.0
5.0
N/A
41,962
34,396
34,396
14,791
14,791
17,521
14,791
14,791
23,771
23,771
26,214
23,771
23,771
11.8
14.4
9.9
8.4
14.3
14.3
16.9
12.7
10.4
12.2
12.2
13.4
8.6
7.7
6.0
8.0
4.0
N/A
4.5
6.0
8.0
4.0
N/A
4.5
6.0
8.0
4.0
N/A
6.0%
10.0
N/A
N/A
6.5
8.0
10.0
5.0
N/A
6.5
8.0
10.0
5.0
N/A
__________
(1) Capital ratios are calculated based on the Basel III Standardized Approach framework, subject to applicable transition provisions, such as the inclusion of
the unrealized gains and losses on securities available for sale included in AOCI and adjustments related to intangible assets other than goodwill. The inclusion
of AOCI and the adjustments related to intangible assets are phased-in at 80% for 2017 and 100% for 2018. Capital requirements that are not applicable are
denoted by “N/A.”
(2) Common equity Tier 1 capital ratio is a regulatory capital measure calculated based on common equity Tier 1 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)
(5)
(6)
Total capital ratio is a regulatory capital measure calculated based on total capital divided by risk-weighted assets.
Tier 1 leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by adjusted average assets.
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 each of the Banks exceeded the minimum regulatory requirements and were
well-capitalized under PCA requirements as of both December 31, 2018 and 2017.
Regulatory restrictions exist that limit the ability of the Banks to transfer funds to our BHC. As of December 31, 2018, funds
available for dividend payments from COBNA and CONA were $3.2 billion and $2.2 billion, respectively. 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.
The Federal Reserve requires depository institutions to maintain certain cash reserves against specified deposit liabilities. As of
December 31, 2018 and 2017, our reserve requirements totaled $1.9 billion and $2.2 billion, respectively.
NOTE 13—EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per common share. Dividends and undistributed
earnings allocated to participating securities represent the undistributed earnings allocated to participating securities using the two-
class method permitted by U.S. GAAP for computing earnings per share.
Table 13.1: Computation of Basic and Diluted Earnings per Common Share
(Dollars and shares in millions, except per share data)
Income from continuing operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends and undistributed earnings allocated to participating securities . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2018
2017
2016
$
6,025
$
2,117
$
3,770
(10)
6,015
(40)
(265)
(135)
1,982
(13)
(265)
(19)
3,751
(24)
(214)
$
5,710
$
1,704
$
3,513
Total weighted-average basic shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
479.9
484.2
504.9
Effect of dilutive securities:
Stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other contingently issuable shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total effect of dilutive securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total weighted-average diluted shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.6
1.1
0.5
3.2
2.5
1.2
0.7
4.4
2.0
1.3
1.6
4.9
483.1
488.6
509.8
Basic earnings per common share:
Net income from continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per basic common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share:(2)
Net income from continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per diluted common share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
11.92
(0.02)
11.90
11.84
(0.02)
11.82
$
$
$
$
3.80
(0.28)
3.52
3.76
(0.27)
3.49
$
$
$
$
7.00
(0.04)
6.96
6.93
(0.04)
6.89
__________
(1) Represents warrants issued as part of the U.S. Department of Treasury’s Troubled Assets Relief Program which had all been exercised or expired on November
14, 2018. There were 1.3 million and 4.1 million warrants to purchase common stock outstanding as of December 31, 2017 and 2016, respectively.
(2)
Excluded from the computation of diluted earnings per share were 56 thousand shares related to options with an exercise price of $86.34, 233 thousand shares
related to options with exercise prices ranging from $82.08 to $86.34 and 1.7 million shares related to options with exercise prices ranging from $63.73 to
$88.81 for the years ended December 31, 2018, 2017 and 2016, respectively, because their inclusion would be anti-dilutive.
181
Capital One Financial Corporation (COF)
182
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14—STOCK-BASED COMPENSATION PLANS
Stock Plans
We have one active stock-based compensation plan available for the issuance of shares to employees, directors and third-party
service providers (if applicable). As of December 31, 2018, under the Amended and Restated 2004 Stock Incentive plan (“2004
Plan”), we are authorized to issue 55 million common shares in various forms, including incentive stock options, nonstatutory
stock options, stock appreciation rights, restricted stock awards (“RSAs”), share-settled restricted stock units (“RSUs”),
performance share awards (“PSAs”) and performance share units (“PSUs”). Of this amount, approximately 13 million shares
remain available for future issuance as of December 31, 2018. 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 (and in the past issued cash equity units). These cash-settled units are not counted
against the common shares authorized for issuance or available for issuance under the 2004 Plan.
Total stock-based compensation expense recognized during 2018, 2017 and 2016 was $170 million, $244 million and $239 million,
respectively. The total income tax benefit for stock-based compensation recognized during 2018, 2017 and 2016 was $34 million,
$92 million and $89 million, respectively.
Stock Options
Stock options have a maximum contractual term of ten 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.
Table 14.2: Stock Options Cash Flow Impact
(Dollars in millions)
Cash received for options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2018
2017
2016
38
22
$
122
$
34
135
12
Compensation expense for stock options is based on the grant date fair value, which is estimated using the Black-Scholes option-
pricing model. This option pricing model requires the use of numerous assumptions, many of which are subjective. Certain stock
options have discretionary vesting conditions and are remeasured at fair value each reporting period.
The following table presents the weighted-average assumptions used to value stock options granted during 2017 and 2016, and
there were no stock options granted in 2018. Dividend yield represents the expected dividend rate over the life of the option, and
expected option lives are calculated based on historical activities.
Table 14.3: Assumptions Used to Value Stock Options Granted
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate (U.S. Treasury yield curve) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected option lives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2017
2016
1.85%
27.00
2.30
2.07%
30.00
1.64
6.6 years
6.6 years
__________
(1)
The volatility assumption was based on the implied volatility of exchange-traded options and the historical volatility of common stock.
The following table presents a summary of 2018 activity for stock options and the balance of stock options exercisable as of
December 31, 2018.
Restricted Stock Awards and Units
Table 14.1: Summary of Stock Options Activity
(Shares in thousands, and intrinsic value in millions)
Outstanding as of January 1, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding as of December 31, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable as of December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
Subject to
Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
4,766
$
0
(1,310)
0
0
3,456
3,043
$
$
48.50
0.00
28.65
0.00
0.00
56.03
53.36
3.88 years
3.37 years
$
$
71
68
There were no stock options granted in 2018 and the weighted-average fair value of stock options granted during 2017 and 2016
was $21.48 and $16.36, respectively. The total intrinsic value of stock options exercised during 2018, 2017 and 2016 was $94
million, $92 million and $31 million, respectively.
Effective January 1, 2017, we adopted the new accounting guidance related to employee share-based payments. As a result of the
adoption of this new guidance, all excess tax benefits on share-based payment awards are recognized within income tax expense
in the consolidated statements of income. The following table presents the cash received from the exercise of stock options under
all stock-based incentive arrangements, and the actual income tax benefit for the tax deductions from the exercise of the stock
options.
RSAs and RSUs represent share-settled awards that do not contain performance conditions and are granted to certain employees
at no cost to the recipient. RSAs and RSUs generally vest over three years from the date of grant; however, some RSAs and RSUs
cliff vest on or shortly after the first or third anniversary of the grant date. These awards and units are subject to forfeiture until
certain restrictions have lapsed, including continued employment for a specified period of time. A recipient of an RSA is entitled
to voting rights and is generally entitled to dividends on the common stock. A recipient of an RSU is entitled to receive a share of
common stock after the applicable restrictions lapse. Additionally, a recipient of an RSU 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 is outstanding, but is not entitled to voting rights.
Generally, the value of RSAs and RSUs will equal the fair value of our common stock on the date of grant and the expense is
recognized over the vesting period.
183
Capital One Financial Corporation (COF)
184
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents a summary of 2018 activity for RSAs and RSUs.
Performance Share Awards and Units
Table 14.4: Summary of Restricted Stock Awards and Units
(Shares/units in thousands)
Unvested as of January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested as of December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted Stock Awards
Restricted Stock Units
Weighted-Average
Grant Date
Fair Value
per Share
Units
Weighted-Average
Grant Date
Fair Value
per Unit
Shares
16
0
(16)
0
0
$
$
56.39
N/A
3,379
$
1,547
56.39
(1,426)
0.00
0.00
(155)
3,345
$
74.06
100.73
75.62
88.16
85.01
There were no RSAs granted in 2018, and the total fair value of RSAs that vested during 2018, 2017 and 2016 was $2 million, $3
million and $21 million, respectively. There was no unrecognized compensation expense related to unvested RSAs as of
December 31, 2018.
The weighted-average grant date fair value of RSUs in 2018, 2017 and 2016 was $100.73, $86.20 and $65.19, respectively. The
total fair value of RSUs that vested during 2018, 2017 and 2016 was $139 million, $110 million and $42 million, respectively.
The unrecognized compensation expense related to unvested RSUs as of December 31, 2018 was $139 million, which is expected
to be amortized over a weighted-average period of approximately 1.8 years.
PSAs and PSUs represent share-settled awards that contain performance conditions and are granted to certain employees at no
cost to the recipient. PSAs and 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. Generally, the value of PSAs and PSUs will equal the fair market value of our
common stock on the date of grant and the expense is recognized over the vesting period. Certain PSAs and PSUs have discretionary
vesting conditions and are remeasured at fair value each reporting period. A recipient of a PSA is entitled to voting rights and is
generally entitled to dividends on the common stock. A recipient of a PSU is entitled to receive a share of common stock after the
applicable restrictions lapse. Additionally, a recipient of a PSU 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 PSU is outstanding, but
is not entitled to voting rights.
The number of PSUs that step 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.
There were no unvested PSAs at the beginning of the year, and no new PSAs were granted during the year. As such, the following
table presents a summary of 2018 activity for PSUs only.
Table 14.5: Summary of Performance Share Units
(Shares/units in thousands)
Unvested as of January 1, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,918
$
878
(932)
(60)
Unvested as of December 31, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,804
$
__________
(1) Granted and vested include adjustments for achievement of specific performance goals for performance share units granted in prior periods.
75.38
100.65
74.80
90.35
87.48
Performance Share Units
Weighted-Average
Grant Date
Fair Value
per Unit
Units
The weighted-average grant date fair value of PSUs granted during 2018, 2017 and 2016 was $100.65, $82.48 and $62.89,
respectively. The total fair value of PSUs that vested was $92 million, $90 million and $54 million in 2018, 2017 and 2016,
respectively. The unrecognized compensation expense related to unvested PSUs as of December 31, 2018 was $31 million, which
is expected to be amortized over a weighted-average period of approximately 11 months.
Cash-Settled Units
Cash-settled units are recorded as liabilities and measured at fair value on a quarterly basis. Cash-settled units are settled with a
cash payment for each unit vested that is equal to the average fair market value of our common stock for the 15 trading days
preceding the vesting date. Cash-settled units generally vest over three years beginning on the first anniversary of the date of grant;
however, some cash-settled units cliff vest shortly before the one year anniversary of the grant date or on or shortly after the third
anniversary of the grant date. Cash-settled units vesting during 2018, 2017 and 2016 resulted in cash payments to associates of
$39 million, $42 million and $36 million, respectively. There was no unrecognized compensation cost for unvested cash-settled
units as of December 31, 2018.
Associate Stock Purchase Plan
We maintain an Associate Stock Purchase Plan (“Purchase Plan”), which is a compensatory plan under the accounting guidance
for stock-based compensation. We recognized $23 million, $23 million and $18 million in compensation expense for 2018, 2017
and 2016, respectively, under the Purchase Plan.
185
Capital One Financial Corporation (COF)
186
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the Purchase Plan, eligible associates are permitted to contribute between 1% and 15% of their base compensation through
payroll deductions and receive a 15% Company match on the contribution. Both the associates’ contributions and the Company
match are applied to the purchase of our unissued common or treasury stock at the current market price. Shares may also be acquired
on the open market. Dividends for active participants are automatically reinvested in additional shares of common stock. Of the
33 million total authorized shares as of December 31, 2018, 16 million shares were available for issuance.
Dividend Reinvestment and Stock Purchase Plan
We maintain a Dividend Reinvestment and Stock Purchase Plan (“DRP”), which allows participating stockholders to purchase
additional shares of our common stock through automatic reinvestment of dividends or optional cash investments. Of the 8 million
total authorized shares as of December 31, 2018, 7 million shares were available for issuance under the DRP.
NOTE 15—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 associates’ 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 compensation limit)
less deferrals. We contributed a total of $291 million, $282 million and $252 million to these plans during the years ended December
31, 2018, 2017 and 2016, respectively.
Defined Benefit Pension and Other Postretirement Benefit Plans
We sponsor a frozen qualified defined benefit pension plan and several non-qualified defined benefit pension plans. We also sponsor
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, 2018 and 2017 measurement dates.
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 15.1: Changes in Benefit Obligation and Plan Assets
(Dollars in millions)
Change in benefit obligation:
Defined Pension
Benefits
Other Postretirement
Benefits
2018
2017
2018
2017
Accumulated benefit obligation as of January 1, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
178
$
180
$
35
$
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation as of December 31, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in plan assets:
Fair value of plan assets as of January 1, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets as of December 31, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over (under) funded status as of December 31, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Dollars in millions)
Balance sheet presentation as of December 31,
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net amount recognized as of December 31,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
1
6
(15)
(13)
157
246
(14)
1
(15)
218
61
$
$
$
$
2
7
(18)
7
178
226
37
1
(18)
246
68
$
$
$
$
39
0
2
(3)
(3)
35
6
1
2
(3)
6
0
1
(2)
(5)
29
6
0
2
$
$
(2)
6
$
(23) $
(29)
Defined Pension
Benefits
Other Postretirement
Benefits
2018
2017
2018
2017
71
(10)
61
$
$
80
(12)
68
$
$
0
$
(23)
(23) $
0
(29)
(29)
187
Capital One Financial Corporation (COF)
188
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 quarterly basis.
Plan assets are managed in a balanced portfolio comprised of three major components: domestic equity, international equity and
domestic fixed income investments. The expected role of plan equity investments is to maximize the long-term real growth of
fund assets, while the role of fixed income investments is to generate current income, provide for more stable periodic returns and
provide some protection against a prolonged decline in the market value of fund equity investments.
The investment guidelines provide the following asset allocation targets and ranges: domestic equity target of 39% and allowable
range of 34% to 44%, international equity target of 16% and allowable range of 11% to 21%, fixed income investments target of
45% and allowable range of 35% to 55%.
As of December 31, 2018, substantially all of our plan assets of $224 million were invested in common collective trusts, which
primarily consist of government securities, corporate and municipal bonds, and domestic and international equity securities. As
of December 31, 2017, our plan assets totaled $252 million, of which approximately 60% were invested in common collective
trusts and the remaining 40% were primarily invested in corporate bonds and government securities. The common collective trusts
are measured at net asset value per share, or its equivalent, as a practical expedient and therefore are not classified in the fair value
hierarchy, and the remaining investments were classified as Level 2 in the fair value hierarchy. For information on fair value
measurements, including descriptions of Level 1, 2 and 3 of the fair value hierarchy and the valuation methods we utilize, see
“Note 17—Fair Value Measurement.”
Expected Future Benefit Payments
As of December 31, 2018, the benefits expected to be paid in the next ten years totaled $103 million for our defined pension benefit
plans and $20 million for our other postretirement benefit plan, respectively.
The following table presents the components of net periodic benefit costs and other amounts recognized in other comprehensive
income.
Table 15.2: Components of Net Periodic Benefit Cost
(Dollars in millions)
Components of net periodic benefit cost:
Year Ended December 31,
2018
2017
2016
2018
2017
2016
Defined Pension
Benefits
Other Postretirement
Benefits
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1
6
$
2
7
$
2
7
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(15)
(14)
(14)
$
0
1
0
$
0
2
0
Amortization of transition obligation, prior service credit and net actuarial loss (gain)
1
1
1
(6)
(6)
Net periodic benefit gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(7) $
(4) $
(4) $
(5) $
(4) $
Changes recognized in other comprehensive income, pretax:
Net actuarial gain (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (17) $
Reclassification adjustments for amounts recognized in net periodic benefit cost. . . . .
1
Total gain (loss) recognized in other comprehensive income . . . . . . . . . . . . . . . . . . . . .
$ (16) $
16
1
17
$
$
4
1
5
$
$
5
$
4
$
(6)
(6)
(1) $
(2) $
0
2
0
(6)
(4)
5
(6)
(1)
Pre-tax amounts recognized in AOCI that have not yet been recognized as a component of net periodic benefit cost consist of net
actuarial loss of $64 million and $49 million for our defined benefit pension plans as of December 31, 2018 and 2017, respectively,
and net actuarial gain of $9 million and $10 million for our other postretirement benefit plan as of December 31, 2018 and 2017,
respectively. There was no meaningful prior service cost recognized in AOCI.
The following table presents weighted-average assumptions used in the accounting for the plans:
Table 15.3: Assumptions Used in the Accounting for the Plans
December 31,
2018
2017
2016
2018
2017
2016
Defined Pension
Benefits
Other Postretirement
Benefits
Assumptions for benefit obligations at measurement date:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2% 3.5%
4.0%
4.2%
3.5%
4.0%
Assumptions for periodic benefit cost for the year ended:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . .
3.5
6.5
4.0
6.5
4.2
6.5
Assumptions for year-end valuations:
Health care cost trend rate assumed for next year:
Pre-age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Post-age 65. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate).
Year the rate reaches the ultimate trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
3.5
6.5
6.2
6.2
4.5
4.0
6.5
6.5
6.5
4.5
4.2
6.5
6.7
6.8
4.5
2037
2037
2037
To develop the expected long-term rate of return on plan assets assumption, consideration was given to the current level of expected
returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the other
asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for
each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on the plan
assets assumption for the portfolio.
189
Capital One Financial Corporation (COF)
190
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16—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 subsequently release income tax effects
stranded in AOCI using a portfolio approach. 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.
In the fourth quarter of 2017, we recorded charges of $1.8 billion associated with the impacts of the Tax Act, and there were no
material adjustments made to this amount during the measurement period which ended in December 2018. In the fourth quarter
of 2018, we recognized a tax benefit of $284 million as a result of an approval from the Internal Revenue Service (IRS) related to
a tax methodology change on rewards costs.
The following table presents significant components of the provision for income taxes attributable to continuing operations:
Table 16.1: Significant Components of the Provision for Income Taxes Attributable to Continuing Operations
(Dollars in millions)
Current income tax provision:
Federal taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax provision (benefit):
Federal taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2018
2017
2016
$
$
$
210
234
135
579
620
115
(21)
714
$ 1,585
$ 2,087
223
133
209
104
$ 1,941
$ 2,400
$ 1,509
$
(621)
(69)
(6)
1,434
(63)
(2)
(686)
Total income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,293
$ 3,375
$ 1,714
The international income tax provision is related to pre-tax earnings from foreign operations of approximately $382 million, $410
million and $287 million in 2018, 2017 and 2016, respectively.
Total income tax provision does not reflect the tax effects of items that are included in accumulated other comprehensive income,
which include a tax provision of $15 million, tax benefit of $134 million and tax provision of $24 million in 2018, 2017 and 2016,
respectively. See “Note 11—Stockholders’ Equity” for additional information.
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, 2018, 2017 and 2016:
Table 16.2: Effective Income Tax Rate
Year Ended December 31,
2018
2017
2016
Income tax at U.S. federal statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.0%
35.0%
35.0%
Affordable housing, new markets and other tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IRS method changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt interest and other nontaxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impacts of the Tax Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4.0)
(3.9)
(0.7)
(0.3)
3.2
2.2
0.2
(5.8)
0.0
(1.5)
32.2
2.2
0.7
(4.9)
0.0
(1.4)
N/A
1.9
0.9
(1.3)
(0.2)
Effective income tax rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17.7%
61.5%
31.3%
The following table presents significant components of our deferred tax assets and liabilities as of December 31, 2018 and 2017.
The valuation allowance below represents the adjustment of 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 16.3: Significant Components of Deferred Tax Assets and Liabilities
(Dollars in millions)
Deferred tax assets:
December 31,
2018
December 31,
2017
Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,700
$
1,768
Rewards programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security and loan valuations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss and tax credit carryforwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Partnership investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized losses on derivatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Original issue discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage servicing rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
500
288
271
187
167
162
135
114
152
3,676
(245)
3,431
720
204
75
48
239
1,286
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,145
$
936
424
244
201
208
130
104
130
156
4,301
(226)
4,075
703
168
68
57
215
1,211
2,864
Our federal net operating loss carryforwards were less than $1 million and $15 million as of December 31, 2018 and 2017,
respectively. These operating loss carryforwards were attributable to prior acquisitions and will expire from 2019 to 2035. Under
191
Capital One Financial Corporation (COF)
192
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IRS rules, our ability to utilize these losses against future income is limited. The net tax value of our state net operating loss
carryforwards was $253 million and $241 million as of December 31, 2018 and 2017, respectively, and they will expire from 2019
to 2038. Our foreign tax credit carryforward was $19 million as of December 31, 2018 and will expire in 2028.
We recognize accrued interest and penalties related to income taxes as a component of income tax expense. We recognized $6
million and $5 million of expense in 2018 and 2017, respectively, and $5 million of benefit in 2016.
The following table presents the accrued balance of tax, interest and penalties related to unrecognized tax benefits:
Table 16.4: Reconciliation of the Change in Unrecognized Tax Benefits
(Dollars in millions)
Balance as of January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions related to prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions for tax positions related to prior years due to IRS and other settlements . . . . .
Balance as of December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions related to prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions for tax positions related to prior years due to IRS and other settlements . . . . .
Balance as of December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions related to the current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions related to prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions for tax positions related to prior years due to IRS and other settlements . . . . .
Balance as of December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portion of balance at December 31, 2018 that, if recognized, would impact the effective
income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Gross
Unrecognized
Tax Benefits
Accrued
Interest and
Penalties
Gross Tax,
Interest and
Penalties
$
130
$
0
(45)
85
5
(4)
86
28
402
(76)
440
181
$
$
33
6
(15)
24
7
(2)
29
0
25
(19)
35
28
$
$
$
163
6
(60)
109
12
(6)
115
28
427
(95)
475
209
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 2018, we continued our participation in the IRS Compliance Assurance
Process (“CAP”) for our 2017 federal income tax return. On that filed return, we requested a change in method of accounting with
respect to the proper timing for the recognition of the costs associated with our reward programs for 2017 and prior years. This
method change was granted by the IRS during the fourth quarter of 2018, resulting in the withdrawal of our pending refund claims
with respect to this issue for the 2012 and 2013 tax years and resolving this issue up through the 2017 tax year. As in prior years,
the examination of our 2017 federal income tax return was substantially completed prior to the filing of the return, with the IRS
reserving a limited number of issues for further post-filing review. We continued our participation in CAP for the 2018 tax year,
with a similar expectation that the IRS examination will be substantially completed prior to the filing of our 2018 federal income
tax return in 2019. We have been accepted into CAP for 2019. During 2018, the Company also entered into settlement agreements
with various states to resolve outstanding economic nexus issues for prior tax years.
It is reasonably possible that further adjustments to our 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 change
to the amount of unrecognized tax benefits cannot be made.
The Tax Act requires that all unremitted earnings of our subsidiaries operating outside the U.S. are deemed to be repatriated as of
December 31, 2017. As such, a liability of $111 million was paid with our 2017 federal tax return for the deemed repatriation of
$1.5 billion of undistributed foreign earnings. No actual distributions of these earnings have been made as of December 31, 2018.
Upon repatriation of these earnings, there would be no additional U.S. federal income taxes. In accordance with the accounting
for income taxes in special areas, these earnings are considered by management to be invested indefinitely, except for the earnings
of our Philippines subsidiary from which we expect to make distributions in 2019.
As of December 31, 2018, U.S. income taxes of $69 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.
NOTE 17—FAIR VALUE MEASUREMENT
Fair value, also referred to as an exit price, is defined as the price that would be received for an asset or paid to transfer a liability
in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a
three-level fair value hierarchy for classifying financial instruments. This hierarchy is based on the markets in which the assets or
liabilities trade and whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. The
fair value measurement of a financial asset or liability is assigned a level based on the lowest level of any input that is significant
to the fair value measurement in its entirety. The three levels of the fair value hierarchy are described below:
Level 1: Valuation is based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Valuation is based on observable market-based inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
Level 3: Valuation is generated from techniques that use significant assumptions not observable in the market. Valuation
techniques include pricing models, discounted cash flow methodologies or similar techniques.
The accounting guidance for fair value measurements requires that we maximize the use of observable inputs and minimize the
use of unobservable inputs in determining fair value. The accounting guidance provides for the irrevocable option to elect, on a
contract-by-contract basis, to measure certain financial assets and liabilities at fair value at inception of the contract and record
any subsequent changes in fair value in earnings. We have not made any material fair value option elections as of or for the periods
disclosed herein.
Fair Value Governance and Control
We have a governance framework and a number of key controls that are intended to ensure that our fair value measurements are
appropriate and reliable. Our governance framework provides for independent oversight and segregation of duties. Our control
processes include review and approval of new transaction types, price verification, and review of valuation judgments, methods,
models, process controls and results.
Groups independent of our trading and investing functions participate in the review and validation process. Tasks performed by
these groups include periodic verification of fair value measurements to determine if assigned fair values are reasonable, including
comparing prices from vendor pricing services to other available market information.
Our Fair Value Committee (“FVC”), which includes representation from business areas, Risk Management and Finance, provides
guidance and oversight to ensure an appropriate valuation control environment. The FVC regularly reviews and approves our fair
valuations to ensure that our valuation practices are consistent with industry standards and adhere to regulatory and accounting
guidance.
We have a model policy, established by an independent Model Risk Office, which governs the validation of models and related
supporting documentation to ensure the appropriate use of models for pricing and fair value measurements. The Model Risk Office
validates all models and provides ongoing monitoring of their performance.
The fair value governance process is set up in a manner that allows the Chairperson of the FVC to escalate valuation disputes that
cannot be resolved by the FVC to a more senior committee called the Valuations Advisory Committee (“VAC”) for resolution.
The VAC is chaired by the Chief Financial Officer and includes other members of senior management. The VAC convenes to
review escalated valuation disputes.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
In 2018, we adopted ASU No. 2016-01, Financial Instrument-Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities and in the fourth quarter of 2018, we early adopted ASU No. 2018-13 Fair Value
Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The
disclosures below reflect the adoption changes.
193
Capital One Financial Corporation (COF)
194
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Investment Securities
Quoted prices in active markets are used to measure the fair value of U.S. Treasury securities. For the majority of securities in
other investment categories, we utilize multiple vendor pricing services to obtain fair value measurements. A waterfall of pricing
vendors is determined in order of preference. The determination of the top-ranked pricing vendor is made on an annual basis as
part of an assessment of the performance of pricing services provided by the vendors. 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 with other vendor
prices before it is finalized.
RMBS and CMBS securities 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 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.
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 and foreign currency risk exposures. When quoted
market prices are available and used to value our exchange-traded derivatives, we classify them as Level 1. However, predominantly
all of our derivatives do not have readily available quoted market prices. Therefore, we value most of our derivatives using vendor-
based valuation techniques. We primarily rely on market observable inputs for our models, such as 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. The impact of credit risk valuation
adjustments are considered when measuring the fair value of derivative contracts in order to reflect the credit quality of the
counterparty and our own credit quality. Official 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 the consolidated balance sheets.
Retained Interests in Securitizations
We have retained interests in various mortgage securitizations from previous acquisitions. Our retained interests primarily include
amounts previously funded under letters of credit to cover losses on certain manufactured housing securitizations, interest-only
bonds issued by a trust 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. The models incorporate various assumptions that market
participants use in estimating future cash flows including constant prepayment rate, discount rate, default rate and loss severity.
Due to the use of significant unobservable inputs, 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 publicly traded mutual funds, are classified as Level 1.
The determination of the leveling of financial instruments in the fair value hierarchy is performed at the end of each reporting
period. We consider all available information, including observable market data, indications of market liquidity and orderliness,
and our understanding of the valuation techniques and significant inputs. 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 following table displays our assets and liabilities measured on our consolidated balance sheets at fair value on a recurring
basis as of December 31, 2018 and 2017.
Table 17.1: Assets and Liabilities Measured at Fair Value on a Recurring Basis
(Dollars in millions)
Assets:
Securities available for sale:
December 31, 2018
Fair Value Measurements Using
Level 1
Level 2
Level 3
Netting
Adjustments(1)
Total
U.S. Treasury securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets:
Derivative assets(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6,144
$
0
$
0
0
219
6,363
0
265
33,212
4,729
1,403
39,344
1,501
0
$
6,628
$ 40,845
$
0
433
10
0
443
38
158
639
Liabilities:
Other liabilities:
Derivative liabilities(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0
0
$
$
1,153
1,153
$
$
48
48
— $
6,144
—
—
—
—
33,645
4,739
1,622
46,150
(1,079)
—
460
423
(1,079) $ 47,033
(287) $
(287) $
914
914
$
$
$
$
195
Capital One Financial Corporation (COF)
196
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
Assets:
Securities available for sale:
December 31, 2017
Fair Value Measurements Using
Level 1
Level 2
Level 3
Netting
Adjustments(1)
Total
U.S. Treasury securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets:
Derivative assets(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5,171
$
0
$
0
0
320
5,491
1
281
27,178
3,161
1,192
31,531
1,002
0
$
5,773
$ 32,533
$
0
614
14
5
633
37
264
934
Liabilities:
Other liabilities:
Derivative liabilities(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1
1
$
$
1,243
1,243
$
$
24
24
— $
5,171
—
—
—
—
27,792
3,175
1,517
37,655
(275)
—
765
545
(275) $ 38,965
(662) $
(662) $
606
606
$
$
$
$
__________
(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 10—Derivative Instruments and Hedging Activities” for additional information.
(2) Does not reflect $2 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of both December 31,
2018 and 2017. Non-performance risk is included in derivative assets and liabilities, which are part of other assets and liabilities on the consolidated balance
sheets, and is offset through non-interest income in the consolidated statements of income.
(3) As of December 31, 2018, other includes retained interests in securitizations of $158 million, deferred compensation plan assets of $264 million and equity
securities of $1 million. As of December 31, 2017, other includes consumer MSRs of $92 million, retained interests in securitizations of $172 million and
deferred compensation plan assets of $281 million.
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, 2018, 2017 and 2016. 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 17.2: Level 3 Recurring Fair Value Rollforward
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Year Ended December 31, 2018
(Dollars in millions)
Securities available for sale:(2)
Balance,
January 1,
2018
Total Gains (Losses)
(Realized/Unrealized)
Included
in Net
Income(1)
Included
in
OCI
Purchases
Sales
Issuances
Settlements
Transfers
Into
Level 3
Transfers
Out of
Level 3
Balance,
December 31,
2018
Net Unrealized
Gains (Losses)
Included in Net
Income Related to
Assets and
Liabilities
Still Held as of
December 31, 2018(1)
RMBS . . . . . . . . .
$
614
$
32
$
(8) $
CMBS . . . . . . . . .
Other securities . .
Total securities
available for sale . . . .
Other assets:
Consumer MSRs .
Retained interest
in securitizations .
Net derivative assets
(liabilities)(3) . . . . . . . .
14
5
633
0
0
32
92
3
172
(14)
13
(20)
0
0
(8)
0
0
0
0
0
0
0
0
0
0
$
$
0
0
0
0
(97)
0
0
0
0
0
0
2
0
0
0
0
0
0
0
0
1
13
(17)
$
(74) $
203
$ (334) $
433
$
(4)
(5)
0
0
0
0
(83)
203
(334)
10
0
443
0
158
(10)
28
0
0
28
0
(14)
(20)
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Year Ended December 31, 2017
(Dollars in millions)
Total Gains (Losses)
(Realized/Unrealized)
Balance,
January 1,
2017
Included
in Net
Income(1)
Included
in
OCI
Securities available for sale:
Purchases
Sales
Issuances
Settlements
Transfers
Into
Level 3
Transfers
Out of
Level 3
Balance,
December 31,
2017
Net Unrealized
Gains (Losses)
Included in Net
Income Related to
Assets and
Liabilities
Still Held as of
December 31, 2017(1)
RMBS . . . . . . . . .
$
518
$
90
$
(24) $
0
$ (116) $
CMBS . . . . . . . . .
Other securities . .
Total securities
available for sale . . . .
Other assets:
Consumer MSRs .
Retained interest
in securitizations .
Net derivative assets
(liabilities)(3) . . . . . . . .
51
9
0
0
0
0
110
0
(50)
0
578
90
(24)
110
(166)
80
(5)
201
(29)
18
0
0
0
0
0
0
0
(3)
0
0
0
0
0
0
27
0
46
$
(92) $
572
$ (334) $
614
$
(4)
(4)
0
0
(93)
0
(100)
572
(427)
(7)
0
(44)
0
0
0
0
0
(7)
14
5
633
92
172
13
19
0
0
19
(5)
(29)
0
197
Capital One Financial Corporation (COF)
198
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Year Ended December 31, 2016
(Dollars in millions)
Total Gains (Losses)
(Realized/Unrealized)
Balance,
January 1,
2016
Included
in Net
Income(1)
Included
in
OCI
Purchases
Sales
Issuances
Settlements
Transfers
Into
Level 3
Transfers
Out of
Level 3
Balance,
December 31,
2016
Net Unrealized
Gains (Losses)
Included in Net
Income Related to
Assets and
Liabilities
Still Held as of
December 31, 2016(1)
Securities available for sale:
RMBS . . . . . . . . .
$
504
$
CMBS . . . . . . . . .
Other securities . .
Total securities
available for sale . . . .
Other assets:
Consumer MSRs .
Retained interest
in securitizations .
Net derivative assets
(liabilities)(3) . . . . . . . .
$
31
0
(9)
22
(5)
97
14
615
68
211
(10)
30
(5)
$
$
9
0
0
9
0
0
0
110
266
44
420
0
0
0
$
0
0
0
0
0
0
0
0
0
0
0
23
0
36
$
(98) $
380
$ (418) $
518
$
(14)
(10)
64
0
(362)
(30)
(122)
444
(810)
(6)
0
(33)
0
0
0
0
0
(10)
51
9
578
80
201
18
32
0
0
32
(5)
(10)
(5)
__________
(1) Realized gains (losses) on securities available for sale are included in net securities gains (losses), retained interests in securitizations and consumer MSRs
are reported as a component of non-interest income in our consolidated statements of income. Gains (losses) on derivatives are included as a component of
net interest income or non-interest income in our consolidated statements of income.
(2) Net unrealized losses included in other comprehensive income related to Level 3 securities available for sale still held as of December 31, 2018 were $17
million.
(3)
Includes derivative assets and liabilities of $38 million and $48 million, respectively, as of December 31, 2018, $37 million and $24 million, respectively,
as of December 31, 2017, and $47 million and $29 million, respectively, as of December 31, 2016.
Significant Level 3 Fair Value Asset and Liability Inputs
Generally, uncertainties in fair value measurements of financial instruments, such as changes in unobservable inputs, may have a
significant impact on fair value. Certain of these unobservable inputs will, in isolation, have a directionally consistent impact on
the fair value of the instrument for a given change in that input. Alternatively, the fair value of the instrument may move in an
opposite direction for a given change in another input. In general, an increase in the discount rate, default rates, loss severity and
credit spreads, in isolation, would result in a decrease in the fair value measurement. In addition, an increase in default rates would
generally be accompanied by a decrease in recovery rates, slower prepayment rates and an increase in liquidity spreads.
Techniques and Inputs for Level 3 Fair Value Measurements
The following table presents the significant unobservable inputs used to determine the fair values of our Level 3 financial instruments
on a recurring basis. We utilize multiple vendor pricing services to obtain fair value for our securities. Several of our vendor pricing
services are only able to provide unobservable input information for a limited number of securities due to software licensing
restrictions. Other vendor pricing services are able to provide unobservable input information for all securities for which they
provide a valuation. As a result, the unobservable input information for the securities available for sale presented below represents
a composite summary of all information we are able to obtain. The unobservable input information for all other Level 3 financial
instruments is based on the assumptions used in our internal valuation models.
Table 17.3: Quantitative Information about Level 3 Fair Value Measurements
(Dollars in millions)
Securities available for sale:
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at
December 31,
2018
Significant
Valuation
Techniques
Significant
Unobservable
Inputs
Range
Weighted
Average(1)
RMBS . . . . . . . . . . . . . . . . . . . . .
$
433 Discounted cash flows
(vendor pricing)
Yield
Voluntary prepayment rate
Default rate
Loss severity
CMBS . . . . . . . . . . . . . . . . . . . . .
Other assets:
Retained interests in
securitization(2) . . . . . . . . . . . . . .
10 Discounted cash flows
(vendor pricing)
Yield
158 Discounted cash flows
Life of receivables (months)
Voluntary prepayment rate
Discount rate
Default rate
Loss severity
Swap rates
Net derivative assets (liabilities) . .
(10) Discounted cash flows
3-11%
0-17%
0-7%
0-75%
3%
3-56
3-14%
4-6%
2-4%
50-104%
3%
5%
5%
3%
65%
3%
N/A
3%
(Dollars in millions)
Securities available for sale:
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at
December 31,
2017
Significant
Valuation
Techniques
Significant
Unobservable
Inputs
Range
Weighted
Average
RMBS . . . . . . . . . . . . . . . . . . . . .
$
614 Discounted cash flows
(vendor pricing)
Yield
Voluntary prepayment rate
Default rate
Loss severity
CMBS . . . . . . . . . . . . . . . . . . . . .
14 Discounted cash flows
(vendor pricing)
Yield
Voluntary prepayment rate
Other securities . . . . . . . . . . . . . .
5 Discounted cash flows
Yield
Other assets:
Consumer MSRs . . . . . . . . . . . . .
92 Discounted cash flows
Retained interests in
securitization(2) . . . . . . . . . . . . . .
172 Discounted cash flows
Total prepayment rate
Discount rate
Option-adjusted spread rate
Servicing cost ($ per loan)
Life of receivables (months)
Voluntary prepayment rate
Discount rate
Default rate
Loss severity
Net derivative assets (liabilities) . .
13 Discounted cash flows
Swap rates
2-9%
0-15%
0-8%
0-90%
3%
0%
2%
5%
4%
3%
62%
3%
0%
2%
7-30%
14%
200-1,500 bps
$75-$100
16%
14%
458 bps
$76
6-79
2-12%
3-10%
1-6%
3-115%
2%
N/A
2%
__________
(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
For loans held for investment that are recorded at fair value on our consolidated balance sheets and measured on a nonrecurring
basis, 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,
199
Capital One Financial Corporation (COF)
200
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
these 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.
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, 2018, 2017 and 2016.
Loans Held for Sale
Table 17.5: Nonrecurring Fair Value Measurements Included in Earnings
(Dollars in millions)
Total Gains (Losses)
Year Ended December 31,
2018
2017
2016
Loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(85) $
(100) $
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0
(74)
(3)
(12)
$
(159) $
(115) $
(230)
(2)
(19)
(251)
__________
(1) Other assets include fair value adjustments related to equity investments accounted for under the measurement alternative, foreclosed property, repossessed
assets and long-lived assets held for sale.
Loans held for sale are carried at the lower of aggregate cost, net of deferred fees and deferred origination costs, or fair value. We
originate loans with the intent to sell them. Certain commercial mortgage loans are sold to government-sponsored enterprises as
part of a delegated underwriting and servicing (“DUS”) program. For DUS commercial mortgage loans, the fair value is estimated
primarily using contractual prices and other market observable inputs. Credit card loans held for sale are valued based on other
market observable inputs. These assets are therefore classified as Level 2. Fair value adjustments to loans held for sale 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 measurement
alternative, foreclosed property, other repossessed assets and long-lived assets held for sale. These 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, 2018 and 2017, and for which a nonrecurring fair value measurement was recorded during the year then ended:
Table 17.4: Nonrecurring Fair Value Measurements
(Dollars in millions)
Loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Dollars in millions)
Loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018
Estimated
Fair Value Hierarchy
Level 3
Level 2
$
$
0
38
0
38
$
129
$
0
100
229
$
$
Total
129
38
100
267
December 31, 2017
Estimated
Fair Value Hierarchy
Level 3
Level 2
$
0
$
182
$
177
0
1
35
$
177
$
218
$
Total
182
178
35
395
__________
(1) As of December 31, 2018, other assets included equity investments accounted for under measurement alternative of $24 million, foreclosed property and
repossessed assets of $57 million and long-lived assets held for sale of $19 million. As of December 31, 2017, other assets included foreclosed property and
repossessed assets of $17 million and long-lived assets held for sale of $18 million.
In the above table, loans held for investment are generally valued based in part on the estimated fair value of the underlying
collateral and the non-recoverable rate, which is considered to be a significant unobservable input. The non-recoverable rate ranged
from 0% to 84%, with a weighted average of 33%, and from 0% to 77%, with a weighted average of 21%, as of December 31,
2018 and 2017, 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.
201
Capital One Financial Corporation (COF)
202
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
The following table presents the carrying value and estimated fair value, including the level within the fair value hierarchy, of our
financial instruments that are not measured at fair value on a recurring basis on our consolidated balance sheets as of December 31,
2018 and 2017.
Table 17.6: Fair Value of Financial Instruments
(Dollars in millions)
Financial assets:
December 31, 2018
Carrying
Value
Estimated
Fair
Value
Estimated Fair Value Hierarchy
Level 1
Level 2
Level 3
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 13,186
$ 13,186
$
4,768
$
8,418
$
Restricted cash for securitization investors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
303
303
303
Securities held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,771
36,619
Net loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
238,679
241,556
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial liabilities:
Deposits with defined maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securitized debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior and subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased and securities loaned or sold under agreements to repurchase . . . .
Other borrowings(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,192
1,614
1,725
38,471
18,307
30,826
352
9,354
458
1,218
1,614
1,725
38,279
18,359
30,635
352
9,354
458
0
0
0
0
0
0
0
0
0
0
0
0
0
106
0
36,513
0
241,556
1,218
1,614
1,725
38,279
18,359
30,635
352
9,354
458
0
0
0
0
0
0
0
0
0
(Dollars in millions)
Financial assets:
December 31, 2017
Carrying
Value
Estimated
Fair
Value
Estimated Fair Value Hierarchy
Level 1
Level 2
Level 3
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 14,040
$ 14,040
$
4,458
$
9,582
$
Restricted cash for securitization investors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
312
312
Securities held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,984
29,437
Net loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
246,971
251,468
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
971
1,536
1,689
952
1,536
1,689
Financial liabilities:
312
200
0
29,217
0
0
0
0
949
1,536
1,680
0
251,468
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
243,702
243,732
26,404
217,328
Securitized debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior and subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased and securities loaned or sold under agreements to repurchase . . . .
Other borrowings(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,010
30,755
576
8,892
413
20,122
31,392
576
8,892
413
0
0
0
0
0
20,122
31,392
576
8,892
413
0
0
20
3
0
9
0
0
0
0
0
0
__________
(1) Other investments as of December 31, 2018 include FHLB and Federal Reserve stock. Other investments as of December 31, 2017 include FHLB and Federal
Reserve stock, as well as cost method investments. These investments are included in other assets on our consolidated balance sheets.
(2) Other borrowings excludes capital lease obligations.
NOTE 18—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 type of customer served: Credit Card, Consumer Banking and Commercial Banking. The operations of
acquired businesses have been integrated into our existing business segments. Certain activities that are not part of a segment,
such as management of our corporate investment portfolio, asset/liability management by our centralized Corporate Treasury group
and residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business
segments, are included in the Other category.
• Credit Card: Consists of our domestic consumer and small business card lending, and international card businesses in
Canada and the United Kingdom.
• Consumer Banking: Consists of our branch-based deposit gathering and lending activities for consumers and small
businesses, national deposit gathering 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 commercial and industrial 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 and asset/liability management, to our business segments. Accordingly,
net gains and losses on our investment securities portfolio and certain trading activities are included in the Other category.
Other category also includes foreign exchange-rate fluctuations on foreign currency-denominated transactions; 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; certain
material items that are non-recurring in nature; offsets related to certain line-item reclassifications; and residual tax expense
or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments.
Basis of Presentation
We report the results of each of our business segments on a continuing operations basis. The results of our individual businesses
reflect the manner in which management evaluates performance and makes decisions about funding our operations and allocating
resources.
Business Segment Reporting Methodology
The results of our business segments are intended to present each segment as if it were a stand-alone business. Our internal
management and reporting process used to derive our segment results employs various allocation methodologies, including funds
transfer pricing, to assign certain balance sheet assets, deposits and other liabilities and their related revenue and expenses directly
or indirectly attributable to each business segment. Our funds transfer pricing process provides a funds credit for sources of funds,
such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a funds charge for the use of funds
by each segment. Due to the integrated nature of our business segments, estimates and judgments have been made in allocating
certain revenue and expense items. Transactions between segments are based on specific criteria or approximate third-party rates.
We regularly assess the assumptions, methodologies and reporting classifications used for segment reporting, which may result
in the implementation of refinements or changes in future periods.
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 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.
203
Capital One Financial Corporation (COF)
204
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
• 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 intangible assets: Goodwill and intangible assets that are not directly attributable to business segments are
assigned to business segments based on the relative fair value of each segment. 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. In the first quarter of 2018, we made a change in how revenue
is measured in our Commercial Banking business to include the tax benefits of losses on certain tax-advantaged investments. These
tax benefits are included in revenue on a taxable-equivalent basis within our Commercial Banking business, with an offsetting
reduction in the Other category. This change in measurement of our Commercial Banking revenue did not have any impact to the
consolidated financial statements.
The following tables present our business segment results for the years ended December 31, 2018, 2017 and 2016, selected balance
sheet data as of December 31, 2018, 2017 and 2016, and a reconciliation of our total business segment results to our reported
consolidated income from continuing operations, loans held for investment and deposits.
Table 18.1: Segment Results and Reconciliation
(Dollars in millions)
Year Ended December 31, 2018
Credit
Card
Consumer
Banking
Commercial
Banking(1)(2)
Other(1)(2)(3)
Consolidated
Total
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
14,167
$
6,549
$
2,152
$
7
$
22,875
Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for credit losses. . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before income taxes . .
Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations, net of tax . . . . . . . . . . . . . . .
Loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3,520
17,687
4,984
8,542
4,161
970
3,191
116,361
0
$
$
663
7,212
838
4,027
2,347
547
1,800
59,205
198,607
$
$
744
2,896
83
1,654
1,159
270
889
70,333
29,480
274
281
(49)
679
(349)
(494)
$
$
145
0
$
$
21,677
5,201
28,076
5,856
14,902
7,318
1,293
6,025
245,899
249,764
(Dollars in millions)
Year Ended December 31, 2017
Credit
Card
Consumer
Banking
Commercial
Banking(1)
Other(1)
Consolidated
Total
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
13,648
$
6,380
$
2,261
$
171
$
22,460
Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before income taxes . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations, net of tax . . . . . . . . . .
Loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3,325
16,973
6,066
7,916
2,991
1,071
1,920
114,762
0
$
$
749
7,129
1,180
4,233
1,716
626
1,090
75,078
185,842
$
$
708
2,969
301
1,603
1,065
389
676
64,575
33,938
$
$
(5)
166
4
442
(280)
1,289
(1,569) $
4,777
27,237
7,551
14,194
5,492
3,375
2,117
58
$
254,473
23,922
243,702
(Dollars in millions)
Year Ended December 31, 2016
Credit
Card
Consumer
Banking
Commercial
Banking(1)
Other(1)
Consolidated
Total
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
12,635
$
5,829
$
2,216
$
193
$
20,873
Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for credit losses. . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before income taxes . .
Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations, net of tax . . . . . . . . . . . . . . .
Loans held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3,380
16,015
4,926
7,703
3,386
1,226
2,160
105,552
0
$
$
733
6,562
1,055
4,139
1,368
498
870
73,054
181,917
$
$
578
2,794
483
1,407
904
329
575
66,916
33,866
(63)
130
(5)
309
(174)
(339)
$
$
165
64
$
$
20,985
4,628
25,501
6,459
13,558
5,484
1,714
3,770
245,586
236,768
205
Capital One Financial Corporation (COF)
206
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_________
(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 (21% for 2018 and 35% for 2017 and 2016) and state taxes where
applicable, with offsetting reductions to the Other category.
(2)
(3)
In 2018, we made a change in how revenue is measured in our Commercial Banking business to include the tax benefits of losses on certain tax-advantaged
investments. These tax benefits are included in revenue on a taxable-equivalent basis within our Commercial Banking business, with an offsetting reduction
to the Other category. In addition, all revenue presented on a taxable-equivalent basis in our Commercial Banking business was impacted by the reduction
of the federal tax rate set forth in the Tax Act. The net impact of the measurement change and the reduction of the federal tax rate was a decrease of $126
million in revenue in our Commercial Banking business for the year ended December 31, 2018, with an offsetting impact to the Other category.
In 2018, we sold all of our consumer home loan portfolio and recognized a gain of approximately $499 million in the Other category, including a benefit for
credit losses of $46 million.
Revenue from Contracts with Customers
In 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) under the modified retrospective
transition method. The majority of our revenue from contracts with customers consists of interchange fees in our Credit Card
business, service charges and other customer-related fees, and other contract revenue in our Consumer Banking and Commercial
Banking businesses.
Interchange fees are primarily from our Credit Card business and are recognized upon settlement with the interchange networks,
net of rewards earned by customers. Service charges and other customer-related fees within our Consumer Banking business are
primarily related to fees earned on consumer deposit accounts for account maintenance and various transaction-based services
such as overdrafts and ATM usage. Service charges and other customer-related fees within our Commercial Banking business are
mostly related to fees earned on treasury management and capital markets services. Other contract revenue consists primarily of
revenue earned on certain marketing and promotional events from our auto dealers within our Consumer Banking business. Revenue
from contracts with customers is included in non-interest income in our consolidated statements of income.
NOTE 19—COMMITMENTS, CONTINGENCIES, GUARANTEES AND OTHERS
Commitments to Lend
Our unfunded lending commitments primarily consist of credit card lines, loan commitments to customers of both our Commercial
Banking and Consumer Banking businesses, as well as standby and commercial letters of credit. These commitments, other than
credit card lines, are legally binding conditional agreements that have fixed expirations or termination dates and specified interest
rates and purposes. The contractual amount of these commitments represents the maximum possible credit risk to us should the
counterparty draw upon the commitment. We generally manage the potential risk of unfunded lending commitments by limiting
the total amount of arrangements, monitoring the size and maturity structure of these portfolios, and applying the same credit
standards for all of our credit activities.
For unused credit card lines, we have not experienced and do not anticipate that all of our customers will access their entire available
line at any given point in time. Commitments to extend credit other than credit card lines generally require customers to maintain
certain credit standards. Collateral requirements and loan-to-value (“LTV”) ratios are the same as those for funded transactions
and are established based on management’s credit assessment of the customer. These commitments may expire without being
drawn upon; therefore, the total commitment amount does not necessarily represent future funding requirements.
We also issue letters of credit, such as financial standby, performance standby and commercial letters of credit, to meet the financing
needs of our customers. Standby letters of credit are conditional commitments issued by us to guarantee the performance of a
customer to a third party in a borrowing arrangement. Commercial letters of credit are short-term commitments issued primarily
to facilitate trade finance activities for customers and are generally collateralized by the goods being shipped to the client. These
collateral requirements are similar to those for funded transactions and are established based on management’s credit assessment
of the customer. Management conducts regular reviews of all outstanding letters of credit and the results of these reviews are
considered in assessing the adequacy of reserves for unfunded lending commitments.
The following table presents revenue from contracts with customers and a reconciliation to non-interest income by business segment
for the year ended December 31, 2018.
The following table presents the contractual amount and carrying value of our unfunded lending commitments as of December 31,
2018 and 2017. The carrying value represents our reserve and deferred revenue on legally binding commitments.
Table 18.2: Revenue from Contracts with Customers and Reconciliation to Segments Results
Table 19.1: Unfunded Lending Commitments: Contractual Amount and Carrying Value
Year Ended December 31, 2018
Credit
Card
Consumer
Banking
Commercial
Banking(1)
Other(1)
Consolidated
Total
(Dollars in millions)
(Dollars in millions)
Contract revenue:
Interchange fees, net(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service charges and other customer-related fees. . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total contract revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue from other sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,609
$
0
8
2,617
903
185
367
109
661
2
Total non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,520
$
663
$
$
33
$
(4) $
2,823
123
2
158
586
744
(1)
0
(5)
279
274
$
$
489
119
3,431
1,770
5,201
__________
(1)
Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue
and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reclassifications
to the Other category.
(2)
Interchange fees are presented net of customer reward expenses of $4.4 billion for the year ended December 31, 2018.
Credit card lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other loan commitments(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Standby letters of credit and commercial letters of credit(2) . . . . . . . . . . . . .
Total unfunded lending commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual Amount
Carrying Value
December 31,
2018
346,186
$
December 31,
2017
351,481
$
34,449
1,792
31,840
2,046
$
382,427
$
385,367
December 31,
2018
December 31,
2017
N/A
95
29
124
$
$
N/A
84
43
127
$
$
__________
(1)
Includes $1.3 billion and $1.0 billion of advised lines of credit as of December 31, 2018 and 2017, respectively.
(2)
These financial guarantees have expiration dates ranging from 2019 to 2025 as of December 31, 2018.
Loss Sharing Agreements and Other Obligations
Within our Commercial Banking business, we originate multifamily commercial real estate loans with the intent to sell them to
the GSEs. We enter into loss sharing agreements with the GSEs upon the sale of the loans. At inception, we record a liability
representing the fair value of our obligation which is subsequently amortized as we are released from risk of payment under the
loss sharing agreement. If payment under the loss sharing agreement becomes probable and estimable, an additional liability may
be recorded on the consolidated balance sheets and a non-interest expense may be recognized in the consolidated statements of
income. The liability recognized on our consolidated balance sheets for our loss sharing agreements was $59 million and $60
million as of December 31, 2018 and 2017, respectively.
207
Capital One Financial Corporation (COF)
208
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.K. Payment Protection Insurance
In the U.K., we previously sold payment protection insurance (“PPI”). In response to an elevated level of customer complaints
across the industry, heightened media coverage and pressure from consumer advocacy groups, the U.K. Financial Conduct Authority
(“FCA”), formerly the Financial Services Authority, investigated and raised concerns about the way the industry has handled
complaints related to the sale of these insurance policies. For the past several years, the U.K.’s Financial Ombudsman Service
(“FOS”) has been adjudicating customer complaints relating to PPI, escalated to it by consumers who disagree with the rejection
of their complaint by firms, leading to customer remediation payments by us and others within the industry. On March 2, 2017,
the FCA issued a statement that sets out final rules and guidance on the PPI complaints deadline, which has been set as August
29, 2019. The statement also provides clarity on how to handle PPI complaints under s.140A of the Consumer Credit Act, including
guidance on how redress for such complaints should be calculated. The final rules and guidance came into force on August 29,
2017.
In determining our best estimate of incurred losses for future remediation payments, management considers numerous factors,
including (i) the number of customer complaints we expect in the future; (ii) our expectation of upholding those complaints; (iii)
the expected number of complaints customers escalate to the FOS; (iv) our expectation of the FOS upholding such escalated
complaints; (v) the number of complaints that fall under s.140A of the Consumer Credit Act; (vi) the number of litigation claims
being pursued under s.140A of the Consumer Credit Act; and (vii) the estimated remediation payout to customers. We monitor
these factors each quarter and adjust our reserves to reflect the latest data.
Management’s best estimate of incurred losses related to U.K. PPI totaled $133 million and $249 million as of December 31, 2018
and 2017, respectively. In 2018, we recognized additional charges of $99 million to reflect greater than expected complaint volumes.
Other movements to the reserve were a combination of utilization of the reserve through customer refund payments and foreign
exchange movements. Our best estimate of reasonably possible future losses beyond our reserve as of December 31, 2018 is
approximately $100 million.
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, 2018 are approximately $1.1
billion. Our reserve and reasonably possible loss estimates involve considerable judgment and reflect that there is still significant
uncertainty regarding numerous factors that may impact the ultimate loss levels. Notwithstanding our attempt to estimate a
reasonably possible range of loss beyond our current accrual levels for some litigation matters based on current information, it is
possible that actual future losses will exceed both the current accrual level and the range of reasonably possible losses disclosed
here. Given the inherent uncertainties involved in these matters, especially those involving governmental agencies, and the very
large or indeterminate damages sought in some of these matters, there is significant uncertainty as to the ultimate liability we may
incur from these litigation matters and an adverse outcome in one or more of these matters could be material to our results of
operations or cash flows for any particular reporting period.
Interchange
In 2005, a putative class of retail merchants filed antitrust lawsuits against MasterCard and Visa and several issuing banks, including
Capital One, seeking both injunctive relief and monetary damages for an alleged conspiracy by defendants to fix the level of
interchange fees. Other merchants have asserted similar claims in separate lawsuits, and while these separate cases did not name
any issuing banks, Visa, MasterCard and issuers, including Capital One, have entered settlement and judgment sharing agreements
allocating the liabilities of any judgment or settlement arising from all interchange-related cases.
The lawsuits were consolidated before the U.S. District Court for the Eastern District of New York for certain purposes and were
settled in 2012. The class settlement, however, was invalidated by the United States Court of Appeals for the Second Circuit in
June 2016, and the suit was separated into separate class actions seeking injunctive and monetary relief, respectively. In addition,
numerous merchant groups opted out of the 2012 settlement and have pursued their own claims. The claims by the injunctive relief
class have not been resolved, but the parties reached a new settlement agreement with the monetary damages class in August 2018,
whereby the class would receive up to approximately $6.2 billion collectively from the defendants in exchange for a release of
their claims, depending on the percentage of class plaintiffs who opt out. The trial court preliminarily approved the settlement in
January 2019. Visa and MasterCard have also settled several of the opt-out cases, which required non-material payments from
issuing banks, including Capital One. Visa created a litigation escrow account following its IPO of stock in 2008 that funds
settlements for its member banks, and any settlements related to MasterCard-allocated losses have either already been paid or are
reflected in Capital One’s reserves.
Mortgage Representation and Warranty
We face residual exposure related to subsidiaries that originated residential mortgage loans and sold these loans to various
purchasers, including purchasers who created securitization trusts. In connection with their sales of mortgage loans, these
subsidiaries entered into agreements containing varying representations and warranties about, among other things, the ownership
of the loan, the validity of the lien securing the loan, the loan’s compliance with any applicable criteria established by the purchaser,
including underwriting guidelines and the existence of mortgage insurance, and the loan’s compliance with applicable federal,
state and local laws. Each of these subsidiaries may be required to repurchase mortgage loans or indemnify certain purchasers and
others against losses they incur in the event of certain breaches of these representations and warranties.
The substantial majority of our representation and warranty exposure has been resolved through litigation, and our remaining
representation and warranty exposure is almost entirely litigation-related. Accordingly, we establish litigation reserves for
representation and warranty losses that we consider to be both probable and reasonably estimable. The reserve process relies
heavily on estimates, which are inherently uncertain, and requires the application of judgment. Our reserves and estimates of
reasonably possible losses could be impacted by claims which may be brought by securitization trustees and sponsors, bond-
insurers, investors, and GSEs, as well as claims brought by governmental agencies under the Financial Institutions Reform,
Recovery and Enforcement Act (“FIRREA”), the False Claims Act or other federal or state statutes.
In May, June and July 2012, the Federal Housing Finance Agency (“FHFA”) (acting as conservator for Freddie Mac) filed three
summonses with notice in the New York state court against GreenPoint, on behalf of the trustees for three RMBS trusts backed
by loans originated by GreenPoint with an aggregate original principal balance of $3.4 billion. In January 2013, the plaintiffs filed
an amended consolidated complaint in the name of the three trusts, acting by the respective trustees, alleging breaches of contractual
representations and warranties regarding compliance with GreenPoint underwriting guidelines relating to certain loans (“FHFA
Litigation”). Plaintiffs seek specific performance of the repurchase obligations with respect to the loans for which they have
provided notice of alleged breaches as well as all other allegedly breaching loans, rescissory damages, indemnification, costs and
interest. On March 29, 2017, the trial court granted GreenPoint’s motion for summary judgment and dismissed plaintiff’s claims
as untimely. The plaintiff appealed to the Second Circuit, which affirmed the dismissal on February 6, 2019.
Anti-Money Laundering
Capital One is subject to an open consent order with the Office of the Comptroller of the Currency (“OCC”) dated July 10, 2015
relating to our anti-money laundering (“AML”) program. In October 2018, Capital One paid a civil monetary penalty of $100
million to resolve the monetary component of the AML consent order.
Capital One continues to be investigated by the New York District Attorney’s Office (“NYDA”), the Department of Justice (“DOJ”)
and the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury primarily with respect to certain
former check casher clients of the Commercial Banking business and Capital One’s AML program. Capital One is cooperating
with all agencies involved in the investigation. We are in discussions with FinCEN to explore a potential regulatory resolution of
its investigation, which could include a monetary penalty.
209
Capital One Financial Corporation (COF)
210
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Pending and Threatened Litigation
NOTE 20—CAPITAL ONE FINANCIAL CORPORATION (PARENT COMPANY ONLY)
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.
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 20.1: Parent Company Statements of Income
(Dollars in millions)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes and equity in undistributed earnings of subsidiaries. . . . . . . . . . . . . . . . . . . . .
Income tax benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in undistributed earnings of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2018
2017
2016
$
$
313
720
2,750
19
29
2,333
(128)
3,554
6,015
(136)
178
381
300
19
34
82
(103)
1,797
1,982
23
120
258
3,936
(13)
48
3,737
(79)
(65)
3,751
(333)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,879
$ 2,005
$ 3,418
Table 20.2: Parent Company Balance Sheets
(Dollars in millions)
Assets:
December 31,
December 31,
2018
2017
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
10,286
$
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Senior and subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings from subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58,154
2,603
795
1,250
1,671
231
21,420
51,668
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
73,088
$
$
$
73,088
$
65,092
19,518
$
14,392
8,196
54,712
548
907
729
1,633
337
16,362
48,730
65,092
211
Capital One Financial Corporation (COF)
212
Capital One Financial Corporation (COF)
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21—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.
Table 20.3: Parent Company Statements of Cash Flows
(Dollars in millions)
Operating activities:
Year Ended December 31,
2018
2017
2016
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,015
$ 1,982
$ 3,751
Adjustments to reconcile net income to net cash from operating activities:
Equity in undistributed earnings of subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,554)
(1,797)
Other operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(35)
2,426
327
512
Investing activities:
Net payments to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(577)
(4,956)
Proceeds from paydowns and maturities of securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in loans to subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash from investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
140
(2,055)
(2,492)
130
44
(4,782)
65
(10)
3,806
(163)
71
(71)
(163)
Financing activities:
Borrowings:
Changes in borrowings from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of senior and subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38
5,227
23
6,948
19
1,487
Proceeds from paydowns and maturities of senior and subordinated notes . . . . . . . . . . . . . . . . . . . . . . .
0
(804)
(1,750)
Common stock:
Net proceeds from issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock:
Net proceeds from issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from share-based payment activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
175
(773)
0
(265)
(2,284)
38
2,156
2,090
8,196
164
(780)
0
(265)
(240)
124
5,170
900
7,296
131
(812)
1,066
(214)
(3,661)
142
(3,592)
51
7,245
Cash and cash equivalents, end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,286
$ 8,196
$ 7,296
213
Capital One Financial Corporation (COF)
214
Capital One Financial Corporation (COF)
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
None.
Item 9A. Controls and Procedures
Overview
We are required under applicable laws and regulations to maintain controls and procedures, which include disclosure controls and
procedures as well as internal control over financial reporting, as further described below.
(a) Disclosure Controls and Procedures
Disclosure controls and procedures refer to controls and other procedures designed to provide reasonable assurance that information
required to be disclosed in our financial reports is recorded, processed, summarized and reported within the time periods specified
by the U.S. Securities and Exchange Commission (“SEC”) rules and forms and that such information is accumulated and
communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that
any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and we must apply judgment in evaluating and implementing possible controls and procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”), our management, including the Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures
(as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2018, the end of the period
covered by this Annual Report on Form 10-K. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of December 31, 2018, at a reasonable level of assurance,
in recording, processing, summarizing and reporting information required to be disclosed within the time periods specified by the
SEC rules and forms.
(b) Changes in Internal Control Over Financial Reporting
We regularly review our disclosure controls and procedures and make changes intended to ensure the quality of our financial
reporting. There were no changes in internal control over financial reporting that occurred in the fourth quarter of 2018 that
materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
(c) Management’s Report on Internal Control Over Financial Reporting
Management’s Report on Internal Control Over Financial Reporting is included in “PART II—Item 8. Financial Statements and
Supplementary Data” and is incorporated herein by reference. The Report of Independent Registered Public Accounting Firm on
Internal Control Over Financial Reporting also is included in “PART II—Item 8. Financial Statements and Supplementary Data”
and incorporated herein by reference.
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Item 10 will be included in our Proxy Statement for the 2019 Annual Stockholder Meeting (“Proxy
Statement”) under the headings “Corporate Governance at Capital One” and “Section 16(a) Beneficial Ownership Reporting
Compliance,” and is incorporated herein by reference. The Proxy Statement will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days of the end of our 2018 fiscal year.
Item 11. Executive Compensation
The information required by Item 11 will be included in the Proxy Statement under the headings “Director Compensation,”
“Compensation Discussion and Analysis,” “Named Executive Officer Compensation,” “Compensation Committee Interlocks and
Insider Participation” and “Compensation Committee Report,” and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 will be included in the Proxy Statement under the headings “Security Ownership” and “Equity
Compensation Plans,” and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by Item 13 will be included in the Proxy Statement under the headings “Related Person Transactions”
and “Director Independence,” and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by Item 14 will be included in the Proxy Statement under the heading “Ratification of Selection of
Independent Registered Public Accounting Firm,” and is incorporated herein by reference.
215
Capital One Financial Corporation (COF)
216
Capital One Financial Corporation (COF)
Item 15. Exhibits, Financial Statement Schedules
(a) Financial Statement Schedules
PART IV
The following documents are filed as part of this Annual Report in Part II, Item 8 and are incorporated herein by reference.
(1) Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements
Consolidated Financial Statements:
Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
(2) Schedules
None.
(b) Exhibits
An index to exhibits has been filed as part of this Report and is incorporated herein by reference.
Item 16. Form 10-K Summary
Not applicable.
CAPITAL ONE FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-K
DATED DECEMBER 31, 2018
Commission File No. 001-13300
The following exhibits are incorporated by reference or filed herewith. References to (i) the “2002 Form 10-K” are to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2002, filed on March 17, 2003; (ii) the “2003 Form 10-K” are to
the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 5, 2004; (iii) the “2010 Form
10-K” are to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed on March 1, 2011, as
amended on March 7, 2011; (iv) the “2011 Form 10-K” are to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2011, filed on February 28, 2012; (v) the “2012 Form 10-K” are to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2012, filed on February 28, 2013; (vi) the “2013 Form 10-K” are to the Company’s Annual Report
on Form 10-K for the year ended December 31, 2013, filed on February 27, 2014; (vii) the “2014 Form 10-K” are to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 24, 2015; (viii) the “2015 Form 10-K” are
to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed on February 25, 2016; (ix) the “2016
Form 10-K” are to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed on February 23,
2017; and (x) the “2017 Form 10-K” are to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017,
filed on February 21, 2018.
Exhibit No.
Description
3.1
3.2
3.3.1
3.3.2
3.3.3
3.3.4
3.3.5
3.3.6
3.3.7
4.1.1
4.1.2
4.1.3
4.2
10.1.1+
10.1.2+
10.1.3+
10.2.1+
Restated Certificate of Incorporation of Capital One Financial Corporation (as restated April 30, 2015) (incorporated by
reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on May 4, 2015).
Amended and Restated Bylaws of Capital One Financial Corporation, dated October 5, 2015 (incorporated by reference to
Exhibit 3.1 of the Current Report on Form 8-K, filed on October 5, 2015).
Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B, dated August 16, 2012
(incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on August 20, 2012).
Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C, dated June 11, 2014
(incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on June 12, 2014).
Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series D, dated October 29, 2014
(incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on October 31, 2014).
Certificate of Designations of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series E, dated May 12,
2015 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on May 14, 2015).
Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series F, dated August 20, 2015
(incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on August 24, 2015).
Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series G, dated July 28, 2016
(incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on July 29, 2016).
Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series H, dated November 28, 2016
(incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on November 29, 2016).
Specimen certificate representing the common stock of Capital One Financial Corporation (incorporated by reference to
Exhibit 4.1 of the 2003 Form 10-K).
Warrant Agreement, dated December 3, 2009, between Capital One Financial Corporation and Computershare Trust Company,
N.A. (incorporated by reference to the Exhibit 4.1 of the Form 8-A, filed on December 4, 2009).
Deposit Agreement, dated August 20, 2012 (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K,
filed on August 20, 2012).
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, copies of instruments defining the rights of holders of long-term debt
are not filed. The Company agrees to furnish a copy thereof to the SEC upon request.
Second Amended and Restated 2004 Stock Incentive Plan (incorporated by reference to the Proxy Statement on Definitive
Schedule 14A, filed on March 13, 2009).
Third Amended and Restated 2004 Stock Incentive Plan (incorporated by reference to the Proxy Statement on Definitive
Schedule 14A, filed on March 18, 2014).
Fourth Amended and Restated 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.1.4 of the 2017 Form 10-
K).
Form of Nonstatutory Stock Option Award Agreement granted to our executive officers, including the Chief Executive Officer,
under the Second Amended and Restated 2004 Stock Incentive Plan on January 26, 2011 (incorporated by reference to Exhibit
10.18 of the 2010 Form 10-K).
217
Capital One Financial Corporation (COF)
218
Capital One Financial Corporation (COF)
Exhibit No.
Description
Exhibit No.
Description
10.2.2+
10.2.3+
10.2.4+
10.2.5+
10.2.6+
10.2.7+
10.2.8+
10.2.9+
10.2.10+
10.2.11+
10.2.12+
10.2.13+
10.2.14+
10.2.15+
10.2.16+
10.2.17+
10.2.18+
10.2.19+
10.2.20+
Form of Nonstatutory Stock Option Award Agreements granted to our executive officers, including the Chief Executive
Officer, under the Second Amended and Restated 2004 Stock Incentive Plan on January 31, 2012 (incorporated by reference
to Exhibit 10.2.10 of the 2011 Form 10-K).
Form of Performance Unit Award Agreements granted to our executive officers, including the Chief Executive Officer, under
the Second Amended and Restated 2004 Stock Incentive Plan on January 31, 2012 (incorporated by reference to Exhibit
10.2.11 of the 2011 Form 10-K).
Form of Nonstatutory Stock Option Award Agreements granted to our executive officers, including the Chief Executive
Officer, under the Second Amended and Restated 2004 Stock Incentive Plan on January 31, 2013 (incorporated by reference
to Exhibit 10.2.14 of the 2012 Form 10-K).
Form of Performance Unit Award Agreements granted to our executive officers, including the Chief Executive Officer, under
the Second Amended and Restated 2004 Stock Incentive Plan on January 31, 2013 (incorporated by reference to Exhibit
10.2.15 of the 2012 Form 10-K).
Form of Nonstatutory Stock Option Award Agreements granted to our executive officers, including the Chief Executive
Officer, under the Second Amended and Restated 2004 Stock Incentive Plan on January 30, 2014 (incorporated by reference
to Exhibit 10.2.15 of the 2013 Form 10-K).
Form of Performance Unit Award Agreements granted to our executive officers, including the Chief Executive Officer, under
the Second Amended and Restated 2004 Stock Incentive Plan on January 30, 2014 (incorporated by reference to Exhibit
10.2.16 of the 2013 Form 10-K).
Form of Restricted Stock Unit Award Agreements granted to our executive officers, including the Chief Executive Officer,
under the Second Amended and Restated 2004 Stock Incentive Plan on January 30, 2014 (incorporated by reference to Exhibit
10.2.17 of the 2013 Form 10-K).
Form of Nonstatutory Stock Option Award Agreements granted to our executive officers, including the Chief Executive
Officer, under the Third Amended and Restated 2004 Stock Incentive Plan on January 29, 2015 (incorporated by reference
to Exhibit 10.2.14 of the 2014 Form 10-K).
Form of Performance Unit Award Agreements granted to our executive officers, including the Chief Executive Officer, under
the Third Amended and Restated 2004 Stock Incentive Plan on January 29, 2015 (incorporated by reference to Exhibit 10.2.15
of the 2014 Form 10-K).
Form of Restricted Stock Unit Award Agreements granted to our executive officers, including the Chief Executive Officer,
under the Third Amended and Restated 2004 Stock Incentive Plan on January 29, 2015 (incorporated by reference to Exhibit
10.2.16 of the 2014 Form 10-K).
Form of Nonstatutory Stock Option Award Agreements granted to our executive officers, including the Chief Executive
Officer, under the Third Amended and Restated 2004 Stock Incentive Plan on February 4, 2016 (incorporated by reference
to Exhibit 10.2.17 of the 2015 Form 10-K).
Form of Performance Unit Award Agreements granted to our executive officers, including the Chief Executive Officer, under
the Third Amended and Restated 2004 Stock Incentive Plan on February 4, 2016 (incorporated by reference to Exhibit 10.2.18
of the 2015 Form 10-K).
Form of Restricted Stock Unit Award Agreements granted to our executive officers, including the Chief Executive Officer,
under the Third Amended and Restated 2004 Stock Incentive Plan on February 4, 2016 (incorporated by reference to Exhibit
10.2.19 of the 2015 Form 10-K).
Restricted Stock Unit Award Agreement granted to R. Scott Blackley under the Third Amended and Restated 2004 Stock
Incentive Plan, dated May 9, 2016 (incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q for the
period ended June 30, 2016).
Form of Nonstatutory Stock Option Award Agreements granted to our executive officers, including the Chief Executive
Officer, under the Third Amended and Restated 2004 Stock Incentive Plan on February 2, 2017 (incorporated by reference
to Exhibit 10.2.19 of the 2016 Form 10-K).
Form of Performance Unit Award Agreements granted to our executive officers, including the Chief Executive Officer, under
the Third Amended and Restated 2004 Stock Incentive Plan on February 2, 2017 (incorporated by reference to Exhibit 10.2.20
of the 2016 Form 10-K).
Form of Restricted Stock Unit Award Agreements granted to our executive officers, including the Chief Executive Officer,
under the Third Amended and Restated 2004 Stock Incentive Plan on February 2, 2017 (incorporated by reference to Exhibit
10.2.21 of the 2016 Form 10-K).
Form of Performance Unit Award Agreements granted to our executive officers, including the Chief Executive Officer, under
the Fourth Amended and Restated 2004 Stock Incentive Plan on February 1, 2018 (incorporated by reference to Exhibit
10.2.22 of the 2017 Form 10-K).
Form of Restricted Stock Unit Award Agreements granted to our executive officers, including the Chief Executive Officer,
under the Fourth Amended and Restated 2004 Stock Incentive Plan on February 1, 2018 (incorporated by reference to Exhibit
10.2.23 of the 2017 Form 10-K).
10.2.21+*
Form of Performance Unit Award Agreements granted to our executive officers under the Fourth Amended and Restated 2004
Stock Incentive Plan on January 31, 2019.
10.2.22+*
Form of Restricted Stock Unit Award Agreements granted to our executive officers, including the Chief Executive Officer,
under the Fourth Amended and Restated 2004 Stock Incentive Plan on January 31, 2019.
10.3.1+
10.3.2+
10.3.3+
10.3.4+
10.3.5+
10.4.1+
10.4.2+
10.5+
10.6.1+
10.6.2+
10.7.1+
10.7.2+
10.7.3+
10.8.1+
10.8.2+
10.8.3+
10.8.4+
21*
23*
31.1*
31.2*
32.1**
32.2**
101.INS
101.SCH*
Capital One Financial Corporation 1999 Non-Employee Directors Stock Incentive Plan, as amended (incorporated by
reference to Exhibit 10.4 of the 2002 Form 10-K).
Form of 1999 Non-Employee Directors Stock Incentive Plan Deferred Share Units Award Agreement between Capital One
Financial Corporation and certain of its Directors (incorporated by reference to Exhibit 10.3 of the Quarterly Report on Form
10-Q for the period ended September 30, 2004).
Form of Restricted Stock Unit Award Agreement granted to our directors under the Second Amended and Restated 2004
Stock Incentive Plan (incorporated by reference to Exhibit 10.3.4 of the 2011 Form 10-K).
Form of Stock Option Award Agreement granted to our directors under the Second Amended and Restated 2004 Stock
Incentive Plan (incorporated by reference to Exhibit 10.3.5 of the 2011 Form 10-K).
Form of Restricted Stock Unit Award Agreement granted to our directors under the Fourth Amended and Restated 2004 Stock
Incentive Plan (incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q for the period ended June
30, 2018).
Amended and Restated Capital One Financial Corporation Executive Severance Plan (incorporated by reference to Exhibit
10.4 of the 2011 Form 10-K).
Amended and Restated Capital One Financial Corporation Executive Severance Plan (incorporated by reference to Exhibit
10.1 of the Quarterly Report on Form 10-Q for the period ended September 30, 2015).
Capital One Financial Corporation Non-Employee Directors Deferred Compensation Plan (incorporated by reference to
Exhibit 10.5 of the 2011 Form 10-K).
Amended and Restated Capital One Financial Corporation Voluntary Non-Qualified Deferred Compensation Plan
(incorporated by reference to Exhibit 10.6 of the 2011 Form 10-K).
First Amendment to the Amended and Restated Capital One Financial Corporation Voluntary Non-Qualified Deferred
Compensation Plan (incorporated by reference to Exhibit 10.6.2 of the 2012 Form 10-K).
Form of Change of Control Employment Agreement between Capital One Financial Corporation and each of its named
executive officers, other than the Chief Executive Officer (incorporated by reference to Exhibit 10.8.2 of the 2011 Form 10-
K).
Form of 2011 Change of Control Employment Agreement between Capital One Financial Corporation and certain executive
officers (incorporated by reference to Exhibit 10.8.3 of the 2012 Form 10-K).
Change of Control Employment Agreement between Capital One Financial Corporation and Richard D. Fairbank
(incorporated by reference to Exhibit 10.7.3 of the 2013 Form 10-K).
Form of Non-Competition Agreement between Capital One Financial Corporation and certain named executive officers
(incorporated by reference to Exhibit 10.9 of the 2012 Form 10-K).
Non-Competition Agreement between Capital One Financial Corporation and R. Scott Blackley, as amended on July 1, 2017
(incorporated by reference to Exhibit 10.1.1 of the Quarterly Report on Form 10-Q for the period ended March 31, 2017).
Non-Competition Agreement between Capital One Financial Corporation and Noelle K. Eder (incorporated by reference to
Exhibit 10.1.2 of the Quarterly Report on Form 10-Q for the period ended March 31, 2017).
Non-Competition Agreement between Capital One Financial Corporation and Michael J. Wassmer (incorporated by reference
to Exhibit 10.1.3 of the Quarterly Report on Form 10-Q for the period ended March 31, 2017).
Subsidiaries of the Company.
Consent of Ernst & Young LLP.
Certification of Richard D. Fairbank.
Certification of R. Scott Blackley.
Certification of Richard D. Fairbank.
Certification of R. Scott Blackley.
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document.
XBRL Taxonomy Extension Schema Document.
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document.
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219
Capital One Financial Corporation (COF)
220
Capital One Financial Corporation (COF)
+
*
**
Represents a management contract or compensatory plan or arrangement.
Indicates a document being filed with this Form 10-K.
Indicates a document being furnished with this Form 10-K. Information in this Form 10-K furnished herewith shall not be deemed to be “filed” for the
purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section. Such exhibit shall not be deemed
incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 20, 2019
CAPITAL ONE FINANCIAL CORPORATION
By:
/s/ RICHARD D. FAIRBANK
Richard D. Fairbank
Chair, Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the date indicated.
Signature
Title
Date
/s/ RICHARD D. FAIRBANK
Richard D. Fairbank
/s/ R. SCOTT BLACKLEY
R. Scott Blackley
/s/ TIMOTHY P. GOLDEN
Timothy P. Golden
/s/ APARNA CHENNAPRAGADA
Aparna Chennapragada
/s/ ANN FRITZ HACKETT
Ann Fritz Hackett
/s/ LEWIS HAY, III
Lewis Hay, III
/s/ BENJAMIN P. JENKINS, III
Benjamin P. Jenkins, III
/s/ PETER THOMAS KILLALEA
Peter Thomas Killalea
/s/ C.P.A.J. (ELI) LEENAARS
C.P.A.J. (Eli) Leenaars
/s/ PIERRE E. LEROY
Pierre E. Leroy
/s/ PETER E. RASKIND
Peter E. Raskind
Chair, Chief Executive Officer and President
February 20, 2019
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
221
Capital One Financial Corporation (COF)
222
Capital One Financial Corporation (COF)
Los Angeles, CA
Richmond, VA
Washington, DC
/s/ MAYO A. SHATTUCK III
Mayo A. Shattuck III
/s/ BRADFORD H. WARNER
Bradford H. Warner
/s/ CATHERINE G. WEST
Catherine G. West
Director
Director
Director
February 20, 2019
February 20, 2019
February 20, 2019
Boston, MA
Austin, TX
Miami, FL
Portland, OR
Denver, CO
Bellevue, WA
223
Capital One Financial Corporation (COF)
Corporate Information
Corporate Office
1600 Capital One Drive, McLean, VA 22102
Tel: (703) 720-1000
www.capitalone.com
Annual Meeting
Thursday, May 2, 2019
10:00 a.m. Eastern Time
Capital One Campus
1600 Capital One Drive, McLean, VA 22102
Principal Investor Contacts
Jeff Norris
Senior Vice President, Finance
or
Danielle Dietz
Vice President, Investor Relations
Capital One Financial Corporation
1600 Capital One Drive, McLean, VA 22102
Tel: (703) 720-2455
Common Stock
Listed on New York Stock Exchange®
Stock Symbol COF
Member of S&P 500®
Corporate Registrar/Transfer Agent
Computershare
P.O. Box 505000, Louisville, KY 40233
Tel: (888) 985-2057
Outside the U.S., Canada, & Puerto Rico
Tel: (781) 575-2725
Hearing impaired: (800) 952-9245
Email: shareholder@computershare.com
Internet: www.computershare.com
By Overnight Courier to:
Computershare
462 South 4th Street, Suite 1600, Louisville, KY 40202
Independent Registered Public Accounting Firm
Ernst & Young LLP
Copies of Form 10-K filed with the Securities and Exchange Commission are available without charge at www.capitalone.com. The
most recent certifications by our Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 are filed as exhibits to the Form 10-K. We have also filed with the New York Stock Exchange the most recent Annual CEO
Certification as required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual.
ABOUT CAPITAL ONE
Capital One Financial Corporation (www.capitalone.com) is a financial holding company whose subsidiaries, which include Capital One, N.A., and Capital One Bank (USA),
N.A., had $249.8 billion in deposits and $372.5 billion in total assets as of December 31, 2018. Headquartered in McLean, Virginia, Capital One offers a broad spectrum of
financial products and services to consumers, small businesses and commercial clients through a variety of channels. Capital One, N.A. has branches located primarily in
New York, Louisiana, Texas, Maryland, Virginia, New Jersey and the District of Columbia. A Fortune 500 company, Capital One trades on the New York Stock Exchange
under the symbol “COF” and is included in the S&P 100 index.
Capital One cautions readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those
described in the forward-looking statements as a result of various factors including, among other things: general economic and business conditions in the U.S., the U.K.,
Canada or Capital One’s local markets, including conditions affecting employment levels, interest rates, tariffs, collateral values, consumer income, credit worthiness and
confidence, spending and savings that may affect consumer bankruptcies, defaults, charge-offs and deposit activity; an increase or decrease in credit losses, including
increases due to a worsening of general economic conditions in the credit environment, and the impact of inaccurate estimates or inadequate reserves; compliance with
financial, legal, regulatory, tax or accounting changes or actions, including the impacts of the Tax Act, the Dodd-Frank Act, and other regulations governing bank capital
and liquidity standards; Capital One’s ability to manage effectively its capital and liquidity; developments, changes or actions relating to any litigation, governmental
investigation or regulatory enforcement action or matter involving Capital One; the inability to sustain revenue and earnings growth; increases or decreases in interest rates
and uncertainty with respect to the interest rate environment; Capital One’s ability to access the capital markets at attractive rates and terms to capitalize and fund its
operations and future growth; increases or decreases in Capital One’s aggregate loan balances or the number of customers and the growth rate and composition thereof,
including increases or decreases resulting from factors such as shifting product mix, amount of actual marketing expenses Capital One incurs and attrition of loan balances;
the amount and rate of deposit growth; changes in deposit costs; Capital One’s ability to execute on its strategic and operational plans; restructuring activities or other
charges; Capital One’s response to competitive pressures; changes in retail distribution strategies and channels, including the emergence of new technologies and product
delivery systems; Capital One’s success in integrating acquired businesses and loan portfolios, and Capital One’s ability to realize anticipated benefits from announced
transactions and strategic partnerships; the success of Capital One’s marketing efforts in attracting and retaining customers; changes in the reputation of, or expectations
regarding, the financial services industry or Capital One with respect to practices, products or financial condition; any significant disruption in Capital One’s operations
or in the technology platforms on which Capital One relies, including cybersecurity, business continuity and related operational risks, as well as other security failures or
breaches of Capital One’s systems or those of Capital One’s customers, partners, service providers or other third parties; Capital One’s ability to maintain a compliance and
technology infrastructure suitable for the nature of Capital One’s business; Capital One’s ability to develop and adapt to rapid changes in digital technology to address the
needs of Capital One’s customers and comply with applicable regulatory standards, including compliance with data protection and privacy standards; the effectiveness
of Capital One’s risk management strategies; Capital One’s ability to control costs, including the amount of, and rate of growth in, its expenses as its business develops
or changes or as it expands into new market areas; the extensive use, reliability and accuracy of the models and data Capital One relies on in its business; Capital One’s
ability to recruit and retain talented and experienced personnel; the impact from, and Capital One’s ability to respond to, natural disasters and other catastrophic events;
changes in the labor and employment markets; fraud or misconduct by Capital One’s customers, employees, business partners or third parties; merchants’ increasing focus
on the fees charged by credit card networks; and other risk factors identified from time to time in reports that Capital One files with the SEC, including, but not limited to,
the Annual Report on Form 10-K for the year ended December 31, 2018.
All Capital One trademarks are owned by Capital One Financial Corporation. All third party trademarks in this report are the property of their respective owners. © 2019 Capital One Services, LLC.
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Created and produced by Capital One and the following:
Design: Elevation
Executive Portrait: Vedros & Associates
Printing: Allied Printing Services, Inc.
Café Mural, Boston, MA: Caleb Neelon
Café Mural, Richmond, VA: Hamilton Glass
Stairwell Sculpture: Adrien Segal
Neon Artwork: Meryl Pataky
1600 Capital One Drive
McLean, VA 22102
(703) 720-1000
www.capitalone.com
2 0 1 8 A N N UA L R E P O R T
Welcome to
Banking Reimagined®