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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, 2020

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) 

____________________________________

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

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

____________________________________

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

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

Securities registered pursuant to section 12(g) of the Act: None

____________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

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 ☒

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 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

☒

Accelerated filer

☐

Non-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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

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, 2020 was approximately $28.3 billion. As of January 31, 2021, there were 459,236,740 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 6, 2021, are incorporated by reference into Part III.

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TABLE OF CONTENTS

						Page
PART I						4
Item 1.			Business			4
			Overview			4
			Operations and Business Segments			7
			Competition			8
			Supervision and Regulation			8
			Human Capital Resources			19
			Additional Information			21
			Forward-Looking Statements			22
Item 1A.			Risk Factors			23
Item 1B.			Unresolved Staff Comments			41
Item 2.			Properties			41
Item 3.			Legal Proceedings			41
Item 4.			Mine Safety Disclosures			41
PART II						42
Item 5.			Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			42
Item 6.			Selected Financial Data			44
Item 7.			Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)			47
			Executive Summary and Business Outlook			48
			Consolidated Results of Operations			50
			Consolidated Balance Sheets Analysis			55
			Off-Balance Sheet Arrangements			57
			Business Segment Financial Performance			57
			Critical Accounting Policies and Estimates			66
			Accounting Changes and Developments			70
			Capital Management			70
			Risk Management			77
			Credit Risk Profile			83
			Liquidity Risk Profile			96
			Market Risk Profile			100
			Supplemental Tables			104
			Glossary and Acronyms			109
Item 7A.			Quantitative and Qualitative Disclosures about Market Risk			115
Item 8.			Financial Statements and Supplementary Data			115
			Consolidated Statements of Income			121
			Consolidated Statements of Comprehensive Income			122
			Consolidated Balance Sheets			123
			Consolidated Statements of Changes in Stockholders’ Equity			124
			Consolidated Statements of Cash Flows			125

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			Notes to Consolidated Financial Statements			127
			Note 1—Summary of Significant Accounting Policies			127
			Note 2—Investment Securities			143
			Note 3—Loans			146
			Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments			154
			Note 5—Variable Interest Entities and Securitizations			158
			Note 6—Goodwill and Intangible Assets			162
			Note 7—Premises, Equipment and Leases			165
			Note 8—Deposits and Borrowings			167
			Note 9—Derivative Instruments and Hedging Activities			169
			Note 10—Stockholders’ Equity			178
			Note 11—Regulatory and Capital Adequacy			182
			Note 12—Earnings Per Common Share			184
			Note 13—Stock-Based Compensation Plans			185
			Note 14—Employee Benefit Plans			187
			Note 15—Income Taxes			189
			Note 16—Fair Value Measurement			193
			Note 17—Business Segments and Revenue from Contracts with Customers			202
			Note 18—Commitments, Contingencies, Guarantees and Others			207
			Note 19—Capital One Financial Corporation (Parent Company Only)			211
			Note 20—Related Party Transactions			213
Item 9.			Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			214
Item 9A.			Controls and Procedures			214
Item 9B.			Other Information			214
PART III						215
Item 10.			Directors, Executive Officers and Corporate Governance			215
Item 11.			Executive Compensation			215
Item 12.			Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			215
Item 13.			Certain Relationships and Related Transactions, and Director Independence			215
Item 14.			Principal Accountant Fees and Services			215
PART IV						216
Item 15.			Exhibits, Financial Statement Schedules			216
Item 16.			Form 10-K Summary			216
EXHIBIT INDEX						217
SIGNATURES						221

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INDEX OF MD&A AND SUPPLEMENTAL TABLES

MD&A Tables:						Page
1			Average Balances, Net Interest Income and Net Interest Margin			51
2			Rate/Volume Analysis of Net Interest Income			52
3			Non-Interest Income			53
4			Non-Interest Expense			54
5			Investment Securities			55
6			Loans Held for Investment			56
7			Funding Sources Composition			56
8			Business Segment Results			58
9			Credit Card Business Results			59
9.1			Domestic Card Business Results			61
10			Consumer Banking Business Results			62
11			Commercial Banking Business Results			64
12			Other Category Results			65
13			Capital Ratios Under Basel III			73
14			Regulatory Risk-Based Capital Components and Regulatory Capital Metrics			74
15			Preferred Stock Dividends Paid Per Share			75
16			Portfolio Composition of Loans Held for Investment			84
17			Loan Maturity Schedule			85
18			Credit Card Portfolio by Geographic Region			85
19			Consumer Banking Portfolio by Geographic Region			86
20			Commercial Banking Portfolio by Geographic Region			86
21			Commercial Loans by Industry			87
22			Credit Score Distribution			88
23			30+ Day Delinquencies			88
24			Aging and Geography of 30+ Day Delinquent Loans			89
25			90+ Day Delinquent Loans Accruing Interest			90
26			Nonperforming Loans and Other Nonperforming Assets			90
27			Net Charge-Offs			91
28			Troubled Debt Restructurings			93
29			Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity			95
30			Allowance Coverage Ratios			96
31			Liquidity Reserves			96
32			Deposits Composition and Average Deposits Interest Rates			97
33			Maturities of Large-Denomination Domestic Time Deposits—$100,000 or More			98
34			Long-Term Funding			98
35			Senior Unsecured Long-Term Debt Credit Ratings			99
36			Contractual Obligations			99
37			Interest Rate Sensitivity Analysis			101
Supplemental Tables:
A			Loans Held for Investment Portfolio Composition			104
B			Performing Delinquencies			104
C			Nonperforming Loans and Other Nonperforming Assets			105
D			Net Charge-Offs			106
E			Summary of Allowance for Credit Losses and Reserve for Unfunded Lending Commitments			106
F			Reconciliation of Non-GAAP Measures			107
G			Selected Quarterly Financial Information			108

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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 digital channels, branches, Cafés and other distribution channels.

As of December 31, 2020, our principal subsidiaries included:

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

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

The Company is hereafter collectively referred to as “we,” “us” or “our.” COBNA and CONA are collectively referred to as the “Banks.” References to “this Report” or our “2020 Form 10-K” or “2020 Annual Report” are to our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. All references to 2020, 2019, 2018, 2017 and 2016, refer to our fiscal years ended, or the dates, as the context requires, December 31, 2020, December 31, 2019, December 31, 2018, December 31, 2017 and December 31, 2016, 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 largest banks based on deposits as of December 31, 2020, we service banking customer accounts through digital channels, as well as through branch locations, call centers, ATMs and Cafés. We also operate as one of the largest online direct banks in the United States of America (“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 U.S. 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, 2020.

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 Canadian branch of COBNA have the authority to provide credit card loans.

Business Developments

We regularly explore and evaluate opportunities to acquire financial products and services as well as 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 technology companies and related assets to improve our information technology infrastructure and to deliver on our digital strategy. We may issue equity or debt to fund our acquisitions. In addition, we regularly consider the potential disposition of certain of our assets, branches, partnership agreements or lines of business.

In the fourth quarter of 2020, we entered into an agreement to sell a partnership credit card loan portfolio of approximately $2.1 billion, which had been transferred to held for sale as of September 30, 2020, resulting in an allowance release of $327 million.

On September 24, 2019, we launched a new credit card issuance program with Walmart Inc. (“Walmart”) and are now the exclusive issuer of Walmart’s cobrand and private label credit card program in the U.S.. On October 11, 2019, we completed the acquisition of the existing portfolio of Walmart’s cobrand and private label credit card receivables, which added approximately $8.1 billion to our domestic credit card loans held for investment portfolio as of the acquisition date.

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Coronavirus Disease 2019 (COVID-19) Pandemic

The COVID-19 pandemic has resulted in a global public-health crisis, disrupting economies and introducing significant volatility into financial markets and uncertainty as to when economic and operating conditions will return to normalcy. This crisis continues to impact individuals, households and businesses in a multitude of ways. Companies in the U.S. and abroad have experienced unprecedented disruptions to normal business operations, including customer-facing interactions, supply chains, office closures, changes in demand for products and services, and others. Financial institutions, including us, have been deemed an essential service and exempted from the myriad of shutdowns across the country. We transformed how we work in order to protect the well-being of our associates and our customers, serve our customers, support our communities, and position ourselves to navigate the challenges ahead.

Since the start of the COVID-19 pandemic, a significant majority of our associates across our workforce have transitioned to working remotely, relying on our technology infrastructure and systems that have been designed for resilience and security. The majority of our associates will continue to work remotely through at least the summer of 2021, as we continue to prioritize their safety while planning our return to the office. We have been able to continue serving customers by successfully managing critical functions and keeping our lines of business operating. We implemented additional paid benefits and flexible attendance policies that are intended to enable our associates to care for their families and loved ones, including increased pay for branch and Café associates working in open locations, associates that perform essential and time-sensitive banking activities that cannot be performed remotely, and other U.S.-based associates in roles instrumental to maintaining essential customer support. We continue to monitor and revise our safety precautions and policies at banking locations as government authorities continue to implement and modify measures to contain the further spread of COVID-19. In our Retail Banking business, nearly all of our Cafés and branches across our network are open with increased safety precautions. We will continue to monitor local conditions to ensure the safety of our associates and customers while providing critical banking services.

We have offered a range of policies and programs to accommodate customer hardship across our lines of business. In our Credit Card and Auto businesses, our customers, who were in need and made a request, received forbearance primarily in the form of short-term payment deferrals or extensions and fee waivers. In our Retail Banking business, we waived select fees for impacted customers and offered short-term payment deferrals for our small business banking customers. We have also been working with our Commercial Banking customers on a more customized basis. In addition, we have participated in the Paycheck Protection Program (“PPP”), established by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in March 2020 and implemented by the Small Business Administration. See “MD&A—Credit Risk Profile” for more information about our customer assistance programs, including enrollment volumes and outstandings, customer performance and current program offerings.

We reported net income of $2.7 billion ($5.18 per diluted common share) for 2020, which reflects $5.0 billion in allowance builds in the first and second quarters of 2020 due to expectations of economic worsening as a result of the COVID-19 pandemic. These allowance builds, in combination with the adoption impact of the Current Expected Credit Loss (“CECL”) standard, significantly increased our allowance coverage ratio to 6.19% as of December 31, 2020 from 2.71% as of December 31, 2019. For more information, see “MD&A—Executive Summary and Business Outlook” and “MD&A—Credit Risk Profile.” We have continued to evaluate the potential impact on our goodwill impairment analysis and have incorporated recent market events and trends into our valuations of instruments measured at fair value. See more details in “MD&A—Critical Accounting Policies and Estimates,” “MD&A—Market Risk Profile” and “Note 9—Derivative Instruments and Hedging Activities.” See “MD&A—Liquidity Risk Profile” for information relating to our liquidity reserves as of December 31, 2020.

The COVID-19 pandemic impacted the demand for our products and services throughout 2020. In our Domestic Card business, loan balances, and revenue are down year-over-year, while purchase volume was relatively flat due to higher first and fourth quarter activity substantially offsetting year-over-year volume declines in the second and third quarters. In our Auto business, we saw an increase in origination volumes and loan growth driven by our relationship strategy and digital capabilities that we have developed. In our Retail Banking business, we have seen strong deposit growth throughout the year from increased consumer savings aided by the impact of government stimulus. In our Commercial Banking business, loan balances were relatively flat year-over year, while deposit balances were up significantly, reflecting the impact of the economic environment and government stimulus on our customers.

We are actively monitoring and responding to developments across the myriad of landscapes affected by the COVID-19 pandemic, including social, financial, legal, regulatory and governmental. As guidance is issued by governments and our regulators, we continue to assess the impacts on us. As government authorities continue to implement, modify and reinstate social distancing and reopening plans and other measures to contain the further spread of COVID-19, including the

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administration of vaccines, we will continue to adjust our business operations, policies and practices, keeping the best interests of our associates, customers and business partners at the forefront.

Cybersecurity Incident

On July 29, 2019, we announced that on March 22 and 23, 2019 an outside individual gained unauthorized access to our systems. This individual obtained certain types of personal information relating to people who had applied for our credit card products and to our credit card customers (the “Cybersecurity Incident”). We retained a leading independent cybersecurity firm that confirmed we correctly identified and fixed the specific configuration vulnerability exploited in the Cybersecurity Incident. We continue to invest significantly in cybersecurity and related risk management activities and expect to make additional investments as we continue to assess our cybersecurity program.

During the year ended December 31, 2020, we incurred $66 million of incremental expenses related to the remediation of and response to the Cybersecurity Incident, offset by $39 million of insurance recoveries. To date, we have incurred $138 million of incremental expenses, offset by $73 million of insurance recoveries pursuant to the cyber risk insurance coverage we carry. These expenses mainly consist of customer notifications, credit monitoring, technology costs, and professional and legal support. We expect any further expenses, net of insurance, to be immaterial in future periods. We carry insurance to cover certain costs associated with a cyber risk event. This insurance has a total coverage limit of $400 million and is subject to a $10 million deductible, which was met in the third quarter of 2019, as well as standard exclusions. The expenses discussed in this paragraph do not include any amounts related to the matters described in “Note 18—Commitments, Contingencies, Guarantees and Others.”

Although the ultimate magnitude and timing of expenses or other impacts to our business or reputation related to the Cybersecurity Incident are uncertain, they may be significant, and some of the costs may not be covered by insurance. However, we do not believe that this incident will materially impact our strategy or our long-term financial health. For more information, see “Note 18—Commitments, Contingencies, Guarantees and Others.”

Additional Information

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 Conduct;

•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 Conduct, and waivers of our Code of Conduct 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.

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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, long-term debt and other borrowings. 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 or managed as a part of 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 deposit gathering and lending activities for consumers and small businesses, and national auto lending.

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

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, have historically been the 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 quarter of the year.

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 17—Business Segments and Revenue from Contracts with Customers” of this Report.

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COMPETITION

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.

We also consider new and emerging companies in the digital and mobile payments space and other financial technology providers among our competitors. We compete with many forms of payment mechanisms, systems and products, offered by both bank and non-bank providers.

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 as well as our ability to keep pace with innovation, in particular in the development of new technology platforms. 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, see “Part I—Item 1A. Risk Factors.”

SUPERVISION AND REGULATION

The regulatory framework applicable to banking organizations is intended primarily for the protection of depositors and the stability of the U.S. financial system, rather than for the protection of shareholders and creditors.

As a banking organization, we are subject to extensive regulation and supervision. In addition to banking laws and regulations, we are subject to various other laws and regulations, all of which directly or indirectly affect our operations and management and our ability to make distributions to shareholders. We and our subsidiaries are also subject to supervision and examination by multiple regulators. In addition to laws and regulations, state and federal bank regulatory agencies may issue policy statements, interpretive letters and similar written guidance applicable to us and our subsidiaries. Any change in the statutes, regulations or regulatory policies applicable to us, including changes in their interpretation or implementation, could have a material effect on our business or organization.

Both the scope of the laws and regulations and the intensity of the supervision to which we are subject have increased in recent years, initially in response to the financial crisis, and more recently in light of other factors such as technological, political and market changes. Regulatory enforcement and fines have also increased across the banking and financial services sector.

The descriptions below summarize certain significant state and federal laws to which we are subject. The descriptions are qualified in their entirety by reference to the particular statutory or regulatory provisions summarized. They do not summarize all possible or proposed changes in current laws or regulations and are not intended to be a substitute for the related statues or regulatory provisions.

Banking Regulation

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 non-banking 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, an FHC is permitted to engage in activities

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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 National Bank Act, 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 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 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), 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 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, Data Protection and Cybersecurity

We are subject to multiple federal and state laws concerning privacy, data protection and cybersecurity, such as the Gramm-Leach Bliley Act (“GLBA”). This area has seen an increase in legislative and regulatory activity over the past several years. For example, in 2018, the State of California passed the California Consumer Privacy Act (“CCPA”), which became effective on January 1, 2020. The CCPA and its implementing regulations, as recently amended by the California Privacy Rights Act, create 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.

In addition, in December 2020, the Federal Reserve, OCC and FDIC (collectively, the “Federal Banking Agencies”) issued a notice of proposed rulemaking that, among other things, would require a banking organization to notify its primary federal regulators within 36 hours after identifying a "computer-security incident" that the banking organization believes in good faith

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could materially disrupt, degrade or impair its business or operations in a manner that would, among other things, jeopardize the viability of its operations, result in customers being unable to access their deposit and other accounts, result in a material loss of revenue, profit or franchise value, or pose a threat to the financial stability of the United States.

We continue to monitor data privacy and cybersecurity legal developments in the jurisdictions in which we do business. For further discussion of privacy, data protection and cybersecurity, and related risks for our business, see “Part I—Item 1A. Risk Factors” under the headings “We face risks related to our operational, technological and organizational infrastructure,” “Theft, loss or misuse of information as a result of a cyber-attack may result in increased costs, reductions in revenue, reputational damage and business disruptions,” and “Potential data protection and privacy incidents, and our required compliance with laws and regulations related to these areas, may increase our costs, result in legal liability, reduce our revenue and limit our ability to pursue business opportunities.”

Anti-Money Laundering and Anti-Terrorism

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.

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.

The Anti-Money Laundering Act of 2020 (“AML Act”), enacted on January 1, 2021 as part of the National Defense Authorization Act, does not directly impose new requirements on banks, but requires the U.S. Treasury Department to issue National Anti-Money Laundering and Countering the Financing of Terrorism Priorities, and conduct studies and issue regulations that may, over the next few years, significantly alter some of the due diligence, recordkeeping and reporting requirements that the Bank Secrecy Act and Patriot Act impose on banks. The AML Act also contains provisions that promote increased information-sharing and use of technology, and increases penalties for violations of the Bank Secrecy Act and includes whistleblower incentives, both of which could increase the prospect of regulatory enforcement.

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. In December 2020, the FDIC finalized amendments to the brokered deposit regulation that, among other things, generally clarify and narrow the scope of the "deposit broker" definition. The amendments become effective April 1, 2021.

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.

Broker-Dealer and Investment Advisory Activities

Certain of our non-bank subsidiaries are subject to regulation and supervision by various federal and state authorities. United Income, Inc. is an investment adviser registered with the SEC and primarily regulated under the Investment Advisers Act of 1940. Capital One Securities, Inc. and KippsDeSanto & Company are registered broker-dealers regulated by the SEC and the Financial Industry Regulatory Authority. These 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

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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

Title VII of the Dodd-Frank Act establishes a regulatory framework for the governance of the over-the-counter (“OTC”) derivatives market, including swaps and security-based swaps and the registration of certain market participants as a swap dealer. CONA provisionally registered with the Commodity Futures Trading Commission (the “CFTC”) as a swap dealer in the third quarter of 2020. Registration as a swap dealer subjects CONA to additional regulatory requirements with respect to its swaps and other derivatives activities. As a result of CONA’s swap dealer registration, it is subject to the rules of the OCC concerning capital and margin requirements for swap dealers, including the mandatory exchange of variation margin and initial margin with certain counterparties. Additionally, as a provisionally registered swap dealer, CONA is subject to requirements under the CFTC’s regulatory regime, including rules regarding business conduct standards, recordkeeping obligations, regulatory reporting and procedures relating to swaps trading. CONA’s swaps and other derivatives activities do not require it to register with the SEC as a security-based swap dealer.

Transactions with Affiliates

There are various legal restrictions on the extent to which we and our non-bank subsidiaries may borrow or otherwise engage in certain types of transactions with the Banks. Under the Federal Reserve Act and Federal Reserve regulations, the Banks and their subsidiaries are subject to quantitative and qualitative limits on extensions of credit, purchases of assets, and certain other transactions involving its non-bank affiliates. In addition, transactions between the Banks and their non-bank affiliates are required to be on arm’s length terms and must be consistent with standards of safety and soundness.

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 a compliance program designed to ensure adherence with the requirements of the regulations.

Capital and Liquidity Regulation

The Company and the Banks are subject to capital adequacy guidelines adopted by the Federal Reserve and OCC respectively. For a further discussion of the capital adequacy guidelines, see “MD&A—Capital Management,” “MD&A—Liquidity Risk Profile” and “Note 11—Regulatory and Capital Adequacy.”

Basel III and United States Capital Rules

The Company and the Banks are subject to the regulatory capital requirements established by the Federal Reserve and the OCC respectively (the “Basel III Capital Rules”). The Basel III Capital Rules implement certain capital and liquidity requirements published by the Basel Committee on Banking Supervision (“Basel Committee”), along with certain Dodd-Frank Act and other capital provisions. Under the Basel III Capital Rules, we must maintain a minimum common equity Tier 1 (“CET1”) capital ratio of 4.5%, a Tier 1 capital ratio of 6.0%, and a total capital ratio of 8.0%, in each case in relation to risk-weighted assets. In addition, we must maintain a minimum leverage ratio of 4% and a minimum supplementary leverage ratio of 3%. We are also subject to the capital conservation buffer and countercyclical capital buffer requirements, as described below.

In July 2019, the Federal Banking Agencies finalized certain changes to the Basel III Capital Rules for institutions not subject to the Basel III Advanced Approaches (“Capital Simplification Rule”). These changes, effective January 1, 2020, generally raised the threshold above which a covered institution such as the Company must deduct certain assets from its CET1 capital, including certain deferred tax assets, mortgage servicing assets, and investments in unconsolidated financial institutions.

In October 2019, the Federal Banking Agencies amended the Basel III Capital Rules to provide for tailored application of certain capital requirements across different categories of banking institutions (“Tailoring Rules”). These categories are determined primarily by an institution’s asset size, with adjustments to a more stringent category possible if the institution exceeds certain risk-based thresholds. As a BHC with total consolidated assets of at least $250 billion that does not exceed any

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of the applicable risk-based thresholds, we are a Category III institution under the Tailoring Rules. Therefore, effective January 1, 2020, we were no longer subject to the Basel III “Advanced Approaches” framework and certain associated capital requirements, such as the requirement to include certain elements of accumulated other comprehensive income (“AOCI”) in our regulatory capital. We remain subject to the countercyclical capital buffer requirement (which is currently set at 0%) and supplementary leverage ratio requirement, which were previously required only for Basel III Advanced Approaches institutions. Effective as of the first quarter of 2020, we excluded certain elements of AOCI from our regulatory capital as permitted by the Tailoring Rules. The Tailoring Rules and Capital Simplification Rule have, taken together, decreased our capital requirements.

Global systemically important banks (“G-SIBs”) that are based in the U.S. are subject to an additional CET1 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.

Stress Capital Buffer Rule

The Basel III Capital Rules also require banking institutions to maintain a capital conservation buffer, composed of CET1 capital, above the regulatory minimum ratios. The capital conservation buffer for BHCs was previously fixed at 2.5%. In March 2020, the Federal Reserve issued a final rule to implement the stress capital buffer requirement (“Stress Capital Buffer Rule”). The stress capital buffer requirement is institution-specific and replaces the fixed 2.5% capital conservation buffer for BHCs.

Pursuant to the Stress Capital Buffer Rule, the Federal Reserve will use the results of its supervisory stress test to determine the size of a BHC’s stress capital buffer requirement. In particular, a BHC’s stress capital buffer requirement will equal, subject to a floor of 2.5%, the sum of (i) the difference between the BHC’s starting CET1 capital ratio and its lowest projected CET1 capital ratio under the severely adverse scenario of the Federal Reserve’s supervisory stress test plus (ii) the ratio of the BHC’s projected four quarters of common stock dividends (for the fourth to seventh quarters of the planning horizon) to the projected risk-weighted assets for the quarter in which the BHC’s projected CET1 capital ratio reaches its minimum under the supervisory stress test.

Under the Stress Capital Buffer Rule framework, the Company’s new “standardized approach capital conservation buffer” includes its stress capital buffer requirement (which will be recalibrated every year based on the Company’s supervisory stress test results), any G-SIB surcharge (which is not applicable to us) and the countercyclical capital buffer requirement (which is currently set at 0%). Any 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.

The Stress Capital Buffer Rule does not apply to the Banks. The capital conservation buffer for the Banks continues to be fixed at 2.5%.

If we fail to maintain our capital ratios above the minimum capital requirements plus the applicable buffer requirements, we will face increasingly strict automatic limitations on capital distributions and discretionary bonus payments to certain executive officers.

Under the Basel III Capital Rules, if a banking institution’s capital ratios fall within its buffer requirements, the maximum amount of capital distributions and discretionary bonus payments it can make is a function of its eligible retained income. In March 2020, the Federal Banking Agencies revised the definition of “eligible retained income” in their respective capital rules. Under the revised definition of “eligible retained income,” any such automatic limitations on capital distributions would apply in a less severe and more gradual manner than would otherwise have occurred under the previous definition of that term. This change was made in response to the COVID-19 pandemic to support banking organizations that choose to use their capital and liquidity buffers to lend and undertake other actions that support economic activity in a safe and sound manner.

CECL Transition Rule

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

Pursuant to the 2020 CECL Transition Rule, a banking institution may elect to delay the estimated impact of adopting CECL on its regulatory capital through December 31, 2021 and then phase in the estimated cumulative impact from January 1, 2022 through December 31, 2024. For the “day 2” ongoing impact of CECL during the initial two years, the Federal Banking Agencies use a uniform “scaling factor” of 25% as an approximation of the increase in the allowance under the CECL standard

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compared to the prior incurred loss methodology. Accordingly, from January 1, 2020 through December 31, 2021, electing banking institutions are permitted to add back to their regulatory capital an amount equal to the sum of the after-tax “day 1” CECL adoption impact and 25% of the increase in the allowance since the adoption of the CECL standard. Beginning January 1, 2022 through December 31, 2024, the after-tax “day 1” CECL adoption impact and the cumulative “day 2” ongoing impact will be phased in to regulatory capital at 25% per year. The following table summarizes the capital impact delay and phase in period on our regulatory capital from years 2020 to 2025.

Capital Impact Delayed

Phase In Period

2020

2021

2022

2023

2024

2025

“Day 1” CECL adoption impact

Capital impact delayed to 2022

25% Phased In

50% Phased In

75% Phased In

Fully Phased In

Cumulative “day 2” ongoing impact

25% scaling factor as an approximation of the increase in allowance under CECL

We adopted the CECL standard (for accounting purposes) as of January 1, 2020, and made the 2020 CECL Transition Election (for regulatory capital purposes) in the first quarter of 2020.

Temporary Exclusions for Supplementary Leverage Ratio

In addition, in April 2020, as part of the response to the COVID-19 pandemic, the Federal Reserve issued an interim final rule that temporarily excludes U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the supplementary leverage ratio for BHCs. These exclusions became effective on April 1, 2020, and will remain in effect through March 31, 2021.

Subsequently, in May 2020, the Federal Banking Agencies issued an interim final rule that provides an option for depository institutions to make similar exclusions to the calculation of the supplementary leverage ratio. If a depository institution elects to make such exclusions, it must request prior approval from its primary federal banking regulator before making capital distributions, such as paying dividends to its parent company, for as long as the exclusions are in effect. Neither CONA nor COBNA elected to make such exclusions.

Market Risk Rule

The “Market Risk Rule” supplements the Basel III Capital Rules 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 $1 billion or more. The Company and CONA are subject to the Market Risk Rule. See “MD&A—Market Risk Profile” below for additional information.

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 relate to 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 Rules 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 CET1 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 CET1 capital ratio of 4.5% or more; a leverage ratio of 4% or more; and, for Category III and certain other institutions under the Tailoring Rules, a supplementary leverage ratio of 3% or more. 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.

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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 adopted by the Federal Banking Agencies 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.

Basel III and United States Liquidity Rules

The Basel Committee has published a liquidity framework that includes two standards for liquidity risk supervision. One standard, the liquidity coverage ratio (“LCR”), seeks to promote short-term resilience by requiring organizations to hold sufficient high-quality liquid assets (“HQLAs”) 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 the organization’s assets and activities.

The Company and the Banks are subject to the LCR standard as implemented by the Federal Reserve and OCC (the “LCR Rule”). The LCR Rule requires the Company and each of the Banks to hold an amount of eligible HQLA that equals or exceeds 100% of its respective projected adjusted net cash outflows over a 30-day period, each as calculated in accordance with the LCR Rule. The LCR Rule requires us to calculate our LCR daily. In addition, the Company is required to make quarterly public disclosures of its LCR and certain related quantitative liquidity metrics, along with a qualitative discussion of its LCR.

Under the Tailoring Rules, as a Category III institution with less than $75 billion in weighted average short-term wholesale funding, the Company’s and the Banks’ total net cash outflows are multiplied by an outflow adjustment percentage of 85%. Although the Banks may hold more HQLA than they need to meet their LCR requirements, the LCR Rule restricts the amount of such excess HQLA held at the Banks (referred to as “Trapped Liquidity”) that can be included in the Company’s HQLA amount. Because we typically manage the Banks’ LCRs to levels well above 100%, the amount of Trapped Liquidity will also increase as the Banks’ total net cash outflows are reduced by the outflow adjustment percentage of 85%. 

In October 2020, the Federal Banking Agencies finalized a rule to implement the NSFR in the United States (the “NSFR Rule”). The NSFR Rule requires the Company and each of the Banks to maintain an amount of available stable funding, which is a weighted measure of a company’s funding sources over a one-year time horizon, calculated by applying standardized weightings to equity and liabilities based on their expected stability, that is no less than the amount of required stable funding, which is calculated by applying standardized weightings to assets, derivatives exposures and certain other items based on their liquidity characteristics. As a Category III institution, the Company and the Banks are subject to an NSFR requirement equal to 85% of the full NSFR requirement. The NSFR Rule will become effective as of July 1, 2021 and will apply to the Company and each of the Banks. The NSFR Rule includes a semi-annual disclosure requirement, with the first public disclosure required after June 30, 2023.

Enhanced Prudential Standards and Other Related Requirements

We are subject to certain enhanced prudential standards under the Dodd-Frank Act, as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) and implemented by various regulations issued by the Federal Banking Agencies. The Financial Stability Oversight Council (“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.

As part of the enhanced prudential standards, the Company is required to implement resolution planning for orderly resolution in the event it faces material financial distress or failure. The FDIC issued similar rules regarding resolution planning applicable to the Banks. In addition, the OCC has issued 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 enhanced prudential standards also include supervisory and company-run stress testing requirements (also known as the “DFAST stress testing requirements”). In particular, the Federal Reserve is required to conduct annual stress tests on certain covered companies, including us, to ensure that the covered companies have sufficient capital to absorb losses and continue operations during adverse economic conditions. Under the stress capital buffer framework, the result of our supervisory stress test will be used to determine our stress capital buffer requirement. As a covered company that is a Category III institution under the Tailoring Rules, we are also required to conduct our own stress tests and publish the results of such tests on our website or other public forum. The Company must disclose the results of its company-run stress test on a biennial basis. The

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OCC has adopted a similar stress test rule requiring banks with at least $250 billion in assets, including CONA, to conduct their own company-run stress tests. Under that OCC rule, CONA must also disclose the results of its stress test on a biennial basis.

In addition, the Company is required to 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 prudential standards. These requirements are in addition to the LCR and NSFR Rules, discussed above in “Basel III and United States Liquidity Rules.” The enhanced prudential standards also require 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.” Finally, the Company is also required to 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 to the governance and risk management practices of 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.

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” requirements), a “covered BHC,” such as the Company, 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 first quarter of the calendar year the capital plan is submitted (“CCAR cycle”).

The DFAST stress testing requirements, described above in “Enhanced Prudential Standards and Other Related Requirements,” is a complementary exercise to CCAR. It is a forward-looking exercise conducted by the Federal Reserve and each covered company to help assess whether a company has sufficient capital to absorb losses and continue operations during adverse economic conditions.

Pursuant to the CCAR requirements, the Company must file its capital plan and stress testing results with the Federal Reserve by April 5 of each year (unless the Federal Reserve designates a later date), using data as of the end of the prior calendar year. The Federal Reserve will conduct its supervisory stress test in the second quarter and determine the Company’s stress capital buffer by June 30 of that year. The Company will have two business days from receipt of its stress capital buffer to make any necessary adjustments to its planned capital distributions. The Federal Reserve will then finalize the stress capital buffer requirement for the Company based on its adjusted planned capital distributions and confirm the Company’s planned capital distributions by August 31 of that year. The Company’s final stress capital buffer requirement will be effective from the fourth quarter of the year the capital plan is submitted through the third quarter of the following year. The Company may make the planned capital distributions confirmed by the Federal Reserve. In addition, under the Stress Capital Buffer Rule, the Company is no longer required to seek prior approval of the Federal Reserve to make capital distributions in excess of those included in its capital plan so long as the Company is otherwise in compliance with the capital rule’s automatic limitations on capital distributions.

In December 2018, the Federal Reserve announced that it would maintain its pre-CECL framework for calculating allowances on loans in the supervisory stress test for the 2020 and 2021 cycles until the impact of CECL is better known and understood. The Federal Reserve stated further that, although BHCs required to perform company-run stress tests will be required to incorporate CECL into those stress tests starting in the 2020 cycle, it will not issue supervisory findings on those BHCs’ allowance estimations in the CCAR exercise through 2021.

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 capital stock, make payments on our 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 the Company 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

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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.

In June 2020, in light of the COVID-19 pandemic, the Federal Reserve required all CCAR participating BHCs, including us, to update and resubmit their capital plans in the fourth quarter of 2020. In addition, the Federal Reserve required all participating BHCs, including us, to preserve capital by suspending share repurchases and capping common stock dividend payments for the third and fourth quarters of 2020 to the lower of (i) the amount paid in the second quarter of 2020 and (ii) an amount equal to the average net income earned across the four preceding calendar quarters. Scheduled payments on additional Tier 1 and Tier 2 capital instruments, such as preferred stock and subordinated debt, were not similarly restricted.

We conducted a second round of stress tests and submitted our updated capital plan to the Federal Reserve on November 2, 2020. On December 18, 2020, the Federal Reserve released the results of its second round of supervisory stress tests. The Federal Reserve did not recalculate our stress capital buffer requirement at that time, but reserved its ability to do so until March 31, 2021. Finally, the Federal Reserve extended the capital distribution restrictions for all participating BHCs through at least the first quarter of 2021, with certain modifications. In particular, for the first quarter of 2021, participating BHCs may resume share repurchases, but the aggregate amount of common stock dividend payments and share repurchases shall not exceed an amount equal to the average net income earned across the four preceding calendar quarters. In addition, common stock dividend payments for the first quarter of 2021 continue to be capped at the amount paid in the second quarter of 2020.

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 under the BHC Act 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. A rebuttable presumption of control arises under the CIBC Act for a publicly traded BHC such as ourselves 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.

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.

As of June 30, 2020, the DIF reserve ratio fell to 1.30 percent. The FDIC, as required under the Federal Deposit Insurance Act, established a plan in September 2020, to restore the DIF reserve ratio to meet or exceed 1.35 percent within eight years. The FDIC’s restoration plan projects the reserve ratio to exceed 1.35 percent without increasing the deposit insurance assessment rate, subject to ongoing monitoring over the next eight years.

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.

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 anticipated to be incurred, by the FDIC in connection with the default of, or FDIC assistance to, any commonly

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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 non-bank financial companies and BHCs if the Treasury Secretary, in consultation with the President and based on the recommendation of the Federal Reserve and other appropriate Federal Banking Agencies, 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 the 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.

COVID-19 Activities

In response to disruptions in economic conditions caused by the COVID-19 pandemic, federal and state governments and agencies and government‑sponsored enterprises have taken a variety of actions to support people and entities affected by the pandemic, including the passage of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in March 2020. The CARES Act, among other provisions, authorized a number of lending programs to support the flow of credit to consumers and businesses. For example, the CARES Act established several programs with the Small Business Administration, including the PPP, to provide loans to small businesses.

The Federal Reserve had also taken extraordinary efforts in response to the pandemic, including, among other actions, the establishment of a Main Street Lending Program that is intended to support lending to eligible small and midsize businesses. The Federal Banking Agencies had also encouraged banking organizations to take certain additional actions to support the financial services needs of their customers in a prudent and safe and sound manner, including through loan modifications. Further, banking organizations had been provided with certain accounting, supervisory and regulatory relief during this period, including relief that is intended to allow banking organizations to enter into loan modifications without certain accounting and regulatory capital consequences. For example, the CARES Act gave banking organizations an option to temporarily suspend the determination of certain qualified loans modified as a result of the COVID-19 pandemic as being troubled debt restructurings (“TDRs”). See “MD&A—Credit Risk Profile—COVID-19 Customer Assistance Programs and Loan Modifications” for additional information. The CARES Act also amended the Fair Credit Reporting Act to impose new, temporary reporting requirements on furnishers of information to consumer reporting agencies related to accounts of consumers in payment accommodation programs in light of the COVID-19 pandemic.

The Consolidated Appropriations Act, 2021, which was enacted in December 2020, extends certain relief provided by the CARES Act while also modifying or clarifying certain other provisions. Among other amendments to the CARES Act, the Consolidated Appropriations Act, 2021, extends the relief related to TDRs until January 1, 2022 and the PPP until March 31, 2021. In addition, the Consolidated Appropriations Act, 2021, rescinds certain funds that were appropriated to the U.S. Treasury to provide loans, loan guarantees, and make other investments in programs or facilities established by the Federal Reserve, and prohibits the Federal Reserve from making any new investments, loans or loan guarantees, or extensions of credit through those rescinded funds after December 31, 2020. Congress could determine to reauthorize these programs in future legislative packages. Federal Reserve programs and facilities that were not established using CARES Act funding are not affected by the Consolidated Appropriations Act, 2021.

For a discussion of the risks associated with the impact of the COVID-19 pandemic and related public health measures, see “Part I—Item 1A. Risk Factors” under the heading “The COVID-19 pandemic has adversely impacted our business, operations and financial results, and the extent to which the pandemic and measures taken in response to the pandemic could materially and adversely impact our business, operations, financial condition, liquidity, capital and results of operations will depend on future developments, which are highly uncertain and are difficult to predict.”

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 (“U.K.”) and Canada.

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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 2017 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.

Previously, the FCA set a deadline of August 29, 2019 (“the Deadline”) for the submission of complaints to firms (including COEP) that had previously sold Payment Protection Insurance (“PPI”) to its customers. In order to ensure complainants are treated fairly, the FCA closely supervises all large lenders (including COEP). COEP has now finished handling almost all complaints it received prior to the Deadline and is in the process of finalizing all remaining complaints, through continued discussions with third parties. Escalations to the Financial Ombudsman Service (“FOS”) are permitted to take place until the first quarter of 2021.

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.

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 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 and the final regulations related thereto in order to determine its applicability and impact to our business.

In August 2018, the Government of Canada announced new voluntary commitments from Visa Canada and MasterCard Canada, which took effect when the original commitments ended 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.

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HUMAN CAPITAL RESOURCES

Our culture is rooted in putting people first with a focus on building and maintaining a workforce which fosters an inclusive environment based on diversity of our people, ideas and the merit of our work. Our workforce is our largest and one of our most valuable assets. We prioritize the recruitment, development, recognition, and retention of the 51,985 employees worldwide that we had as of December 31, 2020, whom we refer to as “associates.” The following disclosures provide information on our human capital resources, including certain human capital objectives and measures that we focus on in managing our business.

Governance of Human Capital

Our full Board of Directors oversees our human capital management, including strategies, policies and practices, and diversity, inclusion and belonging (“DIB”), and is assisted by our Board’s Compensation Committee and Governance and Nominating Committee. Our Executive Committee, a committee of senior management which includes our Chief Human Resources Officer, advises, assists and makes recommendations to our Chief Executive Officer and Board of Directors on human capital matters such as human resource practices and programs, including general employee benefits and compensation programs. Our Chief Diversity, Inclusion and Belonging Officer (“Chief DIB Officer”) provides an annual update on the progress, success and challenges on workforce representation, trends and programs to the Board of Directors and Executive Committee.

Hiring, Retention and Development

We employ a comprehensive people strategy that includes significant investments in recruiting, sourcing, and associate development to attract and retain top talent from all backgrounds to help drive our business’ long-term success. We recruit through a variety of channels, including professional partnerships, job fairs, online platforms, on-campus recruiting, diversity-related recruiting events and initiatives, and internship and rotational programs, among others. We empower our associates to learn new skills, meet personalized development goals, and grow their careers. Investment in associate training and professional development is critical to maintaining our talent competitiveness. Our internal enterprise learning and development team blends multiple approaches to learning to support associate development across lines of business, levels, and roles, including online and live classroom training. In addition to formal programming provided by learning professionals, including regulatory compliance, role-specific topics and others, our peer-to-peer learning strategy empowers associates to be both learners and teachers, further enhancing a culture of learning. We also focus on cultivating talent with leadership development courses, cohort-based programs, network building, and coaching.

On a quarterly basis, we review our ability to attract and retain talent needed to deliver on our strategic business objectives. Each line of business and staff group reviews hiring, tenure and attrition metrics as part of this assessment, and they implement mitigation plans when needed.

Diversity, Inclusion and Belonging

We continuously strive to empower our associates to do great work by creating an inclusive workplace and a culture of belonging that values diverse perspectives, fosters collaboration and encourages innovative ideas. We aim to create a place where associates of all backgrounds can thrive by bringing their best, most authentic selves to work. Our diversity and inclusion efforts are overseen by our Chief DIB Officer. This culture of belonging rests at the heart of our DIB efforts. Central to this effort are our business resource groups, associate-led organizations which deepen our understanding of different cultures, people and experiences, and enable associates to build connections, invest in their professional development, and support our commitment to attract, develop and retain a diverse workforce. In addition, our Chief Executive Officer and the Executive Committee engage with leaders of our business resource groups to identify opportunities to further our DIB agenda, enact positive change and build on existing initiatives designed to nurture our culture and workplace environment.

Growing the diversity of our workforce at all levels, with an emphasis on leader and executive roles, is an important component of our comprehensive DIB strategy. As of December 31, 2020, key measures of our workforce representation include:

•Of the 11 members of our Board of Directors, 4 are women and 3 are people of color;

•In the U.S., of the associates who are vice president level and above, approximately 32% are women and 21% are people of color;

•In the U.S., approximately 50% of associates are people of color; and

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•Worldwide, approximately 52% of associates are women, 47% of associates are men, and 1% of associates are undisclosed/other.

Our corporate website contains additional information regarding programs and other information integral to our philosophy of diversity, inclusion and belonging. We believe in the importance of transparency and will also provide on our website the 2020 Consolidated EEO-1 Report upon submission to the U.S. Equal Employment Opportunity Commission.

Compensation and Wellness

We are committed to providing a competitive total compensation package that will attract, retain and motivate talent to help drive our business’ long-term success. Our benefits, including competitive parental leave, on-site health centers, flexible work solutions, company contributions to associates’ 401(k) plans, educational assistance and other health, wellness, and financial benefits, are all designed to help associates grow and develop inside and outside of the workplace and empower them in their lives. Furthermore, pay equity has long been a core tenet of our pay philosophy and is central to our values. We annually evaluate base pay and incentive pay for all of our associates globally. This review and evaluation may occur more frequently as deemed necessary and prudent. We review groups of associates in similar roles, adjusting for factors that appropriately explain differences in pay such as job location and experience. Based on our analysis, our aggregated adjusted pay gap results show that we pay women 100% of what men are paid, and we pay racial and ethnic minorities in the U.S. 100% of what non-minorities are paid. We use statistical modeling to understand what drives pay gaps, instill new practices to eliminate them in the future, and if we find unexplained pay gaps, we close them.

In 2020, a significant majority of our associates across our workforce have transitioned to working remotely as we prioritize the safety of our associates during the COVID-19 pandemic. For more information on our response to the pandemic, please refer to Part I—Item 1.—Business—Overview—Coronavirus Disease 2019 (COVID-19) Pandemic.

Communication and Connection

We communicate with our associates regularly to understand their perspectives and to hear their voices. Our senior leaders and Chief Executive Officer also communicate directly on societal events impacting our associates. To assess and improve associate retention and engagement, the Company surveys associates on a periodic basis with the assistance of third-party consultants, and takes actions to address areas of associate concern. We encourage full participation and use the results to effect change and promote transparency.

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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 LLC (“TSYS”) for consumer and commercial credit card processing services for our North American and U.K. portfolios, Fidelity Information Services (“FIS”) for certain of our banking systems and International Business Machines Corporation for mainframe managed services.

We are committed to safeguarding our customers’ and our own information and technology, implementing 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 our products and services. For a discussion of the risks associated with our use of technology systems, see “Part I—Item 1A. Risk Factors” under the headings “We face risks related to our operational, technological and organizational infrastructure” and “Increased costs, reductions in revenue, reputational damage and business disruptions can result from 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, see “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.”

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FORWARD-LOOKING STATEMENTS

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

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

Forward-looking statements often use words such as “will,” “anticipate,” “target,” “expect,” “estimate,” “intend,” “plan,” “goal,” “believe,” “forecast,” “outlook” or other words of similar meaning. Any forward-looking statements made by us or on our behalf speak only as of the date they are made or as of the date indicated, and we do not undertake any obligation to update forward-looking statements as a result of new information, future events or otherwise. For additional information on factors that could materially influence forward-looking statements included in this Report, see the risk factors set forth under “Part I—Item 1A. Risk Factors” 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.

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

•the impact of the COVID-19 pandemic and related public health measures on our business, financial condition and results of operations, including the increased estimation and forecast uncertainty as a result of the pandemic on our estimates of lifetime expected credit losses in our loan portfolios required in computing our allowance for credit losses;

•general economic and business conditions in our local markets, including conditions affecting employment levels, interest rates, tariffs, collateral values, consumer income, creditworthiness and confidence, spending and savings that may affect consumer bankruptcies, defaults, charge-offs and deposit activity;

•an increase or decrease in credit losses, or increased delinquencies, 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 new and existing laws, regulations and regulatory expectations including the implementation of a regulatory reform agenda;

•our ability to manage adequate capital or liquidity levels, which could have a negative impact on our financial results and our ability to return capital to our stockholders;

•the extensive use, reliability, disruption, and accuracy of the models and data we rely on;

•increased costs, reductions in revenue, reputational damage, legal liability and business disruptions that can result from data protection or privacy incidents or the theft, loss or misuse of information, including as a result of a cyber-attack;

•developments, changes or actions relating to any litigation, governmental investigation or regulatory enforcement action or matter involving us;

•the amount and rate of deposit growth and changes in deposit costs;

•our ability to execute on our strategic and operational plans;

•our response to competitive pressures;

•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 legislation and regulation impacting such fees;

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

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

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

•our risk management strategies;

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

•increases or decreases in interest rates and uncertainty with respect to the interest rate environment, including the possibility of a prolonged low-interest rate environment or of negative interest rates;

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

•our ability to attract, retain and motivate skilled employees;

•our assumptions or estimates in our financial statements;

•limitations on our ability to receive dividends from our subsidiaries;

•the soundness of other financial institutions and other third parties; and

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

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

Item 1A. Risk Factors

This section highlights significant factors, events, and uncertainties that make an investment in our securities risky. The events and consequences discussed in these risk factors could, in circumstances we may not be able to accurately predict, recognize, or control, have a material adverse effect on our business, growth, reputation, prospects, financial condition, operating results, cash flows, liquidity, and stock price. These risk factors do not identify all risks that we face; our operations could also be affected by factors, events, or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations. In addition, the global economic and political climate may amplify many of these risks.

Summary of Risk Factors

Below is a summary of the principal factors that make an investment in our securities risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below and should be carefully considered, together with other information in this Form 10-K and our other filings with the SEC, before making an investment decision regarding our common stock.

•The COVID-19 pandemic has adversely impacted our business and financial results, and the extent to which the pandemic and measures taken in response to the pandemic could materially and adversely impact our business, financial condition, liquidity, capital and results of operations will depend on future developments, which are highly uncertain and are difficult to predict.

•Changes and instability in the macroeconomic environment, consumer confidence and customer behavior may adversely affect our business.

•Financial market instability and volatility could adversely affect our business.

•We may experience increased delinquencies, credit losses, inaccurate estimates and inadequate reserves.

•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.

•We face risks related to our operational, technological and organizational infrastructure.

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•Theft, loss or misuse of information as a result of a cyber-attack may result in increased costs, reductions in revenue, reputational damage and business disruptions.

•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.

•Compliance with new and existing laws, regulations and regulatory expectations is costly and complex.

•Our businesses are subject to the risk of increased litigation, government investigations and regulatory enforcement.

•We face intense competition in all of our markets.

•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 legislation and regulation impacting such fees.

•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.

•We may fail to realize all of the anticipated benefits of our mergers, acquisitions and strategic partnerships.

•Reputational risk and social factors may impact our results and damage our brand.

•If we are not able to protect our intellectual property, our revenue and profitability could be negatively affected.

•Our risk management strategies may not be fully effective in mitigating our risk exposures in all market environments or against all types of risk.

•Fluctuations in market interest rates or volatility in the capital markets could adversely affect our income and expense, the value of assets and obligations, our regulatory capital, cost of capital or liquidity.

•Uncertainty regarding, and transition away from, LIBOR may adversely affect our business.

•Our business could be negatively affected if we are unable to attract, retain and motivate skilled employees.

•We face risks from unpredictable catastrophic events.

•We face risks from the use of or changes to assumptions or estimates in our financial statements.

•Limitations on our ability to receive dividends from our subsidiaries could affect our liquidity and ability to pay dividends and repurchase common stock.

•The soundness of other financial institutions and other third parties could adversely affect us.

General Economic and Market Risks

The COVID-19 pandemic has adversely impacted our business and financial results, and the extent to which the pandemic and measures taken in response to the pandemic could materially and adversely impact our business, financial condition, liquidity, capital and results of operations will depend on future developments, which are highly uncertain and are difficult to predict.

Global health concerns relating to the COVID-19 pandemic and related government actions taken to reduce the spread of the virus have impacted the macroeconomic environment, significantly increased economic uncertainty and reduced economic activity. The pandemic has also caused governmental authorities to implement numerous measures to try to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. These measures have negatively impacted and may further negatively impact consumer and business payment and spending patterns.

The COVID-19 pandemic has adversely impacted, and may continue to adversely impact, our business, operations, financial condition, capital and results of operations. The extent of these impacts depends on future developments, which are highly uncertain and difficult to predict, including, but not limited to, the duration and magnitude of the pandemic, the actions taken to contain the virus or treat its impact, the effectiveness of economic stimulus measures in the United States, and how quickly and

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to what extent economic and operating conditions and consumer and business spending can return to their pre-pandemic levels. As of December 31, 2020, several vaccines have been authorized for limited distribution. The plan for larger community-based distribution is being developed and may begin during the second quarter of 2021. However, the timing and extent of any such widespread distribution of vaccines remains uncertain. As a result of this uncertainty, our purchase volume, loan growth and the overall demand for our products and services may be significantly impacted, which could adversely affect our revenue and other results of operations. In addition, we could experience higher credit losses in our loan portfolios and increases in our allowance for credit losses beyond current levels. For example, as a result of the significant uncertainty due to the COVID-19 pandemic, we realized a substantial build in our allowance for credit losses for the first two quarters of 2020. We could also experience impairments of other financial assets and other negative impacts on our financial position, including possible constraints on liquidity and capital, as well as higher costs of capital. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business and results of operations, which could be material, as a result of the macroeconomic impact and any recession that has occurred or may occur in the future.

The spread of COVID-19 has caused us to modify our business practices and operations, including providing a range of forbearance options to our customers in certain circumstances, which could impact our credit metrics, financial condition, capital and results of operations. We may need to further modify our practices and operations as this event unfolds. We have also implemented work-from-home policies for a vast majority of our employees, and social distancing plans for our employees who are working from Capital One facilities. Nearly all of our Cafés and bank branches across our network are open with increased safety precautions. We will continue to monitor local conditions to ensure the safety of our associates and customers while providing critical banking services. These measures could impair our ability to perform critical functions and may adversely impact our results of operations. In addition, these measures and other changes in consumer behavior as a result of the COVID-19 pandemic may require changes to retail distribution strategies and adversely impact our investments in our bank premises and equipment and other retail distribution assets, leading to increased costs and exposure to additional risks. We may take further actions as required by government authorities or that we otherwise determine are in the best interests of our customers, employees and business partners.

Federal, state, local and foreign governmental authorities have enacted, and may enact in the future, legislation, regulations and protocols in response to the COVID-19 pandemic, including governmental programs intended to provide economic relief to businesses and individuals. We have participated in certain of these programs, including participating as an eligible lender in the Small Business Administration’s Paycheck Protection Program. Our participation in and execution of any such programs may cause operational, compliance, reputational and credit risks, which could result in litigation, governmental action or other forms of loss. The extent of these impacts, which may be substantial, will depend on the degree of our participation in these programs. There remains significant uncertainty regarding the measures that authorities will enact in the future and the ultimate impact of the legislation, regulations and protocols that have been and will be enacted. Moreover, we expect that the effects of the COVID-19 pandemic will heighten many of the other known risks described herein. See Part I—Item 1.—Business—Overview—Coronavirus Disease 2019 (COVID-19) Pandemic.

Changes and instability in the macroeconomic environment, consumer confidence and customer behavior may adversely affect our business.

We offer a broad array of financial products and services to consumers, small businesses and commercial clients. A prolonged period of economic volatility, slow growth, or a significant deterioration in economic conditions, in the U.S., Canada or the U.K., could have a material adverse effect on our financial condition and results of operations as customers default on their loans, 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 face in connection with adverse changes and instability in the macroeconomic environment, including changes in consumer confidence levels and behavior, include the following:

•Changes in payment patterns, increases in delinquencies and default rates, decreased consumer spending, lower demand for credit and shifts in consumer payment behavior towards avoiding late fees, finance charges and other fees;

•Increases in our charge-off rate caused by bankruptcies and reduced ability to recover debt that we have previously charged-off;

•Decreased reliability of the process and models we use to estimate our allowance for loan and lease losses, particularly if unexpected variations in key inputs and assumptions cause actual losses to diverge from the projections of our models

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and our estimates become increasingly subject to management’s judgment. See “We face risks resulting from the extensive use of models and data.”

The U.K. and the European Union agreed to a free trade deal at the end of 2020 relating to the U.K.’s exit from the European Union (“Brexit”). While this deal provides greater near-term stability, the on-going impact of Brexit and its full effects on the U.K. economy and our business related thereto remain uncertain. We continue to consider and monitor the potential impacts, and other factors, including the COVID-19 pandemic, that could also impact U.K. economic performance.

Financial market instability and volatility could adversely affect our business.

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. In addition, fluctuations in interest rates, credit spreads and other market factors 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.

In response to the economic consequences of the COVID-19 pandemic, the Federal Reserve lowered its target for the federal funds rate to a range of 0% to 0.25%. Such low rates increase the risk in the U.S. of a negative interest rate environment in which interest rates drop below zero, either broadly or for some types of instruments. For example, yields on one-month and three-month Treasuries briefly dropped below zero in March 2020. Such an occurrence would likely further reduce the interest we earn on loans and other interest-earning assets, while also likely requiring us to pay to maintain our deposits with the Federal Reserve. Our systems may not be able to handle adequately a negative interest rate environment and not all variable rate instruments are designed for such a circumstance. We cannot predict the nature or timing of future changes in monetary policies in response to the COVID-19 pandemic or the precise effects that they may have on our activities and financial results.

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 adversely affected 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 revenue and income of the borrower. We may fail to quickly identify and reduce our exposure to customers that are likely to default on their payment obligations, whether by closing credit lines or restricting authorizations. Our ability to manage credit risk also is 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, and depends on the effectiveness of our collections staff, 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 credit 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. Historically, 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), causing a long-term rise in delinquencies and charge-offs.

•Incorrect Estimates of Expected 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 expected credit losses 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 expected losses and fail to hold an allowance for credit losses sufficient to account for these losses. Incorrect assumptions could lead to material underestimations of expected credit losses and an inadequate allowance for credit losses.

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•Inaccurate 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. 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. Additionally, a change in this business mix over time to include proportionally more consumer loans or subprime credit card accounts or auto loans could adversely affect the credit quality of our portfolio.

•Increasing Charge-off Recognition/Allowance for Credit Losses: We account for the allowance for credit 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. Effective as of January 1, 2020, we adopted the CECL standard which is based on expected lifetime losses rather than incurred losses. Adoption of the CECL standard has resulted and may continue to result in an increase to our reserves for credit losses on financial instruments with a resulting adverse impact on our financial condition. The continued impact of CECL on our future results will depend on the characteristics of our financial instruments, economic conditions, and our economic and loss forecasts. The application of the CECL standard requires us to increase reserves faster and to a higher level in an economic downturn, resulting in greater impact to our results and our capital ratios than we would have experienced in similar circumstances prior to the adoption of CECL. In addition, because credit cards represent a significant portion of our product mix, we could be disproportionately affected by use of the CECL standard, as compared to our large bank peers with a different product mix. See “MD&A—Accounting Changes and Developments” for additional information.

•Insufficient Asset Values: The collateral we have on secured loans could be insufficient to compensate us for credit 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 other 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. 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 that circumstance, the recovery of such property could be insufficient to compensate us for the value of these loans upon a default. In our auto business, business and economic conditions that negatively affect household incomes, housing prices and consumer behavior, as well as technological advances that make older cars obsolete faster, 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, 2020, healthcare and healthcare-related real estate loans represented approximately 19% 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.

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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 extensive and complex capital and liquidity requirements. These requirements affect our ability to lend, grow deposit balances, make acquisitions and make most capital distributions. Failure to maintain adequate capital or liquidity levels, whether due to adverse developments in our business or the economy or to changes in the applicable requirements, could subject us to a variety of remedies available to our regulators. These include limitations on the ability to pay dividends, repurchase shares and the issuance of a capital directive to increase capital. Such limitations could have a material adverse effect on our business and results of operations.

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 internal 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.

In addition, the current capital and liquidity requirements are subject to change. The Federal Banking Agencies finalized the Tailoring Rule in the fourth quarter of 2019. Under the Tailoring Rule, we are a Category III institution, and are no longer subject to the Basel III Advanced Approaches and associated capital requirements, but we continue to be subject to the countercyclical capital buffer and supplementary leverage ratio. In March 2020, the Federal Reserve issued a final rule to implement the stress capital buffer requirement. This final rule became effective in May 2020. Pursuant to the Stress Capital Buffer Rule, the Federal Reserve will use the results of its supervisory stress test to determine the size of a large banking institution’s stress capital buffer requirement, which replaces the previous 2.5% capital conservation buffer under the Basel III Standardized Approach. Our stress capital buffer requirement is 5.6% for the period from October 1, 2020 through September 30, 2021, at which point a revised stress capital buffer requirement will be applicable to us based on our 2021 stress testing results. In addition, on June 25, 2020 the Federal Reserve introduced measures to ensure that large BHCs maintained a high level of capital resilience. Specifically, the Federal Reserve required certain large BHCs, including us, to suspend share repurchases and cap common dividends during the third and fourth quarters of 2020. Consistent with the Federal Reserve’s capital distribution restrictions, we reduced our quarterly dividend on our common stock from $0.40 per share to $0.10 per share for the third quarter of 2020, which we maintained into the fourth quarter of 2020. The Federal Banking Agencies also finalized rules to implement the NSFR in October 2020. The NSFR is designed to ensure that banking organizations maintain a stable, long-term funding profile in relation to their asset composition and off-balance sheet activities and its requirements will become effective as of July 1, 2021. On December 18, 2020, the Federal Reserve extended the capital distribution restrictions for all participating BHCs to the first quarter of 2021, with certain modifications. In particular, for the first quarter of 2021, participating BHCs may resume share repurchases however the aggregate amount of dividend payments and share repurchases will be limited to an amount based on net income earned in the preceding four calendar quarters. See “Part I—Item 1. Business—Supervision and Regulation” for additional information. Further changes to applicable capital and liquidity requirements could result in unexpected or new limitations on our ability to pay dividends and engage in share repurchases.

Operational Risk

We face risks related to our operational, technological and organizational infrastructure.

Our ability to retain and attract customers depends on our ability to develop, operate, and adapt our technology and organizational infrastructure in a rapidly changing environment. In addition, we must accurately process, record and monitor an increasingly 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 in execution, inadequate processes, inaccurate models, faulty or disabled technological infrastructure, and fraud by employees or

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persons outside of our company. 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. We also face risk of adverse customer impacts and business disruption arising from the execution of strategic initiatives we may pursue across our operations.

If we do not maintain the necessary operational, technological and organizational infrastructure to operate our business, including to maintain the security of that infrastructure, our business and reputation could be materially adversely affected. We also are subject to disruptions to our operating systems arising from events that are wholly or partially beyond our control, which may include 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”) and other attacks on our infrastructure as discussed below), natural disasters, other damage to property or physical assets, or events arising from local or larger scale politics, including terrorist acts. Any failure to maintain our infrastructure or disruption of our operating systems and applications 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 or do not meet their service level agreements for any reason, we may experience unplanned service disruption or unforeseen costs which could result in material harm to our business and results of operations. We must successfully develop and maintain information, financial reporting, disclosure, 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 AWS 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, or the prevention or occurrence of data security incidents. If we are unable to successfully manage our expenses, our financial results will be negatively affected. Changes to our business, including as a result of our strategic objectives, also requires robust governance to ensure that our objectives are executed as intended without adversely impacting our customers, associates, operations or financial performance. Ineffective change management oversight and governance over the execution of our strategic objectives could expose us to operational, strategic and reputational risk and could negatively impact customers or our financial performance.

Theft, loss or misuse of information as a result of a cyber-attack may result in increased costs, reductions in revenue, reputational damage and business disruptions.

Our products and services involve the gathering, authenticating, managing, processing, and the storing 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 software and data engineering, and information security personnel, digital technologies, computer and email systems, software, networks and other web-based technologies. 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.

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Technologies, systems, networks and devices of Capital One or our employees, service providers or other third parties with whom we interact may 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, such as the Cybersecurity Incident, may derive from 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, or to unlawfully obtain monetary benefit through misdirected or otherwise improper payment. Further, cyber and information security risks for large financial institutions like us continue to increase due to the proliferation of new technologies, the use of the internet 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. For example, although we immediately fixed the configuration vulnerability that was exploited in the Cybersecurity Incident once we discovered the unauthorized access, a period of time elapsed between the occurrence of the unauthorized access and the time when we discovered it. In other circumstances, 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 seek to maintain 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 will likely 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 such as the Cybersecurity Incident, or media reports of perceived security vulnerabilities at Capital One or at our third-party service providers, could result in significant legal and financial exposure, regulatory intervention, litigation and 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. We are continuing to assess the impact of the Cybersecurity Incident and there can be no assurance that additional unauthorized access or cyber incidents will not occur or that we will not suffer material losses in the future. Unauthorized access or cybersecurity 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 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. In order to address ongoing and future risks, including from the Cybersecurity Incident, we must expend significant resources to support protective security measures, investigate and remediate any vulnerabilities of our information systems and infrastructure and invest in new technology designed to mitigate security risks. The Cybersecurity Incident, or 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. We have insurance against some cyber-risks and attacks, including insurance that is expected to cover certain costs associated with the Cybersecurity Incident; nonetheless, our insurance coverage may not be sufficient to offset the impact of a material loss event, and such insurance may increase in cost or cease to be available on commercial terms in the future.

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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.

A breach, failure or other disruption of our information systems or infrastructure or data management processes, or those of our customers, partners, service providers or other market participants, could lead, depending on the nature of the incident, to the unauthorized or unintended 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. 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.

We are continuing to assess the impact of the Cybersecurity Incident. The Cybersecurity Incident, other data security incidents we may experience in the future, 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 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, in Canada we are subject to the Personal Information Protection and Electronic Documents Act (“PIPEDA”). In addition, the General Data Protection Regulation (“GDPR”) applies EU data protection law to all companies processing data of EU residents, regardless of the company’s location. More recently, on January 1, 2020, the CCPA went into effect for companies doing business in California. These laws impose strict requirements regarding the collection, storage, handling, use, disclosure, transfer and security of personal data, which may have adverse consequences, including severe monetary penalties. Our efforts to comply with PIPEDA, GDPR, CCPA 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.

We face risks resulting from the extensive use of models and data.

We rely on quantitative models, and our ability to manage data and aggregate data in an accurate and timely manner, assess and manage our various risk exposures, estimate certain financial values and manage compliance with required regulatory capital requirements. 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 deposit levels or loan losses, assessing capital adequacy and calculating economic and regulatory capital levels, estimating the value of financial instruments and balance sheet items, and other operational functions. 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, formulas or algorithms, could result in inaccurate forecasts, ineffective risk management practices or inaccurate risk reporting. In addition, 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, aggregation and implementation 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

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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 and Regulatory Risk

Compliance with new and existing laws, regulations and regulatory expectations is costly and complex.

We are subject to extensive 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 risk management and prudential standards issued by our regulators. 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/or damage to our reputation with regulators, our customers or the public. Hiring, training and retaining qualified compliance and legal personnel, and establishing and maintaining compliance-related systems, infrastructure and processes, is difficult and these efforts could limit our ability to invest in other business opportunities. 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. Over the last several years, state and federal regulators have focused on compliance with the Bank Secrecy Act and anti-money laundering (“AML”) laws, data integrity and security, use of service providers, fair lending and other consumer protection issues. For example, in July 2015, Capital One entered into a consent order with the OCC to address concerns about our AML program and in October 2018, Capital One paid a civil monetary penalty assessed by the OCC relating to our AML program. The OCC lifted the AML consent order in November 2019. In addition, in August 2020 we entered into consent orders with the Federal Reserve and the OCC resulting from regulatory reviews of the Cybersecurity Incident and relating to ongoing enhancements of our cybersecurity and operational risk management processes, and we paid a civil monetary penalty as part of the OCC agreement. In January 2021, we also paid a civil monetary penalty assessed by the Financial Crimes Enforcement Network (“FinCEN”) against CONA in connection with our AML program. Failure to maintain compliance with laws and regulations could result in significant 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 card and auto loans, which typically have higher delinquencies and charge-offs than prime customers. As a result, 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. These activities are subject to enhanced legal and regulatory scrutiny 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, artificial intelligence and machine learning technologies, can present unforeseen challenges in applying and relying on existing compliance systems.

Certain laws and regulations, and any interpretations and applications with respect thereto, are generally intended to protect consumers, borrowers, depositors, the DIF, the U.S. banking and financial system, and financial markets as a whole, 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, see “Part I—Item 1. Business—Supervision and Regulation.”

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.

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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. The Cybersecurity Incident has resulted in litigation, government investigations and other regulatory enforcement inquiries.

In addition, financial institutions, such as ourselves, face significant regulatory scrutiny, which can lead to public enforcement actions or non-public supervisory actions. We and our subsidiaries are subject to comprehensive regulation and periodic examination by, among other regulatory bodies, 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, 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, or our ability to make acquisitions or otherwise expand our business, 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. Furthermore, 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 18—Commitments, Contingencies, Guarantees and Others.”

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 services providers, all of which may affect our customers’ expectations and demands. In addition to offering competitive products and services, we invest in and conduct marketing campaigns to attract and inform customers.

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, do not effectively market our products and services or are 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 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. Competition for loans could result in origination of fewer loans, earning less on our loans or an increase in loans that perform below expectations.

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As of December 31, 2020, we operate as one of the largest online direct banks in the United States by deposits. While direct banking provides 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. As of December 31, 2020, we have a number of large partnerships in our credit card loan portfolio. 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 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 adversely affect card usage and our ability to achieve the growth and profitability objectives of our partnerships. 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 legislation and regulation 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, legislative and regulatory focus, and the resulting decisions, legislation and regulation may have a material adverse impact on our overall business, financial condition and results of operations.

Legislative and regulatory 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 EU, 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-

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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 issued its final approval of the settlement in December 2019. See “Note 18—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 their efforts may be successful or they may 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 legislative and regulatory 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 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 meet their expectations. 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, in a cost effective and timely manner. See “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 specialized personnel. The competition is intense, and the compensation costs continue to increase for such talent. 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.

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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. 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 acquisition targets, including credit card and other loan portfolios. We may not 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 achieve 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 alter our exposure 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, acquire or partner with suitable targets. 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 or our own 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.

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Reputational risk and social factors may impact our results and damage our brand.

Our ability to attract and retain customers is highly dependent upon the perceptions of consumer and commercial borrowers and deposit holders and other external perceptions of our products, services, trustworthiness, business practices, workplace culture, compliance practices or our financial health. In addition, our brand is very important to us. Maintaining and enhancing our brand depends 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, including negative perceptions regarding our ability to maintain the security of our technology systems and protect customer data, 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, such as resulting from the Cybersecurity Incident), 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 account holders 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 to do so, 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 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 market, credit, liquidity, operational and compliance risk 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. Even though we continue to devote significant resources to developing our risk management framework, 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.

Some of our methods of managing these risks 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 rapid changes in tariff rates and international trade relations.

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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.

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 movements 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 the 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 interest-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 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 interest-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.

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.

Uncertainty regarding, and transition away from, LIBOR may adversely affect our business.

The U.K. FCA, which regulates LIBOR, has announced that it will no longer compel banks to contribute data for the calculation of LIBOR after December 31, 2021. It is likely that banks will no longer continue to contribute submissions for the calculation of LIBOR after that date, which creates significant uncertainty around the publication of LIBOR beyond 2021 and whether LIBOR will continue to be viewed as a reliable market benchmark. In November 2020, the ICE Benchmark Administration (IBA), the administrator of LIBOR, announced that it will consult on its intention to cease publication of the 1-week and 2-month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining USD LIBOR tenors (Overnight, 1, 3, 6, and 12 Months) immediately following the LIBOR publication on June 30, 2023. The consultation closed on January 25, 2021 and we will continue to engage with industry experts to better understand the proposed IBA's extension announcement and its impact on the markets and our transition plans. It remains unclear what rate or rates may develop as accepted alternatives to LIBOR, or what the effect of such changes will be on the markets for LIBOR-based financial instruments. The Secured Overnight Financing Rate (“SOFR”) has been recommended by the Alternative

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Reference Rates Committee as an alternative for USD LIBOR, but issues and uncertainty remain with respect to its implementation.

Given LIBOR’s extensive use across financial markets, the transition away from LIBOR presents several risks and challenges to the financial markets and financial institutions, including Capital One. We have loans, derivative contracts, unsecured debt, securitizations, vendor agreements and other instruments with attributes that are either directly or indirectly dependent on LIBOR. Uncertainty as to the nature of potential changes, alternative reference rates such as SOFR, 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. If SOFR or another rate does not achieve wide acceptance as the alternative to LIBOR, there likely will be disruption to the markets relying on the availability of a broadly accepted reference rate. In addition, uncertainty regarding LIBOR could result in loss of market share in certain products, adverse tax or accounting impacts, compliance, legal or operational costs and risks associated with client disclosures, as well as systems disruption, model disruption and other business continuity issues for us.

Even if SOFR or another reference rate becomes a widely acceptable replacement for LIBOR, risks will remain for us with respect to outstanding instruments which rely on LIBOR. Those risks arise in connection with transitioning such instruments to a new reference rate, the taking of discretionary actions or the negotiation of fallback provisions and final amendments to existing LIBOR based agreements. Payments under contracts referencing new reference rates may significantly differ from those referencing LIBOR. For some instruments, the method of transitioning to a new reference rate may be challenging, especially if parties to an instrument cannot agree as to how to effect that transition. If a contract is not transitioned to a new reference rate and LIBOR ceases to exist, the impact on our obligations is likely to vary by contract. In addition, prior to LIBOR cessation, instruments that continue to refer to LIBOR may be impacted if there is a change in the availability or calculation of LIBOR. The transition from LIBOR to an alternative reference rate may change our market risk profile and require changes to risk and pricing models, valuation tools, product design, information technology systems, reporting infrastructure, operational processes and controls, and hedging strategies. In many cases, we may be dependent on third parties to upgrade systems, software and other critical functions that could materially disrupt our readiness if they are not done on a timely basis or otherwise fail. Our assessment of the ultimate impact of, and our planning for, the transition from LIBOR remains ongoing. Failure to adequately manage the transition could have a material adverse effect on our reputation, business, financial condition and results of operations. 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 advanced expertise in credit, risk, digital and technology skills. We depend on our senior leaders and skilled employees to oversee simultaneous, transformative initiatives across the enterprise and execute on our business plans in an efficient and effective manner. Competition for such senior leaders and employees, and the costs associated with attracting and retaining them, is high. Our ability to attract and retain qualified employees also is affected by perceptions of our culture and management, our profile in the regions where we have offices and the professional opportunities we offer. 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, develop and retain talented senior leadership and employees, or to implement appropriate succession plans for our senior leadership, our business could be negatively affected.

We face risks from unpredictable catastrophic events.

Despite the business contingency plans we have in place, such plans do not fully mitigate all potential business continuity risks to us. Natural disasters and other catastrophic events could harm our business and infrastructure, including our information technology systems and third-party platforms. 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 damage or loss of access to a physical site, cyber incidents, terrorist activities, the occurrence or worsening of disease

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outbreaks or pandemics (including the COVID-19 pandemic), natural disasters, extreme weather events, electrical outage, environmental hazard, technological infrastructure, communications or other services we use, our employees or third parties with whom we conduct business. Our business, financial condition and results of operations may be impacted by any such disruption and our ability to implement corresponding response measures, including, for example, our ability to adapt to a remote work environment as a result of the ongoing COVID-19 pandemic and related response measures. 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 credit 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. 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.”

Limitations on our ability to receive dividends from our subsidiaries could affect our liquidity and ability to pay dividends and repurchase common stock.

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. See “Part I—Item 1.Business—Supervision and Regulation” for additional information regarding dividend limitations applicable to us and the Banks.

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 financial institutions, intermediaries and counterparties that are exposed to risks over which we have little or no control.

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 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.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate and banking real estate portfolio consists of approximately 13.5 million square feet of owned or leased office and retail space, which is used to support our business. Of this overall portfolio, approximately 11.3 million square feet of space is dedicated for various corporate office uses and approximately 2.2 million square feet of space is for bank branches and Cafés.

Our 11.3 million square feet of corporate office space consists of approximately 5.0 million square feet of leased space and 6.3 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, Texas, Illinois, New York and Delaware.

Our 2.3 million square feet of bank branches and Cafés is located primarily across New York, Louisiana, Texas, Maryland, Virginia, New Jersey and California and consists of approximately 1.4 million square feet of leased space and 0.9 million square feet of owned space. See “Note 7—Premises, Equipment and Leases” for information about our premises.

Item 3. Legal Proceedings

The information required by Item 103 of Regulation S-K is included in “Note 18—Commitments, Contingencies, Guarantees and Others.”

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

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, 2021, there were 9,763 holders of record of our common stock.

Securities Authorized for Issuance Under Equity Compensation Plans

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.”

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Common Stock Performance Graph

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, 2015 and ended December 31, 2020. 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.

						December 31,
						2015						2016						2017						2018						2019						2020
Capital One						$	100.00					$	120.86					$	137.96					$	104.72					$	142.57					$	136.95
S&P 500 Index						100.00						109.54						130.81						122.65						158.07						183.77
S&P Financial Index						100.00						120.14						144.20						123.06						158.95						152.43

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Recent Sales of Unregistered Securities

We did not have any sales of unregistered equity securities in 2020.

Issuer Purchases of Equity Securities

We suspended our 2019 Stock Repurchase Program in March 2020 and the program subsequently expired at the end of the second quarter of 2020. During the fourth quarter of 2020, we withheld shares of common stock to cover taxes on restricted stock units (“RSUs”) whose restrictions lapsed. Commission costs are excluded from the amounts presented below.

						Total Number of Shares Withheld						Average Price per Share
October						—						—
November						39,344						$	73.08
December						53						92.68
Total						39,397						73.11

Item 6. Selected Financial Data

The following table presents selected consolidated financial data and performance metrics for the five-year period ended December 31, 2020. We also provide selected key metrics we use in evaluating our performance, including certain metrics that are computed using non-GAAP measures. We consider these metrics to be key financial measures that management uses in assessing our operating performance, capital adequacy and the level of returns generated. We believe these non-GAAP metrics provide useful insight to investors and users of our financial information as they provide an alternate measurement of our performance and assist in assessing our capital adequacy and the level of return generated.

Five-Year Summary of Selected Financial Data

												Year Ended December 31,																														Change
(Dollars in millions, except per share data and as noted)																								2020						2019						2018						2017						2016						2020 vs. 2019						2019 vs. 2018
Income statement
Interest income																								$	26,033					$	28,513					$	27,176					$	25,222					$	22,891					(9)		%				5		%
Interest expense																								3,120						5,173						4,301						2,762						2,018						(40)						20
Net interest income																								22,913						23,340						22,875						22,460						20,873						(2)						2
Non-interest income																								5,610						5,253						5,201						4,777						4,628						7						1
Total net revenue																								28,523						28,593						28,076						27,237						25,501						—						2
Provision for credit losses																								10,264						6,236						5,856						7,551						6,459						65						6
Non-interest expense:
Marketing																								1,610						2,274						2,174						1,670						1,811						(29)						5
Operating expense																								13,446						13,209						12,728						12,524						11,747						2						4
Total non-interest expense																								15,056						15,483						14,902						14,194						13,558						(3)						4
Income from continuing operations before income taxes																								3,203						6,874						7,318						5,492						5,484						(53)						(6)
Income tax provision																								486						1,341						1,293						3,375						1,714						(64)						4
Income from continuing operations, net of tax																								2,717						5,533						6,025						2,117						3,770						(51)						(8)
Income (loss) from discontinued operations, net of tax																								(3)						13						(10)						(135)						(19)						**						**
Net income																								2,714						5,546						6,015						1,982						3,751						(51)						(8)
Dividends and undistributed earnings allocated to participating securities																								(20)						(41)						(40)						(13)						(24)						(51)						3
Preferred stock dividends																								(280)						(282)						(265)						(265)						(214)						(1)						6
Issuance cost for redeemed preferred stock																								(39)						(31)						—						—						—						26						**
Net income available to common stockholders																								$	2,375					$	5,192					$	5,710					$	1,704					$	3,513					(54)						(9)

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												Year Ended December 31,																														Change
(Dollars in millions, except per share data and as noted)																								2020						2019						2018						2017						2016						2020 vs. 2019						2019 vs. 2018
Common share statistics
Basic earnings per common share:
Net income from continuing operations																								$	5.20					$	11.07					$	11.92					$	3.80					$	7.00					(53)		%				(7)		%
Income (loss) from discontinued operations																								(0.01)						0.03						(0.02)						(0.28)						(0.04)						**						**
Net income per basic common share																								$	5.19					$	11.10					$	11.90					$	3.52					$	6.96					(53)						(7)
Diluted earnings per common share:
Net income from continuing operations																								$	5.19					$	11.02					$	11.84					$	3.76					$	6.93					(53)		%				(7)		%
Income (loss) from discontinued operations																								(0.01)						0.03						(0.02)						(0.27)						(0.04)						**						**
Net income per diluted common share																								$	5.18					$	11.05					$	11.82					$	3.49					$	6.89					(53)						(7)
Common shares outstanding (period-end, in millions)																								459.0						456.6						467.7						485.5						480.2						1						(2)
Dividends declared and paid per common share																								$	1.00					$	1.60					$	1.60					$	1.60					$	1.60					(38)						—
Book value per common share (period-end)																								131.16						127.05						110.47						100.37						98.95						3						15
Tangible book value per common share (period-end)(1)																								88.34						83.72						69.20						60.28						57.76						6						21
Common dividend payout ratio(2)																								19.27		%				14.41		%				13.45		%				45.45		%				22.99		%				5						1
Stock price per common share (period end)																								$	98.85					$	102.91					$	75.59					$	99.58					$	87.24					(4)						36
Total market capitalization (period-end)																								45,372						46,989						35,353						48,346						41,893						(3)						33
Balance sheet (average balances)
Loans held for investment																								$	253,335					$	247,450					$	242,118					$	245,565					$	233,272					2		%				2		%
Interest-earning assets																								378,362						341,510						332,738						322,330						307,796						11						3
Total assets																								411,187						374,924						363,036						354,924						339,974						10						3
Interest-bearing deposits																								263,279						231,609						221,760						213,949						198,304						14						4
Total deposits																								290,835						255,065						247,117						239,882						223,714						14						3
Borrowings																								46,588						50,965						53,144						53,659						56,878						(9)						(4)
Common equity																								52,954						50,960						45,831						45,170						45,162						4						11
Total stockholders’ equity																								58,201						55,690						50,192						49,530						48,753						5						11
Selected performance metrics
Purchase volume																								$	414,312					$	424,765					$	387,102					$	336,440					$	307,138					(2)		%				10		%
Total net revenue margin(3)																								7.54		%				8.37		%				8.44		%				8.45		%				8.29		%				(83)		bps				(7)		bps
Net interest margin																								6.06						6.83						6.87						6.97						6.78						(77)						(4)
Return on average assets(4)																								0.66						1.48						1.66						0.60						1.11						(82)						(18)
Return on average tangible assets(5)																								0.69						1.54						1.73						0.62						1.16						(85)						(19)
Return on average common equity(6)																								4.49						10.16						12.48						4.07						7.82						(6)		%				(232)
Return on average tangible common equity(7)																								6.24						14.37						18.56						6.16						11.93						(8)						(419)
Equity-to-assets ratio(8)																								14.15						14.85						13.83						13.96						14.34						(70)		bps				102
Non-interest expense as a percentage of average loans held for investment																								5.94						6.26						6.15						5.78						5.81						(32)						11
Efficiency ratio(9)																								52.79						54.15						53.08						52.11						53.17						(136)						107
Operating efficiency ratio(10)																								47.14						46.20						45.33						45.98						46.06						94						87
Effective income tax rate from continuing operations																								15.2						19.5						17.7						61.5						31.3						(4)		%				180
Net charge-offs																								$	5,225					$	6,252					$	6,112					$	6,562					$	5,062					(16)						2		%
Net charge-off rate																								2.06		%				2.53		%				2.52		%				2.67		%				2.17		%				(47)		bps				1		bps

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						December 31,																														Change
(Dollars in millions, except as noted)						2020						2019						2018						2017						2016						2020 vs. 2019						2019 vs. 2018
Balance sheet (period-end)
Loans held for investment						$	251,624					$	265,809					$	245,899					$	254,473					$	245,586					(5)		%				8		%
Interest-earning assets						388,917						355,202						341,293						334,124						321,807						9						4
Total assets						421,602						390,365						372,538						365,693						357,033						8						5
Interest-bearing deposits						274,300						239,209						226,281						217,298						211,266						15						6
Total deposits						305,442						262,697						249,764						243,702						236,768						16						5
Borrowings						40,539						55,697						58,905						60,281						60,460						(27)						(5)
Common equity						55,356						53,157						47,307						44,370						43,154						4						12
Total stockholders’ equity						60,204						58,011						51,668						48,730						47,514						4						12
Credit quality metrics
Allowance for credit losses						$	15,564					$	7,208					$	7,220					$	7,502					$	6,503					116		%				—
Allowance as a percentage of loans held for investment (“allowance coverage ratio”)						6.19		%				2.71		%				2.94		%				2.95		%				2.65		%				348		bps				(23)		bps
30+ day performing delinquency rate						2.41						3.51						3.62						3.23						2.93						(110)						(11)
30+ day delinquency rate						2.61						3.74						3.84						3.48						3.27						(113)						(10)
Capital ratios
Common equity Tier 1 capital(11)						13.7		%				12.2		%				11.2		%				10.3		%				10.1		%				150		bps				100		bps
Tier 1 capital(11)						15.3						13.7						12.7						11.8						11.6						160						100
Total capital(11)						17.7						16.1						15.1						14.4						14.3						160						100
Tier 1 leverage(11)						11.2						11.7						10.7						9.9						9.9						(50)						100
Tangible common equity(12)						10.0						10.2						9.1						8.3						8.1						(20)						110
Supplementary leverage(11)						10.7						9.9						9.0						8.4						8.6						80						90
Other
Employees (period end, in thousands)						52.0						51.9						47.6						49.3						47.3						—						9		%

__________

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

(4)Return on average assets is calculated based on income from continuing operations, net of tax, for the period divided by average total assets for the period.

(5)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.

(6)Return on average common equity is calculated based on net income available to common stockholders less income (loss) from discontinued operations, net of tax, for the period, divided by average common equity. Our calculation of return on average common equity may not be comparable to similarly-titled measures reported by other companies.

(7)Return on average tangible common equity (“TCE”) is a non-GAAP measure calculated based on net income available to common stockholders less income (loss) from discontinued operations, net of tax, for the period, divided by average tangible common equity. 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.

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

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

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

(11)Capital ratios are calculated based on the Basel III Standardized Approach framework, see “MD&A—Capital Management” for additional information.

(12)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.

**    Not meaningful

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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 2020 Annual Report on Form 10-K (“this Report”). All statements that address operating performance, events or developments that we expect or anticipate will occur in the future, including those relating to operating results and the Cybersecurity Incident described in “Part I—Item 1.—Business—Overview—Cybersecurity Incident” and “Note 18—Commitments, Contingencies, Guarantees and Others” as well as the potential impacts of the COVID-19 pandemic described in “Part I—Item 1.—Business—Overview—Coronavirus Disease 2019 (COVID-19) Pandemic” are forward-looking statements. Our actual results may differ materially from those included in these forward-looking statements due to a variety of factors including, but not limited to, those described in “Part 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, 2020 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, 2020 and accompanying notes. MD&A is organized in the following sections:

•   Executive Summary and Business Outlook						•   Capital Management
•   Consolidated Results of Operations						•   Risk Management
•   Consolidated Balance Sheets Analysis						•   Credit Risk Profile
•   Off-Balance Sheet Arrangements						•   Liquidity Risk Profile
•   Business Segment Financial Performance						•   Market Risk Profile
•   Critical Accounting Policies and Estimates						•   Supplemental Tables
•   Accounting Changes and Developments						•   Glossary and Acronyms

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EXECUTIVE SUMMARY AND BUSINESS OUTLOOK

Financial Highlights

We reported net income of $2.7 billion ($5.18 per diluted common share) on total net revenue of $28.5 billion for 2020. In comparison, we reported net income of $5.5 billion ($11.05 per diluted common share) on total net revenue of $28.6 billion for 2019, and net income of $6.0 billion ($11.82 per diluted common share) on total net revenue of $28.1 billion for 2018.

Our common equity Tier 1 capital ratio as calculated under the Basel III Standardized Approach was 13.7% and 12.2% as of December 31, 2020 and 2019, respectively. See “MD&A—Capital Management” for additional information.

On June 27, 2019, we announced that our Board of Directors authorized the repurchase of up to $2.2 billion of shares of our common stock (“2019 Stock Repurchase Program”) beginning in the third quarter of 2019 through the end of the second quarter of 2020. During the first quarter of 2020, we repurchased approximately $312 million of shares of our common stock under the 2019 Stock Repurchase Program before suspending further repurchases on March 13, 2020 in response to the COVID-19 pandemic through the program's expiration at the end of the second quarter of 2020. On January 25, 2021, our Board of Directors authorized the repurchase of up to $7.5 billion of shares of our common stock. See “MD&A—Capital Management—Dividend Policy and Stock Purchases” for additional information.

Below are additional highlights of our performance in 2020. These highlights are based on a comparison between the results of 2020 and 2019, 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, 2020 compared to December 31, 2019. We provide a more detailed discussion of our financial performance in the sections following this “Executive Summary and Business Outlook.”

Discussions of our performance in 2018 and comparisons between 2019 and 2018 can be found in “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Total Company Performance

•Earnings: Our net income decreased by $2.8 billion to $2.7 billion in 2020 compared to 2019 primarily driven by:

◦higher provision for credit losses driven by allowance builds in the first and second quarters of 2020 due to expectations of economic worsening as a result of the COVID-19 pandemic;

◦lower net interest income due to lower yields on average earning assets and lower outstanding balances in Domestic Card, as well as higher interest-bearing deposit balances, partially offset by the lower interest rate paid on interest-bearing liabilities; and

◦higher operating expenses driven by an increase in salaries and associate benefits due to continued investment in technology and legal reserve builds.

These drivers were partially offset by:

◦lower marketing expense driven by our decision to decrease marketing spend due to the economic environment created by the COVID-19 pandemic

◦higher non-interest income due to an unrealized valuation gain of $535 million on our equity investment in Snowflake Inc.

•Loans Held for Investment:

◦Period-end loans held for investment decreased by $14.2 billion to $251.6 billion as of December 31, 2020 from December 31, 2019 primarily due to a decline in purchase volume and higher payment rates in Domestic Card driven by the customer response to the COVID-19 pandemic and our decision to decrease marketing spend due to the economic environment, partially offset by growth in our auto and commercial loan portfolios.

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◦Average loans held for investment increased by $5.9 billion to $253.3 billion in 2020 compared to 2019 primarily driven by growth in our auto and commercial loan portfolios and the Walmart portfolio acquired during the fourth quarter of 2019, partially offset by a decline in purchase volume and higher payments in Domestic Card.

•Net Charge-Off and Delinquency Metrics: Our net charge-off rate decreased by 47 basis points to 2.06% in 2020 compared to 2019, primarily driven by strong credit performance in Domestic Card due to consumer payment behavior and the related impacts from government stimulus and the impact of short-term payment extensions offered to affected auto borrowers in response to the COVID-19 pandemic.

Our 30+ day delinquency rate decreased by 113 basis points to 2.61% as of December 31, 2020 from December 31, 2019 driven by strong credit performance in Domestic Card due to consumer payment behavior and the related impact from government stimulus, and short-term payment extensions offered to affected auto borrowers in response to the COVID-19 pandemic.

•Allowance for Credit Losses: Our allowance for credit losses increased by $8.4 billion to $15.6 billion, and our allowance coverage ratio increased by 348 basis points to 6.19% as of December 31, 2020 from December 31, 2019, driven by the allowance builds in the first and second quarters of 2020 from expectations of economic worsening as a result of the COVID-19 pandemic as well as the adoption of the CECL standard in the first quarter of 2020.

Business Outlook

We discuss in this Report our expectations as of the time this Report was filed regarding our total company performance and the performance of our business segments based on market conditions, the regulatory environment and our business strategies. The statements contained in this Report 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;

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

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

•the potential impact on our business, operations and reputation from, and expenses and uncertainties associated with, the Cybersecurity Incident, other than the incremental costs related to the incident we expect to incur in 2021 which will be separately reported as an adjusting item as it relates to the Company’s financial results.

The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations, and financial condition will depend on future developments that are still uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic.

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

Business Segment Expectations

We expect that the Auto 30+ day delinquency rate and net charge-off rate will increase as used car auction prices decrease from elevated levels and the temporary favorable impact of our COVID-19 customer assistance program diminishes.

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CONSOLIDATED RESULTS OF OPERATIONS

The section below provides a comparative discussion of our consolidated financial performance for 2020 and 2019. We provide a discussion of our business segment results in the following section, “MD&A—Business Segment Financial Performance.” This section should be read 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 interest income, including certain fees, earned on our interest-earning assets and the interest expense incurred on our interest-bearing liabilities. Our interest-earning assets include loans, investment securities and other interest-earning assets, while our interest-bearing liabilities include interest-bearing deposits, securitized debt obligations, senior and subordinated notes, other borrowings and other interest-bearing liabilities. Generally, we include in interest income any past due fees on loans that we deem collectible. Our net interest margin, based on our consolidated results, represents the difference between the yield on our interest-earning assets and the cost of our interest-bearing liabilities, including the notional impact of non-interest-bearing funding. We expect net interest income and our net interest margin to fluctuate based on changes in interest rates and changes in the amount and composition of our interest-earning assets and interest-bearing liabilities.

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Table 1 below presents the average outstanding balance, interest income earned, interest expense incurred and average yield for 2020, 2019 and 2018 for each major category of our interest-earning assets and interest-bearing liabilities. Nonperforming loans are included in the average loan balances below.

Table 1: Average Balances, Net Interest Income and Net Interest Margin

						Year Ended December 31,
						2020																		2019																		2018
(Dollars in millions)						Average Balance						Interest Income/ Expense						Average Yield/ Rate						Average Balance						Interest Income/ Expense						Average Yield/ Rate						Average Balance						Interest Income/ Expense						Average Yield/ Rate
Assets:
Interest-earning assets:
Loans:(1)
Credit card						$	110,634					$	15,575					14.08		%				$	114,256					$	17,688					15.48		%				$	109,820					$	16,948					15.43		%
Consumer banking						66,299						5,551						8.37						60,708						5,082						8.37						65,146						4,904						7.53
Commercial banking(2)						77,968						2,438						3.13						73,572						3,306						4.49						68,221						3,033						4.45
Other(3)						—						510						**						16						(214)						**						184						(157)						**
Total loans, including loans held for sale						254,901						24,074						9.44						248,552						25,862						10.41						243,371						24,728						10.16
Investment securities						87,222						1,877						2.15						81,467						2,411						2.96						79,224						2,211						2.79
Cash equivalents and other interest-earning assets						36,239						82						0.23						11,491						240						2.08						10,143						237						2.33
Total interest-earning assets						378,362						26,033						6.88						341,510						28,513						8.35						332,738						27,176						8.17
Cash and due from banks						4,839																		4,300																		3,877
Allowance for credit losses						(14,382)																		(7,176)																		(7,404)
Premises and equipment, net						4,334																		4,289																		4,163
Other assets						38,034																		32,001																		29,662
Total assets						$	411,187																	$	374,924																	$	363,036
Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Interest-bearing deposits						$	263,279					$	2,165					0.82		%				$	231,609					$	3,420					1.48		%				$	221,760					$	2,598					1.17		%
Securitized debt obligations						15,533						232						1.49						18,020						523						2.90						19,014						496						2.61
Senior and subordinated notes						29,621						679						2.29						30,821						1,159						3.76						31,295						1,125						3.60
Other borrowings and liabilities						2,882						44						1.55						3,369						71						2.12						4,028						82						2.04
Total interest-bearing liabilities						311,315						3,120						1.00						283,819						5,173						1.82						276,097						4,301						1.56
Non-interest-bearing deposits						27,556																		23,456																		25,357
Other liabilities						14,115																		11,959																		11,390
Total liabilities						352,986																		319,234																		312,844
Stockholders’ equity						58,201																		55,690																		50,192
Total liabilities and stockholders’ equity						$	411,187																	$	374,924																	$	363,036
Net interest income/spread												$	22,913					5.88												$	23,340					6.53												$	22,875					6.61
Impact of non-interest-bearing funding																		0.18																		0.30																		0.26
Net interest margin																		6.06		%																6.83		%																6.87		%

__________

(1)Past due fees included in interest income totaled approximately $1.3 billion for 2020 and $1.7 billion for 2019 and 2018.

(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 all periods presented) 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 loans totaled approximately $81 million for 2020 and $82 million for 2019 and 2018, with corresponding reductions to the Other category.

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

**    Not meaningful.

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Net interest income decreased by $427 million to $22.9 billion in 2020 compared to 2019 primarily driven by lower yields on average earning assets and lower outstanding balances in Domestic Card, as well as higher interest-bearing deposit balances, partially offset by the lower interest rate paid on interest-bearing liabilities.

Net interest margin decreased by 77 basis points to 6.06% in 2020 compared to 2019 primarily driven by a shift in our asset mix with cash balances representing a greater proportion of total average interest-earning assets, and lower interest rates received on interest-earning assets, partially offset by the lower interest rate paid on interest-bearing deposits.

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)

						2020 vs. 2019																		2019 vs. 2018
(Dollars in millions)						Total Variance						Volume						Rate						Total Variance						Volume						Rate
Interest income:
Loans:
Credit card						$	(2,113)					$	(547)					$	(1,566)					$	740					$	687					$	53
Consumer banking						469						468						1						178						(334)						512
Commercial banking(2)						(868)						137						(1,005)						273						240						33
Other(3)						724						—						724						(57)						50						(107)
Total loans, including loans held for sale						(1,788)						58						(1,846)						1,134						643						491
Investment securities						(534)						124						(658)						200						64						136
Cash equivalents and other interest-earning assets						(158)						56						(214)						3						28						(25)
Total interest income						(2,480)						238						(2,718)						1,337						735						602
Interest expense:
Interest-bearing deposits						(1,255)						259						(1,514)						822						120						702
Securitized debt obligations						(291)						(63)						(228)						27						(26)						53
Senior and subordinated notes						(480)						(43)						(437)						34						(17)						51
Other borrowings and liabilities						(27)						(9)						(18)						(11)						(14)						3
Total interest expense						(2,053)						144						(2,197)						872						63						809
Net interest income						$	(427)					$	94					$	(521)					$	465					$	672					$	(207)

__________

(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 all periods presented) and state taxes where applicable, with offsetting reductions to the Other category.

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

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Non-Interest Income

Table 3 displays the components of non-interest income for 2020, 2019 and 2018.

Table 3: Non-Interest Income

												Year Ended December 31,
(Dollars in millions)																		2020						2019						2018
Interchange fees, net																		$	3,017					$	3,179					$	2,823
Service charges and other customer-related fees																		1,243						1,330						1,585
Net securities gains (losses)																		25						26						(209)
Other non-interest income:(1)
Mortgage banking revenue																		249						165						661
Treasury and other investment income																		701						193						49
Other																		375						360						292
Total other non-interest income																		1,325						718						1,002
Total non-interest income																		$	5,610					$	5,253					$	5,201

________

(1)Includes gains of $45 million, $61 million and losses of $15 million on deferred compensation plan investments in 2020, 2019 and 2018, respectively.

Non-interest income increased by $357 million to $5.6 billion in 2020 compared to 2019 primarily driven by a gain of $535 million on our equity investment in Snowflake Inc., partially offset by lower net interchange fees from a decline in purchase volume.

Provision for Credit Losses

Our provision for credit losses in each period is driven by changes to the allowance for credit losses including the impact of net charge-offs and changes to the reserve for unfunded lending commitments. Beginning in the first quarter of 2020, our allowance for credit losses and reserve for unfunded lending commitments are measured under the CECL standard. We recorded a provision for credit losses of $10.3 billion, $6.2 billion and $5.9 billion in 2020, 2019 and 2018, respectively. The provision for credit losses as a percentage of net interest income was 44.8%, 26.7% and 25.6% in 2020, 2019 and 2018, respectively.

Our provision for credit losses increased by $4.0 billion to $10.3 billion in 2020 compared to 2019 primarily driven by allowance builds in the first and second quarters of 2020 due to expectations of economic worsening as a result of the COVID-19 pandemic.

We provide additional information on the provision for credit losses and changes in the allowance for credit losses within “MD&A—Credit Risk Profile” and “Note 4—Allowance for Credit 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.”

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Non-Interest Expense

Table 4 displays the components of non-interest expense for 2020, 2019 and 2018.

Table 4: Non-Interest Expense

												Year Ended December 31,
(Dollars in millions)																		2020						2019						2018
Salaries and associate benefits(1)																		$	6,805					$	6,388					$	5,727
Occupancy and equipment																		2,118						2,098						2,118
Marketing																		1,610						2,274						2,174
Professional services																		1,312						1,237						1,145
Communications and data processing																		1,215						1,290						1,260
Amortization of intangibles																		60						112						174
Other non-interest expense:
Bankcard, regulatory and other fee assessments																		267						362						490
Collections																		323						400						413
Fraud losses																		261						383						364
Other(2)																		1,085						939						1,037
Total other non-interest expense																		1,936						2,084						2,304
Total non-interest expense																		$	15,056					$	15,483					$	14,902

_________

(1)Includes expenses of $45 million, $61 million and a benefit of $15 million related to our deferred compensation plan in 2020, 2019, and 2018, respectively. These amounts have corresponding offsets in other non-interest income.

(2)Includes legal reserve builds of $313 million and net Cybersecurity Incident expenses of $27 million in 2020.

Non-interest expense decreased by $427 million to $15.1 billion in 2020 compared to 2019 primarily driven by lower marketing expense, partly offset by increases in salaries and associate benefits due to continued investment in technology.

Income Taxes

We recorded income tax provisions of $486 million (15.2% effective income tax rate), $1.3 billion (19.5% effective income tax rate) and $1.3 billion (17.7% effective income tax rate) in 2020, 2019 and 2018, respectively. Our effective tax rate on income from continuing operations varies between periods due, in part, to the impact of changes in pre-tax income and changes in tax credits, tax-exempt income and non-deductible expenses relative to our pre-tax earnings.

We recorded discrete tax benefits of $22 million in 2020, $19 million in 2019 and $318 million in 2018 primarily driven by a benefit of $284 million related to a tax methodology change on rewards costs.

The decrease in our effective tax rate in 2020 compared to 2019 was primarily due to a decrease in our pre-tax earnings and the proportional impact of credits from tax advantaged investments.

We provide additional information on items affecting our income taxes and effective tax rate in “Note 15—Income Taxes.”

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CONSOLIDATED BALANCE SHEETS ANALYSIS

Total assets increased by $31.2 billion to $421.6 billion as of December 31, 2020 from December 31, 2019 primarily driven by an increase in our cash balances from deposit growth due to increased consumer savings aided by the impact of government stimulus as well as growth in our investment securities portfolio due to our elevated cash position, partially offset by a decline in loan balances.

Total liabilities increased by $29.0 billion to $361.4 billion as of December 31, 2020 from December 31, 2019 primarily driven by deposit growth from increased consumer savings aided by the impact of government stimulus.

Stockholders’ equity increased by $2.2 billion to $60.2 billion as of December 31, 2020 from December 31, 2019 primarily due to our net income of $2.7 billion and changes in accumulated other comprehensive income of $2.3 billion from investment valuation gains, partially offset by the cumulative effect from the adoption of the CECL standard and dividend payments to our stockholders.

The following is a discussion of material changes in the major components of our assets and liabilities during 2020. 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.

Investment Securities

Our investment securities portfolio consists of the following: U.S. government-sponsored enterprise or agency (“Agency”) and non-agency residential mortgage-backed securities (“RMBS”), Agency commercial mortgage-backed securities (“CMBS”), U.S. Treasury securities and other securities. Agency securities include Government National Mortgage Association (“Ginnie Mae”) guaranteed securities, Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) issued securities. The carrying value of our investments in Agency and U.S. Treasury securities represented 96% of our total investment securities portfolio, as of both December 31, 2020 and 2019.

The fair value of our available for sale securities portfolio increased by $21.2 billion to $100.4 billion as of December 31, 2020 from December 31, 2019, primarily driven by net purchases. See “Note 2—Investment Securities” for more information.

Table 5 presents the amortized cost and fair value for the major security types in our available for sale securities portfolio as of December 31, 2020, 2019 and 2018.

Table 5: Investment Securities

						December 31,
						2020												2019												2018
(Dollars in millions)						Amortized Cost						Fair Value						Amortized Cost						Fair Value						Amortized Cost						Fair Value
Investment securities available for sale:
U.S. Treasury securities						$	9,302					$	9,318					$	4,122					$	4,124					$	6,146					$	6,144
RMBS:
Agency						73,248						75,466						62,003						62,839						32,710						31,903
Non-agency						1,035						1,237						1,235						1,499						1,440						1,742
Total RMBS						74,283						76,703						63,238						64,338						34,150						33,645
Agency CMBS						11,298						11,735						9,303						9,426						4,806						4,739
Other securities(1)						2,686						2,689						1,321						1,325						1,626						1,622
Total investment securities available for sale						$	97,569					$	100,445					$	77,984					$	79,213					$	46,728					$	46,150

__________

(1)Includes $1.8 billion, $117 million and $260 million of asset-backed securities as of December 31, 2020, 2019 and 2018, respectively. The remaining amount is primarily comprised of supranational bonds and foreign government bonds.

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Loans Held for Investment

Total loans held for investment consist of both unsecuritized loans and loans held in our consolidated trusts. Table 6 summarizes the carrying value of our loans held for investment by portfolio segment, the allowance for credit losses and net loan balance as of December 31, 2020 and 2019.

Table 6: Loans Held for Investment

						December 31, 2020																		December 31, 2019
(Dollars in millions)						Loans						Allowance						Net Loans						Loans						Allowance						Net Loans
Credit Card						$	106,956					$	11,191					$	95,765					$	128,236					$	5,395					$	122,841
Consumer Banking						68,888						2,715						66,173						63,065						1,038						62,027
Commercial Banking						75,780						1,658						74,122						74,508						775						73,733
Total						$	251,624					$	15,564					$	236,060					$	265,809					$	7,208					$	258,601

Loans held for investment decreased by $14.2 billion to $251.6 billion as of December 31, 2020 from December 31, 2019 primarily due to a decline in purchase volume and higher payment rates in Domestic Card driven by the customer response to the COVID-19 pandemic and our decision to decrease marketing spend due to the economic environment, partially offset by growth in our auto and commercial loan portfolios.

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 3—Loans.”

Funding Sources

Our primary source of funding comes from deposits, as they are a stable and relatively low cost source of funding. In addition to deposits, we raise funding through the issuance of senior and subordinated notes, securitized debt obligations, federal funds purchased, securities loaned or sold under agreements to repurchase, and Federal Home Loan Banks (“FHLB”) advances secured by certain portions of our loan and securities portfolios.

Table 7 provides the composition of our primary sources of funding as of December 31, 2020 and 2019.

Table 7: Funding Sources Composition

						December 31, 2020												December 31, 2019
(Dollars in millions)						Amount						% of Total						Amount						% of Total
Deposits:
Consumer Banking						$	249,815					72		%				$	213,099					67		%
Commercial Banking						39,590						11						32,134						10
Other(1)						16,037						5						17,464						5
Total deposits						305,442						88						262,697						82
Securitized debt obligations						12,414						4						17,808						6
Other debt						28,125						8						37,889						12
Total funding sources						$	345,981					100		%				$	318,394					100		%

__________

(1)Includes brokered deposits of $15.0 billion and $16.7 billion as of December 31, 2020 and 2019, respectively.

Total deposits increased by $42.7 billion to $305.4 billion as of December 31, 2020 from December 31, 2019 primarily driven by deposit growth from increased consumer savings aided by the impact of government stimulus.

Securitized debt obligations decreased by $5.4 billion to $12.4 billion as of December 31, 2020 from December 31, 2019 primarily driven by net maturities in our credit card securitization program.

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Other debt decreased by $9.8 billion to $28.1 billion as of December 31, 2020 from December 31, 2019 primarily driven by maturities of our short-term FHLB advances and the repurchase of a portion of our senior unsecured debt.

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

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 $3.3 billion as of December 31, 2020, an increase of $1.6 billion from December 31, 2019. The increase in our net deferred tax assets was primarily driven by the increase in the allowance for credit losses due to expectations of economic worsening as a result of the COVID-19 pandemic as well as the adoption of the CECL standard in the first quarter of 2020.

We recorded valuation allowances of $296 million and $223 million as of December 31, 2020 and 2019, respectively. 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 “Note 15—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 5—Variable Interest Entities and Securitizations” and “Note 18—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 types of customer served: Credit Card, Consumer Banking and Commercial Banking. The operations of acquired businesses have been integrated into or managed as a part of our existing business segments. Certain activities are not part of a segment, such as management of our corporate investment portfolio, asset/liability management by our centralized Corporate Treasury group and calculation of our 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

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transfer pricing process, which is primarily based on a matched funding concept 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 business. We regularly assess the assumptions, methodologies and reporting classifications used for segment reporting, which may result in the implementation of refinements or changes in future periods.

We 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, 2020, 2019 and 2018 and provide a comparative discussion of these results for 2020 and 2019, as well as changes in our financial condition and credit performance metrics as of December 31, 2020 compared to December 31, 2019. We provide a reconciliation of our total business segment results to our reported consolidated results in “Note 17—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 (loss) from continuing operations, for the years ended December 31, 2020, 2019 and 2018. We provide information on the allocation methodologies used to derive our business segment results in “Note 17—Business Segments and Revenue from Contracts with Customers.”

Table 8: Business Segment Results

						Year Ended December 31,
						2020																								2019																								2018
						Total Net Revenue(1)												Net Income (Loss)(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						$	17,599					62		%				$	1,361					50		%				$	18,349					64		%				$	3,127					57		%				$	17,687					63		%				$	3,191					53		%
Consumer Banking						7,704						27						1,367						51						7,375						26						1,799						32						7,212						26						1,800						30
Commercial Banking(3)						2,971						10						65						2						2,814						10						621						11						2,788						10						806						13
Other(3)						249						1						(76)						(3)						55						—						(14)						—						389						1						228						4
Total						$	28,523					100		%				$	2,717					100		%				$	28,593					100		%				$	5,533					100		%				$	28,076					100		%				$	6,025					100		%

__________

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

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

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

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Credit Card Business

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

Our Credit Card business generated net income from continuing operations of $1.4 billion, $3.1 billion and $3.2 billion in 2020, 2019 and 2018, respectively.

Table 9 summarizes the financial results of our Credit Card business and displays selected key metrics for the periods indicated.

Table 9: Credit Card Business Results

												Year Ended December 31,																		Change
(Dollars in millions, except as noted)																								2020						2019						2018						2020 vs. 2019						2019 vs. 2018
Selected income statement data:
Net interest income																								$	13,776					$	14,461					$	14,167					(5)		%				2		%
Non-interest income																								3,823						3,888						3,520						(2)						10
Total net revenue(1)																								17,599						18,349						17,687						(4)						4
Provision for credit losses																								7,327						4,992						4,984						47						—
Non-interest expense																								8,491						9,271						8,542						(8)						9
Income from continuing operations before income taxes																								1,781						4,086						4,161						(56)						(2)
Income tax provision																								420						959						970						(56)						(1)
Income from continuing operations, net of tax																								$	1,361					$	3,127					$	3,191					(56)						(2)
Selected performance metrics:
Average loans held for investment(2)																								$	110,082					$	114,202					$	109,820					(4)						4
Average yield on loans(3)																								14.08		%				15.49		%				15.43		%				(141)		bps				6		bps
Total net revenue margin(4)																								15.91						16.07						16.11						(16)						(4)
Net charge-offs																								$	4,270					$	5,149					$	5,069					(17)		%				2		%
Net charge-off rate																								3.88		%				4.51		%				4.62		%				(63)		bps				(11)		bps
Purchase volume																								$	414,312					$	424,765					$	387,102					(2)		%				10		%
(Dollars in millions, except as noted)																								December 31, 2020						December 31, 2019						Change
Selected period-end data:
Loans held for investment(2)(5)																								$	106,956					$	128,236					(17)		%
30+ day performing delinquency rate																								2.44		%				3.89		%				(145)		bps
30+ day delinquency rate																								2.45						3.91						(146)
Nonperforming loan rate(6)																								0.02						0.02						—
Allowance for credit losses(2)																								$	11,191					$	5,395					107		%
Allowance coverage ratio																								10.46		%				4.21		%				625		bps

__________

(1)We recognize finance charges and fee income on open-ended loans in accordance with the contractual provisions of the credit arrangements and charge-off uncollectible amounts. Total net revenue was reduced by $1.1 billion in 2020 for finance charges and fees charged-off as uncollectible and by $1.4 billion and $1.3 billion in 2019 and 2018, respectively, for the estimated uncollectible amount of billed finance charges and fees and related losses.

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

(3)Average yield is calculated based on interest income for the period divided by average loans during the period and does not include any allocations, such as funds transfer pricing.

(4)Total net revenue margin is calculated based on total net revenue for the period divided by average loans during the period.

(5)We reclassified $2.1 billion in partnership loans to held for sale as of September 30, 2020.

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

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Key factors affecting the results of our Credit Card business for 2020 compared to 2019, and changes in financial condition and credit performance between December 31, 2020 and December 31, 2019 include the following:

•Net Interest Income: Net interest income decreased by $685 million to $13.8 billion in 2020 primarily driven by lower average loan balances from customer behavior in response to the COVID-19 pandemic and lower margins, partially offset by an increase in average loan balances from the Walmart portfolio acquired during the fourth quarter of 2019.

•Non-Interest Income: Non-interest income decreased by $65 million to $3.8 billion in 2020 primarily driven by lower net interchange fees from a decline in purchase volume, partially offset by higher revenues from card partnership arrangements.

•Provision for Credit Losses: Provision for credit losses increased by $2.3 billion to $7.3 billion in 2020 driven by allowance builds in the first and second quarters of 2020 due to expectations of economic worsening as a result of the COVID-19 pandemic.

•Non-Interest Expense: Non-interest expense decreased by $780 million to $8.5 billion in 2020 primarily driven by our decision to decrease marketing spend due to the economic environment created by the COVID-19 pandemic.

•Loans Held for Investment: Period-end loans held for investment decreased by $21.3 billion to $107.0 billion as of December 31, 2020 from December 31, 2019, and average loans held for investment decreased by $4.1 billion to $110.1 billion in 2020 compared to 2019 primarily due to a decline in purchase volume and higher payments in response to the COVID-19 pandemic, as well as the transfer of a $2.1 billion partnership loan portfolio to held for sale in the third quarter of 2020. The decline in average balances was partially offset by the impact of the Walmart portfolio acquired during the fourth quarter of 2019.

•Net Charge-Off and Delinquency Metrics: The net charge-off rate decreased by 63 basis points to 3.88% in 2020 compared to 2019 primarily driven by strong credit performance in Domestic Card due to consumer payment behavior and the impact of the government stimulus.

The 30+ day delinquency rate decreased by 146 basis points to 2.45% as of December 31, 2020 from December 31, 2019 due to lower delinquency inventories in our domestic credit card loan portfolio primarily driven by consumer payment behavior and the impact of government stimulus, partially offset by lower outstanding balances.

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Domestic Card Business

The Domestic Card business generated net income from continuing operations of $1.2 billion in 2020 and $3.0 billion in both 2019 and 2018. In 2020, 2019 and 2018, the Domestic Card business accounted for greater than 90% of total net revenue of our Credit Card business.

Table 9.1 summarizes the financial results for Domestic Card business and displays selected key metrics for the periods indicated.

Table 9.1: Domestic Card Business Results

												Year Ended December 31,																		Change
(Dollars in millions, except as noted)																								2020						2019						2018						2020 vs. 2019						2019 vs. 2018
Selected income statement data:
Net interest income																								$	12,599					$	13,265					$	12,926					(5)		%				3		%
Non-interest income																								3,583						3,684						3,239						(3)						14
Total net revenue(1)(2)																								16,182						16,949						16,165						(5)						5
Provision for credit losses																								6,979						4,671						4,653						49						—
Non-interest expense																								7,625						8,308						7,621						(8)						9
Income from continuing operations before income taxes																								1,578						3,970						3,891						(60)						2
Income tax provision																								374						925						907						(60)						2
Income from continuing operations, net of tax																								$	1,204					$	3,045					$	2,984					(60)						2
Selected performance metrics:
Average loans held for investment(3)																								$	101,837					$	105,270					$	100,832					(3)						4
Average yield on loans(4)																								13.88		%				15.47		%				15.36		%				(159)		bps				11		bps
Total net revenue margin(5)																								15.80						16.10						16.03						(30)						7
Net charge-offs																								$	4,002					$	4,818					$	4,782					(17)		%				1		%
Net charge-off rate																								3.93		%				4.58		%				4.74		%				(65)		bps				(16)		bps
Purchase volume																								$	380,787					$	390,032					$	354,158					(2)		%				10		%
(Dollars in millions, except as noted)																								December 31, 2020						December 31, 2019						Change
Selected period-end data:
Loans held for investment(3)(6)																								$	98,504					$	118,606					(17)		%
30+ day performing delinquency rate																								2.42		%				3.93		%				(151)		bps
Allowance for credit losses																								$	10,650					$	4,997					113		%
Allowance coverage ratio																								10.81		%				4.21		%				660		bps

__________

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

(2)Total net revenue was reduced by $434 million, $471 million and $278 million in 2020, 2019 and 2018, respectively, due to the amortization of loan origination bounties. As of December 31, 2020, approximately $45 million of deferred bounty payments remained to be amortized as an offset to revenue in future periods.

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

(4)Average yield is calculated based on interest income for the period divided by average loans during the period and does not include any allocations, such as funds transfer pricing.

(5)Total net revenue margin is calculated based on total net revenue for the period divided by average loans during the period.

(6)We reclassified $2.1 billion in partnership loans to held for sale as of September 30, 2020.

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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 decreased in 2020 compared to 2019 primarily driven by:

•higher provision for credit losses due to allowance builds in the first and second quarters of 2020 due to expectations of economic worsening as a result of the COVID-19 pandemic;

•lower net interest income due to lower average outstanding balances and lower margins; and

•lower non-interest income due to lower net interchange fees from a decline in purchase volume, partially offset by higher revenues from card partnership arrangements,

•partially offset by lower non-interest expense from our decision to decrease marketing spend due to the economic environment created by the COVID-19 pandemic.

Consumer Banking Business

The primary sources of revenue for our Consumer Banking business are net interest income from loans and deposits as well as 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 $1.4 billion in 2020 and $1.8 billion in both 2019 and 2018.

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

Table 10: Consumer Banking Business Results

												Year Ended December 31,																		Change
(Dollars in millions, except as noted)																								2020						2019						2018						2020 vs. 2019						2019 vs. 2018
Selected income statement data:
Net interest income																								$	7,238					$	6,732					$	6,549					8		%				3		%
Non-interest income																								466						643						663						(28)						(3)
Total net revenue																								7,704						7,375						7,212						4						2
Provision for credit losses																								1,753						938						838						87						12
Non-interest expense																								4,159						4,091						4,027						2						2
Income from continuing operations before income taxes																								1,792						2,346						2,347						(24)						—
Income tax provision																								425						547						547						(22)						—
Income from continuing operations, net of tax																								$	1,367					$	1,799					$	1,800					(24)						—
Selected performance metrics:
Average loans held for investment:
Auto																								$	63,227					$	57,938					$	55,610					9						4
Home loan(1)																								—						—						6,266						—						**
Retail banking																								3,072						2,770						3,075						11						(10)
Total consumer banking																								$	66,299					$	60,708					$	64,951					9						(7)
Average yield on loans held for investment(2)																								8.37		%				8.37		%				7.54		%				—						83		bps
Average deposits																								$	236,369					$	205,012					$	193,053					15		%				6		%
Average deposits interest rate																								0.76		%				1.24		%				0.95		%				(48)		bps				29		bps
Net charge-offs																								$	578					$	947					$	981					(39)		%				(3)		%
Net charge-off rate																								0.87		%				1.56		%				1.51		%				(69)		bps				5		bps
Auto loan originations																								$	32,282					$	29,251					$	26,276					10		%				11		%

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(Dollars in millions, except as noted)																								December 31, 2020						December 31, 2019						Change
Selected period-end data:
Loans held for investment:
Auto																								$	65,762					$	60,362					9		%
Retail banking																								3,126						2,703						16
Total consumer banking																								$	68,888					$	63,065					9
30+ day performing delinquency rate																								4.62		%				6.63		%				(201)		bps
30+ day delinquency rate																								5.00						7.34						(234)
Nonperforming loan rate																								0.47						0.81						(34)
Nonperforming asset rate(3)																								0.54						0.91						(37)
Allowance for credit losses																								$	2,715					$	1,038					162		%
Allowance coverage ratio																								3.94		%				1.65		%				229		bps
Deposits																								$	249,815					$	213,099					17		%

__________

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

(2)Average yield is calculated based on interest income for the period divided by average loans during the period and does not include any allocations, such as funds transfer pricing.

(3)Nonperforming assets primarily consist of nonperforming loans and repossessed assets. The total nonperforming asset rate is calculated based on total nonperforming assets divided by the combined period-end total loans held for investment and repossessed assets.

**    Not meaningful.

Key factors affecting the results of our Consumer Banking business for 2020 compared to 2019, and changes in financial condition and credit performance between December 31, 2020 and December 31, 2019 include the following:

•Net Interest Income: Net interest income increased by $506 million to $7.2 billion in 2020 primarily driven by growth in our auto loan portfolio.

•Non-Interest Income: Non-interest income decreased by $177 million to $466 million in 2020 primarily driven by lower service charges and fees on deposit accounts as a result of the COVID-19 pandemic.

•Provision for Credit Losses: Provision for credit losses increased by $815 million to $1.8 billion in 2020 driven by allowance builds in the first and second quarters of 2020 due to expectations of economic worsening as a result of the COVID-19 pandemic.

•Non-Interest Expense: Non-interest expense increased by $68 million to $4.2 billion in 2020 primarily driven by growth in our auto loan portfolio.

•Loans Held for Investment: Period-end loans held for investment increased by $5.8 billion to $68.9 billion as of December 31, 2020 from December 31, 2019, and average loans held for investment increased by $5.6 billion to $66.3 billion in 2020 compared to 2019 primarily due to growth in our auto loan portfolio.

•Deposits: Period-end deposits increased by $36.7 billion to $249.8 billion as of December 31, 2020 from December 31, 2019 primarily driven by deposit growth from increased consumer savings aided by the impact of government stimulus.

•Net Charge-Off and Delinquency Metrics: The net charge-off rate decreased by 69 basis points to 0.87% in 2020 compared to 2019 primarily driven by the impact of short-term payment extensions offered to affected auto borrowers in response to the COVID-19 pandemic.

The 30+ day delinquency rate decreased by 234 basis points to 5.00% as of December 31, 2020 from December 31, 2019 driven by lower auto delinquency inventories resulting from the short-term payment extensions offered to affected auto borrowers in response to the COVID-19 pandemic.

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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 earned from products and services provided to our clients such as capital markets and treasury management. Because our Commercial Banking business has loans and investments that generate tax-exempt income, tax credits or other tax benefits, we present the revenues on a taxable-equivalent basis. Expenses primarily consist of the provision for credit losses and operating costs.

Our Commercial Banking business generated net income from continuing operations of $65 million, $621 million and $806 million in 2020, 2019 and 2018, 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

												Year Ended December 31,																		Change
(Dollars in millions, except as noted)																								2020						2019						2018						2020 vs. 2019						2019 vs. 2018
Selected income statement data:
Net interest income																								$	2,048					$	1,983					$	2,044					3		%				(3)		%
Non-interest income																								923						831						744						11						12
Total net revenue(1)																								2,971						2,814						2,788						6						1
Provision for credit losses(2)																								1,181						306						83						286						**
Non-interest expense																								1,706						1,699						1,654						—						3
Income from continuing operations before income taxes																								84						809						1,051						(90)						(23)
Income tax provision																								19						188						245						(90)						(23)
Income from continuing operations, net of tax																								$	65					$	621					$	806					(90)						(23)
Selected performance metrics:
Average loans held for investment:
Commercial and multifamily real estate																								$	31,135					$	29,608					$	27,771					5						7
Commercial and industrial																								45,819						42,863						39,188						7						9
Total commercial lending																								76,954						72,471						66,959						6						8
Small-ticket commercial real estate																								—						69						371						**						(81)
Total commercial banking																								$	76,954					$	72,540					$	67,330					6						8
Average yield on loans held for investment(1)(3)																								3.13		%				4.51		%				4.46		%				(138)		bps				5		bps
Average deposits																								$	35,468					$	31,229					$	32,175					14		%				(3)		%
Average deposits interest rate																								0.40		%				1.18		%				0.72		%				(78)		bps				46		bps
Net charge-offs																								$	377					$	156					$	56					142		%				179		%
Net charge-off rate																								0.49		%				0.22		%				0.08		%				27		bps				14		bps
(Dollars in millions, except as noted)																								December 31, 2020						December 31, 2019						Change
Selected period-end data:
Loans held for investment:
Commercial and multifamily real estate																								$	30,681					$	30,245					1		%
Commercial and industrial																								45,099						44,263						2
Total commercial banking																								$	75,780					$	74,508					2
Nonperforming loan rate																								0.86		%				0.60		%				26		bps
Nonperforming asset rate(4)																								0.86						0.60						26
Allowance for credit losses(2)																								$	1,658					$	775					114		%
Allowance coverage ratio																								2.19		%				1.04		%				115		bps
Deposits																								$	39,590					$	32,134					23		%
Loans serviced for others																								44,162						38,481						15

__________

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(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% for all periods presented) and state taxes where applicable, with offsetting reductions to the Other category.

(2)The provision for losses on unfunded lending commitments is included in the provision for credit losses in our consolidated statements of income and the related reserve is included in other liabilities on our consolidated balance sheets. Our reserve for unfunded lending commitments totaled $195 million, $130 million and $118 million as of December 31, 2020, 2019 and 2018, respectively.

(3)Average yield is calculated based on interest income for the period divided by average loans during the period and does not include any allocations, such as funds transfer pricing.

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

**    Not meaningful.

Key factors affecting the results of our Commercial Banking business for 2020 compared to 2019, and changes in financial condition and credit performance between December 31, 2020 and December 31, 2019 include the following:

•Net Interest Income: Net interest income increased by $65 million to $2.0 billion in 2020 as higher average loans and deposits were partially offset by slightly lower margins.

•Non-Interest Income: Non-interest income increased by $92 million to $923 million in 2020 primarily driven by higher revenue from our agency and capital markets businesses.

•Provision for Credit Losses: Provision for credit losses increased by $875 million to $1.2 billion in 2020 driven by allowance builds in the first and second quarters of 2020 due to expectations of economic worsening as a result of the COVID-19 pandemic as well as credit deterioration in our energy loan portfolio primarily in the first quarter of 2020.

•Non-Interest Expense: Non-interest expense remained substantially flat at $1.7 billion in 2020.

•Loans Held for Investment: Period-end loans held for investment increased by $1.3 billion to $75.8 billion as of December 31, 2020 from December 31, 2019, and average loans held for investment increased by $4.4 billion to $77.0 billion in 2020 compared to 2019 driven by growth across our commercial loan portfolio.

•Deposits: Period-end deposits increased by $7.5 billion to $39.6 billion as of December 31, 2020 from December 31, 2019 primarily driven by elevated client liquidity.

•Net Charge-Off and Nonperforming Metrics: The net charge-off rate increased by 27 basis points to 0.49% in 2020 primarily driven by elevated charge-offs in our energy loan portfolio.

The nonperforming loan rate increased by 26 basis points to 0.86% as of December 31, 2020 from December 31, 2019 driven by credit downgrades in industries that are impacted by the COVID-19 pandemic.

Other Category

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

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

•offsets related to certain line-item reclassifications;

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

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

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Table 12 summarizes the financial results of our Other category for the periods indicated.

Table 12: Other Category Results

												Year Ended December 31,																		Change
(Dollars in millions)																								2020						2019						2018						2020 vs. 2019						2019 vs. 2018
Selected income statement data:
Net interest income (loss)																								$	(149)					$	164					$	115					**						43		%
Non-interest income (loss)																								398						(109)						274						**						**
Total net revenue(1)																								249						55						389						**						(86)
Provision (benefit) for credit losses																								3						—						(49)						**						**
Non-interest expense(2)																								700						422						679						66		%				(38)
Loss from continuing operations before income taxes																								(454)						(367)						(241)						24						52
Income tax benefit																								(378)						(353)						(469)						7						(25)
Income (loss) from continuing operations, net of tax																								$	(76)					$	(14)					$	228					**						**

__________

(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% for all periods presented) and state taxes where applicable, with offsetting reductions to the Other category.

(2)Includes legal reserve builds of $313 million and net Cybersecurity Incident expenses of $27 million in 2020.

**    Not meaningful.

Net loss from continuing operations was $76 million and $14 million in 2020 and 2019, respectively, primarily driven by lower net interest income due to the decline in market interest rates and funding demands by our segments and increased non-interest expense resulting from legal reserve builds, partially offset by a gain of $535 million on our equity investment in Snowflake Inc.

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

•Loan loss reserves

•Asset impairment

•Fair value of financial instruments

•Customer rewards reserve

We evaluate our critical accounting estimates and judgments on an ongoing basis and update them as necessary, based on changing conditions.

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Loan Loss Reserves

In the first quarter of 2020, we adopted the CECL standard and updated our critical accounting policy and estimate for loan loss reserves. We maintain an allowance for credit losses that represents management’s current estimate of expected credit losses inherent in our credit card, consumer banking and commercial banking loans held for investment portfolios as of each balance sheet date. We also separately reserve for unfunded lending commitments that are not unconditionally cancellable. For all such loans and unfunded lending commitments, our estimate of expected credit losses includes a reasonable and supportable forecast period of one year and then reverts over a one-year period to historical losses at each relevant loss component of the estimate. We build our allowance for credit losses and reserve for unfunded lending commitments through the provision for credit losses, which is driven by charge-offs, changes in the allowance for credit losses and changes in the reserve for unfunded lending commitments. The allowance for credit losses was $15.6 billion as of December 31, 2020, compared to $7.2 billion as of December 31, 2019. In periods prior to 2020, the allowance for loan and lease losses represented management’s estimate of incurred loan and lease losses as fully described in “Note 1—Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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

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

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

We have a model policy, established by an independent Model Risk Office, which governs the validation of models and related supporting documentation to ensure the appropriate use of models for estimating credit losses. The Model Risk Office validates all models and requires ongoing monitoring of their performance.

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

Although we examine a variety of externally available data, as well as our internal loan performance data, to determine our allowance for credit losses and reserve for unfunded lending commitments, our estimation process is subject to risks and uncertainties, including a reliance on historical loss and trend information that may not be representative of current conditions and indicative of future performance as well as economic forecasts that may not align with actual future economic conditions. Accordingly, our actual credit loss experience may not be in line with our expectations. We provide additional information on the methodologies and key assumptions used in determining our allowance for credit losses for each of our loan portfolio segments in “Note 1—Summary of Significant Accounting Policies.” We provide information on the components of our allowance, disaggregated by impairment methodology, and changes in our allowance in “Note 4—Allowance for Credit 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 loans held for investment while unbilled finance charges and fees are included in interest receivable.

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We continue to accrue finance charges and fees on credit card loans until the account is charged off. We estimate the uncollectible portion of finance charges and fees in our finance charge and fee reserve. Billed finance charges and fees that are ultimately charged-off as uncollectible are reflected as a reduction to revenue.

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

Asset Impairment

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

Goodwill

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.

Goodwill totaled $14.7 billion as of both December 31, 2020 and 2019. We did not recognize any goodwill impairment in 2020 and 2019. See “Note 6—Goodwill and Intangible Assets” for additional information.

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 indicate it is more-likely-than-not that an impairment may have occurred. We have four reporting units: Credit Card, Auto Finance, Other Consumer Banking and Commercial Banking.

In the first quarter of 2020, we adopted Accounting Standards Update (“ASU”) No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Under the new guidance, an impairment of a reporting unit’s goodwill is determined based on the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the amount of goodwill allocated to the reporting unit.

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. Consolidated stockholder’s equity in excess of the sum of all reporting unit’s capital requirements that is not identified for future capital needs, such as dividends, share buybacks or other strategic initiatives, is allocated to the reporting units and the Other category and assumed distributed to equity holders in future periods.

Determining the fair value of a reporting unit is a subjective process that requires the use of estimates and the exercise of significant judgment. We calculate the fair value of our reporting units using a discounted cash flow (“DCF”) calculation, a form of the income approach. This DCF calculation uses projected cash flows based on each reporting unit’s internal forecast and the perpetuity growth method to calculate terminal values. Our DCF calculation requires 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 are then discounted using discount rates based on our external cost of capital with adjustments for the risk inherent in each reporting unit. Discount rates used for our reporting units ranged from 8.1% to 14.3%, and we applied a terminal year long-term growth rate of 3.97% to all reporting units. The reasonableness of our DCF calculation is assessed by reference to a market-based approach using comparable market multiples and recent market transactions where available. The results of the 2020 annual impairment test for the reporting units indicated that the estimated fair values of the Commercial Banking, Credit Card, Auto Finance, and Other Consumer Banking reporting units exceeded their carrying amounts by between 11% and 273%.

Assumptions used in estimating the fair value of a reporting unit are judgmental and inherently uncertain. A change in the economic conditions of a reporting unit, such as declines in business performance from industry or macroeconomic trends or from changes in our strategy, adverse impacts to loan or deposit growth trends, decreases in revenue, increases in expenses, increases in credit losses, increases in capital requirements, deterioration of market conditions, declines in long-term growth expectations, adverse impacts of regulatory or legislative changes or increases in the estimated cost of capital, including if these conditions are merely forecasted to occur in future periods, 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.

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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 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 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.

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 16—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 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 requires ongoing monitoring of their performance.

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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. There were no disputes for the years ended December 31, 2020 and 2019.

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 the weighted-average redemption cost during the previous twelve months, adjusted as appropriate for recent changes in redemption costs, including changes related to 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 $4.9 billion in both 2020 and 2019 and $4.4 billion in 2018. Our customer rewards reserve, which is included in other liabilities on our consolidated balance sheets, totaled $5.4 billion and $4.7 billion as of December 31, 2020 and 2019, respectively.

ACCOUNTING CHANGES AND DEVELOPMENTS

Accounting Standards Issued but Not Adopted as of December 31, 2020

Standard

Guidance

Adoption Timing and Financial Statement Impacts

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

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

We adopted this guidance in the first quarter of 2021 using the modified retrospective and prospective methods of adoption. Our adoption of this standard did not have a material impact on our consolidated financial statements.

See “Note 1—Summary of Significant Accounting Policies” for information on the accounting standards we adopted in 2020.

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

The Company and the Banks are subject to the Basel III Capital Rules established by the Federal Reserve and the OCC respectively. The Basel III Capital Rules implement certain capital and liquidity requirements published by the Basel Committee, along with certain Dodd-Frank Act and other capital provisions. Moreover, the Banks, as insured depository institutions, are subject to PCA capital regulations.

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Basel III and United States Capital Rules

Under the Basel III Capital Rules, we must maintain a minimum CET1 capital ratio of 4.5%, a Tier 1 capital ratio of 6.0%, and a Total capital ratio of 8.0%, in each case in relation to risk-weighted assets. In addition, we must maintain a minimum leverage ratio of 4.0% and a minimum supplementary leverage ratio of 3.0%. We are also subject to the capital conservation buffer and countercyclical capital buffer requirements, as described below.

In July 2019, the Federal Banking Agencies issued the Capital Simplification Rule, which finalized certain changes to the Basel III Capital Rules for institutions not subject to the Basel III Advanced Approaches. These changes, effective January 1, 2020, generally raised the threshold above which a covered institution such as the Company must deduct certain assets from its CET1 capital, including certain deferred tax assets, mortgage servicing assets, and investments in unconsolidated financial institutions.

In October 2019, the Federal Banking Agencies finalized the Tailoring Rules, which amended the Basel III Capital Rules to provide for tailored application of certain capital requirements across different categories of banking institutions. These categories are determined primarily by an institution’s asset size, with adjustments to a more stringent category possible if the institution exceeds certain risk-based thresholds. As a BHC with total consolidated assets of at least $250 billion that does not exceed any of the applicable risk-based thresholds, we are a Category III institution under the Tailoring Rules. Therefore, effective January 1, 2020, we are no longer subject to the Basel III “Advanced Approaches” framework and certain associated capital requirements, such as the requirement to include certain elements of AOCI in our regulatory capital. We remain subject to the countercyclical capital buffer requirement (which is currently set at 0%) and supplementary leverage ratio requirement, which were previously required only for Basel III Advanced Approaches institutions. Effective as of the first quarter of 2020, we excluded certain elements of AOCI from our regulatory capital as permitted by the Tailoring Rules. The Tailoring Rules and Capital Simplification Rule have, taken together, decreased our capital requirements.

G-SIBs that are based in the U.S. are subject to an additional CET1 capital requirement known as the 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.

Stress Capital Buffer Rule

The Basel III Capital Rules require banking institutions to maintain a capital conservation buffer, composed of CET1 capital, above the regulatory minimum ratios. The capital conservation buffer for BHCs was previously fixed at 2.5%. In March 2020, the Federal Reserve issued a final rule to implement the stress capital buffer requirement. The stress capital buffer requirement is institution-specific and replaces the fixed 2.5% capital conservation buffer for BHCs.

Pursuant to the Stress Capital Buffer Rule, the Federal Reserve will use the results of its supervisory stress test to determine the size of a BHC’s stress capital buffer requirement. In particular, a BHC’s stress capital buffer requirement will equal, subject to a floor of 2.5%, the sum of (i) the difference between the BHC’s starting CET1 capital ratio and its lowest projected CET1 capital ratio under the severely adverse scenario of the Federal Reserve’s supervisory stress test plus (ii) the ratio of the BHC’s projected four quarters of common stock dividends (for the fourth to seventh quarters of the planning horizon) to the projected risk-weighted assets for the quarter in which the BHC’s projected CET1 capital ratio reaches its minimum under the supervisory stress test.

Under the Stress Capital Buffer Rule framework, the Company’s new “standardized approach capital conservation buffer” includes its stress capital buffer requirement (which will be recalibrated every year based on the Company’s supervisory stress test results), any G-SIB surcharge (which is not applicable to us) and the countercyclical capital buffer requirement (which is currently set at 0%). Any 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.

The Company’s stress capital buffer requirement is 5.6% for the period from October 1, 2020 through September 30, 2021, at which point a revised stress capital buffer requirement will be applicable to the Company based on the Company’s 2021 stress testing results. Therefore, the Company’s minimum capital requirements plus the standardized approach capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios under the stress capital buffer framework are 10.1%, 11.6% and 13.6%, respectively, for the period from October 1, 2020 through September 30, 2021.

The Stress Capital Buffer Rule does not apply to the Banks. The capital conservation buffer for the Banks continues to be fixed at 2.5%. Accordingly, each Bank’s minimum capital requirements plus its capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios remain at 7.0%, 8.5% and 10.5% respectively.

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If we fail to maintain our capital ratios above the minimum capital requirements plus the applicable buffer requirements, we will face increasingly strict automatic limitations on capital distributions and discretionary bonus payments to certain executive officers.

As of December 31, 2020 and 2019, respectively, each of the Company and the Banks exceeded the minimum capital requirements and the buffer requirements applicable to them, and each of the Banks was “well capitalized” under PCA requirements.

Market Risk Rule

The Market Risk Rule requires institutions subject to the rule to adjust their risk-based capital ratios to reflect the market risk in their trading portfolios. As of December 31, 2020, the Company and CONA are subject to the Market Risk Rule. See “MD&A—Market Risk Profile” below for additional information.

CECL Transition Rule

As part of their response to the COVID-19 pandemic, the Federal Banking Agencies adopted the 2020 CECL Transition Rule which provides banking institutions an optional five-year transition period to phase in the impact of the CECL standard on their regulatory capital.

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

Capital Impact Delayed

Phase In Period

2020

2021

2022

2023

2024

2025

“Day 1” CECL adoption impact

Capital impact delayed to 2022

25% Phased In

50% Phased In

75% Phased In

Fully Phased In

Cumulative “day 2” ongoing impact

25% scaling factor as an approximation of the increase in allowance under CECL

We adopted the CECL standard (for accounting purposes) as of January 1, 2020, and made the 2020 CECL Transition Election (for regulatory capital purposes) in the first quarter of 2020. Therefore, the applicable amounts presented in this Report reflect such election.

Temporary Exclusions for Supplementary Leverage Ratio

In addition, in April 2020, as part of the response to the COVID-19 pandemic, the Federal Reserve issued an interim final rule that temporarily excludes U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the supplementary leverage ratio for BHCs. These exclusions became effective on April 1, 2020, and will remain in effect through March 31, 2021.

Subsequently, in May 2020, the Federal Banking Agencies issued an interim final rule that provides an option for depository institutions to make similar exclusions to the calculation of the supplementary leverage ratio. If a depository institution elects to make such exclusions, it must request prior approval from its primary federal banking regulator before making capital distributions, such as paying dividends to its parent company, for as long as the exclusions are in effect. Neither CONA nor COBNA elected to make such exclusions.

For the description of the regulatory capital rules we are subject to, see “Part I—Item 1. Business—Supervision and Regulation.”

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Table 13 provides a comparison of our regulatory capital ratios under the Basel III Standardized Approach, the regulatory minimum capital adequacy ratios and the PCA well-capitalized level for each ratio, where applicable, as of December 31, 2020 and 2019.

Table 13: Capital Ratios Under Basel III(1)

						December 31, 2020																		December 31, 2019
						Ratio						Minimum Capital Adequacy						Well- Capitalized						Ratio						Minimum Capital Adequacy						Well- Capitalized
Capital One Financial Corp:
Common equity Tier 1 capital(2)						13.7		%				4.5		%				N/A						12.2		%				4.5		%				N/A
Tier 1 capital(3)						15.3						6.0						6.0		%				13.7						6.0						6.0		%
Total capital(4)						17.7						8.0						10.0						16.1						8.0						10.0
Tier 1 leverage(5)						11.2						4.0						N/A						11.7						4.0						N/A
Supplementary leverage(6)(7)						10.7						3.0						N/A						9.9						3.0						N/A
COBNA:
Common equity Tier 1 capital(2)						21.5						4.5						6.5						16.1						4.5						6.5
Tier 1 capital(3)						21.5						6.0						8.0						16.1						6.0						8.0
Total capital(4)						23.4						8.0						10.0						18.1						8.0						10.0
Tier 1 leverage(5)						18.3						4.0						5.0						14.8						4.0						5.0
Supplementary leverage(6)						14.7						3.0						N/A						12.1						3.0						N/A
CONA:
Common equity Tier 1 capital(2)						12.4						4.5						6.5						13.4						4.5						6.5
Tier 1 capital(3)						12.4						6.0						8.0						13.4						6.0						8.0
Total capital(4)						13.7						8.0						10.0						14.5						8.0						10.0
Tier 1 leverage(5)						7.6						4.0						5.0						9.2						4.0						5.0
Supplementary leverage(6)						6.9						3.0						N/A						8.2						3.0						N/A

__________

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

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

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

(7)Supplementary leverage ratio for the Company as of December 31, 2020 excludes U.S. Treasury securities and deposits with the Federal Reserve Banks pursuant to an interim final rule issued by the Federal Reserve, see “Part I—Item 1. Business—Supervision and Regulation” for more information.

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Table 14 presents regulatory capital under the Basel III Standardized Approach and regulatory capital metrics as of December 31, 2020 and 2019.

Table 14: Regulatory Risk-Based Capital Components and Regulatory Capital Metrics

(Dollars in millions)						December 31, 2020						December 31, 2019
Regulatory Capital Under Basel III Standardized Approach
Common equity excluding AOCI						$	55,299					$	52,001
Adjustments:
AOCI, net of tax(1)						(29)						1,156
Goodwill, net of related deferred tax liabilities						(14,448)						(14,465)
Intangible assets, net of related deferred tax liabilities						(86)						(170)
Other(1)						—						(360)
Common equity Tier 1 capital						40,736						38,162
Tier 1 capital instruments						4,847						4,853
Tier 1 capital						45,583						43,015
Tier 2 capital instruments						3,385						3,377
Qualifying allowance for credit losses						3,820						3,956
Tier 2 capital						7,205						7,333
Total capital						$	52,788					$	50,348
Regulatory Capital Metrics
Risk-weighted assets						$	297,903					$	313,155
Adjusted average assets						406,762						368,511
Total leverage exposure						427,522						435,976

__________

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

Capital Planning and Regulatory Stress Testing

On June 25, 2020, the Federal Reserve released the stress testing results for the 2020 CCAR cycle, including additional sensitivity analyses conducted due to the COVID-19 pandemic, and notified all participating BHCs, including us, of their stress capital buffer requirements. In light of the COVID-19 pandemic, the Federal Reserve required all participating BHCs, including us, to update and resubmit their capital plans in the fourth quarter of 2020, and to preserve capital by suspending share repurchases and capping common stock dividend payments for the third and fourth quarters of 2020 to the lower of (i) the amount paid in the second quarter of 2020 and (ii) an amount equal to the average net income earned across the four preceding calendar quarters. Scheduled payments on additional Tier 1 and Tier 2 capital instruments, such as preferred stock and subordinated debt, were not similarly restricted.

We conducted a second round of stress tests and submitted our updated capital plan to the Federal Reserve on November 2, 2020. On December 18, 2020, the Federal Reserve released the results of its second round of supervisory stress tests. The Federal Reserve did not recalculate our stress capital buffer requirement at this time but reserved its ability to do so until March 31, 2021. Finally, the Federal Reserve extended the capital distribution restrictions for all participating BHCs through at least the first quarter of 2021 with certain modifications. In particular, for the first quarter of 2021, participating BHCs may resume share repurchases but the aggregate amount of common stock dividend payments and share repurchases shall not exceed an amount equal to the average net income earned across the four preceding calendar quarters. In addition, common stock dividend payments for the first quarter of 2021 continue to be capped at the amount paid in the second quarter of 2020.

We suspended our 2019 Stock Repurchase Program on March 13, 2020, in response to the COVID-19 pandemic through the program’s expiration at the end of the second quarter of 2020. As described above, for the third and fourth quarters of 2020, we were restricted from engaging in share repurchases. On January 25, 2021, our Board of Directors authorized the repurchase of up to $7.5 billion of shares of our common stock.

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We distributed dividends of $0.40 per share on our common stock in the first and second quarters of 2020. Consistent with the Federal Reserve’s capital distribution restrictions described above, we reduced our quarterly dividend on our common stock from $0.40 per share to $0.10 per share for the third quarter of 2020. For the fourth quarter of 2020, while our third quarter results would have permitted us to increase our common stock dividend pursuant to the Federal Reserve’s limitations described above, we maintained our quarterly dividend at $0.10 per share as the process surrounding our resubmitted capital plan had not been completed at that time.

On February 4, 2021, our Board of Directors approved returning our quarterly common stock dividend to $0.40 per share for the first quarter of 2021.

For the description of the regulatory capital planning rules we are subject to, see “Part I—Item 1. Business—Supervision and Regulation.”

Equity Offerings and Transactions

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

On March 2, 2020, we redeemed all outstanding shares of our Fixed Rate 6.00% Non-Cumulative Perpetual Preferred Stock Series B. The redemption resulted in the recognition of deferred issuance costs, which reduced our net income available to common shareholders by $22 million for the year ended December 31, 2020.

On September 17, 2020, we issued 5,000,000 depositary shares, each representing a 1/40th interest in a share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series K, $0.01 par value, with a liquidation preference of $25 per depositary share (“Series K Preferred Stock”). The net proceeds of the offering of Series K Preferred Stock were approximately $122 million after deducting underwriting commissions and offering expenses. Dividends on the Series K Preferred Stock are payable quarterly in arrears at a rate of 4.625% per annum.

On December 1, 2020, we redeemed all outstanding shares of our Fixed Rate 6.20% Non-Cumulative Perpetual Preferred Stock Series F. The redemption resulted in the recognition of deferred issuance costs, which reduced our net income available to common shareholders by $17 million for the year ended December 31, 2020.

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Dividend Policy and Stock Purchases

For the year ended December 31, 2020, we declared and paid common stock dividends of $463 million, or $1.00 per share, and preferred stock dividends of $280 million. The following table summarizes the dividends paid per share on our various preferred stock series in each quarter of 2020.

Table 15: Preferred Stock Dividends Paid Per Share

Series						Description						Issuance Date						Per Annum Dividend Rate						Dividend Frequency						2020
																														Q4						Q3						Q2						Q1
Series B(1)						6.000% Non-Cumulative						August 20, 2012						6.000%						Quarterly						—						—						—						$15.00
Series E						Fixed-to-Floating Rate Non-Cumulative						May 14, 2015						5.550% through 5/31/2020; 3-mo. LIBOR + 380 bps thereafter						Semi-Annually through 5/31/2020; Quarterly thereafter						$10.23						$10.61						$27.75						—
Series F(2)						6.200% Non-Cumulative						August 24, 2015						6.200						Quarterly						15.50						15.50						15.50						15.50
Series G						5.200% Non-Cumulative						July 29, 2016						5.200						Quarterly						13.00						13.00						13.00						13.00
Series H						6.000% Non-Cumulative						November 29, 2016						6.000						Quarterly						15.00						15.00						15.00						15.00
Series I						5.000% Non-Cumulative						September 11, 2019						5.000						Quarterly						12.50						12.50						12.50						12.50
Series J						4.800% Non-Cumulative						January 31, 2020						4.800						Quarterly						12.00						12.00						16.13						—
Series K						4.625% Non-Cumulative						September 17, 2020						4.625						Quarterly						9.51						—						—						—

__________

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

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

The declaration and payment of dividends to our stockholders, as well as the amount thereof, are subject to the discretion of our Board of Directors and depend upon our results of operations, financial condition, capital levels, cash requirements, future prospects, regulatory requirements and other factors deemed relevant by the Board of Directors. As a BHC, our ability to pay dividends is largely dependent upon the receipt of dividends or other payments from our subsidiaries. The Banks are subject to regulatory restrictions that limit their ability to transfer funds to our BHC. As of December 31, 2020, funds available for dividend payments from COBNA and CONA were $4.0 billion and $1.8 billion, respectively. There can be no assurance that we will declare and pay any dividends to stockholders.

Consistent with our 2019 Stock Repurchase Program which was announced on June 27, 2019, our Board of Directors authorized the repurchase of up to $2.2 billion of shares of common stock beginning in the third quarter of 2019 through the end of the second quarter of 2020. During the first quarter of 2020, we repurchased approximately $312 million of shares of our common stock under the 2019 Stock Repurchase Program before suspending further repurchases on March 13, 2020 in response to the COVID-19 pandemic through the program's expiration at the end of the second quarter of 2020. As noted above, for the third and fourth quarters of 2020, the Federal Reserve required all participating banking organizations, including us, to suspend share repurchases as a measure of capital preservation. On January 25, 2021, our Board of Directors authorized the repurchase of up to $7.5 billion of shares of our common stock.

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

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RISK MANAGEMENT

Risk Management Framework

Our Risk Management Framework (the “Framework”) sets consistent expectations for risk management across the Company. It also sets expectations for our “Three Lines of Defense” model, which defines the roles, responsibilities and accountabilities for taking and managing risk across the Company. Accountability for overseeing an effective Framework resides with our Board of Directors either directly or through its committees.

The “First Line of Defense” consists of any line of business or function that is accountable for risk taking and is responsible for: (i) engaging in activities designed to generate revenue or reduce expenses; (ii) providing operational support or servicing to any business function for the delivery of products or services to customers; or (iii) providing technology services in direct support of first line business areas. Each line of business or first line function must manage the risks associated with their activities, including identifying, assessing, measuring, monitoring, controlling and reporting the risks within its business activities, consistent with the risk framework. The “Second Line of Defense” consists of two types of functions: Independent Risk Management (“IRM”) and Support Functions. IRM oversees risk-taking activities and assesses risks and issues independent from the first line of defense. Support Functions are centers of specialized expertise (e.g., Human Resources, Accounting, Legal) that provide support services to the Company. The “Third Line of Defense” is comprised of the Internal Audit and Credit Review functions. The third line provides independent and objective assurance to senior management and to the Board of Directors that the first and second lines of defense have systems and governance processes which are well-designed and working as intended, and that the Framework is appropriate for our size, complexity and risk profile.

Our Framework consists of the following nine elements:

Governance and Accountability

Strategy and Risk Alignment

Risk Identification

Assessment, Measurement and Response

Monitoring and Testing

Aggregation, Reporting and Escalation

Capital and Liquidity Management (including Stress Testing)

Risk Data and Enabling Technology

Culture and Talent Management

Governance and Accountability

Governance and accountability sets the foundation for the methods for governing risk taking and the interactions within and among our three lines of defense.

We established a risk governance structure and accountabilities to effectively and consistently oversee the management of risks across the Company. Our Board of Directors, Chief Executive Officer and management establish the tone at the top regarding the culture of the Company, including management of risk. Management reinforces expectations at the various levels of the organization.

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Strategy and Risk Alignment

Our strategy is informed by and aligned with risk appetite, from development to execution. The Chief Executive Officer develops the strategy with input from the first, second, and third lines of defense, as well as the Board of Directors. The strategic planning process should consider relevant changes to the Company’s overall risk profile.

Our Board of Directors approves a Risk Appetite Statement for the Company to set forth the high-level principles that govern risk taking at the Company. The Risk Appetite Statement defines the Board of Directors’ tolerance for certain risk outcomes at an enterprise level and enables senior management to manage and report within these boundaries. This Risk Appetite Statement is also supported by risk category specific risk appetite statements as well as metrics and, where appropriate, Board Limits and Board Notification Thresholds.

Risk Identification

The first line of defense and certain Support Functions shall identify new and emerging risks across the relevant risk categories associated with their business activities and objectives, in consultation with IRM. Risk identification also must be informed by major changes in infrastructure or organization, introduction of new products and services, acquisitions of businesses, or substantial changes in the internal or external environment.

IRM and certain Support Functions, where appropriate, provide effective challenge in the risk identification process. IRM is also responsible for identifying our material aggregate risks on an ongoing basis.

Assessment, Measurement and Response

Management shall assess risks associated with our activities. Risks identified should be assessed to understand the severity of each risk and likelihood of occurrence under both normal and stressful conditions. Risk severity is measured through modeling and other quantitative estimation approaches, as well as qualitative approaches, based on management judgment. As part of the risk assessment process, the first and second lines of defense also evaluate the effectiveness of the existing control environment and mitigation strategies.

Management shall determine the appropriate risk response. Risks may be mitigated, accepted, transferred, or avoided. Actions taken to respond to the risk include implementing new controls, enhancing existing controls, developing additional mitigation strategies to reduce the impact of the risk, and/or monitoring the risk.

Monitoring and Testing

Management periodically monitors risks to evaluate and measure how the risk is affecting our strategy and business objectives, in alignment with management’s risk appetite, including established concentration risk limits. The scope and frequency of monitoring activities depend on the results of relevant risk assessments, as well as specific business risk operations and activities.

The first line of defense is required to evaluate the effectiveness of risk management practices and controls through testing and other activities. IRM and Support Functions, as appropriate, assess the first line of defense’s evaluation of risk management, which may include conducting effective challenge, performing independent monitoring, or conducting risk or control validations. The third line of defense provides independent assurance for first and second line risk management practices and controls.

Aggregation, Reporting and Escalation

Risk aggregation supports strategic decision making and risk management practices through collectively reporting risks across different levels of the Company and providing a comprehensive view of performance against risk appetite. Capital One’s risk aggregation processes are designed to aggregate risk information from lower levels of the business hierarchy to high levels and to aggregate risk information to determine material risk themes.

Material risks, new or emerging risks, aggregate risks, risk appetite metrics and other measures across all risk categories are reported to the appropriate governance forum no less than quarterly. Material risks are reported to the Board of Directors and senior management committees no less than quarterly.

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Capital and Liquidity Management (including Stress Testing)

Our capital management processes are linked to our risk management practices, including the enterprise-wide identification, assessment and measurement of risks to ensure that all relevant risks are incorporated in the assessment of the Company's capital adequacy. We use identified risks to inform key aspects of the Company’s capital planning, including the development of stress scenarios, the assessment of the adequacy of post-stress capital levels, and the appropriateness of potential capital actions considering the Company’s capital objectives. We quantify capital needs through stress testing, regulatory capital, economic capital and assessments of market considerations. In assessing our capital adequacy, we identify how and where our material risks are accounted for within the capital planning process. Monitoring and escalation processes exist for key capital thresholds and metrics to continuously monitor capital adequacy.

Capital One identifies and manages funding and liquidity risks that could affect its earnings, balance sheet strength and investor confidence. The Company also manages its liquidity position to satisfy regulatory requirements. The Company implements its liquidity management philosophy through the Liquidity Adequacy Framework ("Liquidity Framework"). The Liquidity Framework enables Capital One to meet its liquidity goal of maintaining a fortified balance sheet that is resilient to uncertainties that may arise because of systemic or idiosyncratic liquidity events.

Risk Data and Enabling Technology

Risk data and technology provides the basis for risk reporting and is used in decision making and to monitor and review changes to our risk profile. There is a core Governance, Risk Management and Compliance system which is used as the system of record for risks, controls, issues and events for our risk categories and supports the analysis, aggregation and reporting capabilities across the categories.

Culture and Talent Management

The Framework must be supported with the right culture, talent and skills to enable effective risk management across the Company.

Every associate at the Company is responsible for risk management; however, associates with specific risk management skills and expertise within the first, second and third lines of defense are critical to executing appropriate risk management across the enterprise.

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Risk Categories

We apply our Framework to protect the Company from the major categories of risk that we are exposed to through our business activities. Our seven major categories of risk are:

Major Categories of Risk

Compliance

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

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

Liquidity

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

Market

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

Operational

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

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

Strategic

The risk of a material impact on current or anticipated earnings, capital, franchise or enterprise value arising from the Company’s competitive and market position and evolving forces in the industry that can affect that position; lack of responsiveness to these conditions; strategic decisions to change the Company’s scale, market position or operating model; or, failure to appropriately consider implementation risks inherent in the Company’s strategy

We provide an overview of how we manage our seven major categories of risk below.

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 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.

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The Chief Compliance Officer is responsible for establishing and overseeing our Compliance 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 our Corporate Compliance team 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, structural enhancements, or 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. Our Consumer and Commercial Chief Credit Officers are responsible for evaluating the risk implications of credit strategy and the oversight of credit for both the existing portfolio and any new credit investments. They also 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 performance relative to these guidelines and report results and any required mitigating actions to appropriate senior management committees and our Board of Directors.

Liquidity Risk Management

We manage liquidity risk by applying our Liquidity Framework. The Liquidity 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, idiosyncratic, or combined liquidity events. We continuously monitor market and economic conditions to evaluate emerging stress conditions and to develop appropriate action plans in accordance with our Contingency Funding Plan and our Recovery Plan, which include the Company’s policies, procedures and action plans for managing liquidity stress events. The Liquidity Framework enables us to manage our liquidity risk in accordance with regulatory requirements.

Additionally, the Liquidity 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

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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 present in our business due to the nature of our assets and liabilities. 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 analyses 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 risk. In addition, we also use derivatives to manage our 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 requirements, the program establishes practices for assessing the operational risk profile and executing key control processes for operational risks. These risks include topics such as internal and external fraud, cyber and technology risk, data management, model risk, third party management and business continuity. 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.

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CREDIT RISK PROFILE

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

We also engage in certain non-lending activities that may give rise to ongoing credit and counterparty settlement risk, including purchasing securities for our investment securities portfolio, entering into derivative transactions to manage our market risk exposure and to accommodate customers, extending short-term advances on syndication activity including bridge financing transactions we have underwritten, depositing certain operational cash balances in other financial institutions, executing certain foreign exchange transactions and extending customer overdrafts. We provide additional information related to our investment securities portfolio under “MD&A—Consolidated Balance Sheets Analysis—Investment Securities” and credit risk related to derivative transactions in “Note 9—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 information, including payment history, debt burden and credit scores, such as FICO scores, 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, and are subject to maintaining resilience under a variety of stress conditions. Underwriting decisions are generally based on an applicant’s income, estimated net disposable income, and credit bureau information including FICO scores, along with collateral characteristics such as loan-to-value (“LTV”) ratio. We maintain an auto securitization program.

•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 the commercial loans we underwrite, 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.

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Portfolio Composition and Maturity Profile of Loans Held for Investment

Our loan portfolio consists of loans held for investment, including loans held in our consolidated trusts, and loans held for sale. The information presented in this section excludes loans held for sale, which totaled $2.7 billion and $400 million as of December 31, 2020 and 2019, respectively. Concurrent with our adoption of the CECL standard in the first quarter of 2020, we reclassified our finance charge and fee reserve to our allowance for credit losses, with a corresponding increase to credit card loans held for investment.

Table 16 presents the composition of our portfolio of loans held for investment by portfolio segment as of December 31, 2020 and 2019.

Table 16: Portfolio Composition of Loans Held for Investment

						December 31, 2020												December 31, 2019
(Dollars in millions)						Loans						% of Total						Loans						% of Total
Credit Card:
Domestic credit card						$	98,504					39.1		%				$	118,606					44.6		%
International card businesses						8,452						3.4						9,630						3.6
Total credit card						106,956						42.5						128,236						48.2
Consumer Banking:
Auto						65,762						26.2						60,362						22.7
Retail banking(1)						3,126						1.2						2,703						1.0
Total consumer banking						68,888						27.4						63,065						23.7
Commercial Banking:(1)
Commercial and multifamily real estate						30,681						12.2						30,245						11.4
Commercial and industrial						45,099						17.9						44,263						16.7
Total commercial banking						75,780						30.1						74,508						28.1
Total loans held for investment						$	251,624					100.0		%				$	265,809					100.0		%

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(1)Includes PPP loans of $919 million and $238 million in our retail and commercial loan portfolios, respectively, as of December 31, 2020. See “MD&A—Credit Risk Profile—COVID-19 Customer Assistance Programs and Loan Modifications” for more information.

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Table 17 presents the maturities of our loans held for investment portfolio as of December 31, 2020.

Table 17: Loan Maturity Schedule

						December 31, 2020
(Dollars in millions)						Due Up to 1 Year						> 1 Year to 5 Years						> 5 Years						Total
Fixed rate:
Credit card(1)						$	646					$	11,294					—						$	11,940
Consumer banking						711						40,176						$	27,263					68,150
Commercial banking						1,370						5,414						8,444						15,228
Total fixed-rate loans						2,727						56,884						35,707						95,318
Variable rate:
Credit card(1)						95,015						1						—						95,016
Consumer banking						711						22						5						738
Commercial banking						14,006						38,299						8,247						60,552
Total variable-rate loans						109,732						38,322						8,252						156,306
Total loans						$	112,459					$	95,206					$	43,959					$	251,624

__________

(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.

Geographic Composition

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

Table 18: Credit Card Portfolio by Geographic Region

						December 31, 2020												December 31, 2019
(Dollars in millions)						Amount						% of Total						Amount						% of Total
Domestic credit card:
California						$	9,943					9.3		%				$	12,538					9.8		%
Texas						8,090						7.6						9,353						7.3
Florida						6,910						6.5						8,093						6.3
New York						6,327						5.9						7,941						6.2
Pennsylvania						4,158						3.9						4,979						3.9
Illinois						4,149						3.9						5,195						4.1
Ohio						3,645						3.4						4,388						3.4
New Jersey						3,179						3.0						3,915						3.1
Georgia						3,046						2.8						3,553						2.8
Michigan						3,010						2.8						3,811						3.0
Other						46,047						43.0						54,840						42.6
Total domestic credit card						98,504						92.1						118,606						92.5
International card businesses:
Canada						5,728						5.4						6,493						5.1
United Kingdom						2,724						2.5						3,137						2.4
Total international card businesses						8,452						7.9						9,630						7.5
Total credit card						$	106,956					100.0		%				$	128,236					100.0		%

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

Table 19: Consumer Banking Portfolio by Geographic Region

						December 31, 2020												December 31, 2019
(Dollars in millions)						Amount						% of Total						Amount						% of Total
Auto:
Texas						$	8,207					11.9		%				$	7,675					12.2		%
California						7,573						11.0						6,918						11.0
Florida						5,544						8.1						5,013						7.9
Georgia						2,989						4.3						2,757						4.4
Ohio						2,770						4.0						2,652						4.2
Pennsylvania						2,569						3.7						2,334						3.7
Illinois						2,431						3.5						2,239						3.6
North Carolina						2,280						3.3						2,060						3.3
Other						31,399						45.7						28,714						45.4
Total auto						65,762						95.5						60,362						95.7
Retail banking:
New York						1,081						1.6						793						1.3
Louisiana						634						0.9						708						1.1
Texas						576						0.8						595						1.0
Maryland						224						0.3						155						0.2
New Jersey						222						0.3						194						0.3
Virginia						179						0.3						125						0.2
Other						210						0.3						133						0.2
Total retail banking						3,126						4.5						2,703						4.3
Total consumer banking						$	68,888					100.0		%				$	63,065					100.0		%

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

Table 20: Commercial Banking Portfolio by Geographic Region

						December 31, 2020
(Dollars in millions)						Commercial and Multifamily Real Estate						% of Total						Commercial and Industrial						% of Total																		Total Commercial Banking						% of Total
Geographic concentration:(1)
Northeast						$	17,306					56.4		%				$	8,995					20.0		%																$	26,301					34.7		%
Mid-Atlantic						3,006						9.8						6,228						13.8																		9,234						12.2
South						4,134						13.5						14,974						33.2																		19,108						25.2
Other						6,235						20.3						14,902						33.0																		21,137						27.9
Total						$	30,681					100.0		%				$	45,099					100.0		%																$	75,780					100.0		%

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

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(1)Geographic concentration is generally determined by the location of the borrower’s business or the location of the collateral associated with the loan. Northeast consists of CT, MA, ME, NH, NJ, NY, PA and VT. Mid-Atlantic consists of DC, DE, MD, VA and WV. South consists of AL, AR, FL, GA, KY, LA, MO, MS, NC, SC, TN and TX.

Commercial Loans by Industry

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

Table 21: Commercial Loans by Industry

(Percentage of portfolio)						December 31, 2020						December 31, 2019
Real estate						39		%				39		%
Finance						17						16
Healthcare						11						12
Business services						6						6
Educational services						5						4
Public administration						4						4
Oil and gas						3						5
Retail trade						3						4
Construction and land						3						2
Other						9						8
Total						100		%				100		%

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Credit Risk Measurement

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

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

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

Table 22: Credit Score Distribution

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

__________

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

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

We present information in the section below on the credit performance of our loan portfolio, including the key metrics we use in tracking changes in the credit quality of our loan portfolio. See “Note 3—Loans” for additional credit quality information and see “Note 1—Summary of Significant Accounting Policies” for information on our accounting policies for delinquent and nonperforming loans, charge-offs and 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 our policies for classifying loans as nonperforming for each of our loan categories. We provide additional information on our credit quality metrics in “MD&A—Business Segment Financial

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Performance.” Amounts as of December 31, 2020 include the impacts of COVID-19 customer assistance programs where applicable. See “MD&A—Credit Risk Profile—COVID-19 Customer Assistance Programs and Loan Modifications” for more information.

Table 23 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, 2020 and 2019.

Table 23: 30+ Day Delinquencies

						December 31, 2020																								December 31, 2019
						30+ Day Performing Delinquencies												30+ Day Delinquencies												30+ Day Performing Delinquencies												30+ Day Delinquencies
(Dollars in millions)						Amount						Rate(1)						Amount						Rate(1)						Amount						Rate(1)						Amount						Rate(1)
Credit Card:
Domestic credit card						$	2,388					2.42		%				$	2,388					2.42		%				$	4,656					3.93		%				$	4,656					3.93		%
International card businesses						221						2.61						234						2.77						335						3.47						353						3.66
Total credit card						2,609						2.44						2,622						2.45						4,991						3.89						5,009						3.91
Consumer Banking:
Auto						3,140						4.78						3,381						5.14						4,154						6.88						4,584						7.59
Retail banking						41						1.32						62						1.99						28						1.02						43						1.59
Total consumer banking						3,181						4.62						3,443						5.00						4,182						6.63						4,627						7.34
Commercial Banking:
Commercial and multifamily real estate						202						0.66						341						1.11						63						0.21						67						0.22
Commercial and industrial						84						0.19						158						0.35						101						0.23						244						0.55
Total commercial banking						286						0.38						499						0.66						164						0.22						311						0.42
Total						$	6,076					2.41						$	6,564					2.61						$	9,337					3.51						$	9,947					3.74

__________

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

Table 24 presents our 30+ day delinquent loans, by aging and geography, as of December 31, 2020 and 2019.

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

						December 31, 2020												December 31, 2019
(Dollars in millions)						Amount						Rate(1)						Amount						Rate(1)
Delinquency status:
30 – 59 days						$	3,330					1.32		%				$	4,444					1.67		%
60 – 89 days						1,485						0.59						2,537						0.95
> 90 days						1,749						0.70						2,966						1.12
Total						$	6,564					2.61		%				$	9,947					3.74		%
Geographic region:
Domestic						$	6,330					2.52		%				$	9,594					3.61		%
International						234						0.09						353						0.13
Total						$	6,564					2.61		%				$	9,947					3.74		%

__________

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

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Table 25 summarizes loans that were 90+ days delinquent as to interest or principal, and still accruing interest as of December 31, 2020 and 2019. These loans consist primarily of credit card accounts between 90 days and 179 days past due. As permitted by regulatory guidance issued by the Federal Financial Institutions Examination Council, we continue to accrue interest and fees on domestic credit card loans through the date of charge off, which is typically in the period the account becomes 180 days past due.

Table 25: 90+ Day Delinquent Loans Accruing Interest

						December 31, 2020												December 31, 2019
(Dollars in millions)						Amount						Rate(1)						Amount						Rate(1)
Loan category:
Credit card						$	1,251					1.17		%				$	2,407					1.88		%
Commercial banking						51						0.07						—						—
Total						$	1,302					0.52						$	2,407					0.91
Geographic region:
Domestic						$	1,220					0.50		%				$	2,277					0.89		%
International						82						0.97						130						1.34
Total						$	1,302					0.52						$	2,407					0.91

__________

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

Nonperforming Loans and Nonperforming Assets

Nonperforming assets consist of nonperforming loans, repossessed assets and other foreclosed assets. 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 26 presents our nonperforming loans, by portfolio segment, and other nonperforming assets as of December 31, 2020 and 2019. We do not classify loans held for sale as nonperforming. We provide additional information on our credit quality metrics in “MD&A—Business Segment Financial Performance.”

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

						December 31, 2020												December 31, 2019
(Dollars in millions)						Amount						Rate						Amount						Rate
Nonperforming loans held for investment:(2)
Credit Card:
International card businesses						$	21					0.24		%				$	25					0.26		%
Total credit card						21						0.02						25						0.02
Consumer Banking:
Auto						294						0.45						487						0.81
Retail banking						30						0.96						23						0.87
Total consumer banking						324						0.47						510						0.81
Commercial Banking:
Commercial and multifamily real estate						200						0.65						38						0.12
Commercial and industrial						450						1.00						410						0.93
Total commercial banking						650						0.86						448						0.60
Total nonperforming loans held for investment(3)						$	995					0.40						$	983					0.37
Other nonperforming assets(4)						45						0.01						63						0.02
Total nonperforming assets						$	1,040					0.41						$	1,046					0.39

__________

(1)We recognized interest income for loans classified as nonperforming of $39 million and $63 million in 2020 and 2019, respectively. Interest income foregone related to nonperforming loans was $49 million and $60 million in 2020 and 2019, respectively. Foregone interest income represents the amount

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of interest income in excess of recognized interest income that would have been recorded during the period for nonperforming loans as of the end of the period had the loans performed according to their contractual terms.

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

(3)Excluding the impact of domestic credit card loans, nonperforming loans as a percentage of total loans held for investment was 0.65% and 0.67% as of December 31, 2020 and 2019, respectively.

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

Net Charge-Offs

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

Table 27 presents our net charge-off amounts and rates, by portfolio segment, in 2020, 2019 and 2018.

Table 27: Net Charge-Offs (Recoveries)

												Year Ended December 31,
																		2020												2019												2018
(Dollars in millions)																														Amount						Rate(1)						Amount						Rate(1)						Amount						Rate(1)
Credit Card:
Domestic credit card																														$	4,002					3.93		%				$	4,818					4.58		%				$	4,782					4.74		%
International card businesses																														268						3.26						331						3.71						287						3.19
Total credit card																														4,270						3.88						5,149						4.51						5,069						4.62
Consumer Banking:
Auto																														522						0.83						876						1.51						912						1.64
Retail banking																														56						1.82						71						2.57						70						2.26
Home Loan																														—						—						—						—						(1)						(0.02)
Total consumer banking																														578						0.87						947						1.56						981						1.51
Commercial Banking:
Commercial and multifamily real estate																														41						0.13						1						—						2						0.01
Commercial and industrial																														336						0.73						155						0.36						54						0.14
Total commercial banking																														377						0.49						156						0.22						56						0.08
Other loans																														—						—						—						—						6						34.09
Total net charge-offs																														$	5,225					2.06						$	6,252					2.53						$	6,112					2.52
Average loans held for investment																														$	253,335											$	247,450											$	242,118

__________

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

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COVID-19 Customer Assistance Programs and Loan Modifications

In response to the COVID-19 pandemic, the Federal Banking Agencies supported banking organizations that are taking actions to assist customers in a prudent, safe and sound manner, including through loan modifications. As part of our response to the COVID-19 pandemic, we began offering programs to accommodate customer hardship across our lines of business in the first quarter of 2020, with the largest programs offered to our Auto and Domestic Card customers. Our COVID-19 programs were designed to be short-term accommodations so that we could provide our customers with prompt relief. Information about the customer accommodation programs we offered during 2020 is below, along with the impacts of enrollment on accrual and delinquency status.

Additional guidance issued by the Federal Banking Agencies and contained in the CARES Act provides banking organizations with TDR relief for modifications of current borrowers impacted by the COVID-19 pandemic. In adherence with the guidance, we assessed all loan modifications introduced to current borrowers in response to the COVID-19 pandemic through December 31, 2020, that would have been designated as TDRs under our existing policies, and followed guidance that any such eligible loan modifications made on a temporary and good faith basis are not considered TDRs. Through December 31, 2020, approximately 80% of enrollments in our customer accommodation programs have been for only 1-2 months, which would generally not have resulted in TDR classification under our existing policies as the concession granted was insignificant.

We consider the impact of all loan modifications, including those offered via our COVID-19 programs, when estimating the credit quality of our loan portfolio and establishing allowance levels. For our Commercial Banking customers, enrollment in a customer assistance program is also considered in the assignment of an internal risk rating.

Auto Customer Assistance Program

Within our auto business, we generally offered customers a 1-2 month payment extension, with an option to renew, and fee waivers. Auto loans enrolled in short-term payment extensions continue to accrue interest. The contractual term of the loan is extended by the length of the short-term payment extension and the delinquency status is updated to reflect the revised terms of the loan. For customers that were delinquent at the time of enrollment, their delinquency status is reduced commensurate with the length of the short-term payment extension. For most of 2020, relief was limited to a maximum of six monthly payments. In December 2020, the limit was reduced to a maximum of four monthly payments when temporary payment reduction programs were made available to customers.

Through December 31, 2020, a total of 17.8% of accounts representing $12.3 billion of loans outstanding have received a short-term payment extension at any time through this program (including those who are no longer enrolled). Approximately 73% of these customers were current at the time of their first enrollment. As of December 31, 2020, approximately 0.6% of accounts, representing $437 million of loans outstanding, were enrolled and had been approved to skip their upcoming payment. Approximately 81% of total cumulative enrollments, representing $10.3 billion of loans outstanding, were current as of December 31, 2020.

Domestic Card Customer Assistance Program

Within our domestic credit card business, customers were offered a one-month payment deferral, with the option to renew, and fee waivers. Card loans enrolled in the deferral program continue to accrue interest. Their delinquency status was generally frozen at the time of enrollment and, upon exiting the program, resumed the delinquency status at the time of enrollment.

Through December 31, 2020, excluding certain retail partnership portfolios, a total of 2.9% of active accounts representing $3.9 billion of loans outstanding have received a payment deferral at any time through this program (including those who are no longer enrolled as of December 31, 2020). Approximately 91% of these customers were current at the time of their first enrollment. As of December 31, 2020, approximately 0.1% of active accounts, representing $135 million of loans outstanding, were enrolled and had been approved to skip their upcoming payment. Approximately 83% of total cumulative enrollments, representing $3.1 billion of loans outstanding, were current as of December 31, 2020.

Temporary Payment Reduction Programs

As the COVID-19 pandemic has progressed, we have continued to work with customers to understand their needs. In response to those efforts, temporary payment reduction programs, ranging from 6-9 months, were made available to auto and domestic card customers in the fourth quarter of 2020. As of December 31, 2020, less than 0.1% of accounts were enrolled in these programs.

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Other Customer Assistance Programs

While the vast majority of enrollments were in our auto and domestic card business, hardship accommodations were also made available to our international credit card, small business banking, and commercial banking customers. For our commercial banking customers, our offerings are more customized, but generally include short-term payment deferrals. We also offered PPP loans to our eligible small business banking and commercial banking clients.

Troubled Debt Restructurings

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

Table 28 presents our amortized cost of loans modified in TDRs as of December 31, 2020 and 2019, which excludes loan modifications that do not meet the definition of a TDR and loans that received relief under the guidance issued by the Federal Banking Agencies and contained in the CARES Act in response to the COVID-19 pandemic.

Table 28: Troubled Debt Restructurings

						December 31, 2020												December 31, 2019
(Dollars in millions)						Amount						% of Total Modifications						Amount						% of Total Modifications
Credit Card:
Domestic credit card						$	511					24.5		%				$	630					38.1		%
International card businesses						217						10.4						201						12.2
Total credit card						728						34.9						831						50.3
Consumer banking:
Auto						615						29.5						346						20.9
Retail banking						18						0.9						24						1.5
Total consumer banking						633						30.4						370						22.4
Commercial banking						723						34.7						451						27.3
Total						$	2,084					100.0		%				$	1,652					100.0		%
Status of TDRs:
Performing						$	1,718					82.4		%				$	1,347					81.5		%
Nonperforming						366						17.6						305						18.5
Total						$	2,084					100.0		%				$	1,652					100.0		%

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

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

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

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subsequent to modification, in “Note 3—Loans.”

Allowance for Credit Losses and Reserve for Unfunded Lending Commitments

Our allowance for credit losses represents management’s current estimate of expected credit losses over the contractual terms of our loans held for investment as of each balance sheet date. Expected recoveries of amounts previously charged off or expected to be charged off are recognized within the allowance. We also estimate expected credit losses related to unfunded lending commitments that are not unconditionally cancellable. 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. We provide additional information on the methodologies and key assumptions used in determining our allowance for credit losses in “Note 1—Summary of Significant Accounting Policies.”

Table 29 presents changes in our allowance for credit losses and reserve for unfunded lending commitments for 2020 and 2019, and details by portfolio segment for the provision for credit losses, charge-offs and recoveries. The cumulative effects from the adoption of the CECL standard and the change to include our finance charge and fee reserve in the allowance for credit losses are included in Table 29 and Table 30 below.

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Table 29: Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity

						Credit Card																		Consumer Banking
(Dollars in millions)						Domestic Card						International Card Businesses						Total Credit Card						Auto						Retail Banking						Total Consumer Banking						Commercial Banking												Total
Allowance for loan and lease losses:
Balance as of December 31, 2018						$	5,144					$	391					$	5,535					$	990					$	58					$	1,048					$	637											$	7,220
Charge-offs						(6,189)						(522)						(6,711)						(1,829)						(88)						(1,917)						(181)												(8,809)
Recoveries(1)						1,371						191						1,562						953						17						970						25												2,557
Net charge-offs						(4,818)						(331)						(5,149)						(876)						(71)						(947)						(156)												(6,252)
Provision for loan and lease losses						4,671						321						4,992						870						67						937						294												6,223
Allowance build (release) for loan and lease losses						(147)						(10)						(157)						(6)						(4)						(10)						138												(29)
Other changes(2)						—						17						17						—						—						—						—												17
Balance as of December 31, 2019						4,997						398						5,395						984						54						1,038						775												7,208
Reserve for unfunded lending commitments:
Balance as of December 31, 2018						—						—						—						—						4						4						118												122
Provision for losses on unfunded lending commitments						—						—						—						—						1						1						12												13
Balance as of December 31, 2019						—						—						—						—						5						5						130												135
Combined allowance and reserve as of December 31, 2019						$	4,997					$	398					$	5,395					$	984					$	59					$	1,043					$	905											$	7,343
Allowance for credit losses:
Balance as of December 31, 2019						$	4,997					$	398					$	5,395					$	984					$	54					$	1,038					$	775											$	7,208
Cumulative effects from adoption of the CECL standard						2,237						4						2,241						477						25						502						102												2,845
Finance charge and fee reserve reclassification(3)						439						23						462						—						—						—						—												462
Balance as of January 1, 2020						7,673						425						8,098						1,461						79						1,540						877												10,515
Charge-offs						(5,318)						(431)						(5,749)						(1,464)						(70)						(1,534)						(394)												(7,677)
Recoveries(1)						1,316						163						1,479						942						14						956						17												2,452
Net charge-offs						(4,002)						(268)						(4,270)						(522)						(56)						(578)						(377)												(5,225)
Provision for credit losses						6,979						348						7,327						1,676						77						1,753						1,158												10,238
Allowance build for credit losses						2,977						80						3,057						1,154						21						1,175						781												5,013
Other changes(2)						—						36						36						—						—						—						—												36
Balance as of December 31, 2020						10,650						541						11,191						2,615						100						2,715						1,658												15,564
Reserve for unfunded lending commitments:
Balance as of December 31, 2019						—						—						—						—						5						5						130												135
Cumulative effects from adoption of the CECL standard						—						—						—						—						(5)						(5)						42												37
Balance as of January 1, 2020						—						—						—						—						—						—						172												172
Provision for losses on unfunded lending commitments						—						—						—						—						—						—						23												23
Balance as of December 31, 2020						—						—						—						—						—						—						195												195
Combined allowance and reserve as of December 31, 2020						$	10,650					$	541					$	11,191					$	2,615					$	100					$	2,715					$	1,853											$	15,759

__________

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

(2)Represents foreign currency translation adjustments.

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

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

Table 30: Allowance Coverage Ratios

						December 31, 2020																		December 31, 2019
(Dollars in millions)						Allowance for Credit Losses						Amount(1)						Allowance Coverage Ratio						Allowance for Loan and Lease Losses						Amount(1)						Allowance Coverage Ratio
Credit Card						$	11,191					$	2,622					426.80		%				$	5,395					$	5,009					107.70		%
Consumer Banking						2,715						3,443						78.85						1,038						4,627						22.42
Commercial Banking						1,658						650						254.97						775						448						173.20
Total						$	15,564					251,624						6.19						$	7,208					265,809						2.71

__________

(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 credit losses increased by $8.4 billion to $15.6 billion, and our allowance coverage ratio increased by 348 basis points to 6.19% as of December 31, 2020 from 2019, driven by the allowance builds in the first and second quarters of 2020 from expectations of economic worsening as a result of the COVID-19 pandemic as well as the adoption of the CECL standard in the first quarter of 2020.

LIQUIDITY RISK PROFILE

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

Table 31 below presents the composition of our liquidity reserves as of December 31, 2020 and 2019.

Table 31: Liquidity Reserves

(Dollars in millions)						December 31, 2020						December 31, 2019
Cash and cash equivalents						$	40,509					$	13,407
Investment securities available for sale, at fair value						100,445						79,213
FHLB borrowing capacity secured by loans						10,162						10,835
Outstanding FHLB advances and letters of credit secured by loans						(72)						(7,210)
Investment securities encumbered for Public Funds and others						(7,052)						(5,688)
Total liquidity reserves						$	143,992					$	90,557

Our liquidity reserves increased by $53.4 billion to $144.0 billion as of December 31, 2020 from December 31, 2019 primarily driven by increases in our cash balances from deposit growth and in our investment securities. See “MD&A—Risk Management” for additional information on our management of liquidity risk.

Liquidity Coverage Ratio

We are subject to the LCR Rule as implemented by the Federal Reserve and OCC. The LCR Rule requires us to calculate our LCR daily. It also requires the Company to publicly disclose, on a quarterly basis, its LCR, certain related quantitative liquidity metrics, and a qualitative discussion of its LCR. Our average LCR during the fourth quarter of 2020 was 145%, which exceeded the LCR Rule requirement of 100%. The calculation and the underlying components are based on our interpretations, expectations and assumptions of relevant regulations, as well as interpretations provided by our regulators, and are subject to change based on changes to future regulations and interpretations. See “Part I—Item 1. Business—Supervision and Regulation” for additional information.

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Borrowing Capacity

We maintain a shelf registration with the SEC so that we may periodically offer and sell an indeterminate aggregate amount of senior or subordinated debt securities, preferred stock, depositary shares, common stock, purchase contracts, warrants and units. There is no limit under this shelf registration to the amount or number of such securities that we may offer and sell, subject to market conditions. In addition, we also maintain a shelf registration that allows us to periodically offer and sell up to $25 billion of securitized debt obligations from our credit card loan securitization trust and a shelf registration that allows us to periodically offer and sell up to $20 billion from our auto loan securitization trusts.

In addition to our issuance capacity under the shelf registration statements, we also have access to FHLB advances and the Federal Reserve Discount Window. The ability to borrow utilizing these sources is based on membership status and the amount is dependent upon the Banks’ ability to post collateral. As of December 31, 2020, we pledged both loans and securities to the FHLB to secure a maximum borrowing capacity of $19.6 billion, of which only $72 million was used. Our FHLB membership is supported by our investment in FHLB stock of $30 million and $328 million as of December 31, 2020 and 2019, respectively, which was determined in part based on our outstanding advances. As of December 31, 2020, we pledged loans to secure a borrowing capacity of $20.0 billion under the Federal Reserve Discount Window. Our membership with the Federal Reserve is supported by our investment in Federal Reserve stock, which totaled $1.3 billion as of both December 31, 2020 and 2019.

Funding

Our primary source of funding comes from deposits, as they are a stable and relatively low cost source of funding. In addition to deposits, we raise funding through the issuance of senior and subordinated notes and securitized debt obligations, 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.

Deposits

Table 32 provides a comparison of average balances, interest expense and average deposit interest rates for the years ended December 31, 2020, 2019 and 2018.

Table 32: Deposits Composition and Average Deposit Interest Rates

						Year Ended December 31,
						2020																		2019																		2018
(Dollars in millions)						Average Balance						Interest Expense						Average Deposit Interest Rate						Average Balance						Interest Expense						Average Deposit Interest Rate						Average Balance						Interest Expense						Average Deposit Interest Rate
Interest-bearing checking accounts(1)						$	37,136					$	129					0.35		%				$	34,343					$	289					0.84		%				$	38,843					$	245					0.63		%
Saving deposits(2)						184,466						1,278						0.69						154,910						2,048						1.32						149,443						1,603						1.07
Time deposits less than $100,000						26,253						522						1.99						27,202						746						2.74						25,535						606						2.37
Total interest-bearing core deposits						247,855						1,929						0.78						216,455						3,083						1.42						213,821						2,454						1.15
Time deposits of $100,000 or more						15,424						236						1.53						15,154						337						2.22						7,672						143						1.87
Foreign deposits						—						—						—						—						—						—						267						1						0.41
Total interest-bearing deposits						$	263,279					$	2,165					0.82						$	231,609					$	3,420					1.48						$	221,760					$	2,598					1.17

__________

(1)Includes negotiable order of withdrawal accounts.

(2)Includes money market deposit accounts.

			97			Capital One Financial Corporation (COF)

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

Table 33 presents the contractual maturities of large-denomination domestic time deposits of $100,000 or more as of December 31, 2020 and 2019. Our funding and liquidity management activities factor into the expected maturities of these deposits.

Table 33: Maturities of Large-Denomination Domestic Time Deposits—$100,000 or More

						December 31,
						2020												2019
(Dollars in millions)						Amount						% of Total						Amount						% of Total
Up to three months						$	4,285					37.3		%				$	3,801					21.8		%
> 3 months to 6 months						2,924						25.5						3,953						22.6
> 6 months to 12 months						2,106						18.3						6,139						35.2
> 12 months						2,167						18.9						3,564						20.4
Total						$	11,482					100.0		%				$	17,457					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.

Our short-term borrowings include those borrowings with an original contractual maturity of one year or less and do not include the current portion of long-term debt. The short-term borrowings, which consist of short-term FHLB advances and federal funds purchased, securities loaned or sold under agreements to repurchase, decreased by $6.6 billion to $668 million as of December 31, 2020 from December 31, 2019 driven by maturities of our short-term FHLB advances.

Our long-term debt, which primarily consists of securitized debt obligations and senior and subordinated notes, decreased by $8.5 billion to $39.9 billion as of December 31, 2020 from December 31, 2019 primarily due to the repurchase of a portion of our senior unsecured debt and net maturities in our credit card securitization program. We provide more information on our securitization activity in “Note 5—Variable Interest Entities and Securitizations.”

The following table summarizes issuances of securitized debt obligations, senior and subordinated notes and FHLB advances and their respective maturities or redemptions for the years ended December 31, 2020, 2019 and 2018.

Table 34: Long-Term Funding

						Issuances																		Maturities/Redemptions
						Year Ended December 31,																		Year Ended December 31,
(Dollars in millions)						2020						2019						2018						2020						2019						2018
Securitized debt obligations						$	1,250					$	6,673					$	1,000					$	6,868					$	7,285					$	2,673
Senior and subordinated notes						4,000						4,161						5,250						8,092						5,344						5,055
FHLB advances						—						—						750						—						251						9,108
Total						$	5,250					$	10,834					$	7,000					$	14,960					$	12,880					$	16,836

			98			Capital One Financial Corporation (COF)

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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 35 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, 2020 and 2019.

Table 35: Senior Unsecured Long-Term Debt Credit Ratings

December 31, 2020

December 31, 2019

Capital One Financial Corporation

COBNA

CONA

Capital One Financial Corporation

COBNA

CONA

Moody’s

Baa1

Baa1

Baa1

Baa1

Baa1

Baa1

S&P

BBB

BBB+

BBB+

BBB

BBB+

BBB+

Fitch

A-

A-

A-

A-

A-

A-

As of February 18, 2021, Moody’s Investors Service (“Moody’s”), Standard & Poor’s (“S&P”), and Fitch Ratings (“Fitch”) have our credit ratings on a negative outlook.

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 36 summarizes, by remaining contractual maturity, our significant contractual cash obligations as of December 31, 2020. 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 36 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 5—Variable Interest Entities and Securitizations,” “Note 14—Employee Benefit Plans” and “Note 18—Commitments, Contingencies, Guarantees and Others.”

Table 36: Contractual Obligations

						December 31, 2020
(Dollars in millions)						Up to 1 Year						> 1 Years to 3 Years						> 3 Years to 5 Years						> 5 Years						Total
Interest-bearing time deposits(1)(2)						$	21,381					$	8,659					$	2,581					$	126					$	32,747
Securitized debt obligations(2)						2,331						6,722						1,858						1,503						12,414
Other debt:
Federal funds purchased and securities loaned or sold under agreements to repurchase						668						—						—						—						668
Senior and subordinated notes						3,878						8,520						8,149						6,835						27,382
Other borrowings						20						38						8						9						75
Total other debt(2)						4,566						8,558						8,157						6,844						28,125
Operating leases						296						522						396						721						1,935
Purchase obligations(3)						498						760						278						104						1,640
Total						$	29,072					$	25,221					$	13,270					$	9,298					$	76,861

__________

(1)Includes only those interest-bearing deposits which have a contractual maturity date.

(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 $2.8 billion as of December 31, 2020, and represent forecasted net interest payments based on interest rates as of December 31, 2020. These forecasts use the contractual maturity date of each liability and include the impact of hedges where applicable.

(3)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.

			99			Capital One Financial Corporation (COF)

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MARKET RISK PROFILE

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

•Traditional banking activities of deposit gathering and lending;

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

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

•Customer accommodation activities within our Commercial Banking business.

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

Interest Rate Risk

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

We use various industry standard market risk measurement techniques and analyses to measure, assess and manage the impact of changes in interest rates on our net interest income and our economic value of equity and changes in foreign exchange rates on our non-dollar-denominated funding and non-dollar equity investments in foreign operations.

Net Interest Income Sensitivity

Our net interest income sensitivity measure estimates the impact on our projected 12-month baseline interest rate-sensitive revenue resulting from movements in interest rates. Interest rate-sensitive revenue consists of net interest income and certain components of other non-interest income significantly impacted by movements in interest rates, including changes in the fair value of freestanding interest rate derivatives. In addition to our existing assets and liabilities, we incorporate expected future business growth assumptions, such as loan and deposit growth and pricing, and plans for projected changes in our funding mix in our baseline forecast. In measuring the sensitivity of interest rate movements on our projected interest rate-sensitive revenue, we assume a hypothetical instantaneous parallel shift in the level of interest rates detailed in Table 37 below. At the current level of interest rates, our interest rate sensitive revenue is expected to increase in higher rate scenarios and decrease modestly in lower rate scenarios. Our current sensitivity to upward shocks has increased as compared to December 31, 2019 mainly due to the decline in interest rates and the growth in deposits and cash.

Economic Value of Equity

Our economic value of equity sensitivity measure estimates the impact on the net present value of our assets and liabilities, including derivative exposures, resulting from movements in interest rates. Our economic value of equity sensitivity measure is calculated based on our existing assets and liabilities, including derivatives, and does not incorporate business growth assumptions or projected balance sheet changes. Key assumptions used in the calculation include projecting rate sensitive prepayments for mortgage securities, loans and other assets, term structure modeling of interest rates, discount spreads, and deposit volume and pricing assumptions. In measuring the sensitivity of interest rate movements on our economic value of equity, we assume a hypothetical instantaneous parallel shift in the level of interest rates detailed in Table 37 below. Our current economic value of equity sensitivity profile demonstrates that our economic value of equity increases in higher rate scenarios and decreases in lower interest rate scenarios. Similar to the changes in net interest income sensitivity, our current economic value of equity sensitivity to upward shocks has also increased as compared to December 31, 2019 mainly due to the decline in interest rates and the growth in deposits and cash.

			100			Capital One Financial Corporation (COF)

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Table 37 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, 2020 and 2019. In instances where a declining interest rate scenario would result in a rate less than 0%, we assume a rate of 0% for that scenario.

Table 37: Interest Rate Sensitivity Analysis

						December 31, 2020						December 31, 2019
Estimated impact on projected baseline net interest income:
+200 basis points						5.6		%				1.8		%
+100 basis points						4.3						1.3
+50 basis points						2.4						1.1
–50 basis points						(0.9)						(0.5)
Estimated impact on economic value of equity:
+200 basis points						4.2						(3.6)
+100 basis points						6.0						0.5
+50 basis points						4.0						0.8
–50 basis points						(7.0)						(2.4)

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

Limitations of Market Risk Measures

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

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

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

Foreign Exchange Risk

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

Our non-dollar denominated intercompany funding and EUR-denominated borrowings expose our earnings to foreign exchange transaction risk. We manage these transaction risks by using forward foreign currency derivatives and cross-currency swaps to hedge our exposures. We measure our foreign exchange transaction risk exposures by applying a 1% U.S. dollar appreciation shock against the value of the non-dollar denominated intercompany funding and EUR-denominated borrowings and their related hedges, which shows the impact to our earnings from foreign exchange risk. Our intercompany funding outstanding was 320 million GBP and 761 million GBP as of December 31, 2020 and 2019, respectively, and 5.3 billion CAD and 6.6 billion CAD as of December 31, 2020 and 2019, respectively. Our EUR-denominated borrowings outstanding were 1.3 billion EUR and 1.2 billion EUR as of December 31, 2020 and 2019, respectively.

			101			Capital One Financial Corporation (COF)

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Our non-dollar equity investments in foreign operations expose our balance sheet to translation risk in AOCI and our capital ratios. We manage our AOCI exposure by entering into foreign currency derivatives designated as net investment hedges. We measure these exposures by applying a 30% U.S. dollar appreciation shock, which we believe approximates a significant adverse shock over a one-year time horizon, against the value of the equity invested in our foreign operations net of related net investment hedges where applicable. Our gross equity exposures in our U.K. and Canadian operations were 1.7 billion GBP and 1.6 billion GBP as of December 31, 2020 and 2019, respectively, and 1.5 billion CAD and 1.4 billion CAD as of December 31, 2020 and 2019, respectively.

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

Risk related to Customer Accommodation Derivatives

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

London Interbank Offered Rate (“LIBOR”) Transition

On July 27, 2017, the U.K. Financial Conduct Authority, the regulator for the administration of LIBOR, announced that LIBOR would be transitioned as an interest rate benchmark and that it will no longer compel banks to contribute LIBOR data beyond December 31, 2021. In the U.S., the Federal Reserve Board and the Federal Reserve Bank of New York established the Alternative Reference Rates Committee (“ARRC”), a group of private market participants and ex-officio members representing banking and financial sector regulators. The ARRC has recommended SOFR as the preferred alternative rate for certain U.S. dollar derivative and cash instruments. While the ARRC has recommended SOFR as the replacement rate for LIBOR, there is acknowledgment that the development of a credit-sensitive element could be a complement to SOFR. It is unclear as to the likelihood and timing, but such a development would have impacts to our transition efforts.

On November 30, 2020, the ICE Benchmark Administration (“IBA”), the administrator of LIBOR, announced that it will consult on its intention to cease publication of the 1-week and 2-month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining USD LIBOR tenors (Overnight 1, 3, 6, and 12 months) immediately following the LIBOR publication on June 30, 2023. The continuation of USD LIBOR as a representative rate into mid-2023 allows many legacy USD LIBOR contracts to mature prior to cessation and should support customers’ and financial services firms’ building operational readiness to support new products and additional market developments. Responses were due on January 25, 2021 with a final decision thereafter.

We have exposures to LIBOR, including loans, derivative contracts, unsecured debt, securitizations, vendor agreements and other instruments with attributes that are either directly or indirectly dependent on LIBOR. To facilitate an orderly transition from LIBOR, we have established a company-wide, cross-functional initiative to oversee and manage our transition away from LIBOR and other Interbank Offered Rates (“IBORs”) to alternative reference rates. We have made progress on our transition efforts as we:

•implemented a robust governance framework and transition planning;

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

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

•started issuing securities and originating agency multifamily loans with SOFR-based features in 2020 to align with GSE new-issue requirements, and

•officially adhered to the International Swaps and Derivatives Association (“ISDA”) fallback protocol in January 2021.

			102			Capital One Financial Corporation (COF)

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We also continue to focus our transition efforts on:

•monitoring market developments for the application of hardwired language from the ARRC;

•engaging with industry experts to better understand the proposed IBA’s extension announcement and its impact on the markets and our transition plans;

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

•monitoring and reducing our LIBOR exposure;

•building internal operational readiness and risk management processes;

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

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

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

For a further discussion of the various risks we face in connection with the expected replacement of LIBOR on our operations, see “Part I—Item 1A. Risk Factors—Uncertainty regarding, and transition away from, LIBOR may adversely affect our business.”

			103			Capital One Financial Corporation (COF)

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SUPPLEMENTAL TABLES

Table A—Loans Held for Investment Portfolio Composition

						December 31,
(Dollars in millions)						2020						2019						2018						2017						2016
Credit Card:
Domestic credit card						$	98,504					$	118,606					$	107,350					$	105,293					$	97,120
International card businesses						8,452						9,630						9,011						9,469						8,432
Total credit card						106,956						128,236						116,361						114,762						105,552
Consumer Banking:
Auto						65,762						60,362						56,341						53,991						47,916
Home loan						—						—						—						17,633						21,584
Retail banking						3,126						2,703						2,864						3,454						3,554
Total consumer banking						68,888						63,065						59,205						75,078						73,054
Commercial Banking:
Commercial and multifamily real estate						30,681						30,245						28,899						26,150						26,609
Commercial and industrial						45,099						44,263						41,091						38,025						39,824
Total commercial lending						75,780						74,508						69,990						64,175						66,433
Small-ticket commercial real estate						—						—						343						400						483
Total commercial banking						75,780						74,508						70,333						64,575						66,916
Other loans						—						—						—						58						64
Total loans						$	251,624					$	265,809					$	245,899					$	254,473					$	245,586

Table B—Performing Delinquencies

						December 31,
						2020												2019												2018												2017												2016
(Dollars in millions)						Loans(1)(2)						Rate(3)						Loans(2)						Rate(3)						Loans(2)						Rate(3)						Loans(2)						Rate(3)						Loans(2)						Rate(3)
Delinquent loans:
30 – 59 days						$	3,307					1.31 %						$	4,417					1.66		%				$	4,255					1.73		%				$	3,908					1.53		%				$	3,416					1.39		%
60 – 89 days						1,467						0.58						2,513						0.94						2,406						0.98						2,086						0.82						1,833						0.75
90 – 119 days						552						0.22						975						0.37						866						0.35						862						0.34						771						0.31
120 – 149 days						407						0.16						813						0.31						736						0.30						734						0.29						628						0.26
150 or more days						343						0.14						619						0.23						632						0.26						637						0.25						537						0.22
Total						$	6,076					2.41 %						$	9,337					3.51		%				$	8,895					3.62		%				$	8,227					3.23		%				$	7,185					2.93		%
By geographic area:
Domestic						$	5,855					2.32		%				$	9,002					3.38		%				$	8,578					3.49		%				$	7,883					3.10		%				$	6,902					2.81		%
International						221						0.09						335						0.13						317						0.13						344						0.13						283						0.12
Total						$	6,076					2.41 %						$	9,337					3.51		%				$	8,895					3.62		%				$	8,227					3.23		%				$	7,185					2.93		%
Total loans held for investment						$	251,624											$	265,809											$	245,899											$	254,473											$	245,586

__________

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

(2)Performing TDRs totaled $1.7 billion, $1.3 billion, $1.4 billion, $1.9 billion and $1.6 billion as of December 31, 2020, 2019, 2018, 2017 and 2016, 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.

			104			Capital One Financial Corporation (COF)

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Table C—Nonperforming Loans and Other Nonperforming Assets

						December 31,
(Dollars in millions)						2020						2019						2018						2017						2016
Nonperforming loans held for investment:
Credit Card:
International card businesses						$	21					$	25					$	22					$	24					$	42
Total credit card						21						25						22						24						42
Consumer Banking:
Auto						294						487						449						376						223
Home loan						—						—						—						176						273
Retail banking						30						23						30						35						31
Total consumer banking						324						510						479						587						527
Commercial Banking:
Commercial and multifamily real estate						200						38						83						38						30
Commercial and industrial						450						410						223						239						988
Total commercial lending						650						448						306						277						1,018
Small-ticket commercial real estate						—						—						6						7						4
Total commercial banking						650						448						312						284						1,022
Other loans						—						—						—						4						8
Total nonperforming loans held for investment						$	995					$	983					$	813					$	899					$	1,599
Other nonperforming assets						45						63						59						153						280
Total nonperforming assets						$	1,040					$	1,046					$	872					$	1,052					$	1,879
Total nonperforming loans(1)						0.40		%				0.37		%				0.33		%				0.35		%				0.65		%
Total nonperforming assets(2)						0.41						0.39						0.35						0.41						0.76

__________

(1)Nonperforming loan rate is calculated based on total nonperforming loans divided by period-end total loans held for investment.

(2)The denominator used in calculating the total nonperforming assets ratio consists of total loans held for investment and total other nonperforming assets.

			105			Capital One Financial Corporation (COF)

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Table D—Net Charge-Offs

						Year Ended December 31,
(Dollars in millions)						2020						2019						2018						2017						2016
Average loans held for investment						$	253,335					$	247,450					$	242,118					$	245,565					$	233,272
Net charge-offs						5,225						6,252						6,112						6,562						5,062
Net charge-off rate						2.06		%				2.53		%				2.52		%				2.67		%				2.17		%

Table E—Summary of Allowance for Credit Losses and Reserve for Unfunded Lending Commitments

						December 31,
(Dollars in millions)						2020						2019						2018						2017						2016
Allowance for credit losses:
Balance at beginning of period(1)						$	10,515					$	7,220					$	7,502					$	6,503					$	5,130
Charge-offs:
Credit card						(5,749)						(6,711)						(6,657)						(6,321)						(5,019)
Consumer banking						(1,534)						(1,917)						(1,832)						(1,677)						(1,226)
Commercial banking						(394)						(181)						(119)						(481)						(307)
Other						—						—						(7)						(34)						(3)
Total charge-offs						(7,677)						(8,809)						(8,615)						(8,513)						(6,555)
Recoveries:
Credit card						1,479						1,562						1,588						1,267						1,066
Consumer banking						956						970						851						639						406
Commercial banking						17						25						63						16						15
Other						—						—						1						29						6
Total recoveries						2,452						2,557						2,503						1,951						1,493
Net charge-offs						(5,225)						(6,252)						(6,112)						(6,562)						(5,062)
Provision for credit losses						10,238						6,223						5,858						7,563						6,491
Allowance build (release) for credit losses						5,013						(29)						(254)						1,001						1,429
Other changes						36						17						(28)						(2)						(56)
Balance at end of period						$	15,564					$	7,208					$	7,220					$	7,502					$	6,503
Reserve for unfunded lending commitments:
Balance at beginning of period(2)						$	172					$	122					$	124					$	136					$	168
Provision (benefit) for losses on unfunded lending commitments						23						13						(2)						(12)						(32)
Balance at end of period						195						135						122						124						136
Combined allowance and reserve at end of period						$	15,759					$	7,343					$	7,342					$	7,626					$	6,639
Allowance for credit losses as a percentage of loans held for investment						6.19		%				2.71		%				2.94		%				2.95		%				2.65		%
Combined allowance and reserve by geographic distribution:
Domestic						$	15,218					$	6,945					$	6,951					$	7,251					$	6,262
International						541						398						391						375						377
Total						$	15,759					$	7,343					$	7,342					$	7,626					$	6,639
Combined allowance and reserve by portfolio segment:
Credit card						$	11,191					$	5,395					$	5,535					$	5,648					$	4,606
Consumer banking						2,715						1,043						1,052						1,249						1,109
Commercial banking						1,853						905						755						728						922
Other						—						—						—						1						2
Total						$	15,759					$	7,343					$	7,342					$	7,626					$	6,639

__________

(1)Includes both the cumulative effects from adoption of the CECL standard of $2.8 billion and the reclassification of our finance charge and fee reserve of $462 million to our allowance for credit losses in the first quarter of 2020.

(2)Includes cumulative effects from adoption of the CECL standard of $37 million in the first quarter of 2020.

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Reconciliation of Non-GAAP Measures

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

Table F—Reconciliation of Non-GAAP Measures

						December 31,
(Dollars in millions, except as noted)						2020						2019						2018						2017						2016
Tangible Common Equity (Period-End):
Stockholders’ equity						$	60,204					$	58,011					$	51,668					$	48,730					$	47,514
Goodwill and intangible assets(1)						(14,809)						(14,932)						(14,941)						(15,106)						(15,420)
Noncumulative perpetual preferred stock						(4,847)						(4,853)						(4,360)						(4,360)						(4,360)
Tangible common equity						$	40,548					$	38,226					$	32,367					$	29,264					$	27,734
Tangible Common Equity (Average):
Stockholders’ equity						$	58,201					$	55,690					$	50,192					$	49,530					$	48,753
Goodwill and intangible assets(1)						(14,875)						(14,927)						(15,017)						(15,308)						(15,550)
Noncumulative perpetual preferred stock						(5,247)						(4,729)						(4,360)						(4,360)						(3,591)
Tangible common equity						$	38,079					$	36,034					$	30,815					$	29,862					$	29,612
Tangible Assets (Period-End):
Total assets						$	421,602					$	390,365					$	372,538					$	365,693					$	357,033
Goodwill and intangible assets(1)						(14,809)						(14,932)						(14,941)						(15,106)						(15,420)
Tangible assets						$	406,793					$	375,433					$	357,597					$	350,587					$	341,613
Tangible Assets (Average):
Total assets						$	411,187					$	374,924					$	363,036					$	354,924					$	339,974
Goodwill and intangible assets(1)						(14,875)						(14,927)						(15,017)						(15,308)						(15,550)
Tangible assets						$	396,312					$	359,997					$	348,019					$	339,616					$	324,424
Non-GAAP Ratio:
Tangible common equity (“TCE”)(2)						10.0		%				10.2		%				9.1		%				8.3		%				8.1		%

__________

(1)Includes impact of related deferred taxes.

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

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Table G—Selected Quarterly Financial Information

(Dollars in millions, except per share data and as noted) (unaudited)						2020																								2019
						Q4						Q3						Q2						Q1						Q4						Q3						Q2						Q1
Summarized results of operations:
Interest income						$	6,391					$	6,215					$	6,318					$	7,109					$	7,270					$	7,075					$	7,076					$	7,092
Interest expense						518						660						858						1,084						1,204						1,338						1,330						1,301
Net interest income						5,873						5,555						5,460						6,025						6,066						5,737						5,746						5,791
Provision for credit losses						264						331						4,246						5,423						1,818						1,383						1,342						1,693
Net interest income after provision for credit losses						5,609						5,224						1,214						602						4,248						4,354						4,404						4,098
Non-interest income						1,464						1,826						1,096						1,224						1,361						1,222						1,378						1,292
Non-interest expense						4,009						3,548						3,770						3,729						4,161						3,872						3,779						3,671
Income (loss) from continuing operations before income taxes						3,064						3,502						(1,460)						(1,903)						1,448						1,704						2,003						1,719
Income tax provision (benefit)						496						1,096						(543)						(563)						270						375						387						309
Income (loss) from continuing operations, net of tax						2,568						2,406						(917)						(1,340)						1,178						1,329						1,616						1,410
Income (loss) from discontinued operations, net of tax						(2)						—						(1)						—						(2)						4						9						2
Net income (loss)						2,566						2,406						(918)						(1,340)						1,176						1,333						1,625						1,412
Dividends and undistributed earnings allocated to participating securities						(19)						(20)						(1)						(3)						(7)						(10)						(12)						(12)
Preferred stock dividends						(68)						(67)						(90)						(55)						(97)						(53)						(80)						(52)
Issuance cost for redeemed preferred stock						(17)						—						—						(22)						(31)						—						—						—
Net income (loss) available to common stockholders						$	2,462					$	2,319					$	(1,009)					$	(1,420)					$	1,041					$	1,270					$	1,533					$	1,348
Common share statistics:
Basic earnings per common share:
Net income (loss) from continuing operations						$	5.36					$	5.07					$	(2.21)					$	(3.10)					$	2.26					$	2.70					$	3.24					$	2.87
Income from discontinued operations						—						—						—						—						—						0.01						0.02						—
Net income (loss) per basic common share						$	5.36					$	5.07					$	(2.21)					$	(3.10)					$	2.26					$	2.71					$	3.26					$	2.87
Diluted earnings per common share:
Net income (loss) from continuing operations						$	5.35					$	5.06					$	(2.21)					$	(3.10)					$	2.25					$	2.68					$	3.22					$	2.86
Income from discontinued operations						—						—						—						—						—						0.01						0.02						—
Net income (loss) per diluted common share						$	5.35					$	5.06					$	(2.21)					$	(3.10)					$	2.25					$	2.69					$	3.24					$	2.86
Weighted-average common shares outstanding (in millions):
Basic common shares						459.1						457.8						456.7						457.6						460.9						469.5						470.8						469.4
Diluted common shares						460.2						458.5						456.7						457.6						463.4						471.8						473.0						471.6
Balance sheet (average balances):
Loans held for investment						$	247,689					$	249,511					$	253,358					$	262,889					$	258,870					$	246,147					$	242,653					$	241,959
Interest-earning assets						388,252						391,451						378,145						355,347						349,150						340,949						338,026						337,793
Total assets						420,011						422,854						411,075						390,380						383,162						374,905						371,095						370,394
Interest-bearing deposits						274,142						276,339						261,256						241,115						236,250						232,063						230,452						227,572
Total deposits						304,513						305,516						288,344						264,653						260,040						255,082						253,634						251,410
Borrowings						40,662						44,161						49,827						51,795						51,442						49,413						49,982						53,055
Common equity						54,220						51,995						52,413						53,186						52,641						52,566						50,209						48,359
Total stockholders’ equity						59,389						57,223						57,623						58,568						58,148						57,245						54,570						52,720

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Glossary and Acronyms

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

Amortized cost: The amount at which a financing receivable or investment is originated or acquired, adjusted for applicable accrued interest, accretion, or amortization of premium, discount, and net deferred fees or costs, collection of cash, write-offs, foreign exchange and fair value hedge accounting adjustments.

Annual Report: References to our “2020 Form 10-K” or “2020 Annual Report” are to our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Banks: Refers to COBNA and CONA.

Basel Committee: The Basel Committee on Banking Supervision.

Basel III Advanced Approaches: Following the Tailoring Rule, the Basel III Advanced Approaches was mandatory for Category I and II institutions. Category III institutions, such as us, are no longer subject to the Basel III Advanced Approaches framework effective January 1, 2020.

Basel III Capital Rules: The regulatory capital requirements established by the Federal Banking Agencies in July 2013 to implement 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 Rules modified Basel I to create the Basel III Standardized Approach.

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

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”): Legislation signed into laws on March 27, 2020. This law, among other things, authorized a number of lending programs to support the flow of credit to consumers and businesses and gave the banking organizations an option to temporarily suspend the determination of certain qualified loans modified as a result of COVID-19 as being TDRs, which was extended by the Consolidated Appropriations Act 2021.

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, net of any related reserves. Loans held for sale are recorded at either fair value (if we elect the fair value option) or at the lower of cost or fair value.

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

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

Common equity Tier 1 (“CET1”) capital: Calculated as the sum of common equity, related surplus and retained earnings, and accumulated other comprehensive income net of applicable phase-ins, less goodwill and intangibles net of associated deferred tax liabilities and applicable phase-ins, less other deductions, as defined by regulators.

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

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

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

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.

Eligible retained income: The greater of (a) a banking organization's net income for the four preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income, or (b) the average of a banking organization's net income over the preceding four quarters.

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”).

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 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 (“LCR”) 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 the LCR Rule.

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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 business segment results derived from our internal management accounting and reporting process, which 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. The results of our individual businesses reflect the manner in which management evaluates performance and makes decisions about funding our operations and allocating resources and are intended to reflect each segment as if it were a stand-alone business.

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

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

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

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

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

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

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

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

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

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

Purchased credit-impaired (“PCI”) loans: Loans acquired in a business combination or asset acquisition 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.

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.

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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.

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.

Stress capital buffer: A component of our new standardized approach capital conservation buffer, which will be recalibrated annually based on the results of our supervisory stress tests.

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.

Tailoring Rules: In October 2019, the Federal Banking Agencies released final rules that provide for tailored application of certain capital, liquidity and stress-testing requirements across different categories of banking institutions. As a bank holding company with total consolidated assets of at least $250 billion that does not exceed any of the applicable risk-based thresholds, we are a Category III institution under the Tailoring Rules.

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

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

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

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

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

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

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

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Acronyms

AML: Anti-money laundering

AOCI: Accumulated other comprehensive income

ARM: Adjustable rate mortgage

ARRC: Alternative Reference Rates Committee

ASU: Accounting Standards Update

ASC: Accounting Standards Codification

BHC: Bank holding company

bps: Basis points

CAD: Canadian dollar

CCAR: Comprehensive Capital Analysis and Review

CCP: Central Counterparty Clearinghouse, or Central Clearinghouse

CDE: Community development entities

CECL: Current expected credit loss

CFTC: Commodity Futures Trading Commission

CMBS: Commercial mortgage-backed securities

CME: Chicago Mercantile Exchange

COEP: Capital One (Europe) plc

COF: Capital One Financial Corporation

CVA: Credit valuation adjustment

DIF: Deposit Insurance Fund

DVA: Debit valuation adjustment

EUR: Euro

Fannie Mae: Federal National Mortgage Association

FASB: Financial Accounting Standards Board

FCA: U.K. Financial Conduct Authority

FCM: Futures commission merchant

FDIC: Federal Deposit Insurance Corporation

FFIEC: Federal Financial Institutions Examination Council

FHLB: Federal Home Loan Banks

FinCEN: Financial Crimes Enforcement Network

Fitch: Fitch Ratings

FOS: Financial Ombudsman Service

Freddie Mac: Federal Home Loan Mortgage Corporation

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

GBP: Pound sterling

Ginnie Mae: Government National Mortgage Association

GSE or Agency: Government-sponsored enterprise

IBOR: Interbank Offered Rate

IRM: Independent Risk Management

LCH: LCH Group

LCR: Liquidity coverage ratio

LIBOR: London Interbank Offered Rate

MDL: Multi-district litigation

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Moody’s: Moody’s Investors Service

MSRs: Mortgage servicing rights

NSFR: Net stable funding ratio

OCC: Office of the Comptroller of the Currency

OTC: Over-the-counter

PCA: Prompt corrective action

PCD: Purchased credit-deteriorated

PCI: Purchased credit-impaired

PCCR: Purchased credit card relationship

PPI: Payment protection insurance

PPP: Paycheck Protection Program

RMBS: Residential mortgage-backed securities

RSU: Restricted stock unit

S&P: Standard & Poor’s

SEC: U.S. Securities and Exchange Commission

SCB: Stress Capital Buffer

SOFR: Secured Overnight Financing Rate

TCE: Tangible common equity

TDR: Troubled debt restructuring

U.K.: United Kingdom

U.S.: United States of America

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

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

Item 8. Financial Statements and Supplementary Data
			Page
Consolidated Financial Statements			121
Consolidated Statements of Income			121
Consolidated Statements of Comprehensive Income			122
Consolidated Balance Sheets			123
Consolidated Statements of Changes in Stockholders’ Equity			124
Consolidated Statements of Cash Flows			125
Notes to Consolidated Financial Statements			127
Note 1—Summary of Significant Accounting Policies			127
Note 2—Investment Securities			143
Note 3—Loans			146
Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments			154
Note 5—Variable Interest Entities and Securitizations			158
Note 6—Goodwill and Intangible Assets			162
Note 7—Premises, Equipment and Leases			165
Note 8—Deposits and Borrowings			167
Note 9—Derivative Instruments and Hedging Activities			169
Note 10—Stockholders’ Equity			178
Note 11—Regulatory and Capital Adequacy			182
Note 12—Earnings Per Common Share			184
Note 13—Stock-Based Compensation Plans			185
Note 14—Employee Benefit Plans			187
Note 15—Income Taxes			189
Note 16—Fair Value Measurement			193
Note 17—Business Segments and Revenue from Contracts with Customers			202
Note 18—Commitments, Contingencies, Guarantees and Others			207
Note 19—Capital One Financial Corporation (Parent Company Only)			211
Note 20—Related Party Transactions			213

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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

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

Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, 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, 2020, 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, 2020.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, 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, 2020.

/s/ RICHARD D. FAIRBANK
Richard D. Fairbank
Chair, Chief Executive Officer and President
/s/ R. SCOTT BLACKLEY
R. Scott Blackley
Chief Financial Officer
February 25, 2021

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinion on Internal Control over Financial Reporting

We have audited Capital One Financial Corporation’s internal control over financial reporting as of December 31, 2020, 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, 2020, 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, 2020 and 2019, 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, 2020, and the related notes and our report dated February 25, 2021 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 25, 2021

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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, 2020 and 2019, 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, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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 25, 2021 expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

As discussed in Note 1 and Note 4 to the consolidated financial statements, the Company changed its method for accounting for credit losses in 2020. As explained below, auditing the Company’s allowance for credit losses, including adoption of the change in method of accounting for credit losses, was a critical audit matter.

Basis for Opinion

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

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

Critical Audit Matters

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

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						Allowance for credit losses—Credit Card and Consumer Banking
Description of the Matter						As discussed above and in Note 1 and Note 4 to the consolidated financial statements, the Company changed its method of accounting for credit losses. On January 1, 2020, the Company adopted the Financial Accounting Standards Board Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which resulted in an increase to the allowance for credit losses (ACL or allowance) for the credit card and consumer banking portfolios of $2.2 billion and $0.5 billion, respectively. At December 31, 2020, the Company’s allowance for the credit card and consumer banking portfolios was $11.2 billion and $2.7 billion, respectively. As more fully described in Note 1 and Note 4 of the consolidated financial statements, the ACL represents management’s current estimate of expected credit losses over the contractual terms of the Company’s held for investment (HFI) loan portfolios as of the balance sheet date and is comprised of two elements. The first is ‘quantitative’ and involves the use of complex econometric statistical loss forecasting models tailored to each portfolio based on, among other things, expected economic conditions; historical loss, recovery, and paydown experience; account seasoning; and the value of collateral underlying secured loans. The second is ‘qualitative’ and involves factors that represent management’s judgment of the imprecision and risks inherent in the processes and assumptions used in establishing the allowance for credit losses. Auditing the allowance for the credit card and consumer banking portfolios was especially challenging and highly judgmental due to the significant complexity of the loss forecasting models used in the quantitative element and the significant judgment required in establishing the qualitative element. The qualitative element requires management to make significant judgments regarding current and forward-looking conditions, internal and external factors, and uncertainty as it relates to economic, model, or forecasts risks, where not already captured in the modeled results.
How We Addressed the Matter in Our Audit						We obtained an understanding, evaluated the design and tested the operating effectiveness of the internal controls over the ACL process, including, among others, controls over the development, operation, and monitoring of loss forecasting models and management review controls over key assumptions and qualitative judgments used in reviewing the final credit card and consumer banking allowance results, including the economic forecast. Our tests of controls included observation of certain of management’s quarterly ACL governance meetings, at which key management judgments, qualitative adjustments, and final ACL results are subjected to critical challenge by management groups independent of the group responsible for producing the ACL estimate. We involved EY specialists in testing management’s credit card and consumer banking econometric statistical loss forecasting models including evaluating model methodology, model performance and testing key modeling assumptions as well as model governance and the economic forecast used by the ACL models. We compared actual loss history with prior forecasts at a disaggregated loan portfolio level to evaluate the reasonableness of management’s consumer forecasts (e.g., look-back analysis). We performed sensitivity analysis on the ACL, charge-off and delinquency rates, and coverage ratios used within each segment of the credit card and consumer banking allowance. Our audit response also included specific substantive tests of management’s process to measure credit card and consumer banking qualitative factors, including those related to the significant judgments made by management outlined above. We compared calculations to alternative model scenarios and industry peer data and compared qualitative factors to prior periods and prior economic cycles. We also evaluated if credit card and consumer banking allowance qualitative factors were applied based on a comprehensive framework and that all available information was considered, well-documented, and consistently applied.

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						Goodwill Impairment Assessment
Description of the Matter						At December 31, 2020, the Company’s goodwill was $14.7 billion recorded across four reporting units. As discussed in Note 1 and Note 6 of the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level by comparing the fair value of the reporting unit to its carrying value. Management uses a discounted cash flow analysis (DCF) to calculate the fair value of its reporting units. Auditing of the annual goodwill impairment test was especially challenging, complex, and highly judgmental due to the significant estimation required in determining the fair value of the reporting units. The fair value estimate is sensitive to significant assumptions including prospective financial information (PFI) and market discount rates. These PFI assumptions require management to make judgments about future loan and deposit growth, revenue and expenses, and credit losses. Management utilizes a financial forecasting process to estimate the PFI and an estimation process to determine the appropriate discount rates.
How We Addressed the Matter in Our Audit						Our audit procedures related to the goodwill impairment assessment included, among others, testing the design and operating effectiveness of controls over the Company’s PFI forecasting process and management’s impairment assessment process, including controls over the estimation of discount rates. To test the appropriateness of management’s assessment process, we assessed the goodwill impairment methodology and involved EY valuation specialists to assist in the testing of the significant assumptions, including testing the Company’s estimate of discount rates, and evaluating the reasonableness of total fair value through comparison to the Company’s market capitalization and analysis of the resulting premium to applicable market transactions. We evaluated certain of management’s assumptions with historical performance (e.g., trend analysis), current industry and economic trends, changes in the Company’s strategies, and the customer base or product mix. We also evaluated the consistency of the PFI by comparing the projections to other analyses used within the organization and inquiries performed of senior management regarding strategic plans within each reporting unit. We compared prior year forecasts to current year actual performance. We performed sensitivity analyses related to the significant assumptions to evaluate the change in the fair value of the reporting units resulting from changes in the assumptions. We also recalculated the reconciliation of the fair value of all reporting units to the market capitalization of the Company and then assessed the resulting premium.

/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1994.
Tysons, Virginia
February 25, 2021

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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

												Year Ended December 31,
(Dollars in millions, except per share-related data)																		2020						2019						2018
Interest income:
Loans, including loans held for sale																		$	24,074					$	25,862					$	24,728
Investment securities																		1,877						2,411						2,211
Other																		82						240						237
Total interest income																		26,033						28,513						27,176
Interest expense:
Deposits																		2,165						3,420						2,598
Securitized debt obligations																		232						523						496
Senior and subordinated notes																		679						1,159						1,125
Other borrowings																		44						71						82
Total interest expense																		3,120						5,173						4,301
Net interest income																		22,913						23,340						22,875
Provision for credit losses																		10,264						6,236						5,856
Net interest income after provision for credit losses																		12,649						17,104						17,019
Non-interest income:
Interchange fees, net																		3,017						3,179						2,823
Service charges and other customer-related fees																		1,243						1,330						1,585
Net securities gains (losses)																		25						26						(209)
Other																		1,325						718						1,002
Total non-interest income																		5,610						5,253						5,201
Non-interest expense:
Salaries and associate benefits																		6,805						6,388						5,727
Occupancy and equipment																		2,118						2,098						2,118
Marketing																		1,610						2,274						2,174
Professional services																		1,312						1,237						1,145
Communications and data processing																		1,215						1,290						1,260
Amortization of intangibles																		60						112						174
Other																		1,936						2,084						2,304
Total non-interest expense																		15,056						15,483						14,902
Income from continuing operations before income taxes																		3,203						6,874						7,318
Income tax provision																		486						1,341						1,293
Income from continuing operations, net of tax																		2,717						5,533						6,025
Income (loss) from discontinued operations, net of tax																		(3)						13						(10)
Net income																		2,714						5,546						6,015
Dividends and undistributed earnings allocated to participating securities																		(20)						(41)						(40)
Preferred stock dividends																		(280)						(282)						(265)
Issuance cost for redeemed preferred stock																		(39)						(31)						0
Net income available to common stockholders																		$	2,375					$	5,192					$	5,710
Basic earnings per common share:
Net income from continuing operations																		$	5.20					$	11.07					$	11.92
Income (loss) from discontinued operations																		(0.01)						0.03						(0.02)
Net income per basic common share																		$	5.19					$	11.10					$	11.90
Diluted earnings per common share:
Net income from continuing operations																		$	5.19					$	11.02					$	11.84
Income (loss) from discontinued operations																		(0.01)						0.03						(0.02)
Net income per diluted common share																		$	5.18					$	11.05					$	11.82

See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

												Year Ended December 31,
(Dollars in millions)																		2020						2019						2018
Net income																		$	2,714					$	5,546					$	6,015
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities available for sale																		1,259						650						(459)
Net unrealized gains (losses) on hedging relationships																		1,008						772						(74)
Foreign currency translation adjustments																		76						70						(39)
Net changes in securities held to maturity																		0						26						447
Other																		3						13						(11)
Other comprehensive income (loss), net of tax																		2,346						1,531						(136)
Comprehensive income																		$	5,060					$	7,077					$	5,879

See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except per share-related data)						December 31, 2020						December 31, 2019
Assets:
Cash and cash equivalents:
Cash and due from banks						$	4,708					$	4,129
Interest-bearing deposits and other short-term investments						35,801						9,278
Total cash and cash equivalents						40,509						13,407
Restricted cash for securitization investors						262						342
Securities available for sale (amortized cost of $97.6 billion and allowance for credit losses of $1 million as of December 31, 2020)						100,445						79,213
Loans held for investment:
Unsecuritized loans held for investment						225,698						231,992
Loans held in consolidated trusts						25,926						33,817
Total loans held for investment						251,624						265,809
Allowance for credit losses						(15,564)						(7,208)
Net loans held for investment						236,060						258,601
Loans held for sale ($596 million and $251 million carried at fair value at December 31, 2020 and 2019, respectively)						2,710						400
Premises and equipment, net						4,287						4,378
Interest receivable						1,471						1,758
Goodwill						14,653						14,653
Other assets						21,205						17,613
Total assets						$	421,602					$	390,365
Liabilities:
Interest payable						$	352					$	439
Deposits:
Non-interest-bearing deposits						31,142						23,488
Interest-bearing deposits						274,300						239,209
Total deposits						305,442						262,697
Securitized debt obligations						12,414						17,808
Other debt:
Federal funds purchased and securities loaned or sold under agreements to repurchase						668						314
Senior and subordinated notes						27,382						30,472
Other borrowings						75						7,103
Total other debt						28,125						37,889
Other liabilities						15,065						13,521
Total liabilities						361,398						332,354
Commitments, contingencies and guarantees (see Note 18)
Stockholders’ equity:
Preferred stock (par value $0.01 per share; 50,000,000 shares authorized; 4,975,000 shares issued and outstanding as of both December 31, 2020 and 2019)						0						0
Common stock (par value $0.01 per share; 1,000,000,000 shares authorized; 679,932,837 and 672,969,391 shares issued as of December 31, 2020 and 2019, respectively; 458,972,202 and 456,562,399 shares outstanding as of December 31, 2020 and 2019, respectively)						7						7
Additional paid-in capital, net						33,480						32,980
Retained earnings						40,088						40,340
Accumulated other comprehensive income						3,494						1,156
Treasury stock, at cost (par value $0.01 per share; 220,960,635 and 216,406,992 shares as of December 31, 2020 and 2019, respectively)						(16,865)						(16,472)
Total stockholders’ equity						60,204						58,011
Total liabilities and stockholders’ equity						$	421,602					$	390,365

See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in millions)						Preferred Stock												Common Stock												Additional Paid-In Capital						Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Treasury Stock						Total Stockholders’ Equity
						Shares						Amount						Shares						Amount
Balance as of December 31, 2017						4,475,000						$	0					661,724,927						$	7					$	31,656					$	30,700					$	(926)					$	(12,707)					$	48,730
Cumulative effects from adoption of new accounting standards																																				201						(201)												0
Comprehensive income (loss)																																				6,015						(136)												5,879
Dividends—common stock(1)																		35,813						0						3						(776)																		(773)
Dividends—preferred stock																																				(265)																		(265)
Purchases of treasury stock																																																(2,284)						(2,284)
Issuances of common stock and restricted stock, net of forfeitures																		4,183,783						0						175																								175
Exercises of stock options and warrants																		2,024,546						0						38																								38
Compensation expense for restricted stock awards, restricted stock units and stock options																														168																								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
Cumulative effects from adoption of new lease standard																																				(11)																		(11)
Comprehensive income																																				5,546						1,531												7,077
Effects from transfer of securities held to maturity to available for sale																																										888												888
Dividends—common stock(1)																		49,963						0						4						(757)																		(753)
Dividends—preferred stock																																				(282)																		(282)
Purchases of treasury stock																																																(1,481)						(1,481)
Issuances of common stock and restricted stock, net of forfeitures																		4,678,940						0						199																								199
Exercises of stock options																		271,419						0						17																								17
Issuances of preferred stock						1,500,000						0																		1,462																								1,462
Redemptions of preferred stock						(1,000,000)						0																		(969)						(31)																		(1,000)
Compensation expense for restricted stock units and stock options																														227																								227
Balance as of December 31, 2019						4,975,000						$	0					672,969,391						$	7					$	32,980					$	40,340					$	1,156					$	(16,472)					$	58,011
Cumulative effects from adoption of the CECL standard																																				(2,184)						(8)												(2,192)
Comprehensive income																																				2,714						2,346												5,060
Dividends—common stock(1)																		32,466						0						3						(463)																		(460)
Dividends—preferred stock																																				(280)																		(280)
Purchases of treasury stock																																																(393)						(393)
Issuances of common stock and restricted stock, net of forfeitures																		5,539,010						0						241																								241
Exercises of stock options																		1,391,970						0						62																								62
Issuances of preferred stock						1,375,000						0																		1,330																								1,330
Redemptions of preferred stock						(1,375,000)						0																		(1,336)						(39)																		(1,375)
Compensation expense for restricted stock units and stock options																														200																								200
Balance as of December 31, 2020						4,975,000						$	0					679,932,837						$	7					$	33,480					$	40,088					$	3,494					$	(16,865)					$	60,204

__________

(1)We declared dividends per share on our common stock of $0.40 in both of the first two quarters and $0.10 in both of the latter two quarters of 2020 and $0.40 in each quarter of 2019 and 2018.

See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

						Year Ended December 31,
(Dollars in millions)						2020						2019						2018
Operating activities:
Income from continuing operations, net of tax						$	2,717					$	5,533					$	6,025
Income (loss) from discontinued operations, net of tax						(3)						13						(10)
Net income						2,714						5,546						6,015
Adjustments to reconcile net income to net cash from operating activities:
Provision for credit losses						10,264						6,236						5,856
Depreciation and amortization, net						3,501						3,339						2,396
Deferred tax provision (benefit)						(1,627)						(296)						714
Net securities losses (gains)						(25)						(26)						209
Gain on sales of loans						(6)						(50)						(548)
Stock-based compensation expense						203						239						170
Other (including unrealized gains from equity investments)						(520)						0						(125)
Loans held for sale:
Originations and purchases						(10,055)						(9,798)						(9,039)
Proceeds from sales and paydowns						9,856						10,668						8,442
Changes in operating assets and liabilities:
Changes in interest receivable						287						(63)						(74)
Changes in other assets						979						662						476
Changes in interest payable						(87)						(19)						45
Changes in other liabilities						1,212						194						(1,553)
Net change from discontinued operations						3						7						(6)
Net cash from operating activities						16,699						16,639						12,978
Investing activities:
Securities available for sale:
Purchases						(43,026)						(12,105)						(14,022)
Proceeds from paydowns and maturities						22,324						8,553						7,510
Proceeds from sales						812						4,780						6,399
Securities held to maturity:
Purchases						0						(396)						(19,166)
Proceeds from paydowns and maturities						0						5,050						2,419
Loans:
Net changes in loans held for investment						4,136						(21,280)						1,015
Principal recoveries of loans previously charged off						2,452						2,557						2,503
Net purchases of premises and equipment						(710)						(887)						(874)
Net cash from acquisition activities						(7)						(8,393)						(600)
Net cash from other investing activities						(822)						(877)						(802)
Net cash from investing activities						(14,841)						(22,998)						(15,618)

See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

						Year Ended December 31,
(Dollars in millions)						2020						2019						2018
Financing activities:
Deposits and borrowings:
Changes in deposits						$	42,519					$	12,643					$	6,077
Issuance of securitized debt obligations						1,248						6,656						997
Maturities and paydowns of securitized debt obligations						(6,885)						(7,285)						(2,673)
Issuance of senior and subordinated notes and long-term FHLB advances						3,987						4,142						5,977
Maturities and paydowns of senior and subordinated notes and long-term FHLB advances						(8,156)						(5,595)						(14,163)
Changes in other borrowings						(6,674)						(2,104)						8,671
Common stock:
Net proceeds from issuances						241						199						175
Dividends paid						(460)						(753)						(773)
Preferred stock:
Net proceeds from issuances						1,330						1,462						0
Dividends paid						(280)						(282)						(265)
Redemptions						(1,375)						(1,000)						0
Purchases of treasury stock						(393)						(1,481)						(2,284)
Proceeds from share-based payment activities						62						17						38
Net cash from financing activities						25,164						6,619						1,777
Changes in cash, cash equivalents and restricted cash for securitization investors						27,022						260						(863)
Cash, cash equivalents and restricted cash for securitization investors, beginning of the period						13,749						13,489						14,352
Cash, cash equivalents and restricted cash for securitization investors, end of the period						$	40,771					$	13,749					$	13,489
Supplemental cash flow information:
Non-cash items:
Net transfers from (to) loans held for investment to (from) loans held for sale						$	2,192					$	1,589					$	855
Transfers from securities held to maturity to securities available for sale						0						33,187						0
Interest paid						3,580						4,790						3,933
Income tax paid						988						626						407

See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Capital One Financial Corporation, a Delaware Corporation established in 1994 and headquartered in McLean, Virginia, is a diversified financial services holding company with banking and non-banking subsidiaries. Capital One Financial Corporation and its subsidiaries (the “Company”) offer a broad array of financial products and services to consumers, small businesses and commercial clients through digital channels, branches, Cafés and other distribution channels. As of December 31, 2020, our principal subsidiaries included:

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

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

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

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

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

Basis of Presentation and Use of Estimates

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”). The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and in the related disclosures. These estimates are based on information available as of the date of the consolidated financial statements. While management makes its best judgments, actual amounts or results could differ from these estimates. 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 which we do not hold a controlling financial interest but 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 measure equity investments at fair value with changes in fair value

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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

recorded through net income, except those that do not have a readily determinable fair value (for which a measurement alternative is applied). We report equity investments in other assets on our consolidated balance sheets and include our share of income or loss and dividends from those investments in other non-interest income in our consolidated statements of income.

Variable Interest Entities

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

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

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

Balance Sheet Offsetting of Financial Assets and Liabilities

Derivative contracts that we execute bilaterally in the over-the-counter (“OTC”) market or are centrally cleared are generally governed by enforceable master netting 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. See “Note 9—Derivative Instruments and Hedging Activities” for more details.

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

Cash and Cash Equivalents

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

Securities Resale and Repurchase Agreements

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

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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Significant Accounting Policies Impacted by our Adoption of the CECL Standard

In the first quarter of 2020, we adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL standard”) and updated the significant accounting policies described under the "Investment Securities" and "Loans" sections below.

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. On December 31, 2019, we transferred our entire portfolio of held to maturity securities to available for sale. We did not have any securities that were classified as held to maturity as of December 31, 2020 and 2019.

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

An individual debt security is impaired when the fair value of the security is less than its amortized cost. If we intend to sell an available for sale security in an unrealized loss position or it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, any allowance for credit losses is reversed through our provision for credit losses and the difference between the amortized cost basis of the security and its fair value is recognized in our consolidated statements of income.

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

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

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

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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Allowance for Credit Losses - Available for Sale Investment Securities

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

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

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

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

Loans

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

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CAPITAL ONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loan Classification

We classify loans as held for investment or held for sale based on our investment strategy and management’s intent and ability with regard to the loans, which may change over time. The accounting and measurement framework for loans differs depending on the loan classification, whether we elect the fair value option, whether the loans are originated or purchased and whether purchased loans are c