UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________

FORM 10-Q

____________________________________

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

For the quarterly period ended September 30, 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

(Not applicable)

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

____________________________________

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 F			COF PRF			New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series G			COF PRG			New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series H			COF PRH			New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series I			COF PRI			New York Stock Exchange
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

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of September 30, 2020, there were 457,397,091 shares of the registrant’s Common Stock outstanding.

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TABLE OF CONTENTS

						Page
PART I—FINANCIAL INFORMATION						4
Item 1.			Financial Statements and Notes			73
			Consolidated Statements of Income			74
			Consolidated Statements of Comprehensive Income			75
			Consolidated Balance Sheets			76
			Consolidated Statements of Changes in Stockholders’ Equity			77
			Consolidated Statements of Cash Flows			79
			Notes to Consolidated Financial Statements			81
			Note 1—Summary of Significant Accounting Policies			81
			Note 2—Investment Securities			90
			Note 3—Loans			93
			Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments			102
			Note 5—Variable Interest Entities and Securitizations			106
			Note 6—Goodwill and Intangible Assets			110
			Note 7—Deposits and Borrowings			111
			Note 8—Derivative Instruments and Hedging Activities			112
			Note 9—Stockholders’ Equity			122
			Note 10—Earnings Per Common Share			126
			Note 11—Fair Value Measurement			127
			Note 12—Business Segments and Revenue from Contracts with Customers			134
			Note 13—Commitments, Contingencies, Guarantees and Others			138
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)			4
			Introduction			4
			Selected Financial Data			8
			Executive Summary and Business Outlook			11
			Consolidated Results of Operations			13
			Consolidated Balance Sheets Analysis			19
			Off-Balance Sheet Arrangements			21
			Business Segment Financial Performance			21
			Critical Accounting Policies and Estimates			32
			Accounting Changes and Developments			34
			Capital Management			35
			Risk Management			41
			Credit Risk Profile			42
			Liquidity Risk Profile			55
			Market Risk Profile			58
			Supervision and Regulation			62
			Forward-Looking Statements			63
			Supplemental Table			66
			Glossary and Acronyms			67

			1			Capital One Financial Corporation (COF)

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Item 3.			Quantitative and Qualitative Disclosures about Market Risk			142
Item 4.			Controls and Procedures			142
PART II—OTHER INFORMATION						143
Item 1.			Legal Proceedings			143
Item 1A.			Risk Factors			143
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			143
Item 3.			Defaults Upon Senior Securities			143
Item 4.			Mine Safety Disclosures			143
Item 5.			Other Information			143
Item 6.			Exhibits			143
EXHIBIT INDEX						144
SIGNATURES						145

			2			Capital One Financial Corporation (COF)

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INDEX OF MD&A AND SUPPLEMENTAL TABLE

MD&A Tables:						Page
1			Consolidated Financial Highlights			8
2			Average Balances, Net Interest Income and Net Interest Margin			13
3			Rate/Volume Analysis of Net Interest Income			16
4			Non-Interest Income			17
5			Non-Interest Expense			18
6			Investment Securities			19
7			Loans Held for Investment			20
8			Funding Sources Composition			20
9			Business Segment Results			22
10			Credit Card Business Results			23
10.1			Domestic Card Business Results			24
11			Consumer Banking Business Results			26
12			Commercial Banking Business Results			28
13			Other Category Results			31
14			Capital Ratios Under Basel III			37
15			Regulatory Risk-Based Capital Components and Regulatory Capital Metrics			38
16			Preferred Stock Dividends Paid Per Share			39
17			Portfolio Composition of Loans Held for Investment			42
18			Credit Card Portfolio by Geographic Region			43
19			Consumer Banking Portfolio by Geographic Region			44
20			Commercial Banking Portfolio by Geographic Region			44
21			Commercial Loans by Industry			45
22			Credit Score Distribution			45
23			30+ Day Delinquencies			46
24			Aging and Geography of 30+ Day Delinquent Loans			47
25			90+ Day Delinquent Loans Accruing Interest			48
26			Nonperforming Loans and Other Nonperforming Assets			48
27			Net Charge-Offs			49
28			Troubled Debt Restructurings			51
29			Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity			53
30			Allowance Coverage Ratios			55
31			Liquidity Reserves			55
32			Deposits Composition and Average Deposits Interest Rates			57
33			Long-Term Funding			58
34			Senior Unsecured Long-Term Debt Credit Ratings			58
35			Interest Rate Sensitivity Analysis			59
Supplemental Table:
A			Reconciliation of Non-GAAP Measures			66

			3			Capital One Financial Corporation (COF)

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PART I—FINANCIAL INFORMATION

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

This discussion contains forward-looking statements that are based upon management’s current expectations and are subject to significant uncertainties and changes in circumstances. Please review “MD&A—Forward-Looking Statements” for more information on the forward-looking statements in this Quarterly Report on Form 10-Q (“this Report”). All statements that address operating performance, events or developments that we expect or anticipate will occur in the future, including those relating to operating results and the Cybersecurity Incident described in “MD&A—Introduction—Cybersecurity Incident” and “Note 13—Commitments, Contingencies, Guarantees and Others” as well as the potential impacts of the COVID-19 pandemic described in “MD&A—Introduction—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 our 2019 Annual Report on Form 10-K (“2019 Form 10-K”) and “Part II—Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2020. Unless otherwise specified, references to notes to our consolidated financial statements refer to the notes to our consolidated financial statements as of September 30, 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 provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and related notes in this Report and the more detailed information contained in our 2019 Form 10-K.

INTRODUCTION

We are a diversified financial services holding company with banking and non-banking subsidiaries. Capital One Financial Corporation and its subsidiaries (the “Company”) offer a broad array of financial products and services to consumers, small businesses and commercial clients through digital channels, branches, Cafés and other distribution channels. As of September 30, 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.” Certain business terms used in this document are defined in the “MD&A—Glossary and Acronyms” and should be read in conjunction with the consolidated financial statements included in this Report.

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

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

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

			4			Capital One Financial Corporation (COF)

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•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 commercial and industrial customers typically include companies with annual revenues between $20 million and $2 billion.

Business Developments

We regularly explore and evaluate opportunities to acquire financial services and products 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 assets, branches, partnership agreements or lines of business.

As of September 30, 2020, we transferred a partnership credit card loan portfolio of approximately $2.1 billion to held for sale, which resulted in an allowance release of $327 million, as we expect to sell this portfolio.

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 United States of America (“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.

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 have 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 throughout 2020, as we continue to prioritize their safety while planning our return to the office. We have been able to continue serving customers, successfully managing critical functions and keeping our lines of business operating. We have 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 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, we have re-opened nearly all of our cafes and branches across our network 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 continue to offer a range of policies and programs to accommodate customer hardship across our lines of business. In our Credit Card and Auto Finance businesses, our customers can seek forbearance primarily in the form of short-term payment deferrals or extensions and fee waivers. In our Retail Banking business, we are waiving select fees for impacted customers and are offering short-term payment deferrals for our small business banking customers. We are also 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 and enrollment volumes.

			5			Capital One Financial Corporation (COF)

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We reported net income of $148 million (which after considering preferred stock dividends and other items equated to a net loss of $0.20 per diluted common share) for the first nine months of 2020, which reflects $5.6 billion in allowance builds primarily 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, increased our allowance coverage ratio by 379 basis points to 6.50% as of September 30, 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 and have incorporated recent market events and trends into our fair value measurements. See more details in “MD&A—Critical Accounting Policies and Estimates,” “MD&A—Market Risk Profile” and “Note 8—Derivative Instruments and Hedging Activities.” See “MD&A—Liquidity Risk Profile” for information relating to our liquidity reserves as of September 30, 2020.

In the third quarter of 2020, the COVID-19 pandemic continued to impact the demand for our products and services. In our Domestic Card business, loan balances and revenue are down year-over-year, while purchase volume was relatively flat. In our Auto business, we saw an increase in origination volumes and loan growth from the sharp decline at the end of the first quarter. Our loan growth was 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.

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, 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.

See “Part II—Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2020 for additional information regarding risks and the significant uncertainties relating to the COVID-19 pandemic.

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 third quarter of 2020, we incurred $13 million of incremental expenses related to the remediation of and response to the Cybersecurity Incident, offset by $7 million of insurance recoveries. To date, we have incurred $127 million of incremental expenses, offset by $67 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 support. We expect total incremental costs through the end of 2020 will be at the high end of the $100 million to $150 million range previously disclosed. We carry insurance to cover certain costs associated with a cyber risk event. As the timing of recognizing insurance reimbursements may differ from the timing of recognizing the associated expenses, any such reimbursements are not considered in this range, though we continue to expect that a significant portion of these expenses will be covered by insurance. This insurance has a total coverage limit of $400 million and is subject to a $10 million deductible, which was met in the third quarter of 2019, as well as standard exclusions.

We continue to treat these expenses and insurance reimbursements as adjusting items as they relate to our financial results (“Cyber Adjusting Items”). Our reported results excluding adjusting items, including the Cyber Adjusting Items, represent non-GAAP measures which we believe help users of our financial information understand the impact of these adjusting items on our reported results as well as provide an alternate measurement of our operating performance.

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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 13—Commitments, Contingencies, Guarantees and Others.”

			7			Capital One Financial Corporation (COF)

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SELECTED FINANCIAL DATA

The following table presents selected consolidated financial data and performance from our results of operations for the third quarter and first nine months of 2020 and 2019 and selected comparative balance sheet data as of September 30, 2020 and December 31, 2019. 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 level of return generated.

Table 1: Consolidated Financial Highlights

						Three Months Ended September 30,																		Nine Months Ended September 30,
(Dollars in millions, except per share data and as noted)						2020						2019						Change						2020						2019																								Change
Income statement
Net interest income						$	5,555					$	5,737					(3)		%				$	17,040					$	17,274																							(1)		%
Non-interest income						1,826						1,222						49						4,146						3,892																								7
Total net revenue						7,381						6,959						6						21,186						21,166																								—
Provision for credit losses						331						1,383						(76)						10,000						4,418																								126
Non-interest expense:
Marketing						283						501						(44)						1,047						1,564																								(33)
Operating expense						3,265						3,371						(3)						10,000						9,758																								2
Total non-interest expense						3,548						3,872						(8)						11,047						11,322																								(2)
Income from continuing operations before income taxes						3,502						1,704						106						139						5,426																								(97)
Income tax provision (benefit)						1,096						375						192						(10)						1,071																								**
Income from continuing operations, net of tax						2,406						1,329						81						149						4,355																								(97)
Income (loss) from discontinued operations, net of tax						—						4						**						(1)						15																								**
Net income						2,406						1,333						80						148						4,370																								(97)
Dividends and undistributed earnings allocated to participating securities						(20)						(10)						100						(5)						(34)																								(85)
Preferred stock dividends						(67)						(53)						26						(212)						(185)																								15
Issuance cost for redeemed preferred stock						—						—						—						(22)						—																								**
Net income (loss) available to common stockholders						$	2,319					$	1,270					83						$	(91)					$	4,151																							**
Common share statistics
Basic earnings per common share:
Net income (loss) from continuing operations						$	5.07					$	2.70					88		%				$	(0.20)					$	8.80																							**
Income from discontinued operations						—						0.01						**						—						0.03																								**
Net income (loss) per basic common share						$	5.07					$	2.71					87						$	(0.20)					$	8.83																							**
Diluted earnings per common share:
Net income (loss) from continuing operations						$	5.06					$	2.68					89		%				$	(0.20)					$	8.76																							**
Income from discontinued operations						—						0.01						**						—						0.03																								**
Net income (loss) per diluted common share						$	5.06					$	2.69					88						$	(0.20)					$	8.79																							**
Weighted-average common shares outstanding (in millions):
Basic						457.8						469.5						(2)		%				457.4						469.9																								(3)		%
Diluted						458.5						471.8						(3)						457.4						472.1																								(3)
Common shares outstanding (period-end, in millions)						457.4						465.7						(2)						457.4						465.7																								(2)
Dividends declared and paid per common share						$	0.10					$	0.40					(75)						$	0.90					$	1.20																							(25)
Tangible book value per common share (period-end)(1)						83.67						80.46						4						83.67						80.46																								4
Balance sheet (average balances)
Loans held for investment						$	249,511					$	246,147					1		%				$	255,232					$	243,602																							5		%
Interest-earning assets						391,451						340,949						15						375,041						338,936																								11
Total assets						422,854						374,905						13						408,233						372,148																								10
Interest-bearing deposits						276,339						232,063						19						259,631						230,045																								13
Total deposits						305,516						255,082						20						286,242						253,389																								13

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						Three Months Ended September 30,																		Nine Months Ended September 30,
(Dollars in millions, except per share data and as noted)						2020						2019						Change						2020						2019																								Change
Borrowings						$	44,161					$	49,413					(11)		%				$	48,577					$	50,804																							(4)		%
Common equity						51,995						52,566						(1)						52,529						50,393																								4
Total stockholders’ equity						57,223						57,245						—						57,802						54,861																								5
Selected performance metrics
Purchase volume						$	107,102					$	108,034					(1)		%				$	297,171					$	308,134																							(4)		%
Total net revenue margin(2)						7.54		%				8.16		%				(62)		bps				7.53		%				8.33		%																						(80)		bps
Net interest margin						5.68						6.73						(105)						6.06						6.80																								(74)
Return on average assets(3)						2.28						1.42						86						0.05						1.56																								(151)
Return on average tangible assets(4)						2.36						1.48						88						0.05						1.63																								(158)
Return on average common equity(5)						17.84						9.63						8		%				(0.23)						10.94																								**
Return on average tangible common equity(6)						24.98						13.45						12						(0.32)						15.54																								**
Equity-to-assets ratio(7)						13.53						15.27						(174)		bps				14.16						14.74																								(58)		bps
Non-interest expense as a percentage of average loans held for investment						5.69						6.29						(60)						5.77						6.20																								(43)
Efficiency ratio(8)						48.07						55.64						(8)		%				52.14						53.49																								(135)
Operating efficiency ratio(9)						44.24						48.44						(4)						47.20						46.10																								110
Effective income tax rate from continuing operations						31.3						22.0						9						(7.2)						19.7																								(27)		%
Net charge-offs						$	1,073					$	1,462					(27)						$	4,369					$	4,569																							(4)
Net charge-off rate						1.72		%				2.38		%				(66)		bps				2.28		%				2.50		%																						(22)		bps

(Dollars in millions, except as noted)						September 30, 2020						December 31, 2019																								Change
Balance sheet (period-end)
Loans held for investment						$	248,223					$	265,809																							(7)		%
Interest-earning assets						390,040						355,202																								10
Total assets						421,883						390,365																								8
Interest-bearing deposits						276,092						239,209																								15
Total deposits						305,725						262,697																								16
Borrowings						42,795						55,697																								(23)
Common equity						53,093						53,157																								—
Total stockholders’ equity						58,424						58,011																								1
Credit quality metrics
Allowance for credit losses						$	16,129					$	7,208																							124		%
Allowance as a percentage of loans held for investment (“allowance coverage ratio”)						6.50		%				2.71		%																						379		bps
30+ day performing delinquency rate						1.97						3.51																								(154)
30+ day delinquency rate						2.22						3.74																								(152)
Capital ratios
Common equity Tier 1 capital(10)						13.0		%				12.2		%																						80		bps
Tier 1 capital(10)						14.8						13.7																								110
Total capital(10)						17.3						16.1																								120
Tier 1 leverage(10)						10.6						11.7																								(110)
Tangible common equity(11)						9.4						10.2																								(80)
Supplementary leverage(10)						10.2						9.9																								30
Other
Employees (period end, in thousands)						52.5						51.9																								1		%

__________

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

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

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

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

(5)Return on average common equity is calculated based on annualized 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.

(6)Return on average tangible common equity is a non-GAAP measure calculated based on annualized net income available to common stockholders less income (loss) from discontinued operations, net of tax, for the period, divided by average tangible common equity (“TCE”). Our calculation of return on average TCE may not be comparable to similarly-titled measures reported by other companies. See “MD&A—Table A—Reconciliation of Non-GAAP Measures” for additional information on non-GAAP measures.

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

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

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

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

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

**    Not meaningful

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EXECUTIVE SUMMARY AND BUSINESS OUTLOOK

Financial Highlights

We reported net income of $2.4 billion (net income of $5.06 per diluted common share) on total net revenue of $7.4 billion and net income of $148 million (which after considering preferred stock dividends and other items equated to a net loss of $0.20 per diluted common share) on total net revenue of $21.2 billion for the third quarter and first nine months of 2020, respectively. In comparison, we reported net income of $1.3 billion (net income of $2.69 per diluted common share) on total net revenue of $7.0 billion and net income of $4.4 billion (net income of $8.79 per diluted common share) on total net revenue of $21.2 billion for the third quarter and first nine months of 2019, respectively.

Our common equity Tier 1 capital ratio as calculated under the Basel III Standardized Approach was 13.0% and 12.2% as of September 30, 2020 and December 31, 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. See “MD&A—Capital Management—Dividend Policy and Stock Purchases” for additional information.

Below are additional highlights of our performance in the third quarter and first nine months of 2020. These highlights are based on a comparison between the results of the third quarter and first nine months 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 September 30, 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.”

Total Company Performance

•Earnings:

Our net income increased $1.1 billion to $2.4 billion in the third quarter of 2020 primarily driven by:

◦lower provision for credit losses driven by an allowance release due to lower loan balances in Domestic Card and Commercial Banking, including a $327 million release for credit card loans moved to held-for-sale; and

◦higher non-interest income due to a gain of $470 million on our equity investment in Snowflake Inc., which recently completed its initial public offering.

Our net income decreased $4.2 billion to $148 million in the first nine months of 2020 primarily driven by:

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

◦lower net interest income due to lower yields and lower outstanding balances in Domestic Card;

Partially offset by lower marketing expense.

•Loans Held for Investment:

◦Period-end loans held for investment decreased by $17.6 billion to $248.2 billion as of September 30, 2020 from December 31, 2019 primarily due to a decline in purchase volume and higher payments in Domestic Card driven by the customer response to the COVID-19 pandemic, partially offset by growth in our auto and commercial loan portfolios.

◦Average loans held for investment increased by $3.4 billion to $249.5 billion in the third quarter of 2020 compared to the third quarter of 2019 primarily driven by growth in our auto and commercial loan portfolios, partially offset by a decline in purchase volume and higher payments in Domestic Card. Average loans held for investment increased by $11.6 billion to $255.2 billion in the first nine months of 2020 compared to the first nine

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months of 2019 primarily driven by growth in our commercial, auto and domestic credit card loan portfolios, including the Walmart portfolio acquired in the fourth quarter of 2019.

•Net Charge-Off and Delinquency Metrics: Our net charge-off rate decreased by 66 basis points to 1.72% in the third quarter of 2020 compared to the third quarter of 2019 and decreased by 22 basis points to 2.28% in the first nine months of 2020 compared to the first nine months of 2019, primarily driven by the impact of short-term payment extensions offered to affected auto borrowers in response to the COVID-19 pandemic and strong credit performance in Domestic Card due to consumer payment behavior and the related impacts from government stimulus, partially offset by isolated charge offs in our commercial loan portfolio.

Our 30+ day delinquency rate decreased by 152 basis points to 2.22% as of September 30, 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 $8.9 billion to $16.1 billion, and our allowance coverage ratio increased by 379 basis points to 6.50% as of September 30, 2020 from December 31, 2019, driven by the allowance builds in the first and second quarters of 2020 from expectations of economic worsening and uncertainty as a result of the COVID-19 pandemic as well as the adoption of the CECL standard 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 our December 31, 2019 Form 10-K. Certain statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those in our forward-looking statements. Except as otherwise disclosed, forward-looking statements do not reflect:

•any change in current dividend or repurchase strategies;

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

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

•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 2020 which will be separately reported as an adjusting item as it relates to the Company’s financial results; or

•Moreover, this Report reflects certain assumptions regarding the potential effects of the COVID-19 pandemic on our business, results of operations, and financial condition. The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations, and financial condition will depend on future developments, which 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 our 2019 Form 10-K and “Part II—Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2020 for factors that could materially influence our results.

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Total Company Expectations

In the third quarter of 2020, marketing in our Domestic Card business increased from unusually low levels, with most of the increase weighted toward the end of the quarter. We expect a significant sequential increase in total company marketing in the fourth quarter of 2020, driven by the normal seasonal increase between the third and fourth quarters, plus the impact of a full quarter of increased Domestic Card marketing.

CONSOLIDATED RESULTS OF OPERATIONS

The section below provides a comparative discussion of our consolidated financial performance for the third quarter and first nine months of 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. Interest-earning assets include loans, investment securities and other interest-earning assets, while our interest-bearing liabilities include interest-bearing deposits, securitized debt obligations, senior and subordinated notes, other borrowings and other interest-bearing liabilities. Generally, we include in interest income any past due fees on loans that we deem collectible. Our net interest margin, based on our consolidated results, represents the difference between the yield on our interest-earning assets and the cost of our interest-bearing liabilities, including the notional impact of non-interest-bearing funding. We expect net interest income and our net interest margin to fluctuate based on changes in interest rates and changes in the amount and composition of our interest-earning assets and interest-bearing liabilities.

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Table 2 below presents the average outstanding balance, interest income earned, interest expense incurred and average yield for the third quarter and first nine months of 2020 and 2019 for each major category of our interest-earning assets and interest-bearing liabilities. Nonperforming loans are included in the average loan balances below.

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

						Three Months Ended September 30,
						2020																		2019
(Dollars in millions)						Average Balance						Interest Income/ Expense						Average Yield/ Rate						Average Balance						Interest Income/ Expense						Average Yield/ Rate
Assets:
Interest-earning assets:
Loans:(1)
Credit card						$	105,390					$	3,644					13.83		%				$	112,484					$	4,369					15.54		%
Consumer banking						67,822						1,417						8.36						61,271						1,297						8.47
Commercial banking(2)						77,313						544						2.82						73,664						820						4.45
Other(3)						—						153						**						—						(57)						**
Total loans, including loans held for sale						250,525						5,758						9.19						247,419						6,429						10.39
Investment securities						91,777						443						1.93						80,762						583						2.88
Cash equivalents and other interest-earning assets						49,149						14						0.11						12,768						63						2.00
Total interest-earning assets						391,451						6,215						6.35						340,949						7,075						8.30
Cash and due from banks						4,697																		4,376
Allowance for credit losses						(16,839)																		(7,125)
Premises and equipment, net						4,319																		4,279
Other assets						39,226																		32,426
Total assets						$	422,854																	$	374,905
Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Interest-bearing deposits						$	276,339					$	476					0.69		%				$	232,063					$	901					1.55		%
Securitized debt obligations						15,032						43						1.14						16,750						123						2.94
Senior and subordinated notes						28,497						132						1.86						31,220						299						3.84
Other borrowings and liabilities						2,119						9						1.77						2,698						15						2.14
Total interest-bearing liabilities						321,987						660						0.82						282,731						1,338						1.89
Non-interest-bearing deposits						29,177																		23,019
Other liabilities						14,467																		11,910
Total liabilities						365,631																		317,660
Stockholders’ equity						57,223																		57,245
Total liabilities and stockholders’ equity						$	422,854																	$	374,905
Net interest income/spread												$	5,555					5.53												$	5,737					6.41
Impact of non-interest-bearing funding																		0.15																		0.32
Net interest margin																		5.68		%																6.73		%

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						Nine Months Ended September 30,
						2020																		2019
(Dollars in millions)						Average Balance						Interest Income/ Expense						Average Yield/ Rate						Average Balance						Interest Income/ Expense						Average Yield/ Rate
Assets:
Interest-earning assets:
Loans:(1)
Credit card						$	112,305					$	11,812					14.02		%				$	111,584					$	13,103					15.66		%
Consumer banking						65,457						4,128						8.41						60,072						3,751						8.33
Commercial banking(2)						78,403						1,898						3.23						73,066						2,517						4.59
Other(3)						—						282						**						21						(191)						**
Total loans, including loans held for sale						256,165						18,120						9.43						244,743						19,180						10.45
Investment securities						83,724						1,455						2.32						82,264						1,867						3.03
Cash equivalents and other interest-earning assets						35,152						67						0.25						11,929						196						2.19
Total interest-earning assets						375,041						19,642						6.98						338,936						21,243						8.36
Cash and due from banks						4,913																		4,281
Allowance for credit losses						(13,796)																		(7,221)
Premises and equipment, net						4,332																		4,275
Other assets						37,743																		31,877
Total assets						$	408,233																	$	372,148
Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Interest-bearing deposits						$	259,631					$	1,818					0.93		%				$	230,045					$	2,588					1.50		%
Securitized debt obligations						16,500						198						1.60						17,912						405						3.02
Senior and subordinated notes						30,371						551						2.42						30,897						923						3.98
Other borrowings and liabilities						3,147						35						1.50						3,228						53						2.19
Total interest-bearing liabilities						309,649						2,602						1.12						282,082						3,969						1.88
Non-interest-bearing deposits						26,611																		23,344
Other liabilities						14,171																		11,861
Total liabilities						350,431																		317,287
Stockholders’ equity						57,802																		54,861
Total liabilities and stockholders’ equity						$	408,233																	$	372,148
Net interest income/spread												$	17,040					5.86												$	17,274					6.48
Impact of non-interest-bearing funding																		0.20																		0.32
Net interest margin																		6.06		%																6.80		%

__________

(1)Past due fees included in interest income totaled approximately $277 million and $933 million in the third quarter and first nine months of 2020, respectively, and $423 million and $1.2 billion in the third quarter and first nine months of 2019, respectively.

(2)Some of our commercial loans generate tax-exempt income. Accordingly, we present our Commercial Banking interest income and yields on a taxable-equivalent basis, calculated using the federal statutory rate of 21% and state taxes where applicable, with offsetting reductions to the Other category. Taxable-equivalent adjustments included in the interest income and yield computations for our commercial loans totaled approximately $20 million and $61 million in the third quarter and first nine months of 2020, respectively, and $21 million and $62 million in the third quarter and first nine months of 2019, respectively, 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.

Net interest income decreased by $182 million to $5.6 billion in the third quarter of 2020 compared to the third quarter of 2019, and decreased by $234 million to $17.0 billion in the first nine months of 2020 compared to the first nine months of 2019 primarily driven by lower outstanding balances and lower yields in Domestic Card, partially offset by lower interest expense on interest-bearing liabilities.

Net interest margin decreased by 105 basis points to 5.68% in the third quarter of 2020 compared to the third quarter of 2019, and decreased by 74 basis points to 6.06% in the first nine months of 2020 compared to the first nine months of 2019 primarily

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driven by a shift in our asset mix with cash balances representing a greater proportion of total average interest-earning assets as compared to loans, partially offset by the lower interest rate paid on interest-bearing deposits.

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

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

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

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

						Three Months Ended September 30,																		Nine Months Ended September 30,
						2020 vs. 2019																		2020 vs. 2019
(Dollars in millions)						Total Variance						Volume						Rate						Total Variance						Volume						Rate
Interest income:
Loans:
Credit card						$	(725)					$	(264)					$	(461)					$	(1,291)					$	76					$	(1,367)
Consumer banking						120						137						(17)						377						339						38
Commercial banking(2)						(276)						26						(302)						(619)						129						(748)
Other(3)						210						—						210						473						—						473
Total loans, including loans held for sale						(671)						(101)						(570)						(1,060)						544						(1,604)
Investment securities						(140)						53						(193)						(412)						25						(437)
Cash equivalents and other interest-earning assets						(49)						10						(59)						(129)						45						(174)
Total interest income						(860)						(38)						(822)						(1,601)						614						(2,215)
Interest expense:
Interest-bearing deposits						(425)						76						(501)						(770)						207						(977)
Securitized debt obligations						(80)						(11)						(69)						(207)						(30)						(177)
Senior and subordinated notes						(167)						(24)						(143)						(372)						(15)						(357)
Other borrowings and liabilities						(6)						(3)						(3)						(18)						(1)						(17)
Total interest expense						(678)						38						(716)						(1,367)						161						(1,528)
Net interest income						$	(182)					$	(76)					$	(106)					$	(234)					$	453					$	(687)

__________

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

(3)Interest income/expense of Other represents the impact of hedge accounting 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 4 displays the components of non-interest income for the third quarter and first nine months of 2020 and 2019.

Table 4: Non-Interest Income

						Three Months Ended September 30,												Nine Months Ended September 30,
(Dollars in millions)						2020						2019						2020						2019
Interchange fees, net						$	775					$	790					$	2,199					$	2,368
Service charges and other customer-related fees						320						283						905						988
Net securities gains						25						5						25						44
Other non-interest income:(1)
Mortgage banking revenue						66						48						172						127
Treasury and other investment income						516						36						572						139
Other						124						60						273						226
Total other non-interest income						706						144						1,017						492
Total non-interest income						$	1,826					$	1,222					$	4,146					$	3,892

________

(1)Includes gains of $19 million and $4 million on deferred compensation plan investments for the third quarter and first nine months of 2020, respectively, and gains of $1 million and $39 million for the third quarter and first nine months of 2019, respectively.

Non-interest income increased by $604 million to $1.8 billion in the third quarter of 2020 compared to the third quarter of 2019 and increased by $254 million to $4.1 billion in the first nine months of 2020 compared to the first nine months of 2019 primarily driven by a gain of $470 million on our equity investment in Snowflake Inc., which recently completed its initial public offering.

Provision for Credit Losses

Our provision for credit losses in each period is driven by net charge-offs, changes to the allowance for credit losses 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.

Our provision for credit losses decreased by $1.1 billion to $331 million in the third quarter of 2020 compared to the third quarter of 2019 primarily driven by an allowance release due to lower loan balances in Domestic Card and Commercial Banking, including a $327 million release for credit card loans moved to held-for-sale. Our provision increased by $5.6 billion to $10.0 billion in the first nine months of 2020 compared to the first nine months of 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 5 displays the components of non-interest expense for the third quarter and first nine months of 2020 and 2019.

Table 5: Non-Interest Expense

						Three Months Ended September 30,												Nine Months Ended September 30,
(Dollars in millions)						2020						2019						2020						2019
Salaries and associate benefits(1)						$	1,719					$	1,605					$	5,050					$	4,736
Occupancy and equipment						506						519						1,546						1,533
Marketing						283						501						1,047						1,564
Professional services						327						314						918						919
Communications and data processing						310						312						920						944
Amortization of intangibles						14						25						52						84
Other non-interest expense:
Bankcard, regulatory and other fee assessments						69						100						210						273
Collections						74						100						255						291
Fraud losses						56						101						206						301
Other(2)						190						295						843						677
Total other non-interest expense						389						596						1,514						1,542
Total non-interest expense						$	3,548					$	3,872					$	11,047					$	11,322

_________

(1)Includes expense of $19 million and $4 million for the third quarter and first nine months of 2020, respectively, and $1 million and $39 million related to our deferred compensation plan investments for the third quarter and first nine months of 2019, respectively. These amounts have corresponding offsets in other non-interest income.

(2)Includes legal reserve builds of $40 million and $350 million, and net Cybersecurity Incident expenses of $6 million and $21 million in the third quarter and first nine months of 2020, respectively.

Non-interest expense decreased by $324 million to $3.5 billion in the third quarter of 2020 compared to the third quarter of 2019 and decreased by $275 million to $11.0 billion in the first nine months of 2020 compared to the first nine months of 2019 primarily driven by lower marketing expense.

Income Taxes

We recorded income tax expense of $1.1 billion (31.3% effective income tax rate) and an income tax benefit of $10 million (negative 7.2% effective income tax rate) in the third quarter and first nine months of 2020, respectively, compared to income tax expense of $375 million (22.0% effective income tax rate) and $1.1 billion (19.7% effective income tax rate) in the third quarter and first nine months of 2019, respectively. Our effective income tax rate decreased for the nine months ended September, 30, 2020 as compared to the same period in 2019 primarily driven by the relationship of our tax credits and discrete tax benefits in proportion to our pre-tax earnings. Our third quarter effective income tax rate increased in 2020 as compared to 2019 primarily driven by changes in expectations of pre-tax income due to the impacts of the COVID-19 pandemic.

We provide additional information on items affecting our income taxes and effective tax rate in “Note 1—Summary of Significant Accounting Policies” in this Report and “Note 15—Income Taxes” in our 2019 Form 10-K.

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CONSOLIDATED BALANCE SHEETS ANALYSIS

Total assets increased by $31.5 billion to $421.9 billion as of September 30, 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, partially offset by a decline in loan balances.

Total liabilities increased by $31.1 billion to $363.5 billion as of September 30, 2020 from December 31, 2019 primarily driven by deposit growth from increased consumer savings aided by the impact of government stimulus.

Stockholders’ equity increased by $413 million to $58.4 billion as of September 30, 2020 from December 31, 2019 primarily driven by a $2.7 billion increase in accumulated other comprehensive income from an increase in the fair value of our investment securities and derivatives driven by the decline in interest rates, offset by the $2.2 billion impact on retained earnings for the adoption of the CECL standard in the first quarter of 2020.

The following is a discussion of material changes in the major components of our assets and liabilities during the first nine months of 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. Treasury securities, U.S. government-sponsored enterprise or agency (“Agency”) and non-agency residential mortgage-backed securities (“RMBS”), Agency commercial mortgage-backed securities (“CMBS”) and other securities. Agency securities include Government National Mortgage Association (“Ginnie Mae”) guaranteed securities, Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) issued securities. The carrying value of our investments in U.S. Treasury and Agency securities represented 96% of our total investment securities portfolio, as of both September 30, 2020 and December 31, 2019.

The fair value of our available for sale securities portfolio increased by $20.6 billion to $99.9 billion as of September 30, 2020 from December 31, 2019, primarily driven by net purchases. See “Note 2—Investment Securities” for more information.

Table 6 presents the amortized cost and fair value for the major security types in our available for sale securities portfolio as of September 30, 2020 and December 31, 2019.

Table 6: Investment Securities

						September 30, 2020												December 31, 2019
(Dollars in millions)						Amortized Cost						Fair Value						Amortized Cost						Fair Value
Investment securities available for sale:
U.S. Treasury securities						$	9,331					$	9,345					$	4,122					$	4,124
RMBS:
Agency						72,948						75,366						62,003						62,839
Non-agency						1,093						1,293						1,235						1,499
Total RMBS						74,041						76,659						63,238						64,338
Agency CMBS						10,953						11,435						9,303						9,426
Other securities(1)						2,410						2,414						1,321						1,325
Total investment securities available for sale						$	96,735					$	99,853					$	77,984					$	79,213

__________

(1)Includes $1.5 billion and $117 million of asset-backed securities as of September 30, 2020, and December 31, 2019, 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 7 summarizes the carrying value of our loans held for investment by portfolio segment, the allowance for credit losses and net loan balance as of September 30, 2020 and December 31, 2019.

Table 7: Loans Held for Investment

						September 30, 2020																		December 31, 2019
(Dollars in millions)						Loans						Allowance						Net Loans						Loans						Allowance						Net Loans
Credit Card						$	103,641					$	11,612					$	92,029					$	128,236					$	5,395					$	122,841
Consumer Banking						68,688						2,747						65,941						63,065						1,038						62,027
Commercial Banking						75,894						1,770						74,124						74,508						775						73,733
Total						$	248,223					$	16,129					$	232,094					$	265,809					$	7,208					$	258,601

Loans held for investment decreased by $17.6 billion to $248.2 billion as of September 30, 2020 from December 31, 2019 primarily driven by a decline in purchase volume and higher payments in Domestic Card driven by the customer response to the COVID-19 pandemic, 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 8 provides the composition of our primary sources of funding as of September 30, 2020 and December 31, 2019.

Table 8: Funding Sources Composition

						September 30, 2020												December 31, 2019
(Dollars in millions)						Amount						% of Total						Amount						% of Total
Deposits:
Consumer Banking						$	249,684					71		%				$	213,099					67		%
Commercial Banking						36,783						11						32,134						10
Other(1)						19,258						6						17,464						5
Total deposits						305,725						88						262,697						82
Securitized debt obligations						13,566						4						17,808						6
Other debt						29,229						8						37,889						12
Total funding sources						$	348,520					100		%				$	318,394					100		%

__________

(1)Includes brokered deposits of $18.3 billion and $16.7 billion as of September 30, 2020 and December 31, 2019, respectively.

Total deposits increased by $43.0 billion to $305.7 billion as of September 30, 2020 from December 31, 2019 primarily driven by deposit growth from increased consumer savings aided by the impact of government stimulus.

Securitized debt obligations decreased by $4.2 billion to $13.6 billion as of September 30, 2020 from December 31, 2019 primarily driven by net maturities in our credit card securitization program, partially offset by net issuances in our auto securitization program.

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Other debt decreased by $8.7 billion to $29.2 billion as of September 30, 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 7—Deposits and Borrowings.”

OFF-BALANCE SHEET ARRANGEMENTS

In the ordinary course of business, we engage in certain activities that are not reflected on our consolidated balance sheets, generally referred to as off-balance sheet arrangements. These activities typically involve transactions with unconsolidated variable interest entities (“VIEs”) as well as other arrangements, such as letters of credit, loan commitments and guarantees, to meet the financing needs of our customers and support their ongoing operations. We provide additional information regarding these types of activities in “Note 5—Variable Interest Entities and Securitizations” and “Note 13—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 our existing business segments. Certain activities that are not part of a segment, such as management of our corporate investment portfolio and asset/liability management by our centralized Corporate Treasury group and residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments, are included in the Other category.

The results of our individual businesses, which we report on a continuing operations basis, reflect the manner in which management evaluates performance and makes decisions about funding our operations and allocating resources. We may periodically change our business segments or reclassify business segment results based on modifications to our management reporting methodologies and changes in organizational alignment. Our business segment results are intended to reflect each segment as if it were a stand-alone business. We use an internal management and reporting process to derive our business segment results. Our internal management and reporting process employs various allocation methodologies, including funds transfer pricing, to assign certain balance sheet assets, deposits and other liabilities and their related revenue and expenses directly or indirectly attributable to each business segment. Total interest income and non-interest income are directly attributable to the segment in which they are reported. The net interest income of each segment reflects the results of our funds transfer pricing process, which is primarily based on a matched 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 provide additional information on the allocation methodologies used to derive our business segment results in “Note 17—Business Segments and Revenue from Contracts with Customers” in our 2019 Form 10-K.

We refer to the business segment results derived from our internal management accounting and reporting process as our “managed” presentation, which differs in some cases from our reported results prepared based on U.S. GAAP. There is no comprehensive authoritative body of guidance for management accounting equivalent to U.S. GAAP; therefore, the managed presentation of our business segment results may not be comparable to similar information provided by other financial services companies. In addition, our individual business segment results should not be used as a substitute for comparable results determined in accordance with U.S. GAAP.

We summarize our business segment results for the third quarter and first nine months of 2020 and 2019 and provide a comparative discussion of these results, as well as changes in our financial condition and credit performance metrics as of September 30, 2020 compared to December 31, 2019. We provide a reconciliation of our total business segment results to our reported consolidated results in “Note 12—Business Segments and Revenue from Contracts with Customers.”

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Business Segment Financial Performance

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

Table 9: Business Segment Results

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

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

__________

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

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

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

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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 in the third quarter of 2020 and a net loss of $110 million in the first nine months of 2020, compared to net income of $734 million and $2.4 billion in the third quarter and first nine months of 2019, respectively.

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

Table 10: Credit Card Business Results

						Three Months Ended September 30,																		Nine Months Ended September 30,
(Dollars in millions, except as noted)						2020						2019						Change						2020						2019						Change
Selected income statement data:
Net interest income						$	3,292					$	3,546					(7)		%				$	10,363					$	10,667					(3)		%
Non-interest income						1,013						870						16						2,769						2,858						(3)
Total net revenue(1)						4,305						4,416						(3)						13,132						13,525						(3)
Provision for credit losses						450						1,087						(59)						7,096						3,571						99
Non-interest expense						2,003						2,360						(15)						6,180						6,784						(9)
Income (loss) from continuing operations before income taxes						1,852						969						91						(144)						3,170						**
Income tax provision (benefit)						438						235						86						(34)						747						**
Income (loss) from continuing operations, net of tax						$	1,414					$	734					93						$	(110)					$	2,423					**
Selected performance metrics:
Average loans held for investment(2)						$	105,367					$	112,371					(6)						$	112,272					$	111,545					1
Average yield on loans held for investment(3)						13.83		%				15.55		%				(172)		bps				14.03		%				15.66		%				(163)		bps
Total net revenue margin(4)						16.34						15.72						62						15.59						16.17						(58)
Net charge-offs						$	943					$	1,151					(18)		%				$	3,590					$	3,835					(6)		%
Net charge-off rate						3.58		%				4.09		%				(51)		bps				4.26		%				4.58		%				(32)		bps
Purchase volume						$	107,102					$	108,034					(1)		%				$	297,171					$	308,134					(4)		%
(Dollars in millions, except as noted)						September 30, 2020						December 31, 2019						Change
Selected period-end data:
Loans held for investment(2)(5)						$	103,641					$	128,236					(19)		%
30+ day performing delinquency rate						2.20		%				3.89		%				(169)		bps
30+ day delinquency rate						2.21						3.91						(170)
Nonperforming loan rate(6)						0.02						0.02						—
Allowance for credit losses(2)						$	11,612					$	5,395					115		%
Allowance coverage ratio						11.20		%				4.21		%				699		bps

__________

(1)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 $235 million and $942 million in the third quarter and first nine months of 2020 for finance charges and fees charged-off as uncollectible and by $330 million and $1.0 billion in the third quarter and first nine months of 2019 for the 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 on loans held for investment is calculated by dividing interest income for the period by average loans held for investment during the period. Interest income excludes various allocations including funds transfer pricing that assigns certain balance sheet assets, deposits and other liabilities and their related revenue and expenses attributable to each business segment.

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

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

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

**    Not meaningful

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

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

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

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

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

•Loans Held for Investment:

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

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

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

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

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Domestic Card Business

The Domestic Card business generated net income from continuing operations of $1.3 billion in the third quarter of 2020 and net loss of $192 million in the first nine months of 2020, compared to net income from continuing operations of $837 million and $2.4 billion in the third quarter and first nine months of 2019, respectively. In the third quarter and first nine months of 2020 and 2019, the Domestic Card business accounted for greater than 90% of total net revenue of our Credit Card business.

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

Table 10.1: Domestic Card Business Results

						Three Months Ended September 30,																		Nine Months Ended September 30,
(Dollars in millions, except as noted)						2020						2019						Change						2020						2019						Change
Selected income statement data:
Net interest income						$	2,995					$	3,299					(9)		%				$	9,470					$	9,792					(3)		%
Non-interest income						952						878						8						2,589						2,722						(5)
Total net revenue(1)(2)						3,947						4,177						(6)						12,059						12,514						(4)
Provision for credit losses						378						1,010						(63)						6,748						3,325						103
Non-interest expense						1,802						2,076						(13)						5,562						6,059						(8)
Income (loss) from continuing operations before income taxes						1,767						1,091						62						(251)						3,130						**
Income tax provision (benefit)						419						254						65						(59)						729						**
Income (loss) from continuing operations, net of tax						$	1,348					$	837					61						$	(192)					$	2,401					**
Selected performance metrics:
Average loans held for investment(3)						$	97,306					$	103,426					(6)						$	103,980					$	102,677					1
Average yield on loans held for investment(4)						13.57		%				15.74		%				(217)		bps				13.82		%				15.67		%				(185)		bps
Total net revenue margin(5)						16.22						16.15						7						15.46						16.25						(79)
Net charge-offs						$	885					$	1,065					(17)		%				$	3,359					$	3,599					(7)		%
Net charge-off rate						3.64		%				4.12		%				(48)		bps				4.31		%				4.67		%				(36)		bps
Purchase volume						$	98,107					$	99,087					(1)		%				$	273,215					$	282,878					(3)		%
(Dollars in millions, except as noted)						September 30, 2020						December 31, 2019						Change
Selected period-end data:
Loans held for investment(3)(6)						$	95,541					$	118,606					(19)		%
30+ day performing delinquency rate						2.21		%				3.93		%				(172)		bps
Allowance for credit losses						$	11,062					$	4,997					121		%
Allowance coverage ratio						11.58		%				4.21		%				737		bps

__________

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

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

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

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

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

**    Not meaningful

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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 increased in the third quarter of 2020 compared to the third quarter of 2019 and decreased in the first nine months of 2020 compared to the first nine months of 2019 primarily driven by:

•lower provision for credit losses in the third quarter of 2020 due to an allowance release for partnership loans moved to held-for sale and lower loan balances, and higher provision for credit losses in the first nine months of 2020 driven by allowance builds in the first and second quarters of 2020 due to expectations of economic worsening as a result of the COVID-19 pandemic;

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

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

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

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Consumer Banking Business

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

Our Consumer Banking business generated net income from continuing operations of $796 million and $630 million in the third quarter and first nine months of 2020, respectively, and $505 million and $1.5 billion in the third quarter and first nine months of 2019, respectively.

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

Table 11: Consumer Banking Business Results

						Three Months Ended September 30,																		Nine Months Ended September 30,
(Dollars in millions, except as noted)						2020						2019						Change						2020						2019						Change
Selected income statement data:
Net interest income						$	1,904					$	1,682					13		%				$	5,226					$	5,070					3		%
Non-interest income						107						165						(35)						330						491						(33)
Total net revenue						2,011						1,847						9						5,556						5,561						—
Provision (benefit) for credit losses						(43)						203						**						1,693						603						181
Non-interest expense						1,011						985						3						3,038						2,981						2
Income from continuing operations before income taxes						1,043						659						58						825						1,977						(58)
Income tax provision						247						154						60						195						461						(58)
Income from continuing operations, net of tax						$	796					$	505					58						$	630					$	1,516					(58)
Selected performance metrics:
Average loans held for investment:
Auto						$	64,476					$	58,517					10						$	62,434					$	57,282					9
Retail banking						3,346						2,752						22						3,023						2,790						8
Total consumer banking						$	67,822					$	61,269					11						$	65,457					$	60,072					9
Average yield on loans held for investment(1)						8.36		%				8.47		%				(11)		bps				8.41		%				8.33		%				8		bps
Average deposits						$	248,418					$	204,933					21		%				$	231,988					$	203,404					14		%
Average deposits interest rate						0.66		%				1.31		%				(65)		bps				0.86		%				1.25		%				(39)		bps
Net charge-offs						$	48					$	251					(81)		%				$	486					$	644					(25)		%
Net charge-off rate						0.28		%				1.64		%				(136)		bps				0.99		%				1.43		%				(44)		bps
Auto loan originations						$	8,979					$	8,175					10		%				$	24,910					$	21,723					15		%
(Dollars in millions, except as noted)						September 30, 2020						December 31, 2019						Change
Selected period-end data:
Loans held for investment:
Auto						$	65,394					$	60,362					8		%
Retail banking						3,294						2,703						22
Total consumer banking						$	68,688					$	63,065					9
30+ day performing delinquency rate						3.62		%				6.63		%				(301)		bps
30+ day delinquency rate						3.90						7.34						(344)
Nonperforming loan rate						0.38						0.81						(43)
Nonperforming asset rate(2)						0.43						0.91						(48)
Allowance for credit losses						$	2,747					$	1,038					165		%
Allowance coverage ratio						4.00		%				1.65		%				235		bps
Deposits						$	249,684					$	213,099					17		%

__________

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

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

**    Not meaningful.

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

•Net Interest Income: Net interest income increased by $222 million to $1.9 billion in the third quarter of 2020 primarily driven by growth in our auto loan portfolio. Net interest income increased by $156 million to $5.2 billion in the first nine months of 2020 primarily driven by growth in our auto loan portfolio, partially offset by lower margins in our Retail Banking business due to a decline in interest rates.

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

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

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

•Loans Held for Investment: Period-end loans held for investment increased by $5.6 billion to $68.7 billion as of September 30, 2020 from December 31, 2019, and average loans held for investment increased by $6.6 billion to $67.8 billion in the third quarter of 2020 compared to the third quarter of 2019 and increased by $5.4 billion to $65.5 billion in the first nine months of 2020 compared to the first nine months of 2019 primarily due to growth in our auto loan portfolio.

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

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

•The 30+ day delinquency rate decreased by 344 basis points to 3.90% as of September 30, 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 from transaction fees and other products and services. Because our Commercial Banking business has loans and investments that generate tax-exempt income, tax credits or other tax benefits, we present the revenues on a taxable-equivalent basis. Expenses primarily consist of the provision for credit losses and operating costs.

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

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

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Table 12: Commercial Banking Business Results

						Three Months Ended September 30,																		Nine Months Ended September 30,
(Dollars in millions, except as noted)						2020						2019						Change						2020						2019						Change
Selected income statement data:
Net interest income						$	517					$	486					6		%				$	1,526					$	1,489					2		%
Non-interest income						237						221						7						655						608						8
Total net revenue(1)						754						707						7						2,181						2,097						4
Provision (benefit) for credit losses(2)						(74)						93						**						1,209						244						**
Non-interest expense						424						414						2						1,261						1,258						—
Income (loss) from continuing operations before income taxes						404						200						102						(289)						595						**
Income tax provision (benefit)						95						46						107						(69)						138						**
Income (loss) from continuing operations, net of tax						$	309					$	154					101						$	(220)					$	457					**
Selected performance metrics:
Average loans held for investment:
Commercial and multifamily real estate						$	30,918					$	29,698					4						$	31,239					$	29,418					6
Commercial and industrial						45,404						42,807						6						46,264						42,474						9
Total commercial lending						76,322						72,505						5						77,503						71,892						8
Small-ticket commercial real estate						—						2						**						—						93						**
Total commercial banking						$	76,322					$	72,507					5						$	77,503					$	71,985					8
Average yield on loans held for investment(1)(3)						2.82		%				4.45		%				(163)		bps				3.23		%				4.61		%				(138)		bps
Average deposits						$	36,278					$	30,693					18		%				$	34,391					$	30,957					11		%
Average deposits interest rate						0.25		%				1.25		%				(100)		bps				0.47		%				1.21		%				(74)		bps
Net charge-offs						$	82					$	60					37		%				$	293					$	90					**
Net charge-off rate						0.43		%				0.33		%				10		bps				0.50		%				0.17		%				33		bps
(Dollars in millions, except as noted)						September 30, 2020						December 31, 2019						Change
Selected period-end data:
Loans held for investment:
Commercial and multifamily real estate						$	31,197					$	30,245					3		%
Commercial and industrial						44,697						44,263						1
Total commercial banking						$	75,894					$	74,508					2
Nonperforming loan rate						1.01		%				0.60		%				41		bps
Nonperforming asset rate(4)						1.01						0.60						41
Allowance for credit losses(2)						$	1,770					$	775					128		%
Allowance coverage ratio						2.33		%				1.04		%				129		bps
Deposits						$	36,783					$	32,134					14		%
Loans serviced for others						41,602						38,481						8

__________

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

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

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

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

**    Not meaningful.

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

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

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

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

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

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

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

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

The nonperforming loan rate increased by 41 basis points to 1.01% as of September 30, 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 13 summarizes the financial results of our Other category for the periods indicated.

Table 13: Other Category Results

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

__________

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

(2)Includes legal reserve builds of $40 million and $350 million, and net Cybersecurity Incident expenses of $6 million and $21 million in the third quarter and first nine months of 2020, respectively.

**    Not meaningful.

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

Net loss from continuing operations was $151 million and $41 million in the first nine months of 2020 and 2019, respectively, primarily driven by legal reserve builds and reduced income tax benefit, partially offset by the gain on our equity investment in Snowflake Inc. noted above.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with U.S. GAAP requires management to make a number of judgments, estimates and assumptions that affect the amount of assets, liabilities, income and expenses on the consolidated financial statements. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We provide a summary of our significant accounting policies under “Note 1—Summary of Significant Accounting Policies” in this Report and in our December 31, 2019 Form 10-K.

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

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

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

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

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

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

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

Finance Charge and Fee Reserve

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

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

Asset Impairment

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

Goodwill

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

In the first quarter of 2020, we adopted ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment and updated our critical accounting policy for goodwill impairment. Historical guidance for goodwill impairment testing prescribed that the company must compare each reporting unit’s carrying value to its fair value. If the carrying value exceeds fair value, an entity performs the second step, which assigns the reporting unit’s fair value to its assets and liabilities, including unrecognized assets and liabilities, in the same manner as required in purchase accounting to determine the impairment. This ASU eliminates the second step. Under the new guidance, an impairment of a reporting unit’s goodwill is determined based on the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the amount of goodwill allocated to the reporting unit.

There have been no additional changes to our critical accounting policies and estimates described in our December 31, 2019 Form 10-K under “MD&A—Critical Accounting Policies and Estimates.”

ACCOUNTING CHANGES AND DEVELOPMENTS

Accounting Standards Issued but Not Adopted as of September 30, 2020

Standard

Guidance

Adoption Timing and Financial Statement Impacts

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

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

This ASU is effective from March 12, 2020 through December 31, 2022 with early adoption as of January 1, 2020 permitted. We are evaluating the expected impact of and our operational readiness for this ASU.

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

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

This ASU is effective January 1, 2021 with early adoption permitted, using the retrospective, modified retrospective and prospective methods of adoption. We are currently evaluating the impact of adopting this standard.

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

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CAPITAL MANAGEMENT

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

Capital Standards and Prompt Corrective Action

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

The Basel III Capital Rule includes the “Basel III Standardized Approach” and the “Basel III Advanced Approaches.” We entered parallel run under Basel III Advanced Approaches on January 1, 2015, during which we were required to calculate capital ratios under both the Basel III Standardized Approach and the Basel III Advanced Approaches, though we used the Standardized Approach for purposes of meeting regulatory capital requirements.

In October 2019, the Federal Banking Agencies amended the Basel III Capital Rule to provide for tailored application of certain capital requirements across different categories of banking institutions (“Tailoring Rules”). As a bank holding company (“BHC”) with total consolidated assets of at least $250 billion that does not exceed any of the applicable risk-based thresholds, we are a Category III institution under the Tailoring Rules. As such, we are no longer subject to the Basel III Advanced Approaches and certain associated capital requirements and have the option of excluding certain elements of accumulated other comprehensive income (“AOCI”) from our regulatory capital. Effective in the first quarter of 2020, we excluded certain elements of AOCI from our regulatory capital as permitted by the Tailoring Rules.

In July 2019, the Federal Banking Agencies finalized certain changes in the Basel III Capital Rule for institutions not subject to the Basel III Advanced Approaches, including Capital One (“Capital Simplification Rule”). These changes, effective January 1, 2020, generally raise the threshold above which institutions subject to the Capital Simplification Rule must deduct certain assets from their common equity Tier 1 capital, including certain deferred tax assets, mortgage servicing assets, and investments in unconsolidated financial institutions. While the higher thresholds will not impact our current capital levels, in stress scenarios they may provide a benefit by enabling us to include more deferred tax assets in our common equity Tier 1 capital. The Tailoring Rules and Capital Simplification Rule have, taken together, decreased our capital requirements.

The Basel III Capital Rule requires banking institutions to maintain a capital conservation buffer, composed of common equity Tier 1 capital, above the regulatory minimum ratios. In March 2020, the Federal Reserve issued a final rule to implement the stress capital buffer requirement (“Stress Capital Buffer Final Rule”). Pursuant to the Stress Capital Buffer Final Rule, which became effective in May 2020, the Federal Reserve will use the results of its supervisory stress test to determine the size of a banking institution’s stress capital buffer requirement. In particular, a banking institution’s stress capital buffer requirement will equal, subject to a floor of 2.5%, the sum of (i) the difference between the banking institution’s starting common equity Tier 1 capital ratio and its lowest projected common equity Tier 1 capital ratio under the severely adverse scenario of the Federal Reserve’s supervisory stress test plus (ii) the ratio of the banking institution’s projected four quarters of common stock dividends (for the fourth to seventh quarters of the planning horizon) to the projected risk-weighted assets for the quarter in which the banking institution’s projected common equity Tier 1 capital ratio reaches its minimum under the supervisory stress test.

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

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

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

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

As of September 30, 2020, the minimum capital requirements plus the capital conservation buffer of 2.5% and the countercyclical capital buffer (currently set as 0%) for common equity Tier 1 capital, Tier 1 capital and total capital ratios were 7.0%, 8.5% and 10.5%, respectively, for the Company and the Banks. A common equity Tier 1 capital ratio, Tier 1 capital ratio, or total capital ratio below the applicable regulatory minimum ratio plus the applicable capital conservation buffer and the applicable countercyclical buffer (if set to an amount greater than 0%) might restrict a banking organization’s ability to distribute capital and make discretionary bonus payments.

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

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

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

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Table 14 provides a comparison of our regulatory capital ratios under the Basel III Standardized Approach, the regulatory minimum capital adequacy ratios and the PCA well-capitalized level for each ratio, where applicable, as of September 30, 2020 and December 31, 2019.

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

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

__________

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

(2)Ratios as of September 30, 2020 are preliminary. As we continue to validate our data, the calculations are subject to change until we file our September 30, 2020 Form FR Y-9C—Consolidated Financial Statements for Holding Companies and Call Reports.

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

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

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

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

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

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

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

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

(Dollars in millions)						September 30, 2020						December 31, 2019
Regulatory Capital Under Basel III Standardized Approach
Common equity excluding AOCI						$	52,839					$	52,001
Adjustments:
AOCI, net of tax(1)						(122)						1,156
Goodwill, net of related deferred tax liabilities						(14,448)						(14,465)
Intangible assets, net of related deferred tax liabilities						(95)						(170)
Other(1)						—						(360)
Common equity Tier 1 capital						38,174						38,162
Tier 1 capital instruments						5,331						4,853
Tier 1 capital						43,505						43,015
Tier 2 capital instruments						3,675						3,377
Qualifying allowance for credit losses						3,775						3,956
Tier 2 capital						7,450						7,333
Total capital						$	50,955					$	50,348
Regulatory Capital Metrics
Risk-weighted assets						$	293,852					$	313,155
Adjusted average assets						409,602						368,511
Total leverage exposure						425,729						435,976

__________

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

Capital Planning and Regulatory Stress Testing

On June 25, 2020, the Federal Reserve released the stress testing results for the 2020 Comprehensive Capital Analysis and Review (“CCAR”) cycle, including additional sensitivity analyses conducted due to the COVID-19 pandemic, and required all participating banking organizations, including us, to update and resubmit their capital plans. We resubmitted our updated capital plan on November 2, 2020.

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

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

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

Consistent with the Federal Reserve’s limitations on common stock dividend payments as 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.

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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 decided to maintain our quarterly dividend at $0.10 per share in the fourth quarter of 2020 as the process surrounding our resubmitted capital plan has not yet completed.

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

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 increased our net loss available to common shareholders by $22 million in the first quarter of 2020.

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

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

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Dividend Policy and Stock Purchases

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

Table 16: Preferred Stock Dividends Paid Per Share

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

__________

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

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 September 30, 2020, funds available for dividend payments from COBNA and CONA were $2.3 billion and $917 million, respectively. There can be no assurance that we will declare and pay any dividends to stockholders.

Consistent with our 2019 Stock Repurchase Program which was announced on June 27, 2019, our Board of Directors authorized the repurchase of up to $2.2 billion of shares of common stock beginning in the third quarter of 2019 through the end of the second 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 quarter of 2020, the Federal Reserve required all participating banking organizations, including us, to suspend share repurchases as a measure of capital preservation.

The timing and exact amount of any future common stock repurchases will depend on various factors, including regulatory approval, market conditions, opportunities for growth, our capital position and the amount of retained earnings. Our stock repurchase program does not include specific price targets, may be executed through open market purchases or privately negotiated transactions, including utilizing Rule 10b5-1 programs, and may be suspended at any time. For additional information on dividends and stock repurchases, see “MD&A—Capital Management—Capital Planning and Regulatory Stress Testing” and “Part I—Item 1. Business—Supervision and Regulation—Dividends, Stock Repurchases and Transfers of Funds” in our 2019 Form 10-K.

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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 is responsible for managing the risks associated with their activities, including identifying, assessing, measuring, monitoring, controlling, and reporting the risks within its business activities, consistent with the risk framework. The “Second Line of Defense” consists of two types of functions: Independent Risk Management (“IRM”) and Support Functions. IRM oversees risk-taking activities and assesses risks and issues independent from the first line of defense. Support Functions are centers of specialized expertise (e.g., Human Resources, Accounting, Legal) that provide support services to the 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

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

Risk Categories

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

•Compliance risk

•Credit risk

•Liquidity risk

•Market risk

•Operational risk

•Reputation risk

•Strategic risk

CREDIT RISK PROFILE

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

We also engage in certain non-lending activities that may give rise to ongoing credit and counterparty settlement risk, including purchasing securities for our investment securities portfolio, entering into derivative transactions to manage our market risk exposure and to accommodate customers, extending short-term advances on syndication activity including bridge financing transactions we have underwritten, depositing certain operational cash balances in other financial institutions, executing certain foreign exchange transactions and extending customer overdrafts. We provide additional information related to our investment securities portfolio under “MD&A—Consolidated Balance Sheets Analysis—Investment Securities” and credit risk related to derivative transactions in “Note 8—Derivative Instruments and Hedging Activities.”

Portfolio Composition of Loans Held for Investment

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

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

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

Table 17: Portfolio Composition of Loans Held for Investment

						September 30, 2020												December 31, 2019
(Dollars in millions)						Loans						% of Total						Loans						% of Total
Credit Card:
Domestic credit card						$	95,541					38.5		%				$	118,606					44.6		%
International card businesses						8,100						3.3						9,630						3.6
Total credit card						103,641						41.8						128,236						48.2
Consumer Banking:
Auto						65,394						26.3						60,362						22.7
Retail banking(1)						3,294						1.3						2,703						1.0
Total consumer banking						68,688						27.6						63,065						23.7
Commercial Banking:(1)
Commercial and multifamily real estate						31,197						12.6						30,245						11.4
Commercial and industrial						44,697						18.0						44,263						16.7
Total commercial banking						75,894						30.6						74,508						28.1
Total loans held for investment						$	248,223					100.0		%				$	265,809					100.0		%

__________

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

Geographic Composition

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

Table 18: Credit Card Portfolio by Geographic Region

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

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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 September 30, 2020 and December 31, 2019.

Table 19: Consumer Banking Portfolio by Geographic Region

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

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

Table 20: Commercial Banking Portfolio by Geographic Region

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

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

__________

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

Commercial Loans by Industry

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

Table 21: Commercial Loans by Industry

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

Credit Risk Measurement

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

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

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

Table 22: Credit Score Distribution

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

__________

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

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

We present information in the section below on the credit performance of our loan portfolio, including the key metrics we use in tracking changes in the credit quality of our loan portfolio. See “Note 3—Loans” for additional credit quality information and see “Note 1—Summary of Significant Accounting Policies” for information on our accounting policies for delinquent and nonperforming loans, charge-offs and troubled debt restructurings (“TDRs”) for each of our loan categories.

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 Performance.” Amounts as of September 30, 2020, include the impacts of COVID-19 customer assistance programs where applicable. See “MD&A—Credit Risk Profile—COVID-19 Customer Assistance Programs and Loan Modifications” for more information.

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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 September 30, 2020 and December 31, 2019.

Table 23: 30+ Day Delinquencies

						September 30, 2020																								December 31, 2019
						30+ Day Performing Delinquencies												30+ Day Delinquencies												30+ Day Performing Delinquencies												30+ Day Delinquencies
(Dollars in millions)						Amount						Rate(1)						Amount						Rate(1)						Amount						Rate(1)						Amount						Rate(1)
Credit Card:
Domestic credit card						$	2,108					2.21		%				$	2,108					2.21		%				$	4,656					3.93		%				$	4,656					3.93		%
International card businesses						173						2.15						185						2.29						335						3.47						353						3.66
Total credit card						2,281						2.20						2,293						2.21						4,991						3.89						5,009						3.91
Consumer Banking:
Auto						2,461						3.76						2,638						4.03						4,154						6.88						4,584						7.59
Retail banking						27						0.83						44						1.33						28						1.02						43						1.59
Total consumer banking						2,488						3.62						2,682						3.90						4,182						6.63						4,627						7.34
Commercial Banking:
Commercial and multifamily real estate						32						0.10						179						0.57						63						0.21						67						0.22
Commercial and industrial						80						0.18						359						0.80						101						0.23						244						0.55
Total commercial banking						112						0.15						538						0.71						164						0.22						311						0.42
Total						$	4,881					1.97						$	5,513					2.22						$	9,337					3.51						$	9,947					3.74

__________

(1)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 September 30, 2020 and December 31, 2019.

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

						September 30, 2020												December 31, 2019
(Dollars in millions)						Amount						Rate(1)						Amount						Rate(1)
Delinquency status:
30 – 59 days						$	2,675					1.07		%				$	4,444					1.67		%
60 – 89 days						1,231						0.50						2,537						0.95
> 90 days						1,607						0.65						2,966						1.12
Total						$	5,513					2.22		%				$	9,947					3.74		%
Geographic region:
Domestic						$	5,328					2.15		%				$	9,594					3.61		%
International						185						0.07						353						0.13
Total						$	5,513					2.22		%				$	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 September 30, 2020 and December 31, 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

						September 30, 2020												December 31, 2019
(Dollars in millions)						Amount						Rate(1)						Amount						Rate(1)
Loan category:
Credit card						$	1,083					1.04		%				$	2,407					1.88		%
Consumer banking						1						—						—						—
Total						$	1,084					0.44						$	2,407					0.91
Geographic region:
Domestic						$	1,021					0.42		%				$	2,277					0.89		%
International						63						0.78						130						1.34
Total						$	1,084					0.44						$	2,407					0.91

__________

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

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 September 30, 2020 and December 31, 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)

						September 30, 2020												December 31, 2019
(Dollars in millions)						Amount						Rate						Amount						Rate
Nonperforming loans held for investment:(2)
Credit Card:
International card businesses						$	21					0.25		%				$	25					0.26		%
Total credit card						21						0.02						25						0.02
Consumer Banking:
Auto						235						0.36						487						0.81
Retail banking						25						0.77						23						0.87
Total consumer banking						260						0.38						510						0.81
Commercial Banking:
Commercial and multifamily real estate						182						0.58						38						0.12
Commercial and industrial						586						1.31						410						0.93
Total commercial banking						768						1.01						448						0.60
Total nonperforming loans held for investment(3)						$	1,049					0.42						$	983					0.37
Other nonperforming assets(4)						38						0.02						63						0.02
Total nonperforming assets						$	1,087					0.44						$	1,046					0.39

__________

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

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

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

(3)Excluding the impact of domestic credit card loans, nonperforming loans as a percentage of total loans held for investment was 0.69% and 0.67% as of September 30, 2020 and December 31, 2019, respectively.

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

Net Charge-Offs

Net charge-offs consist of the 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 the third quarter and first nine months of 2020 and 2019.

Table 27: Net Charge-Offs

						Three Months Ended September 30,																								Nine Months Ended September 30,
						2020												2019												2020												2019
(Dollars in millions)						Amount						Rate(1)						Amount						Rate(1)						Amount						Rate(1)						Amount						Rate(1)
Credit Card:
Domestic credit card						$	885					3.64		%				$	1,065					4.12		%				$	3,359					4.31		%				$	3,599					4.67		%
International card businesses						58						2.89						86						3.78						231						3.71						236						3.54
Total credit card						943						3.58						1,151						4.09						3,590						4.26						3,835						4.58
Consumer Banking:
Auto						36						0.23						234						1.60						445						0.95						592						1.38
Retail banking						12						1.38						17						2.55						41						1.80						52						2.51
Total consumer banking						48						0.28						251						1.64						486						0.99						644						1.43
Commercial Banking:
Commercial and multifamily real estate						32						0.41						1						0.02						39						0.17						1						0.01
Commercial and industrial						50						0.45						59						0.55						254						0.73						89						0.28
Total commercial banking						82						0.43						60						0.33						293						0.50						90						0.17
Total net charge-offs						$	1,073					1.72						$	1,462					2.38						$	4,369					2.28						$	4,569					2.50
Average loans held for investment						$	249,511											$	246,147											$	255,232											$	243,602

__________

(1)Net charge-off rates are calculated by dividing annualized net charge-offs 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 are offering programs to accommodate customer hardship across our lines of business.

•Credit Card

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

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

•Consumer Banking

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

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

•Commercial Banking

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

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

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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 recorded investment of loans modified in TDRs as of September 30, 2020 and December 31, 2019, which excludes loan modifications that do not meet the definition of a TDR.

Table 28: Troubled Debt Restructurings

						September 30, 2020												December 31, 2019
(Dollars in millions)						Amount						% of Total Modifications						Amount						% of Total Modifications
Credit Card:
Domestic credit card						$	537					26.2		%				$	630					38.1		%
International card businesses						192						9.3						201						12.2
Total credit card						729						35.5						831						50.3
Consumer banking:
Auto						546						26.6						346						20.9
Retail banking						19						0.9						24						1.5
Total consumer banking						565						27.5						370						22.4
Commercial banking						761						37.0						451						27.3
Total						$	2,055					100.0		%				$	1,652					100.0		%
Status of TDRs:
Performing						$	1,662					80.9		%				$	1,347					81.5		%
Nonperforming						393						19.1						305						18.5
Total						$	2,055					100.0		%				$	1,652					100.0		%

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

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

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

We provide additional information on modified loans accounted for as TDRs, including the performance of those loans subsequent to modification, in “Note 3—Loans.”

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

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

						Three Months Ended September 30, 2020
						Credit Card																		Consumer Banking
(Dollars in millions)						Domestic Card						International Card Businesses						Total Credit Card						Auto						Retail Banking						Total Consumer Banking						Commercial Banking												Total
Allowance for credit losses:
Balance as of June 30, 2020						$	11,569					$	522					$	12,091					$	2,726					$	112					$	2,838					$	1,903											$	16,832
Charge-offs						(1,198)						(98)						(1,296)						(280)						(15)						(295)						(88)												(1,679)
Recoveries(1)						313						40						353						244						3						247						6												606
Net charge-offs						(885)						(58)						(943)						(36)						(12)						(48)						(82)												(1,073)
Provision (benefit) for credit losses						378						72						450						(43)						—						(43)						(51)												356
Allowance build (release) for credit losses						(507)						14						(493)						(79)						(12)						(91)						(133)												(717)
Other changes(2)						—						14						14						—						—						—						—												14
Balance as of September 30, 2020						11,062						550						11,612						2,647						100						2,747						1,770												16,129
Reserve for unfunded lending commitments:
Balance as of June 30, 2020						—						—						—						—						—						—						218												218
Benefit for losses on unfunded lending commitments						—						—						—						—						—						—						(23)												(23)
Balance as of September 30, 2020						—						—						—						—						—						—						195												195
Combined allowance and reserve as of September 30, 2020						$	11,062					$	550					$	11,612					$	2,647					$	100					$	2,747					$	1,965											$	16,324

						Nine Months Ended September 30, 2020
						Credit Card																		Consumer Banking
(Dollars in millions)						Domestic Card						International Card Businesses						Total Credit Card						Auto						Retail Banking						Total Consumer Banking						Commercial Banking												Total
Allowance for credit losses:
Balance as of December 31, 2019						$	4,997					$	398					$	5,395					$	984					$	54					$	1,038					$	775											$	7,208
Cumulative effects from adoption of the CECL standard						2,237						4						2,241						477						25						502						102												2,845
Finance charge and fee reserve reclassification(3)						439						23						462						—						—						—						—												462
Balance as of January 1, 2020						7,673						425						8,098						1,461						79						1,540						877												10,515
Charge-offs						(4,406)						(351)						(4,757)						(1,155)						(52)						(1,207)						(303)												(6,267)
Recoveries(1)						1,047						120						1,167						710						11						721						10												1,898
Net charge-offs						(3,359)						(231)						(3,590)						(445)						(41)						(486)						(293)												(4,369)
Provision for credit losses						6,748						348						7,096						1,631						62						1,693						1,186												9,975
Allowance build for credit losses						3,389						117						3,506						1,186						21						1,207						893												5,606
Other changes(2)						—						8						8						—						—						—						—												8
Balance as of September 30, 2020						11,062						550						11,612						2,647						100						2,747						1,770												16,129
Reserve for unfunded lending commitments:
Balance as of December 31, 2019						—						—						—						—						5						5						130												135
Cumulative effects from adoption of the CECL standard						—						—						—						—						(5)						(5)						42												37
Balance as of January 1, 2020						—						—						—						—						—						—						172												172
Provision for losses on unfunded lending commitments						—						—						—						—						—						—						23												23
Balance as of September 30, 2020						—						—						—						—						—						—						195												195
Combined allowance and reserve as of September 30, 2020						$	11,062					$	550					$	11,612					$	2,647					$	100					$	2,747					$	1,965											$	16,324

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						Three Months Ended September 30, 2019
						Credit Card																		Consumer Banking
(Dollars in millions)						Domestic Card						International Card Businesses						Total Credit Card						Auto						Retail Banking						Total Consumer Banking						Commercial Banking												Total
Allowance for loan and lease losses:
Balance as of June 30, 2019						$	4,925					$	417					$	5,342					$	997					$	58					$	1,055					$	736											$	7,133
Charge-offs						(1,403)						(128)						(1,531)						(468)						(21)						(489)						(66)												(2,086)
Recoveries(1)						338						42						380						234						4						238						6												624
Net charge-offs						(1,065)						(86)						(1,151)						(234)						(17)						(251)						(60)												(1,462)
Provision for loan and lease losses						1,010						77						1,087						189						14						203						84												1,374
Allowance build (release) for loan and lease losses						(55)						(9)						(64)						(45)						(3)						(48)						24												(88)
Other changes(2)						—						(8)						(8)						—						—						—						—												(8)
Balance as of September 30, 2019						4,870						400						5,270						952						55						1,007						760												7,037
Reserve for unfunded lending commitments:
Balance as of June 30, 2019						—						—						—						—						4						4						140												144
Provision for losses on unfunded lending commitments						—						—						—						—						—						—						9												9
Balance as of September 30, 2019						—						—						—						—						4						4						149												153
Combined allowance and reserve as of September 30, 2019						$	4,870					$	400					$	5,270					$	952					$	59					$	1,011					$	909											$	7,190

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

__________

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

(2)Represents foreign currency translation adjustments.

(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. Table 30 presents the allowance coverage ratios as of September 30, 2020 and December 31, 2019.

Table 30: Allowance Coverage Ratios

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

__________

(1)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 $8.9 billion to $16.1 billion, and our allowance coverage ratio increased by 379 basis points to 6.50% as of September 30, 2020 from December 31, 2019, driven by the allowance builds in the first and second quarters of 2020 from expectations of economic worsening and uncertainty as a result of the COVID-19 pandemic as well as the adoption of the CECL standard in the first quarter of 2020.

LIQUIDITY RISK PROFILE

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

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

Table 31: Liquidity Reserves

(Dollars in millions)						September 30, 2020						December 31, 2019
Cash and cash equivalents						$	44,106					$	13,407
Investment securities available for sale, at fair value						99,853						79,213
FHLB borrowing capacity secured by loans						10,726						10,835
Outstanding FHLB advances and letters of credit secured by loans						(131)						(7,210)
Investment securities encumbered for Public Funds and others						(6,123)						(5,688)
Total liquidity reserves						$	148,431					$	90,557

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

Liquidity Coverage Ratio

We are subject to the Liquidity Coverage Ratio Rule (“LCR Rule”) as implemented by the Federal Reserve and OCC. The LCR Rule requires us to calculate our LCR daily. 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 third quarter of 2020 was 147%, which exceeded the LCR Rule requirement of 100%. The calculation and the underlying components are based on our interpretations, expectations and assumptions of relevant regulations, as well as interpretations provided by our regulators, and are subject to change based on changes to future regulations and interpretations. See “Part I—Item 1. Business—Supervision and Regulation” in our 2019 Form 10-K and “MD&A—Supervision and Regulation” in our Quarterly Report on Form 10-Q for the period ended March 31, 2020 for additional information.

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Borrowing Capacity

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

In addition to our issuance capacity under the shelf registration statements, we also have access to FHLB advances and the Federal Reserve Discount Window. The ability to borrow utilizing these sources is based on membership status and the amount is dependent upon the Banks’ ability to post collateral. As of September 30, 2020, we pledged both loans and securities to FHLB to secure a maximum borrowing capacity of $16.2 billion, of which $16.1 billion was still available to us to borrow. Our FHLB membership is supported by our investment in FHLB stock of $30 million and $328 million as of September 30, 2020 and December 31, 2019, respectively, which was determined in part based on our outstanding advances. As of September 30, 2020, we pledged loans to secure a borrowing capacity of $21.0 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 September 30, 2020 and December 31, 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.

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Deposits

Table 32 provides a comparison of average balances, interest expense and average deposit interest rates for the third quarter and first nine months of 2020 and 2019.

Table 32: Deposits Composition and Average Deposits Interest Rates

						Three Months Ended September 30,
						2020																		2019
(Dollars in millions)						Average Balance						Interest Expense						Average Deposits Interest Rate						Average Balance						Interest Expense						Average Deposits Interest Rate
Interest-bearing checking accounts(1)						$	38,115					$	25					0.26		%				$	33,804					$	75					0.87		%
Saving deposits(2)						196,575						287						0.58						154,442						540						1.39
Time deposits less than $100,000						26,626						112						1.67						28,174						197						2.78
Total interest-bearing core deposits						261,316						424						0.65						216,420						812						1.49
Time deposits of $100,000 or more						15,023						52						1.40						15,643						89						2.25
Total interest-bearing deposits						$	276,339					$	476					0.69						$	232,063					$	901					1.55

						Nine Months Ended September 30,
						2020																		2019
(Dollars in millions)						Average Balance						Interest Expense						Average Deposits Interest Rate						Average Balance						Interest Expense						Average Deposits Interest Rate
Interest-bearing checking accounts(1)						$	36,201					$	106					0.39		%				$	34,437					$	223					0.86		%
Saving deposits(2)						179,643						1,085						0.81						154,168						1,565						1.36
Time deposits less than $100,000						27,477						407						1.98						26,898						555						2.76
Total interest-bearing core deposits						243,321						1,598						0.88						215,503						2,343						1.45
Time deposits of $100,000 or more						16,310						220						1.81						14,542						245						2.25
Total interest-bearing deposits						$	259,631					$	1,818					0.93						$	230,045					$	2,588					1.50

__________

(1)Includes negotiable order of withdrawal accounts.

(2)Includes money market deposit accounts.

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 September 30, 2020 and December 31, 2019, respectively. See “Part I—Item 1. Business—Supervision and Regulation” in our 2019 Form 10-K 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 7—Deposits and Borrowings.”

Short-Term Borrowings and Long-Term Debt

We access the capital markets to meet our funding needs through the issuance of senior and subordinated notes, securitized debt obligations, and federal funds purchased and securities loaned or sold under agreements to repurchase. In addition, we may utilize short-term and long-term FHLB advances secured by certain of our investment securities, multifamily real estate loans, and commercial real estate loans.

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 $702 million as of September 30, 2020 from December 31, 2019 driven by maturities of our short-term FHLB advances.

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Our long-term debt, which primarily consists of securitized debt obligations and senior and subordinated notes, decreased by $6.3 billion to $42.1 billion as of September 30, 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.”

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

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

Table 33: Long-Term Funding

						Issuances												Maturities/Redemptions
						Three Months Ended September 30,												Three Months Ended September 30,
(Dollars in millions)						2020						2019						2020						2019
Securitized debt obligations						$	—					$	4,050					$	2,159					$	2,096
Senior and subordinated notes						—						1,500						—						2,844
FHLB advances						—						—						—						—
Total						$	—					$	5,550					$	2,159					$	4,940

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

Credit Ratings

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

Table 34 provides a summary of the credit ratings for the senior unsecured long-term debt of Capital One Financial Corporation, COBNA and CONA as of September 30, 2020 and December 31, 2019.

Table 34: Senior Unsecured Long-Term Debt Credit Ratings

September 30, 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 October 28, 2020, Moody’s Investors Service (“Moody’s”), Standard & Poor’s (“S&P”), and Fitch Ratings (“Fitch”) have our credit ratings on a negative outlook.

MARKET RISK PROFILE

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

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•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 35 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 relative to December 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 35 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 since December 2019 mainly due to the decline in interest rates and the growth in deposits and cash.

Table 35 shows the estimated percentage impact on our projected baseline net interest income and economic value of equity calculated under the methodology described above as of September 30, 2020 and December 31, 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.

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Table 35: Interest Rate Sensitivity Analysis

						September 30, 2020						December 31, 2019
Estimated impact on projected baseline net interest income:
+200 basis points						7.3		%				1.8		%
+100 basis points						5.3						1.3
+50 basis points						2.7						1.1
–50 basis points						(0.7)						(0.5)
Estimated impact on economic value of equity:
+200 basis points						10.8						(3.6)
+100 basis points						10.1						0.5
+50 basis points						6.3						0.8
–50 basis points						(11.6)						(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 8—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 the pound sterling (“GBP”) and the Canadian dollar (“CAD”) that we provide to our businesses in the U.K. and Canada and net equity investments in those businesses. We are also exposed to foreign exchange risk due to changes in the dollar-denominated value of future earnings and cash flows from our foreign operations and from our Euro (“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 430 million GBP and 761 million GBP as of September 30, 2020 and December 31, 2019, respectively, and 5.2 billion CAD and 6.6 billion CAD as of September 30, 2020 and December 31, 2019, respectively. Our EUR-denominated borrowings outstanding were 1.3 billion EUR and 1.2 billion EUR as of September 30, 2020 and December 31, 2019, respectively.

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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 1.6 billion GBP as of both September 30, 2020 and December 31, 2019, and 1.4 billion CAD as of both September 30, 2020 and December 31, 2019.

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

Risk related to Customer Accommodation Derivatives

We offer interest rate, commodity and foreign currency derivatives as an accommodation to our customers within our Commercial Banking business. We offset the majority of the market risk of these customer accommodation derivatives by entering into offsetting derivatives transactions with other counterparties. We use value-at-risk (“VaR”) as the primary method to measure the market risk in our customer accommodation derivative activities on a daily basis. VaR is a statistical risk measure used to estimate the potential loss from movements observed in the recent market environment. We employ an historical simulation approach using the most recent 500 business days and use a 99 percent confidence level and a holding period of one business day. As a result of offsetting our customer exposures with other counterparties, we believe that our net exposure to market risk in our customer accommodation derivatives is minimal. For further information on our risk related to customer accommodation derivatives, see “Note 8—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 the Secured Overnight Financing Rate (“SOFR”) as the preferred alternative rate for certain U.S. dollar derivative and cash instruments. While the ARRC has recommended SOFR as the replacement rate for LIBOR, there is acknowledgment that the development of a credit-sensitive element could be a complement to SOFR. It is unclear as to the likelihood and timing, but such a development would have impacts to our transition efforts.

We have exposures to LIBOR, including loans, derivative contracts, unsecured debt, 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; and

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

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We also continue to focus our transition efforts on:

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

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

•monitoring and reducing our LIBOR exposure;

•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” in our 2019 Form 10-K.

SUPERVISION AND REGULATION

Dividends and Stock Repurchases Update

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

In August 2020, the Federal Banking Agencies adopted as final the interim final rule issued in March 2020 that revised the definition of “eligible retained income” in the capital rule to make any required reduction in capital distributions less sudden and severe and more gradual than would have occurred under the original definition of the term. For more information about this interim final rule, see “MD&A—Supervision and Regulation” in our Quarterly Report on Form 10-Q for the period ended March 31, 2020.

Net Stable Funding Ratio

The Federal Banking Agencies have finalized a rule to implement the net stable funding ratio (“NSFR”) in the United States (the “NSFR Rule”). The NSFR Rule requires the Company and 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, we and the Banks are subject to an NSFR requirement equal to 85% of the full requirement. These requirements will become effective as of July 1, 2021 and will apply to us and each of the Banks.

CECL Update

In August 2020, the Federal Banking Agencies adopted as final the 2020 CECL Transition Rule that provides banking organizations, including us, an option to mitigate the estimated capital effects of CECL for two years, followed by a three-year transition period (the “2020 CECL Transition Election”). We made the 2020 CECL Transition Election beginning in the first quarter of 2020. For a description of the 2020 CECL Transition Rule, see “MD&A—Supervision and Regulation” in our Quarterly Report on Form 10-Q for the period ended March 31, 2020.

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Derivatives Activities Update

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

FDIC Insurance Assessment

As of June 30, 2020, the Deposit Insurance Fund (“DIF”) reserve ratio fell to 1.30 percent. The FDIC, as required under the Federal Deposit Insurance Act, established a plan on September 15, 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.

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

FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

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

•our ability to manage effectively our capital and liquidity;

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

•the inability to sustain revenue and earnings growth;

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

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

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

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

•the amount and rate of deposit growth;

•changes in deposit costs;

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

•restructuring activities or other charges;

•our response to competitive pressures;

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

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

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

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

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

•the potential impact to our business, operations and reputation from, and expenses and uncertainties associated with, the Cybersecurity Incident we announced on July 29, 2019 and associated legal proceedings and other inquiries or investigations, as discussed in “MD&A—Introduction—Cybersecurity Incident” and “Note 13—Commitments, Contingencies, Guarantees and Others”

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

•our ability to develop and adapt to rapid changes in digital technology to address the needs of our customers and comply with applicable regulatory standards, including compliance with data protection and privacy standards;

•the effectiveness of our risk management strategies;

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

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

•our ability to recruit and retain talented and experienced personnel;

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

•changes in the labor and employment markets;

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

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

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

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

Forward-looking statements often use words such as “will,” “anticipate,” “target,” “expect,” “estimate,” “intend,” “plan,” “goal,” “believe,” “forecast,” “outlook” or other words of similar meaning. Any forward-looking statements made by us or on our behalf speak only as of the date they are made or as of the date indicated, and we do not undertake any obligation to update forward-looking statements as a result of new information, future events or otherwise. For additional information on factors that could materially influence forward-looking statements included in this Report, see the risk factors set forth under “Part I—Item 1A. Risk Factors” in our 2019 Form 10-K and “Part II—Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2020. You should carefully consider the factors discussed above, and in our Risk Factors or other disclosure, in evaluating these forward-looking statements.

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SUPPLEMENTAL TABLE

Reconciliation of Non-GAAP Measures

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

Table A—Reconciliation of Non-GAAP Measures

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

__________

(1)Includes impact of related deferred taxes.

(2)Tangible common equity (“TCE”) ratio is a non-GAAP measure calculated based on TCE divided by tangible assets.

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Glossary and Acronyms

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

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

Banks: Refers to COBNA and CONA.

Basel Committee: The Basel Committee on Banking Supervision.

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

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

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

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

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

Carrying value (with respect to loans): The amount at which a loan is recorded on the consolidated balance sheets. For loans recorded at amortized cost, carrying value is the unpaid principal balance net of unamortized deferred loan origination fees and costs, and unamortized purchase premium or discount. For loans that are or have been on nonaccrual status, the carrying value is also reduced by any net charge-offs that have been recorded and the amount of interest payments applied as a reduction of principal under the cost recovery method. For credit card loans, the carrying value also includes interest that has been billed to the customer, 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 capital: Calculated as the sum of common equity, related surplus and retained earnings, and accumulated other comprehensive income net of applicable phase-ins, less goodwill and intangibles net of associated deferred tax liabilities and applicable phase-ins, less other deductions, as defined by regulators.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Interest rate sensitivity: The exposure to interest rate movements.

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

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

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

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

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

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

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

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

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

Master netting 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.

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

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

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

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.

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

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

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

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

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

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

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

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: Great British pound

Ginnie Mae: Government National Mortgage Association

GSE or Agency: Government-sponsored enterprise

IBOR: Interbank Offered Rate

IRM: Independent Risk Management

LCH: LCH Group

LCR: Liquidity coverage ratio

LIBOR: London Interbank Offered Rate

MDL: Multi-district litigation

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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

SD: Swap dealer

SEC: U.S. Securities and Exchange Commission

SLR: Supplementary leverage ratio

SOFR: Secured Overnight Financing Rate

TCE: Tangible common equity

TDR: Troubled debt restructuring

U.K.: United Kingdom

U.S.: United States of America

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Item 1. Financial Statements and Notes
			Page
Consolidated Financial Statements			74
Consolidated Statements of Income			74
Consolidated Statements of Comprehensive Income			75
Consolidated Balance Sheets			76
Consolidated Statements of Changes in Stockholders’ Equity			77
Consolidated Statements of Cash Flows			79
Notes to Consolidated Financial Statements			81
Note 1—Summary of Significant Accounting Policies			81
Note 2—Investment Securities			90
Note 3—Loans			93
Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments			102
Note 5—Variable Interest Entities and Securitizations			106
Note 6—Goodwill and Intangible Assets			110
Note 7—Deposits and Borrowings			111
Note 8—Derivative Instruments and Hedging Activities			112
Note 9—Stockholders’ Equity			122
Note 10—Earnings Per Common Share			126
Note 11—Fair Value Measurement			127
Note 12—Business Segments and Revenue from Contracts with Customers			134
Note 13—Commitments, Contingencies, Guarantees and Others			138

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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

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

See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

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

See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in millions, except per share-related data)						September 30, 2020						December 31, 2019
Assets:
Cash and cash equivalents:
Cash and due from banks						$	4,267					$	4,129
Interest-bearing deposits and other short-term investments						39,839						9,278
Total cash and cash equivalents						44,106						13,407
Restricted cash for securitization investors						895						342
Securities available for sale (amortized cost of $96.7 billion and allowance for credit losses of $3 million as of September 30, 2020)						99,853						79,213
Loans held for investment:
Unsecuritized loans held for investment						217,878						231,992
Loans held in consolidated trusts						30,345						33,817
Total loans held for investment						248,223						265,809
Allowance for credit losses						(16,129)						(7,208)
Net loans held for investment						232,094						258,601
Loans held for sale ($1.3 billion and $251 million carried at fair value at September 30, 2020 and December 31, 2019, respectively)						3,433						400
Premises and equipment, net						4,333						4,378
Interest receivable						1,551						1,758
Goodwill						14,648						14,653
Other assets						20,970						17,613
Total assets						$	421,883					$	390,365
Liabilities:
Interest payable						$	332					$	439
Deposits:
Non-interest-bearing deposits						29,633						23,488
Interest-bearing deposits						276,092						239,209
Total deposits						305,725						262,697
Securitized debt obligations						13,566						17,808
Other debt:
Federal funds purchased and securities loaned or sold under agreements to repurchase						702						314
Senior and subordinated notes						28,448						30,472
Other borrowings						79						7,103
Total other debt						29,229						37,889
Other liabilities						14,607						13,521
Total liabilities						363,459						332,354
Commitments, contingencies and guarantees (see Note 13)
Stockholders’ equity:
Preferred stock (par value $0.01 per share; 50,000,000 shares authorized; 5,475,000 and 4,975,000 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively)						0						0
Common stock (par value $0.01 per share; 1,000,000,000 shares authorized; 678,318,329 and 672,969,391 shares issued as of September 30, 2020 and December 31, 2019, respectively; 457,397,091 and 456,562,399 shares outstanding as of September 30, 2020 and December 31, 2019, respectively)						7						7
Additional paid-in capital, net						33,793						32,980
Retained earnings						37,653						40,340
Accumulated other comprehensive income						3,833						1,156
Treasury stock, at cost (par value $0.01 per share; 220,921,238 and 216,406,992 shares as of September 30, 2020 and December 31, 2019, respectively)						(16,862)						(16,472)
Total stockholders’ equity						58,424						58,011
Total liabilities and stockholders’ equity						$	421,883					$	390,365

See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in millions)						Preferred Stock												Common Stock												Additional Paid-In Capital						Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Treasury Stock						Total Stockholders’ Equity
						Shares						Amount						Shares						Amount
Balance as of December 31, 2019						4,975,000						$	0					672,969,391						$	7					$	32,980					$	40,340					$	1,156					$	(16,472)					$	58,011
Cumulative effects from adoption of the CECL standard																																				(2,184)						(8)												(2,192)
Comprehensive income (loss)																																				(1,340)						2,531												1,191
Dividends—common stock(1)																		23,213						0						2						(187)																		(185)
Dividends—preferred stock																																				(55)																		(55)
Purchases of treasury stock																																																(386)						(386)
Issuances of common stock and restricted stock, net of forfeitures																		2,618,628						0						63																								63
Exercises of stock options																		559,333						0						20																								20
Issuances of preferred stock						1,250,000						0																		1,209																								1,209
Redemptions of preferred stock						(875,000)						0																		(853)						(22)																		(875)
Compensation expense for restricted stock units and stock options																														29																								29
Balance as of March 31, 2020						5,350,000						$	0					676,170,565						$	7					$	33,450					$	36,552					$	3,679					$	(16,858)					$	56,830
Comprehensive income (loss)																																				(918)						302												(616)
Dividends—common stock(1)																		6,521						0						0						(183)																		(183)
Dividends—preferred stock																																				(90)																		(90)
Purchases of treasury stock																																																(2)						(2)
Issuances of common stock and restricted stock, net of forfeitures																		1,041,311						0						58																								58
Exercises of stock options																		8,410						0						0																								0
Compensation expense for restricted stock units and stock options																														48																								48
Balance as of June 30, 2020						5,350,000						$	0					677,226,807						$	7					$	33,556					$	35,361					$	3,981					$	(16,860)					$	56,045
Comprehensive income (loss)																																				2,406						(148)												2,258
Dividends—common stock(1)																		1,608						0						0						(47)																		(47)
Dividends—preferred stock																																				(67)																		(67)
Purchases of treasury stock																																																(2)						(2)
Issuances of common stock and restricted stock, net of forfeitures																		1,073,323						0						63																								63
Exercises of stock options																		16,591						0						1																								1
Issuances of preferred stock						125,000						0																		121																								121
Compensation expense for restricted stock units and stock options																														52																								52
Balance as of September 30, 2020						5,475,000						$	0					678,318,329						$	7					$	33,793					$	37,653					$	3,833					$	(16,862)					$	58,424

See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

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

__________

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

See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

						Nine Months Ended September 30,
(Dollars in millions)						2020						2019
Operating activities:
Income from continuing operations, net of tax						$	149					$	4,355
Income (loss) from discontinued operations, net of tax						(1)						15
Net income						148						4,370
Adjustments to reconcile net income (loss) to net cash from operating activities:
Provision for credit losses						10,000						4,418
Depreciation and amortization, net						2,701						2,434
Deferred tax benefit						(1,420)						(72)
Net securities gains						(25)						(44)
Gain on sales of loans						(15)						(53)
Stock-based compensation expense						128						175
Other (including unrealized gains from equity investments)						(477)						0
Loans held for sale:
Originations and purchases						(6,739)						(8,064)
Proceeds from sales and paydowns						5,833						8,126
Changes in operating assets and liabilities:
Changes in interest receivable						207						(13)
Changes in other assets						1,052						1,852
Changes in interest payable						(107)						(88)
Changes in other liabilities						785						(522)
Net change from discontinued operations						1						0
Net cash from operating activities						12,072						12,519
Investing activities:
Securities available for sale:
Purchases						(35,189)						(8,919)
Proceeds from paydowns and maturities						15,593						6,099
Proceeds from sales						812						4,226
Securities held to maturity:
Purchases						0						(396)
Proceeds from paydowns and maturities						0						3,209
Loans:
Net changes in loans held for investment						9,083						(10,555)
Principal recoveries of loans previously charged off						1,898						1,947
Net purchases of premises and equipment						(543)						(631)
Net cash from acquisition activities						(7)						(85)
Net cash from other investing activities						(564)						(781)
Net cash from investing activities						(8,917)						(5,886)

See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

						Nine Months Ended September 30,
(Dollars in millions)						2020						2019
Financing activities:
Deposits and borrowings:
Changes in deposits						$	42,763					$	7,072
Issuance of securitized debt obligations						1,248						6,656
Maturities and paydowns of securitized debt obligations						(5,752)						(6,222)
Issuance of senior and subordinated notes and long-term FHLB advances						3,987						4,142
Maturities and paydowns of senior and subordinated notes and long-term FHLB advances						(7,156)						(5,595)
Changes in other borrowings						(6,636)						(8,964)
Common stock:
Net proceeds from issuances						184						153
Dividends paid						(415)						(569)
Preferred stock:
Net proceeds from issuances						1,330						1,463
Dividends paid						(212)						(185)
Redemptions						(875)						0
Purchases of treasury stock						(390)						(536)
Proceeds from share-based payment activities						21						0
Net cash from financing activities						28,097						(2,585)
Changes in cash, cash equivalents and restricted cash for securitization investors						31,252						4,048
Cash, cash equivalents and restricted cash for securitization investors, beginning of the period						13,749						13,489
Cash, cash equivalents and restricted cash for securitization investors, end of the period						$	45,001					$	17,537
Supplemental cash flow information:
Non-cash items:
Net transfers from (to) loans held for investment to (from) loans held for sale						$	2,173					$	1,494
Interest paid						2,944						3,689
Income tax paid						625						364

See Notes to Consolidated Financial Statements.
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NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Capital One Financial Corporation, a Delaware Corporation established in 1994 and headquartered in McLean, Virginia, is a diversified financial services holding company with banking and non-banking subsidiaries. Capital One Financial Corporation and its subsidiaries (the “Company”) offer a broad array of financial products and services to consumers, small businesses and commercial clients through digital channels, branches, Cafés and other distribution channels. As of September 30, 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 12—Business Segments and Revenue from Contracts with Customers.”

Basis of Presentation and Use of Estimates

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

These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements, and related notes thereto, included in Capital One Financial Corporation’s 2019 Annual Report on Form 10-K (“2019 Form 10-K”).

Income Taxes

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

Significant Accounting Policies Impacted by our Adoption of the CECL Standard

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

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Investment Securities

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

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

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

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

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

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

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

Loans

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

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Loan Classification

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

Loans Held for Investment

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

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

Loans Held for Sale

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

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

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

Loans Acquired

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

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

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

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

Loan Modifications and Restructurings

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

Delinquent and Nonperforming Loans

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

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

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

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

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

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

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

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

Charge-Offs - Loans

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

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

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

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

Allowance for Credit Losses

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

Allowance for Credit Losses - Loans Held for Investment

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

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

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

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

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

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

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

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

			86			Capital One Financial Corporation (COF)

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

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

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

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

Off-balance sheet credit exposures

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

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

Allowance for Credit Losses - Available for Sale Investment Securities

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

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

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

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

Revenue Recognition

Interest Income and Fees

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

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

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

			88			Capital One Financial Corporation (COF)

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

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

Standard

Guidance

Adoption Timing and Financial Statement Impacts

Cloud Computing ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract Issued August 2018

Aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

We adopted this guidance in the first quarter of 2020 using the prospective method of adoption. Our adoption of this standard did not have a material impact on our consolidated financial statements.

Goodwill Impairment Test Simplification ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment Issued January 2017

Historical guidance for goodwill impairment testing prescribed that the company must compare each reporting unit’s carrying value to its fair value. If the carrying value exceeds fair value, an entity performs the second step, which assigns the reporting unit’s fair value to its assets and liabilities, including unrecognized assets and liabilities, in the same manner as required in purchase accounting and then records an impairment. This ASU eliminates the second step. Under the new guidance, an impairment of a reporting unit’s goodwill is determined based on the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the amount of goodwill allocated to the reporting unit.

We adopted this guidance in the first quarter of 2020 using the prospective method of adoption. Our adoption of this standard did not have a material impact on our consolidated financial statements.

Current Expected Credit Loss (“CECL”) ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Issued June 2016

Requires use of the current expected credit loss model that is based on expected losses (net of expected recoveries), rather than incurred losses, to determine our allowance for credit losses on financial assets measured at amortized cost, certain net investments in leases and certain off-balance sheet arrangements. Replaces current accounting for purchased credit-impaired (“PCI”) and impaired loans. Amends the other-than-temporary impairment model for available for sale debt securities. The new guidance requires that credit losses be recorded through an allowance approach, rather than through permanent write-downs for credit losses and subsequent accretion of positive changes through interest income over time.

We adopted this guidance in the first quarter of 2020, using the modified retrospective method of adoption. Upon adoption, we recorded an increase to our reserves for credit losses of $2.9 billion, an increase to our deferred tax assets of $694 million, and a decrease to our retained earnings of $2.2 billion. Additionally, we made a prospective change to present our finance charge and fee reserve as a component of our allowance for credit losses instead of as an offset to our loans held for investment. This balance sheet reclassification increased our allowance for credit losses, with a corresponding increase to our loans held for investment by $462 million as of January 1, 2020.

			89			Capital One Financial Corporation (COF)

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NOTE 2—INVESTMENT SECURITIES

Our investment securities portfolio consists of the following: U.S. Treasury securities, U.S. government-sponsored enterprise or agency (“Agency”) and non-agency residential mortgage-backed securities (“RMBS”), Agency commercial mortgage-backed securities (“CMBS”) and other securities. Agency securities include Government National Mortgage Association (“Ginnie Mae”) guaranteed securities, Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) issued securities. The carrying value of our investments in U.S. Treasury and Agency securities represented 96% of our total investment securities portfolio as of both September 30, 2020 and December 31, 2019.

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

We exclude accrued interest receivable from the amortized cost disclosed in this note. Our disclosures below reflect these adoption changes. Prior period presentation was not reclassified to conform to the current period presentation. See “Note 1—Summary of Significant Accounting Policies” for additional information.

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

Table 2.1: Investment Securities Available for Sale

						September 30, 2020
(Dollars in millions)						Amortized Cost						Allowance for Credit Losses						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Investment securities available for sale:
U.S. Treasury securities						$	9,331					$	0					$	14					$	0					$	9,345
RMBS:
Agency						72,948						0						2,506						(88)						75,366
Non-agency						1,093						(3)						204						(1)						1,293
Total RMBS						74,041						(3)						2,710						(89)						76,659
Agency CMBS						10,953						0						490						(8)						11,435
Other securities(1)						2,410						0						4						0						2,414
Total investment securities available for sale						$	96,735					$	(3)					$	3,218					$	(97)					$	99,853

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

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			90			Capital One Financial Corporation (COF)

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(1)Includes $1.5 billion and $117 million of asset-backed securities as of September 30, 2020, and December 31, 2019, respectively. The remaining amount is primarily comprised of supranational bonds and foreign government bonds.

Investment Securities in a Gross Unrealized Loss Position

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

Table 2.2: Securities in a Gross Unrealized Loss Position

						September 30, 2020
						Less than 12 Months												12 Months or Longer												Total
(Dollars in millions)						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses
Investment securities available for sale without an allowance for credit losses:
U.S. Treasury securities						$	0					$	0					$	0					$	0					$	0					$	0
RMBS:
Agency						6,681						(51)						1,866						(37)						8,547						(88)
Non-agency						14						0						0						0						14						0
Total RMBS						6,695						(51)						1,866						(37)						8,561						(88)
Agency CMBS						916						(4)						257						(4)						1,173						(8)
Other securities(1)						442						0						3						0						445						0
Total investment securities available for sale in a gross unrealized loss position without an allowance for credit losses(2)						$	8,053					$	(55)					$	2,126					$	(41)					$	10,179					$	(96)

						December 31, 2019
						Less than 12 Months												12 Months or Longer												Total
(Dollars in millions)						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses
Investment securities available for sale:
U.S. Treasury securities						$	2,647					$	(4)					$	0					$	0					$	2,647					$	(4)
RMBS:
Agency						10,494						(92)						10,567						(192)						21,061						(284)
Non-agency						35						(1)						16						(1)						51						(2)
Total RMBS						10,529						(93)						10,583						(193)						21,112						(286)
Agency CMBS						2,580						(23)						1,563						(19)						4,143						(42)
Other securities(1)						126						0						106						0						232						0
Total investment securities available for sale in a gross unrealized loss position						$	15,882					$	(120)					$	12,252					$	(212)					$	28,134					$	(332)

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

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

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Maturities and Yields of Investment Securities

The table below summarizes, by major security type, the contractual maturities and weighted-average yields of our investment securities as of September 30, 2020. Because borrowers may have the right to call or prepay certain obligations, the expected maturities of our securities are likely to differ from the scheduled contractual maturities presented below. The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security.

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

						September 30, 2020
(Dollars in millions)						Due in 1 Year or Less						Due > 1 Year through 5 Years						Due > 5 Years through 10 Years						Due > 10 Years						Total
Fair value of securities available for sale:
U.S. Treasury securities						$	101					$	9,244					$	0					$	0					$	9,345
RMBS(1):
Agency						0						73						1,073						74,220						75,366
Non-agency						0						0						0						1,293						1,293
Total RMBS						0						73						1,073						75,513						76,659
Agency CMBS(1)						52						2,766						5,242						3,375						11,435
Other securities						251						1,882						281						0						2,414
Total securities available for sale						$	404					$	13,965					$	6,596					$	78,888					$	99,853
Amortized cost of securities available for sale						$	402					$	13,901					$	6,334					$	76,098					$	96,735
Weighted-average yield for securities available for sale						1.44		%				0.82		%				1.93		%				2.37		%				2.11		%

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(1)As of September 30, 2020, the weighted-average expected maturities of RMBS and Agency CMBS are 3.7 years and 5.3 years, respectively.

Net Securities Gains or Losses and Process from Sales

For the three and nine months ended September 30, 2020, total proceeds from the sale of our securities were $668 million and $812 million, respectively, with gains of $25 million in both periods. For the three and nine months ended September 30, 2019, total proceeds from sale of our securities were $243 million and $4.2 billion, with gains of $5 million and $44 million, respectively.

Securities Pledged and Received

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

			92			Capital One Financial Corporation (COF)

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NOTE 3—LOANS

Our loan portfolio consists of loans held for investment, including loans held in our consolidated trusts, and loans held for sale. We further divide our loans held for investment into three portfolio segments: credit card, consumer banking and commercial banking. Credit card loans consist of domestic and international credit card loans. Consumer banking loans consist of auto and retail banking loans. Commercial banking loans consist of commercial and multifamily real estate as well as commercial and industrial loans. The information presented in this section excludes loans held for sale, which are carried at either fair value (if we elect the fair value option) or at the lower of cost or fair value.

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

Accrued interest receivable of $1.3 billion as of September 30, 2020 is not included in the tables in this note. The table below presents the composition and aging analysis of our loans held for investment portfolio as of September 30, 2020 and December 31, 2019. The delinquency aging includes all past due loans, both performing and nonperforming.

Table 3.1: Loan Portfolio Composition and Aging Analysis

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

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						December 31, 2019
												Delinquent Loans
(Dollars in millions)						Current						30-59 Days						60-89 Days						> 90 Days						Total Delinquent Loans						PCI Loans						Total Loans
Credit Card:
Domestic credit card						$	113,857					$	1,341					$	1,038					$	2,277					$	4,656					$	93					$	118,606
International card businesses						9,277						133						84						136						353						0						9,630
Total credit card						123,134						1,474						1,122						2,413						5,009						93						128,236
Consumer Banking:
Auto						55,778						2,828						1,361						395						4,584						0						60,362
Retail banking						2,658						24						8						11						43						2						2,703
Total consumer banking						58,436						2,852						1,369						406						4,627						2						63,065
Commercial Banking:
Commercial and multifamily real estate						30,157						43						20						4						67						21						30,245
Commercial and industrial						44,009						75						26						143						244						10						44,263
Total commercial banking						74,166						118						46						147						311						31						74,508
Total loans(1)						$	255,736					$	4,444					$	2,537					$	2,966					$	9,947					$	126					$	265,809
% of Total loans						96.2		%				1.6		%				1.0		%				1.1		%				3.7		%				0.1		%				100.0		%

__________

(1)Loans include unamortized premiums and discounts, and unamortized deferred fees and costs totaling $1.1 billion as of both September 30, 2020 and December 31, 2019.

The following table presents our loans held for investment that are 90 days or more past due that continue to accrue interest and loans that are classified as nonperforming as of September 30, 2020 and December 31, 2019. We also present nonperforming loans without an allowance as of September 30, 2020. Nonperforming loans generally include loans that have been placed on nonaccrual status.

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

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

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

Credit Quality Indicators

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

Credit Card

Our credit card loan portfolio is highly diversified across millions of accounts and numerous geographies without significant individual exposure. We therefore generally manage credit risk based on portfolios with common risk characteristics. The risk in our credit card loan portfolio correlates to broad economic trends, such as unemployment rates and home values, as well as consumers’ financial condition, all of which can have a material effect on credit performance. The key indicator we assess in monitoring the credit quality and risk of our credit card loan portfolio is delinquency trends, including an analysis of loan migration between delinquency categories over time.

The table below presents our credit card portfolio by delinquency status as of September 30, 2020.

Table 3.3: Credit Card Delinquency Status

												September 30, 2020
(Dollars in millions)												Revolving Loans						Revolving Loans Converted to Term						Total
Credit Card:
Domestic credit card:
Current												$	92,904					$	529					$	93,433
30-59 days												641						20						661
60-89 days												414						13						427
Greater than 90 days												1,004						16						1,020
Total domestic credit card												94,963						578						95,541
International card businesses:
Current												7,845						70						7,915
30-59 days												67						10						77
60-89 days												33						8						41
Greater than 90 days												59						8						67
Total international card businesses												8,004						96						8,100
Total credit card												$	102,967					$	674					$	103,641

			95			Capital One Financial Corporation (COF)

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Consumer Banking

Our consumer banking loan portfolio consists of auto and retail banking loans. Similar to our credit card loan portfolio, the risk in our consumer banking loan portfolio correlates to broad economic trends, such as unemployment rates, gross domestic product and home values, as well as consumers’ financial condition, all of which can have a material effect on credit performance. The key indicator we monitor when assessing the credit quality and risk of our auto loan portfolio is borrower credit scores as they measure the creditworthiness of borrowers. Delinquency trends are the key indicator we assess in monitoring the credit quality and risk of our retail banking loan portfolio.

The table below presents our consumer banking portfolio of loans held for investment by credit quality indicator as of September 30, 2020 and December 31, 2019. We present our auto loan portfolio by FICO scores at origination and our retail banking loan portfolio by delinquency status, which includes all past due loans, both performing and nonperforming.

Table 3.4: Consumer Banking Portfolio by Credit Quality Indicator

						September 30, 2020
						Term Loans by Vintage Year
(Dollars in millions)						2020						2019						2018						2017						2016						Prior						Total Term Loans						Revolving Loans						Revolving Loans Converted to Term						Total						December 31, 2019
Auto—At origination FICO scores:(1)
Greater than 660						$	10,562					$	9,021					$	5,353					$	3,338					$	1,496					$	333					$	30,103					$	0					$	0					$	30,103					$	28,773
621-660						4,666						4,027						2,264						1,361						597						161						13,076						0						0						13,076						11,924
620 or below						7,875						6,924						3,722						2,283						1,068						343						22,215						0						0						22,215						19,665
Total auto						23,103						19,972						11,339						6,982						3,161						837						65,394						0						0						65,394						60,362
Retail banking—Delinquency status:
Current						1,081						237						231						231						186						576						2,542						699						9						3,250						2,658
30-59 days						0						0						0						2						1						3						6						17						0						23						24
60-89 days						0						0						0						0						1						2						3						3						0						6						8
Greater than 90 days						0						0						0						1						1						4						6						8						1						15						11
Total retail banking(2)						1,081						237						231						234						189						585						2,557						727						10						3,294						2,701
Total consumer banking						$	24,184					$	20,209					$	11,570					$	7,216					$	3,350					$	1,422					$	67,951					$	727					$	10					$	68,688					$	63,063

__________

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

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

Commercial Banking

The key credit quality indicator for our commercial loan portfolios is our internal risk ratings. We assign internal risk ratings to loans based on relevant information about the ability of the borrowers to repay their debt. In determining the risk rating of a particular loan, some of the factors considered are the borrower’s current financial condition, historical and projected future credit performance, prospects for support from financially responsible guarantors, the estimated realizable value of any collateral and current economic trends. The scale based on our internal risk rating system is as follows:

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

			96			Capital One Financial Corporation (COF)

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•Criticized performing: Loans in which the financial condition of the obligor is stressed, affecting earnings, cash flows or collateral values. The borrower currently has adequate capacity to meet near-term obligations; however, the stress, left unabated, may result in deterioration of the repayment prospects at some future date.

•Criticized nonperforming: Loans that are not adequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Loans classified as criticized nonperforming have a well-defined weakness, or weaknesses, which jeopardize the full repayment of the debt. These loans are characterized by the distinct possibility that we will sustain a credit loss if the deficiencies are not corrected and are generally placed on nonaccrual status.

We use our internal risk rating system for regulatory reporting, determining the frequency of credit exposure reviews, and evaluating and determining the allowance for credit losses for commercial loans. Generally, loans that are designated as criticized performing and criticized nonperforming are reviewed quarterly by management to determine if they are appropriately classified/rated and whether any impairment exists. Noncriticized loans are also generally reviewed, at least annually, to determine the appropriate risk rating. In addition, we evaluate the risk rating during the renewal process of any loan or if a loan becomes past due.

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

Table 3.5: Commercial Banking Portfolio by Internal Risk Ratings

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

						December 31, 2019
(Dollars in millions)						Commercial and Multifamily Real Estate						% of Total						Commercial and Industrial						% of Total																		Total Commercial Banking						% of Total
Internal risk rating:(1)
Noncriticized						$	29,625					97.9		%				$	42,223					95.4		%																$	71,848					96.5		%
Criticized performing						561						1.9						1,620						3.7																		2,181						2.9
Criticized nonperforming						38						0.1						410						0.9																		448						0.6
PCI loans						21						0.1						10						0.0																		31						0.0
Total						$	30,245					100.0		%				$	44,263					100.0		%																$	74,508					100.0		%

__________

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

			97			Capital One Financial Corporation (COF)

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(2)Includes PPP loans of $242 million as of September 30, 2020.

Revolving Loans Converted to Term Loans

For the three and nine months ended September 30, 2020, we converted $250 million and $499 million of revolving loans to term loans, respectively, primarily in our domestic credit card and commercial banking loan portfolios.

Troubled Debt Restructurings

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

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

Loans Modified in TDRs

As part of our loan modification programs to borrowers experiencing financial difficulty, we may provide multiple concessions to minimize our economic loss and improve long-term loan performance and collectability. The following tables present the major modification types, recorded investment amounts and financial effects of loans modified in TDRs during the three and nine months ended September 30, 2020 and 2019.

			98			Capital One Financial Corporation (COF)

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Table 3.6: Troubled Debt Restructurings

						Total Loans Modified(1)						Three Months Ended September 30, 2020
												Reduced Interest Rate												Term Extension												Balance Reduction
(Dollars in millions)												% of TDR Activity(2)						Average Rate Reduction						% of TDR Activity(2)						Average Term Extension (Months)						% of TDR Activity(2)						Gross Balance Reduction
Credit Card:
Domestic credit card						$	50					100		%				15.53		%				0		%				0						0		%				$	0
International card businesses						39						100						27.89						0						0						0						0
Total credit card						89						100						20.94						0						0						0						0
Consumer Banking:
Auto						133						3						4.83						94						2						0						1
Retail banking						1						85						3.24						15						61						0						0
Total consumer banking						134						4						4.75						94						2						0						1
Commercial Banking:
Commercial and multifamily real estate						57						0						0.00						100						4						0						0
Commercial and industrial						201						0						0.00						54						32						0						0
Total commercial banking						258						0						0.00						64						23						0						0
Total						$	481					19						20.08						61						14						0						$	1

						Total Loans Modified(1)						Nine Months Ended September 30, 2020
												Reduced Interest Rate												Term Extension												Balance Reduction
(Dollars in millions)												% of TDR Activity(2)						Average Rate Reduction						% of TDR Activity(2)						Average Term Extension (Months)						% of TDR Activity(2)						Gross Balance Reduction
Credit Card:
Domestic credit card						$	195					100		%				15.92		%				0		%				0						0		%				$	0
International card businesses						118						100						27.33						0						0						0						0
Total credit card						313						100						20.22						0						0						0						0
Consumer Banking:
Auto						393						9						3.68						95						3						0						1
Retail banking						5						9						10.85						15						8						0						0
Total consumer banking						398						9						3.76						94						3						0						1
Commercial Banking:
Commercial and multifamily real estate						85						0						0.00						100						6						0						0
Commercial and industrial						389						0						0.00						52						21						4						7
Total commercial banking						474						0						0.00						61						16						3						7
Total						$	1,185					29						18.49						56						9						1						$	8

			99			Capital One Financial Corporation (COF)

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						Total Loans Modified(1)						Three Months Ended September 30, 2019
												Reduced Interest Rate												Term Extension												Balance Reduction
(Dollars in millions)												% of TDR Activity(2)						Average Rate Reduction						% of TDR Activity(2)						Average Term Extension (Months)						% of TDR Activity(2)						Gross Balance Reduction
Credit Card:
Domestic credit card						$	85					100		%				16.76		%				0		%				0						0		%				$	0
International card businesses						43						100						27.08						0						0						0						0
Total credit card						128						100						20.19						0						0						0						0
Consumer Banking:
Auto						66						42						3.51						89						8						1						1
Retail banking						1						9						9.30						0						0						0						0
Total consumer banking						67						42						3.53						88						8						1						1
Commercial Banking:
Commercial and industrial						51						9						1.00						15						14						0						0
Total commercial banking						51						9						1.00						15						14						0						0
Total						$	246					65						16.70						27						9						0						$	1

						Total Loans Modified(1)						Nine Months Ended September 30, 2019
												Reduced Interest Rate												Term Extension												Balance Reduction
(Dollars in millions)												% of TDR Activity(2)						Average Rate Reduction						% of TDR Activity(2)						Average Term Extension (Months)						% of TDR Activity(2)						Gross Balance Reduction
Credit Card:
Domestic credit card						$	257					100		%				16.58		%				0		%				0						0		%				$	0
International card businesses						130						100						27.25						0						0						0						0
Total credit card						387						100						20.18						0						0						0						0
Consumer Banking:
Auto						190						41						3.70						90						8						1						1
Retail banking						7						10						10.73						54						3						34						0
Total consumer banking						197						40						3.76						89						7						2						1
Commercial Banking:
Commercial and multifamily real estate						34						100						0.00						0						0						0						0
Commercial and industrial						86						5						0.60						25						9						0						0
Total commercial lending						120						32						0.07						18						9						0						0
Small-ticket commercial real estate						1						0						0.00						0						0						0						0
Total commercial banking						121						32						0.07						18						9						0						0
Total						$	705					72						16.08						28						8						1						$	1

__________

(1)Represents the recorded investment of total loans modified in TDRs at the end of the quarter in which they were modified. As not every modification type is included in the table above, the total percentage of TDR activity may not add up to 100%. Some loans may receive more than one type of concession as part of the modification.

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

			100			Capital One Financial Corporation (COF)

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Subsequent Defaults of Completed TDR Modifications

The following table presents the type, number and recorded investment of loans modified in TDRs that experienced a default during the period and had completed a modification event in the twelve months prior to the default. A default occurs if the loan is either 90 days or more delinquent, has been charged off as of the end of the period presented or has been reclassified from accrual to nonaccrual status.

Table 3.7: TDRs—Subsequent Defaults

						Three Months Ended September 30,																								Nine Months Ended September 30,
						2020												2019												2020												2019
(Dollars in millions)						Number of Contracts						Amount						Number of Contracts						Amount						Number of Contracts						Amount						Number of Contracts						Amount
Credit Card:
Domestic credit card						6,554						$	14					10,619						$	22					27,022						$	57					36,227						$	77
International card businesses						10,673						17						17,104						26						46,038						68						51,995						82
Total credit card						17,227						31						27,723						48						73,060						125						88,222						159
Consumer Banking:
Auto						1,307						15						1,446						18						3,442						42						3,863						47
Retail banking						3						1						6						0						7						1						18						1
Total consumer banking						1,310						16						1,452						18						3,449						43						3,881						48
Commercial Banking:
Commercial and industrial						4						16						0						0						11						65						0						0
Total commercial banking						4						16						0						0						11						65						0						0
Total						18,541						$	63					29,175						$	66					76,520						$	233					92,103						$	207

Loans Pledged

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

			101			Capital One Financial Corporation (COF)

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

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

Our allowance for 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. When developing an estimate of expected credit losses, we use both quantitative and qualitative methods in considering all available information relevant to assessing collectability. This may include internal information, external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. Management will consider and may qualitatively adjust for conditions, changes, and trends in loan portfolios that may not be captured in modeled results. These adjustments are referred to as qualitative factors and represent management’s judgment of the imprecision and risks inherent in the processes and assumptions used in establishing the allowance for credit losses. Significant judgment is applied in our estimation of lifetime credit losses.

We have unfunded lending commitments in our Commercial Banking business that are not unconditionally cancellable by us and for which we estimate expected credit losses in establishing a reserve. This reserve is measured using the same measurement objectives as the allowance for loans held for investment. We build or release the reserve for unfunded lending commitments through the provision for credit losses in our consolidated statements of income and the related reserve for unfunded lending commitments is included in other liabilities on our consolidated balance sheets.

Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity

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

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

			102			Capital One Financial Corporation (COF)

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

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

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

			103			Capital One Financial Corporation (COF)

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						Three Months Ended September 30, 2019
(Dollars in millions)						Credit Card						Consumer Banking						Commercial Banking												Total
Allowance for loan and lease losses:
Balance as of June 30, 2019						$	5,342					$	1,055					$	736											$	7,133
Charge-offs						(1,531)						(489)						(66)												(2,086)
Recoveries(1)						380						238						6												624
Net charge-offs						(1,151)						(251)						(60)												(1,462)
Provision for loan and lease losses						1,087						203						84												1,374
Allowance build (release) for loan and lease losses						(64)						(48)						24												(88)
Other changes(3)						(8)						0						0												(8)
Balance as of September 30, 2019						5,270						1,007						760												7,037
Reserve for unfunded lending commitments:
Balance as of June 30, 2019						0						4						140												144
Provision for losses on unfunded lending commitments						0						0						9												9
Balance as of September 30, 2019						0						4						149												153
Combined allowance and reserve as of September 30, 2019						$	5,270					$	1,011					$	909											$	7,190

						Nine Months Ended September 30, 2019
(Dollars in millions)						Credit Card						Consumer Banking						Commercial Banking												Total
Allowance for loan and lease losses:
Balance as of December 31, 2018						$	5,535					$	1,048					$	637											$	7,220
Charge-offs						(5,024)						(1,383)						(109)												(6,516)
Recoveries(1)						1,189						739						19												1,947
Net charge-offs						(3,835)						(644)						(90)												(4,569)
Provision for loan and lease losses						3,571						603						213												4,387
Allowance build (release) for loan and lease losses						(264)						(41)						123												(182)
Other changes(3)						(1)						0						0												(1)
Balance as of September 30, 2019						5,270						1,007						760												7,037
Reserve for unfunded lending commitments:
Balance as of December 31, 2018						0						4						118												122
Provision for losses on unfunded lending commitments						0						0						31												31
Balance as of September 30, 2019						0						4						149												153
Combined allowance and reserve as of September 30, 2019						$	5,270					$	1,011					$	909											$	7,190

__________

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

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

(3)Represents foreign currency translation adjustments.

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

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Credit Card Partnership Loss Sharing Arrangements

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

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

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

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

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

__________

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

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NOTE 5—VARIABLE INTEREST ENTITIES AND SECURITIZATIONS

In the normal course of business, we enter into various types of transactions with entities that are considered to be VIEs. Our primary involvement with VIEs has been related to our securitization transactions in which we transferred assets to securitization trusts. We have primarily securitized credit card and auto loans, which have provided a source of funding for us and enabled us to transfer a certain portion of the economic risk of the loans or related debt securities to third parties.

The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and is required to consolidate the VIE. The majority of the VIEs in which we are involved have been consolidated in our financial statements.

Summary of Consolidated and Unconsolidated VIEs

The assets of our consolidated VIEs primarily consist of cash, loan receivables and the related allowance for credit losses, which we report on our consolidated balance sheets under restricted cash for securitization investors, loans held in consolidated trusts and allowance for credit losses, respectively. The assets of a particular VIE are the primary source of funds to settle its obligations. Creditors of these VIEs typically do not have recourse to our general credit. Liabilities primarily consist of debt securities issued by the VIEs, which we report under securitized debt obligations on our consolidated balance sheets. For unconsolidated VIEs, we present the carrying amount of assets and liabilities reflected on our consolidated balance sheets and our maximum exposure to loss. Our maximum exposure to loss is estimated based on the unlikely event that all of the assets in the VIEs become worthless and we are required to meet our maximum remaining funding obligations.

The tables below present a summary of VIEs in which we had continuing involvement or held a variable interest, aggregated based on VIEs with similar characteristics as of September 30, 2020 and December 31, 2019. We separately present information for consolidated and unconsolidated VIEs.

Table 5.1: Carrying Amount of Consolidated and Unconsolidated VIEs

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

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

__________

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

(2)In certain investment structures, we consolidate a VIE which in turn holds as its primary asset an investment in an unconsolidated VIE. In these instances, we disclose the carrying amount of assets and liabilities on our consolidated balance sheets as unconsolidated VIEs to avoid duplicating our exposure, as the unconsolidated VIEs are generally the operating entities generating the exposure. The carrying amount of assets and liabilities included in the unconsolidated VIE columns above related to these investment structures were $2.3 billion of assets and $631 million of liabilities as of September 30, 2020, and $2.3 billion of assets and $741 million of liabilities as of December 31, 2019.

Securitization-Related VIEs

In a securitization transaction, assets are transferred to a trust, which generally meets the definition of a VIE. We engage in securitization activities as an issuer and an investor. Our primary securitization issuance activity includes credit card and auto securitizations, conducted through securitization trusts which we consolidate. Our continuing involvement in these securitization transactions mainly consists of acting as the primary servicer and holding certain retained interests.

In our multifamily agency business, we originate multifamily commercial real estate loans and transfer them to securitization trusts of GSEs. We retain the related Mortgage servicing rights (“MSRs”) and service the transferred loans pursuant to the guidelines set forth by the GSEs. As an investor, we hold primarily RMBS, CMBS, and ABS in our investment securities portfolio, which represent variable interests in the respective securitization trusts from which those securities were issued. We exclude these VIEs from the tables within this note because we do not consider our continuing involvement with these VIEs to be significant as we either invest in securities issued by the VIE and were not involved in the design of the VIE or no transfers have occurred between the VIE and us. Our maximum exposure to loss as a result of our involvement with these VIEs is the carrying value of MSRs and contractual obligations under loss sharing arrangements as well as investment securities on our consolidated balance sheets. See “Note 6—Goodwill and Intangible Assets” for information related to our MSRs associated with these securitizations and “Note 2—Investment Securities” for more information on the securities held in our investment securities portfolio. In addition, where we have certain lending arrangements in the normal course of business with entities that could be VIEs, we have also excluded these VIEs from the tables presented in this note. See “Note 3—Loans” for additional information regarding our lending arrangements in the normal course of business.

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The table below presents our continuing involvement in certain securitization-related VIEs as of September 30, 2020 and December 31, 2019.

Table 5.2: Continuing Involvement in Securitization-Related VIEs

(Dollars in millions)						Credit Card						Auto						Mortgages
September 30, 2020:
Securities held by third-party investors						$	11,224					$	2,342					$	832
Receivables in the trust						27,797						2,548						838
Cash balance of spread or reserve accounts						0						10						15
Retained interests						Yes						Yes						Yes
Servicing retained						Yes						Yes						No
December 31, 2019:
Securities held by third-party investors						$	15,798					$	2,010					$	962
Receivables in the trust						31,625						2,192						978
Cash balance of spread or reserve accounts						0						7						17
Retained interests						Yes						Yes						Yes
Servicing retained						Yes						Yes						No

Credit Card Securitizations

We securitize a portion of our credit card loans which provides a source of funding for us. Credit card securitizations involve the transfer of credit card receivables to securitization trusts. These trusts then issue debt securities collateralized by the transferred receivables to third-party investors. We hold certain retained interests in our credit card securitizations and continue to service the receivables in these trusts. We consolidate these trusts because we are deemed to be the primary beneficiary as we have the power to direct the activities that most significantly impact the economic performance of the trusts, and the right to receive benefits or the obligation to absorb losses that could potentially be significant to the trusts.

Auto Securitizations

Similar to our credit card securitizations, we securitize a portion of our auto loans which provides a source of funding for us. Auto securitization involves the transfer of auto loans to securitization trusts. These trusts then issue debt securities collateralized by the transferred loans to third-party investors. We hold certain retained interests and continue to service the loans in these trusts. We consolidate these trusts because we are deemed to be the primary beneficiary as we have the power to direct the activities that most significantly impact the economic performance of the trusts, and the right to receive benefits or the obligation to absorb losses that could potentially be significant to the trusts.

Mortgage Securitizations

We had previously securitized mortgage loans by transferring these loans to securitization trusts that had issued mortgage-backed securities to investors. These mortgage trusts consist of option-adjustable rate mortgage (“option-ARM”) securitizations and securitizations from our discontinued operations which include the mortgage origination operations of our wholesale mortgage banking unit, GreenPoint Mortgage Funding, Inc. (“GreenPoint”) and the manufactured housing operations of GreenPoint Credit, LLC, a subsidiary of GreenPoint (collectively “GreenPoint securitizations”). We retain rights to certain future cash flows arising from these securitizations. We do not consolidate the mortgage securitizations because we do not have the power to direct the activities that most significantly impact the economic performance of the trusts, and the right to receive the benefits or the obligation to absorb losses that could potentially be significant to the trusts.

Other VIEs

Affordable Housing Entities

As part of our community reinvestment initiatives, we invest in private investment funds that make equity investments in multifamily affordable housing properties. We receive affordable housing tax credits for these investments. The activities of these entities are financed with a combination of invested equity capital and debt. We account for certain of our investments in

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qualified affordable housing projects using the proportional amortization method if certain criteria are met. The proportional amortization method amortizes the cost of the investment over the period in which the investor expects to receive tax credits and other tax benefits, and the resulting amortization is recognized as a component of income tax expense attributable to continuing operations. For the nine months ended September 30, 2020 and 2019, we recognized amortization of $428 million and $417 million, respectively, and tax credits of $47 million and $516 million, respectively, associated with these investments within income tax provision or benefit. The carrying value of our equity investments in these qualified affordable housing projects was $4.5 billion and $4.4 billion as of September 30, 2020 and December 31, 2019, respectively. We are periodically required to provide additional financial or other support during the period of the investments. Our liability for these unfunded commitments was $1.5 billion as of both September 30, 2020 and December 31, 2019, and is largely expected to be paid from 2020 to 2022.

For those investment funds considered to be VIEs, we are not required to consolidate them if we do not have the power to direct the activities that most significantly impact the economic performance of those entities. We record our interests in these unconsolidated VIEs in loans held for investment, other assets and other liabilities on our consolidated balance sheets. Our maximum exposure to these entities is limited to our variable interests in the entities which consisted of assets of approximately $4.6 billion as of both September 30, 2020 and December 31, 2019. The creditors of the VIEs have no recourse to our general credit and we do not provide additional financial or other support other than during the period that we are contractually required to provide it. The total assets of the unconsolidated VIE investment funds were approximately $10.8 billion and $10.9 billion as of September 30, 2020 and December 31, 2019, respectively.

Entities that Provide Capital to Low-Income and Rural Communities

We hold variable interests in entities (“Investor Entities”) that invest in community development entities (“CDEs”) that provide debt financing to businesses and non-profit entities in low-income and rural communities. Variable interests in the CDEs held by the consolidated Investor Entities are also our variable interests. The activities of the Investor Entities are financed with a combination of invested equity capital and debt. The activities of the CDEs are financed solely with invested equity capital. We receive federal and state tax credits for these investments. We consolidate the VIEs in which we have the power to direct the activities that most significantly impact the VIE’s economic performance and where we have the obligation to absorb losses or right to receive benefits that could be potentially significant to the VIE. We consolidate other investments and CDEs that are not considered to be VIEs, but where we hold a controlling financial interest. The assets of the VIEs that we consolidated, which totaled approximately $2.0 billion and $1.9 billion as of September 30, 2020 and December 31, 2019, respectively, are reflected on our consolidated balance sheets in cash, loans held for investment, and other assets. The liabilities are reflected in other liabilities. The creditors of the VIEs have no recourse to our general credit. We have not provided additional financial or other support other than during the period that we are contractually required to provide it.

Other

We hold variable interests in other VIEs, including companies that promote renewable energy sources and other equity method investments. We were not required to consolidate these VIEs because we do not have the power to direct the activities that most significantly impact their economic performance. Our maximum exposure to these VIEs is limited to the investments on our consolidated balance sheets of $466 million and $502 million as of September 30, 2020 and December 31, 2019, respectively. The creditors of the other VIEs have no recourse to our general credit. We have not provided additional financial or other support other than during the period that we are contractually required to provide it.

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NOTE 6—GOODWILL AND INTANGIBLE ASSETS

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

Table 6.1: Components of Goodwill, Intangible Assets and MSRs

						September 30, 2020
(Dollars in millions)						Carrying Amount of Assets						Accumulated Amortization						Net Carrying Amount
Goodwill						$	14,648					N/A						$	14,648
Intangible assets:
Purchased credit card relationship (“PCCR”) intangibles						157						$	(145)					12
Other(1)						249						(162)						87
Total intangible assets						406						(307)						99
Total goodwill and intangible assets						$	15,054					$	(307)					$	14,747
Commercial MSRs(2)						$	503					$	(177)					$	326
						December 31, 2019
(Dollars in millions)						Carrying Amount of Assets						Accumulated Amortization						Net Carrying Amount
Goodwill						$	14,653					N/A						$	14,653
Intangible assets:
PCCR intangibles						1,932						$	(1,864)					68
Other(1)						246						(140)						106
Total intangible assets						2,178						(2,004)						174
Total goodwill and intangible assets						$	16,831					$	(2,004)					$	14,827
Commercial MSRs(2)						$	555					$	(255)					$	300

__________

(1)Primarily consists of intangibles for sponsorship, customer and merchant relationships, partnership, trade name and other contract intangibles.

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

Amortization expense for amortizable intangible assets, which is presented separately in our consolidated statements of income, totaled $14 million and $52 million for the three and nine months ended September 30, 2020, respectively, and $25 million and $84 million for the three and nine months ended September 30, 2019, respectively.

Goodwill

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

Table 6.2: Goodwill by Business Segments

(Dollars in millions)						Credit Card						Consumer Banking						Commercial Banking						Total
Balance as of December 31, 2019						$	5,088					$	4,645					$	4,920					$	14,653
Other adjustments(1)						(5)						0						0						(5)
Balance as of September 30, 2020						$	5,083					$	4,645					$	4,920					$	14,648

__________

(1)Represents foreign currency translation adjustments and measurement period adjustments on prior period acquisitions.

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NOTE 7—DEPOSITS AND BORROWINGS

Our deposits represent our largest source of funding for our assets and operations, which include checking accounts, money market deposits, negotiable order of withdrawals, savings deposits and time deposits. We also use a variety of other funding sources including short-term borrowings, senior and subordinated notes, securitized debt obligations and other borrowings. In addition, we utilize FHLB advances, which are secured by certain portions of our loan and investment securities portfolios. Securitized debt obligations are presented separately on our consolidated balance sheets, as they represent obligations of consolidated securitization trusts, while federal funds purchased and securities loaned or sold under agreements to repurchase, senior and subordinated notes and other borrowings, including FHLB advances, are included in other debt on our consolidated balance sheets.

Our total short-term borrowings generally consist of federal funds purchased and securities loaned or sold under agreements to repurchase and short-term FHLB advances. Our long-term debt consists of borrowings with an original contractual maturity of greater than one year. The following tables summarize the components of our deposits, short-term borrowings and long-term debt as of September 30, 2020 and December 31, 2019. The carrying value presented below for these borrowings includes unamortized debt premiums and discounts, net of debt issuance costs and fair value hedge accounting adjustments.

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

(Dollars in millions)						September 30, 2020						December 31, 2019
Deposits:
Non-interest-bearing deposits						$	29,633					$	23,488
Interest-bearing deposits(1)						276,092						239,209
Total deposits						$	305,725					$	262,697
Short-term borrowings:
Federal funds purchased and securities loaned or sold under agreements to repurchase						$	702					$	314
FHLB advances						0						7,000
Total short-term borrowings						$	702					$	7,314

						September 30, 2020																								December 31, 2019
(Dollars in millions)						Maturity Dates						Stated Interest Rates						Weighted-Average Interest Rate						Carrying Value						Carrying Value
Long-term debt:
Securitized debt obligations						2020-2026						0.50% - 3.01%						1.90		%				$	13,566					$	17,808
Senior and subordinated notes:
Fixed unsecured senior debt(2)						2020-2029						0.80 - 4.75						3.19						21,685						23,302
Floating unsecured senior debt						2020-2023						0.70 - 1.42						1.03						2,008						2,695
Total unsecured senior debt																		3.01						23,693						25,997
Fixed unsecured subordinated debt						2023-2026						3.38 - 4.20						3.78						4,755						4,475
Total senior and subordinated notes																								28,448						30,472
Other long-term borrowings:
Finance lease liabilities						2020-2031						1.63 - 9.91						3.77						79						103
Total other long-term borrowings																								79						103
Total long-term debt																								$	42,093					$	48,383
Total short-term borrowings and long-term debt																								$	42,795					$	55,697

__________

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

(2)Includes $1.5 billion and $1.4 billion of EUR-denominated unsecured notes as of September 30, 2020 and December 31, 2019, respectively.

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NOTE 8—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Use of Derivatives and Accounting for Derivatives

We regularly enter into derivative transactions to support our overall risk management activities. Our primary market risks stem from the impact on our earnings and economic value of equity due to changes in interest rates and, to a lesser extent, changes in foreign exchange rates. We manage our interest rate sensitivity by employing several techniques, which include changing the duration and re-pricing characteristics of various assets and liabilities by using interest rate derivatives. We also use foreign currency derivatives to limit our earnings and capital exposures to foreign exchange risk by hedging exposures denominated in foreign currencies. We primarily use interest rate and foreign currency derivatives to hedge, but we may also use a variety of other derivative instruments, including caps, floors, options, futures and forward contracts, to manage our interest rate and foreign exchange risks. We designate these risk management derivatives as either qualifying accounting hedges or free-standing derivatives. Qualifying accounting hedges are further designated as fair value hedges, cash flow hedges or net investment hedges. Free-standing derivatives are economic hedges that do not qualify for hedge accounting.

We also offer interest rate, commodity, foreign currency derivatives and other contracts as an accommodation to our customers within our Commercial Banking business. We enter into these derivatives with our customers primarily to help them manage their interest rate risks, hedge their energy and other commodities exposures, and manage foreign currency fluctuations. We then enter into derivative contracts with counterparties to economically hedge substantially all of our subsequent exposures.

See below for additional information on our use of derivatives and how we account for them:

•Fair Value Hedges: We designate derivatives as fair value hedges when they are used to manage our exposure to changes in the fair value of certain financial assets and liabilities, which fluctuate in value as a result of movements in interest rates. Changes in the fair value of derivatives designated as fair value hedges are presented in the same line item in our consolidated statements of income as the earnings effect of the hedged items. Our fair value hedges primarily consist of interest rate swaps that are intended to modify our exposure to interest rate risk on various fixed-rate financial assets and liabilities.

•Cash Flow Hedges: We designate derivatives as cash flow hedges when they are used to manage our exposure to variability in cash flows related to forecasted transactions. Changes in the fair value of derivatives designated as cash flow hedges are recorded as a component of AOCI. Those amounts are reclassified into earnings in the same period during which the forecasted transactions impact earnings and presented in the same line item in our consolidated statements of income as the earnings effect of the hedged items. Our cash flow hedges use interest rate swaps and floors that are intended to hedge the variability in interest receipts or interest payments on some of our variable-rate financial assets or liabilities. We also enter into foreign currency forward contracts to hedge our exposure to variability in cash flows related to intercompany borrowings denominated in foreign currencies.

•Net Investment Hedges: We use net investment hedges to manage the foreign currency exposure related to our net investments in foreign operations that have functional currencies other than the U.S. dollar. Changes in the fair value of net investment hedges are recorded in the translation adjustment component of AOCI, offsetting the translation gain or loss from those foreign operations. We execute net investment hedges using foreign currency forward contracts to hedge the translation exposure of the net investment in our foreign operations under the forward method.

•Free-Standing Derivatives: Our free-standing derivatives primarily consist of our customer accommodation derivatives and other economic hedges. The customer accommodation derivatives and the related offsetting contracts are mainly interest rate, commodity and foreign currency contracts. The other free-standing derivatives are primarily used to economically hedge the risk of changes in the fair value of our commercial mortgage loan origination and purchase commitments as well as other interests held. Changes in the fair value of free-standing derivatives are recorded in earnings as a component of other non-interest income.

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Derivatives Counterparty Credit Risk

Counterparty Types

Derivative instruments contain an element of credit risk that arises from the potential failure of a counterparty to perform according to the terms of the contract, including making payments due upon maturity of certain derivative instruments. We execute our derivative contracts primarily in over-the-counter (“OTC”) markets. We also execute interest rate and commodity futures in the exchange-traded derivative markets. Our OTC derivatives consist of both trades cleared through central counterparty clearinghouses (“CCPs”) and uncleared bilateral contracts. The Chicago Mercantile Exchange (“CME”) and the LCH Group (“LCH”) are our CCPs in our centrally cleared contracts. In our uncleared bilateral contracts, we enter into agreements directly with our derivative counterparties.

Counterparty Credit Risk Management

We manage the counterparty credit risk associated with derivative instruments by entering into legally enforceable master netting arrangements, where possible, and exchanging collateral with our counterparties, typically in the form of cash or high-quality liquid securities. The amount of collateral exchanged is dependent upon the fair value of the derivative instruments as well as the fair value of the pledged collateral and will vary over time as market variables change. When valuing collateral, an estimate of the variation in price and liquidity over time is subtracted in the form of a “haircut” to discount the value of the collateral pledged. Our exposure to derivative counterparty credit risk, at any point in time, is equal to the amount reported as a derivative asset on our balance sheet. The fair value of our derivatives is adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and any associated cash collateral received or pledged. See Table 8.3 for our net exposure associated with derivatives.

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

•CCPs: We clear eligible OTC derivatives with CCPs as part of our regulatory requirements. Futures commission merchants (“FCMs”) serve as the intermediary between CCPs and us. CCPs require that we post initial and variation margin through our FCMs to mitigate the risk of non-payment or default. Initial margin is required upfront by CCPs as collateral against potential losses on our cleared derivative contracts and variation margin is exchanged on a daily basis to account for mark-to-market changes in those derivative contracts. For CME and LCH-cleared OTC derivatives, we characterize variation margin cash payments as settlements. Our FCM agreements governing these derivative transactions include provisions that may require us to post additional collateral under certain circumstances.

•Bilateral Counterparties: We enter into legally enforceable master netting agreements and collateral agreements, where possible, with bilateral derivative counterparties to mitigate the risk of default. We review our collateral positions on a daily basis and exchange collateral with our counterparties in accordance with these agreements. These bilateral agreements typically provide the right to offset exposure with the same counterparty and require the party in a net liability position to post collateral. Agreements with certain bilateral counterparties require both parties to maintain collateral in the event the fair values of derivative instruments exceed established exposure thresholds. Certain of these bilateral agreements include provisions requiring that our debt maintain a credit rating of investment grade or above by each of the major credit rating agencies. In the event of a downgrade of our debt credit rating below investment grade, some of our counterparties would have the right to terminate their derivative contract and close out existing positions.

Credit Risk Valuation Adjustments

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

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Balance Sheet Presentation

The following table summarizes the notional amounts and fair values of our derivative instruments as of September 30, 2020 and December 31, 2019, which are segregated by derivatives that are designated as accounting hedges and those that are not, and are further segregated by type of contract within those two categories. The total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and any associated cash collateral received or pledged. Derivative assets and liabilities are included in other assets and other liabilities, respectively, on our consolidated balance sheets, and their related gains or losses are included in operating activities as changes in other assets and other liabilities in the consolidated statements of cash flows.

Table 8.1: Derivative Assets and Liabilities at Fair Value

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

__________

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

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

(3)Represents balance sheet netting of derivative assets and liabilities, and related payables and receivables for cash collateral held or placed with the same counterparty.

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The following table summarizes the carrying value of our hedged assets and liabilities in fair value hedges and the associated cumulative basis adjustments included in those carrying values, excluding basis adjustments related to foreign currency risk, as of September 30, 2020 and December 31, 2019.

Table 8.2: Hedged Items in Fair Value Hedging Relationships

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

__________

(1)These amounts include the amortized cost basis of our investment securities designated in hedging relationships for which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. In the second quarter of 2020, we terminated all last of layer hedging relationships with cumulative basis adjustments related to these discontinued hedging relationships totaling $206 million as of September 30, 2020. As of December 31, 2019, the amortized cost basis of this portfolio was $5.9 billion, the amount of the designated hedged items was $3.1 billion, and the cumulative basis adjustment associated with these hedges was $75 million.

(2)Carrying value represents amortized cost.

Balance Sheet Offsetting of Financial Assets and Liabilities

Derivative contracts and repurchase agreements that we execute bilaterally in the OTC market are generally governed by enforceable master netting arrangements where we generally have the right to offset exposure with the same counterparty. Either counterparty can generally request to net settle all contracts through a single payment upon default on, or termination of, any one contract. We elect to offset the derivative assets and liabilities under master netting arrangements for balance sheet presentation where a right of setoff exists. For derivative contracts entered into under master netting arrangements for which we have not been able to confirm the enforceability of the setoff rights, or those not subject to master netting arrangements, we do not offset our derivative positions for balance sheet presentation.

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

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Table 8.3: Offsetting of Financial Assets and Financial Liabilities

						Gross Amounts						Gross Amounts Offset in the Balance Sheet												Net Amounts as Recognized						Securities Collateral Held Under Master Netting Agreements
(Dollars in millions)												Financial Instruments						Cash Collateral Received																		Net Exposure
As of September 30, 2020
Derivative assets(1)						$	4,101					$	(535)					$	(1,087)					$	2,479					$	0					$	2,479
As of December 31, 2019
Derivative assets(1)						1,729						(347)						(286)						1,096						0						1,096

						Gross Amounts						Gross Amounts Offset in the Balance Sheet												Net Amounts as Recognized						Securities Collateral Pledged Under Master Netting Agreements
(Dollars in millions)												Financial Instruments						Cash Collateral Pledged																		Net Exposure
As of September 30, 2020
Derivative liabilities(1)						$	1,739					$	(535)					$	(173)					$	1,031					$	0					$	1,031
Repurchase agreements(2)						702						0						0						702						(702)						0
As of December 31, 2019
Derivative liabilities(1)						1,197						(347)						(176)						674						0						674
Repurchase agreements(2)						314						0						0						314						(314)						0

__________

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

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

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Income Statement and AOCI Presentation

Fair Value and Cash Flow Hedges

The net gains (losses) recognized in our consolidated statements of income related to derivatives in fair value and cash flow hedging relationships are presented below for the three and nine months ended September 30, 2020 and 2019.

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

						Three Months Ended September 30, 2020
						Net Interest Income																																				Non-Interest Income
(Dollars in millions)						Investment Securities						Loans, Including Loans Held for Sale						Other						Interest-bearing Deposits						Securitized Debt Obligations						Senior and Subordinated Notes						Other
Total amounts presented in our consolidated statements of income						$	443					$	5,758					$	14					$	(476)					$	(43)					$	(132)					$	706
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives						$	(23)					$	0					$	0					$	44					$	40					$	56					$	0
Gains (losses) recognized on derivatives						24						0						0						(47)						(48)						(72)						61
Gains (losses) recognized on hedged items(1)						(31)						0						0						48						41						111						(61)
Excluded component of fair value hedges(2)						0						0						0						0						0						(1)						0
Net expense recognized on fair value hedges						$	(30)					$	0					$	0					$	45					$	33					$	94					$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized losses reclassified from AOCI into net income						$	8					$	171					$	0					$	0					$	0					$	0					$	0
Foreign exchange contracts:
Realized gains reclassified from AOCI into net income(4)						0						0						1						0						0						0						0
Net income (expense) recognized on cash flow hedges						$	8					$	171					$	1					$	0					$	0					$	0					$	0

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						Nine Months Ended September 30, 2020
						Net Interest Income																																				Non-Interest Income
(Dollars in millions)						Investment Securities						Loans, Including Loans Held for Sale						Other						Interest-bearing Deposits						Securitized Debt Obligations						Senior and Subordinated Notes						Other
Total amounts presented in our consolidated statements of income						$	1,455					$	18,120					$	67					$	(1,818)					$	(198)					$	(551)					$	1,017
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives						$	(51)					$	0					$	0					$	69					$	92					$	166					$	0
Gains (losses) recognized on derivatives						(340)						0						0						249						221						1,057						64
Gains (losses) recognized on hedged items(1)						329						0						0						(248)						(251)						(1,048)						(64)
Excluded component of fair value hedges(2)						0						0						0						0						0						(2)						0
Net income (expense) recognized on fair value hedges						$	(62)					$	0					$	0					$	70					$	62					$	173					$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains reclassified from AOCI into net income						$	17					$	330					$	0					$	0					$	0					$	0					$	0
Foreign exchange contracts:
Realized gains reclassified from AOCI into net income(4)						0						0						10						0						0						0						(2)
Net income recognized on cash flow hedges						$	17					$	330					$	10					$	0					$	0					$	0					$	(2)

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						Three Months Ended September 30, 2019
						Net Interest Income																																				Non-Interest Income
(Dollars in millions)						Investment Securities						Loans, Including Loans Held for Sale						Other						Interest-bearing Deposits						Securitized Debt Obligations						Senior and Subordinated Notes						Other
Total amounts presented in our consolidated statements of income						$	583					$	6,429					$	63					$	(901)					$	(123)					$	(299)					$	144
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives						$	(3)					$	0					$	0					$	(26)					$	(5)					$	(3)					$	0
Gains (losses) recognized on derivatives						(80)						0						0						46						(10)						216						(60)
Gains (losses) recognized on hedged items(1)						81						0						0						(46)						(6)						(261)						58
Excluded component of fair value hedges(2)						0						0						0						0						0						(1)						0
Net expense recognized on fair value hedges						$	(2)					$	0					$	0					$	(26)					$	(21)					$	(49)					$	(2)
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized losses reclassified from AOCI into net income						$	(1)					$	(43)					$	0					$	0					$	0					$	0					$	0
Foreign exchange contracts:
Realized gains reclassified from AOCI into net income(4)						0						0						12						0						0						0						1
Net income (expense) recognized on cash flow hedges						$	(1)					$	(43)					$	12					$	0					$	0					$	0					$	1

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						Nine Months Ended September 30, 2019
						Net Interest Income																																				Non-Interest Income
(Dollars in millions)						Investment Securities						Loans, Including Loans Held for Sale						Other						Interest-bearing Deposits						Securitized Debt Obligations						Senior and Subordinated Notes						Other
Total amounts presented in our consolidated statements of income						$	1,867					$	19,180					$	196					$	(2,588)					$	(405)					$	(923)					$	492
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives						$	(2)					$	0					$	0					$	(95)					$	(17)					$	(24)					$	0
Gains (losses) recognized on derivatives						(366)						0						0						295						102						968						(49)
Gains (losses) recognized on hedged items(1)						365						0						0						(289)						(165)						(1,092)						48
Excluded component of fair value hedges(2)						0						0						0						0						0						(1)						0
Net expense recognized on fair value hedges						$	(3)					$	0					$	0					$	(89)					$	(80)					$	(149)					$	(1)
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized losses reclassified from AOCI into net income						$	(8)					$	(158)					$	0					$	0					$	0					$	0					$	0
Foreign exchange contracts:
Realized gains reclassified from AOCI into net income(4)						0						0						37						0						0						0						0
Net income (expense) recognized on cash flow hedges						$	(8)					$	(158)					$	37					$	0					$	0					$	0					$	0

__________

(1)Includes amortization income of $19 million and expense of $34 million for the three and nine months ended September 30, 2020, respectively, and amortization expense of $60 million and $177 million for the three and nine months ended September 30, 2019, respectively, related to basis adjustments on discontinued hedges.

(2)Changes in fair values of cross-currency swaps attributable to changes in cross-currency basis spreads are excluded from the assessment of hedge effectiveness and recorded in other comprehensive income. The initial value of the excluded component is recognized in earnings over the life of the swap under the amortization approach.

(3)See “Note 9—Stockholders’ Equity” for the effects of cash flow and net investment hedges on AOCI and amounts reclassified to net income, net of tax.

(4)We recognized a loss of $73 million and a gain of $20 million for the three and nine months ended September 30, 2020, respectively, and a gain of $71 million and a loss of $224 million for the three and nine months ended September 30, 2019, respectively, on foreign exchange contracts reclassified from AOCI. These amounts were largely offset by the foreign currency transaction gains (losses) on our foreign currency denominated intercompany funding included other non-interest income.

In the next 12 months, we expect to reclassify to earnings net after-tax gains of $644 million recorded in AOCI as of September 30, 2020. These amounts will offset the cash flows associated with the hedged forecasted transactions. The maximum length of time over which forecasted transactions were hedged was approximately 7 years as of September 30, 2020. The amount we expect to reclassify into earnings may change as a result of changes in market conditions and ongoing actions taken as part of our overall risk management strategy.

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Free-Standing Derivatives

The net impacts to our consolidated statements of income related to free-standing derivatives are presented below for the three and nine months ended September 30, 2020 and 2019. These gains or losses are recognized in other non-interest income in our consolidated statements of income.

Table 8.5: Gains (Losses) on Free-Standing Derivatives

						Three Months Ended September 30,												Nine Months Ended September 30,
(Dollars in millions)						2020						2019						2020						2019
Gains (losses) recognized in other non-interest income:
Customer accommodation:
Interest rate contracts						$	(5)					$	18					$	7					$	28
Commodity contracts						7						8						23						17
Foreign exchange and other contracts						1						3						5						10
Total customer accommodation						3						29						35						55
Other interest rate exposures						17						(1)						1						(15)
Other contracts						0						(7)						0						(9)
Total						$	20					$	21					$	36					$	31

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NOTE 9—STOCKHOLDERS’ EQUITY

Preferred Stock

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

Table 9.1: Preferred Stock Outstanding(1)

																		Redeemable by Issuer Beginning						Per Annum Dividend Rate						Dividend Frequency						Liquidation Preference per Share						Total Shares Outstanding as of September 30, 2020						Carrying Value (in millions)
Series						Description						Issuance Date																																				September 30, 2020						December 31, 2019
Series B(2)						6.000% Non-Cumulative						August 20, 2012						September 1, 2017						6.000%						Quarterly						$	1,000					0						$	0					$	853
Series E						Fixed-to-Floating Rate Non-Cumulative						May 14, 2015						June 1, 2020						5.550% through 5/31/2020; 3-mo. LIBOR + 380 bps thereafter						Semi-Annually through 5/31/2020; Quarterly thereafter						1,000						1,000,000						988						988
Series F						6.200% Non-Cumulative						August 24, 2015						December 1, 2020						6.200						Quarterly						1,000						500,000						484						484
Series G						5.200% Non-Cumulative						July 29, 2016						December 1, 2021						5.200						Quarterly						1,000						600,000						583						583
Series H						6.000% Non-Cumulative						November 29, 2016						December 1, 2021						6.000						Quarterly						1,000						500,000						483						483
Series I						5.000% Non-Cumulative						September 11, 2019						December 1, 2024						5.000						Quarterly						1,000						1,500,000						1,462						1,462
Series J						4.800% Non-Cumulative						January 31, 2020						June 1, 2025						4.800						Quarterly						1,000						1,250,000						1,209						0
Series K						4.625% Non-Cumulative						September 17, 2020						December 1, 2025						4.625						Quarterly						1,000						125,000						121						0
Total																																																$	5,330					$	4,853

__________

(1)Except for Series E, ownership is held in the form of depositary shares, each representing a 1/40th interest in a share of fixed-rate non-cumulative perpetual preferred stock.

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

Accumulated Other Comprehensive Income

Accumulated other comprehensive income primarily consists of accumulated net unrealized gains associated with securities available for sale, changes in fair value of derivatives in hedging relationships, and foreign currency translation adjustments.

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

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Table 9.2: Accumulated Other Comprehensive Income (Loss)

						Three Months Ended September 30, 2020
(Dollars in millions)						Securities Available for Sale												Hedging Relationships(1)						Foreign Currency Translation Adjustments(2)						Other						Total
AOCI as of June 30, 2020						$	2,373											$	1,785					$	(151)					$	(26)					$	3,981
Other comprehensive income (loss) before reclassifications						20												(95)						28						0						(47)
Amounts reclassified from AOCI into earnings						(19)												(80)						0						(2)						(101)
Other comprehensive income (loss), net of tax						1												(175)						28						(2)						(148)
AOCI as of September 30, 2020						$	2,374											$	1,610					$	(123)					$	(28)					$	3,833

						Nine Months Ended September 30, 2020
(Dollars in millions)						Securities Available for Sale												Hedging Relationships(1)						Foreign Currency Translation Adjustments(2)						Other						Total
AOCI as of December 31, 2019						$	935											$	354					$	(107)					$	(26)					$	1,156
Cumulative effects from the adoption of the CECL standard						(8)												0						0						0						(8)
Other comprehensive income (loss) before reclassifications						1,466												1,540						(16)						0						2,990
Amounts reclassified from AOCI into earnings						(19)												(284)						0						(2)						(305)
Other comprehensive income (loss), net of tax						1,447												1,256						(16)						(2)						2,685
AOCI as of September 30, 2020						$	2,374											$	1,610					$	(123)					$	(28)					$	3,833

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

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

__________

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

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

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

Table 9.3: Reclassifications from AOCI

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

__________

(1)On December 31, 2019, we transferred our entire portfolio of held to maturity securities to available for sale.

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The table below summarizes other comprehensive income (loss) activity and the related tax impact for the three and nine months ended September 30, 2020 and 2019.

Table 9.4: Other Comprehensive Income (Loss)

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

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

__________

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

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NOTE 10—EARNINGS PER COMMON SHARE

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

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

						Three Months Ended September 30,												Nine Months Ended September 30,
(Dollars and shares in millions, except per share data)						2020						2019						2020						2019
Income from continuing operations, net of tax						$	2,406					$	1,329					$	149					$	4,355
Income (loss) from discontinued operations, net of tax						0						4						(1)						15
Net income						2,406						1,333						148						4,370
Dividends and undistributed earnings allocated to participating securities						(20)						(10)						(5)						(34)
Preferred stock dividends						(67)						(53)						(212)						(185)
Issuance cost for redeemed preferred stock						0						0						(22)						0
Net income (loss) available to common stockholders						$	2,319					$	1,270					$	(91)					$	4,151
Total weighted-average basic common shares outstanding						457.8						469.5						457.4						469.9
Effect of dilutive securities:(1)
Stock options						0.4						1.3						0.0						1.2
Other contingently issuable shares						0.3						1.0						0.0						1.0
Total effect of dilutive securities						0.7						2.3						0.0						2.2
Total weighted-average diluted common shares outstanding						458.5						471.8						457.4						472.1
Basic earnings per common share:
Net income (loss) from continuing operations						$	5.07					$	2.70					$	(0.20)					$	8.80
Income from discontinued operations						0.00						0.01						0.00						0.03
Net income (loss) per basic common share						$	5.07					$	2.71					$	(0.20)					$	8.83
Diluted earnings per common share:(1)
Net income (loss) from continuing operations						$	5.06					$	2.68					$	(0.20)					$	8.76
Income from discontinued operations						0.00						0.01						0.00						0.03
Net income (loss) per diluted common share						$	5.06					$	2.69					$	(0.20)					$	8.79

__________

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

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NOTE 11—FAIR VALUE MEASUREMENT

Fair value, also referred to as an exit price, is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level fair value hierarchy for classifying financial instruments. This hierarchy is based on the markets in which the assets or liabilities trade and whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. The fair value measurement of a financial asset or liability is assigned a level based on the lowest level of any input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are described below:

Level 1:						Valuation is based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2:						Valuation is based on observable market-based inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3:						Valuation is generated from techniques that use significant assumptions not observable in the market. Valuation techniques include pricing models, discounted cash flow methodologies or similar techniques.

The accounting guidance for fair value measurements requires that we maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The accounting guidance provides for the irrevocable option to elect, on a contract-by-contract basis, to measure certain financial assets and liabilities at fair value at inception of the contract and record any subsequent changes in fair value in earnings.

The determination and classification of financial instruments in the fair value hierarchy is performed at the end of each reporting period. We consider all available information, including observable market data, indications of market liquidity and orderliness, and our understanding of the valuation techniques and significant inputs. For additional information on the valuation techniques used in estimating the fair value of our financial assets and liabilities on a recurring basis, see “Note 16—Fair Value Measurement” in our 2019 Form 10-K.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table displays our assets and liabilities measured on our consolidated balance sheets at fair value on a recurring basis as of September 30, 2020 and December 31, 2019.

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

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

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

__________

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

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

(3)As of September 30, 2020 and December 31, 2019, other includes retained interests in securitizations of $56 million and $66 million, deferred compensation plan assets of $370 million and $343 million, and equity securities of $494 million (including unrealized gains of $470 million) and $1 million, respectively.

Level 3 Recurring Fair Value Rollforward

The table below presents a reconciliation for all assets and liabilities measured and recognized at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2020 and 2019. Generally, transfers into Level 3 were primarily driven by the usage of unobservable assumptions in the pricing of these financial instruments as evidenced by wider pricing variations among pricing vendors and transfers out of Level 3 were primarily driven by the usage of assumptions corroborated by market observable information as evidenced by tighter pricing among multiple pricing sources.

Table 11.2: Level 3 Recurring Fair Value Rollforward

						Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
						Three Months Ended September 30, 2020
												Total Gains (Losses) (Realized/Unrealized)																																																						Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2020(1)
(Dollars in millions)						Balance, July 1, 2020						Included in Net Income(1)						Included in OCI						Purchases						Sales						Issuances						Settlements						Transfers Into Level 3						Transfers Out of Level 3						Balance, September 30, 2020
Securities available for sale:(2)
RMBS						$	474					$	10					$	3					$	0					$	0					$	0					$	(22)					$	56					$	(47)					$	474					$	10
CMBS						282						(1)						1						0						0						0						(8)						98						0						372						(1)
Total securities available for sale						756						9						4						0						0						0						(30)						154						(47)						846						9
Other assets:
Retained interests in securitizations						56						0						0						0						0						0						0						0						0						56						0
Net derivative assets (liabilities)(3)						34						8						0						0						0						13						(2)						0						(9)						44						0

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						Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
						Nine Months Ended September 30, 2020
												Total Gains (Losses) (Realized/Unrealized)																																																						Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2020(1)
(Dollars in millions)						Balance, January 1, 2020						Included in Net Income(1)						Included in OCI						Purchases						Sales						Issuances						Settlements						Transfers Into Level 3						Transfers Out of Level 3						Balance, September 30, 2020
Securities available for sale:(2)(4)
RMBS						$	433					$	19					$	(21)					$	0					$	0					$	0					$	(55)					$	196					$	(98)					$	474					$	20
CMBS						13						(1)						0						0						0						0						(11)						371						0						372						(4)
Total securities available for sale						446						18						(21)						0						0						0						(66)						567						(98)						846						16
Other assets:
Retained interests in securitizations						66						(10)						0						0						0						0						0						0						0						56						(10)
Net derivative assets (liabilities)(3)						26						20						0						0						0						39						(30)						0						(11)						44						18

						Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
						Three Months Ended September 30, 2019
												Total Gains (Losses) (Realized/Unrealized)																																																						Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2019(1)
(Dollars in millions)						Balance, July 1, 2019						Included in Net Income(1)						Included in OCI						Purchases						Sales						Issuances						Settlements						Transfers Into Level 3						Transfers Out of Level 3						Balance, September 30, 2019
Securities available for sale:(2)
RMBS						$	515					$	10					$	0					$	0					$	0					$	0					$	(18)					$	59					$	(114)					$	452					$	9
CMBS						9						0						0						0						0						0						(1)						0						0						8						0
Total securities available for sale						524						10						0						0						0						0						(19)						59						(114)						460						9
Other assets:
Retained interests in securitizations						177						(1)						0						0						0						0						(69)						0						0						107						(1)
Net derivative assets (liabilities)(3)						6						(1)						0						0						0						(8)						12						0						(3)						6						1

						Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
						Nine Months Ended September 30, 2019
												Total Gains (Losses) (Realized/Unrealized)																																																						Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2019(1)
(Dollars in millions)						Balance, January 1, 2019						Included in Net Income(1)						Included in OCI						Purchases						Sales						Issuances						Settlements						Transfers Into Level 3						Transfers Out of Level 3						Balance, September 30, 2019
Securities available for sale:(2)
RMBS						$	433					$	27					$	13					$	0					$	0					$	0					$	(43)					$	173					$	(151)					$	452					$	26
CMBS						10						0						0						0						0						0						(2)						0						0						8						0
Total securities available for sale						443						27						13						0						0						0						(45)						173						(151)						460						26
Other assets:
Retained interests in securitizations						158						18						0						0						0						0						(69)						0						0						107						8
Net derivative assets (liabilities)(3)						(10)						4						0						0						0						(21)						39						0						(6)						6						6

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__________

(1)Realized gains (losses) on securities available for sale are included in net securities gains (losses), and retained interests in securitizations are reported as a component of non-interest income in our consolidated statements of income. Gains (losses) on derivatives are included as a component of net interest income or non-interest income in our consolidated statements of income.

(2)For the three and nine months ended September 30, 2020, included in OCI related to Level 3 securities available for sale still held as of September 30, 2020 were net unrealized gains of $5 million and net unrealized losses of $16 million, respectively. For the three and nine months ended September 30, 2019, net unrealized gains included in OCI related to Level 3 securities available for sale still held as of September 30, 2019 were $1 million and $11 million, respectively.

(3)Includes derivative assets and liabilities of $153 million and $109 million, respectively, as of September 30, 2020, $82 million and $76 million, respectively, as of September 30, 2019.

(4)The fair value of RMBS as of January 1, 2020 includes a cumulative adjustment of $4 million from the adoption of the CECL standard.

Significant Level 3 Fair Value Asset and Liability Inputs

Generally, uncertainties in fair value measurements of financial instruments, such as changes in unobservable inputs, may have a significant impact on fair value. Certain of these unobservable inputs will, in isolation, have a directionally consistent impact on the fair value of the instrument for a given change in that input. Alternatively, the fair value of the instrument may move in an opposite direction for a given change in another input. In general, an increase in the discount rate, default rates, loss severity and credit spreads, in isolation, would result in a decrease in the fair value measurement. In addition, an increase in default rates would generally be accompanied by a decrease in recovery rates, slower prepayment rates and an increase in liquidity spreads.

Techniques and Inputs for Level 3 Fair Value Measurements

The following table presents the significant unobservable inputs used to determine the fair values of our Level 3 financial instruments on a recurring basis. We utilize multiple vendor pricing services to obtain fair value for our securities. Several of our vendor pricing services are only able to provide unobservable input information for a limited number of securities due to software licensing restrictions. Other vendor pricing services are able to provide unobservable input information for all securities for which they provide a valuation. As a result, the unobservable input information for the securities available for sale presented below represents a composite summary of all information we are able to obtain. The unobservable input information for all other Level 3 financial instruments is based on the assumptions used in our internal valuation models.

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Table 11.3: Quantitative Information about Level 3 Fair Value Measurements

Quantitative Information about Level 3 Fair Value Measurements

(Dollars in millions)

Fair Value at September 30, 2020

Significant Valuation Techniques

Significant Unobservable Inputs

Range

Weighted Average(1)

Securities available for sale:

RMBS

$

474

Discounted cash flows (vendor pricing)

Yield Voluntary prepayment rate Default rate Loss severity

1-12% 5-15% 1-11% 30-100%

3% 9% 2% 68%

CMBS

372

Discounted cash flows (vendor pricing)

Yield

1-3%

1%

Other assets:

Retained interests in securitizations(2)

56

Discounted cash flows

Life of receivables (months) Voluntary prepayment rate Discount rate Default rate Loss severity

36-52 3-13% 2-12% 3% 64-70%

N/A

Net derivative assets (liabilities)

44

Discounted cash flows

Swap rates

1%

1%

Quantitative Information about Level 3 Fair Value Measurements

(Dollars in millions)

Fair Value at December 31, 2019

Significant Valuation Techniques

Significant Unobservable Inputs

Range

Weighted Average(1)

Securities available for sale:

RMBS

$

429

Discounted cash flows (vendor pricing)

Yield Voluntary prepayment rate Default rate Loss severity

2-18% 0-18% 1-6% 30-95%

5% 10% 2% 67%

CMBS

13

Discounted cash flows (vendor pricing)

Yield

2-3%

2%

Other assets:

Retained interests in securitizations(2)

66

Discounted cash flows

Life of receivables (months) Voluntary prepayment rate Discount rate Default rate Loss severity

35-51 4-14% 3-10% 2-3% 74-88%

N/A

Net derivative assets (liabilities)

26

Discounted cash flows

Swap rates

2%

2%

__________

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

(2)Due to the nature of the various mortgage securitization structures in which we have retained interests, it is not meaningful to present a consolidated weighted average for the significant unobservable inputs.

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Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We are required to measure and recognize certain assets at fair value on a nonrecurring basis on the consolidated balance sheets. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, from the application of lower of cost or fair value accounting or when we evaluate for impairment).

The following table presents the carrying value of the assets measured at fair value on a nonrecurring basis and still held as of September 30, 2020 and December 31, 2019, and for which a nonrecurring fair value measurement was recorded during the nine and twelve months then ended.

Table 11.4: Nonrecurring Fair Value Measurements

						September 30, 2020
						Estimated Fair Value Hierarchy												Total
(Dollars in millions)						Level 2						Level 3
Loans held for investment						$	0					$	294					$	294
Other assets(1)						0						55						55
Total						$	0					$	349					$	349

						December 31, 2019
						Estimated Fair Value Hierarchy												Total
(Dollars in millions)						Level 2						Level 3
Loans held for investment						$	0					$	294					$	294
Other assets(1)						0						103						103
Total						$	0					$	397					$	397

__________

(1)As of September 30, 2020, other assets included equity investments accounted for under the measurement alternative of $14 million, repossessed assets of $35 million and long-lived assets held for sale of $6 million. As of December 31, 2019, other assets included equity investments accounted for under the measurement alternative of $5 million, repossessed assets of $61 million and long-lived assets held for sale of $37 million.

In the above table, loans held for investment are generally valued based in part on the estimated fair value of the underlying collateral and the non-recoverable rate, which is considered to be a significant unobservable input. The non-recoverable rate ranged from 0% to 39%, with a weighted average of 3%, and from 0% to 50%, with a weighted average of 6%, as of September 30, 2020 and December 31, 2019, respectively. The weighted average non-recoverable rate is calculated based on the estimated market value of the underlying collateral. The significant unobservable inputs and related quantitative information related to fair value of the other assets are not meaningful to disclose as they vary significantly across properties and collateral.

The following table presents total nonrecurring fair value measurements for the period, included in earnings, attributable to the change in fair value relating to assets that are still held at September 30, 2020 and 2019.

Table 11.5: Nonrecurring Fair Value Measurements Included in Earnings

						Total Gains (Losses)
						Nine Months Ended September 30,
(Dollars in millions)						2020						2019
Loans held for investment						$	187					$	(189)
Loans held for sale						0						(1)
Other assets(1)						(42)						(60)
Total						$	145					$	(250)

__________

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

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Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value, including the level within the fair value hierarchy, of our financial instruments that are not measured at fair value on a recurring basis on our consolidated balance sheets as of September 30, 2020 and December 31, 2019.

Table 11.6: Fair Value of Financial Instruments

						September 30, 2020
						Carrying Value						Estimated Fair Value						Estimated Fair Value Hierarchy
(Dollars in millions)																		Level 1						Level 2						Level 3
Financial assets:
Cash and cash equivalents						$	44,106					$	44,106					$	4,267					$	39,839					$	0
Restricted cash for securitization investors						895						895						895						0						0
Net loans held for investment						232,094						239,525						0						0						239,525
Loans held for sale						2,178						2,277						0						2,277						0
Interest receivable						1,551						1,551						0						1,551						0
Other investments(1)						1,341						1,341						0						1,341						0
Financial liabilities:
Deposits with defined maturities						38,973						39,414						0						39,414						0
Securitized debt obligations						13,566						13,770						0						13,770						0
Senior and subordinated notes						28,448						28,928						0						28,928						0
Federal funds purchased and securities loaned or sold under agreements to repurchase						702						702						0						702						0
Interest payable						332						332						0						332						0

						December 31, 2019
						Carrying Value						Estimated Fair Value						Estimated Fair Value Hierarchy
(Dollars in millions)																		Level 1						Level 2						Level 3
Financial assets:
Cash and cash equivalents						$	13,407					$	13,407					$	4,129					$	9,278					$	0
Restricted cash for securitization investors						342						342						342						0						0
Net loans held for investment						258,601						258,696						0						0						258,696
Loans held for sale						149						149						0						149						0
Interest receivable						1,758						1,758						0						1,758						0
Other investments(1)						1,638						1,638						0						1,638						0
Financial liabilities:
Deposits with defined maturities						44,958						45,225						0						45,225						0
Securitized debt obligations						17,808						17,941						0						17,941						0
Senior and subordinated notes						30,472						31,233						0						31,233						0
Federal funds purchased and securities loaned or sold under agreements to repurchase						314						314						0						314						0
Other borrowings(2)						7,000						7,001						0						7,001						0
Interest payable						439						439						0						439						0

__________

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

(2)Other borrowings excludes finance lease liabilities.

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NOTE 12—BUSINESS SEGMENTS AND REVENUE FROM CONTRACTS WITH CUSTOMERS

Our principal operations are organized into three major business segments, which are defined primarily based on the products and services provided or the types of customers served: Credit Card, Consumer Banking and Commercial Banking. The operations of acquired businesses have been integrated into 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.

Basis of Presentation

We report the results of each of our business segments on a continuing operations basis. The results of our individual businesses reflect the manner in which management evaluates performance and makes decisions about funding our operations and allocating resources.

Business Segment Reporting Methodology

The results of our business segments are intended to present each segment as if it were a stand-alone business. Our internal management and reporting process used to derive our segment results employs various allocation methodologies, including funds transfer pricing, to assign certain balance sheet assets, deposits and other liabilities and their related revenue and expenses directly or indirectly attributable to each business segment. Our funds transfer pricing process provides a funds credit for sources of funds, such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a funds charge for the use of funds by each segment. Due to the integrated nature of our business segments, estimates and judgments have been made in allocating certain revenue and expense items. Transactions between segments are based on specific criteria or approximate third-party rates. We regularly assess the assumptions, methodologies and reporting classifications used for segment reporting, which may result in the implementation of refinements or changes in future periods. We provide additional information on the allocation methodologies used to derive our business segment results in “Note 17—Business Segments and Revenue from Contracts with Customers” in our 2019 Form 10-K.

Segment Results and Reconciliation

We may periodically change our business segments or reclassify business segment results based on modifications to our management reporting methodologies or changes in organizational alignment. The following table presents our business segment results for the three and nine months ended September 30, 2020 and 2019, selected balance sheet data as of September 30, 2020 and 2019, and a reconciliation of our total business segment results to our reported consolidated income from continuing operations, loans held for investment and deposits.

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Table 12.1: Segment Results and Reconciliation

						Three Months Ended September 30, 2020
(Dollars in millions)						Credit Card						Consumer Banking						Commercial Banking(1)						Other(1)						Consolidated Total
Net interest income (loss)						$	3,292					$	1,904					$	517					$	(158)					$	5,555
Non-interest income						1,013						107						237						469						1,826
Total net revenue(2)						4,305						2,011						754						311						7,381
Provision (benefit) for credit losses						450						(43)						(74)						(2)						331
Non-interest expense						2,003						1,011						424						110						3,548
Income from continuing operations before income taxes						1,852						1,043						404						203						3,502
Income tax provision						438						247						95						316						1,096
Income (loss) from continuing operations, net of tax						$	1,414					$	796					$	309					$	(113)					$	2,406
Loans held for investment						$	103,641					$	68,688					$	75,894					$	0					$	248,223
Deposits						0						249,684						36,783						19,258						305,725

						Nine Months Ended September 30, 2020
(Dollars in millions)						Credit Card						Consumer Banking						Commercial Banking(1)						Other(1)						Consolidated Total
Net interest income (loss)						$	10,363					$	5,226					$	1,526					$	(75)					$	17,040
Non-interest income						2,769						330						655						392						4,146
Total net revenue(2)						13,132						5,556						2,181						317						21,186
Provision for credit losses						7,096						1,693						1,209						2						10,000
Non-interest expense						6,180						3,038						1,261						568						11,047
Income (loss) from continuing operations before income taxes						(144)						825						(289)						(253)						139
Income tax provision (benefit)						(34)						195						(69)						(102)						(10)
Income (loss) from continuing operations, net of tax						$	(110)					$	630					$	(220)					$	(151)					$	149
Loans held for investment						$	103,641					$	68,688					$	75,894					$	0					$	248,223
Deposits						0						249,684						36,783						19,258						305,725

						Three Months Ended September 30, 2019
(Dollars in millions)						Credit Card						Consumer Banking						Commercial Banking(1)						Other(1)						Consolidated Total
Net interest income						$	3,546					$	1,682					$	486					$	23					$	5,737
Non-interest income (loss)						870						165						221						(34)						1,222
Total net revenue (loss)						4,416						1,847						707						(11)						6,959
Provision for credit losses						1,087						203						93						0						1,383
Non-interest expense						2,360						985						414						113						3,872
Income (loss) from continuing operations before income taxes						969						659						200						(124)						1,704
Income tax provision (benefit)						235						154						46						(60)						375
Income (loss) from continuing operations, net of tax						$	734					$	505					$	154					$	(64)					$	1,329
Loans held for investment						$	113,681					$	62,015					$	73,659					$	0					$	249,355
Deposits						0						206,423						30,923						19,802						257,148

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						Nine Months Ended September 30, 2019
(Dollars in millions)						Credit Card						Consumer Banking						Commercial Banking(1)						Other(1)						Consolidated Total
Net interest income						$	10,667					$	5,070					$	1,489					$	48					$	17,274
Non-interest income (loss)						2,858						491						608						(65)						3,892
Total net revenue (loss)						13,525						5,561						2,097						(17)						21,166
Provision for credit losses						3,571						603						244						0						4,418
Non-interest expense						6,784						2,981						1,258						299						11,322
Income (loss) from continuing operations before income taxes						3,170						1,977						595						(316)						5,426
Income tax provision (benefit)						747						461						138						(275)						1,071
Income (loss) from continuing operations, net of tax						$	2,423					$	1,516					$	457					$	(41)					$	4,355
Loans held for investment						$	113,681					$	62,015					$	73,659					$	0					$	249,355
Deposits						0						206,423						30,923						19,802						257,148

__________

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

(2)Total net revenue was reduced by $235 million and $942 million in the three and nine months ended September 30, 2020, respectively, for finance charges and fees charged off as uncollectible.    

Revenue from Contracts with Customers

The majority of our revenue from contracts with customers consists of interchange fees, service charges and other customer-related fees, and other contract revenue. Interchange fees are primarily from our Credit Card business and are recognized upon settlement with the interchange networks, net of rewards earned by customers. Service charges and other customer-related fees within our Consumer Banking business are primarily related to fees earned on consumer deposit accounts for account maintenance and various transaction-based services such as overdrafts and ATM usage. Service charges and other customer-related fees within our Commercial Banking business are mostly related to fees earned on treasury management and capital markets services. Other contract revenue in our Credit Card business consists primarily of revenue from our partnership arrangements. Other contract revenue in our Consumer Banking business consists primarily of revenue earned on certain marketing and promotional events from our auto dealers. Revenue from contracts with customers is included in non-interest income in our consolidated statements of income.

The following table presents revenue from contracts with customers and a reconciliation to non-interest income by business segment for the three and nine months ended September 30, 2020 and 2019.

Table 12.2: Revenue from Contracts with Customers and Reconciliation to Segment Results

						Three Months Ended September 30, 2020
(Dollars in millions)						Credit Card						Consumer Banking						Commercial Banking(1)						Other(1)						Consolidated Total
Contract revenue:
Interchange fees, net(2)						$	703					$	54					$	17					$	1					$	775
Service charges and other customer-related fees						0						42						50						0						92
Other						109						5						1						0						115
Total contract revenue						812						101						68						1						982
Revenue from other sources						201						6						169						468						844
Total non-interest income						$	1,013					$	107					$	237					$	469					$	1,826

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						Nine Months Ended September 30, 2020
(Dollars in millions)						Credit Card						Consumer Banking						Commercial Banking(1)						Other(1)						Consolidated Total
Contract revenue:
Interchange fees, net(2)						$	2,003					$	152					$	45					$	(1)					$	2,199
Service charges and other customer-related fees						0						137						124						(1)						260
Other						236						27						2						0						265
Total contract revenue						2,239						316						171						(2)						2,724
Revenue from other sources						530						14						484						394						1,422
Total non-interest income						$	2,769					$	330					$	655					$	392					$	4,146

						Three Months Ended September 30, 2019
(Dollars in millions)						Credit Card						Consumer Banking						Commercial Banking(1)						Other(1)						Consolidated Total
Contract revenue:
Interchange fees, net(2)						$	722					$	54					$	15					$	(1)					$	790
Service charges and other customer-related fees						0						76						35						(1)						110
Other						15						26						1						0						42
Total contract revenue						737						156						51						(2)						942
Revenue from other sources						133						9						170						(32)						280
Total non-interest income						$	870					$	165					$	221					$	(34)					$	1,222

						Nine Months Ended September 30, 2019
(Dollars in millions)						Credit Card						Consumer Banking						Commercial Banking(1)						Other(1)						Consolidated Total
Contract revenue:
Interchange fees, net(2)						$	2,181					$	152					$	39					$	(4)					$	2,368
Service charges and other customer-related fees						0						225						88						(1)						312
Other						47						76						2						0						125
Total contract revenue						2,228						453						129						(5)						2,805
Revenue from other sources						630						38						479						(60)						1,087
Total non-interest income						$	2,858					$	491					$	608					$	(65)					$	3,892

__________

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

(2)Interchange fees are presented net of customer reward expenses.

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NOTE 13—COMMITMENTS, CONTINGENCIES, GUARANTEES AND OTHERS

Commitments to Lend

Our unfunded lending commitments primarily consist of credit card lines, loan commitments to customers of both our Commercial Banking and Consumer Banking businesses, as well as standby and commercial letters of credit. These commitments, other than credit card lines, are legally binding conditional agreements that have fixed expirations or termination dates and specified interest rates and purposes. The contractual amount of these commitments represents the maximum possible credit risk to us should the counterparty draw upon the commitment. We generally manage the potential risk of unfunded lending commitments by limiting the total amount of arrangements, monitoring the size and maturity structure of these portfolios, and applying the same credit standards for all of our credit activities.

For unused credit card lines, we have not experienced and do not anticipate that all of our customers will access their entire available line at any given point in time. Commitments to extend credit other than credit card lines generally require customers to maintain certain credit standards. Collateral requirements and loan-to-value (“LTV”) ratios are the same as those for funded transactions and are established based on management’s credit assessment of the customer. These commitments may expire without being drawn upon; therefore, the total commitment amount does not necessarily represent future funding requirements.

We also issue letters of credit, such as financial standby, performance standby and commercial letters of credit, to meet the financing needs of our customers. Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party in a borrowing arrangement. Commercial letters of credit are short-term commitments issued primarily to facilitate trade finance activities for customers and are generally collateralized by the goods being shipped to the customer. These collateral requirements are similar to those for funded transactions and are established based on management’s credit assessment of the customer. Management conducts regular reviews of all outstanding letters of credit and the results of these reviews are considered in assessing the adequacy of reserves for unfunded lending commitments.

The following table presents the contractual amount and carrying value of our unfunded lending commitments as of September 30, 2020 and December 31, 2019. The carrying value represents our reserve and deferred revenue on legally binding commitments.

Table 13.1: Unfunded Lending Commitments

						Contractual Amount												Carrying Value
(Dollars in millions)						September 30, 2020						December 31, 2019						September 30, 2020						December 31, 2019
Credit card lines						$	350,356					$	363,446					N/A						N/A
Other loan commitments(1)						34,574						36,454						$	142					$	110
Standby letters of credit and commercial letters of credit(2)						1,335						1,574						34						27
Total unfunded lending commitments						$	386,265					$	401,474					$	176					$	137

__________

(1)Includes $1.6 billion of advised lines of credit as of both September 30, 2020 and December 31, 2019.

(2)These financial guarantees have expiration dates ranging from 2020 to 2023 as of September 30, 2020.

Loss Sharing Agreements

Within our Commercial Banking business, we originate multifamily commercial real estate loans with the intent to sell them to the GSEs. We enter into loss sharing agreements with the GSEs upon the sale of the loans. Beginning January 1, 2020, we elected the fair value option on new loss sharing agreements. Unrealized gains and losses are recorded in other non-interest income in our consolidated statements of income. For those loss sharing agreements entered into as of December 31, 2019, we amortize the liability recorded at inception into non-interest income as we are released from risk of payment under the loss sharing agreement and record our estimate of expected credit losses each period in provision for credit losses in our consolidated statements of income. The liability recognized on our consolidated balance sheets for these loss sharing agreements was $99 million and $75 million as of September 30, 2020 and December 31, 2019, respectively.

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See “Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments” for more information related to our credit card partnership loss sharing arrangements.

U.K. Payment Protection Insurance

In the U.K., we previously sold payment protection insurance (“PPI”). In response to an elevated level of customer complaints across the industry, heightened media coverage and pressure from consumer advocacy groups, the U.K. Financial Conduct Authority (“FCA”), formerly the Financial Services Authority, investigated and raised concerns about the way the industry has handled complaints related to the sale of these insurance policies. For the past several years, the U.K.’s Financial Ombudsman Service (“FOS”) has been adjudicating customer complaints relating to PPI, escalated to it by consumers who disagree with the rejection of their complaint by firms, leading to customer remediation payments by us and others within the industry. In August 2017, the FCA issued final rules and guidance on the PPI complaints. This set the deadline for complaints as August 29, 2019. It also provided clarity on how to handle PPI complaints under s.140A of the Consumer Credit Act, including guidance on how redress for such complaints should be calculated.

COEP has now materially completed the handling of PPI complaints that were received prior to the deadline set by the FCA. Escalations to the FOS (by customers or their representatives) may still take place until the first quarter of 2021. Throughout this time, the FCA will continue to supervise firms that handle PPI complaints and the supporting processes, people and systems.

Our U.K. PPI reserve declined to a de minimis amount at September 30, 2020 from $188 million as of December 31, 2019. We do not believe there are significant reasonably possible future losses beyond our reserve as of September 30, 2020.

In determining our best estimate of incurred losses for future remediation payments, management considers numerous factors, including (i) the number of customer complaints or information requests still to be processed; (ii) our expectation of upholding those complaints; (iii) the expected number of complaints customers escalate to the FOS; (iv) our expectation of the FOS upholding such escalated complaints; (v) the number of complaints that fall under s.140A of the Consumer Credit Act; and (vi) the estimated remediation payout to customers. We monitor these factors each quarter and adjust our reserves to reflect the latest data.

Litigation

In accordance with the current accounting standards for loss contingencies, we establish reserves for litigation-related matters that arise from the ordinary course of our business activities when it is probable that a loss associated with a claim or proceeding has been incurred and the amount of the loss can be reasonably estimated. None of the amounts we currently have recorded individually or in the aggregate are considered to be material to our financial condition. Litigation claims and proceedings of all types are subject to many uncertain factors that generally cannot be predicted with assurance. Below we provide a description of potentially material legal proceedings and claims.

For some of the matters disclosed below, we are able to estimate reasonably possible losses above existing reserves, and for other disclosed matters, such an estimate is not possible at this time. For those matters below where an estimate is possible, management currently estimates the reasonably possible future losses beyond our reserves as of September 30, 2020 are approximately $1.0 billion. Our reserve and reasonably possible loss estimates involve considerable judgment and reflect that there is still significant uncertainty regarding numerous factors that may impact the ultimate loss levels. Notwithstanding our attempt to estimate a reasonably possible range of loss beyond our current accrual levels for some litigation matters based on current information, it is possible that actual future losses will exceed both the current accrual level and the range of reasonably possible losses disclosed here. Given the inherent uncertainties involved in these matters, especially those involving governmental agencies, and the very large or indeterminate damages sought in some of these matters, there is significant uncertainty as to the ultimate liability we may incur from these litigation matters and an adverse outcome in one or more of these matters could be material to our results of operations or cash flows for any particular reporting period.

Interchange

In 2005, a putative class of retail merchants filed antitrust lawsuits against MasterCard and Visa and several issuing banks, including Capital One, seeking both injunctive relief and monetary damages for an alleged conspiracy by defendants to fix the level of interchange fees. Other merchants have asserted similar claims in separate lawsuits, and while these separate cases did

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not name any issuing banks, Visa, MasterCard and issuers, including Capital One, have entered settlement and judgment sharing agreements allocating the liabilities of any judgment or settlement arising from all interchange-related cases.

The lawsuits were consolidated before the U.S. District Court for the Eastern District of New York for certain purposes and were settled in 2012. The class settlement, however, was invalidated by the United States Court of Appeals for the Second Circuit in June 2016, and the suit was bifurcated into separate class actions seeking injunctive and monetary relief, respectively. In addition, numerous merchant groups opted out of the 2012 settlement and have pursued their own claims. The claims by the injunctive relief class have not been resolved, but the settlement of $5.5 billion for the monetary damages class received final approval from the trial court, and has been appealed to the U.S. Court of Appeals for the Second Circuit. Visa and MasterCard have also settled a number of the opt-out cases, which required non-material payments from issuing banks, including Capital One. Visa created a litigation escrow account following its initial public offering of stock in 2008 that funds settlements for its member banks, and any settlements related to MasterCard-allocated losses have either already been paid or are reflected in our reserves.

Mortgage Representation and Warranty

We face residual exposure related to subsidiaries that originated residential mortgage loans and sold these loans to various purchasers, including purchasers who created securitization trusts. In connection with their sales of mortgage loans, these subsidiaries entered into agreements containing varying representations and warranties about, among other things, the ownership of the loan, the validity of the lien securing the loan, the loan’s compliance with any applicable criteria established by the purchaser, including underwriting guidelines and the existence of mortgage insurance, and the loan’s compliance with applicable federal, state and local laws. Each of these subsidiaries may be required to repurchase mortgage loans or indemnify certain purchasers and others against losses they incur in the event of certain breaches of these representations and warranties.

The substantial majority of our representation and warranty exposure has been resolved through litigation, and our remaining representation and warranty exposure is almost entirely litigation-related. Accordingly, we establish litigation reserves for representation and warranty losses that we consider to be both probable and reasonably estimable. The reserve process relies heavily on estimates, which are inherently uncertain, and requires the application of judgment. Our reserves and estimates of reasonably possible losses could be impacted by claims which may be brought by securitization trustees and sponsors, bond-insurers, investors, and GSEs, as well as claims brought by governmental agencies.

Anti-Money Laundering

In October 2018, we paid a civil monetary penalty of $100 million to resolve the monetary component of a July 2015 Office of the Comptroller of the Currency (“OCC”) consent order relating to our anti-money laundering (“AML”) program. The OCC lifted the AML consent order in November 2019.

The Department of Justice and the New York District Attorney’s Office have closed their investigations into certain former check casher clients of the Commercial Banking business and our AML program. We are in discussions with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury to explore a potential regulatory resolution of its investigation into our AML program, which could include a monetary penalty.

Cybersecurity Incident

As a result of the Cybersecurity Incident announced on July 29, 2019, we are subject to numerous legal proceedings and other inquiries and could be the subject of additional proceedings and inquiries in the future.

Consumer class actions. To date, we have been named as a defendant in approximately 73 putative consumer class action cases (61 in U.S. federal courts and 12 in Canadian courts) alleging harm from the Cybersecurity Incident and seeking various remedies, including monetary and injunctive relief. The lawsuits allege breach of contract, negligence, violations of various privacy laws and a variety of other legal causes of action. The U.S. consumer class actions have been consolidated for pretrial proceedings before a multi-district litigation (“MDL”) panel in the U.S. District Court for the Eastern District of Virginia, Alexandria Division. In the third quarter of 2020, the MDL panel denied in part and granted in part Capital One’s motion to dismiss and permitted pretrial discovery to continue.

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Securities class action. The Company and certain officers have also been named as defendants in a putative class action pending in the MDL alleging violations of certain federal securities laws in connection with statements and alleged omissions in securities filings relating to our information security standards and practices. The complaint seeks certification of a class of all persons who purchased or otherwise acquired Capital One securities from July 23, 2015 to July 29, 2019, as well as unspecified monetary damages, costs and other relief.

Governmental inquiries. We have received inquiries and requests for information relating to the Cybersecurity Incident from Congress, federal banking regulators, relevant Canadian regulators, the Department of Justice, and the offices of approximately fourteen state Attorneys General. We are cooperating with these offices and responding to their inquiries.

In August 2020, we entered into consent orders with the Federal Reserve Board of Governors and the OCC resulting from regulatory reviews of the Cybersecurity Incident and relating to ongoing enhancements of our cybersecurity and operational risk management processes. We paid an $80 million penalty to the U.S. Treasury as part of the OCC agreement. The Federal Reserve Board agreement did not contain a monetary penalty.

Taxi Medallion Finance Investigations

Beginning in 2019, we have received subpoenas from the New York Attorney General’s office and from the U.S. Attorney’s Office for the Southern District of New York, Civil and Criminal Divisions, relating to investigations of the taxi medallion finance industry we exited beginning in 2015. The subpoenas seek, among other things, information regarding our lending counterparties and practices. We are cooperating with these investigations.

U.K. PPI Litigation

Some of the claimants in the U.K. PPI regulatory claims process described above have initiated legal proceedings. The significant increase in PPI regulatory claim volumes shortly before the August 29, 2019 claims submission deadline increases the potential exposure for PPI-related litigation, which is not subject to the August 29, 2019 deadline.

Other Pending and Threatened Litigation

In addition, we are commonly subject to various pending and threatened legal actions relating to the conduct of our normal business activities. In the opinion of management, the ultimate aggregate liability, if any, arising out of all such other pending or threatened legal actions, is not expected to be material to our consolidated financial position or our results of operations.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Item 4. Controls and Procedures

Overview

We are required under applicable laws and regulations to maintain controls and procedures, which include disclosure controls and procedures as well as internal control over financial reporting, as further described below. 

(a) Disclosure Controls and Procedures

Disclosure controls and procedures refer to controls and other procedures designed to provide reasonable assurance that information required to be disclosed in our financial reports is recorded, processed, summarized and reported within the time periods specified by the U.S. Securities and Exchange Commission (“SEC”) rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we must apply judgment in evaluating and implementing possible controls and procedures. 

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 of the Securities Exchange Act of 1934 (“Exchange Act”), our management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of September 30, 2020, the end of the period covered by this Report on Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2020, at a reasonable level of assurance, in recording, processing, summarizing and reporting information required to be disclosed within the time periods specified by the SEC rules and forms.

(b) Changes in Internal Control Over Financial Reporting

We regularly review our disclosure controls and procedures and make changes intended to ensure the quality of our financial reporting. There were no changes in internal control over financial reporting that occurred in the third quarter of 2020 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

The information required by Item 103 of Regulation S-K is included in “Note 13—Commitments, Contingencies, Guarantees and Others.”

Item 1A. Risk Factors

We are not aware of any material changes from the risk factors set forth under “Part I—Item 1A. Risk Factors” in our 2019 Form 10-K and “Part II—Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the period ended June 30, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information related to the withholdings of our common stock for each calendar month in the third quarter of 2020. Commission costs are excluded from the amounts presented below.

						Total Number of Shares Withheld(1)						Average Price  per Share
July						4,765						$	60.70
August						25,152						63.80
September						—						—
Total						29,917						63.31

__________

(1)Consists of shares withheld to cover taxes on restricted stock units whose restrictions have lapsed. We suspended our 2019 Stock Repurchase Program in March 2020 and the program subsequently expired at the end of the second quarter of 2020, see “MD&A—Capital Management—Dividend Policy and Stock Purchases” for more information.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

An index to exhibits has been filed as part of this Report and is incorporated herein by reference.

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EXHIBIT INDEX

The following exhibits are incorporated by reference or filed herewith. Reference to the “2003 Form 10-K” is to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 5, 2004.

Exhibit No.						Description
3.1						Restated Certificate of Incorporation of Capital One Financial Corporation (as restated May 1, 2020) (incorporated by reference to Exhibit 3.2 of the Current Report on Form 8-K, filed on May 4, 2020).
3.2						Amended and Restated Bylaws of Capital One Financial Corporation, dated May 1, 2020 (incorporated by reference to Exhibit 3.3 of the Current Report on Form 8-K, filed on May 4, 2020).
3.3						Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series K, dated September 16, 2020 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on September 17, 2020).
4.1.1						Specimen certificate representing the common stock of Capital One Financial Corporation (incorporated by reference to Exhibit 4.1 of the 2003 Form 10-K).
4.1.2						Warrant Agreement, dated December 3, 2009, between Capital One Financial Corporation and Computershare Trust Company, N.A. (incorporated by reference to the Exhibit 4.1 of the Form 8-A, filed on December 4, 2009).
4.1.3						Deposit Agreement, dated September 17, 2020 (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K, filed on September 17, 2020).
4.2						Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, copies of instruments defining the rights of holders of long-term debt are not filed. The Company agrees to furnish a copy thereof to the SEC upon request.
31.1*						Certification of Richard D. Fairbank.
31.2*						Certification of R. Scott Blackley.
32.1**						Certification of Richard D. Fairbank.
32.2**						Certification of R. Scott Blackley.
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*						Inline XBRL Taxonomy Extension Schema Document.
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104						The cover page of Capital One Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in Inline XBRL (included within the Exhibit 101 attachments).

__________

*			Indicates a document being filed with this Form 10-Q.
**			Indicates a document being furnished with this Form 10-Q. Information in this Form 10-Q furnished herewith shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section. Such exhibit shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CAPITAL ONE FINANCIAL CORPORATION

Date: November 2, 2020

By:

/s/ R. SCOTT BLACKLEY

R. Scott Blackley

Chief Financial Officer

			145			Capital One Financial Corporation (COF)