CAPITAL ONE FINANCIAL CORP - Quarter Report: 2023 March (Form 10-Q)

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 March 31, 2023


☐			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 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
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series L	COF PRL	New York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series N	COF PRN	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 April 30, 2023, there were 381,806,215 shares of the registrant’s Common Stock outstanding.

TABLE OF CONTENTS


		Page
PART I —F INANCIAL INFORMATION		4













Item 1.	Financial Statements and Notes	63
	Consolidated Statements of Income	64
	Consolidated Statements of Comprehensive Income	65
	Consolidated Balance Sheets	66
	Consolidated Statements of Changes in Stockholders’ Equity	67
	Consolidated Statements of Cash Flows	68
	Notes to Consolidated Financial Statements	70
	Note 1—Summary of Significant Accounting Policies	70

	Note 2—Investment Securities	72
	Note 3—Loans	75
	Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments	85
	Note 5—Variable Interest Entities and Securitizations	89
	Note 6—Goodwill and Other Intangible Assets	93
	Note 7—Deposits and Borrowings	94
	Note 8—Derivative Instruments and Hedging Activities	95
	Note 9—Stockholders’ Equity	103
	Note 10—Earnings Per Common Share	106
	Note 11—Fair Value Measurement	107
	Note 12—Business Segments and Revenue from Contracts with Customers	114
	Note 13—Commitments, Contingencies, Guarantees and Others	117





Item 2 .	Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)	4
	Introduction	4

	Selected Financial Data	6
	Executive Summary	9
	Consolidated Results of Operations	10
	Consolidated Balance Sheets Analysis	15
	Off-Balance Sheet Arrangements	16
	Business Segment Financial Performance	16
	Critical Accounting Policies and Estimates	25
	Accounting Changes and Developments	26
	Capital Management	27
	Risk Management	32
	Credit Risk Profile	34
	Liquidity Risk Profile	45
	Market Risk Profile	48
	Supervision and Regulation	53
	Forward-Looking Statements	53
	Supplemental Table	55
	Glossary and Acronyms	57



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Item 3.	Quantitative and Qualitative Disclosures about Market Risk	120
Item 4.	Controls and Procedures	120

PART II—OTHER INFORMATION		121
Item 1.	Legal Proceedings	121
Item 1A.	Risk Factors	121
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	121
Item 3.	Defaults Upon Senior Securities	121
Item 4.	Mine Safety Disclosures	121
Item 5.	Other Information	121
Item 6.	Exhibits	121





EXHIBIT INDEX		122
SIGNATURES		123



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INDEX OF MD&A AND SUPPLEMENTAL TABLE


MD&A Tables:		Page
1	Consolidated Financial Highlights	6
2	Average Balances, Net Interest Income and Net Interest Margin	11
3	Rate/Volume Analysis of Net Interest Income	12
4	Non-Interest Income	13
5	Non-Interest Expense	14

6	Loans Held for Investment	15
7	Funding Sources Composition	15
8	Business Segment Results	17
9	Credit Card Business Results	18
9.1	Domestic Card Business Results	19
10	Consumer Banking Business Results	21
11	Commercial Banking Business Results	22
12	Other Category Results	24
13	Capital Ratios Under Basel III	29
14	Regulatory Risk-Based Capital Components and Regulatory Capital Metrics	30
15	Preferred Stock Dividends Paid Per Share	31
16	Portfolio Composition of Loans Held for Investment	34

17	Credit Card Portfolio by Geographic Region	35
18	Consumer Banking Portfolio by Geographic Region	35
19	Commercial Real Estate Portfolio by Region	36
20	Commercial Loans by Industry	37
21	Credit Score Distribution	37
22	30+ Day Delinquencies	38
23	Aging and Geography of 30+ Day Delinquent Loans	39
24	90+ Day Delinquent Loans Accruing Interest	40
25	Nonperforming Loans and Other Nonperforming Assets	40
26	Net Charge-Offs	42

27	Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity	44

28	Liquidity Reserves	45
29	Deposits Composition and Average Deposits Interest Rates	46

30	Long-Term Debt Funding Activities	47
31	Senior Unsecured Long-Term Debt Credit Ratings	47

32	Interest Rate Sensitivity Analysis	50
33	LIBOR Exposures on Derivatives and Commercial Loans	51

Supplemental Table:





A	Reconciliation of Non-GAAP Measures	55



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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 “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 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 2022 Annual Report on Form 10-K (“2022 Form 10-K”) and “Part II—Item 1A. Risk Factors” in this Report. Unless otherwise specified, references to notes to our consolidated financial statements refer to the notes to our consolidated financial statements as of March 31, 2023 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 2022 Form 10-K.


INTRODUCTION

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

As of March 31, 2023, Capital One Financial Corporation’s principal operating subsidiary was Capital One, National Association (“CONA”). On October 1, 2022, the Company completed the merger of Capital One Bank (USA), National Association (“COBNA”), with and into CONA, with CONA as the surviving entity (the “Bank Merger”). The Company is hereafter collectively referred to as “we,” “us” or “our.” References to the “Bank” shall mean and refer to (i) CONA from and after the Bank Merger and (ii) CONA and COBNA collectively prior to the Bank Merger.

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

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

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

•Consumer Banking: Consists of our deposit gathering and lending activities for consumers and small businesses, and national auto lending.



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

Business Developments

We regularly explore and evaluate opportunities to acquire financial products and services as well as financial assets, including credit card and other loan portfolios, and enter into strategic partnerships as part of our growth strategy. We also explore opportunities to acquire technology companies and related assets to improve our information technology infrastructure and to deliver on our digital strategy. We may issue equity or debt to fund our acquisitions. In addition, we regularly consider the potential disposition of certain of our assets, branches, partnership agreements or lines of business.



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SELECTED FINANCIAL DATA

The following table presents selected consolidated financial data and performance from our results of operations for the first quarters of 2023 and 2022 and selected comparative balance sheet data as of March 31, 2023 and December 31, 2022. We also provide selected key metrics we use in evaluating our performance, including certain metrics that are computed using non-GAAP measures. We consider these metrics to be key financial measures that management uses in assessing our operating performance, capital adequacy and the level of returns generated. We believe these non-GAAP metrics provide useful insight to investors and users of our financial information as they provide an alternate measurement of our performance and assist in assessing our capital adequacy and the level of return generated. These non-GAAP measures should not be viewed as a substitute for reported results determined in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”), nor are they necessarily comparable to non-GAAP measures that may be presented by other companies.

Table 1: Consolidated Financial Highlights


	Three Months Ended March 31,
(Dollars in millions, except per share data and as noted)		2023		2022		Change
Income statement


Net interest income		$	7,186	$	6,397	12%
Non-interest income		1,717		1,776		(3)
Total net revenue		8,903		8,173		9
Provision for credit losses		2,795		677		**
Non-interest expense:
Marketing		897		918		(2)
Operating expense		4,048		3,633		11
Total non-interest expense		4,945		4,551		9
Income from continuing operations before income taxes		1,163		2,945		(61)
Income tax provision		203		542		(63)


Net income		960		2,403		(60)
Dividends and undistributed earnings allocated to participating securities		(16)		(28)		(43)
Preferred stock dividends		(57)		(57)		—

Net income available to common stockholders		$	887	$	2,318	(62)
Common share statistics
Basic earnings per common share:


Net income per basic common share		$	2.32	$	5.65	(59)%
Diluted earnings per common share:


Net income per diluted common share		$	2.31	$	5.62	(59)%
Weighted-average common shares outstanding (in millions):
Basic		382.6		410.4		(7)%
Diluted		383.8		412.2		(7)
Common shares outstanding (period-end, in millions)		382.0		399.0		(4)
Dividends declared and paid per common share		$	0.60	$	0.60	—

Tangible book value per common share (period-end)(1)		90.86		91.77		(1)



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	Three Months Ended March 31,
(Dollars in millions, except per share data and as noted)		2023			2022		Change
Balance sheet (average balances)
Loans held for investment		$	307,756		$	275,342	12%
Interest-earning assets		435,199			394,082		10
Total assets		462,324			430,372		7
Interest-bearing deposits		308,788			271,823		14
Total deposits		340,123			309,597		10
Borrowings		48,016			42,277		14
Common equity		49,927			54,591		(9)
Total stockholders’ equity		54,773			59,437		(8)
Selected performance metrics
Purchase volume		$	141,658		$	133,662	6%
Total net revenue margin(2)		8.18		%	8.30%		(12)bps
Net interest margin		6.60			6.49		11
Return on average assets(3)		0.83			2.23		(140)
Return on average tangible assets(4)		0.86			2.31		(145)
Return on average common equity(5)		7.11			16.98		(987)
Return on average tangible common equity(6)		10.15			23.36		(1,321)
Equity-to-assets ratio(7)		11.85			13.81		(196)

Efficiency ratio(8)		55.54			55.68		(14)
Operating efficiency ratio(9)		45.47			44.45		102

Effective income tax rate from continuing operations		17.5			18.4		(90)
Net charge-offs		$	1,697		$	767	121%
Net charge-off rate		2.21		%	1.11%		110bps



(Dollars in millions, except as noted)	March 31, 2023			December 31, 2022		Change
Balance sheet (period-end)
Loans held for investment	$	308,836		$	312,331	(1)%
Interest-earning assets	445,166			427,248		4
Total assets	471,660			455,249		4
Interest-bearing deposits	318,641			300,789		6
Total deposits	349,827			332,992		5
Borrowings	48,777			48,715		—
Common equity	49,807			47,737		4
Total stockholders’ equity	54,653			52,582		4
Credit quality metrics
Allowance for credit losses	$	14,318		$	13,240	8%
Allowance as a percentage of loans held for investment (“allowance coverage ratio”)	4.64		%	4.24%		40bps
30+ day performing delinquency rate	2.88			2.96		(8)
30+ day delinquency rate	3.09			3.21		(12)
Capital ratios
Common equity Tier 1 capital(10)	12.5		%	12.5%		—
Tier 1 capital(10)	13.9			13.9		—
Total capital(10)	15.9			15.8		10bps



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(Dollars in millions, except as noted)	March 31, 2023	December 31, 2022	Change
Tier 1 leverage(10)	10.9	11.1	(20)
Tangible common equity(11)	7.6	7.5	10
Supplementary leverage(10)	9.3	9.5	(20)
Other
Employees (period end, in thousands)	56.1	56.0	—

__________

(1)Tangible book value per common share is a non-GAAP measure calculated based on tangible common equity (“TCE”) divided by common shares outstanding. See “Supplemental Table—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.

(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 “Supplemental Table—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 (loss) available to common stockholders less annualized 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 (loss) available to common stockholders less annualized income (loss) from discontinued operations, net of tax, for the period, divided by average TCE. Our calculation of return on average TCE may not be comparable to similarly-titled measures reported by other companies. See “Supplemental Table—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 total 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 “Capital Management” for additional information.

(11)Tangible common equity ratio is a non-GAAP measure calculated based on TCE divided by tangible assets. See “Supplemental Table—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

Financial Highlights

We reported net income of $960 million ($2.31 per diluted common share) on total net revenue of $8.9 billion for the first quarter of 2023. In comparison, we reported net income of $2.4 billion ($5.62 per diluted common share) on total net revenue of $8.2 billion for the first quarter of 2022.

Our common equity Tier 1 capital ratio as calculated under the Basel III standardized approach was 12.5% as of both March 31, 2023 and December 31, 2022. See “Capital Management” for additional information.

In January 2022, our Board of Directors authorized the repurchase of up to $5.0 billion of shares of our common stock. In April 2022, our Board of Directors authorized the repurchase of up to an additional $5.0 billion of shares of our common stock. Under these authorizations, we repurchased $4.8 billion of shares of our common stock as of December 31, 2022 and approximately $150 million of shares of our common stock during the first three months of 2023. See “Capital Management—Dividend Policy and Stock Purchases” for additional information.

Below are additional highlights of our performance in the first quarter of 2023. These highlights are based on a comparison between the results of the first quarters of 2023 and 2022, 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 March 31, 2023 compared to December 31, 2022. We provide a more detailed discussion of our financial performance in the sections following this “Executive Summary.”

Total Company Performance

•Earnings:

Our net income decreased by $1.4 billion to $960 million in the first quarter of 2023 compared to the first quarter of 2022 primarily driven by:

◦Higher provision for credit losses primarily driven by an allowance build in our credit card loan portfolio due to continued credit normalization and assumed economic worsening compared to an allowance release across all of our segments in the first quarter of 2022.

◦Higher non-interest expense primarily driven by increased salaries and associate benefits.

These drivers were partially offset by:

◦Higher net interest income primarily driven by higher average loan balances in our credit card loan portfolio.

•Loans Held for Investment:

◦Period-end loans held for investment remained substantially flat at $308.8 billion as of March 31, 2023 compared to December 31, 2022.

◦Average loans held for investment increased by $32.4 billion to $307.8 billion in the first quarter of 2023 compared to the first quarter of 2022 primarily driven by growth in our credit card loan portfolio.

•Net Charge-Off and Delinquency Metrics:

◦Our net charge-off rate increased by 110 basis points (“bps”) to 2.21% in the first quarter of 2023 compared to the first quarter of 2022 primarily driven by continued credit normalization.

◦Our 30+ day delinquency rate decreased by 12 bps to 3.09% as of March 31, 2023 from December 31, 2022 primarily driven by seasonally lower auto delinquency inventories, partially offset by continued credit normalization.

•Allowance for Credit Losses: Our allowance for credit losses increased by $1.1 billion to $14.3 billion and our allowance coverage ratio increased by 40 bps to 4.64% as of March 31, 2023 compared to December 31, 2022.



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CONSOLIDATED RESULTS OF OPERATIONS

The section below provides a comparative discussion of our consolidated financial performance for the first quarters of 2023 and 2022. We provide a discussion of our business segment results in the following section, “Business Segment Financial Performance.” This section should be read together with our “Executive Summary,” where we discuss trends and other factors that we expect will affect our future results of operations.

Net Interest Income

Net interest income represents the difference between interest income, including certain fees, earned on our interest-earning assets and the interest expense incurred on our interest-bearing liabilities. Our interest-earning assets include loans, investment securities and other interest-earning assets, while our interest-bearing liabilities include interest-bearing deposits, securitized debt obligations, senior and subordinated notes, other borrowings and other interest-bearing liabilities. Generally, we include in interest income any past due fees, net of reversals, 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 first quarters of 2023 and 2022 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 March 31,
	2023						2022
(Dollars in millions)	Average Balance		Interest Income/ Expense		Average Yield/ Rate(1)		Average Balance		Interest Income/ Expense		Average Yield/ Rate(1)
Assets:
Interest-earning assets:
Loans:(2)
Credit card	$	134,669	$	6,053	17.98	%	$	114,171	$	4,274	14.97%
Consumer banking	79,000		1,461		7.40		78,805		1,411		7.16
Commercial banking(3)	94,446		1,488		6.30		86,046		571		2.65
Other(4)	—		(279)		**		—		111		**
Total loans, including loans held for sale	308,115		8,723		11.32		279,022		6,367		9.13
Investment securities	89,960		615		2.73		94,700		402		1.70
Cash equivalents and other interest-earning assets	37,124		416		4.49		20,360		15		0.29
Total interest-earning assets	435,199		9,754		8.96		394,082		6,784		6.89
Cash and due from banks	4,155						5,358
Allowance for credit losses	(13,203)						(11,427)
Premises and equipment, net	4,349						4,234
Other assets	31,824						38,125
Total assets	$	462,324					$	430,372
Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Interest-bearing deposits	$	308,788	$	1,856	2.40	%	$	271,823	$	218	0.32%
Securitized debt obligations	17,251		211		4.90		13,740		29		0.84
Senior and subordinated notes	30,136		489		6.49		26,481		131		1.98
Other borrowings and liabilities	2,335		12		2.08		3,633		9		1.00
Total interest-bearing liabilities	358,510		2,568		2.87		315,677		387		0.49
Non-interest-bearing deposits	31,335						37,774
Other liabilities	17,706						17,484
Total liabilities	407,551						370,935
Stockholders’ equity	54,773						59,437
Total liabilities and stockholders’ equity	$	462,324					$	430,372
Net interest income/spread			$	7,186	6.10				$	6,397	6.40
Impact of non-interest-bearing funding					0.50						0.09
Net interest margin					6.60	%					6.49%

__________

(1)Average yield is calculated based on annualized interest income for the period divided by average loans during the period. Annualized interest income does not include any allocations, such as funds transfer pricing. Average yield is calculated using whole dollar values for average balances and interest income/expense.

(2)Past due fees, net of reversals, included in interest income totaled approximately $503 million and $438 million in the first quarters of 2023 and 2022, respectively.

(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. Taxable-equivalent adjustments included in the interest income and yield computations for our commercial loans totaled approximately $18 million as of both the first quarter of 2023 and 2022, with corresponding reductions to the Other category.



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(4)Interest income/expense in the Other category 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 increased by $789 million to $7.2 billion in the first quarter of 2023 compared to the first quarter of 2022 primarily driven by higher average loan balances in our credit card loan portfolio.

Net interest margin increased by 11 bps to 6.60% in the first quarter of 2023 compared to the first quarter of 2022 primarily driven by higher yields in our credit card and commercial banking loan portfolios, partially offset by higher rates 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 March 31,
	2023 vs. 2022
(Dollars in millions)	Total Variance		Volume		Rate
Interest income:
Loans:
Credit card	$	1,779	$	834	$	945
Consumer banking	50		3		47
Commercial banking(2)	917		60		857
Other(3)	(390)		—		(390)
Total loans, including loans held for sale	2,356		897		1,459
Investment securities	213		(20)		233
Cash equivalents and other interest-earning assets	401		18		383
Total interest income	2,970		895		2,075
Interest expense:
Interest-bearing deposits	1,638		33		1,605
Securitized debt obligations	182		9		173
Senior and subordinated notes	358		20		338
Other borrowings and liabilities	3		(3)		6
Total interest expense	2,181		59		2,122
Net interest income	$	789	$	836	$	(47)

__________

(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 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.

(3)Interest income/expense in the Other category 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 first quarters of 2023 and 2022.

Table 4: Non-Interest Income


	Three Months Ended March 31,
(Dollars in millions)		2023		2022
Interchange fees, net		$	1,139	$	1,033
Service charges and other customer-related fees		379		400

Other non-interest income:(1)
Mortgage banking revenue		—		68
Treasury and other investment income		117		(18)
Other(2)		82		293
Total other non-interest income		199		343
Total non-interest income		$	1,717	$	1,776

________

(1)Includes gain of $24 million and loss of $25 million on deferred compensation plan investments for the first quarters of 2023 and 2022, respectively. These amounts have corresponding offsets in non-interest expense.

(2)Primarily consists of revenue from Capital One Shopping, our credit card partnership agreements and gains or losses on loan sales.

Non-interest income remained substantially flat at $1.7 billion in the first quarter of 2023 compared to the first quarter of 2022.

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. Our provision for credit losses increased by $2.1 billion to $2.8 billion in the first quarter of 2023 compared to the first quarter of 2022 primarily driven by an allowance build in our credit card loan portfolio due to continued credit normalization and assumed economic worsening compared to an allowance release across all of our segments in the first quarter of 2022.

We provide additional information on the provision for credit losses and changes in the allowance for credit losses within “Credit Risk Profile” and “Part I—Item 1. Financial Statements and Supplementary Data—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 “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” in our 2022 Form 10-K.



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Non-Interest Expense

Table 5 displays the components of non-interest expense for the first quarters of 2023 and 2022.

Table 5: Non-Interest Expense


	Three Months Ended March 31,
(Dollars in millions)		2023		2022
Operating Expense:
Salaries and associate benefits(1)		$	2,427	$	2,026
Occupancy and equipment		508		513
Professional services		324		397
Communications and data processing		350		339
Amortization of intangibles		14		14
Other non-interest expense:
Bankcard, regulatory and other fee assessments		84		60
Collections		83		84
Other		258		200
Total other non-interest expense		425		344
Total operating expense		$	4,048	$	3,633
Marketing		897		918
Total non-interest expense		$	4,945	$	4,551

_________

(1)Includes an expense of $24 million and benefit of $25 million related to our deferred compensation plan for the first quarters of 2023 and 2022, respectively. These amounts have corresponding offsets from investments in other non-interest income.

Non-interest expense increased by $394 million to $4.9 billion in the first three months of 2023, primarily driven by increased salaries and associate benefits.

Income Taxes

We recorded an income tax provision of $203 million (17.5% effective income tax rate) and $542 million (18.4% effective income tax rate) in the first quarters of 2023 and 2022, respectively. Our effective tax rate on income from continuing operations varies between periods due, in part, to the impact of changes in pre-tax income and changes in tax credits, tax-exempt income and non-deductible expenses relative to our pre-tax earnings.

We provide additional information on items affecting our income taxes and effective tax rate in “Part II—Item 8. Financial Statements and Supplementary Data—Note 15—Income Taxes” in our 2022 Form 10-K.



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CONSOLIDATED BALANCE SHEETS ANALYSIS

Total assets increased by $16.4 billion to $471.7 billion as of March 31, 2023 from December 31, 2022 primarily driven by increases in our cash balances due to our national banking consumer deposit strategy and an increase in our available for sale securities portfolio.

Total liabilities increased by $14.3 billion to $417.0 billion as of March 31, 2023 from December 31, 2022 primarily driven by deposit growth.

Stockholders’ equity increased by $2.1 billion to $54.7 billion as of March 31, 2023 from December 31, 2022 primarily driven by an increase in accumulated other comprehensive income (“AOCI”) due to an increase in the fair value of our investment securities portfolio and net income of $960 million.

The following is a discussion of material changes in the major components of our assets and liabilities during the first quarter of 2023. Period-end balance sheet amounts may vary from average balance sheet amounts due to liquidity and balance sheet management activities that are intended to support the adequacy of capital while managing our liquidity requirements, our customers and our market risk exposure in accordance with our risk appetite.

Investment Securities

Our investment securities portfolio consists of the following: U.S. government-sponsored enterprise or agency (“Agency”) and non-agency residential mortgage-backed securities (“RMBS”), agency commercial mortgage-backed securities (“CMBS”), U.S. Treasury securities and other securities. Agency securities include Government National Mortgage Association (“Ginnie Mae”) guaranteed securities, Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) issued securities. The carrying value of our investments in Agency and U.S. Treasury securities represented 97% of our total investment securities portfolio as of both March 31, 2023 and December 31, 2022.

The fair value of our available for sale securities portfolio increased by $5.0 billion to $81.9 billion as of March 31, 2023 from December 31, 2022, driven by net purchases and modest decreases in relevant benchmark interest rates. See “Part I—Item 1. Financial Statements and Supplementary Data—Note 2—Investment Securities” for more information.

Loans Held for Investment

Total loans held for investment consists of both unsecuritized loans and loans held in our consolidated trusts. Table 6 summarizes, by portfolio segment, the carrying value of our loans held for investment, the allowance for credit losses and net loan balance as of March 31, 2023 and December 31, 2022.

Table 6: Loans Held for Investment


	March 31, 2023						December 31, 2022
(Dollars in millions)	Loans		Allowance		Net Loans		Loans		Allowance		Net Loans
Credit Card	$	137,142	$	10,410	$	126,732	$	137,730	$	9,545	$	128,185
Consumer Banking	78,151		2,205		75,946		79,925		2,237		77,688
Commercial Banking	93,543		1,703		91,840		94,676		1,458		93,218
Total	$	308,836	$	14,318	$	294,518	$	312,331	$	13,240	$	299,091

Loans held for investment remained substantially flat at $308.8 billion as of March 31, 2023.

We provide additional information on the composition of our loan portfolio and credit quality in “Credit Risk Profile,” “Consolidated Results of Operations” and “Part I—Item 1. Financial Statements and Supplementary Data—Note 3—Loans.”

Funding Sources



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Table 7 provides the composition of our primary sources of funding as of March 31, 2023 and December 31, 2022.

Table 7: Funding Sources Composition


	March 31, 2023				December 31, 2022
(Dollars in millions)	Amount		% of Total		Amount		% of Total
Deposits:
Consumer Banking	$	291,163	73	%	$	270,592	71	%
Commercial Banking	38,380		10		40,808		11
Other(1)	20,284		5		21,592		6
Total deposits(2)	349,827		88		332,992		88
Securitized debt obligations	17,813		4		16,973		4
Other debt	30,964		8		31,742		8
Total funding sources	$	398,604	100	%	$	381,707	100	%

__________

(1)Includes brokered deposits of $19.2 billion and $20.6 billion as of March 31, 2023 and December 31, 2022, respectively.

(2)As of March 31, 2023 and December 31, 2022, we held $76.4 billion and $80.7 billion, respectively, of estimated uninsured deposits that exclude intercompany balances. These amounts are primarily comprised of checking and savings deposits. These estimated uninsured deposits comprise approximately 22% and 24% of our total deposits as of March 31, 2023 and December 31, 2022, respectively. We estimate our uninsured amounts based on methodologies and assumptions used for our “Consolidated Reports of Condition and Income” (FFIEC 031) filed with the Federal Banking Agencies.

Total deposits increased by $16.8 billion to $349.8 billion as of March 31, 2023 from December 31, 2022 primarily driven by our national banking strategy, which includes originations from periodic limited time offerings in time deposits.

Securitized debt obligations increased by $840 million to $17.8 billion as of March 31, 2023 from December 31, 2022 primarily driven by net issuances in our auto securitization program.

Other debt decreased by $778 million to $31.0 billion as of March 31, 2023 from December 31, 2022 primarily driven by maturities of subordinated debt, partially offset by net issuances of senior debt.

We provide additional information on our funding sources in “Liquidity Risk Profile” and “Part I—Item 1. Financial Statements and Supplementary Data—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 “Part I—Item 1. Financial Statements and Supplementary Data—Note 5—Variable Interest Entities and Securitizations” and “Part I—Item 1. Financial Statements and Supplementary Data—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 or managed as a part of our existing business segments. Certain activities that are not part of a segment, such as management of our corporate investment portfolio, asset/liability management by our centralized Corporate Treasury group and residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments, are included in the Other category.

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



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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 is managed by our centralized Corporate Treasury group and provides a funds credit for sources of funds, such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a charge for the use of funds by each segment. The allocation is unique to each business segment and acquired business and is based on the composition of assets and liabilities. The funds transfer pricing process considers the interest rate and liquidity risk characteristics of assets and liabilities and off-balance sheet products. Periodically, the methodology and assumptions utilized in the funds transfer pricing process are adjusted to reflect economic conditions and other factors, which may impact the allocation of net interest income to the business segments. 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 “Part II—Item 8. Financial Statements and Supplementary Data—Note 17—Business Segments and Revenue from Contracts with Customers” in our 2022 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 first quarters of 2023 and 2022 and provide a comparative discussion of these results for, as well as changes in our financial condition and credit performance metrics as of March 31, 2023 compared to December 31, 2022. We provide a reconciliation of our total business segment results to our reported consolidated results in “Part I—Item 1. Financial Statements and Supplementary Data—Note 12—Business Segments and Revenue from Contracts with Customers.”

Business Segment Financial Performance

Table 8 summarizes our business segment results, which we report based on revenue (loss) and income (loss) from continuing operations, for the first quarters of 2023 and 2022.

Table 8: Business Segment Results


	Three Months Ended March 31,
	2023						2022
	Total Net Revenue (Loss)(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	$	6,020	67%	$	549	57%	$	5,297	65%	$	1,500	63%
Consumer Banking	2,495		28	716		74	2,218		27	650		27
Commercial Banking(3)	860		10	54		6	884		11	296		12
Other(3)	(472)		(5)	(359)		(37)	(226)		(3)	(43)		(2)
Total	$	8,903	100%	$	960	100%	$	8,173	100%	$	2,403	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.



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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 $549 million and $1.5 billion in the first quarters of 2023 and 2022, respectively.

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

Table 9: Credit Card Business Results


	Three Months Ended March 31,
(Dollars in millions, except as noted)		2023			2022			Change
Selected income statement data:
Net interest income		$	4,657		$	3,839		21%
Non-interest income		1,363			1,458			(7)
Total net revenue(1)		6,020			5,297			14
Provision for credit losses		2,261			545			**
Non-interest expense		3,038			2,783			9
Income from continuing operations before income taxes		721			1,969			(63)
Income tax provision		172			469			(63)
Income from continuing operations, net of tax		$	549		$	1,500		(63)
Selected performance metrics:
Average loans held for investment		$	134,670		$	111,480		21
Average yield on loans(2)		17.98		%	14.97		%	301bps
Total net revenue margin(3)		17.88			18.56			(68)
Net charge-offs		$	1,369		$	607		126%
Net charge-off rate		4.06		%	2.18		%	188bps
Purchase volume		$	141,658		$	133,662		6%

(Dollars in millions, except as noted)		March 31, 2023			December 31, 2022			Change
Selected period-end data:
Loans held for investment		$	137,142		$	137,730		—
30+ day performing delinquency rate		3.68		%	3.46		%	22bps
30+ day delinquency rate		3.69			3.46			23
Nonperforming loan rate(4)		0.01			0.01			—
Allowance for credit losses		$	10,410		$	9,545		9%
Allowance coverage ratio		7.59		%	6.93		%	66bps

__________

(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 any uncollectible amounts. Total net revenue was reduced by $405 million and $192 million in the first quarters of 2023 and 2022, respectively, for finance charges and fees charged-off as uncollectible.

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

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



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

** Not meaningful.

Key factors affecting the results of our Credit Card business for the first quarter of 2023 compared to the first quarter of 2022, and changes in financial condition and credit performance between March 31, 2023 and December 31, 2022 include the following:

•Net Interest Income: Net interest income increased by $818 million to $4.7 billion in the first quarter of 2023 primarily driven by higher average loan balances.

•Non-Interest Income: Non-interest income decreased by $95 million to $1.4 billion in the first quarter of 2023 primarily driven by the absence of the gain on sale of partnership card loan portfolios in the first quarter of 2022, partially offset by higher net interchange fees due to an increase in purchase volume.

•Provision for Credit Losses: Provision for credit losses increased by $1.7 billion to $2.3 billion in the first quarter of 2023 primarily driven by an allowance build due to continued credit normalization and assumed economic worsening compared to a substantially flat allowance for credit losses in the first quarter of 2022.

•Non-Interest Expense: Non-interest expense increased by $255 million to $3.0 billion in the first quarter of 2023 primarily driven by increased salaries and associate benefits.

Loans Held for Investment:

•Period-end loans held for investment decreased by $588 million to $137.1 billion as of March 31, 2023 from December 31, 2022 primarily due to expected seasonal paydowns.

•Average loans held for investment increased by $23.2 billion to $134.7 billion in the first quarter of 2023 compared to the first quarter of 2022 primarily driven by growth across our portfolio.

Net Charge-Off and Delinquency Metrics:

•The net charge-off rate increased by 188 bps to 4.06% in the first quarter of 2023 compared to the first quarter of 2022 primarily driven by continued credit normalization.

•The 30+ day delinquency rate increased by 23 bps to 3.69% as of March 31, 2023 from December 31, 2022 primarily driven by continued credit normalization.

Domestic Card Business

The Domestic Card business generated net income from continuing operations of $510 million and $1.3 billion in the first quarters of 2023 and 2022, respectively. In the first quarters of 2023 and 2022, the Domestic Card business accounted for greater than 90% of total net revenue of our Credit Card business.



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

Table 9.1: Domestic Card Business Results


	Three Months Ended March 31,
(Dollars in millions, except as noted)		2023			2022			Change
Selected income statement data:
Net interest income		$	4,390		$	3,620		21%
Non-interest income		1,298			1,248			4
Total net revenue(1)		5,688			4,868			17
Provision for credit losses		2,174			559			**
Non-interest expense		2,847			2,564			11
Income from continuing operations before income taxes		667			1,745			(62)
Income tax provision		157			414			(62)
Income from continuing operations, net of tax		$	510		$	1,331		(62)

Selected performance metrics:
Average loans held for investment		$	128,562		$	105,536		22
Average yield on loans(2)		17.88		%	14.82		%	306bps
Total net revenue margin(3)		17.70			18.28			(58)
Net charge-offs		$	1,299		$	559		132%
Net charge-off rate		4.04		%	2.12		%	192bps
Purchase volume		$	138,310		$	126,284		10%

(Dollars in millions, except as noted)		March 31, 2023			December 31, 2022			Change
Selected period-end data:
Loans held for investment		$	130,980		$	131,581		—
30+ day performing delinquency rate		3.66		%	3.43		%	23	bps
Allowance for credit losses		$	10,032		$	9,165		9%
Allowance coverage ratio		7.66		%	6.97		%	69	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 any uncollectible amounts. Finance charges and fees charged off as uncollectible are reflected as a reduction in total net revenue.

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

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

** Not meaningful.

Because our Domestic Card business accounts for the substantial majority of our Credit Card business, the key factors driving the results are similar to the key factors affecting our total Credit Card business. Net income for our Domestic Card business decreased in the first quarter of 2023 compared to the first quarter of 2022 primarily driven by:

•Higher provision for credit losses primarily driven by an allowance build due to continued credit normalization and assumed economic worsening compared to a flat allowance for credit losses in the first quarter of 2022.

•Higher non-interest expense primarily driven by increased salaries and associate benefits.

These drivers were partially offset by:

•Higher net interest income primarily driven by higher average loan balances.

•Higher non-interest income primarily driven by higher net interchange fees due to an increase in purchase volume.



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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 as well as service charges and customer-related fees. Expenses primarily consist of the provision for credit losses, operating costs and marketing expenses.

Our Consumer Banking business generated net income from continuing operations of $716 million and $650 million in the first quarters of 2023 and 2022, respectively.

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

Table 10: Consumer Banking Business Results


	Three Months Ended March 31,
(Dollars in millions, except as noted)		2023			2022			Change
Selected income statement data:
Net interest income		$	2,360		$	2,113		12%
Non-interest income		135			105			29
Total net revenue		2,495			2,218			12
Provision for credit losses		275			130			112
Non-interest expense		1,283			1,236			4
Income from continuing operations before income taxes		937			852			10
Income tax provision		221			202			9
Income from continuing operations, net of tax		$	716		$	650		10
Selected performance metrics:
Average loans held for investment:
Auto		$	77,465		$	76,892		1
Retail banking		1,529			1,797			(15)
Total consumer banking		$	78,994		$	78,689		—
Average yield on loans held for investment(1)		7.40		%	7.17%			23	bps
Average deposits		$	278,772		$	255,265		9%
Average deposits interest rate		1.96		%	0.29		%	167bps
Net charge-offs		$	307		$	146		110%
Net charge-off rate		1.56		%	0.75		%	81bps
Auto loan originations		$	6,211		$	11,713		(47)%

(Dollars in millions, except as noted)		March 31, 2023			December 31, 2022			Change
Selected period-end data:
Loans held for investment:
Auto		$	76,652		$	78,373		(2)%
Retail banking		1,499			1,552			(3)
Total consumer banking		$	78,151		$	79,925		(2)
30+ day performing delinquency rate		4.92		%	5.53		%	(61)	bps
30+ day delinquency rate		5.46			6.18			(72)
Nonperforming loan rate		0.72			0.79			(7)
Nonperforming asset rate(2)		0.78			0.87			(9)
Allowance for credit losses		$	2,205		$	2,237		(1)%



Allowance coverage ratio		2.82		%	2.80		%	2bps
Deposits		$	291,163		$	270,592		8%

__________



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

(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.

Key factors affecting the results of our Consumer Banking business for the first quarter of 2023 compared to the first quarter of 2022, and changes in financial condition and credit performance between March 31, 2023 and December 31, 2022 include the following:

•Net Interest Income: Net interest income increased by $247 million to $2.4 billion in the first quarter of 2023 primarily driven by higher deposits and margins in our retail banking business due to the increases in interest rates, partially offset by lower margins in our auto business.

•Non-Interest Income: Non-interest income increased by $30 million to $135 million in the first quarter of 2023 primarily driven by higher interchange fees from an increase in debit card purchase volume.

•Provision for Credit Losses: Provision for credit losses increased by $145 million to $275 million in the first quarter of 2023 primarily driven by continued credit normalization.

•Non-Interest Expense: Non-interest expense remained substantially flat at $1.3 billion in the first quarter of 2023 compared to the first quarter of 2022.

Loans Held for Investment:

•Period-end loans held for investment decreased by $1.8 billion to $78.2 billion as of March 31, 2023 from December 31, 2022 primarily driven by an expected increase in seasonal payments, which outpaced auto loan originations.

•Average loans held for investment remained substantially flat at $79.0 billion in the first quarter of 2023 compared to the first quarter of 2022.

Deposits:

•Period-end deposits increased by $20.6 billion to $291.2 billion as of March 31, 2023 from December 31, 2022 primarily driven by our national banking strategy, which includes originations from periodic limited time offerings in time deposits.

Net Charge-Off and Delinquency Metrics:

•The net charge-off rate increased by 81 bps to 1.56% in the first quarter of 2023 compared to the first quarter of 2022 primarily driven by continued credit normalization in our auto loan portfolio.

•The 30+ day delinquency rate decreased by 72 bps to 5.46% as of March 31, 2023 from December 31, 2022 primarily driven by seasonally lower auto delinquency inventories.

Commercial Banking Business

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

Our Commercial Banking business generated net income from continuing operations of $54 million and $296 million in the first quarters of 2023 and 2022, respectively.



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

Table 11: Commercial Banking Business Results


	Three Months Ended March 31,
(Dollars in millions, except as noted)		2023			2022			Change
Selected income statement data:
Net interest income		$	648		$	607		7%
Non-interest income		212			277			(23)
Total net revenue(1)		860			884			(3)
Provision for credit losses(2)		259			8			**
Non-interest expense		530			488			9
Income from continuing operations before income taxes		71			388			(82)
Income tax provision		17			92			(82)
Income from continuing operations, net of tax		$	54		$	296		(82)
Selected performance metrics:
Average loans held for investment:
Commercial and multifamily real estate		$	37,373		$	34,671		8
Commercial and industrial		56,719			50,502			12


Total commercial banking		$	94,092		$	85,173		10
Average yield on loans held for investment(1)(3)		6.31		%	2.66		%	365	bps
Average deposits		$	39,941		$	45,008		(11)%
Average deposits interest rate		2.34		%	0.12		%	222	bps
Net charge-offs		$	21		$	14		50%
Net charge-off rate		0.09		%	0.06		%	3	bps

(Dollars in millions, except as noted)		March 31, 2023			December 31, 2022			Change
Selected period-end data:
Loans held for investment:
Commercial and multifamily real estate		$	37,132		$	37,453		(1)%
Commercial and industrial		56,411			57,223			(1)
Total commercial banking		$	93,543		$	94,676		(1)
Nonperforming loan rate		0.79		%	0.74		%	5	bps
Nonperforming asset rate(4)		0.79			0.74			5
Allowance for credit losses(2)		$	1,703		$	1,458		17%
Allowance coverage ratio		1.82%			1.54%			28	bps
Deposits		$	38,380		$	40,808		(6)%
Loans serviced for others		51,759			51,918			—

__________

(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 $211 million and $218 million as of March 31, 2023 and December 31, 2022, respectively.

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

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

** Not meaningful.



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Key factors affecting the results of our Commercial Banking business for the first quarter of 2023 compared to the first quarter of 2022, and changes in financial condition and credit performance between March 31, 2023 and December 31, 2022 include the following:

•Net Interest Income: Net interest income increased by $41 million to $648 million in the first quarter of 2023 primarily driven by higher average loan balances.

•Non-Interest Income: Non-interest income decreased by $65 million to $212 million in the first quarter of 2023 primarily driven by our agency business.

•Provision for Credit Losses: Provision for credit losses increased by $251 million to $259 million in the first quarter of 2023 primarily driven by an allowance build in our office real estate portfolio, compared to an allowance release in the first quarter of 2022.

•Non-Interest Expense: Non-interest expense increased by $42 million to $530 million in the first quarter of 2023 primarily driven by increased salaries and associate benefits.

Loans Held for Investment:

•Period-end loans held for investment decreased by $1.1 billion to $93.5 billion as of March 31, 2023 from December 31, 2022 primarily driven by customer payments outpacing loan originations.

•Average loans held for investment increased by $8.9 billion to $94.1 billion in the first quarter of 2023 compared to the first quarter of 2022 primarily driven by growth across our loan portfolio.

Deposits:

•Period-end deposits decreased by $2.4 billion to $38.4 billion as of March 31, 2023 from December 31, 2022 primarily driven by seasonality and our commercial deposit strategy.

Net Charge-Off and Nonperforming Metrics:

•The net charge-off rate increased by 3 bps to 0.09% in the first quarter of 2023 primarily driven by isolated charge offs in our real estate portfolio.

•The nonperforming loan rate increased by 5 bps to 0.79% as of March 31, 2023 compared to December 31, 2022 primarily driven by isolated credit downgrades in our real estate portfolio.

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 oversight of our funds transfer pricing process. Other also includes:

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

•offsets related to certain line-item reclassifications;

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

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



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

Table 12: Other Category Results


	Three Months Ended March 31,
(Dollars in millions)		2023		2022		Change
Selected income statement data:
Net interest loss		$	(479)	$	(162)	196%
Non-interest income (loss)		7		(64)		**
Total net loss(1)		(472)		(226)		109
Provision (benefit) for credit losses		—		(6)		**
Non-interest expense		94		44		114
Loss from continuing operations before income taxes		(566)		(264)		114
Income tax benefit		(207)		(221)		(6)
Loss from continuing operations, net of tax		$	(359)	$	(43)	**

__________

** Not meaningful.

Loss from continuing operations increased by $316 million to a loss of $359 million in the first quarter of 2023 compared to the first quarter of 2022 primarily driven by higher net interest losses due to higher funding costs driven by higher market interest rates.


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 “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” in our 2022 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

•Goodwill

•Fair value

•Customer rewards reserve

We evaluate our critical accounting estimates and judgments on an ongoing basis and update them as necessary, based on changing conditions. There have been no changes to our critical accounting policies and estimates described in our 2022 Form 10-K under “Part II—Item 7. MD&A—Critical Accounting Policies and Estimates.”



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ACCOUNTING CHANGES AND DEVELOPMENTS

Accounting Standards Issued but Not Adopted as of March 31, 2023

Standard

Guidance

Adoption Timing and
Financial Statement Impacts

Tax Credit Investments

ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323), Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method

Issued March 2023

The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of tax credit program from which the income tax credits are received, using the proportional amortization method, if certain criteria are met. Previously, only Low-Income Housing Tax Credit investments were eligible to apply the proportional amortization method.

This ASU becomes effective for us on January 1, 2024, with early adoption permitted and can be adopted using either a retrospective or modified retrospective transition method.

We are currently assessing the potential impacts of this guidance on our consolidated financial statements and related disclosures.



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CAPITAL MANAGEMENT

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

Capital Standards and Prompt Corrective Action

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

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

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

Basel III and United States Capital Rules

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

We have elected to exclude certain elements of AOCI from our regulatory capital as permitted for a Category III institution.

Global systemically important banks (“G-SIBs”) that are based in the U.S. are subject to an additional CET1 capital requirement known as the “G-SIB Surcharge.” We are not a G-SIB based on the most recent available data and thus we are not subject to a G-SIB Surcharge.

Stress Capital Buffer Rule

The Basel III Capital Rules require banking institutions to maintain a capital conservation buffer, composed of CET1 capital, above the regulatory minimum ratios. Under the Federal Reserve’s final rule to implement the stress capital buffer requirement (the “Stress Capital Buffer Rule”), the Company’s “standardized approach capital conservation buffer” includes its stress capital buffer requirement (as described below), any G-SIB Surcharge (which is not applicable to us) and the countercyclical capital buffer requirement (which is currently set at 0%). Any determination to increase the countercyclical capital buffer generally would be effective twelve months after the announcement of such an increase, unless the Federal Reserve, OCC and the FDIC, hereafter collectively referred to as the “Federal Banking Agencies,” set an earlier effective date.

The Company’s stress capital buffer requirement is recalibrated every year based on the Company’s supervisory stress test results. In particular, the Company’s stress capital buffer requirement equals, subject to a floor of 2.5%, the sum of (i) the difference between the Company’s starting CET1 capital ratio and its lowest projected CET1 capital ratio under the severely adverse scenario of the Federal Reserve’s supervisory stress test plus (ii) the ratio of the Company’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 Company’s projected CET1 capital ratio reaches its minimum under the supervisory stress test.

Based on the Company’s 2022 supervisory stress test results, the Company’s stress capital buffer requirement for the period beginning on October 1, 2022 through September 30, 2023 is 3.1%. Therefore, the Company’s minimum capital requirements plus the standardized approach capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios under the



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stress capital buffer framework are 7.6%, 9.1% and 11.1%, respectively, for the period from October 1, 2022 through September 30, 2023.

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

If the Company or the Bank fails to maintain its capital ratios above the minimum capital requirements plus the applicable capital conservation buffer requirements, it will face increasingly strict automatic limitations on capital distributions and discretionary bonus payments to certain executive officers.

As of March 31, 2023 and December 31, 2022, respectively, the Company and the Bank each exceeded the minimum capital requirements and the capital conservation buffer requirements applicable to them, and the Company and the Bank were each “well-capitalized.” The “well-capitalized” standards applicable to the Company are established in the Federal Reserve’s regulations, and the “well-capitalized” standards applicable to the Bank are established in the OCC’s PCA capital requirements.

Market Risk Rule

The “Market Risk Rule” supplements the Basel III Capital Rules by requiring institutions subject to the rule to adjust their risk-based capital ratios to reflect the market risk in their trading book. The Market Risk Rule generally applies to institutions with aggregate trading assets and liabilities equal to 10% or more of total assets or $1 billion or more. As of March 31, 2023, the Company and the Bank are subject to the Market Risk Rule. See “Market Risk Profile” below for additional information.

CECL Transition Rule

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

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

Capital Impact Delayed

Phase In Period

2020

2021

2022

2023

2024

2025

“Day 1” CECL adoption impact

Capital impact delayed to 2022

25% Phased In

50% Phased In

75% Phased In

Fully Phased In

Cumulative “day 2” ongoing impact

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

As of December 31, 2021, we added back an aggregate amount of $2.4 billion to our regulatory capital pursuant to the CECL Transition Rule. Consistent with the rule, we have phased in 50% of this amount, leaving $1.2 billion to be phased in over 2024-2025. As of March 31, 2023, the Company’s CET1 capital ratio, reflecting the CECL Transition Rule, was 12.5% and would have been 12.2% excluding the impact of the CECL Transition Rule (or “on a fully phased-in basis”).

For the description of the regulatory capital rules to which we are subject, see “Part I—Item 1. Business—Supervision and Regulation” in our 2022 Form 10-K.



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Table 13 provides a comparison of our regulatory capital ratios under the Basel III standardized approach, the regulatory minimum capital adequacy ratios and the applicable well-capitalized standards as of March 31, 2023 and December 31, 2022.

Table 13: Capital Ratios Under Basel III(1)(2)


	March 31, 2023						December 31, 2022
	Ratio		Minimum Capital Adequacy		Well- Capitalized		Ratio		Minimum Capital Adequacy		Well- Capitalized
Capital One Financial Corp:
Common equity Tier 1 capital(3)	12.5	%	4.5	%	N/A		12.5	%	4.5	%	N/A
Tier 1 capital(4)	13.9		6.0		6.0	%	13.9		6.0		6.0	%
Total capital(5)	15.9		8.0		10.0		15.8		8.0		10.0
Tier 1 leverage(6)	10.9		4.0		N/A		11.1		4.0		N/A
Supplementary leverage(7)	9.3		3.0		N/A		9.5		3.0		N/A
CONA:
Common equity Tier 1 capital(3)	12.9		4.5		6.5		13.1		4.5		6.5
Tier 1 capital(4)	12.9		6.0		8.0		13.1		6.0		8.0
Total capital(5)	14.2		8.0		10.0		14.4		8.0		10.0
Tier 1 leverage(6)	10.1		4.0		5.0		10.5		4.0		5.0
Supplementary leverage(7)	8.6		3.0		N/A		9.0		3.0		N/A

__________

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

(2)Ratios as of March 31, 2023 are preliminary and therefore subject to change until we file our March 31, 2023 Form FR Y-9C—Consolidated Financial Statements for Holding Companies and Call Reports.

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

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

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

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

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



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Table 14 presents regulatory capital under the Basel III standardized approach and regulatory capital metrics as of March 31, 2023 and December 31, 2022.

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


(Dollars in millions)	March 31, 2023		December 31, 2022
Regulatory capital under Basel III standardized approach
Common equity excluding AOCI	$	59,546	$	59,450
Adjustments and deductions:
AOCI, net of tax(1)	(3)		(17)
Goodwill, net of related deferred tax liabilities	(14,538)		(14,540)
Other intangible and deferred tax assets, net of deferred tax liabilities	(371)		(162)
Common equity Tier 1 capital	44,634		44,731
Tier 1 capital instruments	4,845		4,845

Tier 1 capital	49,479		49,576
Tier 2 capital instruments	2,579		2,585
Qualifying allowance for credit losses	4,553		4,553
Tier 2 capital	7,132		7,138
Total capital	$	56,611	$	56,714

Regulatory capital metrics
Risk-weighted assets	$	356,079	$	357,920
Adjusted average assets	455,477		444,704
Total leverage exposure	532,084		522,136

__________

(1)Excludes certain components of AOCI in accordance with rules applicable to Category III institutions. See “Capital Management—Basel III and United States Capital Rules” in this Report.

Capital Planning and Regulatory Stress Testing

On April 5, 2023, we submitted our capital plan to the Federal Reserve as part of the 2023 Comprehensive Capital Analysis and Review (“CCAR”) cycle. The stress testing results are expected to be released by the Federal Reserve by June 30, 2023. Our 2023 supervisory stress test result will determine the size of our stress capital buffer requirement for the period beginning from October 1, 2023 through September 30, 2024.

For the description of the regulatory capital planning rules and stress testing requirements to which we are subject, see “Part I—Item 1. Business—Supervision and Regulation” in our 2022 Form 10-K.



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Dividend Policy and Stock Purchases

In the first three months of 2023, we declared and paid common stock dividends of $237 million, or $0.60 per share, and preferred stock dividends of $57 million. The following table summarizes the dividends paid per share on our various preferred stock series in the first three months of 2023.

Table 15: Preferred Stock Dividends Paid Per Share

Series

Description

Issuance Date

Per Annum
Dividend Rate

Dividend Frequency

2023

Series I

5.000%
Non-Cumulative

September 11, 2019

5.000%

Quarterly

$12.50

Series J

4.800%
Non-Cumulative

January 31,
2020

4.800

Quarterly

12.00

Series K

4.625%
Non-Cumulative

September 17, 2020

4.625

Quarterly

11.56

Series L

4.375%
Non-Cumulative

May 4,
2021

4.375

Quarterly

10.94

Series M

3.950% Fixed Rate Reset
Non-Cumulative

June 10,
2021

3.950% through 8/31/2026; resets 9/1/2026 and every subsequent 5 year anniversary at 5-Year Treasury Rate +3.157%

Quarterly

9.88

Series N

4.250%
Non-Cumulative

July 29,
2021

4.250

Quarterly

10.63

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 Bank is subject to regulatory restrictions that limit its ability to transfer funds to our BHC. As of March 31, 2023, funds available for dividend payments from the Bank were $3.2 billion. There can be no assurance that we will declare and pay any dividends to stockholders.

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. The Board authorized stock repurchase program does not include specific price targets, may be executed through open market purchases, tender offers, 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 “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 2022 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 Framework 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.

First Line

Identifies and Owns Risk

Second Line

Advises & Challenges First Line

Third Line

Provides Independent Assurance

Definition

Business areas that are accountable for risk and responsible for: i) generating revenue or reducing expenses; ii) supporting the business to provide products or services to customers; or iii) providing technology services for the first line.

Independent Risk Management (“IRM”) and Support Functions (e.g., Human Resources, Accounting, Legal) that provide support services to the Company.

Internal Audit and Credit Review

Key Responsibilities

Identify, assess, measure, monitor, control, and report the risks associated with their business.

IRM: Independently oversees and assesses risk taking activities for the first line of defense.

Support Functions: Centers of specialized expertise that provide support services to the enterprise.

Provides independent and objective assurance to the Board of Directors and senior management that that systems and governance processes are designed and working as intended.



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Our Framework sets consistent expectations for risk management across the Company and 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

We provide additional discussion of our risk management principles, roles and responsibilities, framework and risk appetite under “Part II—Item 7. MD&A—Risk Management” in our 2022 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 “Part II—Item 7. MD&A—Risk Management” in our 2022 Form 10-K.

•Compliance risk

•Credit risk

•Liquidity risk

•Market risk

•Operational risk

•Reputation risk

•Strategic risk



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CREDIT RISK PROFILE

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

We also engage in certain non-lending activities that may give rise to ongoing credit and counterparty settlement risk, including purchasing securities for our investment securities portfolio, entering into derivative transactions to manage our market risk exposure and to accommodate customers, extending short-term advances on syndication activity including bridge financing transactions we have underwritten, depositing certain operational cash balances in other financial institutions, executing certain foreign exchange transactions and extending customer overdrafts. We provide additional information related to our investment securities portfolio under “Consolidated Balance Sheets Analysis—Investment Securities” and “Part I—Item 1. Financial Statements and Supplementary Data—Note 2—Investment Securities” as well as credit risk related to derivative transactions in “Part I—Item 1. Financial Statements and Supplementary Data—Note 8—Derivative Instruments and Hedging Activities.”

Portfolio and Geographic Composition of Loans Held for Investment

Our loan portfolio consists of loans held for investment, including loans held in our consolidated trusts, and loans held for sale. The information presented in this section excludes loans held for sale, which totaled $363 million and $203 million as of March 31, 2023 and December 31, 2022, respectively.

Table 16 presents the composition of our portfolio of loans held for investment by portfolio segment as of March 31, 2023 and December 31, 2022.

Table 16: Portfolio Composition of Loans Held for Investment


	March 31, 2023				December 31, 2022
(Dollars in millions)	Loans		% of Total		Loans		% of Total
Credit Card:
Domestic credit card	$	130,980	42.4	%	$	131,581	42.1	%
International card businesses	6,162		2.0		6,149		2.0
Total credit card	137,142		44.4		137,730		44.1
Consumer Banking:
Auto	76,652		24.8		78,373		25.1
Retail banking	1,499		0.5		1,552		0.5
Total consumer banking	78,151		25.3		79,925		25.6
Commercial Banking:
Commercial and multifamily real estate	37,132		12.0		37,453		12.0
Commercial and industrial	56,411		18.3		57,223		18.3
Total commercial banking	93,543		30.3		94,676		30.3
Total loans held for investment	$	308,836	100.0	%	$	312,331	100.0	%



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Geographic Composition

We market our credit card products throughout the United States, the United Kingdom and Canada. 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 March 31, 2023 and December 31, 2022.

Table 17: Credit Card Portfolio by Geographic Region


	March 31, 2023				December 31, 2022
(Dollars in millions)	Amount		% of Total		Amount		% of Total
Domestic credit card:
California	$	13,468	9.8	%	$	13,707	10.0%
Texas	11,094		8.1		11,202		8.1
Florida	9,877		7.2		9,549		6.9
New York	8,635		6.3		8,366		6.1
Pennsylvania	5,408		3.9		5,425		3.9
Illinois	5,099		3.7		5,260		3.8
Ohio	4,523		3.3		4,662		3.4
New Jersey	4,340		3.2		4,243		3.1
Georgia	4,175		3.0		4,172		3.0
Michigan	3,829		2.8		3,920		2.8
Other	60,532		44.2		61,075		44.4
Total domestic credit card	130,980		95.5	%	131,581		95.5
International card businesses:
United Kingdom	3,196		2.3		3,129		2.3
Canada	2,966		2.2		3,020		2.2
Total international card businesses	6,162		4.5		6,149		4.5
Total credit card	$	137,142	100.0	%	$	137,730	100.0%

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 and café network. The table below presents the geographic profile of our auto loan and retail banking portfolios as of March 31, 2023 and December 31, 2022.

Table 18: Consumer Banking Portfolio by Geographic Region


	March 31, 2023				December 31, 2022
(Dollars in millions)	Amount		% of Total		Amount		% of Total
Auto:
Texas	$	9,356	12.0	%	$	9,586	12.0	%
California	9,312		11.9		9,570		12.0
Florida	6,644		8.5		6,755		8.5
Pennsylvania	3,244		4.2		3,303		4.1
Georgia	3,143		4.0		3,243		4.1
Ohio	3,122		4.0		3,143		3.9
Illinois	3,056		3.9		3,119		3.9
New Jersey	2,696		3.4		2,742		3.4
Other	36,079		46.2		36,912		46.2
Total auto	76,652		98.1		78,373		98.1



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	March 31, 2023				December 31, 2022
(Dollars in millions)	Amount		% of Total		Amount		% of Total
Retail banking:
New York	461		0.6		477		0.6
Texas	319		0.4		333		0.4
Louisiana	270		0.3		283		0.3
New Jersey	120		0.2		122		0.2
Maryland	93		0.1		97		0.1
Virginia	66		0.1		67		0.1
Other	170		0.2		173		0.2
Total retail banking	1,499		1.9		1,552		1.9
Total consumer banking	$	78,151	100.0	%	$	79,925	100.0	%

We originate commercial and multifamily real estate loans in most regions of the United States. The table below presents the geographic profile of our commercial real estate portfolio as of March 31, 2023 and December 31, 2022.

Table 19: Commercial Real Estate Portfolio by Region



	March 31, 2023				December 31, 2022
(Dollars in millions)	Amount		% of Total		Amount		% of Total
Geographic concentration:(1)
Northeast	$	13,719	37.0	%	$	15,055	40.2	%
South	9,848		26.5		8,706		23.2
Pacific West	5,945		16.0		5,902		15.7
Mid-Atlantic	3,279		8.8		3,129		8.4
Mountain	2,271		6.1		2,267		6.1
Midwest	2,070		5.6		2,394		6.4
Total	$	37,132	100.0	%	$	37,453	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, RI and VT. South consists of AL, AR, FL, GA, KY, LA, MS, NC, OK, SC, TN and TX. Pacific West consists of: AK, CA, HI, OR and WA. Mid-Atlantic consists of DC, DE, MD, VA and WV. Midwest consists of: IA, IL, IN, KS, MI, MN, MO, ND, NE, OH, SD and WI. Mountain consists of: AZ, CO, ID, MT, NM, NV, UT and WY.



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Commercial Loans by Industry

Table 20 summarizes our commercial loans held for investment portfolio by industry classification as of March 31, 2023 and December 31, 2022. Industry classifications below are based on our interpretation of the North American Industry Classification System codes as they pertain to each individual loan.

Table 20: Commercial Loans by Industry


(Percentage of portfolio)	March 31, 2023		December 31, 2022
Industry Classification:
Real estate(1)	30	%	31	%
Finance	30		29
Healthcare	8		8
Business services	6		6
Educational services	4		4
Public administration	4		4
Construction and land	3		3
Retail trade	3		3
Oil and gas	2		2
Other	10		10
Total	100	%	100	%

__________

(1)The funded balance for commercial office real estate totaled $3.6 billion, or 4%, and $4.0 billion, or 4%, as of March 31, 2023 and December 31, 2022, respectively. Commercial office real estate exposures does not include loans in our healthcare real estate business secured by medical office properties and loans to office real estate investment trusts or real estate investment funds.

Credit Risk Measurement

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

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

Table 21 provides details on the credit scores of our domestic credit card and auto loan portfolios as of March 31, 2023 and December 31, 2022.

Table 21: Credit Score Distribution


(Percentage of portfolio)	March 31, 2023		December 31, 2022
Domestic credit card—Refreshed FICO scores:(1)
Greater than 660	68	%	69	%
660 or below	32		31
Total	100	%	100	%



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(Percentage of portfolio)	March 31, 2023		December 31, 2022
Auto—At origination FICO scores:(2)
Greater than 660	52	%	53	%
621 - 660	20		20
620 or below	28		27
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.

In our commercial loan portfolio, 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.

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 “Part I—Item 1. Financial Statements and Supplementary Data—Note 3—Loans” for additional credit quality information and see “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” in our 2022 Form 10-K for information on our accounting policies for delinquent and nonperforming loans, charge-offs and troubled debt restructurings (“TDRs”) for each of our loan categories.

Delinquency Rates

We consider the entire balance of an account to be delinquent if the minimum required payment is not received by the customer’s due date, measured at each balance sheet date. Our 30+ day delinquency metrics include all loans held for investment that are 30 or more days past due, whereas our 30+ day performing delinquency metrics include all loans held for investment 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 “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” in our 2022 Form 10-K 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 “Business Segment Financial Performance.”

Table 22 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 March 31, 2023 and December 31, 2022.



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Table 22: 30+ Day Delinquencies




	March 31, 2023								December 31, 2022
	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	$	4,791	3.66	%	$	4,791	3.66	%	$	4,515	3.43	%	$	4,515	3.43	%
International card businesses	259		4.20		264		4.29		248		4.03		254		4.13
Total credit card	5,050		3.68		5,055		3.69		4,763		3.46		4,769		3.46
Consumer Banking:
Auto	3,834		5.00		4,242		5.53		4,402		5.62		4,906		6.26
Retail banking	8		0.56		26		1.70		16		1.02		34		2.22
Total consumer banking	3,842		4.92		4,268		5.46		4,418		5.53		4,940		6.18
Commercial Banking:
Commercial and multifamily real estate	5		0.01		36		0.10		1		—		36		0.10
Commercial and industrial	1		—		187		0.33		78		0.14		281		0.49
Total commercial banking	6		0.01		223		0.24		79		0.08		317		0.33
Total	$	8,898	2.88		$	9,546	3.09		$	9,260	2.96		$	10,026	3.21

__________

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

Table 23 presents our 30+ day delinquent loans, by aging and geography, as of March 31, 2023 and December 31, 2022.

Table 23: Aging and Geography of 30+ Day Delinquent Loans


	March 31, 2023				December 31, 2022
(Dollars in millions)	Amount		Rate(1)		Amount		Rate(1)
Delinquency status:
30 – 59 days	$	4,309	1.40	%	$	4,666	1.50	%
60 – 89 days	2,293		0.74		2,511		0.80
> 90 days	2,944		0.95		2,849		0.91
Total	$	9,546	3.09	%	$	10,026	3.21	%
Geographic region:
Domestic	$	9,282	3.00	%	$	9,772	3.13	%
International	264		0.09		254		0.08
Total	$	9,546	3.09	%	$	10,026	3.21	%

__________

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



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Table 24 summarizes loans that were 90+ days delinquent, in regards to interest or principal payments, and still accruing interest as of March 31, 2023 and December 31, 2022. 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 (“FFIEC”), 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 24: 90+ Day Delinquent Loans Accruing Interest


	March 31, 2023				December 31, 2022
(Dollars in millions)	Amount		Rate(1)		Amount		Rate(1)
Loan category:
Credit card	$	2,465	1.80	%	$	2,240	1.63	%

Total	$	2,465	0.80		$	2,240	0.72
Geographic region:
Domestic	$	2,352	0.78		$	2,135	0.70
International	113		1.82		105		1.71
Total	$	2,465	0.80		$	2,240	0.72

__________

(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 loans include loans that have been placed on nonaccrual status. Nonperforming assets consist of nonperforming loans, repossessed assets and other foreclosed assets. See “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” in our 2022 Form 10-K for information on our policies for classifying loans as nonperforming for each of our loan categories.

Table 25 presents our nonperforming loans, by portfolio segment, and other nonperforming assets as of March 31, 2023 and December 31, 2022. We do not classify loans held for sale as nonperforming. We provide additional information on our credit quality metrics in “Business Segment Financial Performance.”



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Table 25: Nonperforming Loans and Other Nonperforming Assets(1)


	March 31, 2023				December 31, 2022
(Dollars in millions)	Amount		Rate		Amount		Rate
Nonperforming loans held for investment:(2)
Credit Card:
International card businesses	$	7	0.12	%	$	9	0.14	%
Total credit card	7		0.01		9		0.01
Consumer Banking:
Auto	515		0.67		595		0.76
Retail banking	44		2.94		39		2.49
Total consumer banking	559		0.72		634		0.79
Commercial Banking:
Commercial and multifamily real estate	336		0.90		271		0.72
Commercial and industrial	404		0.72		430		0.75
Total commercial banking	740		0.79		701		0.74
Total nonperforming loans held for investment(3)	1,306		0.42		1,344		0.43
Other nonperforming assets(4)	48		0.02		61		0.02
Total nonperforming assets	$	1,354	0.44		$	1,405	0.45

__________

(1)We recognized interest income for loans classified as nonperforming of $2 million and $1 million in the first quarters of 2023 and 2022, respectively. Interest income foregone related to nonperforming loans was $35 million and $21 million in the first quarters of 2023 and 2022, 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 0.73% and 0.74% as of March 31, 2023 and December 31, 2022, respectively.

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



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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 are 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 “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” in our 2022 Form 10-K for information on our charge-off policy for each of our loan categories.

Table 26 presents our net charge-off amounts and rates, by portfolio segment, in the first quarters of 2023 and 2022.

Table 26: Net Charge-Offs


	Three Months Ended March 31,
		2023	2022
(Dollars in millions)			Amount		Rate(1)		Amount		Rate(1)
Credit Card:
Domestic credit card			$	1,299	4.04	%	$	559	2.12	%
International card businesses			70		4.54		48		3.20
Total credit card			1,369		4.06		607		2.18
Consumer Banking:
Auto			296		1.53		127		0.66
Retail banking			11		2.97		19		4.31
Total consumer banking			307		1.56		146		0.75
Commercial Banking:
Commercial and multifamily real estate			17		0.19		—		—
Commercial and industrial			4		0.03		14		0.11
Total commercial banking			21		0.09		14		0.06
Total net charge-offs			$	1,697	2.21		$	767	1.11
Average loans held for investment			$	307,756			$	275,342

__________

(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.

Financial Difficulty Modifications to Borrowers

We adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023. The ASU eliminates the accounting guidance for TDRs and establishes disclosure requirements for certain loan refinancing and restructurings for borrowers experiencing financial difficulty, which results in a more than insignificant impact to the timing or amount of contractual cash flows.

Prior to the adoption of ASU 2022-02, a modification was deemed a TDR when the contractual terms of a loan agreement were modified by granting a concession to a borrower experiencing financial difficulty. ASU 2022-02 eliminated the concession requirement for modifications. After the adoption of ASU 2022-02, a financial difficulty modification (“FDM”) occurs when a modification in the form of principal forgiveness, interest rate reduction, an other-than-insignificant payment delay, a term extension or a combination of these modifications is granted to a borrower experiencing financial difficulty.

The types of modifications we offer to borrowers experiencing financial difficulty have not changed as a result of ASU 2022-02. As part of our loss mitigation efforts, we may provide short-term (one to twelve months) or long-term (greater than twelve months) modifications to a borrower experiencing financial difficulty to improve long-term collectability of the loan and



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to avoid the need for repossession or foreclosure of collateral.

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

In our Credit Card business, the majority of our FDMs receive an interest rate reduction and are placed on a fixed payment plan not exceeding 60 months. The effective interest rate on the loan 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 being 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 FDMs receive an extension, an interest rate reduction, principal reduction, or a combination of these modifications. Impairment is determined using the present value of expected cash flows or a collateral evaluation for certain auto loans where the collateral value is lower than the amortized cost.

In our Commercial Banking business, the majority of our FDMs receive an extension. A portion of FDMs receive an interest rate reduction, principal reduction, or a combination of modifications.

For additional information on accounting standards adopted during the three months ended March 31, 2023, see “Part I—Item 1. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies.” For more information on FDMs in the first quarter of 2023 and TDRs in the first quarter of 2022, see “Part I—Item 1. Financial Statements and Supplementary Data—Note 3—Loans.”

Allowance for Credit Losses and Reserve for Unfunded Lending Commitments

Our allowance for credit losses represents management’s current estimate of expected credit losses over the contractual terms of our loans held for investment as of each balance sheet date. Expected recoveries of amounts previously charged off or expected to be charged off are recognized within the allowance. We also estimate expected credit losses related to unfunded lending commitments that are not unconditionally cancellable. The provision for losses on unfunded lending commitments is included in the provision for credit losses in our consolidated statements of income and the related reserve for unfunded lending commitments is included in other liabilities on our consolidated balance sheets. We provide additional information on the methodologies and key assumptions used in determining our allowance for credit losses in “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” in our 2022 Form 10-K.

Table 27 presents changes in our allowance for credit losses and reserve for unfunded lending commitments for the first quarters of 2023 and 2022, and details by portfolio segment for the provision for credit losses, charge-offs and recoveries.



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Table 27: Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity


	Three Months Ended March 31, 2023
	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, 2022	$	9,165	$	380	$	9,545	$	2,187	$	50	$	2,237	$	1,458	$	13,240
Cumulative effects of accounting standards adoption(1)	(40)		(23)		(63)		—		—		—		—		(63)
Balance as of January 1, 2023	9,125		357		9,482		2,187		50		2,237		1,458		13,177
Charge-offs	(1,587)		(101)		(1,688)		(515)		(16)		(531)		(24)		(2,243)
Recoveries(2)	288		31		319		219		5		224		3		546
Net charge-offs	(1,299)		(70)		(1,369)		(296)		(11)		(307)		(21)		(1,697)
Provision for credit losses	2,174		87		2,261		274		1		275		266		2,802
Allowance build (release) for credit losses	875		17		892		(22)		(10)		(32)		245		1,105
Other changes(3)	32		4		36		—		—		—		—		36
Balance as of March 31, 2023	10,032		378		10,410		2,165		40		2,205		1,703		14,318
Reserve for unfunded lending commitments:
Balance as of December 31, 2022	—		—		—		—		—		—		218		218
Provision (benefit) for losses on unfunded lending commitments	—		—		—		—		—		—		(7)		(7)
Balance as of March 31, 2023	—		—		—		—		—		—		211		211
Combined allowance and reserve as of March 31, 2023	$	10,032	$	378	$	10,410	$	2,165	$	40	$	2,205	$	1,914	$	14,529


	Three Months Ended March 31, 2022
	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, 2021	$	7,968	$	377	$	8,345	$	1,852	$	66	$	1,918	$	1,167	$	11,430
Charge-offs	(867)		(88)		(955)		(326)		(23)		(349)		(17)		(1,321)
Recoveries(2)	308		40		348		199		4		203		3		554
Net charge-offs	(559)		(48)		(607)		(127)		(19)		(146)		(14)		(767)
Provision (benefit) for credit losses	559		(14)		545		127		3		130		(27)		648
Allowance build (release) for credit losses	—		(62)		(62)		—		(16)		(16)		(41)		(119)
Other changes(3)	—		(3)		(3)		—		—		—		—		(3)
Balance as of March 31, 2022	7,968		312		8,280		1,852		50		1,902		1,126		11,308
Reserve for unfunded lending commitments:
Balance as of December 31, 2021	—		—		—		—		—		—		165		165
Provision for losses on unfunded lending commitments	—		—		—		—		—		—		35		35
Balance as of March 31, 2022	—		—		—		—		—		—		200		200
Combined allowance and reserve as of March 31, 2022	$	7,968	$	312	$	8,280	$	1,852	$	50	$	1,902	$	1,326	$	11,508

________

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

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

(3)Primarily represents the initial allowance for purchased credit-deteriorated loans and foreign currency translation adjustments. The initial allowance of purchased credit-deteriorated loans was $32 million for the three months ended March 31, 2023.



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LIQUIDITY RISK PROFILE

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

Table 28 below presents the composition of our liquidity reserves as of March 31, 2023 and December 31, 2022.

Table 28: Liquidity Reserves


(Dollars in millions)	March 31, 2023		December 31, 2022
Cash and cash equivalents	$	46,513	$	30,856
Securities available for sale	81,925		76,919
FHLB borrowing capacity secured by loans	5,888		6,436
Outstanding FHLB advances and letters of credit secured by loans and investment securities	(50)		(51)
Other encumbrances of investment securities	(7,579)		(7,583)
Total liquidity reserves	$	126,697	$	106,577

Our liquidity reserves increased by $20.1 billion to $126.7 billion as of March 31, 2023 from December 31, 2022 primarily due to increases in cash and cash equivalents. In addition to these liquidity reserves, we maintain access to a diversified mix of funding sources as discussed in the “Borrowing Capacity” and “Funding” sections below. See “Part II—Item 7. MD&A—Risk Management” in our 2022 Form 10-K for additional information on our management of liquidity risk.

Liquidity Coverage Ratio

We are subject to the liquidity coverage ratio (“LCR”) standard as implemented by the Federal Reserve and the OCC (the “LCR Rule”). The LCR Rule requires each of the Company and the Bank to calculate its respective 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 first quarter of 2023 was 148%, 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 2022 Form 10-K for additional information.

Net Stable Funding Ratio

The net stable funding ratio (“NSFR”) rule requires the Company and the Bank 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 a specified percentage of its required stable funding, which is calculated by applying standardized weightings to assets, derivatives exposures and certain other items based on their liquidity characteristics. As a Category III institution, the Company and the Bank are each required to maintain available stable funding in an amount at least equal to 85% of its required stable funding. The NSFR rule includes a semi-annual public disclosure requirement, with the first disclosure due 45 days after the end of the second quarter of 2023. The Company and the Bank exceeded the NSFR rule requirement as of March 31, 2023.

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 associated with our credit card securitization trust that allows us to periodically offer and sell up to $30 billion of securitized debt obligations and a shelf registration associated with our auto loan securitization trusts that allows us to periodically offer and sell up to $25 billion of securitized debt obligations. The registered amounts under these shelf registration statements are



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subject to continuing review and change in the future, including as part of the routine renewal process.

In addition to our issuance capacity under the shelf registration statements, we also have access to FHLB advances, the Federal Reserve Discount Window, the Bank Term Funding Program and the Fixed Income Clearing Corporation’s general collateral financing repurchase agreement service. The ability to borrow utilizing these sources is based on membership status and the amount is dependent upon the Bank’s ability to post collateral. As of March 31, 2023, we pledged both loans and securities to the FHLB to secure a maximum borrowing capacity of $19.7 billion, of which $50 million was used. Our FHLB membership is supported by our investment in FHLB stock of $15 million as of both March 31, 2023 and December 31, 2022, which was determined in part based on our outstanding advances. As of March 31, 2023, we pledged loans to secure a borrowing capacity of $16.9 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 March 31, 2023 and December 31, 2022.

Deposits

Table 29 provides a comparison of average balances, interest expense and average deposits interest rates for the three months ended March 31, 2023 and 2022.

Table 29: Deposits Composition and Average Deposits Interest Rates


	Three Months Ended March 31,
	2023						2022
(Dollars in millions)	Average Balance		Interest Expense		Average Deposits Interest Rate		Average Balance		Interest Expense		Average Deposits Interest Rate
Interest-bearing checking accounts(1)	$	45,193	$	197	1.74	%	$	49,405	$	20	0.16	%
Saving deposits(2)	203,782		1,067		2.09		205,251		154		0.31
Time deposits	59,813		592		3.96		17,167		44		1.04


Total interest-bearing deposits	$	308,788	$	1,856	2.40		$	271,823	$	218	0.32

__________

(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. The Bank was well-capitalized, as defined under the federal banking regulatory guidelines, as of both March 31, 2023 and December 31, 2022. See “Part I—Item 1. Business—Supervision and Regulation” in our 2022 Form 10-K for additional information. We provide additional information on the composition of deposits in “Consolidated Balance Sheets Analysis—Funding Sources Composition” and in “Part I—Item 1. Financial Statements and Supplementary Data—Note 7—Deposits and Borrowings.”

Funding

Our primary source of funding comes from retail deposits, as they are a relatively stable and lower 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 “Consolidated Balance Sheets Analysis—Funding Sources Composition” for additional information on our primary sources of funding.

In the normal course of business, we enter into various contractual obligations that may require future cash payments that affect our short-term and long-term liquidity and capital resource needs. Our future cash outflows primarily relate to deposits, borrowings and operating leases. The actual timing and amounts of future cash payments may vary over time due to a number of factors, such as early debt redemptions and changes in deposit balances.



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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 have access to short-term and long-term FHLB advances secured by certain investment securities, multifamily real estate loans and commercial real estate loans.

Our short-term borrowings, which include those borrowings with an original contractual maturity of one year or less, typically consist of federal funds purchased, securities loaned or sold under agreements to repurchase or short-term FHLB advances, and do not include the current portion of long-term debt. Our short-term borrowings decreased by $341 million to $542 million as of March 31, 2023 from December 31, 2022 driven by a decrease in repurchase agreements.

Our long-term funding, which primarily consists of securitized debt obligations and senior and subordinated notes, increased by $403 million to $48.2 billion as of March 31, 2023 from December 31, 2022 primarily driven by net issuances in our auto securitization program as well as the impacts of basis adjustments on hedged debt. We provide more information on our securitization activity in “Part I—Item 1. Financial Statements and Supplementary Data—Note 5—Variable Interest Entities and Securitizations” and on our borrowings in “Part I—Item 1. Financial Statements and Supplementary Data—Note 7—Deposits and Borrowings.”

The following table summarizes issuances of securitized debt obligations, senior and subordinated notes and their respective maturities or redemptions for the three months ended March 31, 2023 and 2022.

Table 30: Long-Term Debt Funding Activities


	Issuances					Maturities/Redemptions
	Three Months Ended March 31,				Three Months Ended March 31,
(Dollars in millions)	2023		2022			2023		2022
Securitized debt obligations	$	1,250	$	2,250		$	560	$	3,198
Senior and subordinated notes	2,250		3,050			3,047		2,357

Total	$	3,500	$	5,300		$	3,607	$	5,555

Credit Ratings

Our credit ratings impact our ability to access capital markets and our borrowing costs. Rating agencies assign their ratings based 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 31 provides a summary of the credit ratings for the senior unsecured long-term debt of Capital One Financial Corporation and CONA as of March 31, 2023 and December 31, 2022.

Table 31: Senior Unsecured Long-Term Debt Credit Ratings

March 31, 2023

December 31, 2022

Capital One
Financial
Corporation

CONA

Capital One
Financial
Corporation

CONA

Moody’s

Baa1

S&P

BBB

BBB+

BBB

BBB+

Fitch

A-

As of April 24, 2023, Moody’s Investors Service (“Moody’s”), Standard & Poor’s (“S&P”) and Fitch Ratings (“Fitch”) have our credit ratings on a stable outlook.



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Other Commitments

In the normal course of business, we enter into other contractual obligations that may require future cash payments that affect our short-term and long-term liquidity and capital resource needs. Our other contractual obligations include lending commitments, leases, purchase obligations and other contractual arrangements.

As of March 31, 2023 and December 31, 2022, our total unfunded lending commitments were $425.0 billion and $409.3 billion, respectively, primarily consisting of credit card lines and loan commitments to customers of both our Commercial Banking and Consumer Banking businesses, as well as standby and commercial letters of credit. 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 additional information, refer to “Part I—Item 1. Financial Statements and Supplementary Data—Note 13—Commitments, Contingencies, Guarantees and Others” in this Report.

Our primary involvement with leases is in the capacity as a lessee where we lease premises to support our business. The majority of our leases are operating leases of office space, retail bank branches and cafés. Our operating leases expire at various dates through 2071, although some have extension or termination options. As of both March 31, 2023 and December 31, 2022, we had $1.7 billion, in aggregate operating lease liabilities. We provide more information on our lease activity in “Part II—Item 8. Financial Statements and Supplementary Data—Note 7—Premises, Equipment and Leases” in our 2022 Form 10-K.

We have purchase obligations that represent substantial agreements to purchase goods or receive services such as data management, media and other software and third-party services that are enforceable and legally binding and specify significant terms. As of March 31, 2023 and December 31, 2022, we had $612 million and $1.1 billion, respectively, in aggregate purchase obligation liabilities.

We also enter into various contractual arrangements that may require future cash payments, including short-term obligations such as trade payables, commitments to fund certain equity investments, obligations for pension and post-retirement benefit plans, and representation and warranty reserves. These arrangements are discussed in more detail in “Part I—Item 1. Financial Statements and Supplementary Data—Note 5—Variable Interest Entities and Securitizations,” and “Part I—Item 1. Financial Statements and Supplementary Data—Note 13—Commitments, Contingencies, Guarantees and Others” in this Report and “Part II—Item 8. Financial Statements and Supplementary Data—Note 14—Employee Benefit Plans” in our 2022 Form 10-K.


MARKET RISK PROFILE

Our primary market risk exposures include interest rate risk, foreign exchange risk and commodity pricing risk. We are exposed to market risk primarily from the following operations and activities:

•Traditional banking activities of deposit gathering and lending;

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

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

•Customer accommodation activities within our Commercial Banking business.

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

Interest Rate Risk

Interest rate risk represents exposure to financial instruments whose values vary with the level or volatility of interest rates. We are exposed to interest rate risk primarily from the differences in the timing between the maturities or repricing of assets and liabilities. Our balance sheet is structurally asset sensitive as our loans, which are primarily floating rate or fixed rate with short durations, reprice faster than our fixed rate debt and a portion of our deposits when interest rates change. We take actions to reduce the interest rate risk from this structural balance sheet position primarily by investing in fixed rate securities in our



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investment portfolio and executing interest rate swaps and other derivative instruments.

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 net interest income resulting from movements in interest rates. 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. We also incorporate the dynamic nature of deposit repricing, which includes pricing lags and changes in deposit beta and mix as interest rates change, and the prepayment sensitivity of our mortgage securities to the level of interest rates. In measuring the sensitivity of interest rate movements on our projected net interest income, we assume a hypothetical instantaneous parallel shift in the level of interest rates detailed in Table 32 below. At the current level of interest rates, our net interest income is expected to increase in higher rate scenarios and decrease in lower rate scenarios. Our current sensitivity to both upward and downward shocks has increased modestly as compared to December 31, 2022, primarily due to the increase in cash balances driven by the growth in our deposit balances. Cash balances reprice relatively rapidly, whereas deposit rates reprice less with both lag and beta effects. In the contexts used in this section, “beta” refers to the percentage of deposit rate repricing relative to an external reference rate such as federal funds. In our models, deposit betas vary dynamically and by product type.

Economic Value of Equity Sensitivity

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. Similar to our net interest income sensitivity measure, we incorporate the dynamic nature of deposit repricing and attrition, which includes pricing lags and changes in deposit beta as interest rates change and the prepayment sensitivity of our mortgage securities to the level of interest rates. Other key assumptions used in the calculation include attrition assumptions for loans and other assets, term structure modeling of interest rates and discount spreads. 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 32 below. Our current economic value of equity sensitivity profile demonstrates that our economic value of equity decreases in higher interest rate scenarios and is largely unchanged in lower interest rate scenarios. The decrease in higher rate scenarios is due to the declines in the projected value of our fixed rate assets being only partially offset by corresponding movements in the projected value of our deposits and other liabilities. The pace of economic value of equity decrease is larger for the +200 bps scenario as our deposits are assumed to reprice more rapidly in higher interest rate environments. Our current economic value of equity sensitivity is largely unchanged as compared to December 31, 2022.



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Table 32 shows the estimated percentage impact on our projected baseline net interest income and our current economic value of equity calculated under the methodology described above as of March 31, 2023 and December 31, 2022. In instances where an interest rate scenario would result in a rate less than 0%, we assume a rate of 0% for that scenario. This assumption applies only to jurisdictions that do not have a practice of employing negative policy rates. In jurisdictions that have negative policy rates, we do not floor interest rates at 0%.

Table 32: Interest Rate Sensitivity Analysis


	March 31, 2023		December 31, 2022
Estimated impact on projected baseline net interest income:
+200 basis points	1.5	%	0.4	%
+100 basis points	1.3		0.8
+50 basis points	0.6		0.4
–50 basis points	(0.8)		(0.7)
–100 basis points	(1.6)		(1.3)
–200 basis points	(3.4)		(2.6)
Estimated impact on economic value of equity:
+200 basis points	(4.8)		(4.3)
+100 basis points	(1.7)		(1.5)
+50 basis points	(0.8)		(0.7)
–50 basis points	0.5		0.4
–100 basis points	0.8		0.6
–200 basis points	(0.4)		(0.2)

In addition to these industry standard measures, we 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. We also regularly review the sensitivity of our interest rate risk metrics to changes in our key modeling assumptions, such as our loan and deposit balance forecasts, mortgage prepayments and deposit repricing.

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 our 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 “Part I—Item 1. Financial Statements and Supplementary Data—Note 8—Derivative Instruments and Hedging Activities.”



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Foreign Exchange Risk

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

Our non-dollar denominated intercompany funding and EUR-denominated borrowings expose our earnings to foreign exchange transaction risk. We manage these transaction risks by using forward foreign currency derivatives and cross-currency swaps to hedge our exposures. We measure our foreign exchange transaction risk exposures by applying a 1% U.S. dollar appreciation shock against the value of the non-dollar denominated intercompany funding and EUR-denominated borrowings and their related hedges, which shows the impact to our earnings from foreign exchange risk. Our nominal intercompany funding outstanding was 774 million GBP and 785 million GBP as of March 31, 2023 and December 31, 2022, respectively, and 1.6 billion CAD and 1.7 billion CAD as of March 31, 2023 and December 31, 2022, respectively. Our nominal EUR-denominated borrowings outstanding were 1.3 billion EUR as of both March 31, 2023 and December 31, 2022.

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 1.9 billion GBP as of both March 31, 2023 and December 31, 2022 and 2.3 billion CAD and 2.2 billion CAD as of March 31, 2023 and December 31, 2022, respectively.

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

Risk related to Customer Accommodation Derivatives

We offer interest rate, commodity and foreign currency derivatives as an accommodation to our customers within our Commercial Banking business. We offset the majority of the market risk of these customer accommodation derivatives by entering into offsetting derivatives transactions with other counterparties. We use value-at-risk (“VaR”) as the primary method to measure the market risk in our customer accommodation derivative activities on a daily basis. VaR is a statistical risk measure used to estimate the potential loss from movements observed in the recent market environment. We employ a historical simulation approach using the most recent 500 business days and use a 99 percent confidence level and a holding period of one business day. 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 “Part I—Item 1. Financial Statements and Supplementary Data—Note 8—Derivative Instruments and Hedging Activities.”

London Interbank Offered Rate Transition

On July 27, 2017, the U.K. Financial Conduct Authority (“FCA”), the regulator for the administration of the London Interbank Offered Rate Transition (“LIBOR”), announced that LIBOR would be phased out as an interest rate benchmark and that it will no longer compel panel banks to contribute LIBOR data beyond December 31, 2021.

On March 5, 2021, the ICE Benchmark Administration (“IBA”), the administrator of LIBOR, confirmed its intention to cease publication of the 1-week and 2-month U.S. dollar (“USD”) LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining USD LIBOR tenors (overnight; 1, 3, 6, and 12 months) immediately following the LIBOR publication on June 30, 2023. The continuation of USD LIBOR as a representative rate into mid-2023 will allow many legacy USD LIBOR contracts to mature prior to cessation. Following IBA’s announcement, the FCA formally announced the future permanent cessation and loss of representativeness of LIBOR benchmarks. The Federal Banking Agencies issued further guidance that banking organizations should cease using USD LIBOR as a reference rate in new contracts as soon as practicable and in any event by December 31, 2021. Consistent with the Federal Banking Agencies’ guidance, we ceased entering into new contracts referencing USD LIBOR as a reference rate as of January 1, 2022, subject to certain permissible exceptions.

On December 16, 2022, the Federal Reserve Board adopted the final rule that implemented the LIBOR Act. The LIBOR Act identified benchmark replacement rates based on Secured Overnight Financing Rate (“SOFR”) for covered derivative



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transactions and cash transactions where a practicable interest rate fallback method has not been established by June 30, 2023, including those in which a government-sponsored enterprise is a party.

Our enterprise LIBOR transition program team, which has been working on this effort since 2018 and includes senior management representatives from across the enterprise, provides monthly reporting to senior management and quarterly reporting to our Board of Directors. The information provided to senior management and the Board of Directors includes exposure reporting, updates on progress toward our goals to reduce our LIBOR exposure and relevant regulatory or industry developments.

We continue to focus our LIBOR transition efforts on:

•monitoring established controls to prevent the origination of impermissible LIBOR indexed instruments

•working with impacted customers and counterparties to remediate remaining LIBOR contracts and our central counterparty clearinghouses for conversion of centrally cleared USD LIBOR products

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

•preparing to transition remaining contracts, including those with hardwired fallback language, operable legacy fallback language and those covered under the scope of the LIBOR Act.

The majority of LIBOR contracts that we have transitioned to alternative rates have employed SOFR. In the U.S., SOFR has been selected as the preferred alternative rate by the Alternative Reference Rates Committee (“ARRC”) for certain U.S. dollar derivative and cash instruments. We have proactively worked with customers and prepared our systems, models, valuation tools and processes to focus originations on SOFR and other non-LIBOR rates and will continue to do so as needed. While the majority of our non-LIBOR transactions have utilized SOFR, we have also employed credit sensitive alternative rates to LIBOR, to a limited extent, in response to customer demand.

The majority of the instruments maturing after June 30, 2023 are derivatives and commercial loans, which are summarized in the table below. Of these instruments, the majority contain fallback language which adheres to the International Swaps and Derivatives Association (“ISDA”) and ARRC standards. The LIBOR Act will allow us to transition LIBOR commitments without fallback language to an identified benchmark replacement rate based on SOFR after June 30, 2023.

Table 33: LIBOR Exposures on Derivatives and Commercial Loans


(Dollars in millions)	March 31, 2023
Exposure Type(1)	Total LIBOR Commitments		Total LIBOR Commitments Maturing after June 30, 2023		Total LIBOR Commitments Maturing after June 30, 2023 Without Fallback Language
Derivatives	$	29,544	$	27,580	$	4,421
Commercial loans	21,110		19,350		429
Total	$	50,654	$	46,930	$	4,850


(Dollars in millions)	December 31, 2022
Exposure Type(1)	Total LIBOR Commitments		Total LIBOR Commitments Maturing after June 30, 2023		Total LIBOR Commitments Maturing after June 30, 2023 Without Fallback Language
Derivatives	$	38,257	$	34,606	$	7,211
Commercial loans	33,099		28,994		887
Total	$	71,356	$	63,600	$	8,098

_________

(1)Commercial loan balances represent maximum potential exposures and derivatives represent notional exposure.



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These transition efforts have been implemented to remediate our remaining LIBOR contracts by June 30, 2023. For a further discussion of the various risks we face in connection with the expected replacement of LIBOR on our operations, see “Part II—Item 1A. Risk Factors—The transition away from LIBOR may adversely affect our business” in our 2022 Form 10-K.


SUPERVISION AND REGULATION

We provide information on our Supervision and Regulation in our 2022 Form 10-K under “Part I—Item 1. Business—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, assets, liabilities, capital and liquidity measures, capital allocation plans, accruals for claims in litigation and for other claims against us; earnings per share, efficiency ratio, operating efficiency ratio or other financial measures for us; future financial and operating results; our plans, objectives, expectations and intentions; and the assumptions that underlie these matters.

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

Forward-looking statements often use words such as “will,” “anticipate,” “target,” “expect,” “think,” “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 2022 Form 10-K. You should carefully consider the factors discussed below, and in our Risk Factors or other disclosures, in evaluating these forward-looking statements.

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

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

•increases or fluctuations in credit losses and delinquencies and the impact of inaccurate estimates or inadequate reserves;

•the impact of the Coronavirus disease of 2019 (“COVID-19”) pandemic on our business, financial condition and results of operations may persist for an extended period or worsen, including labor shortages, disruption of global supply chains and inflationary pressures, and could impact our estimates of credit losses in our loan portfolios required in computing our allowance for credit losses;

•compliance with new and existing laws, regulations and regulatory expectations;

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

•our ability to maintain adequate capital or liquidity levels or to comply with revised capital or liquidity requirements, which could have a negative impact on our financial results and our ability to return capital to our stockholders;

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

•increased costs, reductions in revenue, reputational damage, legal exposure and business disruptions that can result from data protection or security incidents or a cyber-attack or other similar incidents, including one that results in the theft, loss, manipulation or misuse of information, or the disabling of systems and access to information critical to business operations;



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

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

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

•our response to competitive pressures;

•our business, financial condition and results of operations may be adversely affected by merchants’ increasing focus on the fees charged by credit and debit card networks and by legislation and regulation impacting such fees;

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

•our ability to develop, operate, and adapt our operational, technology and organizational infrastructure suitable for the nature of our business;

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

•our risk management strategies;

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

•fluctuations in market interest rates or volatility in the capital markets;

•the transition away from LIBOR;

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

•climate change manifesting as physical or transition risks;

•our assumptions or estimates in our financial statements;

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

•our ability to invest successfully in and introduce digital and other technological developments across all our businesses;

•our ability to manage risks from catastrophic events;

•compliance with applicable laws and regulations related to privacy, data protection and data security;

•our ability to protect our intellectual property; and

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



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SUPPLEMENTAL TABLE

Reconciliation of Non-GAAP Measures

The following table summarizes our non-GAAP measures. 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. These non-GAAP measures should not be viewed as a substitute for reported results determined in accordance with GAAP.

Table A—Reconciliation of Non-GAAP Measures



(Dollars in millions, except as noted)	March 31, 2023		December 31, 2022
Tangible Common Equity (Period-End):
Stockholders’ equity	$	54,653	$	52,582
Goodwill and other intangible assets(1)	(15,098)		(14,902)
Noncumulative perpetual preferred stock	(4,845)		(4,845)
Tangible common equity(2)	$	34,710	$	32,835
Tangible Common Equity (Quarterly Average):
Stockholders’ equity	$	54,773	$	52,439
Goodwill and other intangible assets(1)	(14,984)		(14,926)
Noncumulative perpetual preferred stock	(4,845)		(4,845)
Tangible common equity(2)	$	34,944	$	32,668
Tangible Assets (Period-End):
Total assets	$	471,660	$	455,249
Goodwill and other intangible assets(1)	(15,098)		(14,902)
Tangible assets(2)	$	456,562	$	440,347
Tangible Assets (Quarterly Average):
Total assets	$	462,324	$	449,659
Goodwill and other intangible assets(1)	(14,984)		(14,926)
Tangible assets(2)	$	447,340	$	434,733
Non-GAAP Ratio:
TCE(2)(3)	7.6%		7.5%


(Dollars in millions, except as noted)	March 31, 2023		March 31, 2022
Tangible Book Value per Share:
Tangible common equity (Period-end)	$	34,710	$	36,617
Outstanding Common Shares	382.0		399.0
Tangible book value per common share	$	90.86	$	91.77
Return on Tangible Assets (Quarterly Average):
Net income	$	960	$	2,403
Tangible Assets (Quarterly Average)	447,340		415,468
Return on tangible assets(4)	0.86%		2.31%
Return on Tangible Common Equity (Quarterly Average):
Net income available to common stockholders	$	887	$	2,318
Tangible common equity (Quarterly Average)	34,944		39,688
Return on tangible common equity(5)	10.15%		23.36%

__________

(1)Includes impact of related deferred taxes.

(2)Management believes that this financial metric is useful in assessing capital adequacy and the level of returns generated.

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



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(4)Return on average tangible assets is a non-GAAP measure calculated based on annualized income (loss) from continuing operations, net of tax, for the period divided by average tangible assets for the period.

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



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Glossary and Acronyms

Alternative Reference Rates Committee (“ARRC”): A group of private-market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York that has recommended SOFR as the preferred alternative to replace U.S. dollar (USD) LIBOR referenced instruments.

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

Annual Report: References to our “2022 Form 10-K” are to our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Bank: Refers to (i) CONA from and after the Bank Merger and (ii) CONA and COBNA collectively prior to the Bank Merger.

Bank Merger: The merger of COBNA with and into CONA, with CONA as the surviving entity, that occurred on October 1, 2022.

Basel Committee: The Basel Committee on Banking Supervision.

Basel III Capital Rules: The regulatory capital requirements established by the Federal Banking Agencies in July 2013 to implement the Basel III capital framework developed by the Basel Committee as well as certain Dodd-Frank Act and other capital provisions.

Basel III standardized approach: The Basel III Capital Rules modified Basel I to create the Basel III standardized approach.

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

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 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.

CECL Transition Rule: A rule adopted by the Federal Banking Agencies and effective in 2020 that provides banking institutions an optional five-year transition period to phase in the impact of the CECL standard on their regulatory capital.

COBNA: Capital One Bank (USA), National Association, one of our wholly-owned subsidiaries through September 30, 2022, which offered credit card products along with other lending products and consumer services. On October 1, 2022, the Company completed the merger of COBNA with and into CONA, with CONA as the surviving entity.

Common equity Tier 1 (“CET1”) capital: CET1 capital primarily includes qualifying common shareholders’ equity, retained earnings and certain AOCI amounts less certain deductions for goodwill, intangible assets, and certain deferred tax assets.

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

Credit risk: The risk to current or projected financial condition and resilience arising from an obligor’s failure to meet the terms of any contract with the Company or otherwise perform as agreed.



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

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

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

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

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 Deposit Insurance Corporation (“FDIC”): An independent U.S. governmental agency that administers the Deposit Insurance Fund.

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.

Financial difficulty modification (“FDM”): A FDM is deemed to occur when a loan modification is made to a borrower experiencing financial difficulty in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination of these modifications in the current reporting period. FDMs became effective with the adoption of ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023.

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

Framework: The Capital One enterprise-wide risk management framework.

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 a Moody’s long-term rating of Baa3 or better; and/or a S&P long-term rating of BBB- or better; and/or a Fitch 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.



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

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

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

Managed presentation: A non-GAAP presentation of business segment results derived from our internal management accounting and reporting process, which employs various allocation methodologies, including funds transfer pricing, to assign certain balance sheet assets, deposits and other liabilities and their related revenues and expenses directly or indirectly attributable to each business segment. The results of our individual businesses reflect the manner in which management evaluates performance and makes decisions about funding our operations and allocating resources and are intended to reflect each segment as if it were a stand-alone business.

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

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

Mortgage 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. Negative net charge-offs and related rates are captioned as net recoveries.

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

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

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

Public Fund 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.

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 the business locations and/or activities being exited.



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

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

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

Stress Capital Buffer Rule: In March 2020, the Federal Reserve issued a final rule to implement the stress capital buffer requirement.

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

Tangible common equity (“TCE”): A non-GAAP financial measure calculated as common equity less goodwill and other intangible assets inclusive of any related deferred tax liabilities.

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. The accounting guidance for TDRs was eliminated by ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which we adopted as of January 1, 2023.

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

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.

U.S. Real Gross Domestic Product (“GDP”) Rate: An inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year.

Variable interest entity (“VIE”): An entity that, by design, either (i) lacks sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties; or (ii) has equity investors that do not have (a) the ability to make significant decisions relating to the entity’s operations through voting rights, (b) the obligation to absorb the expected losses, and/or (c) the right to receive the residual returns of the entity.



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Acronyms

ABS: Asset-backed securities

AOCI: Accumulated other comprehensive income

ARRC: Alternative Reference Rates Committee

ASC: Accounting Standards Codification

ASU: Accounting Standards Update

ATM: Automated teller machine

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

CET1: Common equity Tier 1 capital

CMBS: Commercial mortgage-backed securities

CME: Chicago Mercantile Exchange

COBNA: Capital One Bank (USA), National Association

COEP: Capital One (Europe) plc

COF: Capital One Financial Corporation

CONA: Capital One, National Association

COVID-19: Coronavirus disease of 2019

CVA: Credit valuation adjustment

DCF: Discounted cash flow

DVA: Debit valuation adjustment

EU: European Union

EUR: Euro

Fannie Mae: Federal National Mortgage Association

FASB: Financial Accounting Standards Board

FCA: U.K. Financial Conduct Authority

FCM: Futures commission merchant

FDM: Financial difficulty modification

FDIC: Federal Deposit Insurance Corporation

FFIEC: Federal Financial Institutions Examination Council

FHLB: Federal Home Loan Banks

FICO: Fair Isaac Corporation

Fitch: Fitch Ratings

Freddie Mac: Federal Home Loan Mortgage Corporation

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

GBP: Pound sterling

GDP: U.S. Real Gross Domestic Product

Ginnie Mae: Government National Mortgage Association

G-SIB: Global systemically important banks



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GSE or Agency: Government-sponsored enterprise

IBA: ICE Benchmark Administration

ICE: Intercontinental Exchange

IRM: Independent Risk Management

ISDA: International Swaps and Derivatives Association

LCH: LCH Group

LCR: Liquidity coverage ratio

LIBOR: London Interbank Offered Rate

LTV: Loan-to-Value

MDL: Multi-district litigation

Moody’s: Moody’s Investors Service

MSRs: Mortgage servicing rights

NSFR: Net stable funding ratio

NYSE: New York Stock Exchange

OCC: Office of the Comptroller of the Currency

OCI: Other comprehensive income

OTC: Over-the-counter

PCA: Prompt corrective action

PCCR: Purchased credit card relationship

PCD: Purchased Credit-Deteriorated

PPI: Payment protection insurance

RMBS: Residential mortgage-backed securities

RSU: Restricted stock unit

S&P: Standard & Poor’s

SEC: U.S. Securities and Exchange Commission

SOFR: Secured Overnight Financing Rate

TCE: Tangible common equity

TDR: Troubled debt restructuring

U.K.: United Kingdom

U.K. GDPR: U.K. General Data Protection Regulation

U.S.: United States of America

USD: United States Dollar

VIE: Variable interest entity

XBRL: Extensible business reporting language



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Item 1 . Financial Statements and Supplementary Data
			Page



Consolidated Financial Statements			64
Consolidated Statements of Income			64
Consolidated Statements of Comprehensive Income			65
Consolidated Balance Sheets			66
Consolidated Statements of Changes in Stockholders’ Equity			67
Consolidated Statements of Cash Flows			68
Notes to Consolidated Financial Statements			70
Note 1—Summary of Significant Accounting Policies			70
Note 2—Investment Securities			72
Note 3—Loans			75
Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments			85
Note 5—Variable Interest Entities and Securitizations			89
Note 6—Goodwill and Other Intangible Assets			93

Note 7 —Deposits and Borrowings			94
Note 8 —Derivative Instruments and Hedging Activities			95
Note 9 —Stockholders’ Equity			103

Note 1 0 —Earnings Per Common Share			106



Note 1 1 —Fair Value Measurement			107
Note 1 2 —Business Segments and Revenue from Contracts with Customers			114
Note 1 3 —Commitments, Contingencies, Guarantees and Others			117



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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended March 31,
(Dollars in millions, except per share-related data)		2023		2022
Interest income:
Loans, including loans held for sale		$	8,723	$	6,367
Investment securities		615		402
Other		416		15
Total interest income		9,754		6,784
Interest expense:
Deposits		1,856		218
Securitized debt obligations		211		29
Senior and subordinated notes		489		131
Other borrowings		12		9
Total interest expense		2,568		387
Net interest income		7,186		6,397
Provision for credit losses		2,795		677
Net interest income after provision for credit losses		4,391		5,720
Non-interest income:
Interchange fees, net		1,139		1,033
Service charges and other customer-related fees		379		400
Other		199		343
Total non-interest income		1,717		1,776
Non-interest expense:
Salaries and associate benefits		2,427		2,026
Occupancy and equipment		508		513
Marketing		897		918
Professional services		324		397
Communications and data processing		350		339
Amortization of intangibles		14		14
Other		425		344
Total non-interest expense		4,945		4,551
Income from continuing operations before income taxes		1,163		2,945
Income tax provision		203		542


Net income		960		2,403
Dividends and undistributed earnings allocated to participating securities		(16)		(28)
Preferred stock dividends		(57)		(57)

Net income available to common stockholders		$	887	$	2,318
Basic earnings per common share:


Net income per basic common share		$	2.32	$	5.65
Diluted earnings per common share:


Net income per diluted common share		$	2.31	$	5.62


See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended March 31,
(Dollars in millions)	2023		2022
Net income	$	960	$	2,403
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities available for sale	962		(3,253)
Net unrealized gains (losses) on hedging relationships	401		(1,209)
Foreign currency translation adjustments	13		(5)


Other comprehensive income (loss), net of tax	1,376		(4,467)
Comprehensive income (loss)	$	2,336	$	(2,064)


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)	March 31, 2023		December 31, 2022
Assets:
Cash and cash equivalents:
Cash and due from banks	$	3,347	$	5,193
Interest-bearing deposits and other short-term investments	43,166		25,663
Total cash and cash equivalents	46,513		30,856
Restricted cash for securitization investors	460		400
Securities available for sale (amortized cost of $90.8 billion and $87.0 billion and allowance for credit losses of $2 million and $3 million as of March 31, 2023 and December 31, 2022, respectively)	81,925		76,919
Loans held for investment:
Unsecuritized loans held for investment	280,093		283,282
Loans held in consolidated trusts	28,743		29,049
Total loans held for investment	308,836		312,331
Allowance for credit losses	(14,318)		(13,240)
Net loans held for investment	294,518		299,091
Loans held for sale ($358 million and $191 million carried at fair value as of March 31, 2023 and December 31, 2022, respectively)	363		203
Premises and equipment, net	4,365		4,351
Interest receivable	2,250		2,104
Goodwill	14,779		14,777
Other assets	26,487		26,548
Total assets	$	471,660	$	455,249

Liabilities:
Interest payable	$	621	$	527
Deposits:
Non-interest-bearing deposits	31,186		32,203
Interest-bearing deposits	318,641		300,789
Total deposits	349,827		332,992
Securitized debt obligations	17,813		16,973
Other debt:
Federal funds purchased and securities loaned or sold under agreements to repurchase	542		883
Senior and subordinated notes	30,398		30,826
Other borrowings	24		33
Total other debt	30,964		31,742
Other liabilities	17,782		20,433
Total liabilities	417,007		402,667
Commitments, contingencies and guarantees (see Note 13)
Stockholders’ equity:
Preferred stock (par value $0.01 per share; 50,000,000 shares authorized; 4,975,000 shares issued and outstanding as of both March 31, 2023 and December 31, 2022)	0		0
Common stock (par value $0.01 per share; 1,000,000,000 shares authorized; 693,333,206 and 690,334,422 shares issued as of March 31, 2023 and December 31, 2022, respectively; 382,030,281 and 381,318,702 shares outstanding as of March 31, 2023 and December 31, 2022, respectively)	7		7
Additional paid-in capital, net	34,952		34,725
Retained earnings	57,898		57,184
Accumulated other comprehensive loss	(8,540)		(9,916)
Treasury stock, at cost (par value $0.01 per share; 311,302,925 and 309,015,720 shares as of March 31, 2023 and December 31, 2022, respectively)	(29,664)		(29,418)
Total stockholders’ equity	54,653		52,582
Total liabilities and stockholders’ equity	$	471,660	$	455,249


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, 2022	4,975,000	$	0	690,334,422	$	7	$	34,725	$	57,184	$	(9,916)	$	(29,418)	$	52,582
































Cumulative effects of accounting standards adoption									48						48
Comprehensive income									960		1,376				2,336
Dividends—common stock(1)				26,635	0		3		(237)						(234)
Dividends—preferred stock									(57)						(57)
Purchases of treasury stock													(246)		(246)
Issuances of common stock and restricted stock, net of forfeitures				2,972,149	0		76								76



Compensation expense for restricted stock units							148								148
Balance as of March 31, 2023	4,975,000	$	0	693,333,206	$	7	$	34,952	$	57,898	$	(8,540)	$	(29,664)	$	54,653


(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, 2021	4,975,000	$	0	685,057,944	$	7	$	34,112	$	51,006	$	374	$	(24,470)	$	61,029

































Comprehensive income (loss)									2,403		(4,467)				(2,064)
Dividends—common stock(1)				18,408	0		2		(253)						(251)
Dividends—preferred stock									(57)						(57)
Purchases of treasury stock													(2,484)		(2,484)
Issuances of common stock and restricted stock, net of forfeitures				2,517,691	0		68								68
Exercises of stock options				7,809	0		1								1


Compensation expense for restricted stock units							103								103
Balance as of March 31, 2022	4,975,000	$	0	687,601,852	$	7	$	34,286	$	53,099	$	(4,093)	$	(26,954)	$	56,345

__________

(1)We declared dividends per share on our common stock of $0.60 in both the first quarters of 2023 and 2022.


See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Three Months Ended March 31,
(Dollars in millions)	2023		2022
Operating activities:
Income from continuing operations, net of tax	$	960	$	2,403

Net income	960		2,403
Adjustments to reconcile net income to net cash from operating activities:
Provision for credit losses	2,795		677
Depreciation and amortization, net	1,251		839
Deferred tax provision (benefit)	(169)		187
Net securities losses (gains)	0		(1)
Loss (gain) on sales of loans	(5)		(186)
Stock-based compensation expense	154		107
Other	14		16
Loans held for sale:
Originations and purchases	(1,237)		(1,923)
Proceeds from sales and paydowns	1,064		2,036
Changes in operating assets and liabilities:
Changes in interest receivable	(131)		(19)
Changes in other assets	398		(4,716)
Changes in interest payable	94		(20)
Changes in other liabilities	(2,196)		521

Net cash from operating activities	2,992		(79)
Investing activities:

Securities available for sale:
Purchases	(5,843)		(3,828)
Proceeds from paydowns and maturities	1,990		4,898
Proceeds from sales	0		470



Loans:
Net changes in loans originated as held for investment	3,396		104
Principal recoveries of loans previously charged off	546		554
Net purchases of premises and equipment	(235)		(230)
Net cash used in acquisition activities	(2,539)		0
Net cash used in other investing activities	(309)		(195)
Net cash used in investing activities	(2,994)		1,773


See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Three Months Ended March 31,
(Dollars in millions)	2023		2022
Financing activities:
Deposits and borrowings:
Changes in deposits	$	16,648	$	2,561
Issuance of securitized debt obligations	1,248		2,244
Maturities and paydowns of securitized debt obligations	(560)		(3,198)
Issuance of senior and subordinated notes and long-term FHLB advances	2,241		3,041
Maturities and paydowns of senior and subordinated notes and long-term FHLB advances	(3,047)		(2,357)
Changes in other borrowings	(350)		3,769
Common stock:
Net proceeds from issuances	76		68
Dividends paid	(234)		(251)
Preferred stock:

Dividends paid	(57)		(57)

Purchases of treasury stock	(246)		(2,484)
Proceeds from share-based payment activities	0		1
Net cash from (used in) financing activities	15,719		3,337
Changes in cash, cash equivalents and restricted cash for securitization investors	15,717		5,031
Cash, cash equivalents and restricted cash for securitization investors, beginning of the period	31,256		22,054
Cash, cash equivalents and restricted cash for securitization investors, end of the period	$	46,973	$	27,085
Supplemental cash flow information:
Non-cash items:
Net transfers from loans held for investment to loans held for sale	$	43	$	146



Interest paid	2,084		509
Income tax paid	103		80


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

The Company

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

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

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

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.

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 2022 Annual Report on Form 10-K (“2022 Form 10-K”).

Loan Modifications and Restructurings

We adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023, and elected the modified retrospective adoption method. The ASU eliminates the accounting guidance for troubled debt restructurings (“TDRs”) and resulted in a cumulative adjustment to retained earnings and our allowance, which was not considered material. Subsequent to adoption, our consideration of modifications in measurement of the allowance for credit losses remains substantively unchanged. The ASU also establishes prospective disclosure requirements for certain loan refinancings and restructurings for borrowers experiencing financial difficulty and current-period gross charge-offs by year of origination for financing receivables and net investment in leases. We provide information on modified loans, including the performance of those loans subsequent to modification in “Note 3—Loans” and gross charge-offs by year of origination in “Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments.”



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As part of our loss mitigation efforts, we may provide modifications to a borrower experiencing financial difficulty to improve long-term collectability of the loan and to avoid the need for foreclosure or repossession of collateral, if any. Loan modifications to a borrower experiencing financial difficulty in the form of principal forgiveness, interest rate reduction, an other-than-insignificant delay in payment, including payment deferrals, a term extension, or a combination of these modifications are reported as a financial difficulty modification (“FDM”). As restructurings offered to borrowers experiencing financial difficulty are typically not at market terms FDMs are generally accounted for as a continuation of the existing loan. See “Note 3—Loans” for additional information on our loan modifications and restructurings.

Loan Modifications and Restructurings Prior to Adoption of ASU 2022-02

In periods prior to 2023, a loan modification in which a concession is granted to a borrower experiencing financial difficulty was accounted for and reported as a TDR. These loan modifications typically include short-term payment deferrals, an extension of the loan term, a reduction in the interest rate, a reduction in the loan balance, or a combination of these modifications. See “Note 3—Loans” for additional information on our loan modifications and restructurings.

•Modified loans and troubled debt restructurings: Modified loans, including TDRs for periods ending on or before December 31, 2022 and FDMs for periods beginning on or after January 1, 2023, that are current at the time of the restructuring remain in accrual status if there is demonstrated performance prior to the restructuring and continued performance under the modified terms is expected. Otherwise, the modified loan is classified as nonperforming. For additional information, see “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” in our 2022 Form 10-K.

Newly Adopted Accounting Standards During the Three Months Ended March 31, 2023

Standard

Guidance

Adoption Timing and Financial Statement Impacts

Modifications to Borrowers Experiencing Financial Difficulty and Vintage Disclosures

ASU No. 2022-02,Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures

Issued March 2022

Eliminates accounting guidance for troubled debt restructurings by creditors, and enhances disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty;

Requires an entity to disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases.

We adopted this guidance in the first quarter of 2023 using a modified retrospective adoption method, which results in a cumulative-effect adjustment to retained earnings in the period of adoption and prospective application of the enhanced disclosure requirements.

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

See “Note 3—Loans” and “Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments” for additional disclosures.



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NOTE 2—INVESTMENT SECURITIES

The table below presents the amortized cost, allowance for credit losses, gross unrealized gains and losses, and fair value aggregated by major security type as of March 31, 2023 and December 31, 2022. Accrued interest receivable of $247 million and $215 million as of March 31, 2023 and December 31, 2022, respectively, is not included in the table below.

Table 2.1: Investment Securities Available for Sale


	March 31, 2023
(Dollars in millions)	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Investment securities available for sale:
U.S. Treasury securities	$	5,230	$	0	$	3	$	(70)	$	5,163
RMBS:
Agency	73,853		0		106		(8,338)		65,621
Non-agency	641		(2)		97		(6)		730
Total RMBS	74,494		(2)		203		(8,344)		66,351
Agency CMBS	9,076		0		14		(661)		8,429
Other securities(1)	1,985		0		4		(7)		1,982
Total investment securities available for sale	$	90,785	$	(2)	$	224	$	(9,082)	$	81,925


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

__________

(1)Includes $1.3 billion and $707 million of asset-backed securities (“ABS”) as of March 31, 2023 and December 31, 2022, respectively. The remaining amount is primarily comprised of supranational bonds and foreign government bonds.



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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 March 31, 2023 and December 31, 2022. The amounts include securities available for sale without an allowance for credit losses.

Table 2.2: Securities in a Gross Unrealized Loss Position


	March 31, 2023
	Less than 12 Months				12 Months or Longer				Total
(Dollars in millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Investment securities available for sale without an allowance for credit losses:
U.S. Treasury securities	$	1,059	$	(20)	$	1,155	$	(50)	$	2,214	$	(70)
RMBS:
Agency	9,925		(267)		50,456		(8,071)		60,381		(8,338)
Non-agency	8		0		9		(1)		17		(1)
Total RMBS	9,933		(267)		50,465		(8,072)		60,398		(8,339)
Agency CMBS	1,884		(42)		5,633		(619)		7,517		(661)
Other securities	531		0		374		(7)		905		(7)
Total investment securities available for sale in a gross unrealized loss position without an allowance for credit losses(1)	$	13,407	$	(329)	$	57,627	$	(8,748)	$	71,034	$	(9,077)


	December 31, 2022
	Less than 12 Months				12 Months or Longer				Total
(Dollars in millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Investment securities available for sale without an allowance for credit losses:
U.S. Treasury securities	$	2,464	$	(57)	$	448	$	(33)	$	2,912	$	(90)
RMBS:
Agency	23,271		(1,809)		36,803		(7,604)		60,074		(9,413)
Non-agency	14		(1)		3		0		17		(1)
Total RMBS	23,285		(1,810)		36,806		(7,604)		60,091		(9,414)
Agency CMBS	4,325		(267)		3,214		(493)		7,539		(760)
Other securities	555		(7)		76		(3)		631		(10)
Total investment securities available for sale in a gross unrealized loss position without an allowance for credit losses(1)	$	30,629	$	(2,141)	$	40,544	$	(8,133)	$	71,173	$	(10,274)

__________

(1) Consists of approximately 2,760 and 2,840 securities in gross unrealized loss positions as of March 31, 2023 and December 31, 2022, respectively.

Maturities and Yields of Investment Securities

The table below summarizes, as of March 31, 2023, the fair value of our investment securities by major security type and contractual maturity as well as the total fair value, amortized cost and weighted-average yields of our investment securities by contractual maturity. Since borrowers may have the right to call or prepay certain obligations, the expected maturities of our securities are likely to differ from the scheduled contractual maturities presented below. The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security.



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


	March 31, 2023
(Dollars in millions)	Due in 1 Year or Less		Due > 1 Year through 5 Years		Due > 5 Years through 10 Years		Due > 10 Years		Total
Fair value of securities available for sale:
U.S. Treasury securities	$	217	$	4,946	$	0	$	0	$	5,163
RMBS(1):
Agency	0		91		1,146		64,384		65,621
Non-agency	0		0		0		730		730
Total RMBS	0		91		1,146		65,114		66,351
Agency CMBS(1)	180		2,533		3,588		2,128		8,429
Other securities	487		1,465		30		0		1,982
Total securities available for sale	$	884	$	9,035	$	4,764	$	67,242	$	81,925
Amortized cost of securities available for sale	$	889	$	9,255	$	5,194	$	75,447	$	90,785
Weighted-average yield for securities available for sale	3.46%		3.49%		2.97%		2.80%		2.88%

__________

(1)As of March 31, 2023, the weighted-average expected maturities of RMBS and Agency CMBS were 6.9 years and 4.8 years, respectively.

Net Securities Gains or Losses and Proceeds from Sales

We had no sales of securities for the three months ended March 31, 2023. For the three months ended March 31, 2022, total proceeds from the sale of our securities were $470 million and we recognized less than $1 million of loss.

Securities Pledged and Received

We pledged investment securities totaling $21.8 billion and $21.3 billion as of March 31, 2023 and December 31, 2022, respectively. These securities are primarily pledged to secure Public Fund Deposits and Federal Home Loan Banks (“FHLB”). advances, as well as for other purposes as required or permitted by law. We accepted pledges of securities with a fair value of approximately $79 million and $82 million as of March 31, 2023 and December 31, 2022, respectively, related to our derivative transactions.



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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 the tables in this note excludes loans held for sale, which are carried at either fair value (if we elect the fair value option) or at the lower of cost or fair value.

Accrued interest receivable of $2.0 billion and $1.9 billion as of March 31, 2023 and December 31, 2022, respectively, is not included in the tables in this note. The table below presents the composition and aging analysis of our loans held for investment portfolio as of March 31, 2023 and December 31, 2022. The delinquency aging includes all past due loans, both performing and nonperforming.

Table 3.1: Loan Portfolio Composition and Aging Analysis


	March 31, 2023
			Delinquent Loans
(Dollars in millions)	Current		30-59 Days		60-89 Days		> 90 Days		Total Delinquent Loans		Total Loans
Credit Card:
Domestic credit card	$	126,189	$	1,406	$	1,033	$	2,352	$	4,791	$	130,980
International card businesses	5,898		89		59		116		264		6,162
Total credit card	132,087		1,495		1,092		2,468		5,055		137,142
Consumer Banking:
Auto	72,410		2,771		1,171		300		4,242		76,652
Retail banking	1,473		7		3		16		26		1,499
Total consumer banking	73,883		2,778		1,174		316		4,268		78,151
Commercial Banking:
Commercial and multifamily real estate	37,096		35		0		1		36		37,132
Commercial and industrial	56,224		1		27		159		187		56,411
Total commercial banking	93,320		36		27		160		223		93,543
Total loans(1)	$	299,290	$	4,309	$	2,293	$	2,944	$	9,546	$	308,836
% of Total loans	96.91%		1.40%		0.74%		0.95%		3.09%		100.00%


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



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

__________

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

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

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


	March 31, 2023									December 31, 2022
(Dollars in millions)	> 90 Days and Accruing			Nonperforming Loans(1)			Nonperforming Loans Without an Allowance			> 90 Days and Accruing			Nonperforming Loans(1)			Nonperforming Loans Without an Allowance
Credit Card:
Domestic credit card	$	2,352		N/A			$	0		$	2,135		N/A			$	0
International card businesses	113			$	7		0			105			$	9		0
Total credit card	2,465			7			0			2,240			9			0
Consumer Banking:
Auto	0			515			0			0			595			0
Retail banking	0			44			6			0			39			8
Total consumer banking	0			559			6			0			634			8
Commercial Banking:
Commercial and multifamily real estate	0			336			255			0			271			246
Commercial and industrial	0			404			231			0			430			294
Total commercial banking	0			740			486			0			701			540
Total	$	2,465		$	1,306		$	492		$	2,240		$	1,344		$	548
% of Total loans held for investment	0.80		%	0.42		%	0.16		%	0.72		%	0.43		%	0.18		%

__________

(1)We recognized interest income for loans classified as nonperforming of $2 million and $1 million for the three months ended March 31, 2023 and 2022, respectively.



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

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

Table 3.3: Credit Card Delinquency Status


	March 31, 2023						December 31, 2022
(Dollars in millions)	Revolving Loans		Revolving Loans Converted to Term		Total		Revolving Loans		Revolving Loans Converted to Term		Total
Credit Card:
Domestic credit card:
Current	$	125,911	$	278	$	126,189	$	126,811	$	255	$	127,066
30-59 days	1,390		16		1,406		1,388		17		1,405
60-89 days	1,022		11		1,033		964		11		975
Greater than 90 days	2,338		14		2,352		2,121		14		2,135
Total domestic credit card	130,661		319		130,980		131,284		297		131,581

International card businesses:
Current	5,869		29		5,898		5,866		29		5,895
30-59 days	86		3		89		83		3		86
60-89 days	57		2		59		55		3		58
Greater than 90 days	113		3		116		106		4		110
Total international card businesses	6,125		37		6,162		6,110		39		6,149
Total credit card	$	136,786	$	356	$	137,142	$	137,394	$	336	$	137,730

Consumer Banking

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

The table below presents our consumer banking portfolio of loans held for investment by credit quality indicator as of March 31, 2023 and December 31, 2022. 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.



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Table 3.4: Consumer Banking Portfolio by Vintage Year


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

Auto—At origination FICO scores:(1)
Greater than 660	$	3,015	$	16,404	$	12,968	$	4,729	$	2,193	$	985	$	40,294	$	0	$	0	$	40,294
621-660	1,275		5,760		4,598		1,998		1,001		525		15,157		0		0		15,157
620 or below	1,812		7,179		5,904		3,463		1,851		992		21,201		0		0		21,201
Total auto	6,102		29,343		23,470		10,190		5,045		2,502		76,652		0		0		76,652

Retail banking—Delinquency status:
Current	37		150		112		77		128		567		1,071		397		5		1,473
30-59 days	0		0		1		0		0		1		2		5		0		7
60-89 days	0		0		0		1		0		0		1		2		0		3
Greater than 90 days	0		0		1		0		0		10		11		4		1		16
Total retail banking	37		150		114		78		128		578		1,085		408		6		1,499
Total consumer banking	$	6,139	$	29,493	$	23,584	$	10,268	$	5,173	$	3,080	$	77,737	$	408	$	6	$	78,151


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

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

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

__________

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



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Commercial Banking

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

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

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

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

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

The following table presents our commercial banking portfolio of loans held for investment by internal risk ratings as of March 31, 2023 and December 31, 2022. The internal risk rating status includes all past due loans, both performing and nonperforming.

Table 3.5: Commercial Banking Portfolio by Internal Risk Ratings


	March 31, 2023
	Term Loans by Vintage Year
(Dollars in millions)	2023		2022		2021		2020		2019		Prior		Total Term Loans		Revolving Loans		Revolving Loans Converted to Term		Total
Internal risk rating:(1)
Commercial and multifamily real estate
Noncriticized	$	2,106	$	8,585	$	3,630	$	825	$	1,363	$	3,064	$	19,573	$	13,445	$	25	$	33,043
Criticized performing	533		906		415		137		367		1,283		3,641		112		0		3,753
Criticized nonperforming	0		81		26		0		77		152		336		0		0		336
Total commercial and multifamily real estate	2,639		9,572		4,071		962		1,807		4,499		23,550		13,557		25		37,132
Commercial and industrial
Noncriticized	4,497		19,171		5,118		2,456		1,301		3,103		35,646		17,150		125		52,921
Criticized performing	365		939		437		91		120		169		2,121		965		0		3,086
Criticized nonperforming	26		195		17		21		69		21		349		55		0		404
Total commercial and industrial	4,888		20,305		5,572		2,568		1,490		3,293		38,116		18,170		125		56,411
Total commercial banking	$	7,527	$	29,877	$	9,643	$	3,530	$	3,297	$	7,792	$	61,666	$	31,727	$	150	$	93,543



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	December 31, 2022
	Term Loans by Vintage Year
(Dollars in millions)	2022		2021		2020		2019		2018		Prior		Total Term Loans		Revolving Loans		Revolving Loans Converted to Term		Total
Internal risk rating:(1)
Commercial and multifamily real estate
Noncriticized	$	9,527	$	4,086	$	1,161	$	1,671	$	1,280	$	2,898	$	20,623	$	13,254	$	25	$	33,902
Criticized performing	814		376		202		412		302		1,061		3,167		113		0		3,280
Criticized nonperforming	101		22		0		13		19		116		271		0		0		271
Total commercial and multifamily real estate	10,442		4,484		1,363		2,096		1,601		4,075		24,061		13,367		25		37,453
Commercial and industrial
Noncriticized	22,105		6,031		2,934		1,809		973		2,658		36,510		17,187		21		53,718
Criticized performing	992		560		156		160		167		76		2,111		964		0		3,075
Criticized nonperforming	196		21		5		87		40		5		354		76		0		430
Total commercial and industrial	23,293		6,612		3,095		2,056		1,180		2,739		38,975		18,227		21		57,223
Total commercial banking	$	33,735	$	11,096	$	4,458	$	4,152	$	2,781	$	6,814	$	63,036	$	31,594	$	46	$	94,676

__________

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

Financial Difficulty Modifications to Borrowers

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

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

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

For the interim periods prior to adoption of ASU 2022-02, our previous TDR disclosures are included below in the “Troubled Debt Restructurings” section. For additional information on loan modifications classified as a TDR prior to January 1, 2023, see “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” in our 2022 Form 10-K. FDM disclosures are not directly comparable to the prior period TDR disclosures due to differences in the respective accounting guidance and disclosure requirements.

The following table presents the major modification types, amortized cost amounts per modification and financial effects for all FDMs undertaken during the three months ended March 31, 2023.



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Table 3.6: Financial Difficulty Modifications to Borrowers


	Three Months Ended March 31, 2023
	Credit Card						Consumer Banking						Commercial Banking
(Dollars in millions)	Domestic Card		International Card Businesses		Total Credit Card		Auto		Retail Banking		Total Consumer Banking		Commercial and multifamily real estate		Commercial and industrial		Total Commercial Banking		Total
Interest rate reduction:
Loans modified	$	150	$	38	$	188	—		—		—		—		—		—		$	188
Average rate reduction	19.02%		25.74%		20.37%		N/A		N/A		N/A		N/A		N/A		N/A
Term extension:
Loans modified	—		—		—		$	42	$	3	$	45	$	129	$	66	$	195	$	240
Average term extension (months)	N/A		N/A		N/A		4		14		5		8		7		8
Principal balance reduction:
Loans modified	—		—		—		$	7	—		$	7	—		—		—		$	7
Gross balance reduction	N/A		N/A		N/A		—		N/A		—		N/A		N/A		N/A
Interest rate reduction and term extension:
Loans modified	—		—		—		$	202	—		$	202	—		—		—		$	202
Average rate reduction	N/A		N/A		N/A		8.75%		N/A		8.75%		N/A		N/A		N/A
Average term extension (months)	N/A		N/A		N/A		6		N/A		6		N/A		N/A		N/A
Principal Balance reduction and term extension:
Loans modified	—		—		—		—		—		—		—		$	17	$	17	$	17
Gross Balance Reduction	N/A		N/A		N/A		N/A		N/A		N/A		N/A		3		3
Average term extension (months)	N/A		N/A		N/A		N/A		N/A		N/A		N/A		60		60
Other(1):
Loans modified	—		—		—		$	1	—		$	1	—		$	132	$	132	$	133
Total:
Total loans modified	$	150	$	38	$	188	$	252	$	3	$	255	$	129	$	215	$	344	$	787
% of total class of receivables	0.11%		0.62%		0.14%		0.33%		0.18%		0.33%		0.35%		0.38%		0.37%		0.25%

__________

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



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Performance of Financial Difficulty Modifications to Borrowers

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

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

Table 3.7 Delinquency Status of Loan Modifications to Borrowers Experiencing Financial Difficulty(1)


	Three Months Ended March 31, 2023
			Delinquent Loans
(Dollars in millions)	Current		30-59 Days		60-89 Days		> 90 Days		Total Delinquent Loans		Total Loans
Credit Card:
Domestic credit card	$	62	$	36	$	23	$	29	$	88	$	150
International card businesses	11		5		4		18		27		38
Total credit card	73		41		27		47		115		188
Consumer Banking:
Auto	224		18		7		3		28		252
Retail banking	2		0		0		1		1		3
Total consumer banking	226		18		7		4		29		255
Commercial Banking:
Commercial and multifamily real estate	99		30		0		0		30		129
Commercial and industrial	129		0		0		86		86		215
Total commercial banking	228		30		0		86		116		344
Total	$	527	$	89	$	34	$	137	$	260	$	787

__________

(1)Commitments to lend additional funds on FDMs totaled $26 million as of March 31, 2023.

Subsequent Defaults of Modifications for Borrowers Experiencing Financial Difficulty

FDMs may subsequently enter default. A default occurs if a FDM is either 90 days or more delinquent, has been charged off, or has been reclassified from accrual to nonaccrual status. FDMs that entered default subsequent to their modification were insignificant during the three months ended March 31, 2023. Loans that entered a modification program in any stage of delinquency where the borrower has complied with the modified terms, are included in the aging table above, but are not considered to have subsequently defaulted for purposes of this disclosure. The allowance for any FDMs that have subsequently defaulted is measured using the same methodology as the allowance for loans held for investment. See “Note 1—Summary of Significant Accounting Policies” for additional information.



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Troubled Debt Restructurings

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

Table 3.8: Troubled Debt Restructurings(1)


			Three Months Ended March 31, 2022
			Reduced Interest Rate				Term Extension
(Dollars in millions)	Total Loans Modified(2)		% of TDR Activity(3)		Average Rate Reduction		% of TDR Activity(3)		Average Term Extension (Months)
Credit Card:
Domestic credit card	$	62	100	%	14.67	%	N/A		N/A
International card businesses	34		100		28.00		N/A		N/A
Total credit card	96		100		19.40		N/A		N/A
Consumer Banking:
Auto	239		55		8.80		97	%	4
Retail banking	1		N/A		N/A		100		6
Total consumer banking	240		55		8.80		97		4
Commercial Banking:
Commercial and multifamily real estate	131		7		0.59		62		12
Commercial and industrial	38		N/A		N/A		86		10
Total commercial banking	169		6		0.59		68		11
Total	$	505

__________

(1)Commitments to lend additional funds on loans modified in TDRs totaled $156 million as of March 31, 2022.

(2)Represents the amortized cost of total loans modified in TDRs at the end of the period in which they were modified. As not every modification type is included in the table above, the total percentage of TDR activity may not add up to 100%. Some loans may receive more than one type of modification.

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



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Subsequent Defaults of Completed TDR Modifications

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

Table 3.9: TDR—Subsequent Defaults



	Three Months Ended March 31, 2022
(Dollars in millions)		Number of Contracts	Amount
Credit Card:
Domestic credit card		6,012	$	11
International card businesses		16,507	19
Total credit card		22,519	30
Consumer Banking:
Auto		1,971	33
Retail banking		0	0
Total consumer banking		1,971	33
Commercial Banking:

Commercial and industrial		1	31
Total commercial banking		1	31
Total		24,491	$	94

Loans Pledged

We pledged loan collateral of $9.2 billion and $9.8 billion to secure a portion of our FHLB borrowing capacity of $19.7 billion and $19.9 billion as of March 31, 2023 and December 31, 2022, respectively. We also pledged loan collateral of $32.9 billion and $34.1 billion to secure our Federal Reserve Discount Window borrowing capacity of $16.9 billion and $19.7 billion as of March 31, 2023 and December 31, 2022, respectively. In addition to loans pledged, we have securitized a portion of our credit card and auto loan portfolios. See “Note 5—Variable Interest Entities and Securitizations” for additional information.

Revolving Loans Converted to Term Loans

For the three months ended March 31, 2023 and 2022, we converted $183 million and $291 million of revolving loans to term loans, respectively, primarily in our domestic credit card and commercial banking loan portfolios.



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

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

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

See “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” in our 2022 Form 10-K for further discussion of the methodology and policy for determining our allowance for credit losses for each of our loan portfolio segments, as well as information on our reserve for unfunded lending commitments.



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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 months ended March 31, 2023 and 2022. Our allowance for credit losses increased by $1.1 billion to $14.3 billion as of March 31, 2023 from December 31, 2022.

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


	Three Months Ended March 31, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Total
Allowance for credit losses:
Balance as of December 31, 2022	$	9,545	$	2,237	$	1,458	$	13,240
Cumulative effects of accounting standards adoption(1)	(63)		0		0		(63)
Balance as of January 1, 2023	9,482		2,237		1,458		13,177
Charge-offs	(1,688)		(531)		(24)		(2,243)
Recoveries(2)	319		224		3		546
Net charge-offs	(1,369)		(307)		(21)		(1,697)
Provision for credit losses	2,261		275		266		2,802
Allowance build (release) for credit losses	892		(32)		245		1,105
Other changes(3)	36		0		0		36
Balance as of March 31, 2023	10,410		2,205		1,703		14,318
Reserve for unfunded lending commitments:
Balance as of December 31, 2022	0		0		218		218
Provision (benefit) for losses on unfunded lending commitments	0		0		(7)		(7)
Balance as of March 31, 2023	0		0		211		211
Combined allowance and reserve as of March 31, 2023	$	10,410	$	2,205	$	1,914	$	14,529


	Three Months Ended March 31, 2022
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Total
Allowance for credit losses:
Balance as of December 31, 2021	$	8,345	$	1,918	$	1,167	$	11,430
Charge-offs	(955)		(349)		(17)		(1,321)
Recoveries(2)	348		203		3		554
Net charge-offs	(607)		(146)		(14)		(767)
Provision (benefit) for credit losses	545		130		(27)		648
Allowance build (release) for credit losses	(62)		(16)		(41)		(119)
Other changes(3)	(3)		0		0		(3)
Balance as of March 31, 2022	8,280		1,902		1,126		11,308
Reserve for unfunded lending commitments:
Balance as of December 31, 2021	0		0		165		165
Provision for losses on unfunded lending commitments	0		0		35		35
Balance as of March 31, 2022	0		0		200		200
Combined allowance and reserve as of March 31, 2022	$	8,280	$	1,902	$	1,326	$	11,508

__________

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



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On January 1, 2023, we adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures using the modified retrospective approach, which consists of implementing disclosure requirements prospectively as of the adoption date. The ASU requires public entities to disclose current-period gross charge-offs by year of origination for financing receivables and net investment in leases.

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 in accordance with our accounting policies. For more information, see “Note 1—Summary of Significant Accounting Policies.”

Expected recoveries of amounts previously charged off or expected to be charged off are recognized within the allowance, with a corresponding reduction to our provision for credit losses.

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

Table 4.2: Gross Charge-Offs by Vintage Year


	March 31, 2023
	Term Loans by Vintage Year
(Dollars in millions)	2023		2022		2021		2020		2019		Prior		Total Term Loans		Revolving Loans		Revolving Loans Converted to Term		Total
Credit Card
Domestic credit card	N/A		N/A		N/A		N/A		N/A		N/A		N/A		$	1,569	$	18	$	1,587
International card business	N/A		N/A		N/A		N/A		N/A		N/A		N/A		97		3		100
Total credit card	N/A		N/A		N/A		N/A		N/A		N/A		N/A		1,666		21		1,687
Consumer Banking
Auto	$	1	$	160	$	175	$	88	$	53	$	38	$	515	0		0		515
Retail Banking	0		0		0		0		0		0		0		16		0		16
Total consumer banking	1		160		175		88		53		38		515		16		0		531
Commercial Banking
Commercial and multifamily real estate	0		4		0		0		14		0		18		0		0		18
Commercial and industrial	2		2		0		0		0		0		4		2		0		6
Total commercial banking	2		6		0		0		14		0		22		2		0		24
Total	$	3	$	166	$	175	$	88	$	67	$	38	$	537	$	1,684	$	21	$	2,242



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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 in net charge-offs and the provision for credit losses. See “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” in our 2022 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 months ended March 31, 2023 and 2022.

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


	Three Months Ended March 31,
(Dollars in millions)	2023		2022
Estimated reimbursements from partners, beginning of period	$	1,558	$	1,450
Amounts due from partners for charged off loans	(201)		(107)
Change in estimated partner reimbursements that decreased/(increased) provision for credit losses(1)	484		23
Estimated reimbursements from partners, end of period	$	1,841	$	1,366

__________

(1)Includes adjustments for purchased credit-deteriorated (“PCD”) loans acquired in the first quarter of 2023.



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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 variable interest entities (“VIEs”). Our primary involvement with VIEs is related to our securitization transactions in which we transfer assets to securitization trusts. We primarily securitize credit card and auto loans, which provide a source of funding for us and enable us to transfer a certain portion of the economic risk of the loans or related debt securities to third parties.

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

Summary of Consolidated and Unconsolidated VIEs

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

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

Table 5.1: Carrying Amount of Consolidated and Unconsolidated VIEs


	March 31, 2023
	Consolidated				Unconsolidated
(Dollars in millions)	Carrying Amount of Assets		Carrying Amount of Liabilities		Carrying Amount of Assets		Carrying Amount of Liabilities		Maximum Exposure to Loss
Securitization-Related VIEs:(1)
Credit card loan securitizations(2)	$	22,436	$	13,883	$	0	$	0	$	0
Auto loan securitizations	5,711		4,692		0		0		0
Total securitization-related VIEs	28,147		18,575		0		0		0
Other VIEs:(3)
Affordable housing entities	264		14		5,026		1,675		5,026
Entities that provide capital to low-income and rural communities	2,301		10		0		0		0
Other(4)	0		0		396		0		396
Total other VIEs	2,565		24		5,422		1,675		5,422
Total VIEs	$	30,712	$	18,599	$	5,422	$	1,675	$	5,422


	December 31, 2022
	Consolidated				Unconsolidated
(Dollars in millions)	Carrying Amount of Assets		Carrying Amount of Liabilities		Carrying Amount of Assets		Carrying Amount of Liabilities		Maximum Exposure to Loss
Securitization-Related VIEs:(1)
Credit card loan securitizations(2)	$	23,620	$	13,877	$	0	$	0	$	0
Auto loan securitizations	4,863		4,002		0		0		0
Total securitization-related VIEs	28,483		17,879		0		0		0



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	December 31, 2022
	Consolidated				Unconsolidated
(Dollars in millions)	Carrying Amount of Assets		Carrying Amount of Liabilities		Carrying Amount of Assets		Carrying Amount of Liabilities		Maximum Exposure to Loss
Other VIEs:(3)
Affordable housing entities	261		19		4,944		1,596		4,944
Entities that provide capital to low-income and rural communities	2,301		10		0		0		0
Other(4)	0		0		337		0		337
Total other VIEs	2,562		29		5,281		1,596		5,281
Total VIEs	$	31,045	$	17,908	$	5,281	$	1,596	$	5,281

__________

(1)Excludes insignificant VIEs from previously exited businesses.

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

(3)In certain investment structures, we consolidate a VIE which in turn holds as its primary asset an investment in an unconsolidated VIE. In these instances, we disclose the carrying amount of assets and liabilities on our consolidated balance sheets as unconsolidated VIEs to avoid duplicating our exposure, as the unconsolidated VIEs are generally the operating entities generating the exposure. The carrying amount of assets and liabilities included in the unconsolidated VIE columns above related to these investment structures were $2.3 billion of assets and $704 million of liabilities as of March 31, 2023, and $2.3 billion of assets and $616 million of liabilities as of December 31, 2022.

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

Securitization-Related VIEs

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

In our multifamily agency business, we originate multifamily commercial real estate loans and transfer them to government-sponsored enterprises (“GSEs”) who may, in turn, securitize them. We retain the related 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 do not consolidate the securitization trusts employed in these transactions as we do not have the power to direct the activities that most significantly impact the economic performance of these securitization trusts. We exclude these VIEs from the tables within this note because we do not consider our continuing involvement with these VIEs to be significant as we either solely invest in securities issued by the VIE and were not involved in the design of the VIE or no transfers have occurred between the VIE and ourselves. Our maximum exposure to loss as a result of our involvement with these VIEs is the carrying value of the MSRs and investment securities on our consolidated balance sheets as well as our contractual obligations under loss sharing arrangements. See “Note 13—Commitments, Contingencies, Guarantees and Others” for information about the loss sharing agreements, “Note 6—Goodwill and Other Intangible Assets” for information related to our MSRs associated with these securitizations and “Note 2—Investment Securities” for more information on the securities held in our investment securities portfolio. In addition, where we have certain lending arrangements in the normal course of business with entities that could be VIEs, we have also excluded these VIEs from the tables presented in this note. See “Note 3—Loans” for additional information regarding our lending arrangements in the normal course of business.



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

Table 5.2: Continuing Involvement in Securitization-Related VIEs


(Dollars in millions)	Credit Card		Auto
March 31, 2023:
Securities held by third-party investors	$	13,128	$	4,685
Receivables in the trusts	23,255		5,488
Cash balance of spread or reserve accounts	0		23
Retained interests	Yes		Yes
Servicing retained	Yes		Yes
December 31, 2022:
Securities held by third-party investors	$	12,976	$	3,997
Receivables in the trusts	24,367		4,682
Cash balance of spread or reserve accounts	0		23
Retained interests	Yes		Yes
Servicing retained	Yes		Yes

Credit Card Securitizations

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

Auto Securitizations

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

Other VIEs

Affordable Housing Entities

As part of our community reinvestment initiatives, we invest in private investment funds that make equity investments in multifamily affordable housing properties. We receive affordable housing tax credits for these investments. The activities of these entities are financed with a combination of invested equity capital and debt. We account for certain investments in qualified affordable housing projects using the proportional amortization method if certain criteria are met. The proportional amortization method amortizes the cost of the investment over the period in which the investor expects to receive tax credits and other tax benefits, and the resulting amortization is recognized as a component of income tax expense attributable to continuing operations. For the first three months ended March 31, 2023 and 2022, we recognized amortization of $170 million and $161 million, respectively, and tax credits of $177 million and $250 million, respectively, associated with these investments within income tax provision. The carrying value of our equity investments in these qualified affordable housing projects was $5.0 billion and $4.9 billion as of March 31, 2023 and December 31, 2022, respectively. We are periodically required to provide additional financial or other support during the period of the investments. Our liability for these unfunded



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commitments was $1.9 billion and $1.8 billion as of March 31, 2023 and December 31, 2022 respectively, and is largely expected to be paid from 2023 to 2025.

For those investment funds considered to be VIEs, we are not required to consolidate them if we do not have the power to direct the activities that most significantly impact the economic performance of those entities. We record our interests in these unconsolidated VIEs in loans held for investment, other assets and other liabilities on our consolidated balance sheets. Our maximum exposure to these entities is limited to our variable interests in the entities which consisted of assets of approximately $5.0 billion and $4.9 billion as of March 31, 2023 and December 31, 2022, respectively. The creditors of the VIEs have no recourse to our general credit and we do not provide additional financial or other support other than during the period that we are contractually required to provide it. The total assets of the unconsolidated VIE investment funds were approximately $12.8 billion and $12.5 billion as of March 31, 2023 and December 31, 2022, respectively.

Entities that Provide Capital to Low-Income and Rural Communities

We hold variable interests in entities (“Investor Entities”) that invest in community development entities (“CDEs”) that provide debt financing to businesses and non-profit entities in low-income and rural communities. Variable interests in the CDEs held by the consolidated Investor Entities are also our variable interests. The activities of the Investor Entities are financed with a combination of invested equity capital and debt. The activities of the CDEs are financed solely with invested equity capital. We receive federal and state tax credits for these investments. We consolidate the VIEs in which we have the power to direct the activities that most significantly impact the VIE’s economic performance and where we have the obligation to absorb losses or right to receive benefits that could be potentially significant to the VIE. We consolidate other investments and CDEs that are not considered to be VIEs, but where we hold a controlling financial interest. The assets of the VIEs that we consolidated, which totaled approximately $2.3 billion as of both March 31, 2023 and December 31, 2022, are reflected on our consolidated balance sheets in cash, loans held for investment, and other assets. The liabilities are reflected in other liabilities. The creditors of the VIEs have no recourse to our general credit. We have not provided additional financial or other support other than during the period that we are contractually required to provide it.

Other

We hold variable interests in other VIEs, including companies that promote renewable energy sources and other equity method investments. We are not required to consolidate these VIEs because we do not have the power to direct the activities that most significantly impact their economic performance. Our maximum exposure to these VIEs is limited to the investments on our consolidated balance sheets of $396 million and $337 million as of March 31, 2023 and December 31, 2022, respectively. The creditors of the other VIEs have no recourse to our general credit. We have not provided additional financial or other support other than during the period that we are contractually required to provide it.



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NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS

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

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


	March 31, 2023
(Dollars in millions)	Carrying Amount of Assets		Accumulated Amortization		Net Carrying Amount
Goodwill	$	14,779	N/A		$	14,779
Other intangible assets:
Purchased credit card relationship (“PCCR”) intangibles	369		$	(37)	332

Other(1)	164		(129)		35
Total other intangible assets	533		(166)		367
Total goodwill and other intangible assets	$	15,312	$	(166)	$	15,146
Commercial MSRs(2)	$	658	$	(233)	$	425

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

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

__________

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

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

Amortization expense for amortizable intangible assets, which is presented separately in our consolidated statements of income, totaled $14 million for both the three months ended March 31, 2023 and 2022.

Goodwill

The following table presents changes in carrying amount of goodwill by each of our business segments as of March 31, 2023 and December 31, 2022.

Table 6.2: Goodwill by Business Segments


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








Balance as of December 31, 2022	$	5,078	$	4,645	$	5,054	$	14,777


Other adjustments(1)	2		0		0		2
Balance as of March 31, 2023	$	5,080	$	4,645	$	5,054	$	14,779

__________

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

Our total short-term borrowings generally consist of federal funds purchased, securities loaned or sold under agreements to repurchase and FHLB advances. Our long-term debt consists of borrowings with an original contractual maturity of greater than one year. The following tables summarize the components of our deposits, short-term borrowings and long-term debt as of March 31, 2023 and December 31, 2022. The carrying value presented below for these borrowings includes any unamortized debt premiums and discounts, net of debt issuance costs and fair value hedge accounting adjustments.

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


(Dollars in millions)	March 31, 2023		December 31, 2022
Deposits:
Non-interest-bearing deposits	$	31,186	$	32,203
Interest-bearing deposits(1)	318,641		300,789
Total deposits	$	349,827	$	332,992
Short-term borrowings:
Federal funds purchased and securities loaned or sold under agreements to repurchase	$	542	$	883

Total short-term borrowings	$	542	$	883


	March 31, 2023					December 31, 2022
(Dollars in millions)	Maturity Dates	Stated Interest Rates	Weighted-Average Interest Rate	Carrying Value		Carrying Value
Long-term debt:
Securitized debt obligations	2023-2028	0.32% - 5.38%	2.80%	$	17,813	$	16,973
Senior and subordinated notes:
Fixed unsecured senior debt(2)	2023-2034	0.80 - 5.82	3.63	25,429		24,134
Floating unsecured senior debt	2024-2025	5.51 - 6.17	5.69	1,247		1,597
Total unsecured senior debt			3.72	26,676		25,731
Fixed unsecured subordinated debt	2025-2032	2.36 - 4.20	3.57	3,722		5,095
Total senior and subordinated notes				30,398		30,826
Other long-term borrowings:

Finance lease liabilities	2023-2031	0.35 - 9.91	5.76	24		33
Total other long-term borrowings				24		33
Total long-term debt				$	48,235	$	47,832
Total short-term borrowings and long-term debt				$	48,777	$	48,715

__________

(1)Some customers have time deposits in excess of the federal deposit insurance limit, making a portion of the deposit uninsured. As of March 31, 2023, time deposits greater than the insured amount was $14.0 billion and the portion of the deposits uninsured was estimated to be $9.9 billion. As of December 31, 2022, time deposits greater than the insured amount was $6.1 billion and the portion of the deposits uninsured was estimated to be $2.0 billion.

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



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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 swaps 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 offset the substantial majority of the market risk exposure of our customer accommodation derivatives through derivative transactions with other counterparties.

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

•Fair Value Hedges: We designate derivatives as fair value hedges when they are used to manage our exposure to changes in the fair value of certain financial assets and liabilities, which fluctuate in value as a result of movements in interest rates. Changes in the fair value of derivatives designated as fair value hedges are presented in the same line item in our consolidated statements of income as the earnings effect of the hedged items. 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 accumulated other comprehensive income (“AOCI”). Those amounts are reclassified into earnings in the same period during which the hedged forecasted transactions impact earnings and presented in the same line item in our consolidated statements of income as the earnings effect of the hedged items. 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 stems from the potential failure of a counterparty to perform according to the terms of the contract, including making payments due upon maturity of certain derivative instruments. We execute our derivative contracts primarily in 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”), the Intercontinental Exchange (“ICE”) and the LCH Group (“LCH”) are our CCPs for our centrally cleared contracts. In our uncleared bilateral contracts, we enter into agreements directly with our derivative counterparties.

Counterparty Credit Risk Management

We manage the counterparty credit risk associated with derivative instruments by entering into legally enforceable master netting agreements, where applicable, and exchanging collateral with our counterparties, typically in the form of cash or high-quality liquid securities. We exchange collateral in two primary forms: variation margin, which mitigates the risk of changes in value due to daily market movements and is exchanged daily, and initial margin, which mitigates the risk of potential future exposure of a derivative and is exchanged at the outset of a transaction and adjusted daily. We exchange variation margin and initial margin on our cleared derivatives. For uncleared bilateral derivatives executed after September 1, 2021 and in scope for initial margin, we exchange variation margin and initial margin.

The amount of collateral exchanged for variation margin is dependent upon the fair value of the derivative instruments as well as the fair value of the pledged collateral and will vary over time as market variables change. The amount of the initial margin exchanged is dependent upon 1) the calculation of initial margin exposure, as prescribed by 1(a) the U.S. prudential regulators’ margin rules for uncleared derivatives (“PR Rules”) or 1(b) the CCPs for cleared derivatives and 2) the fair value of the pledged collateral; it will vary over time as market variables change. When valuing collateral, an estimate of the variation in price and liquidity over time is subtracted in the form of a “haircut” to discount the value of the collateral pledged. Our exposure to derivative counterparty credit risk, at any point in time, is equal to the amount reported as a derivative asset on our balance sheet. The fair value of our derivatives is adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and any associated collateral received or pledged. See Table 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. We also clear exchange-traded instruments, like futures, with CCPs. Futures commission merchants (“FCMs”) serve as the intermediary between CCPs and us. CCPs require that we post initial and variation margin through our FCMs to mitigate the risk of non-payment or default. Initial margin is required by CCPs as collateral against potential losses on our exchange-traded and cleared derivative contracts and variation margin is exchanged on a daily basis to account for mark-to-market changes in those derivative contracts. For CME, ICE and LCH-cleared OTC derivatives, variation margin cash payments are required to be characterized as settlements. Our FCM agreements governing these derivative transactions include provisions that may require us to post additional collateral under certain circumstances.

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



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Credit Risk Valuation Adjustments

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

Balance Sheet Presentation

The following table summarizes the notional amounts and fair values of our derivative instruments as of March 31, 2023 and December 31, 2022, which are segregated by derivatives that are designated as accounting hedges and those that are not, and are further segregated by type of contract within those two categories. The total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and any associated cash collateral received or pledged. Derivative assets and liabilities are included in other assets and other liabilities, respectively, on our consolidated balance sheets, and their related gains or losses are included in operating activities as changes in other assets and other liabilities in the consolidated statements of cash flows.

Table 8.1: Derivative Assets and Liabilities at Fair Value


	March 31, 2023						December 31, 2022
	Notional or Contractual Amount		Derivative(1)				Notional or Contractual Amount		Derivative(1)
(Dollars in millions)			Assets		Liabilities				Assets		Liabilities
Derivatives designated as accounting hedges:
Interest rate contracts:
Fair value hedges	$	62,922	$	105	$	5	$	60,956	$	3	$	53
Cash flow hedges	41,600		93		3		30,350		0		451
Total interest rate contracts	104,522		198		8		91,306		3		504
Foreign exchange contracts:
Fair value hedges	1,355		0		176		1,338		0		211
Cash flow hedges	2,175		5		22		2,175		4		14
Net investment hedges	4,191		53		106		4,147		78		91
Total foreign exchange contracts	7,721		58		304		7,660		82		316
Total derivatives designated as accounting hedges	112,243		256		312		98,966		85		820
Derivatives not designated as accounting hedges:
Customer accommodation:
Interest rate contracts	94,041		1,101		1,551		91,601		1,140		1,873
Commodity contracts	29,521		1,187		1,239		28,935		1,756		1,738
Foreign exchange and other contracts	5,115		62		60		4,926		74		78
Total customer accommodation	128,677		2,350		2,850		125,462		2,970		3,689
Other interest rate exposures(2)	2,037		36		27		1,135		34		22
Other contracts	2,396		10		11		2,238		9		19
Total derivatives not designated as accounting hedges	133,110		2,396		2,888		128,835		3,013		3,730
Total derivatives	$	245,353	$	2,652	$	3,200	$	227,801	$	3,098	$	4,550
Less: netting adjustment(3)			(1,026)		(636)				(1,134)		(1,235)
Total derivative assets/liabilities			$	1,626	$	2,564			$	1,964	$	3,315

__________

(1)Does not reflect $3 million and $4 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of March 31, 2023 and December 31, 2022, respectively. Non-performance risk is included in derivative assets and liabilities, which are part of other assets and other liabilities on the consolidated balance sheets, and is offset through non-interest income in the consolidated statements of income.

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



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

The following table summarizes the carrying value of our hedged assets and liabilities in fair value hedges and the associated cumulative basis adjustments included in those carrying values, excluding basis adjustments related to foreign currency risk, as of March 31, 2023 and December 31, 2022.

Table 8.2: Hedged Items in Fair Value Hedging Relationships


	March 31, 2023						December 31, 2022
	Carrying Amount Assets/(Liabilities)		Cumulative Amount of Basis Adjustments Included in the Carrying Amount				Carrying Amount Assets/(Liabilities)		Cumulative Amount of Basis Adjustments Included in the Carrying Amount
(Dollars in millions)			Total Assets/(Liabilities)		Discontinued-Hedging Relationships				Total Assets/(Liabilities)		Discontinued-Hedging Relationships
Line item on our consolidated balance sheets in which the hedged item is included:
Investment securities available for sale(1)(2)	$	4,019	$	(49)	$	182	$	3,983	$	(80)	$	200
Interest-bearing deposits	(17,556)		320		(1)		(17,280)		500		(1)
Securitized debt obligations	(12,073)		599		0		(11,921)		748		0
Senior and subordinated notes	(28,151)		1,190		(492)		(24,544)		1,542		(527)

__________

(1)These amounts include the amortized cost basis of our investment securities designated in hedging relationships for which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. The amortized cost basis of this portfolio was $239 million and $236 million as of March 31, 2023 and December 31, 2022, respectively. The amount of the designated hedged items was $225 million as of both March 31, 2023 and December 31, 2022. The cumulative basis adjustments associated with these hedges was $10 million and $13 million as of March 31, 2023 and December 31, 2022, respectively.

(2)Carrying value represents amortized cost.

Balance Sheet Offsetting of Financial Assets and Liabilities

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

The following table presents the gross and net fair values of our derivative assets, derivative liabilities, resale and repurchase agreements and the related offsetting amounts permitted under U.S. GAAP as of March 31, 2023 and December 31, 2022. The table also includes cash and non-cash collateral received or pledged in accordance with such arrangements. The amount of collateral presented, however, is limited to the amount of the related net derivative fair values or outstanding balances; therefore, instances of over-collateralization are excluded.



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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		Net Exposure
(Dollars in millions)			Financial Instruments		Cash Collateral Received
As of March 31, 2023
Derivative assets(1)	$	2,652	$	(410)	$	(616)	$	1,626	$	(89)	$	1,537
As of December 31, 2022
Derivative assets(1)	3,098		(759)		(375)		1,964		(96)		1,868


	Gross Amounts		Gross Amounts Offset in the Balance Sheet				Net Amounts as Recognized		Securities Collateral Pledged Under Master Netting Agreements		Net Exposure
(Dollars in millions)			Financial Instruments		Cash Collateral Pledged
As of March 31, 2023
Derivative liabilities(1)	$	3,200	$	(410)	$	(226)	$	2,564	$	(77)	$	2,487
Repurchase agreements(2)	542		0		0		542		(542)		0
As of December 31, 2022
Derivative liabilities(1)	4,550		(759)		(476)		3,315		(85)		3,230
Repurchase agreements(2)	883		0		0		883		(883)		0

__________

(1)We received cash collateral from derivative counterparties totaling $908 million and $608 million as of March 31, 2023 and December 31, 2022, respectively. We also received securities from derivative counterparties with a fair value of approximately $79 million and $82 million as of March 31, 2023 and December 31, 2022, respectively, which we have the ability to re-pledge. We posted $2.0 billion and $2.3 billion of cash collateral as of March 31, 2023 and December 31, 2022, respectively.

(2)Under our customer repurchase agreements, which mature the next business day, we pledged collateral with a fair value of $553 million and $900 million as of March 31, 2023 and December 31, 2022, 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 months ended March 31, 2023 and 2022.

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


	Three Months Ended March 31, 2023
	Net Interest Income												Non-Interest Income
(Dollars in millions)	Investment Securities		Loans, Including Loans Held for Sale		Other		Interest-bearing Deposits		Securitized Debt Obligations		Senior and Subordinated Notes		Other
Total amounts presented in our consolidated statements of income	$	615	$	8,723	$	416	$	(1,856)	$	(211)	$	(489)	$	199
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	33	$	0	$	0	$	(78)	$	(84)	$	(220)	$	0
Gains (losses) recognized on derivatives	(49)		0		0		178		148		387		17
Gains (losses) recognized on hedged items(1)	31		0		0		(180)		(149)		(355)		(17)
Excluded component of fair value hedges(2)	0		0		0		0		0		(1)		0
Net income (expense) recognized on fair value hedges	$	15	$	0	$	0	$	(80)	$	(85)	$	(189)	$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income	$	0	$	(262)	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income(4)	0		0		3		0		0		0		0
Net income (expense) recognized on cash flow hedges	$	0	$	(262)	$	3	$	0	$	0	$	0	$	0



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	Three Months Ended March 31, 2022
	Net Interest Income												Non-Interest Income
(Dollars in millions)	Investment Securities		Loans, Including Loans Held for Sale		Other		Interest-bearing Deposits		Securitized Debt Obligations		Senior and Subordinated Notes		Other
Total amounts presented in our consolidated statements of income	$	402	$	6,367	$	15	$	(218)	$	(29)	$	(131)	$	343
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives	$	(8)	$	0	$	0	$	21	$	27	$	38	$	0
Gains (losses) recognized on derivatives	175		0		0		(115)		(305)		(856)		(38)
Gains (losses) recognized on hedged items(1)	(201)		0		0		115		303		896		38
Excluded component of fair value hedges(2)	0		0		0		0		0		(1)		0
Net income (expense) recognized on fair value hedges	$	(34)	$	0	$	0	$	21	$	25	$	77	$	0
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains reclassified from AOCI into net income	$	0	$	127	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts:
Realized gains reclassified from AOCI into net income(4)	0		0		0		0		0		0		0
Net income (expense) recognized on cash flow hedges	$	0	$	127	$	0	$	0	$	0	$	0	$	0

_________

(1)Includes amortization benefit of $15 million and $17 million for the three months ended March 31, 2023 and 2022, respectively, related to basis adjustments on discontinued hedges.

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

(3)See “Note 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 $8 million and $13 million for the three months ended March 31, 2023, and 2022, 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 in other non-interest income on our consolidated statements of income.

In the next 12 months, we expect to reclassify into earnings a net after-tax loss of $765 million recorded in AOCI as of March 31, 2023 associated with cash flow hedges of forecasted transactions. This amount will offset the cash flows associated with hedged forecasted transactions. The maximum length of time over which forecasted transactions were hedged was approximately 9 years as of March 31, 2023. The amount we expect to reclassify into earnings may change as a result of changes in market conditions and ongoing actions taken as part of our overall risk management strategy.



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

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


	Three Months Ended March 31,
(Dollars in millions)	2023		2022
Gains (losses) recognized in other non-interest income:
Customer accommodation:
Interest rate contracts	$	8	$	9
Commodity contracts	8		6
Foreign exchange and other contracts	3		1
Total customer accommodation	19		16
Other interest rate exposures	52		26
Other contracts	(5)		2
Total	$	66	$	44



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NOTE 9—STOCKHOLDERS’ EQUITY

Preferred Stock

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

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 March 31, 2023	Carrying Value (in millions)
Series	Description	Issuance Date							March 31, 2023		December 31, 2022



Series I	5.000% Non-Cumulative	September 11, 2019	December 1, 2024	5.000%	Quarterly	$	1,000	1,500,000	$	1,462	$	1,462
Series J	4.800% Non-Cumulative	January 31, 2020	June 1, 2025	4.800	Quarterly	1,000		1,250,000	1,209		1,209
Series K	4.625% Non-Cumulative	September 17, 2020	December 1, 2025	4.625	Quarterly	1,000		125,000	122		122
Series L	4.375% Non-Cumulative	May 4, 2021	September 1, 2026	4.375	Quarterly	1,000		675,000	652		652
Series M	3.950% Fixed Rate Reset Non-Cumulative	June 10, 2021	September 1, 2026	3.950% through 8/31/2026; resets 9/1/2026 and every subsequent 5 year anniversary at 5-Year Treasury Rate +3.157%	Quarterly	1,000		1,000,000	988		988
Series N	4.250% Non-Cumulative	July 29, 2021	September 1, 2026	4.250%	Quarterly	1,000		425,000	412		412
Total									$	4,845	$	4,845

__________

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



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Accumulated Other Comprehensive Income

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

The following table presents the changes in AOCI by component for the three months ended March 31, 2023, and 2022.

Table 9.2: AOCI


(Dollars in millions)	Securities Available for Sale		Hedging Relationships(1)		Foreign Currency Translation Adjustments (2)		Other		Total
AOCI as of December 31, 2022	$	(7,676)	$	(2,182)	$	(20)	$	(38)	$	(9,916)
Other comprehensive income (loss) before reclassifications	962		198		13		0		1,173
Amounts reclassified from AOCI into earnings	0		203		0		0		203
Other comprehensive income (loss), net of tax	962		401		13		0		1,376
AOCI as of March 31, 2023	$	(6,714)	$	(1,781)	$	(7)	$	(38)	$	(8,540)



(Dollars in millions)	Securities Available for Sale		Hedging Relationships(1)		Foreign Currency Translation Adjustments (2)		Other		Total
AOCI as of December 31, 2021	$	297	$	118	$	(21)	$	(20)	$	374
Other comprehensive income (loss) before reclassifications	(3,253)		(1,123)		(5)		0		(4,381)
Amounts reclassified from AOCI into earnings	0		(86)		0		0		(86)
Other comprehensive income (loss), net of tax	(3,253)		(1,209)		(5)		0		(4,467)
AOCI as of March 31, 2022	$	(2,956)	$	(1,091)	$	(26)	$	(20)	$	(4,093)

__________

(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 $38 million and gain of $48 million for the three months ended March 31, 2023 and 2022, 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 months ended March 31, 2023 and 2022.

Table 9.3: Reclassifications from AOCI


(Dollars in millions)		Three Months Ended March 31,
AOCI Components	Affected Income Statement Line Item		2023		2022
Securities available for sale:
	Non-interest income (loss)		$	0	$	0
	Income tax provision (benefit)		0		0
	Net income (loss)		0		0
Hedging relationships:
Interest rate contracts:	Interest income (loss)		(262)		127
Foreign exchange contracts:	Interest income		3		0
	Interest expense		(1)		(1)
	Non-interest income (loss)		(8)		(13)
	Income (loss) from continuing operations before income taxes		(268)		113
	Income tax provision (benefit)		(65)		27
	Net income (loss)		(203)		86
Other:
	Non-interest income and non-interest expense		0		0
	Income tax provision (benefit)		0		0
	Net income		0		0
Total reclassifications			$	(203)	$	86

The table below summarizes other comprehensive income (loss) activity and the related tax impact for the three months ended March 31, 2023 and 2022.

Table 9.4: Other Comprehensive Income (Loss)


	Three Months Ended March 31,
	2023						2022
(Dollars in millions)	Before Tax		Provision (Benefit)		After Tax		Before Tax		Provision (Benefit)		After Tax
Other comprehensive income (loss):
Net unrealized gains (losses) on securities available for sale	$	1,267	$	305	$	962	$	(4,287)	$	(1,034)	$	(3,253)
Net unrealized gains (losses) on hedging relationships	528		127		401		(1,593)		(384)		(1,209)
Foreign currency translation adjustments(1)	1		(12)		13		10		15		(5)

Other comprehensive income (loss)	$	1,796	$	420	$	1,376	$	(5,870)	$	(1,403)	$	(4,467)

__________

(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 March 31,
(Dollars and shares in millions, except per share data)		2023		2022


Net income		$	960	$	2,403
Dividends and undistributed earnings allocated to participating securities		(16)		(28)
Preferred stock dividends		(57)		(57)

Net income available to common stockholders		$	887	$	2,318

Total weighted-average basic common shares outstanding		382.6		410.4
Effect of dilutive securities:(1)
Stock options		0.1		0.5
Other contingently issuable shares		1.1		1.3
Total effect of dilutive securities		1.2		1.8
Total weighted-average diluted common shares outstanding		383.8		412.2
Basic earnings per common share:


Net income per basic common share		$	2.32	$	5.65
Diluted earnings per common share:(1)


Net income per diluted common share		$	2.31	$	5.62

__________

(1)Excluded from the computation of diluted earnings per share were awards of 40 thousand shares and no awards for the three months ended March 31, 2023 and 2022, respectively, because their inclusion would be anti-dilutive. There were no anti-dilutive stock options for the three months ended March 31, 2023 or 2022.



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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 (“DCF”) methodologies or similar techniques.

The accounting guidance for fair value measurements requires that we maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. We consider all available information, including observable market data, indications of market liquidity and orderliness, and our understanding of the valuation techniques and significant inputs. Based upon the specific facts and circumstances of each instrument or instrument category, judgments are made regarding the significance of the observable or unobservable inputs to the instruments’ fair value measurement in its entirety. If unobservable inputs are considered significant, the instrument is classified as Level 3. The process for determining fair value using unobservable inputs is generally more subjective and involves a high degree of management judgment and assumptions. The accounting guidance provides for the irrevocable option to elect, on a contract-by-contract basis, to measure certain financial assets and liabilities at fair value at inception of the contract and record any subsequent changes in fair value in earnings.

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 “Part II—Item 8. Financial Statements and Supplementary Data—Note 16—Fair Value Measurement” in our 2022 Form 10-K.



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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 March 31, 2023 and December 31, 2022.

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


	March 31, 2023
	Fair Value Measurements Using						Netting Adjustments(1)
(Dollars in millions)	Level 1		Level 2		Level 3				Total
Assets:
Securities available for sale:
U.S. Treasury securities	$	5,163	$	0	$	0	—		$	5,163
RMBS	0		66,104		247		—		66,351
CMBS	0		8,284		145		—		8,429
Other securities	188		1,794		0		—		1,982
Total securities available for sale	5,351		76,182		392		—		81,925
Loans held for sale	0		358		0		—		358
Other assets:
Derivative assets(2)	523		1,292		837		$	(1,026)	1,626
Other(3)	520		4		36		—		560
Total assets	$	6,394	$	77,836	$	1,265	$	(1,026)	$	84,469
Liabilities:
Other liabilities:
Derivative liabilities(2)	$	526	$	1,855	$	819	$	(636)	$	2,564
Total liabilities	$	526	$	1,855	$	819	$	(636)	$	2,564


	December 31, 2022
	Fair Value Measurements Using						Netting Adjustments(1)
(Dollars in millions)	Level 1		Level 2		Level 3				Total
Assets:
Securities available for sale:
U.S. Treasury securities	$	5,041	$	0	$	0	—		$	5,041
RMBS	0		62,353		236		—		62,589
CMBS	0		7,728		142		—		7,870
Other securities	186		1,233		0		—		1,419
Total securities available for sale	5,227		71,314		378		—		76,919
Loans held for sale	0		191		0		—		191
Other assets:
Derivative assets(2)	474		2,545		79		$	(1,134)	1,964
Other(3)	464		3		36		—		503
Total assets	$	6,165	$	74,053	$	493	$	(1,134)	$	79,577
Liabilities:
Other liabilities:
Derivative liabilities(2)	$	823	$	3,653	$	74	$	(1,235)	$	3,315
Total liabilities	$	823	$	3,653	$	74	$	(1,235)	$	3,315

__________

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

(2)Does not reflect $3 million and $4 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of March 31, 2023 and December 31, 2022, respectively. Non-performance risk is included in the measurement of derivative assets and liabilities on our consolidated balance sheets, and is recorded through non-interest income in the consolidated statements of income.



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(3)As of March 31, 2023 and December 31, 2022, other includes retained interests in securitizations of $36 million and $36 million, deferred compensation plan assets of $515 million and $453 million, and equity securities of $9 million (including unrealized gain of $0 million) and $14 million (including unrealized losses of $23 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 months ended March 31, 2023 and 2022. 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 March 31, 2023
			Total Gains (Losses) (Realized/Unrealized)																		Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of March 31, 2023(1)
(Dollars in millions)	Balance, January 1, 2023		Included in Net Income(1)		Included in OCI		Purchases		Sales		Issuances		Settlements		Transfers Into Level 3		Transfers Out of Level 3		Balance, March 31, 2023
Securities available for sale:(2)
RMBS	$	236	$	1	$	3	$	0	$	0	$	0	$	(5)	$	34	$	(22)	$	247	$	2
CMBS	142		0		5		0		0		0		(2)		0		0		145		0

Total securities available for sale	378		1		8		0		0		0		(7)		34		(22)		392		2
Other assets:

Retained interests in securitizations	36		0		0		0		0		0		0		0		0		36		0
Net derivative assets (liabilities)(3)(4)	5		(5)		0		0		0		104		12		(97)		(1)		18		4


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended March 31, 2022
			Total Gains (Losses) (Realized/Unrealized)																		Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of March 31, 2022(1)
(Dollars in millions)	Balance, January 1, 2022		Included in Net Income(1)		Included in OCI		Purchases		Sales		Issuances		Settlements		Transfers Into Level 3		Transfers Out of Level 3		Balance, March 31, 2022
Securities available for sale:(2)
RMBS	$	258	$	10	$	(12)	$	0	$	0	$	0	$	(28)	$	12	$	(29)	$	211	$	3
CMBS	9		0		0		0		0		0		(1)		13		0		21		(1)

Total securities available for sale	267		10		(12)		0		0		0		(29)		25		(29)		232		2
Other assets:

Retained interests in securitizations	41		(2)		0		0		0		0		0		0		0		39		(2)
Net derivative assets (liabilities)(3)	19		5		0		0		0		28		(2)		(28)		0		22		1

_________

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



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(2)Net unrealized losses included in OCI related to Level 3 securities available for sale still held as of March 31, 2023 were $8 million. Net unrealized losses included in OCI related to Level 3 securities available for sale still held as of March 31, 2022 were $7 million.

(3)Includes derivative assets and liabilities of $837 million and $819 million, respectively, as of March 31, 2023 and $202 million and $180 million, respectively, as of March 31, 2022.

(4)Transfers into Level 3 primarily consist of term SOFR indexed interest rate derivatives.

Significant Level 3 Fair Value Asset and Liability Inputs

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

Techniques and Inputs for Level 3 Fair Value Measurements

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

Table 11.3: Quantitative Information about Level 3 Fair Value Measurements

Quantitative Information about Level 3 Fair Value Measurements

(Dollars in millions)

Fair Value at
March 31,
2023

Significant
Valuation
Techniques

Significant
Unobservable
Inputs

Range

Weighted

Average(1)

Securities available for sale:

RMBS

247

Discounted cash flows (vendor pricing)

Yield
Voluntary prepayment rate
Default rate
Loss severity

4-17%

1-15%

0-11%

30-80%

57%

CMBS

145

Discounted cash flows (vendor pricing)

Yield

4-6%

Other assets:

Retained interests in securitizations(2)

Discounted cash flows

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

32-45

9-16%

5-8%

45-163%

N/A

Net derivative assets (liabilities)

Discounted cash flows

Swap rates

3-5%



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Quantitative Information about Level 3 Fair Value Measurements

(Dollars in millions)

Fair Value at
December 31,
2022

Significant
Valuation
Techniques

Significant
Unobservable
Inputs

Range

Weighted

Average(1)

Securities available for sale:

RMBS

236

Discounted cash flows (vendor pricing)

Yield
Voluntary prepayment rate
Default rate
Loss severity

3-12%

4-20%

0-11%

30-80%

58%

CMBS

142

Discounted cash flows (vendor pricing)

Yield

4-5%

Other assets:

Retained interests in securitizations(2)

Discounted cash flows

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

30-43

9-18%

4-7%

62-291%

N/A

Net derivative assets (liabilities)

Discounted cash flows

Swap rates

3-4%

__________

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

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

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

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

Table 11.4: Nonrecurring Fair Value Measurements


	March 31, 2023
	Estimated Fair Value Hierarchy				Total
(Dollars in millions)	Level 2		Level 3
Loans held for investment	$	0	$	204	$	204

Other assets(1)	0		51		51
Total	$	0	$	255	$	255


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

__________

(1)As of March 31, 2023, other assets included investments accounted for under measurement alternative of $6 million and repossessed assets of $45 million. As of December 31, 2022, other assets included investments accounted for under measurement alternative of $4 million, cost method investments of $3 million, repossessed assets of $55 million and long-lived assets held for sale and right-of-use assets totaling $158 million.



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In the above table, loans held for investment are generally valued based in part on the estimated fair value of the underlying collateral and the non-recoverable rate, which is considered to be a significant unobservable input. The non-recoverable rate ranged from 0% to 100%, with a weighted average of 25%, and from 0% to 43%, with a weighted average of 20%, as of March 31, 2023 and December 31, 2022, respectively. The weighted average non-recoverable rate is calculated based on the estimated market value of the underlying collateral. The significant unobservable inputs and related quantitative information related to fair value of the other assets are not meaningful to disclose as they vary significantly across properties and collateral.

The following table presents total nonrecurring fair value measurements for the period, included in earnings, attributable to the change in fair value relating to assets that are still held at March 31, 2023 and 2022.

Table 11.5: Nonrecurring Fair Value Measurements Included in Earnings


	Total Gains (Losses)
	Three Months Ended March 31,
(Dollars in millions)	2023		2022
Loans held for investment	$	(105)	$	(14)

Other assets(1)	(37)		(19)
Total	$	(142)	$	(33)

__________

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

Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value, including the level within the fair value hierarchy, of our financial instruments that are not measured at fair value on a recurring basis on our consolidated balance sheets as of March 31, 2023 and December 31, 2022.

Table 11.6: Fair Value of Financial Instruments


	March 31, 2023
	Carrying Value		Estimated Fair Value		Estimated Fair Value Hierarchy
(Dollars in millions)					Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	46,513	$	46,513	$	3,347	$	43,166	$	0
Restricted cash for securitization investors	460		460		460		0		0

Net loans held for investment	294,518		300,206		0		0		300,206
Loans held for sale	5		5		0		5		0
Interest receivable	2,250		2,250		0		2,250		0
Other investments(1)	1,327		1,327		0		1,327		0
Financial liabilities:
Deposits with defined maturities	76,044		75,495		0		75,495		0
Securitized debt obligations	17,813		17,737		0		17,737		0
Senior and subordinated notes	30,398		29,585		0		29,585		0
Federal funds purchased and securities loaned or sold under agreements to repurchase	542		542		0		542		0

Interest payable	621		621		0		621		0



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

Interest payable	527		527		0		527		0

__________

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



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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 or managed as a part of our existing business segments. Certain activities that are not part of a segment, such as management of our corporate investment portfolio, asset/liability management by our centralized Corporate Treasury group and residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments, are included in the Other category.

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 managed by our centralized Corporate Treasury group provides a funds credit for sources of funds, such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a charge for the use of funds by each segment. The allocation is unique to each business segment and acquired business and is based on the composition of assets and liabilities. The funds transfer pricing process considers the interest rate and liquidity risk characteristics of assets and liabilities and off-balance sheet products. Periodically the methodology and assumptions utilized in the funds transfer pricing process are adjusted to reflect economic conditions and other factors, which may impact the allocation of net interest income to the business segments. Due to the integrated nature of our business segments, estimates and judgments have been made in allocating certain revenue and expense items. Transactions between segments are based on specific criteria or approximate market rate. 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 “Part II—Item 8. Financial Statements and Supplementary Data—Note 17—Business Segments and Revenue from Contracts with Customers” in our 2022 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 months ended March 31, 2023 and 2022, selected balance sheet data as of March 31, 2023 and 2022, and a reconciliation of our total business segment results to our reported consolidated income from continuing operations, loans held for investment and deposits.



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Table 12.1: Segment Results and Reconciliation


	Three Months Ended March 31, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	4,657	$	2,360	$	648	$	(479)	$	7,186
Non-interest income	1,363		135		212		7		1,717
Total net revenue (loss)(2)	6,020		2,495		860		(472)		8,903
Provision (benefit) for credit losses	2,261		275		259		0		2,795
Non-interest expense	3,038		1,283		530		94		4,945
Income (loss) from continuing operations before income taxes	721		937		71		(566)		1,163
Income tax provision (benefit)	172		221		17		(207)		203
Income (loss) from continuing operations, net of tax	$	549	$	716	$	54	$	(359)	$	960
Loans held for investment	$	137,142	$	78,151	$	93,543	$	0	$	308,836
Deposits	0		291,163		38,380		20,284		349,827


	Three Months Ended March 31, 2022
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Net interest income (loss)	$	3,839	$	2,113	$	607	$	(162)	$	6,397
Non-interest income (loss)	1,458		105		277		(64)		1,776
Total net revenue (loss)(2)	5,297		2,218		884		(226)		8,173
Provision (benefit) for credit losses	545		130		8		(6)		677
Non-interest expense	2,783		1,236		488		44		4,551
Income (loss) from continuing operations before income taxes	1,969		852		388		(264)		2,945
Income tax provision (benefit)	469		202		92		(221)		542
Income (loss) from continuing operations, net of tax	$	1,500	$	650	$	296	$	(43)	$	2,403
Loans held for investment	$	113,962	$	80,330	$	86,174	$	0	$	280,466
Deposits	0		258,359		45,232		9,838		313,429

_________

(2)Total net revenue was reduced by $405 million and $192 million in the first quarters of 2023 and 2022, respectively, for credit card finance charges and fees charged off as uncollectible.



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Revenue from Contracts with Customers

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

The following table presents revenue from contracts with customers and a reconciliation to non-interest income by business segment for the three months ended March 31, 2023 and 2022.

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


	Three Months Ended March 31, 2023
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	1,025	$	86	$	27	$	1	$	1,139
Service charges and other customer-related fees	0		21		40		(1)		60
Other	55		19		5		0		79
Total contract revenue (loss)	1,080		126		72		0		1,278
Revenue from other sources	283		9		140		7		439
Total non-interest income	$	1,363	$	135	$	212	$	7	$	1,717


	Three Months Ended March 31, 2022
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking(1)		Other(1)		Consolidated Total
Contract revenue:
Interchange fees, net(2)	$	937	$	71	$	24	$	1	$	1,033
Service charges and other customer-related fees	0		26		65		(1)		90
Other	95		17		(2)		0		110
Total contract revenue	1,032		114		87		0		1,233
Revenue (reduction) from other sources	426		(9)		190		(64)		543
Total non-interest income (loss)	$	1,458	$	105	$	277	$	(64)	$	1,776

__________

(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 and certain other unconditionally cancellable lines of credit, are legally binding conditional agreements that have fixed expirations or termination dates and specified interest rates and purposes. The contractual amount of these commitments represents the maximum possible credit risk to us should the counterparty draw upon the commitment. We generally manage the potential risk of unfunded lending commitments by limiting the total amount of arrangements, monitoring the size and maturity structure of these portfolios and applying the same credit standards for all of our credit activities.

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

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

The following table presents the contractual amount and carrying value of our unfunded lending commitments as of March 31, 2023 and December 31, 2022. 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)	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022
Credit card lines	$	377,423	$	359,507	N/A		N/A
Other loan commitments(1)	46,147		48,405		$	141	$	176
Standby letters of credit and commercial letters of credit(2)	1,434		1,402		24		28
Total unfunded lending commitments	$	425,004	$	409,314	$	165	$	204

__________

(1)Includes $4.0 billion and $4.4 billion of advised lines of credit as of March 31, 2023 and December 31, 2022, respectively.

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

Loss Sharing Agreements

Within our Commercial Banking business, we originate multifamily commercial real estate loans with the intent to sell them to the GSEs. We enter into loss sharing agreements with the GSEs upon the sale of these originated loans. Beginning January 1, 2020, we elected the fair value option on new loss sharing agreements entered into. Unrealized gains and losses are recorded in other non-interest income in our consolidated statements of income. For those loss sharing agreements entered into as of and prior to December 31, 2019, we amortize the liability recorded at inception into non-interest income as we are released from risk of having to make a payment and record our estimate of expected credit losses each period 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 $138 million and $82 million as of March 31, 2023 and December 31, 2022, respectively. See “Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments” for information related to our credit card partnership loss sharing arrangements.



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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 March 31, 2023 are approximately $200 million. Our reserve and reasonably possible loss estimates involve considerable judgment and reflect that there is still significant uncertainty regarding numerous factors that may impact the ultimate loss levels. Notwithstanding, our attempt to estimate a reasonably possible range of loss beyond our current accrual levels for some litigation matters based on current information, it is possible that actual future losses will exceed both the current accrual level and the range of reasonably possible losses disclosed here. Given the inherent uncertainties involved in these matters, especially those involving governmental agencies, and the very large or indeterminate damages sought in some of these matters, there is significant uncertainty as to the ultimate liability we may incur from these litigation matters and an adverse outcome in one or more of these matters could be material to our results of operations or cash flows for any particular reporting period.

Interchange

In 2005, a putative class of retail merchants filed antitrust lawsuits against MasterCard and Visa and several issuing banks, including Capital One, seeking both injunctive relief and monetary damages for an alleged conspiracy by defendants to fix the level of interchange fees. Other merchants have asserted similar claims in separate lawsuits, and while these separate cases did not name any issuing banks, Visa, MasterCard and issuers, including Capital One, have entered settlement and judgment sharing agreements allocating the liabilities of any judgment or settlement arising from all interchange-related cases.

The lawsuits were consolidated before the U.S. District Court for the Eastern District of New York for certain purposes and were settled in 2012. The class settlement, however, was invalidated by the United States Court of Appeals for the Second Circuit in June 2016, and the suit was 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.

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”). As a result of the Cybersecurity Incident, we have been subject to numerous legal proceedings and other inquiries and could be the subject of additional proceedings and inquiries in the future.

Consumer class actions. We were named as a defendant in 5 putative consumer class action cases 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. In the second quarter of 2022, a trial court in British Columbia preliminarily certified a class of all impacted Canadian consumers except those in Quebec, which would allow the case to proceed with discovery on a classwide basis under Canadian law. The preliminary certification decision has been appealed, and preliminary class certification proceedings are continuing in parallel in three other Canadian provinces (Ontario, Quebec, and Alberta).

Governmental inquiries. In August 2020, we entered into consent orders with the Federal Reserve and the Office of the Comptroller of the Currency (“OCC”) resulting from regulatory reviews of the Cybersecurity Incident and relating to ongoing



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enhancements of our cybersecurity and operational risk management processes. We paid an $80 million penalty to the U.S. Treasury as part of the OCC agreement. The Federal Reserve agreement did not contain a monetary penalty. The OCC lifted its consent order on August 31, 2022.

Walmart Litigation

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

U.K. PPI Litigation

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

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 “Part I—Item 2. 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 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 March 31, 2023, the end of the period covered by this Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2023, 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 first quarter of 2023 which have 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 “Part I—Item 1. Financial Statements and Supplementary Data—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 2022 Form 10-K.

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

The following table presents information related to the repurchases of shares of our common stock for each calendar month in the first quarter of 2023. Commission costs are excluded from the amounts presented below.


	Total Number of Shares Purchased(1)	Average Price per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans(1)	Maximum Amount That May Yet be Purchased Under the Plan or Program(1) (in millions)
January	499,636	$	100.07	499,636	$	5,136
February	1,097,213	115.01		424,802	5,087
March	690,356	101.94		513,047	5,036
Total	2,287,205	107.80		1,437,485

__________

(1)In January 2022, our Board of Directors authorized the repurchase of up to $5.0 billion of shares of our common stock. In April 2022, our Board of Directors authorized the repurchase of up to an additional $5.0 billion of shares of our common stock. There were 672,411 and 177,309 shares withheld in February and March, respectively, to cover taxes on restricted stock units (“RSUs”) whose restrictions have lapsed. See “Part I—Item 2.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


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 September 23, 2021 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on September 29, 2021).













4.1						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.
10.1+						Form of Restricted Stock Unit Award Agreement, dated January 26, 2023, by and between Capital One Financial Corporation and Richard D. Fairbank under the Sixth Amended and Restated 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.2.21 of the Annual Report on Form 10-K, filed on February 24, 2023).
10.2+						Performance Unit Award Agreement, dated January 26, 2023, by and between Capital One Financial Corporation and Richard D. Fairbank under the Sixth Amended and Restated 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.2.2 2 of the Annual Report on Form 10-K, filed on February 24, 2023).
10.3+						Total Shareholder Return Performance Unit Award Agreement granted to our Chief Executive Officer under the Sixth Amended and Restated 2004 Stock Incentive Plan on January 26, 2023 (incorporated by reference to Exhibit 10.2.23 of the Annual Report on Form 10-K, filed on February 24, 2023).
10.4+						Form of Restricted Stock Unit Award Agreements granted to our executive officers under the Sixth Amended and Restated 2004 Stock Incentive Plan on January 26, 2023 (incorporated by reference to Exhibit 10.2.2 4 of the Annual Report on Form 10-K, filed on February 24, 2023).
10.5+						Form of Performance Unit Award Agreements granted to our executive officers under the Sixth Amended and Restated 2004 Stock Incentive Plan on January 26, 2023 (incorporated by reference to Exhibit 10.2.25 of the Annual Report on Form 10-K, filed on February 24, 2023).

















































31.1*						Certification of Richard D. Fairbank.
31.2*						Certification of Andrew M. Young.
32.1**						Certification of Richard D. Fairbank.
32.2**						Certification of Andrew M. Young.
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 March 31, 2023, formatted in Inline XBRL (included within the Exhibit 101 attachments).

__________

Represents a management contract or compensatory plan or arrangement.

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, as amended, 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, as amended, 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: May 5, 2023

By:

/s/ ANDREW M. YOUNG

Andrew M. Young

Chief Financial Officer



			123			Capital One Financial Corporation (COF)