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CAPITAL ONE FINANCIAL CORP - Quarter Report: 2023 September (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 September 30, 2023
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File No. 001-13300
____________________________________
CAPITAL ONE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter) 
____________________________________
Delaware 54-1719854
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1680 Capital One Drive,
McLean,Virginia 22102
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (703) 720-1000
(Not Applicable)
(Former name, former address and former fiscal year, if changed since last report)
____________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading 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 ICOF 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 JCOF 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 KCOF 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 LCOF 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 NCOF PRN
New York Stock Exchange
0.800% Senior Notes Due 2024COF24
New York Stock Exchange
1.650% Senior Notes Due 2029COF29
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 October 20, 2023, there were 380,846,771 shares of the registrant’s Common Stock outstanding.


TABLE OF CONTENTS
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Capital One Financial Corporation (COF)

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INDEX OF MD&A AND SUPPLEMENTAL TABLE
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A
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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 September 30, 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 September 30, 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 third quarter and first nine months of 2023 and 2022 and selected comparative balance sheet data as of September 30, 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 September 30,Nine Months Ended September 30,
(Dollars in millions, except per share data and as noted)20232022Change20232022Change
Income statement
Net interest income$7,423$7,0036%$21,722$19,9179%
Non-interest income1,9431,80285,5595,2935
Total net revenue9,3668,805627,28125,2108
Provision for credit losses2,2841,669377,5693,431121
Non-interest expense:
Marketing972978(1)2,7552,899(5)
Operating expense3,8883,971(2)11,84411,1846
Total non-interest expense4,8604,949(2)14,59914,0834
Income from continuing operations before income taxes2,2222,18725,1137,696(34)
Income tax provision432493(12)9321,568(41)
Net income1,7901,69464,1816,128(32)
Dividends and undistributed earnings allocated to participating securities(28)(21)33(67)(74)(9)
Preferred stock dividends(57)(57)—(171)(171)—
Net income available to common stockholders$1,705$1,6166$3,943$5,883(33)
Common share statistics 
Basic earnings per common share:
Net income per basic common share$4.46$4.216%$10.31$14.90(31)%
Diluted earnings per common share:
Net income per diluted common share$4.45$4.206%$10.28$14.84(31)%
Weighted-average common shares outstanding (in millions):
Basic 382.5383.4—382.7394.9(3)%
Diluted383.3384.6—383.6396.4(3)
Common shares outstanding (period-end, in millions)381.0382.0—381.0382.0—
Dividends declared and paid per common share$0.60$0.60—$1.80$1.80—
Tangible book value per common share (period-end)(1)
87.9781.388%87.9781.388
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Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions, except per share data and as noted)20232022Change20232022Change
Balance sheet (average balances)
Loans held for investment$312,759$300,1864%$310,075$287,3048%
Interest-earning assets443,532412,1718439,321401,7939
Total assets469,860447,0885466,279437,5237
Interest-bearing deposits316,032275,90015312,702271,95715
Total deposits345,013311,92811342,956309,16811
Borrowings49,73658,628(15)48,74651,431(5)
Common equity50,16649,696150,20251,184(2)
Total stockholders’ equity55,01254,541155,04856,030(2)
Selected performance metrics 
Purchase volume$158,640$149,4976%$458,235$431,6506%
Total net revenue margin(2)
8.45%8.55 %(10)bps8.28%8.37 %(9)bps
Net interest margin6.69 6.80 (11)6.59 6.61 (2)
Return on average assets(3)
1.52 1.52 — 1.20 1.87 (67)
Return on average tangible assets(4)
1.58 1.57 1 1.24 1.93 (69)
Return on average common equity(5)
13.59 13.01 58 10.47 15.33 (486)
Return on average tangible common equity(6)
19.59 18.59 100 15.01 21.62 (661)
Equity-to-assets ratio(7)
11.71 12.20 (49)11.81 12.81 (100)
Efficiency ratio(8)
51.89 56.21 (432)53.51 55.86 (235)
Operating efficiency ratio(9)
41.51 45.10 (359)43.41 44.36 (95)
Effective income tax rate from continuing operations19.4 22.5 (310)18.2 20.4 (220)
Net charge-offs$1,999$931115%$5,881$2,543131%
Net charge-off rate2.56 %1.24 %132bps2.53 %1.18 %135bps
    
(Dollars in millions, except as noted)September 30, 2023December 31, 2022Change
Balance sheet (period-end)  
Loans held for investment$314,780$312,3311%
Interest-earning assets445,428427,2484
Total assets471,435455,2494
Interest-bearing deposits317,217300,7895
Total deposits346,011332,9924
Borrowings49,24748,7151
Common equity48,82347,7372
Total stockholders’ equity53,66852,5822
Credit quality metrics
Allowance for credit losses$14,955$13,24013%
Allowance as a percentage of loans held for investment (“allowance coverage ratio”)4.75 %4.24%51bps
30+ day performing delinquency rate3.42 2.9646
30+ day delinquency rate3.71 3.2150
Capital ratios 
Common equity Tier 1 capital(10)
13.0 %12.5%50bps
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(Dollars in millions, except as noted)September 30, 2023December 31, 2022Change
Tier 1 capital(10)
14.3 13.940
Total capital(10)
16.2 15.840
Tier 1 leverage(10)
11.2 11.110
Tangible common equity(11)
7.3 7.5(20)
Supplementary leverage(10)
9.6 9.510
Other
Employees (period end, in thousands)54.2 56.0(3)%
__________
(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.
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EXECUTIVE SUMMARY
Financial Highlights
We reported net income of $1.8 billion ($4.45 per diluted common share) on total net revenue of $9.4 billion and net income of $4.2 billion ($10.28 per diluted common share) on total net revenue of $27.3 billion for the third quarter and first nine months of 2023, respectively. In comparison, we reported net income of $1.7 billion ($4.20 per diluted common share) on total net revenue of $8.8 billion and net income of $6.1 billion ($14.84 per diluted common share) on total net revenue of $25.2 billion for the third quarter and first nine months of 2022, respectively.
Our common equity Tier 1 capital ratio as calculated under the Basel III standardized approach was 13.0% and 12.5% as of September 30, 2023 and December 31, 2022, respectively. See “Capital Management” for additional information.
In the third quarter of 2023, we declared and paid common stock dividends of $232 million and repurchased $150 million of shares of our common stock. During the first nine months of 2023, we declared and paid common stock dividends of $702 million and repurchased $450 million of shares of our common stock. See “Capital Management—Dividend Policy and Stock Purchases” for additional information.
Below are additional highlights of our performance in the third quarter and first nine months of 2023. These highlights are based on a comparison between the results of the third quarter and first nine months 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 September 30, 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 increased by $96 million to $1.8 billion in the third quarter of 2023 compared to the third quarter of 2022 primarily driven by:
◦Higher net interest income primarily driven by higher average loan balances in our credit card loan portfolio, partially offset by higher provision for credit losses primarily due to continued credit normalization.
Our net income decreased by $1.9 billion to $4.2 billion in the first nine months of 2023 compared to the first nine months of 2022 primarily driven by:
◦Higher provision for credit losses primarily driven by continued credit normalization, partially offset by higher net interest income primarily due to higher average loan balances in our credit card loan portfolio.
•Loans Held for Investment:
◦Period-end loans held for investment increased by $2.4 billion to $314.8 billion as of September 30, 2023 compared to December 31, 2022 primarily driven by growth in our credit card loan portfolio.
◦Average loans held for investment increased by $12.6 billion to $312.8 billion in the third quarter of 2023 compared to the third quarter of 2022 and increased by $22.8 billion to $310.1 billion in the first nine months of 2023 compared to the first nine months 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 132 basis points (“bps”) to 2.56% in the third quarter of 2023 compared to the third quarter of 2022 and increased by 135 bps to 2.53% in the first nine months of 2023 compared to the first nine months of 2022 primarily driven by continued credit normalization in our credit card loan portfolio.
◦Our 30+ day delinquency rate increased by 50 bps to 3.71% as of September 30, 2023 from December 31, 2022 primarily driven by continued credit normalization in our credit card loan portfolio.
•Allowance for Credit Losses: Our allowance for credit losses increased by $1.7 billion to $15.0 billion and our allowance coverage ratio increased by 51 bps to 4.75% as of September 30, 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 third quarter and first nine months 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 third quarter and first nine months 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 September 30,
 20232022
(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$144,053 $6,850 19.02%$123,357 $5,161 16.74 %
Consumer banking77,154 1,537 7.9781,411 1,464 7.19 
Commercial banking(3)
92,254 1,642 7.1296,184 1,057 4.40 
Other(4)
— (333)**—(104)**
Total loans, including loans held for sale313,461 9,696 12.37300,952 7,578 10.07 
Investment securities87,845 627 2.8688,666 499 2.25 
Cash equivalents and other interest-earning assets42,226 550 5.2122,553 123 2.19 
Total interest-earning assets443,532 10,873 9.81412,171 8,200 7.96 
Cash and due from banks3,580 4,778 
Allowance for credit losses(14,649)(11,502)
Premises and equipment, net4,380 4,266 
Other assets33,017 37,375 
Total assets$469,860 $447,088 
Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Interest-bearing deposits$316,032 $2,611 3.30 %$275,900 $689 1.00 %
Securitized debt obligations17,649 249 5.6317,108 120 2.81 
Senior and subordinated notes31,522 579 7.3630,962 319 4.13 
Other borrowings and liabilities2,473 11 1.7912,296 69 2.20 
Total interest-bearing liabilities367,676 3,450 3.75336,266 1,197 1.42 
Non-interest-bearing deposits28,981 36,028 
Other liabilities18,191 20,253 
Total liabilities414,848 392,547 
Stockholders’ equity55,012 54,541 
Total liabilities and stockholders’ equity$469,860 $447,088 
Net interest income/spread$7,423 6.05$7,003 6.53 
Impact of non-interest-bearing funding0.640.27 
Net interest margin6.69 %6.80%
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 Nine Months Ended September 30,
 20232022
(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$139,196 $19,205 18.40 %$117,821 $13,848 15.67 %
Consumer banking77,944 4,484 7.6780,447 4,308 7.14
Commercial banking(3)
93,517 4,710 6.7290,848 2,344 3.44
Other(4)
— (923)**— 50 **
Total loans, including loans held for sale310,657 27,476 11.79289,116 20,550 9.48
Investment securities89,259 1,881 2.8191,788 1,336 1.94
Cash equivalents and other interest-earning assets39,405 1,436 4.8620,889 193 1.23
Total interest-earning assets439,321 30,793 9.35401,793 22,079 7.33
Cash and due from banks3,876 5,014 
Allowance for credit losses(14,064)(11,411)
Premises and equipment, net4,366 4,254 
Other assets32,780 37,873 
Total assets$466,279 $437,523 
Liabilities and stockholders’ equity:
Interest-bearing liabilities:
Interest-bearing deposits$312,702 $6,744 2.88 %$271,957 $1,200 0.59 %
Securitized debt obligations17,558 696 5.2815,309 214 1.87
Senior and subordinated notes30,611 1,596 6.9528,804 644 2.98
Other borrowings and liabilities2,410 35 1.948,982 104 1.53
Total interest-bearing liabilities363,281 9,071 3.33325,052 2,162 0.89
Non-interest-bearing deposits30,254 37,211 
Other liabilities17,696 19,230 
Total liabilities411,231 381,493 
Stockholders’ equity55,048 56,030 
Total liabilities and stockholders’ equity$466,279 $437,523 
Net interest income/spread$21,722 6.02$19,917 6.44
Impact of non-interest-bearing funding0.570.17
Net interest margin6.59 %6.61 %
__________
(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 $593 million and $1.6 billion in the third quarter and first nine months of 2023, respectively, and $534 million and $1.4 billion in the third quarter and first nine months of 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 and $55 million in the third quarter and first nine months of 2023, respectively, and $20 million and $56 million in the third quarter and first nine months of 2022, respectively, with corresponding reductions to the Other category.
(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.
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Net interest income increased by $420 million to $7.4 billion in the third quarter of 2023 and increased by $1.8 billion to $21.7 billion in the first nine months of 2023 primarily driven by higher asset yields and higher average loan balances in our credit card loan portfolio.
Net interest margin decreased by 11 bps to 6.69% in the third quarter of 2023 compared to the third quarter of 2022 and decreased by 2 bps to 6.59% in the first nine months of 2023 compared to the first nine months of 2022.
Table 3 displays the change in our net interest income between periods and the extent to which the variance is attributable to:
•changes in the volume of our interest-earning assets and interest-bearing liabilities; or
•changes in the interest rates related to these assets and liabilities.
Table 3: Rate/Volume Analysis of Net Interest Income(1)
Three Months Ended September 30,Nine Months Ended September 30,
 2023 vs. 20222023 vs. 2022
(Dollars in millions)Total VarianceVolumeRateTotal VarianceVolumeRate
Interest income:
Loans:
Credit card$1,689 $927 $762 $5,357 $2,717 $2,640 
Consumer banking73 (77)150 176 (134)310 
Commercial banking(2)
585 (43)628 2,366 71 2,295 
Other(3)
(229)— (229)(973)— (973)
Total loans, including loans held for sale2,118 807 1,311 6,926 2,654 4,272 
Investment securities128 (5)133 545 (37)582 
Cash equivalents and other interest-earning assets427 145 282 1,243 240 1,003 
Total interest income2,673 947 1,726 8,714 2,857 5,857 
Interest expense:
Interest-bearing deposits1,922 112 1,810 5,544 202 5,342 
Securitized debt obligations129 4 125 482 35 447 
Senior and subordinated notes260 6 254 952 43 909 
Other borrowings and liabilities(58)(44)(14)(69)(76)7 
Total interest expense2,253 78 2,175 6,909 204 6,705 
Net interest income$420 $869 $(449)$1,805 $2,653 $(848)
__________
(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 third quarter and first nine months of 2023 and 2022.
Table 4: Non-Interest Income
 Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)2023202220232022
Interchange fees, net$1,234 $1,195 $3,586$3,429 
Service charges and other customer-related fees453 415 1,2431,230 
Other(1)(2)
256 192 730634 
Total non-interest income$1,943 $1,802 $5,559$5,293 
________
(1)Primarily consists of revenue from Capital One Shopping, our credit card partnership agreements, commercial mortgage banking revenue and treasury and other investment income.
(2)Includes losses of $13 million and gains of $36 million on deferred compensation plan investments in the third quarter and first nine months of 2023, respectively, and losses of $19 million and $106 million on deferred compensation plan investments in the third quarter and first nine months of 2022, respectively. These amounts have corresponding offsets in non-interest expense.

Non-interest income increased by $141 million to $1.9 billion in the third quarter of 2023 and increased by $266 million to $5.6 billion in the first nine months of 2023 primarily driven by higher treasury income due to higher interest rates and higher net interchange fees due to an increase in purchase volume.
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 $615 million to $2.3 billion in the third quarter of 2023 primarily driven by continued credit normalization, partially offset by a lower net allowance build. Our provision for credit losses increased by $4.1 billion to $7.6 billion in the first nine months of 2023 primarily driven by continued credit normalization and net allowance builds.
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 third quarter and first nine months of 2023 and 2022.
Table 5: Non-Interest Expense
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)2023202220232022
Operating Expense:
    Salaries and associate benefits(1)
$2,274 $2,187 $7,018 $6,159 
    Occupancy and equipment518 502 1,532 1,496 
    Professional services295 471 909 1,326 
    Communications and data processing344 349 1,038 1,027 
    Amortization of intangibles24 17 60 45 
    Other non-interest expense:
    Bankcard, regulatory and other fee assessments62 90 197 211 
    Collections89 83 261 246 
    Other282 272 829 674 
    Total other non-interest expense433 445 1,287 1,131 
Total operating expense$3,888 $3,971 $11,844 $11,184 
Marketing972 978 2,755 2,899 
Total non-interest expense$4,860 $4,949 $14,599 $14,083 
_________
(1)Includes benefit of $13 million and expense of $36 million related to our deferred compensation plan for the third quarter and first nine months of 2023, respectively, and benefit of $19 million and $106 million related to our deferred compensation plan investments for the third quarter and first nine months of 2022, respectively. These amounts have corresponding offsets from investments in other non-interest income.
Non-interest expense remained substantially flat at $4.9 billion in the third quarter of 2023 compared to the third quarter of 2022. Non-interest expense increased by $516 million to $14.6 billion in the first nine months of 2023 primarily driven by increased salaries and associate benefits, partially offset by lower professional services and marketing spend.
Income Taxes
We recorded an income tax provision of $432 million (19.4% effective income tax rate) and $932 million (18.2% effective income tax rate) in the third quarter and first nine months of 2023, respectively, compared to an income tax provision of $493 million (22.5% effective income tax rate) and $1.6 billion (20.4% effective income tax rate) in the third quarter and first nine months of 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 $16.2 billion to $471.4 billion as of September 30, 2023 from December 31, 2022 primarily driven by increases in our cash balances as we continue to hold elevated levels of liquidity given the market volatility.
Total liabilities increased by $15.1 billion to $417.8 billion as of September 30, 2023 from December 31, 2022 primarily driven by deposit growth due to our national consumer banking strategy.
Stockholders’ equity increased by $1.1 billion to $53.7 billion as of September 30, 2023 from December 31, 2022 primarily driven by net income of $4.2 billion, partially offset by an increase in accumulated other comprehensive loss due to a decline in the fair value of our investment securities portfolio.
The following is a discussion of material changes in the major components of our assets and liabilities during the first nine months 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 September 30, 2023 and December 31, 2022.
The fair value of our available for sale securities portfolio decreased by $2.1 billion to $74.8 billion as of September 30, 2023 from December 31, 2022, primarily driven by declines in fair value due to increases in 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 September 30, 2023 and December 31, 2022.
Table 6: Loans Held for Investment
 September 30, 2023December 31, 2022
(Dollars in millions)LoansAllowanceNet LoansLoansAllowanceNet Loans
Credit Card$146,783 $(11,324)$135,459 $137,730 $(9,545)$128,185 
Consumer Banking76,844 (2,049)74,795 79,925 (2,237)77,688 
Commercial Banking91,153 (1,582)89,571 94,676 (1,458)93,218 
Total$314,780 $(14,955)$299,825 $312,331 $(13,240)$299,091 
Loans held for investment increased by $2.4 billion to $314.8 billion as of September 30, 2023 compared to December 31, 2022 primarily driven by growth in our credit card loan portfolio.

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
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, securitized debt obligations, federal funds purchased, securities loaned or sold under agreements to repurchase, and Federal Home Loan Bank (“FHLB”) advances secured by certain portions of our loan and securities portfolios.
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Table 7 provides the composition of our primary sources of funding as of September 30, 2023 and December 31, 2022.
Table 7: Funding Sources Composition
September 30, 2023December 31, 2022
(Dollars in millions)Amount% of TotalAmount% of Total
Deposits:
Consumer Banking$290,789 74 %$270,592 71 %
Commercial Banking36,035 940,808 11
Other(1)
19,187 521,592 6
Total deposits(2)
346,011 88332,992 88
Securitized debt obligations17,417 416,973 4
Other debt31,830 831,742 8
Total funding sources$395,258 100 %$381,707 100 %
__________
(1)Includes brokered deposits of $18.1 billion and $20.6 billion as of September 30, 2023 and December 31, 2022, respectively.
(2)As of September 30, 2023 and December 31, 2022, we held $68.3 billion and $80.7 billion, respectively, of estimated uninsured deposits excluding any intercompany balances. These amounts are primarily comprised of checking and savings deposits. These estimated uninsured deposits comprise approximately 20% and 24% of our total deposits as of September 30, 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 $13.0 billion to $346.0 billion as of September 30, 2023 from December 31, 2022 primarily driven by our national banking strategy.
Securitized debt obligations increased by $444 million to $17.4 billion as of September 30, 2023 from December 31, 2022 primarily driven by net issuances in our credit card securitization program, partially offset by net paydowns in our auto securitization program.
Other debt increased by $88 million to $31.8 billion as of September 30, 2023 from December 31, 2022 primarily driven by net issuances of senior debt, partially offset by maturities of subordinated 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.”
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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 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 revenues 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 third quarter and first nine months of 2023 and 2022 and provide a comparative discussion of these results, as well as changes in our financial condition and credit performance metrics as of September 30, 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.”
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Business Segment Financial Performance
Table 8 summarizes our business segment results, which we report based on total net revenue (loss) and net income (loss) from continuing operations, for the third quarter and first nine months of 2023 and 2022.
Table 8: Business Segment Results
 Three Months Ended September 30,
 20232022
 
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$6,627 71%$1,266 71%$5,767 65%$1,146 67%
Consumer Banking2,275 24611 342,440 28622 37
Commercial Banking(3)
909 10214 121,018 12270 16
Other(3)
(445)(5)(301)(17)(420)(5)(344)(20)
Total
$9,366 100%$1,790 100%$8,805 100%$1,694 100%
Nine Months Ended September 30,
 
20232022
 
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$18,873 69%$2,672 64%$16,373 65%$4,137 67%
Consumer Banking7,188 262,036 496,901 271,788 29
Commercial Banking(3)
2,658 10468 112,809 11718 12
Other(3)
(1,438)(5)(995)(24)(873)(3)(515)(8)
Total$27,281 100%$4,181 100%$25,210 100%$6,128 100%
__________
(1)Total net revenue (loss) consists of net interest income and non-interest income.
(2)Net income (loss) for our business segments and the Other category is based on income (loss) from continuing operations, net of tax.
(3)Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category.
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Capital One Financial Corporation (COF)
Credit Card Business
The primary sources of revenue for our Credit Card business are net interest income, net interchange income and fees collected from customers. Expenses primarily consist of the provision for credit losses, operating costs and marketing expenses.
Our Credit Card business generated net income from continuing operations of $1.3 billion and $2.7 billion in the third quarter and first nine months of 2023, respectively, and $1.1 billion and $4.1 billion in the third quarter and first nine months of 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 September 30,Nine Months Ended September 30,
(Dollars in millions, except as noted)20232022Change20232022Change
Selected income statement data:
Net interest income$5,114$4,313 19%$14,498$12,05120%
Non-interest income1,5131,454 44,3754,3221
Total net revenue(1)
6,6275,767 1518,87316,37315
Provision for credit losses1,9531,261 556,2982,387164
Non-interest expense3,0153,004 —9,0738,5586
Income from continuing operations before income taxes1,6591,502 103,5025,428(35)
Income tax provision393356 108301,291(36)
Income from continuing operations, net of tax$1,266$1,146 10$2,672$4,137(35)
Selected performance metrics:
Average loans held for investment$144,049$123,35717$139,195$116,93419
Average yield on loans(2)
19.02 %16.74 %228bps18.40 %15.67 %273bps
Total net revenue margin(3)
18.40 18.70 (30)18.0818.53(45)
Net charge-offs$1,592$695129%$4,489$1,980127%
Net charge-off rate4.42 %2.25 %217bps4.30 %2.26 %204bps
Purchase volume$158,640$149,4976%$458,235$431,6506%
(Dollars in millions, except as noted)September 30, 2023December 31, 2022Change
Selected period-end data:
Loans held for investment$146,783$137,7307%
30+ day performing delinquency rate4.32 %3.46 %86bps
30+ day delinquency rate4.32 3.46 86
Nonperforming loan rate(4)
0.01 0.01 —
Allowance for credit losses$11,324$9,54519%
Allowance coverage ratio7.71%6.93 %78bps
__________
(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 $449 million and $1.3 billion in the third quarter and first nine months of 2023, respectively, compared to $222 million and $625 million in the third quarter and first nine months of 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.
(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.
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Key factors affecting the results of our Credit Card business for the third quarter and first nine months of 2023 compared to the third quarter and first nine months of 2022, and changes in financial condition and credit performance between September 30, 2023 and December 31, 2022 include the following:
•Net Interest Income: Net interest income increased by $801 million to $5.1 billion in the third quarter of 2023 and increased by $2.4 billion to $14.5 billion in the first nine months of 2023 primarily driven by higher average loan balances.
•Non-Interest Income: Non-interest income increased by $59 million to $1.5 billion in the third quarter of 2023 due to higher net interchange fees due to an increase in purchase volume. Non-interest income increased by $53 million to $4.4 billion in the first nine months of 2023 due to higher net interchange fees due to an increase in purchase volume, partially offset by the absence of the gain on the sale of partnership loan portfolios in 2022.
•Provision for Credit Losses: Provision for credit losses increased by $692 million to $2.0 billion in the third quarter of 2023 primarily driven by continued credit normalization, partially offset by a lower allowance build. Provision for credit losses increased by $3.9 billion to $6.3 billion in the first nine months of 2023 primarily driven by continued credit normalization and allowance builds.
•Non-Interest Expense: Non-interest expense remained substantially flat at $3.0 billion in the third quarter of 2023 compared to the third quarter of 2022. Non-interest expense increased by $515 million to $9.1 billion in the first nine months of 2023 primarily driven by increased operating expenses, including salaries and associate benefits.
Loans Held for Investment:
•Period-end loans held for investment increased by $9.1 billion to $146.8 billion as of September 30, 2023 from December 31, 2022 driven by growth across our portfolio.

•Average loans held for investment increased by $20.7 billion to $144.0 billion in the third quarter of 2023 compared to the third quarter of 2022 and increased by $22.3 billion to $139.2 billion in the first nine months of 2023 compared to the first nine months of 2022 driven by growth across our portfolio.
Net Charge-Off and Delinquency Metrics:
•The net charge-off rate increased by 217 bps to 4.42% in the third quarter of 2023 compared to the third quarter of 2022 and increased by 204 bps to 4.30% in the first nine months of 2023 compared to the first nine months of 2022 primarily driven by continued credit normalization.

•The 30+ day delinquency rate increased by 86 bps to 4.32% as of September 30, 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 $1.2 billion and $2.6 billion in the third quarter and first nine months of 2023, respectively, and $1.1 billion and $3.9 billion in the third quarter and first nine months of 2022, respectively. In the third quarter and first nine months 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 our Domestic Card business and displays selected key metrics for the periods indicated.
Table 9.1: Domestic Card Business Results
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions, except as noted)20232022Change20232022Change
Selected income statement data:
Net interest income$4,827$4,06519%$13,670$11,33621%
Non-interest income1,4451,38344,1743,9715
Total net revenue(1)
6,2725,4481517,84415,30717
Provision for credit losses1,8611,167596,0302,220172
Non-interest expense2,8102,803—8,4627,9616
Income from continuing operations before income taxes1,6011,47883,3525,126(35)
Income tax provision37835187911,215(35)
Income from continuing operations, net of tax$1,223$1,1279$2,561$3,911(35)
Selected performance metrics:
Average loans held for investment$137,500$117,46717$132,889$111,03220
Average yield on loans(2)
18.96 %16.61%235bps18.31 %15.51 %280bps
Total net revenue margin(3)
18.2418.55 (31)17.9018.33(43)
Net charge-offs$1,512$647134%$4,262$1,828133%
Net charge-off rate4.40%2.20%220bps4.28 %2.19 %209bps
Purchase volume$154,880$145,8056%$447,374$416,7577%
(Dollars in millions, except as noted)September 30, 2023December 31, 2022Change
Selected period-end data:
Loans held for investment$140,320$131,5817%
30+ day performing delinquency rate4.31 %3.43 %88bps
Allowance for credit losses$10,925$9,16519%
Allowance coverage ratio7.79 %6.97 %82bps
__________
(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.
Because our Domestic Card business accounts for the substantial majority of our Credit Card business, the key factors driving the results are similar to the key factors affecting our total Credit Card business. Net income for our Domestic Card business increased in the third quarter of 2023 compared to the third quarter of 2022 primarily driven by:
•Higher net interest income primarily driven by higher average loan balances, partially offset by higher provision for credit losses primarily driven by continued credit normalization.
Net income for our Domestic Card business decreased in the first nine months of 2023 compared to the first nine months of 2022 primarily driven by:
•Higher provision for credit losses primarily driven by continued credit normalization and allowance builds, partially offset by higher net interest income primarily driven by higher average loan balances.
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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 $611 million and $2.0 billion in the third quarter and first nine months of 2023, respectively, and $622 million and $1.8 billion in the third quarter and first nine months of 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 September 30,Nine Months Ended September 30,
(Dollars in millions, except as noted)20232022Change20232022Change
Selected income statement data:
Net interest income$2,133$2,311(8)%$6,762$6,5713%
Non-interest income1421291042633029
Total net revenue2,2752,440(7)7,1886,9014
Provision for credit losses213285(25)7476967
Non-interest expense1,2621,340(6)3,7763,862(2)
Income from continuing operations before income taxes800815(2)2,6652,34314
Income tax provision189193(2)62955513
Income from continuing operations, net of tax$611$622(2)$2,036$1,78814
Selected performance metrics:
Average loans held for investment:
Auto$75,740$79,741(5)$76,473$78,659(3)
Retail banking1,4141,598(12)1,4691,687(13)
Total consumer banking$77,154$81,339(5)$77,942$80,346(3)
Average yield on loans held for investment(1)
7.97 %7.20%77bps7.67 %7.15%52bps
Average deposits$287,457$255,84312%$283,991$255,15011%
Average deposits interest rate2.85 %0.79 %206bps2.43 %0.49 %194bps
Net charge-offs$349$22456%$935$50685%
Net charge-off rate1.81 %1.10 %71bps1.60 %0.84 %76bps
Auto loan originations$7,452$8,289(10)%$20,823$30,330(31)%
(Dollars in millions, except as noted)September 30, 2023December 31, 2022Change
Selected period-end data:
Loans held for investment:
Auto$75,456$78,373(4)%
Retail banking1,3881,552(11)
Total consumer banking$76,844$79,925(4)
30+ day performing delinquency rate5.55 %5.53 %2bps
30+ day delinquency rate6.276.189
Nonperforming loan rate0.890.7910
Nonperforming asset rate(2)
0.960.879
Allowance for credit losses$2,049$2,237(8)%
Allowance coverage ratio2.67 %2.80 %(13)bps
Deposits$290,789$270,5927
_________
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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 third quarter and first nine months of 2023 compared to the third quarter and first nine months of 2022, and changes in financial condition and credit performance between September 30, 2023 and December 31, 2022 include the following:
•Net Interest Income: Net interest income decreased by $178 million to $2.1 billion in the third quarter of 2023 primarily driven by lower margins in our retail banking business and lower average loan balances in our auto business, partially offset by higher deposits in our retail banking business. Net interest income increased by $191 million to $6.8 billion in the first nine months of 2023 primarily driven by higher deposits in our retail banking business, partially offset by lower margins in our auto business.
•Non-Interest Income: Non-interest income remained substantially flat at $142 million in the third quarter of 2023 compared to the third quarter of 2022. Non-interest income increased by $96 million to $426 million in the first nine months of 2023 primarily driven by higher interchange fees from an increase in debit card purchase volume.
•Provision for Credit Losses: Provision for credit losses decreased by $72 million to $213 million in the third quarter of 2023 primarily driven by an improved economic environment. Provision for credit losses increased by $51 million to $747 million in the first nine months of 2023 primarily driven by continued credit normalization.
•Non-Interest Expense: Non-interest expense decreased by $78 million to $1.3 billion in the third quarter of 2023 and decreased by $86 million to $3.8 billion in the first nine months of 2023 primarily driven by lower auto originations.
Loans Held for Investment: 
•Period-end loans held for investment decreased by $3.1 billion to $76.8 billion as of September 30, 2023 from December 31, 2022 primarily driven by customer payments outpacing originations in auto.
•Average loans held for investment decreased by $4.2 billion to $77.2 billion in the third quarter of 2023 compared to the third quarter of 2022 and decreased by $2.4 billion to $77.9 billion in the first nine months of 2023 compared to the first nine months of 2022 primarily driven by lower auto loan originations.
Deposits: 
•Period-end deposits increased by $20.2 billion to $290.8 billion as of September 30, 2023 from December 31, 2022 primarily driven by our national banking strategy.
Net Charge-Off and Delinquency Metrics: 
•The net charge-off rate increased by 71 bps to 1.81% in the third quarter of 2023 compared to the third quarter of 2022 and increased by 76 bps to 1.60% in the first nine months of 2023 compared to the first nine months of 2022 primarily driven by continued credit normalization in our auto loan portfolio.
•The 30+ day delinquency rate remained substantially flat at 6.27% as of September 30, 2023 compared to December 31, 2022.
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Commercial Banking Business
The primary sources of revenue for our Commercial Banking business are net interest income from loans and deposits and non-interest income earned from products and services provided to our clients such as 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 $214 million and $468 million in the third quarter and first nine months of 2023, respectively, and $270 million and $718 million in the third quarter and first nine months of 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 September 30,Nine Months Ended September 30,
(Dollars in millions, except as noted)20232022Change20232022Change
Selected income statement data:
Net interest income$621$699 (11)%$1,901$1,941(2)%
Non-interest income288319 (10)757868(13)
Total net revenue(1)
9091,018 (11)2,6582,809(5)
Provision for credit losses(2)
116123 (6)52135348
Non-interest expense512542 (6)1,5241,5151
Income from continuing operations before income taxes281353 (20)613941(35)
Income tax provision6783 (19)145223(35)
Income from continuing operations, net of tax$214$270 (21)$468$718(35)
Selected performance metrics:
Average loans held for investment:
Commercial and multifamily real estate$35,964$38,230(6)$36,796$36,2312
Commercial and industrial55,59257,260(3)56,14253,7934
Total commercial banking$91,556$95,490(4)$92,938$90,0243
Average yield on loans held for investment(1)(3)
7.16 %4.40 %276bps6.73 %3.44 %329bps
Average deposits$37,279$39,799(6)%$38,383$41,762(8)%
Average deposits interest rate2.93 %0.83 %210bps2.65 %0.37 %228bps
Net charge-offs$58$12**$457$57**
Net charge-off rate0.25 %0.05 %20bps0.66 %0.08 %58bps
(Dollars in millions, except as noted)September 30, 2023December 31, 2022Change
Selected period-end data:
Loans held for investment:
Commercial and multifamily real estate$35,622$37,453(5)%
Commercial and industrial55,53157,223(3)
Total commercial banking$91,153$94,676(4)
Nonperforming loan rate0.90 %0.74 %16bps
Nonperforming asset rate(4)
0.90 0.74 16
Allowance for credit losses(2)
$1,582$1,4589%
Allowance coverage ratio1.74%1.54%20bps
Deposits$36,035$40,808(12)%
Loans serviced for others52,39751,9181
__________
(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 $158 million and $218 million as of September 30, 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 third quarter and first nine months of 2023 compared to the third quarter and first nine months of 2022, and changes in financial condition and credit performance between September 30, 2023 and December 31, 2022 include the following:
•Net Interest Income: Net interest income decreased by $78 million to $621 million in the third quarter of 2023 driven by lower average loan and deposit balances. Net interest income remained substantially flat at $1.9 billion in the first nine months of 2023 compared to the first nine months of 2022.
•Non-Interest Income: Non-interest income decreased by $31 million to $288 million in the third quarter of 2023 and decreased by $111 million to $757 million in the first nine months of 2023 primarily driven by lower activity in our agency business.
•Provision for Credit Losses: Provision for credit losses remained substantially flat at $116 million in the third quarter of 2023 compared to the third quarter of 2022. Provision for credit losses increased by $168 million to $521 million in the first nine months of 2023 primarily driven by higher charge-offs in our office real estate portfolio.
•Non-Interest Expense: Non-interest expense remained substantially flat at $512 million in the third quarter of 2023 compared to the third quarter of 2022 and at $1.5 billion in the first nine months of 2023 compared to the first nine months of 2022.
Loans Held for Investment:
•Period-end loans held for investment decreased by $3.5 billion to $91.2 billion as of September 30, 2023 from December 31, 2022 primarily driven by customer payments outpacing originations.
•Average loans held for investment decreased by $3.9 billion to $91.6 billion in the third quarter of 2023 compared to the third quarter of 2022 primarily driven by customer payments outpacing originations and increased by $2.9 billion to $92.9 billion in the first nine months of 2023 compared to the first nine months of 2022 primarily driven by growth across our loan portfolio.
Deposits:
•Period-end deposits decreased by $4.8 billion to $36.0 billion as of September 30, 2023 from December 31, 2022 primarily driven by our commercial deposit strategy.
Net Charge-Off and Nonperforming Metrics:
•The net charge-off rate increased by 20 bps to 0.25% in the third quarter of 2023 compared to the third quarter of 2022 and increased by 58 bps to 0.66% in the first nine months of 2023 compared to the first nine months of 2022 primarily driven by charge offs in our office real estate portfolio.
•The nonperforming loan rate increased by 16 bps to 0.90% as of September 30, 2023 compared to December 31, 2022 primarily driven by credit deterioration in our real estate portfolio.
Other Category
Other includes unallocated amounts related to our centralized Corporate Treasury group activities, such as management of our corporate investment securities portfolio, asset/liability management and oversight of our funds transfer pricing process. Other also includes:
•unallocated corporate revenue and expenses that do not directly support the operations of the business segments or for which the business segments are not considered financially accountable in evaluating their performance, such as certain restructuring charges;
•offsets related to certain line-item reclassifications;
•residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments; and
•foreign exchange-rate fluctuations on foreign currency-denominated balances.
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Table 12 summarizes the financial results of our Other category for the periods indicated.
Table 12: Other Category Results
 Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)20232022Change20232022Change
Selected income statement data:
Net interest loss$(445)$(320)39%$(1,439)$(646)123%
Non-interest income (loss)—(100)**1 (227)**
Total net income (loss)(1)
(445)(420)6(1,438)(873)65
Provision (benefit) for credit losses2—**3 (5)**
Non-interest expense716313226 14853
Loss from continuing operations before income taxes(518)(483)7(1,667)(1,016)64
Income tax benefit(217)(139)56(672)(501)34
Loss from continuing operations, net of tax$(301)$(344)(13)$(995)$(515)93
__________
(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.
**    Not meaningful.
Loss from continuing operations decreased by $43 million to a loss of $301 million in the third quarter of 2023 compared to the third quarter of 2022.
Loss from continuing operations increased by $480 million to a loss of $995 million in the first nine months of 2023 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.
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Goodwill
We perform our goodwill impairment test annually on October 1 at a reporting unit level. As of our last annual test and as of September 30, 2023, we had four reporting units: Credit Card, Auto, Other Consumer Banking and Commercial Banking. We are also required to test goodwill for impairment when a triggering event occurs that indicates it is more likely than not that the fair value of a reporting unit is below its carrying amount.
The results of the 2022 annual goodwill impairment test for the Commercial Banking reporting unit indicated that the estimated fair value of the Commercial Banking reporting unit exceeded its carrying amount by 17%. Outside of our annual impairment testing process, we monitor our reporting units for any triggering events while also performing qualitative assessments of impairment indicators. During the third quarter, we concluded there were no triggering events and completed our qualitative assessment of impairment indicators, which included, among other things, an assessment of changes in macroeconomic conditions, comparison of the actual results to those forecasted in the most recent annual impairment test and performing sensitivity analysis on key assumptions. Though this qualitative assessment concluded that it was more likely than not that the fair value of the Commercial Banking reporting unit remained in excess of the carrying value as of September 30, 2023, the amount by which the estimated fair value exceeded its carrying value is estimated to have declined relative to the results of the 2022 annual impairment test. We are currently in the process of performing our 2023 annual impairment test, the results of which will be disclosed in our 2023 Form 10-K.
Assumptions used in estimating the fair value of a reporting unit are judgmental and inherently uncertain. A change in the economic conditions of a reporting unit, such as declines in business performance as a result of industry or macroeconomic trends or changes in our strategy, adverse impacts to loan or deposit growth trends, decreases in revenue, increases in expenses, increases in credit losses, increases in capital requirements, deterioration of market conditions, declines in long-term growth expectations, adverse impacts of regulatory or legislative changes or increases in the estimated cost of capital could cause the estimated fair values of our reporting units to decline in the future, and increase the risk of a goodwill impairment in a future period.
There have been no additional 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.”
ACCOUNTING CHANGES AND DEVELOPMENTS
Accounting Standards Issued but Not Adopted as of September 30, 2023
StandardGuidanceAdoption 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 do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
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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 accumulated other comprehensive income (“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 Federal Deposit Insurance Corporation (“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 was 3.1%. Therefore, the Company’s minimum capital requirements
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plus the standardized approach capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios under the stress capital buffer framework were 7.6%, 9.1% and 11.1%, respectively, for the period from October 1, 2022 through September 30, 2023.
Based on the Company’s 2023 supervisory stress test results, the Company’s stress capital buffer requirement for the period beginning on October 1, 2023 through September 30, 2024 is 4.8%. Therefore, the Company’s minimum capital requirements plus the standardized approach capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios under the stress capital buffer framework are 9.3%, 10.8% and 12.8%, respectively, for the period from October 1, 2023 through September 30, 2024.
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 September 30, 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 September 30, 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
202020212022202320242025
“Day 1” CECL adoption impactCapital impact delayed to 202225% Phased In50% Phased In75% Phased InFully Phased In
Cumulative “day 2” ongoing impact 25% scaling factor as an approximation of the increase in allowance under CECL
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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 September 30, 2023, the Company’s CET1 capital ratio, reflecting the CECL Transition Rule, was 13.0% and would have been 12.7% 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. For a description of proposed amendments to these regulatory capital rules, see “Supervision and Regulation” in this Report.
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 September 30, 2023 and December 31, 2022.
Table 13: Capital Ratios Under Basel III(1)(2)
 September 30, 2023December 31, 2022
RatioMinimum
Capital
Adequacy		Well-
Capitalized		RatioMinimum
Capital
Adequacy		Well-
Capitalized
Capital One Financial Corp:
Common equity Tier 1 capital(3)
13.0 %4.5 %N/A12.5 %4.5 %N/A
Tier 1 capital(4)
14.3 6.0 6.0 %13.9 6.0 6.0 %
Total capital(5)
16.2 8.0 10.0 15.8 8.0 10.0
Tier 1 leverage(6)
11.2 4.0 N/A11.1 4.0 N/A
Supplementary leverage(7)
9.6 3.0 N/A9.5 3.0 N/A
CONA:
Common equity Tier 1 capital(3)
13.2 4.5 6.5 13.1 4.5 6.5
Tier 1 capital(4)
13.2 6.0 8.0 13.1 6.0 8.0
Total capital(5)
14.5 8.0 10.0 14.4 8.0 10.0
Tier 1 leverage(6)
10.3 4.0 5.0 10.5 4.0 5.0
Supplementary leverage(7)
8.8 3.0 N/A9.0 3.0 N/A
__________
(1)Capital requirements that are not applicable are denoted by “N/A.”
(2)Ratios as of September 30, 2023 are preliminary and therefore subject to change until we file our September 30, 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 September 30, 2023 and December 31, 2022.
Table 14: Regulatory Risk-Based Capital Components and Regulatory Capital Metrics
(Dollars in millions)September 30, 2023December 31, 2022
Regulatory capital under Basel III standardized approach
Common equity excluding AOCI$62,245 $59,450
Adjustments and deductions:
AOCI, net of tax(1)
(9)(17)
Goodwill, net of related deferred tax liabilities(14,797)(14,540)
Other intangible and deferred tax assets, net of deferred tax liabilities(333)(162)
Common equity Tier 1 capital47,106 44,731
Tier 1 capital instruments4,846 4,845
Tier 1 capital51,952 49,576
Tier 2 capital instruments2,246 2,585
Qualifying allowance for credit losses4,646 4,553
Tier 2 capital6,892 7,138
Total capital$58,844 $56,714
Regulatory capital metrics
Risk-weighted assets$362,962 $357,920
Adjusted average assets(2)
464,286 444,704
Total leverage exposure(3)
542,526 522,136
__________
(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.
(2)Includes on-balance sheet asset adjustments subject to deduction from Tier 1 capital under the Basel III Capital Rules.
(3)Reflects on- and off-balance sheet amounts for the denominator of the supplementary leverage ratio as set forth by the Basel III Capital Rules.
Capital Planning and Regulatory Stress Testing
We repurchased $150 million of shares of our common stock during the third quarter of 2023 and $450 million of shares of our common stock during the first nine months of 2023.
On July 27, 2023, the Federal Reserve confirmed and announced individual stress capital buffer requirements for all large banking institutions, including the Company. The Company’s final stress capital buffer requirement for the period beginning on October 1, 2023 through September 30, 2024 is 4.8%. Therefore, the Company’s minimum capital requirements plus the standardized approach capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios under the stress capital buffer framework are 9.3%, 10.8% and 12.8%, respectively, for the period 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 “Supervision and Regulation” in this Report and “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 nine months of 2023, we declared and paid common stock dividends of $702 million, or $1.80 per share, and preferred stock dividends of $171 million. The following table summarizes the dividends paid per share on our various preferred stock series in the first nine months of 2023.
Table 15: Preferred Stock Dividends Paid Per Share
SeriesDescriptionIssuance DatePer Annum
Dividend Rate		Dividend Frequency2023
Q3Q2Q1
Series I5.000%
Non-Cumulative		September 11, 20195.000%Quarterly$12.50$12.50$12.50
Series J4.800%
Non-Cumulative		January 31,
2020		4.800Quarterly12.0012.0012.00
Series K4.625%
Non-Cumulative		September 17, 20204.625Quarterly11.5611.5611.56
Series L4.375%
Non-Cumulative		May 4,
2021		4.375Quarterly10.9410.9410.94
Series M3.950% 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%Quarterly9.889.889.88
Series N4.250%
Non-Cumulative		July 29,
2021		4.250Quarterly10.6310.6310.63
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 September 30, 2023, funds available for dividend payments from the Bank were $4.9 billion. There can be no assurance that we will declare and pay any dividends to stockholders.
We repurchased $150 million of shares of our common stock during the third quarter of 2023 and $450 million of shares of our common stock during the first nine months of 2023. 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, does not have a set expiration date 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 II—Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” in this Report as well as “Part I—Item 1. Business—Supervision and Regulation—Dividends, Stock Repurchases and Transfers of Funds” in our 2022 Form 10-K.
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.

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First Line

Identifies and Owns Risk
Second Line

Advises & Challenges First Line
Third Line

Provides Independent Assurance
DefinitionBusiness 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 ResponsibilitiesIdentify, 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 the systems and governance processes are designed and working as intended.
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

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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
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 $742 million and $203 million as of September 30, 2023 and December 31, 2022, respectively.
Table 16 presents the composition of our portfolio of loans held for investment by portfolio segment as of September 30, 2023 and December 31, 2022.
Table 16: Portfolio Composition of Loans Held for Investment
September 30, 2023December 31, 2022
(Dollars in millions)Loans% of TotalLoans% of Total
Credit Card:
Domestic credit card$140,320 44.5 %$131,581 42.1 %
International card businesses6,463 2.1 6,149 2.0 
Total credit card146,783 46.6 137,730 44.1 
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September 30, 2023December 31, 2022
(Dollars in millions)Loans% of TotalLoans% of Total
Consumer Banking:
Auto75,456 24.0 78,373 25.1 
Retail banking1,388 0.4 1,552 0.5 
Total consumer banking76,844 24.4 79,925 25.6 
Commercial Banking:
Commercial and multifamily real estate35,622 11.3 37,453 12.0 
Commercial and industrial55,531 17.7 57,223 18.3 
Total commercial banking91,153 29.0 94,676 30.3 
Total loans held for investment$314,780 100.0 %$312,331 100.0 %
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 September 30, 2023 and December 31, 2022.
Table 17: Credit Card Portfolio by Geographic Region
September 30, 2023December 31, 2022
(Dollars in millions)Amount% of TotalAmount% of Total
Domestic credit card:
California$14,376 9.8 %$13,707 10.0%
Texas11,949 8.111,202 8.1
Florida10,583 7.29,549 6.9
New York9,159 6.28,366 6.1
Pennsylvania5,747 3.95,425 3.9
Illinois5,445 3.75,260 3.8
Ohio4,839 3.34,662 3.4
New Jersey4,638 3.24,243 3.1
Georgia4,471 3.14,172 3.0
Michigan4,084 2.83,920 2.8
Other65,029 44.361,075 44.4
Total domestic credit card140,320 95.6131,581 95.5 %
International card businesses:
United Kingdom3,363 2.33,129 2.3
Canada3,100 2.13,020 2.2
Total international card businesses6,463 4.46,149 4.5
Total credit card$146,783 100.0 %$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 September 30, 2023 and December 31, 2022.
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Table 18: Consumer Banking Portfolio by Geographic Region
 September 30, 2023December 31, 2022
(Dollars in millions)Amount% of TotalAmount% of Total
Auto:
Texas$9,179 11.9 %$9,586 12.0 %
California8,999 11.7 9,570 12.0 
Florida6,586 8.6 6,755 8.5 
Pennsylvania3,247 4.2 3,303 4.1 
Ohio3,155 4.1 3,143 3.9 
Georgia3,041 4.0 3,243 4.1 
Illinois3,030 3.9 3,119 3.9 
New Jersey2,678 3.5 2,742 3.4 
Other35,541 46.3 36,912 46.2 
Total auto75,456 98.2 78,373 98.1 
Retail banking:
New York426 0.6 477 0.6 
Texas298 0.4 333 0.4 
Louisiana244 0.3 283 0.3 
New Jersey106 0.1 122 0.2 
Maryland84 0.1 97 0.1 
Virginia56 0.1 67 0.1 
Other174 0.2 173 0.2 
Total retail banking1,388 1.8 1,552 1.9 
Total consumer banking$76,844 100.0 %$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 September 30, 2023 and December 31, 2022.
Table 19: Commercial Real Estate Portfolio by Region
September 30, 2023December 31, 2022
(Dollars in millions)Amount% of TotalAmount% of Total
Geographic concentration:(1)
Northeast$13,807 38.8 %$15,055 40.2 %
South8,565 24.0 8,706 23.2 
Pacific West5,415 15.2 5,902 15.7 
Mid-Atlantic3,120 8.8 3,129 8.4 
Midwest
2,421 6.8 2,394 6.4 
Mountain
2,294 6.4 2,267 6.1 
Total$35,622 100.0 %$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 September 30, 2023 and December 31, 2022. Industry classifications below are based on our interpretation of the Federal Loan Classification codes as they pertain to each individual loan.
Table 20: Commercial Loans by Industry
(Percentage of portfolio)September 30, 2023December 31, 2022
Industry Classification:(1)
Finance32%31 %
Real Estate & Construction(2)
30 31 
Government & Education8 8 
Health Care & Pharmaceuticals5 5 
Commercial Services4 4 
Technology, Telecommunications & Media
3 3 
Oil, Gas & Pipelines
3 3 
Other15 15 
Total100 %100 %
__________
(1)Beginning in the third quarter of 2023, we made reporting presentation changes to classify loans based on the Federal Loan Classification codes rather than the North American Industry Classification System codes previously utilized. Prior period amounts presented have been reclassified to conform to the current period presentation.
(2)The funded balance for commercial office real estate held for investment totaled $2.4 billion, or 3%, and $4.0 billion, or 4%, as of September 30, 2023 and December 31, 2022, respectively. Commercial office real estate exposure 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 September 30, 2023 and December 31, 2022.
Table 21: Credit Score Distribution
(Percentage of portfolio)September 30, 2023December 31, 2022
Domestic credit card—Refreshed FICO scores:(1)
Greater than 66069 %69 %
660 or below31 31 
Total100 %100 %
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(Percentage of portfolio)September 30, 2023December 31, 2022
Auto—At origination FICO scores:(2)
Greater than 66052 %53 %
621 - 66020 20 
620 or below28 27 
Total100 %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 Fair Isaac Corporation (“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 September 30, 2023 and December 31, 2022.
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Table 22: 30+ Day Delinquencies
 September 30, 2023December 31, 2022
 30+ Day Performing Delinquencies30+ Day Delinquencies30+ Day Performing Delinquencies30+ Day Delinquencies
(Dollars in millions)Amount
Rate(1)
Amount
Rate(1)
Amount
Rate(1)
Amount
Rate(1)
Credit Card:
Domestic credit card$6,053 4.31 %$6,053 4.31 %$4,515 3.43 %$4,515 3.43 %
International card businesses286 4.43 293 4.54 248 4.03 254 4.13 
Total credit card6,339 4.32 6,346 4.32 4,763 3.46 4,769 3.46 
Consumer Banking:
Auto4,253 5.64 4,791 6.35 4,402 5.62 4,906 6.26 
Retail banking15 1.07 31 2.22 16 1.02 34 2.22 
Total consumer banking4,268 5.55 4,822 6.27 4,418 5.53 4,940 6.18 
Commercial Banking:
Commercial and multifamily real estate136 0.38 298 0.84 1 — 36 0.10 
Commercial and industrial14 0.03 209 0.38 78 0.14 281 0.49 
Total commercial banking150 0.16 507 0.56 79 0.08 317 0.33 
Total$10,757 3.42 $11,675 3.71 $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 held for investment, by aging and geography, as of September 30, 2023 and December 31, 2022.
Table 23: Aging and Geography of 30+ Day Delinquent Loans
 September 30, 2023December 31, 2022
(Dollars in millions)Amount
Rate(1)
Amount
Rate(1)
Delinquency status:
30 – 59 days$5,032 1.60 %$4,666 1.50 %
60 – 89 days2,845 0.90 2,511 0.80 
> 90 days
3,798 1.21 2,849 0.91 
Total$11,675 3.71 %$10,026 3.21 %
Geographic region:
Domestic$11,382 3.62 %$9,772 3.13 %
International293 0.09 254 0.08 
Total$11,675 3.71 %$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 September 30, 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
 September 30, 2023December 31, 2022
(Dollars in millions)Amount
Rate(1)
Amount
Rate(1)
Loan category:
Credit card$3,019 2.06 %$2,240 1.63 %
Commercial banking13 0.01 — — 
Total$3,032 0.96 $2,240 0.72 
Geographic region:
Domestic$2,917 0.95 $2,135 0.70 
International115 1.79 105 1.71 
Total$3,032 0.96 $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 September 30, 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)
 September 30, 2023December 31, 2022
(Dollars in millions)AmountRateAmountRate
Nonperforming loans held for investment:(2)
Credit Card:
International card businesses$9 0.14 %$9 0.14 %
Total credit card9 0.01 9 0.01 
Consumer Banking:
Auto639 0.85 595 0.76 
Retail banking45 3.28 39 2.49 
Total consumer banking684 0.89 634 0.79 
Commercial Banking:
Commercial and multifamily real estate459 1.29 271 0.72 
Commercial and industrial363 0.65 430 0.75 
Total commercial banking822 0.90 701 0.74 
Total nonperforming loans held for investment(3)
1,515 0.48 1,344 0.43 
Other nonperforming assets(4)
56 0.02 61 0.02 
Total nonperforming assets$1,571 0.50 $1,405 0.45 
__________
(1)We recognized interest income for loans classified as nonperforming of $47 million and $29 million in the first nine months of 2023 and 2022, respectively. Interest income foregone related to nonperforming loans was $91 million and $59 million in the first nine months 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 0.87% and 0.74% as of September 30, 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 third quarter and first nine months of 2023 and 2022.
Table 26: Net Charge-Offs
 Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
(Dollars in millions)Amount
Rate(1)
Amount
Rate(1)
Amount
Rate(1)
Amount
Rate(1)
Credit Card:
Domestic credit card$1,512 4.40 %$647 2.20 %$4,262 4.28 %$1,828 2.19 %
International card businesses80 4.87 48 3.30 227 4.80 152 3.44 
Total credit card1,592 4.42 695 2.25 4,489 4.30 1,980 2.26 
Consumer Banking:
Auto335 1.77 208 1.05 898 1.57 456 0.77 
Retail banking14 3.80 16 3.89 37 3.33 50 3.95 
Total consumer banking349 1.81 224 1.10 935 1.60 506 0.84 
Commercial Banking:
Commercial and multifamily real estate24 0.27 2 0.03 404 1.46 (5)(0.02)
Commercial and industrial34 0.24 10 0.06 53 0.13 62 0.15 
Total commercial banking58 0.25 12 0.05 457 0.66 57 0.08 
Total net charge-offs$1,999 2.56 $931 1.24 $5,881 2.53 $2,543 1.18 
Average loans held for investment$312,759 $300,186 $310,075 $287,304 
__________
(1)Net charge-off rates are calculated by dividing annualized net charge-offs by average loans held for investment for the period for each loan category.
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Financial Difficulty Modifications to Borrowers
We adopted Accounting Standards Update (“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 the adoption 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 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 nine months ended September 30, 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 third quarter of 2023 and TDRs in the third 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 third quarter and first nine months 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 September 30, 2023
Credit CardConsumer Banking
(Dollars in millions)Domestic CardInternational Card BusinessesTotal Credit CardAutoRetail BankingTotal Consumer BankingCommercial BankingTotal
Allowance for credit losses:
Balance as of June 30, 2023$10,576 $400 $10,976 $2,150 $35 $2,185 $1,485 $14,646 
Charge-offs(1,811)(114)(1,925)(579)(17)(596)(60)(2,581)
Recoveries(1)
299 34 333 244 3 247 2 582 
Net charge-offs(1,512)(80)(1,592)(335)(14)(349)(58)(1,999)
Provision for credit losses1,861 92 1,953 198 15 213 155 2,321 
Allowance build (release) for credit losses349 12 361 (137)1 (136)97 322 
Other changes(2)
— (13)(13)— — — — (13)
Balance as of September 30, 202310,925 399 11,324 2,013 36 2,049 1,582 14,955 
Reserve for unfunded lending commitments:
Balance as of June 30, 2023— — — — — — 197 197 
Provision (benefit) for losses on unfunded lending commitments— — — — — — (39)(39)
Balance as of September 30, 2023— — — — — — 158 158 
Combined allowance and reserve as of September 30, 2023$10,925 $399 $11,324 $2,013 $36 $2,049 $1,740 $15,113 
Nine Months Ended September 30, 2023
Credit CardConsumer Banking
(Dollars in millions)Domestic CardInternational Card BusinessesTotal Credit CardAutoRetail BankingTotal Consumer BankingCommercial BankingTotal
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(3)
(40)(23)(63)— — — — (63)
Balance as of January 1, 20239,125 357 9,482 2,187 50 2,237 1,458 13,177 
Charge-offs
(5,156)(325)(5,481)(1,602)(51)(1,653)(462)(7,596)
Recoveries(1)
894 98 992 704 14 718 5 1,715 
Net charge-offs(4,262)(227)(4,489)(898)(37)(935)(457)(5,881)
Provision for credit losses6,030 268 6,298 724 23 747 581 7,626 
Allowance build (release) for credit losses1,768 41 1,809 (174)(14)(188)124 1,745 
Other changes(2)
32 1 33 — — — — 33 
Balance as of September 30, 202310,925 399 11,324 2,013 36 2,049 1,582 14,955 
Reserve for unfunded lending commitments:
Balance as of December 31, 2022— — — — — — 218 218 
Provision (benefit) for losses on unfunded lending commitments— — — — — — (60)(60)
Balance as of September 30, 2023— — — — — — 158 158 
Combined allowance and reserve as of September 30, 2023$10,925 $399 $11,324 $2,013 $36 $2,049 $1,740 $15,113 
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Three Months Ended September 30, 2022
Credit CardConsumer Banking
(Dollars in millions)Domestic CardInternational Card BusinessesTotal Credit CardAutoRetail BankingTotal Consumer BankingCommercial BankingTotal
Allowance for credit losses:
Balance as of June 30, 2022$7,840 $326 $8,166 $1,999 $48 $2,047 $1,278 $11,491 
Charge-offs(960)(87)(1,047)(389)(21)(410)(13)(1,470)
Recoveries(1)
313 39 352 181 5 186 1 539 
Net charge-offs(647)(48)(695)(208)(16)(224)(12)(931)
Provision (benefit) for credit losses1,167 94 1,261 266 19 285 119 1,665 
Allowance build (release) for credit losses520 46 566 58 3 61 107 734 
Other changes(2)
10 (26)(16)— — — — (16)
Balance as of September 30, 20228,370 346 8,716 2,057 51 2,108 1,385 12,209 
Reserve for unfunded lending commitments:
Balance as of June 30, 2022— — — — — — 239 239 
Provision for losses on unfunded lending commitments— — — — — — 4 4 
Balance as of September 30, 2022— — — — — — 243 243 
Combined allowance and reserve as of September 30, 2022$8,370 $346 $8,716 $2,057 $51 $2,108 $1,628 $12,452 
Nine Months Ended September 30, 2022
Credit CardConsumer Banking
(Dollars in millions)Domestic CardInternational Card BusinessesTotal Credit CardAutoRetail BankingTotal Consumer BankingCommercial BankingTotal
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(2,747)(264)(3,011)(1,026)(64)(1,090)(73)(4,174)
Recoveries(1)
919 112 1,031 570 14 584 16 1,631 
Net charge-offs(1,828)(152)(1,980)(456)(50)(506)(57)(2,543)
Provision (benefit) for credit losses2,220 167 2,387 661 35 696 275 3,358 
Allowance build (release) for credit losses392 15 407 205 (15)190 218 815 
Other changes(2)
10 (46)(36)— — — — (36)
Balance as of September 30, 20228,370 346 8,716 2,057 51 2,108 1,385 12,209 
Reserve for unfunded lending commitments:
Balance as of December 31, 2021— — — — — — 165 165 
Provision for losses on unfunded lending commitments— — — — — — 78 78 
Balance as of September 30, 2022— — — — — — 243 243 
Combined allowance and reserve as of September 30, 2022$8,370 $346 $8,716 $2,057 $51 $2,108 $1,628 $12,452 
________
(1)The amount and timing of recoveries are impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications, repossession of collateral, the periodic sale of charged off loans as well as additional strategies, such as litigation.
(2)Primarily represents the initial allowance for purchased credit-deteriorated (“PCD”) loans and foreign currency translation adjustments. The initial allowance of purchased credit-deteriorated loans was $0 million and $32 million for the three and nine months ended September 30, 2023, respectively, and $10 million for both the three and nine months ended September 30, 2022.
(3)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.
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.
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-Table 28 below presents the composition of our liquidity reserves as of September 30, 2023 and December 31, 2022.
Table 28: Liquidity Reserves
(Dollars in millions)September 30, 2023December 31, 2022
Cash and cash equivalents$44,869 $30,856 
Securities available for sale74,837 76,919 
FHLB borrowing capacity secured by loans5,565 6,436 
Outstanding FHLB advances and letters of credit secured by loans and investment securities(50)(51)
Other encumbrances of investment securities(6,869)(7,583)
Total liquidity reserves$118,352 $106,577 

Our liquidity reserves increased by $11.8 billion to $118.4 billion as of September 30, 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 third quarter of 2023 was 155%, 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
We are subject to the net stable funding ratio (“NSFR”) standard as implemented by the Federal Reserve and the OCC (the “NSFR Rule”). The NSFR Rule requires each of the Company and the Bank to maintain an NSFR of 100% on an ongoing basis. It also requires the Company to publicly disclose, on a semi-annual basis each second and fourth quarter, its NSFR, certain related quantitative liquidity metrics and qualitative discussion of its NSFR. Our average NSFR for the third quarter of 2023 exceeded the NSFR Rule requirement of 100%. The calculation and the underlying components are based on our interpretations, expectations and assumptions of the 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.
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 subject to continuing review and change in the future, including as part of the routine renewal process.
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In addition to our issuance capacity under the shelf registration statements, we also have pledged collateral to support our access to FHLB advances, the Federal Reserve Discount Window, the Bank Term Funding Program (“BTFP”) and the Fixed Income Clearing Corporation - Government Securities Division (“FICC—GSD”) general collateral financing repurchase agreement service. For each of these programs, the ability to borrow utilizing these sources is dependent on meeting the respective membership requirements. Our borrowing capacity in each program is a function of the collateral the Bank has posted with each counterparty, including any respective haircuts applied to that collateral.
As of September 30, 2023, we pledged both loans and securities to the FHLB to secure a maximum borrowing capacity of $31.6 billion, of which $50 million was used. Our FHLB membership is supported by our investment in FHLB stock of $18 million and $15 million as of September 30, 2023 and December 31, 2022, respectively.
As a member of FICC—GSD, we have $15.2 billion of readily available borrowing capacity secured by securities from our investment portfolio as of September 30, 2023. Our FICC—GSD membership is supported by our investment in Depository Trust and Clearing Corporation (“DTCC”) common stock of $375 thousand as of both September 30, 2023 and December 31, 2022.
As of September 30, 2023, we pledged loans to secure a borrowing capacity of $40.9 billion under the Federal Reserve Discount Window. Additionally, we pledged securities to secure a borrowing capacity of $9.7 billion under the BTFP. Our membership with the Federal Reserve is supported by our investment in Federal Reserve stock, which totaled $1.3 billion as of both September 30, 2023 and December 31, 2022.
Deposits
Table 29 provides a comparison of average balances, interest expense and average deposits interest rates for the third quarter and first nine months of 2023 and 2022.
Table 29: Deposits Composition and Average Deposits Interest Rates
Three Months Ended September 30,
20232022
(Dollars in millions)Average
Balance		Interest
Expense		Average
Deposits
Interest Rate		Average
Balance		Interest
Expense		Average
Deposits
Interest Rate
Interest-bearing checking accounts(1)
$40,833 $215 2.10 %$47,980 $89 0.73 %
Saving deposits(2)
196,030 1,479 3.02 199,252 440 0.88 
Time deposits79,169 917 4.64 28,668 160 2.21 
Total interest-bearing deposits$316,032 $2,611 3.30 $275,900 $689 1.00 
Nine Months Ended September 30,
20232022
(Dollars in millions)Average
Balance		Interest
Expense		Average
Deposits
Interest Rate		Average
Balance		Interest
Expense		Average
Deposits
Interest Rate
Interest-bearing checking accounts(1)
$42,855 $620 1.93 %$48,212 $137 0.38 %
Saving deposits(2)
197,819 3,762 2.54 202,168 799 0.53 
Time deposits72,028 2,362 4.37 21,577 264 1.63 
Total interest-bearing deposits$312,702 $6,744 2.88 $271,957 $1,200 0.59 
__________
(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 September 30, 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
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“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.
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 $361 million to $522 million as of September 30, 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 $893 million to $48.7 billion as of September 30, 2023 from December 31, 2022 primarily driven by net issuances for senior unsecured debt and securitization programs. We provide more information on our securitization activity in “Part I—Item 1. Financial Statements and Supplementary Data—Note 5—Variable Interest Entities and Securitizations” and on our borrowings in “Part I—Item 1. Financial Statements and Supplementary Data—Note 7—Deposits and Borrowings.”
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The following table summarizes issuances of securitized debt obligations, senior and subordinated notes, long term FHLB advances and their respective maturities or redemptions for the third quarter and first nine months of 2023 and 2022. We did not have any such issuances for the three months ended September 30, 2023.
Table 30: Long-Term Debt Funding Activities
IssuancesMaturities/Redemptions
Three Months Ended September 30,Three Months Ended September 30,
(Dollars in millions)2023202220232022
Securitized debt obligations$— $1,750 $452 $2,979 
Senior and subordinated notes— 2,250 — 1,204 
FHLB advances— 1,500 — 4,500 
Total$— $5,500 $452 $8,683 
IssuancesMaturities/Redemptions
Nine Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)2023202220232022
Securitized debt obligations$2,450 $8,250 $2,003 $6,572 
Senior and subordinated notes5,750 9,300 4,886 3,561 
FHLB advances— 12,000 — 4,500 
Total$8,200 $29,550 $6,889 $14,633 
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 September 30, 2023 and December 31, 2022.
Table 31: Senior Unsecured Long-Term Debt Credit Ratings
September 30, 2023December 31, 2022
Capital One
Financial
Corporation		CONACapital One
Financial
Corporation		CONA
Moody’sBaa1A3Baa1A3
S&PBBBBBB+BBBBBB+
FitchA-AA-A
As of October 24, 2023, Standard & Poor’s (“S&P”) and Fitch Ratings (“Fitch”) have our credit ratings on a stable outlook and Moody’s Investors Services (“Moody’s”) has our credit ratings on a negative 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 September 30, 2023 and December 31, 2022, our total unfunded lending commitments were $439.2 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 September 30, 2023 and December 31, 2022, we had $1.6 billion and $1.7 billion, respectively, in aggregate operating lease obligations. 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 September 30, 2023 and December 31, 2022, we had $758 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
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reduce the interest rate risk from this structural balance sheet position primarily by investing in fixed rate securities in our 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 is largely unchanged as compared to December 31, 2022, as the increase in cash balances was offset by an increase in deposit beta, which was driven by higher interest rates and mix shift toward higher rate paid deposit products. 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 increases 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 increased as compared to December 31, 2022, primarily due to an increase in deposit beta driven by higher interest rates and mix shift towards higher rate paid deposit products.
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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 September 30, 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
September 30, 2023December 31, 2022
Estimated impact on projected baseline net interest income:
+200 basis points0.4 %0.4 %
+100 basis points0.6 0.8 
+50 basis points0.4 0.4 
–50 basis points(0.5)(0.7)
–100 basis points(1.0)(1.3)
–200 basis points(1.9)(2.6)
Estimated impact on economic value of equity:
+200 basis points(6.8)(4.3)
+100 basis points(2.9)(1.5)
+50 basis points(1.4)(0.7)
–50 basis points1.4 0.4 
–100 basis points2.6 0.6 
–200 basis points4.2 (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 902 million GBP and 785 million GBP as of September 30, 2023 and December 31, 2022, respectively, and 1.7 billion CAD as of both September 30, 2023 and December 31, 2022. Our nominal EUR-denominated borrowings outstanding were 1.3 billion EUR as of both September 30, 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 2.2 billion GBP and 1.9 billion GBP as of September 30, 2023 and December 31, 2022, respectively, and 2.4 billion CAD and 2.2 billion CAD as of September 30, 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.”
SUPERVISION AND REGULATION
Basel III and U.S. Capital Rules Update
Basel III Finalization Proposal
On July 27, 2023, the Federal Banking Agencies released a notice of proposed rulemaking (the “Basel III Finalization Proposal”) to revise the Basel III Capital Rules applicable to banking organizations with total assets of $100 billion or more and their subsidiary depository institutions, including the Company and the Bank, respectively.
The Basel III Finalization Proposal would introduce a new framework for calculating risk-weighted assets (the “Expanded Risk-Based Approach”). The proposal would also replace the existing approach for market risk with a new approach based on both internal models and standardized methodologies. An institution subject to the proposal would be required to calculate its risk-weighted assets under both the Expanded Risk-Based Approach and the existing Basel III standardized approach and, for each risk-based capital ratio, would be bound by the calculation that produces the lower ratio. All capital buffer requirements, including the stress capital buffer requirement, would apply regardless of whether the Expanded Risk-Based Approach or the existing Basel III standardized approach produces the lower ratio.
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The Basel III Finalization Proposal would also make certain changes to the calculation of regulatory capital for Category III and IV institutions. Under the proposal, these institutions would be required to begin recognizing certain elements of AOCI in CET1 capital, including unrealized gains and losses on available for sale securities. The proposal would also generally reduce the threshold above which these institutions must deduct certain assets from their CET1 capital, including certain deferred tax assets, mortgage servicing assets and investments in unconsolidated financial institutions.
The Basel III Finalization Proposal includes a proposed effective date of July 1, 2025, subject to a three-year transition period ending July 1, 2028, over which risk-weighted assets calculated under the Expanded Risk-Based Approach and the recognition of AOCI in CET1 capital would be phased in.
Enhanced Prudential Standards and Other Related Requirements Update
Long-Term Debt and Clean Holding Company Requirements
On August 29, 2023, the Federal Banking Agencies proposed a rule that would require banking organizations with $100 billion or more in total assets, including the Company, to comply with certain long-term debt requirements and clean holding company requirements (the “LTD Proposal”).
If adopted as proposed, the LTD Proposal would require the Company and the Bank to each maintain a minimum outstanding eligible long-term debt amount of no less than the greatest of (i) 6% of total risk-weighted assets, (ii) 2.5% of total leverage exposure and (iii) 3.5% of average total consolidated assets. To qualify as eligible long-term debt, a debt instrument would be required to meet the requirements currently applicable under the rules that apply to U.S. G-SIBs, as well as certain additional requirements. Additionally, the clean holding company requirements included in the LTD Proposal would limit or prohibit the Company from entering into certain transactions that could impede its orderly resolution.
We are in the process of evaluating the LTD Proposal and assessing its potential impact on Capital One, if adopted as proposed.
We provide additional information on our Supervision and Regulation in our 2022 Form 10-K under “Part I—Item 1. Business—Supervision and Regulation” and in our Quarterly Report on Form 10-Q for the period ended June 30, 2023 under “Part I—Item 2. MD&A—Supervision and Regulation.”
FORWARD-LOOKING STATEMENTS
From time to time, we have made and will make forward-looking statements, including those that discuss, among other things: strategies, goals, outlook or other non-historical matters; projections, revenues, income, returns, expenses, 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 labor markets, housing markets, inflation, interest rates, collateral values, consumer income, creditworthiness and confidence, spending and savings that may affect consumer bankruptcies, defaults, charge-offs, deposit activity as well as impacts of possible government shutdowns;
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•increases or fluctuations in credit losses and delinquencies and the impact of inaccurate estimates or inadequate reserves;
•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;
•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;
•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
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•other risk factors identified from time to time in our public disclosures, including in the reports that we file with the SEC.
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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. Management believes that these non-GAAP measures are useful in assessing capital adequacy and the level of returns generated. 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)September 30, 2023December 31, 2022
Tangible Common Equity (Period-End):
Stockholders’ equity$53,668 $52,582
Goodwill and other intangible assets(1)
(15,308)(14,902)
Noncumulative perpetual preferred stock(4,845)(4,845)
Tangible common equity$33,515 $32,835
Tangible Assets (Period-End):
Total assets$471,435 $455,249
Goodwill and other intangible assets(1)
(15,308)(14,902)
Tangible assets$456,127 $440,347
Non-GAAP Ratio:
TCE(2)
7.3%7.5%
Three Months EndedNine Months Ended
(Dollars in millions, except as noted)September 30, 2023September 30, 2022September 30, 2023September 30, 2022
Average Tangible Common Equity:
Stockholders’ equity$55,012 $54,541$55,048 $56,030
Goodwill and other intangible assets(1)
(15,348)(14,916)(15,174)(14,898)
Noncumulative perpetual preferred stock(4,845)(4,845)(4,845)(4,845)
Average tangible common equity$34,819 $34,780$35,029 $36,287
Average Tangible Assets:
Total assets$469,860 $447,088$466,279 $437,523
Goodwill and other intangible assets(1)
(15,348)(14,916)(15,174)(14,898)
Average tangible assets$454,512 $432,172$451,105 $422,625
Tangible Book Value per Share:
Tangible common equity (period-end)$33,515$31,084$33,515$31,084
Outstanding Common Shares381.0382.0381.0382.0
Tangible book value per common share (period-end)$87.97$81.38$87.97$81.38
Return on Average Tangible Assets:
Net income$1,790$1,694$4,181$6,128
Average tangible assets454,512432,172451,105422,625
Return on average tangible assets(3)
1.58%1.57%1.24%1.93%
Return on Average Tangible Common Equity:
Net income available to common stockholders$1,705$1,616$3,943$5,883
Average tangible common equity34,81934,78035,02936,287
Return on average tangible common equity(4)
19.59%18.59%15.01%21.62%
__________
(1)Includes impact of related deferred taxes.
(2)TCE ratio is a non-GAAP measure calculated based on TCE divided by period-end tangible assets.
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(3)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.
(4)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 Finalization Proposal: The notice of proposed rulemaking released by the Federal Banking Agencies on July 27, 2023 to revise the Basel III Capital Rules applicable to banking organizations with total assets of $100 billion or more and their subsidiary depository institutions.
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 Election: The optional five-year transition period provided to banking institutions to phase in the impact of the CECL standard on their regulatory capital.
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.
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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.
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 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.
Expanded Risk Based Approach: The proposed framework for calculating risk-weighted assets for credit risk, operational risk, credit valuation adjustment risk, and market risk, introduced by the Basel III Finalization Proposal.
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.
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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.
LCR Rule: The final rules published by the Basel Committee and as implemented by the Federal Banking Agencies in 2014 for 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.
Long-Term Debt (“LTD”) Proposal: The proposed rule released by the Federal Banking Agencies on August 29, 2023 that would require banking organizations with $100 billion or more in total assets to comply with certain long-term debt requirements and clean holding company requirements.
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 rule issued by the Federal Banking Agencies 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.
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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.
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: The final rule issued by the Federal Reserve in March 2020 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
ASU: Accounting Standards Update
ATM: Automated teller machine
BHC: Bank holding company
bps: Basis points
BTFP: Bank Term Funding Program
CAD: Canadian dollar
CCP: Central Counterparty Clearinghouse, or Central Clearinghouse
CDE: Community development entities
CECL: Current expected credit loss
CET1: Common equity Tier 1 capital
CFPB: Consumer Financial Protection Bureau
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
CVA: Credit valuation adjustment
DCF: Discounted cash flow
DTCC: Depository Trust and Clearing Corporation
DVA: Debit valuation adjustment
EUR: Euro
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FCM: Futures commission merchant
FDM: Financial difficulty modification
FDIC: Federal Deposit Insurance Corporation
FFIEC: Federal Financial Institutions Examination Council
FHLB: Federal Home Loan Banks
FICC - GSD: Fixed Income Clearing Corporation - Government Securities Division
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
GSE or Agency: Government-sponsored enterprise
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ICE: Intercontinental Exchange
IRM: Independent Risk Management
LCH: LCH Group
LCR: Liquidity coverage ratio
LIBOR: London Interbank Offered Rate
LTD: Long-Term Debt
LTV: Loan-to-Value
Moody’s: Moody’s Investors Service
MSRs: Mortgage servicing rights
NSFR: Net stable funding ratio
OCC: Office of the Comptroller of the Currency
OCI: Other comprehensive income
OPC: Canada’s Office of Privacy Commissioner
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.S.: United States of America
USD: United States Dollar
VIE: Variable interest entity

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CAPITAL ONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions, except per share-related data)2023202220232022
Interest income:
Loans, including loans held for sale$9,696 $7,578 $27,476 $20,550 
Investment securities627 499 1,881 1,336 
Other550 123 1,436 193 
Total interest income10,873 8,200 30,793 22,079 
Interest expense:
Deposits2,611 689 6,744 1,200 
Securitized debt obligations249 120 696 214 
Senior and subordinated notes579 319 1,596 644 
Other borrowings11 69 35 104 
Total interest expense3,450 1,197 9,071 2,162 
Net interest income7,423 7,003 21,722 19,917 
Provision for credit losses 2,284 1,669 7,569 3,431 
Net interest income after provision for credit losses5,139 5,334 14,153 16,486 
Non-interest income:
Interchange fees, net1,234 1,195 3,586 3,429 
Service charges and other customer-related fees453 415 1,243 1,230 
Other256 192 730 634 
Total non-interest income1,943 1,802 5,559 5,293 
Non-interest expense:
Salaries and associate benefits2,274 2,187 7,018 6,159 
Occupancy and equipment518 502 1,532 1,496 
Marketing972 978 2,755 2,899 
Professional services295 471 909 1,326 
Communications and data processing344 349 1,038 1,027 
Amortization of intangibles24 17 60 45 
Other433 445 1,287 1,131 
Total non-interest expense4,860 4,949 14,599 14,083 
Income from continuing operations before income taxes2,222 2,187 5,113 7,696 
Income tax provision432 493 932 1,568 
Net income1,790 1,694 4,181 6,128 
Dividends and undistributed earnings allocated to participating securities(28)(21)(67)(74)
Preferred stock dividends(57)(57)(171)(171)
Net income available to common stockholders$1,705 $1,616 $3,943 $5,883 
Basic earnings per common share:
Net income from continuing operations$4.46 $4.21 $10.31 $14.90 
Net income per basic common share$4.46 $4.21 $10.31 $14.90 
Diluted earnings per common share:
Net income from continuing operations$4.45 $4.20 $10.28 $14.84 
Net income per diluted common share$4.45 $4.20 $10.28 $14.84 
See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in millions)2023202220232022
Net income$1,790 $1,694 $4,181 $6,128 
Other comprehensive income (loss), net of tax:
Net unrealized losses on securities available for sale(2,108)(2,935)(2,034)(8,476)
Net unrealized losses on hedging relationships(259)(804)(282)(2,496)
Foreign currency translation adjustments(39)(48)8 (105)
Other0 (1)0 (1)
Other comprehensive loss, net of tax(2,406)(3,788)(2,308)(11,078)
Comprehensive income (loss)$(616)$(2,094)$1,873 $(4,950)
    
See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in millions, except per share-related data)September 30, 2023December 31, 2022
Assets:
Cash and cash equivalents:
Cash and due from banks$4,620 $5,193 
Interest-bearing deposits and other short-term investments40,249 25,663 
Total cash and cash equivalents44,869 30,856 
Restricted cash for securitization investors435 400 
Securities available for sale (amortized cost of $87.7 billion and $87.0 billion and allowance for credit losses of $4 million and $3 million as of September 30, 2023 and December 31, 2022, respectively)
74,837 76,919 
Loans held for investment:
Unsecuritized loans held for investment284,953 283,282 
Loans held in consolidated trusts29,827 29,049 
Total loans held for investment314,780 312,331 
Allowance for credit losses(14,955)(13,240)
Net loans held for investment299,825 299,091 
Loans held for sale ($314 million and $191 million carried at fair value as of September 30, 2023 and December 31, 2022, respectively)
742 203 
Premises and equipment, net4,378 4,351 
Interest receivable2,469 2,104 
Goodwill15,048 14,777 
Other assets28,832 26,548 
Total assets$471,435 $455,249 
Liabilities:
Interest payable$685 $527 
Deposits:
Non-interest-bearing deposits28,794 32,203 
Interest-bearing deposits317,217 300,789 
Total deposits346,011 332,992 
Securitized debt obligations17,417 16,973 
Other debt:
Federal funds purchased and securities loaned or sold under agreements to repurchase522 883 
Senior and subordinated notes31,283 30,826 
Other borrowings25 33 
Total other debt31,830 31,742 
Other liabilities21,824 20,433 
Total liabilities417,767 402,667 
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 September 30, 2023 and December 31, 2022)
0 0 
Common stock (par value $0.01 per share; 1,000,000,000 shares authorized; 695,336,698 and 690,334,422 shares issued as of September 30, 2023 and December 31, 2022, respectively; 380,991,150 and 381,318,702 shares outstanding as of September 30, 2023 and December 31, 2022, respectively)
7 7 
Additional paid-in capital, net35,334 34,725 
Retained earnings60,529 57,184 
Accumulated other comprehensive loss(12,224)(9,916)
Treasury stock, at cost (par value $0.01 per share; 314,345,548 and 309,015,720 shares as of September 30, 2023 and December 31, 2022, respectively)
(29,978)(29,418)
Total stockholders’ equity53,668 52,582 
Total liabilities and stockholders’ equity$471,435 $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 StockCommon StockAdditional
Paid-In
Capital		Retained EarningsAccumulated
Other
Comprehensive
Income (Loss)		Treasury
Stock		Total
Stockholders’
Equity
SharesAmountSharesAmount
Balance as of December 31, 20224,975,000 $0 690,334,422 $7 $34,725 $57,184 $(9,916)$(29,418)$52,582 
Cumulative effects of accounting standards adoption(1)
48 48 
Comprehensive income960 1,376 2,336 
Dividends—common stock(2)
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 forfeitures2,972,149 0 76 76 
Compensation expense for restricted stock units148 148 
Balance as of March 31, 20234,975,000 $0 693,333,206 $7 $34,952 $57,898 $(8,540)$(29,664)$54,653 
Cumulative effects of accounting standards adoption(3)
(11)(11)
Comprehensive income (loss)1,431 (1,278)153 
Dividends—common stock(2)
4,745 0 1 (233)(232)
Dividends—preferred stock(57)(57)
Purchases of treasury stock(157)(157)
Issuances of common stock and restricted stock, net of forfeitures989,004 0 88 88 
Compensation expense for restricted stock units122 122 
Balance as of June 30, 20234,975,000 $0 694,326,955 $7 $35,163 $59,028 $(9,818)$(29,821)$54,559 
Cumulative effects of accounting standards adoption(3)
0 0 
Comprehensive income (loss)1,790 (2,406)(616)
Dividends—common stock(2)
4,078 0 0 (232)(232)
Dividends—preferred stock(57)(57)
Purchases of treasury stock(157)(157)
Issuances of common stock and restricted stock, net of forfeitures943,409 0 71 71 
Exercises of stock options62,256 0 4 4 
Compensation expense for restricted stock units96 96 
Balance as of September 30, 20234,975,000 $0 695,336,698 $7 $35,334 $60,529 $(12,224)$(29,978)$53,668 
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 StockCommon StockAdditional
Paid-In
Capital		Retained EarningsAccumulated
Other
Comprehensive
Income (Loss)		Treasury
Stock		Total
Stockholders’
Equity
SharesAmountSharesAmount
Balance as of December 31, 20214,975,000 $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(2)
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 forfeitures2,517,691 0 68 68 
Exercises of stock options7,809 0 1 1 
Compensation expense for restricted stock units103 103 
Balance as of March 31, 20224,975,000 $0 687,601,852 $7 $34,286 $53,099 $(4,093)$(26,954)$56,345 
Comprehensive income (loss)2,031 (2,823)(792)
Dividends—common stock(2)
4,083 0 1 (237)(236)
Dividends—preferred stock(57)(57)
Purchases of treasury stock(1,988)(1,988)
Issuances of common stock and restricted stock, net of forfeitures671,473 0 70 70 
Compensation expense for restricted stock units68 68 
Balance as of June 30, 20224,975,000 $0 688,277,408 $7 $34,425 $54,836 $(6,916)$(28,942)$53,410 
Comprehensive income (loss)1,694 (3,788)(2,094)
Dividends—common stock(2)
5,936 0 1 (233)(232)
Dividends—preferred stock(57)(57)
Purchases of treasury stock(319)(319)
Issuances of common stock and restricted stock, net of forfeitures941,581 0 76 76 
Exercises of stock options188,070 0 10 10 
Compensation expense for restricted stock units67 67 
Balance as of September 30, 20224,975,000 $0 689,412,995 $7 $34,579 $56,240 $(10,704)$(29,261)$50,861 
__________
(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)We declared dividends per share on our common stock of $0.60 in the third quarter of 2023 and 2022, and $1.80 in the first nine months of 2023 and 2022.
(3)We have equity method investments in certain non-public entities which adopted ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) as of January 1, 2023. The impact to retained earnings was recorded in the second quarter of 2023, on a one quarter lag consistent with our standard operating procedures for equity method investments.
See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
(Dollars in millions) 20232022
Operating activities:
Income from continuing operations, net of tax$4,181 $6,128 
Net income4,181 6,128 
Adjustments to reconcile net income to net cash from operating activities:
Provision for credit losses
7,569 3,431 
Depreciation and amortization, net2,428 2,367 
Deferred tax benefit
(513)(371)
Net securities losses
0 9 
Loss (gain) on sales of loans1 (193)
Stock-based compensation expense372 238 
Other(46)20 
Loans held for sale:
Originations and purchases(3,990)(6,894)
Proceeds from sales and paydowns3,847 6,242 
Changes in operating assets and liabilities:
Changes in interest receivable(350)(390)
Changes in other assets(483)(5,898)
Changes in interest payable158 152 
Changes in other liabilities301 812 
Net change from discontinued operations0 (1)
Net cash from operating activities13,475 5,652 
Investing activities:
Securities available for sale:
Purchases(7,334)(11,614)
Proceeds from paydowns and maturities6,663 16,905 
Proceeds from sales0 2,570 
Loans:
Net changes in loans originated as held for investment(8,827)(25,469)
Principal recoveries of loans previously charged off1,715 1,631 
Net purchases of premises and equipment(700)(644)
Net cash used in acquisition activities(2,785)(1,127)
Net cash used in other investing activities(962)(543)
Net cash used in investing activities(12,230)(18,291)
See Notes to Consolidated Financial Statements.
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CAPITAL ONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
(Dollars in millions) 20232022
Financing activities:
Deposits and borrowings:
Changes in deposits$13,080 $6,771 
Issuance of securitized debt obligations2,443 8,230 
Maturities and paydowns of securitized debt obligations(2,003)(6,572)
Issuance of senior and subordinated notes and long-term FHLB advances5,728 21,271 
Maturities and paydowns of senior and subordinated notes and long-term FHLB advances(4,886)(8,061)
Changes in other borrowings(369)(307)
Common stock:
Net proceeds from issuances235 214 
Dividends paid(698)(719)
Preferred stock:
Dividends paid(171)(171)
Purchases of treasury stock(560)(4,791)
Proceeds from share-based payment activities4 11 
Net cash from financing activities12,803 15,876 
Changes in cash, cash equivalents and restricted cash for securitization investors14,048 3,237 
Cash, cash equivalents and restricted cash for securitization investors, beginning of the period31,256 22,054 
Cash, cash equivalents and restricted cash for securitization investors, end of the period$45,304 $25,291 
Supplemental cash flow information:
Non-cash items:
Net transfers from loans held for investment to loans held for sale$1,174 $680 
Interest paid10,196 1,927 
Income tax paid871 991 

See Notes to Consolidated Financial Statements.
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NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Capital One Financial Corporation, a Delaware corporation established in 1994 and headquartered in McLean, Virginia, is a diversified financial services holding company with banking and non-banking subsidiaries. Capital One Financial Corporation and its subsidiaries (the “Company” 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 September 30, 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.
Our principal operations are organized for management reporting purposes into three major business segments, which are defined primarily based on the products and services provided or the types of customer served: Credit Card, Consumer Banking and Commercial Banking. We provide details on our business segments, the integration of recent acquisitions, if any, into our business segments and the allocation methodologies and accounting policies used to derive our business segment results in “Note 12—Business Segments and Revenue from Contracts with Customers.”
Basis of Presentation and Use of Estimates
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”). The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and in the related disclosures. These estimates are based on information available as of the date of the consolidated financial statements. While management makes its best judgments, actual amounts or results could differ from these estimates. In the opinion of management, all normal, recurring adjustments have been included for a fair statement of this interim financial information.
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 investments 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 Nine Months Ended September 30, 2023
StandardGuidanceAdoption 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
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 September 30, 2023 and December 31, 2022.
The table below presents the amortized cost, allowance for credit losses, gross unrealized gains and losses, and fair value aggregated by major security type as of September 30, 2023 and December 31, 2022. Accrued interest receivable of $241 million and $215 million as of September 30, 2023 and December 31, 2022, respectively, is not included in the table below.
Table 2.1: Investment Securities Available for Sale
September 30, 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$5,279 $0 $1 $(75)$5,205 
RMBS:
Agency71,122 0 15 (11,945)59,192 
Non-agency620 (4)81 (7)690 
Total RMBS71,742 (4)96 (11,952)59,882 
Agency CMBS8,718 0 1 (880)7,839 
Other securities(1)
1,911 0 3 (3)1,911 
Total investment securities available for sale$87,650 $(4)$101 $(12,910)$74,837 
 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:
Agency71,212 0 53 (9,413)61,852 
Non-agency653 (3)93 (6)737 
Total RMBS71,865 (3)146 (9,419)62,589 
Agency CMBS8,626 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 $1.2 billion and $707 million of asset-backed securities (“ABS”) as of September 30, 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 September 30, 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
September 30, 2023
Less than 12 Months12 Months or LongerTotal
(Dollars in millions)Fair ValueGross
Unrealized
Losses		Fair ValueGross
Unrealized
Losses		Fair ValueGross
Unrealized
Losses
Investment securities available for sale without an allowance for credit losses:
U.S. Treasury securities$2,410 $(1)$2,206 $(74)$4,616 $(75)
RMBS:
Agency6,472 (265)51,771 (11,680)58,243 (11,945)
Non-agency5 0 11 (1)16 (1)
Total RMBS6,477 (265)51,782 (11,681)58,259 (11,946)
Agency CMBS1,322 (26)6,092 (854)7,414 (880)
Other securities771 (2)308 (1)1,079 (3)
Total investment securities available for sale in a gross unrealized loss position without an allowance for credit losses(1)
$10,980 $(294)$60,388 $(12,610)$71,368 $(12,904)
December 31, 2022
Less than 12 Months12 Months or LongerTotal
(Dollars in millions)Fair ValueGross
Unrealized
Losses		Fair ValueGross
Unrealized
Losses		Fair ValueGross
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:
Agency23,271 (1,809)36,803 (7,604)60,074 (9,413)
Non-agency14 (1)3 0 17 (1)
Total RMBS23,285 (1,810)36,806 (7,604)60,091 (9,414)
Agency CMBS4,325 (267)3,214 (493)7,539 (760)
Other securities555 (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 2,910 and 2,840 securities in gross unrealized loss positions as of September 30, 2023 and December 31, 2022, respectively.
Maturities and Yields of Investment Securities
The table below summarizes, as of September 30, 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
September 30, 2023
(Dollars in millions)Due in
1 Year or Less		Due > 1 Year
through
5 Years		Due > 5 Years
through
10 Years		Due > 10 YearsTotal
Fair value of securities available for sale:
U.S. Treasury securities$1,525$3,680$0$0$5,205
RMBS(1):
Agency1681,17557,94859,192
Non-agency003687690
Total RMBS1681,17858,63559,882
Agency CMBS(1)
1152,5713,2281,9257,839
Other securities5121,3702901,911
Total securities available for sale$2,153$7,689$4,435$60,560$74,837
Amortized cost of securities available for sale$2,175$7,961$4,995$72,519$87,650
Weighted-average yield for securities available for sale3.58%3.83%3.28%2.83%2.96%
__________
(1)As of September 30, 2023, the weighted-average expected maturities of RMBS and Agency CMBS were 7.0 years and 4.6 years, respectively.
Net Securities Gains or Losses and Proceeds from Sales
We had no sales of securities for the three and nine months ended September 30, 2023. For the three and nine months ended September 30, 2022, total proceeds from the sales of our securities were $330 million and $2.6 billion, respectively, with losses of $3 million and $9 million, respectively.
Securities Pledged and Received
We pledged investment securities totaling $44.1 billion and $21.3 billion as of September 30, 2023 and December 31, 2022, respectively. These securities are primarily pledged to support our access to Federal Home Loan Banks (“FHLB”) advances, the Bank Term Funding Program (“BTFP”) and Public Fund Deposits, as well as for other purposes as required or permitted by law. We accepted pledges of securities with a fair value of approximately $72 million and $82 million as of September 30, 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 $2.2 billion and $1.9 billion as of September 30, 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 September 30, 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
 September 30, 2023
Delinquent Loans
(Dollars in millions)Current30-59
Days		60-89
Days
> 90
Days
Total
Delinquent
Loans		Total
Loans
Credit Card:
Domestic credit card$134,267$1,820$1,329$2,904$6,053$140,320
International card businesses6,170105671212936,463
Total credit card140,4371,9251,3963,0256,346146,783
Consumer Banking:
Auto70,6652,9611,4094214,79175,456
Retail banking1,35715313311,388
Total consumer banking72,0222,9761,4124344,82276,844
Commercial Banking:
Commercial and multifamily real estate35,3241263713529835,622
Commercial and industrial55,3225020420955,531
Total commercial banking90,6461313733950791,153
Total loans(1)
$303,105$5,032$2,845$3,798$11,675$314,780
% of Total loans96.29%1.60%0.90%1.21%3.71%100.00%
    
December 31, 2022
Delinquent Loans
(Dollars in millions)Current30-59
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 businesses5,8958658110 254 6,149 
Total credit card132,9611,4911,0332,245 4,769 137,730 
Consumer Banking:
Auto73,4673,1011,418387 4,906 78,373 
Retail banking1,51813417 34 1,552 
Total consumer banking74,9853,1141,422404 4,940 79,925 
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December 31, 2022
Delinquent Loans
(Dollars in millions)Current30-59
Days		60-89
Days
> 90
Days
Total
Delinquent
Loans		Total
Loans
Commercial Banking:
Commercial and multifamily real estate37,41701353637,453
Commercial and industrial56,942615516528157,223
Total commercial banking94,359615620031794,676
Total loans(1)
$302,305$4,666$2,511$2,849$10,026$312,331
% of Total loans96.79%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 September 30, 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 September 30, 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
September 30, 2023December 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$2,904 N/A$0 $2,135 N/A$0 
International card businesses115 $9 0 105 $9 0 
Total credit card3,019 9 0 2,240 9 0 
Consumer Banking:
Auto0 639 0 0 595 0 
Retail banking0 45 23 0 39 8 
Total consumer banking0 684 23 0 634 8 
Commercial Banking:
Commercial and multifamily real estate0 459 312 0 271 246 
Commercial and industrial13 363 199 0 430 294 
Total commercial banking13 822 511 0 701 540 
Total$3,032 $1,515 $534 $2,240 $1,344 $548 
% of Total loans held for investment0.96 %0.48 %0.17 %0.72 %0.43 %0.18 %
__________
(1)We recognized interest income for loans classified as nonperforming of $11 million and $47 million for the three and nine months ended September 30, 2023, respectively, and $2 million and $29 million for the three and nine months ended September 30, 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 September 30, 2023 and December 31, 2022.
Table 3.3: Credit Card Delinquency Status
September 30, 2023December 31, 2022
(Dollars in millions)Revolving LoansRevolving Loans Converted to TermTotalRevolving LoansRevolving Loans Converted to TermTotal
Credit Card:
Domestic credit card:
Current
$133,953 $314 $134,267 $126,811 $255 $127,066 
30-59 days
1,796 24 1,820 1,388 17 1,405 
60-89 days
1,312 17 1,329 964 11 975 
Greater than 90 days
2,879 25 2,904 2,121 14 2,135 
Total domestic credit card139,940 380 140,320 131,284 297 131,581 
International card businesses:
Current
6,140 30 6,170 5,866 29 5,895 
30-59 days
101 4 105 83 3 86 
60-89 days
64 3 67 55 3 58 
Greater than 90 days
117 4 121 106 4 110 
Total international card businesses6,422 41 6,463 6,110 39 6,149 
Total credit card$146,362 $421 $146,783 $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 September 30, 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
September 30, 2023
Term Loans by Vintage Year
(Dollars in millions)20232022202120202019PriorTotal Term LoansRevolving LoansRevolving Loans Converted to TermTotal
Auto—At origination FICO scores:(1)
Greater than 660$9,809 $13,757 $10,562 $3,608 $1,499 $471 $39,706 $0 $0 $39,706 
621-6603,891 4,840 3,724 1,535 713 277 14,980 0 0 14,980 
620 or below5,359 6,053 4,775 2,682 1,345 556 20,770 0 0 20,770 
Total auto19,059 24,650 19,061 7,825 3,557 1,304 75,456 0 0 75,456 
Retail banking—Delinquency status:
Current73 153 78 69 121 497 991 361 5 1,357 
30-59 days0 0 0 0 0 3 3 12 0 15 
60-89 days0 0 0 0 0 1 1 2 0 3 
Greater than 90 days0 0 0 0 0 8 8 4 1 13 
Total retail banking73 153 78 69 121 509 1,003 379 6 1,388 
Total consumer banking$19,132 $24,803 $19,139 $7,894 $3,678 $1,813 $76,459 $379 $6 $76,844 
December 31, 2022
Term Loans by Vintage Year
(Dollars in millions)20222021202020192018PriorTotal Term LoansRevolving LoansRevolving Loans Converted to TermTotal
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 
621-6606,212 5,060 2,257 1,167 513 185 15,394 0 0 15,394 
620 or below7,717 6,501 3,898 2,144 914 378 21,552 0 0 21,552 
Total auto31,801 25,807 11,509 5,906 2,459 891 78,373 0 0 78,373 
Retail banking—Delinquency status:
Current166 128 82 133 127 470 1,106 408 4 1,518 
30-59 days2 1 0 0 0 2 5 8 0 13 
60-89 days0 1 0 0 0 1 2 2 0 4 
Greater than 90 days0 0 0 0 3 8 11 4 2 17 
Total retail banking168 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 Fair Isaac Corporation (“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 September 30, 2023 and December 31, 2022. The internal risk rating status includes all past due loans, both performing and nonperforming. Certain amounts as of December 31, 2022 have been reclassified between vintage years to reflect our revised methodology for loans impacted by LIBOR transition.
Table 3.5: Commercial Banking Portfolio by Internal Risk Ratings
September 30, 2023
Term Loans by Vintage Year
(Dollars in millions)20232022202120202019PriorTotal Term LoansRevolving LoansRevolving Loans Converted to TermTotal
Internal risk rating:(1)
Commercial and multifamily real estate
Noncriticized$2,919 $4,848 $3,092 $1,247 $2,421 $3,796 $18,323 $13,215 $25 $31,563 
Criticized performing230 1,217 560 258 419 901 3,585 15 0 3,600 
Criticized nonperforming0 0 46 0 127 286 459 0 0 459 
Total commercial and multifamily real estate3,149 6,065 3,698 1,505 2,967 4,983 22,367 13,230 25 35,622 
Commercial and industrial
Noncriticized4,704 12,196 7,329 3,796 2,595 5,319 35,939 15,352 114 51,405 
Criticized performing242 815 575 270 344 457 2,703 1,060 0 3,763 
Criticized nonperforming0 25 22 25 154 81 307 56 0 363 
Total commercial and industrial4,946 13,036 7,926 4,091 3,093 5,857 38,949 16,468 114 55,531 
Total commercial banking$8,095 $19,101 $11,624 $5,596 $6,060 $10,840 $61,316 $29,698 $139 $91,153 
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December 31, 2022
Term Loans by Vintage Year
(Dollars in millions)20222021202020192018PriorTotal Term LoansRevolving LoansRevolving Loans Converted to TermTotal
Internal risk rating:(1)
Commercial and multifamily real estate
Noncriticized$5,860 $4,807 $1,676 $2,879 $1,927 $3,474 $20,623 $13,254 $25 $33,902 
Criticized performing359 487 212 535 378 1,196 3,167 113 0 3,280 
Criticized nonperforming1 22 0 94 19 135 271 0 0 271 
Total commercial and multifamily real estate6,220 5,316 1,888 3,508 2,324 4,805 24,061 13,367 25 37,453 
Commercial and industrial
Noncriticized13,485 7,993 4,466 3,420 1,797 5,349 36,510 17,187 21 53,718 
Criticized performing482 686 216 336 228 163 2,111 964 0 3,075 
Criticized nonperforming30 29 0 156 82 57 354 76 0 430 
Total commercial and industrial13,997 8,708 4,682 3,912 2,107 5,569 38,975 18,227 21 57,223 
Total commercial banking$20,217 $14,024 $6,570 $7,420 $4,431 $10,374 $63,036 $31,594 $46 $94,676 
__________
(1)Criticized exposures correspond to the “Special Mention,” “Substandard” and “Doubtful” asset categories defined by bank regulatory authorities.
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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 September 30, 2023, FDMs and the related borrower performance information pertain to FDMs which occurred in the three and nine months ended September 30, 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.

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The following table presents the major modification types, amortized cost amounts for each modification type and financial effects for all FDMs undertaken during the three and nine months ended September 30, 2023.
Table 3.6: Financial Difficulty Modifications to Borrowers
Three Months Ended September 30, 2023
Credit CardConsumer BankingCommercial Banking
(Dollars in millions)Domestic CardInternational Card BusinessesTotal Credit CardAutoRetail BankingTotal Consumer BankingCommercial and Multifamily Real EstateCommercial and IndustrialTotal Commercial BankingTotal
Interest rate reduction$200 $42 $242 — — — — — — $242 
Term extension— — — $14 $2 $16 $128 $147 $275 291 
Principal balance reduction— — — 8 — 8 — — — 8 
Interest rate reduction and term extension7 — 7 248 — 248 — 26 26 281 
Other(1)
— — — 2 7 9 — 56 56 65 
Total loans modified$207 $42 $249 $272 $9 $281 $128 $229 $357 $887 
% of total class of receivables0.15 %0.65 %0.17 %0.36 %0.62 %0.36 %0.36 %0.41 %0.39 %0.28 %
Nine Months Ended September 30, 2023
Credit CardConsumer BankingCommercial Banking
(Dollars in millions)Domestic CardInternational Card BusinessesTotal Credit CardAutoRetail BankingTotal Consumer BankingCommercial and Multifamily Real EstateCommercial and IndustrialTotal Commercial BankingTotal
Interest rate reduction$437 $76 $513 — — — — — — $513 
Term extension— — — $76 $3 $79 $327 $347 $674 753 
Principal balance reduction— — — 17 — 17 — — — 17 
Principal balance reduction and term extension— — — — — — — 15 15 15 
Interest rate reduction and term extension10 — 10 504 — 504 — 26 26 540 
Other(1)
— — — 3 7 10 54 151 205 215 
Total loans modified$447 $76 $523 $600 $10 $610 $381 $539 $920 $2,053 
% of total class of receivables0.32 %1.17 %0.36 %0.79 %0.75 %0.79 %1.07 %0.97 %1.01 %0.65 %
__________
(1)Consumer Banking and Commercial Banking consists of modifications other than interest rate reduction, term extension, or principal balance reduction.
Table 3.7: Financial Effects of Financial Difficulty Modifications to Borrowers
Three Months Ended September 30, 2023
Credit CardConsumer BankingCommercial Banking
(Dollars in millions)Domestic CardInternational Card BusinessesAutoRetail BankingCommercial and Multifamily Real EstateCommercial and Industrial
Weighted-average interest rate reduction19.40%27.41%8.67%——0.25%
Payment delay duration (in months)120681117
Principal balance reduction——————
Nine Months Ended September 30, 2023
Credit CardConsumer BankingCommercial Banking
(Dollars in millions)Domestic CardInternational Card BusinessesAutoRetail BankingCommercial and Multifamily Real EstateCommercial and Industrial
Weighted-average interest rate reduction19.19%27.08%8.74%2.00%—0.25%
Payment delay duration (in months)120613159
Principal balance reduction——$1—$20$3
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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 September 30, 2023.
Table 3.8 Delinquency Status of Loan Modifications to Borrowers Experiencing Financial Difficulty(1)
September 30, 2023
Delinquent Loans
(Dollars in millions)Current30-59 Days60-89 Days
> 90 Days
Total Delinquent LoansTotal Loans
Credit Card:
Domestic credit card$283 $65 $40 $59 $164 $447 
International card businesses35 8 8 25 41 76 
Total credit card318 73 48 84 205 523 
Consumer Banking:
Auto457 79 46 18 143 600 
Retail banking10 0 0 0 0 10 
Total consumer banking467 79 46 18 143 610 
Commercial Banking:
Commercial and multifamily real estate318 0 0 63 63 381 
Commercial and industrial417 4 0 118 122 539 
Total commercial banking735 4 0 181 185 920 
Total$1,520 $156 $94 $283 $533 $2,053 
__________
(1)Commitments to lend additional funds on FDMs totaled $75 million as of September 30, 2023.
Subsequent Defaults of Financial Difficulty Modifications to Borrowers
FDMs may subsequently enter default. A default occurs if a FDM is either 90 days or more delinquent, has been charged off, or has been reclassified from accrual to nonaccrual status. Loans that entered a modification program in any stage of delinquency are included in the aging table above. Loans that entered a modification program while in default are not considered to have subsequently defaulted for purposes of this disclosure. The allowance for any FDMs that have subsequently defaulted is measured using the same methodology as the allowance for loans held for investment. See “Note 1—Summary of Significant Accounting Policies” for additional information.
The following table presents FDMs that entered subsequent default for the three and nine months ended September 30, 2023.
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Table 3.9 Subsequent Defaults of Financial Difficulty Modifications to Borrowers
Three Months Ended September 30, 2023
(Dollars in millions)Interest Rate ReductionTerm ExtensionInterest Rate Reduction and Term ExtensionTotal Loans
Credit Card:
Domestic credit card$17 $0 $0 $17 
International card businesses6 0 0 6 
Total credit card23 0 0 23 
Consumer Banking:
Auto0 7 77 84 
Total consumer banking0 7 77 84 
Commercial Banking:
Commercial and multifamily real estate0 46 0 46 
Commercial and industrial0 51 0 51 
Total commercial banking0 97 0 97 
Total$23 $104 $77 $204 
Nine Months Ended September 30, 2023
(Dollars in millions)Interest Rate ReductionTerm ExtensionInterest Rate Reduction and Term ExtensionTotal Loans
Credit Card:
Domestic credit card$39 $0 $0 $39 
International card businesses9 0 0 9 
Total credit card48 0 0 48 
Consumer Banking:
Auto0 9 129 138 
Total consumer banking0 9 129 138 
Commercial Banking:
Commercial and multifamily real estate0 46 0 46 
Commercial and industrial0 51 0 51 
Total commercial banking0 97 0 97 
Total$48 $106 $129 $283 



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Troubled Debt Restructurings
We adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023, and elected the modified retrospective adoption method. The ASU eliminates the accounting guidance for TDRs, and establishes disclosure requirements, to be applied prospectively, for loans with FDMs.
The following tables present the major modification types, amortized cost amounts and financial effects of loans modified in a TDR during the three and nine months ended September 30, 2022.
Table 3.10: Troubled Debt Restructurings(1)
Three Months Ended September 30, 2022
Reduced Interest RateTerm 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$77100%16.79%N/AN/A
International card businesses2910027.52N/AN/A
Total credit card10610019.77N/AN/A
Consumer Banking:
Auto275648.4597%5
Retail banking1N/AN/A6014
Total consumer banking276648.45975
Commercial Banking:
Commercial and multifamily real estate38580.7810011
Commercial and industrial75N/AN/A9817
Total commercial banking113200.789915
Total$495
Nine Months Ended September 30, 2022
Reduced Interest RateTerm 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$196100%15.76%N/AN/A
International card businesses9310027.73N/AN/A
Total credit card28910019.63N/AN/A
Consumer Banking:
Auto794568.5997%4
Retail banking2N/AN/A7613
Total consumer banking796568.59974
Commercial Banking:
Commercial and multifamily real estate302100.358013
Commercial and industrial242N/AN/A6214
Total commercial banking54460.357213
Total$1,629
__________
(1)Commitments to lend additional funds on loans modified in TDRs totaled $214 million as of September 30, 2022.
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(2)Represents the amortized cost of total loans modified in TDRs at the end of the period in which they were modified. As not every modification type is included in the table above, the total percentage of TDR activity may not add up to 100%. Some loans may receive more than one type of modification.
(3)Due to multiple modification types granted to some troubled borrowers, percentages may total more than 100% for certain loan types.
Subsequent Defaults of Completed TDR Modifications
The following table presents the type, number and amortized cost of loans modified in a TDR that experienced a default during the period and had completed a modification event in the twelve months prior to the default. A default occurs if the loan is either 90 days or more delinquent, has been charged off as of the end of the period presented or has been reclassified from accrual to nonaccrual status.
Table 3.11: TDR—Subsequent Defaults
 
Three Months Ended September 30, 2022
Nine Months Ended September 30, 2022
(Dollars in millions)Number of ContractsAmountNumber of ContractsAmount
Credit Card:
Domestic credit card9,927 $19 23,951 $47 
International card businesses18,971 19 55,089 58 
Total credit card28,898 38 79,040 105 
Consumer Banking:
Auto4,592 82 10,102 178 
Retail banking0 0 0 0 
Total consumer banking4,592 82 10,102 178 
Commercial Banking:
Commercial and industrial0 0 3 35 
Total commercial banking0 0 3 35 
Total33,490 $120 89,145 $318 
Loans Pledged
We pledged loan collateral of $7.8 billion and $9.8 billion to secure a portion of our FHLB borrowing capacity of $31.6 billion and $19.9 billion as of September 30, 2023 and December 31, 2022, respectively. We also pledged loan collateral of $69.8 billion and $34.1 billion to secure our Federal Reserve Discount Window borrowing capacity of $40.9 billion and $19.7 billion as of September 30, 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 and nine months ended September 30, 2023, we converted $101 million and $443 million of revolving loans to term loans, respectively, primarily in our domestic credit card and commercial banking loan portfolios. For the three and nine months ended September 30, 2022, we converted $51 million and $383 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.
Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity
The table below summarizes changes in the allowance for credit losses and reserve for unfunded lending commitments by portfolio segment for the three and nine months ended September 30, 2023 and 2022. Our allowance for credit losses increased by $1.7 billion to $15.0 billion as of September 30, 2023 from December 31, 2022.
Table 4.1: Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity
Three Months Ended September 30, 2023
(Dollars in millions)Credit CardConsumer BankingCommercial BankingTotal
Allowance for credit losses:
Balance as of June 30, 2023$10,976 $2,185 $1,485 $14,646 
Charge-offs
(1,925)(596)(60)(2,581)
Recoveries(1)
333 247 2 582 
Net charge-offs(1,592)(349)(58)(1,999)
Provision for credit losses1,953 213 155 2,321 
Allowance build (release) for credit losses361 (136)97 322 
Other changes(2)
(13)0 0 (13)
Balance as of September 30, 202311,324 2,049 1,582 14,955 
Reserve for unfunded lending commitments:
Balance as of June 30, 20230 0 197 197 
Provision (benefit) for losses on unfunded lending commitments0 0 (39)(39)
Balance as of September 30, 20230 0 158 158 
Combined allowance and reserve as of September 30, 2023$11,324 $2,049 $1,740 $15,113 
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Nine Months Ended September 30, 2023
(Dollars in millions)Credit CardConsumer BankingCommercial BankingTotal
Allowance for credit losses:
Balance as of December 31, 2022$9,545 $2,237 $1,458 $13,240 
Cumulative effects of accounting standards adoption(3)
(63)0 0 (63)
Balance as of January 1, 20239,482 2,237 1,458 13,177 
Charge-offs
(5,481)(1,653)(462)(7,596)
Recoveries(1)
992 718 5 1,715 
Net charge-offs(4,489)(935)(457)(5,881)
Provision for credit losses6,298 747 581 7,626 
Allowance build (release) for credit losses1,809 (188)124 1,745 
Other changes(2)
33 0 0 33 
Balance as of September 30, 202311,324 2,049 1,582 14,955 
Reserve for unfunded lending commitments:
Balance as of December 31, 20220 0 218 218 
Provision (benefit) for losses on unfunded lending commitments0 0 (60)(60)
Balance as of September 30, 20230 0 158 158 
Combined allowance and reserve as of September 30, 2023$11,324 $2,049 $1,740 $15,113 
Three Months Ended September 30, 2022
(Dollars in millions)Credit CardConsumer BankingCommercial BankingTotal
Allowance for credit losses:
Balance as of June 30, 2022$8,166 $2,047 $1,278 $11,491 
Charge-offs(1,047)(410)(13)(1,470)
Recoveries(1)
352 186 1 539 
Net charge-offs(695)(224)(12)(931)
Provision for credit losses
1,261 285 119 1,665 
Allowance build for credit losses
566 61 107 734 
Other changes(2)
(16)0 0 (16)
Balance as of September 30, 20228,716 2,108 1,385 12,209 
Reserve for unfunded lending commitments:
Balance as of June 30, 20220 0 239 239 
Provision for losses on unfunded lending commitments0 0 4 4 
Balance as of September 30, 20220 0 243 243 
Combined allowance and reserve as of September 30, 2022$8,716 $2,108 $1,628 $12,452 
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Nine Months Ended September 30, 2022
(Dollars in millions)Credit CardConsumer BankingCommercial BankingTotal
Allowance for credit losses:
Balance as of December 31, 2021$8,345 $1,918 $1,167 $11,430 
Charge-offs(3,011)(1,090)(73)(4,174)
Recoveries(1)
1,031 584 16 1,631 
Net charge-offs(1,980)(506)(57)(2,543)
Provision for credit losses
2,387 696 275 3,358 
Allowance build for credit losses
407 190 218 815 
Other changes(2)
(36)0 0 (36)
Balance as of September 30, 20228,716 2,108 1,385 12,209 
Reserve for unfunded lending commitments:
Balance as of December 31, 20210 0 165 165 
Provision for losses on unfunded lending commitments0 0 78 78 
Balance as of September 30, 20220 0 243 243 
Combined allowance and reserve as of September 30, 2022$8,716 $2,108 $1,628 $12,452 
__________
(1)The amount and timing of recoveries are impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications, repossession of collateral, the periodic sale of charged off loans as well as additional strategies, such as litigation.
(2)Primarily represents the initial allowance for purchased credit-deteriorated (“PCD”) loans and foreign currency translation adjustments. The initial allowance of purchased credit-deteriorated loans was $0 million and $32 million for the three and nine months ended September 30, 2023, respectively, and $10 million for both the three and nine months ended September 30, 2022.
(3)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.
On January 1, 2023, we adopted Accounting Standards Update (“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 investments 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.

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The table below presents gross charge-offs for loans held for investment by vintage year during the nine months ended September 30, 2023.
Table 4.2: Gross Charge-Offs by Vintage Year
Nine Months Ended September 30, 2023
Term Loans by Vintage Year
(Dollars in millions)20232022202120202019PriorTotal Term LoansRevolving LoansRevolving Loans Converted to TermTotal
Credit Card
Domestic credit cardN/AN/AN/AN/AN/AN/AN/A$5,100 $56 $5,156 
International card businessN/AN/AN/AN/AN/AN/AN/A315 10 325 
Total credit cardN/AN/AN/AN/AN/AN/AN/A5,415 66 5,481 
Consumer Banking
Auto$52 $551 $523 $246 $141 $89 $1,602 0 0 1,602 
Retail banking0 0 1 0 0 1 2 49 0 51 
Total consumer banking52 551 524 246 141 90 1,604 49 0 1,653 
Commercial Banking
Commercial and multifamily real estate0 29 47 22 105 201 404 0 0 404 
Commercial and industrial2 9 0 0 29 3 43 15 0 58 
Total commercial banking2 38 47 22 134 204 447 15 0 462 
Total$54 $589 $571 $268 $275 $294 $2,051 $5,479 $66 $7,596 


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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 and nine months ended September 30, 2023 and 2022.
Table 4.3: Summary of Credit Card Partnership Loss Sharing Arrangements Impacts
Three Months Ended September 30,
(Dollars in millions)20232022
Estimated reimbursements from partners, beginning of period$1,908 $1,302 
Amounts due from partners for charged off loans(249)(127)
Change in estimated partner reimbursements that decreased provision for credit losses319 237 
Estimated reimbursements from partners, end of period$1,978 $1,412 
Nine Months Ended September 30,
(Dollars in millions)20232022
Estimated reimbursements from partners, beginning of period$1,558 $1,450 
Amounts due from partners for charged off loans(681)(353)
Change in estimated partner reimbursements that decreased provision for credit losses(1)
1,101 315 
Estimated reimbursements from partners, end of period$1,978 $1,412 
__________
(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 September 30, 2023 and December 31, 2022. We separately present information for consolidated and unconsolidated VIEs.
Table 5.1: Carrying Amount of Consolidated and Unconsolidated VIEs
 September 30, 2023
 ConsolidatedUnconsolidated
(Dollars in millions)Carrying Amount of AssetsCarrying Amount of LiabilitiesCarrying Amount of AssetsCarrying Amount of LiabilitiesMaximum Exposure to Loss
Securitization-Related VIEs:(1)
Credit card loan securitizations(2)
$24,610 $14,689 $0 $0 $0 
Auto loan securitizations4,464 3,651 0 0 0 
Total securitization-related VIEs29,074 18,340 0 0 0 
Other VIEs:(3)
Affordable housing entities271 5 5,551 2,049 5,551 
Entities that provide capital to low-income and rural communities2,509 10 0 0 0 
Other(4)
0 0 466 0 466 
Total other VIEs2,780 15 6,017 2,049 6,017 
Total VIEs$31,854 $18,355 $6,017 $2,049 $6,017 
 December 31, 2022
 ConsolidatedUnconsolidated
(Dollars in millions)Carrying Amount of AssetsCarrying Amount of LiabilitiesCarrying Amount of AssetsCarrying Amount of LiabilitiesMaximum Exposure to Loss
Securitization-Related VIEs:(1)
Credit card loan securitizations(2)
$23,620 $13,877 $0 $0 $0 
Auto loan securitizations4,863 4,002 0 0 0 
Total securitization-related VIEs28,483 17,879 0 0 0 
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 December 31, 2022
 ConsolidatedUnconsolidated
(Dollars in millions)Carrying Amount of AssetsCarrying Amount of LiabilitiesCarrying Amount of AssetsCarrying Amount of LiabilitiesMaximum Exposure to Loss
Other VIEs:(3)
Affordable housing entities261 19 4,944 1,596 4,944 
Entities that provide capital to low-income and rural communities2,301 10 0 0 0 
Other(4)
0 0 337 0 337 
Total other VIEs2,562 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 $2.5 billion of assets and $931 million of liabilities as of September 30, 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 September 30, 2023 and December 31, 2022.
Table 5.2: Continuing Involvement in Securitization-Related VIEs
(Dollars in millions)Credit CardAuto
September 30, 2023:
Securities held by third-party investors$13,772 $3,645 
Receivables in the trusts25,532 4,295 
Cash balance of spread or reserve accounts0 20 
Retained interestsYesYes
Servicing retainedYesYes
December 31, 2022:
Securities held by third-party investors$12,976 $3,997 
Receivables in the trusts24,367 4,682 
Cash balance of spread or reserve accounts0 23 
Retained interestsYesYes
Servicing retainedYesYes
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 nine months ended September 30, 2023 and 2022, we recognized amortization of $522 million and $484 million, respectively, and tax credits of $652 million and $582 million, respectively, associated with these investments within income tax provision. The carrying value of our equity investments in these qualified affordable housing projects was $5.3 billion and $4.9 billion as of September 30, 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 $2.2 billion and $1.8 billion as of September 30, 2023 and December 31, 2022 respectively, and is largely expected to be paid from 2023 to 2026.
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 $5.6 billion and $4.9 billion as of September 30, 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 $12.6 billion and $12.5 billion as of September 30, 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 $2.5 billion and $2.3 billion as of September 30, 2023 and December 31, 2022, respectively, are reflected on our consolidated balance sheets in cash, loans held for investment, and other assets. The liabilities are reflected in other liabilities. The creditors of the VIEs have no recourse to our general credit. We have not provided additional financial or other support other than during the period that we are contractually required to provide it.
Other
We hold variable interests in other VIEs, including companies that promote renewable energy sources and other equity method investments. We are not required to consolidate these VIEs because we do not have the power to direct the activities that most significantly impact their economic performance. Our maximum exposure to these VIEs is limited to the investments on our consolidated balance sheets of $466 million and $337 million as of September 30, 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 September 30, 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
September 30, 2023
(Dollars in millions)Carrying Amount of AssetsAccumulated AmortizationNet Carrying Amount
Goodwill$15,048 N/A$15,048 
Other intangible assets:
Purchased credit card relationship (“PCCR”) intangibles369 $(76)293 
Other(1)
171 (132)39 
Total other intangible assets540 (208)332 
Total goodwill and other intangible assets$15,588 $(208)$15,380 
Commercial MSRs(2)
$654 $(249)$405 
December 31, 2022
(Dollars in millions)Carrying Amount of AssetsAccumulated AmortizationNet Carrying Amount
Goodwill$14,777 N/A$14,777 
Other intangible assets:
Purchased credit card relationship (“PCCR”) intangibles147 $(26)121 
Other(1)
195 (157)38 
Total other intangible assets342 (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 $24 million and $60 million for the three and nine months ended September 30, 2023, respectively, and $17 million and $45 million for the three and nine months ended September 30, 2022, respectively.
Goodwill
The following table presents changes in the carrying amount of goodwill by each of our business segments for the nine months ended September 30, 2023.
Table 6.2: Goodwill by Business Segments
(Dollars in millions)Credit CardConsumer BankingCommercial BankingTotal
Balance as of December 31, 2022$5,078 $4,645 $5,054 $14,777 
Acquisitions273 0 0 273 
Other adjustments(1)
(2)0 0 (2)
Balance as of September 30, 2023$5,349 $4,645 $5,054 $15,048 
__________
(1)Represents foreign currency translation adjustments and measurement period adjustments.
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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 September 30, 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)September 30, 2023December 31, 2022
Deposits:
Non-interest-bearing deposits$28,794 $32,203 
Interest-bearing deposits(1)
317,217 300,789 
Total deposits$346,011 $332,992 
Short-term borrowings:
Federal funds purchased and securities loaned or sold under agreements to repurchase$522 $883 
Total short-term borrowings$522 $883 
 September 30, 2023December 31, 2022
(Dollars in millions)Maturity DatesStated Interest RatesWeighted-Average Interest RateCarrying ValueCarrying Value
Long-term debt:
Securitized debt obligations2024-2028
0.55% - 6.12%
2.87%$17,417 $16,973 
Senior and subordinated notes:
Fixed unsecured senior debt(2)
2024-2034
0.80 - 6.38
4.0126,419 24,134 
Floating unsecured senior debt2024-2025
6.00 - 6.66
6.181,248 1,597 
Total unsecured senior debt4.1127,667 25,731 
Fixed unsecured subordinated debt2025-2032
2.36 - 4.20
3.573,616 5,095 
Total senior and subordinated notes31,283 30,826 
Other long-term borrowings2023-2031
0.35 - 9.91
6.3825 33 
Total long-term debt$48,725 $47,832 
Total short-term borrowings and long-term debt$49,247 $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 September 30, 2023, the total time deposit amount with some portion in excess of the insured amount was $15.4 billion and the portion of those deposits estimated to be uninsured was $8.5 billion. As of December 31, 2022, the total time deposit amount with some portion in excess of the insured amount was $6.1 billion and the portion of those deposits estimated to be uninsured was $2.0 billion.
(2)Includes $1.2 billion of Euro (“EUR”) denominated unsecured notes as of both September 30, 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 September 30, 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
September 30, 2023December 31, 2022
Notional or Contractual Amount
Derivative(1)
Notional or Contractual Amount
Derivative(1)
(Dollars in millions)AssetsLiabilitiesAssetsLiabilities
Derivatives designated as accounting hedges:
Interest rate contracts:
Fair value hedges$67,173 $40 $10 $60,956 $3 $53 
Cash flow hedges61,100 117 10 30,350 0 451 
Total interest rate contracts128,273 157 20 91,306 3 504 
Foreign exchange contracts:
Fair value hedges1,322 0 208 1,338 0 211 
Cash flow hedges2,356 69 1 2,175 4 14 
Net investment hedges4,618 81 78 4,147 78 91 
Total foreign exchange contracts8,296 150 287 7,660 82 316 
Total derivatives designated as accounting hedges136,569 307 307 98,966 85 820 
Derivatives not designated as accounting hedges:
Customer accommodation:
Interest rate contracts98,191 1,609 1,986 91,601 1,140 1,873 
Commodity contracts32,131 1,354 1,335 28,935 1,756 1,738 
Foreign exchange and other contracts4,576 68 42 4,926 74 78 
Total customer accommodation134,898 3,031 3,363 125,462 2,970 3,689 
Other interest rate exposures(2)
743 27 19 1,135 34 22 
Other contracts2,715 16 10 2,238 9 19 
Total derivatives not designated as accounting hedges138,356 3,074 3,392 128,835 3,013 3,730 
Total derivatives$274,925 $3,381 $3,699 $227,801 $3,098 $4,550 
Less: netting adjustment(3)
(1,471)(632)(1,134)(1,235)
Total derivative assets/liabilities$1,910 $3,067 $1,964 $3,315 
__________
(1)Does not reflect approximately $1 million and $4 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of September 30, 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 September 30, 2023 and December 31, 2022.
Table 8.2: Hedged Items in Fair Value Hedging Relationships
September 30, 2023December 31, 2022
Carrying Amount Assets/(Liabilities)Cumulative Amount of Basis Adjustments Included in the Carrying AmountCarrying Amount Assets/(Liabilities)Cumulative Amount of Basis Adjustments Included in the Carrying Amount
(Dollars in millions)Total Assets/(Liabilities)Discontinued-Hedging RelationshipsTotal 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)
$4,608 $(102)$144 $3,983$(80)$200
Interest-bearing deposits(17,225)580 (1)(17,280)500(1)
Securitized debt obligations(13,117)757 0 (11,921)7480
Senior and subordinated notes(30,035)1,931 (413)(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 $870 million and $236 million as of September 30, 2023 and December 31, 2022, respectively. The amount of the designated hedged items was $655 million and $225 million as of September 30, 2023 and December 31, 2022, respectively. The cumulative basis adjustments associated with these hedges was $10 million and $13 million as of September 30, 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 September 30, 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 AmountsGross Amounts Offset in the Balance SheetNet Amounts as RecognizedSecurities Collateral Held Under Master Netting AgreementsNet Exposure
(Dollars in millions)Financial InstrumentsCash Collateral Received
As of September 30, 2023
Derivative assets(1)
$3,381 $(388)$(1,083)$1,910 $(77)$1,833 
As of December 31, 2022
Derivative assets(1)
3,098 (759)(375)1,964 (96)1,868 
Gross AmountsGross Amounts Offset in the Balance SheetNet Amounts as RecognizedSecurities Collateral Pledged Under Master Netting AgreementsNet Exposure
(Dollars in millions)Financial InstrumentsCash Collateral Pledged
As of September 30, 2023
Derivative liabilities(1)
$3,699 $(388)$(244)$3,067 $(79)$2,988 
Repurchase agreements(2)
522 0 0 522 (522)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 $1.6 billion and $608 million as of September 30, 2023 and December 31, 2022, respectively. We also received securities from derivative counterparties with a fair value of approximately $72 million and $82 million as of September 30, 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 September 30, 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 $528 million and $900 million as of September 30, 2023 and December 31, 2022, respectively, primarily consisting of agency RMBS securities.
Income Statement and AOCI Presentation
Fair Value and Cash Flow Hedges
The net gains (losses) recognized in our consolidated statements of income related to derivatives in fair value and cash flow hedging relationships are presented below for the three and nine months ended September 30, 2023 and 2022.
Table 8.4: Effects of Fair Value and Cash Flow Hedge Accounting
Three Months Ended September 30, 2023
Net Interest IncomeNon-Interest Income
(Dollars in millions)Investment SecuritiesLoans, Including Loans Held for SaleOtherInterest-bearing DepositsSecuritized Debt ObligationsSenior and Subordinated NotesOther
Total amounts presented in our consolidated statements of income$627 $9,696 $550 $(2,611)$(249)$(579)$256 
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives$42 $0 $0 $(104)$(112)$(275)$0 
Gains (losses) recognized on derivatives(15)0 0 (38)4 (273)(42)
Gains (losses) recognized on hedged items(1)
(6)0 0 38 (4)313 42 
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Three Months Ended September 30, 2023
Net Interest IncomeNon-Interest Income
Excluded component of fair value hedges(2)
0 0 0 0 0 (1)0 
Net income (expense) recognized on fair value hedges$21 $0 $0 $(104)$(112)$(236)$0 
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income$0 $(320)$0 $0 $0 $0 $0 
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income(4)
0 0 3 0 0 0 1 
Net income (expense) recognized on cash flow hedges$0 $(320)$3 $0 $0 $0 $1 
Nine Months Ended September 30, 2023
Net Interest IncomeNon-Interest Income
(Dollars in millions)Investment SecuritiesLoans, Including Loans Held for SaleOtherInterest-bearing DepositsSecuritized Debt ObligationsSenior and Subordinated NotesOther
Total amounts presented in our consolidated statements of income
$1,881 $27,476 $1,436 $(6,744)$(696)$(1,596)$730 
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives$113 $0 $0 $(278)$(297)$(754)$0 
Gains (losses) recognized on derivatives(35)0 0 (84)(10)(275)(17)
Gains (losses) recognized on hedged items(1)
(22)0 0 81 9 388 17 
Excluded component of fair value hedges(2)
0 0 0 0 0 (2)0 
Net income (expense) recognized on fair value hedges$56 $0 $0 $(281)$(298)$(643)$0 
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income$0 $(879)$0 $0 $0 $0 $0 
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income(4)
0 0 9 0 0 0 1 
Net income (expense) recognized on cash flow hedges$0 $(879)$9 $0 $0 $0 $1 
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Three Months Ended September 30, 2022
Net Interest IncomeNon-Interest Income
(Dollars in millions)Investment SecuritiesLoans, Including Loans Held for SaleOtherInterest-bearing DepositsSecuritized Debt ObligationsSenior and Subordinated NotesOther
Total amounts presented in our consolidated statements of income
$499 $7,578 $123 $(689)$(120)$(319)$192 
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives$22 $0 $0 $4 $(21)$(71)$0 
Gains (losses) recognized on derivatives83 0 0 (381)(311)(807)(85)
Gains (losses) recognized on hedged items(1)
(102)0 0 381 312 846 85 
Excluded component of fair value hedges(2)
0 0 0 0 0 (1)0 
Net income (expense) recognized on fair value hedges$3 $0 $0 $4 $(20)$(33)$0 
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains reclassified from AOCI into net income$0 $(86)$0 $0 $0 $0 $0 
Foreign exchange contracts:
Realized gains reclassified from AOCI into net income(4)
0 0 2 0 0 0 (1)
Net income (expense) recognized on cash flow hedges$0 $(86)$2 $0 $0 $0 $(1)
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Nine Months Ended September 30, 2022
Net Interest IncomeNon-Interest Income
(Dollars in millions)Investment SecuritiesLoans, Including Loans Held for SaleOtherInterest-bearing DepositsSecuritized Debt ObligationsSenior and Subordinated NotesOther
Total amounts presented in our consolidated statements of income$1,336 $20,550 $193 $(1,200)$(214)$(644)$634 
Fair value hedging relationships:
Interest rate and foreign exchange contracts:
Interest recognized on derivatives$22 $0 $0 $46 $12 $(20)$0 
Gains (losses) recognized on derivatives294 0 0 (569)(735)(2,039)(197)
Gains (losses) recognized on hedged items(1)
(364)0 0 570 735 2,155 196 
Excluded component of fair value hedges(2)
0 0 0 0 0 (2)0 
Net income (expense) recognized on fair value hedges$(48)$0 $0 $47 $12 $94 $(1)
Cash flow hedging relationships:(3)
Interest rate contracts:
Realized gains reclassified from AOCI into net income$0 $104 $0 $0 $0 $0 $0 
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income(4)
0 0 1 0 0 0 (1)
Net income (expense) recognized on cash flow hedges$0 $104 $1 $0 $0 $0 $(1)
_________
(1)Includes amortization benefit of $20 million and $56 million for the three and nine months ended September 30, 2023, respectively, and amortization benefit of $23 million and $57 million for the three and nine months ended September 30, 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 gain of $100 million and $70 million for the three and nine months ended September 30, 2023, respectively, and a gain of $79 million and $98 million for the three and nine months ended September 30, 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 an after-tax loss of $877 million recorded in AOCI as of September 30, 2023 associated with cash flow hedges of forecasted transactions. This amount will largely offset the cash flows associated with the forecasted transactions hedged by these derivatives. The maximum length of time over which forecasted transactions were hedged was approximately 9.5 years as of September 30, 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 and nine months ended September 30, 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 September 30,Nine Months Ended September 30,
(Dollars in millions)2023202220232022
Gains (losses) recognized in other non-interest income:
Customer accommodation:
Interest rate contracts$7 $11 $26 $31 
Commodity contracts11 20 28 37 
Foreign exchange and other contracts5 7 13 11 
Total customer accommodation23 38 67 79 
Other interest rate exposures81 0 199 14 
Other contracts(7)(24)(24)(29)
Total$97 $14 $242 $64 
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NOTE 9—STOCKHOLDERS’ EQUITY
Preferred Stock
The following table summarizes our preferred stock outstanding as of September 30, 2023 and December 31, 2022.
Table 9.1: Preferred Stock Outstanding(1)
Redeemable by Issuer BeginningPer Annum Dividend RateDividend FrequencyLiquidation Preference per ShareTotal Shares Outstanding
as of September 30, 2023		Carrying Value
(in millions)
SeriesDescriptionIssuance DateSeptember 30, 2023December 31, 2022
Series I5.000%
Non-Cumulative		September 11, 2019December 1, 20245.000%Quarterly$1,000 1,500,000 $1,462 $1,462 
Series J4.800%
Non-Cumulative		January 31,
 2020		June 1, 20254.800Quarterly1,000 1,250,000 1,209 1,209 
Series K4.625%
Non-Cumulative		September 17, 2020December 1, 20254.625Quarterly1,000 125,000 122 122 
Series L4.375%
Non-Cumulative		May 4,
2021		September 1, 20264.375Quarterly1,000 675,000 652 652 
Series M3.950% 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%
Quarterly1,000 1,000,000 988 988 
Series N4.250%
Non-Cumulative		July 29,
2021		September 1, 20264.250%Quarterly1,000 425,000 412 412 
Total$4,845 $4,845 
__________
(1)Except for Series M, ownership is held in the form of depositary shares, each representing a 1/40th interest in a share of fixed-rate non-cumulative perpetual preferred stock.
Accumulated Other Comprehensive Income
AOCI primarily consists of accumulated net unrealized gains or losses associated with securities available for sale, changes in fair value of derivatives in hedging relationships and foreign currency translation adjustments.
The following table presents the changes in AOCI by component for the three and nine months ended September 30, 2023 and 2022.
Table 9.2: AOCI
Three Months Ended September 30, 2023
(Dollars in millions)Securities Available for Sale
Hedging Relationships(1)
Foreign Currency Translation Adjustments (2)
OtherTotal
AOCI as of June 30, 2023$(7,602)$(2,205)$27 $(38)$(9,818)
Other comprehensive income (loss) before reclassifications(2,108)(424)(39)0 (2,571)
Amounts reclassified from AOCI into earnings0 165 0 0 165 
Other comprehensive income (loss), net of tax(2,108)(259)(39)0 (2,406)
AOCI as of September 30, 2023$(9,710)$(2,464)$(12)$(38)$(12,224)
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Nine Months Ended September 30, 2023
(Dollars in millions)Securities Available for Sale
Hedging Relationships(1)
Foreign Currency Translation Adjustments (2)
OtherTotal
AOCI as of December 31, 2022$(7,676)$(2,182)$(20)$(38)$(9,916)
Other comprehensive income (loss) before reclassifications(2,034)(890)8 0 (2,916)
Amounts reclassified from AOCI into earnings0 608 0 0 608 
Other comprehensive income (loss), net of tax(2,034)(282)8 0 (2,308)
AOCI as of September 30, 2023$(9,710)$(2,464)$(12)$(38)$(12,224)
Three Months Ended September 30, 2022
(Dollars in millions)Securities Available for Sale
Hedging Relationships(1)
Foreign Currency Translation Adjustments (2)
OtherTotal
AOCI as of June 30, 2022$(5,244)$(1,574)$(78)$(20)$(6,916)
Other comprehensive income (loss) before reclassifications(2,937)(809)(48)0 (3,794)
Amounts reclassified from AOCI into earnings2 5 0 (1)6 
Other comprehensive loss, net of tax(2,935)(804)(48)(1)(3,788)
AOCI as of September 30, 2022$(8,179)$(2,378)$(126)$(21)$(10,704)
Nine Months Ended September 30, 2022
(Dollars in millions)Securities Available for Sale
Hedging Relationships(1)
Foreign Currency Translation Adjustments (2)
OtherTotal
AOCI as of December 31, 2021$297 $118 $(21)$(20)$374 
Other comprehensive income (loss) before reclassifications(8,483)(2,344)(105)0 (10,932)
Amounts reclassified from AOCI into earnings7 (152)0 (1)(146)
Other comprehensive income (loss), net of tax(8,476)(2,496)(105)(1)(11,078)
AOCI as of September 30, 2022$(8,179)$(2,378)$(126)$(21)$(10,704)
__________
(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 gains of $115 million and losses of $1 million for the three and nine months ended September 30, 2023, respectively, and other comprehensive gains of $255 million and $477 million for the three and nine months ended September 30, 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 and nine months ended September 30, 2023 and 2022.
Table 9.3: Reclassifications from AOCI
(Dollars in millions)Three Months Ended September 30,Nine Months Ended September 30,
AOCI ComponentsAffected Income Statement Line Item2023202220232022
Securities available for sale:
Non-interest income (loss)$0 $(3)$0 $(9)
Income tax provision (benefit)0 (1)0 (2)
Net income (loss)0 (2)0 (7)
Hedging relationships:
Interest rate contracts:
Interest income (loss)
(320)(86)(879)104 
Foreign exchange contracts:
Interest income
3 2 9 1 
Interest expense(1)(1)(2)(2)
Non-interest income
100 79 70 97 
Loss from continuing operations before income taxes
(218)(6)(802)200 
Income tax benefit
(53)(1)(194)48 
Net income (loss)
(165)(5)(608)152 
Other:
Non-interest income and non-interest expense0 1 0 1 
Net income0 1 0 1 
Total reclassifications$(165)$(6)$(608)$146 
The table below summarizes other comprehensive income (loss) activity and the related tax impact for the three and nine months ended September 30, 2023 and 2022.
Table 9.4: Other Comprehensive Income (Loss)
 Three Months Ended September 30,
 20232022
(Dollars in millions)Before
Tax		Provision
(Benefit)		After
Tax		Before
Tax		Provision
(Benefit)		After
Tax
Other comprehensive income (loss):
Net unrealized losses on securities available for sale$(2,780)$(672)$(2,108)$(3,882)$(947)$(2,935)
Net unrealized losses on hedging relationships(342)(83)(259)(1,065)(261)(804)
Foreign currency translation adjustments(1)
(2)37 (39)33 81 (48)
Other0 0 0 (1)0 (1)
Other comprehensive loss$(3,124)$(718)$(2,406)$(4,915)$(1,127)$(3,788)
 Nine Months Ended September 30,
 20232022
(Dollars in millions)Before
Tax		Provision
(Benefit)		After
Tax		Before
Tax		Provision
(Benefit)		After
Tax
Other comprehensive income (loss):
Net unrealized losses on securities available for sale$(2,684)$(650)$(2,034)$(11,181)$(2,705)$(8,476)
Net unrealized losses on hedging relationships(372)(90)(282)(3,292)(796)(2,496)
Foreign currency translation adjustments(1)
8 0 8 47 152 (105)
Other0 0 0 (1)0 (1)
Other comprehensive loss$(3,048)$(740)$(2,308)$(14,427)$(3,349)$(11,078)
__________
(1)Includes the impact of hedging instruments designated as net investment hedges.
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NOTE 10—EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per common share.
Table 10.1: Computation of Basic and Diluted Earnings per Common Share
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars and shares in millions, except per share data)2023202220232022
Net income$1,790 $1,694 $4,181 $6,128 
Dividends and undistributed earnings allocated to participating securities(28)(21)(67)(74)
Preferred stock dividends(57)(57)(171)(171)
Net income available to common stockholders$1,705 $1,616 $3,943 $5,883 
Total weighted-average basic common shares outstanding382.5 383.4 382.7 394.9 
Effect of dilutive securities:(1)
Stock options0.1 0.2 0.1 0.4 
Other contingently issuable shares0.7 1.0 0.8 1.1 
Total effect of dilutive securities0.8 1.2 0.9 1.5 
Total weighted-average diluted common shares outstanding383.3 384.6 383.6 396.4 
Basic earnings per common share:
Net income per basic common share$4.46 $4.21 $10.31 $14.90 
Diluted earnings per common share:(1)
Net income per diluted common share$4.45 $4.20 $10.28 $14.84 
__________
(1)Excluded from the computation of diluted earnings per share were awards of 13 thousand shares for the nine months ended September 30, 2023 and 33 thousand shares and 23 thousand shares for the three and nine months ended September 30, 2022, respectively, because their inclusion would be anti-dilutive. There were no awards excluded from the computation for the three months ended September 30, 2023.



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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 September 30, 2023 and December 31, 2022.
Table 11.1: Assets and Liabilities Measured at Fair Value on a Recurring Basis
September 30, 2023
Fair Value Measurements Using
Netting Adjustments(1)
(Dollars in millions)Level 1Level 2Level 3Total
Assets:
Securities available for sale:
U.S. Treasury securities$5,205 $0 $0 0$5,205 
RMBS0 59,733 149 059,882 
CMBS0 7,713 126 07,839 
Other securities192 1,719 0 01,911 
Total securities available for sale5,397 69,165 275 074,837 
Loans held for sale0 314 0 0314 
Other assets:
Derivative assets(2)
725 1,333 1,323 $(1,471)1,910 
Other(3)
529 3 35 0567 
Total assets$6,651 $70,815 $1,633 $(1,471)$77,628 
Liabilities:
Other liabilities:
Derivative liabilities(2)
$822 $1,622 $1,255 $(632)$3,067 
Total liabilities$822 $1,622 $1,255 $(632)$3,067 
December 31, 2022
Fair Value Measurements Using
Netting Adjustments(1)
(Dollars in millions)Level 1Level 2Level 3Total
Assets:
Securities available for sale:
U.S. Treasury securities$5,041 $0 $0 0$5,041 
RMBS0 62,353 236 062,589 
CMBS0 7,728 142 07,870 
Other securities186 1,233 0 01,419 
Total securities available for sale5,227 71,314 378 076,919 
Loans held for sale0 191 0 0191 
Other assets:
Derivative assets(2)
474 2,545 79 $(1,134)1,964 
Other(3)
464 3 36 0503 
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 approximately $1 million and $4 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of September 30, 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 September 30, 2023 and December 31, 2022, other includes retained interests in securitizations of $35 million and $36 million, deferred compensation plan assets of $524 million and $453 million, and equity securities of $8 million (including unrealized losses of approximately $1 million 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 and nine months ended September 30, 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 September 30, 2023
Total Gains (Losses)
(Realized/Unrealized)
Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2023(1)
(Dollars in millions)Balance, July 1, 2023
Included
in Net
Income(1)
Included in OCIPurchasesSalesIssuancesSettlementsTransfers
Into
Level 3		Transfers
Out of
Level 3		    Balance, September 30, 2023
Securities available for sale:(2)
RMBS$206 $2 $(5)$0 $0 $0 $(6)$2 $(50)$149 $2 
CMBS133 0 (6)0 0 0 (1)0 0 126 0 
Total securities available for sale339 2 (11)0 0 0 (7)2 (50)275 2 
Other assets:
Retained interests in securitizations36 (1)0 0 0 0 0 0 0 35 (1)
Net derivative assets (liabilities)(3)
64 (2)0 0 0 3 18 (15)0 68 4 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Nine Months Ended September 30, 2023
Total Gains (Losses)
(Realized/Unrealized)
Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2023(1)
(Dollars in millions)Balance, January 1, 2023
Included
in Net
Income(1)
Included in OCIPurchasesSalesIssuancesSettlementsTransfers
Into
Level 3		Transfers
Out of
Level 3		Balance, September 30, 2023    
Securities available for sale:(2)
RMBS$236 $6 $(4)$0 $0 $0 $(17)$47 $(119)$149 $5 
CMBS142 0 (12)0 0 0 (4)0 0 126 0 
Total securities available for sale378 6 (16)0 0 0 (21)47 (119)275 5 
Other assets:
Retained interests in securitizations36 (1)0 0 0 0 0 0 0 35 (1)
Net derivative assets (liabilities)(3)(4)
5 (20)0 0 0 176 75 (167)(1)68 71 
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Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Three Months Ended September 30, 2022
Total Gains (Losses)
(Realized/Unrealized)
Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2022(1)
(Dollars in millions)Balance, July 1, 2022
Included
in Net
Income(1)
Included in OCIPurchasesSalesIssuancesSettlementsTransfers
Into
Level 3		Transfers
Out of
Level 3		Balance, September 30, 2022
Securities available for sale:(2)
RMBS$240 $2 $(9)$0 $0 $0 $(10)$8 $(13)$218 $2 
CMBS13 (1)(1)0 0 0 (8)177 0 180 0 
Total securities available for sale253 1 (10)0 0 0 (18)185 (13)398 2 
Other assets:
Retained interests in securitizations37 (1)0 0 0 0 0 0 0 36 (1)
Net derivative assets (liabilities)(3)
(12)(22)0 0 0 (11)0 0 40 (5)(22)
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Nine Months Ended September 30, 2022
Total Gains (Losses)
(Realized/Unrealized)
Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2022(1)
(Dollars in millions)Balance, January 1, 2022
Included
in Net
Income(1)
Included in OCIPurchasesSalesIssuancesSettlementsTransfers
Into
Level 3		Transfers
Out of
Level 3		Balance, September 30, 2022
Securities available for sale:(2)
RMBS$258 $15 $(29)$0 $0 $0 $(53)$92 $(65)$218 $6 
CMBS9 (1)(2)0 0 0 (13)190 (3)180 (1)
Total securities available for sale267 14 (31)0 0 0 (66)282 (68)398 5 
Other assets:
Retained interests in securitizations41 (5)0 0 0 0 0 0 0 36 (5)
Net derivative assets (liabilities)(3)
19 (63)0 0 0 25 2 (28)40 (5)(20)
_________
(1)Realized gains (losses) on securities available for sale are included in net securities gains (losses) and retained interests in securitizations are reported as a component of non-interest income in our consolidated statements of income. Gains (losses) on derivatives are included as a component of net interest income or non-interest income in our consolidated statements of income.
(2)For the three and nine months ended September 30, 2023, included in OCI related to Level 3 securities available for sale still held as of September 30, 2023 were net unrealized losses of $9 million and $14 million. For the three and nine months ended September 30, 2022, included in OCI related to Level 3 securities available for sale still held as of September 30, 2022 were net unrealized losses of $15 million and $53 million.
(3)Includes derivative assets and liabilities of $1.3 billion and $1.3 billion, respectively, as of September 30, 2023 and $110 million and $115 million, respectively, as of September 30, 2022.
(4)Transfers into Level 3 primarily consist of term SOFR-indexed interest rate derivatives.
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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
September 30,
2023		Significant
Valuation
Techniques		Significant
Unobservable
Inputs		Range
Weighted
Average(1)
Securities available for sale:
RMBS$149 Discounted cash flows (vendor pricing)Yield
Voluntary prepayment rate
Default rate
Loss severity
3-15%
0-12%
0-10%
20-80%
8%
7%
2%
61%
CMBS126 Discounted cash flows (vendor pricing)Yield
6-7%
6%
Other assets:
Retained interests in securitizations(2)
35 Discounted cash flowsLife of receivables (months)
Voluntary prepayment rate
Discount rate
Default rate
Loss severity
33-64
9-11%
5-13%
1-2%
39-163%
N/A
Net derivative assets (liabilities)68 Discounted cash flowsSwap rates
4-5%
4%
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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%
7%
8%
2%
58%
CMBS142 Discounted cash flows (vendor pricing)Yield
4-5%
5%
Other assets:
Retained interests in securitizations(2)
36 Discounted cash flowsLife of receivables (months)
Voluntary prepayment rate
Discount rate
Default rate
Loss severity
30-43
9-18%
4-7%
1%
62-291%
N/A
Net derivative assets (liabilities)5 Discounted cash flowsSwap rates
3-4%
4%
__________
(1)Weighted averages are calculated by using the product of the input multiplied by the relative fair value of the instruments.
(2)Due to the nature of the various mortgage securitization structures in which we have retained interests, it is not meaningful to present a consolidated weighted average for the significant unobservable inputs.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
We are required to measure and recognize certain assets at fair value on a nonrecurring basis on the consolidated balance sheets. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, from the application of lower of cost or fair value accounting or when we evaluate for impairment).
The following table presents the carrying value of the assets measured at fair value on a nonrecurring basis and still held as of September 30, 2023 and December 31, 2022, and for which a nonrecurring fair value measurement was recorded during the nine and twelve months then ended.
Table 11.4: Nonrecurring Fair Value Measurements
September 30, 2023
Estimated Fair Value HierarchyTotal
(Dollars in millions)Level 2Level 3
Loans held for investment$0 $424 $424 
Loans held for sale0 0 0 
Other assets(1)
0 212 212 
Total$0 $636 $636 
December 31, 2022
Estimated Fair Value HierarchyTotal
(Dollars in millions)Level 2Level 3
Loans held for investment$0 $284 $284 
Loans held for sale11 0 11 
Other assets(1)
0 220 220 
Total$11 $504 $515 
__________
(1)As of September 30, 2023, other assets included investments accounted for under measurement alternative of $38 million, repossessed assets of $54 million, and long-lived assets held for sale and right-of-use assets totaling $120 million. As of December 31, 2022, other assets included investments
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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 $158 million.
In the above table, loans held for investment are generally valued based in part on the estimated fair value of the underlying collateral and the non-recoverable rate, which is considered to be a significant unobservable input. The non-recoverable rate ranged from 0% to 100%, with a weighted average of 19%, and from 0% to 43%, with a weighted average of 20%, as of September 30, 2023 and December 31, 2022, respectively. The weighted average non-recoverable rate is calculated based on the estimated market value of the underlying collateral. The significant unobservable inputs and related quantitative information related to fair value of the other assets are not meaningful to disclose as they vary significantly across properties and collateral.
The following table presents total nonrecurring fair value measurements for the period, included in earnings, attributable to the change in fair value relating to assets that are still held at September 30, 2023 and 2022.
Table 11.5: Nonrecurring Fair Value Measurements Included in Earnings
Total Gains (Losses)
Nine Months Ended September 30,
(Dollars in millions)20232022
Loans held for investment$(315)$24 
Loans held for sale0 0 
Other assets(1)
(52)(33)
Total$(367)$(9)
__________
(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 September 30, 2023 and December 31, 2022.
Table 11.6: Fair Value of Financial Instruments
September 30, 2023
Carrying
Value		Estimated
Fair Value		Estimated Fair Value Hierarchy
(Dollars in millions)Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$44,869 $44,869 $4,620 $40,249 $0 
Restricted cash for securitization investors435 435 435 0 0 
Net loans held for investment299,825 305,810 0 0 305,810 
Loans held for sale
428 440 0 440 0 
Interest receivable2,469 2,469 0 2,469 0 
Other investments(1)
1,329 1,329 0 1,329 0 
Financial liabilities:
Deposits with defined maturities79,176 78,833 0 78,833 0 
Securitized debt obligations17,417 17,409 0 17,409 0 
Senior and subordinated notes31,283 31,051 0 31,051 0 
Federal funds purchased and securities loaned or sold under agreements to repurchase522 522 0 522 0 
Interest payable685 685 0 685 0 
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 December 31, 2022
Carrying
Value		Estimated
Fair Value		Estimated Fair Value Hierarchy
(Dollars in millions)Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$30,856 $30,856 $5,193 $25,663 $0 
Restricted cash for securitization investors400 400 400 0 0 
Net loans held for investment299,091 302,920 0 0 302,920 
Loans held for sale11 11 0 11 0 
Interest receivable2,104 2,104 0 2,104 0 
Other investments(1)
1,326 1,326 0 1,326 0 
Financial liabilities:
Deposits with defined maturities45,858 45,531 0 45,531 0 
Securitized debt obligations16,973 16,918 0 16,918 0 
Senior and subordinated notes30,826 30,744 0 30,744 0 
Federal funds purchased and securities loaned or sold under agreements to repurchase883 883 0 883 0 
Interest payable527 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 revenues and expenses directly or indirectly attributable to each business segment. Our funds transfer pricing process managed by our centralized Corporate Treasury group provides a funds credit for sources of funds, such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a charge for the use of funds by each segment. The allocation is unique to each business segment and acquired business and is based on the composition of assets and liabilities. The funds transfer pricing process considers the interest rate and liquidity risk characteristics of assets and liabilities and off-balance sheet products. Periodically the methodology and assumptions utilized in the funds transfer pricing process are adjusted to reflect economic conditions and other factors, which may impact the allocation of net interest income to the business segments. Due to the integrated nature of our business segments, estimates and judgments have been made in allocating certain revenue and expense items. Transactions between segments are based on specific criteria or approximate market 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 and nine months ended September 30, 2023 and 2022, selected balance sheet data as of September 30, 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 September 30, 2023
(Dollars in millions)Credit CardConsumer Banking
Commercial Banking(1)
Other(1)
Consolidated Total
Net interest income (loss)$5,114 $2,133 $621 $(445)$7,423 
Non-interest income1,513 142 288 0 1,943 
Total net revenue (loss)(2)
6,627 2,275 909 (445)9,366 
Provision for credit losses1,953 213 116 2 2,284 
Non-interest expense3,015 1,262 512 71 4,860 
Income (loss) from continuing operations before income taxes1,659 800 281 (518)2,222 
Income tax provision (benefit)393 189 67 (217)432 
Income (loss) from continuing operations, net of tax$1,266 $611 $214 $(301)$1,790 
Loans held for investment$146,783 $76,844 $91,153 $0 $314,780 
Deposits0 290,789 36,035 19,187 346,011 
Nine Months Ended September 30, 2023
(Dollars in millions)Credit CardConsumer Banking
Commercial Banking(1)
Other(1)
Consolidated Total
Net interest income (loss)$14,498 $6,762 $1,901 $(1,439)$21,722 
Non-interest income4,375 426 757 1 5,559 
Total net revenue (loss)(2)
18,873 7,188 2,658 (1,438)27,281 
Provision for credit losses6,298 747 521 3 7,569 
Non-interest expense9,073 3,776 1,524 226 14,599 
Income (loss) from continuing operations before income taxes3,502 2,665 613 (1,667)5,113 
Income tax provision (benefit)830 629 145 (672)932 
Income (loss) from continuing operations, net of tax$2,672 $2,036 $468 $(995)$4,181 
Loans held for investment$146,783 $76,844 $91,153 $0 $314,780 
Deposits0 290,789 36,035 19,187 346,011 
Three Months Ended September 30, 2022
(Dollars in millions)Credit CardConsumer Banking
Commercial Banking(1)
Other(1)
Consolidated Total
Net interest income (loss)$4,313 $2,311 $699 $(320)$7,003 
Non-interest income (loss)1,454 129 319 (100)1,802 
Total net revenue (loss)(2)
5,767 2,440 1,018 (420)8,805 
Provision (benefit) for credit losses1,261 285 123 0 1,669 
Non-interest expense3,004 1,340 542 63 4,949 
Income (loss) from continuing operations before income taxes1,502 815 353 (483)2,187 
Income tax provision (benefit)356 193 83 (139)493 
Income (loss) from continuing operations, net of tax$1,146 $622 $270 $(344)$1,694 
Loans held for investment$126,913 $81,199 $95,831 $0 $303,943 
Deposits0 256,661 41,058 19,474 317,193 
                                                                                                                                                                                                                                                                                                                                                                                                                                        
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Nine Months Ended September 30, 2022
(Dollars in millions)Credit CardConsumer Banking
Commercial Banking(1)
Other(1)
Consolidated Total
Net interest income (loss)$12,051 $6,571 $1,941 $(646)$19,917 
Non-interest income (loss)4,322 330 868 (227)5,293 
Total net revenue (loss)(2)
16,373 6,901 2,809 (873)25,210 
Provision (benefit) for credit losses2,387 696 353 (5)3,431 
Non-interest expense8,558 3,862 1,515 148 14,083 
Income (loss) from continuing operations before income taxes5,428 2,343 941 (1,016)7,696 
Income tax provision (benefit)1,291 555 223 (501)1,568 
Income (loss) from continuing operations, net of tax$4,137 $1,788 $718 $(515)$6,128 
Loans held for investment$126,913 $81,199 $95,831 $0 $303,943 
Deposits0 256,661 41,058 19,474 317,193 
_________
(1)Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category.
(2)Total net revenue was reduced by $449 million and $1.3 billion in the three and nine months ended September 30, 2023, respectively, and $222 million and $625 million in the three and nine months ended September 30, 2022, respectively, for credit card finance charges and fees charged off as uncollectible.
Revenue from Contracts with Customers
The majority of our revenue from contracts with customers consists of interchange fees, service charges and other customer-related fees, and other contract revenue. Interchange fees are primarily from our Credit Card business and are recognized upon settlement with the interchange networks, net of rewards earned by customers. Service charges and other customer-related fees within our Consumer Banking business are primarily related to fees earned on consumer deposit accounts for account maintenance and various transaction-based services such as automated teller machine (“ATM”) usage. Service charges and other customer-related fees within our Commercial Banking business are mostly related to fees earned on treasury management and capital markets services. Other contract revenue in our Credit Card business consists primarily of revenue from our partnership arrangements. Other contract revenue in our Consumer Banking business consists primarily of revenue earned on certain marketing and promotional events from our auto dealers. Revenue from contracts with customers is included in non-interest income in our consolidated statements of income.
The following table presents revenue from contracts with customers and a reconciliation to non-interest income by business segment for the three and nine months ended September 30, 2023 and 2022.
Table 12.2: Revenue from Contracts with Customers and Reconciliation to Segment Results
Three Months Ended September 30, 2023
(Dollars in millions)Credit CardConsumer Banking
Commercial Banking(1)
Other(1)
Consolidated Total
Contract revenue:
Interchange fees, net(2)
$1,115 $92 $27 $0 $1,234 
Service charges and other customer-related fees0 21 78 0 99 
Other111 28 3 0 142 
Total contract revenue1,226 141 108 0 1,475 
Revenue from other sources287 1 180 0 468 
Total non-interest income$1,513 $142 $288 $0 $1,943 
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Nine Months Ended September 30, 2023
(Dollars in millions)Credit CardConsumer Banking
Commercial Banking(1)
Other(1)
Consolidated Total
Contract revenue:
Interchange fees, net(2)
$3,251 $270 $64 $1 $3,586 
Service charges and other customer-related fees0 64 173 (1)236 
Other257 74 16 0 347 
Total contract revenue3,508 408 253 0 4,169 
Revenue from other sources867 18 504 1 1,390 
Total non-interest income$4,375 $426 $757 $1 $5,559 
Three Months Ended September 30, 2022
(Dollars in millions)Credit CardConsumer Banking
Commercial Banking(1)
Other(1)
Consolidated Total
Contract revenue:
Interchange fees, net(2)
$1,085 $83 $27 $0 $1,195 
Service charges and other customer-related fees0 23 62 0 85 
Other104 18 13 0 135 
Total contract revenue1,189 124 102 0 1,415 
Revenue (reduction) from other sources265 5 217 (100)387 
Total non-interest income (loss)$1,454 $129 $319 $(100)$1,802 
Nine Months Ended September 30, 2022
(Dollars in millions)Credit CardConsumer Banking
Commercial Banking(1)
Other(1)
Consolidated Total
Contract revenue:
Interchange fees, net(2)
$3,115 $234 $79 $1 $3,429 
Service charges and other customer-related fees0 70 190 (1)259 
Other297 56 14 0 367 
Total contract revenue3,412 360 283 0 4,055 
Revenue (reduction) from other sources910 (30)585 (227)1,238 
Total non-interest income (loss)$4,322 $330 $868 $(227)$5,293 
__________
(1)Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reductions to the Other category.
(2)Interchange fees are presented net of customer reward expenses.
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NOTE 13—COMMITMENTS, CONTINGENCIES, GUARANTEES AND OTHERS
Commitments to Lend
Our unfunded lending commitments primarily consist of credit card lines, loan commitments to customers of both our Commercial Banking and Consumer Banking businesses, as well as standby and commercial letters of credit. These commitments, other than credit card lines 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 September 30, 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 AmountCarrying Value
(Dollars in millions)September 30, 2023December 31, 2022September 30, 2023December 31, 2022
Credit card lines$390,477 $359,507 N/AN/A
Other loan commitments(1)
47,280 48,405 $102 $176 
Standby letters of credit and commercial letters of credit(2)
1,441 1,402 23 28 
Total unfunded lending commitments$439,198 $409,314 $125 $204 
__________
(1)Includes $5.1 billion and $4.4 billion of advised lines of credit as of September 30, 2023 and December 31, 2022, respectively.
(2)These financial guarantees have expiration dates that range from 2024 to 2027 as of September 30, 2023.
Loss Sharing Agreements
Within our Commercial Banking business, we originate multifamily commercial real estate loans with the intent to sell them to the GSEs. We enter into loss sharing agreements with the GSEs upon the sale of these originated loans. Beginning January 1, 2020, we elected the fair value option on new loss sharing agreements entered into. Unrealized gains and losses are recorded in other non-interest income in our consolidated statements of income. For those loss sharing agreements entered into as of and prior to December 31, 2019, we amortize the liability recorded at inception into non-interest income as we are released from risk of having to make a payment and record our estimate of expected credit losses each period through the provision for credit losses in our consolidated statements of income. The liability recognized on our consolidated balance sheets for these loss sharing agreements was $117 million and $82 million as of September 30, 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 September 30, 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 are 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 in British Columbia has been appealed. In the third quarter of 2023, a trial court in Quebec preliminarily authorized a class of all impacted consumers in Quebec. This decision also has been appealed. Proceedings are continuing in parallel in Ontario and Alberta.
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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 enhancements of our cybersecurity and operational risk management processes. We paid an $80 million penalty to the U.S. Treasury as part of the OCC agreement. The Federal Reserve agreement did not contain a monetary penalty. The OCC lifted its consent order on August 31, 2022 and the Federal Reserve lifted its consent order on July 5, 2023. Canada’s Office of Privacy Commissioner’s (“OPC”) investigation into the Cybersecurity Incident is still open.
Walmart Litigation
On April 7, 2023, Walmart filed a lawsuit in the Southern District of New York seeking a declaratory judgment that it has the contractual right to early termination of the credit card partnership agreement under which we are the exclusive issuer of Walmart’s private label and co-branded credit card program in the U.S. and share in certain related economics. On May 2, 2023, Walmart filed an amended complaint in which it also alleges breach of contract and seeks damages caused by any delay in termination. On May 4, 2023, we filed an Answer and Counterclaim to Walmart’s amended complaint, denying that Walmart has any right to terminate the partnership and alleging that Walmart has breached its contractual obligations to Capital One.
U.K. PPI Litigation
In the U.K., we previously sold payment protection insurance (“PPI”). For several years leading up to the claims submission deadline of August 29, 2019 (as set by the U.K. Financial Conduct Authority), we received customer complaints and regulatory claims relating to PPI. COEP has materially resolved the PPI complaints and regulatory claims received prior to the deadline. Some of the claimants in the U.K. PPI regulatory claims process have subsequently initiated legal proceedings, seeking additional redress. We are responding to these proceedings as we receive them.
Savings Account Litigation
In July 2023, Capital One was sued in a putative class action in the Eastern District of Virginia by savings account holders alleging breach of contract and a variety of other causes of action relating to Capital One’s introduction of a new savings account product with a higher interest rate than existing savings account products. Capital One intends to file its response to the lawsuit in the fourth quarter of 2023.
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 September 30, 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 September 30, 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 third quarter of 2023 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
The information required by Item 103 of Regulation S-K is included in “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 third 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)
July441,965 $113.13 441,965 $4,836 
August519,976 109.05 462,680 4,786 
September498,101 100.38 498,101 4,736 
Total1,460,042 107.33 1,402,746 
__________
(1)In April 2022, our Board of Directors authorized the repurchase of up to $5.0 billion of shares of our common stock. There were 57,296 shares withheld in August, 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
Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements
During the three months ended September 30, 2023, certain of our officers and directors adopted or terminated Rule 10b5-1 trading arrangements as follows:
Frank G. LaPrade, our Chief Enterprise Services Officer and Chief of Staff to the CEO, entered into a pre-arranged stock trading plan on July 28, 2023. Mr. LaPrade’s plan provides for the potential exercise of vested stock options and the associated sale of up to 70,975 shares of Capital One common stock in amounts and prices determined in accordance with a formula set forth in the plan and terminates on the earlier of the date all shares under the plan are sold and April 29, 2024.
Ann Fritz Hackett, our lead independent director, entered into a pre-arranged stock trading plan on August 8, 2023. Ms. Hackett’s plan provides for the associated sale of up to 15,000 shares of Capital One common stock in amounts and prices determined in accordance with a formula set forth in the plan and terminates on the earlier of the date all shares under the plan are sold and December 31, 2024.
Lance Hackett, spouse of Ann Fritz Hackett, our lead independent director, entered into a pre-arranged stock trading plan on August 8, 2023. Mr. Hackett’s plan provides for the associated sale of up to 5,005 shares of Capital One common stock in
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amounts and prices determined in accordance with a formula set forth in the plan and terminates on the earlier of the date all shares under the plan are sold and December 31, 2024.
Each of the trading plans was entered into during an open insider trading window and is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended, and Capital One’s policies regarding transactions in its securities.

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
3.2
4.1Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, copies of instruments defining the rights of holders of long-term debt are not filed. The Company agrees to furnish a copy thereof to the SEC upon request.
31.1*
31.2*
32.1**
32.2**
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document.
101.SCH*Inline XBRL Taxonomy Extension Schema Document.
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
The cover page of Capital One Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL (included within the Exhibit 101 attachments).
__________
*Indicates a document being filed with this Form 10-Q.
**Indicates a document being furnished with this Form 10-Q. Information in this Form 10-Q furnished herewith shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, 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: November 2, 2023 By:/s/ ANDREW M. YOUNG
 Andrew M. Young
 Chief Financial Officer

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