SEC Filing | Capital One Financial Corp.

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cof-20210930

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, 2021


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

For the transition period from to

Commission File No. 001-13300

____________________________________

CAPITAL ONE FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

____________________________________


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

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

(Not Applicable)

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

____________________________________

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


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 29, 2021, there were 425,622,058 shares of the registrant’s Common Stock outstanding.

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION		4













Item 1.	Financial Statements and Notes	68
	Consolidated Statements of Income	69
	Consolidated Statements of Comprehensive Income	70
	Consolidated Balance Sheets	71
	Consolidated Statements of Changes in Stockholders’ Equity	72
	Consolidated Statements of Cash Flows	74
	Notes to Consolidated Financial Statements	76
	Note 1—Summary of Significant Accounting Policies	76

	Note 2—Investment Securities	78
	Note 3—Loans	81
	Note 4—Allowance for Credit Losses and Reserve for Unfunded Lending Commitments	92
	Note 5—Variable Interest Entities and Securitizations	96
	Note 6—Goodwill and Intangible Assets	100
	Note 7—Deposits and Borrowings	101
	Note 8—Derivative Instruments and Hedging Activities	102
	Note 9—Stockholders’ Equity	112
	Note 10—Earnings Per Common Share	116
	Note 11—Fair Value Measurement	117
	Note 12—Business Segments and Revenue from Contracts with Customers	125
	Note 13—Commitments, Contingencies, Guarantees and Others	129





Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)	4
	Introduction	4
	Selected Financial Data	6
	Executive Summary and Business Outlook	9
	Consolidated Results of Operations	11
	Consolidated Balance Sheets Analysis	17
	Off-Balance Sheet Arrangements	19
	Business Segment Financial Performance	19
	Critical Accounting Policies and Estimates	29
	Accounting Changes and Developments	30
	Capital Management	30
	Risk Management	37
	Credit Risk Profile	38
	Liquidity Risk Profile	52
	Market Risk Profile	55
	Supervision and Regulation	59
	Forward-Looking Statements	59
	Supplemental Table	61
	Glossary and Acronyms	62



			1			Capital One Financial Corporation (COF)


Item 3.	Quantitative and Qualitative Disclosures about Market Risk	132































Item 4.	Controls and Procedures	132


PART II—OTHER INFORMATION		133





Item 1.	Legal Proceedings	133
Item 1A.	Risk Factors	133
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	133
Item 3.	Defaults Upon Senior Securities	133
Item 4.	Mine Safety Disclosures	133
Item 5.	Other Information	133
Item 6.	Exhibits	133





EXHIBIT INDEX		134
SIGNATURES		135



			2			Capital One Financial Corporation (COF)

INDEX OF MD&A AND SUPPLEMENTAL TABLE


MD&A Tables:		Page
1	Consolidated Financial Highlights	6
2	Average Balances, Net Interest Income and Net Interest Margin	11
3	Rate/Volume Analysis of Net Interest Income	14
4	Non-Interest Income	15
5	Non-Interest Expense	16
6	Investment Securities	17

7	Loans Held for Investment	18
8	Funding Sources Composition	18
9	Business Segment Results	20
10	Credit Card Business Results	21
10.1	Domestic Card Business Results	23
11	Consumer Banking Business Results	25
12	Commercial Banking Business Results	27
13	Other Category Results	29
14	Capital Ratios Under Basel III	33
15	Regulatory Risk-Based Capital Components and Regulatory Capital Metrics	34
16	Preferred Stock Dividends Paid Per Share	36
17	Portfolio Composition of Loans Held for Investment	39

18	Credit Card Portfolio by Geographic Region	40
19	Consumer Banking Portfolio by Geographic Region	41
20	Commercial and Multifamily Real Estate Portfolio by Region	41
21	Commercial Loans by Industry	42
22	Credit Score Distribution	43
23	30+ Day Delinquencies	43
24	Aging and Geography of 30+ Day Delinquent Loans	44
25	90+ Day Delinquent Loans Accruing Interest	45
26	Nonperforming Loans and Other Nonperforming Assets	46
27	Net Charge-Offs	47
28	Troubled Debt Restructurings	48
29	Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity	49
30	Allowance Coverage Ratios for Specified Loan Category	52
31	Liquidity Reserves	52
32	Deposits Composition and Average Deposits Interest Rates	54

33	Long-Term Funding	55
34	Senior Unsecured Long-Term Debt Credit Ratings	55

35	Interest Rate Sensitivity Analysis	56

Supplemental Table:





A	Reconciliation of Non-GAAP Measures	61



			3			Capital One Financial Corporation (COF)

Table of Contents

PART I—FINANCIAL INFORMATION

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

This discussion contains forward-looking statements that are based upon management’s current expectations and are subject to significant uncertainties and changes in circumstances. Please review “MD&A—Forward-Looking Statements” for more information on the forward-looking statements in this Quarterly Report on Form 10-Q (“this Report”). All statements that address operating performance, events or developments that we expect or anticipate will occur in the future, including those relating to operating results and “Note 13—Commitments, Contingencies, Guarantees and Others” as well as the potential impacts of the COVID-19 pandemic described in “MD&A—Introduction—Coronavirus Disease 2019 (COVID-19) Pandemic” are forward-looking statements. Our actual results may differ materially from those included in these forward-looking statements due to a variety of factors including, but not limited to, those described in “Part I—Item 1A. Risk Factors” in our 2020 Annual Report on Form 10-K (“2020 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, 2021 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 2020 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”) offer a broad array of financial products and services to consumers, small businesses and commercial clients through digital channels, branches, Cafés and other distribution channels.

As of September 30, 2021, our principal subsidiaries included:

•Capital One Bank (USA), National Association (“COBNA”), which offers credit card products along with other lending products and consumer services; and

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

The Company is hereafter collectively referred to as “we,” “us” or “our.” COBNA and CONA are collectively referred to as the “Banks.” Certain business terms used in this document are defined in the “MD&A—Glossary and Acronyms” and should be read in conjunction with the consolidated financial statements included in this Report.

Our consolidated total net revenues are derived primarily from lending to consumer, small business and commercial customers net of funding costs associated with interest on deposits, 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 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.

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



			4			Capital One Financial Corporation (COF)

Table of Contents

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

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

Business Developments

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

Coronavirus Disease 2019 (COVID-19) Pandemic

The COVID-19 pandemic resulted in a global public-health crisis, disrupting economies and introducing significant volatility into financial markets. We transformed how we work in order to protect the well-being of our associates and our customers, and were able to continue to serve our customers, successfully manage critical functions, and keep our lines of business operating.

Since the start of the COVID-19 pandemic, a significant majority of our associates across our workforce have transitioned to working remotely, relying on our technology infrastructure and systems that have been designed for resilience and security. The majority of our associates continue to work remotely. In the future, we plan to adopt a hybrid work methodology that allows for in-office collaboration while still enabling associates to work remotely. We continue to monitor local conditions to ensure the safety of our associates.

For more information see “Part I—Item 1. Business—Overview—Coronavirus Disease 2019 (COVID-19) Pandemic” and “Part I—Item 1A. Risk Factors” in our 2020 Form 10-K along with “Part I—Item 2. MD&A—Introduction—Coronavirus Disease 2019 (COVID-19) Pandemic” and “Part I—Item 2. MD&A—Credit Risk Profile—COVID-19 Customer Assistance Programs and Loan Modifications” in our Quarterly Report on Form 10-Q for the period ended March 31, 2021.



			5			Capital One Financial Corporation (COF)

Table of Contents


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 2021 and 2020 and selected comparative balance sheet data as of September 30, 2021 and December 31, 2020. We also provide selected key metrics we use in evaluating our performance, including certain metrics that are computed using non-GAAP measures. We consider these metrics to be key financial measures that management uses in assessing our operating performance, capital adequacy and the level of returns generated. We believe these non-GAAP metrics provide useful insight to investors and users of our financial information as they provide an alternate measurement of our performance and assist in assessing our capital adequacy and the level of return generated.

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)	2021		2020		Change	2021		2020		Change
Income statement


Net interest income	$	6,156	$	5,555	11%	$	17,721	$	17,040	4%
Non-interest income	1,674		1,826		(8)	4,596		4,146		11
Total net revenue	7,830		7,381		6	22,317		21,186		5
Provision (benefit) for credit losses	(342)		331		**	(2,325)		10,000		**
Non-interest expense:
Marketing	751		283		165	1,872		1,047		79
Operating expense	3,435		3,265		5	10,020		10,000		—
Total non-interest expense	4,186		3,548		18	11,892		11,047		8

Income from continuing operations before income taxes	3,986		3,502		14	12,750		139		**
Income tax provision (benefit)	882		1,096		(20)	2,782		(10)		**
Income from continuing operations, net of tax	3,104		2,406		29	9,968		149		**
Loss from discontinued operations, net of tax	—		—		—	(3)		(1)		**
Net income	3,104		2,406		29	9,965		148		**
Dividends and undistributed earnings allocated to participating securities	(26)		(20)		30	(84)		(5)		**
Preferred stock dividends	(79)		(67)		18	(200)		(212)		(6)
Issuance cost for redeemed preferred stock	(12)		—		**	(12)		(22)		(45)
Net income (loss) available to common stockholders	$	2,987	$	2,319	29	$	9,669	$	(91)	**
Common share statistics
Basic earnings per common share:
Net income (loss) from continuing operations	$	6.81	$	5.07	34%	$	21.53	$	(0.20)	**
Loss from discontinued operations	—		—		—	(0.01)		—		**
Net income (loss) per basic common share	$	6.81	$