Capital One 2015 Annual Report Download

Download and view the complete annual report

Please find the complete 2015 Capital One annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 253

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181
  • 182
  • 183
  • 184
  • 185
  • 186
  • 187
  • 188
  • 189
  • 190
  • 191
  • 192
  • 193
  • 194
  • 195
  • 196
  • 197
  • 198
  • 199
  • 200
  • 201
  • 202
  • 203
  • 204
  • 205
  • 206
  • 207
  • 208
  • 209
  • 210
  • 211
  • 212
  • 213
  • 214
  • 215
  • 216
  • 217
  • 218
  • 219
  • 220
  • 221
  • 222
  • 223
  • 224
  • 225
  • 226
  • 227
  • 228
  • 229
  • 230
  • 231
  • 232
  • 233
  • 234
  • 235
  • 236
  • 237
  • 238
  • 239
  • 240
  • 241
  • 242
  • 243
  • 244
  • 245
  • 246
  • 247
  • 248
  • 249
  • 250
  • 251
  • 252
  • 253

2015 ANNUAL REPORT

Table of contents

  • Page 1
    2015 ANNUAL REPORT

  • Page 2
    2015 ANNUAL REPORT

  • Page 3

  • Page 4
    ... no games or limits. Our Spark Business® credit card provides savvy business owners the choice of unlimited double miles or 2% cash back. And our Spark Business Unlimited checking account, which offers unlimited transactions and free cash deposits, was recognized by Money ® magazine as the best...

  • Page 5
    ... CLIO Sports AUTO NAVIGATOR We're providing customers with a better car-buying experience. Before they step onto a dealer's lot, customers can search inventory, pricing, vehicle history, financing terms, monthly payments, and dealer reviews. All in one place. Awards for our "Road Trip" Final Four...

  • Page 6
    ... and test Capital One Cafés in attractive markets such as Boston, New York, and San Francisco. CAPITAL ONE HEALTHCARE We continued to help our commercial clients grow their businesses and invest for the future. Commercial banking net income was $570 million in 2015. Credit performance remained...

  • Page 7
    ... and MX: Managing Design. We are arming our associates with cutting-edge tools and training. We are transforming our workspaces to attract the best digital and technology talent, drive innovation, and enable new ways to work. In 2015, we opened ADAPTIVE PATH & UX WEEK 2015 marked the 13th year of...

  • Page 8
    ... in our credit card business and to position ourselves for the sweeping digital transformation of our industry. Our company performance was defined by growth in domestic card loan balances and purchase volumes, which drove strong year-over-year revenue growth. Increases in marketing and operating...

  • Page 9
    ...we deliver shareholder value. 2015 was a volatile year for the stock market and for banks. The KBW Bank Index declined -1.6%. Against that backdrop, Capital One's total shareholder return (TSR) in 2015 was -10.9% and our stock price closed the year at $72.18 per share. We have delivered value to our...

  • Page 10
    ... time. In 2015, Capital One associates spent more than 366,000 hours in volunteer service, working in hundreds of community and charitable programs. The company gave $46.6 million to nonprofit organizations that help build economic opportunity in communities where our associates and customers live...

  • Page 11
    ... time in human history. Years of hard work and bold decisions have put us in a strong position to capitalize on opportunities as banking is transformed. Our businesses and balance sheet are strong. We have a bold and iconic brand. We're building a leading information-based technology company...

  • Page 12
    ... trademark of Cable News Network. A Time Warner Company and is used under license. FORTUNE, CNN and Time Inc. are not affiliated with, and do not endorse products or services of, Licensee. Copyright © 2016 Working Mother Media. All rights reserved. Used by permission and protected by the Copyright...

  • Page 13
    Financial Summary EARNINGS PER SHARE (DILUTED) $6.76 $6.11 $6.89 $7.59 $7.07 2011 2012 2013 2014 2015 REVENUE ($ IN MILLIONS) $21,396 $16,279 $22,384 $22,290 $23,413 2011 2012 2013 2014 2015 ASSETS ($ IN BILLIONS) $334 $296 $308 $312 $204 2011 2012 2013 2014 2015 12

  • Page 14
    ...: Purchase volume Total net revenue margin Net interest margin Return on average assets Return on average common equity Return on average tangible common equity Efficiency ratio Effective income tax rate on continuing operations Employees (in thousands), period end $ $ Capital Ratios: Common equity...

  • Page 15
    ... and Corporate Secretary Frank G. LaPrade, III Chief Enterprise Services Officer and Chief of Staff to the CEO Peter Thomas Killalea Owner and President Aoinle, LLC Ryan M. Schneider President, Card Pierre E. Leroy R Managing Partner Aspiture, LLC Michael C. Slocum President, Commercial Banking...

  • Page 16
    ... No.) 1680 Capital One Drive, McLean, Virginia (Address of Principal Executive Offices) 22102 (Zip Code) Registrant's telephone number, including area code: (703) 720-1000 _____ Securities registered pursuant to section 12(b) of the act: Title of Each Class Name of Each Exchange on Which...

  • Page 17
    ... Issuer Purchases of Equity Securities ...Item 6. Summary of Selected Financial Data ...Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") ...Executive Summary and Business Outlook...Critical Accounting Policies and Estimates ...Accounting Changes...

  • Page 18
    ... ...Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions and Director Independence ...Principal Accountant Fees and Services...

  • Page 19
    ...Banking Business Results...56 8 Commercial Banking Business Results ...59 9 Other Category Results ...61 10 Investment Securities ...63 11 Non-Agency Investment Securities Credit Ratings ...64 12 Loans Held for Investment ...64 13 Changes in Representation and Warranty Reserve...66 14 Capital Ratios...

  • Page 20
    ... offers credit and debit card products, other lending products and deposit products; and Capital One, National Association ("CONA"), which offers a broad spectrum of banking products and financial services to consumers, small businesses and commercial clients. The Company is hereafter collectively...

  • Page 21
    ... our business acquisitions and dispositions. Additional Information Our common stock trades on the New York Stock Exchange ("NYSE") under the symbol "COF" and is included in the Standard & Poor's ("S&P") 100 Index. Our principal executive office is located at 1680 Capital One Drive, McLean, Virginia...

  • Page 22
    ...Z, impose a number of restrictions on credit card practices impacting rates and fees, require that a consumer's ability to pay be taken into account before issuing credit or increasing credit limits, and update the disclosures required for open-end credit. 3 Capital One Financial Corporation (COF)

  • Page 23
    ...transaction. In 2011 and 2012, the Federal Reserve adopted final rules that implement the portion of the Dodd-Frank Act that limits interchange fees received by a debit card issuer. The final rules limited interchange fees per debit card transaction to $0.21 plus five basis points of the transaction...

  • Page 24
    ... business operations, including sales and trading practices, public offerings, publication of research reports, use and safekeeping of client funds and securities, capital structure, record-keeping and the conduct of directors, officers and employees. Capital One Asset Management LLC and Capital...

  • Page 25
    ... Approach capital calculations. Based on current rules and our business mix, we estimate that our Basel III Advanced Approaches ratios will be lower than our Standardized Approach ratios. The Final Basel III Capital Rule revised the definition of regulatory capital, established a new common equity...

  • Page 26
    ... Federal Banking Agencies. In September 2014, the Federal Banking Agencies issued final rules implementing the LCR in the United States. The rule ("Final LCR Rule") applies to institutions with total consolidated assets of $250 billion or more or total consolidated on-balance sheet foreign exposure...

  • Page 27
    ...the Federal Reserve relating to capital planning and stress tests. Stress testing and capital planning regulations are discussed further below under "Dividends, Stock Repurchases and Transfers of Funds." The Enhanced Standards Rule also requires that we establish and maintain an enterprise-wide risk...

  • Page 28
    ... institution or its holding company without making application to, and receiving prior approval from, the Virginia Bureau of Financial Institutions. Dividends, Stock Repurchases and Transfers of Funds In November 2011, the Federal Reserve finalized capital planning rules applicable to large BHCs...

  • Page 29
    ..., with appropriate phase-in provisions applicable to Capital One. Traditionally, dividends to us from our direct and indirect subsidiaries have represented a major source of funds for us to pay dividends on our stock, make payments on corporate debt securities and meet our other obligations. There...

  • Page 30
    ... Office of Fair Trading. The FCA's new regulatory purview includes credit card lending activities. The FCA established a new Consumer Credit Sourcebook based on the existing regulatory regime which came into full effect on September 30, 2014. COEP, in common with other market participants, currently...

  • Page 31
    ... of price, credit limit, reward programs and other product features. Our Consumer Banking and Commercial Banking businesses compete with national, state and direct banks for deposits, commercial and auto loans, mortgages and trust accounts, as well as with savings and loan associations and credit...

  • Page 32
    ... limited to): Total System Services Inc. ("TSYS") for processing services for our North American and U.K. portfolios of consumer and small business credit card accounts, and Fidelity Information Services ("FIS") for certain of our banking systems. To protect our systems and technologies, we employ...

  • Page 33
    ... to control costs; the effectiveness of our risk management strategies; the amount of, and rate of growth in, our expenses as our business develops or changes or as it expands into new market areas; our ability to execute on our strategic and operational plans; • • • 14 Capital One...

  • Page 34
    ... of new products and services; changes in the labor and employment markets; fraud or misconduct by our customers, employees or business partners; competition from providers of products and services that compete with our businesses; and other risk factors listed from time to time in reports that...

  • Page 35
    ... could limit our access to funding. The interest rates that we pay on the securities we have issued are also influenced by, among other things, applicable credit ratings from recognized rating agencies. A downgrade to any of these credit ratings could affect our ability to access the capital markets...

  • Page 36
    ... of the laws, rules or regulations more than initially contemplated or currently anticipated. We have a large number of customer accounts in our credit card and auto lending businesses and we have made the strategic choice to originate and service subprime credit cards and auto loans which typically...

  • Page 37
    ...remaining balance from our customers. Decreases in real estate values adversely affect the collateral value for our commercial lending and home loan activities, while the auto business is similarly exposed to collateral risks arising from the auction markets that determine used car prices. Therefore...

  • Page 38
    ... As a result, it is possible that we could be required to increase our capital and/or liquidity levels above the levels assumed in our current financial plans. These new requirements could have a negative impact on our ability to lend, grow deposit balances or make acquisitions and limit our ability...

  • Page 39
    ... customers and develop and implement effective marketing campaigns. We also depend on models to measure risks, estimate certain financial values, determine pricing on certain products, assess capital adequacy and calculate regulatory capital levels. If we implement or design our models poorly or use...

  • Page 40
    ...based, depends upon the management and safeguarding of information, software, methodologies and business secrets. To provide these products and services, we use information systems and infrastructure, including digital technologies, computer and email systems, software, networks, and other web-based...

  • Page 41
    ...cross-selling their products and developing new products or technologies, which could affect our ability to maintain or grow existing customer relationships or require us to offer lower interest rates or fees on our lending products or higher interest rates on deposits. This increasingly competitive...

  • Page 42
    ...as aggregators and web-based and wireless payment platforms or technologies, digital currencies, prepaid systems and payment services targeting users of social networks and online gaming (including those offering billing to the consumer's mobile phone account), as well as consortia of merchants that...

  • Page 43
    ... or other credit card and debit card issuers and networks. Beyond pursuing litigation, legislation and regulation, merchants may also promote forms of payment with lower fees, such as ACH-based payments, or seek to impose surcharges at the point of sale for use of credit or debit cards. For example...

  • Page 44
    ... of social media may increase the likelihood that negative public opinion from any of the events discussed above will impact our reputation and business. In addition, a variety of social factors may cause changes in borrowing activity, including credit card use, payment patterns and the rate of...

  • Page 45
    ...certain financial values. Models may be used in such processes as determining the pricing of various products, grading loans and extending credit, measuring interest rate and other market risks, predicting losses, assessing capital adequacy, and calculating economic and regulatory capital levels, as...

  • Page 46
    ..., the Final Basel III Capital Rule requires that most amounts reported in Accumulated Other Comprehensive Income ("AOCI"), including unrealized gains and losses on securities designated as available for sale, be included in our regulatory capital calculations. Changes in interest rates or market...

  • Page 47
    ... subsidiaries, including the Banks. Dividends to us from our direct and indirect subsidiaries, including the Banks, have represented a major source of funds for us to pay dividends on our common and preferred stock, repurchase common stock, make payments on corporate debt securities and meet other...

  • Page 48
    ... owned space. Our headquarters is located in McLean, Virginia, and is included in our corporate office space. We maintain office space primarily in Virginia, Texas, Illinois, New York, Delaware, Louisiana and Maryland. Our 4.2 million square feet of bank branches and related office space consists of...

  • Page 49
    ...I-Item 1. Business-Supervision and Regulation-Dividends, Stock Repurchases and Transfers of Funds," "MD&A-Capital Management-Dividend Policy and Stock Purchases," and "Note 13-Regulatory and Capital Adequacy." Securities Authorized for Issuance Under Equity Compensation Plans Information relating to...

  • Page 50
    .... Comparison of 5-Year Cummulative Total Return (Capital One, S&P 500 Index and S&P Financial Index) $250 $200 $180 $150 $163 $150 $100 $50 $0 2010 2011 Capital One 2012 S&P 500 Index 2013 2014 S&P Financial Index 2015 December 31, 2010 2011 2012 2013 2014 2015 Capital One ...S&P 500...

  • Page 51
    ... related to repurchases of shares of our common stock for each calendar month in the fourth quarter of 2015. Total Number of Shares Purchased(1) Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Amount That May Yet be Purchased Under the Plan or Program(2) (Dollars...

  • Page 52
    ... Data(1) Year Ended December 31, (Dollars in millions, except per share data and as noted) 2015 2014 2013 2012 2011 Change 2015 vs. 2014 2014 vs. 2013 Income statement Interest income ...Interest expense ...Net interest income...Non-interest income(2) ...Total net revenue ...Provision for credit...

  • Page 53
    Year Ended December 31, (Dollars in millions, except per share data and as noted) 2015 2014 2013 2012 2011 Change 2015 vs. 2014 2014 vs. 2013 Balance sheet (average balances) Loans held for investment ...Interest-earning assets ...Total assets ...Interest-bearing deposits...Total deposits ......

  • Page 54
    ... credit card purchase transactions, net of returns, for the period for both loans classified as held for investment and loans classified as held for sale. Excludes cash advance and balance transfer transactions. Calculated based on total net revenue for the period divided by average interest-earning...

  • Page 55
    ... for 2015. In comparison, we reported net income of $4.4 billion ($7.59 per diluted common share) on total net revenue of $22.3 billion for 2014 and $4.1 billion ($6.89 per diluted common share) on total net revenue of $22.4 billion for 2013. Our common equity Tier 1 capital ratio, as calculated...

  • Page 56
    ... our Commercial Banking business. Our 30+ day delinquency rate increased by 9 basis points to 3.00% as of December 31, 2015, from December 31, 2014, primarily due to the seasoning of recent credit card loan originations and adverse market conditions impacting our taxi medallion lending portfolio...

  • Page 57
    ... in service charges and other customer-related fees primarily due to the continued run-off of our payment protection products in our Domestic Card business. Period-end loans held for investment increased by $10.2 billion to $96.1 billion as of December 31, 2015 from December 31, 2014, primarily...

  • Page 58
    ...build in loan balances and revenues over time. Examples of franchise-enhancing customer relationships include rewards customers in our Credit Card business, retail deposit customers in our Consumer Banking business and primary banking relationships with commercial customers in our Commercial Banking...

  • Page 59
    ... in our credit evaluation, underwriting and collection management policies, seasonality, general economic conditions, changes in the legal and regulatory environment and uncertainties in forecasting and modeling techniques used in estimating our allowance for loan and lease losses. Key factors that...

  • Page 60
    ... account is charged-off; however, when we do not expect full payment of billed finance charges and fees, we reduce the balance of our credit card loan receivables by the amount of finance charges and fees billed but not expected to be collected and exclude this amount from revenue. Total net revenue...

  • Page 61
    ... future loan and deposit growth, revenue growth, credit losses, and capital rates. Discount rates used in 2015 for the reporting units ranged from 8% to 13%. The key inputs into the discounted cash flow analysis were consistent with market data, where available, indicating that assumptions used were...

  • Page 62
    ... to estimate fair value. Changes in market conditions, such as reduced liquidity in the capital markets or changes in secondary market activities, may reduce the availability and reliability of quoted prices or observable data used to determine fair value. We have developed policies and procedures...

  • Page 63
    ...and requires the application of judgment. In establishing the representation and warranty reserves, we rely on historical data and consider a variety of factors, depending on the category of purchaser. These factors include, but are not limited to, the historical relationship between loan losses and...

  • Page 64
    ... earned that are expected to be redeemed and the estimated redemption cost. We use financial models to estimate ultimate redemption rates of rewards earned to date by current card members based on historical redemption trends, current enrollee redemption behavior, card product type, year of program...

  • Page 65
    ... Yield/ Rate (Dollars in millions) Assets: Interest-earning assets: Loans: Credit card: Domestic credit card ...International credit card...Total credit card...Consumer banking...Commercial banking ...Other ...Total loans, including loans held for sale . Investment securities ...Cash equivalents...

  • Page 66
    ... of Net Interest Income(1) 2015 vs. 2014 (Dollars in millions) Total Variance Volume Rate Total Variance 2014 vs. 2013 Volume Rate Interest income: Loans: Credit card ...Consumer banking ...Commercial banking ...Other...Total loans, including loans held for sale ...Investment securities ...Cash...

  • Page 67
    ... customer-related fees primarily due to the continued run-off of our payment protection products in our Domestic Card business. Non-interest income increased by $194 million to $4.5 billion in 2014 compared to 2013. The main drivers included an increase in net interchange fees due to strong purchase...

  • Page 68
    ... of non-interest expense for 2015, 2014 and 2013. Table 5: Non-Interest Expense Year Ended December 31, (Dollars in millions) 2015 2014 2013 Salaries and associate benefits ...Occupancy and equipment ...Marketing ...Professional services ...Communications and data processing ...Amortization of...

  • Page 69
    ... allocation methodologies, including funds transfer pricing, to assign certain balance sheet assets, deposits and other liabilities and their related revenue and expenses directly or indirectly attributable to each business segment. Total interest income and net fees are directly attributable to the...

  • Page 70
    ... periods indicated. Table 6: Credit Card Business Results Year Ended December 31, (Dollars in millions) 2015 2014 2013 Change 2015 vs. 2014 vs. 2014 2013 Selected income statement data: Net interest income ...Non-interest income ...Total net revenue(1) ...Provision for credit losses ...Non-interest...

  • Page 71
    ... related revenue and expenses attributable to each business segment. The transfer of the Best Buy Stores, L.P. ("Best Buy") loan portfolio to held for sale resulted in an increase in the average yield for the total Credit Card business of 90 basis points in 2013. Calculated by dividing total net...

  • Page 72
    ...indicated. Table 6.1: Domestic Card Business Results Year Ended December 31, (Dollars in millions) 2015 2014 2013 Change 2015 vs. 2014 vs. 2014 2013 Selected income statement data: Net interest income ...Non-interest income ...Total net revenue ...Provision for credit losses ...Non-interest expense...

  • Page 73
    ... funds transfer pricing that assigns certain balance sheet assets, deposits and other liabilities and their related revenue and expenses attributable to each business segment. The transfer of the Best Buy loan portfolio from loans held for investment to loans held for sale resulted in an increase...

  • Page 74
    ... indicated. Table 6.2: International Card Business Results Year Ended December 31, (Dollars in millions) 2015 2014 2013 Change 2015 vs. 2014 vs. 2014 2013 Selected income statement data: Net interest income ...Non-interest income ...Total net revenue ...Provision for credit losses ...Non-interest...

  • Page 75
    ...indicated. Table 7: Consumer Banking Business Results Year Ended December 31, (Dollars in millions) 2015 2014 2013 Change 2015 vs. 2014 vs. 2014 2013 Selected income statement data: Net interest income ...Non-interest income ...Total net revenue...Provision for credit losses ...Non-interest expense...

  • Page 76
    ... allocations including funds transfer pricing that assigns certain balance sheet assets, deposits and other liabilities and their related revenue and expenses attributable to each business segment. See "MD&A-Credit Risk Profile" and "Note 1-Summary of Significant Accounting Policies" for additional...

  • Page 77
    ... fair value at acquisition, and a greater portion of auto loans in our portfolio, which have a higher charge-off and delinquency rate than other products within the total consumer banking loan portfolio. • • • • Key factors affecting the results of our Consumer Banking business for 2014...

  • Page 78
    .... Table 8: Commercial Banking Business Results Year Ended December 31, (Dollars in millions) 2015 2014 2013 Change 2015 vs. 2014 2014 vs. 2013 Selected income statement data: Net interest income ...Non-interest income ...Total net revenue(1) ...Provision (benefit) for credit losses(2) ...Non...

  • Page 79
    ... (5) (6) Key factors affecting the results of our Commercial Banking business for 2015, compared to 2014, and changes in financial condition and credit performance between December 31, 2015 and December 31, 2014 include the following: • Net Interest Income: Net interest income increased by $114...

  • Page 80
    ...lending portfolio. Key factors affecting the results of our Commercial Banking business for 2014, compared to 2013, and changes in financial condition and credit performance between December 31, 2014 and December 31, 2013 include the following: • Net Interest Income: Net interest income increased...

  • Page 81
    .... Table 9: Other Category Results Year Ended December 31, (Dollars in millions) 2015 2014 2013 Change 2015 vs. 2014 vs. 2014 2013 Selected income statement data: Net interest income (expense)...Non-interest income ...Total net revenue (loss)(1) ...Benefit for credit losses...Non-interest expense...

  • Page 82
    ... 31, 2015 (Dollars in millions) Amortized Cost Fair Value 2014 Amortized Cost Fair Value 2013 Amortized Cost Fair Value Investment securities available for sale U.S. Treasury securities ...Corporate debt securities guaranteed by U.S. government agencies ...RMBS: Agency(1) ...Non-agency...Total RMBS...

  • Page 83
    ... for loan and lease losses, as of December 31, 2015 and 2014. Table 12: Loans Held for Investment December 31, 2015 (Dollars in millions) Loans Allowance Net Loans Loans December 31, 2014 Allowance Net Loans Credit Card ...Consumer Banking ...Commercial Banking ...Other ...Total ... $ 96,125 70...

  • Page 84
    ...2014. The increase in deposits was primarily driven by the issuance of brokered deposits and growth in our Consumer Banking and Commercial Banking businesses as a result of our continued focus on deposit relationships with existing customers and our ongoing marketing strategy to attract new business...

  • Page 85
    ... take many forms, including securitization and servicing activities, the purchase or sale of mortgage-backed or other asset-backed securities in connection with our home loan portfolio and loans to VIEs that hold debt, equity, real estate or other assets. 66 Capital One Financial Corporation (COF)

  • Page 86
    ...II-Item 6. Summary of Selected Financial Data." While the TCE ratio is a capital measure widely used by investors, analysts, rating agencies, and bank regulatory agencies to assess the capital position of financial services companies, it may not be comparable to similarly titled measures reported by...

  • Page 87
    ...-in at 20% for 2014, 40% for 2015, 60% for 2016, 80% for 2017 and 100% for 2018. The following table compares our common equity Tier 1 capital and risk-weighted assets as of December 31, 2015, calculated based on the Final Basel III Capital Rule, subject to applicable transition provisions, to our...

  • Page 88
    ... through the end of the second quarter of 2016 under the 2015 Stock Repurchase Program. For the description of the regulatory capital planning rules we are subject to, see "Part I-Item 1. Business -Supervision and Regulation." Equity Offerings and Transactions On May 14, 2015, we issued and sold one...

  • Page 89
    ... include specific price targets, may be executed through open market purchases or privately negotiated transactions, including utilizing Rule 10b5-1 programs, and may be suspended at any time. For additional information on dividends and stock repurchases, see "Part I-Item 1. Business-Supervision and...

  • Page 90
    ... of Directors to ensure their alignment with material risk decisions and/or transparency to the largest risks facing the organization. Calculate and Allocate Capital in Alignment with Risk Management and Measurement Processes (including Stress Testing) Capital is held to protect the company from...

  • Page 91
    ...'s earnings or the economic value of equity could be adversely impacted by changes in interest rates, foreign exchange rates, or other market factors; Operational Risk: Operational risk is the risk of loss, capital impairment, adverse customer experience, or reputational impact resulting from...

  • Page 92
    ...that generate above hurdle returns. We use a number of quantitative and qualitative factors to manage credit risk, including setting credit risk limits and guidelines for each of our lines of business. We monitor performance relative to these guidelines and report results and any required mitigating...

  • Page 93
    ... business operations and activities, including loans, deposits, securities, short-term borrowings, long-term debt and derivatives. The market risk positions of our banking entities and our total company are calculated separately and in total and are reported in comparison to pre-established limits...

  • Page 94
    ...credit bureau information, including payment history, debt burden and credit scores, such as Fair Isaac Corporation (credit rating) ("FICO"), and on other factors, such as applicant income. We also maintain a credit card securitization program and selectively sell charged-off credit card loans. Auto...

  • Page 95
    ... that comprises the majority of our home loans. Retail banking includes small business loans and other consumer lending products originated through our branch network with a concentration in Louisiana, New York, Texas, New Jersey, Maryland and Virginia. 76 Capital One Financial Corporation (COF)

  • Page 96
    ... allowance for loan and lease losses established subsequent to acquisition, with any remaining increase in expected cash flows recognized prospectively in interest income over the remaining estimated life of the underlying loans. See "Note 1-Summary of Significant Accounting Policies" for additional...

  • Page 97
    ... Loans in our home loan portfolio are significantly impacted by future expectations of home prices and interest rates. Decreases in expected cash flows that result from declining conditions, particularly associated with these variables, could result in an increase in the allowance for loan and lease...

  • Page 98
    ... 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...

  • Page 99
    ... accounting policies for delinquent and nonperforming loans, net charge-offs and TDRs for each of our loan categories. Delinquency Rates We consider the entire balance of an account to be delinquent if the minimum required payment is not received by the customer's due date, measured at the reporting...

  • Page 100
    ... Banking: Auto ...Home loan(2) ...Retail banking ...Total consumer banking(2) ... Commercial Banking: Commercial and multifamily real estate ...Commercial and industrial ...Total commercial lending...Small-ticket commercial real estate ...Total commercial banking...Other loans ...Total... _____...

  • Page 101
    ...the balance of our credit card receivables by the amount of finance charges and fees billed but not expected to be collected and exclude this amount from revenue. Table 24: 90+ Day Delinquent Loans Accruing Interest December 31, 2015 (Dollars in millions) Amount % of Total Loans(1) December 31, 2014...

  • Page 102
    ...: Credit Card: International credit card ...Total credit card ...Consumer Banking: Auto ...Home loan(2) ...Retail banking...Total consumer banking(2) ...Commercial Banking: Commercial and multifamily real estate...Commercial and industrial ...Total commercial lending ...Small-ticket commercial real...

  • Page 103
    ...2015, 2014 and 2013. Table 26: Net Charge-Offs Year Ended December 31, 2015 (Dollars in millions) Amount Rate (1) 2014 Amount Rate (1) 2013 Amount Rate(1) Credit Card: Domestic credit card...International credit card ...Total credit card ...Consumer Banking: Auto ...Home loan(2) ...Retail banking...

  • Page 104
    ...and report separately. Table 27: Troubled Debt Restructurings December 31, 2015 (Dollars in millions) Amount % of Total Modifications December 31, 2014 Amount % of Total Modifications Credit card...Consumer banking: Auto ...Home loan ...Retail banking ...Total consumer banking ...Commercial banking...

  • Page 105
    ... credit card portfolio driven by growth, as well as adverse market conditions impacting our oil and gas portfolio and taxi medallion lending portfolio in our Commercial Banking business. Table 28 presents changes in our allowance for loan and lease losses and unfunded lending commitments for 2015...

  • Page 106
    ... Consumer Banking Credit Card Home Loan Retail Banking Total Consumer Banking Commercial Banking Other Loans(1) (Dollars in millions) Auto Total Allowance for loan and lease losses: Balance as of December 31, 2013 ...Provision (benefit) for credit losses ...Charge-offs...Recoveries ...Net charge...

  • Page 107
    ... credit card loans, was 151.80% and 186.07% as of December 31, 2015 and 2014, respectively. Calculated based on the total allowance for loan and lease losses divided by the outstanding balance of loans within the specified loan category. (2) LIQUIDITY RISK PROFILE We have established liquidity...

  • Page 108
    ... 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. We also filed...

  • Page 109
    ... brokered deposits are reported as interest-bearing checking, saving deposits and time deposits in the above table and totaled $12.0 billion and $5.1 billion as of December 31, 2015 and 2014, respectively. The FDIC limits the acceptance of brokered deposits by "well-capitalized" insured depository...

  • Page 110
    ... funds purchased and securities loaned or sold under agreements to repurchase. In addition, we may utilize short-term and long-term FHLB advances secured by our investment securities, residential home loans, multifamily real estate loans, commercial real estate loans and home equity lines of credit...

  • Page 111
    ... programs. Table 34 provides a summary of the credit ratings for the senior unsecured debt of Capital One Financial Corporation, COBNA and CONA as of December 31, 2015 and 2014. Table 34: Senior Unsecured Debt Credit Ratings December 31, 2015 Capital One Financial Corporation Capital One Bank (USA...

  • Page 112
    ...in more detail in "Note 17-Employee Benefit Plans." Table 35: Contractual Obligations December 31, 2015 (Dollars in millions) Up to 1 Year (1) > 1 Years to 3 Years > 3 Years to 5 Years > 5 Years Total Interest-bearing time deposits Other debt: ... $ 4,864 3,519 $ 4,072 9,595 $ 4,023 2,700...

  • Page 113
    ... exposure is related to the funding of our non-dollar net investments in our International Card business in the U.K. and Canada. Changes in foreign exchange rates affect the value of non-dollar denominated equity invested in our foreign operations and impact our AOCI and related capital ratios. Our...

  • Page 114
    ... Our projected net interest income and economic value of equity sensitivity measures were within our policy limits as of December 31, 2015 and 2014. In addition to these industry standard measures, we will continue to factor into our internal interest rate risk management decisions the potential...

  • Page 115
    ... Composition December 31, (Dollars in millions) 2015 2014 2013 2012 2011 Credit Card: Domestic credit card(1) ...International credit card ...Total credit card...Consumer Banking: Auto ...Home loan ...Retail banking ...Total consumer banking ...Commercial Banking: Commercial and multifamily real...

  • Page 116
    ...." Credit card loan balances are reported net of the finance charge and fee reserve, which totaled $262 million, $216 million, $190 million, $307 million and $74 million as of December 31, 2015, 2014, 2013, 2012 and 2011, respectively. The performing loan modifications and restructuring totaled...

  • Page 117
    ... 31, (Dollars in millions) 2015 (1) 2014 2013 2012 2011 Nonperforming loans held for investment: Credit Card: International credit card ...Total credit card...Consumer Banking: Auto ...Home loan ...Retail banking ...Total consumer banking ...Commercial Banking: Commercial and multifamily...

  • Page 118
    ... 31, (Dollars in millions) 2015 2014 2013 2012 2011 Average loans held for investment ...Net charge-offs ...Net charge-off rate ..._____ (1) $ 210,745 3,695 1.75% $ 197,925 3,414 1.72% $ 192,614 3,934 2.04% $ 187,915 3,555 1.89% $ 128,424 3,771 2.94% Calculated for each loan category by...

  • Page 119
    ... Lease Losses and Unfunded Lending Commitments December 31, (Dollars in millions) 2015 2014 2013 2012 2011 Allowance for loan and lease losses: Balance at beginning of period ...Provision for credit losses ...Charge-offs: Credit card ...Consumer banking ...Commercial banking...Other loans ...Total...

  • Page 120
    Table F-Reconciliation of Non-GAAP Measures and Calculation of Regulatory Capital Measures(1) December 31, (Dollars in millions) 2015 2014 2013 2012 2011 Period End Tangible Common Equity Period end stockholders' equity ...Goodwill and intangible assets (2) $ 47,284 (15,701) (3,294) $ 45,053 (...

  • Page 121
    ...38,838 December 31, $ 35,879 (Dollars in millions) 2013 (5) 2012 2011 Regulatory Capital Under Basel I Total stockholders' equity ...Adjustments: Net unrealized losses (gains) on investment securities available for sale recorded in AOCI(13) . Net losses on cash flow hedges recorded in AOCI(13...

  • Page 122
    ... risk-weighted assets were calculated under Basel I. Amounts presented are net of tax. Amounts based on transition provisions for regulatory capital deductions and adjustments of 20% for 2014 and 40% for 2015. Total capital equals the sum of Tier 1 capital and Tier 2 capital. (12) (13) (14) (15...

  • Page 123
    ... business in the United States (other than the HSBC Bank USA, consumer credit card program and certain other retained assets and liabilities). 2015 Stock Repurchase Program: On March 11, 2015, we announced that our Board of Directors had authorized the repurchase of up to $3.125 billion of shares...

  • Page 124
    ...to date. CCB: Chevy Chase Bank, F.S.B., which was acquired by the Company in 2009. COBNA: Capital One Bank (USA), National Association, one of our fully owned subsidiaries, which offers credit and debit card products, other lending products and deposit products. Collective trusts: An investment fund...

  • Page 125
    ... 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...

  • Page 126
    ... 2015 Annual Stockholders Meeting. Public Fund deposits: Deposits that are derived from a variety of political subdivisions such as school districts and municipalities. Purchase volume: Dollar amount of customer purchases, net of returns. Rating agency: An independent agency that assesses the credit...

  • Page 127
    ... BHC: Bank holding company bps: Basis points CAD: Canadian Dollar CCAR: Comprehensive Capital Analysis and Review CDE: Community development entities CFPB: Consumer Financial Protection Bureau CFTC: Commodity Futures Trading Commission CMBS: Commercial mortgage-backed securities COEP: Capital One...

  • Page 128
    ...Investors Service MSR: Mortgage servicing rights NOW: Negotiable order of withdrawal NSFR: Net stable funding ratio OCC: Office of the Comptroller of the Currency OTC: Over-the-counter PCA: Prompt corrective action PCCR: Purchased credit card relationship RMBS: Residential mortgage-backed securities...

  • Page 129
    ...' Equity ...Consolidated Statements of Cash Flows ...Notes to Consolidated Financial Statements ...Note 1-Summary of Significant Accounting Policies ...Note 2-Business Developments...Note 3-Discontinued Operations ...Note 4-Investment Securities ...Note 5-Loans ...Note 6-Allowance for Loan and Lease...

  • Page 130
    ...the Company's internal control over financial reporting as of December 31, 2015. /s/ RICHARD D. FAIRBANK Richard D. Fairbank Chair, Chief Executive Officer and President /s/ STEPHEN S. CRAWFORD Stephen S. Crawford Chief Financial Officer February 25, 2016 111 Capital One Financial Corporation (COF...

  • Page 131
    ... One Financial Corporation as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2015, and our report dated February 25, 2016 expressed an...

  • Page 132
    ... consolidated balance sheets of Capital One Financial Corporation (the "Company" or "Capital One") as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period ended...

  • Page 133
    CAPITAL ONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, (Dollars in millions, except per share-related data) Interest income: Loans, including loans held for sale...Investment securities ...Other...Total interest income ...Interest expense: Deposits ......

  • Page 134
    CAPITAL ONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, (Dollars in millions) Net income ...Other comprehensive income (loss), net of tax: Net unrealized (losses) gains on securities available for sale ...Net changes in securities held to maturity ...

  • Page 135
    ...-bearing deposits with banks ...Federal funds sold and securities purchased under agreements to resell ...Total cash and cash equivalents...Restricted cash for securitization investors ...Securities available for sale, at fair value ...Securities held to maturity, at carrying value ...Loans held...

  • Page 136
    ... CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Preferred Stock (Dollars in millions) Shares Amount Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders' Equity Balance...

  • Page 137
    ... for credit losses ...Depreciation and amortization, net ...Net loss (gain) on sales of securities available for sale ...Impairment losses on securities available for sale...Gain on sales of loans held for sale ...Stock plan compensation expense ...Loans held for sale: Originations and purchases...

  • Page 138
    ... of the period ...Cash and cash equivalents at end of the period ...Supplemental cash flow information: Non-cash items: Net transfers from loans held for investment to loans held for sale ...Transfer from securities available for sale to securities held to maturity ...Net debt exchange of senior and...

  • Page 139
    ... which offers credit and debit card products, other lending products and deposit products; and Capital One, National Association ("CONA"), which offers a broad spectrum of banking products and financial services to consumers, small businesses and commercial clients. The Company and its subsidiaries...

  • Page 140
    .... We report securities available for sale on our consolidated balance sheets at fair value with unrealized gains and losses recorded, net of tax, as a component of AOCI. We report securities held to maturity on our consolidated balance sheets at carrying 121 Capital One Financial Corporation (COF...

  • Page 141
    ... for purchased credit-impaired ("PCI") loans and debt securities. These securities are recorded at fair value at the acquisition date using the estimated cash flows we expect to collect discounted by the prevailing market interest rate. The difference between the contractually required payments due...

  • Page 142
    ... fees and costs ceases. Subsequent to transfer, we report write-downs or recoveries in fair value up to the carrying value at the date of transfer and realized gains or losses on loans held for sale in our consolidated statements of income as a component of other non-interest income. We calculate...

  • Page 143
    ... to collect our net investment in these loans. Increases in the cash flows expected to be collected would first reduce any previously recorded allowance for loan and lease losses established subsequent to acquisition. The excess over the recorded allowance for loan and lease losses would result in...

  • Page 144
    ..., based on applicable accounting guidance, include larger balance nonperforming loans and TDR loans. Our policies for identifying loans as individually impaired, by loan category, are as follows Credit card loans: Credit card loans that have been modified in a troubled debt restructuring are...

  • Page 145
    ... consumer loan portfolio consists of smaller-balance, homogeneous loans, divided into four primary portfolio segments: credit card loans, auto loans, residential home loans and retail banking loans. Each of these portfolios is further divided by our business 126 Capital One Financial Corporation...

  • Page 146
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS units into pools based on common risk characteristics, such as origination year, contract type, interest rate and geography, which are collectively evaluated for impairment. The commercial loan portfolio is primarily ...

  • Page 147
    ...are Domestic Card, International Card, Auto, Other Consumer Banking and Commercial Banking. The annual goodwill impairment test, performed as of October 1 of each year, is a two-step test. The first step identifies whether there is potential impairment by comparing the fair value of a reporting unit...

  • Page 148
    ... mortgage loans are sold or securitized in the secondary market and the right to service these loans is retained for a fee. Subsequently, our consumer MSRs are carried at fair value on our consolidated balance sheets with changes in fair value recognized in non-interest income. Our commercial MSRs...

  • Page 149
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Customer Rewards Reserve We offer products, primarily credit cards, which include programs that allow members to earn rewards, in the form of points, that can be redeemed for cash (primarily in the form of statement credits...

  • Page 150
    ... is included in salaries and associate benefits in the consolidated statements of income. Stock-based compensation expense for equity classified stock options is based on the grant date fair value, which is estimated using a Black-Scholes option pricing model. Significant judgment is required when...

  • Page 151
    ...per share. Derivative Instruments and Hedging Activities All derivative financial instruments, whether designated for hedge accounting or not, are reported at their fair value on our consolidated balance sheets as either assets or liabilities, with consideration of legally enforceable master netting...

  • Page 152
    ...CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as of the acquisition date, with limited exceptions. Transaction costs and costs to restructure the acquired company are expensed as incurred. Goodwill is recognized as the excess of the acquisition price over the estimated fair value of the net...

  • Page 153
    ... the portion of the total change in fair value attributable to a change in the instrument-specific credit risk in other comprehensive income. We are currently assessing the potential impact of this new guidance on our consolidated financial statements. 134 Capital One Financial Corporation (COF)

  • Page 154
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Revenue from Contracts with Customers In August 2015, the FASB deferred by one year the effective date for revenue recognition guidance to January 1, 2018, with early adoption permitted effective January 1, 2017. In May ...

  • Page 155
    ...healthcare lending business within our Commercial Banking segment. We paid $8.9 billion net of cash acquired, with a customary postclosing adjustment expected in 2016. The transaction was funded through liquidity resources available to us at that time. The GE Healthcare acquisition was accounted for...

  • Page 156
    ... as part of the North Fork Bancorporation, Inc. ("North Fork") acquisition. The results of the wholesale banking unit have been accounted for as a discontinued operation and are therefore not included in our results from continuing operations for the years ended December 31, 2015, 2014 and 2013. We...

  • Page 157
    ..., 2015 and 2014. Table 4.2: Investment Securities Available for Sale December 31, 2015 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses(1) Fair Value (Dollars in millions) Investment securities available for sale: U.S. Treasury securities ...RMBS: Agency(2) ...Non-agency ...Total RMBS...

  • Page 158
    ... TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses(1) Fair Value (Dollars in millions) Investment securities available for sale: U.S. Treasury securities ...Corporate debt securities guaranteed by U.S. government agencies ...RMBS...

  • Page 159
    ... 12 Months or Longer Gross Unrealized Losses Total Gross Unrealized Losses (Dollars in millions) Fair Value Fair Value Fair Value Investment securities available for sale: U.S. Treasury securities...Corporate debt securities guaranteed by U.S. government agencies ...RMBS: Agency ...Non-agency...

  • Page 160
    ... their fair value by $81 million. Gross unrealized losses on our investment securities have increased since December 31, 2014. The unrealized losses related to investment securities for which we have not recognized credit impairment were primarily attributable to changes in market interest rates. As...

  • Page 161
    ... 31, 2015 Due in 1 Year or Less Due > 1 Year through 5 Years Due > 5 Years through 10 Years Due > 10 Years (Dollars in millions) Total Fair value of securities available for sale: U.S. Treasury securities...RMBS: Agency ...Non-agency ...Total RMBS...CMBS: Agency ...Non-agency ...Total CMBS...

  • Page 162
    ... December 31, 2015 and 2014, primarily related to Public Fund deposits. We accepted pledges of securities with a fair value of $172 million and $91 million as of December 31, 2015 and 2014, respectively, primarily related to our derivative transactions. 143 Capital One Financial Corporation (COF)

  • Page 163
    ... of Acquired Credit-Impaired Debt Securities Year Ended December 31, (Dollars in millions) 2015 2014 2013 Accretable yield, beginning of period ...Additions from new acquisitions...Accretion recognized in earnings ...Reduction due to payoffs, disposals, transfers and other ...Net reclassifications...

  • Page 164
    ...2015 (Dollars in millions) Current 30-59 Days 60-89 Days > 90 Days Total Delinquent Loans Acquired Loans Total Loans Credit Card: Domestic credit card(1) ...International credit card...Total credit card ...Consumer Banking: Auto ...Home loan ...Retail banking ...Total consumer banking ...Commercial...

  • Page 165
    ...) Current Credit Card: Domestic credit card(1) ...International credit card...Total credit card ...Consumer Banking: Auto ...Home loan ...Retail banking ...Total consumer banking ...Commercial Banking: Commercial and multifamily real estate ...Commercial and industrial ...Total commercial lending...

  • Page 166
    ... 2015 and 2014. We also present net charge-offs for the years ended December 31, 2015 and 2014. Table 5.3: Credit Card: Risk Profile by Geographic Region December 31, 2015 % of Amount Total(1) December 31, 2014 % of Amount Total(1) (Dollars in millions) Domestic credit card: California ...New York...

  • Page 167
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Table 5.4: Credit Card: Net Charge-offs Year Ended December 31, 2015 (Dollars in millions) Amount Rate 2014 Amount Rate Net charge-offs:(1) Domestic credit card ...International credit card ...Total credit card ..._____ ...

  • Page 168
    ...consumer banking loans as of the end of the reported period. Table 5.6: Consumer Banking: Net Charge-offs and Nonperforming Loans Year Ended December 31, 2015 (Dollars in millions) Amount Rate Amount 2014 Rate Net charge-offs: (2) (1) Auto ...Home loan ...Retail banking ...Total consumer banking...

  • Page 169
    ... Interest Rate Type December 31, 2015 Loans (Dollars in millions) Amount % of Total(1) Acquired Loans Amount % of Total(1) Total Home Loans Amount % of Total(1) Origination year:(2) < = 2006 ...2007 ...2008 ...2009 ...2010 ...2011 ...2012 ...2013 ...2014 ...2015 ...Total...Geographic concentration...

  • Page 170
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Loans (Dollars in millions) Amount % of Total(1) Acquired Loans Amount % of Total(1) Total Home Loans Amount % of Total(1) Origination year:(2) < = 2006...2007 ...2008 ...2009 ...2010 ...2011 ...2012 ......

  • Page 171
    ... 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 loan and lease losses for commercial loans. Loans of $1 million or more...

  • Page 172
    ... 31, 2015 Total Related Recorded Investment Allowance Net Recorded Investment Unpaid Principal Balance (Dollars in millions) With an Allowance Credit Card: Domestic credit card ...International credit card...Total credit card(2) ...Consumer Banking: Auto(3) ...Home loan ...Retail banking ...Total...

  • Page 173
    ... Related Allowance Net Recorded Investment Unpaid Principal Balance (Dollars in millions) Credit Card: Domestic credit card ...International credit card...Total credit card(2) ...Consumer Banking: Auto(3) ...Home loan ...Retail banking ...Total consumer banking ...Commercial Banking: Commercial...

  • Page 174
    ...(1)(2) Credit Card: Domestic credit card...International credit card ...Total credit card...Consumer Banking: Auto ...Home loan ...Retail banking...Total consumer banking...Commercial Banking: Commercial and multifamily real estate ...Commercial and industrial ...Total commercial lending ...Small...

  • Page 175
    ...(1)(2) Credit Card: Domestic credit card ...International credit card ...Total credit card ...Consumer Banking: Auto...Home loan ...Retail banking ...Total consumer banking ...Commercial Banking: Commercial and multifamily real estate...Commercial and industrial ...Total commercial lending...Small...

  • Page 176
    ... Year Ended December 31, 2014 Number of Amount Contracts 2013 Number of Amount Contracts (Dollars in millions) Credit Card: Domestic credit card ...International credit card(1) ...Total credit card ...Consumer Banking: Auto ...Home loan ...Retail banking ...Total consumer banking ...Commercial...

  • Page 177
    .... Advised lines of credit are not considered legally binding commitments as funding is subject to our satisfactory evaluation of the customer at the time credit is requested. Finance Charge and Fee Reserves We continue to accrue finance charges and fees on credit card loans until the account is...

  • Page 178
    ... the years ended December 31, 2015 and 2014. Table 6.1: Allowance for Loan and Lease Losses and Unfunded Lending Commitments (Dollars in millions) Credit Card Consumer Banking Commercial Banking Other(1) Total Allowance for loan and lease losses: Balance as of December 31, 2013...Provision (benefit...

  • Page 179
    ... the related loans as of December 31, 2015 and 2014. Table 6.2: Components of Allowance for Loan and Lease Losses by Impairment Methodology December 31, 2015 (Dollars in millions) Credit Card Consumer Banking Commercial Banking Other Total Allowance for loan and lease losses: Collectively evaluated...

  • Page 180
    ... credit losses associated with the partnership. The loss sharing amounts due from these partners result in reductions in reported net charge-offs and provision for loan and lease losses. The table below summarizes these impacts for the years ended December 31, 2015, 2014 and 2013. Table 6.3: Summary...

  • Page 181
    ...balance sheet to securitization trusts. We have primarily securitized credit card loans and home loans, which have provided a source of funding for us and enabled us to transfer a certain portion of the economic risk of the loans or debt securities to third parties. The entity that has a controlling...

  • Page 182
    ... of Liabilities Maximum Exposure to Loss (Dollars in millions) Securitization-Related VIEs: Credit card loan securitizations(1) ...Home loan securitizations(2) ...Total securitization-related VIEs...Other VIEs: Affordable housing entities ...Entities that provide capital to low-income and rural...

  • Page 183
    ... 31, 2015 and 2014. Table 7.2: Continuing Involvement in Securitization-Related VIEs Mortgage Credit Card OptionARM GreenPoint HELOCs GreenPoint Manufactured Housing (Dollars in millions) December 31, 2015: Securities held by third-party investors ...Receivables in the trust ...Cash balance of...

  • Page 184
    ...derivatives. GreenPoint Mortgage Home Equity Lines of Credit ("HELOCs") Our discontinued wholesale mortgage banking unit, GreenPoint, previously sold HELOCs in whole loan sales and subsequently acquired residual interests in certain trusts which securitized some of those loans. We do not consolidate...

  • Page 185
    ..., but where we hold a controlling financial interest. The assets of the VIEs that we consolidated, which totaled approximately $352 million and $374 million as of December 31, 2015 and 2014, respectively, are reflected on our consolidated balance sheets in cash, loans held for investment, interest...

  • Page 186
    ... partnership and other contract intangibles and trade name intangibles. Represents MSRs related to our Consumer Banking business that are carried at fair value on our consolidated balance sheets. Represents MSRs related to our Commercial Banking business that are subsequently accounted for under the...

  • Page 187
    ...used were within a reasonable range of observable market data. Based on our analysis, fair value exceeded the carrying amount for all reporting units as of our annual testing date; therefore, the second step of impairment testing was unnecessary. Intangible Assets In connection with our acquisitions...

  • Page 188
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Table 8.3: Amortization Expense (Dollars in millions) Amortization Expense Actual for the year ended December 31, 2013 ...2014 ...2015 ...Estimated future amounts for the year ended December 31, 2016 ...2017 ...2018 ......

  • Page 189
    ... taking into consideration available renewal options. Many of these leases provide for payment by us, as the lessee, of property taxes, insurance premiums, cost of maintenance and other costs. In some cases, rentals are subject to increases in relation to a cost of living index. Total rent expenses...

  • Page 190
    ... as of December 31, 2015 and 2014, respectively, and are included in other assets on our consolidated balance sheets. Our FHLB advances and lines of credit are secured by our investment securities, residential home loans, multifamily real estate loans, commercial real estate loans and HELOCs. The...

  • Page 191
    ...-Term Borrowings and Long-Term Debt (Dollars in millions) December 31, 2015 December 31, 2014 Deposits: Non-interest bearing deposits ...Interest-bearing deposits ...Total deposits ...Short-term borrowings: Federal funds purchased and securities loaned or sold under agreements to repurchase ...FHLB...

  • Page 192
    ...long-term debt for the years ended December 31, 2015, 2014 and 2013: Table 10.3: Components of Interest Expense on Short-Term Borrowings and Long-Term Debt Year Ended December 31, (Dollars in millions) 2015 2014 2013 Short-term borrowings: Federal funds purchased and securities loaned or sold under...

  • Page 193
    ... limits in accordance with our market risk management policies that are approved by our Board of Directors. Our primary market risks stem from the impact on our earnings and economic value of equity from changes in interest rates and, to a lesser extent, changes in foreign exchange rates. We employ...

  • Page 194
    ... designated as accounting hedges: Interest rate contracts: Fair value hedges...Cash flow hedges...Total interest rate contracts...Foreign exchange contracts: Cash flow hedges...Net investment hedges...Total foreign exchange contracts ...Total derivatives designated as accounting hedges...Derivatives...

  • Page 195
    ... with a fair value of $989 million under these customer repurchase agreements, all of which were agency RMBS securities. (2) (3) Credit Risk-Related Contingency Features and Collateral Certain of our derivatives contracts include provisions requiring that our debt maintain a credit rating of...

  • Page 196
    ...-Standing Derivatives Year Ended December 31, (Dollars in millions) 2015 (1) 2014 2013 Derivatives designated as accounting hedges: Fair value interest rate contracts: (Losses) gains recognized in earnings on derivatives ...Gains (losses) recognized in earnings on hedged items ...Net fair value...

  • Page 197
    ... Derivatives Designated as Cash Flow Hedges and Net Investment Hedges Year Ended December 31, (Dollars in millions) 2015 2014 2013 Gains (losses) recorded in AOCI: Cash flow hedges: Interest rate contracts...Foreign exchange contracts ...Subtotal ...Net investment hedges: Foreign exchange contracts...

  • Page 198
    ... the years ended December 31, 2015, 2014 and 2013. Table 12.2: Accumulated Other Comprehensive Income Securities Available for Sale Securities Held to Maturity(1) Cash Flow Hedges Foreign Currency Translation Adjustments(2) (Dollars in millions) Other Total AOCI as of December 31, 2012 ...Other...

  • Page 199
    ... (Dollars in millions) AOCI Components Affected Income Statement Line Item Year Ended December 31, 2015 2014 2013 Securities available for sale: Non-interest income ...Non-interest income - OTTI ...Loss from continuing operations before income taxes ...Income tax benefit...Net loss ...Securities...

  • Page 200
    ...) Year Ended December 31, 2015 (Dollars in millions) Before Tax Provision (Benefit) After Tax Before Tax 2014 Provision (Benefit) After Tax Before Tax 2013 Provision (Benefit) After Tax Other comprehensive income (loss): Net unrealized (losses) gains on securities available for sale ...Net changes...

  • Page 201
    ... STATEMENTS NOTE 13-REGULATORY AND CAPITAL ADEQUACY Regulation and Capital Adequacy Bank holding companies ("BHCs") and national banks are subject to capital adequacy standards adopted by the Federal Banking Agencies, including the Final Basel III Capital Rule. Moreover, the Banks, as insured...

  • Page 202
    ... Banking Agencies' minimum capital requirements and the Banks exceeded minimum regulatory requirements and were "well-capitalized" under PCA requirements as of December 31, 2015 and 2014. Regulatory restrictions exist that limit the ability of the Banks to transfer funds to our BHC. Funds available...

  • Page 203
    ... Diluted Earnings per Common Share Year Ended December 31, (Dollars and shares in millions, except per share data) 2015 2014 2013 Income from continuing operations, net of tax ...Income (loss) from discontinued operations, net of tax ...Net income ...Dividends and undistributed earnings allocated...

  • Page 204
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15-OTHER NON-INTEREST EXPENSE The following table represents the components of other non-interest expense for 2015, 2014 and 2013: Table 15.1: Components of Other Non-Interest Expense Year Ended December 31, (Dollars ...

  • Page 205
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16-STOCK-BASED COMPENSATION PLANS Stock Plans We have one active stock-based compensation plan available for the issuance of shares to employees, directors and third-party service providers (if applicable). As of ...

  • Page 206
    ... FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Table 16.2: Stock Options Cash Flow Impact Year ended December 31, (Dollars in millions) 2015 2014 2013 Cash received for options exercised ...Tax benefit realized for options exercised... $ 64 9 $ 131 9 $ 105 18 Compensation...

  • Page 207
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents a summary of 2015 activity for RSAs and RSUs. Table 16.4: Summary of Restricted Stock Awards and Units Restricted Stock Awards Weighted-Average Grant Date Fair Value per Share Restricted Stock ...

  • Page 208
    ... 2015, based on the closing price of our common stock as of that date, over a weighted-average period of 0.1 years. Associate Stock Purchase Plan We maintain an Associate Stock Purchase Plan (the "Purchase Plan") which is a compensatory plan under the accounting guidance for stock-based compensation...

  • Page 209
    ... over the Internal Revenue Service compensation limit) less deferrals. We contributed a total of $234 million, $214 million and $206 million to these plans during the years ended December 31, 2015, 2014 and 2013, respectively. Defined Benefit Pension and Other Postretirement Benefit Plans We sponsor...

  • Page 210
    ...Benefit Cost Year Ended December 31, 2015 (Dollars in millions) 2014 2015 2014 Defined Pension Benefits Other Postretirement Benefits Components of net periodic benefit cost: Service cost...Interest cost...Expected return on plan assets ...Amortization of transition obligation, prior service credit...

  • Page 211
    ...amounts reported for the other postretirement benefit plans. A onepercentage point change in assumed health care cost trend rates would have the following effects: Table 17.6: Sensitivity Analysis Year Ended December 31, (Dollars in millions) 2015 1% Increase 1% Decrease 2014 1% Increase 1% Decrease...

  • Page 212
    ... of equity securities and debt securities are used to preserve asset values, diversify risk and enhance our ability to achieve our benchmark for long-term investment return. Investment strategies and asset allocations are based on careful consideration of plan liabilities, the plan's funded status...

  • Page 213
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Table 17.9: Expected Future Benefits Payments (Dollars in millions) Pension Benefits Postretirement Benefits 2016 ...2017 ...2018 ...2019 ...2020 ...2021-2025... $ 13 12 12 12 12 54 $ 3 3 3 3 3 13 In 2016, $1 million ...

  • Page 214
    ... Provision (Benefit) Reported in Stockholders' Equity Year Ended December 31, (Dollars in millions) 2015 2014 2013 Income tax provision (benefit) recorded in AOCI (1) ...Income tax (benefit) provision recorded in additional paid in capital ...Foreign currency translation losses ...Total income tax...

  • Page 215
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Table 18.3: Effective Income Tax Rate Year Ended December 31, (Dollars in millions) 2015 2014 2013 Income tax at U.S. federal statutory tax rate ...State taxes, net of federal benefit...Low-income housing, new markets and ...

  • Page 216
    ... a result of the merger with North Fork Bancorporation, Inc. ("North Fork") and the acquisition of Chevy Chase Bank, F.S.B. ("CCB"), are subject to recapture in the unlikely event that CONA, as successor to North Fork and CCB, makes distributions in excess of earnings and profits, redeems its stock...

  • Page 217
    ... review and approval of new transaction types, price verification and review of valuation judgments, methods, models, process controls and results. Groups independent of our trading and investing functions, including our Corporate Valuations Group ("CVG"), Fair Value Committee ("FVC") and Model...

  • Page 218
    ... CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS We have a model policy, established by an independent Model Risk Office, which governs the validation of models and related supporting documentation to ensure the appropriate use of models for pricing. The MVG is part of the Model Risk Office...

  • Page 219
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 Fair Value Measurements Using (Dollars in millions) Level 1 Level 2 Level 3 Total Assets: Securities available for sale: U.S. Treasury securities ...Corporate debt securities guaranteed by U.S. government...

  • Page 220
    ... Transfers Out of Level 3(2) Balance, December 31, 2014 Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of December 31, 2014(3) (Dollars in millions) Purchases Sales Issuances Settlements Assets: Securities available for sale: Corporate debt...

  • Page 221
    ... CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) The amount presented for unrealized gains (losses) for assets still held as of the reporting date primarily represents impairments of securities available for sale, accretion on certain fixed maturity securities, changes in fair value...

  • Page 222
    ... CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair Value at December 31, 2014 Significant Valuation Techniques Significant Unobservable Inputs (Dollars in millions) Assets: Securities available for sale: RMBS ... Range Weighted Average $ 561 Discounted cash flows (3rd party pricing...

  • Page 223
    ... 31, 2015 and 2014: Table 19.5: Nonrecurring Fair Value Measurements Included in Earnings Related to Assets Still Held at Period End Total Losses Year Ended December 31, (Dollars in millions) 2015 2014 Loans held for investment ...Loans held for sale ...Other assets ...Total..._____ (1) $ (80...

  • Page 224
    ... 2015 Carrying Amount Estimated Fair Value Estimated Fair Value Hierarchy Level 1 Level 2 Level 3 (Dollars in millions) Financial assets: Cash and cash equivalents ...Restricted cash for securitization investors ...Securities held to maturity ...Net loans held for investment ...Loans held for sale...

  • Page 225
    ...factors. Net Loans Held For Investment Loans held for investment that are individually impaired are carried at the lower of cost or fair value of the underlying collateral, less the estimated cost to sell. The fair values of credit card loans, installment loans, auto loans, home loans and commercial...

  • Page 226
    ... credit losses in the consolidated statements of income. Loans Held For Sale Loans held for sale are carried at the lower of aggregate cost, net of deferred fees and deferred origination costs, or fair value. We originate loans with the intent to sell them. Certain commercial mortgage loans are sold...

  • Page 227
    ... notes. The pricing services utilize pricing models that incorporate available trade, bid and other market information. It also incorporates spread assumptions, volatility assumptions and relevant credit information into the pricing models. Federal Funds Purchased and Securities Loaned or Sold under...

  • Page 228
    ... card lending businesses in Canada and the United Kingdom. Consumer Banking: Consists of our branch-based lending and deposit gathering activities for consumers and small businesses, national deposit gathering, national auto lending and consumer home loan lending and servicing activities. Commercial...

  • Page 229
    ... balance sheet data as of 2015, 2014 and 2013, and a reconciliation of our total business segment results to our reported consolidated income from continuing operations, assets and deposits. Table 20.1: Segment Results and Reconciliation Year Ended December 31, 2015 (Dollars in millions) Credit Card...

  • Page 230
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2014 (Dollars in millions) Credit Card Consumer Banking Commercial Banking Other Consolidated Total Net interest income...Non-interest income ...Total net revenue ...Provision (benefit) for credit ...

  • Page 231
    ... outstanding letters of credit and customer acceptances, and the results of these reviews are considered in assessing the adequacy of our allowance for loan and lease losses. Within our Commercial Banking business, we originate multifamily commercial real estate loans with the intent to sell them to...

  • Page 232
    ...loan, the loan's compliance with any applicable loan criteria established by the purchaser, including underwriting guidelines and the existence of mortgage insurance, and the loan's compliance with applicable federal, state and local laws. The representations and warranties do not address the credit...

  • Page 233
    ... demands rescinded in 2015 reflect the ruling from New York's highest court in June 2015 that the statute of limitations for repurchase claims begins when the relevant representations and warranties were made, as opposed to some later date during the life of the loan. Finally, the amounts reflected...

  • Page 234
    ...Allocation of Representation and Warranty Reserve Reserve Liability December 31, 2015 (Dollars in millions, except for loans sold) 2015 2014 Loans Sold 2005 to 2008(1) Selected period-end data: Active Insured Securitizations and GSEs...Inactive Insured Securitizations and Others...Total(2) ..._____...

  • Page 235
    ... loans sold to private investors as whole loans, we establish reserves based on open claims and historical repurchase rates. The aggregate reserve for all three subsidiaries totaled $610 million as of December 31, 2015, compared to $731 million as of December 31, 2014. We recorded a net benefit...

  • Page 236
    ...from the Interchange Lawsuits and associated opt-out cases. Visa created a litigation escrow account following its IPO of stock in 2008, which funds any settlements for its member banks, and any settlements related to MasterCard allocated losses are reflected in Capital One's reserves. In March 2011...

  • Page 237
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Credit Card Interest Rate Litigation The Capital One Bank Credit Card Interest Rate Multi-district Litigation matter was created as a result of a June 2010 transfer order issued by the U.S. Judicial Panel on Multi-district ...

  • Page 238
    ...has received requests for subpoenas and testimony from the New York District Attorney's Office ("NYDA") with respect to certain former check casher clients of the Commercial Banking business and Capital One's anti-money laundering ("AML") program. In early 2015, we received similar requests from the...

  • Page 239
    ... in accordance with Regulation S-X of the U.S. Securities and Exchange Commission ("SEC"). Table 22.1: Parent Company Statements of Income Year Ended December 31, (Dollars in millions) 2015 2014 2013 Interest income ...Interest expense ...Dividends from subsidiaries ...Non-interest income ...Non...

  • Page 240
    ... CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Table 22.3: Parent Company Statements of Cash Flows Year Ended December 31, (Dollars in millions) 2015 2014 2013 Operating activities: Net income ...Adjustments to reconcile net income to cash provided by operating activities: Dividends...

  • Page 241
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 23-RELATED PARTY TRANSACTIONS In the ordinary course of business, we may have loans issued to our executive officers, directors, and principal stockholders. Pursuant to our policy, such loans are issued on the same ...

  • Page 242
    ... to return cash collateral. See "Note 1-Summary of Significant Accounting Policies" for additional information. Prior period results have been recast to conform to this presentation. Dividends and undistributed earnings allocated to participating securities, earnings per share, and preferred stock...

  • Page 243
    ... 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. During the fourth quarter of 2015, we implemented a new human resource management system...

  • Page 244
    .... Directors, Executive Officers and Corporate Governance The information required by Item 10 will be included in our Proxy Statement for the 2016 Annual Stockholder Meeting ("Proxy Statement") under the headings "Corporate Governance at Capital One" and "Section 16(a) Beneficial Ownership Reporting...

  • Page 245
    ... Public Accounting Firm on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements Consolidated Financial Statements: Consolidated Statements of Income for the Years Ended December 31, 2015, 2014 and 2013 Consolidated...

  • Page 246
    ..., thereunto duly authorized. CAPITAL ONE FINANCIAL CORPORATION Date: February 25, 2016 By: /s/ RICHARD D. FAIRBANK Richard D. Fairbank Chair, Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 247
    ...Bylaws of Capital One Financial Corporation, dated October 5, 2015 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed on October 5, 2015). Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B, dated August 16, 2012 (incorporated...

  • Page 248
    ... Award Agreements granted to our executive officers, including the Chief Executive Officer, under the Second Amended and Restated 2004 Stock Incentive Plan on February 4, 2016. Capital One Financial Corporation 1999 Non-Employee Directors Stock Incentive Plan, as amended (incorporated by reference...

  • Page 249
    ... Non-Qualified Deferred Compensation Plan (incorporated by reference to Exhibit 10.6.2 of the 2012 Form 10-K). Form of Change of Control Employment Agreement between Capital One Financial Corporation and each of its named executive officers, other than the Chief Executive Officer (incorporated by...

  • Page 250
    ...consolidated statements of income, excluding interest on deposits of $1.1 billion for the years ended December 31, 2015 and 2014, and $1.2 billion, $1.4 billion and $1.2 billion for the years ended December 31, 2013, 2012 and 2011, respectively. (2) (3) (4) 231 Capital One Financial Corporation...

  • Page 251

  • Page 252
    ... of new products and services; changes in the labor and employment markets; fraud or misconduct by Capital One's customers, employees, or business partners; competition from providers of products and services that compete with Capital One's businesses; and other risk factors listed from time to time...

  • Page 253
    Created and produced by Capital One and the following: Elevation, Design and Production Vedros and Associates, Photography Allied Printing Services, Inc., Printing 1680 Capital One Drive McLean, VA 22102 (703) 720-1000 www.capitalone.com