Capital One Financial : Q4 2019 Capital One Financial Earnings Presentation

Fourth Quarter 2019 Results

January 21, 2020

Forward-Looking Statements

Please note that the following materials containing information regarding Capital One's financial performance speak only as of the particular date or dates indicated in these materials. Capital One does not undertake any obligation to update or revise any of the information contained herein whether as a result of new information, future events or otherwise.

Certain statements in this presentation and other oral and written statements made by Capital One from time to time are forward-looking statements, including those that discuss, among other things: strategies, goals, outlook or other non-historical matters; projections, revenues, income, returns, expenses, capital measures, capital allocation plans, accruals for claims in litigation and for other claims against Capital One, earnings per share, efficiency ratio or other financial measures for Capital One; future financial and operating results; Capital One's plans, objectives, expectations and intentions; and the assumptions that underlie these matters. To the extent that any such information is forward-looking, it is intended to fit within the safe harbor for forward-looking information provided by the Private Securities Litigation Reform Act of 1995. Numerous factors could cause Capital One's actual results to differ materially from those described in such forward-looking statements, including, among other things: general economic and business conditions in the U.S., the U.K., Canada or Capital One's local markets, including conditions affecting employment levels, interest rates, tariffs, collateral values, consumer income, credit worthiness and confidence, spending and savings that may affect consumer bankruptcies, defaults, charge-offs and deposit activity; an increase or decrease in credit losses, including increases due to a worsening of general economic conditions in the credit environment, and the impact of inaccurate estimates or inadequate reserves; compliance with financial, legal, regulatory, tax or accounting changes or actions, including the impacts of the Tax Act, the Dodd-Frank Act, and other regulations governing bank capital and liquidity standards; Capital One's ability to manage effectively its capital and liquidity; developments, changes or actions relating to any litigation, governmental investigation or regulatory enforcement action or matter involving Capital One; the inability to sustain revenue and earnings growth; increases or decreases in interest rates and uncertainty with respect to the interest rate environment; Capital One's ability to access the capital markets at attractive rates and terms to capitalize and fund its operations and future growth; increases or decreases in Capital One's aggregate loan balances or the number of customers and the growth rate and composition thereof, including increases or decreases resulting from factors such as shifting product mix, amount of actual marketing expenses Capital One incurs and attrition of loan balances; the amount and rate of deposit growth; changes in deposit costs; Capital One's ability to execute on its strategic and operational plans; restructuring activities or other charges; Capital One's response to competitive pressures; changes in retail distribution strategies and channels, including the emergence of new technologies and product delivery systems; Capital One's success in integrating acquired businesses and loan portfolios, and its ability to realize anticipated benefits from announced transactions and strategic partnerships; the success of Capital One's marketing efforts in attracting and retaining customers; changes in the reputation of, or expectations regarding, the financial services industry or Capital One with respect to practices, products or financial condition; any significant disruption in Capital One's operations or in the technology platforms on which Capital One relies, including cybersecurity, business continuity and related operational risks, as well as other security failures or breaches of Capital One's systems or those of its customers, partners, service providers or other third parties; the potential impact to Capital One's business, operations and reputation from, and expenses and uncertainties associated with, the cybersecurity incident it announced on July 29, 2019; Capital One's ability to maintain a compliance and technology infrastructure suitable for the nature of its business; Capital One's ability to develop and adapt to rapid changes in digital technology to address the needs of its customers and comply with applicable regulatory standards, including compliance with data protection and privacy standards; the effectiveness of Capital One's risk management strategies; Capital One's ability to control costs, including the amount of, and rate of growth in, its expenses as Capital One's business develops or changes or as Capital One expands into new market areas; the extensive use, reliability and accuracy of the models and data Capital One relies on in its business; Capital One's ability to recruit and retain talented and experienced personnel; the impact from, and Capital One's ability to respond to, natural disasters and other catastrophic events; changes in the labor and employment markets; fraud or misconduct by Capital One's customers, employees, business partners or third parties; merchants' increasing focus on the fees charged by credit card networks; and other risk factors listed from time to time in reports that Capital One files with the Securities and Exchange Commission, including, but not limited to, the Annual Report on Form 10-K for the year ended December 31, 2018 and the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019.

You should carefully consider the factors discussed above in evaluating these forward-looking statements. All information in these slides is based on the consolidated results of Capital One Financial Corporation, unless otherwise noted. A reconciliation of any non-GAAP financial measures included in this presentation can be found in Capital One's Current Report on Form 8-K filed January 21, 2020, available on its website at www.capitalone.comunder "Investors."

2

Company Highlights

• Net income for the fourth quarter of 2019 of $1.2 billion, or $2.25 per diluted common share; full year 2019 net income of $5.5 billion, or $11.05 per diluted common share
• • Excluding adjusting items, net income per diluted common share for the fourth quarter of 2019 of $2.49; full year 2019 of $12.09 (1)
• Pre-provisionearnings increased 6% to $3.3 billion for the fourth quarter of 2019 and remained flat year-over-year(2)
• Efficiency ratio of 56.03% for the fourth quarter of 2019 and 54.15% for the full year 2019
• • Efficiency ratio excluding adjusting items was 55.16% for the fourth quarter of 2019 and 52.67% for the full year 2019(1)
• Operating efficiency ratio of 46.47% for the fourth quarter of 2019 and 46.20% for the full year 2019
• • Operating efficiency ratio excluding adjusting items was 45.60% for the fourth quarter of 2019 and 44.76% for the full year 2019(1)
• Adjusting items in the quarter, which are excluded from diluted earnings per share (EPS) and efficiency ratio metrics (see slide
  14 for additional information):

	Pre-Tax			Diluted EPS
(Dollars in millions, except per share data)	Impact			Impact
Initial allowance build on acquired Walmart portfolio	$	84	$	0.13
Walmart launch and related integration expenses		48		0.08
Cybersecurity Incident expenses, net of insurance		16		0.03

• Common equity Tier 1 capital ratio under Basel III Standardized Approach of 12.2% at December 31, 2019
• Repurchased 10 million common shares
• Period-endloans held for investment increased $16.5 billion to $265.8 billion
• Average loans held for investment increased $12.7 billion to $258.9 billion
• Period-endtotal deposits increased $5.5 billion to $262.7 billion
• Average total deposits increased $5.0 billion to $260.0 billion

Note: All comparisons are for the fourth quarter of 2019 compared with the third quarter of 2019 unless otherwise noted. Regulatory capital metrics and capital ratios as of December 31, 2019 are preliminary and therefore subject to change.

1. Amounts excluding adjusting items are non-GAAP measures. See Appendix slides 14-15 for the reconciliation of non-GAAP measures to our reported results.
2. Pre-provisionearnings is calculated based on the sum of net interest income and non-interest income, less non-interest expense for the period.

3

Current Expected Credit Losses ("CECL") Adoption Impact(1)

Allowance for credit losses by segment ($M)

CECL adoption impact

(Dollars in millions)			12/31/2019		CECL Adoption			1/1/2020		% Increase
			Impact
Credit card	$	5,395	$	2,269	$	7,664	42%
Consumer banking		1,038			502			1,540	48%
Commercial banking		775			101			876	13%
Total company		7,208			2,872			10,080	40%

Adoption impact ($M)

(Dollars in millions)			CECL Adoption Impact
Total company allowance increase	$	2,872
Other impacts		22
Total pre-tax impacts		2,894
Tax effect		(698)
Decrease to retained earnings	$	2,196

• We estimate the adoption of CECL effective on January 1, 2020 will increase our allowance by 40%
• Regulatory capital impact of $2.9 billion ($2.2 billion, net of tax) to be phased-in at 25% per year
• Phased-inadoption impact is expected to reduce our common equity Tier 1 capital ratio by 16 basis points in the first quarter of 2020

1. The adoption impacts are estimated based on the data available at the time of the earnings presentation.

4

Net Interest Income and Net Interest Margin

			$6,066
$5,820	$5,791	$5,746	56% Q/Q
$5,737
			54% Y/Y
6.96%	6.86%	6.80%	6.95%
	6.73%

4Q18		1Q19	2Q19	3Q19	4Q19
		Net Interest Income ($M)		Net Interest Margin

Fourth Quarter 2019 Highlights

• Net interest margin increased 22 basis points quarter-over-quarter driven by the absence of the Q3 U.K. PPI Reserve build impact, changes in asset mix, and seasonal loan growth
• Net interest margin remained flat year-over-year as lower yields on interest-earning assets were largely offset by lower rates on interest-bearing liabilities

5

Capital

Ending Common Shares Outstanding (M)

Common Equity Tier 1 Capital Ratio

				i2% Q/Q
				$2% Y/Y
467.7	469.6	470.3	465.7
				456.6
4Q18	1Q19	2Q19	3Q19	4Q19

12.5%

12.3%12.2%

11.9%

11.2%

4Q18 1Q19 2Q19 3Q19 4Q19

Fourth Quarter 2019 Highlights

• Common equity Tier 1 capital ratio under Basel III Standardized Approach of 12.2% at December 31, 2019
• Repurchased 10 million common shares

Note: Regulatory capital metrics and capital ratios as of December 31, 2019 are preliminary and therefore subject to change.

6

Credit Quality

Allowance for Loan and Lease Losses

52% Q/Q

Flat Y/Y

$7,220	$7,313	$7,133	$7,037	$7,208
2.94%	3.04%	2.92%	2.82%	2.71%
4Q18	1Q19	2Q19	3Q19	4Q19

Allowance for Loan and Lease Losses ($M)

Allowance Coverage Ratio

Provision for Credit Losses and Net Charge-Offs

				$1,818
$1,638$1,610	$1,693			$1,683
$1,599	$1,508
		$1,462
		$1,342	$1,383
2.67%	2.64%	2.48%	2.38%	2.60%
4Q18	1Q19	2Q19	3Q19	4Q19

Provision for Credit Losses ($M)

Net Charge-Offs ($M)

Net Charge-Off Rate

Fourth Quarter 2019 Highlights

• Net charge-off rate of 2.60%
• Allowance for loan and lease losses increased by $171 million to $7.2 billion
• Allowance coverage ratio of 2.71%

7

Financial Summary-Business Segment Results

						Three Months Ended December 31, 2019
						Consumer		Commercial
(Dollars in millions)		Credit Card			Banking			Banking			Other			Total
Net interest income		$	3,794		$	1,662		$	494		$	116		$	6,066
Non-interest income (loss)		1,030			152			223			(44)			1,361
Total net revenue		4,824			1,814			717			72			7,427
Provision for credit losses		1,421			335			62			-			1,818
Non-interest expense		2,487			1,110			441			123			4,161
Income (loss) from continuing operations before income taxes		916			369			214			(51)			1,448
Income tax provision (benefit)		212			86			50			(78)			270
Income from continuing operations, net of tax	$	704	$	283	$	164	$	27	$	1,178

8

Credit Card

												2019 Q4 vs.
			2019			2019			2018		2019	2018
(Dollars in millions, except as noted)			Q4			Q3			Q4		Q3			Q4
Earnings:
Net interest income	$	3,794	$	3,546	$	3,617		7%	5%
Non-interest income		1,030			870			886		18	16
Total net revenue		4,824			4,416			4,503		9	7
Provision for credit losses		1,421			1,087			1,326		31	7
Non-interest expense		2,487			2,360			2,496		5		-
Pre-tax income		916			969			681		(5)	35
Selected performance metrics:
Period-end loans held for investment	$	128,236	$	113,681	$	116,361		13%	10%
Average loans held for investment		122,085			112,371			112,349		9	9
Total net revenue margin		15.80%			15.72%			16.03%			8bps		(23)bps
Net charge-off rate		4.31			4.09			4.61		22	(30)
Purchase volume	$	116,631	$	108,034	$	105,696		8%	10%

Fourth Quarter 2019 Highlights

• Ending loans up $11.9 billion, or 10%, year-over-year; average loans up $9.7 billion, or 9%, year-over-year
• Purchase volume up 10% year-over-year
• Revenue up $321 million, or 7%, year- over-year
• Revenue margin of 15.80%
• Non-interestexpense flat year-over-year
• Provision for credit losses up $95 million, or 7%, year-over-year
• Net charge-off rate of 4.31%

9

Domestic Card

									2019 Q4 vs.
		2019		2019	2018		2019	2018
(Dollars in millions, except as noted)		Q4		Q3		Q4		Q3			Q4

Fourth Quarter 2019 Highlights

Earnings:										•	Ending loans up $11.3 billion, or 10%,
											year-over-year; average loans up $9.6
Net interest income	$ 3,473	$	3,299	$	3,309	5%	5%
	billion, or 9%, year-over-year, including
Non-interest income	962			878			828	10	16		the acquired Walmart portfolio
Total net revenue	4,435			4,177			4,137	6	7	•	Purchase volume up 11% year-over-year
Provision for credit losses	1,346			1,010			1,229	33	10
										•	Revenue up $298 million, or 7%, year-
Non-interest expense	2,249			2,076			2,216	8	1
											over-year
Pre-tax income	840			1,091			692	(23)	21
										•	Revenue margin of 15.70%
Selected performance metrics:
Period-end loans held for investment	$ 118,606	$	104,664	$	107,350	13%	10%	•	Non-interest expense up $33 million, or
Average loans held for investment	112,965			103,426			103,391	9	9		1%, year-over-year
Total net revenue margin	15.70%			16.15%			16.01%	(45)bps	(31)bps	•	Provision for credit losses up $117 million,
Net charge-off rate	4.32			4.12			4.64	20	(32)		or 10%, year-over-year
30+ day performing delinquency rate	3.93			3.71			4.04	22	(11)	•	Net charge-off rate of 4.32%
Purchase volume	$ 107,154	$	99,087	$	96,818	8%	11%

10

Consumer Banking

												2019 Q4 vs.
			2019			2019			2018		2019	2018
(Dollars in millions, except as noted)			Q4			Q3			Q4		Q3			Q4
Earnings:
Net interest income	$	1,662	$	1,682	$	1,689		(1)%	(2)%
Non-interest income		152			165			159		(8)	(4)
Total net revenue		1,814			1,847			1,848		(2)	(2)
Provision for credit losses		335			203			303		65	11
Non-interest expense		1,110			985			1,085		13	2
Pre-tax income		369			659			460		(44)	(20)
Selected performance metrics:
Period-end loans held for investment	$	63,065	$	62,015	$	59,205		2%	7%
Average loans held for investment		62,596			61,269			59,342		2	5
Auto loan originations		7,527			8,175			5,932		(8)	27
Period-end deposits		213,099			206,423			198,607		3	7
Average deposits		209,783			204,933			196,348		2	7
Average deposits interest rate		1.20%			1.31%			1.10%		(11)bps		10bps
Net charge-off rate		1.93			1.64			2.01		29	(8)

Fourth Quarter 2019 Highlights

• Ending loans up $3.9 billion, or 7%, year- over-year; average loans up $3.3 billion, or 5%, year-over-year
• Ending deposits up $14.5 billion, or 7%, year-over-year
• Revenue down $34 million, or 2%, year- over-year
• Non-interestexpense up $25 million, or 2%, year-over-year
• Provision for credit losses up $32 million, or 11%, year-over-year
• Net charge-off rate of 1.93%

11

Commercial Banking

												2019 Q4 vs.
			2019			2019			2018		2019	2018
(Dollars in millions, except as noted)			Q4			Q3			Q4		Q3			Q4
Earnings:
Net interest income	$	494	$	486	$	508		2%	(3)%
Non-interest income		223			221			159		1	40
Total net revenue(1)		717			707			667		1	7
Provision for credit losses		62			93			9		(33)	**
Non-interest expense		441			414			434		7	2
Pre-tax income		214			200			224		7	(4)
Selected performance metrics:
Period-end loans held for investment	$	74,508	$	73,659	$	70,333		1%	6%
Average loans held for investment		74,189			72,507			69,680		2	6
Period-end deposits		32,134			30,923			29,480		4	9
Average deposits		32,034			30,693			30,680		4	4
Average deposits interest rate		1.10%			1.25%			0.95%		(15)bps		15bps
Net charge-off rate		0.35			0.33			0.10		2	25
Risk category as a percentage of
period-end loans held for investment:(2)
Criticized performing		2.9%			2.8%			2.6%		10bps		30bps
Criticized nonperforming		0.6			0.6			0.4		-	20

Fourth Quarter 2019 Highlights

• Ending loans up $4.2 billion, or 6%, year- over-year; average loans up $4.5 billion, or 6%, year-over-year
• Ending deposits up $2.7 billion, or 9%, year-over-year; average deposits up $1.4 billion, or 4%, year-over-year
• Revenue up $50 million, or 7%, year-over- year
• Non-interestexpense flat year-over-year
• Provision for credit losses up $53 million year-over-year
• Net charge-off rate of 0.35%
• Criticized performing loan rate of 2.9% and criticized nonperforming loan rate of 0.6%

1. In the first quarter of 2019, we made a change in how revenue is measured by revising the allocation of tax benefits on certain tax- advantaged investments. As such, prior period results have been recast to conform with the current period presentation, which reduced previously reported total net revenue by $20 million in Q4 2018, with an offsetting increase in the Other category.
2. Criticized exposures correspond to the "Special Mention," "Substandard" and "Doubtful" asset categories defined by bank regulatory

authorities.	12

Appendix

13

Non-GAAP Measures

			Three Months Ended				Nine Months Ended						Year Ended
			December 31, 2019				September 30, 2019				December 31, 2019
(Dollars in millions, except per share data and as noted)	Reported			Adj.(1)		Adjusted		Reported			Adj.(1)		Adjusted		Reported			Adj.(1)		Adjusted
	Results					Results			Results					Results			Results					Results
Selected income statement data:
Net interest income	$	6,066			-	$	6,066	$	17,274	$	67	$	17,341	$	23,340	$	67	$	23,407
Non-interest income		1,361			-			1,361			3,892			74			3,966			5,253			74			5,327
Total net revenue		7,427			-			7,427			21,166			141			21,307			28,593			141			28,734
Provision for credit losses		1,818	$	(84)			1,734			4,418			-			4,418			6,236			(84)			6,152
Non-interest expense		4,161			(64)			4,097			11,322			(284)			11,038			15,483			(348)			15,135
Income from continuing operations before income taxes		1,448			148			1,596			5,426			425			5,851			6,874			573			7,447
Income tax provision		270			35			305			1,071			46			1,117			1,341			81			1,422
Income from continuing operations, net of tax		1,178			113			1,291			4,355			379			4,734			5,533			492			6,025
Income (loss) from discontinued operations, net of tax		(2)			-			(2)			15			-			15			13			-			13
Net income		1,176			113			1,289			4,370			379			4,749			5,546			492			6,038
Dividends and undistributed earnings allocated to participating securities(2)		(7)			(1)			(8)			(34)			(3)			(37)			(41)			(3)			(44)
Preferred stock dividends		(97)			-			(97)			(185)			-			(185)			(282)			-			(282)
Issuance cost for redeemed preferred stock		(31)			-			(31)			-			-			-			(31)			-			(31)
Net income available to common stockholders	$	1,041		$	112		$	1,153	$	4,151	$	376	$	4,527		$	5,192		$	489		$	5,681
Selected performance metrics:
Diluted EPS(2)	$	2.25	$	0.24	$	2.49	$	8.79	$	0.80	$	9.59	$	11.05	$	1.04	$	12.09
Efficiency ratio		56.03%			(87)bps			55.16%			53.49%			(169)bps			51.80%			54.15%			(148)bps			52.67%
Operating efficiency ratio		46.47			(87)			45.60			46.10			(164)			44.46			46.20			(144)			44.76
__________

Note: We believe these selected non-GAAP measures help investors and users of our financial information understand the effect of the adjustments on our selected reported results. These adjusted results provide alternate measurements of our operating performance, both for the current period and trends across multiple periods. These non-GAAP measures should not be viewed as a substitute for our reported results determined in accordance with accounting principles generally accepted in the U.S. ("GAAP"), nor are they necessarily comparable to non-GAAP measures that may be presented by other companies.

(1)	Adjustments in 2019 consist of:
			Three Months Ended		Nine Months Ended			Year Ended
(Dollars in millions)			December 31, 2019			September 30, 2019			December 31, 2019
Initial allowance build on acquired Walmart portfolio		$	84	$	-		$	84
Walmart launch and related integration expenses			48			163			211
Cybersecurity Incident expenses, net of insurance			16			22			38
U.K. Payment Protection Insurance customer refund reserve build ("U.K. PPI Reserve")			-			212			212
Restructuring charges			-			28			28
Total				148			425			573
Income tax provision			35			46			81
Net income		$	113	$	379		$	492

1. Dividends and undistributed earnings allocated to participating securities and earnings per share are computed independently for each period. Accordingly, the sum of each quarterly amount may not agree to the year-to-date total.

14

Non-GAAP Measures

			Three Months Ended				Nine Months Ended						Year Ended
			December 31, 2018				September 30, 2018				December 31, 2018
(Dollars in millions, except per share data and as noted)	Reported			Adj.(1)		Adjusted		Reported			Adj.(1)		Adjusted		Reported			Adj.(1)		Adjusted
	Results					Results			Results					Results			Results					Results
Selected income statement data:
Net interest income	$	5,820	$	6	$	5,826	$	17,055	$	26	$	17,081	$	22,875	$	32	$	22,907
Non-interest income		1,193			(64)			1,129			4,008			(514)			3,494			5,201			(578)			4,623
Total net revenue		7,013			(58)			6,955			21,063			(488)			20,575			28,076			(546)			27,530
Provision for credit losses		1,638			-			1,638			4,218			48			4,266			5,856			48			5,904
Non-interest expense		4,132			(34)			4,098			10,770			(248)			10,522			14,902			(282)			14,620
Income from continuing operations before income taxes		1,243			(24)			1,219			6,075			(288)			5,787			7,318			(312)			7,006
Income tax provision (benefit)		(21)			266			245			1,314			(121)			1,193			1,293			145			1,438
Income from continuing operations, net of tax		1,264			(290)			974			4,761			(167)			4,594			6,025			(457)			5,568
Income (loss) from discontinued operations, net of tax		(3)			-			(3)			(7)			-			(7)			(10)			-			(10)
Net income		1,261			(290)			971			4,754			(167)			4,587			6,015			(457)			5,558
Dividends and undistributed earnings allocated to participating securities(2)		(9)			2			(7)			(32)			1			(31)			(40)			3			(37)
Preferred stock dividends		(80)			-			(80)			(185)			-			(185)			(265)			-			(265)
Net income available to common stockholders	$	1,172	$	(288)	$	884	$	4,537	$	(166)	$	4,371	$	5,710	$	(454)	$	5,256
Selected performance metrics:
Diluted EPS(2)	$	2.48	$	(0.61)	$	1.87	$	9.32	$	(0.34)	$	8.98	$	11.82	$	(0.94)	$	10.88
Efficiency ratio		58.92%			-			58.92%			51.13%			1bps			51.14%			53.08%			3bps			53.11%
Operating efficiency ratio		47.07			(10)bps			46.97			44.76			(15)			44.61			45.33			(12)			45.21
__________

Note: We believe these selected non-GAAP measures help investors and users of our financial information understand the effect of the adjustments on our selected reported results. These adjusted results provide alternate measurements of our operating performance, both for the current period and trends across multiple periods. These non-GAAP measures should not be viewed as a substitute for our reported results determined in accordance with accounting principles generally accepted in the U.S. ("GAAP"), nor are they necessarily comparable to non-GAAP measures that may be presented by other companies.

1. Adjustments in 2018 consist of:

		Three Months Ended		Nine Months Ended			Year Ended
(Dollars in millions)			December 31, 2018			September 30, 2018			December 31, 2018
Net gains on the sales of exited businesses	$	(74)	$	(541)	$	(615)
Benefit as a result of tax methodology change on rewards costs			(284)			-			(284)
Legal reserve build			-			170			170
U.K. Payment Protection Insurance customer refund reserve ("U.K. PPI Reserve")			50			49			99
Restructuring charges			-			34			34
Total			(308)			(288)			(596)
Income tax provision			18			121			139
Net income	$	(290)	$	(167)	$	(457)

1. Dividends and undistributed earnings allocated to participating securities and earnings per share are computed independently for each period. Accordingly, the sum of each quarterly amount may not agree

to the year-to-date total.	15