Capital One Financial Corporation — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Although the request identifies 2022 Q4, this is an annual filing; the supplied text does not provide a clear standalone fourth-quarter income statement.
Business context
Capital One is a diversified financial services company organized into Credit Card, Consumer Banking and Commercial Banking segments. It completed the merger of Capital One Bank (USA), National Association, into Capital One, National Association on October 1, 2022.
Financial and operating results
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total net revenue | $34.25 billion | $30.44 billion | +13% |
| Net interest income | $27.11 billion | $24.17 billion | +12% |
| Net interest margin | 6.67% | 6.21% | +46 bps |
| Provision for credit losses | $5.85 billion | $(1.94) billion benefit | Higher by $7.79 billion |
| Non-interest expense | $19.16 billion | $16.57 billion | +16% |
| Net income | $7.36 billion | $12.39 billion | -41% |
| Diluted EPS | $17.91 | $26.94 | -34% |
| Operating cash flow | $13.81 billion | $12.31 billion | +$1.50 billion |
- Revenue growth reflected higher loan balances, interest rates and card purchase volume. Net interchange fees rose to $4.61 billion from $3.86 billion.
- Profit declined primarily because of a credit-loss provision build, increased marketing and continued technology investment. Marketing expense rose 40% to $4.02 billion.
- Average loans held for investment increased 16% to $292.2 billion; year-end balances rose 13% to $312.3 billion. Card purchase volume increased 11% to $587.3 billion.
- Credit quality normalized: net charge-offs increased to $3.97 billion, or 1.36% of average loans, from $2.23 billion, or 0.88%. The 30-plus-day delinquency rate rose to 3.21% from 2.41%.
- The allowance for credit losses reached $13.24 billion, 4.24% of loans, versus $11.43 billion and 4.12% a year earlier.
- At year-end, total assets were $455.2 billion, deposits $333.0 billion, other debt $31.7 billion and securitized debt $17.0 billion. Deposits increased 7%; total stockholders’ equity fell 14% to $52.6 billion.
- Liquidity reserves were $106.6 billion, down from $116.2 billion. Average fourth-quarter LCR was 143%, above the 100% requirement; the company and bank also exceeded the NSFR requirement.
- Company CET1 capital was 12.5%, down from 13.1%; it would have been 12.0% without the CECL transition benefit. The company reported that it remained above applicable capital requirements.
- Operating cash flow was $13.8 billion, investing cash outflow $29.7 billion and financing cash inflow $25.1 billion. Cash and cash equivalents increased to $30.9 billion from $21.7 billion.
Material changes and capital returns
- Credit Card produced $4.93 billion of net income, down 36%; Consumer Banking earned $2.25 billion, down 39%; Commercial Banking earned $843 million, down 45%.
- Accumulated other comprehensive loss widened to $9.92 billion from income of $374 million, chiefly reflecting unrealized losses on securities and hedging relationships. Available-for-sale securities fell $18.3 billion in fair value to $76.9 billion, primarily amid higher interest rates and credit spreads.
- The company repurchased $4.8 billion of common stock and paid $954 million in common dividends during 2022. The board had authorized up to $10 billion in repurchases; future actions remain subject to capital, regulatory and market considerations.
- Uninsured deposits were approximately $80.7 billion, down from $91.7 billion. Brokered deposits increased to $20.6 billion from $8.6 billion.
Outlook, risks and contingencies
- The filing gives no specific company earnings or revenue guidance. The allowance estimate assumed unemployment gradually rising to about 5.0% by fourth-quarter 2023 and U.S. real GDP declining 0.3% in 2023; these are credit-loss modeling assumptions, not formal guidance.
- Management cited economic uncertainty, inflation, interest-rate changes, consumer credit normalization, deposit pricing and competition as important risks. Higher delinquencies, charge-offs or weaker collateral values could raise provisions and pressure earnings.
- Other key risks include cybersecurity and third-party/cloud reliance, regulatory and consumer-protection compliance, litigation, interchange-fee pressure, model risk, and execution of technology and strategic initiatives. Commercial real estate exposure is concentrated in the Northeast, representing 40.2% of that portfolio.
- Potential reasonably possible litigation losses beyond recorded reserves were estimated at approximately $200 million for matters where an estimate was possible; actual losses could exceed the estimate. The 2019 cybersecurity incident’s U.S. consumer class action and securities class action were concluded in 2022. The OCC terminated its related consent order on August 31, 2022.
- The filing reports an unqualified audit opinion and effective internal control over financial reporting, with no material weaknesses identified.
Most important facts for investors to verify
- Whether card and auto delinquencies and charge-offs continue rising, and how actual losses compare with the $13.24 billion allowance and its economic assumptions.
- Whether loan growth and higher asset yields continue to outpace rising deposit and wholesale funding costs.
- Liquidity and funding mix, especially uninsured and brokered deposits, reserve levels, and regulatory liquidity ratios.
- Capital capacity after repurchases, dividends and the continued phase-in of CECL regulatory-capital effects.
- Developments in commercial real estate, litigation and regulatory matters, cybersecurity controls, and the remaining LIBOR transition exposures.