Capital One Financial COF · USD

NOTE 18—BUSINESS SEGMENTS AND REVENUE FROM CONTRACTS WITH CUSTOMERSOur principal operations are organized into three major business segments, which are defined primarily based on the products and services provided or the types of customers served: Credit Card, Consumer Banking and Commercial Banking. The operations of acquired businesses have been integrated into or managed as a part of our existing business segments. Certain activities that are not part of a business segment are included in the Other category, such as the management of our corporate investment portfolio and asset/liability positions performed by our centralized Corporate Treasury group and any residual tax expense or benefit beyond what is assessed to our business segments in order to arrive at the consolidated effective tax rate. The Other category also includes unallocated corporate expenses that do not directly support the operations of the business segments or for which the business segments are not considered financially accountable in evaluating their performance, such as certain restructuring charges, integration expenses and certain liabilities incurred by Discover ahead of the Transaction.•Credit Card: Consists of our domestic consumer card lending, personal loans, domestic small business card lending and international card businesses in the U.K. and Canada.•Consumer Banking: Consists of our deposit gathering and lending activities for consumers and small businesses, national auto lending and services offered by the Global Payment Network.•Commercial Banking: Consists of our lending, deposit gathering, capital markets and treasury management services to commercial real estate and commercial and industrial customers. Our customers typically include companies with annual revenues between $20 million and $2 billion.•Other category: Includes the residual impact of the allocation of our centralized Corporate Treasury group activities, such as management of our corporate investment portfolio, asset/liability management and oversight of our funds transfer pricing process, to our business segments. Accordingly, net gains and losses on our investment securities portfolio and certain trading activities are included in the Other category.

NOTE 19—COMMITMENTS, CONTINGENCIES, GUARANTEES AND OTHERSCommitments to LendOur unfunded lending commitments primarily consist of credit card lines, loan commitments to customers of our Credit Card, Commercial Banking and Consumer Banking businesses, as well as standby and commercial letters of credit. These commitments, other than credit card lines and certain other unconditionally cancellable lines of credit, are legally binding conditional agreements that have fixed expirations or termination dates and specified interest rates and purposes. The contractual amount of these commitments represents the maximum possible credit risk to us should the counterparty draw upon the commitment. We generally manage the potential risk of unfunded lending commitments by limiting the total amount of arrangements, monitoring the size and maturity structure of these portfolios and applying the same credit standards for all of our credit activities.For unused credit card lines, we have not experienced and do not anticipate that all of our customers will access their entire available line at any given point in time. Commitments to extend credit other than credit card lines generally require customers to maintain certain credit standards. Collateral requirements and loan-to-value (“LTV”) ratios are the same as those for funded transactions and are established based on management’s credit assessment of the customer. These commitments may expire without being drawn upon; therefore, the total commitment amount does not necessarily represent future funding requirements.We also issue letters of credit, such as financial standby, performance standby and commercial letters of credit, to meet the financing needs of our customers. Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party in a borrowing arrangement. Commercial letters of credit are short-term commitments issued primarily to facilitate trade finance activities for customers and are generally collateralized by the goods being shipped to the customer. These collateral requirements are similar to those for funded transactions and are established based on management’s credit assessment of the customer. Management conducts regular reviews of all outstanding letters of credit and the results of these reviews are considered in assessing the adequacy of reserves for unfunded lending commitments.

NOTE 16—INCOME TAXESWe recognize the current and deferred tax consequences of all transactions that have been recognized in the financial statements using the provisions of the enacted tax laws. Current income tax expense represents our estimated taxes to be paid or refunded for the current period and includes income tax expense related to our uncertain tax positions, as well as tax-related interest and penalties. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We record valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. We record the effect of remeasuring deferred tax assets and liabilities due to a change in tax rates or laws as a component of income tax expense related to continuing operations for the period in which the change is enacted. We release income tax effects stranded in AOCI when an entire portfolio of the type of item is sold, terminated or extinguished. Income tax benefits are recognized when, based on their technical merits, they are more likely than not to be sustained upon examination. The amount recognized is the largest amount of benefit that is more likely than not to be realized upon settlement.The following table presents significant components of the provision for income taxes attributable to continuing operations for the years ended December 31, 2025, 2024 and 2023.Table 16.

NOTE 14—STOCK-BASED COMPENSATION PLANSStock PlansWe have two active stock-based compensation plans available for the issuance of shares to employees and directors. As of December 31, 2025, under the Amended and Restated 2004 Stock Incentive plan (“2004 Plan”), we are authorized to issue 81 million common shares in various forms, primarily share-settled RSUs, PSUs and non-qualified stock options. Of this amount, approximately 15 million shares remain available for future issuance as of December 31, 2025. The 2004 Plan permits the use of newly issued shares or treasury shares upon the settlement of options and stock-based incentive awards, and we generally settle by issuing new shares. Additionally, as a result of the Transaction, we assumed the Discover Financial Services Omnibus Incentive Plan, under which approximately 17 million shares remain available for future issuance as of December 31, 2025.We also issue cash-settled RSUs. These cash-settled units are not counted against the common shares authorized for issuance or available for issuance under the 2004 Plan. Cash-settled units vesting during 2025, 2024 and 2023 resulted in cash payments to associates of $8 million, $5 million and $4 million, respectively. There was no unrecognized compensation cost for unvested cash-settled units as of December 31, 2025. Total stock-based compensation expense recognized during 2025, 2024 and 2023 was $776 million, $569 million and $513 million, respectively. The total income tax benefit for stock-based compensation recognized during 2025, 2024 and 2023 was $151 million, $109 million and $99 million, respectively.In addition, we maintain an Associate Stock Purchase Plan (“Purchase Plan”), which is a compensatory plan under the accounting guidance for stock-based compensation. Related to the Purchase Plan, we recognized compensation expense of $53 million, $42 million and $39 million for 2025, 2024 and 2023, respectively. We also maintain a Dividend Reinvestment and Stock Purchase Plan, which allows participating stockholders to purchase additional shares of our common stock through automatic reinvestment of dividends or optional cash investments.Restricted Stock Units and Performance Share UnitsRSUs represent share-settled awards that do not contain performance conditions and are granted to certain employees at no cost to the recipient.

The following table presents a summary of 2025 activity for RSUs and PSUs.Table 14.1: Summary of Restricted Stock Units and Performance Share UnitsRestricted Stock UnitsPerformance Share Units(1)(Shares/units in thousands)Units Weighted-AverageGrant DateFair Valueper UnitUnitsWeighted-AverageGrant DateFair Valueper UnitUnvested as of January 1, 20256,583 $109.56 2,126 $131.73 Granted(2)(3)4,180 199.01 721 198.32 Vested(3,486)203.14 (745)190.14 Forfeited(212)160.60 (81)148.70 Unvested as of December 31, 20257,065 $114.71 2,021 $133.34 _________(1)Granted and vested include adjustments for achievement of specific performance goals for PSUs granted in prior periods.(2)The weighted-average grant date fair value of RSUs was $136.69 and $113.08 in 2024 and 2023, respectively. The weighted-average grant date fair value of PSUs was $132.71 and $115.09 in 2024 and 2023, respectively.(3)Includes RSUs converted as a result of the Transaction.

NOTE 8—PREMISES, EQUIPMENT AND LEASESPremises and EquipmentThe following table presents our premises and equipment as of December 31, 2025 and 2024.Table 8.1 Components of Premises and Equipment (Dollars in millions)December 31, 2025December 31, 2024Land$330 $303 Buildings and improvements4,591 4,276 Furniture and equipment1,830 1,751 Computer software4,902 3,357 In progress550 426 Total premises and equipment, gross12,203 10,113 Less: Accumulated depreciation and amortization(6,601)(5,602)Total premises and equipment, net$5,602 $4,511 Depreciation and amortization expense was $1.5 billion, $1.1 billion and $939 million for the years ended December 31, 2025, 2024 and 2023, respectively.LeasesOur primary involvement with leases is in the capacity as a lessee where we lease premises to support our business. The majority of our leases are operating leases of office space, retail bank branches and cafés. Our operating leases expire at various dates through 2071, although some have extension or termination options, and we assess the likelihood of exercising such options. If it is reasonably certain that we will exercise the options, then we include the impact in the measurement of our right-of-use assets and lease liabilities.Our right-of-use assets and lease liabilities for operating leases are included in other assets and other liabilities on our consolidated balance sheets. As most of our operating leases do not provide an implicit rate, we use our incremental borrowing rate in determining the present value of future lease payments. Our operating lease expense is included in occupancy and equipment within non-interest expense in our consolidated statements of income. Total operating lease expense consists of operating lease cost, which is recognized on a straight-line basis over the lease term, and variable lease cost, which is recognized based on actual amounts incurred. We also sublease certain premises, and sublease income is included in other non-interest income in our consolidated statements of income.The following tables present information about our operating lease portfolio and the related lease costs as of and for the years ended December 31, 2025 and 2024.Table 8.2 Operating Lease Portfolio(Dollars in millions)December 31, 2025December 31, 2024Right-of-use assets$977 $974 Lease liabilities1,259 1,265 Weighted-average remaining lease term7.3 years7.9 yearsWeighted-average discount rate3.5 %3.3 %Table 8.

The following tables present information about our operating lease portfolio and the related lease costs as of and for the years ended December 31, 2025 and 2024.Table 8.2 Operating Lease Portfolio(Dollars in millions)December 31, 2025December 31, 2024Right-of-use assets$977 $974 Lease liabilities1,259 1,265 Weighted-average remaining lease term7.3 years7.9 yearsWeighted-average discount rate3.5 %3.3 %Table 8.

Table 2.2: Allocation of Purchase Consideration(in millions, except share and per share data)Fair Value Purchase consideration:Shares of Discover common stock issued and outstanding immediately prior to the acquisition251,679,740Exchange ratio1.0192Number of shares of Capital One treasury stock reissued in the acquisition before fractional shares adjustment256,511,991 Less: Number of fractional shares(14,778)Number of shares of Capital One treasury stock reissued in the acquisition256,497,213Price per share of Capital One common stock$197.22 Fair value of consideration for outstanding common stock50,586 Fair value of consideration for preferred stock1,068Fair value of consideration related to stock-based compensation awards136Cash in lieu of fractional shares3Fair value of purchase consideration$51,793 Allocation of purchase consideration to net assets acquired (1):Fair value of assets acquired:Cash and cash equivalents and Restricted cash for securitization investors(2)$16,467 Securities available for sale14,108Net loans held for investment (see Table 2.3)108,609Premises and equipment956Interest receivable926Intangible assets (see Table 2.4)17,670Other assets(3)1,448Assets of discontinued operations(4)8,398Fair value of liabilities assumed:Interest payable347Non-interest-bearing deposits1,710Interest-bearing deposits (see Table 2.5)105,208Securitized debt obligations5,827Senior and subordinated notes6,917Other borrowings538Deferred tax liability(5)3,572Other liabilities(6) 6,094Fair value of net assets acquired$38,369 Goodwill$13,424 ________(1)Pursuant to the guidance in Topic 805, fair value estimates related to assets acquired and liabilities assumed in a business combination are subject to adjustment for up to one year after the Closing Date as additional information becomes available (the “Measurement Period”). The Company has completed its purchase consideration allocation and the fair values of assets acquired and liabilities assumed are considered final. The amounts presented in Table 2.2 reflect Measurement Period adjustments made during the third and fourth quarters of 2025, which primarily included a $540 million decrease in the fair value of intangible assets and a $109 million decrease in the fair value of premises and equipment as well as a $416 million increase in the fair value of assets of discontinued operations and a $182 million increase in goodwill. (2)Includes $1.