Capital One Financial (COF) Risk Factor Changes

In addition, we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional…

Physical and transition risks could also affect the financial health of certain customers in impacted industries or geographies.

Transition risks are the risks resulting from the shift toward a lower-carbon economy arising from the changes in policy, consumer and business sentiment or technologies associated with changes to limit climate change.

Physical risks are the risks from the effects of climate change arising from acute, climate-related events, such as hurricanes, flooding and wildfires, and chronic shifts in climate, such as sea level rise and higher…

Natural disasters, geopolitical events, supply chain issues and other catastrophic events can have widespread and unpredictable impacts on global society, economic conditions and consumer and business behavior, which…

Our ability to attract, develop and retain qualified employees or effectively transition key roles in connection with the Transaction is also affected by perceptions of our culture and management, including our positi…

Our success depends, in large part, on our ability to retain key senior leaders and to attract, develop and retain skilled employees, particularly employees with advanced expertise in credit, risk, digital and technol…

While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate every economic and financial outcome…

Management of market, credit, liquidity, strategic, reputational, operational and compliance risk requires, among other things, policies and procedures to properly record and verify a large number of transactions and…

We rely on a variety of measures to protect and enhance our intellectual property rights, including copyrights, trademarks, trade secrets, patents, licenses and certain restrictions on disclosure, solicitation and com…

Negative public opinion or damage to our brand could also result from actual or alleged conduct in any number of activities or circumstances, including lending and payment network practices, regulatory compliance, cyb…

important assets.

•Conditions to Regulatory Approval: We may be required to obtain various governmental and regulatory approvals to consummate certain acquisitions.

acquired businesses into our existing operations, or are not able to achieve the anticipated benefits of any merger, acquisition or strategic partnership, including cost savings and other synergies, our business could…

Beyond pursuing legislation, regulation and litigation, merchants may also promote forms of payment with lower fees, as noted above, or seek to impose surcharges or discounts at the point of sale for use of credit or…

In addition, some major retailers or industry sectors could independently negotiate lower interchange fees with Mastercard and Visa.

Lowering interchange fees also remains an area of international governmental attention by certain parties.

As an issuer of credit and debit cards on four-party networks, the Bank earns interchange fees, which are included in the charges to merchants by their acquirers when customers use our cards.

Our business, financial condition and results of operations may be adversely affected by legislation, regulation and merchants’ efforts to reduce the fees (including the interchange component) charged by credit and de…

Some of our competitors have developed, or may develop, substantially greater financial and other resources than we have, may offer richer value propositions or a wider range of programs and services than we offer, or…

We face strong and increasing competition in the direct banking market.

Some of our competitors, including new and emerging competitors in the digital and mobile payments space and other financial technology providers and payment networks, are not subject to the same regulatory requiremen…

We operate in a highly competitive environment across all of our lines of business, whether in making loans, attracting deposits or in the global payments industry, and we expect competitive conditions to continue to…

We expect that regulators and governmental enforcement bodies will continue taking public enforcement actions against financial institutions in addition to addressing supervisory concerns through nonpublic supervisory…

Over the last several years, federal and state regulators have focused on risk management, compliance with anti-money laundering (“AML”) and sanctions laws, privacy, data protection and data security, use of service p…

In addition, financial institutions, such as ourselves, face significant regulatory scrutiny, which can lead to public enforcement actions or nonpublic supervisory actions.

Given the inherent uncertainties involved in litigation, government investigations and regulatory enforcement decisions, and the very large or indeterminate damages sought in some matters asserted against us, there ca…

Further, we make public statements about our use, collection, disclosure and other processing of personal information through our privacy policies, information provided on our website and press statements.

We are subject to a variety of continuously evolving and developing laws and regulations in the United States at the federal, state and local level regarding privacy, data protection and data security, including those…

The legislative, regulatory and supervisory environment is beyond our control, may change rapidly and unpredictably, and may negatively influence our revenue, costs, operations, transaction volumes, earnings, growth,…

Failure to comply with these laws and regulations and effectively navigate this complex regulatory landscape, even if the failure is inadvertent, results from human error or reflects a difference in interpretation or…

Our financial condition, the level of our fraud charge-offs and other results of operations could be materially adversely affected if fraudulent activity were to significantly increase.

An actual, suspected, threatened or alleged disruption or breach, including as a result of a cyber-attack, or media (including social media) reports of alleged or perceived security vulnerabilities or incidents at Cap…

The methods and techniques employed by malicious actors continue to develop and evolve rapidly, including from emerging technologies, such as AI and quantum computing, are increasingly sophisticated and often are not…

In addition, our customers access our products and services using personal devices that are necessarily external to our security control systems.

These threats may derive from, among other things, error, fraud or malice on the part of our employees, service providers, insiders, customers, partners, network participants, including merchants, or other third parti…

malware, ransomware, denial of service attacks, supply chain attacks, exploitation of vulnerabilities, credential stuffing, account takeovers, insider threats, business email compromise scams or the use of phishing, v…

Our ability to provide our products and services and communicate with our customers and network participants depends upon the management and safeguarding of information systems and infrastructure, networks, software,…

Any disruptions, failures or inaccuracies of our operational processes, technology systems, networks and models, including those associated with improvements or modifications to such technology systems, networks and m…

We also rely on the business infrastructure and systems of third-party service providers (and their supply chains) with which we do business and/or to whom we outsource the operation, maintenance and development of ou…

Similar to other large corporations in our industry, we are exposed to operational risk that can manifest itself in many ways, such as errors in execution, inadequate processes, inaccurate models, faulty or disabled t…

Our credit ratings are based on a number of factors, including financial strength, as well as factors not within our control, such as conditions affecting the financial services industry generally, the macroeconomic e…

and internal stress tests may, therefore, require us to take actions to increase our liquid assets or alter our activities or funding sources, which could negatively affect our financial results or our ability to retu…

We consider various factors in the management of capital, including the impact of both internal and supervisory stress scenarios on our capital levels as determined by our internal modeling and the Federal Reserve’s e…

•Increasing Charge-off Recognition/Allowance for Credit Losses: We account for the allowance for credit losses according to accounting and regulatory guidelines and rules, including Financial Accounting Standards Boar…

•Missed Payments: Our customers may fail to make required payments on time and may default or become delinquent.

Like other lenders, we face the risk that our customers will not repay their loans.

We may not be able to maintain adequate sources of funding and liquidity to fund our operations, grow our business, pay our outstanding liabilities and meet regulatory expectations.

levels or, in the case of credit card accounts, reduce demand for credit or (for existing customers) the level of borrowing or purchase activity.

Like other financial institutions, our business is sensitive to interest rate movements.

Decreases in overall business activity and changes in customer behavior (such as the increased use of debt settlement companies) may lead to increases in our charge-off rate caused by bankruptcies and may reduce our a…

•Lower demand for credit such as loans and shifts in consumer behavior, including shifts away from using credit cards or deposits, other changes in deposit practices and changes in payment patterns; and

•Trade wars, trade barriers, tariffs, economic sanctions, labor shortages and disruptions of global supply chains, including their impacts on the auto industry;

•Geopolitical conflicts or instabilities, such as the war in Ukraine, the ongoing conflict in the Middle East and the political instability in Venezuela and increased geopolitical tensions between the U.S.

•Monetary policy actions, such as changes to interest rates, taken by the Federal Reserve and other central banks, such as the central banks in the U.K.

Other factors include, but are not limited to, changes in laws or regulations or the implementation or interpretation of laws or regulations due to, among other things, changes in government or general economic, marke…

We may fail to realize all of the anticipated benefits of the Transaction, or those benefits may take longer to realize than expected due to factors that may be outside our control.

While we have assumed that a certain level of costs will be incurred, many of the expenses that we will incur are, by their nature, difficult to estimate accurately.

We have incurred and expect to incur a number of significant non-recurring costs associated with the integration of Discover.

We will continue to incur substantial expenses related to the integration of Discover, and the expenses may be greater than anticipated due to factors, some or all of which may be outside our control.

Risks Relating to the Transaction and Integration of Discover

•Our business, financial condition and results of operations may be adversely affected by legislation, regulation and merchants’ efforts to reduce the fees (including the interchange component) charged by credit and d…

•We may fail to realize all of the anticipated benefits of the Transaction, or those benefits may take longer to realize than expected due to factors that may be outside our control.

•We will continue to incur substantial expenses related to the integration of Discover, and the expenses may be greater than anticipated due to factors, some or all of which may be outside our control.

Physical and transition risks could also affect the financial health of certain customers in impacted industries or geographies.

Our success depends, in large part, on our ability to retain key senior leaders and to attract, develop and retain skilled employees, particularly employees with advanced expertise in credit, risk, digital and technol…

We rely on a variety of measures to protect and enhance our intellectual property rights, including copyrights, trademarks, trade secrets, patents, licenses and certain restrictions on disclosure, solicitation and com…

There has also been an increased focus by investor advocacy groups, investment funds and shareholder activists, among others, on topics related to environmental, social and corporate governance policies, and our polic…

For additional risks related to the Transaction, see “Risks Relating to the Acquisition of Discover” and the section entitled “Risk Factors” included in our joint proxy statement/prospectus included in the registratio…

•Conditions to Regulatory Approval: We may be required to obtain various governmental and regulatory approvals to consummate certain acquisitions.

The heightened focus by legislative and regulatory bodies on the fees charged by credit and debit card networks, and the ability of certain merchants to successfully pursue litigation, negotiate discounts to interchan…

In addition to this legislative and regulatory activity, merchants are also seeking avenues to reduce interchange fees.

Legislative and regulatory bodies in a number of countries have sought, or are currently seeking, to reduce interchange fees through legislation, competition-related regulatory proceedings, voluntary agreements, centr…

that these relationships will be profitable or valued by our customers.

In our credit card business, competition for rewards customers may result in higher rewards expenses, or we may fail to attract new customers or retain existing rewards customers due to increasing competition for thes…

investigations and other regulatory actions could generally subject us to significant fines, increased expenses, restrictions on our activities and damage to our reputation and our brand, and could adversely affect ou…

Further, we make public statements about our use, collection, disclosure and other processing of personal information through our privacy policies, information provided on our website and press statements.

Failure to comply with these laws and regulations and effectively navigate this complex regulatory landscape, even if the failure is inadvertent, results from human error or reflects a difference in interpretation or…

We are subject to the risk of fraudulent activity associated with merchants, customers and other third parties handling customer information.

Fraudulent activity associated with our products could cause our fraud losses to increase, the use of our products to decrease and our brands to suffer reputational damage, all of which could have a material adverse e…

While we continuously update our policies, programs, processes and practices, many of our data management, modeling, AI, aggregation and implementation processes are manual and may be subject to human error, data limi…

movements or customer behavior and liquidity, especially during severe market downturns or stress events (e.g., geopolitical or pandemic events).

We may use models and AI in processes such as determining the pricing of various products, identifying potentially fraudulent transactions, grading loans and extending credit, measuring interest rate and other market…

We rely on quantitative models and in some cases the use of AI, as well as our ability to manage and aggregate data in an accurate and timely manner, to assess and manage our various risk exposures, create estimates a…

reasons, it could adversely impact our ability to service customer accounts or loans, complete financial transactions for our customers or otherwise operate any of our businesses or services.

These threats may derive from, among other things, error, fraud or malice on the part of our employees, insiders, or third parties or may result from accidental technological failure or design flaws.

disrupt our business or negatively impact the relationship we have with customers that rely on such services..

We consider various factors in the management of capital, including the impact of both internal and supervisory stress scenarios on our capital levels as determined by our internal modeling and the Federal Reserve’s e…

particularly if unexpected variations in key inputs and assumptions cause actual losses to diverge from the projections of our models and our estimates become increasingly subject to management’s judgment.

•Fiscal policy actions, such as changes to applicable tax codes;

Uncertainty about the effect of the Transaction on employees, customers, suppliers and other persons with whom we or Discover have a business relationship may have an adverse effect on our business, operations and sto…

While the Transaction is pending, we will be subject to business uncertainties and contractual restrictions that could adversely affect our business and operations.

In addition, following the Transaction, we may be subject to increased scrutiny by, and/or additional regulatory requirements of, governmental authorities as a result of the Transaction or the size, scope and complexi…

Following the Transaction, the size and scope of our business will increase significantly beyond our current size and scope.

Our future results may suffer if we do not effectively manage our expanded operations following the Transaction.

An inability to realize the full extent of the anticipated benefits of Transaction, as well as any delays encountered in the integration process, could have an adverse effect on our revenues, levels of expenses and op…

Both parties have operated and, until the completion of the Transaction, will continue to operate, independently.

achieve from the elimination of duplicative expenses and the realization of economies of scale.

Either party may also be subject to lawsuits challenging the Transaction, and adverse rulings in these lawsuits may delay or prevent the Transaction from being completed or require either party to incur significant co…

As a condition to granting required regulatory approvals, governmental entities may impose conditions, limitations, obligations or costs or place restrictions on our conduct after the closing of the Transaction.