Increase (Decrease) in Allowance for Credit Loss

[Table of Contents](#i6e014264141e49cfb6088f287bb6e6ad_13)

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| NOTE 4—ALLOWANCE FOR CREDIT LOSSES AND RESERVE FOR UNFUNDED LENDING COMMITMENTS |

Our allowance for credit losses represents management’s current estimate of expected credit losses over the contractual terms of our loans held for investment as of each balance sheet date. Expected recoveries of amounts previously charged off or expected to be charged off are recognized within the allowance. Significant judgment is applied in our estimation of lifetime credit losses. When developing an estimate of expected credit losses, we use both quantitative and qualitative methods in considering all available information relevant to assessing collectability. This may include internal information, external information or a combination of both relating to past events, current conditions and reasonable and supportable forecasts. Management will consider and may qualitatively adjust for conditions, changes and trends in loan portfolios that may not be captured in modeled results. These adjustments are referred to as qualitative factors and represent management’s judgment of the imprecision and risks inherent in the processes and assumptions used in establishing the allowance for credit losses. We have unfunded lending commitments in our Commercial Banking business that are not unconditionally cancellable by us and for which we estimate expected credit losses in establishing a reserve. This reserve is measured using the same measurement objectives as the allowance for loans held for investment. We build or release the reserve for unfunded lending commitments through the provision for credit losses in our consolidated statements of income, and the related reserve for unfunded lending commitments is included in other liabilities on our consolidated balance sheets. See “Note 1—Summary of Significant Accounting Policies” in our 2021 Form 10-K for further discussion of the methodology and policy for determining our allowance for credit losses for each of our loan portfolio segments, as well as information on our reserve for unfunded lending commitments.Allowance for Credit Losses and Reserve for Unfunded Lending Commitments ActivityThe table below summarizes changes in the allowance for credit losses and reserve for unfunded lending commitments by portfolio segment for the three and nine months ended September 30, 2022 and 2021. Our allowance for credit losses increased by $779 million to $12.2 billion as of September 30, 2022 from December 31, 2021.Table 4.1: Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity

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|  |  | Three Months Ended September 30, 2022 |
| (Dollars in millions) |  | Credit Card |  | Consumer Banking |  | Commercial Banking |  |  |  | Total |
| Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |
| Balance as of June 30, 2022 |  | $ | 8,166  |  |  | $ | 2,047  |  |  | $ | 1,278  |  |  |  |  | $ | 11,491  |  |
| Charge-offs |  | (1,047) |  |  | (410) |  |  | (13) |  |  |  |  | (1,470) |  |
| Recoveries(1) |  | 352  |  |  | 186  |  |  | 1  |  |  |  |  | 539  |  |
| Net charge-offs |  | (695) |  |  | (224) |  |  | (12) |  |  |  |  | (931) |  |
| Provision (benefit) for credit losses |  | 1,261  |  |  | 285  |  |  | 119  |  |  |  |  | 1,665  |  |
| Allowance build (release) for credit losses |  | 566  |  |  | 61  |  |  | 107  |  |  |  |  | 734  |  |
| Other changes(2) |  | (16) |  |  | 0  |  |  | 0  |  |  |  |  | (16) |  |
| Balance as of September 30, 2022 |  | 8,716  |  |  | 2,108  |  |  | 1,385  |  |  |  |  | 12,209  |  |
| Reserve for unfunded lending commitments: |  |  |  |  |  |  |  |  |  |  |
| Balance as of June 30, 2022 |  | 0  |  |  | 0  |  |  | 239  |  |  |  |  | 239  |  |
| Provision for losses on unfunded lending commitments |  | 0  |  |  | 0  |  |  | 4  |  |  |  |  | 4  |  |
| Balance as of September 30, 2022 |  | 0  |  |  | 0  |  |  | 243  |  |  |  |  | 243  |  |
| Combined allowance and reserve as of September 30, 2022 |  | $ | 8,716  |  |  | $ | 2,108  |  |  | $ | 1,628  |  |  |  |  | $ | 12,452  |  |



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|  | 88 | Capital One Financial Corporation (COF) |


