Capital One 2006 Annual Report Download - page 52

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levels of liquidity. Capital ratios remained well above the regulatory well capitalized thresholds following the acquisition
of Hibernia.
2006 Significant Events
Acquisition of North Fork Bancorporation
On December 1, 2006, Capital One acquired 100% of the outstanding common stock of North Fork Bancorporation, a bank
holding company with more than 350 bank branches in the New York metropolitan area and a nationwide mortgage business.
Pursuant to the Merger Agreement, each share of North Fork common stock outstanding at the effective time of the merger
was converted into the right to receive either $28.144 in cash or 0.3692 of a share of Capital One common stock, at the
election of each North Fork stockholder, subject to proration due to limitations on the aggregate amount of cash to be paid by
Capital One in the merger and depending on the election of other North Fork stockholders, as specified in the Merger
Agreement. Capital One paid $13.2 billion in cash and Capital One common stock to North Fork stockholders.
The average of the closing prices of Capital One common stock on the NYSE for the five trading days ending the day before
the completion of the merger was $76.24. The total consideration of $13.2 billion included the value of outstanding stock
options and was paid with the issuance of 104.0 million shares of Capital Ones common stock and $5.2 billion in cash
consideration. Upon completion of the merger, outstanding options of North Fork were exchanged for options of Capital One
with the number of options and option price adjusted for the exchange ratio. Capital One financed the cash portion of the
acquisition through a combination of short term liquidity conversions and debt offerings. Specifically, Capital One acquired
the common shares by liquidating $1.0 billion of federal funds sold and resale agreements and by issuing $995.0 million of
trust preferred capital securities and $3.2 billion of senior and subordinated debt.
Debt Issuance to fund North Fork Acquisition
In June 2006, the Company and Capital One Capital II, a subsidiary of the Company created as a Delaware statutory business
trust, issued $345.0 million aggregate principal amount of 7.5% Enhanced Trust Preferred Securities (the Enhanced
TRUPS®) that are scheduled to mature on June 15, 2066. The securities represent a preferred beneficial interest in the assets
of the trust and are recorded in other borrowings in the balance sheet. For regulatory capital purposes the securities are treated
as equity and serve to increase Tier 1 and Total Risk Based Capital at the holding company level.
In July 2006, the Company and Capital One Capital III, a subsidiary of the Company created as a Delaware statutory business
trust, issued $650.0 million aggregate principal amount of 7.686% Capital Securities that are scheduled to mature on
August 15, 2036. The securities represent a preferred beneficial interest in the assets of the trust and are recorded in other
borrowings in the balance sheet. For regulatory capital purposes the securities are treated as equity and serve to increase Tier
1 and Total Risk Based Capital at the holding company level.
In August 2006, the Company issued $1.0 billion aggregate principal amount of 6.150% Subordinated Notes due
September 1, 2016.
In September 2006, the Company issued $1.1 billion of Floating Rate Senior Notes due September 10, 2009 and $1.1 billion
of 5.7% Senior Notes due September 15, 2011.
North Fork Balance Sheet Derivative
In April 2006, the Company entered into derivative instruments to mitigate certain exposures it faced as a result of the
expected acquisition of North Fork. The position was designed to protect the Companys tangible capital ratios from falling
below a desired level in the event that subsequent increases in interest rates had reduced the mark-to-market value of North
Forks balance sheet prior to closing. The Companys maximum negative exposure was expected to be no more than
approximately $50 million. The derivative instruments were not treated as designated hedges under Statement of Financial
Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities, and as such were marked to
market through the income statement until the derivatives were terminated. The derivative instruments expired out of the
money and unexercised on October 2, 2006 with a $50.1 million reduction to non-interest income.
Loss on Sale of Securities
Subsequent to the North Fork acquisition, in December the Company sold a number of Treasury and Agency securities
realizing a loss of $34.9 million.