Capital One 2006 Annual Report Download - page 96

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78
Hibernia Corporation
On November 16, 2005, the Company acquired 100% of the outstanding common stock of Hibernia Corporation
(Hibernia), a financial holding company with operations in Louisiana and Texas. Hibernia offers a variety of banking
products and services, including consumer, commercial and small business loans and demand and term deposit accounts.
The acquisition was accounted for under the purchase method of accounting, and, as such, the assets and liabilities of
Hibernia were recorded at their respective fair values as of November 16, 2005. The results of Hibernias operations were
included in the Companys Consolidated Statement of Income commencing November 16, 2005.
The total consideration of $5.0 billion, which includes the value of outstanding stock options, was settled through the
issuance of 32.9 million shares of the Companys common stock and payment of $2.2 billion in cash. Under the terms of the
transaction, each share of Hibernia common stock was exchanged for $30.46 in cash or 0.3792 shares of the Companys
common stock or a combination of common stock and cash based on the aforementioned conversion rates, based on the
average of the closing prices on the NYSE of the Companys common stock during the five trading days ending the day
before the completion of the merger, which was $80.32.
In 2006, the Company recorded certain refinements to its initial estimates of the fair value of the assets and liabilities related
to the Hibernia acquisition. These adjustments resulted in a $33.6 million decrease to goodwill.
The following unaudited pro forma condensed statements of income assume that the Company and North Fork were
combined at the beginning of 2006 and the Company and Hibernia were combined at the beginning 2005.
Years ended
December 31
2006 2005
Net interest income $ 6,474,007 $ 5,880,711
Non-interest income 7,510,932 7,442,344
Provision for loan losses 1,513,438 1,764,864
Non-interest expense 8,172,068 7,543,993
Income taxes 1,470,297 1,430,981
Minority interest, net of income taxes (92)
Net income $ 2,829,136 $ 2,583,309
Basic earnings per share $ 6.99 $ 6.59
Diluted earnings per share $ 6.85 $ 6.40
(1) Pro forma adjustments include the following adjustments: accretion for loan fair value discount, reduction of interest income for amounts used to fund the
acquisition, amortization for interest-bearing deposits fair value premium, accretion for subordinated notes fair value premium, addition of interest expense for
borrowings used to fund the acquisition, and related amortization for intangibles acquired, net of Hibernias and North Forks historical intangible amortization
expense.
Other 2005 Acquisitions
During 2005, the Company closed acquisitions of Onyx Acceptance Corporation, a specialty auto loan originator; Hfs Group,
a United Kingdom based home equity broker; InsLogic, an insurance brokerage firm and eSmartloan, a U.S. based online
originator of home equity loans and mortgages, in all cash transactions. The acquisitions created approximately $391.4
million of goodwill, in the aggregate. See Note 17 Goodwill and Other Intangible Assets on page 98 for further discussion.
These acquisitions when considered individually or in aggregate under relevant disclosure guidance do not require the
presentation of separate pro forma financial information.
Note 3
Segments
The Company currently has four distinct operating segments: U.S. Card, Auto Finance, Global Financial Services and
Banking. The U.S. Card segment consists of domestic consumer credit card activities. The Auto Finance segment consists of
automobile and other motor vehicle financing activities. The Global Financial Services segment consists of international
lending activities, small business lending, installment loans, home loans, healthcare financing and other diversified activities.
The Banking segment consists of local banking operations, which includes consumer, small business and commercial
deposits and lending conducted within the Companys branch network. The U.S. Card, Auto Finance, Global Financial
Services and Banking segments are considered reportable segments based on quantitative thresholds applied to the managed
loan portfolio for reportable segments provided by SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, and are disclosed separately. The Other category includes the Companys liquidity portfolio, emerging