Capital One 2007 Annual Report Download - page 96

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74
reportable segment is based on a wide range of indicators to include both historical and forecasted operating results. See Note 4 for
further discussion of the Companys operating and reportable segments.
Note 2
Discontinued Operations
Shutdown of Mortgage Origination Operations of Wholesale Mortgage Banking Unit
In the third quarter of 2007, the Company shut down the mortgage origination operations of its wholesale mortgage banking unit,
GreenPoint, realizing an after-tax loss for the year ended December 31, 2007 of $1.0 billion. GreenPoint was acquired by the
Company in December 2006 as part of the North Fork acquisition. The results of the mortgage origination operations of GreenPoint
have been accounted for as a discontinued operation and have been removed from the Companys results from continuing operations
for 2007 and 2006.
The results of GreenPoints mortgage servicing business continue to be reported as part of the Companys continuing operations. The
mortgage servicing function was moved into the Local Banking Segment in conjunction with the shutdown of the mortgage
origination operation and the results of the Local Banking Segment include the mortgage servicing results for each period of 2007.
The commercial and consumer mortgage held for investment portfolios were reported in the Local Banking Segment and the Other
category, respectively, in the fourth quarter of 2007.
The Company retained $1.6 billion of certain GreenPoint loans and reclassified them from mortgage loans held for sale to held for
investment during 2007. Continuing cash flows from the held for investment loan portfolios are included in the Companys results of
continuing operations for the fourth quarter of 2007 and classified as operating cash flows in the statement of cash flows. The
Company will have no significant continuing involvement in the operations of the originate and sell business of GreenPoint.
Major components of the $1.0 billion after-tax loss associated with the shut down of GreenPoints origination operations include
approximately $646.0 million from the non-cash write-down of goodwill associated with the acquisition of GreenPoint as part of the
North Fork Bancorporation in December 2006, $238.8 million of valuation adjustments, $81.3 million in restructuring charges
associated with severance benefits and facilities closure and $55.3 million in loss from operations. The vast majority of charges
associated with the shutdown of GreenPoints mortgage origination operations were incurred in the third quarter of 2007.
The following is summarized financial information for discontinued operations related to the closure of the Companys wholesale
mortgage banking unit:
Year Ended
December 31,
2007
Year Ended
December 31,
2006
Net interest income(1) $ 62,402
$ 8,184
Non-interest income (229,285) (4,292)
Provision for loan and lease losses 80,151
Non-interest expense 989,189
23,502
Income tax benefit (214,836) (7,726)
Loss from discontinued operations, net of taxes $ (1,021,387) $ (11,884)
(1) Net interest income includes funding charges of $70.0 million in 2007 based on funds transfer pricing methodology.
The Companys wholesale mortgage banking unit had assets of approximately $91.3 million as of December 31, 2007 consisting of
$35.8 million of mortgage loans held for sale and other related assets. The related liabilities consisted of obligations to fund these
assets.
Note 3
Business Combinations
North Fork Bancorporation
On December 1, 2006, the Company acquired 100% of the outstanding common stock of North Fork Bancorporation (North Fork),
a regional bank holding company headquartered in New York conducting commercial and retail banking from branch locations in
New York, New Jersey, and Connecticut, with a national mortgage banking business.
The acquisition was accounted for under the purchase method of accounting, and, as such, the assets and liabilities of North Fork were
recorded at their respective fair values as of December 1, 2006. The results of North Forks operations were included in the
Companys Consolidated Reported Statement of Income commencing December 1, 2006.