Capital One 2008 Annual Report Download - page 11

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It is the ninth largest metro area in the country by population, with above average population
growth. And it has the highest per capita income and lowest unemployment rate among the top 20
metro areas in the United States. We are glad that Chevy Chase Bank will stay locally owned and
that Washington, D.C. will remain the home of one of the
nation’s top 10 banks.
Chevy Chase Bank has a dominant local market position,
with great branches on the best corners. It has number one
branch share in the Washington, D.C. area, with 244 branches
and over 1,000 ATMs. Chevy Chase Bank ranks number five
in deposit share, with $13.5 billion in deposits, having
focused on investing in many new branches. This franchise
is a coiled spring with plenty of untapped upside potential.
Chevy Chase Bank enhances our local banking business by
improving our deposit funding base, expanding our portfolio
of attractive local banking franchises, and adding scale to our banking operations. In addition, Chevy
Chase Bank provides powerful, scalable technology capabilities and a strong customer franchise
which will accelerate our ability to deliver an integrated and differentiated customer experience.
The transaction is financially attractive, and should be accretive to 2009 operating profits. The
credit risk of the deal, driven largely by Chevy Chase Bank’s out-of-footprint option Adjustable Rate
Mortgage (ARM) portfolio, is mitigated by the estimated $1.75 billion up front mark down of
those loans. To put it into perspective, the option ARM mark is equivalent to a 75% default rate
with 45% severity of loss.
We are focused on executing a sure-footed integration. We have assembled a deeply experienced
team to lead our integration process. And integration risk is reduced given the relatively small size of
Chevy Chase Bank and by our close physical proximity.
One of the compelling aspects of the Chevy Chase Bank transaction is the quality of the people and
the franchise. Mr. Frank Saul, founder and chief executive officer, started Chevy Chase Bank from
one branch in Maryland in 1969. Over the next four decades, Mr. Saul built one of the nation’s best
banks by relentlessly focusing on the customer, building for the long term, and doing banking the
right way. Mr. Saul, and Chevy Chase Bank, are beloved in Washington, D.C. and have contributed
immensely to our community. As local residents and fellow entrepreneurs ourselves, we watched
firsthand with great admiration what Mr. Saul and his team built.
A common value that we share with Chevy Chase Bank is our reverence for great people. I have
spent 20 years at Capital One on a quest to attract the best talent and then to give them the
opportunity to be great. Mr. Saul has done the same for 40 years at Chevy Chase Bank. We are
privileged to be the guardians of their great legacy and reputation in our community.
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