Capital One 2009 Annual Report Download

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2009 Annual Report2009 Annual Report

Table of contents

  • Page 1
    2009 Annual Report

  • Page 2
    ... credit card industry were adopted with the signing of the CARD Act. The business models of all banks were severely tested by the recession, but this experience validated the bold strategic choices we have made over many years. We have weathered the storm well and are emerging as one of the nation...

  • Page 3
    ... disciplined risk management. While the credit card businesses of our major competitors cumulatively lost billions of dollars in 2009, Capital One's credit card Capital One has branches in many of the nation's most vibrant banking markets: New York, New Jersey, Louisiana, Texas, Maryland, Virginia...

  • Page 4
    ... smaller part of Capital One's balance sheet, so we remain less exposed to the commercial downturn than most banks. We increased deposits by over $7 billion, including the Chevy Chase Bank acquisition. And we remained disciplined with respect to deposit pricing, which continued to drive down funding...

  • Page 5
    ... millions of marketing dollars to reignite growth as the credit environment improves. While we believe these investments will generate high returns, the payback will take some time. We must also create a scaleable mortgage infrastructure to support our existing operations and accommodate the future...

  • Page 6
    ..., we insulated our balance sheet by choosing what we believed was the most resilient business mix. We largely avoided mortgages, except for portfolios we inherited through banking acquisitions. We chose to focus on credit cards and auto finance which, although they had high loss rates, proved to be...

  • Page 7
    ... a deposit funded, broadly diversified bank with leading national lending businesses in credit cards and auto finance, and competitive local scale positions in some of the best local banking markets in the United States. And throughout the ultimate stress test - the Great Recession - Capital One has...

  • Page 8
    ... personal finance, homeownership, and small business management skills. • We opened student-run branches in high schools in New York City and Newark. They have been In the Cypress Hills neighborhood of Brooklyn, we're making construction loans and extending lines of credit to help increase...

  • Page 9
    ... to the huge impact that our associates have had on their communities. From the company's earliest days, our people have been working to make a Our associates help students learn to manage their money at Finance Park, a Capital One/Junior Achievement program with a mobile classroom that has served...

  • Page 10
    ... businesses. Great local banks. Balance sheet strength. Credit discipline. A powerful national brand. A massive Capital One's associates volunteered more than 84,000 hours of their time during 2009 in organizations that revitalize neighborhoods, build affordable housing, improve education and school...

  • Page 11
    FINANCIAL SUMMARY Diluted Earnings Per Share From Continuing Operations $7.65 $6.73 $6.55 $2.28* $0.98 2005 2006 2007 2008 2009 Diluted Earnings Per Share $7.62 $6.73 $3.97 ($0.21) 2005 2006 2007 2008 $0.74 2009 Deposits ($ In Billions) $109 $86 $48 $83 $116 2005 2006 2007 2008 2009 ...

  • Page 12
    ...$ Managed Performance Statistics(1): Net interest margin Revenue margin Risk-adjusted margin Net charge-off rate Delinquency rate Efficiency ratio(2) Year-end total loan accounts Full-time equivalent employees (in thousands) (1) Based on continuing operations, return on equity includes equity from...

  • Page 13
    ... Board of Directors Richard D. Fairbank Chairman, CEO and President Capital One Financial Corporation Capital One Financial Corporation Executive Officers Richard D. Fairbank Chairman, CEO and President Robert M. Alexander E. R. Campbell C, F Former Chairman Hibernia Corporation Chief Information...

  • Page 14
    ..., Virginia (Address of Principal Executive Offices) 22102 (Zip Code) Registrant's telephone number, including area code: (703) 720-1000 Securities registered pursuant to section 12(b) of the act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, $.01 Par Value New York...

  • Page 15
    ... Disclosures about Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors and Executive Officers of the Corporation Executive Compensation Security Ownership...

  • Page 16
    ...in Canada has the authority to provide credit card loans. Our common stock is listed on the New York Stock Exchange under the symbol COF and as of January 31, 2010, the Company's common stock was held by 16,955 shareholders. Our principal executive office is located at 1680 Capital One Drive, McLean...

  • Page 17
    ..., New Jersey, Louisiana, and Texas. We also have credit card loans in the U.K. and Canada. Our commercial loans are concentrated in New York, New Jersey, Louisiana and Texas. See Item 7 "Management's Discussion and Analysis of Financial Condition and results of Operations - Loans Held for Investment...

  • Page 18
    ... Assessment; Control Activities; Communication and Information; Program Monitoring; and Organization and Culture. Objective Setting is at the beginning of our risk management approach. We set strategic, financial, operational, and other objectives during our strategic and annual planning processes...

  • Page 19
    ... rates, foreign exchange rates (market rates), or other financial market asset prices. Our ability to manage market risks contributes to our overall capital management. The Chief Financial Officer is the accountable executive for market risk. The market risk positions of Capital One's banking...

  • Page 20
    ... strategies are integrated into the Corporate Strategic Plan and are reviewed and approved separately and together on an annual basis by the Chief Executive Officer and the Board of Directors. Operational Risk: is the risk of direct or indirect financial loss from failed or inadequate processes...

  • Page 21
    ...and small business credit card accounts, Fidelity National Information Services ("Fidelity") for the Capital One banking systems, and IBM Corporation for management of our North American data centers. The Card division has a program in place to address systems changes associated with the Credit Card...

  • Page 22
    ... relating to the provision of 45-day prior written notice for any significant changes to a credit card account, including, in some instances, a right to reject such changes. These provisions also adopted new statement delivery requirements. Capital One has implemented the interim final rules...

  • Page 23
    ...; Limits the amount of fees charged to credit card accounts with lower credit lines; Mandates delivery of periodic statements 21 days before the due date and before the end of any grace period; Requires that payments above the minimum payment be applied to balances with the highest interest rates...

  • Page 24
    ... risk differentiation so that riskier institutions bear a greater share of insurance premiums. As part of the restoration plan, the FDIC imposed a five basis point special assessment on a bank's assets minus its Tier 1 capital as of June 30, 2009. The FDIC recently increased annual assessment rates...

  • Page 25
    ... and litigation risks. Investment in the Company and the Banks Certain acquisitions of capital stock may be subject to regulatory approval or notice under federal or state law. Investors are responsible for ensuring that they do not, directly or indirectly, acquire shares of capital stock of the...

  • Page 26
    ... reports, use and safekeeping of client funds and securities, capital structure, record-keeping and the conduct of directors, officers and employees. The Company plans to merge Chevy Chase Securities, Inc. with and into Capital One Investment Services LLC in 2010. Capital One Asset Management LLC...

  • Page 27
    ... the market share of deposits. We do not expect that this proposed rule would affect any of our existing businesses. On December 11, 2009, the House passed the Wall Street Reform and Consumer Protection Act (the "Wall Street Reform Act") The legislation would create the CFPA and the new agency would...

  • Page 28
    ...under government assistance programs, including TARP. The annual fee would be assessed at a rate of 15 basis points of "covered liabilities" for financial firms with more than $50 billion in consolidated assets (excluding Tier 1 capital, FDIC-assessed deposits and insurance policy reserves). To date...

  • Page 29
    ... on mortgages, credit cards, unsecured loans (personal loans, motor loans and hire purchase) and secured loans is included. The CC published its final report on remedies on January 29, 2009, which included point of sale changes and the introduction of an annual PPI statement to customers. At the end...

  • Page 30
    ... future earnings per share, growth in managed loans outstanding, product mix, segment growth, tangible common equity, managed revenue margin, funding costs, operations costs, employment growth, marketing expense, delinquencies and charge-offs. Forward looking statements also include statements using...

  • Page 31
    ... our U.S. credit card business and could make the card business generally less resilient in future economic downturns. In particular, the rules will prohibit an increase in the interest rates applied to existing credit card balances except in limited circumstances. Forthcoming regulations addressing...

  • Page 32
    ... account for those losses. The increase or release of allowances impacts our current financial results. Underwriting. Our ability to assess the credit worthiness of our customers may diminish. If the models and approaches we use to select, manage, and underwrite our consumer and commercial customers...

  • Page 33
    ... announced a final rule regarding capital requirements related to the adoption of ASC 860/SFAS 166 and ASC 810/SFAS 167. Under the final rule, the Company and its subsidiary banks will be required to hold capital against those risk-weighted assets consolidated as a result of the application of ASC...

  • Page 34
    ... related to failed or inadequate processes, faulty or disabled computer systems, fraud by employees or persons outside of the Company and exposure to external events. In addition, we are heavily dependent on the strength and capability of our technology systems which we use to manage our internal...

  • Page 35
    ... levels, the public's perception regarding consumer debt, including credit card use, and changing attitudes about the stigma of personal bankruptcy. If consumers develop negative attitudes about incurring debt or if consumption trends continue to decline, our business and financial results will be...

  • Page 36
    ..., New Jersey, Maryland, New York, Texas and Virginia for office and branch operations. Our corporate real estate portfolio also includes leased or owned space totaling, in the aggregate, 2.7 million square feet in Richmond, Toronto, Melville, New York City and various other locations. Item 3. Legal...

  • Page 37
    ... II Item 5. Market for Company's Common Equity and Related Stockholder Matters. Total Number of Shares Purchased as Part of Publicly Announced Plans(1) Maximum Amount That May Yet be Purchased Under the Plan or Program(1) (Dollars in thousands, except per share information) Total Number of Shares...

  • Page 38
    ...and Results of Operations-Market Risk Management" "Management's Discussion and Analysis of Financial Condition and Results of Operations-Capital" "Management's Discussion and Analysis of Financial Condition and Results of Operations-Dividend Policy" "Financial Statements and Supplementary Data-Notes...

  • Page 39
    ... common share ...Book value as of year-end ...Selected Year-End Reported Balances(1) : Loans held for investment ...Allowance for loan and lease losses ...Total assets...Interest-bearing deposits ...Total deposits ...Borrowings...Stockholders' equity ...Selected Average Reported Balances(1) : Loans...

  • Page 40
    ...Auto Finance business of $810.9 million. Effective February 27, 2009 the Company acquired Chevy Chase Bank, FSB for $475.9 million, which included a cash payment of $445.0 million and an issuance of 2.6 million shares valued at $30.9 million. The Company's "managed" consolidated financial statements...

  • Page 41
    ... national small business lending, national closed end installment lending and the international card lending businesses in Canada and the United Kingdom. Commercial Banking includes the Company's lending, deposit gathering and treasury management services to commercial real estate and middle market...

  • Page 42
    ... information about accounting policies can be found in Item 8 "Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-"Note 1-Significant Accounting Policies"." During the second quarter of 2009, the Financial Accounting Standards Board ("FASB") issued Statement...

  • Page 43
    ... forecasting and modeling. In particular, unemployment rates, housing prices and the valuation of commercial properties, consumer real estate, and automobiles are factors which significantly impact the allowance for loan and lease losses. Management examines a variety of externally available data as...

  • Page 44
    ... results of its business through three operating segments: Credit Card, Commercial Banking and Consumer Banking. As a result, goodwill was reassigned to the new reporting units using a relative fair value allocation approach and an interim impairment test was performed at that time. All segment data...

  • Page 45
    ... management to make judgments about future loan and deposit growth, revenue growth, credit losses, and capital rates. The cash flows were discounted to present value using reporting unit specific discount rates that are largely based on the Company's external cost of equity with adjustments for risk...

  • Page 46
    ...the Company's model, this difference could result in a material change in MSR value. As of December 31, 2009 and 2008, the MSR balance was $239.7 million and $150.5 million, respectively. Included in the December 31, 2009 MSR balance is $109.5 million added by the acquisition of Chevy Chase Bank. In...

  • Page 47
    ... claims relate to loans acquired from Chevy Chase Bank and those originated by Capital One Home Loans, LLC. More specifically, in connection with the acquisition of Chevy Chase, the Company established a reserve of $16 million for potential losses related to mortgage loans sold by Chevy Chase. The...

  • Page 48
    ... with a subsequent return of loans receivables. As described above, the Company has accounted for loan securitization transactions as sales and accordingly, the transferred loans were removed from the consolidated financial statements as of and for the years ending December 31, 2009, 2008 and 2007...

  • Page 49
    ... activities, servicing activities, the purchase or sale of mortgage-backed and other asset backed securities in connection with our investment portfolio, and loans to variable interest entities ("VIEs") that hold debt, equity, real estate or other assets. In certain instances, the Company also...

  • Page 50
    ... and equity instruments, certificates or other notes of indebtedness. The transferred assets and the related debt issuances are recorded on the balance sheet of the SPE and are not reflected on the Company's balance sheet. Investors usually have recourse to the assets in the SPE and may also benefit...

  • Page 51
    ... the Chevy Chase Bank acquisition during 2009. The Company records the MSR at estimated fair value and has no other loss exposure over and above the recorded fair value. See "Note 15 - Mortgage Servicing Rights" for quantitative information regarding MSRs. Community Development Activities As part of...

  • Page 52
    ... to as its "reported" financial statements. Loans included in securitization transactions which qualify as sales under GAAP have been removed from the Company's "reported" balance sheet. However, servicing fees, finance charges, and other fees, net of charge-offs, and interest paid to investors of...

  • Page 53
    ..."managed" views for certain income statement and balance sheet measures as of and for the years ended December 31, 2009, 2008 and 2007. Table 1: Managed View Reconciliations As of December 31, 2009 (Dollars in thousands) Total Reported Securitization Adjustments(1) Total Managed(2) Income Statement...

  • Page 54
    ......$ Selected Company Metrics(3) 0.05% Return on average assets ...Net charge-off rate ...3.51% 4.37% 30+ day performing delinquency rate ...Net interest margin...5.37% 10.44% Revenue margin ...Risk adjusted margin...7.83% (1) $ $ (2) (3) Income statement adjustments for the year ended December...

  • Page 55
    As of December 31, 2007 (Dollars in thousands) Total Reported Securitization Adjustments(1) Total Managed(2) Income Statement Measures(3) Net interest income ...$ Non-interest income ...Total revenue ...$ Provision for loan losses ...Net charge-offs ... 6,529,845 8,054,223 14,584,068 2,636,502 1,...

  • Page 56
    ... card loans that are accounted for as sales under GAAP. Table 2: Managed Loan Portfolio Distribution As of December 31, (Dollars in thousands) 2009 2008 2007 Period end outstanding Domestic credit card ...International credit card ...Total Credit Card ...Commercial and multi-family real estate...

  • Page 57
    ... Bank Acquisition On February 27, 2009, the Company acquired all of the outstanding common stock of Chevy Chase Bank in exchange for Capital One common stock and cash with a total value of $475.9 million. This acquisition improves the Company's core deposit funding base, increases readily available...

  • Page 58
    ...") delivered a report to the Company under the U.S. Department of the Treasury's completed Supervisory Capital Assessment Program, also known as its "Stress Test." In this report, the Supervisors provided the results of their estimates of the Company's credit losses, resources available to absorb...

  • Page 59
    ...and an increase in charge-offs, Deposit growth was primarily invested in high-quality agency mortgage backed securities and AAA-rated securities backed by consumer loans. Increasing our securities available for sale by $11.2 billion to $31.0 billion. • U.S. Treasury Department's Capital Purchase...

  • Page 60
    ...interest income. The Company initiated the repurchases to take advantage of the current market environment and replaced the repurchased debt with lower-rate unsecured funding. 2007 Summary of Significant Events Shut Down of Mortgage Origination Operations of Wholesale Mortgage Banking Unit See "Note...

  • Page 61
    ... the Case-Schiller 20-City Index of home prices will fall 11% from its year end 2009 level. The Company expects that credit trends will continue to be a key driver of its near-term results. While charge-offs in the Company's consumer lending businesses other than the mortgage portfolio are nearing...

  • Page 62
    ... that credit trends in the International Card business will reflect continuing economic weakness in the U.K and Canada. Commercial Banking: The Company expects that the continuing recession will drive continuing declines in commercial real estate values, and that nonperforming loans and charge-offs...

  • Page 63
    ... balances: Reported loans held for investment...Securities available for sale...Interest bearing deposits ...Total deposits ...Other borrowings ...Selected Company Metrics(2) : Return on average assets (ROA) ...Return on average equity (ROE) ...Net charge-off rate ...Delinquency rate (30+ days...

  • Page 64
    ... in its Auto Finance business of $810.9 million. Effective February 27, 2009 the Company acquired Chevy Chase Bank, FSB for $475.9 million, which included a cash payment of $445.0 million and an issuance of 2.56 million shares valued at $30.9 million. Summary of the Reported Income Statement The...

  • Page 65
    .... The increase in the securities available for sale portfolio came as the Company continued to grow its deposit base and maintained our approach of holding high quality, low risk investments rather than taking excessive credit risk to generate incremental earnings. While interest rates declined...

  • Page 66
    ... associated with the Company's rewards programs in 2009 were $191.7 million on a reported basis and $582.6 million on a managed basis. Interchange income, net of rewards expense, increased 12.3% for the year ended December 31, 2008 on a reported basis due to a shift in loans from our off-balance...

  • Page 67
    ... 31, 2009. The increase in operating expenses primarily relates to the increased costs incurred related to the acquisition of Chevy Chase Bank. Operating expenses decreased 6.7% for the year ended December 31. 2008. The decrease in operating expenses was a direct result of benefits from the Company...

  • Page 68
    ..., offset by increases in mortgage due to the acquisition of Chevy Chase Bank. Declines in the credit card portfolio was driven by declines in consumer spending and reduced marketing levels during 2009, along with the continued run-off of the Company's national closed-end installment loan portfolio...

  • Page 69
    ...the total of commercial and multi-family real estate loans are construction and land development loans of $2.5 billion and $2.4 billion for the years ended December 31, 2009 and 2008, respectively. The Company markets its credit card products on a national basis throughout the United States, Canada...

  • Page 70
    ... in which it maintains retail bank branches. As a result, most of the portfolio is located in New York, Louisiana and Texas, the Company's largest retail banking markets. The small ticket commercial real estate portfolio was originated on a national basis through a broker network, and is in run-off...

  • Page 71
    .... The increase in Maryland and Virginia is due to the acquisition of Chevy Chase Bank and reflects their primary market presence. Table 11: Consumer Banking Concentrations (Managed) December 31, 2009 (Dollars in thousands) Loans Percent December 31, 2008 Loans Percent Automobile lending Texas...

  • Page 72
    ... and stress tests using economic and legislative stress scenarios. Credit risk objectives are achieved by establishing a credit governance framework and by establishing policies, procedures, and controls for each step in the credit process. The Board of Directors, Chief Executive Officer, Chief Risk...

  • Page 73
    ... and economic weakness also had a significant impact on the managed charge-off rate for the Company's credit card securitization programs. Year-to-date reported and managed net charge-off dollars increased 39% and 32%, respectively, compared to the prior year. Delinquencies and Non performing loans...

  • Page 74
    ...information for the credit card, commercial and consumer banking portfolios. Table 14: 30+ Performing Delinquencies (Managed) December 31, 2009 (Dollars in thousands) Amount Rate December 31, 2008 Amount Rate Domestic credit card ...$ 3,487,390 International credit card ...539,030 Total credit card...

  • Page 75
    ... Our policy is not to classify credit card loans as nonperforming loans. Credit card loans continue to accrue finance charge and fees until charged off at 180 days. See Note 1 - "Significant Accounting Policies" for further discussion on revenue recognition. Loans acquired from Chevy Chase Bank are...

  • Page 76
    ... forecasting and modeling. In particular, unemployment rates, housing prices and the valuation of commercial properties, consumer real estate, and automobiles are factors which significantly impact the allowance for loan and lease losses. Management examines a variety of externally available data as...

  • Page 77
    ... for Loan and Lease Losses As of December 31, (Dollars in thousands) 2009 2008 2007 Balance at beginning of year...$ 4,523,960 Charge-offs Domestic credit card ...(3,049,676) International credit card...(284,453) Total credit card ...$ (3,334,129) Commercial and multi-family real estate ...(208...

  • Page 78
    ...19: Summary of Acquired Loans, Net of Fair Value Mark(1) (Dollars in thousands) December 31, 2009 Option adjustable rate mortgages...$ Hybrid adjustable rate mortgages ...Construction to permanent loans...Home equity lines of credit and fixed mortgages ...Total included in mortgages ...$ Automobile...

  • Page 79
    ...related to the acquired loan portfolio. Deposits As of December 31, 2009, the Company had $115.8 billion of deposits compared to $108.6 billion at December 31, 2008. The increase in deposits is due to the acquisition of Chevy Chase Bank, which added $13.6 billion in deposits during the first quarter...

  • Page 80
    ... in its consolidated financial statements for potential losses that are considered to be both probable and reasonably estimable related to the mortgage loans sold by GreenPoint. The adequacy of the reserve is evaluated on a quarterly basis and changes in the reserve are reported in discontinued...

  • Page 81
    ... national small business lending, national closed end installment lending and the international card lending businesses in Canada and the United Kingdom. Commercial Banking includes the Company's lending, deposit gathering and treasury management services to commercial real estate and middle market...

  • Page 82
    ... income ...$ Selected Metrics (Managed Basis) (1) Period end loans held for investment ...$ Average loans held for investment ...$ Loans held for investment yield ...Revenue margin...Net charge-off rate ...30+day performing delinquency rate...Purchase Volume...$ Domestic Card sub-segment 7,542,462...

  • Page 83
    ...was $59.2 million for the year, compared to $68.7 million in 2008. International Card revenue reductions and provision increases were largely offset by reductions in non-interest expense. Exchange rate movements also impacted the reported U.S. Dollar numbers. From year end 2008 to year end 2009, the...

  • Page 84
    ... net income in 2007. Increased loan loss provision drove the decrease in net income. International Card net income was $68.7 million for the year, compared to $139.9 million in 2007. Exchange rate movements impacted the reported U.S. Dollar numbers. From year end 2007 to year end 2008, the Pound...

  • Page 85
    ... market ...Specialty lending ...Total commercial lending ...Small ticket commercial real estate ...Total commercial banking ...Loans held for investment yield ...Period end deposits ...Average deposits ...Deposit interest expense rate...Core deposit intangible amortization ...Net charge-off rate...

  • Page 86
    ... total provision for loans and lease losses for 2009 was $983.4 million, increasing $749.5 million, or 320.5% from 2008. The net charge-off rate was 1.45% in 2009, increasing 116 basis points from 2008. Credit losses have been elevated from historical levels as a result of the economic environment...

  • Page 87
    ... $810.9 million, net income in 2009 increased primarily due to improving credit in the Auto Finance business. Period end deposits increased $12.4 billion or 20.0% to $74.1 billion from 2008 to 2009 primarily due to the acquisition of Chevy Chase Bank. Loans held for investment increased $1.0 billion...

  • Page 88
    ... impact reported charge offs or allowance. In 2009, non-interest expense increased to $2.7 billion, an increase of $281.8 million or 11.5% from the previous year. The increase in non-interest expenses was driven by Chevy Chase acquisition and investment in the mortgage business. Year Ended December...

  • Page 89
    ...12.2% and 24.8% of total deposits at December 31, 2009 and 2008, respectively. If these brokered deposits are not renewed at maturity, the Company would use its investment securities and money market instruments in addition to alternative funding sources to fund increases in loans and meet its other...

  • Page 90
    ... Money market deposit accounts ...29,171,168 Savings accounts ...7,119,510 Other consumer time deposits ...36,509,357 Total core deposits...94,616,106 Public fund certificates of deposit of $100,000 or more ...1,174,294 Certificates of deposit of $100,000 or more...10,084,750 Foreign time deposits...

  • Page 91
    ... Home Loan Banks ("FHLB"). The FHLB provides additional sources of funding through advances to the Banks. The FHLB advances are secured by the Company's securities, residential mortgage loans portfolio, multifamily loans, commercial real estate loans and home equity lines of credit. The Company...

  • Page 92
    ...under lines of credit associated with securitizations of auto consumer loans. Government Programs The Company is eligible or may be eligible to participate in a number of U.S. Government programs designed to support financial institutions and increase access to credit markets. The Company evaluates...

  • Page 93
    ... off-balance sheet funding. Additional information on the Company's market risk management activities is included in Item IX. Market Risk Management. Table 28: Contractual Funding Obligations As of December 31, 2009 (Dollars in thousands) (1) Total Up to 1 year 1-3 years 4-5 years After 5 years...

  • Page 94
    ...December 31, 2009, the Company was not in default of any such covenants. IX. Market Risk Management Market risk is the risk that earnings or economic value of equity will be adversely impacted due to changes in interest rates, foreign exchange rates, or other financial market asset prices. Banks are...

  • Page 95
    ... gradual 50 basis point rate decline. In addition to limits related to possible changes in 12-month net interest income, as of December 31, 2009, the Asset/Liability Management Policy limited the pre-tax change in economic value of equity due to instantaneous parallel rate shocks of 200 basis points...

  • Page 96
    ... 15.65% Mortgage loans held for sale line item excludes the related lower of cost or market adjustments. Foreign Exchange Risk The Company is exposed to changes in foreign exchange rates which may impact translated income and expense associated with foreign operations. In order to limit earnings...

  • Page 97
    ...deferred tax assets related to Capital One's acquisition of Chevy Chase Bank. This request was granted by the Board on October 19, 2009. From time to time, the regulators propose changes and amendments to, and issue interpretations of, risk-based capital guidelines and related reporting instructions...

  • Page 98
    ... relate generally to operations and management, asset quality, interest rate exposure and executive compensation. The agencies are authorized to take action against institutions that fail to meet such standards. Dividend Policy The declaration and payment of dividends to the Company's stockholders...

  • Page 99
    ...AND RATES Table A provides average balance sheet data and an analysis of net interest income, net interest spread (the difference between the yield on earning assets and the cost of interestbearing liabilities) and net interest margin for the years ended December 31, 2009, 2008 and 2007. Year Ended...

  • Page 100
    ... income to average earning assets Interest expense to average earning assets Net interest margin ... (1) (2) (3) Interest income includes past-due fees on loans of approximately $652.3 million, $695.2 million and $704.5 million for the years ended December 31, 2009, 2008 and 2007, respectively...

  • Page 101
    ... ANALYSIS Year Ended December 31 2009 vs. 2008 Change due to (Dollars in thousands) (3) (1) 2008 vs. 2007 Change due to(1) Increase (Decrease) Volume Yield/ Rate Increase (Decrease) Volume Yield/ Rate Interest Income : Consumer loans Domestic ...$ (414,741) $ 38,033 $ International ...(96...

  • Page 102
    TABLE C-MANAGED LOAN PORTFOLIO Year Ended December 31 (Dollars in thousands) 2009(2) 2008 2007 2006 2005 Year-End Balances: Reported loans held for investment: Consumer loans...Credit cards ...Domestic ...International ...Total credit card ...Installment loans...Domestic ...International ...Total ...

  • Page 103
    Year Ended December 31 (Dollars in thousands) 2009(2) 2008 2007(3) 2006 2005 Average Balances: Reported loans held for investment: Consumer loans...Credit cards ...Domestic ...International ...Total credit card ...Installment loans...Domestic ...International ...Total installment loans ...Auto ...

  • Page 104
    ... in the subsequent years. Includes the loans from the acquisition of Chevy Chase Bank on February 27, 2009. TABLE E-DELINQUENCIES Table E shows the Company's loan delinquency trends for the periods presented on a reported and managed basis. As of December 31 2009(4) % of Total Loans 100.00% 2.10...

  • Page 105
    ...investment ...(1) Includes average Chevy Chase Bank acquired loan portfolio of $6.8 billion for the year ended December 31, 2009. Charge-offs exclude net charge-offs of $373.8 million on the Chevy Chase Bank acquired loan portfolio for the year ended December 31, 2009. Charge-offs on the Chevy Chase...

  • Page 106
    ... of loans held for 0.95 % 0.49% 0.22% 0.33% 1.70 % investment(3) ...(1) (2) Our policy is not to classify credit card loans as nonperforming loans. See Table E-Delinquencies for accruing loans contractually past due 90 days more. Excludes loans acquired from the Chevy Chase Bank acquisition and...

  • Page 107
    .... Year Ended December 31 (Dollars In Thousands) 2009(4) 2008 2007 2006 2005 Balance at beginning of year...Provision for loan and lease losses from continuing operations: Domestic card ...International card...Commercial banking (3) ...Consumer banking(3) ...Other (3)...Total provision for loan and...

  • Page 108
    ... the Chevy Chase Bank acquired loans. Year Ended December 31, 2009 (Dollars in thousands) CCB Acquired Loans(1) Other Loans Total Year-end Balances: Domestic credit card ...International credit card ...Total Credit Card ...Commercial and Multi-Family Real Estate...Middle Market ...Specialty...

  • Page 109
    Year Ended December 31, 2009 (Dollars in thousands) CCB Acquired Loans(1) Other Loans Total Net charge-off rate: Commercial and Multi-Family Real Estate ...Middle Market ...Total Commercial Lending...Total Commercial Banking ...Mortgage ...Retail Banking ...Total Consumer Banking ...Total Company (...

  • Page 110
    Item 7A. Quantitative and Qualitative Disclosures about Market Risk The information required by Item 7A is included in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Market Risk Management." 97

  • Page 111
    Item 8. Financial Statements and Supplementary Data CONSOLIDATED BALANCE SHEETS December 31 (In Thousands, Except Share and Per Share Data) 2009 2008 Assets: Cash and due from banks ...$ Federal funds sold and resale agreements ...Interest bearing deposits at other banks ...Cash and cash ...

  • Page 112
    ... ...Service charges and other customer-related fees ...Mortgage servicing and other ...Interchange ...Net impairment losses recognized in earnings(1) ...Other ...Total non-interest income ...Non-Interest Expense: Salaries and associate benefits ...Marketing ...Communications and data processing...

  • Page 113
    ... benefit plans, net of income taxes of $17,675...Foreign currency translation adjustments ...Unrealized losses on cash flow hedging instruments, net of income tax benefit of $63,804 ... Other comprehensive income ... Comprehensive income ...Cash dividends-$0.11 per share...Purchase of treasury stock...

  • Page 114
    ... of $64.5 million) was reported in other comprehensive income as of December 31, 2009. The credit-related impairment of $31.6 million on these securities is recorded in the Consolidated Statements of Income for the year ended December 31, 2009. See Notes to Consolidated Financial Statements. 101

  • Page 115
    ...Loans held for sale: ...Transfers in and originations ...(Gains) losses on sales ...Proceeds from sales ...Stock plan compensation expense ...Changes in assets and liabilities, net of effects from purchase of companies acquired: ...(Increase) decrease in interest receivable ...(Increase) in accounts...

  • Page 116
    ... national small business lending, national closed end installment lending and the international card lending businesses in Canada and the United Kingdom. Commercial Banking includes the Company's lending, deposit gathering and treasury management services to commercial real estate and middle market...

  • Page 117
    ... or the right to receive expected returns. In general, a VIE may be formed as a corporation, partnership, limited liability corporation, or any other legal structure used to conduct activities or hold assets. A VIE often holds financial assets, including loans or receivables, real estate or other...

  • Page 118
    ... some of its securitization activities, servicing activities and the purchase or sale of mortgage-backed and other asset-backed securities in connection with its investment portfolio. The Company also makes loans to VIEs that hold debt, equity, real estate or other assets. In certain instances, the...

  • Page 119
    ... related to the adoption of ASU 2009-16 (ASC 860/SFAS 166) and ASU 2009-17 (ASC 810/SFAS 167). Under the final rule, the Company and its subsidiary banks will be required to hold additional capital in relation to the consolidated assets and any associated creation of loan loss reserves. The rule...

  • Page 120
    ... estimated impact on certain of the Company's regulatory capital ratios assuming the new standards have been adopted on December 31, 2009: Ratio as Reported on December 31, 2009 Pro Forma Ratio Difference Tier 1 Capital...Total Capital ...Tier 1 Leverage ...Effective during 2009 13.75% 17.70% 10...

  • Page 121
    ... 124-2 are effective for interim and annual reporting periods ending after June 15, 2009. The adoption of ASC 320-10-65/FSP 115-2 and FAS 124-2 occurred during the second quarter of 2009. See "Note 6- Securities Available for Sale" for additional detail. On April 9, 2009, the FASB issued FSP No. FAS...

  • Page 122
    ...commercial real estate portfolio as available for sale and recognized a write-down of $79.5 million. As of December 31, 2009 and 2008, the balance in loans held for sale was $268.3 million and $68.5 million, respectively. Loan Securitizations The Company primarily securitizes credit card loans, auto...

  • Page 123
    ...for investment on a quarterly basis by considering capital levels and scheduled maturities of funding instruments used. Credit card loans are reported at their principal amounts outstanding and include uncollected billed interest and fees. Loans acquired with the acquisition of Chevy Chase Bank, are...

  • Page 124
    ... only payments, or negative amortization features), the geographic location of the borrower or collateral, the loan-to-value ratio and the risk rating assigned to the loans. Based on these criteria, the Company considered the entire Chevy Chase Bank option arm portfolio to be impaired and accounted...

  • Page 125
    ... quoted market prices on liquid assets. At December 31, 2009 and 2008, the balance of foreclosed assets and repossessed assets were $233.7 million and $89.0 million, respectively, and $24.5 million and $65.6 million, respectively. Charge-offs and Delinquencies Commercial and small business loans are...

  • Page 126
    ... change in MSR value. The MSR balance was $239.7 million and $150.5 million which are included within other assets at December 31, 2009 and 2008, respectively. See "Note 15- Mortgage Servicing Rights" and "Note 20- Securitizations" for additional detail. The acquisition of Chevy Chase Bank added...

  • Page 127
    ... in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change. For derivative instruments that are designated and qualify as hedges of a net investment in a foreign operation, the gain or loss is reported in other comprehensive...

  • Page 128
    ... of credit card finance charge and fee receivables using an estimate of future nonprincipal losses. This formula is consistent with that used to estimate the allowance related to expected principal losses on reported loans. The suppression amount is calculated by adding any current period change in...

  • Page 129
    ... as the purchase premium after adjusting for the fair value of net assets acquired. Throughout 2009, the Company continued the analysis of the fair values and purchase price allocation of Chevy Chase Bank's assets and liabilities which resulting in purchase accounting adjustments and an increase to...

  • Page 130
    ... model changes nor does it consider any potential impacts of current market conditions on revenues, reduction of expenses, asset dispositions, or other factors. Chevy Chase Bank Actual for the period from February 27, 2009 to December 31, 2009 Total Company Pro-Forma results for the year ended...

  • Page 131
    ... portfolios to be impaired and accounted for under ASC 310-10/SOP 03-3. Portions of the Chevy Chase Bank commercial, auto, fixed mortgage, home equity, and other consumer loan portfolios were also considered impaired. The Company makes an estimate of the total cash flows it expects to collect...

  • Page 132
    ... returns of spread account funding for certain securitization transactions. 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, 2009 Year Ended December 31, 2008 Year Ended...

  • Page 133
    ... national small business lending, national closed end installment lending and the international card lending businesses in Canada and the United Kingdom. Commercial Banking includes the Company's lending, deposit gathering and treasury management services to commercial real estate and middle market...

  • Page 134
    ... operations by segment: Year Ended December 31, 2009 Total Company Credit Card Commercial Banking Consumer Banking Other Total Managed (1) Securitization Adjustment(1) Total Reported Net interest income ...$ 7,542,462 Non-interest income ...3,746,789 Provision for loan and lease losses ...6,051,492...

  • Page 135
    Year Ended December 31, 2007 Total Company Credit Card Commercial Banking Consumer Banking Other Total Managed (1) Securitization Adjustment(1) Total Reported Net interest income ...$ 7,330,367 $ Non-interest income ...4,758,466 Provision for loan and 3,635,567 lease losses ...Restructuring - ...

  • Page 136
    ... which time owners of class B shares could have voluntarily elected to convert and sell a certain number of their shares. During the conversion period, Capital One elected to convert and sell 300,482 shares of MasterCard class B common stock. The Company recognized gains of $43.4 million on these...

  • Page 137
    ... aggregated by investment category, gross unrealized gains and gross unrealized losses on securities available-for sale as of December 31, 2009 and 2008, respectively, were as follows: Expected Maturity Schedule 1 Year or Less 1-5 Years 5-10 Years Over 10 Years Market Value Totals Gross Unrealized...

  • Page 138
    ...,057 481,791 Total ...$3,779,677 $ 362,649 $ 153,192 $31,003,271 $ 373,268 $1,481,628 At December 31, 2009 and 2008, the expected maturities of the Company's mortgage-backed and asset-backed securities and the contractual maturities of the Company's other debt securities were used to assign the...

  • Page 139
    ... weighted average yield by investment category for expected maturities as of December 31, 2009 and 2008, respectively. Weighted Average Yield Schedule 1 Year or Less 1-5 Years 5-10 Years Over 10 Years December 31, 2009 U.S. Treasury and other U.S. government agency obligations U.S. Treasury ...FNMA...

  • Page 140
    ... concentrated in high credit quality assets like government-sponsored enterprise ("GSE") mortgage-backed securities and AAA rated asset-backed securities. In addition to debt securities held in the investment portfolio, the Company reports certain equity securities related to Community Reinvestment...

  • Page 141
    ...million of other-than-temporary impairment charges through earnings for the year ended December 31, 2008 and for the three months ended March 31, 2009, respectively. See "Note 1Significant Accounting Policies" for a discussion of the 2009 changes to key assumptions used to measure the credit-related...

  • Page 142
    ... 2008 to 2009, these investments represent only 4% and 8% of the Company's total available-for-sale portfolio at December 31, 2009 and 2008, respectively. The Company recognized credit-related other-than-temporary impairment of $15.2 million through earnings for the year ended December 31, 2009, for...

  • Page 143
    ....0% rated AAA and is comprised of 40.1% credit card, 24.4% CMBS, 23.0% auto, 12.0% student consumer loans, and 0.5% home equity lines of credit. The Company recognized $0.8 million, in credit-related other-than-temporary impairment through earnings for the year ended December 31, 2009 related to one...

  • Page 144
    ...321 Total credit cards ...Installment loans ...Domestic ...International ...Total installment loans...Auto loans ...Mortgage loans...Retail Banking...Total consumer loans ...Commercial loans Commercial and multi family real estate ...Middle Market ...Specialty Lending ...Small ticket commercial real...

  • Page 145
    The Company's acquired loans from the Chevy Chase Bank acquisition are initially recorded at fair value and no separate allowance for loan and lease losses is recorded for these loans as long as the loans perform as initially expected. Charge-offs of $373.8 million were applied against the non-...

  • Page 146
    ... rentals are subject to increases in relation to a cost of living index. Total rent expenses from continuing operations amounted to approximately $182.6 million, $163.8 million and $136.1 million for the years ended December 31, 2009, 2008 and 2007, respectively. Future minimum rental commitments as...

  • Page 147
    ... at Fair Value Assets Securities available for sale(2) ...$ 291,907 $ 28,331,103 $ 2,380,261 $ Other assets ...Mortgage servicing rights ...- - 150,544 8,020 1,768,902 59,895 Derivative receivables(1) ...Retained interests in securitizations ...- - 1,470,385 Total Assets ...$ 299,927 $ 30,100,005...

  • Page 148
    Level 3 Instruments Only For the Year Ended December 31, 2009 Securities Available for Sale Mortgage Servicing Rights(1) Derivative Receivables(2) Retained Interests in Securitizations(3) Derivative Payables(2) Balance, January 1, 2009 $ Total realized and unrealized gains (losses): ...Included in ...

  • Page 149
    ... and fair value adjustments for loans held for investment are recorded in provision for loan and lease losses in the consolidated statement of income. December 31, 2009 Fair Value Measurements Using Level 1 Level 2 Level 3 Assets at Fair Value Total Losses Assets Loans held for sale ...$ Loans held...

  • Page 150
    ... 31, 2009 and December 31, 2008 approximate fair value. Loans held for investment, net The fair values of credit card loans, installment loans, auto loans, mortgage loans and commercial loans were estimated using a discounted cash flow method, a form of the income approach. Discount rates were...

  • Page 151
    ... in other assets on the balance sheet. Mortgage servicing rights Mortgage servicing rights ("MSRs") do not trade in an active market with readily observable prices. Accordingly, the Company determines the fair value of MSRs using a valuation model that calculates the present value of estimated...

  • Page 152
    ... management to make judgments about future loan and deposit growth, revenue growth, credit losses, and capital rates. The cash flows were discounted to present value using reporting unit specific discount rates that are largely based on the Company's external cost of equity with adjustments for risk...

  • Page 153
    ... the annual impairment test, the Company assessed its market capitalization based on the average market price relative to the aggregate fair value of its reporting units and determined that any excess fair value in its reporting units at that time could be attributed to a reasonable control premium...

  • Page 154
    ...in other assets on the balance sheet. Amortization expense for intangibles of $234.6 million, $200.6 million and $235.1 million, is recorded to non-interest expense for the year ended December 31, 2009, 2008 and 2007, respectively. The weighted average amortization period for all purchase accounting...

  • Page 155
    ... Non-interest bearing deposits...$ Interest-bearing deposits (1) ...Total deposits ...$ Senior and subordinated notes Bank notes: 5.00% Senior Fixed Notes par value of $417,539 due 2009 ...$ 5.75% Senior Fixed Notes par value of $516,722 due 2010 ...5.125% Senior Fixed Notes par value of $274,696...

  • Page 156
    ... back-up obligations, purchase contracts and units. There is no limit under this shelf registration statement to the amount or number of such securities that the Corporation may offer and sell. Under SEC rules, the Automatic Shelf Registration Statement expires three years after filing. Accordingly...

  • Page 157
    ... rights, restricted stock awards, restricted stock units, and performance share units. The following table provides the number of reserved common shares and the number of common shares available for future issuance for the Company's active stock-based compensation plan as of December 31, 2009...

  • Page 158
    ... model. The fair value of options granted during 2009, 2008 and 2007 was estimated using the weighted average assumptions summarized below: Assumptions 2009 2008 2007 Dividend yield (1) ...Volatility factors of stock's expected market price...Average risk-free interest rate ...Expected option lives...

  • Page 159
    ...next 3 years. Cash equity units vesting during the years ended December 31, 2009, 2008, and 2007 resulted in cash payments to associates of $10.1 million, $30.1 million, and $30.1 million, respectively. These cash payments reflect the number of units vesting priced at the Company's stock price as of...

  • Page 160
    ... year ended December 31, 2009. Compensation expense of $4.4 million relating to the ESOP was recorded by the Company for the year ended December 31, 2008. At December 29, 2009, all shares held in the trust for the Plan and the Capital One Financial Corporation Associate Savings Plan are consolidated...

  • Page 161
    ..., the closing price of the Company's common stock on the New York Stock Exchange on April 2, 2007, the effective date of the agreement. The ASR program was accounted for as an initial treasury stock transaction and a forward stock purchase contract. The initial repurchase of shares resulted in an...

  • Page 162
    ... Savings Plan at the end of 2007. As a result, there were no contributions of cash and shares of the Company's common stock to these plans in 2009 or 2008. During 2007, contributions of cash and shares of the Company's common stock totaling $35.6 million were made to these plans. Defined Benefit...

  • Page 163
    ...on a straight-line basis over the average remaining years of service to full eligibility for benefits of active plan participants. The following table sets forth, on an aggregated basis, changes in the benefit obligations and plan assets, how the funded status is recognized in the balance sheet, and...

  • Page 164
    ...assumptions used in the accounting for the plans: Pension Benefits 2009 2008 Postretirement Benefits 2009 2008 Assumptions for benefit obligations at measurement date: Discount rate...Rate of compensation increase ...Assumptions for periodic benefit cost for the year ended: Discount rate...Expected...

  • Page 165
    ... plan equity investments is to maximize the long-term real growth of fund assets, while the role of fixed income investments is to generate current income, provide for more stable periodic returns and provide some protection against a prolonged decline in the market value of fund equity investments...

  • Page 166
    ... Level 3 Instruments Only Year Ended December 31, 2009 Limited Partnerships Balance, January 1, 2009 ...$ Total realized and unrealized losses: ...Included in earnings ...Purchases, sales and settlements, net ...Transfers in(out) of Level 3 ...Balance, December 31, 2009 $ Change in unrealized gains...

  • Page 167
    ... ...16,173 Sales ...- Change in fair value, net...(36,604) Balance at December 31 ...$ 239,651 Ratio of mortgage servicing rights to related loans serviced for others...Weighted average service fee ...(1) Related to the Chevy Chase Bank acquisition completed on February 27, 2009. 0.81% 0.29...

  • Page 168
    ... Company made $71.0 million ($64.9 million related to 2007 initiative and $6.1 million related to the Chevy Chase Bank acquisition) and $100.8 million in cash payments for restructuring charges for the year ended December 31, 2009 and 2008, respectively, that related to employee termination benefits...

  • Page 169
    ...tax benefits of $792.9 million, $31.7 million and $121.9 million in 2009, 2008 and 2007, respectively, were allocated directly to reduce goodwill from acquisitions. Income tax benefit reported in shareholders' equity was as follows: Year Ended December 31 2009 2008 2007 Foreign currency translation...

  • Page 170
    ...31 2009 2008 Deferred tax assets: Allowance for loan and lease losses ...$ 1,496,130 Unearned income ...205,637 Net unrealized losses on securities and derivative instruments ...- Employee stock plans ...147,127 Rewards & sweepstakes programs ...473,201 Valuation difference of acquired loans ...689...

  • Page 171
    ... the related credit card receivables. These items are recognized in the income statement as income in the year earned. For income statement purposes, late fees are reported as interest income, and interchange, cash advance fees and overlimit fees are reported as non-interest income. December 31 2009...

  • Page 172
    ... Asset and Liability Management Committee ("ALCO") and approved by the Board of Directors. The Company utilizes derivatives to manage and position its earnings and economic value of equity sensitivity within the approved limits. These derivatives are used to primarily manage risk related to changes...

  • Page 173
    ... for managing foreign currency exchange risk. Changes in the fair value of the derivative instrument effectively offset the related foreign exchange gains or losses on the items to which they are designated. Upon the adoption of ASU 2009-17 (ASC 810/SFAS 167) on January 1, 2010 and the resulting...

  • Page 174
    ... sheet at fair value with changes in value included in current earnings in non-interest income. Non-Trading Interest Rate Contracts The Company uses interest rate swaps to manage interest rate sensitivity related to the Company's non-mortgage securitization programs. The Company enters into interest...

  • Page 175
    ... with changes in value included in current earnings in non-interest income. Non-Trading Other Contracts The Company uses interest rate swaps, To Be Announced ("TBA") forward contracts and futures contracts in conjunction with hedging the economic risk associated with its mortgage servicing rights...

  • Page 176
    ...cash. If the credit-risk-related features underlying these agreements had been triggered due to the Company's credit rating falling one level below the current rating on December 31, 2009, the Company would be required to post an additional $28.1 million of collateral to its counterparties. Location...

  • Page 177
    ... and reported as loans held for investment on the Consolidated Balance Sheet. The Company primarily accounted for loan securitization transactions as sales and accordingly, the transferred loans were removed from the consolidated financial statements as of and for the years ending December 31, 2009...

  • Page 178
    ...-balance sheet securitizations involve the transfer of pools of loan receivables by the Company to one or more third-party trusts or QSPEs in transactions that are accounted for as sales in accordance with ASC 860-10/SFAS 140. In order to maintain QSPE status, the trusts can engage only in limited...

  • Page 179
    ... the estimated future cash flows from excess finance charges and past-due fees over the sum of the return paid to security holders, estimated contractual servicing fees and credit losses. The Company periodically reviews the key assumptions and estimates used in determining the value of the interest...

  • Page 180
    ...these rights since the contractual servicing fee approximates market rates. Cash Flows Related to the Off-Balance Sheet Securitizations The Company receives proceeds from the trusts for off-balance sheet loans that are transferred and sold to external investors. The sources of funds available to pay...

  • Page 181
    ... (1) Includes all cash receipts of excess spread and other payments (excluding servicing fees) from the trust to the Company. For the year ended December 31, 2009 the Company recognized gross gains of $40.6 million on both the public and private sale of $12.1 billion of loan principal receivables...

  • Page 182
    ... in connection with the Chevy Chase Bank acquisition during 2009. 225,561 3.4 27.8% (4,502) (8,738) 11.5% (5,948) (11,570) Cash Flows Related to the Off Balance Sheet Mortgage Securitizations The following table summarizes certain cash flows received from securitization trusts for the year ended...

  • Page 183
    Supplemental Loan Information Principal balances of off balance sheet single family residential loans, delinquent amounts and net credit losses being serviced by the Company for the year ended December 31, 2009, were as follows: As of December 31, 2009 Total Principal Amount of Loans...$ Principal ...

  • Page 184
    ... fund advances on the home equity lines of credit when certain performance triggers are met due to deterioration in asset performance. GreenPoint's ability to recover the full amount advanced to customers is dependent on monthly collections on the loans. In certain limited circumstances, such future...

  • Page 185
    ...of future advances related to all third-party securitizations where GreenPoint is the residual interest holder is $77.1 million, an amount which represents the total loan amount on the home equity lines of credit within those eight securitizations. The total unutilized amount as of December 31, 2009...

  • Page 186
    ... in the ordinary course of business. Off-balance sheet activities typically utilize SPEs that may be in the form of limited liability companies, partnerships or trusts. The SPEs raise funds by issuing debt to third party investors. The SPEs hold various types of financial assets whose cash flows are...

  • Page 187
    ... activities, servicing activities, the purchase or sale of mortgage-backed securities ("MBS") and other asset-backed securities ("ABS") in connection with our investment portfolio, and loans to VIEs that hold debt, equity, real estate or other assets. In certain instances, the Company also provides...

  • Page 188
    ... set minimum risk-based and leverage capital requirements that are based on quantitative and qualitative measures of their assets and off-balance sheet items. The Federal Reserve holds the Corporation to similar minimum capital requirements. Failure to meet minimum capital requirements can result in...

  • Page 189
    ...proposed rule regarding capital requirements related to the adoption of ASU 2009-16 and ASU 2009-17. Under the proposal, the Company and its subsidiary banks will be required to hold additional capital in relation to the consolidated assets and any associated creation of loan loss reserves. The rule...

  • Page 190
    ... cash deposits, automobiles and real estate, as appropriate. The Company has higher concentrations of loans where the Commercial and Consumer Banking segments operate, the South and Northeast regions of the U.S. In particular, the Company's commercial portfolio is concentrated in the New York...

  • Page 191
    ...Europe and Capital One Bank-Canada Branch, a foreign branch office of COBNA that provides consumer lending products in Canada. The total assets, revenue, income before income taxes and net income of the international operations are summarized below. 2009 2008 2007 Domestic Total Assets ...$ 165,840...

  • Page 192
    ... to include separate annual financial statements. December 31 Balance Sheets 2009 2008 Assets: Cash and cash equivalents ...$ 6,466,156 Investment in subsidiaries ...29,553,466 Loans to subsidiaries ...500,095 Securities available for sale ...6,980 Other ...751,825 Total assets ...$ 37,278,522...

  • Page 193
    ... activities ...Investing Activities: (Increase) decrease in investment in subsidiaries ...Purchases of securities available for sale ...Proceeds from sale of securities available for sale ...Decrease (increase) in loans to subsidiaries ...Net payment for companies acquired...Net cash (used in...

  • Page 194
    ... of internal control over financial reporting. As defined by the SEC, internal control over financial reporting is a process designed under the supervision of the Company's principal executive officer and principal financial officer, and effected by the company's board of directors, management and...

  • Page 195
    ... Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Capital One Financial Corporation as of December 31, 2009 and 2008, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended...

  • Page 196
    ... consolidated balance sheets of Capital One Financial Corporation as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2009. These financial statements...

  • Page 197
    ... is a tabulation of the Company's unaudited quarterly results for the years ended December 31, 2009 and 2008. The Company's common shares are traded on the New York Stock Exchange under the symbol COF. In addition, shares may be traded in the over-the-counter stock market. There were 16,955 and...

  • Page 198
    ... by this report, that the Company's disclosure controls and procedures are effective in recording, processing, summarizing and reporting information required to be disclosed within the time periods specified in the Securities and Exchange Commission's rules and forms. The Corporation has established...

  • Page 199
    ... within 120 days of the end of the Corporation's 2009 fiscal year. Item 11. Executive Compensation The information required by Item 11 will be included in the Proxy Statement under the headings "Director Compensation," "Named Executive Officer Compensation" and "Compensation Committee Report," and...

  • Page 200
    ...Stockholders' Equity-Years ended December 31, 2009, 2008 and 2007 Consolidated Statements of Cash Flows-Years ended December 31, 2009, 2008 and 2007 Notes to Consolidated Financial Statements Management's Report on Internal Control over Financial Reporting Report of Registered Public Accounting Firm...

  • Page 201
    ... authorized. By: /s/ RICHARD D. FAIRBANK Richard D. Fairbank Chairman of the Board, Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities...

  • Page 202
    ... the Corporation's Annual Report on Form 10-K for the year Ended December 31, 2007, filed February 29, 2008. Item 6. Exhibit No. Exhibits Description 2.1 Stock Purchase Agreement, dated as of December 3, 2008, by and among Capital One Financial Corporation, B.F. Saul Real Estate Investment Trust...

  • Page 203
    ...to Exhibit 4.1 of the Corporation's Report on Form 8-K, filed on May 22, 2009). Indenture (providing for the issuance of Junior Subordinated Debt Securities), dated as of June 6, 2006, between Capital One Financial Corporation and The Bank of New York Mellon Trust Company, N.A., as indenture trustee...

  • Page 204
    ...November 13, 2009, between Capital One Financial Corporation and The Bank of New York Mellon Trust Company, N.A., as guarantee trustee (incorporated by reference to Exhibit 4.4 of the Corporation's Current Report on Form 8-K, filed on November 13, 2009). Specimen Trust Preferred Security Certificate...

  • Page 205
    ... for the period ending September 30, 2004). Form of 1999 Non-Employee Directors Stock Incentive Plan Deferred Share Units Award Agreement between Capital One Financial Corporation and certain of its Directors (incorporated by reference to Exhibit 10.3 of the Corporation's quarterly report on Form 10...

  • Page 206
    ...Financial Corporation, 2005 Directors Compensation Plan Summary (incorporated by reference to Exhibit 99.1 of the Corporation's Report on Form 8-K, filed on May 4, 2005). Form of Change of Control Employment Agreement between Capital One Financial Corporation and each of its named executive officers...

  • Page 207
    ... XBRL Taxonomy Extension Label Linkbase Document 101.PRE * ** XBRL Taxonomy Extension Presentation Linkbase Document Indicates a document being filed with this Form 10-K. Information in this 10-K furnished herewith shall not be deemed to be "filed" for the purposes of Section 18 of the 1934 Act or...

  • Page 208
    ... Time Capital One Headquarters 1680 Capital One Drive McLean, VA 22102 Principal Investor Contact Jeff Norris Managing Vice President, Investor Relations Capital One Financial Corporation 1680 Capital One Drive McLean, VA 22102 (703) 720-1000 Common Stock Listed on New York Stock Exchange® Stock...

  • Page 209
    Created and produced by Capital One and the following: Fultz Marketing, Design and Production Vedros and Associates, Photography Allied Printing Services, Inc., Printing 1680 Capital One Drive McLean, VA 22102 (703) 720-1000 www.capitalone.com