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Capital One Financial Corporation
2010 Annual Report

Table of contents

  • Page 1
    Capital One Financial Corporation 2010 Annual Report

  • Page 2
    Cover photo - Our newly opened Dolley Madison Branch. Capital One, the only top-ten bank headquartered in our nation's capital, has more branches and ATM's than any of its competitors in metropolitan Washington.

  • Page 3
    ...our stock price had risen to $49.77, a year-to-date increase of 16.9%, and an increase of 29.8% from the beginning of 2010. Through February 2011, total shareholder return since our initial public offering in 1994 has been 952.9%, compared to total shareholder returns of 101.1% in the KBW Bank Index...

  • Page 4
    Our Credit Card business continues to produce industry-leading returns Capital One's card business had an outstanding year. After two years at the billion-dollar mark, net income nearly doubled, to $1.9 billion, in 2010. After-tax returns on managed loans were 3.4%, the highest in the industry for ...

  • Page 5
    " We've become one of the leading banks in the United States by combining the best aspects of national-scale lending and local-scale consumer and commercial banking. " 3

  • Page 6
    ...for our customers. It's the right thing to do for our shareholders, too. The work of our risk operations team enhanced customer loyalty and helped to retain billions of dollars in loans. Capital One's international businesses are performing well, and posted net income of $376 million in 2010. In the...

  • Page 7
    .... Credit improved dramatically, with charge-offs falling from 4.55% to just 2.65%. Capital One Auto Finance remains one of the industry's best-positioned national players. We converted Chevy Chase Bank to the Capital One brand in 2010. Capital One is the only top-ten bank headquartered in the nation...

  • Page 8
    ... commercial lending markets, our Commercial Banking business posted net income of $160 million in 2010. Revenue increased 12% as a result of improving loan margins, growth in our deposit book, and higher non-interest income. Credit performance remains relatively strong, with the charge-off rate...

  • Page 9
    ... national level. A brand is a promise, and brand strength comes from keeping the promise year after year, with great products, great value, and great service. For us, that means constant innovation and constant improvement. We also work hard to make sure that Capital One shareholders are getting the...

  • Page 10
    ... bankers are out every day meeting with In 2010 Capital One associates taught the basics of money management to more than 60,000 people - students, consumers new to banking, first-time home buyers, small-business owners, and others. customers, residents, and community leaders to listen to their...

  • Page 11
    ... ever We have always managed the company to be strong and resilient in both good times and bad. We transformed ourselves into a deposit-funded bank before the capital markets collapsed. We purposely chose the most resilient businesses (e.g., credit cards and deposits) and managed them tightly for...

  • Page 12
    ... advantaged strategic position and our great people empower us to continue to compete and win in each of our markets and to deliver compelling value for our customers, our associates, our communities, and our shareholders in 2011 and well beyond. Richard D. Fairbank Chairman, CEO and President 10

  • Page 13
    ... $7.65 $6.55 $6.68 $2.28* $0.98 2006 2007 2008 2009 2010 Diluted Earnings Per Share $7.62 $6.01 $3.97 ($0.21) 2006 2007 2008 $0.74 2009 2010 Deposits ($ In Billions) $109 $86 $83 $116 $122 2006 2007 2008 2009 2010 * 2008 data excludes goodwill impairment charge of $811 million. 11

  • Page 14
    ... loans held for investment Average total assets Tangible common equity (TCE) ratio Managed Performance Metrics: Net interest margin Revenue margin Risk-adjusted margin Net charge-off rate 30+ day performing delinquency rate Efficiency ratio(2) Period-end total loan accounts (in millions) Full-time...

  • Page 15
    ... 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 Officer Jory A. Berson Chief Human Resources Officer...

  • Page 16

  • Page 17
    ...1680 Capital One Drive, McLean, Virginia (Address of Principal Executive Offices) 54-1719854 (I.R.S. Employer Identification No.) 22102 (Zip Code) Registrant's telephone number, including area code: (703) 720-1000 _____ Securities registered pursuant to section 12(b) of the act: Common Stock (par...

  • Page 18
    ... of Equity Securities ...Selected Financial Data ...Management's Discussion and Analysis of Financial Condition and Results of Operations ...Introduction ...Impact from Adoption of New Consolidation Accounting Standards ...Executive Summary and Business Outlook ...Critical Accounting Policies and...

  • Page 19
    ... of Credit Risk ...177 Note 23 - Capital One Financial Corporation (Parent Company Only) ...178 Note 24 - International Operations ...180 Note 25 - Related Party Transactions ...180 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ...185 Item 9A. Controls...

  • Page 20
    ... Banking Business Results ...Commercial Banking Business Results ...Investment Securities ...Loan Portfolio Composition ...Reported Loan Maturity Schedule ...Credit Card Concentrations (Managed) ...Consumer Banking Concentrations (Managed) ...Commercial Banking Concentrations (Managed) ...30+ Day...

  • Page 21
    ... provide credit card loans. Our common stock is listed on the NYSE and is traded under the symbol "COF." As of January 31, 2011, there were 16,065 holders of record of our common stock. Our principal executive office is located at 1680 Capital One Drive, McLean, Virginia 22102 (telephone number (703...

  • Page 22
    ... activities that are not generally permissible for bank holding companies. The Banks are national associations chartered under the laws of the United States, the deposits of which are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (the "FDIC") up to applicable...

  • Page 23
    ... us from our direct and indirect subsidiaries have represented a major source of funds for us to pay dividends on our stock, make payments on corporate debt securities and meet our other obligations. There are various federal and state law limitations on the extent to which the Banks can finance or...

  • Page 24
    ...5% economic interest in the credit risk of assets sold through the issuance of asset-backed securitization, with an exemption for traditionally underwritten residential mortgage loans. The Dodd-Frank Act also includes provisions related to corporate governance and executive compensation and new fees...

  • Page 25
    ... to change the deposit insurance assessment base from deposits to average consolidated total assets minus average tangible equity. The FDIC recently finalized rules to implement this change and to significantly modify how deposit insurance assessment rates are calculated for those banks with assets...

  • Page 26
    ... opportunity to opt in to the service. Before we may assess fees for paying discretionary overdrafts, a customer must affirmatively opt in, which could negatively impact our deposit business revenue. The new rule was effective for all new accounts opened on or after July 1, 2010, and on August 15...

  • Page 27
    ... could face increased legislative/regulatory and litigation risks. Investment in the Company and the Banks Certain acquisitions of our 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...

  • Page 28
    ...immediate parent companies (Capital One Holdings Limited and Capital One Investments Limited, both U.K. entities) was transferred from COBNA to Capital One Global Corporation (a new Virginia-chartered corporation), all the shares of which are owned by COBNA. Capital One Global Corporation is subject...

  • Page 29
    ... environment and face competition in all aspects of our business from numerous bank and non-bank providers of financial services. We compete with national and state banks for deposits, commercial loans and trust accounts and with savings and loan associations and credit unions for loans and deposits...

  • Page 30
    ... consumer 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. Intellectual Property As part of our overall and ongoing strategy to protect and enhance...

  • Page 31
    ... as our business develops or changes or as it expands into new market areas; our ability to execute on our strategic and operational plans; any significant disruption of, or loss of public confidence in, the United States Mail service affecting our response rates and consumer payments; our ability...

  • Page 32
    ... as customers default on their loans or maintain lower deposit levels or, in the case of credit card accounts, carry lower balances and reduce credit card purchase activity. In particular, we may face the following risks in connection with these events: â- Adverse macroeconomic developments may...

  • Page 33
    ... revenues in our U.S. credit card business and could make the card business generally less resilient in future economic downturns. In July 2010, President Obama signed into law the Dodd-Frank Act. The Dodd-Frank Act, as well as the related rules and regulations adopted by various regulatory agencies...

  • Page 34
    ...we use to select, manage, and underwrite our consumer and commercial customers become less predictive of future charge-offs (due, for example, to rapid changes in the economy, including the unemployment rate), our credit losses may increase and our returns may deteriorate. Business Mix. Our business...

  • Page 35
    ... new requirements could have a negative impact on our ability to lend, grow deposit balances or make acquisitions and on our ability to make capital distributions in the form of increased dividends or share repurchases. Higher capital levels could also lower our return on equity. Recent developments...

  • Page 36
    ... these new areas or these new businesses. These new businesses change the overall character of our consolidated portfolio of businesses and could react differently to economic and other external factors. We face the risk that we will not be successful in these new businesses or in these new markets...

  • Page 37
    ...performance of the financial markets. Changes in interest rates or in valuations in the debt or equity markets could directly impact us. For example, we borrow money from other institutions and depositors, which we use to make loans to customers and invest in debt securities and other earning assets...

  • Page 38
    ... Louisiana, 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...

  • Page 39
    ... $ 2010 52.95 100.75 50.37 We did not have any sales of unregistered equity securities in 2010. Issuer Purchases of Equity Securities The following table presents information related to repurchases of shares of our common stock during the fourth quarter of 2010. Total Number of Shares Purchased...

  • Page 40
    ... Financial Data Change Year Ended December 31, (Dollars in millions, except per share data) 2010 2009(1) 2008 2007 2006(2) 2010 vs. 2009 2009 vs. 2008 Income statement Interest income ...Interest expense ...Net interest income ...Non-interest income ...Total revenue ...Provision for loan and lease...

  • Page 41
    ...Period-end off-balance sheet securitized loans . . Total period-end managed loans ...Period-end total loan accounts (in millions) ...30+ day performing delinquency rate ...Net charge-off rate ...Non-interest expense as a% of average loans held for investment(11) ...Efficiency ratio ... $ 125,947 197...

  • Page 42
    ... of Chevy Chase Bank. While our 2010 results include the full year impact of the Chevy Chase Bank acquisition, our 2009 results include on a partial year impact. On December 1, 2006, we acquired 100% of the outstanding common stock of North Fork Bancorporation ("North Fork") for total consideration...

  • Page 43
    ... consumer home loan lending and servicing activities. Commercial Banking: Consists of our lending, deposit gathering and treasury management services to commercial real estate and middle market customers. • • Table 1 summarizes our business segment results for 2010, 2009 and 2008. We report...

  • Page 44
    ...these new accounting standards does not change the economic risk to our business, specifically our exposure to liquidity, credit and interest rate risks, the prospective adoption of these rules has a significant impact on our capital ratios and the presentation of our reported consolidated financial...

  • Page 45
    ... a reported basis, management historically evaluated our total company and business segment results on a non-GAAP "managed" basis. Our managed presentations reflected the results from both our on-balance sheet loans and off-balance sheet loans and excluded the impact of card securitization activity...

  • Page 46
    ... lower interest rate environment also provided a benefit to our Commercial Banking business. While our Commercial Banking credit metrics remain elevated, the commercial real estate market has exhibited signs of continuing improvement, including increasing leasing activity, declining vacancies and...

  • Page 47
    ... decline in the 30+ day performing delinquency rate from 4.62% at the end of 2009, we believe our net-charge offs resulting from the severe economic downturn peaked in the first quarter of 2010. Allowance for Loan and Lease Losses: As a result of the adoption of the new consolidation accounting...

  • Page 48
    ... Credit Card and Auto Finance businesses, moderate growth in low-risk loans in our Commercial Banking business and strong growth in low-cost deposits and high-quality commercial and retail customer relationships. Based on recent trends and our targeted initiatives to attract new business and develop...

  • Page 49
    ... grow our Commercial Banking loan portfolio in 2011. Based on strong deposit growth and new commercial customer relationships in 2010, we expect to generate future loan and revenue growth by expanding the relationships with our customers in 2011 and beyond. CRITICAL ACCOUNTING POLICIES AND ESTIMATES...

  • Page 50
    ... value of collateral underlying secured loans, account seasoning, changes in our credit evaluation, underwriting and collection management policies, seasonality, general economic conditions, changes in the legal and regulatory environment and uncertainties in forecasting and modeling techniques used...

  • Page 51
    ...we utilize a number of factors, including actual operating results, future business plans, economic projections, and market data. We also may engage an independent valuation specialist to assist in our valuation process. In estimating the fair value of the reporting units in step one of the goodwill...

  • Page 52
    ... premiums than what had been seen historically. Throughout 2010, our capitalization rate increased resulting in a decline in our implied control premium. We will continue to regularly monitor our market capitalization in 2011, overall economic conditions and other events or circumstances that may...

  • Page 53
    ... not collected at the date a loan is placed on nonaccrual status are reversed against earnings. Finance charges and fees on credit card loans are included in loan receivables when billed to the customer. We continue to accrue finance charges and fees on credit card loans until the account is charged...

  • Page 54
    ... from Adoption of New Consolidation Accounting Standards," we prospectively adopted these new standards on January 1, 2010, which resulted in the consolidation of our credit card securitization trusts, one installment loan trust, certain option-ARM loan trusts originated by Chevy Chase Bank for...

  • Page 55
    ... a partial impact from Chevy Chase Bank. Interest income on credit card, auto, home and retail banking loans is reflected in consumer loans. Interest income generated from small business credit cards also is included in consumer loans. Table 3 presents changes in our reported net interest income...

  • Page 56
    ... (2) Volume Rate (Dollars in millions) Interest income: Loans held-for-investment: Consumer loans ...Commercial loans ...Total loans held for investment, including past-due fees ...Investment securities ...Other ...Total interest income ...Interest expense: Deposits ...Securitized debt obligations...

  • Page 57
    ... and other customer-related fees, interchange income and other non-interest income. We also record the mortgage loan repurchase provision related to continuing operations in noninterest income. Prior to the adoption of the new consolidation accounting standards on January 1, 2010, our reported non...

  • Page 58
    ... available-for-sale securities in "Note 4-Investment Securities." The $670 million decrease in managed non-interest income in 2009 from 2008 was largely due to reduced service charges and customer-related fees as a result of lower overlimit and cash advance fees. Provision for Loan and Lease Losses...

  • Page 59
    ...internal management and reporting process to derive our business segment results. Our internal management and reporting process employs various allocation methodologies, including funds transfer pricing, to assign certain managed balance sheet assets, deposits and other liabilities and their related...

  • Page 60
    ...Consists of purchase transactions for the period, net of returns. Excludes cash advance transactions. As a result of the January 1, 2010 adoption of the new consolidation accounting standards, we added $4.2 billion to the allowance related to our Credit Card business on January 1, 2010, resulting in...

  • Page 61
    ... savings across our Credit Card business. As the economy gradually improved, we increased our marketing expenditures during 2010 from suppressed levels in 2009 to attract and support new business volume through a variety of channels. Total Loans: Period-end loans in the Credit Card business declined...

  • Page 62
    ... key factors affecting our total Credit Card business. Table 7.1: Domestic Card Business Results Year Ended December 31, 2009 2010 vs. 2009 Change 2009 vs. 2008 (Dollars in millions) Selected income statement data: Net interest income ...Non-interest income ...Total revenue ...Provision for loan...

  • Page 63
    ... expense. The decline in revenue was due to the combined impact of foreign exchange fluctuations and a decline in customer accounts, which resulted in lower fees. Although loan balances declined, the provision for loan and lease losses increased due to deterioration in credit performance during 2009...

  • Page 64
    ... $811 million attributable to the Consumer Banking business. Average loans held for investment used in calculating net charge-off rates includes the impact of loans acquired as part of the Chevy Chase Bank acquisition. The net charge-off rate, excluding loans acquired from Chevy Chase Bank from the...

  • Page 65
    ... in our home loan and retail banking operations, made in 2010 to attract and support new business volume and to integrate Chevy Chase Bank, and increased marketing expenditures related to our retail banking operations. Total Loans: Period-end loans in the Consumer Banking business declined by...

  • Page 66
    ... the periods indicated. Table 9: Commercial Banking Business Results Change 2010 vs. 2009 vs. 2008 2009 2008 Year Ended December 31, Selected income statement data: Net interest income ...Non-interest income ...Total revenue ...Provision for loan and lease losses ...Non-interest expense ...Income...

  • Page 67
    ... in core deposit intangible amortization expense, integration costs related to the Chevy Chase Bank acquisition and expenditures related to risk management activities and enhancing our infrastructure. Total Loans: Period-end loans in the Commercial Banking business increased by $129 million, or less...

  • Page 68
    ... debt obligations; agency and non-agency mortgage-backed securities; other asset-backed securities collateralized primarily by credit card loans, auto loans, student loans, auto dealer floor plan inventory loans, equipment loans and home equity lines of credit; municipal securities; and limited...

  • Page 69
    ... 31, 2010. Consists of securities collateralized by credit card loans, auto loans, student loans, auto dealer floor plan inventory loans, equipment loans and home equity lines of credit. The distribution among these asset types was approximately 77.8% credit card loans, 6.7% auto loans, 7.2% student...

  • Page 70
    ...31, 2010 Reported On% of Balance Sheet Total Loans Reported OnBalance Sheet Off-Balance Sheet 2009 Total Managed % of Total Loans (Dollars in millions) Credit Card business: Credit card loans: Domestic credit card loans ...$ International credit card loans ...Total credit card loans ...Installment...

  • Page 71
    ... ...Texas ...New York ...Florida ...Illinois ...Pennsylvania ...Ohio ...New Jersey ...Michigan ...Other ...Total domestic card ...International card: United Kingdom ...Canada ...Total international card ...Total credit card ... (Dollars in millions) Loans % of Total $ $ $ $ $ 6,242 3,633 3,599...

  • Page 72
    ... the retail branch network. It is well diversified with some concentration in Texas, California and Louisiana. The home loan portfolio is concentrated in New York, California and Louisiana which reflects the characteristics of the legacy Hibernia, North Fork and Chevy Chase Bank portfolios that...

  • Page 73
    ... and use in evaluating the credit quality of our loan portfolio include delinquency and nonperforming asset rates, as well as charge-off rates and our internal risk ratings of larger balance, commercial loans. High unemployment, the decline in home prices and other weak economic conditions resulting...

  • Page 74
    ...Day Performing Delinquencies 2010 December 31, Rate Amount 2009 (Dollars in millions) Credit Card business: Domestic credit card and installment ...International credit card and installment ...Total credit card ...Consumer Banking business: Automobile ...Home loans(1) ...Retail banking(1) ...Total...

  • Page 75
    ... charges and fees billed but not expected to be collected and exclude this amount from revenue. Table 18: 90+ Days Delinquent Loans Accruing Interest December 31, 2010 (Dollars in millions) % of Total Loans 2009 Amount % of Total Loans Loan category: Credit card ...Consumer ...Commercial ...Total...

  • Page 76
    ... Nonperforming loans as a percentage of loans held for investment, excluding credit card loans from the denominator, was 1.90% and 1.89% as of December 31, 2010 and 2009, respectively. Includes $201 million and $154 million of foreclosed properties related to loans acquired from Chevy Chase Bank, as...

  • Page 77
    ... the date when the account is a specified number of days past due or upon repossession of the underlying collateral. Our charge-off time frame is 180 days for mortgage loans and unsecured small business lines of credit and 120 days for auto and other non-credit card consumer loans. We calculate the...

  • Page 78
    ... (Dollars in millions) 2010 Rate(2) Year Ended December 31, 2009 2008 Amount Rate(2) Managed: Amount Credit card ...$ 5,505 Consumer banking(3)(4) ...655 Commercial banking(3)(4) ...390 Other ...107 Total company(4) ...$ 6,657 Average loans held for investment(6)...$ 128,622 Reported: Total company...

  • Page 79
    ...31, 2010, and $678 million, or 92%, of the outstanding balance of total modified loans as of December 31, 2009. The vast majority of our credit card loan modifications involve a reduction in the interest rate on the account and placing the customer on a fixed payment plan not exceeding 60 months. In...

  • Page 80
    ... in "Note 1-Summary of Significant Accounting Policies." Table 22, which displays changes in our allowance for loan and lease losses for the years ended December 31, 2010, 2009 and 2008, details, by loan type, the provision for credit losses recognized in our consolidated statements of income each...

  • Page 81
    ... 1, 2010 adoption of new consolidation accounting standards ...Balance at beginning of period, as adjusted ...Provision for loan and lease losses ...Charge-offs: Credit Card business: Domestic credit card and installment ...International credit card and installment ...Total credit card ...Consumer...

  • Page 82
    ...result of our prospective adoption on January 1, 2010 of the new consolidation accounting standards, we added to our consolidated balance sheet $41.9 billion of assets and $4.3 billion of related allowance for loan and lease losses, consisting primarily of credit card loan receivables underlying our...

  • Page 83
    ...primarily attributable to a reduction in Federal Home Loan Bank ("FHLB") advances. Because of the decrease in our loan portfolio and the increase in deposits during 2010, our funding needs were lower and we reduced our level of borrowings. We provide additional information on our borrowings in "Note...

  • Page 84
    ... original principal balance of mortgage loans about which we do not have information about the current holders. These estimates could change as we get additional data or refine our analysis. As of December 31, 2010, the subsidiaries had open repurchase requests relating to approximately $1.6 billion...

  • Page 85
    ..., 2009 Gross New Demands Received in 2010 Loans Repurchased/Made Whole in 2010(2) Demands Rescinded in 2010(2) Open Claims December 31, 2010 (Dollars in millions) (All amounts are Original Principal Balance) GSEs ...Insured Securitizations ...Uninsured Securitizations and Others ...Total ..._____...

  • Page 86
    ... first quarter of 2010. As indicated in Table 27, almost all of the reserves relate to the $11 billion in original principal balance of mortgage loans sold directly to the GSEs and to the $13 billion in mortgage loans sold to purchasers who placed them into Active Insured Securitizations. Table 27...

  • Page 87
    ... services industry due to changing regulatory environments and ongoing economic uncertainty. First, we seek to mitigate liquidity risk strategically and tactically. From a strategic perspective, we have acquired and built deposit gathering businesses and significantly reduced our loan to deposit...

  • Page 88
    ... ability to access capital markets as part of our process for evaluating our capital plans. See "MD&A-Liquidity and Capital Management" for additional information on our capital adequacy and strength. Risk Management Roles and Responsibilities The Board of Directors is responsible for establishing...

  • Page 89
    ...and activities. Senior management and the Board of Directors are ultimately accountable for promoting adherence to sound risk principles and tolerances. We seek to incent associates at all levels to perform according to corporate policies and risk tolerance and in conformity with applicable laws and...

  • Page 90
    ... and by establishing policies, procedures, and controls for each step in the credit process. The Board, Chief Executive Officer, Chief Risk Officer, Chief Consumer and Commercial Credit Officers, and Division Presidents have specific accountable roles in the management of credit risk. These include...

  • Page 91
    ... counsel of the type and degree of legal risk associated with the internal business area practices and activities and of the controls the business has in place to mitigate legal risks. Legal risk is governed by and defined in our Legal Risk Policy. LIQUIDITY AND CAPITAL MANAGEMENT Liquidity We have...

  • Page 92
    ... 29: Deposits (Dollars in millions) 2010 December 31, 2009 Non-interest bearing ...NOW accounts ...Money market deposit accounts ...Savings accounts ...Other consumer time deposits ...Total core deposits ...Public fund certificates of deposit $100,000 or more ...Certificates of deposit $100,000 or...

  • Page 93
    ..., 2010 (Dollars in millions) Period End Balance Average Balance Interest Expense % of Average Deposits Average Deposit Rate Non-interest bearing ...NOW accounts ...Money market deposit accounts ...Savings accounts ...Other consumer time deposits ...Total core deposits ...Public fund certificates of...

  • Page 94
    ... and subordinated debt. In addition, we utilize advances from the FHLB that are secured by our investment securities, residential home loan portfolio, multifamily loans, commercial real-estate loans and home equity lines of credit for our funding needs. We have committed loan securitization conduit...

  • Page 95
    ... course of business, we into various contractual obligations that may require future cash payments that affect our shortand long-term liquidity and capital resource needs. Commitments for future cash expenditures primarily relate to deposits, debt securities and other borrowings and operating leases...

  • Page 96
    ... measures widely used by investors, analysts, rating agencies and bank regulatory agencies to assess the capital position of financial services companies. There is currently no mandated minimum or "well capitalized" standard for Tier 1 common equity; instead the risk-based capital rules state voting...

  • Page 97
    ... for loan and lease losses for the assets underlying these trusts, which reduced retained earnings and our Tier 1 risk-based capital ratio. In January 2010, banking regulators issued regulatory capital rules related to the impact of the new consolidation accounting standards. Under these rules, we...

  • Page 98
    ... associated with our operations and activities, including loans, deposits, securities, short-term borrowings, long-term debt and derivatives. Market conditions that may change from time to time, thereby exposing us to market risk, include changes in interest rates and currency exchange rates, credit...

  • Page 99
    ... point in time based on the existing balance sheet, and do not incorporate other factors that may have a significant effect, most notably future business activities and strategic actions that management may take to manage interest rate risk. Actual earnings and economic value of equity could...

  • Page 100
    ... the current period presentation. Past due fees included in interest income totaled approximately $1.1 billion, $652 million and $695 million on a reported basis for the years ended December 31, 2010, 2009 and 2008, respectively. Interest income on credit card, auto, home and retail banking loans is...

  • Page 101
    ... impact from Chevy Chase Bank. Past due fees included in interest income totaled approximately $1.1 billion, $1.4 billion and $1.6 billion on a managed basis for the years ended December 31, 2010, 2009 and 2008, respectively. Interest income on credit card, auto, home and retail banking loans is...

  • Page 102
    ... (Dollars in millions) 2010 2009 December 31, 2008 2007 2006 Reported loans held for investment: Credit Card business: Credit card loans: Domestic credit card loans ...International credit card loans ...Total credit card loans ...Installment loans: Domestic installment loans ...International...

  • Page 103
    ... Banking business: Commercial and multifamily real estate ...Middle market ...Specialty lending ...Total commercial lending ...Small-ticket commercial real estate ...Total commercial banking business ...Other: Other loans(1) ...Total managed loans held for investment ... (Dollars in millions) 2010...

  • Page 104
    ...expect to collect. In accordance with our finance charge and fee revenue recognition policy, amounts billed but not included in revenue totaled $950 million, $2.1 billion, $1.9 billion, $1.1 billion and $0.9 billion in 2010, 2009, 2008, 2007 and 2006, respectively. The Chevy Chase Bank acquired loan...

  • Page 105
    ... fair value when we acquired them. The nonperforming loan ratios, excluding the impact of loans acquired from Chevy Chase Bank, for commercial and multifamily real estate, middle market, total commercial banking, home loans, retail banking, total consumer banking, and total nonperforming loans held...

  • Page 106
    .... The total loan portfolio includes loans recorded on our balance sheet and loans held in our securitization trusts. The average balances of the acquired Chevy Chase Bank loan portfolio, which are included in the total average loans held for investment used in calculating the net charge-off rates...

  • Page 107
    ...adoption of new consolidation accounting standards ...Balance at beginning of period, as adjusted ...Provision for loan and lease losses ...Charge-offs: Domestic credit card and installment ...International credit card and installment ...Consumer banking ...Commercial banking ...Other loans ...Total...

  • Page 108
    Item 7A. Quantitative and Qualitative Disclosures about Market Risk For a discussion of the quantitative and qualitative disclosures about market risk, see "MD&A-Market Risk Management." Item 8. Financial Statements and Supplementary Data 88

  • Page 109
    CAPITAL ONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, Interest income: Loans held for investment, including past-due fees ...Investment securities ...Other ...Total interest income ...Interest expense: Deposits ...Securitized debt obligations ...Senior and ...

  • Page 110
    CAPITAL ONE FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS December 31, (Dollars in millions, except per share data) Assets: Cash and due from banks ...Interest-bearing deposits with banks ...Federal funds sold and securities purchased under agreements to resell ...Cash and cash equivalents ......

  • Page 111
    ... 26,541 (Dollars in millions, except per share data) Balance as of December 31, 2009 ...Cumulative effect from January 1, 2010 adoption of new consolidation accounting standards, net of taxes ...Cumulative effect from July 1, 2010 adoption of new embedded credit derivatives accounting standard, net...

  • Page 112
    ...CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Accumulated Other Total Additional Comprehensive Treasury Stockholders' Retained Paid-In Income Stock Earnings Equity Capital (Loss) $ 17,278 $ 10,621 $ (1,222) $ (3,166) $ 26,611 884 884 (Dollars in millions, except per share data) Balance...

  • Page 113
    ... 1,919,054 3,063 10 767 59 492 (568) (23) (Dollars in millions, except per share data) Balance as of December 31, 2007 ...Cumulative effect from January 1, 2008 adoption of amended accounting principles related to postretirement benefit plans, net of taxes ...Comprehensive income: Net loss ...Other...

  • Page 114
    ... (used in) financing activities ...Increase in cash and cash equivalents ...Cash and cash equivalents at beginning of the period ...Cash and cash equivalents at end of the period ...Supplemental cash flow information: ...Non-cash items: Cumulative effect from adoption of new consolidation accounting...

  • Page 115
    ... deposits, we serve banking customers through branch locations primarily in New York, New Jersey, Texas, Louisiana, Maryland, Virginia and the District of Columbia. In addition to bank lending and depository services, we offer credit and debit card products, mortgage banking and treasury management...

  • Page 116
    ... rights and responsibilities; our economic interests, including debt and equity investments, servicing fees, and other arrangements deemed to be variable interests in the VIE; the design of the VIE, including the capitalization structure, subordination of interests, payment priority, relative share...

  • Page 117
    ...investment strategy and management's assessment of our intent and ability to hold loans for the foreseeable future or until maturity. Management's intent and ability with respect to certain loans may change from time to time depending on a number of factors, including economic, liquidity and capital...

  • Page 118
    ... of cost or fair value on the date of transfer and establish a new cost basis upon transfer. Write-downs on loans transferred from held for investment to held for sale are recorded as charge-offs at the time of transfer. We execute whole loan sales with either servicing rights released to the buyer...

  • Page 119
    ... estimated cash flows we expect to collect using an observable market rate of interest, when available, adjusted for factors that a market participant would consider in determining fair value. Purchasers are permitted to aggregate credit-impaired loans acquired in the same fiscal quarter into one or...

  • Page 120
    ..., based on applicable accounting guidance, include larger balance nonperforming loans and TDR loans. Our policies for reporting loans as individually impaired, by loan category, are as follows: • Credit card loans: Credit card loans that have been modified in a troubled debt restructuring are...

  • Page 121
    ... the date when the account is a specified number of days past due or upon repossession of the underlying collateral. Our charge-off time frame is 180 days for mortgage loans and unsecured small business lines of credit and 120 days for auto and other non-credit card consumer loans. We calculate the...

  • Page 122
    ...: credit card loans, auto loans, residential home loans and retail banking loans. Each of these portfolios is further divided by our business units into pools based on common risk characteristics, such as origination year, contract type, interest rate and geography, that are collectively evaluated...

  • Page 123
    ...CONSOLIDATED STATEMENTS losses and also considers an evaluation of overall portfolio credit quality based on indicators such as changes in our credit evaluation, underwriting and collection management policies, changes in the legal and regulatory environment, general economic conditions and business...

  • Page 124
    ...debt securities issued from the trusts to third party investors. Included in the total loan receivables is $1.5 billion of mortgage loan securitizations related to the Chevy Chase Bank acquisition which had not been included in our historical managed financial statements. Also included in total loan...

  • Page 125
    ... regulatory capital ratios resulting from January 1, 2010 adoption of the new consolidation accounting standards: Tier 1 capital ...Total capital ...Tier 1 leverage ...Securitization of Loans We primarily securitize credit card loans, auto loans, home loans and installment loans. Securitizations...

  • Page 126
    ... billion of mortgage loans and related debt securities issued to third party investors were consolidated and the retained interests and mortgage servicing rights related to these newly consolidated trusts were eliminated in consolidation. See "Note 1-Summary of Significant Accounting Policies" and...

  • Page 127
    ...customers to transfer, modify or reduce their interest rate or foreign exchange risks. As part of this process, we consider the customers' suitability for the risk involved, and the business purpose for the transaction. These derivatives do not qualify for hedge accounting and are considered trading...

  • Page 128
    ... auto, home loan and commercial loan originations. Direct loan origination costs consist of both internal and external costs associated with the origination of a loan. Unamortized deferred fees, net of deferred costs, totaled $250 million and $148 million as of December 31, 2010 and 2009. Marketing...

  • Page 129
    ... new consolidation accounting standards on January 1, 2010 resulted in a cumulative effect after-tax charge to retained earnings of $2.9 billion. NOTE 2-ACQUISITIONS AND RESTRUCTURING ACTIVITIES Acquisitions On February 27, 2009, we acquired all of the outstanding common stock of Chevy Chase Bank...

  • Page 130
    ... debt obligations; agency and non-agency mortgage-backed securities; other asset-backed securities collateralized primarily by credit card loans, auto loans, student loans, auto dealer floor plan inventory loans, equipment loans, and home equity lines of credit; municipal securities and limited...

  • Page 131
    ...2010 Gross Gross Unrealized Unrealized LossesLossesOther(2) OTTI(1) Total Gross Unrealized Losses (Dollars in millions) Securities available for sale: U.S. Treasury debt obligations ...U.S. Agency debt obligations(3) ...Collateralized mortgage obligations ("CMOs"): Agency(4) ...Non-agency ...Total...

  • Page 132
    ... 2010. Consists of securities collateralized by credit card loans, auto loans, auto dealer floor plan inventory loans, equipment loans, and home equity lines of credit. The distribution among these asset types was approximately 77.8 % credit card loans, 7.2% student loans, 6.7% auto loans, 5.6% auto...

  • Page 133
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED STATEMENTS Less than 12 Months Gross Unrealized Losses Fair Value December 31, 2009 12 Months or Longer Gross Unrealized Losses Fair Value Total Fair Value Securities available for sale: U.S. Treasury debt obligations ...U.S. Agency debt ...

  • Page 134
    ... debt securities issued by Fannie Mae and Freddie Mac. Consists of mortgage-related securities issued by Fannie Mae, Freddie Mac and Ginnie Mae. Yields of tax-exempt securities are calculated on a fully taxable-equivalent (FTE) basis. Credit Ratings Approximately 92% and 90% of our total investment...

  • Page 135
    ...; the payment structure of the security; external credit ratings and the failure of the issuer to make scheduled interest or principal payments; the value of underlying collateral; and current market conditions. Effective April 1, 2009, we adopted new accounting guidance that changed our method...

  • Page 136
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED STATEMENTS The table below presents activity related to credit losses on debt securities recognized in earnings for which a portion of the OTTI, the non-credit component, was recorded in AOCI. Year Ended December 31, (Dollars in millions) 2010 ...

  • Page 137
    ...in our Credit Card and Consumer Banking businesses. Includes construction loans and land development loans totaling $2.4 billion and $2.5 billion as of December 31, 2010 and 2009, respectively. Excludes the impact from the January 1, 2010 adoption of the new consolidation accounting standards, which...

  • Page 138
    ... and use in evaluating the credit quality of our loan portfolio include delinquency and nonperforming asset rates, as well as charge-off rates and our internal risk ratings of larger balance, commercial loans. High unemployment, the decline in home prices and other weak economic conditions resulting...

  • Page 139
    .... Credit Card: Risk Profile by Geographic Region and Delinquency Status December 31, 2010 % of Total(1) Amount (Dollars in millions) Domestic: California ...Texas ...New York ...Florida ...Illinois ...Pennsylvania ...Ohio ...New Jersey ...Michigan ...Other ...Total Domestic Card ...International...

  • Page 140
    ... Consumer Banking: Risk Profile by Geographic Region, Delinquency Status and Performing Status December 31, 2010 Non-PCI Loans % of Total(1) Loans PCI Loans Loans % of Total(1) Total Loans % of Total(1) (Dollars in millions) Auto: Texas ...California ...Louisiana ...Florida ...Georgia ...New York...

  • Page 141
    ... within each risk category calculated based on total held-for-investment home loans. Represents the top ten states in which we have the highest concentration of home loans. Commercial Banking We evaluate the credit risk of commercial loans individually and use a risk-rating system to determine...

  • Page 142
    ...if the deficiencies are not corrected. We use our internal risk-rating system for regulatory reporting, determining the frequency of review of the credit exposures and evaluation and determination of the allowance for commercial loans. Loans of $1 million or more designated as criticized performing...

  • Page 143
    ... Investment Interest Income Recognized Credit card: Domestic ...$ International ...Total credit card ...Consumer: Auto ...Home loan ...Retail banking ...Total consumer ...Commercial: Commercial and multifamily real estate ...Middle market ...Specialty lending ...Total commercial lending ...Small...

  • Page 144
    ... Chevy Chase Bank's portfolio of commercial loans, auto loans, fixed-mortgage loans, home equity loans and other consumer loans included segments of PCI loans. Initial Fair Value and Accretable Yield of Acquired Loans At acquisition, we estimated the cash flows we expected to collect on these loans...

  • Page 145
    ... our customers will access their entire available line at any given point in time. In addition to available unused credit card lines, we enter into commitments to extend credit that are legally binding conditional agreements having fixed expirations or termination dates and specified interest rates...

  • Page 146
    ...31, 2010: December 31, 2010 Credit Card Consumer Home Loan Retail Banking Total Consumer (Dollars in millions) Allowance for loan and lease losses by impairment methodology: Collectively evaluated for impairment . . Individually evaluated for impairment . . Purchased credit impaired loans ...Total...

  • Page 147
    ..., including the securitized loans and the securities issued to third parties. Effective January 1, 2010, we adopted the new consolidation guidance which removed the concept of a QSPE resulting in the consolidation of our credit card trusts, one installment loan trust, and certain mortgage trusts. We...

  • Page 148
    ... reported as loans held for investment. See "Note 1-Summary of Significant Accounting Policies" for more detail on the impacts of consolidation on our financial statements. See "Mortgage Securitization" below for details relating to our consolidation and de-consolidation of Chevy Chase Bank mortgage...

  • Page 149
    ... servicer of the loans prior to the adoption of the new consolidation standards and formally exercised that right during the first quarter of 2010. GreenPoint Mortgage HELOCs Our discontinued wholesale mortgage banking unit, GreenPoint, previously sold home equity lines of credit in whole loan sales...

  • Page 150
    ..., 2010. Collections on deposit for secured borrowings are included in restricted cash on the consolidated balance sheet as of January 1, 2010 and thereafter. As of December 31, 2009, non-mortgage related accounts receivable from securitizations includes credit card, installment loan and auto trusts...

  • Page 151
    ... on January 1, 2010 as a result the adoption of the new consolidation accounting standards and the subsequent pay down of the off-balance sheet installment loan trust. The changes in the fair value of retained interests in prior periods were primarily driven by rate assumption changes and volume...

  • Page 152
    ... 11.5% (6) (12) Mortgage related retained interests were acquired in connection with the Chevy Chase Bank acquisition which occurred on February 27, 2009. Does not include liquidity swap related to the negative amortization bonds of $19 million. Static pool credit losses were calculated by summing...

  • Page 153
    ...invested equity capital and debt. The activities of the CDEs are financed solely with invested equity capital. We receive federal and state tax credits for these investments. We consolidate the VIEs in which we have the power to direct the activities that most significantly impact the VIE's economic...

  • Page 154
    ..., Middle Market, Specialty Lending and Small-ticket Commercial Real Estate. As a result of the segment reorganization, goodwill was reassigned to the new reporting units using a relative fair value allocation approach, and the goodwill associated with the Chevy Chase Bank acquisition was assigned...

  • Page 155
    ... fair market value of the lease contracts at the acquisition date. The purchased credit card relationship reflects the difference between the purchase price and the fair value of the credit card loans acquired in the Sony acquisition. The other intangible items relate to customer lists and brokerage...

  • Page 156
    ...) 2010 2009 (1) Balance at beginning of period ...Acquired in acquisitions (1) ...Originations ...Sales ...Change in fair value, net ...Balance at end of period ...Ratio of mortgage servicing rights to related loans serviced for others ...Weighted average service fee ..._____ Related to the Chevy...

  • Page 157
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED STATEMENTS MSR fair value adjustments in 2010 and 2009 included decreases of $28 million and $31 million, respectively, due to run-off and cash collections, and decreases of $41 million and $6 million, respectively, due to changes in the ...

  • Page 158
    ...Restructuring Activities," we completed the acquisition of Chevy Chase Bank in February 2009. The acquisition added $159 million in land, $248 million in buildings and improvements, $69 million of furniture and equipment, $42 million of computer software and $11 million of construction in process at...

  • Page 159
    ... from the Federal Home Loan Bank. Our FHLB membership is secured by our investment in FHLB stock, which totaled $269 million and $264 million, as of December 31, 2010 and 2009, respectively. Securitized Debt Obligations As a result of the January 1, 2010 prospective adoption of the new consolidation...

  • Page 160
    ... advances (4) Fixed, interest rates ranging from 2.69% to 7.22%, due 2010 to 2011 ...Federal funds purchased and resale agreements due 2011 ...Other short-term borrowings ...Total other short-term borrowings ...Total short-term borrowings ...Long-term debt: Senior and subordinated notes Bank notes...

  • Page 161
    ...and exchange-traded derivative markets. In addition to interest rate swaps, we use a variety of other derivative instruments, including caps, floors, options, futures and forward contracts, to manage our interest rate and foreign currency risk. From time to time, we enter into customer-accommodation...

  • Page 162
    ... some of our fixed-rate debt, deposits and investments to variable rate. Cash Flow Hedges: We designate derivatives as cash flow hedges to manage our exposure to variability in cash flows related to forecasted transactions. Changes in the fair value of derivatives designated as cash flow hedges are...

  • Page 163
    ... entered into with our commercial banking customers and those entered into with other counterparties to offset the market risk. Income Statement Presentation and AOCI The following tables summarize the impact of derivatives and related hedged items on our consolidated statements of income and AOCI...

  • Page 164
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED STATEMENTS (Dollars in millions) Year Ended December 31, 2010 2009 Derivatives designated as accounting hedges: Fair value interest rate contracts: Gain (loss) recognized in earnings on derivatives(1) ...Gain (loss) recognized in earnings on ...

  • Page 165
    ... of a combination of cash and securities, totaling $229 million and $254 million as of December 31, 2010 and 2009, respectively. If our debt credit rating had fallen below investment grade, we would have been required to post additional collateral of $39 million and $28 million as of December 31...

  • Page 166
    ... of $117 million) was reported in other comprehensive income as of December 31, 2010 and 2009, respectively. NOTE 13-REGULATORY AND CAPITAL ADEQUACY Regulation and Capital Adequacy Bank holding companies and national banks are subject to capital adequacy standards adopted by the Federal Reserve and...

  • Page 167
    ... for loan and lease losses for the assets underlying these trusts, which reduced retained earnings and our Tier 1 risk-based capital ratio. In January 2010, banking regulators issued regulatory capital rules related to the impact of the new consolidation accounting standards. Under these rules, we...

  • Page 168
    ..., 2009 and 2008: (Dollars in millions) 2010 Year Ended December 31, 2009 2008 Professional services ...Collections ...Fraud losses ...Bankcard association assessments ...Core deposit intangible amortization ...Other ...Total ...NOTE 16-STOCK-BASED COMPENSATION PLAN Stock Plans $ $ 916 596 80 221...

  • Page 169
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED STATEMENTS The following table provides the number of reserved common shares and the number of common shares available for future issuance for our active stock-based compensation plan as of December 31, 2010 and 2009. The ability to issue ...

  • Page 170
    ... date. We expect to recognize the unrecognized compensation cost for unvested cash equity units of $54 million as of December 31, 2010, which calculated based on the average quarterly stock price, over the next 3 years. 2011 CEO Grant In January 2011, our Board of Directors approved a compensation...

  • Page 171
    ...TO CONSOLIDATED STATEMENTS In 2011, our Board of Directors also approved a grant of 134,632 restricted stock units as a portion of to the 2010 compensation package for our CEO. The award will vest in full in three years and settle in cash based on our average stock price over the twenty trading days...

  • Page 172
    ... insurance benefits, which were merged into a single plan effective January 1, 2008. Our pension plans and the other postretirement benefit plans are valued using a December 31 measurement date. Our policy is to amortize prior service amounts on a straight-line basis over the average remaining years...

  • Page 173
    ... used in the accounting for the plans: December 31, 2010 2009 2010 2009 Pension Benefits Postretirement Benefits Assumptions for benefit obligations at measurement date: Discount rate ...Rate of compensation increase ...Assumptions for periodic benefit cost for the year ended: Discount rate...

  • Page 174
    ...the annual measurement dates are as follows: 2010 December 31, 2009 Common collective trusts(1) ...Money market fund ...Limited partnerships ...Corporate bonds (S&P rating of A or higher) ...Corporate bonds (S&P rating of lower than A) ...Government securities ...Mortgage backed securities ...Total...

  • Page 175
    ... Assets at Fair Value Plan Assets Common collective trusts ...Short-term investment fund...Corporate bonds (S&P rating of A or higher) ...Corporate bonds (S&P rating of lower than A) ...Government securities ...Mortgage-backed securities...Municipal bonds...Total Plan Assets ...(Dollars in millions...

  • Page 176
    ... millions) 2010 Year Ended December 31, 2009 2008 Foreign currency translation gains (losses) ...Net unrealized securities gains (losses) ...Other-than-temporary impairment on securities ...Net unrealized derivative gains ...Adoption of new consolidation accounting standards ...Employee stock plans...

  • Page 177
    ... and lease losses ...Unearned income ...Net unrealized losses on securities and derivative instruments ...Employee stock plans ...Rewards & sweepstakes programs ...Valuation difference of acquired loans...Representation & warranty reserve ...Employee benefits ...Securitizations ...Foreign tax credit...

  • Page 178
    ... 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. (Dollars in millions...

  • Page 179
    ...that CONA, as successor to North Fork Bank and Chevy Chase Bank F.S.B., makes distributions in excess of earnings and profits, redeems its stock, or liquidates. NOTE 19-FAIR VALUE OF FINANCIAL INSTRUMENTS Under applicable accounting guidance, fair value is defined as the exchange price that would be...

  • Page 180
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED STATEMENTS Assets and Liabilities Measured at Fair Value on a Recurring Basis December 31, 2010 (Dollars in millions) Fair Value Measurements Using Level 1 Level 2 Level 3 Assets/ Liabilities at Fair Value Assets Securities available for sale:...

  • Page 181
    ...recurring basis using significant unobservable inputs (Level 3). Securities Available for Sale Mortgage Servicing Rights Year Ended December 31, 2010 Retained Derivative Interests in Receivables(2) Securitizations(3) (Dollars in millions) Balance, January 1, 2010 ...$ Total realized and unrealized...

  • Page 182
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED STATEMENTS Securities Available for Sale Mortgage Servicing Rights Year Ended December 31, 2009 Retained Interests in Derivative Securitizations(3) Receivables(2) Balance, January 1, 2009 ...Total realized and unrealized gains (losses): ...

  • Page 183
    ... receivable ...Accounts receivable from securitization ...Derivatives ...Mortgage servicing rights ...Financial Liabilities Non-interest bearing deposits ...Interest-bearing deposits ...Senior and subordinated notes ...Securitized debt obligations ...Federal funds purchased and securities loaned or...

  • Page 184
    ... trade on a daily basis, the evaluated pricing applications may apply available information through processes such as benchmarking curves, like securities, sector groupings, and matrix pricing to prepare valuations. In addition, model processes are used by the pricing services to develop prepayment...

  • Page 185
    ... value of credit card loans excluded any value related to customer account relationships. The increase in fair value above carrying amount at December 31, 2010 was primarily due to a tightening of liquidity spreads and improved credit performance noted in our credit card, auto and commercial loan...

  • Page 186
    ...debt obligations. The techniques used by the pricing services utilize observable market data to the extent available; and pricing models may be used which incorporate available trade, bid and other market information as described in the above section. We used internal pricing models, discounted cash...

  • Page 187
    ...consumer and small businesses, national deposit gathering, national automobile lending and consumer home loan lending and servicing activities. Commercial Banking: Consists of our lending, deposit gathering and treasury management services to commercial real estate and middle market customers. Other...

  • Page 188
    ... or customer type. • • • • • • • Segment Results and Reconciliation The following tables provide a summary of our business segment results for the years ended December 31, 2010, 2009 and 2008 and selected balance sheet data as of December 31, 2010 and 2009. Total consolidated...

  • Page 189
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED STATEMENTS Credit Card Consumer Banking Year Ended December 31, 2010 Commercial Total Banking Other(1) Managed Securitization Adjustments(1) Total Reported Net interest income (expense) ...Non-interest income (expense) ...Total revenue ......

  • Page 190
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED STATEMENTS Consumer Banking Commercial Banking December 31, 2010 Total Managed Securitization Adjustments(1) Total Reported (Dollars in millions) Loans held for investment ...Total deposits ... $ Credit Card 61,371 0 $ 34,383 82,959 $ ...

  • Page 191
    ... with other investors. Because we do not service most of the loans our subsidiaries sold to others, we do not have complete information about the current ownership of the $82 billion in original principal balance of mortgage loans not sold directly to GSEs or placed in Insured Securitizations. We...

  • Page 192
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED STATEMENTS As of December 31, 2010, the subsidiaries had open repurchase requests relating to approximately $1.6 billion original principal balance of mortgage loans as compared with $1.0 billion as of December 31, 2009. Over the last year, the...

  • Page 193
    ... quarter of 2010. As indicated in the table below, almost all of the reserves relate to the $11 billion in original principal balance of mortgage loans sold directly to the GSEs and to the $13 billion in mortgage loans sold to purchasers who placed them into Active Insured Securitizations. 173

  • Page 194
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED STATEMENTS Allocation of Representation and Warranty Reserves (Dollars in millions, except for loans sold) December 31, 2010 Reserve Loans Sold Liability 2005 to 2008(1) GSEs and Active Insured Securitizations ...Inactive Insured ...

  • Page 195
    ... Unfair Competition Law, the California False Advertising Act, the New Jersey Consumer Fraud Act, and the Kansas Consumer Protection Act when it raised interest rates on certain credit card accounts. The parties are currently conducting discovery. In January 2010, the West Virginia Attorney General...

  • Page 196
    CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED STATEMENTS having an aggregate original principal balance of approximately $1.8 billion to a purchaser that ultimately transferred most of these mortgage loans to a securitization trust. Some of the securities issued by the trust were insured ...

  • Page 197
    ... customer's credit application and evaluate the applicant's financial history and ability and willingness to repay. Loans are made on an unsecured and secured basis. Certain commercial, small business, home loans and automobile loans require collateral in various forms including cash deposits...

  • Page 198
    ... of registered securities to include separate annual financial statements. December 31, (Dollars in millions) 2010 2009 Balance Sheets Assets: Cash and cash equivalents ...Investment in subsidiaries ...Loans to subsidiaries ...Securities available for sale ...Other ...Total assets ...Liabilities...

  • Page 199
    ...of securities available for sale ...Gain on repurchase of senior notes ...Amortization of discount of senior notes ...Stock plan compensation expense ...(Increase) decrease in other assets ...Increase (decrease) in other liabilities ...Net cash (used in) provided by operating activities ...Investing...

  • Page 200
    ...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. December 31, (Dollars in millions) 2010 2009 2008...

  • Page 201
    ...tabulation of the our unaudited quarterly results for the years ended December 31, 2010 and 2009. Our 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 14,981 and 16,955 common stockholders...

  • Page 202
    ... and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Capital One's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of...

  • Page 203
    ...standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Capital One Financial Corporation as of December 31, 2010 and 2009, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the...

  • Page 204
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of Capital One Financial Corporation: We have audited the accompanying consolidated balance sheets of Capital One Financial Corporation as of December 31, 2010 and 2009, and the related consolidated ...

  • Page 205
    ... Procedures (a) Disclosure Controls and Procedures As of the end of the period covered by this report and pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the "Exchange Act"), our management, including the Chief Executive Officer and Chief Financial Officer, carried out an evaluation...

  • Page 206
    ... with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days of the Company's 2010 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...

  • Page 207
    ...Management's Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Statement of Income for the years ended December 31, 2010, 2009 and 2008 Consolidated Balance Sheet as of December 31, 2010 and 2009 Consolidated Statement of Changes...

  • Page 208
    ...thereunto duly authorized. CAPITAL ONE FINANCIAL CORPORATION Date: March 1, 2011 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...

  • Page 209
    ... 1, 1996 between Capital One Financial Corporation and The Bank of New York Mellon Trust Company, N.A., formerly known as The Bank of New York Trust Company, N.A. (as successor to Harris Trust and Savings Bank), as trustee (incorporated by reference to Exhibit 4.1 of the Corporation's Report on Form...

  • Page 210
    ...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 (incorporated by reference to Exhibit 4.1 of the Corporation's Current Report on Form 8-K, filed on June...

  • Page 211
    ...Specimen Junior Subordinated Debt Security (incorporated by reference to Exhibit 4.6 of the Corporation's Current Report on Form 8-K, filed on November 13, 2009). Indenture, dated as of August 29, 2006, between Capital One Financial Corporation and The Bank of New York Mellon Trust Company, N.A., as...

  • Page 212
    ... to Exhibit 99.1 of the Corporation's Report on Form 8-K, filed December 23, 2004). Form of Restricted Stock Award Agreement between Capital One Financial Corporation and certain of its executives or associates pursuant to the Company's 2004 Stock Incentive Plan (incorporated by reference to Exhibit...

  • Page 213
    ...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 214
    ... to our executive officers under the 2004 Stock Incentive Plan. Computation of Ratio of Earnings to Combined Fixed Charges. Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. Subsidiaries of the Company. Consent of Ernst & Young LLP. Certification of Richard...

  • Page 215
    ... titled measures used by other companies. As a result of the January 1, 2010 adoption of the new consolidation accounting standards, the accounting for the loans in our securitization trusts in our reported GAAP financial statements is similar to how we accounted for these loans on a managed basis...

  • Page 216
    CAPITAL ONE FINANCIAL CORPORATION (COF) Table 1: Financial & Statistical Summary-Reported GAAP Measures(1) 2009 (dollars in millions)(unaudited) 2008 Q2 Q1 (2) Full Year Earnings Net interest income ...Non-interest income (3) ...Total revenue (5) ...Provision for loan and lease losses ... Full Year...

  • Page 217
    CAPITAL ONE FINANCIAL CORPORATION (COF) Table 2: Financial & Statistical Summary-Non-GAAP Securitization Reconciliation Adjustments 2009 Q3 2008 Full Year Earnings Net interest income ...$ Non-interest income ...Total revenue ...Provision for loan and lease losses ... (dollars in millions)(...

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    ... interest margin ...Revenue margin ...Risk-adjusted margin (C) ...Non-interest expense as a% of average loans held for investment (annualized) ...Efficiency ratio (D) ...Non-GAAP Managed Credit Quality Statistics Net charge-offs ...$ Net charge-off rate (8) ...30+ day performing delinquencies ...30...

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    ... to the current period presentation and adjusted to reflect purchase accounting refinements related to the acquisition of Chevy Chase Bank, FSB ("CCB"). (8) The denominator used in calculating the allowance as a % of loans held for investment, the net charge-off rate and the 30+ day performing...

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    CAPITAL ONE FINANCIAL CORPORATION (COF) Table 5: Reconciliation of Non-GAAP Average Balances, Net Interest Income and Net Interest Margin(1) Quarter Ended 12/31/09 Interest Income/ Expense Year Ended 12/31/09 Interest Income/ Expense Reported Basis Interest-earning assets: Loans held for investment...

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    Non-GAAP Managed Basis Interest-earning assets: Loans held for investment ...Other ...Total interest-earning assets ...Interest-bearing liabilities: Securitization liability ...Total interest-bearing liabilities ...Net interest income/spread ...Interest income to average interestearning assets ......

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    ... measures are widely used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies, they may not be comparable to similarly titled measures reported by other companies. (dollars in millions)(unaudited) 2010 Q4 2010 Q3 2010 Q2 2010 Q1 2009 Q4...

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    ... is the same as the TCE ratio for periods subsequent to January 1, 2010, is calculated based on tangible common equity divided by managed tangible assets. Reflects the adjustment to reported total consolidated assets to reflect loans underlying off-balance sheet securitized trusts in the same manner...

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    ... business develops or changes or as it expands into new market areas; Capital One's ability to execute on its strategic and operational plans; any significant disruption of, or loss of public confidence in, the United States Mail service affecting Capital One's response rates and consumer payments...

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    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 Cert no. SW-COC-001215 10%