Capital One 2010 Annual Report Download - page 190

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS
170
December 31, 2010
(Dollars in millions) Credit Card
Consumer
Banking
Commercial
Banking Other
Total
Managed
Securitization
Adjustments(1)
Total
Reported
Loans held for investment . . . $ 61,371 $ 34,383 $ 29,742 $ 451 $ 125,947 $ 0 $ 125,947
Total deposits ............... 0 82,959 22,630 16,621 122,210 0 122,210
December 31, 2009
(Dollars in millions) Credit Card
Consumer
Banking
Commercial
Banking Other
Total
Managed
Securitization
Adjustments(1)
Total
Reported
Loans held for investment . . . $ 68,524 $ 38,214 $ 29,613 $ 452 $ 136,803 $ (46,184) $ 90,619
Total deposits ............... 0 74,145 20,480 21,184 115,809 0 115,809
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(1) Reflects the impact of adjustments to reconcile amounts presented on a managed basis to amounts reported in our consolidated balance sheets.
These adjustments primarily consist of the elimination from total managed loans held for investment credit card loans that have been securitized
and accounted for as off-balance sheet transactions in accordance with GAAP to reconcile to our reported loans held for investment.
NOTE 21—COMMITMENTS, CONTINGENCIES AND GUARANTEES
Letters of Credit
We issue letters of credit (financial standby, performance standby and commercial) to meet the financing needs of our customers.
Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party in a
borrowing arrangement. Commercial letters of credit are short-term commitments issued primarily to facilitate trade finance activities
for customers and are generally collateralized by the goods being shipped to the client. Collateral requirements are similar to those for
funded transactions and are established based on management’s credit assessment of the customer. Management conducts regular
reviews of all outstanding letters of credit and customer acceptances, and the results of these reviews are considered in assessing the
adequacy of our allowance for loan and lease losses.
We had contractual amounts of standby letters of credit and commercial letters of credit of $1.8 billion at December 31, 2010. As of
December 31, 2010, financial guarantees had expiration dates ranging from 2011 to 2016. The fair value of the guarantees outstanding
at December 31, 2010 that have been issued since January 1, 2003, was $3 million and was included in other liabilities.
Chevy Chase Bank Acquisition
On February 27, 2009, we acquired all of the outstanding common stock of Chevy Chase Bank in exchange for our common stock and
cash. In addition, to the extent that losses on certain of Chevy Chase Bank’s home loans are less than the level reflected in the net
credit mark estimated at the time the deal was signed, we are obligated to share a portion of the benefit with the former Chevy Chase
Bank common stockholders (the “earn-out”). The maximum payment under the earn-out is $300 million and would occur after
December 31, 2013. As of December 31, 2010, we have not recognized a liability with the earn-out based on our expectation of credit
losses on the portfolio.
Potential Mortgage Representation & Warranty Liabilities
In recent years, we acquired three subsidiaries that originated residential mortgage loans and sold them to various purchasers,
including purchasers who created securitization trusts. These subsidiaries are Capital One Home Loans, which was acquired in
February 2005; GreenPoint Mortgage Funding, Inc. (“GreenPoint”), which was acquired in December 2006 as part of the North Fork
acquisition; and Chevy Chase Bank, which was acquired in February 2009 and subsequently merged into CONA.
In connection with their sales of mortgage loans, the subsidiaries entered into agreements containing varying representations and
warranties about, among other things, the ownership of the loan, the validity of the lien securing the loan, the loan’s compliance with
any applicable loan criteria established by the purchaser, including underwriting guidelines and the ongoing existence of mortgage
insurance, and the loan’s compliance with applicable federal, state and local laws. The representations and warranties do not address
the credit performance of the mortgage loans, but mortgage loan performance often influences whether a claim for breach of
representation and warranty will be asserted and has an effect on the amount of any loss in the event of a breach of a representation or
warranty.