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2012 ANNUAL REPORT2012 ANNUAL REPORT

Page 1
2 012 A NNUA L R EP OR T

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...low interest rates. Direct year-over-year comparisons of many of our metrics are difï¬cult because of signiï¬cant, non-recurring merger-related impacts and the new operating baselines created by the acquisitions of ING Direct and the HSBC U.S. credit card business. Operating earnings for 2012 were...

Page 3
...our assumed regulatory minimum under the new rules in 2013, years before the new requirements take effect. Capital One's stock price closed the year at $57.93 per share, up 37% for the year, compared to a 30% increase in value for the KBW Bank Index. Our Total Shareholder Return (TSR) in 2012 was 37...

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"The results we delivered in 2012 are a testament to what our people achieved, and I am conï¬dent that together we can build a great company that does banking the right way." 3

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... in line with our expectations. Our primary concern for the ING Direct integration was to protect and Products and services offered by Capital One, N.A., Member FDIC. Â© 2012 Capital One. Capital One is a federally registered service mark. All rights reserved. Our Commercial Banking business uses...

Page 6
... services industry. As we have discussed for many years, the earliest phases of national consolidation began not one company at a time, but one product at a time. Credit cards, auto ï¬nance, and online brokerage all were stripped away from traditional banks by national players with increasing...

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... access to attractive national scale assets in credit cards, auto ï¬nance, and specialty commercial lending. We have a large, national customer base, including the 7.5 million passionate "early digital adopters" who came with the ING Direct acquisition. We have the nation's largest internet bank...

Page 8
... and effectively use our credit, transaction, savings, and investment products and services. And across all channels, we are improving our customer service and moving toward a more digital experience. 2012 Capital One is a great place to work. We continue to make "best companies" lists in the...

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...for online bill payment, compelling and convenient mobile deals, and our innovative new rewards redemption feature, "Purchase Eraser," which allows customers to use their rewards to "erase" their previous purchases via our mobile app. We also continued to focus on driving digital innovation. In 2012...

Page 10
... associates are partnering with nonproï¬ts to change lives and neighborhoods for the better. In 2012, our associates volunteered more than 260,000 hours to mentor small business owners, counsel ï¬rst-time homebuyers, and teach the basics of personal money management. Associates from Legal, Finance...

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... our teams worked around the clock to close the deal on time and help revive the area. executives with deep experience in operations and digital technology to ï¬ll critical leadership positions. Capital One continues to be widely recognized as a great place to work. In 2012, we were one of FORTUNE...

Page 12
... thing. The results we delivered in 2012 are a testament to what our people achieved, and I am conï¬dent that together we can build a great company that does banking the right way. Richard D. Fairbank Chairman and Chief Executive Ofï¬cer The Civic 50, a prestigious new award from the National...

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... Summary Diluted Earnings Per Share From Continuing Operations $6.68 $7.03 $6.54 $2.28* $0.98 2008* 2009 2010 2011 2012 Diluted Earnings Per Share $6.80 $6.01 $6.16 ($0.21) 2008 $0.74 2009 2010 2011 2012 Deposits ($ In Billions) $212 $109 $116 $122 $128 2008 2009 2010 2011 2012...

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...: Purchase volume Revenue margin Net interest margin Return on average assets Return on average total stockholders' equity Efficiency ratio Effective income tax rate Full-time equivalent employees (in thousands), period end $ $ Capital Ratios: Tier 1 common equity ratio Tier 1 risk-based capital...

Page 15
... Senior Advisor, Managing Director and Vice Chairman for Retail Banking Morgan Stanley & Co. Chief Enterprise Services Officer and Chief of Staff to the CEO Gary L. Perlin Chief Financial Officer Pierre E. Leroy Executive Chairman Vigilant Solutions, Inc. Ryan M. Schneider President, Card Peter...

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... whether the registrant is a Shell Company (as defined in Rule 12b-2 of the Exchange Act) Yes ' No Ãˆ The aggregate market value of the voting stock held by non-affiliates of the registrant as of the close of business on June 30, 2012. Common Stock, $.01 Par Value: $31,515,866,408* * In determining...

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...Stockholders' Equity ...Consolidated Statements of Cash Flows ...Notes to Consolidated Statements ...Note 1 - Summary of Significant Accounting Policies ...Note 2 - Acquisitions ...Note 3 - Discontinued Operations ...Note 4 - Investment Securities ...Note 5 - Loans ...Note 6 - Allowance for Loan and...

Page 18
... in and Disagreements with Accountants on Accounting and Financial Disclosure ...Item 9A. Controls and Procedures ...Item 9B. Other Information ...PART III Item 10. Directors, Executive Officers and Corporate Governance ...Item 11. Executive Compensation ...Item 12. Security Ownership of Certain...

Page 19
...Banking Business Results ...Commercial Banking Business Results ..."Other" Results ...Investment Securities Available for Sale ...Non-Agency Investment Securities Credit Ratings ...Net Loans Held for Investment ...Changes in Representation and Warranty Reserve ...Capital Ratios Under Basel I ...Loan...

Page 20
... 31, 2012, we service banking customer accounts through the internet and branch locations primarily in New York, New Jersey, Texas, Louisiana, Maryland, Virginia and the District of Columbia. In addition to bank lending, treasury management and depository services, we offer credit and debit card...

Page 21
... surplus had no effect on Capital One's total capital. HSBC-U.S. Credit Card Business On May 1, 2012, pursuant to the agreement with HSBC Finance Corporation, HSBC USA Inc. and HSBC Technology and Services (USA) Inc. (collectively, "HSBC"), we closed the acquisition of substantially all of the...

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... material to the U.S. Securities and Exchange Commission ("SEC"). OPERATIONS AND BUSINESS SEGMENTS Our consolidated total net revenues are derived primarily from lending to consumer and commercial customers and by deposit-taking activities net of the costs associated with funding our assets, which...

Page 23
... balances. For additional information on our business segments, including the financial performance of each business and the realignment of our Commercial Banking business, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")-Executive Summary...

Page 24
...-existing balances of a customer whose risk of default increases are restricted. Payments above the minimum payment must be allocated first to balances with the highest interest rate. The amount of fees charged to credit card accounts with lower credit lines is limited. A consumer's ability to pay...

Page 25
... rules is to ensure that large bank holding companies have robust, forward-looking capital planning processes that account for their unique risks and capital needs to continue operations through times of economic and financial stress. As part of its evaluation of a capital plan, the Federal Reserve...

Page 26
..., FDICIA requires regulators to establish certain non-capital safety and soundness standards. The standards 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...

Page 27
... or more or consolidated total on-balance-sheet foreign exposure of $10 billion or more. We became subject to these rules at the end of 2012 primarily as a result of the ING Direct acquisition. Prior to full implementation of the Basel II framework, organizations must complete a qualification period...

Page 28
... the Dodd-Frank Act, the FDIC had established a plan to restore the DIF in the face of recent insurance losses and future loss projections, which resulted in several rules that generally increased deposit insurance rates and purported to improve risk differentiation so that riskier institutions bear...

Page 29
... agency. The termination of deposit insurance for a bank could have a material adverse effect on its liquidity and its earnings. Overdraft Protection The Federal Reserve amended Regulation E in November 2009 to limit the ability to assess overdraft fees for paying ATM and one-time debit card...

Page 30
... new loans and for reviewing and managing risks associated with existing accounts. In addition, the Banks furnish customer account information to the major consumer reporting agencies. The use of consumer reports by the Banks and furnishing of account information to the consumer reporting agencies...

Page 31
... their business operations, including sales and trading practices, public offerings, publication of research reports, use and safekeeping of client funds and securities, capital structure, record-keeping and the conduct of directors, officers and employees. Capital One Asset Management LLC, which...

Page 32
... Credit Act 1974) should be replaced with a model similar to regulation of other retail financial services (under the Financial Services and Markets Act 2000). Regulatory focus on Payment Protection Insurance ("PPI") complaint handling has continued following the introduction of new FSA rules...

Page 33
... consent to new products or services. These regulations came into force on August 1, 2012. In September 2012, the Credit Business Practices (Banks, Authorized Foreign Banks, Trust and Loan Companies, Retail Associations, Canadian Insurance Companies and Foreign Insurance Companies) Regulations were...

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... Our commercial loans are concentrated in New York, Texas, Louisiana and New Jersey. See "MD&A-Credit Risk Profile" and "Note 5-Loans" for additional information. Technology/Systems We leverage information technology to achieve our business objectives and to develop and deliver products and services...

Page 35
... other claims against us; earnings per share or other financial measures for us; future financial and operating results; our plans, objectives, expectations and intentions; the projected impact and benefits of the ING Direct and 2012 U.S. card acquisitions (collectively, the "Transactions"); and the...

Page 36
... capitalize and fund our operations and future growth; the success of our marketing efforts in attracting and retaining customers; increases or decreases in our aggregate loan balances or the number of customers and the growth rate and composition thereof, including increases or decreases resulting...

Page 37
...Environment, Including A Slow or Delayed Economic Recovery, May Adversely Affect Our Industry, Business, Results Of Operations And Capital Levels. The recent global recession resulted in a general tightening in the credit markets, lower levels of liquidity, reduced asset values (including commercial...

Page 38
... could limit our access to funding. The interest rates that we pay on our securities are also influenced by, among other things, applicable credit ratings from recognized rating agencies. A downgrade to any of these credit ratings could affect our ability to access the capital markets, increase our...

Page 39
..., liquidity, risk management, stress testing, single-counterparty credit exposure limits, early remediation, and resolution planning for bank holding companies and certain foreign banking organizations with $50 billion or more in consolidated total assets ("covered companies"). In December 2011...

Page 40
.... In its order approving the acquisition, the Federal Reserve Board required Capital One to enhance our risk-management systems and policies enterprisewide to account for the changes to our business lines that would result from the acquisitions of ING Direct and HSBC's credit card operations in the...

Page 41
... Mortgage Funding, Inc. ("GreenPoint"), Capital One Home Loans and Capital One, N.A., as successor to Chevy Chase Bank, may be required to repurchase mortgage loans that have been sold to investors in the event there are breaches of certain representations and warranties contained within the sales...

Page 42
...Basel capital minimums; and revise the federal banking agencies' general approach for calculating risk-weighted assets. These rules have not yet been finalized. Proposed U.S. rules implementing the Basel III liquidity framework are expected at a later date. Because we are a consolidated bank holding...

Page 43
... rules is to ensure that large bank holding companies have robust, forward-looking capital planning processes that account for their unique risks and capital needs to continue operations through times of economic and financial stress. As part of its evaluation of a capital plan, the Federal Reserve...

Page 44
... ING Direct and the 2012 U.S. card acquisitions, and establish scalable operations, may increase our expenses. Further, as our business develops, changes or expands, additional expenses can arise as a result of a reevaluation of business strategies, management of outsourced services, asset purchases...

Page 45
... with approximately $109 billion in deposits as of December 31, 2012. While direct banking represents a significant opportunity to attract new customers that value greater and more flexible access to banking services at reduced costs, it also presents significant risks. In addition to the software...

Page 46
... Anticipated Benefits Of Our Mergers And Acquisitions. We have engaged in merger and acquisition activity over the past several years and may continue to engage in such activity in the future. For example, in 2012, we closed the ING Direct and 2012 U.S. card acquisitions. We continue to evaluate and...

Page 47
... or partner company's future net income and our earnings per share; our ability to issue equity and debt to complete any merger or acquisition; our expected capital structure and capital ratios after any merger, acquisition or strategic partnership; projections as to the amount of future loan losses...

Page 48
... significant resources, time and expense in acquiring and developing the relationships. The loss of any of our business partners could have a negative impact on our results of operations, including lower returns, excess operating expense and excess funding capacity. In such a competitive environment...

Page 49
... of the capital 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. We...

Page 50
... common stock, make payments on corporate debt securities and meet other obligations. There are various federal law limitations on the extent to which the Banks can finance or otherwise supply funds to us through dividends and loans. These limitations include minimum regulatory capital requirements...

Page 51
...located in Virginia, Texas, Maryland, New York, Louisiana, Florida, Washington, and Delaware and various other locations, and includes the following owned corporate campuses McLean, Virginia: Approximately 587,000 square foot headquarters building housing our executive offices and northern Virginia...

Page 52
... of banking branch and branch/office space consists of approximately 2.7 million square feet of leased space and 3 million square feet of owned space, including branches in locations across the District of Columbia, Louisiana, Maryland, New Jersey, New York, and Virginia. Item 3. Legal Proceedings...

Page 53
... "Item 1. Business-Supervision and Regulation-Dividends and Transfers of Funds," "MD&A-Capital Management-Dividend Policy," and "Note 13-Regulatory and Capital Adequacy," which we incorporate herein by reference. Securities Authorized for Issuance Under Equity Compensation Plans Information relating...

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....43 On February 17, 2012, in connection with the closing of the ING Direct acquisition, we issued 54,028,086 shares of common stock to ING Bank N.V. as partial consideration for the acquisition in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as...

Page 55
Issuer Purchases of Equity Securities The following table presents information related to repurchases of shares of our common stock during the fourth quarter of 2012. Total Number of Shares Purchased(1) Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Amount That May Yet ...

Page 56
... We use the term "acquired loans" to refer to a limited portion of the credit card loans acquired in the 2012 U.S. card acquisition and the substantial majority of consumer and commercial loans acquired in the ING Direct and Chevy Chase Bank ("CCB") acquisitions, which were recorded at fair value at...

Page 57
... 0.53 $ 1.50 Common dividend payout ratio ...3.22% 2.92% 3.32% 66.80% 722.06% Stock price per common share at period end ...$ 57.93 $ 42.29 $ 42.56 $ 38.34 $ 31.89 Book value per common share at period end ...69.56 64.51 58.62 59.04 68.38 Total market capitalization at period end ...33,727 19,301 19...

Page 58
... day delinquency rate ...30+ day delinquency rate (excluding acquired loans) (16) ...Capital ratios Tier 1 common ratio(22) ...Tier 1 risk-based capital ratio(23) ...Total risk-based capital ratio(24) ...Tangible common equity ratio ("TCE" ratio")(25) ...Associates Full-time equivalent employees (in...

Page 59
... in our income statement, net income on a managed basis was the same as our reported net income. We believe this managed-basis information was useful to investors because it enabled them to understand both the credit risks associated with loans reported on our consolidated balance sheets and our...

Page 60
...we closed in 2007. Preferred stock dividends in 2009 and 2008 were attributable to our participation in the U.S. Department of Treasury's Troubled Asset Relief Program ("TARP"). Loans held for investment includes loans acquired in the Chevy Chase Bank, ING Direct and 2012 U.S. card acquisitions. The...

Page 61
... in outstanding credit card receivables as of the acquisition date that we designated as held for investment. Our consolidated total net revenues are derived primarily from lending to consumer and commercial customers and by deposit-taking activities net of the costs associated with funding our...

Page 62
... card lending businesses in Canada and the United Kingdom. Consumer Banking: Consists of our branch-based lending and deposit gathering activities for consumers and small businesses, national deposit gathering, national auto lending and consumer home loan lending and servicing activities. Commercial...

Page 63
... of higher total net revenue from our legacy businesses, increased revenues from acquired businesses and a bargain purchase gain of $594 million recorded at closing of the ING Direct acquisition. The increase in net revenue was largely offset by post-acquisition charges related to the 2012 U.S. card...

Page 64
...U.S. card acquisition, we recorded an allowance release of $294 million in 2012 primarily attributable to a significant improvement in underlying credit performance trends in our Commercial Banking business. Although the allowance increased in 2012, the coverage ratio of the allowance to total loans...

Page 65
... the ING Direct acquisition. The increase in non-interest expense was largely due to operating expenses associated with ING Direct, higher infrastructure expenditures related to our home loan business and growth in auto originations and higher marketing expenditures in our retail banking operations...

Page 66
...Buy Stores, L.P. ("Best Buy") private label and co-branded credit card accounts that we acquired in the 2012 U.S. card acquisition to Citibank, N.A. ("Citi"). At the time of the announcement, the portfolio had loan balances of approximately $7 billion. In addition, we and Best Buy have agreed to end...

Page 67
... $9 billion in run-off of mortgage loans acquired from ING Direct and Chevy Chase Bank, approximately $7 billion from the sale of the Best Buy loan portfolio and approximately $2 billion in runoff of other credit card loans purchased in the 2012 U.S. card acquisition. We expect this decline to be...

Page 68
... Card revenue margin. Consumer Banking Business In our Consumer Banking business, we expect the ING Direct acquisition to continue to have a significant impact on Consumer Banking loan volumes as we anticipate that run-off in the acquired Home Loans portfolio will more than offset growth in auto...

Page 69
... credit card, consumer banking and commercial banking loan portfolios as of each balance sheet date. We maintain a separate reserve for the uncollectible portion of billed finance charges and fees on credit card loans. Allowance for Loan and Lease Losses We have an established process, using...

Page 70
... finance charges and fees, we reduce the balance of our credit card loan receivables by the amount of finance charges and fees billed but not expected to be collected and exclude this amount from revenue. Total net revenue was reduced by $937 million, $371 million and $950 million in 2012, 2011...

Page 71
... 2006, Chevy Chase Bank in 2009, and the 2012 U.S. card acquisition we have goodwill and other intangible assets. Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill...

Page 72
...) and/or income approach (discounted cash flow methods), that are used to estimate the fair value of reporting units. In applying these methodologies, we utilize a number of factors, including actual operating results, future business plans, economic projections, and market data. We also may engage...

Page 73
... fair value. Changes in market conditions, such as reduced liquidity in the capital markets or changes in secondary market activities, may reduce the availability and reliability of quoted prices or observable data used to determine fair value. We have developed policies and procedures to determine...

Page 74
...Board of Directors. We have a model policy, established by an independent Model Risk Office, which governs the validation of models and related supporting documentation to ensure the appropriate use of models for pricing. Representation and Warranty Reserve In connection with their sales of mortgage...

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.... Customer Rewards Reserve We offer products, primarily credit cards, which offer reward program members with various rewards, such as cash, airline tickets or merchandise. The majority of our rewards do not expire and there is no limit on the number of reward points an eligible card member may earn...

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... per point have the effect of either increasing or decreasing the reserve through the current period provision by an amount estimated to cover the cost of all points previously earned but not yet redeemed by card members as of the end of the reporting period. We recognized customer rewards expense...

Page 77
...our "Executive Summary and Business Outlook," where we discuss trends and other factors that we expect will affect our future results of operations. Net Interest Income Net interest income represents the difference between the interest income and applicable fees earned on our interest-earning assets...

Page 78
... amortization related to the ING Direct and 2012 U.S. card acquisitions reduced net interest income by $391 million in 2012. Credit card loans consist of domestic and international credit card loans and installment loans. Consumer banking loans consist of auto, home and retail banking loans. 59

Page 79
... The ING Direct interest-earning assets generally have lower yields than our legacy loan and investment security portfolios. In addition, the establishment of a finance charge and fee reserve of $174 million in the second quarter of 2012 for the receivables acquired in the 2012 U.S. card acquisition...

Page 80
... charge and fee reserve. â€¢ Non-Interest Income Non-interest income primarily consists of service charges and other customer-related fees, interchange income (net of rewards expense), other non-interest income and, in 2012, the bargain purchase gain attributable to the ING Direct acquisition...

Page 81
... recorded at acquisition of ING Direct; (ii) increased net interchange and other fees resulting from continued growth and market share from new account originations, due in part to the ING Direct and the 2012 U.S. card acquisitions; (iii) income of $162 million from the sale of Visa stock shares...

Page 82
... the impact of the initial allowance build related to the 2012 U.S. card acquisition, was largely attributable to the growth in auto and commercial loan originations, coupled with the absence of the allowance release for our Credit Card business recorded in 2011. The decrease in the provision for...

Page 83
... salaries and associate benefits attributable to increased headcount, higher infrastructure costs attributable to acquired businesses and our continued investment in our auto loan business and increased amortization of intangibles resulting from the ING Direct and 2012 U.S. card acquisitions...

Page 84
... related to the non-taxable ING Direct bargain purchase gain of $594 million, a one-time deferred tax benefit for changes in our state tax position resulting from the assets and operations of the 2012 U.S. card acquisition and consolidation of ING Bank, fsb with our existing banking operations...

Page 85
...on a matched maturity method that takes into consideration market rates. Our funds transfer pricing process provides a funds credit for sources of funds, such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a funds charge for the use of funds by each segment. The...

Page 86
... installment loans, and International Card operations, and displays selected key metrics for the periods indicated. Table 6: Credit Card Business Results Change 2012 vs. 2011 vs. 2011 2010 (Dollars in millions) Year Ended December 31, 2012 2011 2010 Selected income statement data: Net interest...

Page 87
... yields due to the establishment of a finance charge and fee reserve for the loans acquired in the 2012 U.S. card acquisition and net premium amortization related to these loans. Non-Interest Income: Non-interest income increased by $469 million, or 18%, in 2012. The increase was primarily driven by...

Page 88
... net-charge off rates was due in part to the addition of loans acquired in the 2012 U.S. card acquisition to the denominator in calculating our reported charge-off rates and the lag in the impact of charge-offs related to these loans, as described above under "Executive Summary and Business Outlook...

Page 89
... driving the results for this division are similar to the key factors affecting our total Credit Card business. Table 6.1: Domestic Card Business Results Change 2012 vs. 2011 vs. 2011 2010 (Dollars in millions) Year Ended December 31, 2012 2011 2010 Selected income statement data: Net interest...

Page 90
...in connection with the closing on May 1, 2012 of the 2012 U.S. card acquisition. Consists of purchase transactions for the period, net of returns. Excludes cash advance transactions. Calculated by loan category by dividing 30+ day delinquent loans as of the end of the period by period-end loans held...

Page 91
Table 6.2: International Card Business Results Year Ended December 31, 2012 2011 2010 Change 2012 vs. 2011 vs. 2011 2010 (Dollars in millions) Selected income statement data: Net interest income ...Non-interest income ...Total net revenue ...Provision for credit losses ...Non-interest expense ......

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... and associate benefits, occupancy and equipment, professional services and communications and data processing technology expenses, as well as marketing expenditures. The substantial majority of the lending and retail deposit businesses acquired from the ING Direct acquisition on February 17, 2012...

Page 93
...1.82% Net charge-off rate (excluding acquired loans)(4) ...1.45 1.59 2.17 Auto loan originations ...$ 15,960 $12,476 $ 7,764 (Dollars in millions) December 31, 2012 2011 Change Selected period-end data: Loans held for investment:(1) Auto ...$ 27,123 $21,779 Home loan ...44,100 10,433 Retail banking...

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... to operating expenses related to ING Direct, merger-related expenses associated with the acquisition and higher infrastructure expenditures resulting from continued investments in the home loan business and growth in auto loan balances as a result of increased auto loan originations. Total Loans...

Page 95
... improvement in our reported net charge-off and delinquency rates for our Consumer Banking business reflects the impact of the addition of the ING Direct home loan portfolio. As discussed above, because the credit mark established at acquisition for these loans takes into consideration future credit...

Page 96
... indicated. Table 8: Commercial Banking Business Results Change (Dollars in millions) Year Ended December 31, 2012 2011 2010 2012 vs. 2011 2011 vs. 2010 Selected income statement data: Net interest income ...Non-interest income ...Total net revenue ...Provision for credit losses ...Non-interest...

Page 97
... in the ING Direct and Chevy Chase Bank acquisitions. The carrying value of commercial banking acquired loans accounted for subsequent to acquisition based on expected cash flows to be collected was $359 million and $481 million as of December 31, 2012 and 2011, respectively. The average balance of...

Page 98
... real estate loan portfolio. Deposits: Period-end deposits in the Commercial Banking business increased by $3.2 billion, or 12%, in 2012 to $29.9 billion as of December 31, 2012, driven by our strategy to strengthen existing relationships and increase liquidity from commercial customers. Charge-off...

Page 99
...category also includes foreign exchange-rate fluctuations related to the revaluation of foreign currency-denominated investments; certain gains (losses) on the sale and securitization of loans; unallocated corporate expenses that do not directly support the operations of the business segments or for...

Page 100
... ING Direct and 2012 U.S. card acquisitions previously discussed. Stockholders' equity increased by $10.8 in 2012, to $40.5 billion as of December 31, 2012. The increase in stockholders' equity was attributable to our net income of $3.5 billion in 2012, and $6.8 billion of capital raised from equity...

Page 101
... government/agency bonds, covered bonds, municipal securities and equity investments primarily related to CRA activities. Our portfolio of investment securities available for sale increased by $25.2 billion, or 65%, in 2012. The increase was primarily attributable to the acquisition of ING Direct...

Page 102
... for Investment December 31, 2012 Total Loans Held for Investment Net Loans Held for Investment Total Loans Held for Investment 2011 Net Loans Held for Investment (Dollars in millions) Allowance Allowance Credit card ...Consumer banking ...Commercial banking ...Other ...Total ... $ 91,755 75,127...

Page 103
... in deposits from the ING Direct acquisition and increased retail marketing efforts to attract new business and our continued strategy to leverage our bank outlets to attract lower cost deposit funding. We provide information on the composition of our deposits, average outstanding balances, interest...

Page 104
... the consolidated balance sheets. Our involvement in these arrangements can take many forms, including securitization and servicing activities, the purchase or sale of mortgage-backed or other asset-backed securities in connection with our home loan portfolio and loans to VIEs that hold debt, equity...

Page 105
... potential future losses due to adverse changes in our business and market environments. Capital Standards and Prompt Corrective Action Bank holding companies and national banks are subject to capital adequacy standards adopted by the Federal Reserve and the Office of the Comptroller of the Currency...

Page 106
... securities is to be phased out over a three year period starting on January 1, 2013. In June 2012, the Federal Reserve, OCC and FDIC released proposed rules that would increase the general riskbased capital ratio minimum requirements, modify the definition of regulatory capital, establish a minimum...

Page 107
... rules is to ensure that large bank holding companies have robust, forward-looking capital planning processes that account for their unique risks and capital needs to continue operations through times of economic and financial stress. As part of its evaluation of a capital plan, the Federal Reserve...

Page 108
...a total of approximately $1.9 billion. On February 17, 2012, we issued 54,028,086 shares of Capital One common stock with a fair value of $2.6 billion as partial consideration for the equity interests and assets and liabilities associated with the ING Direct acquisition. On March 20, 2012, we closed...

Page 109
...strategies, policies and structure for managing risks. The "Third Line of Defense" is comprised of our Internal Audit and Credit Review functions. The third line provides independent and objective assurance to senior management and to the Board of Directors that first and second line risk management...

Page 110
... Board of Directors is responsible for establishing our overall risk framework, approving and overseeing execution of the Enterprise Risk Management Policy and key risk category policies, establishing our risk appetite, and regularly reviewing our risk profile. The Chief Risk Officer, who reports to...

Page 111
... and report risks, develop mitigation plans and controls and remediate issues. The Chief Risk Officer combines the results of these processes to assemble a view of our risk profile. Both management and the Board of Directors regularly review the risk profile. Risk Management Framework We use...

Page 112
... Directors. Stated risk appetites define the parameters for taking and accepting risks and are used by management and the Board of Directors to make business decisions. For some risk categories (credit, liquidity, market), our risk appetite statements are translated into largely quantitative limits...

Page 113
... with our operations and activities, including loans, deposits, securities, shortterm borrowings, long-term debt and derivatives. The market risk positions of our banking entities and our total company are calculated separately and in total and are reported in comparison to pre-established limits to...

Page 114
... guidance to the enterprise and business areas and by partnering with other risk-related functions such as Compliance and Audit. This evaluation and guidance is based on an assessment of the type and degree of legal risk associated with the internal business area practices and activities and of the...

Page 115
...market risk exposure and to accommodate customers, foreign exchange transactions and providing deposit overdraft services. We provide additional information on credit risk related to our investment securities portfolio under "Consolidated Balance Sheet Analysis-Investment Securities" and credit risk...

Page 116
... acquired loans accounted for based on estimated cash flows expected to be collected, which consists of a limited portion of the credit card loans acquired in the 2012 U.S. card acquisition and the substantial majority of consumer and commercial loans acquired in the ING Direct and Chevy Chase Bank...

Page 117
.... The auto portfolio is originated primarily on a national basis, with additional originations through our retail branch network. 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...

Page 118
...." Loans Acquired As noted above, our portfolio of loans held for investment consists of loans acquired in the Chevy Chase Bank, ING Direct and 2012 U.S. card acquisitions. These loans were recorded at fair value as of the date of each acquisition. We elect to account for all purchased loans using...

Page 119
...the existing principal balances, which represents a portion of the total amounts not expected to be collected described above. In 2012, we recorded a provision for credit losses of $1.2 billion to establish an initial allowance primarily related to these loans. The allowance was calculated using the...

Page 120
... acquired as part of the CCB, ING Direct and 2012 U.S. card acquisitions are included in the denominator used in calculating the credit quality metrics presented below. Because some of these loans are accounted for based on expected cash flows to be collected, which takes into consideration future...

Page 121
...66% International credit card ...308 3.58 3.58 387 4.49 4.49 438 5.18 5.18 438 5.18 5.17 Total credit card ...3,309 3.61 Consumer Banking business: Automobile ...1,900 7.00 Home loan ...59 0.13 Retail banking ...30 0.76 Total consumer banking ...1,989 2.65 Commercial Banking business: Commercial and...

Page 122
... While domestic credit card loans typically remain on accrual status until the loan is charged-off, we establish a reserve for finance charges and fees billed but not expected to be collected and exclude this amount from revenue. Table 19: 90+ Days Delinquent Loans Accruing Interest 2012 (Dollars in...

Page 123
...2011 % of % of Total Total Amount HFI Loans Amount HFI Loans (Dollars in millions) Nonperforming loans held for investment: Credit card business: International credit card ...Total credit card ...Consumer Banking business: Auto ...Home loan ...Retail banking ...Total consumer banking ...Commercial...

Page 124
.... Our charge-off time frame for loans varies based on the loan type. See "Note 1-Summary of Significant Accounting Policies-Loans" for information on our charge-off policy for each of our loan categories. Table 21 presents our net charge-off amounts and rates, by business segment, for 2012, 2011 and...

Page 125
... on expected cash flows, which we track and report separately. Table 22: Loan Modifications and Restructurings December 31, 2012 2011 (Dollars in millions) Modified and restructured loans: Credit card(1) ...Auto ...Home loan ...Retail banking ...Commercial banking ...Total ...Status of modified...

Page 126
... 31, 2012, and $898 million, or 57%, of the outstanding balance of total TDR loans as of December 31, 2011. The vast majority of our credit card TDR 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 127
... 23, which displays changes in our allowance for loan and lease losses for 2012, 2011 and 2010, details, by loan type, the provision for credit losses recognized in our consolidated statements of income each period and the charge-offs recorded against our allowance for loan and lease losses. 108

Page 128
... of new consolidation accounting standards(1) ...Balance at beginning of period, as adjusted ...Provision for credit losses(2) (3) ...Charge-offs: Credit Card business:(3) Domestic credit card and installment loans ...International credit card ...Total credit card ...Consumer Banking business: Auto...

Page 129
... 31, 2012 2011 % of Total % of Total Amount Amount HFI Loans(1) HFI Loans(1) (Dollars in millions) Credit Card business: Domestic credit card and installment loans ...International credit card ...Total credit card ...Consumer Banking business: Auto ...Home loan ...Retail banking ...Total consumer...

Page 130
... addition of loans acquired in the ING Direct and 2012 U.S. card acquisitions accounted for based on estimated cash flows expected to be collected. As discussed above in "Item 6. Selected Financial Data," because the accounting for these loans takes into consideration future credit losses expected...

Page 131
... order of withdrawal ("NOW") accounts ...Money market deposit accounts ...Savings accounts ...Other consumer time deposits ...Total core deposits ...Public fund certificates of deposit of $100,000 or more ...Certificates of deposit of $100,000 or more ...Foreign time deposits ...Total customer...

Page 132
... the ING Direct acquisition and increased retail marketing efforts to attract new business and our continued strategy to leverage our bank outlets to attract lower cost deposit funding. Approximately $1.1 billion and $921 million of our total customer deposits were held in foreign banking offices as...

Page 133
... Maximum Month-End Outstanding Amount Year-End Weighted Average Interest Rate (Dollars in millions) Year-End Outstanding Amount Average Outstanding Amount Average Interest Rate 2012: Federal funds purchased and securities loaned or sold under agreements to repurchase ...FHLB advances ...2011...

Page 134
...-term Debt Up to 1 Year > 1 Year to 2 Years December 31, 2012 > 2 Years > 3 Years > 4 Years to 3 Years to 4 Years to 5 Years (Dollars in millions) > 5 Years Total Short-term borrowings: Federal funds purchased and securities loaned or sold under agreements to repurchase ...FHLB advances ...Total...

Page 135
... funding as part of our overall financing programs. Table 30 provides a summary of the credit ratings for the senior unsecured debt of Capital One Financial Corporation, COBNA and CONA as of December 31, 2012 and 2011. Table 30: Senior Unsecured Debt Credit Ratings 2012 Capital One Bank (USA...

Page 136
... associated with our operations and activities, including loans, deposits, securities, short-term borrowings, long-term debt and derivatives. Below we provide additional information about our primary sources of market risk, our market risk management strategies and measures used to evaluate...

Page 137
... were executed to manage the anticipated impact of the ING Direct acquisition on our market risk exposure and regulatory capital requirements. From the date we entered into the agreement to acquire ING Direct to early August 2011, interest rates declined substantially, which resulted in an increase...

Page 138
... management policy also includes the use of derivatives to hedge material foreign currency denominated transactions to limit our earnings exposure to foreign exchange risk. Table 32 shows the estimated percentage impact on our adjusted projected net interest income and economic value of equity...

Page 139
..., 2012. Our projected net interest income and economic value of equity sensitivity measures, both including and excluding the impact of the ING Direct related swap transactions, were within our prescribed asset/liability policy limits as of December 31, 2012 and 2011. Additionally, the new earnings...

Page 140
... card loans ...Total credit card loans ...Installment loans: Domestic installment loans ...International installment loans ...Total installment loans ...Total credit card ...Consumer Banking: Auto ...Home loan ...Retail banking ...Total consumer banking ...Total consumer loans ...Commercial Banking...

Page 141
(Dollars in millions) 2012 2011 December 31, 2010 2009 2008 Securitization adjustments: Credit Card business: Credit card loans: Domestic credit card loans ...International credit card loans ...Total credit card loans ...Installment loans: Domestic installment loans ...Consumer Banking: Auto ...

Page 142
...4.38% (2) (3) Credit card loan balances are reported net of the finance charge and fee reserve, which totaled $307 million, $74 million, $211 million, $624 million, $630 million as of December 31, 2012, 2011, 2010, 2009 and 2008, respectively. Acquired loan portfolio is included in loans held for...

Page 143
... December 31, 2010 (Dollars in millions) 2012 2011 2009 2008 Nonperforming loans held for Credit Card: International Credit Card ...Total credit card ...Consumer Banking: Auto ...Home loan ...Retail banking(4) ...Total consumer banking ...Commercial Banking: Commercial and multifamily real...

Page 144
..."managed" loan portfolio. The total held-for-investment loan portfolio includes loans recorded on our balance sheet and loans held in our securitization trusts. The average balance of acquired loans, which are included in the total average loans held for investment used in calculating the net charge...

Page 145
......Total charge-offs ...Recoveries: Domestic credit card and installment loans ...International credit card and installment loans ...Consumer banking ...Commercial banking ...Other loans ...Total recoveries ...Net charge-offs ...Impact from acquisitions, sales and other changes ...Balance at the end...

Page 146
... ...Non-GAAP TCE ratio Tangible common equity ...Tangible assets ...TCE ratio(3) ...Regulatory capital ratios Total stockholders' equity ...Less: Net unrealized losses (gains) on securities available for sale recorded in AOCI(4) ...Net losses on cash flow hedges recorded in AOCI(4) ...Disallowed...

Page 147
...Stockholders' Equity ...Consolidated Statements of Cash Flows ...Notes to Consolidated Statements ...Note 1 - Summary of Significant Accounting Policies ...Note 2 - Acquisitions ...Note 3 - Discontinued Operations ...Note 4 - Investment Securities ...Note 5 - Loans ...Note 6 - Allowance for Loan and...

Page 148
... the Company's management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal...

Page 149
... as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2012 of Capital One Financial Corporation and our report dated February 28, 2013...

Page 150
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 (the "Company" or "Capital One") as of December 31, 2012 and 2011, ...

Page 151
CAPITAL ONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Dollars in millions, except per share data) Year Ended December 31, 2012 2011 2010 Interest income: Loans held for investment ...Investment securities ...Other ...Total interest income ...Interest expense: Deposits ...Securitized ...

Page 152
CAPITAL ONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in millions) Year Ended December 31, 2012 2011 2010 Net income ...Other comprehensive income (loss) before taxes: Net unrealized gains (losses) on securities available for sale ...Other-than-temporary ...

Page 153
... CORPORATION CONSOLIDATED BALANCE SHEETS December 31, (Dollars in millions, except per share data) 2012 2011 Assets: Cash and cash equivalents: Cash and due from banks ...Interest-bearing deposits with banks ...Federal funds sold and securities purchased under agreements to resell ...Total cash...

Page 154
... Stockholders' Amount Capital Earnings Income (Loss) Stock Equity Preferred Stock (Dollars in millions, except per share data) Shares Amount Common Stock Shares Balance as of December 31, 2009 ...Cumulative effect from January 1, 2010 adoption of new consolidation accounting standards, net of tax...

Page 155
... of loans previously charged off ...Additions of premises and equipment ...Net cash payment for companies acquired, net of cash received ...Net cash (used in) provided by investing activities ...Financing activities: Net (decrease) increase in deposits ...Net decrease in securitized debt obligations...

Page 156
... services to consumers, small businesses and commercial clients through branches, the internet and other distribution channels. As of December 31, 2012, our principal subsidiaries included: â€¢ â€¢ Capital One Bank (USA), National Association ("COBNA"), which currently offers credit and debit card...

Page 157
... our existing business segments. The acquired ING Direct business is primarily reflected in our Consumer Banking business, while the business acquired in the 2012 U.S. card acquisition is reflected in our Credit Card business. Certain activities that are not part of a segment, such as management of...

Page 158
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Voting Interest Entities Voting interest entities are entities that have sufficient equity and provide the equity investors voting rights that give them the power to make significant decisions relating to the ...

Page 159
... funds sold and securities purchased under agreements to resell and interest-bearing deposits with banks, all of which, if applicable, have stated maturities of three months or less when acquired. Cash payments for interest expense totaled $2.4 billion, $2.3 billion and $2.9 billion in 2012, 2011...

Page 160
... at the date of acquisition. We use the term "acquired loans" to refer to a limited portion of the credit card loans acquired in the 2012 U.S. card acquisition and the substantial majority of consumer and commercial loans acquired in the Chevy Chase Bank ("CCB") and ING Direct acquisitions, which...

Page 161
... fees and direct loan origination fees ceases upon transfer. Loans Acquired All purchased loans, including loans transferred in a business combination, acquired on or after January 1, 2009, are recorded at fair value as of the date of each acquisition. Accordingly, any related allowance for loan...

Page 162
... consolidated balance sheet, takes into consideration future credit losses expected to be incurred over the life of the loans. Accordingly, there are no charge-offs or an allowance associated with these loans unless the estimated cash flows expected to be collected decrease subsequent to acquisition...

Page 163
... of both. For credit card loan agreements, such modifications may include canceling the customer's available line of credit on the credit card, reducing the interest rate on the card, and placing the customer on a fixed payment plan not exceeding 60 months. These modifications may result in our...

Page 164
... 90 days past due for auto, home loans, and unsecured small business revolving lines of credit and 120 days past due for all other non-credit card consumer loans, including installment loans. Commercial banking loans: We classify commercial loans as nonperforming as of the date we determine that the...

Page 165
... small business lines of credit and 120 days for auto and other non-credit card consumer loans. We calculate the charge-off amount for home loans based on the excess of our recorded investment in the loan over the fair value of the underlying property less estimated selling costs as of the date of...

Page 166
... year, contract type, interest rate and geography, which are collectively evaluated for impairment. The commercial loan portfolio is primarily composed of larger-balance, non-homogeneous loans. These loans are subject to individual reviews that result in internal risk ratings. In assessing the risk...

Page 167
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The component of the allowance for credit card and other consumer loans that we collectively evaluate for impairment is based on a statistical calculation, which is supplemented by management judgment as ...

Page 168
... in the allowance for loan and lease losses and the reserve for unfunded lending commitments in future periods. Securitization of Loans We primarily securitize credit card loans, auto loans and home loans. Securitizations have historically been utilized for liquidity and funding purposes. See "Note...

Page 169
... is assigned to one or more reporting units at the date of acquisition. Our reporting units are Domestic Credit Card, International Credit Card, Auto Finance, other Consumer Banking and Commercial Banking. The goodwill impairment test, performed at October 1 of each year, is a two-step test. The...

Page 170
... type and redemption rate, which is based on the expectation that the vast majority of all points earned will eventually be redeemed. The customer rewards reserve, which is included in other liabilities in our consolidated balance sheets, totaled $2.1 billion and $1.7 billion as of December 31, 2012...

Page 171
...CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Finance charges and fees on credit card loans, except for annual membership fees, are included in loan receivables when the amounts are billed to the customer. Annual membership fees are deferred and amortized into income over one year on a straight-line...

Page 172
... one-year renewal thereafter. We accounted for the purchase as an asset acquisition. Under the terms of the partnership agreement and in conjunction with the acquisition, we began issuing Kohl's branded private-label credit cards to new and existing Kohl's customers on April 1, 2011. Risk management...

Page 173
.... We recognized marketing expense of $1.4 billion, $1.3 billion and $1.0 billion in 2012, 2011 and 2010, respectively. Fraud Losses We experience fraud losses from the unauthorized use of credit cards, debit cards and customer bank accounts. Additional fraud losses may be incurred when loans are...

Page 174
... not considered when the company is in a net loss position. Common stock equivalents that have an antidilutive effect are excluded from the computation of diluted earnings per share. We have unvested share-based payment awards which have a right to receive nonforfeitable dividends. These share-based...

Page 175
... value of the net assets acquired is greater than the acquisition price, a bargain purchase gain is recognized and recorded in noninterest income. The operating results of the acquired business are reflected in our consolidated financial statements subsequent to the date of the merger or acquisition...

Page 176
... as well as to those that arise from future business combinations. We elected to early adopt the guidance and began amortizing the decrease in cash flows associated with existing indemnification assets as of December 31, 2012. Goodwill Impairment In September 2011, the FASB issued guidance that is...

Page 177
... face of the Consolidated Statement of Comprehensive Income or in the notes. The guidance is effective for reporting periods beginning after December 15, 2012. Our adoption of the guidance on January 1, 2013 will have no effect on our financial condition, results of operations or liquidity since it...

Page 178
... Capital One common stock with a fair value of approximately $2.6 billion as of the acquisition date. We used current liquidity sources as well as proceeds from public debt and equity offerings described below to fund the cash consideration. In the third quarter of 2011, we closed a public offering...

Page 179
... the ING Direct acquisition purchase price to the fair value of assets acquired and liabilities assumed as well as the cash and noncash consideration included in the consolidated statement of cash flows. (Dollars in millions) Fair Value Purchase price: Cash ...Fair value of Capital One common stock...

Page 180
... HSBC Sellers, net of a $252 million receivable. We financed the acquisition through a combination of existing cash, cash acquired from the ING Direct acquisition, the sale of securities held as available-for-sale, as well as the public debt and equity offerings described below. The 2012 U.S. card...

Page 181
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (Dollars in millions) Fair Value Purchase price: Cash ...Receivable due from HSBC ...Total consideration transferred ...Allocation of purchase price to net assets acquired: Assets: Loans receivable(1) ...Other ...

Page 182
...of the ING Direct acquisition or the 2012 U.S. card acquisition been completed on January 1, 2011 nor does it reflect the benefits obtained through the integration of business operations realized since acquisition. Furthermore, the information is not indicative of the results of operations in future...

Page 183
... present the amortized cost, fair value and corresponding gross unrealized gains (losses), by major security type, for our investment securities as of December 31, 2012 and 2011. The gross unrealized gains (losses) related to our available-for-sale investment securities are recorded, net of tax, as...

Page 184
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) December 31, 2012 Gross Gross Unrealized Unrealized LossesLossesOTTI(1) Other(2) (Dollars in millions) Amortized Cost Total Gross Unrealized Gains Total Gross Unrealized Losses Fair Value Securities ...

Page 185
...2011. Includes foreign government/agency bonds, covered bonds, municipal securities and equity investments primarily related to CRA activities Securities Available for Sale in a Gross Unrealized Loss Position The table below provides, by major security type, information about our available-for-sale...

Page 186
... FINANCIAL STATEMENTS-(Continued) December 31, 2011 12 Months or Longer Gross Unrealized Fair Value Losses (Dollars in millions) Less than 12 Months Gross Unrealized Fair Value Losses Total Gross Unrealized Losses Fair Value Securities available for sale: RMBS: Agency(1) ...Non-agency ...Total...

Page 187
..., 2012 Due > 5 Years through 10 Years Due > 10 Years Average Average Amount Yield(1) Amount Yield(1) (Dollars in millions) Due in 1 Year or Less Average Amount Yield(1) Total Average Amount Yield(1) Fair value of securities available for sale: U.S. Treasury debt obligations ...$ 702 U.S. agency...

Page 188
... projected cash flows on certain acquired investment securities were less than their initial fair value at acquisition and the difference was therefore recognized in earnings. As indicated in the table above, we recorded net OTTI in earnings totaling $52 million, $21 million and $65 million in 2012...

Page 189
...fair value adjustments, net of tax, that were recognized in earnings due to the sale of an available-for-sale security. Year Ended December 31, 2012 (Dollars in millions) Before Tax Tax After Tax Beginning balance AOCI related to securities available for sale ...Net unrealized gains ...Net realized...

Page 190
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Year Ended December 31, 2010 Before After Tax Tax Tax (Dollars in millions) Beginning balance AOCI related to securities available for sale ...Net unrealized gains ...Net realized losses (gains) reclassified ...

Page 191
... into income nor recorded on our consolidated balance sheet, reflects estimated future credit losses expected to be incurred over the life of the security. The excess of cash flows expected to be collected over the estimated fair value of credit-impaired debt securities at acquisition is referred to...

Page 192
..., ING Direct and 2012 U.S. card acquisitions. These loans were recorded at fair value as of the date of each acquisition. Acquired Loans Accounted for Based on Expected Cash Flows We use the term "acquired loans" to refer to a limited portion of the credit card loans acquired in the 2012 U.S. card...

Page 193
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) $31 million for year ended December 31, 2012 related to certain pools of acquired loans. The cumulative impairment recognized on acquired loans totaled $57 million and $26 million as of December 31, 2012 and ...

Page 194
...investors, as of December 31, 2012 and 2011. (Dollars in millions) December 31, 2012 2011 Credit Card business: Domestic credit card loans ...International credit card loans ...Total credit card loans ...Domestic installment loans ...Total credit card ...Consumer Banking business: Auto ...Home loan...

Page 195
...642 (Dollars in millions) Current 30-59 Days 60-89 Days > 90 Days Total Loans Credit Card: Domestic credit card ...$ 79,852 $ 932 $ International credit card ...8,227 145 Total credit card ...Consumer Banking: Auto ...Home loan ...Retail banking ...Total consumer banking ...Commercial Banking...

Page 196
... 5 $ 0 0 0 106 456 90 652 Credit Card: Domestic credit card ...$ 54,536 $ 627 $ 445 $1,001 International credit card ...8,028 145 98 195 Total credit card ...Consumer Banking: Auto ...Home loan ...Retail banking ...Total consumer banking ...Commercial Banking: Commercial and multifamily real estate...

Page 197
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Credit Card: Risk Profile by Geographic Region and Delinquency Status % of Total(1) December 31, 2012 Acquired % of Loans Total(1) % of Total(1) December 31, 2011 % of Total Total(1) (Dollars in millions) ...

Page 198
... net charge-offs for the years ended December 31, 2012 and 2011. Consumer Banking: Risk Profile by Geographic Region, Delinquency Status and Performing Status Loans (Dollars in millions) Loans % of Total(1) December 31, 2012 Acquired Loans % of Loans Total(1) Total Loans % of Total(1) Auto: Texas...

Page 199
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) December 31, 2012 Auto Amount Rate Home Loan Amount Rate Retail Banking Amount Rate Total Consumer Banking Amount Rate (Dollars in millions) Credit performance:(2) 30+ day delinquencies ...90+ day ...

Page 200
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) December 31, 2011 Auto Amount Rate Home Loan Amount Rate Retail Banking Amount Rate Total Consumer Banking Amount Rate (Dollars in millions) Credit performance:(2) 30+ day delinquencies ...90+ day ...

Page 201
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Home Loan: Risk Profile by Vintage, Geography, Lien Priority and Interest Rate Type Loans (Dollars in millions) Amount % of Total(1) December 31, 2012 Acquired Loans % of Amount Total(1) Total Home Loans % of ...

Page 202
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) December 31, 2011 Acquired Loans % of Amount Total(1) Loans (Dollars in millions) Amount % of Total(1) Total Home Loans % of Amount Total(1) Origination year: < = 2005 ...2006 ...2007 ...2008 ...2009 ...2010 ...

Page 203
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Commercial Banking We evaluate the credit risk of commercial loans individually and use a risk-rating system to determine the credit quality of our commercial loans. We assign internal risk ratings to loans ...

Page 204
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table presents the geographic distribution and internal risk ratings of our commercial loan portfolio as of December 31, 2012 and 2011. Commercial Banking: Risk Profile by Geographic Region and ...

Page 205
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) December 31, 2011 Commercial & Commercial Small-ticket Multifamily % of and % of Commercial % of (2) (2) Real Estate Total Industrial Total Real Estate Total(2) (Dollars in millions) Total % of Commercial ...

Page 206
... (Dollars in millions) Credit card and installment loans: Domestic credit card and installment loans ...International credit card and installment loans . . Total credit card and installment loans(1) ...Consumer banking: Auto ...Home loan ...Retail banking ...Total consumer banking ...Commercial...

Page 207
... (Dollars in millions) Credit card and installment loans: Domestic credit card and installment loans ...International credit card and installment loans ...Total credit card and installment loans(1) ...Consumer banking: Auto ...Home loan ...Retail banking ...Total consumer banking ...Commercial...

Page 208
... TDR Balance (4)(8) (5) (6)(8) Activity (Months) Activity Reduction(7) (Dollars in millions) Credit card: Domestic credit card ...International credit card ...Total credit card ...Consumer banking: Auto ...Home loan ...Retail banking ...Total consumer banking ...Commercial banking: Commercial and...

Page 209
...Total % of Average Loans TDR Rate (1) (2)(8) Modified Activity Reduction(3) (Dollars in millions) Credit card: Domestic credit card ...International credit card ...Total credit card ...Consumer banking: Auto ...Home loan ...Retail banking ...Total consumer banking ...Commercial banking: Commercial...

Page 210
... Total Contracts Loans December 31, 2011 Number of Total Contracts Loans (Dollars in millions) Credit card: Domestic credit card ...International credit card(1) ...Total credit card ...Consumer banking: Auto ...Home loan ...Retail banking ...Total consumer banking ...Commercial banking: Commercial...

Page 211
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Initial Fair Value and Accretable Yield of Acquired Loans The table below displays the contractually required cash flows expected to be collected and fair value at acquisition of acquired ING Direct loans ...

Page 212
... FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Outstanding Balance and Carrying Value of Acquired Loans The table below presents the outstanding contractual balance and the carrying value of loans from the CCB, ING Direct and 2012 U.S. card acquisitions accounted for...

Page 213
...31, 2012 and 2011, respectively. While these amounts represented the total available unused credit card lines, we have not experienced and do not anticipate that all of our customers will access their entire available line at any given point in time. In addition to available unused credit card lines...

Page 214
...losses, by portfolio segment, for the years ended December 31, 2012 and 2011: Consumer (Dollars in millions) Credit Card Auto Home Retail Total Loan Banking Consumer Commercial Other(1) Unfunded Combined Lending Allowance & Total Commitments Unfunded Allowance Reserve Reserve Balance as of December...

Page 215
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) December 31, 2011 Consumer Home Retail Total Loan Banking Consumer Commercial Other (Dollars in millions) Credit Card Auto Total Allowance for loan and lease losses by impairment methodology: Collectively ...

Page 216
... Non-Consolidated Carrying Maximum Amount of Exposure to Liabilities Loss(4) (Dollars in millions) Securitization-related VIEs: Credit card loan securitizations(1) ...Auto loan securitizations(1) ...Home loan securitizations(2) (3) ...Other asset securitizations(1) ...Total securitization-related...

Page 217
...meet our maximum remaining funding obligations. Securitization-related VIEs We historically have securitized credit card loans, auto loans, home loans and installment loans. In a securitization transaction, assets from our balance sheet are transferred to a trust we establish, which typically meets...

Page 218
... Credit Card Auto Loan Other Loan Option Arm Mortgage GreenPoint HELOCs GreenPoint Manufactured Housing (Dollars in millions) December 31, 2012: Securities held by third-party investors ...Receivables in the trust ...Cash balance of spread or reserve accounts ...Retained interests ...Servicing...

Page 219
... the right to receive any funds remaining in the letters of credit after the securities are released. The amount available under the letters of credit was $164 million and $172 million at December 31, 2012 and 2011, respectively. The fair value of the expected residual balances on the funded letters...

Page 220
...the power to direct the activities that most significantly impact the economic performance of those entities. We record our interests in these unconsolidated VIEs in loans held for investment, other assets and other liabilities on our consolidated balance sheets. As of December 31, 2012 and 2011 our...

Page 221
... we do not have the power to direct the activities of these entities that most significantly impact their economic performance. Our membership interests in these entities are reflected on our consolidated balance sheet within other assets. As of December 31, 2012, the carrying value of our aggregate...

Page 222
... of acquisition. Our reporting units are Domestic Credit Card, International Credit Card, Auto Finance, other Consumer Banking and Commercial Banking. As of December 31, 2012 and 2011, goodwill of $13.9 billion and $13.6 billion, respectively, was included in the accompanying consolidated balance...

Page 223
... in the future. The following table provides a summary of goodwill based upon our business segments as of December 31, 2012 and 2011: (Dollars in millions) Credit Card Consumer Commercial Total Total Company Balance as of December 31, 2010 ...Acquisitions ...Other adjustments ...Balance as of...

Page 224
... February 17, 2012 acquisition of ING Direct, we recognized core deposit intangibles of $209 million and other intangibles of $149 million at acquisition. In connection with the May 1, 2012 acquisition of the HSBC credit card portfolios, we recognized purchased credit card relationship intangibles...

Page 225
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Intangible assets, which are reported in other assets on our consolidated balance sheets, are amortized over their respective estimated useful lives on either a straight-line or an accelerated basis. The ...

Page 226
... certificates of $100,000 or more. The year over year increase of $80.1 billion reflects the addition of deposits from the ING Direct acquisition and increased retail marketing efforts to attract new business and our continued strategy to leverage our bank outlets to attract lower cost deposit...

Page 227
..., 2012 and 2011, respectively, and is included in other assets on our consolidated balance sheets. We had outstanding FHLB advances, which were secured by our investment securities, residential home loans, multifamily loans, commercial real-estate loans and home equity lines of credit, totaling $20...

Page 228
... unamortized debt premiums and discounts, net of fair value hedge accounting adjustments. (Dollars in millions) December 31, 2012 2011 Deposits: Non-interest bearing deposits ...Interest-bearing deposits ...Total deposits ...Short-term borrowings: Federal Funds purchased and securities loaned or...

Page 229
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Interest-bearing time deposits, securitized debt obligations and other debt as of December 31, 2012, mature as follows: Federal Funds Purchased and Securities Sold under Agreements to Repurchase (Dollars in ...

Page 230
...Direct acquisition. The notional amount provides an indication of the volume of our derivatives activity and is used as the basis on which interest and other payments are determined; however, it is generally not the amount exchanged. Derivatives are recorded at fair value in our consolidated balance...

Page 231
... into forward foreign currency derivative contracts to hedge our exposure to variability in cash flows related to foreign currency denominated debt. Free-Standing Derivatives: We use free-standing derivatives, to hedge the risk of changes in the fair value of residential mortgage servicing rights...

Page 232
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) December 31, 2012 Notional or Contractual Amount Derivatives at Fair Value Assets Liabilities Notional or Contractual Amount 2011 Derivatives at Fair Value Assets Liabilities (Dollars in millions) Derivatives ...

Page 233
... for 2012, 2011 and 2010. (Dollars in millions) Year Ended December 31, 2012 2011 2010 Derivatives designated as accounting hedges: Fair value interest rate contracts: Gain (loss) recognized in earnings on derivatives(1) ...Gain (loss) recognized in earnings on hedged items(1) ...Net fair value...

Page 234
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Cash Flow and Net Investment Hedges The table below shows the net gains (losses) related to derivatives designated as cash flow hedges and net investment hedges for 2012, 2011 and 2010: Year Ended December 31, ...

Page 235
.... The fair value of derivative instruments with credit-risk-related contingent features in a net liability position was $7 million and $141 million as of December 31, 2012 and 2011, respectively. We were required to post collateral, consisting of a combination of cash and securities, totaling $109...

Page 236
... debt and cash sourced from current liquidity, to fund the net consideration payable of $31.1 billion in connection with the May 1, 2012 acquisition of HSBC's U.S credit card business. On September 10, 2012, one of the ING Sellers sold 54,028,086 shares of our common stock in an underwritten public...

Page 237
... other comprehensive income activity and the related tax impact for 2012, 2011 and 2010: Year Ended December 31, 2012 Before Provision After Tax (Benefit) Tax (Dollars in millions) Other comprehensive income: Net unrealized gains (losses) on securities available for sale ...Other-than-temporary...

Page 238
... widely used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies, it may not be comparable to similarly titled measures reported by other companies. We are also subject to minimum cash reserve requirements by the Federal Reserve totaling...

Page 239
... on Capital One's total capital. Regulatory restrictions exist that limit the ability of the Banks to transfer funds to our bank holding company. Funds available for dividend payments from COBNA and CONA were $3.3 billion and $1.9 billion, respectively, as of December 31, 2012. Applicable provisions...

Page 240
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (Dollars and shares in millions, except per share data) Year Ended December 31, 2012 2011 2010 Diluted earnings per share(2) Net income available to common stockholders ...Total weighted-average basic shares ...

Page 241
... first anniversary of the grant date, however some option grants cliff vest after one year or three years. In most cases, vesting is subject to the achievement of any applicable performance conditions. A summary of stock option activity under the plans as of December 31, 2012, and changes during the...

Page 242
... fair value of stock options granted during 2012, 2011 and 2010 was estimated using the weighted average assumptions summarized below: Year Ended December 31, 2012 2011 2010 Assumptions Dividend yield(1) ...Volatility factors of stock's expected market price ...Risk-free interest rate ...Expected...

Page 243
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) A summary of 2012 activity for performance share units is presented below: WeightedAverage Grant Date Fair Value per Share Shares (in thousands) Unvested as of January 1, 2012 ...Granted (1) ...Vested (1) ......

Page 244
... dividends or optional cash investments. We had 7.4 million shares available for issuance under the 2002 DRP at both December 31, 2012 and 2011, respectively. NOTE 17-EMPLOYEE BENEFIT PLANS Defined Contribution Plan We sponsor a contributory Associate Savings Plan (the "Plan") in which all full-time...

Page 245
...the 2012 U.S. card acquisition, certain HSBC associates became eligible to participate in our post retirement benefit plan. 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...

Page 246
...obligation and plan assets, the funded status and how the funded status is recognized in our consolidated balance sheets, and the components of the net periodic benefit cost recognized in our consolidated statements of income: At or For the Year Ended December 31, 2012 2011 2012 2011 Defined Pension...

Page 247
...in the accounting for the plans: December 31, 2012 2011 2012 2011 Defined Pension Benefits Other 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 248
... on total service and interest cost components ...Plan Assets $7 (1) $(6) 0 $7 0 $(6) 0 The qualified defined benefit pension plan asset allocations as of the annual measurement dates are as follows: December 31, 2012 2011 Common collective trusts(1) ...Money market fund ...Corporate bonds...

Page 249
... TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Plan Assets Measured at Fair Value on a Recurring Basis December 31, 2012 Fair Value Measurements Using Level 1 Level 2 Level 3 Assets at Fair Value (Dollars in millions) Plan Assets Common collective trusts ...Money market fund ...Corporate bonds...

Page 250
... directly to reduce goodwill from acquisitions. Income tax provision (benefit) reported in stockholders' equity was as follows: (Dollars in millions) Year Ended December 31, 2012 2011 2010 Foreign currency translation gains (losses) ...Net unrealized gains (losses) on securities available for sale...

Page 251
...as follows: December 31, (Dollars in millions) 2012 2011 Deferred tax assets: Allowance for loan and lease losses ...Rewards & sweepstakes programs ...Representation & warranty reserve ...Security & loan valuations ...Deferred compensation & employee benefits ...Net unrealized losses on derivatives...

Page 252
... life of 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. (Dollars...

Page 253
...by the IRS and other tax authorities in certain countries and states in which we have significant business operations. The tax years subject to examination vary by jurisdiction. During 2012, the Company made a cash payment of $42 million to the IRS related to the completion of the examination of the...

Page 254
...a result of the merger with North Fork Bancorporation, Inc. and the acquisition of Chevy Chase Bank, F.S.B., are subject to recapture in the unlikely event 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...

Page 255
... December 31, 2012 Fair Value Measurements Using Level 1 Level 2 Level 3 (Dollars in millions) Total Assets Securities available for sale: ...U.S. Treasury debt obligations ...U.S. Agency debt obligations ...Residential mortgage-backed securities ...Commercial mortgage-backed securities ...Asset...

Page 256
... statement in other income. The determination of the classification of financial instruments in Level 2 or Level 3 of the fair value hierarchy is performed at the end of each reporting period. We consider all available information, including observable market data, indications of market liquidity...

Page 257
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Year Ended December 31, 2012 Net Unrealized Gains (Losses) Included in Net Income Total Gains or (Losses) Related to (Realized/Unrealized) ...

Page 258
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Year Ended December 31, 2011 Net Unrealized Gains (Losses) Included in Net Income Total Gains or (Losses) Related to (Realized/Unrealized) ...

Page 259
... of the Board of Directors. We have a model policy, established by an independent Model Risk Office, which governs the validation of models and related supporting documentation to ensure the appropriate use of models for pricing. Assets and Liabilities Measured at Fair Value on a Recurring Basis The...

Page 260
..., 2012 Techniques Inputs (Dollars in millions) Range (Weighted Average) Assets: Securities available for sale: Residential mortgage-backed securities ...$ 1,335 Discounted cash Yield flows (3rd party Constant prepayment rate pricing) Default rate Loss severity Commercial mortgagebacked securities...

Page 261
... of long-lived assets held for sale. These assets are recorded in other assets in our consolidated balance sheets. These assets are carried at the lower of their carrying amount or fair value less costs to sell. Due to the use of unobservable inputs, long-lived assets held for sale are classified...

Page 262
...$303 (Dollars in millions) Total Gains (Losses)Year Ended December 31, 2012 2011 Assets Loans held for sale ...Loans held for investment ...Foreclosed property(1) ...Other(2) ...Total ...(1) $ 0 (50) (12) (19) $(14) $ 0 (66) (21) (19) $(106) (2) Represents the fair value and related losses...

Page 263
... cash for securitization investors ...Securities available for sale ...Loans held for sale ...Net loans held for investment ...Interest receivable ...Derivatives ...Mortgage servicing rights ...Financial liabilities Non-interest bearing deposits ...Interest-bearing deposits ...Securitized debt...

Page 264
...deposits with banks approximate fair value. Restricted Cash for Securitization Investors The carrying amounts of restricted cash for securitization investors approximate their fair value due to their relatively short-term nature. Securities Available For Sale Quoted prices in active markets are used...

Page 265
... improvements in the market value of our portfolio holdings driven by lower interest rates and reduced risk premiums as compared to 2011. The increase in the amount of Level 3 securities was primarily driven by the increase in non-agency MBS securities due to acquisition of ING Direct securities...

Page 266
.... The pricing service utilizes a pricing model that incorporates available trade, bid and other market information. It also incorporates spread assumptions, volatility assumptions and relevant credit information into the pricing models. Federal Funds Purchased and Securities Loaned or Sold under...

Page 267
... card lending businesses in Canada and the United Kingdom. Consumer Banking: Consists of our branch-based lending and deposit gathering activities for consumers and small businesses, national deposit gathering, national auto lending and consumer home loan lending and servicing activities. Commercial...

Page 268
...on a matched maturity method that takes into consideration market rates. Our funds transfer pricing process provides a funds credit for sources of funds, such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a funds charge for the use of funds by each segment. The...

Page 269
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued Non-interest income: Non-interest fees and other revenue associated with loans or customers managed by each business segment and other direct revenues are accounted for within each business segment. Provision ...

Page 270
... to our reported consolidated income from continuing operations, assets and deposits. Prior period amounts have been recast to conform to the current period presentation. Credit Card Year Ended December 31, 2012 Consumer Commercial Banking Banking Other Consolidated Total (Dollars in millions) Net...

Page 271
...business segments as of December 31, 2012 and 2011 are presented in the following tables: Credit Card Year Ended December 31, 2012 Consumer Commercial Banking Banking Other Consolidated Total (Dollars in millions) Total loans held for investment ...Total customer deposits ... $91,755 0 Credit Card...

Page 272
...Financial Services Authority ("FSA") investigated and raised concerns about the way some companies have handled complaints related to the sale of these insurance policies. In connection with this matter, we have established a reserve related to PPI, which totaled $220 million as of December 31, 2012...

Page 273
..., 2012 and 2011: Unpaid Principal Balance of Mortgage Loans Originated and Sold to Third Parties Based on Category of Purchaser Unpaid Principal Balance December 31, 2012 2011 Original Unpaid Principal Balance Total 2008 2007 2006 2005 (Dollars in billions) Government sponsored enterprises ("GSEs...

Page 274
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 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 $80 billion in original principal balance of mortgage loans not...

Page 275
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table presents information on pending repurchase requests by counterparty category and timing of initial repurchase request. The amounts presented are based on original loan principal balances. ...

Page 276
... in the insured securitization segment based on relevant factual and legal developments and an increased reserve associated with a settlement in the first quarter of 2012 between a subsidiary and a GSE to resolve present and future repurchase claims. The decrease in the reserve in 2012 was driven...

Page 277
... in our consolidated statements of income as a component of discontinued operations totaled $307 million and $169 million in 2012 and 2011, respectively. As indicated in the table below, most of the reserves relate to the $27 billion in original principal balance of mortgage loans sold directly to...

Page 278
... to our results of operations or cash flows for any particular reporting period. Interchange Litigation In 2005, a number of entities, each purporting to represent a class of retail merchants, filed antitrust lawsuits (the "Interchange Lawsuits") against MasterCard and Visa and several member banks...

Page 279
... asserting the same alleged violations of law related to credit card interchange fees and network rules. In April 2012, Capital One Financial Corporation was included as a defendant, along with several other member banks, to an existing class action against Visa and MasterCard that is pending in the...

Page 280
..., and the Kansas Consumer Protection Act when it raised interest rates on certain credit card accounts. The MDL plaintiffs seek statutory damages, restitution, attorney's fees and an injunction against future rate increases. Fact discovery is now closed. On August 8, 2011, Capital One filed a motion...

Page 281
...lawsuit. On October 24, 2012, Capital One, N.A., ("CONA") as successor to Chevy Chase Bank, F.S.B. ("CCB"), was named as a defendant in a lawsuit filed in the Southern District of New York by Ambac Assurance Corporation and the Segregated Account of Ambac Assurance Corporation (the "Ambac Litigation...

Page 282
... in the sale and marketing of certain residential mortgage-backed securities (the "FHLB of Boston Litigation"). Capital One Financial Corporation and Capital One, National Association are named in the complaint as alleged successors in interest to Chevy Chase Bank, which allegedly marketed some of...

Page 283
...Hawaii against Capital One Bank (USA) N.A., and Capital One Services, LLC. The case is one of several similar lawsuits filed by the Attorney General of Hawaii against various banks challenging the marketing and sale of payment protection and credit monitoring products. On June 28, 2012, the Attorney...

Page 284
... legal actions relating to the conduct of our normal business activities. In the opinion of management, the ultimate aggregate liability, if any, arising out of all such other pending or threatened legal actions will not be material to our consolidated financial position or our results of operations...

Page 285
... of registered securities to include separate annual financial statements. (Dollars in millions) December 31, 2012 2011 Balance sheets Assets: Cash and cash equivalents ...Investment in subsidiaries ...Loans to subsidiaries ...Securities available for sale ...Other ...Total assets ...Liabilities...

Page 286
CAPITAL ONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Year Ended December 31, 2012 2011 2010 (Dollars in millions) Statements of income Interest from temporary investments ...Interest expense ...Dividends, principally from bank subsidiaries ...Non-interest income...

Page 287
... CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Year Ended December 31, 2012 2011 2010 (Dollars in millions) Statements of cash flows Operating activities: Net income ...Adjustments to reconcile net income (loss) to net cash provided by operating activities: Equity in (earnings...

Page 288
...Buy Stores, L.P. ("Best Buy") private-label and co-branded credit card accounts that we acquired in the 2012 U.S. card acquisition to Citibank, N.A. ("Citi"). At the time of the announcement, the portfolio had loan balances of approximately $7 billion. In addition, we and Best Buy have agreed to end...

Page 289
... to establish an allowance for the loans acquired in the 2012 U.S. card acquisition. Dividends and undistributed earnings allocated to participating securities and EPS are computed independently for each period. Accordingly, the sum of each quarter may not agree to the year-to-date total. 270

Page 290
.... During the fourth quarter of 2012, we continued to evaluate and implement changes to processes, information technology systems and other components of internal control over financial reporting related to the ING Direct and the 2012 U.S. card acquisitions. Otherwise, there were no changes in...

Page 291
... days of the end of our 2012 fiscal year. Item 11. Executive Compensation The information required by Item 11 will be included in the Proxy Statement under the headings "Director Compensation," " Compensation Discussion and Analysis," "Named Executive Officer Compensation," "Compensation Committee...

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... II, Item 8 and are incorporated herein by reference. (1) Management's Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Financial Statements: Consolidated Statement of Income for the Years Ended December 31, 2012, 2011 and 2010...

Page 293
..., thereunto duly authorized. CAPITAL ONE FINANCIAL CORPORATION Date: February 28, 2013 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...

Page 294
...). Purchaser Transition Services Agreement between HSBC Technology and Services (USA) Inc. and Capital One Services, LLC, dated as of May 1, 2012 (incorporated by reference to Exhibit 10.1 of the Corporation's Quarterly Report on Form 10-Q for the period ended June 30, 2012). Restated Certificate of...

Page 295
... 4.3 of the Corporation's Current Report on Form 8-K, filed on November 6, 2012). 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...

Page 296
...between Capital One Financial Corporation and The Bank of New York Mellon Trust Company, N.A., as indenture trustee (incorporated by reference to Exhibit 4.2 of the Corporation's Current Report on Form 8-K, filed on August 4, 2006). Copy of Junior Subordinated Debt Security Certificate (incorporated...

Page 297
...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 298
... 10.1.1 10.1.2 Description Copy of Subordinated Note Certificate (incorporated by reference to Exhibit 4.2 of the Corporation's Current Report on Form 8-K, filed on August 31, 2006). Capital One Financial Corporation 1994 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10...

Page 299
... Form of 1999 Non-Employee Directors Stock Incentive Plan Nonstatutory Stock Option Agreement between Capital One Financial Corporation and certain of its Directors (incorporated by reference to Exhibit 10.2 of the Corporation's quarterly report on Form 10-Q for the period ending September 30, 2004...

Page 300
...certain named executive officers. Special Retention, Separation and Non-Compete Agreement and Release by and between Capital One Financial Corporation and Peter A. Schnall dated October 15, 2012. Offer Letter to Stephen S. Crawford dated January 31, 2013. Computation of Ratio of Earnings to Combined...

Page 301
..., 2009, we acquired Chevy Chase Bank, fsb acquisition. On February 17, 2012, we acquired ING Direct. On May 1, 2012, we acquired the HSBC U.S. credit card business. Each of these transactions was accounted for under the acquisition method of accounting, and their respective results of operations are...

Page 302
..., 2009, we acquired Chevy Chase Bank, fsb acquisition. On February 17, 2012, we acquired ING Direct. On May 1, 2012, we acquired the HSBC U.S. credit card business. Each of these transactions was accounted for under the acquisition method of accounting, and their respective results of operations are...

Page 303
... that our managed basis information is useful to investors because it portrays the results of both on- and off-balance sheet loans that we manage, which enables investors to understand and evaluate the credit risks associated with the portfolio of loans reported on our consolidated balance sheet and...

Page 304
... Summary-Reported GAAP Measures(8) Year Ended December 31, 2010 Securitization Adjustments 2009(1) Securitization Adjustments (Dollars in millions) (Unaudited) Reported Managed Reported Managed Earnings: Net interest income ...$ 12,457 $ Non-interest income(2) ...3,714 Total net revenue...

Page 305
... to reflect purchase accounting refinements related to the acquisition of Chevy Chase Bank, fsb ("CCB"). (7) The denominator used in calculating the allowance as a % of loans held for investment, the net charge-off rate and the 30+ day performing delinquency rate include loans acquired as part...

Page 306
... and Net Interest Margin Year Ended December 31, 2010 2009 Interest Interest Income/ Yield/ Average Income/ Expense Rate Balance Expense (Dollars in millions)(unaudited) Average Balance Yield/ Rate Reported basis Interest-earning assets: Loans held for investment ...$168,015 Other ...7,726 Total...

Page 307
(Dollars in millions)(unaudited) Average Balance Year Ended December 31, 2010 2009 Interest Interest Income/ Yield/ Average Income/ Expense Rate Balance Expense Yield/ Rate Non-GAAP managed basis Interest-earning assets: Loans held for investment ...Other ...Total interest-earning assets ......

Page 308
... capital 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 2009 Stockholders equity...

Page 309
... as on-balance sheet loans. Amounts presented are net of tax. Disallowed goodwill and other intangible assets are net of related deferred tax liability. Consists primarily of trust preferred securities. Total risk-based capital equals the sum of Tier 1 capital and Tier 2 capital. Calculated based on...

Page 310
...other risk factors listed from time to time in reports that Capital One files with the SEC, including, but not limited to, the Annual Report on Form 10-K for the year ended December 31, 2012. All Capital One service marks are owned by Capital One. All rights reserved. All third-party trademarks used...

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