Capital One 2012 Annual Report Download - page 179

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Accounting for ING Direct Acquisition
The ING Direct acquisition was accounted for under the acquisition method of accounting, which requires,
among other things, that we allocate the purchase price to the assets acquired and liabilities assumed based on
their fair values as of the acquisition date. The following table summarizes our allocation of the ING Direct
acquisition purchase price to the fair value of assets acquired and liabilities assumed as well as the cash and non-
cash consideration included in the consolidated statement of cash flows.
(Dollars in millions) Fair Value
Purchase price:
Cash ............................................................................. $ 6,321
Fair value of Capital One common stock issued as non-cash consideration (54,028,086 shares) ...... 2,638
Aggregate consideration transferred ................................................. $ 8,959
Allocation of purchase price to net assets acquired:
Assets:
Cash and due from banks ............................................................. $20,061
Investments ........................................................................ 30,237
Loans held for investment ............................................................ 40,042
Loans held for sale .................................................................. 367
Premises and equipment .............................................................. 245
Accrued interest receivable(1) .......................................................... 170
Identifiable intangible assets .......................................................... 358
Other assets(2) ...................................................................... 2,854
Total assets .................................................................... 94,334
Liabilities:
Interest payable ..................................................................... 31
Interest-bearing deposits .............................................................. 84,410
Other borrowings ................................................................... 6
Other liabilities(3) ................................................................... 334
Total liabilities ................................................................. 84,781
Net assets acquired .............................................................. 9,553
Bargain purchase gain ........................................................... $ 594
(1) Includes $79 million of accrued interest receivable attributable to loans held for investment.
(2) Other assets include $801 million of deferred tax assets, net of a valuation allowance of $8 million, as of the acquisition date.
(3) Other liabilities include $181 million of deferred tax liabilities as of the acquisition date.
At acquisition, the fair value of the net assets acquired from ING Direct of $9.6 billion exceeded the purchase
price of $9.0 billion, resulting in the recognition of a bargain purchase gain of $594 million, which was reported
as a component of non-interest income on our consolidated statement of income for the first quarter of 2012. A
substantial portion of the assets acquired from ING Direct were mortgage-related assets, which generally
decrease in value as interest rates rise and increase in value as interest rates fall. The bargain purchase gain was
driven largely by a substantial decline in long-term interest rates between the period shortly after our
announcement of the ING Direct acquisition and its closing, which resulted in an increase in the fair value of the
acquired mortgage assets and the overall net fair value of assets acquired. Further, the purchase and sale
agreement did not include a mechanism to adjust the purchase price to reflect the increase to the fair value of the
net assets acquired.
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