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Net income (loss) available to common shareholders

883,781

(45,998)

1,570,332

$ 319,873

$ (78,721)

$ 1,570,332

Basic earnings per common share

Income from continuing operations

$ 0.99

$ 0.14

$ 6.64

Loss from discontinued operations

(0.24)

(0.35)

(2.62)

Income from continuing operations

0.75

(0.21)

4.02

Diluted earnings per common share

0.98

0.14

6.55

Loss from discontinued operations

(0.24)

(0.35)

(2.58)

Dividends paid per common share

0.74

(0.21)

3.97

$ 0.53

$ 1.50

$ 0.11

[1]

For the year ended December 31, 2009, 2008 and 2007, the Company recorded other-than-temporary impairment losses of $32.0 million, $10.9 million, and zero, respectively. Additional unrealized losses of $181.3 million and zero, respectively, on these securities was recognized in other comprehensive income as a component of stockholders' equity at December 31, 2009 and 2008.

Statement Of Income Interest Based Revenue (Parenthetical) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2009	Dec. 31, 2008	Dec. 31, 2007
Statement [Line Items]
Other-than-temporary impairment losses	$ 32.0	$ 10.9	$ 0.0
Additional unrealized losses on these securities was recognized in other comprehensive income	$ 181.3	$ 0.0	$ 0.0

Statement Of Shareholders Equity And Other Comprehensive Income - USD ($)
$ in Thousands

12 Months Ended

Dec. 31, 2009

Dec. 31, 2008

Dec. 31, 2007

Adjustment to initially apply the measurement date provisions for post retirement benefits of ASC 715-20/FAS 158 of the Codification, net of income tax benefit of $317

$ 26,612,433

$ 24,294,112

$ 25,235,206

(589)

Cumulative effect from adoption of ASC 740-10/FIN 48

(29,702)

Cumulative effect from adoption of ASC 860-50/FAS 156, net of income taxes of $6,378

8,809

Comprehensive income:

Other comprehensive income (loss), net of income tax:

883,781

(45,998)

1,570,332

Unrealized gains (losses) on securities, net of income tax (benefit) of $520,302 in 2009, $421,011 in 2008 and $25,780 in 2007

995,715

(805,367)

56,413

Defined benefit plans, net of income taxes (benefit) of $7,307 in 2009, $54,907 in 2008 and $17,675 in 2007

13,289

(75,432)

29,407

Foreign currency translation adjustments

201,252

(602,908)

83,499

Unrealized gains (losses) on cash flow hedging instruments, net of income taxes (benefit) of $60,904 in 2009, $28,095 in 2008 and $63,804 in 2007

94,194

(52,176)

(120,251)

Other comprehensive income (loss)

1,304,450

(1,535,883)

49,068

Comprehensive income (loss)

2,188,231

(1,581,881)

1,619,400

Cash dividends $.53 per share in 2009, $1.50 per share in 2008 and $0.11 per share in 2007

(213,669)

(568,255)

(42,055)

Cash dividends-Preferred stock 5% per annum

(105,175)

Purchase of treasury stock

(14,572)

(12,501)

(3,024,969)

Issuances of common stock and restricted stock, net of forfeitures

1,536,130

767,339

37,202

Exercise of stock options and tax benefits of exercises and restricted stock vesting

(6,881)

59,283

301,972

Issuance of preferred stock and warrant

3,555,199

Accretion of preferred stock discount

Redemption of preferred stock

(3,555,199)

Compensation expense for restricted stock awards and stock options

116,023

95,048

192,422

Issuance of common stock for acquisition

30,856

(10,464)

Allocation of ESOP shares

1,233

4,678

6,291

$ 26,589,410

$ 26,612,433

$ 24,294,112

Common Stock

Beginning Balance (in shares)

438,434,235

419,224,900

412,219,973

Other comprehensive income (loss), net of income tax:

$ 4,384

$ 4,192

$ 4,122

Issuances of common stock and restricted stock, net of forfeitures (in shares)

61,041,008

17,290,281

1,916,402

Issuances of common stock and restricted stock, net of forfeitures

$ 610

$ 173

$ 20

Exercise of stock options and tax benefits of exercises and restricted stock vesting (in shares)

358,552

1,919,054

5,225,783

Exercise of stock options and tax benefits of exercises and restricted stock vesting

$ 4

$ 19

$ 51

Issuance of common stock for acquisition (in shares)

2,560,601

(137,258)

Issuance of common stock for acquisition

$ 26

$ (1)

Ending Balance (in shares)

502,394,396

438,434,235

419,224,900

$ 5,024

$ 4,384

$ 4,192

Preferred Stock

Other comprehensive income (loss), net of income tax:

3,096,466

Cash dividends-Preferred stock 5% per annum

(22,714)

22,714

Issuance of preferred stock and warrant

3,063,743

Accretion of preferred stock discount

33,554

10,009

Redemption of preferred stock

(3,107,306)

3,096,466

Paid-In Capital, Net

Other comprehensive income (loss), net of income tax:

17,278,102

15,860,490

15,333,137

Issuances of common stock and restricted stock, net of forfeitures

1,535,520

767,166

37,182

Exercise of stock options and tax benefits of exercises and restricted stock vesting

(6,885)

59,264

301,921

Issuance of preferred stock and warrant

491,456

Compensation expense for restricted stock awards and stock options

116,023

95,048

192,422

Issuance of common stock for acquisition

30,830

(10,463)

Allocation of ESOP shares

1,233

4,678

6,291

18,954,823

17,278,102

15,860,490

Retained Earnings

Adjustment to initially apply the measurement date provisions for post retirement benefits of ASC 715-20/FAS 158 of the Codification, net of income tax benefit of $317

10,621,164

11,267,568

9,760,184

572

Cumulative effect from adoption of ASC 740-10/FIN 48

(29,702)

Cumulative effect from adoption of ASC 860-50/FAS 156, net of income taxes of $6,378

8,809

Comprehensive income:

Other comprehensive income (loss), net of income tax:

883,781

(45,998)

1,570,332

Cash dividends $.53 per share in 2009, $1.50 per share in 2008 and $0.11 per share in 2007

(213,669)

(568,255)

(42,055)

Cash dividends-Preferred stock 5% per annum

(82,461)

(22,714)

Accretion of preferred stock discount

(33,554)

(10,009)

Redemption of preferred stock

(447,893)

Accumulated Other Comprehensive Income (Loss)

10,727,368

10,621,164

11,267,568

Adjustment to initially apply the measurement date provisions for post retirement benefits of ASC 715-20/FAS 158 of the Codification, net of income tax benefit of $317

(1,221,796)

315,248

266,180

(1,161)

Other comprehensive income (loss), net of income tax:

Unrealized gains (losses) on securities, net of income tax (benefit) of $520,302 in 2009, $421,011 in 2008 and $25,780 in 2007

995,715

^[1]

(805,367)

56,413

Defined benefit plans, net of income taxes (benefit) of $7,307 in 2009, $54,907 in 2008 and $17,675 in 2007

13,289

(75,432)

29,407

Foreign currency translation adjustments

201,252

(602,908)

83,499

Unrealized gains (losses) on cash flow hedging instruments, net of income taxes (benefit) of $60,904 in 2009, $28,095 in 2008 and $63,804 in 2007

94,194

(52,176)

(120,251)

Other comprehensive income (loss)

1,304,450

(1,535,883)

49,068

82,654

(1,221,796)

315,248

Treasury Stock

Other comprehensive income (loss), net of income tax:

(3,165,887)

(3,153,386)

(128,417)

Purchase of treasury stock

(14,572)

(12,501)

(3,024,969)

$ (3,180,459)

$ (3,165,887)

$ (3,153,386)

[1]

Unrealized losses not related to credit on other-than-temporarily impaired securities of $116.8 million (net of income tax of $64.5 million) was reported in other comprehensive income as of December 31, 2009. The credit-related impairment of $31.6 million on these securities is recorded in the Consolidated Statements of Income for the year ended December 31, 2009.

Statement Of Shareholders Equity And Other Comprehensive Income (Parenthetical) - USD ($)	12 Months Ended
	Dec. 31, 2009	Dec. 31, 2008	Dec. 31, 2007
Statement [Line Items]
Adjustment to initially apply the measurement date provisions for post retirement benefits of ASC 715-20/ FAS 158 of the Codification, income tax benefit		$ 317,000
Cumulative effect from adoption of ASC 860-50/ FAS 156, income taxes			$ (6,378,000)
Unrealized gains (losses) on securities, income tax (benefit)	$ 520,302,000	(421,011,000)	25,780,000
Defined benefit plans, income taxes (benefit)	7,307,000	(54,907,000)	17,675,000
Unrealized gains (losses) on cash flow hedging instruments, income taxes (benefit)	$ 60,904,000	$ 28,095,000	$ (63,804,000)
Cash dividends, per share	$ 0.53	$ 1.50	$ 0.11
Cash dividends-Preferred stock, percent per annum	5	5
Accumulated Other Comprehensive Income (Loss)
Statement [Line Items]
Unrealized losses not related to credit on other-than-temporarily impaired securities was reported in other comprehensive income.	$ 116,800
Unrealized losses not related to credit on other-than-temporarily impaired securities was reported in other comprehensive income, income tax	64,500
Credit-related impairment on these securities is recorded in the Consolidated Statements of Income.	$ 31,600

Statement Of Cash Flows Indirect Deposit Based Operations - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2009	Dec. 31, 2008	Dec. 31, 2007
Operating Activities:
Income from continuing operations, net of tax	$ 986,617	$ 84,517	$ 2,591,719
Loss from discontinued operations, net of tax	(102,836)	(130,515)	(1,021,387)
Net income (loss)	883,781	(45,998)	1,570,332
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan and lease losses	4,230,111	5,101,040	2,636,502
Depreciation and amortization, net	682,603	691,430	678,757
Net gains on sales of securities available for sale	(218,355)	(12,791)	(69,976)
Goodwill impairment	0	810,876	0
Gains on sales of auto loans	0	(2,428)	(10,960)
Gains on extinguishment/repurchase of debt/senior notes	0	(53,860)	(17,444)
Loans held for sale:
Transfers in and originations	(1,194,239)	(1,949,263)	(404,831)
(Gains) losses on sales	399	(31,016)	(87,521)
Proceeds from sales	1,228,468	2,211,225	6,171,912
Stock plan compensation expense	145,831	111,646	229,228
Changes in assets and liabilities, net of effects from purchase of companies acquired:
(Increase) decrease in interest receivable	(108,237)	11,408	(35,017)
(Increase) in accounts receivable from securitizations	(1,286,843)	(1,624,875)	(130,439)
(Increase) decrease in other assets	572,820	(3,107,565)	(2,257,798)
Increase (decrease) in interest payable	(167,293)	44,789	56,846
Increase (decrease) in other liabilities	(1,955,446)	1,201,973	1,277,833
Net cash provided by (used in) operating activities attributable to discontinued operations	(16,653)	126,384	3,293,456
Net cash provided by operating activities	2,796,947	3,482,975	12,900,880
Investing Activities:
Purchases of securities available for sale	(27,827,065)	(21,697,629)	(12,717,204)
Proceeds from maturities of securities available for sale	9,540,958	6,676,800	6,026,680
Proceeds from sales of securities available for sale	13,410,010	2,627,973	2,307,825
Proceeds from securitizations of loans	12,068,309	10,046,699	12,641,050
Net (increase) decrease in loans held for investment	1,932,677	(13,588,497)	(18,895,193)
Principal recoveries of loans previously charged off	774,389	669,938	619,678
Additions of premises and equipment	(231,624)	(356,327)	(437,545)
Net cash acquired from (paid for) acquisitions	778,166	0	(10,464)
Net cash provided by investing activities attributable to discontinued operations	602	11,642	0
Net cash provided by (used in) investing activities	10,446,422	(15,609,401)	(10,465,173)
Financing Activities:
Net increase (decrease) in deposits	(6,368,332)	25,859,613	(3,009,716)
Net increase (decrease) in other borrowings	(5,911,914)	(11,930,014)	6,853,338
Maturities of senior notes	(1,447,365)	(1,802,395)	(462,500)
Repurchases of senior notes	0	(1,120,724)	(150,000)
Redemptions of acquired company debt and noncontrolling interest	(464,915)	0	0
Issuance of senior and subordinated notes and junior subordinated debentures	4,500,000	0	1,495,740
Purchases of treasury stock	(14,572)	(12,501)	(3,024,969)
Dividends paid-common stock	(213,669)	(568,255)	(42,055)
Dividends paid-preferred stock	(105,175)	0	0
Net proceeds from issuances of common stock	1,537,363	772,017	43,493
Net (payments)/proceeds from issuance/(redemption) of preferred stock and warrants	(3,555,199)	3,555,199	0
Proceeds from share based payment activities	(6,881)	59,283	301,911
Net cash provided by (used in) financing activities attributable to discontinued operations	571	(15,863)	(4,280,036)
Net cash provided by (used in) financing activities	(12,050,088)	14,796,360	(2,274,794)
Increase in cash and cash equivalents	1,193,281	2,669,934	160,913
Cash and cash equivalents at beginning of year	7,491,343	4,821,409	4,660,496
Cash and cash equivalents at end of year	$ 8,684,624	$ 7,491,343	$ 4,821,409

Significant Accounting Policies

12 Months Ended

Dec. 31, 2009

Significant Accounting Policies

Note 1

Significant Accounting Policies

Business

Capital One Financial Corporation (the “Corporation”) is a diversified financial services company whose banking and non-banking subsidiaries market a variety of financial products and services. The Corporation’s principal subsidiaries are:

•

Capital One Bank (USA), National Association (“COBNA”) which currently offers credit and debit card products, other lending products and deposit products.

•

Capital One, National Association (“CONA”) which offers a broad spectrum of banking products and financial services to consumers, small businesses and commercial clients.

On February 27, 2009, the Corporation acquired Chevy Chase Bank, F.S.B. (“Chevy Chase Bank”) for $475.9 million comprised of cash of $445.0 million and 2.56 million shares of common stock valued at $30.9 million. Chevy Chase Bank has the largest retail branch presence in the Washington D.C. region. See “Note 2- Acquisition of Chevy Chase Bank” for more information regarding the acquisition. Final goodwill of $1.6 billion was calculated as the purchase premium after adjusting for the fair value of net assets acquired and represents the value expected from the synergies created through the scale, operational and product enhancement benefits that will result from combining the operations of the two companies. On July 30, 2009, the Company merged Chevy Chase Bank with and into CONA.

During the third quarter of 2009, the Company realigned its business segment reporting structure to better reflect the manner in which the performance of the Company’s operations is evaluated. The Company now reports the results of its business through three operating segments: Credit Card, Commercial Banking and Consumer Banking.

Segment results where presented have been recast for all periods presented. The three segments consist of the following:

•

Credit Card includes the Company’s domestic consumer and small business card lending, domestic national small business lending, national closed end installment lending and the international card lending businesses in Canada and the United Kingdom.

•

Commercial Banking includes the Company’s lending, deposit gathering and treasury management services to commercial real estate and middle market customers. The Commercial segment also includes the financial results of a national portfolio of small ticket commercial real estate loans that are in run-off mode.

•

Consumer Banking includes the Company’s branch based lending and deposit gathering activities for small business customers as well as its branch based consumer deposit gathering and lending activities, national deposit gathering, consumer mortgage lending and servicing activities and national automobile lending.

The segment reorganization includes the allocation of Chevy Chase Bank to the appropriate segments. Chevy Chase Bank’s operations are included in the Commercial Banking and Consumer Banking segments beginning in the second quarter 2009 but remained in Other for the first quarter due to the short duration since acquisition. The Other category includes GreenPoint originated consumer mortgages originated for sale but held for investment since originations were suspended in 2007, the results of corporate treasury activities, including asset-liability management and the investment portfolio, the net impact of transfer pricing, brokered deposits, certain unallocated expenses, gains/losses related to the securitization of assets, and restructuring charges related to the Company’s cost initiative and to the Chevy Chase Bank acquisition. See “Note 5- Segments” for additional detail.

During 2008, the Corporation completed several reorganizations and consolidations to streamline operations and regulatory relationships. On January 1, Capital One Auto Finance Inc. (“COAF”) moved from a direct subsidiary of the Corporation to become a direct operating subsidiary of CONA. In connection with the COAF move, one of COAF’s direct operating subsidiaries, Onyx Acceptance Corporation (“Onyx”), became a direct subsidiary of the Corporation. On March 1, the Corporation converted Capital One Bank from a Virginia-state chartered bank to a national association called Capital One Bank (USA), National Association (“COBNA”). On March 8, Superior Savings of New England, N.A. (“Superior”) merged with and into CONA. Both COBNA and CONA are primarily regulated by the Office of the Comptroller of the Currency (the “OCC”). In May 2008, we consolidated the business and operations of two registered broker-dealers, Capital One Securities, LLC (dba Capital One Investments, LLC) and Capital One Investment Services Corporation (formerly NFB Investment Services Corporation), into Capital One Investments Services Corporation. In addition, in May 2008, we consolidated the business and operations of three insurance agencies, Capital One Agency Corp., GreenPoint Agency, Inc. and Hibernia Insurance Agency, LLC into Green Point Agency, Inc., which is now known as Capital One Agency LLC.

The Corporation and its subsidiaries are hereafter collectively referred to as the “Company”.

CONA and COBNA are hereafter collectively referred to as the “Banks”.

Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) that require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these financial statements, have been made.

The Consolidated Financial Statements include the accounts of the Company in which it has a controlling financial interest. Investments in unconsolidated entities where we have the ability to exercise significant influence over the operations of the investee are accounted for using the equity method of accounting. This includes interests in variable interest entities (“VIEs”) where we are not the primary beneficiary. Investments not meeting the criteria for equity method accounting are accounted for using the cost method of accounting. Investments in unconsolidated entities are included in other assets, and our share of income or loss is recorded in other non-interest income. All significant intercompany balances and transactions have been eliminated. Certain prior year amounts related to the segment reorganization have been reclassified to conform to the 2009 presentation. All amounts in the following notes, excluding per share data, are presented in thousands unless noted otherwise.

During the second quarter of 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162 (“ASC 105-10-65/SFAS 168”). This standard establishes the Accounting Standards Codification for the FASB (“Codification” or “ASC”) as the single source of authoritative U.S. GAAP. The Codification does not change U.S. GAAP, but rather how the guidance is organized and presented to users. Effective July 1, 2009, changes to the source of authoritative U.S. GAAP are communicated through an Accounting Standards Update (“ASU”). ASUs will be published for all authoritative U.S. GAAP promulgated by the FASB, regardless of the form in which such guidance may have been issued prior to release of the FASB Codification (e.g., FASB Statements, EITF Abstracts, FASB Staff Positions, etc.). ASUs also will be issued for amendments to the SEC content in the FASB Codification as well as for editorial changes. Subsequently, the Codification will require companies to change how they reference U.S. GAAP throughout the financial statements. The Company adopted the Codification in 2009 and has provided the pre-Codification references along with the related ASC references to allow readers an opportunity to see the impact of the Codification on our financial statements and disclosures.

Special Purpose Entities and Variable Interest Entities

Special purpose entities (“SPEs”) are broadly defined as legal entities structured for a particular purpose. There are two different accounting frameworks applicable to SPEs: the qualifying SPE (“QSPE”) framework under Statement of Financial Accounting Standard (“SFAS”) No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“ASC 860-10/SFAS 140”) and the VIE framework under Financial Accounting Standards Board Interpretation No. 46 (Revised 2003), Consolidation of Variable Interest Entities (“VIE”), (“ASC 810-10/FIN 46(R)”).

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, An Amendment of FASB Statement No. 140 (“SFAS 166”) and Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). In December 2009, the FASB issued ASU No. 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets (“ASU 2009-16”) and ASU No. 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17”), which provided amendments to various parts of FAS 166 and 167. See “Recent Accounting Pronouncements” within “Note 1- Significant Accounting Policies” for expected financial statement impact and See “Note 20- Securitizations” for further information about the accounting for securitized loans.

QSPEs are passive entities that are commonly used in mortgage, credit card, auto and installment loan securitization transactions. ASC 860-10/SFAS 140 establishes the criteria an entity must satisfy to be a QSPE which includes restrictions on the types of assets a QSPE may hold, limits on repurchase of assets, the use of derivatives and financial guarantees, and the level of discretion a servicer may exercise to collect receivables. SPEs that meet the criteria for QSPE status are not required to be consolidated. The Company uses the QSPE model to conduct off-balance sheet securitization activities. See “Note 20- Securitizations” for more information on the Company’s off-balance sheet securitization activities.

VIEs Special purpose entities that are not QSPEs are considered for consolidation in accordance with ASC 810-10/FIN 46(R), which defines a VIE as an entity that (1) lacks sufficient equity to finance its activities without additional subordinated financial support; (2) has equity owners that lack the ability to make significant decisions about the entity; or (3) has equity owners that do not have the obligation to absorb expected losses or the right to receive expected returns. In general, a VIE may be formed as a corporation, partnership, limited liability corporation, or any other legal structure used to conduct activities or hold assets. A VIE often holds financial assets, including loans or receivables, real estate or other property.

The Company consolidates a VIE if the Company is considered to be its primary beneficiary. The primary beneficiary is subject to absorbing the majority of the expected losses from the VIE’s activities, is entitled to receive a majority of the entity’s residual returns, or both.

The Company, in the ordinary course of business, has involvement with or retains interests in VIEs in connection with some of its securitization activities, servicing activities and the purchase or sale of mortgage-backed and other asset-backed securities in connection with its investment portfolio. The Company also makes loans to VIEs that hold debt, equity, real estate or other assets. In certain instances, the Company provides guarantees to VIEs or holders of variable interests in VIEs. The adoption of ASC 810/SFAS 167 could have an impact on the Company’s consolidated financial statements because the Corporation expects it will consolidate certain VIE’s as a result of applying the qualitative considerations called for in ASC810/SFAS 167 versus the quantitative requirements under FIN 46(R). We are currently assessing the impact of ASC 810/SFAS 167 on our VIE structures at this time. See “Note 15- Mortgage Servicing Rights”, “Note 20- Securitizations”, “Note 21- Commitments, Contingencies and Guarantees”, and “Note 22- Other Variable Interest Entities” for more detail on the Company’s involvement and exposure related to non-consolidated VIEs.

Recent Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 166, An Amendment of FASB Statement No. 140 (“SFAS 166”) and SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). In December 2009, the FASB issued ASU No. 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets (“ASU 2009-16”) and ASU No. 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17”), which amends certain provisions of SFAS 166 and 167.

ASU 2009-16 (Topic 860/SFAS 166) removes the concept of a qualifying special-purpose entity (“QSPE”) from SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities and removes the exception from applying FASB Interpretation No. 46, Consolidation of Variable Interest Entities (“ASC 810-10/FIN 46(R)”), to QSPE. ASU 2009-17 (ASC 810/SFAS 167) eliminates the quantitative approach previously required for determining the primary beneficiary of a VIE, which was based on determining which enterprise absorbs the majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both. Under ASU 2009-17 the primary beneficiary would be the entity that has (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. ASU 2009-16 (Topic 860/SFAS 166) and ASU 2009-17 (ASC 810/SFAS 167) are effective for the Company’s annual reporting period beginning January 1, 2010.

Using a qualitative assessment and considering the elimination of the QSPE exemption, the Company will be required to consolidate certain securitization trusts, which are currently treated as off-balance sheet securitizations and the transfers to which were previously used in the transfer of loans which were accounted for as sales. Effective January 1, 2010, the Company expects to record a $47.6 billion increase in loan receivables, a $4.3 billion increase in allowance for loan and lease losses related to the newly consolidated loans, a $44.9 billion increase in liabilities and a $3.0 billion reduction in stockholders’ equity. The table below represents the pro-forma financial impacts had the Company adopted the new standards as of December 31, 2009.


(Dollars in millions)	As of December 31, 2009			Estimated Impact of ASU 2009-17			Pro-forma As of January 1, 2010
Assets:
Cash and cash equivalents	$	8,685		$	3,954		$	12,639
Loans held for investment		90,619			47,566			138,185
Less: Allowance for loan and lease losses		(4,127	)		(4,264	)		(8,391	)

Net loans held for investment		86,492			43,302			129,794
Accounts receivable from securitizations		7,629			(7,463	)		166
Other		66,840			2,055			68,895

Total assets	$	169,646		$	41,848		$	211,494


Liabilities:
Securitization liability	$	3,953		$	44,346		$	48,299
Other liabilities		139,104			525			139,629

Total liabilities		143,057			44,871			187,928

Stockholders’ Equity:		26,589			(3,023	)		23,566

Total liabilities and stockholders’ equity	$	169,646		$	41,848		$	211,494

The following provides more detail of the estimated pro-forma financial impacts of adoption:

•

Consolidation of $46.8 billion in securitized loan receivables and $44.3 billion in related debt securities issued from the trusts to third party investors. Included in the total loan receivables is $1.6 billion of mortgage loan securitizations related to the Chevy Chase Bank acquisition which are not included in our managed financial statements. Also included in total loan receivables are $2.6 billion of retained interests, currently classified as accounts receivable from securitizations.

•

Reclassification of $0.8 billion of net finance charge and fee receivables from accounts receivable from securitizations to loans held for investment.

•

Recording a $4.3 billion allowance for loan and lease losses which was not previously required under U.S. GAAP, for the newly consolidated loan receivables. Previously, the losses inherent in the off-balance sheet loans were captured as a reduction in the valuation of residual securitization interests.

•

Recording derivative assets of $0.3 billion and derivative liabilities of $0.5 billion, representing the fair value of interest rate swaps and foreign currency derivatives entered into by the trusts.

•

Recording net deferred tax assets of $1.5 billion, largely related to establishing an allowance for loan and lease losses on the newly consolidated loan receivables.

After the adoption of ASU 2009-16 (ASC 860/SFAS 166) and ASU 2009-17 (ASC 810/SFAS 167), the Company’s Consolidated Statements of Income will no longer reflect securitization and servicing income related to the loans consolidated, but will instead report interest income, net-charge-offs and certain other income associated with securitized loan receivables and interest expense associated with the debt securities issued from the trusts to third party investors. Amounts will be recorded in the same categories as non-securitized loan receivables and corporate debt. The Company does not anticipate that there will be a material difference between “reported” and “managed” financial statements in the future. Additionally, the Company will treat the consolidated trusts and securitized loans as secured borrowings and will no longer record initial gains on new securitization activity unless the Company achieves sale accounting under ASU 2009-16 (ASC 860/SFAS 166) and achieves deconsolidation under ASU 2009-17 (ASC 810/SFAS 167).

On January 21, 2010, the OCC and the Federal Reserve announced a final rule regarding capital requirements related to the adoption of ASU 2009-16 (ASC 860/SFAS 166) and ASU 2009-17 (ASC 810/SFAS 167). Under the final rule, the Company and its subsidiary banks will be required to hold additional capital in relation to the consolidated assets and any associated creation of loan loss reserves. The rule provides for a phase-in of the capital requirements in the form of an optional two-quarter delay in implementation for regulatory capital ratios, followed by an optional two-quarter partial implementation for regulatory capital ratios. The Company expects to adopt the transition provisions permitted by the final rule.

The Company expects to record a $3.0 billion cumulative effect adjustment in stockholders equity for the adoption of ASU 2009-16 (ASC 860/SFAS 166) and ASU 2009-17 (ASC 810/SFAS 167). The table below summarizes the estimated impact on certain of the Company’s regulatory capital ratios assuming the new standards have been adopted on December 31, 2009:


	Ratio as Reported on December 31, 2009		Pro Forma Ratio		Difference
Tier 1 Capital	13.75	%	9.93	%	3.82	%
Total Capital	17.70	%	17.58	%	0.12	%
Tier 1 Leverage	10.28	%	5.84	%	4.44	%

Effective during 2009

In September 2009, the FASB issued ASU No. 2009-08, Earnings per Share- Amendments to Section 260-10-S99 (SEC Update) (“ASU 2009-08”), which provided corrections to various parts of the Codification regarding EPS. ASU 2009-08 is effective immediately upon being issued. The initial adoption of ASU 2009-08 did not have an impact on the consolidated earnings or financial position of the Company as the update amended the reference between the Codification and pre-Codification references.

In September 2009, the FASB issued ASU No. 2009-07, Accounting for Various Topics- Technical Corrections to SEC Paragraphs (SEC Update) (“ASU 2009-07”), which provided corrections to various parts of the Codification including Regulation S-X. ASU 2009-07 is effective immediately upon being issued. The initial adoption of ASU 2009-07 did not have an impact on the consolidated earnings or financial position of the Company as the update amended the reference between the Codification and pre-Codification references.

In August 2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) - Measuring Liabilities at Fair Value (“ASU 2009-05”), which provided additional details on calculating the fair value of liabilities. ASU 2009-05 is effective immediately upon being issued. The initial adoption of ASU 2009-05 did not have an impact on the consolidated earnings or financial position of the Company as the Company already uses the prescribed valuation techniques within ASU 2009-05.

In August 2009, the FASB issued ASU No. 2009-03, SEC Update- Amendments to Various Topics Containing SEC Staff Accounting Bulletins (SEC Update) (“ASU 2009-03”), which provided corrections to various parts of the Codification. ASU 2009-03 is effective immediately upon being issued. The initial adoption of ASU 2009-03 did not have an impact on the consolidated earnings or financial position of the Company as the update amended the reference between the Codification and pre-Codification references.

On June 30, 2009, the FASB issued ASU No. 2009-02, Omnibus Update- Amendments to Various Topics for Technical Corrections (“ASU 2009-02”), which provided corrections to various parts of the Codification. ASU 2009-02 is effective immediately upon being issued. The initial adoption of ASU 2009-02 did not have an impact on the consolidated earnings or financial position of the Company as the update amended the reference between the Codification and pre-Codification references.

On June 30, 2009, the FASB issued ASU No. 2009-01, Topic 105- Generally Accepted Accounting Principles- amendments based on- Statement of Financial Accounting Standards No. 168- The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles (“ASU 2009-01”), which made the Codification effective for interim and annual periods ending after September 15, 2009, and will supersede all existing non-SEC accounting and reporting standards. All non-grandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. Once ASU 2009-01 is effective, the FASB will no longer issue updates in the form of statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; rather it will issue ASUs. The initial adoption of the FASB’s Accounting Standards Codification did not have an impact on the consolidated earnings or financial position of the Company because it only amends the referencing to existing accounting standards.

On May 28, 2009, the FASB issued SFAS No. 165, Subsequent Events (“ASC 855-10/SFAS 165”). This Statement establishes general standards of accounting for and disclosing events that occur after the balance sheet date, but prior to the issuance of financial statements. The Statement requires companies to disclose subsequent events as defined within ASC 855-10/SFAS 165 and disclose the date through which subsequent events have been evaluated. The Statement is effective for interim and annual periods ending after June 15, 2009. The adoption of ASC 855-10/SFAS 165 occurred during the second quarter of 2009 and did not have a material effect on consolidated earnings or financial position of the Company. See “Note 28- Subsequent Events” for additional details.

On April 9, 2009, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-4, Determining Whether a Market Is Not Active and a Transaction is Not Distressed (“ASC 820-10-65-4/FSP 157-4”), which provides additional guidance on determining whether a market for a financial asset is not active and a transaction is not distressed for fair value measurements under SFAS No. 157, Fair Value Measurements (“ASC 820-10/SFAS 157”). The adoption of ASC 820-10-65-4/FSP 157-4 occurred during the second quarter of 2009, and did not have a material effect on the consolidated earnings and financial position of the Company.

On April 9, 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairment (“ASC 320-10-65/FSP 115-2 and FAS 124-2”), which eliminates the Company’s requirement to assert its intent and ability to hold an investment until its forecasted recovery to avoid recognizing an impairment loss. The FSP requires the Company to recognize an other-than-temporary impairment when the Company intends to sell the security or it is more likely than not that it will be required to sell the security before recovery. Credit-related impairments are recorded in income while other impairments are recorded in other comprehensive income. ASC 320-10-65/FSP 115-2 and FAS 124-2 are effective for interim and annual reporting periods ending after June 15, 2009. The adoption of ASC 320-10-65/FSP 115-2 and FAS 124-2 occurred during the second quarter of 2009. See “Note 6- Securities Available for Sale” for additional detail.

On April 9, 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“ASC 825-10-65/FSP 107-1 and APB 28-1”), which will require the Company to include fair value disclosures of financial instruments for each interim and annual period that financial statements are prepared. ASC 825-10-65/FSP 107-1 and APB 28-1 is effective for interim and annual reporting periods ending after June 15, 2009. The adoption of ASC 825-10-65/FSP 107-1 and APB 28-1 occurred during the second quarter of 2009, and did not have a material effect on the consolidated earnings and financial position of the Company because it only amends the disclosure requirements. See “Note 9- Fair Values of Assets and Liabilities” for additional details.

In January 2009, the FASB issued FASB Staff Position No. EITF 99-20-1, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets” (“ASC 325-40-65/FSP EITF 99-20”). The FSP was issued to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The FSP also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” (“ASC 320-10/SFAS 115”) and other related guidance. ASC 325-40-65/FSP EITF 99-20 emphasizes that any other-than-temporary impairment resulting from the application of ASC 320-10/SFAS 115 or ASC 325-40-65/FSP EITF 99-20 shall be recognized in earnings equal to the entire difference between the investment’s cost and its fair value at the balance sheet date of the reporting period for which the assessment is made. ASC 325-40-65/FSP EITF 99-20 is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. The adoption of ASC 325-40-65/FSP EITF 99-20 did not have impact on consolidated earnings or financial position of the Company.

In December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employer’s Disclosures about Postretirement Benefit Plan Assets” (“ASC 715-20-65/FSP 132(R)-1”). ASC 715-20-65/FSP 132(R)-1 requires enhanced disclosures about the fair value of the Company’s plan assets in a similar fashion as our disclosures required by ASC 820-10/SFAS 157. The FSP is effective for financial statements issued for reporting periods ending after December 15, 2009. The initial adoption of ASC 715-20-65/FSP 132(R) did not have a material impact on the consolidated earnings and financial position of the Company because it only amends the disclosure requirements. See “Note 14- Retirement Plans” for additional details.

In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“ASC 260-10-65/FSP EITF 03-6-1”) The FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in calculating earnings per share under the two-class method described in SFAS No. 128, “Earnings per Share” (“ASC 260-10/SFAS 128”). The FSP requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. The FSP is effective for fiscal years beginning after December 15, 2008; earlier application is not permitted. The adoption of ASC 260-10-65/FSP EITF 03-6-1 did not have a material effect on our results of operations or earnings per share.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133, (“ASC 815-10-65/SFAS 161”). This Statement changes the disclosure requirements for derivative and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under ASC 815-10-65/SFAS 161 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning after November 15, 2008. The adoption of ASC 815-10-65/SFAS 161 did not have an impact on the consolidated earnings or financial position of the Company because it only amends the disclosure requirements for derivatives and hedged items. See “Note 19- Derivative Instruments and Hedging Activities” for derivatives disclosures under ASC 815-10-65/SFAS 161.

Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents includes cash and due from banks, federal funds sold and resale agreements and interest-bearing deposits at other banks, all of which, if applicable, have stated maturities of three months or less when acquired. Cash paid for interest for the years ended December 31, 2009, 2008 and 2007 was $3.1 billion, $4.0 billion, and $4.5 billion, respectively. Cash paid for income taxes for the years ended December 31, 2009, 2008 and 2007 was $0.4 billion, $1.2 billion and $1.5 billion, respectively.

Securities Available for Sale

The Company considers debt securities in its investment portfolio as available for sale. These securities are stated at fair value, with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive income. The fair values of securities is based on quoted market prices, or if quoted market prices are not available, then the fair value is estimated using the quoted market prices for similar securities, pricing models or discounted cash flow, using observable market data where available. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization or accretion is included in interest income. Realized gains and losses on sales of securities are determined using the specific identification method. The Company evaluates its unrealized loss positions for impairment in accordance with ASC 320-10/SFAS 115. The Company also considers any intent to sell a security in an unrealized loss position and the likelihood it will be required to sell a security before its anticipated recovery. As such, when there is other-than-temporary impairment and the Company does not intend to sell and will more likely that not be required to sell the security, the Company will recognize credit-related impairments in earnings while non credit-related impairments are recorded in other comprehensive income. See “Note 6- Securities Available for Sale” for additional details.

Securities Held to Maturity

In connection with the acquisition of Chevy Chase Bank, certain investments are carried as held to maturity which is consistent with their designation at the time of acquisition. These securities are stated at amortized cost and assessed for impairment in accordance with ASC320-10/SFAS 115. If impaired and we intend to sell the security or will more likely than not be required to sell the security before the recovery of its amortized cost less the current period credit loss, the other-than-temporary impairment would be recognized in earnings. Otherwise it will be accounted for as described in the preceding Securities Available for Sale.

Loans Held for Sale

The Company classifies loans originated with the intent of selling in the secondary market as held for sale. Loans originated for sale are primarily sold in the secondary market as whole loans. Whole loan sales are executed with either the servicing rights being retained or released to the buyer. For sales where the loans are sold with the servicing released to the buyer, the gain or loss on the sale is equal to the difference between the proceeds received and the carrying value of the loans sold. If the loans are sold with the servicing rights retained, the gain or loss on the sale is also impacted by the fair value attributed to the servicing rights. In the third quarter of 2007, the Company shut down the mortgage origination operations of its wholesale mortgage banking unit, GreenPoint. The results of the mortgage origination operation of GreenPoint have been accounted for as discontinued operations and have been removed from the Company’s results of continuing operations for all periods presented. The results of GreenPoint’s mortgage servicing business continue to be reported as part of the Company’s continuing operations.

Loans held for sale are carried at the lower of aggregate cost, net of deferred fees, deferred origination costs and effects of hedge accounting, or fair value. The fair value of loans held for sale is determined using current secondary market prices for loans with similar coupons, maturities and credit quality. The fair value of loans held for sale is impacted by changes in market interest rates. The exposure to changes in market interest rates is hedged primarily by selling forward contracts on agency securities. These derivative instruments are considered non-trading derivatives, that do not qualify for hedge accounting and are recorded on the balance sheet at fair value with changes in fair value being recorded in current period earnings and reflected in mortgage banking operations. Also, changes in the fair value of loans held for sale are recorded as an adjustment to the loans’ carrying basis through mortgage banking operations income in current earnings. During 2009, the Company classified $127.5 million of its small ticket commercial real estate portfolio as available for sale and recognized a write-down of $79.5 million.

As of December 31, 2009 and 2008, the balance in loans held for sale was $268.3 million and $68.5 million, respectively.

Loan Securitizations

The Company primarily securitizes credit card loans, auto loans, mortgage loans and installment loans. Securitization currently provides the Company with a significant source of liquidity and favorable regulatory capital treatment for securitizations accounted for as off-balance sheet arrangements. See “Note 20- Securitizations” and “Note 15- Mortgage Servicing Rights” for additional details.

Loan securitization involves the transfer of a pool of loan receivables to a trust or other special purpose entity. The trust sells an undivided interest in the pool of loan receivables to third-party investors through the issuance of asset backed securities or mortgage backed securities and distributes the proceeds to the Company as consideration for the loans transferred. The Company removes loans from the reported financial statements for securitizations that qualify as sales. Alternatively, when the transfer would not be considered a sale but rather a financing, the assets will remain on the Company’s reported financial statements with an offsetting liability recognized in the amount of proceeds received by the Company.

The Company uses QSPEs to conduct off-balance sheet securitization activities and SPEs that are considered VIEs to conduct other securitization activities. See “Note 20 – Securitizations” and “Note 15- Mortgage Servicing Rights” for information regarding our continuing involvement as transferor of assets to QSPEs and VIEs.

Interests in the securitized and sold loans may be retained in the form of subordinated interest-only strips, servicing right, senior tranches, subordinated tranches, cash collateral and spread accounts. The Company may also retain a seller’s interest in the receivables transferred to the trusts which is carried on a historical cost basis and classified as loans held for investment on the Reported Consolidated Balance Sheet.

The gain on sale recorded from off-balance sheet securitizations is recorded based on the estimated fair value of the assets sold and retained and liabilities incurred, and is recorded at the time of sale, net of transaction costs. The related receivable is the interest-only strip, which is based on the present value of the estimated future cash flows from excess finance charges and past-due fees over the sum of the return paid to security holders, estimated contractual servicing fees and credit losses. The interest-only strip, servicing assets, cash collateral and subordinated tranches are subject to substantial credit, repayment and interest rate risks on transferred assets if the off-balance sheet loans are not paid when due. As such, the interest-only strip and subordinated retained interests are classified as trading assets with changes in the estimated fair value are recorded in servicing and securitization income. Additionally, the Company may also retain senior tranches in the securitization transactions which are considered to be higher investment grade securities and subject to lower risk of loss. The retained senior tranches are classified as available for sale securities with changes in the estimated fair value are recorded in other comprehensive income.

Gains on securitization transactions and fair value adjustments related to residual interests in non mortgage securitizations are recognized in servicing and securitizations income and amounts due from the trusts are included in accounts receivable from securitizations. Gains and fair value adjustments on mortgage securitizations are recorded in mortgage servicing and other income. As of December 31, 2009 and 2008, accounts receivable from securitization totaled $7.6 billion and $6.3 billion, respectively. These balances consisted of retained residual interests that are recorded at estimated fair value and totaled $4.0 billion and $2.3 billion at December 31, 2009 and 2008, respectively. The remaining balance relates to cash collections held at financial institutions that are expected to be returned to the Company on future distribution dates, and principal collections accumulated for expected maturities of securitization transactions with the subsequent return of loan receivables.

The Company does not typically recognize servicing assets or servicing liabilities for servicing rights retained from credit card, auto loan and installment loan securitizations since the servicing fee approximates adequate compensation to the Company for performing

the servicing. However, the Company does record an asset for servicing rights related to our mortgage securitizations. See “Note 15- Mortgage Servicing Rights” for more information about accounting for mortgage servicing rights.

As described above, the Company accounted for loan securitization transactions as sales and accordingly, the transferred loans were removed from the consolidated financial statements as of and for the years ending December 31, 2009, 2008 and 2007. However, beginning January 1, 2010, the Company will consolidate certain securitization trusts pursuant to ASU 2009-17 and the securitization of loan receivables related to these newly consolidated trusts will be accounted for as a secured borrowing rather than as a sale. The retained interests in securitized assets will be eliminated or reclassified, generally as loan receivables, accrued interest receivable or restricted cash, as appropriate. See “Note 1- Significant Accounting Policies” for expected financial statement impact and see “Note 20- Securitizations” and “Note 15- Mortgage Servicing Rights” for further information about the accounting for securitized loans.

Loans Held for Investment

Loans are classified as held for investment where management has the intent and ability to hold them for the foreseeable future or until maturity or payoff. Loans held for investment include consumer and commercial loans. Consumer loans include credit card, installment, auto and mortgage loans. In determining the amount of loans held for investment, management makes judgments about the Company’s ability to fund these loans through means other than securitization, such as investments, deposits and other borrowings. Management assesses whether loans can continue to be held for investment on a quarterly basis by considering capital levels and scheduled maturities of funding instruments used. Credit card loans are reported at their principal amounts outstanding and include uncollected billed interest and fees. Loans acquired with the acquisition of Chevy Chase Bank, are accounted for under ASC 310/SOP 03-3. Loans and debt securities acquired with deteriorated credit quality are recorded at fair value without the carry over of existing valuation allowances. Refer to “Note 2- Acquisition of Chevy Chase Bank” for additional discussion. All other loans are stated at principal amount outstanding, net of unearned income, unamortized deferred fees and costs, on originated loans.

Credit card loan balances that are expected to be securitized in the next three months are accounted for as held for sale. The loans that have been identified as held for sale are carried at the lower of aggregate cost or fair value and an allowance for loan losses is not provided for these loans. Management believes its ability to reasonably forecast the amount of existing credit card loans that should be accounted for as held for sale is limited to three months from the balance sheet date because of the short-term nature of the assets, the revolving nature of the securitization structures and the fact that securitizations that occur beyond three months will involve a significant proportion of credit card loans that have not yet been originated. The Company continues to include these loans in loans held for investment because separate classification in the Reported Consolidated Balance Sheets and related impacts to the Reported Consolidated Statements of Income is considered immaterial to the Company’s financial statements. Cash flows associated with loans that are originated with the intent to hold for investment are classified as investing cash flow, regardless of a subsequent change of intent. Certain mortgage loans associated with the GreenPoint shut down, which were previously categorized as held for sale and marked at the lower of aggregate cost or fair value, were transferred to held for investment at December 31, 2007. Cash flows associated with these loans were included in operating cash flows.

Loans Acquired

Loans acquired in connection with acquisitions are accounted for under ASC 805-10/SFAS 141(R) and Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (“ASC 310-10/SOP 03-3”) if at acquisition the loans have evidence of credit quality deterioration since origination and it is probable that all contractually required payments will not be collected. Under both statements, acquired loans are recorded at fair value and the carry-over of the related allowance for loan and lease losses is prohibited. Determining fair value of the loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. During the evaluation of whether a loan was considered impaired under ASC 310-10/SOP 03-3 or performing under ASC 805-10/SFAS 141(R), the Company considered a number of factors, including the delinquency status of the loan, payment options and other loan features (i.e. reduced documentation or stated income loans, interest only payments, or negative amortization features), the geographic location of the borrower or collateral, the loan-to-value ratio and the risk rating assigned to the loans. Based on these criteria, the Company considered the entire Chevy Chase Bank option arm portfolio to be impaired and accounted for under ASC 310-10/SOP 03-3. Portions of the Chevy Chase Bank commercial loan portfolio, HELOC portfolio and the fixed mortgage portfolio were also considered impaired.

The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the nonaccretable difference. The nonaccretable difference includes estimated future credit losses expected to be incurred over the life of the loan. Net charge-offs on such loans are applied to the nonaccretable difference recorded at acquisition for the estimated future credit losses. Subsequent decreases to the expected cash flows will require the Company to consider such loans impaired and establish an appropriate allowance for loan loss. If actual cash flows are significantly greater than previously expected or it is probable that there is a significant increase in expected cash flows, then the Company will reduce any remaining allowance established after loan acquisition and adjust the amount of accretable yield through reclassification from the nonaccretable difference. Prospectively, this new balance of accretable yield is recognized in interest income over the remaining life of the loan.

The income recognition method described above is dependent on the Company having a reasonable expectation of the amount and timing of cash flows expected to be collected on the acquired loans. The Company expects to fully collect the new carrying amount of the acquired Chevy Chase Bank loans and believes that it has a reasonable expectation of the amount and timing of cash flows. As such, the Company considers the loans to be performing even if customers are contractually delinquent or the loans had been considered nonperforming or nonaccrual by Chevy Chase Bank. Refer to “Note 3- Loans Acquired in a Transfer” for additional discussion.

Nonperforming Assets

Nonperforming assets include nonaccrual loans, impaired loans, certain restructured loans on which interest rates or terms of repayment have been materially revised, foreclosed and repossessed assets.

Commercial loans, mortgage and auto loans are placed in nonaccrual status at 90 days past due or sooner if, in management’s opinion, there is doubt concerning full collectibility of both principal and interest. All other consumer loans and small business credit card loans are not placed in nonaccrual status prior to charge-off; however management does assess collectibility of finance charge and fees and does not accrue the estimated uncollectible portion of finance charges and fees as income (the “suppression amount”). See “Revenue Recognition” within “Note 1- Significant Accounting Policies” for more information on the calculation of the suppression amount.

At the time a loan is placed on nonaccrual status, interest and fees accrued but not collected are systematically reversed and charged against income. Interest payments received on nonaccrual loans are applied to principal if there is doubt as to the collectibility of the principal; otherwise, these receipts are recorded as interest income. A loan remains in nonaccrual status until it is current as to principal and interest and the borrower demonstrates the ability to fulfill the contractual obligation.

Upon foreclosure or repossession, loans are adjusted, if necessary, to the estimated fair value of the underlying collateral and transferred to other assets, net of a valuation allowance for selling costs. We estimate market values primarily based on appraisals when available or quoted market prices on liquid assets. At December 31, 2009 and 2008, the balance of foreclosed assets and repossessed assets were $233.7 million and $89.0 million, respectively, and $24.5 million and $65.6 million, respectively.

Charge-offs and Delinquencies

Commercial and small business loans are considered past due or delinquent based on contractual terms. Principal amounts charge-off when amounts are deemed uncollectible and interest is reversed and charged against income when the loans are placed on nonaccrual status.

Credit card loans charge-off at 180 days past the statement cycle date and other consumer loans generally charge-off at 120 days past due or upon repossession of collateral. The entire balance of an account is contractually delinquent if the minimum payment is not received by the specified due date on the customer’s billing statement. Bankruptcies charge-off within 30 days of notification and deceased accounts charge-off within 60 days of notification. Fraudulent amounts are charged to non-interest expense after a 60 day investigation period.

Net charge-offs represent principal losses net of current period principal recoveries. Principal losses exclude accrued and unpaid interest income and fees and fraud losses. Interest income and fees accrued and not collected are reversed when the loan charges off or when placed in nonaccrual status. Costs to recover previously charged-off loans are recorded as collection expenses in other non-interest expense.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses is maintained at the amount estimated to be sufficient to absorb probable principal losses, net of principal recoveries (including recovery of collateral), inherent in the existing reported loan portfolios. The provision for loan and lease losses is the periodic cost of maintaining an adequate allowance. The amount of allowance necessary is based on distinct allowance methodologies depending on the type of loans which include specifically identified criticized loans, migration analysis, forward loss curves and historical loss trends. In evaluating the sufficiency of the allowance for loan and lease losses, management takes into consideration many factors including, but not limited to: recent trends in delinquencies and charge-offs including bankrupt, deceased and recovered amounts; forecasting uncertainties and size of credit risks; the degree of risk inherent in the composition of the loan portfolio; economic conditions; legal and regulatory guidance; credit evaluations and underwriting policies; seasonality; and the value of collateral supporting the loans. To the extent credit experience is not indicative of future performance or other assumptions used by management do not prevail, loss experience could differ significantly, resulting in either higher or lower future provision for loan and lease losses, as applicable. The evaluation process for determining the adequacy of the allowance for loan losses and the periodic provisioning for estimated losses is undertaken on a quarterly basis, but may increase in frequency should conditions arise that would require the Company’s prompt attention. Conditions giving rise to such action are business combinations or other acquisitions or dispositions of large quantities of loans, dispositions of non-performing and marginally performing loans by bulk sale or any development which may indicate a significant trend.

Commercial and small business loans are considered to be impaired in accordance with the provisions of ASC 310-10/SFAS 114 when it is probable that all amounts due in accordance with the contractual terms will not be collected. Specific allowances are determined in accordance with ASC 310-10/SFAS 114. Impairment is measured based on the present value of the loan’s expected cash flows, the loan’s observable market price or the fair value of the loan’s collateral, if loan is collateral dependent.

For purposes of determining impairment, consumer loans are collectively evaluated as they are considered to be comprised of large groups of smaller-balance homogeneous loans and therefore are not individually evaluated for impairment under the provisions of ASC 310-10/SFAS 114.

Troubled debt restructurings (“TDR”) occur when the Company agrees to significantly modify the original terms of a loan due to the deterioration in the financial condition of the borrower. During 2009, the Company modified $279.6 million of loans which are considered TDR’s. The income statement impact for the TDR’s was not material. The Company did not have any material TDR’s in 2008.

As of December 31, 2009 and 2008, the balance in the allowance for loan and lease losses was $4.1 billion and $4.5 billion, respectively. See “Note 7- Loans Held for Investment, Allowance for Loan and Lease Losses and Unfunded Lending Commitments” for additional detail.

Goodwill and Other Intangible Assets

The Company performs annual impairment tests on goodwill and between annual tests if events occur or circumstances change in accordance with SFAS No. 142, Goodwill and Other Intangible Assets, (“ASC 350-20/SFAS 142”). As of December 31, 2009 and 2008, goodwill of $13.6 billion and $12.0 billion, respectively, was included in the Consolidated Balance Sheet. See “Note 10- Goodwill and Other Intangible Assets” for additional detail. The increase in Goodwill was a result of the Chevy Chase Bank acquisition.

Other intangible assets that have finite useful lives are amortized either on a straight-line or on an accelerated basis over their respective estimated useful lives and evaluated for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. At December 31, 2009 and 2008, net intangible assets included in other assets of $0.9 billion, respectively, consist of core deposit intangibles, trust intangibles, lease intangibles and other intangibles.

Other Assets

Included in other assets are investments in Federal Home Loan Bank (“FHLB”) stock of $264.1 million and $267.5 million and Federal Reserve stock of $778.1 million and $676.1 million as of December 31, 2009 and 2008, respectively. We carry FHLB stock and Federal Reserve stock at cost and assess impairment in accordance with ASC 942-325. No impairment was recognized for 2009 or 2008.

Mortgage Servicing Rights

Mortgage Servicing Rights (“MSRs”) are recognized at fair value when mortgage loans are sold or securitized in the secondary market and the right to service these loans are retained for a fee. Changes in fair value are recognized in mortgage servicing and other income. The Company continues to operate the mortgage servicing business and to report the changes in the fair value of MSRs in continuing operations. To evaluate and measure fair value, the underlying loans are stratified based on certain risk characteristics, including loan type, note rate and investor servicing requirements. Fair value of the MSRs is determined using the present value of the estimated future cash flows of net servicing income. The Company uses assumptions in the valuation model that market participants use when estimating future net servicing income, including prepayment speeds, discount rates, default rates, cost to service, escrow account earnings, contractual servicing fee income, ancillary income and late fees. This model is highly sensitive to changes in certain assumptions. Different anticipated prepayment speeds, in particular, can result in substantial changes in the estimated fair value of MSRs. If actual prepayment experience differs from the anticipated rates used in the Company’s model, this difference could result in a material change in MSR value.

The MSR balance was $239.7 million and $150.5 million which are included within other assets at December 31, 2009 and 2008, respectively. See “Note 15- Mortgage Servicing Rights” and “Note 20- Securitizations” for additional detail. The acquisition of Chevy Chase Bank added $109.5 million as of the acquisition date.

Upon adoption of ASU 2009-16 (ASC 860/SFAS 166) and ASU 2009-17 (ASC 810/SFAS 167), certain mortgage loans that have been securitized and accounted for as a sale will be subject to consolidation and accounted for as a secured borrowing. Accordingly, effective January 1, 2010, mortgage securitization trusts that contain approximately $1.6 billion of mortgage loans and related debt securities issued to third party investors are expected to be consolidated and the retained interests and mortgage servicing rights related to these newly consolidated trusts are expected to be eliminated in consolidation. See “Note 1- Significant Accounting Policies” for expected financial statement impact and see “Note 15- Mortgage Servicing Rights” for further information about the accounting for mortgage servicing rights.

Representation and Warranty Reserve

The representation and warranty reserve is available to cover probable losses inherent with the sale of mortgage loans in the secondary market. In the normal course of business, certain representations and warranties are made to investors at the time of sale, which permit the investor to return the loan to the seller or require the seller to indemnify the investor for any losses incurred by the investor while the loan remains outstanding.

The evaluation process for determining the adequacy of the representation and warranty reserve and the periodic provisioning for estimated losses is performed for each product type on a quarterly basis. Factors considered in the evaluation process include historical sales volumes, aggregate repurchase and indemnification activity and actual losses incurred. Additions to the reserve are recorded as a reduction to the gain on sale of loans. Losses incurred on loans that the Company is required to either repurchase or make payments to the investor under the indemnification provisions are charged against the reserve. The representation and warranty reserve is included in other liabilities. Changes to the representation and warranty reserve related to GreenPoint are reported as discontinued operations for all periods presented.

As of December 31, 2009, 2008, and 2007, the representation and warranty reserve was $238.4 million, $140.2 million, and $93.4 million which are included within other liabilities, respectively, of which $210.2 million, $122.2 million, and $84.5 million were part of discontinued operations, respectively. For the years ended December 31, 2009, 2008 and 2007, the amount recorded in non-interest expense, for the representation and warranty reserve, were $165.0 million, $121.2 million and $175.2 million, respectively, of which $162.3 million, $103.7 million and $84.5 million were part of discontinued operations, respectively. See “Note 21- Commitments Contingencies and Guarantees” for additional discussion related to GreenPoint representation and warranty claims.

Rewards Liability

The Company offers products, primarily credit cards, that provide reward program members with various rewards such as airline tickets, free or deeply discounted products or cash rebates, based on account activity. The Company establishes a rewards liability based upon points earned which are ultimately expected to be redeemed and the average cost per point redemption. As points are redeemed, the rewards liability is relieved. The estimated cost of reward programs is primarily reflected as a reduction to interchange income. The cost of reward programs related to securitized loans is deducted from servicing and securitizations income.

As of December 31, 2009 and 2008, the rewards liability was $1.3 billion and $1.4 billion, respectively.

Derivative Instruments and Hedging Activities

The Company recognizes all of its derivative instruments as either assets or liabilities in the balance sheet at fair value. These instruments are recorded in other assets or other liabilities on the Consolidated Balance Sheet and in the operating section of the Statement of Cash Flows as increases or decreases of other assets and other liabilities. The Company’s policy is not to offset fair value amounts recognized for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments recognized at fair value executed with the same counterparty under master netting arrangements. As of December 31, 2009 and 2008, the Company had recorded $253.5 million and $583.5 million, respectively, for the right to retain cash collateral and $338.3 million and $495.6 million, respectively, for the obligation to return cash collateral under master netting arrangements. The accounting for changes in the fair value (i.e., gains and losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments the Company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, a cash flow hedge or a hedge of a net investment in a foreign operation.

For derivative instruments that are designated and qualify as fair value hedges (i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk is recognized in current earnings during the period of the change in fair values. For derivative instruments that are designated and qualify as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change. For derivative instruments that are designated and qualify as hedges of a net investment in a foreign operation, the gain or loss is reported in other comprehensive income as part of the cumulative translation adjustment to the extent it is effective. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change in the fair value.

The Company also enters into derivative agreements with its customers in order to transfer, modify or reduce their interest rate or foreign exchange risks. As part of this process, the Company considers the customers’ suitability for the risk involved, and the business purpose for the transaction. These derivatives do not qualify for hedge accounting and are considered trading derivatives with changes in fair value recognized in current period earnings. See “Note 19- Derivative Instruments and Hedging Activities” for additional detail.

Revenue Recognition

The Company recognizes earned finance charges, interest income and fee income on loans according to the contractual provisions of the credit arrangements. For credit card loans, when the Company does not expect full payment of finance charges and fees, it does not accrue the estimated uncollectible portion as income (hereafter the “suppression amount”). To calculate the suppression amount, the Company first estimates the uncollectible portion of credit card finance charge and fee receivables using an estimate of future non-principal losses. This formula is consistent with that used to estimate the allowance related to expected principal losses on reported loans. The suppression amount is calculated by adding any current period change in the estimate of the uncollectible portion of finance charge and fee receivables to the amount of finance charges and fees charged-off (net of recoveries) during the period. The Company subtracts the suppression amount from the total finance charges and fees billed during the period to arrive at total reported revenue. The amount of finance charge and fees suppressed were $2.1 billion, $1.9 billion and $1.1 billion for the years ended December 31, 2009, 2008, and 2007, respectively.

For other consumer loans and commercial loans, the Company places loans in a non-accrual status, which prevents the accrual of further interest income, when a loan reaches a pre-determined delinquency status, generally 90 to 120 days past due.

Interchange income is a discount on the payment due from the card-issuing bank to the merchant bank through the interchange network. Interchange rates are set by MasterCard International Inc. (“MasterCard”) and Visa U.S.A. Inc. (“Visa”) and are based on cardholder purchase volumes. The Company recognizes interchange income as earned.

Annual membership fees and direct loan origination costs specific to credit card loans are deferred and amortized over one year on a straight-line basis. Fees and origination costs and premiums are deferred and amortized over the average life of the related loans using the interest method for auto, mortgage and commercial loan originations. Direct loan origination costs consist of both internal and external costs associated with the origination of a loan. Deferred fees (net of deferred costs) were $148.2 million, $323.9 million and $389.7 million as of December 31, 2009, 2008 and 2007, respectively.

Marketing

The Company expenses marketing costs as incurred. Television advertising costs are expensed during the period in which the advertisements are aired. The amount of marketing expense was $0.6 billion, $1.1 billion and $1.3 billion for the years ended December 31, 2009, 2008 and 2007, respectively.

Fraud Losses

The Company experiences fraud losses from the unauthorized use of credit cards, debit cards and customer bank accounts. Additional fraud losses may be incurred when loans are obtained through fraudulent means. Transactions suspected of being fraudulent are charged to non-interest expense after an investigation period. Recoveries related to balances treated as fraud losses are also recognized in non-interest expense. See “Note 17- Other Non-Interest Expense” for total fraud losses.

Income Taxes

The Company accounts for income taxes in accordance with SFAS 109, Accounting for Income Taxes (“ASC740-10/SFAS 109”), recognizing the current and deferred tax consequences of all transactions that have been recognized in the financial statements using the provisions of the enacted tax laws. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109, (“ASC740-10/FIN 48”) effective January 1, 2007.

The calculation of the Company’s income tax provision is complex and requires the use of estimates and judgments. When analyzing business strategies, the Company considers the tax laws and regulations that apply to the specific facts and circumstances for any transaction under evaluation. This analysis includes the amount and timing of the realization of income tax provisions or benefits. Management closely monitors tax developments in order to evaluate the effect they may have on its overall tax position and the estimates and judgments utilized in determining the income tax provision and records adjustments as necessary.

The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In making this assessment, management analyzes future taxable income, reversing temporary differences and ongoing tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.

For the years ended December 31, 2009, 2008, and 2007, the provision for income taxes on continuing operations was $349.5 million, $497.1 million and $1.3 billion, respectively, and as of December 31, 2009 and 2008, the valuation allowance was $108.5 million and $67.7 million, respectively.

Segments

The accounting policies of operating and reportable segments, as defined by the SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, (“ASC 280-10/SFAS 131”) are the same as those described elsewhere in “Note 1- Significant Accounting Policies”. Revenue for all segments is generally derived from external parties. The Commercial and Consumer Banking segment receives funding credits related to deposits. Performance evaluation of and resource allocation to each reportable segment is based on a wide range of indicators to include both historical and forecasted operating results. See “Note 5- Segments” for further discussion of the Company’s operating and reportable segments.

Acquisition of Chevy Chase Bank

12 Months Ended

Dec. 31, 2009

Acquisition of Chevy Chase Bank

Note 2

Acquisition of Chevy Chase Bank

On February 27, 2009, the Company acquired all of the outstanding common stock of Chevy Chase Bank in exchange for Capital One common stock and cash with a total value of $475.9 million. Under the terms of the stock purchase agreement, Chevy Chase Bank common shareholders received $445.0 million in cash and 2.56 million shares of Capital One common stock. In addition, to the extent that losses on certain of Chevy Chase Bank’s mortgage loans are less than the level reflected in the net expected principal losses estimated at the time the deal was signed, the Company will share a portion of the benefit with the former Chevy Chase Bank common shareholders (the “earn-out”). The maximum payment under the earn-out is $300.0 million and would occur after December 31, 2013. As of December 31, 2009, the Company has not recognized a liability nor does it expect to make any payments associated with the earn-out based on our expectations for credit losses on the portfolio. Subsequent to the closing of the acquisition all of the outstanding shares of preferred stock of Chevy Chase Bank and the subordinated debt of its wholly-owned REIT (Real Estate Investment Trust) subsidiary, were redeemed. This acquisition improves the Company’s core deposit funding base, increases readily available and committed liquidity, adds additional scale in bank operations, and brings a strong customer base in an attractive banking market. Chevy Chase Bank’s results of operations are included in the Company’s results after the acquisition date of February 27, 2009.

The Chevy Chase Bank acquisition is being accounted for under the acquisition method of accounting following the provisions of ASC 805-10/SFAS No. 141(R). This Statement replaced SFAS 141, Business Combinations, retaining the fundamental requirements in SFAS 141, however broadening the scope by applying to all transactions and other events in which one entity obtains control over one or more other businesses. ASC 805-10/SFAS No. 141(R) requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, at their fair values as of that date, with limited exceptions, thereby replacing SFAS 141’s cost-allocation process. This Statement also changes the requirements for recognizing acquisition related costs, restructuring costs, and assets acquired and liabilities assumed arising from contingencies.

Accordingly, the purchase price was allocated to the acquired assets and liabilities based on their estimated fair values at the Chevy Chase Bank acquisition date, as summarized in the table below. Initial goodwill of $1.1 billion was calculated as the purchase premium after adjusting for the fair value of net assets acquired. Throughout 2009, the Company continued the analysis of the fair values and purchase price allocation of Chevy Chase Bank’s assets and liabilities which resulting in purchase accounting adjustments and an increase to goodwill of $510.9 million. Goodwill of $1.6 billion represents the value expected from the synergies created through the scale, operational and product enhancement benefits that will result from combining the operations of the two companies. The change was predominantly related to a reduction in the fair value of net loans at the acquisition date. As of December 31, 2009, the Company has completed the analysis and considers purchase accounting to be final and the Company has recast previously presented information as if all adjustments to the purchase price allocation had occurred at the date of acquisition. The fair value of the non-controlling interest was calculated based on the redemption price of the interests, as well as any accrued but unpaid dividends. The shares of preferred stock of Chevy Chase Bank have been redeemed as noted above, and therefore, there is no longer a non-controlling interest.


	Original Allocation			Adjustments		Final Allocation
Costs to acquire Chevy Chase Bank:
Cash consideration paid	$	445,000		$	—	$	445,000
Capital One common stock issued (2,560,601 shares)		30,856			—		30,856
Fair value of contingent consideration		—			—		—
Transfer taxes paid on behalf of Chevy Chase Bank		3,150			—		3,150

Total consideration paid for Chevy Chase Bank	$	479,006		$	—	$	479,006
Fair value of noncontrolling interest		283,900			—		283,900

Fair value of Chevy Chase Bank	$	762,906			—	$	762,906

Chevy Chase Bank’s net assets at fair value:
Chevy Chase Bank’s stockholders’ equity at February 27, 2009		641,537			—		641,537
Elimination of Chevy Chase Bank’s intangible assets (including goodwill)		(18,383	)		—		(18,383	)

Original
Allocation

Adjustments

Final
Allocation

Adjustments to reflect assets and liabilities acquired at fair value:

Net loans

(1,427,161

)

(606,734

)

(2,033,895

)

Investment securities

(53,306

)

2,043

(51,263

)

Intangible assets

276,195

2,055

278,250

Other assets

398,029

118,387

516,416

Deposits

(109,861

)

—

(109,861

)

Borrowings

(12,871

)

—

(12,871

)

Other liabilities

(45,291

)

(26,621

)

(71,912

)

Less: Adjusted identifiable net liabilities acquired

(351,112

)

(510,870

)

(861,982

)

Total goodwill⁽¹⁾

1,114,018

510,870

1,624,888

(1)	Goodwill is not expected to be deductible for federal income tax purposes. Goodwill of $844.9 million and $780.0 million, respectively has been allocated to the Commercial and Consumer Banking segments during 2009, along with the operations of Chevy Chase Bank.

The following condensed balance sheet of Chevy Chase Bank discloses the amount assigned to each major asset and liability caption as of February 27, 2009.

Original
Allocation

Adjustments

Final
Allocation

Assets:

Cash and cash equivalents

1,217,837

—

1,217,837

Interest-bearing deposits

8,480

—

8,480

Investment securities

1,423,568

2,043

1,425,611

Net loans

9,841,678

(606,734

)

9,234,944

Other Intangible assets

44,830

(8,500

)

36,330

Core deposit intangibles

231,365

10,555

241,920

Other assets ⁽¹⁾

2,206,552

118,387

2,324,939

Total assets

14,974,310

(484,249

)

14,490,061

Liabilities:

Deposits

13,556,639

—

13,556,639

Securities sold under repurchase agreements

806,575

—

806,575

Other borrowings

376,600

—

376,600

Other liabilities

585,608

26,621

612,229

Total liabilities

15,325,422

26,621

15,352,043

Net liabilities acquired

(351,112

)

(510,870

)

(861,982

)

(1)	Included in other assets is $743.1 million of deferred tax assets.

The following table discloses the impact of Chevy Chase Bank since the acquisition on February 27, 2009, through the year ended December 31, 2009. The table also presents what the pro-forma Company results would have been had the acquisition taken place on January 1, 2009 and January 1, 2008. The pro forma financial information includes the impact of purchase accounting adjustments and the amortization of certain intangible assets. The pro-forma does not include the impact of possible business model changes nor does it consider any potential impacts of current market conditions on revenues, reduction of expenses, asset dispositions, or other factors.


	Chevy Chase Bank			Total Company
	Actual for the period from February 27, 2009 to December 31,			Pro-Forma results for the year ended December 31,
	2009			2009		2008
Revenue ⁽¹⁾	$	529,355		$	13,000,917	$	14,706,288
Income (loss) from continuing operations, net of tax	$	(34,827	)	$	927,317	$	216,755

(1)	Includes net interest income and non interest income.

Loans Acquired in a Transfer

12 Months Ended

Dec. 31, 2009

Loans Acquired in a Transfer

Note 3

Loans Acquired in a Transfer

The Company’s acquired loans from the Chevy Chase Bank acquisition are initially recorded at fair value and no separate valuation allowance is recorded at the date of acquisition. The Company is required to review each loan at acquisition to determine if it should be accounted for under ASC 310-10/SOP 03-3 and if so, determines whether each loan is to be accounted for individually or whether loans will be aggregated into pools of loans based on common risk characteristics. The Company has performed its analysis of the loans to be accounted for as impaired under ASC 310-10/SOP 03-3 (“Impaired Loans” in the tables below). For the loans acquired with the Chevy Chase Bank acquisition that are not within the scope of ASC 310-10/SOP 03-3 (“Non-Impaired Loans” in the tables below), the Company followed the income recognition and disclosure guidance in ASC 310-10/SOP 03-3.

During the evaluation of whether a loan was considered impaired under ASC 310-10/SOP 03-3 or performing under ASC 805-10/SFAS 141(R), the Company considered a number of factors, including the delinquency status of the loan, payment options and other loan features (i.e. reduced documentation, interest only, or negative amortization features), the geographic location of the borrower or collateral and the risk rating assigned to the loans. Based on the criteria, the Company considered the entire Chevy Chase Bank option arm, hybrid arm and construction to permanent portfolios to be impaired and accounted for under ASC 310-10/SOP 03-3. Portions of the Chevy Chase Bank commercial, auto, fixed mortgage, home equity, and other consumer loan portfolios were also considered impaired.

The Company makes an estimate of the total cash flows it expects to collect from the pools of loans, which includes undiscounted expected principal and interest. The excess of that amount over the fair value of the loans is referred to as accretable yield. Accretable yield is recognized as interest income on a level-yield basis over the life of the loans. The Company also determines the loans’ contractual principal and contractual interest payments. The excess of contractual amounts over the total cash flows expected to be collected from the loans is referred to as nonaccretable difference, which is not accreted into income. Judgmental prepayment assumptions are applied to both contractually required payments and cash flows expected to be collected at acquisition. The Company continues to estimate cash flows expected to be collected over the life of the loans. Subsequent increases in total cash flows expected to be collected are recognized as an adjustment to the accretable yield with the amount of periodic accretion adjusted over the remaining life of the loans. Subsequent decreases in cash flows expected to be collected over the life of the loans are recognized as impairment in the current period through allowance for loan loss.

In conjunction with the Chevy Chase Bank acquisition, the acquired loan portfolio was accounted for under ASC 310-10/SOP 03-3 or ASC 805-10/SFAS 141(R) at fair value and are as follows:


	At Acquisition
(In Thousands)	Impaired Loans		Non-Impaired Loans		Total Loans
Contractually required principal and interest at acquisition	$	12,038,971	$	3,348,058	$	15,387,029
Nonaccretable difference (expected principal losses of $2,207,144 and foregone interest of $1,820,065) ⁽¹⁾		3,851,043		176,166		4,027,209

Cash flows expected to be collected at acquisition	$	8,187,928	$	3,171,892	$	11,359,820
Accretable yield (interest component of expected cash flows)		1,860,697		499,245		2,359,942

Fair value of loans acquired ⁽²⁾	$	6,327,231	$	2,672,647	$	8,999,878

(1)	Expected principal losses and foregone interest on the impaired loans are $2,053,501 and $1,797,542, respectively. Expected principal losses and foregone interest on the non impaired loans are $153,643 and $22,523, respectively.

(2)	A portion of the acquired loans from Chevy Chase Bank acquisition were held for sale and are not included in these tabular disclosures. These held for sale loans were assigned a fair value of $235.1 million through purchase price allocation.

The carrying amount of these loans is included in the balance sheet amounts of loans held for investment at December 31, 2009 and is as follows:

Impaired
Loans

Non-Impaired
Loans

Total Loans

Outstanding Balance

7,113,749

2,150,197

9,263,946

Carrying Amount

5,255,850

1,994,625

7,250,475

Accretable Yield Activity

Impaired
Loans

Non-Impaired
Loans

Total Loans

Balance at January 1, 2009

—

Additions

1,860,697

499,245

2,359,942

Accretion

(209,604

)

(83,587

)

(293,191

)

Balance at December 31, 2009

1,651,093

415,658

2,066,751

Expected Principal Losses

Impaired
Loans

Non-Impaired
Loans

Total Loans

Balance at January 1, 2009

—

Additions

2,053,501

153,643

2,207,144

Principal losses

(335,636

)

(35,691

)

(371,327

)

Balance at December 31, 2009

1,717,865

117,952

1,835,817

Discontinued Operations

12 Months Ended

Dec. 31, 2009

Discontinued Operations

Note 4

Discontinued Operations

Shutdown of Mortgage Origination Operations of Wholesale Mortgage Banking Unit

In the third quarter of 2007, the Company shut down the mortgage origination operations for GreenPoint of its wholesale mortgage banking unit, GreenPoint Mortgage (“GreenPoint”). GreenPoint was acquired by the Company in December 2006 as part of the North Fork acquisition. The results of the mortgage origination operations of GreenPoint have been accounted for as a discontinued operation and have been removed from the Company’s results from continuing operations for the year ended December 31, 2009, 2008 and 2007. The Company will have no significant continuing involvement in the operations of the originate and sell business of GreenPoint.

The loss from discontinued operations for the years ended December 31, 2009, 2008 and 2007 includes an expense of $162.3 million, $103.7 million and $84.5 million, respectively, recorded in non-interest expense, for representations and warranties provided by the Company on loans previously sold to third parties by GreenPoint’s mortgage origination operation. The expense for representations and warranties is offset by a valuation adjustment for expected returns of spread account funding for certain securitization transactions.

The following is summarized financial information for discontinued operations related to the closure of the Company’s wholesale mortgage banking unit:


	Year Ended December 31, 2009			Year Ended December 31, 2008			Year Ended December 31, 2007
Net interest income (loss)	$	(2,306	)	$	6,939		$	62,402
Non-interest income		31,675			5,544			140,245
Provision for loan and lease losses		—			—			80,151
Non-interest expense		188,805			214,957			1,358,719
Income tax benefit		(56,600	)		(71,959	)		(214,836	)

Loss from discontinued operations, net of taxes	$	(102,836	)	$	(130,515	)	$	(1,021,387	)

The Company’s mortgage origination operations of its wholesale mortgage banking unit had assets of approximately $23.8 million and $35.0 million as of December 31, 2009 and 2008, respectively, consisting of $19.9 million and $19.3 million, respectively, of mortgage loans held for sale and other related assets. The related liabilities consisted of obligations to fund these assets, and obligations for representations and warranties provided by the Company on loans previously sold to third parties.

Segments

12 Months Ended

Dec. 31, 2009

Segments

Note 5

Segments

During 2009, the Company realigned its business segment reporting structure to better reflect the manner in which the performance of the Company’s operations is evaluated. The Company now reports the results of its business through three operating segments: Credit Card, Commercial Banking and Consumer Banking.

Segment results where presented have been recast for all periods presented. The three segments consist of the following:

•

Commercial Banking includes the Company’s lending, deposit gathering and treasury management services to commercial real estate and middle market customers. The Commercial Banking segment also includes the financial results of a national portfolio of small ticket commercial real estate loans that are in run-off mode.

•

Chevy Chase Bank’s operations are included in the Commercial Banking and Consumer Banking segments beginning in the second quarter 2009. Chevy Chase Bank’s operations for the first quarter of 2009 remain in the Other category due to the short duration since acquisition. The Other category includes GreenPoint originated consumer mortgages originated for sale but held for investment since originations were suspended in 2007, the results of corporate treasury activities, including asset-liability management and the investment portfolio, the net impact of transfer pricing, brokered deposits, certain unallocated expenses, gains/losses related to the securitization of assets, and restructuring charges related to the Company’s cost initiative and Chevy Chase Bank acquisition.

The Company maintains its books and records on a legal entity basis for the preparation of financial statements in conformity with U.S. GAAP. The following tables present information prepared from the Company’s internal management information systems, which is maintained based on managed financial statement view and on a line of business level through allocations from the consolidated financial results.

The following tables present certain information regarding our continuing operations by segment:


	Year Ended December 31, 2009
Total Company	Credit Card		Commercial Banking			Consumer Banking			Other			Total Managed⁽¹⁾		Securitization Adjustment⁽¹⁾			Total Reported
Net interest income	$	7,542,462	$	1,144,388		$	3,230,597		$	172,048		$	12,089,495	$	(4,392,380	)	$	7,697,115
Non-interest income		3,746,789		171,548			755,188			73,247			4,746,772		539,380			5,286,152
Provision for loan and lease losses		6,051,492		983,389			875,649			172,581			8,083,111		(3,853,000	)		4,230,111
Restructuring expenses		—		—			—			119,395			119,395		—			119,395
Other non-interest expenses		3,738,230		660,777			2,734,450			164,202			7,297,659		—			7,297,659
Income tax provision (benefit)		521,909		(114,881	)		131,490			(189,033	)		349,485		—			349,485

Net income (loss) from continuing operations net of tax	$	977,620	$	(213,349	)	$	244,196		$	(21,850	)	$	986,617	$	—		$	986,617

Loans held for investment	$	68,523,662	$	29,613,050		$	38,214,493		$	451,697		$	136,802,902	$	(46,183,903	)	$	90,618,999

Total deposits	$	—	$	20,480,297		$	74,144,805		$	21,183,994		$	115,809,096	$	—		$	115,809,096


	Year Ended December 31, 2008
Total Company	Credit Card		Commercial Banking			Consumer Banking			Other			Total Managed⁽¹⁾		Securitization Adjustment⁽¹⁾			Total Reported
Net interest income	$	7,463,480	$	961,372		$	2,987,962		$	9,241		$	11,422,055	$	(4,273,340	)	$	7,148,715
Non-interest income		4,678,377		144,227			728,705			(133,911	)		5,417,398		1,326,573			6,743,971
Provision for loan and lease losses		6,107,961		233,877			1,534,281			171,688			8,047,807		(2,946,767	)		5,101,040
Restructuring expenses		—		—			—			134,464			134,464		—			134,464
Goodwill impairment		—		—			810,876			—			810,876		—			810,876
Other non-interest expenses		4,392,968		480,983			2,452,637			(61,901	)		7,264,687		—			7,264,687
Income tax provision (benefit)		573,908		136,759			(101,146	)		(112,419	)		497,102		—			497,102

Net income (loss) from continuing operations net of tax	$	1,067,020	$	253,980		$	(979,981	)	$	(256,502	)	$	84,517	$	—		$	84,517



	Year Ended December 31, 2008
Total Company	Credit Card		Commercial Banking		Consumer Banking		Other		Total Managed⁽¹⁾		Securitization Adjustment⁽¹⁾			Total Reported
Loans held for investment	$	79,665,223	$	29,541,314	$	37,196,562	$	533,655	$	146,936,754	$	(45,918,983	)	$	101,017,771

Total deposits	$	—	$	16,483,361	$	61,763,503	$	30,373,925	$	108,620,789	$	—		$	108,620,789


	Year Ended December 31, 2007
Total Company	Credit Card		Commercial Banking			Consumer Banking		Other			Total Managed⁽¹⁾		Securitization Adjustment⁽¹⁾			Total Reported
Net interest income	$	7,330,367	$	931,227		$	2,915,693	$	(157,537	)	$	11,019,750	$	(4,489,905	)	$	6,529,845
Non-interest income		4,758,466		127,029			924,872		(44,599	)		5,765,768		2,288,455			8,054,223
Provision for loan and lease losses		3,635,567		(27,844	)		1,116,143		114,086			4,837,952		(2,201,450	)		2,636,502
Restructuring expenses		—		—			—		138,237			138,237		—			138,237
Other non-interest expenses		4,801,636		384,733			2,567,794		185,610			7,939,773		—			7,939,773
Income tax provision (benefit)		1,254,899		244,028			54,699		(275,789	)		1,277,837		—			1,277,837

Net income (loss) from continuing operations net of tax	$	2,396,731	$	457,339		$	101,929	$	(364,280	)	$	2,591,719	$	—		$	2,591,719

Loans held for investment	$	81,380,091	$	27,047,241		$	42,349,296	$	585,789		$	151,362,417	$	(49,557,390	)	$	101,805,027

Total deposits	$	—	$	14,876,726		$	57,692,006	$	10,192,444		$	82,761,176	$	—		$	82,761,176

(1)

Income statement adjustments for the year ended December 31, 2009 reclassify the finance charge of $4.9 billion, past due fees of $0.8 billion, other interest income of $(0.2) billion and interest expense of $1.1 billion; from non –interest income to net interest income. Net charge-offs of $3.9 billion are reclassified from non-interest income to provision for loan losses.

Income statement adjustments for the year ended December 31, 2008 reclassify the finance charge of $5.6 billion, past due fees of $0.9 billion, other interest income of $(0.2) billion and interest expense of $2.1 billion; from non – interest income to net interest income. Net charge-offs of $2.9 billion are reclassified from non-interest income to provision for loan losses.

Income statement adjustments for the year ended December 31, 2007 reclassify the finance charge of $6.3 billion, past due fees of $1.0 billion, other interest income of $(0.2) billion and interest expense of $2.7 billion; from non –interest income to net interest income. Net charge-offs of $2.2 billion are reclassified from non-interest income to provision for loan losses.

Significant Segment Adjustments That Affect Comparability

In 2009, the Company recorded an additional $80.5 million related to the Federal Deposit Insurance Corporation (“FDIC”) special assessment. The amount was allocated to non-interest expense based on each segment’s share of FDIC insured deposits.

During 2009, the Company began a hedge program on brokered CDs, by entering into interest rate swap agreements, designated as fair value hedges, converting a portion of the Company’s brokered CD liabilities from fixed rates to variable rates. As a result, the Company recognized a reduction of $75.0 million in interest expense.

During 2009, the Company sold approximately $8.4B of FNMA, FHLMC, MBS, ABS and CMBS securities with generally shorter expected maturities and purchased $8.3B billion of GNMA securities with generally longer expected maturities for overall asset liability management purposes. In addition, GNMA securities also provide regulatory capital savings over FNMA and FHLMC securities based on their risk weight of zero percent. As a result of these sales, gains of $218.4 million were recognized in non interest income.

During 2008, the Company recognized a goodwill impairment charge of $810.9 million in the Consumer Banking segment.

During 2008, the Company repurchased approximately $1.0 billion of certain senior unsecured debt, recognizing a gain of $52.0 million in non-interest income and reported in the Other category. The Company initiated the repurchases to take advantage of the current market environment and replaced the repurchased debt with lower-rate unsecured funding.

During 2007, the Company completed the sale of its interest in a relationship agreement to develop and market consumer credit products in Spain and recorded a net gain related to this sale of $31.3 million consisting of a $41.6 million increase in non-interest income partially offset by a $10.3 million increase in non-interest expense. This gain was recorded in the Credit Card segment.

During 2007, the Company sold its remaining interest in DealerTrack, a leading provider of on-demand software and data solutions for the automotive retail industry. The sale resulted in a $46.2 million gain, which was recorded in non-interest income and reported in the Consumer Banking segment.

Visa Litigation and IPO

During 2007, the Company recognized a pre-tax charge of $79.8 million for liabilities in connection with the Visa antitrust lawsuit settlement with American Express. Additionally, the Company recorded a legal reserve of $59.1 million for estimated possible damages in connection with other pending Visa litigation, reflecting our share of such potential damages as a Visa member. The 2007 litigation charges were recorded in non-interest expense and held in the Other category. During the first quarter of 2008, Visa completed an initial public offering (“IPO”) of its stock. With IPO proceeds Visa established an escrow account for the benefit of member banks to fund certain litigation settlements and claims. As a result, in the first quarter of 2008, the Company reversed its Visa-related indemnification liabilities of $90.9 million recorded in other liabilities with a corresponding reduction of other non-interest expense. In addition, the Company recognized a gain of $109.0 million in non-interest income for the redemption of 2.5 million shares related to the Visa IPO. Both items were included in the Other category.

MasterCard Stock Sale

During 2008, the Company recognized a gain of $44.9 million in non-interest income from the conversion and sale of 154,991 shares of MasterCard, Inc. class B common stock, which was recorded in the Other category.

In 2007, shareholders approved an amendment to the MasterCard Certificate of Incorporation that provides for an accelerated conversion of class B common stock into class A common stock. The MasterCard Board of Directors approved a conversion window running from August 4 to October 5, 2007, during which time owners of class B shares could have voluntarily elected to convert and sell a certain number of their shares. During the conversion period, Capital One elected to convert and sell 300,482 shares of MasterCard class B common stock. The Company recognized gains of $43.4 million on these transactions in non-interest income in the Other category.

Securities Available for Sale

12 Months Ended

Dec. 31, 2009

Securities Available for Sale

Note 6

Securities Available for Sale

Expected maturities aggregated by investment category, gross unrealized gains and gross unrealized losses on securities available-for sale as of December 31, 2009 and 2008, respectively, were as follows:

Expected Maturity Schedule

1 Year or
Less

1–5
Years

5–10
Years

Over 10
Years

Market
Value
Totals

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Amortized
Cost Totals

December 31, 2009

U.S. Treasury and other U.S. government agency obligations

U.S. Treasury

—

391,694

—

391,694

12,883

—

378,811

Fannie Mae (“FNMA”)

129,320

106,986

—

236,306

8,813

—

227,493

Freddie Mac (“FHLMC”)

—

212,656

26,995

—

239,651

12,986

269

226,934

Other GSE and FDIC Debt Guaranteed Program (“DGP”)

—

1,055

—

1,055

—

996

Total U.S. Treasury and other U.S. government agency obligations

129,320

712,391

26,995

—

868,706

34,741

269

834,234

Collateralized mortgage obligations (“CMO”)

FNMA

33,594

2,419,448

2,084,777

—

4,537,819

92,895

30,079

4,475,003

FHLMC

83,218

1,654,603

816,492

—

2,554,313

75,372

8,210

2,487,151

Ginnie Mae (“GNMA”)

31,488

184,701

990,974

—

1,207,163

4,409

8,914

1,211,668

Non GSE

95,280

1,233,175

3,069

7,209

1,338,733

—

269,587

1,608,320

Expected Maturity Schedule

1 Year or
Less

1–5
Years

5–10
Years

Over 10
Years

Market Value
Totals

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Amortized
Cost Totals

Total CMO

243,580

5,491,927

3,895,312

7,209

9,638,028

172,676

316,790

9,782,142

Mortgage backed securities (“MBS”)

FNMA

20,313

3,209,823

4,368,517

408,256

8,006,909

255,028

25,517

7,777,398

FHLMC

115,672

2,315,066

1,452,050

232,216

4,115,004

140,367

10,956

3,985,593

GNMA

73,747

7,662,008

—

7,735,771

70,992

552

7,665,331

Other GSE

—

832

—

832

835

Non GSE

33,926

600,247

191,492

—

825,665

—

184,927

1,010,592

Total MBS

169,927

6,199,715

13,674,067

640,472

20,684,181

466,388

221,956

20,439,749

Asset-backed securities

3,003,399

3,907,901

280,306

—

7,191,606

153,588

5,400

7,043,418

Other

165,905

120,051

16,633

144,452

447,041

12,483

4,708

439,266

Total

3,712,131

16,431,985

17,893,313

792,133

38,829,562

839,876

549,123

38,538,809


	Expected Maturity Schedule
	1 Year or Less		1–5 Years		5–10 Years		Over 10 Years		Market Value Totals		Gross Unrealized Gains		Gross Unrealized Losses		Amortized Cost Totals
December 31, 2008
U.S. Treasury and other U.S. government agency obligations
U.S. Treasury	$	40,751	$	181,925	$	—	$	—	$	222,676	$	21,371	$	—	$	201,305
FNMA		86,584		245,427		—		—		332,011		15,262		—		316,749
FHLMC		30,097		109,219		—		—		139,316		9,567		821		130,570
Other GSE and FDIC DGP		265,733		650,593		—		—		916,326		16,099		272		900,499

Total U.S. Treasury and other U.S. government agency obligations		423,165		1,187,164		—		—		1,610,329		62,299		1,093		1,549,123

CMO
FNMA		836,826		2,830,452		78,555		—		3,745,833		55,582		21,699		3,711,950
FHLMC		467,790		4,745,804		—		—		5,213,594		79,673		27,851		5,161,772
GNMA		63,168		74,852		—		—		138,020		1,584		224		136,660
Other GSE		—		78,860		—		—		78,860		3,753		—		75,107
Non GSE		167,221		1,750,758		730		7,209		1,925,918		—		604,306		2,530,224

Total CMO		1,535,005		9,480,726		79,285		7,209		11,102,225		140,592		654,080		11,615,713

MBS
FNMA		29,206		7,651,869		18,976		—		7,700,051		93,591		11,600		7,618,060
FHLMC		80,504		4,619,503		1,295		—		4,701,302		54,917		24,056		4,670,441
GNMA		617		486,294		—		—		486,911		14,580		1,120		473,451
Other GSE		—		1,389		—		—		1,389		—		14		1,403
Non GSE		40,118		783,098		—		—		823,216		—		430,936		1,254,152

Total MBS		150,445		13,542,153		20,271		—		13,712,869		163,088		467,726		14,017,507

Asset-backed securities		1,508,087		2,369,443		218,527		—		4,096,057		2,123		339,494		4,433,428
Other		162,975		128,267		44,566		145,983		481,791		5,166		19,235		495,860

Total	$	3,779,677	$	26,707,753	$	362,649	$	153,192	$	31,003,271	$	373,268	$	1,481,628	$	32,111,631

At December 31, 2009 and 2008, the expected maturities of the Company’s mortgage-backed and asset-backed securities and the contractual maturities of the Company’s other debt securities were used to assign the securities into the above maturity groupings. The Company believes that the use of expected maturities aligns with how the securities will actually perform and provides information regarding liquidity needs and potential impacts on portfolio yields. The maturity distribution based solely on contractual maturities as of December 31, 2009 is as follows: 1 Year or Less—$380.1 million, 1-5 Years—$6,967.4 million, 5-10 Years—$1,727.3 million, and Over 10 Years—$29,754.8 million. The maturity distribution based solely on contractual maturities as of December 31, 2008 is: 1 Year or Less—$268.6 million, 1-5 Years—$4,263.5 million, 5-10 Years—$2,233.2 million, and Over 10 Years—$24,238.0 million. Actual maturities may differ from the contractual or expected maturities since borrowers may have the right to prepay obligations with or without prepayment penalties.

The amortized costs of securities aggregated by major investment category as of December 31, 2007 were: Total U.S. Treasury and other U.S. government agency obligations - $1,369.8 million, Total CMO - $8,856.9 million, Total MBS - $7,040.0 million, Asset-backed securities - $1,796.5 million, and Other - $696.1 million.

The following tables show the weighted average yield by investment category for expected maturities as of December 31, 2009 and 2008, respectively.


	Weighted Average Yield Schedule
	1 Year or Less		1–5 Years		5–10 Years		Over 10 Years
December 31, 2009
U.S. Treasury and other U.S. government agency obligations
U.S. Treasury	—	%	2.37	%	—	%	—	%
FNMA	4.34		4.51		—		—
FHMLC	—		4.63		3.29		—
Other GSE and FDIC DGP	—		5.44		—		—

Total U.S. Treasury and other U.S. government agency obligations	4.34		3.36		3.29		—

CMO
FNMA	4.99		5.13		4.73		—
FHLMC	5.16		5.25		5.35		—
GNMA	4.57		4.37		4.27		—
Non GSE	5.75		5.58		5.13		6.58

Total CMO	5.31		5.26		4.74		6.58

MBS
FNMA	5.34		4.98		4.95		5.12
FHMLC	5.55		4.32		5.26		5.23
GNMA	6.71		6.17		4.86		—
Other GSE	—		3.44		—		—
Non GSE	5.89		5.95		5.99		—

Total MBS	5.40		5.06		4.91		5.18

Asset-backed securities	3.36		4.00		4.87		—
Other	2.71		4.19		4.60		0.56

Total	3.56	%	4.74	%	4.90	%	5.04	%


	Weighted Average Yield Schedule
	1 Year or Less		1–5 Years		5–10 Years		Over 10 Years
December 31, 2008
U.S. Treasury and other U.S. government agency obligations
U.S. Treasury	4.04	%	4.15	%	—	%	—	%
FNMA	4.68		4.41		—		—
FHLMC	4.00		4.59		—		—
Other GSE and FDIC DGP	4.81		3.13		—		—

Total U.S. Treasury and other U.S. government agency obligations	4.65		3.67		—		—

CMO
FNMA	4.98		5.53		5.50		—
FHLMC	5.23		5.22		—		—
GNMA	4.61		4.89		—		—
Other GSE	—		5.27		—		—
Non GSE	5.72		5.51		6.10		6.58

Total CMO	5.14		5.37		5.51		6.58

MBS
FNMA	4.05		5.31		5.48		—
FHLMC	6.00		4.79		5.89		—
GNMA	7.08		5.65		—		—
Other GSE	—		3.43		—		—
Non GSE	6.30		5.96		—		—

Total MBS	5.76		5.21		5.50		—

Asset-backed securities	4.07		4.72		5.16		—
Other	3.74		4.21		4.75		5.49

Total	4.63	%	5.15	%	5.20	%	5.53	%

The available-for-sale portfolio continues to be heavily concentrated in high credit quality assets like government-sponsored enterprise (“GSE”) mortgage-backed securities and AAA rated asset-backed securities. In addition to debt securities held in the investment portfolio, the Company reports certain equity securities related to Community Reinvestment Act (“CRA”) investments as available for sale securities within the Other category above.

At December 31, 2009, the portfolio was 90% rated AAA, 5% rated other investment grade (AA to BBB), and 5% non-investment grade or not rated. At December 31, 2008, the portfolio was 95% rated AAA, 4.8% rated other investment grade (AA to BBB), and 0.2% non-investment grade or not rated.

The following table shows the fair value of investments and amount of unrealized losses segregated by those investments that have been in a continuous unrealized loss position for less than twelve months and those that have been in a continuous unrealized loss position for twelve months or longer as of December 31, 2009 and 2008 and, respectively.

Less than 12 Months

Greater than 12 Months

Total

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

December 31, 2009

U.S. Treasury and other U.S. government agency obligations

FHMLC

26,995

269

—

26,995

269

Total U.S. Treasury and other U.S. government agency obligations

26,995

269

—

26,995

269

CMO

FNMA

971,437

25,036

317,058

5,043

1,288,495

30,079

FHLMC

174,575

4,280

369,621

3,930

544,196

8,210

GNMA

1,041,686

8,845

2,833

1,044,519

8,914

Non GSE

2,809

326

1,312,949

269,261

1,315,758

269,587

Total CMO

2,190,507

38,487

2,002,461

278,303

4,192,968

316,790

MBS

FNMA

1,928,274

25,476

3,623

1,931,897

25,517

FHLMC

391,452

4,550

309,475

6,406

700,927

10,956

GNMA

200,739

305

10,720

247

211,459

552

Other GSE

—

798

Non GSE

—

810,053

184,927

810,053

184,927

Total MBS

2,520,465

30,331

1,134,669

191,625

3,655,134

221,956

Asset-backed securities

489,415

957

56,208

4,443

545,623

5,400

Other

30,639

101

114,559

4,607

145,198

4,708

Total

5,258,021

70,145

3,307,897

478,978

8,565,918

549,123


	Less than 12 Months				Greater than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2008
U.S. Treasury and other U.S. government agency obligations
FHMLC	$	—	$	—	$	30,097	$	821	$	30,097	$	821
Other GSE and DGP		179,728		272		—		—		179,728		272

Total U.S. Treasury and other U.S. government agency obligations		179,728		272		30,097		821		209,825		1,093

CMO
FNMA		266,344		8,125		367,472		13,574		633,816		21,699
FHMLC		307,667		2,445		729,283		25,406		1,036,950		27,851
GNMA		—		—		11,159		224		11,159		224
Non GSE		1,652,139		523,952		265,608		80,354		1,917,747		604,306

Total CMO		2,226,150		534,522		1,373,522		119,558		3,599,672		654,080

MBS
FNMA		982,232		10,782		160,456		818		1,142,688		11,600
FHLMC		721,443		20,671		155,234		3,385		876,677		24,056
GNMA		24,876		957		7,108		163		31,984		1,120
Other GSE		1,389		14		—		—		1,389		14
Non GSE		668,837		349,753		158,870		81,183		827,707		430,936

Total MBS		2,398,777		382,177		481,668		85,549		2,880,445		467,726

Asset-backed securities		2,660,798		194,024		692,928		145,470		3,353,726		339,494
Other		107,126		2,705		120,183		16,530		227,309		19,235

Total	$	7,572,579	$	1,113,700	$	2,698,398	$	367,928	$	10,270,977	$	1,481,628

The Company monitors securities in its available-for-sale investment portfolio for other-than-temporary impairment based on a number of criteria, including the size of the unrealized loss position, the duration for which each security has been in a loss position, credit rating, and current market conditions. For debt securities, the Company also considers any intent to sell the security and the likelihood it will be required to sell the security before its anticipated recovery. The Company continually monitors the ratings of its security holdings and conducts regular reviews of the Company’s credit-sensitive assets to monitor collateral performance by tracking collateral trends and looking for any potential collateral degradation.

Effective for the quarter ended June 30, 2009, when impairment is deemed other-than-temporary, only the amount of total other-than-temporary impairment related to credit is recognized in earnings. The amount of the total impairment related to all other factors is recognized in other comprehensive income. Based on the evaluation above, the Company recognized other-than-temporary impairment of $31.6 million related to credit through earnings for the year ended December 31, 2009. For these impaired securities, unrealized losses not related to credit and therefore recognized in other comprehensive income was $181.3 million (net of income tax was $116.8 million) as of December 31, 2009. Prior to the quarter ended June 30, 2009, when impairment was deemed other-than-temporary, an impairment loss was recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value. As a result, the Company recognized $10.9 million and $0.4 million of other-than-temporary impairment charges through earnings for the year ended December 31, 2008 and for the three months ended March 31, 2009, respectively. See “Note 1- Significant Accounting Policies” for a discussion of the 2009 changes to key assumptions used to measure the credit-related component of securities deemed to be other-than-temporarily impaired.

Cumulative other-than-temporary impairment related to credit losses recognized in earnings for available-for-sale securities is as follows:

OTTI credit losses recognized for AFS debt
securities

Beginning balance of
OTTI credit losses
recognized for
securities held at the
beginning of the
period for which a
portion of OTTI was
recognized in OCI

Additional increases
to the amount related
to credit loss for
which an OTTI was
previously recognized

Additions for the
amount related to
credit loss for which
OTTI was not
previously recognized

Reductions for
securities sold
during the
period

Ending balance of
the amount related
to credit losses
held at the end of
the period for
which a portion of
OTTI was
recognized in OCI

Year ended December 31, 2009

CMO

—

15,159

—

15,159

MBS

—

15,612

—

15,612

Other-Home equity

—

817

—

817

Total

—

31,588

—

31,588

Collateralized Mortgage Obligations The Company’s portfolio includes investments in GSE collateralized mortgage obligations and prime non-agency collateralized mortgage obligations. The unrealized losses on the Company’s investment in collateralized mortgage obligations were primarily caused by credit spreads and interest rates that are higher than levels existing at the date of purchase. As of December 31, 2009, the majority of the unrealized losses in this category are due to prime non-agency collateralized mortgage obligations, of which 2% are rated AAA, 24% are rated other investment grade and 74% are non-investment grade or not rated. As of December 31, 2008, the majority of the unrealized losses in this category is due to prime non-agency collateralized mortgage obligations, of which 61% are rated AAA, 35% are rated other investment grade and 4% are non-investment grade or not rated. The decline in ratings reflects the continued deterioration in non-agency collateralized mortgage obligations due to the challenging economic environment. While the ratings for this sub-category of CMO declined significantly from 2008 to 2009, these investments represent only 4% and 8% of the Company’s total available-for-sale portfolio at December 31, 2009 and 2008, respectively.

The Company recognized credit-related other-than-temporary impairment of $15.2 million through earnings for the year ended December 31, 2009, for thirteen prime non-agency collateralized mortgage obligations. For these impaired securities, unrealized losses not related to credit and therefore recognized in other comprehensive income was $96.1 million (net of tax was $61.9 million) as of December 31, 2009. While these securities experienced significant decreases in fair value in the second half of 2008 due to deteriorating credit fundamentals and elevated liquidity premiums, there has been substantial improvement in fair value during 2009 as the market has stabilized and risk premiums have tightened despite interest rates increasing. The credit-related impairment was calculated based on internal forecasts using security specific delinquencies, product specific delinquency roll rates and expected severities, using industry standard third party modeling tools. The significant key assumptions used to measure the credit-related component of securities deemed to be other-than-temporarily impaired in 2009 are as follows: a weighted average credit default rate of 6.76% and a weighted average expected severity of 51%. See “Note 1- Significant Accounting Policies” for a discussion of the 2009 changes to key assumptions used to measure the credit-related component of securities deemed to be other-than-temporarily impaired.

Based on its view of each prime non-agency security’s current credit performance along with the sufficiency of subordination to protect cash flows and the implicit U.S. Government guarantee of FNMA/FHLMC securities and the explicit U.S. Government guarantee of GNMA securities, the Company expects to recover the entire amortized cost basis of its remaining collateralized mortgage obligations. Furthermore, since the Company does not have the intent to sell nor will it more likely than not be required to sell before anticipated recovery, it does not consider any of its remaining collateralized mortgage obligations in unrealized loss positions to be other-than-temporarily impaired at December 31, 2009 and 2008.

Mortgage-Backed Securities The Company’s portfolio includes investments in GSE mortgage-backed securities and prime non-agency mortgage-backed securities. The unrealized losses on the Company’s investment in mortgage-backed securities were primarily caused by credit spreads and interest rates that are higher than levels existing at the date of purchase. As of December 31, 2009 the majority of unrealized losses is due to prime non-agency mortgage-backed securities of which 4% are rated AAA, 7% are rated other investment grade and 89% are non-investment grade or not rated. As of December 31, 2008, the majority of unrealized losses is due to prime non-agency mortgage-backed securities of which 67% are rated AAA, 23% are rated other investment grade and 10% are non-investment grade or not rated. The decline noted in ratings for non-agency mortgage backed securities reflects the continued deterioration the investments were subject to due to the continued economic challenges facing mortgage-related assets. While the ratings for this sub-category of MBS declined significantly from 2008 to 2009, these investments represent only 3% and 4% of the Company’s total available-for-sale portfolio at December 31, 2009 and 2008, respectively.

The Company recognized credit-related other-than-temporary impairment of $15.6 million through earnings for the year ended December 31, 2009, for twelve prime non-agency mortgage-backed securities. For these impaired securities, unrealized losses not related to credit and therefore recognized in other comprehensive income was $84.7 million (net of tax was $54.6 million) as of December 31, 2009. While these securities experienced significant decreases in fair value in the second half of 2008 due to deteriorating credit fundamentals and elevated liquidity premiums, there has been substantial improvement in fair value during 2009 as the market has stabilized and risk premiums have tightened despite interest rates increasing. The credit-related impairment was calculated based on internal forecasts using security specific delinquencies, product specific delinquency roll rates and expected severities, using industry standard third party modeling tools. The significant key assumptions used to measure the credit-related component of securities deemed to be other-than-temporary impaired as of December 31, 2009, are as follows: a weighted average credit default rate of 8.19% and a weighted average expected severity of 47%. Refer to “Note 1- Significant Accounting Policies” for a discussion of the 2009 changes to key assumptions used to measure the credit-related component of securities deemed to be other-than-temporarily impaired.

Based on its view of each prime non-agency security’s current credit performance, the sufficiency of subordination to protect cash flows, the implicit U.S. Government guarantee of FNMA/FHLMC securities, and the explicit U.S. Government guarantee of GNMA securities, the Company expects to recover the entire amortized cost basis of its remaining mortgage-backed securities. Furthermore, since the Company does not have the intent to sell nor will it more likely than not be required to sell before anticipated recovery, it does not consider any of its remaining mortgage-backed securities in unrealized loss positions to be other-than-temporarily impaired at December 31, 2009 and 2008.

Asset-Backed Securities This category is comprised of investments backed by credit card, auto, floorplan, equipment and student loans; commercial mortgage-backed loans; and minor investments backed by home equity lines of credit. As of December 31, 2009, the portfolio is 84.2% rated AAA and is comprised of 76.3% credit card, 14.0% auto, 6.9% student loans, 1.7% dealer floor securities, 0.8% equipment-backed securities and 0.3% home equity lines of credit,. The unrealized losses on the Company’s investments in asset-backed securities were primarily caused by credit spreads and interest rates that are higher than those at the date of purchase. As of December 31, 2008, the portfolio is 96.0% rated AAA and is comprised of 40.1% credit card, 24.4% CMBS, 23.0% auto, 12.0% student consumer loans, and 0.5% home equity lines of credit.

The Company recognized $0.8 million, in credit-related other-than-temporary impairment through earnings for the year ended December 31, 2009 related to one home equity line of credit security. For this security, the realized loss not related to credit and therefore recognized in other comprehensive income was $0.5 million (net of tax was $0.3 million) as of December 31, 2009. The Company recognized $4.8 million and $0.4 million in other-than-temporary impairment through earnings for the year ended December 31, 2008 and the three months ended March 31, 2009, respectively. Refer to “Note 1- Significant Accounting Policies” for a discussion of the 2009 FSP change to credit-related other-than-temporary impairment disclosures.

Based on its view of each security’s current credit performance along with the sufficiency of subordination to protect cash flows, the Company expects to recover the entire amortized cost basis of its remaining asset-backed securities. Furthermore, since the Company does not have the intent to sell nor will it more likely than not be required to sell before anticipated recovery, it does not consider any of its remaining asset-backed securities in unrealized loss positions to be other-than-temporarily impaired at December 31, 2009 and 2008.

Other This category consists primarily of municipal securities and limited investments in equity securities, primarily related to CRA activities. The unrealized losses on the Company’s investments in other items were primarily caused by credit spreads and interest rates that are higher than levels existing at the date of purchase. The Company recognized $6.1 million in other-than-temporary impairment changes on an equity investment related to CRA investments in the year ended December 31, 2008 due to declining stock values and market concerns on performance. As of December 31, 2009, the Company expects to recover the entire amortized cost basis of the securities in this and all other categories. Furthermore, since the Company has not made a decision to sell nor will it more likely than not be required to sell before anticipated recovery, it does not consider any of the remaining investments in unrealized loss positions to be other-than-temporarily impaired at December 31, 2009 and 2008.

Gross realized gains on sales and calls of securities were $231.2 million, $14.6 million and $71.2 million for the years ended December 31, 2009, 2008, and 2007, respectively. Gross realized losses on sales and calls of securities were $12.8 million, $0.9 million and $1.2 million for the years ended December 31, 2009, 2008, and 2007, respectively. Tax expense on net realized gains was $77.6 million, $5.0 million and $25.0 million for the years ended December 31, 2009, 2008 and 2007, respectively.

The Company’s sale of securities resulted in the reclassification of $50.0 million, $11.1 million and $28.3 million, of net gains after tax, from accumulated other comprehensive income into earnings, for the year ended December 31, 2009, 2008 and 2007, respectively.

Securities available-for-sale included pledged securities of $11.9 billion and $13.7 billion at December 31, 2009 and 2008, respectively.

Loans Held for Investment, Allowance for Loan and Lease Losses and Unfunded Lending Commitments

12 Months Ended

Dec. 31, 2009

Loans Held for Investment, Allowance for Loan and Lease Losses and Unfunded Lending Commitments

Note 7

Loans Held for Investment, Allowance for Loan and Lease Losses and Unfunded Lending Commitments

The composition of the loans held for investment portfolio was as follows:


	December 31
	2009		2008
Consumer loans:
Credit cards
Domestic	$	13,373,383	$	20,623,950
International		2,229,321		2,872,293

Total credit cards		15,602,704		23,496,243
Installment loans
Domestic		6,693,165		10,130,677
International		43,890		119,320

Total installment loans		6,737,055		10,249,997
Auto loans		18,186,064		21,494,436
Mortgage loans		14,893,187		10,098,430
Retail Banking		5,135,242		5,603,696

Total consumer loans		60,554,252		70,942,802
Commercial loans
Commercial and multi family real estate		13,843,158		13,303,081
Middle Market		10,061,819		10,081,823
Specialty Lending		3,554,563		3,547,287
Small ticket commercial real estate		2,153,510		2,609,123

Total Commercial loans		29,613,050		29,541,314
Other loans		451,697		533,655

Total reported loans held for investment	$	90,618,999	$	101,017,771

Loans totaling approximately $853.4 million and $998.6 million, representing amounts which were greater than 90 days past due, were included in the Company’s reported loan portfolio as of December 31, 2009 and 2008, respectively.

As of December 31, 2009 and 2008, the Company had $1.3 billion and $0.8 billion, respectively, in non-performing loans.

Loans that were considered individually impaired in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan, (“ASC 310-10/ SFAS 114”) at December 31, 2009 and 2008 were $787.8 million and $461.2 million, respectively. The Company had a corresponding specific allowance for loan and lease losses of $114.9 million and $64.3 million at December 31, 2009 and 2008, respectively, relating to impaired loans of $385.6 million and $272.2 million at December 31, 2009 and 2008, respectively. The average balance of impaired loans was $759.8 million in 2009 and $271.9 million in 2008. Interest income recognized during 2009 and 2008 related to impaired loans was not material.

Allowance for Loan and Lease Losses

The following is a summary of changes in the allowance for loan and lease losses:


	Year Ended December 31
	2009			2008			2007
Balance at beginning of year	$	4,523,960		$	2,963,000		$	2,180,000
Provision for loan and lease losses from continuing operations		4,230,111			5,101,040			2,636,502
Provision for loan and lease losses from discontinued operations		—			—			80,151
Other		(59,042	)		(61,909	)		26,888
Charge-offs		(5,342,023	)		(4,151,231	)		(2,580,219	)
Principal recoveries		774,389			673,060			619,678

Net charge-offs		(4,567,634	)		(3,478,171	)		(1,960,541	)

Balance at end of year	$	4,127,395		$	4,523,960		$	2,963,000

The Company’s acquired loans from the Chevy Chase Bank acquisition are initially recorded at fair value and no separate allowance for loan and lease losses is recorded for these loans as long as the loans perform as initially expected. Charge-offs of $373.8 million were applied against the non-accretable difference established at acquisition. See “Note 3- Loans Acquired in a Transfer” for a more detailed discussion.

Unfunded Lending Commitments

We manage the potential risk in credit commitments by limiting the total amount of arrangements, both by individual customer and in total, by monitoring the size and maturity structure of these portfolios and by applying the same credit standards for all of our credit activities.

As of December 31, 2009 and 2008, the Company had $154.9 billion and $171.1 billion, respectively, of unused credit card lines. While this amount represented the total unused available credit card lines, the Company has not experienced, and does not anticipate, that all of its customers will exercise their entire available line at any given point in time.

In addition to available unused credit card lines, the Company enters into commitments to extend credit that are legally binding conditional agreements having fixed expirations or termination dates and specified interest rates and purposes. These commitments generally require customers to maintain certain credit standards. Collateral requirements and loan-to-value ratios are the same as those for funded transactions and are established based on management’s credit assessment of the customer. Commitments may expire without being drawn upon. Therefore, the total commitment amount does not necessarily represent future requirements. The Company maintains a reserve for unfunded loan commitments and letters of credit to absorb estimated probable losses related to these unfunded credit facilities in other liabilities. The outstanding unfunded commitments to extend credit other than credit card lines were approximately $12.0 billion and $10.0 billion as of December 31, 2009 and 2008, respectively. A reserve of $118.6 million and $26.0 million has been established as of December 31, 2009 and 2008, respectively.

Premises, Equipment & Lease Commitments

12 Months Ended

Dec. 31, 2009

Premises, Equipment & Lease Commitments

Note 8

Premises, Equipment & Lease Commitments

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation and amortization. The Company capitalizes direct costs (including external costs for purchased software, contractors, consultants and internal staff costs) for internally developed software projects that have been identified as being in the application development stage. Depreciation and amortization expenses are computed generally by the straight-line method over the estimated useful lives of the assets. Useful lives for premises and equipment are as follows:


Premises & Equipment		Useful Lives
Buildings and improvement		5-39 years
Furniture and equipment		3-10 years
Computers and software		3-7 years

Premises and equipment were as follows:


	December 31
	2009		2008
Land	$	582,685	$	424,409
Buildings and improvements		1,836,218		1,529,827
Furniture and equipment		1,237,315		1,144,606


	December 31
	2009			2008
Computer software		922,143			836,465
In process		239,217			257,333

		4,817,578			4,192,640
Less: Accumulated depreciation and amortization		(2,081,955	)		(1,879,534	)

Total premises and equipment, net	$	2,735,623		$	2,313,106

Depreciation and amortization expense from continuing operations was $327.1 million, $331.2 million, and $308.8 million, for the years ended December 31, 2009, 2008 and 2007, respectively.

As discussed in “Note 2- Acquisition of Chevy Chase Bank”, the Company completed its acquisition of Chevy Chase Bank in February 2009. The acquisition added: $159.3 million in land, $247.8 million in buildings and improvements, $69.4 million of furniture and equipment, $42.1 million of computer software and $10.8 million of construction in process at December 31, 2009, which are reflected in the table above.

Lease Commitments

Certain premises and equipment are leased under agreements that expire at various dates through 2035, without taking into consideration available renewal options. Many of these leases provide for payment by the lessee of property taxes, insurance premiums, cost of maintenance and other costs. In some cases, rentals are subject to increases in relation to a cost of living index. Total rent expenses from continuing operations amounted to approximately $182.6 million, $163.8 million and $136.1 million for the years ended December 31, 2009, 2008 and 2007, respectively.

Future minimum rental commitments as of December 31, 2009, for all non-cancelable operating leases with initial or remaining terms of one year or more are as follows:


2010	$	170,889
2011		159,723
2012		153,467
2013		146,450
2014		138,148
Thereafter		849,208

Total	$	1,617,885

Minimum sublease rental income of $37.4 million, due in future years under non-cancelable leases, has not been included in the table above as a reduction to minimum lease payments.

Fair Values of Assets and Liabilities

12 Months Ended

Dec. 31, 2009

Fair Values of Assets and Liabilities

Note 9

Fair Values of Assets and Liabilities

SFAS No. 157, Fair Value Measurements, (“ASC 820-10/SFAS 157”) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10/SFAS 157 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820-10/SFAS 157 also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels. These levels are:

•

Level 1—Valuation is based upon quoted prices for identical instruments traded in active markets. Level 1 assets and liabilities include debt and equity securities traded in an active exchange market, as well as U.S. Treasury securities.

•

Level 2—Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3—Valuation is determined using model-based techniques with significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of third party pricing services, option pricing models, discounted cash flow models and similar techniques.

SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities, (“ASC 825-10/SFAS 159”) allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The Company has not made any material ASC 825-10/SFAS 159 elections as of and for the years December 31, 2009 and 2008.

Assets and Liabilities Measured at Fair Value on a Recurring Basis


	December 31, 2009
	Fair Value Measurements Using ⁽³⁾
	Level 1		Level 2		Level 3		Assets/Liabilities at Fair Value
Assets
Securities available for sale
U.S. Treasury and other U.S. Gov’t agency	$	391,694	$	477,012	$	—	$	868,706
Collateralized mortgage obligations		—		8,656,133		981,895		9,638,028
Mortgage-backed securities		—		20,198,146		486,035		20,684,181
Asset-backed securities		—		7,178,495		13,111		7,191,606
Other		72,774		348,776		25,491		447,041

Total securities available for sale	$	464,468	$	36,858,562	$	1,506,532	$	38,829,562
Other assets
Mortgage servicing rights		—		—		239,651		239,651
Derivative receivables^(1) (3)		3,622		625,059		440,592		1,069,273
Retained interests in securitizations		—		—		3,944,540		3,944,540

Total Assets	$	468,090	$	37,483,621	$	6,131,315	$	44,083,026

Liabilities
Other liabilities
Derivative payables⁽¹⁾	$	8,189	$	366,010	$	32,934	$	407,132

Total Liabilities	$	8,189	$	366,010	$	32,934	$	407,132


	December 31, 2008
	Fair Value Measurements Using ⁽³⁾						Assets/Liabilities at Fair Value
	Level 1		Level 2		Level 3		Assets/Liabilities at Fair Value
Assets
Securities available for sale⁽²⁾	$	291,907	$	28,331,103	$	2,380,261	$	31,003,271
Other assets
Mortgage servicing rights		—		—		150,544		150,544
Derivative receivables⁽¹⁾		8,020		1,768,902		59,895		1,836,817
Retained interests in securitizations		—		—		1,470,385		1,470,385

Total Assets	$	299,927	$	30,100,005	$	4,061,085	$	34,461,017

Liabilities
Other liabilities
Derivative payables⁽¹⁾	$	937	$	1,260,062	$	60,672	$	1,321,671

Total Liabilities	$	937	$	1,260,062	$	60,672	$	1,321,671

(1)

The Company does not offset the fair value of derivative contracts in a loss position against the fair value of contracts in a gain position. The Company also does not offset fair value amounts recognized for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments executed with the same counterparty under a master netting arrangement.

(2)	Securities available for sale were not broken-out by security type as of December 31, 2008, as the fair value and disclosure requirements under ASC 820-10/SFAS 157 are applied prospectively.

(3)	The above table does not reflect $3.5 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk. Non-performance risk is reflected in other assets/liabilities on the balance sheet and offset through the income statement in other income.

Financial instruments are considered Level 3 when their values are determined using pricing models, which include comparison of prices from multiple sources, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable or there is significant variability among pricing sources. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. The table below presents a reconciliation for all assets and liabilities measured and recognized at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2009. All Level 3 instruments presented in the table were carried at fair value prior to the adoption of ASC 825-10/SFAS 159.

Level 3 Instruments Only


	For the Year Ended December 31, 2009
	Securities Available for Sale			Mortgage Servicing Rights⁽¹⁾			Derivative Receivables⁽²⁾			Retained Interests in Securitizations⁽³⁾			Derivative Payables⁽²⁾
Balance, January 1, 2009	$	2,380,261		$	150,544		$	59,895		$	1,470,385		$	60,672
Total realized and unrealized gains (losses):
Included in earnings		99			(5,505	)		(213,965	)		(131,411	)		(27,574	)
Included in other comprehensive income		(168,380	)		—			—			114,228			—
Purchases, issuances and settlements, net		(114,008	)		94,612			37,870			2,491,338			3,804
Transfers in/(out) of Level 3		(591,440	)		—			556,792			—			(3,968	)

Balance, December 31, 2009	$	1,506,532		$	239,651		$	440,592		$	3,944,540		$	32,934

Change in unrealized gains (losses) included in earnings related to financial instruments held at December 31, 2009	$	99		$	(5,505	)	$	(213,965	)	$	70,749		$	(27,574	)


	For the Year Ended December 31, 2009
Securities Available for Sale	U.S. Treasury & other U.S. Gov’t agency		Collateralized mortgage obligations			Mortgage- backed securities			Asset- backed securities			Other			Total
Balance, January 1, 2009	$	—	$	1,579,909		$	773,200		$	—		$	27,152		$	2,380,261
Total realized and unrealized gains (losses):
Included in earnings		—		213			—			(114	)		—			99
Included in other comprehensive income		—		(175,032	)		6,652			—			—			(168,380	)
Purchases, issuances and settlements, net		—		(234,768	)		48,220			74,201			(1,661	)		(114,008	)
Transfers in/(out) of Level 3		—		(188,427	)		(342,037	)		(60,976	)		—			(591,440	)

Balance, December 31, 2009	$	—	$	981,895		$	486,035		$	13,111		$	25,491		$	1,506,532

Change in unrealized gains (losses) included in earnings related to financial instruments held at December 31, 2009	$	—	$	213		$	—		$	(114	)	$	—		$	99


	For the Year ended December 31, 2008
	Securities Available for Sale			Mortgage Servicing Rights⁽¹⁾			Derivative Receivables⁽²⁾		Retained Interests in Securitizations⁽³⁾			Derivative Payables⁽²⁾
Balance, January 1, 2008	$	217,428		$	247,589		$	8,962	$	1,295,498		$	8,631
Total realized and unrealized gains (losses):
Included in earnings		18			(72,516	)		33,442		(187,934	)		34,072
Included in other comprehensive income		(696,601	)		—			—		(57,259	)		—
Purchases, issuances and settlements		180,631			(24,529	)		17,491		420,080			17,969
Transfers into Level 3		2,678,785			—			—		—			—

Balance, December 31, 2008	$	2,380,261		$	150,544		$	59,895	$	1,470,385		$	60,672

Change in unrealized gains (losses) included in earnings related to financial instruments held at December 31, 2008	$	—		$	(72,516	)	$	33,442	$	(41,055	)	$	34,072

(1)	Gains (losses) related to Level 3 mortgage servicing rights are reported in mortgage servicing and other income, which is a component of non-interest income.

(2)

An end of quarter convention is used to measure derivative activity, resulting in end of quarter values being reflected as purchases, issuances and settlements for derivatives having a zero fair value at inception. Gains (losses) related to Level 3 derivative receivables and derivative payables are reported in other non-interest income, which is a component of non-interest income.

(3)

An end of quarter convention is used to reflect activity in retained interests in securitizations, resulting in all transactions and assumption changes being reflected as if they occurred on the last day of the quarter. Gains (losses) related to Level 3 retained interests in securitizations are reported in servicing and securitizations income, which is a component of non-interest income.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company is also required to measure and recognize certain other financial assets at fair value on a nonrecurring basis in the consolidated balance sheet. For assets measured at fair value on a nonrecurring basis and still held on the consolidated balance sheet at December 31, 2009 and 2008, the following table provides the fair value measures by level of valuation assumptions used and the amount of fair value adjustments recorded in earnings for those assets. Fair value adjustments for loans held for sale, foreclosed assets, and other assets are recorded in other non-interest expense, and fair value adjustments for loans held for investment are recorded in provision for loan and lease losses in the consolidated statement of income.

December 31, 2009

Fair Value Measurements Using

Assets at
Fair Value

Total
Losses

Level 1

Level 2

Level 3

Assets

Loans held for sale

—

266,240

—

266,240

15,433

Loans held for investment

—

39,367

231,375

270,742

114,869

Foreclosed assets⁽¹⁾

—

197,386

—

197,386

26,211

Other

—

31,310

—

31,310

(3,866

)

Total

—

534,303

231,375

765,678

152,647


	December 31, 2008
	Fair Value Measurements Using						Assets at Fair Value		Total Losses
	Level 1		Level 2		Level 3		Assets at Fair Value		Total Losses
Assets
Loans held for sale	$	—	$	68,462	$	—	$	68, 462	$	14,386
Loans held for investment		—		64,737		142,768		207,505		62,747

Total	$	—	$	133,199	$	142,768	$	275,967	$	77,133

(1)	Represents the fair value and related losses of foreclosed properties that were written down subsequent to their initial classification as foreclosed properties.

Fair Value of Financial Instruments

The following reflects the fair value of financial instruments whether or not recognized on the consolidated balance sheet at fair value.


	December 31, 2009				December 31, 2008
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets
Cash and cash equivalents	$	8,684,624	$	8,684,624	$	7,491,343	$	7,491,343
Securities available for sale		38,829,562		38,829,562		31,003,271		31,003,271
Securities held to maturity		80,577		80,577		—		—
Loans held for sale		268,307		268,307		68,462		68,462
Net loans held for investment		86,491,604		86,158,212		96,493,811		86,370,194
Interest receivable		936,146		936,146		827,909		827,909
Accounts receivable from securitization		7,629,597		7,629,597		6,342,754		6,342,754
Derivatives		1,069,273		1,069,273		1,836,817		1,836,817
Mortgage servicing rights		239,651		239,651		150,544		150,544
Financial Liabilities
Non-interest bearing deposits	$	13,438,659	$	13,438,659	$	11,293,852	$	11,293,852
Interest-bearing deposits		102,370,437		102,616,339		97,326,937		98,031,913
Senior and subordinated notes		9,045,470		9,156,030		8,308,843		6,922,300
Other borrowings		11,968,461		11,723,046		14,869,648		12,948,145
Interest payable		509,105		509,105		676,398		676,398
Derivatives		407,132		407,132		1,321,671		1,321,671

The following describes the valuation techniques used in estimating the fair value of the Company’s financial instruments as of December 31, 2009 and 2008. The Company applied the provisions of ASC 820-10/SFAS 157 to the fair value measurements of financial instruments not recognized on the consolidated balance sheet at fair value, which include loans held for investment, interest receivable, non-interest bearing and interest bearing deposits, other borrowings, senior and subordinated notes, and interest payable. The provisions requiring the Company to maximize the use of observable inputs and to measure fair value using a notion of exit price were factored into the Company’s selection of inputs into its established valuation techniques.

Financial Assets

Cash and cash equivalents

The carrying amounts of cash and due from banks, federal funds sold and resale agreements and interest-bearing deposits at other banks approximate fair value.

Securities held to maturity

The carrying amounts of securities held to maturity, which consists of negative amortization bonds, approximate fair value. The Company recorded these securities at fair value on the date of acquisition. Fair value is determined using a discounted cash flow method, a form of the income approach. Discount rates were determined considering market rates at which similar instruments would be sold to third parties.

Securities available for sale

Quoted prices in active markets are used to measure the fair value of U.S. Treasury securities. For other investment categories, the Company engages third party pricing services to provide fair value measurements. The techniques used by the pricing services utilize observable market data to the extent available. The Company corroborates the pricing obtained from the pricing services through comparison of pricing to additional sources, including other pricing services, securities dealers, and internal sources.

Certain securities available for sale are classified as Level 3, the majority of which are non-agency collateralized mortgage obligations backed by prime collateral. Classification of Level 3 indicates that significant valuation assumptions are not consistently observable in the market. When significant assumptions are not consistently observable, fair values are derived using the best available data. Such data may include quotes provided by a dealer, the use of external pricing services, independent pricing models, or other model-based valuation techniques such as calculation of the present values of future cash flows incorporating assumptions such as benchmark yields, spreads, prepayment speeds, credit ratings, and losses. As of December 31, 2009, we saw significant improvements in the market value of our portfolio holdings driven by stabilization of the financial markets, reduced risk premiums and a general decline in interest rates as compared to 2008. The decrease in the amount of Level 3 securities reflected continued runoff of the securities, the liquidation of the Company’s CMBS securities, and improvement in pricing consistency.

Loans held for sale

Loans held for investment, net

The fair values of credit card loans, installment loans, auto loans, mortgage loans and commercial loans were estimated using a discounted cash flow method, a form of the income approach. Discount rates were determined considering rates at which similar portfolios of loans would be made under current conditions and considering liquidity spreads applicable to each loan portfolio based on the secondary market. The fair value of credit card loans excluded any value related to customer account relationships. The decrease in fair value below carrying amount at December 31, 2008 was primarily due to the significant level of illiquidity in the secondary market experienced during 2008. During 2009 these markets have begun to recover resulting in an improvement in the fair value of our loans held for investment. The most significant discounts to carrying amount were seen in the Company’s commercial and mortgage portfolios.

Commercial loans are considered impaired when it is probable that all amounts due in accordance with the contractual terms will not be collected. From time to time, the Company records nonrecurring fair value adjustments to reflect the fair value of the loan’s collateral. See table within “Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis” above.

Interest Receivable

The carrying amount approximates the fair value of this asset due to its relatively short-term nature.

Accounts receivable from securitizations

Accounts receivable from securitizations include the interest-only strip, retained notes accrued interest receivable, cash reserve accounts and cash spread accounts. The Company uses a valuation model that calculates the present value of estimated future cash flows. The model incorporates the Company’s own estimates of assumptions market participants use in determining fair value, including estimates of payment rates, defaults, discount rates including adjustments for liquidity, and contractual interest and fees. Other retained interests related to securitizations are carried at cost, which approximates fair value.

Derivative Assets

Most of the Company’s derivatives are not exchange traded, but instead traded in over the counter markets where quoted market prices are not readily available. The fair value of those derivatives is derived using models that use primarily market observable inputs, such as interest rate yield curves, credit curves, option volatility and currency rates. Any derivative fair value measurements using significant assumptions that are unobservable are classified as Level 3, which include interest rate swaps whose remaining terms extend beyond market observable interest rate yield curves. The impact of counterparty non-performance risk is considered when measuring the fair value of derivative assets. These derivatives are included in other assets on the balance sheet.

Mortgage servicing rights

Mortgage servicing rights (“MSRs”) do not trade in an active market with readily observable prices. Accordingly, the Company determines the fair value of MSRs using a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment spreads, discount rate, cost to service, contractual servicing fee income, ancillary income and late fees. The Company records MSRs at fair value on a recurring basis. Fair value measurements of MSRs use significant unobservable inputs and, accordingly, are classified as Level 3. The valuation technique for these securities is discussed in more detail in “Note 15- Mortgage Servicing Rights”.

Financial Liabilities

Non-interest bearing deposits

The carrying amount approximates fair value.

Interest bearing deposits

The fair values of savings, NOW accounts and money market accounts were the amounts payable on demand at December 31, 2009 and December 31, 2008 and therefore carrying value approximates fair value. The fair value of other interest-bearing deposits, include retail, brokered, and institutional CDs, was calculated by discounting the future cash flows using discount rates based on the current market rates for similar products with similar remaining terms.

Other borrowings

The carrying amount of federal funds purchased and resale agreements, FHLB advances, and other short-term borrowings approximates fair value. The fair value of secured borrowings was measured using the trade price for bonds that have traded recently. For others, trade information for bonds with similar duration and credit quality was used, with adjustments based on relevant credit information of the issuer. The fair value of junior subordinated debentures was estimated using the same methodology as described for senior and subordinated notes below. The decreases in fair value of other borrowings is below carrying amounts at December 31, 2009 are primarily due to interest rate spreads the auto securitization market experienced in 2008 which continued into 2009 and the discounts in secondary trading activity seen in junior subordinated debentures.

Senior and subordinated notes

The Company engages third party pricing services in order to estimate the fair value of senior and subordinated notes. 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. The increase in fair value above carrying amount at December 31, 2009 is primarily due to a decrease in credit spreads across the industry.

Interest payable

The carrying amount approximates the fair value of this liability due to its relatively short-term nature.

Derivative Liabilities

Most of the Company’s derivatives are not exchange traded but instead traded in over the counter markets where quoted market prices are not readily available. The fair value of those derivatives is derived using models that use primarily market observable inputs, such as interest rate yield curves, credit curves, option volatility and currency rates. Any derivative fair value measurements using significant assumptions that are unobservable are classified as Level 3, which include interest rate swaps whose remaining terms extend beyond market observable interest rate yield curves. The impact of Capital One’s non performance risk is considered when measuring the fair value of derivative liabilities. These derivatives are included in other liabilities on the balance sheet.

Commitments to extend credit and letters of credit

These financial instruments are generally not sold or traded. The fair value of the financial guarantees outstanding at December 31, 2009 and 2008 that have been issued since January 1, 2003, are $3.1 million and $3.5 million, respectively, and was included in other liabilities. The estimated fair values of extensions of credit and letters of credit are not readily available. However, the fair value of commitments to extend credit and letters of credit is based on fees currently charged to enter into similar agreements with comparable credit risks and the current creditworthiness of the counterparties. Commitments to extend credit issued by the Company are generally short-term in nature and, if drawn upon, are issued under current market terms and conditions for credits with comparable risks. At December 31, 2009 and 2008 there were no material unrealized appreciation or depreciation on these financial instruments.

Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2009

Goodwill and Other Intangible Assets

Note 10

Goodwill and Other Intangible Assets

During the first quarter of 2009, the Company acquired Chevy Chase Bank, the largest retail branch presence in the Washington, D.C. region, which created $1.6 billion of goodwill. During 2009, the Company realigned its business segment reporting structure to better reflect the manner in which the performance of the Company’s operations are evaluated. The Company now reports the results of its business through three operating segments: Credit Card, Commercial Banking and Consumer Banking. As a result of the segment reorganization, goodwill was reassigned to the new reporting units using a relative fair value allocation approach and the goodwill associated with the Chevy Chase Bank acquisition was assigned to the Commercial Banking and Consumer Banking segments. Prior to the segment reorganization in 2009, goodwill associated with the acquisition was included in the Other category. See “Note 2- Acquisition of Chevy Chase Bank” for information regarding the Chevy Chase Bank acquisition.

In accordance with the requirements of SFAS No. 142, Goodwill and Other Intangible Assets, (“ASC 350-20/SFAS 142”) goodwill is not amortized but is tested for impairment at the reporting unit level, which is at the operating segment level or one level below an operating segment. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. Goodwill is required to be tested for impairment annually and between annual tests if events or circumstances change, such as adverse changes in the business climate, that would more likely than not reduce the fair value of the reporting unit below its carrying value. Goodwill is assigned to one or more reporting units at the date of acquisition. The Company’s reporting units are Domestic Card, International Card, Auto Finance, Commercial Banking and Consumer Banking. The goodwill impairment test, performed at October 1 of each year, is a two-step test. The first step identifies whether there is potential impairment by comparing the fair value of a reporting unit to the carrying amount, including goodwill. If the fair value of a reporting unit is less than its carrying amount, the second step of the impairment test is required to measure the amount of any impairment loss.

For the 2009 annual impairment test, the fair value of reporting units was calculated using a discounted cash flow analysis, a form of the income approach, using each reporting unit’s internal forecast and a terminal value calculated using a growth rate reflecting the nominal growth rate of the economy as a whole and appropriate discount rates for the respective reporting units. Cash flows were adjusted as necessary in order to maintain each reporting unit’s equity capital requirements. Our discounted cash flow analysis required management to make judgments about future loan and deposit growth, revenue growth, credit losses, and capital rates. The cash flows were discounted to present value using reporting unit specific discount rates that are largely based on the Company’s external cost of equity with adjustments for risk inherent in each reporting unit. Discount rates used for the reporting units ranged from 10.0% to 14.33%. The key inputs into the discounted cash flow analysis were corroborated with market data, where available, indicating that assumptions used were within a reasonable range of observable market data.

Based on the comparison of fair value to carrying amount, as calculated using the methodology summarized above, fair value exceeded carrying amount for all reporting units as of the Company’s annual testing date; therefore, the goodwill of those reporting units was considered not impaired, and the second step of impairment testing was unnecessary. However, all other factors held constant, a 30.36% decline in the fair value of the Domestic Card reporting unit, a 21.67% decline in the fair value the International Card reporting unit, a 16.72% decline in the fair value of the Auto Finance reporting unit, a 18.98% decline in the fair value of the Commercial Banking reporting unit and a 28.43% decline in the fair value of the Consumer Banking reporting unit would have caused the carrying amount for those reporting units to be in excess of fair value which would require the second step to be performed.

As part of the annual impairment test, the Company assessed its market capitalization based on the average market price relative to the aggregate fair value of its reporting units and determined that any excess fair value in its reporting units at that time could be attributed to a reasonable control premium compared to historical control premiums seen in the industry. During 2008 and early 2009, the lack of liquidity in the financial markets and the continued economic deterioration led to a decline in market capitalization resulting in significantly higher control premiums than what has been seen historically. Throughout 2009, the Company’s control premium has dropped as capitalization rates have increased. We will continue to regularly monitor our market capitalization in 2010, overall economic conditions and other events or circumstances that might result in an impairment of goodwill in the future.

During 2008, the Auto Finance reporting unit, with a $1.4 billion carrying amount of goodwill as of the testing date, failed the first step as fair value was less than carrying amount by $909.7 million, requiring it to move to the second step of the goodwill impairment test. Based on the results of the second step, a loss of $810.9 million ($804.4 million after tax) was recognized for the year-ended December 31, 2008. The impairment was primarily a result of a reduced estimate of the fair value of the Auto Finance reporting unit due to a 2008 business decisions to scale back that business

The following table provides a summary of goodwill.


Total Company	National Lending			Local Banking			Credit Card		Commercial		Consumer		Other		Total
Balance at December 31, 2007	$	6,235,700		$	6,595,040		$	—	$	—	$	—	$	—	$	12,830,740
Impact of segment reorganization		(87,848	)		87,848			—		—		—		—		—
Goodwill impairment		(810,876	)		—			—		—		—		—		(810,876	)
Other adjustments		—			(21,700	)		—		—		—		—		(21,700	)
Foreign currency translation		(33,677	)		—			—		—		—		—		(33,677	)

Balance at December 31, 2008	$	5,303,299		$	6,661,188		$	—	$	—	$	—	$	—	$	11,964,487


Total Company	National Lending			Local Banking			Credit Card		Commercial			Consumer		Other ⁽¹⁾			Total
Balance at December 31, 2008	$	5,303,299		$	6,661,188		$	—	$	—		$	—	$	—		$	11,964,487
Other adjustments		8,479			(4	)		1,105		(2,587	)		—		—			6,993
Acquisition		—			—			—		—			—		1,624,888			1,624,888
Segment reorganization		(5,311,778	)		(6,661,184	)		4,692,266		4,320,822			4,584,762		(1,624,888	)		—

Balance at December 31, 2009	$	—		$	—		$	4,693,371	$	4,318,235		$	4,584,762	$	—		$	13,596,368

(1)	Goodwill attributed to the Chevy Chase Bank acquisition was initially recorded in the Other category until the segment reorganization.

In connection with the acquisition of Chevy Chase Bank, the Company recorded intangible assets of $278.3 million that consisted of core deposit intangibles, trust intangibles, lease intangibles, and other intangibles, which are subject to amortization. The core deposit and trust intangibles reflect the estimated value of deposit and trust relationships. The lease intangibles reflect the difference between the contractual obligation under current lease contracts and the fair market value of the lease contracts at the acquisition date. The other intangible items relate to customer lists and brokerage relationships.

The following table summarizes the Company’s intangible assets subject to amortization.


	December 31, 2009
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Remaining Amortization Period
Core deposit intangibles	$	1,561,920	$	(713,119	)	$	848,801	8.0 years
Lease intangibles		53,992		(22,845	)		31,147	22.7 years
Trust intangibles		10,500		(4,256	)		6,244	13.9 years
Other intangibles		35,148		(15,414	)		19,734	3.2 years

Total	$	1,661,560	$	(755,634	)	$	905,926


	December 31, 2008
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Remaining Amortization Period
Core deposit intangibles	$	1,320,000	$	(497,178	)	$	822,822	9.1 years
Lease intangibles		44,862		(16,695	)		28,167	18.9 years
Trust intangibles		10,500		(3,326	)		7,174	14.9 years
Other intangibles		7,947		(3,850	)		4,097	9.9 years

Total	$	1,383,309	$	(521,049	)	$	862,260

Intangibles are amortized on an accelerated basis using the sum of digits methodology over their respective estimated useful lives. Intangible assets are recorded in other assets on the balance sheet. Amortization expense for intangibles of $234.6 million, $200.6 million and $235.1 million, is recorded to non-interest expense for the year ended December 31, 2009, 2008 and 2007, respectively. The weighted average amortization period for all purchase accounting intangibles is 8.4 years.

The following table summarizes the Company’s estimated future amortization expense for intangible assets as of December 31, 2009:


Years ended December 31	Estimated Future Amortization Amounts
2010	$	215,484
2011		183,188
2012		150,731
2013		121,790
2014		93,791
Thereafter		140,942

Total	$	905,926

Deposits and Borrowings

12 Months Ended

Dec. 31, 2009

Deposits and Borrowings

Note 11

Deposits and Borrowings

Borrowings as of December 31, 2009 and December 31, 2008 were as follows:


	December 31, 2009			December 31, 2008
Deposits
Non-interest bearing deposits	$	13,438,659		$	11,293,852
Interest-bearing deposits ⁽¹⁾		102,370,437			97,326,937

Total deposits	$	115,809,096		$	108,620,789

Senior and subordinated notes
Bank notes:
5.00% Senior Fixed Notes par value of $417,539 due 2009	$	—		$	417,419
5.75% Senior Fixed Notes par value of $516,722 due 2010		516,696			516,621
5.125% Senior Fixed Notes par value of $274,696 due 2014		274,560			274,520
9.25% Subordinated Fixed Notes par value of $150,000 due 2010		154,319			159,851
6.50% Subordinated Fixed Notes par value of $500,000 due 2013		499,383			499,216
8.80% Subordinated Fixed Notes par value of $1,500,000 due 2019		1,499,452			—
Fair value hedge-related basis adjustments		52,667			55,800
Corporation notes:
5.70% Senior Fixed Notes par value of $854,451 due 2011		854,288			854,135
4.80% Senior Fixed Notes par value of $282,335 due 2012		281,975			281,815
6.25% Senior Fixed Notes par value of $277,665 due 2013		277,049			276,903
7.375% Senior Fixed Notes par value of $1,000,000 due 2014		995,548			—
5.50% Senior Fixed Notes par value of $375,005 due 2015		374,790			374,745
5.25% Senior Fixed Notes par value of $226,290 due 2017		225,777			225,712
6.75% Senior Fixed Notes par value of $1,341,045 due 2017		1,337,849			1,337,466
5.875% Subordinated Fixed Notes par value of $350,000 due 2012		355,108			356,888
5.35% Subordinated Fixed Notes par value of $100,000 due 2014		98,646			98,379
6.15% Subordinated Fixed Notes par value of $1,000,000 due 2016		997,689			997,365
Floating Rate Senior Notes due 2009⁽²⁾		—			1,029,826
Fair value hedge-related basis adjustments		249,674			552,182

Total senior and subordinated notes	$	9,045,470		$	8,308,843

Other borrowings
Junior subordinated debentures
8.00% Subordinated Fixed Notes par value of $103,093 due 2027	$	108,789		$	108,937
8.17% Subordinated Fixed Notes par value of $46,547 due 2028		49,564			49,639
3.301% Subordinated Floating Notes par value of $10,310 due 2033 ⁽³⁾		10,843			10,851
7.686% Subordinated Fixed Notes par value of $651,000 due 2036		650,962			650,911
6.745% Subordinated Fixed Notes par value of $500,010 due 2037		499,991			499,956
10.25% Subordinated Fixed Notes par value of $1,000,010 due 2039		988,291			—
8.875% Subordinated Fixed Notes par value of $1,000,010 due 2040		986,881			—
7.50% Subordinated Fixed Notes par value of $346,000 due 2066		346,000			346,000
Unamortized Fees		(972	)		(18,026	)

Total junior subordinated debentures	$	3,640,349		$	1,648,268
Secured borrowings ⁽⁴⁾
Fixed, interest rates ranging from 4.71% to 5.76%, due 2010 to 2011	$	994,580		$	2,698,381
Variable, interest rates ranging from 2.33% to 1.11% due 2010 to 2028		2,958,912			4,812,457

Total secured borrowings	$	3,953,492		$	7,510,838
FHLB advances ⁽⁵⁾
Fixed, interest rates ranging from 2.394% to 7.64%, due 2010 to 2023	$	2,308,460		$	2,777,179
Variable, interest rate of 0.327% due 2014		925,000			2,100,000

Total FHLB advances	$	3,233,460		$	4,877,179
Federal funds purchased and resale agreements due 2010 ⁽⁶⁾	$	1,140,103		$	832,961
Other short-term borrowings		1,057			402

Total other borrowings	$	11,968,461		$	14,869,648

(1)	Interest bearing deposits have a weighted average rate of 2.04% and 2.64% at December 31, 2009 and December 31, 2008, respectively.

(2)	Floating rate senior and subordinated notes have a weighted average rate 2.47% at December 31, 2008.

(3)	Floating rate junior subordinated notes have a weighted average rate of 3.301% and 4.518% at December 31, 2009 and December 31, 2008, respectively.

(4)	Secured borrowings have a weighted average rate of 2.37% and 1.24% at December 31, 2009 and December 31, 2008, respectively.

(5)	FHLB advances have a weighted average rate 0.327% and 2.85% at December 31, 2009 and December 31, 2008, respectively.

(6)	Federal funds purchased have a weighted average rate of 0.11% and 0.01% at December 31, 2009 and December 31, 2008, respectively.

Deposits

Interest-Bearing Deposits

As of December 31, 2009, the Company had $102.4 billion in interest-bearing deposits of which $8.8 billion represents large denomination certificates of $100,000 or more. As of December 31, 2008, the Company had $97.3 billion in interest-bearing deposits of which $11.3 billion represents large denomination certificates of $100,000 or more.

On July 26, 2009, the Company sold its U.K. deposits business. The amount of deposits sold totaled approximately $1.2 billion. The Company recorded a small loss on the sale.

Borrowings

Senior and Subordinated Notes

The Senior and Subordinated Global Bank Note Program gives COBNA the ability to issue securities to both U.S. and non-U.S. lenders and to raise funds in U.S. and foreign currencies. The Senior and Subordinated Global Bank Note Program had $1.3 billion and $1.8 billion outstanding at December 31, 2009 and December 31, 2008, respectively.

The Company issued senior and subordinated notes that as of December 31, 2009 and 2008, had an outstanding balance of $9.0 billion and $8.3 billion, respectively. The outstanding balance of senior and subordinated bank notes include a fair value adjustments of $302.3 million and $608.0 million related to fair value accounting hedges at December 31, 2009 and December 31, 2008, respectively. See “Note 19- Derivative Instruments and Hedging Instruments” for a further discussion of fair value interest rate hedges. The weighted average stated rate included in the table above is before the impact of these interest rate derivatives.

During 2009, notes totaling $1.4 billion were called or matured. During 2009, the Corporation issued $1.0 billion of 7.375% senior notes dues May 23, 2014 and COBNA issued $1.5 billion of 8.8% subordinated notes due July 15, 2019.

Corporation Shelf Registration Statement

As of December 31, 2009, the Corporation had an effective shelf registration statement under which the Corporation may offer and sell an indeterminate aggregate amount of senior or subordinated debt securities, preferred stock, depositary shares representing preferred stock, common stock, warrants, trust preferred securities, junior subordinated debt securities, guarantees of trust preferred securities and certain back-up obligations, purchase contracts and units. There is no limit under this shelf registration statement to the amount or number of such securities that the Corporation may offer and sell. Under SEC rules, the Automatic Shelf Registration Statement expires three years after filing. Accordingly, the Corporation must file a new Automatic Shelf Registration Statement at least once every three years. The Automatic Shelf Registration Statement is effective through May 2012.

Other Borrowings

Secured Borrowings

The Company issued securitizations in which it transfers pools of auto loans that are accounted for as secured borrowings at December 31, 2009. Principal payments on the borrowings are based on principal collections, net of losses, on the transferred auto loans. The secured borrowings accrue interest predominantly at fixed rates and mature between January 2010 and August 2011, but may mature earlier or later, depending upon the repayment of the underlying auto loans. At December 31, 2009 and December 31, 2008, $4.0 billion and $7.5 billion, respectively, of the secured borrowings were outstanding. See “Note 20- Securitizations” for further discussion of secured borrowings. Secured borrowings also include tender option bonds of $33.1 million and $140.4 million at December 31, 2009 and December 31, 2008, respectively.

Junior Subordinated Debentures

At December 31, 2009 and December 31, 2008, the Company had junior subordinated debentures outstanding of $3.6 billion and $1.6 billion, respectively.

The Company had previously established special purpose trusts for the purpose of issuing trust preferred securities. The proceeds from such issuances, together with the proceeds of the related issuances of common securities of the trusts, were invested by the trusts in junior subordinated deferrable interest debentures issued by the Company. Prior to ASC 810-10/FIN 46(R), these trusts were consolidated subsidiaries of the Company. As a result of the adoption of ASC 810-10/FIN 46(R), the Company deconsolidated all such special purpose trusts, as the Company is not considered to be the primary beneficiary.

For the years ended December 31, 2009 and 2008, no junior subordinated debentures were called or matured. On August 5, 2009 the Company issued $1.0 billion of 10.25% trust preferred securities, due 2039. On November 13, 2009 the Company issued $1.0 billion of 8.875% trust preferred securities, due 2040. There were no new issuances in 2008.

FHLB Advances

The Company utilizes FHLB advances which are secured by the Company’s investment in FHLB stock and by a blanket floating lien on portions of the Company’s residential mortgage loan portfolio. FHLB advances outstanding were $3.2 billion and $4.9 billion at December 31, 2009 and December 31, 2008, respectively and include fixed and variable rate advances. FHLB stock totaled $264.1 million and $267.5 million at December 31, 2009 and December 31, 2008, respectively, and is included in other assets.

Interest-bearing time deposits, senior and subordinated notes and other borrowings as of December 31, 2009, mature as follows:


	Interest- Bearing Time Deposits⁽¹⁾		Senior and Subordinated Notes		Other Borrowings		Total
2010	$	17,922,108	$	679,321	$	4,896,744	$	23,498,173
2011		6,100,318		913,508		2,321,392		9,335,218
2012		2,712,851		656,921		17,163		3,386,935
2013		4,897,757		802,654		18,737		5,719,148
2014		889,230		1,370,951		948,039		3,208,220
Thereafter		1,782,571		4,622,115		3,766,386		10,171,072

Total	$	34,304,835	$	9,045,470	$	11,968,461	$	55,318,766

(1)	Includes only those interest bearing deposits which have a contractual maturity date.

Stock Plans

12 Months Ended

Dec. 31, 2009

Stock Plans

Note 12

Stock Plans

The Company has one active stock-based employee compensation plan. Under the plan, the Company reserves common shares for issuance in various forms including incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, and performance share units.

The following table provides the number of reserved common shares and the number of common shares available for future issuance for the Company’s active stock-based compensation plan as of December 31, 2009, 2008 and 2007. The ability to issue grants from the 1999 Non-Employee Directors Stock Incentive Plan and other plans were terminated in 2009 and 2004, respectively.


			Available For Issuance
Plan Name	Shares Reserved		2009	2008	2007
2004 Stock Incentive Plan	40,000,000	⁽¹⁾	17,789,099	4,505,558	7,862,529

(1)	On April 20, 2009 the Board authorized an increase in shares reserved of 20 million shares to 40 million shares in total.

Generally the exercise price of stock options, or value of restricted stock awards, will equal the fair market value of the Company’s stock on the date of grant. The maximum contractual term for options is ten years, and option vesting is determined at the time of grant. The vesting for most options is 331/3 percent per year beginning with the first anniversary of the grant date. For restricted stock, the vesting is usually 25 percent on the first and second anniversaries of the grant date and 50 percent on the third anniversary date or three years from the date of grant.

The Company also issues cash equity units which are recorded as liabilities as the expense is recognized. Cash equity units are not issued out of the Company’s stock-based compensation plans because they are settled with a cash payment for each unit vested equal to the fair market value of the Company’s stock on the vesting date. Cash equity units vest 25 percent on the first and second anniversaries of the grant date and 50 percent on the third anniversary date or three years from the date of grant.

The Company recognizes compensation expense on a straight line basis over the entire award’s vesting period for any awards with graded vesting. Total compensation expense recognized for share based compensation during the years 2009, 2008 and 2007 was $146.3 million, $112.2 million and $230.0 million, respectively. The total income tax benefit recognized in the consolidated statement of income for share based compensation arrangements during the years 2009, 2008 and 2007 was $51.2 million, $39.3 million and $80.5 million, respectively.

Stock option expense is based on per option fair values, estimated at the grant date using a Black-Scholes option-pricing model. The fair value of options granted during 2009, 2008 and 2007 was estimated using the weighted average assumptions summarized below:


Assumptions	2009		2008		2007
Dividend yield ⁽¹⁾	4.79	%	3.20	%	1.53	%
Volatility factors of stock’s expected market price	43	%	28	%	27	%
Average risk-free interest rate	1.79	%	2.89	%	4.05	%
Expected option lives (in years)	5.0		5.0		4.5

(1)	In 2009, 2008, and 2007, the Company paid dividends at the rate of $0.53, $1.50, and $0.11 per share, respectively.

A summary of option activity under the plans as of December 31, 2009, and changes during the year then ended is presented below:


	Options (in thousands)		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (in millions)
Outstanding January 1, 2009	23,827		$	59.18
Granted	3,556			18.23
Exercised	(356	)		26.57
Cancelled	(5,122	)		56.72

Outstanding December 31, 2009	21,905		$	53.58	5.4 years	$	72.5

Exercisable December 31, 2009	13,486		$	60.25	3.7 years	$	4.2

At December 31, 2009, the number, weighted average exercise price, aggregate intrinsic value and weighted average remaining contractual terms of options vested and expected to vest approximate amounts for options outstanding. The weighted-average fair value of options granted during the years 2009, 2008 and 2007 was $4.56, $9.94 and $16.31, respectively. Cash proceeds from the exercise of stock options were $9.5 million, $71.4 million, and $224.1 million for 2009, 2008 and 2007, respectively. Tax benefits realized from the exercise of stock options were $1.3 million, $9.4 million and $61.0 million for 2009, 2008 and 2007, respectively. The total intrinsic value of options exercised during the years 2009, 2008 and 2007 was $3.8 million, $27.0 million, and $174.4 million, respectively.

A summary of 2009 activity for restricted stock awards and units is presented below:


	Shares (in thousands)		Weighted- Average Grant Date Fair Value
Unvested at January 1, 2009	3,228		$	59.37
Granted	4,632			17.58
Vested	(1,623	)		51.88
Cancelled	(468	)		33.44

Unvested December 31, 2009	5,769		$	29.91

The weighted-average grant date fair value of restricted stock granted for the years 2009, 2008 and 2007 was $17.58, $49.33 and $64.63, respectively. The total fair value of restricted stock vesting during the years 2009, 2008 and 2007 was $41.3 million, $33.8 million and $79.6 million, respectively. At December 31, 2009 there was unrecognized compensation cost for unvested restricted awards of $59.1 million. That cost is expected to be recognized over the next 3 years.

Cash equity units vesting during the years ended December 31, 2009, 2008, and 2007 resulted in cash payments to associates of $10.1 million, $30.1 million, and $30.1 million, respectively. These cash payments reflect the number of units vesting priced at the Company’s stock price as of the vest date. At December 31, 2009 there was unrecognized compensation cost for unvested cash equity units of $62.5 million, based on the average quarterly stock price. That cost is expected to be recognized over the next 3 years.

2010 CEO Grant

In January 2010, the Company’s Board of Directors approved a compensation package for the Company’s CEO. This package included an opportunity to receive from 0% to 200% of the target number of 88,920 shares of the Company’s common stock based on the Company’s performance over the three-year period beginning on January 1, 2010. The package also included a grant of 559,333 nonstatutory stock options at an exercise price of $36.55 per share. The options will become fully exercisable on January 27, 2013. Upon retirement, these awards will continue to vest in accordance with the original vesting schedule. Compensation expense of $9.8 million related to these awards will be recognized in 2010. In addition, the package included an opportunity to be awarded restricted stock units in late 2010 or early 2011 based on actual performance in 2010. Any such award will vest in full in three years and settle in cash based on the Company’s average stock price over the twenty trading days preceding the vesting date.

2009 CEO Grant

In January 2009, the Company’s Board of Directors approved a compensation package for the Company’s CEO. This package included an opportunity to receive from 0% to 200% of the target number of 95,239 shares of the Company’s common stock based on the Company’s performance over the three-year period from January 1, 2009 through December 31, 2011. The package also included a grant of 970,403 nonstatutory stock options at an exercise price of $18.28 per share. The options will become fully exercisable on January 29, 2012. Both awards are subject to restrictions regarding sale or transfer of the shares received until the earlier of the date on which the U.S. Treasury no longer holds any shares of the preferred stock that the Company issued under the U.S. Treasury’s Troubled Asset Relief Program Capital Purchase Program (“CPP”) or one year after retirement from the Company. Compensation expense of $6.0 million related to these awards was recognized in 2009.

In 2010, the Company’s Board of Directors also approved a grant of 136,799 restricted stock units in relation to the 2009 compensation package for the Company’s CEO. The award will vest in full in three years and settle in cash based on the Company’s average stock price over the twenty trading days preceding the vesting date. The compensation expense of $5.0 million related to these awards will be recognized in 2010.

2008 CEO Grant

In December 2007, the Company’s Board of Directors approved a compensation package for the Company’s CEO. This package included 1,661,780 stock options which will vest upon the third anniversary date of the grant or upon departure from employment with Capital One for reasons other than retirement. Upon retirement, these options will continue to vest in accordance with the original vesting schedule. Compensation expense of $17.0 million for these options was recorded in 2007.

Accelerated Vesting Option Grants

Associate Stock Purchase Plan

The Company maintains an Associate Stock Purchase Plan (the “Purchase Plan”). The Purchase Plan is a compensatory plan under ASC 718/SFAS 123(R); accordingly the Company recognized $3.7 million, $4.3 million and $5.2 million in compensation expense for the years ended December 31, 2009, 2008 and 2007, respectively.

Under the Purchase Plan, associates of the Company are eligible to purchase common stock through monthly salary deductions of a maximum of 15% and a minimum of 1% of monthly base pay. To date, the amounts deducted are applied to the purchase of unissued common or treasury stock of the Company at 85% of the current market price. Shares may also be acquired on the market. An aggregate of 8.0 million common shares has been authorized for issuance under the 2002 Associate Stock Purchase Plan, of which 3.4 million and 4.6 million shares were available for issuance as of December 31, 2009 and 2008, respectively.

Dividend Reinvestment and Stock Purchase Plan

In 2002, the Company implemented its dividend reinvestment and stock purchase plan (“2002 DRP”), which allows participating stockholders to purchase additional shares of the Company’s common stock through automatic reinvestment of dividends or optional cash investments. The Company has 7.4 million and 7.5 million shares available for issuance under the 2002 DRP at December 31, 2009 and 2008, respectively.

Employee Stock Ownership Plan

The Company has an internally leveraged employee stock ownership plan (“ESOP”) in which substantially all former employees of Hibernia participate. In accordance with the merger agreement with Hibernia, assets of the ESOP trust were allocated solely for the benefit of participants who were employees of Hibernia and its subsidiaries immediately prior to the merger date. The Company makes annual contributions to the ESOP in an amount determined by the Company’s Board of Directors (or a committee authorized by the Board of Directors), but at least equal to the ESOP’s minimum debt service less dividends received by the ESOP. Dividends received by the ESOP are used to pay debt service. At December 29, 2009, the Company merged the ESOP into the Capital One Financial Corporation Associate Savings Plan as part of an overall strategy to streamline and enhance Capital One’s retirement plans. All assets held in trust for the Plan and the Capital One Financial Corporation Associate Savings Plan are consolidated under one Master Trust with the Capital One Financial Corporation Associate Savings Plan being the surviving plan.

The ESOP shares were initially pledged as collateral for its debt. As the debt was repaid, shares were released from collateral and allocated to active participants. The remaining collateral shares are reported as a reduction to paid-in capital in equity. The debt was fully repaid in 2008. As shares are committed to be released, the Company reports compensation expense equal to the current market value of the shares, and the shares become outstanding for earnings per share calculations. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as a reduction of contributions due to the ESOP.

There was no compensation expense relating to the ESOP recorded for the year ended December 31, 2009. Compensation expense of $4.4 million relating to the ESOP was recorded by the Company for the year ended December 31, 2008. At December 29, 2009, all shares held in the trust for the Plan and the Capital One Financial Corporation Associate Savings Plan are consolidated under one Master Trust. There were no shares held in suspense at December 31, 2009 and December 31, 2008, respectively.

Shareholders' Equity, Other Comprehensive Income and Earnings Per Common Share

12 Months Ended

Dec. 31, 2009

Shareholders' Equity, Other Comprehensive Income and Earnings Per Common Share

Note 13

Shareholders’ Equity, Other Comprehensive Income and Earnings Per Common Share

Preferred Shares

On November 14, 2008, the Company entered into an agreement (the “Securities Purchase Agreement”) to issue 3,555,199 Fixed Rate Cumulative Perpetual Preferred Shares, Series A, par value $0.01 per share (the “Series A Preferred Stock”), to the United States Department of the Treasury (“U.S. Treasury”) as part of the Company’s participation in the CPP, having a liquidation amount per share equal to $1,000. The Series A Preferred Stock paid cumulative dividend at a rate of 5% per year for the first five years and thereafter at a rate of 9% per year. In addition, the Company issued a warrant (the “Warrants”) to purchase 12,657,960 of the Company’s common shares to the U.S. Treasury as part of the Securities Purchase Agreement. The Warrant has an exercise price of $42.13 per share and expires ten years from the issuance date.

The Company received proceeds of $3.55 billion for the Series A Preferred Stock and the Warrant. The Company allocated the proceeds based on a relative fair value basis between the Series A Preferred Stock and the Warrant, recording $3.06 billion and $491.5 million, respectively. The $3.06 billion of Series A Preferred Stock is net of a discount of $491.5 million. The discount is accreted to the $3.55 billion liquidation preference amount over a five year period. The accretion of the discount and dividends on the preferred stock reduce net income available to common shareholders.

On June 17, 2009, the Company repurchased all 3,555,199 preferred shares at par, under the TARP Capital Purchase Program for approximately $3.57 billion including accrued dividends. With the repurchase, the remaining accretion of the discount of $461.7 million was accelerated and treated as dividend which reduced income available to common shares. On December 9, 2009, the warrants were sold by the U.S. Treasury for $11.75 per warrant. The sale by the U.S. Treasury had no impact on the Company’s equity and the warrants remain outstanding and are included in paid in capital.

Common Shares

Secondary Equity Offering

On May 11, 2009, the company raised $1.5 billion through the issuance of 56,000,000 shares of common stock at $27.75 per share.

On September 30, 2008, the Company raised $760.8 million through the issuance of 15,527,000 shares of common stock at $49 per share.

Share Repurchases

On January 31, 2008, the Company’s Board of Directors authorized the repurchase of up to $2.0 billion of the Company’s common stock. The Company did not repurchase any shares during 2009 or 2008 under this authorization due to market conditions. The Company has no intention to repurchase shares at this time.

On January 25, 2007, the Company announced a $3.0 billion share repurchase program. On March 12, 2007, the Company entered into a $1.5 billion accelerated share repurchase (“ASR”) agreement with Credit Suisse, New York Branch (“CSNY”). Under the ASR agreement, the Company purchased $1.5 billion of its $.01 par value common stock at an initial price of $73.57 per share, the closing price of the Company’s common stock on the New York Stock Exchange on April 2, 2007, the effective date of the agreement. The ASR program was accounted for as an initial treasury stock transaction and a forward stock purchase contract. The initial repurchase of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted EPS on the effective date of the agreement. The forward stock purchase contract was classified as an equity instrument and was deemed to have a fair value of $0 at the effective date.

The ASR agreement provided that the Company or CSNY would be obligated to make certain additional payments upon final settlement of the ASR agreement. Most significantly, the Company would receive from, or be required to pay, CSNY a purchase price adjustment based on the daily volume weighted average market price of the Company’s common stock over a period beginning after the effective date of the agreement through on or around August 22, 2007. These additional payments were to be satisfied in shares of the Company’s common stock. On August 27, 2007, the ASR program terminated with the delivery of 343,512 shares back to CSNY for a net share retirement of 20,045,233 shares.

The arrangements were intended to comply with Rules 10b5-1(c)(1)(i) and 10b-18 of the Securities Exchange Act of 1934, as amended.

In addition to the $1.5 billion ASR, the Company repurchased $1.5 billion of shares in open market repurchases during the year ended December 31, 2007. The impact of the share repurchases, including the ASR, on basic and diluted EPS for the year ended December 31, 2007 was $0.21 and $0.20, respectively. The impact on basic and diluted EPS from continuing operations for the year ended December 31, 2007 was $0.34 and $0.33, respectively.

Accumulated Other Comprehensive Income

The following table presents the cumulative balances of accumulated other comprehensive income, net of deferred tax of $66.8 million, $521.7 million and $4.9 million as of December 31, 2009, 2008 and 2007, respectively:


As of December 31	2009			2008			2007
Net unrealized (losses) gains on securities⁽¹⁾	$	199,627		$	(796,088	)	$	9,279
Net unrecognized elements of defined benefit plans		(29,297	)		(42,586	)		32,846
Foreign currency translation adjustments		(26,398	)		(227,650	)		375,258
Unrealized (losses) gains on cash flow hedging instruments		(60,117	)		(154,311	)		(102,135	)
Initial application of the measurement date provisions of ASC 715-30/FAS 158		(1,161	)		(1,161	)		—

Total accumulated other comprehensive income (loss)	$	82,654		$	(1,221,796	)	$	315,248

⁽¹⁾

Includes net unrealized gains (losses) on securities available for sale, retained subordinated notes. Unrealized losses not related to credit on other-than-temporarily impaired securities of $181.3 million (net of income tax was $116.8 million) was reported in other comprehensive income as of December 31, 2009.

During 2009, 2008 and 2007, the Company reclassified $92.2 million, $9.0 million and $34.7 million, respectively, of net gains, after tax, on derivative instruments from accumulated other comprehensive income into earnings.

During 2009, 2008 and 2007, the Company reclassified $50.0 million, $11.1 million and $28.3 million, respectively, of net gains (losses) on sales of securities, after tax, from accumulated other comprehensive income into earnings.

Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per common share:


	Year Ended December 31
(Shares in Thousands)	2009			2008			2007
Numerator:
Income from continuing operations, net of tax	$	986,617		$	84,517		$	2,591,719
Loss from discontinued operations, net of tax		(102,836	)		(130,515	)		(1,021,387	)

Net income (loss)	$	883,781		$	(45,998	)	$	1,570,332

Preferred stock dividends and accretion of discount	$	(563,908	)	$	(32,723	)	$	—

Net income (loss) available to common shareholders	$	319,873		$	(78,721	)	$	1,570,332

Denominator:
Denominator for basic earnings per share-Weighted-average shares		428,148			376,282			390,287
Effect of dilutive securities ⁽¹⁾:
Stock options		581			394			4,327
Contingently issuable shares		—			—			192
Restricted stock and units		2,686			991			739


	Year Ended December 31
(Shares in Thousands)	2009			2008			2007
Dilutive potential common shares		3,267			1,385			5,258

Denominator for diluted earnings per share-Adjusted weighted-average shares		431,415			377,667			395,545
Basic earnings per share
Income from continuing operations	$	0.99		$	0.14		$	6.64
Loss from discontinued operations		(0.24	)		(0.35	)		(2.62	)

Net income (loss)	$	0.75		$	(0.21	)	$	4.02

Diluted earnings per share
Income from continuing operations	$	0.98		$	0.14		$	6.55
Loss from discontinued operations		(0.24	)		(0.35	)		(2.58	)

Net income (loss)	$	0.74		$	(0.21	)	$	3.97

(1)	Excluded from the computation of diluted earnings per share was 34.8 million, 27.7 million and 7.4 million of awards, options or warrants, during 2009, 2008 and 2007, respectively, because their inclusion would be antidilutive.

- Definition

This label may include the following: 1) the amount of income tax expense or benefit allocated to each component of other comprehensive income, including reclassification adjustments, 2) the reclassification adjustments for each classification of other comprehensive income and 3) the ending accumulated balances for each component of comprehensive income. Components of comprehensive income include: (1) foreign currency translation adjustments; (2) gains and losses on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity; (3) gains and losses on intercompany foreign currency transactions that are of a long-term-investment nature, when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the report ing enterprise's financial statements; (4) change in the market value of a futures contract that qualifies as a hedge of an asset reported at fair value; (5) unrealized holding gains and losses on available-for-sale securities and that resulting from transfers of debt securities from the held-to-maturity category to the available-for-sale category; (6) a net loss recognized as an additional pension liability not yet recognized as net periodic pension cost; and (7) the net gain or loss and net prior service cost or credit for pension plans and other postretirement benefit plans. Disclosure of the methodology and assumptions used in the reconciliation of earnings per share, which may include the individual income and share amount effects of all securities that affect earnings per share, the effect that has been given to preferred dividends in arriving at income available to common stockholders in computing basic earnings per share, securities (including those issuable pursuant to contingent stock agreements) t hat could potentially dilute basic EPS in the future that were not included in the computation of diluted EPS because to do so would have been antidilutive for the period(s) presented and a description of any transaction that occurs after the end of the most recent period but before issuance of the financial statements that would have changed materially the number of common shares or potential common shares outstanding at the end of the period if the transaction had occurred before the end of the period.

+ References + Details

Retirement Plans

12 Months Ended

Dec. 31, 2009

Retirement Plans

Note 14

Retirement Plans

Defined Contribution Plan

The Company sponsors a contributory Associate Savings Plan in which substantially all full-time and certain part-time associates are eligible to participate. The Company makes contributions to each eligible associate’s account, matches a portion of associate contributions and makes discretionary contributions based upon the Company meeting a certain earnings per share target or other performance metrics. The Company’s contributions to this plan amounted to $79.5 million, $110.3 million and $73.6 million for the years ended December 31, 2009, 2008 and 2007, respectively.

The Company sponsors other defined contribution plans that were assumed through recent acquisitions. These plans were all merged into the Company’s Associate Savings Plan at the end of 2007. As a result, there were no contributions of cash and shares of the Company’s common stock to these plans in 2009 or 2008. During 2007, contributions of cash and shares of the Company’s common stock totaling $35.6 million were made to these plans.

Defined Benefit Pension and Other Postretirement Benefit Plans

The Company sponsors defined benefit pension plans and other postretirement benefit plans. Pension plans include a legacy frozen cash balance plan and plans assumed in the North Fork acquisition, including two qualified defined benefit pension plans and several non-qualified defined benefit pension plans. The Company’s legacy pension plan and the two qualified pension plans from the North Fork acquisition were merged into a single plan effective December 31, 2007. Other postretirement benefit plans including a legacy plan and plans assumed in the Hibernia and North Fork acquisitions, all of which provide medical and life insurance benefits, were merged into a single plan effective January 1, 2008.

The Company’s pension plans and the other postretirement benefit plans were valued using a December 31 measurement date.

The Company’s policy is to amortize prior service amounts on a straight-line basis over the average remaining years of service to full eligibility for benefits of active plan participants.

The following table sets forth, on an aggregated basis, changes in the benefit obligations and plan assets, how the funded status is recognized in the balance sheet, and the components of net periodic benefit cost.


	Pension Benefits						Postretirement Benefits
	2009			2008			2009			2008
Change in benefit obligation:
Benefit obligation at beginning of year	$	189,751		$	207,926		$	73,700		$	59,783
Impact of adopting the measurement date provisions for post retirement benefits of ASC 715-20/SFAS 158 of the Codification		—			—			—			906
Service cost		1,635			2,500			1,546			1,687
Interest cost		10,684			11,941			4,400			3,605
Plan participant contributions		—			—			—			635
Benefits paid		(21,187	)		(11,340	)		(3,590	)		(4,468	)
Net actuarial loss (gain)		9,330			3,381			(9,243	)		11,552
Settlements		—			(24,657	)		—			—
Benefit obligation at end of year	$	190,213		$	189,751		$	66,813		$	73,700


Change in plan assets:
Fair value of plan assets at beginning of year	$	192,605		$	308,335		$	6,981		$	8,356
Actual return on plan assets		40,378			(80,678	)		275			(1,375	)
Employer contributions		869			945			3,590			3,833
Plan participant contributions		—			—			—			635
Settlements		—			(24,657	)		—			—
Benefits paid		(21,187	)		(11,340	)		(3,590	)		(4,468	)

Fair value of plan assets at end of year	$	212,665		$	192,605		$	7,256		$	6,981

Funded status at end of year	$	22,452		$	2,854		$	(59,556	)	$	(66,719	)


Balance Sheet Presentation:
Other assets	$	33,588		$	13,316		$	—		$	—
Other liabilities		(11,136	)		(10,462	)		(59,556	)		(66,719	)

Net amount recognized at end of year	$	22,452		$	2,854		$	(59,556	)	$	(66,719	)

Accumulated benefit obligation at end of year	$	190,213		$	189,751			n/a			n/a


Components of net periodic benefit cost:
Service cost	$	1,635		$	2,500		$	1,546		$	1,687
Interest cost		10,684			11,941			4,400			3,605
Expected return on plan assets		(13,407	)		(21,091	)		(448	)		(608	)
Amortization of transition obligation, prior service credit, and net actuarial loss		1,478			—			(7,593	)		(7,959	)
Settlement loss recognized		—			10,829			—			—

Net periodic benefit cost	$	390		$	4,179		$	(2,095	)	$	(3,275	)


Changes recognized in other comprehensive income, pretax:
Net actuarial gain (loss)	$	17,641		$	(105,150	)	$	9,070		$	(13,535	)
Reclassification adjustments for amounts recognized in net periodic benefit cost		1,478			10,829			(7,593	)		(9,748	)

Total recognized in other comprehensive income	$	19,119		$	(94,321	)	$	1,477		$	(23,283	)

During 2008, the Company recognized a settlement within the qualified pension plan due to making lump-sum cash payments to former employees of GreenPoint’s mortgage origination operations in exchange for their rights to receive specified pension benefits.

Pre tax amounts recognized in accumulated other comprehensive income that have not yet been recognized as a component of net periodic benefit cost consist of:


	Pension Benefits						Postretirement Benefits
	2009			2008			2009		2008
Transition obligation	$	—		$	—		$	—	$	—
Prior service credit		—			—			14,614		22,312
Net actuarial gain (loss)		(59,627	)		(78,746	)		378		(8,797	)

Accumulated other comprehensive income	$	(59,627	)	$	(78,746	)	$	14,992	$	13,515

Pretax amounts in accumulated other comprehensive income that are expected to be recognized as decreases (increases) of net periodic benefit cost for the year ending December 31, 2010 consist of:


	Pension Benefits		Postretirement Benefits
Prior service cost (credit)	$	—	$	(3,269	)
Net actuarial loss (gain)		1,050		—

Total	$	1,050	$	(3,269	)

The following table sets forth the aggregate benefit obligation and aggregate fair value of plan assets for plans with benefit obligations in excess of plan assets. Based on the status of the Company’s pension plans, the information presented also represents the aggregate pension accumulated benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets.


	Pension Benefits				Postretirement Benefits
	2009		2008		2009		2008
Benefit obligation	$	190,213	$	189,751	$	66,813	$	73,700
Fair value of plan assets	$	212,665	$	192,605	$	7,256	$	6,981

The following table presents weighted-average assumptions used in the accounting for the plans:

Pension Benefits

Postretirement Benefits

2009

2008

2009

2008

Assumptions for benefit obligations at measurement date:

Discount rate

5.7

6.3

5.7

6.3

Rate of compensation increase

n/a

n/a

n/a

n/a

Assumptions for periodic benefit cost for the year ended:

Discount rate

6.3

6.3

6.3

6.3

Expected long-term rate of return on plan assets ⁽¹⁾

7.5

7.5

7.5

7.5

Rate of compensation increase

n/a

n/a

n/a

n/a

Assumptions for year-end valuations:

Health care cost trend rate assumed for next year

n/a

n/a

9.0

9.4

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

n/a

n/a

4.5

4.5

Year the rate reaches the ultimate trend rate

n/a

n/a

2028

2028

(1)	The Company defines long-term as 20 years, in regards to our expected long-term rate of return on plan assets.

To develop the expected long-term rate of return on plan assets assumption, consideration was given to the current level of expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio.

Assumed health care trend rates have a significant effect on the amounts reported for the other postretirement benefit plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:


	2009					2008
	1% Increase		1% Decrease			1% Increase		1% Decrease
Effect on year-end postretirement benefit obligation	$	6,490	$	(5,465	)	$	7,752	$	(6,533	)
Effect on total service and interest cost components	$	743	$	(609	)	$	698	$	(579	)

Plan Assets

The qualified defined benefit pension plan asset allocations as of the annual measurement dates are as follows:


	2009		2008
Common collective trusts⁽¹⁾	69.4	%	67.0	%
Money market fund	30.1	%	28.0	%
Limited partnerships	0.5	%	5.0	%

Total	100.0	%	100.0	%

(1)	Common collective trusts include domestic and international equity securities

The investment guidelines provide the following asset allocation targets and ranges: domestic equity target of 50% and allowable range of 45% to 55%, international equity target of 20% and allowable range of 15% to 25%, and fixed income securities target of 30% and allowable range of 25% to 40%.

Plan assets are invested using a total return investment approach whereby a mix of equity securities and debt securities are used to preserve asset values, diversify risk and enhance our ability to achieve our long term investment return benchmark. Investment strategies and asset allocations are based on careful consideration of plan liabilities, the plan’s funded status and our financial condition. Investment performance and asset allocation are measured and monitored on a quarterly basis.

Plan assets are managed in a balanced portfolio comprised of three major components: a domestic equity portion an international equity portion and a domestic fixed income portion. The expected role of plan equity investments is to maximize the long-term real growth of fund assets, while the role of fixed income investments is to generate current income, provide for more stable periodic returns and provide some protection against a prolonged decline in the market value of fund equity investments.

Fair Values Measurement

ASC 820-10/SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10/SFAS 157 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820-10/SFAS 157 also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels. These levels are:

•

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets. Level 1 assets and liabilities include debt and equity securities traded in an active exchange market, as well as U.S. Treasury securities.

•

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3 – Valuation is determined using model-based techniques with significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of third party pricing services, option pricing models, discounted cash flow models and similar techniques.

Plan Assets Measured at Fair Value on a Recurring Basis

December 31, 2009

Fair Value Measurements Using

Assets
at Fair Value

Level 1

Level 2

Level 3

Plan Assets

Common collective trusts

—

152,595

—

152,595

Money market fund

66,169

—

66,169

Limited partnerships

—

1,157

Total Assets

66,169

152,595

1,157

219,921

Level 3 Instruments Only


	Year Ended December 31, 2009
	Limited Partnerships
Balance, January 1, 2009	$	9,867
Total realized and unrealized losses:
Included in earnings		(383	)
Purchases, sales and settlements, net		(8,327	)
Transfers in(out) of Level 3		—

Balance, December 31, 2009	$	1,157

Change in unrealized gains (losses) included in earnings related to financial instruments held at December 31, 2009	$	(383	)

Expected future benefit payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:


	Pension Benefits		Postretirement Benefits
2010	$	14,436	$	3,887
2011		14,422		4,258
2012		14,142		4,378
2013		13,432		5,191
2014		13,675		5,425
2015 - 2019		64,294		27,320

In 2010, $0.9 million in contributions are expected to be made to the pension plans, and $1.9 million in contributions are expected to be made to the other postretirement benefit plans.

Mortgage Servicing Rights (MSR)

12 Months Ended

Dec. 31, 2009

Mortgage Servicing Rights (MSR)

Note 15

Mortgage Servicing Rights (MSR)

MSRs are recognized when purchased and in conjunction with loan sales and securitization transactions when servicing rights are retained by the Company; changes in fair value are recognized in mortgage servicing and other income. The Company may enter into derivatives to economically hedge changes in fair value of MSRs. The Company has sold mortgage loans through whole loan sale transactions, and in some instances the loans were subsequently securitized by the third party purchaser and transferred into a VIE, and also through securitization transactions. The Company records the MSR at estimated fair value and has no other loss exposure in excess of the recorded fair value.

Upon adoption of ASU 2009-16 and ASU 2009-17, certain mortgage loans that have been securitized and accounted for as a sale will be subject to consolidation and accounted for as a secured borrowing. Accordingly, effective January 1, 2010, mortgage securitization trusts that contain approximately $1.6 billion of mortgage loans will be consolidated and the retained interests and mortgage servicing rights related to these newly consolidated trusts will be eliminated in consolidation. See “Note 1- Significant Accounting Policies” for expected financial statement impact and see “Note 20- Securitizations” for further information about the accounting for securitized loans.

The Company continues to operate the mortgage servicing business and to report the changes in the fair value of MSRs in continuing operations. To evaluate and measure fair value, the underlying loans are stratified based on certain risk characteristics, including loan type, note rate and investor servicing requirements.

The following table sets forth the changes in the fair value of mortgage servicing rights during the year ended December 31, 2009 and December 31, 2008:


Mortgage Servicing Rights:	2009			2008
Balance, beginning of period	$	150,544		$	247,589
Acquired in acquisitions ⁽¹⁾		109,538			—
Originations		16,173			—
Sales		—			(2,801	)
Change in fair value, net		(36,604	)		(94,244	)

Balance at December 31	$	239,651		$	150,544

Ratio of mortgage servicing rights to related loans serviced for others		0.81	%		0.66	%
Weighted average service fee		0.29			0.28

(1)	Related to the Chevy Chase Bank acquisition completed on February 27, 2009.

Fair value adjustments to the MSRs for the year ended December 31, 2009 and 2008 included decreases of $31.1 million and $21.7 million, respectively, due to run-off, and decreases of $5.5 million and $72.5 million, respectively, due to changes in the valuation inputs and assumptions.

The significant assumptions used in estimating the fair value of the MSRs at December 31, 2009 and 2008 were as follows:


	December 31, 2009		December 31, 2008
Weighted average prepayment rate (includes default rate)	17.61	%	26.65	%
Weighted average life (in years)	5.15		3.2
Discount rate	11.46	%	11.14	%

The decrease in the weighted average prepayment rate, and the increase in the weighted average life, were both driven by a reduction in voluntary attrition due to market conditions. The increase in the discount rate from 2008 is due to inclusion of Chevy Chase Bank during 2009.

At December 31, 2009, the sensitivities to immediate 10.9% and 20.8% increases in the weighted average prepayment rates would decrease the fair value of mortgage servicing rights by $10.8 million and $20.7 million, respectively.

At December 31, 2009, the sensitivities to immediate 10% and 20% adverse changes in servicing costs would decrease the fair value of mortgage servicing rights by $10.9 million and $21.8 million, respectively.

As of December 31, 2009, the Company’s mortgage loan servicing portfolio consisted of mortgage loans with an aggregate unpaid principal balance of $43.0 billion, of which $30.3 billion was serviced for investors other than the Company. The Chevy Chase Bank acquisition added $16.8 billion to the mortgage loan servicing portfolio, of which $9.7 billion was serviced for other investors. As of December 31, 2008, the Company’s mortgage loan servicing portfolio consisted of mortgage loans with an aggregate unpaid principal balance of $32.2 billion, of which $23.0 billion was serviced for investors other than the Company.

The Company has been notified by the insurer of certain Chevy Chase Bank mortgage securitization transactions that it will be removed as servicer of mortgage loans with an aggregate unpaid principal balance of $3.1 billion as of December 31, 2009. The fair value of mortgage servicing rights at December 31, 2009 reflects the expected loss of servicing and the Company recorded a write-down of $26.4 million associated with the notification and the impact is included in the “Change in fair value, net” line in the table above.

Restructuring

12 Months Ended

Dec. 31, 2009

Restructuring

Note 16

Restructuring

During 2007, the Company announced a broad-based initiative to reduce expenses and improve the competitive cost position of the Company. Restructuring initiatives leverage the capabilities of recently completed infrastructure projects in several of the Company’s businesses. The scope and timing of the cost reductions are the result of an ongoing, comprehensive review of operations within and across the Company’s businesses, which began early in 2007.

The Company completed the 2007 Company initiative during 2009. Total incurred charges exceeded the original estimate of $300.0 million by $63.3 million. The increase occurred because the Company has extended the initiative due to the continued economic deterioration. Approximately half of these charges were related to severance benefits, while the remaining charges were associated with items such as contract and lease terminations and consolidation of facilities and infrastructure.

The Company has recorded certain restructuring charges within the income statement associated with the integration of Chevy Chase Bank into the operations of the Company. Expenses for employee termination benefits presented below represent one-time activities and do not represent ongoing costs to fully integrate Chevy Chase Bank. The Company also expects to incur costs associated with contract and lease terminations and consolidation of facilities and infrastructure.

Restructuring expenses associated with continuing operations were comprised of the following:


	Chevy Chase Bank Acquisition		2007 Company Initiative
	Year ended December 31, 2009		Year ended December 31, 2009		Year ended December 31, 2008		Year ended December 31, 2007
Restructuring expenses:
Employee termination benefits	$	28,833	$	46,940	$	85,949	$	86,714
Communication and data processing		—		766		2,171		6,628
Supplies and equipment		—		3,201		2,473		20,246
Occupancy		—		21,895		9,052		1,057
Other		—		17,760		34,819		23,592

Total restructuring expenses	$	28,833	$	90,562	$	134,464	$	138,237

Employee termination benefits included for the 2007 company initiative charges for executives of the Company of $10.8 million and charges for associates of $36.1 million for the year ended December 31, 2009.

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

Restructuring accrual activity for the year ended December 31, 2009 and 2008 was as follows:


	Chevy Chase Bank Acquisition			2007 Company Initiative
	Year ended December 31, 2009			Year ended December 31, 2009			Year ended December 31, 2008			Year ended December 31, 2007
Restructuring accrual activity:
Balance, beginning of period	$	—		$	92,749		$	67,961		$	—
Restructuring charges		28,833			90,562			134,464			138,237
Cash payments		(6,083	)		(64,900	)		(100,823	)		(37,165	)
Noncash write-downs and other adjustments		2,440			3,788			(8,853	)		(33,111	)

Balance, end of period	$	25,190		$	122,199		$	92,749		$	67,961

Other Non-Interest Expense

12 Months Ended

Dec. 31, 2009

Other Non-Interest Expense

Note 17

Other Non-Interest Expense

The following table represents the components that comprise other non-interest expense:


	Year Ended December 31
	2009		2008		2007
Professional services	$	795,952	$	805,902	$	772,022
Collections		599,179		568,552		560,075
Fraud losses		85,938		105,627		123,028
Bankcard association assessments		215,017		195,469		181,076
Core deposit intangible amortization		215,941		191,573		212,107
Other		628,643		290,751		538,527

Total	$	2,540,670	$	2,157,874	$	2,386,835

Income Taxes

12 Months Ended

Dec. 31, 2009

Income Taxes

Note 18

Income Taxes

The Company accounts for income taxes in accordance with ASC740-10/SFAS 109, recognizing the current and deferred tax consequences of all transactions that have been recognized in the consolidated financial statements using the provisions of enacted tax laws. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets to an amount that is more likely than not to be realized.

Significant components of the provision for income taxes attributable to continuing operations were as follows:


	Year Ended December 31
	2009			2008			2007
Current income tax provision:
Federal taxes	$	278,304		$	1,068,846		$	1,613,909
State taxes		34,724			53,218			82,468
International taxes		22,382			32,014			53,721

Total current provision (benefit)	$	335,410		$	1,154,078		$	1,750,098

Deferred income tax provision:
Federal taxes	$	9,175		$	(643,488	)	$	(462,193	)
State taxes		(6,363	)		(3,202	)		(12,318	)
International taxes		11,263			(10,286	)		2,250

Total deferred provision (benefit)	$	14,075		$	(656,976	)	$	(472,261	)

Total income tax provision	$	349,485		$	497,102		$	1,277,837

Income tax benefits of $792.9 million, $31.7 million and $121.9 million in 2009, 2008 and 2007, respectively, were allocated directly to reduce goodwill from acquisitions.

Income tax benefit reported in shareholders’ equity was as follows:


	Year Ended December 31
	2009			2008			2007
Foreign currency translation gains (losses)	$	(8,634	)	$	6,597		$	2,679
Net unrealized securities gains (losses)		520,302			(421,011	)		25,780
Net unrealized derivative gains (losses)		60,904			28,095			(63,804	)
Adoption of FAS 158 (ASC 715/SFAS 158)		—			(317	)		6,378
Employee stock plans		16,074			11,071			(53,041	)
Employee retirement plans		7,307			(54,907	)		17,675

Total current provision (benefit)	$	595,953		$	(430,472	)	$	(64,333	)

The reconciliation of income tax attributable to continuing operations computed at the U.S. federal statutory tax rate to income tax expense was:


	Year Ended December 31
	2009		2008		2007
Income tax at U.S. federal statutory tax rate	35.00	%	35.00	%	35.00	%
State taxes, net of federal benefit	2.40		3.45		0.68
Resolution of federal income tax issues and audits	(4.63	)	—		(0.31	)
Recognition of foreign tax credits	—		—		(1.78	)
Other foreign tax differences, net	(0.20	)	1.97		(0.03	)
Goodwill impairment	—		47.67		—
Other, including nontaxable income and general business tax credits	(6.41	)	(2.62	)	(0.54	)

Income taxes	26.16	%	85.47	%	33.02	%

During 2009, 2008 and 2007, the Company’s income tax expense was reduced by $61.9 million, zero and $12.0 million, respectively, due to the resolution of certain tax issues and audits for prior years with the Internal Revenue Service (“IRS”). This reduction represented the release of previous accruals for potential audit and litigation adjustments which were subsequently settled or eliminated and further refinement of existing tax exposures.

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2009 and 2008 were as follows:


	December 31
	2009			2008
Deferred tax assets:
Allowance for loan and lease losses	$	1,496,130		$	1,631,883
Unearned income		205,637			236,043
Net unrealized losses on securities and derivative instruments		—			494,580
Employee stock plans		147,127			144,073
Rewards & sweepstakes programs		473,201			501,817
Valuation difference of acquired loans		689,755			82,205
Employee benefits		122,457			68,278
Securitizations		91,114			12,850
Property & equipment		—			3,753
Foreign tax credit carryforward		131,129			131,129
Other assets		464,133			246,022

Subtotal		3,820,683			3,552,633
Valuation allowance		(108,516	)		(67,671	)

Total deferred tax assets		3,712,167			3,484,962
Deferred tax liabilities:
Original issue discount		714,557			605,769
Property & equipment		38,895			—
Prepaid expenses		9,143			8,281
Leasing activities		23,450			23,919
Core deposit and other intangibles		406,082			367,973
Servicing assets		83,456			55,035
Net unrealized gains on securities and derivative instruments		31,667			—
Other foreign deferred taxes		38,937			18,964
Other liabilities		89,749			77,939

Total deferred tax liabilities		1,435,936			1,157,880

Net deferred tax assets	$	2,276,231		$	2,327,082

The Company has an acquired Federal net operating loss carryforward of $249.7 million attributable to Chevy Chase Bank that expires in 2028. Under IRS rules, the Company’s ability to utilize this loss against future income is limited to $33 million per year. The Company has state net operating loss carryforwards with a tax value of $113 million that expire from 2010 to 2029. The Company has a foreign net operating loss carryforward of $15.3 million with no expiration date. The Company has foreign tax credit carryforwards of $131.1 million that expire in 2014 through 2018.

The valuation allowance was increased by $40.8 million to adjust the tax benefit of certain state deferred tax assets and net operating loss carryforwards to the amount the Company has determined is more likely than not to be realized.

The deferred tax liability for original issue discount represents interchange, late fees, cash advance fees and overlimit fees. These items are generally treated as original issue discount (“OID”) for tax purposes and recognized over the 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.


	December 31
	2009		2008
Deferred revenue:
OID—late fees	$	512,023	$	774,403
OID—all other		1,460,687		905,031

Gross deferred tax liability		1,972,710		1,679,434

Net federal deferred tax liability	$	714,557	$	605,769

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, and Interpretation of FASB Statement No. 109 (“ASC 740-10/FIN 48”), effective January 1, 2007. As a result of the adoption, the Company recorded a $29.7 million reduction in retained earnings.

ASC 740-10/FIN 48 clarifies the accounting for uncertainty in income taxes, and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10/FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. During 2009, 2008 and 2007, $(7.5) million, $30.5 million and $34.3 million, respectively, of net interest was included in income tax expense. The accrued balance of interest and penalties related to unrecognized tax benefits is presented in the table below.

A reconciliation of the change in unrecognized tax benefits from January 1, 2008 to December 31, 2009 is as follows:


	Gross Unrecognized Tax Benefits			Accrued Interest and Penalties			Gross Tax, Interest and Penalties
Balance at January 1, 2008	$	540,502		$	140,237		$	680,739
Additions for tax positions related to the current year		21,185			—			21,185
Additions for tax positions related to prior years		49,255			46,985			96,240
Reductions for tax positions related to prior years due to IRS and other settlements		(53,879	)		(11,727	)		(65,606	)
Additions for tax positions related to acquired entities in prior years, offset to goodwill		13,563			498			14,061
Other reductions for tax positions related to prior years		(9,546	)		(174	)		(9,720	)

Balance at December 31, 2008	$	561,080		$	175,819		$	736,899
Additions for tax positions related to the current year		7,777			—			7,777
Additions for tax positions related to prior years		43,217			35,432			78,649
Reductions for tax positions related to prior years due to IRS and other settlements		(255,147	)		(110,059	)		(365,206	)
Additions for tax positions related to acquired entities in prior years, offset to goodwill		6,906			1,711			8,617
Reductions resulting from lapsing statutes of limitation		(4,941	)		(2,327	)		(7,268	)

Balance at December 31, 2009	$	358,892		$	100,576		$	459,468

Portion of balance at December 31, 2009 that, if recognized, would impact the effective income tax rate	$	109,346		$	66,919		$	176,265

The Company is subject to examination by the IRS and other tax authorities in certain countries and states in which the Company has significant business operations. The tax years subject to examination vary by jurisdiction. The IRS is currently examining the Company’s federal income tax returns for the years 2007 and 2008. During 2009, the IRS concluded its examination of the Company’s federal income tax returns for the years 2005 and 2006, and its examinations of the final separate federal income tax returns for certain acquired subsidiaries. During 2009 and 2008, the Company made cash payments to the IRS related to these concluded examinations which resulted in a reduction of approximately $194.5 million and $34.1 million, respectively, to the balance of net unrecognized tax benefits.

During 2009, the U.S. Tax Court issued a decision with respect to certain tax issues for the years 1995-1999, with both parties prevailing on certain issues. At issue are proposed adjustments by the IRS with respect to the timing of recognition of items of income and expense derived from the Company’s credit card business in various tax years. As a result of the Tax Court decision, the Company reduced the amount of unrecognized tax benefits by approximately $69.3 million. The time period for an appeal by each party of the Tax Court decision is pending and the ultimate outcome may also impact tax years after 1999. It is reasonably possible that a settlement related to these timing issues may be made within twelve months of the reporting date. At this time, an estimate of the potential change to the amount of unrecognized tax benefits resulting from such a settlement cannot be made.

As of December 31, 2009, U.S. income taxes and foreign withholding taxes have not been provided on approximately $231.9 million of unremitted earnings of subsidiaries operating outside the U.S., in accordance with APB Opinion No. 23, Accounting for Income Taxes—Special Areas (ASC 740-30/APB 23). These earnings are considered by management to be invested indefinitely. Upon repatriation of these earnings, the Company could be subject to both U.S. income taxes (subject to possible adjustment for foreign tax credits) and withholding taxes payable to various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability and foreign withholding tax on these unremitted earnings is not practicable at this time because such liability is dependent upon circumstances existing if and when remittance occurs.

As of December 31, 2009, U.S. income taxes have not been provided for approximately $286.5 million of previously acquired thrift bad debt reserves created for tax purposes as of December 31, 1987. These amounts, acquired as 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, makes distributions in excess of earnings and profits, redeems its stock, or liquidates.

Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2009

Derivative Instruments and Hedging Activities

Note 19

Derivative Instruments and Hedging Activities

The Company manages market risk within limits governed by its risk management policies as established by the Asset and Liability Management Committee (“ALCO”) and approved by the Board of Directors. The Company utilizes derivatives to manage and position its earnings and economic value of equity sensitivity within the approved limits. These derivatives are used to primarily manage risk related to changes in interest rates and to a lesser extent, foreign exchange rates. The Company uses a wide range of derivative instruments, including from time to time, interest rate swaps, interest rate caps, floors, options, futures and forward contracts to manage interest rate risk.

The Company is exposed to credit risk on its derivative positions, which it manages by establishing and monitoring limits as to the degree of risk that may be undertaken. The amount of credit risk is equal to the extent of the fair value gain in a derivative, as we may be unable to realize that if the counterparty fails to perform. When the fair value of a derivative contract is positive, this generally indicates that the counterparty owes the Company, and, therefore, creates a repayment risk for the Company. When the fair value of a derivative contract is negative, this generally indicates that the Company owes the counterparty, and therefore, has no repayment risk. The Company attempts to limit the credit (or repayment) risk in derivative instruments by entering into transactions with high-quality counterparties that are reviewed periodically. The Company also maintains a policy of requiring that all derivative contracts be governed by an International Swaps and Derivatives Association Master Agreement; depending on the nature of the derivative transaction, bilateral collateral agreements are generally required as well.

The Company predominantly uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps generally involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date with no exchange of underlying principal amounts. Many of the interest rate swaps used qualify as either fair value or cash flow hedges, each of which is discussed in more detail in the remainder of this Note.

The Company’s foreign currency denominated assets and liabilities expose it to foreign currency exchange risk. The Company enters into various foreign exchange derivative contracts for managing foreign currency exchange risk. Changes in the fair value of the derivative instrument effectively offset the related foreign exchange gains or losses on the items to which they are designated. Upon the adoption of ASU 2009-17 (ASC 810/SFAS 167) on January 1, 2010 and the resulting consolidation of certain securitization trusts, the Company becomes exposed to additional foreign currency exchange risk related to foreign denominated securities issued by the trusts. That risk is economically hedged by associated foreign exchange derivative contracts previously entered into by the trust. While those derivatives will not be designated as accounting hedges, the change in fair value of the derivatives is expected to largely offset the related foreign exchange gains or losses on the securities.

The Company has non-trading and trading derivatives that do not qualify as accounting hedges. These derivatives are in many cases associated with assets, liabilities, and securitization transactions or may be used outright to manage our interest rate risk exposures. These derivatives are carried at fair value and changes in value are included in current earnings.

The Company also enters into customer oriented derivative instruments. These transactions are provided as a service to our customers and the interest rate risk is typically offset with derivative trades to third party counterparties.

The following table provides the notional amount and fair values of the Company’s derivative instruments, by category, as of December 31, 2009:

As of December 31, 2009

Asset Derivatives

Liability Derivatives

Notional
Amount

Balance Sheet
Location

Positive Fair
Value

Balance Sheet
Location

Negative Fair
Value

Derivatives designated as hedging instruments

Cash flow interest rate contracts

5,095,786

Other assets

402

Other liabilities

(90,726

)

Cash flow foreign exchange contracts

1,576,363

Other assets

15,006

Other liabilities

(12,216

)

Fair value interest rate contracts

17,288,776

Other assets

359,075

Other liabilities

(27,279

)

Net investment foreign exchange contracts

53,321

Other assets

Other liabilities

—

Subtotal

24,014,246

374,562

(130,221

)

Derivatives not designated as hedging instruments

Trading interest rate contracts

9,967,475

Other assets

193,382

Other liabilities

(173,279

)

Non-Trading interest rate contracts

23,337,974

Other assets

493,492

Other liabilities

(77,336

)

Non-Trading MSR interest rate contracts

935,000

Other assets

4,215

Other liabilities

(19,589

)

Non-Trading other contracts

981,375

Other assets

3,622

Other liabilities

(6,707

)

Subtotal

35,221,824

694,711

(276,911

)

Total derivatives

59,236,070

1,069,273

(407,132

)

(1)

The above table does not reflect $3.5 million recognized as a net credit valuation adjustment on derivative assets and liabilities for non-performance risk. Non-performance risk is reflected in other assets or other liabilities on the balance sheet and in other non-interest income on the income statement. For additional information, see the Non-Performance Risk section of this footnote.

Fair Value Hedges

The Company uses fair value hedges to hedge the exposure to changes in the fair value of certain financial assets and liabilities, which appreciate or depreciate in value primarily as a result of interest rate fluctuations. When an item is designated as the hedged item in a fair value hedge, the related interest rate appreciation or depreciation is recognized in current earnings; however, the income or loss generated will generally be offset by the change in fair value of the derivative instrument, which is also recognized in current earnings.

The Company has entered into interest rate swap agreements, designated as fair value hedges, that modify the Company’s exposure to interest rate risk by effectively converting a portion of the Company’s senior notes, subordinated notes and U.S. Agency investments from fixed rates to variable rates with maturities ranging from 2010 to 2019. The agreements involve the receipt of fixed rate amounts in exchange for floating rate interest payments over the life of the agreement.

During 2009, the Company entered into interest rate swap agreements, also designated as fair value hedges that modify the Company’s exposure to interest rate risk by effectively converting a portion of the Company’s brokered CD liabilities from fixed rate to variable rates with maturities ranging from 2010 to 2018. The agreements involve the receipt of fixed rate amounts in exchange for floating rate interest payments over the life of the agreement.

The Company has entered into forward exchange contracts to hedge foreign currency denominated investments against fluctuations in exchange rates. The purpose of the Company’s foreign currency hedging activities is to protect the Company from the risk of adverse effects of movements in exchange rates.

Cash Flow Hedges

The Company uses cash flow hedges to hedge the exposure to variability in the cash flows of a forecasted transaction. Changes in fair value of derivatives designated as cash flow hedges are recognized in other comprehensive income, a separate component of stockholders’ equity. The Company has entered into interest rate swap agreements, designated as cash flow hedges, that effectively modify the Company’s exposure to interest rate risk by converting floating rate debt to a fixed rate debt with maturities ranging from 2010 to 2013. The agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreement.

The Company has also entered into interest rate swap agreements, designated as cash flow hedges, that effectively modify the Company’s exposure to interest rate risk by converting floating rate assets to fixed rate assets, with maturities in 2013. The agreements involve the receipt of fixed rate amounts in exchange for floating rate interest payments over the life of the agreements.

The Company has entered into forward exchange contracts to reduce the Company’s sensitivity to foreign currency exchange rate changes on its foreign currency denominated loans. The forward rate agreements allow the Company to “lock-in” functional currency equivalent cash flows associated with the foreign currency denominated loans.

At December 31, 2009, the Company expects to reclassify $25.8 million of net losses, after tax, on derivative instruments from accumulated other comprehensive income to earnings during the next 12 months terminated swaps are amortized and as interest payments and receipts on derivative instruments occur. This amount could change in future periods if the Company decides to terminate additional swaps in the context of managing its overall market risk profile.

Hedge of Net Investment in Foreign Operations

The Company uses forward exchange contracts to protect the value of its investment in its foreign subsidiaries. Realized and unrealized foreign currency gains and losses from these hedges are not included in the income statement, but are shown in the translation adjustments in other comprehensive income. The purpose of these hedges is to protect against adverse movements in exchange rates.

Trading Interest Rate Contracts

The Company enters into customer-oriented derivative financial instruments, including interest rate swaps, options, caps, floors, and foreign exchange contracts. These customer-oriented positions may be matched with offsetting positions to minimize risk to the Company.

These derivatives do not qualify as accounting hedges and are recorded on the balance sheet at fair value with changes in value included in current earnings in non-interest income.

Non-Trading Interest Rate Contracts

The Company uses interest rate swaps to manage interest rate sensitivity related to the Company’s non-mortgage securitization programs. The Company enters into interest rate swaps with its securitization trust and essentially offsets the derivative with separate interest rate swaps with third parties. The Company is exposed to higher credit risk related to interest rate swaps with the trust, and has charged a higher rate to offset this risk. The trust is unable to post collateral because of its QSPE status. At December 31, 2009, the Company had a $22.3 million valuation allowance on the derivative receivable from the trust, representing counterparty credit risk. Upon consolidation of the trust on January 1, 2010 due to the adoption of AU 2009-17 (ASC 810/SFAS 167), the interest rate swap agreements between the Company and its credit card master trust will be considered intercompany agreements and any related receivables and payables are eliminated in consolidation. On December 31, 2009, the interest rate swaps with third parties were terminated and replaced with similar agreements at current fixed interest rates. The replacement interest rate swaps will be designated as cash flow hedges converting floating rate debt of the trust to fixed rate debt in connection with the consolidation of the trust, and the corresponding debt securities issued to third parties. See “Note 1- Significant Accounting Policies” for additional information.

The Company uses interest rate cap agreements and reciprocal basis swap agreements in conjunction with the securitization of certain payment option mortgage loans. The interest rate cap agreements limit the Company’s exposure to interest rate risk by providing for payments to be made to the Company by third parties when the one-month LIBOR rate exceeds the applicable strike rate. These agreements have individual predetermined notional schedules and stated expiration dates, and relate to both currently outstanding and previously called securitization transactions. The reciprocal basis swap agreements are held with external counterparties and are structured to mirror the basis swap agreements within securitization programs. The basis swaps in the securitization structures fund the payment of uncapped floating rate interest to note holders in the trust. While payments on the basis swaps and the reciprocal basis swaps may be similar in amounts, the Company is not a party to any of the derivative contracts between the derivative providers and the securitization trusts. Upon consolidation of certain of the payment option mortgage loan securitization trusts due to the adoption of ASU 2009-17 (ASC 810/SFAS 167) on January 1, 2010, applicable basis swap agreements will be included on the Company’s consolidated balance sheet at their estimated fair values and will largely be offset by the fair values of the related reciprocal basis swaps. See “Note 1- Significant Accounting Policies” for additional information.

The Company uses interest rate swaps in conjunction with its auto securitizations. These swaps have zero balance notional amounts unless the pay down of auto securitizations differs from its scheduled amortization.

The Company enters into commitments to originate loans whereby the interest rate of the loan is determined prior to funding (“interest rate lock commitment”). Interest rate lock commitments on mortgage loans that the Company intends to sell in the secondary market as well as corresponding commitments to sell if any are considered freestanding derivatives. These derivatives are carried at fair value with changes in fair value reported as a component of other non-interest income. Interest rate lock commitments are initially valued at zero. Changes in fair value subsequent to inception are determined based on current secondary market prices for underlying loans with similar coupons, maturity and credit quality, subject to the anticipated probability that the loans will fund within the terms of the commitment. The initial value inherent in the loan commitments at origination is recognized through gain on sale of loans when the underlying loan is sold. The interest rate lock commitments along with the related commitments to sell, if any are recorded at fair value with changes in fair value recorded in current earnings as a component of gain on sale of loans. As of December 31, 2009, the Company has $215.1 million in loan commitments. The Company did not have any loan commitments as of December 31, 2008.

These derivatives do not qualify as accounting hedges and are recorded on the balance sheet at fair value with changes in value included in current earnings in non-interest income.

Non-Trading Other Contracts

The Company uses interest rate swaps, To Be Announced (“TBA”) forward contracts and futures contracts in conjunction with hedging the economic risk associated with its mortgage servicing rights portfolio. These derivatives are designed to offset changes in the fair value of mortgage servicing rights attributable to interest rate fluctuations. Changes in the fair value of mortgage servicing rights and changes in the fair value of related derivatives are both recognized in mortgage servicing and other income.

The Company uses TBA forward contracts and whole loan commitments in conjunction with its interest rate locks and held-for-sale fixed rate mortgages (collectively “mortgage commitments”). These derivatives are designed to provide a known future price for these mortgage commitments.

The following table shows the effect of the Company’s derivative instruments, by category, on the income statement for the year ended December 31, 2009:

Derivatives in Fair Value Hedging Relationships

Location of

Gain/(Loss) in

Income on Derivative

Gain/(Loss) in
Income on
Derivative

Hedged Items in

Fair Value

Hedge
Relationship

Location of

Gain/(Loss)

Recognized in

Income on Related
Hedged Item

Gain/(Loss)
Recognized in
Income on
Related Hedged
Items

Net Gain/(Loss)

For Year Ended December 31, 2009

Interest rate contracts

Other non-interest income

2,493

Available for

sale securities

Other non-interest income

(2,493

)

—

Interest rate contracts

Other non-interest income

(268,231

)

Fixed-rate debt

Other non-interest income

294,118

25,887

(265,738

)

291,625

25,887

Cash Flow Hedging Relationships

Gain/(Loss)
Recognized in OCI
(Effective Portion)

Location of

Gain/(Loss)

Reclassified from OCI

into Income

Gain/(Loss)
Reclassified from OCI
into Income

Location of
Gain/(Loss)
Recognized in
Income
(Ineffectiveness)

Gain/(Loss)
Recognized Due
to Ineffectiveness

For Year Ended December 31, 2009

Interest rate contracts

175,448

Interest income (expense)

(88,665

)

Other non-
interest income

(685

)

Foreign exchange contracts

10,982

Other non-interest income

(3,570

)

N/A

—

186,430

(92,235

)

(685

)

Net Investment Hedging Relationships

Gain/(Loss)
Recognized in
OCI

Location of
Gain/(Loss)
Reclassified from
OCI into Income
(Effective Portion)

Gain/(Loss)
Reclassified from OCI
into Income (Effective
Portion)

Location of
Gain/(Loss)
Recognized in Income
(Ineffective Portion
and Amount Excluded
from Effectiveness
Testing)

Gain/(Loss) Recognized
in Income (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing)

For Year Ended December 31, 2009

Foreign exchange contracts

(6,855

)

N/A

—

N/A

—

Derivatives Not Designated as Hedging Instruments


For Year Ended December 31, 2009	Location of Gain (Loss) in Income	Gain (Loss) in Income
Trading interest rate contracts	Other non-interest income	$	1,916
Non-Trading interest rate contracts	Other non-interest income		14,672
Non-Trading MSR interest rate contracts	Mortgage servicing and other		(26,634	)
Non-Trading other contracts	Mortgage servicing and other		(3,485	)
Non-Trading other contracts	Other non-interest income		(4,969	)

Subtotal		$	(18,500	)

Credit Default Swaps

The Company has credit exposure resulting from swap agreements related to loss mitigation for certain manufactured housing securitizations issued by GreenPoint Credit LLC in 2000. The maximum credit exposure from these swap agreements is $32.7 million and $37.5 million as of December 31, 2009 and 2008, respectively. The fair value of the Company’s obligations under the swap agreements was $18.3 million and $20.8 million, at December 31, 2009 and 2008, respectively, and is recorded as other liabilities. See “Note 20- Securitizations” for additional information about manufactured housing securitization transactions.

Credit Risk Related Contingency Features

Certain of the Company’s derivative instruments contain provisions that require the Company’s debt to maintain an investment grade credit rating from each of the major credit rating agencies. If the Company’s debt were to fall below investment grade, it would be in violation of those provisions, and the counterparties of the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position on December 31, 2009, is $407.1 million for which the Company has posted collateral of $94.8 million, which consists of a combination of securities and cash. If the credit-risk-related features underlying these agreements had been triggered due tot the Company’s credit rating falling one level below the current rating on December 31, 2009, the Company would be required to post an additional $28.1 million of collateral to its counterparties.

Non-Performance Risk

Non-performance risk refers to the risk that an obligation will not be fulfilled. It affects the calculation of the estimated fair value of derivative liabilities and includes the Company’s own credit risk. The Company calculates nonperformance risk by comparing its own CDS spreads to the discount benchmark curve and applying the difference to the netted uncollateralized obligation. During 2009, the Company recorded a $1.2 million reduction to the fair value of derivative liabilities with a corresponding increase to other non-interest income to reflect nonperformance risk. The Company also includes counterparty credit risk in the calculation of the estimated fair value of derivative assets by comparing counterparty credit default swap spreads to the discount benchmark curve and applying the difference to the netted uncollateralized exposure. During 2009, the Company recorded a $4.7 million credit valuation allowance to reduce the fair value of derivative assets with a corresponding reduction to other non-interest income.

Securitizations

12 Months Ended

Dec. 31, 2009

Securitizations

Note 20

Securitizations

The Company engages in securitization transactions for funding purposes. The Company receives the proceeds from third party investors for securities issued from the Company’s securitization trusts which are collateralized by transferred receivables from the Company’s portfolio. The Company removes loans from the reported financial statements when securitizations qualify as sales in accordance with ASC 860-10/SFAS 140. Alternatively, when the transfer is not considered a sale but is rather considered a secured borrowing, the assets will remain on the Company’s reported financial statements with an offsetting liability recognized for the amount of proceeds received.

The Company uses QSPEs to conduct off-balance sheet securitization activities and SPEs that are considered VIEs to conduct other securitization activities. Interests in the securitized and sold loans may be retained in the form of interest-only strips, retained tranches, cash collateral accounts, cash reserve accounts and unpaid interest and fees on the investors’ portion of the transferred principal receivables. The Company also retains a transferor’s interest in certain of the securitized non-mortgage loan receivables transferred to the trusts which is carried on a historical cost basis and reported as loans held for investment on the Consolidated Balance Sheet.

The Company primarily accounted for loan securitization transactions as sales and accordingly, the transferred loans were removed from the consolidated financial statements as of and for the years ending December 31, 2009, 2008 and 2007. However, beginning January 1, 2010, the Company will consolidate certain securitization trusts pursuant to the adoption of ASU 2009-17 (ASC 810/SFAS 167) and the securitization of loan receivables related to these newly consolidated trusts will be accounted for as a secured borrowing rather than as a sale. The retained interests in securitized assets will be eliminated or reclassified, generally as loan receivables, accrued interest receivable or restricted cash, as appropriate. See “Note 1- Significant Accounting Policies” for expected financial statement impact.

Accounts Receivable from Securitizations

The following provides details of accounts receivable from securitizations as of December 31, 2009 and 2008:

2009

2008

As of December 31

Non Mortgage

Mortgage⁽²⁾

Total

Non Mortgage ⁽³⁾

Interest-only strip classified as trading

22,038

222,568

244,606

140,993

Retained interests classified as trading:

Retained notes

572,474

—

572,474

407,113

Cash collateral

138,336

2,993

141,329

169,126

Investor accrued interest receivable

898,267

—

898,267

—

Total retained interests classified as trading

1,609,077

2,993

1,612,070

576,239

Retained notes classified as available for sale

2,087,864

—

2,087,864

753,153

Other retained interests

—

12,124

831,275

Total retained residual interests

3,718,979

237,685

3,956,664

2,301,660

Collections on deposit for off balance sheet securitizations ⁽¹⁾

3,172,231

(411

)

3,171,820

3,313,493

Collections on deposit for secured borrowings

501,113

—

501,113

727,601

Total Accounts Receivable from Securitizations

7,392,323

237,274

7,629,597

6,342,754

(1)

Collections on deposit for off-balance sheet securitizations include $2.2 billion and $1.8 billion of principal collections accumulated for expected maturities of securitization transactions as of December 31, 2009 and 2008, respectively. Collections on deposit for off-balance sheet securitizations are shown net of payments due to investors for interest on the notes.

(2)	The mortgage securitization transactions relate to Chevy Chase Bank acquisition which occurred on February 27, 2009.

(3)	Certain prior period amounts have been reclassified to conform to current period presentation. Investor accrued interest receivable of $833.9 million as of December 31, 2008 was included in other retained interests.

Off-Balance Sheet Securitizations – Non Mortgage

Off-balance sheet securitizations involve the transfer of pools of loan receivables by the Company to one or more third-party trusts or QSPEs in transactions that are accounted for as sales in accordance with ASC 860-10/SFAS 140. In order to maintain QSPE status, the trusts can engage only in limited business activities. Certain undivided interests in the pool of loan receivables are sold to external investors as asset-backed securities in public underwritten offerings or private placement transactions. The proceeds from off-balance sheet securitizations are distributed by the trusts to the Company as consideration for the loan receivables transferred. Each new off-balance sheet securitization results in the removal of principal loan receivables equal to the sold undivided interests in the pool of loan receivables (“off-balance sheet loans”), the recognition of certain retained residual interests and a gain on the sale. Securities held by external investors totaling $42.8 billion and $44.3 billion as of December 31, 2009 and 2008, respectively, represent undivided interests in the pools of loan receivables.

The remaining undivided interests in principal receivables and the related unpaid billed finance charge and fee receivables are considered transferor’s interest which is retained by the Company and continues to be reported as loans held for investment on the Consolidated Balance Sheet. The amount of transferor’s interest fluctuates as the accountholders make principal payments and incur new charges on the accounts. Transferor’s interest was $11.4 billion and $13.5 billion as of December 31, 2009 and 2008, respectively.

The Company’s retained interests in the off-balance sheet securitizations are recorded in accounts receivable from securitizations and are comprised of interest-only strips, retained tranches, cash collateral accounts, cash reserve accounts and unpaid interest and fees on the investors’ portion of the transferred principal receivables. The Company’s retained residual interests are generally restricted or subordinated to investors’ interests and their value is subject to substantial credit, repayment and interest rate risks on transferred assets if the off-balance sheet receivables are not paid when due. As such, the interest-only strip and retained subordinated interests are classified as trading assets, and changes in the estimated fair value are recorded in servicing and securitization income. Additionally, the Company may also retain senior tranches in the securitization transactions which are considered to be higher investment grade securities and subject to lower risk of loss. The retained senior tranches are classified as available for sale securities in accordance with ASC 320-10/SFAS 115, and changes in the estimated fair value are recorded in other comprehensive income.

During the years ended December 31, 2009, 2008 and 2007, the Company recorded a $160.7 million loss, a $260.0 million loss, and $6.3 million of income, respectively in earnings from changes in the fair value of retained interests. This was made up of the following items:


	2009			2008			2007
Interest only strip valuation changes	$	(95,803	)	$	(224,756	)	$	13,778
Fair value adjustments related to spread accounts (1)		3,219			(2,970	)		(16,875	)
Fair value adjustments related to investors’ accrued interest receivable		(11,031	)		—			—
Fair value adjustments related to retained subordinated notes		(57,118	)		(32,319	)		9,405

Total income statement impact	$	(160,733	)	$	(260,045	)	$	6,308

(1)

For the credit card trusts, the amount of cash held in spread accounts decreased from $164.4 million as of December 31, 2008 to $161.1 million as of December 31, 2009. While spread account funding triggers for some trusts have been reached, an early amortization event is not triggered for the majority of the card trusts until the three month average excess spread is less than 0%. Three month average excess spread for the credit card trusts ranged from 5.5% to 12.1% as of December 31, 2009.

The changes in the fair value of retained interests are primarily driven by rate assumption changes and volume fluctuations.

All of these retained residual interests may be subject to loss in the event assumptions used to determine the estimated fair value do not prevail, or if borrowers default on the related securitized receivables and the Company’s retained subordinated tranches are used to repay investors. See the table below for key assumptions and sensitivities for retained interest valuations.

In addition to the retained residual interests, the Company also has receivables from the trusts related to interest rate derivatives. These are shown as derivative receivables in other assets. Due to the deterioration of performance in the trusts in 2009 and the inability of the trusts to post collateral, the Company has recorded a valuation allowance for these receivables. See “Note 19- Derivative Instruments and Hedging Activities” on derivatives for further details.

The gain on sale recorded from off-balance sheet securitizations is based on the estimated fair value of the assets sold and retained and liabilities incurred, and is recorded at the time of sale, net of transaction costs, in servicing and securitizations income on the Consolidated Statement of Income. The related receivable is the interest-only strip, which is based on the present value of the estimated future cash flows from excess finance charges and past-due fees over the sum of the return paid to security holders, estimated contractual servicing fees and credit losses. The Company periodically reviews the key assumptions and estimates used in determining the value of the interest-only strip and other retained interests. The Company classifies the interest-only strip as a trading asset. The Company recognizes all changes in the fair value of the interest-only strip immediately in servicing and securitizations income on the Consolidated Statement of Income. The interest component of cash flows attributable to retained interests in securitizations is recorded in other interest income.

Upon adoption of ASU 2009-16 and ASU 2009-17, the Company expects that predominately all credit card and installment loans that have been securitized and accounted for as a sale will be subject to consolidation and accounted for as a secured borrowing. Accordingly, effective January 1, 2010, securitization trusts that contain approximately $47.6 billion of credit card and other consumer loans and the corresponding securities issued to third party investors are expected to be consolidated at their carrying values. The retained interests related to these newly consolidated trusts are expected to be eliminated or reclassified as loan receivables, accrued interest or restricted cash in consolidation, see “Note 1- Significant Accounting Policies” for expected financial statement impact.

Key Assumptions for Retained Interest Valuations

The key assumptions used in determining the fair value of the interest-only strip and other retained residual interests resulting from securitizations of loan receivables completed during the period include the weighted average ranges for net charge-off rates, principal payment rates, lives of receivables and discount rates included in the following table. The net charge-off rates are determined using forecast net charge-offs expected for the trust calculated consistently with other company net charge-off forecasts. The principal repayment rate assumptions are determined using actual and forecast trust principal payment rates based on the collateral. The lives of receivables are determined as the number of months necessary to repay the investors given the principal payment rate assumptions. The discount rates are determined using primarily trust specific statistics and forward rate curves, and are reflective of what market participants would use in a similar valuation. Additionally accrued interest receivable, cash reserve and spread accounts are discounted over the estimated life of the assets.


	2009	2008
Weighted average life for receivables (months)	7 to 9	7 to 8
Principal repayment rate (weighted average rate)	13% to 16%	15% to 16%
Charge-off rate (weighted average rate)	9% to 10%	6% to 7%
Interest-only strip discount rate (weighted average rate)	12% to 15%	12% to 18%
Retained Interests discount rate (weighted average rate)	8% to 12%	10% to 15%

If these assumptions are not met, or if they change, the interest-only strip, retained interests and related servicing and securitizations income would be affected. The following adverse changes to the key assumptions and estimates, presented in accordance with ASC 860-10/SFAS 140, are hypothetical and should be used with caution. As the figures indicate, any change in fair value based on a 10% or 20% variation in assumptions cannot be extrapolated because the relationship of a change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the interest-only strip is calculated independently from any change in another assumption. However, changes in one factor may result in changes in other factors, which might magnify or counteract the sensitivities.

Key Assumptions and Sensitivities for Retained Interest Valuations


As of December 31	2009						2008⁽¹⁾
	Interest-only strip			Retained Interests			Interest-only strip			Retained Interests
Interest-only strip/ Retained Interests	$	22,038		$	3,696,942		$	140,993		$	1,329,392

Weighted average life for receivables (months)		7			7			8			8

Principal repayment rate (weighted average rate)		16	%		16	%		16	%		16	%
Impact on fair value of 10% adverse change	$	743		$	(5,335	)	$	(7,939	)	$	(28,014	)
Impact on fair value of 20% adverse change	$	1,516		$	(8,316	)	$	(12,917	)	$	(29,784	)

Charge-off rate (weighted average rate)		10	%		10	%		7	%		7	%
Impact on fair value of 10% adverse change	$	(9,403	)	$	(5,597	)	$	(77,577	)	$	(8,043	)
Impact on fair value of 20% adverse change	$	(10,673	)	$	(11,777	)	$	(112,089	)	$	(16,086	)

Discount rate (weighted average rate)		12	%		8	%		18	%		15	%
Impact on fair value of 10% adverse change	$	(1,179	)	$	(11,416	)	$	(668	)	$	(15,829	)
Impact on fair value of 20% adverse change	$	(2,330	)	$	(23,019	)	$	(1,327	)	$	(31,564	)

(1)	Certain prior period amounts have been reclassified to conform to current period presentation.

Static pool credit losses are calculated by summing the actual and projected future credit losses and dividing them by the original balance of each pool of assets. Due to the short-term revolving nature of the loan receivables, the weighted average percentage of static pool credit losses is not considered materially different from the assumed charge-off rates used to determine the fair value of the retained interests.

The Company acts as a servicing agent and receives contractual servicing fees of between 0.5% and 4% of the investor principal outstanding, based upon the type of assets serviced. The Company generally does not record material servicing assets or liabilities for these rights since the contractual servicing fee approximates market rates.

Cash Flows Related to the Off-Balance Sheet Securitizations

The Company receives proceeds from the trusts for off-balance sheet loans that are transferred and sold to external investors. The sources of funds available to pay principal and interest on the asset-backed securities sold to investors include collections of both principal receivables and finance charge and fee receivables, credit enhancements such as subordination, spread accounts or reserve accounts and derivative agreements, including interest rate and currency swaps.

Collections of principal are generally returned to the Company as these collections are reinvested in the purchase of new principal loan receivables (“revolving securitization”). However, the Company is required to remit principal collections to the trust when the securitization transaction is scheduled to mature or earlier if an early amortization event has occurred. Securitization transactions may amortize earlier than scheduled due to certain early amortization triggers, which could require the Company to fund spread accounts, and reduce the value of its retained residual interests. In this event, the Company would also be funding spread accounts related to the trust. In addition, the Company loses the securitization as a funding source as the securities are repaid ahead of their original schedule and likely loses the ability to securitize similar receivables in the future at desirable rates. Additionally, early amortization of securitization structures would require the Company to record higher allowance for loan losses and would also have a significant impact on the ability of the Company to meet regulatory capital adequacy requirements. See “Note 1- Significant Accounting Policies” and “Note 23-Regulatory Matters” for additional information regarding capital adequacy requirements.

The Company is currently involved in two amortizing installment loan securitization programs. One of these installment loan trusts breached an additional amortization trigger within the first quarter of 2009, due to the performance of the loans within the trust. The Company began securitizing unsecured installment loans beginning in 1997 and a final addition into the trust occurred in early 2007. The trust has outstanding securities issued to external investors totaling $172.3 million and $441.9 million as of December 31, 2009 and 2008, respectively. The impact of breaching the amortization trigger resulted in the trust moving from a pro rata amortization to a sequential amortization, which means that the Company is no longer receiving pro rata cash allocations on the retained subordinated tranches that it holds. The Company has no requirements to provide the trust with additional funding or to transfer additional receivables. As of December 31, 2009, the Company has funded $20.3 million in a cash reserve account and holds a retained subordinated note with a face amount of $12.0 million, which together represent our maximum exposure to loss. The cash reserve account is carried at a fair value of $17.9 million as of December 31, 2009 with fair value adjustments to date of $2.4 million recorded in earnings. The retained subordinated note is carried at a fair value of $10.5 million as of December 31, 2009 with fair value adjustments of $1.5 million recorded in other comprehensive income. The change in amortization will not significantly impact the Company. The expected amortization period of this trust is fourteen months, which is consistent with the expected amortization period prior to hitting the trigger. No early amortization events related to the Company’s off-balance sheet securitizations have occurred for the years ended December 31, 2009, 2008 or 2007 with the exception of that described above.

Collections of interest and fees received on securitized receivables are used to pay interest to investors, servicing and other fees, and are available to absorb the investors’ share of credit losses. Amounts collected in excess of that needed to pay the above amounts are remitted, in general, to the Company. Under certain conditions, some of the cash collected may be retained to ensure future payments to investors.

The following provides the details of the cash flow related to securitization transactions for the years ended December 31, 2009 and 2008:


Year Ended December 31	2009		2008
Proceeds from new securitizations	$	12,068,309	$	10,046,699
Collections reinvested in revolving securitizations		70,895,890		85,351,341
Repurchases of accounts from the trust		9,210		251,776
Servicing fees received		879,271		956,163
Cash flows received on retained interests⁽¹⁾	$	5,252,263	$	6,374,957

(1)	Includes all cash receipts of excess spread and other payments (excluding servicing fees) from the trust to the Company.

For the year ended December 31, 2009 the Company recognized gross gains of $40.6 million on both the public and private sale of $12.1 billion of loan principal receivables compared to gross gains of $58.4 million on the sale of $10.0 billion of loan principal receivables for the year ended December 31, 2008 and gross gains of $63.8 million on the sale of $12.6 billion of loans for the year ended December 31, 2007. These gross gains are included in servicing and securitizations income. In addition, the Company recognized, as a reduction to servicing and securitizations income, upfront securitization transaction costs and recurring credit facility commitment fees of $48.9 million, $43.9 million, and $45.0 million for the years ended December 31, 2009, 2008, and 2007 respectively. The remainder of servicing and securitizations income represents servicing income and excess interest and non-interest income generated by the transferred receivables, less the related net losses on the transferred receivables and interest expense related to the securitization debt.

Supplemental Loan Information

Loans included in securitization transactions which qualify as sales under U.S. GAAP have been removed from the Company’s “reported” balance sheet, but are included within the “managed” financial information, as shown in the table below.


	Year Ended December 31
	2009						2008
	Loans Outstanding			Loans Delinquent			Loans Outstanding			Loans Delinquent
Managed loans	$	136,802,902		$	6,465,158		$	146,936,754		$	6,596,223
Securitization adjustments		(46,183,903	)		(2,718,894	)		(45,918,983	)		(2,178,400	)

Reported loans	$	90,618,999		$	3,746,264		$	101,017,771		$	4,417,823


	Average Loans			Net Charge-Offs			Average Loans			Net Charge-Offs
Managed loans	$	143,514,416		$	8,420,634		$	147,812,266		$	6,424,937
Securitization adjustments		(43,727,131	)		(3,853,000	)		(48,841,363	)		(2,946,766	)

Reported loans	$	99,787,285		$	4,567,634		$	98,970,903		$	3,478,171

Off-Balance Sheet Securitizations –Mortgage

The Company periodically sells various loan receivables through asset-backed securitizations, in which receivables which are transferred to trusts and certificates are sold to investors. The outstanding trust certificate balance at December 31, 2009 was $4.6 billion. There were no loans sold into new trusts during the period and no gains recognized during the period.

The Company continues to service and receive servicing fees on the outstanding balance of securitized receivables. The Company also retains rights, which may be subordinated, to future cash flows arising from the receivables. The Company generally estimates the fair value of these retained interests based on the estimated present value of expected future cash flows from securitized and sold receivables, using management’s best estimates of the key assumptions – credit losses, prepayment speeds and discount rates commensurate with the risks involved. As of December 31, 2009, six of the twenty one securitization deals hit the cumulative loss triggers. As a result of hitting the cumulative loss trigger, the insurer has the right to replace the Company as servicer. The Company has been notified by the insurer of certain Chevy Chase Bank mortgage securitization transactions that it will be removed as servicer of mortgage loans with an aggregate unpaid principal balance as of December 31, 2009 of $3.1 billion. The fair value of mortgage servicing rights at December 31, 2009 reflects this expected loss of servicing.

In connection with the securitization of certain payment option arm mortgage loans, the Company is obligated to fund a portion of any “negative amortization” resulting from monthly payments that are not sufficient to cover the interest accrued for that payment period. For each dollar of negative amortization funded by the Company, the balance of certain mortgage-backed securities received by the Company as part of the securitization transaction increase accordingly. As the borrowers make principal payments, these securities receive their pro rata portion of those payments in cash, and the balances of those securities held by the Company are reduced accordingly. As funds are drawn, the Company records an asset in the form of negative amortization bonds, which are classified as securities held to maturity. The Company has also entered into certain derivative contracts related to the securitization activities. These are classified as free standing derivatives, with fair value adjustments recorded in non-interest income. See “Note 19- Derivative Instruments and Hedging Activities” for further details on these derivatives.

Upon adoption of ASU 2009-16 and ASU 2009-17, certain mortgage loans that have been securitized and accounted for as a sale will be subject to consolidation and accounted for as a secured borrowing. Accordingly, effective January 1, 2010, mortgage securitization trusts that contain approximately $1.6 billion of mortgage loans will be consolidated and the retained interests and mortgage servicing rights related to these newly consolidated trusts will be eliminated in consolidation. See “Note 1- Significant Accounting Policies” for expected financial statement impact and see “Note 15- Mortgage Servicing Rights” for further information about the accounting for mortgage servicing rights.

Key Assumptions and Sensitivities for Retained Interest Valuations

Servicing, securitization and mortgage servicing and other includes the initial gains on current securitization and sale transactions and income from interest-only strips receivable recognized in connection with current and prior period securitization and sale transactions.

For the year ended December 31, 2009, key assumptions and the sensitivity of the current fair value of the retained interests to an immediate 10 percent and 20 percent adverse change in those assumptions are as follows:


	As of December 31, 2009 ⁽¹⁾
Interest-only strip/Retained Interests	$	225,561

Weighted average life (in years)		3.4

Prepayment speed assumption		27.8	%
Impact on fair value at 10% adverse change	$	(4,502	)
Impact on fair value at 20% adverse change	$	(8,738	)

Residual cash flow discount rate (annual)		11.5	%
Impact on fair value at 10% adverse change	$	(5,948	)
Impact on fair value at 20% adverse change	$	(11,570	)

(1)	Mortgage related retained interests were acquired in connection with the Chevy Chase Bank acquisition during 2009.

Cash Flows Related to the Off Balance Sheet Mortgage Securitizations

The following table summarizes certain cash flows received from securitization trusts for the year ended December 31, 2009:


	Year Ended December 31, 2009
Proceeds from new securitizations	$	—
Servicing fees received	$	15,926
Other cash flows received on retained interests	$	79,279

Supplemental Loan Information

Principal balances of off balance sheet single family residential loans, delinquent amounts and net credit losses being serviced by the Company for the year ended December 31, 2009, were as follows:


	As of December 31, 2009
Total Principal Amount of Loans	$	4,642,142


Principal Amount of Loans Past Due 90 Days or More or Non-Performing	$	1,246,809


Net Credit Losses
Year ended December 31, 2009	$	217,444

Information in the tables is included only for the year ended December 31, 2009 and no prior periods due to the fact that the Company purchased Chevy Chase Bank on February 27, 2009.

Secured Borrowings

In addition to issuing securitizations that qualify as sales, the Company also issues securitizations that are accounted for as secured borrowings. Similar to off-balance sheet securitizations, the Company transfers a pool of loan receivables to a special purpose entity; however, these SPEs do not qualify as QSPEs and thus, are considered VIEs that are consolidated by the Company. The transferred loan receivables continue to be accounted for as loans, and the Company continues to carry an appropriate allowance for loan and lease losses for these assets. The Company receives proceeds for the issuance of debt securities, and the Company records the securitization debt in other borrowings. The investors and the trusts have no recourse to the Company’s assets if the loans associated with these secured borrowings are not paid when due. The Company has not provided any financial or other support during the periods presented that it was not previously contractually required to provide.

Principal payments on the borrowings are based on principal collections, net of losses, on the transferred auto loans. The secured borrowings accrue interest predominantly at fixed rates and mature between January 2010 and August 2011, but may mature earlier or later, depending upon the repayment of the underlying auto loans. At December 31, 2009 and 2008, $4.0 billion and $7.5 billion, respectively, of the external secured borrowings were outstanding. At December 31, 2009 and 2008, the auto loans within the trust totaled $4.2 billion and $7.8 billion. The difference primarily represents over collateralization of loans that are expected to be returned to the Company as investors receive payment of principal and the over collateralization requirement is reduced.

The Company is required to remit principal collections to the trust when the securitization transaction is scheduled to mature or earlier if an amortization event has occurred. No early amortization events related to the Company’s securitizations accounted for as secured borrowings have occurred for the years ended December 31, 2009 and 2008, respectively.

Collections of interest and fees received on securitized receivables are used to pay interest to investors, servicing and other fees, and are available to absorb the investors’ share of credit losses. Under certain conditions, some of the cash collected may be retained to ensure future payments to investors. Amounts collected in excess of the amount that is used to pay the above amounts are generally remitted to the Company.

Guarantees and Other Obligations

Manufactured Housing

The Company retains the primary obligation for certain provisions of corporate guarantees, recourse sales and clean-up calls related to the discontinued manufactured housing operations of GreenPoint Credit LLC (“GPC”) which was sold to a third party in 2004. Although the Company is the primary obligor, recourse obligations related to former GPC whole loan sales, commitments to exercise mandatory clean-up calls on certain GPC securitization transactions and servicing were transferred to a third party in the sale transaction.

The Company was required to fund letters of credit in 2004 to cover losses, and is obligated to fund future amounts under swap agreements for certain transactions. The Company also has the right to receive any funds remaining in the letters of credit after the securities are released. The amount funded under the letters of credit was $204.5 million and $220.8 at December 31, 2009 and 2008 respectively. The fair value of the expected residual balances on the funded letters of credit was $46.0 million and $11.1 million at December 31, 2009 and 2008, respectively, and is included in other assets on the Consolidated Balance Sheet. The Company’s maximum exposure under the swap agreements was $32.7 million and $37.5 million at December 31, 2009 and 2008, respectively. The value of the Company’s obligations under these swaps was $18.3 million and $20.8 million at December 31, 2009 and 2008, respectively, and is recorded in other liabilities on the Consolidated Balance Sheet.

The principal balance of manufactured housing securitization transactions where the Company is the residual interest holder was $1.5 billion and $1.7 billion as of December 31, 2009 and 2008, respectively. In the event the third party does not fulfill on its obligations to exercise the clean-up calls on certain transactions, the obligation reverts to the Company and approximately $420.3 million of loans receivable would be assumed by the Company upon its execution of the clean-up call and the Company would be required to absorb any losses on the loans receivable. There have been no instances of non-performance to date by the third party.

Management monitors the underlying assets for trends in delinquencies and related losses and reviews the purchaser’s financial strength as well as servicing performance. These factors are considered in assessing the adequacy of the liabilities established for these obligations and the valuations of the assets.

Securitization Guarantees

In connection with certain installment loan securitization transactions, the transferee (off-balance sheet special purpose entity receiving the installment loans) entered into interest rate hedge agreements (the “swaps”) with a counterparty to reduce interest rate risk associated with the transactions. In connection with the swaps, the Company entered into letter agreements guaranteeing the performance of the transferee under the swaps. If at any time the Class A invested amount equals zero and the notional amount of the swap is greater than zero resulting in an “Early Termination Date” (as defined in the securitization transaction’s Master Agreement), then (a) to the extent that, in connection with the occurrence of such Early Termination Date, the transferee is obligated to make any payments to the counterparty pursuant to the Master Agreement, the Company shall reimburse the transferee for the full amount of such payment and (b) to the extent that, in connection with the occurrence of an Early Termination Date, the transferee is entitled to receive any payment from the counterparty pursuant to the Master Agreement, the transferee will pay to the Company the amount of such payment. At December 31, 2009 and 2008, the maximum exposure to the Company under the letter agreements was approximately $3.5 million and $13.0 million respectively. These guarantees are not recorded on the balance sheet because they are grandfathered under the provisions of FASB Interpretation 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“ASC 460-10/FIN 45”).

Neither the assets and liabilities recorded on the Consolidated Balance Sheet at December 31, 2009 related to the manufactured housing securitizations nor the letter agreements associated with certain installment loan securitizations, both discussed above, are impacted by the adoption of ASU 2009-17 (ASC 810/SFAS 167) at January 1, 2010. The applicable trusts will not be consolidated and the related loans and debt securities will remain off-balance sheet.

Commitments, Contingencies and Guarantees	12 Months Ended
Commitments, Contingencies and Guarantees	Dec. 31, 2009
Statement [Line Items]
Commitments, Contingencies and Guarantees	Note 21 Commitments, Contingencies and Guarantees Letters of Credit The Company issues letters of credit (financial standby, performance standby and commercial) to meet the financing needs of its customers. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party in a borrowing arrangement. Commercial letters of credit are short-term commitments issued primarily to facilitate trade finance activities for customers and are generally collateralized by the goods being shipped to the client. Collateral requirements are similar to those for funded transactions and are established based on management’s credit assessment of the customer. Management conducts regular reviews of all outstanding letters of credit and customer acceptances, and the results of these reviews are considered in assessing the adequacy of the Company’s allowance for loan and lease losses. The Company had contractual amounts of standby letters of credit and commercial letters of credit of $1.6 billion at December 31, 2009. As of December 31, 2009, financial guarantees had expiration dates ranging from 2010 to 2020. The fair value of the guarantees outstanding at December 31, 2009 that have been issued since January 1, 2003, was $3.1 million and was included in other liabilities. Loan and Line of Credit Commitments The Company’s discontinued wholesale mortgage banking unit, GreenPoint, previously sold home equity lines of credit in whole loan sales and subsequently acquired a residual interest in certain SPEs which securitized some of those loans. Those SPEs had aggregate assets of $56.8 million at December 31, 2009, representing the amount outstanding on the home equity lines of credit at that date. As residual interest holder, GreenPoint is required to fund advances on the home equity lines of credit when certain performance triggers are met due to deterioration in asset performance. GreenPoint’s ability to recover the full amount advanced to customers is dependent on monthly collections on the loans. In certain limited circumstances, such future advances could be reduced if GreenPoint suspends the right of mortgagors to receive draws or reduces the credit limit on home equity lines of credit. There are eight securitization transactions where GreenPoint is a residual interest holder with the longest draw period currently extending through 2023. GreenPoint has funded $23.3 million of advances through December 31, 2009, of which $7.7 million was advanced in the year 2009 related to these transactions. The Company believes it is probable that a loss has been incurred on these transactions due to the deterioration in asset performance through December 31, 2009, and has written off the entire amount of the advances as incurred. The maximum potential amount of future advances related to all third-party securitizations where GreenPoint is the residual interest holder is $77.1 million, an amount which represents the total loan amount on the home equity lines of credit within those eight securitizations. The total unutilized amount as of December 31, 2009 is $20.3 million. Litigation In accordance with the provisions of SFAS No. 5, Accounting for Contingencies, (“ASC 450-20/SFAS 5”), the Company accrues for a litigation related liability when it is probable that such a liability has been incurred and the amount of the loss can be reasonably estimated. In addition, the Company’s subsidiary banks are members of Visa U.S.A., Inc. (“Visa”). As members, the Company’s subsidiary banks have indemnification obligations to Visa with respect to final judgments and settlements of certain litigation against Visa (the “Visa Covered Litigation”). The Company accounts for its indemnification obligations to Visa in accordance with the provisions of ASC 460-10/FIN 45. 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, including the Company and its subsidiaries, alleging among other things, that the defendants conspired to fix the level of interchange fees. The complaints seek injunctive relief and civil monetary damages, which could be trebled. Separately, a number of large merchants have asserted similar claims against Visa and MasterCard only. In October 2005, the class and merchant Interchange lawsuits were consolidated before the United States District Court for the Eastern District of New York for certain purposes, including discovery. Fact discovery has closed and limited expert discovery is ongoing. The parties have briefed and presented oral argument on motions to dismiss and class certification and are awaiting decisions from the court. In 2007, a number of individual plaintiffs, each purporting to represent a class of cardholders, filed antitrust lawsuits in the United States District Court for the Northern District of California against several issuing banks, including the Company (the “In Re Late Fees Litigation”). These lawsuits allege, among other things, that the defendants conspired to fix the level of late fees and over-limit fees charged to cardholders, and that these fees are excessive. In May 2007, the cases were consolidated for all purposes and a consolidated amended complaint was filed alleging violations of federal statutes and state law. The amended complaint requests civil monetary damages, which could be trebled. In November 2007, the court dismissed the amended complaint. Plaintiffs appealed that order to the Ninth Circuit Court of Appeals. The plaintiffs’ appeal challenges the dismissal of their National Bank Act, Depository Institutions Deregulation Act of 1980 and California Unfair Competition Law claims, but not their antitrust conspiracy claims. In June 2009, the Ninth Circuit Court of Appeals stayed the matter pending the bankruptcy proceedings of one of the defendant financial institutions. In November 2009, the Ninth Circuit Court of Appeals entered an additional order continuing the stay of the matter pending the bankruptcy proceedings. In January 2010, three individual plaintiffs, each purporting to represent a nationwide class of cardholders, filed lawsuits against COBNA and Capital One Services, LLC (“COSI “) challenging various marketing practices relating to the payment protection product: Sullivan v. Capital One Bank, et al, (United States District Court for the District of Connecticut); McCoy v. Capital One Bank, et al. (United States District Court for the Southern District of California); and Salazar v. Capital One Bank, et al. (United States District Court for the District of South Carolina). These three purported nationwide class actions seek a range of remedies, including compensatory damages, punitive damages, restitution, disgorgement, injunctive relief, and attorneys’ fees. COBNA and COSI have not yet filed responsive motions to any of these suits but has meritorious defenses with respect to these matters and plans to defend them vigorously. In addition, in September 2009, the United States District Court for the Middle District of Florida certified a statewide class action in Spinelli v. Capital One Bank, et al. with respect to the marketing of the payment protection product in Florida. COBNA and COSI have filed a motion for reconsideration with respect to the class certification order and are awaiting a ruling on the motion from the Court. In January 2010, the West Virginia Attorney General filed suit against COBNA and various affiliates in Mason County, West Virginia, challenging numerous credit card practices under the West Virginia Consumer Credit and Protection Act, including practices relating to the payment protection product. The West Virginia Attorney General seeks injunctive relief, consumer refunds, statutory damages, disgorgement, and attorneys’ fees. COBNA has not yet responded to the complaint but has meritorious defenses with respect to the claims and plans to defend them vigorously. Finally, COBNA is subject to formal and informal inquiries from various governmental agencies relating to the payment protection product. On February 5, 2009, GreenPoint Mortgage Funding, Inc. (“GreenPoint”), a subsidiary of Capital One Financial Corporation, was named as a defendant in a lawsuit commenced in the Supreme Court of the State of New York, New York County by U.S. Bank National Association, Syncora Guarantee Inc. (formerly known as XL Capital Assurance Inc.) and CIFG Assurance North America, Inc. Plaintiffs allege, among other things, that GreenPoint breached certain representations and warranties in two contracts pursuant to which GreenPoint sold approximately 30,000 mortgage loans having an aggregate original principal balance of approximately $1.8 billion to a purchaser that ultimately transferred most of these mortgage loans to a securitization trust. Some of the securities issued by the trust were insured by two of the plaintiffs. Plaintiffs have alleged breaches of representations and warranties with respect to a limited number of specific mortgage loans. Plaintiffs seek unspecified damages and an order compelling GreenPoint to repurchase the entire portfolio of 30,000 mortgage loans based on alleged breaches of representations and warranties relating to a limited sampling of loans in the portfolio, or, alternatively, the repurchase of specific mortgage loans to which the alleged breaches of representations and warranties relate. GreenPoint has filed a motion to dismiss the complaint on the grounds that, among other things, the plaintiffs do not have standing to bring the lawsuit and that a portfolio-wide repurchase remedy is not contractually available. The motion was argued before the Court on September 21, 2009, but a ruling has not yet been issued. Given the complexity of the issues raised by these matters and the uncertainty regarding: (i) the outcome of these matters, (ii) the likelihood and amount of any possible judgments, and (iii)with respect to the interchange lawsuits (a) the likelihood, amount and validity of any claim against the member banks, including the Company and its subsidiary banks, (b) changes in industry structure that may result from the suits and (c) the effects of these suits, in turn, on competition in the industry, member banks and interchange fees, the Company cannot determine at this time the long-term effects of these matters. In the first quarter of 2008, Visa completed an IPO of its stock. With IPO proceeds Visa established an escrow account for the benefit of member banks to fund certain litigation settlements and claims. As a result, in the first quarter of 2008, the Company reduced its Visa-related indemnification liabilities of $90.9 million recorded in other liabilities with a corresponding reduction of other non-interest expense. The Company made an ASC 825-10/SFAS 159 election on the indemnification guarantee to Visa and the fair value of the guarantee at December 31, 2009 and 2008 was zero, respectively. Other Pending and Threatened Litigation In addition, the Company is commonly subject to various pending and threatened legal actions relating to the conduct of its normal business activities. In the opinion of management, the ultimate aggregate liability, if any, arising out of any such pending or threatened legal actions will not be material to its consolidated financial position or its results of operations. On September 21, 2009, the Tax Court issued a decision in the case Capital One Financial Corporation and Subsidiaries v. Commissioner covering tax years 1995-1999, with both parties prevailing on certain issues. The time period for an appeal by each party is pending. Although the final resolution of the case is uncertain and involves unsettled areas of law, the Company has accounted for this matter applying the recognition and measurement criteria of FIN No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“ASC 740-10/FIN 48”). See “Note 18- Income Taxes” for further information regarding the financial statement impact of the decision.

Other Variable Interest Entities

12 Months Ended

Dec. 31, 2009

Other Variable Interest Entities

Note 22

Other Variable Interest Entities

The Company has various types of off-balance sheet arrangements that we enter into in the ordinary course of business. Off-balance sheet activities typically utilize SPEs that may be in the form of limited liability companies, partnerships or trusts. The SPEs raise funds by issuing debt to third party investors. The SPEs hold various types of financial assets whose cash flows are the primary source of repayment for the liabilities of the SPE. Investors only have recourse to the assets held by the SPE but may also benefit from other credit enhancements.

The Company is involved with various SPEs that are considered to be VIEs, as defined by ASC 810-10/FIN 46(R). With respect to its investments, the Company is required to consolidate any VIE in which it is determined to be the primary beneficiary. The Company reviews all significant interests in VIEs it is involved with such as amounts and types of financial and other support including ownership interests, debt financing and guarantees. The Company also considers its rights and obligations as well as the rights and obligations of other variable interest holders to determine whether it is required to consolidate the VIEs. To provide the necessary disclosures, the Company aggregates similar VIEs based on the nature and purpose of the entities.

ASU 2009-17 (ASC 810/SFAS 167) eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity, which was based on determining which enterprise absorbs the majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both. Under ASU 2009-17 the primary beneficiary would be the entity that has (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. ASU 2009-17 is effective for the Company’s annual reporting period beginning January 1, 2010.

Upon adoption of ASU 2009-17 (ASC 810/SFAS 167), the Company will be required to consolidate certain VIE structures previously accounted for as investments in an unconsolidated entity under the equity method of accounting. The Company does not expect the financial statement impact to be material.

The Company’s involvement in these arrangements can take many different forms, including securitization activities, servicing activities, the purchase or sale of mortgage-backed securities (“MBS”) and other asset-backed securities (“ABS”) in connection with our investment portfolio, and loans to VIEs that hold debt, equity, real estate or other assets. In certain instances, the Company also provides guarantees to VIEs or holders of variable interests in VIEs. In addition to the information contained in this Note, the Company has disclosed its involvement with other types of VIEs in “Note 15—Mortgage Servicing Rights”, “Note 20-Securitizations” and “Note 21- Commitments, Contingencies and Guarantees”.

The Company may purchase and sell mortgage-backed securities and other asset-backed securities related to its investment portfolio. The Company’s investment portfolio consists of collateralized mortgage obligations (“CMO”), MBS and ABS investments that were issued by QSPEs or VIEs that are subject to the requirements of ASC 810-10/FIN 46(R). The Company’s variable interest in these structures is limited to high quality or investment grade securities and the Company does not hold subordinate residual interests or enter into other guarantees or liquidity agreements with these structures. The Company records its investment securities at fair value and has no other loss exposure over and above the recorded fair value. The Company is not considered to be the primary beneficiary and the Company does not hold a significant interest in any specific structure.

As part of its community reinvestment initiatives, the Company invests in private investment funds that hold ownership interests in VIEs or provide debt financing to VIEs to support multi-family affordable housing properties. The Company receives affordable housing tax credits for these investments. The activities of these entities are financed with a combination of invested equity capital and debt. The assets of these entities at December 31, 2009 and December 31, 2008 were approximately $7.3 billion and $5.2 billion, respectively. The Company is not required to consolidate these entities because it does not absorb the majority of the entities’ expected losses nor does it receive a majority of the entities’ expected residual returns. The Company records its interests in these unconsolidated VIEs in loans held for investment, other assets and other liabilities. As referenced in the table below, the Company’s maximum exposure to these entities is limited to its variable interests in the entities. The creditors of the VIEs have no recourse to the general credit of the Company. The Company has not provided additional financial or other support during the period that it was not previously contractually required to provide.

The Company holds variable interests in entities (“Investor Entities”) that invest in community development entities (“CDEs”) that provide debt financing to businesses and non-profit entities in low-income and rural communities. Investments of the consolidated Investor Entities are also variable interests of the Company. The activities of the Investor Entities are financed with a combination of invested equity capital and debt. The activities of the CDEs are financed solely with invested equity capital. The Company receives federal and state tax credits for these investments. The Company consolidates the VIEs for which it absorbs the majority of the entities’ expected losses or receives a majority of the entities’ expected residual returns. The assets of the entities consolidated by the Company at December 31, 2009 and December 31, 2008 were approximately $155.4 million and $135.7 million, respectively. The assets and liabilities of these consolidated VIEs were recorded in cash, loans held for investment, interest receivable, other assets and other liabilities. The assets of the entities that the Company held a significant interest in but were not required to consolidate at December 31, 2009 and December 31, 2008 were approximately $58.4 million and $46.6 million, respectively. The Company records its interests in these unconsolidated VIEs in loans held for investment and other assets. As referenced in the table below, the Company’s maximum exposure to these entities is limited to its variable interests in the entities. The creditors of the VIEs have no recourse to the general credit of the Company. The Company has not provided additional financial or other support during the period that it was not previously contractually required to provide.

The Company also has a variable interest in a trust that is included in the other unconsolidated VIEs in the table below. The trust has a royalty interest in certain oil and gas properties. The activities of the trust are financed solely with debt. The assets of the trust at December 31, 2009 and December 31, 2008 were approximately $429.9 million and $538.5 million, respectively. The Company is not required to consolidate the trust because it does not absorb the majority of the trust’s expected losses nor does it receive a majority of the trust’s expected residual returns. The Company records its interest in the trust in loans held for investment. As referenced in the table below, the Company’s maximum exposure to the trust is limited to its variable interest. The creditors of the trust have no recourse to the general credit of the Company. The Company has not provided additional financial or other support during the period that it was not previously contractually required to provide.

The following table presents the carrying amount of assets and liabilities of those VIEs for which the Company is the primary beneficiary and the carrying amount of assets and liabilities and maximum exposure to loss of those VIEs of which the Company is not the primary beneficiary, but holds a significant variable interest.


	Consolidated⁽¹⁾				Unconsolidated
	Carrying Amount of Assets		Carrying Amount of Liabilities		Carrying Amount of Assets		Carrying Amount of Liabilities		Maximum Exposure to Loss⁽²⁾⁽³⁾
Variable interest entities, December 31, 2009
Affordable housing entities	$	—	$	—	$	1,401,080	$	638,442	$	1,401,080
Entities that provide capital to low-income and rural communities		155,444		—		58,375		1,623		58,375
Other		—		—		202,943		—		202,943

Total variable interest entities	$	155,444	$	—	$	1,662,398	$	640,065	$	1,662,398

Variable interest entities, December 31, 2008
Affordable housing entities	$	—	$	—	$	971,151	$	554,605	$	971,151
Entities that provide capital to low-income and rural communities		135,736		—		46,558		—		46,558
Other		—		—		246,038		—		246,038

Total variable interest entities	$	135,736	$	—	$	1,263,747	$	554,605	$	1,263,747

(1)	The Company consolidates a VIE when it is the primary beneficiary that will absorb the majority of the expected losses, majority of the expected residual returns or both.

(2)	The maximum exposure to loss represents the amount of loss the Company would incur in the unlikely event that all of the Company’s assets in the VIEs became worthless.

(3)	The Company’s maximum exposure to loss is limited to the carrying amount of assets because the Company is not required to provide any support to these entities other than what it was previous contractually required to provide.

Regulatory Matters

12 Months Ended

Dec. 31, 2009

Regulatory Matters

Note 23

Regulatory Matters

The Company is subject to capital adequacy guidance adopted by the Federal Reserve Board (the “Federal Reserve”), and CONA and COBNA (collectively, the “Banks”) are subject to capital adequacy guidelines adopted by the Office of the Comptroller of the Currency (the “OCC”, and with the Federal Reserve, collectively, the “regulators”). The capital adequacy guidelines set minimum risk-based and leverage capital requirements that are based on quantitative and qualitative measures of their assets and off-balance sheet items. The Federal Reserve holds the Corporation to similar minimum capital requirements. Failure to meet minimum capital requirements can result in possible additional, discretionary actions by a federal banking agency that, if undertaken, could have a material adverse effect on the Corporation’s consolidated financial statements. The Company is also subject to minimum cash reserve requirements by the Federal Reserve totaling approximately $900 million as of December 31, 2009.

As of December 31, 2009, the Banks each exceeded the minimum regulatory requirements to which it was subject. The Banks were considered “well-capitalized” under applicable capital adequacy guidelines. Also as of December 31, 2009, the Corporation was considered “well-capitalized” under Federal Reserve capital standards for bank holding companies and, therefore, exceeded all minimum capital requirements. There have been no conditions or events since that we believe would have changed the capital category of the Corporation or either of the Banks.


	Regulatory Filing Basis Ratios		Applying Subprime Guidance Ratios		Minimum for Capital Adequacy Purposes		To Be “Well Capitalized” Under Prompt Corrective Action Provisions
December 31, 2009
Capital One Financial Corp.⁽¹⁾
Tier 1 Capital	13.75	%	13.04	%	4.00	%	N/A
Total Capital	17.70		16.85		8.00		N/A
Tier 1 Leverage	10.28		10.28		4.00		N/A
Capital One Bank (USA) N.A.
Tier 1 Capital	18.27	%	14.67	%	4.00	%	6.00	%
Total Capital	26.40		21.41		8.00		10.00
Tier 1 Leverage	13.03		13.03		4.00		5.00
Capital One, N.A.
Tier 1 Capital	10.22	%	N/A		4.00	%	6.00	%
Total Capital	11.46		N/A		8.00		10.00
Tier 1 Leverage	7.42		N/A		4.00		5.00
December 31, 2008
Capital One Financial Corp.⁽¹⁾
Tier 1 Capital	13.81	%	12.81	%	4.00	%	N/A
Total Capital	16.65		15.53		8.00		N/A
Tier 1 Leverage	11.17		11.17		4.00		N/A
Capital One Bank (USA) N.A.
Tier 1 Capital	13.02	%	9.99	%	4.00	%	6.00	%
Total Capital	15.65		12.26		8.00		10.00
Tier 1 Leverage	11.79		11.79		4.00		5.00
Capital One, N.A.
Tier 1 Capital	10.50	%	N/A		4.00	%	6.00	%
Total Capital	11.82		N/A		8.00		10.00
Tier 1 Leverage	7.81		N/A		4.00		5.00

(1)	The regulatory framework for prompt corrective action is not applicable for bank holding companies.

COBNA treats a portion of its loans as “subprime” under the Guidelines issued by the four federal banking agencies that comprise the Federal Financial Institutions Examination Council (“FFIEC”), and has assessed its capital and allowance for loan and lease losses accordingly. Under the Guidelines, COBNA exceeds the minimum capital adequacy guidelines as of December 31, 2009.

For purposes of the Guidelines, the Corporation has treated as subprime all loans in COBNA’s targeted “subprime” programs to customers either with a FICO score of 660 or below or with no FICO score. COBNA holds on average 200% of the total risk-based capital charge that would otherwise apply to such assets. This results in higher levels of regulatory capital at COBNA.

Additionally, regulatory restrictions exist that limit the ability of COBNA and CONA to transfer funds to the Corporation. As of December 31, 2009, funds available for dividend payments from COBNA and CONA were $798.0 million and zero, respectively. The funds of COBNA are available for payment as dividends to the Corporation without prior approval of the OCC while a dividend payment by CONA would require prior approval of the OCC.

In December 2009, the OCC and the Federal Reserve announced a proposed rule regarding capital requirements related to the adoption of ASU 2009-16 and ASU 2009-17. Under the proposal, the Company and its subsidiary banks will be required to hold additional capital in relation to the consolidated assets and any associated creation of loan loss reserves. The rule provides for a phase-in of the capital requirements in the form of an optional two-quarter delay in implementation, followed by an optional two-quarter partial implementation. A final rule was ratified on January 21, 2010, with only minor amendments to the December proposal. See “Note 1- Significant Accounting Policies” for the pro forma financial statement impacts.

Significant Concentration of Credit Risk

12 Months Ended

Dec. 31, 2009

Significant Concentration of Credit Risk

Note 24

Significant Concentration of Credit Risk

The Company is active in originating loans in the United States and internationally. International loans are originated in Canada and the United Kingdom. The Company reviews each potential customer’s credit application and evaluates the applicant’s financial history and ability and willingness to repay. Loans are made on an unsecured and secured basis. Certain commercial, small business, mortgage and automobile loans require collateral in various forms including cash deposits, automobiles and real estate, as appropriate. The Company has higher concentrations of loans where the Commercial and Consumer Banking segments operate, the South and Northeast regions of the U.S. In particular, the Company’s commercial portfolio is concentrated in the New York metropolitan area. The regional economic conditions in the New York area affect the demand for the Company’s commercial products and services as well as the ability of our customers to repay their commercial loans and the value of the collateral securing these loans.

The geographic distribution of the Company’s loans was as follows:


	December 31
	2009					2008
	Loans			Percentage of Total		Loans			Percentage of Total
Geographic Region:
International
U.K.	$	4,716,981		3.45	%	$	5,527,237		3.76	%
Canada		3,506,854		2.56	%		3,193,405		2.17	%

Total International		8,223,835		6.01	%		8,720,642		5.93	%
Domestic
South		49,170,769		35.94	%		53,572,725		36.46	%
West		22,842,140		16.70	%		23,662,269		16.10	%
Midwest		17,973,051		13.14	%		19,900,704		13.55	%
Northeast		38,593,107		28.21	%		41,080,414		27.96	%

Total Domestic		128,579,067		93.99	%		138,216,112		94.07	%

		136,802,902		100.00	%		146,936,754		100.00	%
Less securitization adjustments		(46,183,903	)				(45,918,983	)

Total	$	90,618,999				$	101,017,771

International Activities

12 Months Ended

Dec. 31, 2009

International Activities

Note 25

International Activities

The Company’s international activities are primarily performed through Capital One Bank (Europe) plc, a subsidiary bank of COBNA that provides consumer lending and other financial products in Europe and Capital One Bank—Canada Branch, a foreign branch office of COBNA that provides consumer lending products in Canada. The total assets, revenue, income before income taxes and net income of the international operations are summarized below.


	2009			2008			2007
Domestic
Total Assets	$	165,840,488		$	161,665,713		$	145,033,862
Revenue⁽¹⁾		12,282,073			12,960,673			13,322,220
Income from continuing operations before income taxes		1,230,621			529,211			3,686,462
Income from continuing operations, net of tax		909,819			44,363			2,465,718
Loss from discontinued operations, net of tax		(102,836	)		(130,515	)		(1,021,387	)

Net Income (Loss)		806,983			(86,152	)		1,444,331


International
Total Assets		3,805,875			4,247,739			5,556,507
Revenue⁽¹⁾		701,194			932,013			1,261,848
Income before income taxes		105,481			52,408			183,094

Net Income		76,798			40,154			126,001


Total Company
Total Assets	$	169,646,363		$	165,913,452		$	150,590,369
Revenue⁽¹⁾		12,983,267			13,892,686			14,584,068
Income from continuing operations before income taxes		1,336,102			581,619			3,869,556
Income from continuing operations, net of tax		986,617			84,517			2,591,719
Loss from discontinued operations, net of tax		(102,836	)		(130,515	)		(1,021,387	)

Net Income (Loss)	$	883,781		$	(45,998	)	$	1,570,332

(1)	Revenue is net interest income plus non-interest income.

The Company maintains its books and records on a legal entity basis for the preparation of financial statements in conformity with U.S. GAAP. Because certain international operations are integrated with many of the Company’s domestic operations, estimates and assumptions have been made to assign certain expense items between domestic and foreign operations.

Related Party Transactions	12 Months Ended
Related Party Transactions	Dec. 31, 2009
Statement [Line Items]
Related Party Transactions	Note 26 Related Party Transactions In the ordinary course of business, executive officers, directors, and principal shareholders, also known as Regulation O Insiders, of the Company may have loans issued by the Company. Pursuant to the Company’s policy, such loans are issued on the same terms as those prevailing at the time for comparable loans to unrelated persons and do not involve more than the normal risk of collectibility. At December 31, 2009 the Company determined that a commercial real estate loan with outstanding principal of $37.5 million, of which a director is an indirect member of the borrowing group, was subject to doubt as to the ability of such borrowers to comply with the present loan repayment terms. Based on the value of the underlying collateral, which was in excess of the outstanding loan balance, the Company determined that a specific reserve was not necessary at December 31, 2009.

Capital One Financial Corporation (Parent Company Only)

12 Months Ended

Dec. 31, 2009