Edgar Filing: CAPITAL ONE FINANCIAL CORP

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2006.

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED).

For the transition period from to

Commission File No. 1-13300

CAPITAL ONE FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


Delaware				54-1719854
(State or Other Jurisdiction of Incorporation or Organization)				(I.R.S. Employer Identification No.)

1680 Capital One Drive McLean, Virginia				22102
(Address of Principal Executive Offices)				(Zip Code)

(703) 720-1000

Registrant’s telephone number, including area code:

(Not applicable)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b of the Exchange Act. (Check One):


Large accelerated filer x		Accelerated filer ¨		Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes ¨ No x

As of August 1, 2006 there were 306,124,715 shares of the registrant’s Common Stock, par value $.01 per share, outstanding.

CAPITAL ONE FINANCIAL CORPORATION

FORM 10-Q

INDEX

June 30, 2006


		Page
PART 1. FINANCIAL INFORMATION		3

Item 1	Financial Statements (unaudited):	3

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Income	4

	Condensed Consolidated Statements of Changes in Stockholders’ Equity	5

	Condensed Consolidated Statements of Cash Flows	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3	Quantitative and Qualitative Disclosure of Market Risk	58

Item 4	Controls and Procedures	58

PART 2. OTHER INFORMATION		59

Item 1	Legal Proceedings	59

Item 1A	Risk Factors	59

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	70

Item 5	Other Information	70

Item 6	Exhibits	71

	Signatures	74

Part 1. Financial Information

Item 1. Financial Statements (unaudited)

CAPITAL ONE FINANCIAL CORPORATION

Condensed Consolidated Balance Sheets (unaudited)

(Dollars in thousands, except share and per share data) (unaudited)


	June 30 2006			December 31 2005
Assets:
Cash and due from banks	$	1,388,384		$	2,022,175
Federal funds sold and resale agreements		339,613			1,305,537
Interest-bearing deposits at other banks		870,049			743,555

Cash and cash equivalents		2,598,046			4,071,267
Securities available for sale		15,292,446			14,350,249
Loans		60,602,803			59,847,681
Less: Allowance for loan losses		(1,765,000	)		(1,790,000	)

Net loans		58,837,803			58,057,681
Accounts receivable from securitizations		4,818,512			4,904,547
Premises and equipment, net		1,467,922			1,191,406
Interest receivable		526,267			563,542
Goodwill		3,933,621			3,906,399
Other		2,055,569			1,656,320

Total assets	$	89,530,186		$	88,701,411

Liabilities:
Non-interest bearing deposits	$	4,487,837		$	4,841,171
Interest-bearing deposits		42,698,976			43,092,096

Total deposits		47,186,813			47,933,267
Senior and subordinated notes		5,490,690			6,743,979
Other borrowings		16,836,398			15,534,161
Interest payable		349,091			371,681
Other		3,770,131			3,989,409

Total liabilities		73,633,123			74,572,497

Stockholders’ Equity:
Preferred stock, par value $.01 per share; authorized 50,000,000 shares, none issued or outstanding		—			—
Common stock, par value $.01 per share; authorized 1,000,000,000 shares, 306,007,266 and 302,786,444 issued as of June 30, 2006 and December 31, 2005, respectively		3,060			3,028
Paid-in capital, net		7,151,376			6,848,544
Retained earnings		8,797,836			7,378,015
Cumulative other comprehensive income		60,127			6,129
Less: Treasury stock, at cost; 2,128,480 and 2,025,160 shares as of June 30, 2006 and December 31, 2005, respectively		(115,336	)		(106,802	)

Total stockholders’ equity		15,897,063			14,128,914

Total liabilities and stockholders’ equity	$	89,530,186		$	88,701,411

See Notes to Condensed Consolidated Financial Statements.

CAPITAL ONE FINANCIAL CORPORATION

Condensed Consolidated Statements of Income

(Dollars in thousands, except per share data) (unaudited)


	Three Months Ended June 30				Six Months Ended June 30
	2006		2005		2006		2005
Interest Income:
Loans, including past-due fees	$	1,616,937	$	1,190,098	$	3,229,559	$	2,374,134
Securities available for sale		167,804		91,245		332,904		181,409
Other		112,416		70,557		213,276		132,625

Total interest income		1,897,157		1,351,900		3,775,739		2,688,168

Interest Expense:
Deposits		416,232		279,438		819,841		543,463
Senior and subordinated notes		84,707		104,593		179,061		219,073
Other borrowings		199,136		95,366		372,878		192,608

Total interest expense		700,075		479,397		1,371,780		955,144

Net interest income		1,197,082		872,503		2,403,959		1,733,024
Provision for loan losses		362,445		291,600		532,715		551,231

Net interest income after provision for loan losses		834,637		580,903		1,871,244		1,181,793

Non-Interest Income:
Servicing and securitizations		1,025,506		996,043		2,179,110		1,929,980
Service charges and other customer-related fees		413,398		360,410		849,129		761,596
Interchange		131,538		132,068		251,029		255,508
Other		139,471		93,475		288,896		150,891

Total non-interest income		1,709,913		1,581,996		3,568,164		3,097,975

Non-Interest Expense:
Salaries and associate benefits		536,465		442,101		1,052,609		875,602
Marketing		356,695		277,034		680,466		588,793
Communications and data processing		172,734		138,916		341,938		281,735
Supplies and equipment		113,028		83,661		211,212		170,107
Occupancy		52,753		40,209		102,130		58,110
Other		449,222		353,696		866,021		689,102

Total non-interest expense		1,680,897		1,335,617		3,254,376		2,663,449

Income before income taxes		863,653		827,282		2,185,032		1,616,319
Income taxes		311,066		296,164		749,106		578,639

Net income	$	552,587	$	531,118	$	1,435,926	$	1,037,680

Basic earnings per share	$	1.84	$	2.10	$	4.79	$	4.18

Diluted earnings per share	$	1.78	$	2.03	$	4.64	$	4.02

Dividends paid per share	$	0.03	$	0.03	$	0.05	$	0.05

See Notes to Condensed Consolidated Financial Statements.

CAPITAL ONE FINANCIAL CORPORATION

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands, except per share data) (unaudited)


	Common Stock			Paid-In Capital, Net		Retained Earnings			Cumulative Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders’ Equity
	Shares	Amount		Paid-In Capital, Net		Retained Earnings			Cumulative Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders’ Equity
Balance, December 31, 2004	248,354,259	$	2,484	$	2,711,327	$	5,596,372		$	144,759		$	(66,753	)	$	8,388,189
Comprehensive income:
Net income	—		—		—		1,037,680			—			—			1,037,680
Other comprehensive loss, net of income tax benefit:
Unrealized losses on securities, net of income tax benefit of $4,858	—		—		—		—			(7,935	)		—			(7,935	)
Foreign currency translation adjustments	—		—		—		—			(66,430	)		—			(66,430	)
Unrealized gains on cash flow hedging instruments, net of income taxes of $4,010	—		—		—		—			4,630			—			4,630

Other comprehensive loss	—		—		—		—			(69,735	)		—			(69,735	)

Comprehensive income																967,945
Cash dividends—$.05 per share	—		—		—		(13,323	)		—			—			(13,323	)
Purchases of treasury stock	—		—		—		—			—			(2,943	)		(2,943	)
Issuances of common and restricted stock, net of forfeitures	11,309,024		113		759,903		—			—			—			760,016
Exercise of stock options, and related tax benefits	5,375,876		53		238,834		—			—			—			238,887
Compensation expense for equity instruments	—		—		73,010		—			—			—			73,010

Balance, June 30, 2005	265,039,159	$	2,650	$	3,783,074	$	6,620,729		$	75,024		$	(69,696	)	$	10,411,781

Balance, December 31, 2005	302,786,444	$	3,028	$	6,848,544	$	7,378,015		$	6,129		$	(106,802	)	$	14,128,914
Comprehensive income:
Net income	—		—		—		1,435,926			—			—			1,435,926
Other comprehensive income, net of income tax:
Unrealized losses on securities, net of income tax benefit of $59,673	—		—		—		—			(103,968	)		—			(103,968	)
Foreign currency translation adjustments	—		—		—		—			131,661			—			131,661
Unrealized gains on cash flow hedging instruments, net of income taxes of $15,788	—		—		—		—			26,305			—			26,305

Other comprehensive income	—		—		—		—			53,998			—			53,998

Comprehensive income																1,489,924
Cash dividends—$.0.05 per share	—		—		—		(16,105	)		—			—			(16,105	)
Purchase of treasury stock	—		—		—		—			—			(8,534	)		(8,534	)
Issuances of common and restricted stock, net of forfeitures	639,993		6		16,425		—			—			—			16,431
Exercise of stock options and related tax benefits	2,580,829		26		199,780		—			—			—			199,806
Compensation expense for equity instruments	—		—		86,627		—			—			—			86,627

Balance, June 30, 2006	306,007,266	$	3,060	$	7,151,376	$	8,797,836		$	60,127		$	(115,336	)	$	15,897,063

See Notes to Condensed Consolidated Financial Statements.

CAPITAL ONE FINANCIAL CORPORATION

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands) (unaudited)


	Six Months Ended June 30,
	2006			2005
Operating Activities:
Net Income	$	1,435,926		$	1,037,680
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses		532,715			551,231
Depreciation and amortization, net		254,220			196,516
Reparation of impairment of long-lived assets		—			(14,938	)
Losses on sales of securities available for sale		25,596			5,403
Gains on sales of auto loans		(22,875	)		(6,618	)
Losses on repurchase of senior notes		—			12,444
Stock plan compensation expense		102,707			73,010
Changes in assets and liabilities, net of effects from purchase of companies acquired:
Decrease (increase) in interest receivable		37,275			(21,690	)
Decrease (increase) in accounts receivable from securitizations		89,502			(449,751	)
Increase in other assets		(186,162	)		(82,558	)
(Decrease) increase in interest payable		(20,484	)		12,906
(Decrease) increase in other liabilities		(242,546	)		129,986

Net cash provided by operating activities		2,005,874			1,443,621

Investing Activities:
Purchases of securities available for sale		(4,462,735	)		(1,410,129	)
Proceeds from maturities of securities available for sale		1,797,173			574,659
Proceeds from sales of securities available for sale		1,523,455			578,065
Proceeds from sale of automobile loans		—			257,230
Proceeds from securitization of consumer loans		6,903,738			4,008,213
Net increase in consumer loans		(8,521,384	)		(5,013,440	)
Principal recoveries of loans previously charged off		274,929			229,161
Additions of premises and equipment, net		(398,864	)		(31,403	)
Net payments for companies acquired		(22,923	)		(470,694	)

Net cash used in investing activities		(2,906,611	)		(1,278,338	)

Financing Activities:
Net (decrease) increase in deposits		(754,316	)		914,896
Net increase (decrease) in other borrowings		1,304,288			(501,391	)
Issuances of senior notes		—			1,262,035
Maturities of senior notes		(1,224,731	)		(876,567	)
Repurchases of senior notes		(31,296	)		(648,840	)
Purchases of treasury stock		(8,534	)		(2,943	)
Dividends paid		(16,105	)		(13,323	)
Net proceeds from issuances of common stock		16,431			760,016
Proceeds from exercise of stock options		141,779			115,711

Net cash (used in) provided by financing activities		(572,484	)		1,009,594

(Decrease) increase in cash and cash equivalents		(1,473,221	)		1,174,877
Cash and cash equivalents at beginning of period		4,071,267			1,411,211

Cash and cash equivalents at end of period	$	2,598,046		$	2,586,088

See Notes to Condensed Consolidated Financial Statements.

CAPITAL ONE FINANCIAL CORPORATION

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share data) (unaudited)

Note 1

Significant Accounting Policies

Business

The condensed consolidated financial statements include the accounts of Capital One Financial Corporation (the “Corporation”) and its subsidiaries. The Corporation is a diversified financial services company whose subsidiaries market a variety of financial products and services to consumers. The principal subsidiaries are Capital One Bank (the “Bank”), which offers credit card products and deposit products, Capital One, F.S.B. (the “Savings Bank”), which offers consumer and commercial lending and consumer deposit products, Capital One Auto Finance, Inc. (“COAF”), which offers automobile and other motor vehicle financing products and Capital One, National Association (the “National Bank”) which offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients. Capital One Services, Inc. (“COSI”), another subsidiary of the Corporation, provides various operating, administrative and other services to the Corporation and its subsidiaries. The Corporation and its subsidiaries are collectively referred to as the “Company.”

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires 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.

Operating results for the six months ended June 30, 2006 are not necessarily indicative of the results for the year ending December 31, 2006.

The notes to the consolidated financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 2005 should be read in conjunction with these condensed consolidated financial statements.

All significant intercompany balances and transactions have been eliminated.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109, (“FIN 48”). FIN 48 clarifies the accounting treatment for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This interpretation 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. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Management is currently assessing the impact of FIN 48 on the financial position and results of operations of the Company.

In March 2006, the FASB issued Statement of Financial Accounting Standard No. 156, Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140, (“SFAS 156”). SFAS 156 amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, (“SFAS 140”), with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in certain situations prescribed by SFAS 156. All separately recognized servicing assets and servicing liabilities are to be initially measured at fair value, if practicable, and SFAS 156 permits an entity to choose either the amortization method or fair value measurement method for subsequent measurement methods for each class of separately recognized servicing assets and servicing liabilities. SFAS 156 is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006. The requirements for recognition and initial measurement of servicing assets and servicing liabilities should be applied prospectively to all transactions after the effective date of this statement. The adoption of SFAS 156 is not expected to have a material impact on the consolidated earnings or financial position of the Company.

In February 2006, the FASB issued Statement of Financial Accounting Standard No. 155, Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140, (“SFAS 155”). SFAS 155 amends FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, (“SFAS 133”) and SFAS 140. SFAS 155 resolves issues addressed in SFAS 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” SFAS 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The adoption of SFAS 155 is not expected to have a material impact on the consolidated earnings or financial position of the Company.

In December 2004, the FASB issued Statement of Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment, (“SFAS 123(R)”) which requires compensation cost related to share-based payment transactions to be recognized in the financial statements, and that the cost be measured based on the fair value of the equity or liability instruments issued. At June 30, 2006, the Company has two active stock-based compensation plans: one employee plan and one non-employee director plan, which are described more fully in Note 6. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123(R) using the modified-prospective-transition method. Under

that transition method, compensation cost recognized during the six months ended June 30, 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair valued estimated in accordance with the provisions of SFAS 123(R). The Company voluntarily adopted the expense recognition provisions of Statement of Financial Accounting Standard No. 123, Accounting for Stock Based Compensation (“SFAS 123”), prospectively to all awards granted, modified, or settled after January 1, 2003. Prior to January 1, 2003, the Company applied Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related Interpretations in accounting for its stock based compensation plans. Results for prior periods have not been restated. The adoption of SFAS 123(R) did not have a material impact on the consolidated earnings or financial position of the Company.

Note 2

Business Combinations

Hibernia Corporation

On November 16, 2005, the Company acquired 100% of the outstanding common stock of Hibernia Corporation (“Hibernia”), a financial holding company with operations in Louisiana and Texas. Hibernia offers a variety of banking products and services, including consumer, commercial and small business loans and demand and term deposit accounts.

The acquisition was accounted for under the purchase method of accounting, and, as such, the assets and liabilities of Hibernia were recorded at their respective fair values as of November 16, 2005. The results of Hibernia’s operations were included in the Company’s Consolidated Statement of Income commencing November 16, 2005.

The total consideration of approximately $5.0 billion, which includes the value of outstanding stock options, was settled through the issuance of 32.9 million shares of the Company’s common stock and payment of $2.2 billion in cash. Under the terms of the transaction, each share of Hibernia common stock was exchanged for $30.46 in cash or 0.3792 shares of the Company’s common stock or a combination of common stock and cash based on the aforementioned conversion rates, based on the average of the closing prices on the NYSE of the Company’s common stock during the five trading days ending the day before the completion of the acquisition, which was $80.32. The allocation of the final purchase price is still subject to refinement as the integration process continues and additional information becomes available.


Costs to acquire Hibernia:
Capital One common stock issued	$	2,606,375
Cash consideration paid		2,231,039
Fair value of employee stock options		104,577
Investment banking, legal, and consulting fees		29,596

Total consideration paid for Hibernia	$	4,971,587

The following unaudited pro forma condensed statements of income assume that the Company and Hibernia were combined at the beginning of the period presented.


	Three Months Ended June 30		Six Months Ended June 30
	2005		2005
Net interest income	$	1,058,322	$	2,103,296
Non-interest income		1,693,745		3,323,260
Provision for loan losses		305,600		580,931
Non-interest expense		1,527,680		3,038,116
Income taxes		328,993		646,278
Minority interest, net of income taxes		33		(215	)

Net income⁽¹⁾	$	589,761	$	1,161,446

Basic earnings per share⁽²⁾	$	2.07	$	4.13
Diluted earnings per share⁽²⁾	$	2.00	$	3.97

(1)

Pro forma adjustments to net income include the following adjustments: accretion for loan fair value discount, reduction of interest income for amounts used to fund the acquisition, amortization for interest-bearing deposits fair value premium, accretion for subordinated notes fair value premium, addition of interest expense for other borrowings used to fund the acquisition, and related amortization for intangibles acquired, net of Hibernia’s historical intangible amortization expense.

(2)	Pro forma adjustments to basic and diluted earnings per share include the following adjustments to the share calculation: incremental common shares issued and dilutive impact of stock options granted in connection with the Hibernia acquisition.

Note 3

Segments

The Company maintains four distinct operating segments: U.S. Card, Auto Finance, Global Financial Services and Banking. The U.S. Card segment consists of domestic consumer credit card lending activities. The Auto Finance segment consists of automobile and other motor vehicle financing activities. The Global Financial Services segment consists of international lending activities, small business lending, installment loans, home loans, healthcare financing and other diversified activities. The Banking segment consists of local banking operations, which includes consumer, small business and commercial deposits and lending conducted within the Company’s branch network. The U.S. Card, Auto Finance, Global Financial Services and Banking segments are considered reportable segments based on quantitative thresholds applied to the managed loan portfolio for reportable segments provided by SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, and are disclosed separately. The Other category includes the Company’s liquidity portfolio, emerging businesses not included in the reportable segments, investments in external companies, and various non-lending activities. The Other category also includes the net impact of transfer pricing, certain unallocated expenses and gains/losses related to the securitization of assets.

As management makes decisions on a managed basis within each segment, information about reportable segments is provided on a managed basis. An adjustment to reconcile the managed financial information to the reported financial information in the consolidated financial statements is provided. This adjustment reclassifies a portion of net interest income, non-interest income and provision for loan losses into non-interest income from servicing and securitizations.

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


	For the Three Months Ended June 30, 2006
	U.S. Card		Auto Finance		Global Financial Services		Banking		Other			Total Managed		Securitization Adjustments (1)			Total Reported
Net interest income	$	1,120,422	$	356,237	$	445,452	$	249,228	$	(30,510	)	$	2,140,829	$	(943,747	)	$	1,197,082
Non-interest income		803,083		13,839		297,080		114,039		(28,709	)		1,199,332		510,581			1,709,913
Provision for loan losses		413,701		74,714		296,614		6,632		3,950			795,611		(433,166	)		362,445
Non-interest expenses		860,874		149,115		365,149		289,996		15,763			1,680,897		—			1,680,897
Income tax provision (benefit)		227,125		51,186		29,614		23,324		(20,183	)		311,066		—			311,066

Net income (loss)	$	421,805	$	95,061	$	51,155	$	43,315	$	(58,749	)	$	552,587	$	—		$	552,587

Loans receivable	$	48,736,483	$	20,558,455	$	25,935,716	$	13,189,112	$	13,673		$	108,433,439	$	(47,830,636	)	$	60,602,803


	For the Three Months Ended June 30, 2005
	U.S. Card		Auto Finance		Global Financial Services		Other			Total Managed		Securitization Adjustments (1)			Total Reported
Net interest income	$	1,151,692	$	285,744	$	411,825	$	(18,959	)	$	1,830,302	$	(957,799	)	$	872,503
Non-interest income		846,720		6,964		265,499		25,577			1,144,760		437,236			1,581,996
Provision for loan losses		539,211		20,330		256,766		(4,144	)		812,163		(520,563	)		291,600
Non-interest expenses		794,012		124,584		378,278		38,743			1,335,617		—			1,335,617
Income tax provision (benefit)		232,816		51,728		15,621		(4,001	)		296,164		—			296,164

Net income (loss)	$	432,373	$	96,066	$	26,659	$	(23,980	)	$	531,118	$	—		$	531,118

Loans receivable	$	46,408,912	$	14,520,216	$	22,053,145	$	(30,921	)	$	82,951,352	$	(44,340,565	)	$	38,610,787

(1)

Income statement adjustments for the three months ended June 30, 2006 reclassify the net of finance charges of $1,341.8 million, past due fees of $237.1, other interest income of $(61.6) million and interest expense of $573.5 million; and net charge-offs of $433.2 million to Non-interest income from Net interest income and Provision for loan losses, respectively.

Income statement adjustments for the three months ended June 30, 2005 reclassify the net of finance charges of $1,224.1 million, past due fees of $238.1, other interest income of $(48.0) million and interest expense of $456.4 million; and net charge-offs of $520.6 million to Non-interest income from Net interest income and Provision for loan losses, respectively.


	For the Six Months Ended June 30, 2006
	U.S. Card		Auto Finance		Global Financial Services		Banking		Other			Total Managed		Securitization Adjustments (2)			Total Reported
Net interest income	$	2,341,523	$	705,067	$	883,701	$	494,152	$	(48,644	)	$	4,375,799	$	(1,971,840	)	$	2,403,959
Non-interest income		1,578,496		14,230		580,432		218,524		29,844			2,421,526		1,146,638			3,568,164
Provision for loan losses		638,139		182,519		513,979		16,453		6,827			1,357,917		(825,202	)		532,715
Non-interest expenses		1,705,603		283,770		695,321		562,983		6,699			3,254,376		—			3,254,376
Income tax provision (benefit)		551,698		88,552		90,134		46,634		(27,912	)		749,106		—			749,106

Net income (loss)	$	1,024,579	$	164,456	$	164,699	$	86,606	$	(4,414	)	$	1,435,926	$	—		$	1,435,926

Loans receivable	$	48,736,483	$	20,558,455	$	25,935,716	$	13,189,112	$	13,673		$	108,433,439	$	(47,830,636	)	$	60,602,803


	For the Six Months Ended June 30, 2005
	U.S. Card		Auto Finance		Global Financial Services		Other			Total Managed		Securitization Adjustments (2)			Total Reported
Net interest income	$	2,402,330	$	535,251	$	824,558	$	(113,077	)	$	3,649,062	$	(1,916,038	)	$	1,733,024
Non-interest income		1,626,135		18,303		499,340		72,383			2,216,161		881,814			3,097,975
Provision for loan losses		1,028,247		112,643		445,082		(517	)		1,585,455		(1,034,224	)		551,231
Non-interest expenses		1,630,154		238,349		729,754		65,192			2,663,449		—			2,663,449
Income tax provision (benefit)		479,522		70,897		51,975		(23,755	)		578,639		—			578,639

Net income (loss)	$	890,542	$	131,665	$	97,087	$	(81,614	)	$	1,037,680	$	—		$	1,037,680

Loans receivable	$	46,408,912	$	14,520,216	$	22,053,145	$	(30,921	)	$	82,951,352	$	(44,340,565	)	$	38,610,787

(2)

Income statement adjustments for the six months ended June 30, 2006 reclassify the net of finance charges of $2,705.3 million, past due fees of $493.5, other interest income of $(123.3) million and interest expense of $1,103.7 million; and net charge-offs of $825.2 million to Non-interest income from Net interest income and Provision for loan losses, respectively.

Income statement adjustments for the six months ended June 30, 2005 reclassify the net of finance charges of $2,417.7 million, past due fees of $492.3, other interest income of $(92.5) million and interest expense of $901.5 million; and net charge-offs of $1,034.2 million to Non-interest income from Net interest income and Provision for loan losses, respectively.

During the three months ended June 30, 2006, the Company did not sell any auto loans. During the three months ended June 30, 2005, the Company sold $257.7 million of auto loans. These transactions resulted in pre-tax gains allocated to the Auto Finance segment, inclusive of allocations related to funds transfer pricing of $4.5 million for the three months ended June 30, 2005. In addition, the Company recognized an additional $17.1 million and $2.5 million in gains for higher back end performance bonuses related to prior period auto loan sales for the three month periods ended June 30, 2006 and June 30, 2005, respectively.

During the six months ended June 30, 2006, the Company did not sell any auto loans. During the six months ended June 30, 2005, the Company sold $257.7 million of auto loans. These transactions resulted in pre-tax gains allocated to the Auto Finance segment, inclusive of allocations related to funds transfer pricing of $4.5 million for the six months ended June 30, 2005. In addition, the Company recognized an additional $22.9 million and $5.0 million in gains for higher back end performance bonuses related to prior period auto loan sales for the six month period ended June 30, 2006 and June 30, 2005, respectively.

Note 4:

Comprehensive Income

Comprehensive income for the three months ended June 30, 2006 and 2005, respectively was as follows:


	Three Months Ended June 30
	2006		2005
Comprehensive Income:
Net income	$	552,587	$	531,118
Other comprehensive income, net of tax		68,275		5,282

Total comprehensive income	$	620,862	$	536,400

Note 5

Earnings Per Share

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


	Three Months Ended June 30				Six Months Ended June 30
	2006		2005		2006		2005
Numerator:
Net income	$	552,587	$	531,118	$	1,435,926	$	1,037,680

Denominator:
Denominator for basic earnings per share - Weighted-average shares		300,829		252,585		300,047		248,305
Effect of dilutive securities:
Stock options		7,987		6,602		8,324		7,757
Restricted stock		1,172		2,477		1,188		2,384

Dilutive potential common shares		9,159		9,079		9,512		10,141
Denominator for diluted earnings per share - Adjusted weighted-average shares		309,988		261,664		309,559		258,446

Basic earnings per share	$	1.84	$	2.10	$	4.79	$	4.18

Diluted earnings per share	$	1.78	$	2.03	$	4.64	$	4.02

Note 6

Stock Plans

The Company has two active stock-based compensation plans: one employee plan and one non-employee director plan. Under the plans, the Company reserves common shares for issuance in various forms including incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards and restricted stock units. The form of stock compensation is specific to each plan. Generally the exercise price of each stock option or value of each restricted stock award will equal the

fair market value of the Company’s stock on the date of grant, the maximum term will be ten years, and vesting will be 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 classified as liabilities. They are not issued out of the Company’s stock-based compensation plans because, instead of stock, 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. These 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.

Total compensation expense recognized for share based compensation during the three months ended June 30, 2006 and 2005 was $58.1 million and $47.5 million, respectively. The total income tax benefit recognized in the consolidated statement of income for share based compensation arrangements during the three months ended June 30, 2006 and 2005, was $20.3 million and $16.6 million, respectively.

Total compensation expense recognized for share based compensation during the six months ended June 30, 2006 and 2005 was $102.8 million and $76.1 million, respectively. The total income tax benefit recognized in the consolidated statement of income for share based compensation arrangements during the six months ended June 30, 2006, and 2005, was $35.9 million and $27.3 million, respectively.

Capital One recognizes compensation expense on a straight line basis over the vesting period for the entire award for any awards with graded vesting.

The following table provides the number of reserved common shares and the number of common shares available for future issuance for each of the Company’s stock-based compensation plans as of June 30, 2006:


Plan Name	Shares Reserved	Available For Issuance
2004 Stock Incentive Plan⁽¹⁾	20,000,000	13,666,786
2002 Non-Executive Officer Stock Incentive Plan⁽²⁾	8,500,000	—
1999 Stock Incentive Plan⁽²⁾	600,000	—
1994 Stock Incentive Plan⁽²⁾	67,112,640	—
1999 Non-Employee Directors Stock Incentive Plan	825,000	134,600
1995 Non-Employee Directors Stock Incentive Plan⁽³⁾	600,000	—
1997 Hibernia Long Term Incentive Plan⁽⁴⁾	1,693,000	—
2003 Hibernia Long Term Incentive Compensation Plan⁽⁴⁾	2,083,000	—
1993 Hibernia Director Stock Option Plan⁽⁴⁾	20,000	—

⁽¹⁾	Available for Issuance includes the CEO restricted stock units at their maximum amount.

⁽²⁾

The ability to issue grants out of these plans was terminated in 2004. There are currently 1,339,843 options outstanding under the 2002 Non-Executive Officer Stock Incentive Plan, 53,054 options outstanding under the 1999 Stock Incentive Plan and 15,972,363 options outstanding under the 1994 Stock Incentive Plan.

⁽³⁾	The ability to issue grants out of this plan was terminated in 1999. There are currently 122,000 options outstanding under the plan

⁽⁴⁾	In conjunction with the acquisition of Hibernia, the Company assumed three existing Hibernia stock incentive plans, under which there are 2,892,798 options outstanding and no shares available for future issuance.

A summary of the status of the Company’s options as of June 30, 2006, and changes for the three and six months then ended is presented below:


	Three Months Ended June 30, 2006							Six Months Ended June 30, 2006
	Options (000s)		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life in Years	Aggregate Intrinsic Value (000s)		Options (000s)		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life in Years	Aggregate Intrinsic Value (000s)
Outstanding at beginning of period	26,930		$	54.75				26,785		$	51.39
Granted	28			83.10				2,348			88.68
Exercised⁽¹⁾	(936	)		51.62				(2,705	)		48.46
Forfeited	(149	)		79.96				(555	)		64.17

Outstanding at end of period	25,873		$	54.79	5.52	$	801,732	25,873		$	54.79	5.52	$	801,732

Exercisable at end of period	18,651		$	47.50	4.99	$	707,932	18,651		$	47.50	4.99	$	707,932

⁽¹⁾

Cash proceeds from the exercise of stock options were $41.4 million and $118.1 million for the three and six months ended June 30, 2006, respectively. Tax benefits recognized from the exercise of stock options were $20.4 million and $44.6 million for the three and six months ended June 30, 2006, respectively.

The weighted-average grant date fair value of options granted during the three months ended June 30, 2006 and 2005 was $24.14 and $25.63, respectively. The total intrinsic value of options exercised during those same periods was $31.4 million and $47.0 million, respectively. The weighted-average grant date fair value of options granted during the six months ended June 30, 2006 and 2005 was $26.33 and $38.86, respectively. The total intrinsic value of options exercised during those same periods was $103.2 million and $321.1 million, respectively.

The fair value of the options granted was estimated at the date of grant using a Black-Scholes option-pricing model with the weighted average assumptions described below:


	For the Three Months Ended June 30				For the Six Months Ended June 30
Assumptions	2006		2005		2006		2005
Dividend yield	.13	%	.14	%	.13	%	.14	%
Volatility factors of expected market price of stock ⁽¹⁾	29	%	44	%	29	%	53	%
Risk-free interest rate	5.02	%	3.67	%	4.72	%	4.20	%
Expected option term (in years)	3.7		3.2		3.9		4.9

⁽¹⁾In December of 2005, the Company began using the implied volatility of publicly traded and over-the-counter stock options as a basis for the expected volatility assumption. Previously, expected volatility was based on historical stock price observations.

A summary of the status of the Company’s restricted stock awards as of June 30, 2006, and changes for the three and six months then ended is presented below:


	For the Three Months Ended June 30, 2006				For the Six Months Ended June 30, 2006
	Shares (000s)		Weighted-Average Grant Date Fair Value Per Share		Shares (000s)		Weighted-Average Grant Date Fair Value Per Share
Unvested at the beginning of the period	2,800		$	68.00	2,466		$	62.83
Granted	24		$	85.98	708		$	88.71
Vested	(134	)	$	82.91	(325	)	$	82.97
Cancelled	(84	)	$	68.55	(243	)	$	66.12

Unvested at the end of the period	2,606		$	68.43	2,606		$	68.43

As of June 30, 2006, there was a total of $97.4 million of unrecognized compensation cost related to unvested awards; that cost is expected to be recognized over the next 3 years. The weighted-average grant date fair value of restricted stock granted during the three months ending June 30, 2006, and 2005, was $85.98 and $70.53, respectively. The total fair value of shares vesting during those same periods was $9.8 million and $3.5 million, respectively.

The weighted-average grant date fair value of restricted stock granted during the six months ending June 30, 2006, and 2005, was $88.71 and $78.53, respectively. The total fair value of shares vesting during those same periods was $25.6 million and $8.2 million, respectively.

Cash equity units vesting during the three and six months ended June 30, 2006 resulted in cash payments to associates of $0.9 million and $18.5 million, respectively. No cash equity units vested during the six months ended June 30, 2005.

Note 7

Goodwill and Other Intangible Assets

The following table provides a summary of goodwill.


	Auto Finance		Global Financial Services		Banking		Total
Balance at December 31, 2005	$	328,192	$	389,873	$	3,188,334	$	3,906,399
Adjustments		3,795		—		19,171		22,966
Foreign Currency Translation		—		4,256		—		4,256

Balance at June 30, 2006	$	331,987	$	394,129	$	3,207,505	$	3,933,621

The addition of $19.2 million to Banking segment goodwill includes approximately $15 million added as a result of the acquisition of a remaining 50% ownership in a credit card processing company. The remaining additions to goodwill represent purchase accounting adjustments related to the acquisition of Hibernia in the fourth quarter of 2005.

In addition, in connection with the acquisition of Hibernia, the Company recorded other intangible assets which 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 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, brokerage relationships and insurance contracts. The following table summarizes the Company’s purchase accounting intangible assets subject to amortization.


	June 30, 2006
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Amortization Period
Core deposit intangibles	$	380,000	$	(45,923	)	$	334,077	10.0 years
Trust intangibles		10,500		(716	)		9,784	18.0 years
Lease intangibles		5,209		(813	)		4,396	9.6 years
Other intangibles		11,254		(1,213	)		10,041	11.5 years

Total	$	406,963	$	(48,665	)		358,298

Intangibles are generally amortized on an accelerated basis over their respective estimated useful lives. Intangible assets are recorded in Other assets on the balance sheet. Amortization expense related to purchase accounting intangibles totaled $19.4 million and $38.8 million for the three and six months ended June 30, 2006, respectively. Amortization expense for intangibles is recorded to non-interest expense. The weighted average amortization period for all purchase accounting intangibles is 10.2 years.

Note 8

Commitments, Contingencies and Guarantees

Letters of Credit and Financial Guarantees

The Company issues letters of credit and financial guarantees (“standby letters of credit”) whereby it agrees to honor certain financial commitments in the event its customers are unable to perform. The majority of the standby letters of credit consist of financial guarantees. 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 standby 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 losses.

The Company had contractual amounts of standby letters of credit of $583.1 million at June 30, 2006. As of June 30, 2006, standby letters of credit had expiration dates ranging from 2006 to 2011. The fair value of the guarantees outstanding at June 30, 2006 that have been issued since January 1, 2003, was $2.8 million and was included in other liabilities.

Industry Litigation

Over the past several years, MasterCard International and Visa U.S.A., Inc., as well as several of their member banks, have been involved in several different lawsuits challenging various practices of MasterCard and Visa.

In 1998, the United States Department of Justice filed an antitrust lawsuit against the MasterCard and Visa membership associations composed of financial institutions that issue MasterCard or Visa credit or debit cards (“associations”), alleging, among other things, that the associations had violated antitrust law and engaged in unfair practices by not allowing member banks to issue cards from competing brands, such as American Express and Discover Financial Services. In 2001, a New York district court entered judgment in favor of the Department of Justice and ordered the associations to repeal these policies. The United States Court of Appeals for the Second Circuit affirmed the district court and, on October 4, 2004, the United States Supreme Court denied certiorari in the case. In November 2004, American Express filed an antitrust lawsuit (the “Amex lawsuit”) against the associations and several member banks alleging that the associations and member banks jointly and severally implemented and enforced illegal exclusionary agreements that prevented member banks from issuing American Express and Discover cards. The complaint requests civil monetary damages, which could be trebled. The Corporation, the Bank, and the Savings Bank are named defendants in this lawsuit.

Separately, a number of entities, each purporting to represent a class of retail merchants, have also filed antitrust lawsuits (the “Interchange lawsuits”) against the associations and several member banks, including the Corporation and its subsidiaries, alleging among other things, that the associations and member banks conspired to fix the level of interchange fees. The complaints request civil monetary damages, which could be trebled. In October 2005, the Interchange lawsuits were consolidated before the United States District Court for the Eastern District of New York for certain purposes, including discovery.

We believe that we have meritorious defenses with respect to these cases and intend to defend these cases vigorously. At the present time, management is not in a position to determine whether the resolution of these cases will have a material adverse effect on either the consolidated financial position of the Corporation or the Corporation’s results of operations in any future reporting period.

policies and interchange rates for debit cards. Certain merchant plaintiffs have opted out of the settlements and have commenced separate lawsuits. Additionally, consumer class action lawsuits with claims mirroring the merchants’ allegations have been filed in several courts. Finally, the associations, as well as certain member banks, continue to face additional lawsuits regarding policies, practices, products and fees.

With the exception of the Interchange lawsuits and the Amex lawsuit, the Corporation and its subsidiaries are not parties to the lawsuits against the associations described above and therefore will not be directly liable for any amount related to any possible or known settlements of such lawsuits. However, the Corporation’s subsidiary banks are member banks of MasterCard and Visa and thus may be affected by settlements or lawsuits relating to these issues, including changes in interchange payments. In addition, it is possible that the scope of these lawsuits may expand and that other member banks, including the Corporation’s subsidiary banks, may be brought into the lawsuits or future lawsuits. The associations are also subject to additional litigation, including suits regarding foreign exchange fees.

In part as a result of such litigation, the associations are expected to continue to evolve as corporate entities, including by changing their governance structures, as previously announced by the associations. During the second quarter MasterCard successfully completed its initial public offering and Visa revised its governance structure. Both associations now rely upon independent directors for certain decisions, including the settling of interchange rates.

Given the complexity of the issues raised by these lawsuits and the uncertainty regarding: (i) the outcome of these suits, (ii) the likelihood and amount of any possible judgments, (iii) the likelihood, amount and validity of any claim against the associations’ member banks, including the banks and the Corporation, and (iv) changes in industry structure that may result from the suits and (v) the effects of these suits, in turn, on competition in the industry, member banks, and interchange and association fees, we cannot determine at this time the long-term effects of these suits on us.

Other Pending and Threatened Litigation

In addition, the Company also commonly is 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 the consolidated financial position or results of operations of the Company.

Note 9

Pending North Fork Bancorporation, Inc. Acquisition

In March 2006, the Company signed a definitive agreement to acquire North Fork Bancorporation, Inc. (“North Fork”), a bank holding company that offers a full range of banking products and financial services to both consumer and commercial customers. The Company expects to acquire North Fork in a stock and cash transaction valued on March 10, 2006, at approximately $14.6 billion. The transaction is subject to regulatory and Capital One’s and North Fork’s shareholder approvals and is expected to close in the fourth quarter of 2006. On July 7, 2006 the Securities and Exchange Commission (the “SEC”) declared effective a Registration Statement on Form S-4 that included a preliminary joint proxy statement of the Company and North Fork that also constitutes a prospectus of the Company. A special meeting of stockholders of the Company and the annual meeting of North Fork stockholders to consider and vote upon the proposal to approve the agreement and plan of merger between the Company and North Fork pursuant to which North Fork will merge with and into the Company is scheduled for August 22, 2006.

balance sheet will be marked to market upon closing of the acquisition. As interest rates increase, the market value of North Fork’s balance sheet, as measured under purchase accounting, declines which results in a temporary reduction in the tangible capital ratios of the combined entity. The position is designed to protect the Company’s tangible capital ratios from falling below a desired level. The Company’s maximum negative exposure is expected to be no more than the approximately $50 million paid to establish the current position. The derivative instruments will not be treated as designated hedges under Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities, and as such will be marked to market through the income statement until the derivatives expire or are terminated. For the three and six months ended June 30, 2006 approximately $20.8 million was recognized as a reduction to other non-interest income in the statement of income.

In May 2006, the Company entered into a syndicated bridge loan facility (“the Facility”). The Facility is available to the Company to finance, on an interim basis, the cash consideration payable to shareholders of North Fork in connection with the acquisition. The Facility is available until May 7, 2007 and borrowing under the Facility will mature on the earlier of 364 days from the date of borrowing, or December 1, 2007. The Facility size will automatically decrease by the amount of proceeds received by the Company from the issuance of securities intended to fund the cash consideration of the acquisition. After the issuance of securities discussed below, $3.2 billion is available to the Company under the Facility.

In June 2006, the Company and Capital One Capital II, a subsidiary of the Company created as a Delaware statutory business trust, issued $345.0 million aggregate principal amount of 7.5% Enhanced Trust Preferred Securities (the “Enhanced TRUPS^® “) that mature on June 15, 2066. The securities represent a preferred beneficial interest in the assets of the trust and are recorded in other borrowings in the balance sheet. For regulatory capital purposes the securities are treated as equity and serve to increase Tier 1 and Total Risk Based Capital at the holding company level.

In July 2006, the Company and Capital One Capital III, a subsidiary of the Company created as a Delaware statutory business trust, issued $650.0 million aggregate principal amount of 7.686% Capital Securities that mature on August 15, 2036. The securities represent a preferred beneficial interest in the assets of the trust and will be recorded in other borrowings in the balance sheet. For regulatory capital purposes the securities are treated as equity and serve to increase Tier 1 and Total Risk Based Capital at the holding company level.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollars in thousands) (yields and rates presented on an annualized basis)

I. Introduction

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 (the “Bank”) which currently offers credit card products and offers retail deposits, Capital One, F.S.B. (the “Savings Bank”), which offers consumer and commercial lending and consumer deposit products, Capital One, National Association (the “National Bank”) which offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients, and Capital One Auto Finance, Inc. (“COAF”) which offers automobile and other motor vehicle financing products. Capital One Services, Inc. (“COSI”), another subsidiary of the Corporation, provides various operating, administrative and other services to the Corporation and its subsidiaries. The Corporation and its subsidiaries are hereafter collectively referred to as the “Company”. As of June 30, 2006, the Company had $47.2 billion in deposits and $108.4 billion in managed loans outstanding and was one of the largest providers of MasterCard and Visa credit cards in the world.

The Company’s profitability is affected by the net interest income and non-interest income generated on earning assets, consumer usage and payment patterns, credit quality, levels of marketing expense and operating efficiency. The Company’s revenues consist primarily of interest income on consumer loans (including past-due fees) and securities and non-interest income consisting of servicing income on securitized loans, fees (such as annual membership, cash advance, overlimit and other fee income, collectively “fees”), cross-sell, interchange and gains on the securitizations of loans. Loan securitization transactions qualifying as sales under accounting principles generally accepted in the United States (“GAAP”) remove the loan receivables from the consolidated balance sheet; however, the Company continues to both own and service the related accounts. The Company generates earnings from its managed loan portfolio that includes both on-balance sheet and off-balance sheet loans. Interest income, fees, and recoveries in excess of the interest paid to investors and charge-offs generated from off-balance sheet loans are recognized as servicing and securitizations income.

The Company’s primary expenses are the costs of funding assets, provision for loan losses, operating expenses (including associate salaries and benefits), marketing expenses and income taxes. Marketing expenses (e.g., advertising, printing, credit bureau costs and postage) to implement the Company’s product strategies are expensed as incurred while the revenues resulting from acquired accounts are recognized over their life.

II. Significant Accounting Policies

See the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2005, Part I, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a summary of the Company’s significant accounting policies.

III. Reconciliation to GAAP Financial Measures

The Company’s consolidated financial statements prepared in accordance with GAAP are referred to as its “reported” financial statements. Loans included in securitization transactions which qualify as sales under GAAP have been removed from the Company’s “reported” balance sheet. However, servicing fees, finance charges, and other fees, net of charge-offs, and interest paid to investors of securitizations are recognized as servicing and securitizations income on the “reported” income statement.

The Company’s “managed” consolidated financial statements reflect adjustments made related to effects of securitization transactions qualifying as sales under GAAP. The Company generates earnings from its

“managed” loan portfolio which includes both the on-balance sheet loans and off-balance sheet loans. The Company’s “managed” income statement takes the components of the servicing and securitizations income generated from the securitized portfolio and distributes the revenue and expense to appropriate income statement line items from which it originated. For this reason, the Company believes the “managed” consolidated financial statements and related managed metrics to be useful to investors.


As of and for the three months ended June 30, 2006
(Dollars in thousands)	Total Reported		Securitization Adjustments⁽¹⁾			Total Managed⁽²⁾
Income Statement Measures
Net interest income	$	1,197,082	$	943,747		$	2,140,829
Non-interest income		1,709,913		(510,581	)		1,199,332

Total revenue		2,906,995		433,166			3,340,161
Provision for loan losses		362,445		433,166			795,611
Net charge-offs		295,844		433,166			729,010

Balance Sheet Measures
Loans	$	60,602,803	$	47,830,636		$	108,433,439
Total assets		89,530,186		47,288,672			136,818,858
Average loans		58,833,376		47,256,518			106,089,894
Average earning assets		79,025,701		45,041,097			124,066,798
Average total assets		89,643,629		46,707,317			136,350,946
Delinquencies		1,772,191		1,534,202			3,306,393

(1)

Income statement adjustments reclassify finance charges of $1,341.8 million, past-due fees of $237.1 million, other interest income of $(61.6) million and interest expense of $573.5 million; and net charge-offs of $433.2 million from Non-interest income (servicing and securitizations) to Net interest income and Provision for loan losses, respectively.

(2)	The managed loan portfolio does not include auto loans which have been sold in whole loan sale transactions where the Company has retained servicing rights.

IV. Management Summary

Summary of the Quarter ended June 30, 2006

The second quarter of 2006 reflected continued profitability and diversified loan growth.

Net income increased 4% to $552.6 million for the three month period ended June 30, 2006, while diluted earnings per share decreased 12% compared to the same period in the prior year. Contributing to the decline in earnings per share was the acquisition of Hibernia and the increased share count resulting from the issuance related to the redemption of the mandatory convertible securities in May of 2005.

Revenue growth offset by increased provision for loan losses, marketing expense and operating expenses resulted in the increase in net income. Revenue growth was driven by year over year growth in the managed loan portfolio and the acquisition of Hibernia. Although revenue increased year over year, the addition of lower yielding Hibernia loans combined with a reduction in past-due and overlimit fees resulting from the continued favorable credit environment have compressed the revenue margin. The provision for loan losses increased as a result of a build in the allowance for loan losses related to reported loan growth and continued credit quality deterioration in the U.K., however charge-offs in the U.S. continue to be lower than historical levels due to the favorable U.S. credit environment. The increase in marketing expense reflects origination opportunities in new and existing products and the conversion of Hibernia’s branches and products to the Capital One brand. Lastly, the increase in operating expenses was driven primarily by the Hibernia acquisition and infrastructure investments which include the successful conversion to a new installment loan platform and our continued progress to convert to a new card holder platform. Although operating expenses increased for the three month period ended June 30, 2006, operating expenses as a percentage of average managed assets continued to decline compared to the same period in the prior year, reflecting the Company’s improved operating efficiency.

U.S. Card loans grew 5% during the quarter. The Company also continues to achieve strong loan growth in its Auto Finance and Global Financial Services segments, which together accounted for 39% of the loan growth in the second quarter and represented 43% of managed loans at June 30, 2006. In the first quarter of 2006, the Company added a Banking segment which represents legacy Hibernia business lines, excluding the indirect auto business which moved to the Auto Finance segment and includes the Company’s branchless deposit business which moved from the Other category. The Banking segment had strong results for the second quarter with a $43.3 million contribution to net income. The Banking segment ended the second quarter with $35.3 billion in total deposits.

The Company continued to expand its lending and deposit products and its distribution channels while delivering strong results and maintaining a strong balance sheet. Total assets continue to grow and the Company continues to maintain significant levels of liquidity. Capital ratios remain well above the regulatory “well capitalized” thresholds following the acquisition of Hibernia.

Q2 2006 Significant Events

Pending North Fork Bancorporation, Inc. Acquisition

meeting of stockholders of the Company and the annual meeting of North Fork stockholders to consider and vote upon the proposal to approve the agreement and plan of merger between the Company and North Fork pursuant to which North Fork will merge with and into the Company is scheduled for August 22, 2006.

In April 2006, the Company entered into derivative instruments to mitigate certain exposures it faces as a result of the expected acquisition of North Fork. Under purchase accounting rules, North Fork’s balance sheet will be marked to market upon closing of the acquisition. As interest rates increase, the market value of North Fork’s balance sheet, as measured under purchase accounting, declines which results in a temporary reduction in the tangible capital ratios of the combined entity. The position is designed to protect the Company’s tangible capital ratios from falling below a desired level. The Company’s maximum negative exposure is expected to be no more than the approximately $50 million paid to establish the current position. The derivative instruments will not be treated as designated hedges under Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities, and as such will be marked to market through the income statement until the derivatives expire or are terminated. For the three and six months ended June 30, 2006 approximately $20.8 million was recognized as a reduction to other non-interest income in the statement of income.

In May 2006, the Company entered into a syndicated bridge loan facility (“the Facility”). The Facility is available to the Company to finance, on an interim basis, the cash consideration payable to stockholders of North Fork in connection with the acquisition. The Facility is available until May 7, 2007 and borrowing under the Facility will mature on the earlier of 364 days from the date of borrowing, or December 1, 2007. The Facility size will automatically decrease by the amount of proceeds received by the Company from the issuance of securities intended to fund the cash consideration of the acquisition. After the issuance of securities discussed below, $3.2 billion is available to the Company under the Facility.

Enhanced Trust Preferred Issuance

In June 2006, the Company and Capital One Capital II, a subsidiary of the Company created as a Delaware statutory business trust, issued $345.0 million aggregate principal amount of 7.5% Enhanced Trust Preferred Securities (the “Enhanced TRUPS^® “) that mature on June 15, 2066. The securities represent a preferred beneficial interest in the assets of the trust. For regulatory capital purposes the securities are treated as equity and serve to increase Tier 1 and Total Risk Based Capital at the holding company level.

MasterCard, Inc. Initial Public Offering

In May 2006, MasterCard, Inc. (“MasterCard”) completed an initial public offering. As part of the offering, MasterCard issued Class A common shares to the public and to The MasterCard Foundation. In addition, MasterCard exchanged new Class B common shares for shares previously held by institutions that were issuing members of MasterCard. The Company received 2,305,140 new Class B common shares upon the exchange. The Class B common shares carry certain trading restrictions for four years. Commencing on the fourth anniversary of the offering, each of the Class B common shares may be converted to Class A common shares, subject to certain rights of first refusal by the other holders of Class B common shares. The Class B common shares received carry-over basis accounting treatment, as such there was no gain or loss recorded as part of the share exchange. However, in June 2006, MasterCard exercised an option to redeem a number of the Class B common shares from issuing members. MasterCard redeemed 1,360,032 of the Company’s new Class B common shares for which the Company recognized a $20.5 million gain recoded in other non-interest income.

V. Financial Summary

Table 1 provides a summary view of the consolidated income statement and selected metrics for the Company at and for the three and six month periods ended June 30, 2006 and 2005.

Table 1: Financial Summary


	As of and for the Three Months Ended June 30									As of and for the Six Months Ended June 30
(Dollars in thousands)	2006			2005			Change			2006			2005			Change
Earnings (Reported):
Net interest income	$	1,197,082		$	872,503		$	324,579		$	2,403,959		$	1,733,024		$	670,935
Non-interest income:
Servicing and securitizations		1,025,506			996,043			29,463			2,179,110			1,929,980			249,130
Service charges and other customer-related fees		413,398			360,410			52,988			849,129			761,596			87,533
Interchange		131,538			132,068			(530	)		251,029			255,508			(4,479	)
Other		139,471			93,475			45,996			288,896			150,891			138,005

Total non-interest income		1,709,913			1,581,996			127,917			3,568,164			3,097,975			470,189

Total Revenue⁽¹⁾		2,906,995			2,454,499			452,496			5,972,123			4,830,999			1,141,124
Provision for loan losses		362,445			291,600			70,845			532,715			551,231			(18,516	)
Marketing		356,695			277,034			79,661			680,466			588,793			91,673
Operating expenses		1,324,202			1,058,583			265,619			2,573,910			2,074,656			499,254

Income before taxes		863,653			827,282			36,371			2,185,032			1,616,319			568,713
Income taxes		311,066			296,164			14,902			749,106			578,639			170,467

Net income	$	552,587		$	531,118		$	21,469		$	1,435,926		$	1,037,680		$	398,246

Common Share Statistics:
Basic EPS	$	1.84		$	2.10		$	(0.26	)	$	4.79		$	4.18		$	0.61
Diluted EPS		1.78			2.03			(0.25	)		4.64			4.02			0.62

Selected Balance Sheet Data:
Reported loans (period end)	$	60,602,803		$	38,610,787		$	21,992,016		$	60,602,803		$	38,610,787		$	21,992,016
Managed loans (period end)		108,433,439			82,951,352			25,482,087			108,433,439			82,951,352			25,482,087
Reported loans (average)		58,833,376			38,237,463			20,595,913			58,489,806			38,253,636			20,236,170
Managed loans (average)		106,089,894			82,471,828			23,618,066			105,354,135			82,114,830			23,239,305
Allowance for loan losses		1,765,000			1,405,000			360,000			1,765,000			1,405,000			360,000

Selected Company Metrics (Reported):
Return on average assets (ROA)		2.47	%		3.73	%		(1.26	)		3.22	%		3.67	%		(0.45	)
Return on average equity (ROE)		14.19			23.80			(9.61	)		19.02			24.66			(5.64	)
Net charge-off rate		2.01			3.39			(1.38	)		2.04			3.42			(1.38	)
30+ day delinquency rate		2.92			3.62			(0.70	)		2.92			3.62			(0.70	)
Net interest margin		6.06			6.75			(0.69	)		6.12			6.75			(0.63	)
Revenue margin		14.71			18.99			(4.28	)		15.21			18.81			(3.60	)

Selected Company Metrics (Managed):
Return on average assets (ROA)		1.62	%		2.11	%		(0.49	)		2.12	%		2.08	%		0.04
Net charge-off rate		2.75			4.10			(1.35	)		2.70			4.11			(1.41	)
30+ day delinquency rate		3.05			3.49			(0.44	)		3.05			3.49			(0.44	)
Net interest margin		6.90			7.78			(0.88	)		7.11			7.82			(0.71	)
Revenue margin		10.77			12.65			(1.88	)		11.04			12.56			(1.52	)

(1)

In accordance with the Company’s finance charge and fee revenue recognition policy, the amounts billed to customers but not recognized as revenue were $215.0 million and $259.8 million for the three months ended June 30, 2006 and 2005, respectively, and $385.9 and $503.7 million for the six months ended June 30, 2006 and 2005, respectively.

Summary of the Reported Income Statement

The following is a detailed description of the financial results reflected in Table 1 – Financial Summary. Additional information is provided in section XIII, Tabular Summary as detailed in sections below.

All quarterly comparisons are made between the three month period ended June 30, 2006 and the three month period ended June 30, 2005, unless otherwise indicated.

All year to date comparisons are made between the six month period ended June 30, 2006 and the six month period ended June 30, 2005, unless otherwise indicated.

Net interest income

Net interest income is comprised of interest income and past-due fees earned and deemed collectible from the Company’s loans and income earned on securities, less interest expense on interest-bearing deposits, senior and subordinated notes and other borrowings.

For the three and six month periods ended June 30, 2006, reported net interest income increased 37% and 39%, respectively, while average earning assets increased 53% in both the second quarter and year-to-date periods. Net interest income growth lagged earning asset growth due to declining loan yields, resulting from lower yielding loans added in connection with the Hibernia acquisition and organic growth in installment loans and auto loans, and a reduction in past-due fees resulting from the continued favorable credit environment. The reported net interest margin decreased 69 and 63 basis points for the three and six months periods ended June 30, 2006, respectively.

For additional information, see section XIII, Tabular Summary, Table A (Statements of Average Balances, Income and Expense, Yields and Rates) and Table B (Interest Variance Analysis).

Non-interest income

Non-interest income is comprised of servicing and securitizations income, service charges and other customer-related fees, interchange income and other non-interest income.

For the three and six month periods ended June 30, 2006, reported non-interest income increased 8% and 15%, respectively. The increase was due to increases in servicing and securitizations income, service charges and other customer-related fees, and other non-interest income. See detailed discussion of the components of non-interest income below.

Servicing and Securitizations Income

Servicing and securitizations income represents servicing fees, excess spread and other fees derived from the off-balance sheet loan portfolio, adjustments to the fair value of retained interests derived through securitization transactions, as well as gains and losses resulting from securitization and other sales transactions.

Servicing and securitizations income increased 3% and 13% for the three and six month periods ended June 30, 2006, respectively. These increases were primarily the result of 7% increases in the second quarter and year to date average off-balance sheet loan portfolio combined with increases in excess spread resulting from lower loan losses and increased recoveries in our domestic securitizations. The increase in servicing and securitizations income was offset by a $36.4 million write-down of retained interest related to the U.K. credit card securitization structure recognized in the second quarter of 2006 which resulted from the continued worsening of the U.K. loan loss outlook.

Service Charges and Other Customer-Related Fees

Excluding $86.3 million and $167.7 million contributed by the National Bank for the three and six month periods ended June 30, 2006, respectively, service charges and other customer-related fees decreased 9% and 11% for the three and six month periods ended June 30, 2006, while the quarter-to-date and year-to-date average reported loan portfolio, exclusive of the National Bank, grew 12% and 11%, respectively. The lower growth in service charges and other customer-related fee income when compared to average reported loan growth is reflective of the reported loan growth being concentrated in the Auto Finance and Global Financial Services segments that generate lower fee income as well as a reduction in overlimit fees resulting from the favorable U.S. credit environment.

Interchange

Interchange income, net of rewards expense, decreased 1% and 2% for the three and six month periods ended June 30, 2006, respectively. This decrease is primarily related to an increase in costs associated with the Company’s rewards programs offset slightly by an increase in purchase volume. Continued expansion of the rewards program during 2006 resulted in reward costs increasing 19% and 16% for the three and six months ended June 30, 2006, respectively.

Other Non-Interest Income

Other non-interest income includes, among other items, commission and fees earned by the Company’s mortgage businesses, gains and losses on sales of securities, gains and losses associated with hedging transactions, service provider revenue generated by the Company’s healthcare finance business, gains on the sale of auto loans and income earned related to purchased charged-off loan portfolios.

Excluding $22.1 million and $42.7 million contributed by the National Bank, other non-interest income increased $23.9 million and $95.3 million for the three and six month periods ended June 30, 2006, respectively. The second quarter increase is primarily the result of a $20.5 million gain from the share redemption in connection with the MasterCard, Inc. initial public offering and a $14.6 million increase in revenue related to higher back end performance bonuses related to prior period auto loan sales compared to the same periods in the prior year, offset by a $20.8 million negative fair value adjustment on the derivatives instruments entered into in anticipation of the North Fork Bank acquisition. In addition to the above, the year to date increase, compared to the same period in the prior year, resulted from a $59.8 million gain from the sale of purchased charged-off loan portfolios in 2006, offset by a $12.4 million loss recorded in connection with the extinguishment of senior notes during the first quarter of 2005.

Provision for loan losses

The provision for loan losses increased 24% for the three month period ended June 30, 2006. The increase reflects a build in the allowance for loan losses to reflect the growth in the reported loan portfolio, the continued credit quality deterioration in the U.K., offset by a decrease in charge-offs resulting from the favorable credit environment in the U.S.

The provision for loan losses remained relatively stable for the six month period ended June 30, 2006. The build in the allowance for loan losses related to reported loan growth and credit quality issues in the U.K. were fully offset by a decrease in charge-offs in the U.S.

Non-interest expense

Non-interest expense consists of marketing and operating expenses.

The 29% and 16% increases in marketing expense for the three and six month periods ended June 30, 2006, respectively, reflect origination opportunities in new and existing products and the conversion of Hibernia’s branches and products to the Capital One brand.

The 25% and 24% increases in operating expenses for the three and six month periods ended June 30, 2006 were driven primarily by the acquisition of Hibernia. The National Bank contributed $227.9 million and $448.1 million to operating expenses for the three and six month periods ended June 30, 2006, respectively. In addition, the Company made infrastructure investments which include the successful conversion to a new installment loan platform and our continued progress to convert to a new card holder platform. Although operating expenses increased for the three and six month periods ended June 30, 2006, operating expenses as a percentage of average managed assets for the three and six month periods ended June 30, 2006 fell 32 and 35 basis points, respectively, reflecting the Company’s improved operating efficiency.

Income taxes

The Company’s effective tax rate was 36.0% and 34.3% for the three and six month periods ended June 30, 2006, respectively, compared to 35.8% for both the same periods in the prior year. The effective rate includes state, federal and international income tax components. The slight increase in the rate for the three month period ended June 30, 2006 compared to the same period in the prior year was driven primarily by changes in the Company’s international tax positions. The decrease in the rate for the six month period ended June 30, 2006 compared to the same period in the prior year was primarily due to the resolution of certain tax issues and audits for the tax years 2000-2002 with the Internal Revenue Service during the first quarter of 2006.

Loan Portfolio Summary

The Company analyzes its financial performance on a managed loan portfolio basis. The managed loan portfolio is comprised of on-balance sheet and off-balance sheet loans. The Company has retained servicing rights for its securitized loans and receives servicing fees in addition to the excess spread generated from the off-balance sheet loan portfolio.

Average managed loans grew 29% and 28% for the three and six month periods ended June 30, 2006, respectively. The loan growth was primarily a result of growth in Auto Finance and Global Financial Services as well as the Hibernia acquisition which added $16.1 billion in loans.

For additional information, see section XIII, Tabular Summary, Table C (Managed Consumer Loan Portfolio).

Asset Quality

The Company’s credit risk profile is managed to maintain strong risk adjusted returns and diversification across the full credit spectrum and in each of its lending products. Certain lending products have, in some cases, higher expected delinquencies and charge-off rates. The costs associated with higher delinquency and charge-off rates are considered in the pricing of individual products.

Delinquencies

The Company believes delinquencies to be an indicator of loan portfolio credit quality at a point in time. The entire balance of an account is contractually delinquent if the minimum payment is not received by

the payment due date. Delinquencies not only have the potential to impact earnings if the account charges off, but they also result in additional costs in terms of the personnel and other resources dedicated to resolving the delinquencies.

The 30-plus day delinquency rate for the reported and managed loan portfolio decreased 70 and 44 basis points, respectively, at June 30, 2006 compared to June 30, 2005. The reduction in the reported and managed loan 30-plus day delinquency rates reflects the Company’s continued asset diversification beyond U.S. credit cards to other assets with higher credit quality and overall improved collections experience.

For additional information, see section XIII, Tabular Summary, Table E (Delinquencies).

Net Charge-Offs

Net charge-offs include the principal amount of losses (excluding accrued and unpaid finance charges and fees and fraud losses) less current period principal recoveries. The Company charges off credit card loans at 180 days past the due date and generally charges off other consumer loans at 120 days past the due date or upon repossession of collateral. Costs to recover previously charged-off accounts are recorded as collection expenses in other non-interest expense. Non-collateralized bankruptcies are typically charged-off within 30 days.

The reported and managed net charge-off rates decreased 138 and 135 basis points, respectively, for the three months ended June 30, 2006. For the six month period ended June 30, 2006, the reported and managed net charge-off rates decreased 138 and 141 basis points, respectively. These decreases in net charge-off rates were driven primarily by a decrease in bankruptcy related charge-offs which continue to be lower than historical levels following the bankruptcy filing spike experienced in the fourth quarter of 2005 combined with an increase in recoveries.

For additional information, see section XIII, Tabular Summary, Table F (Net Charge-offs).

Nonperforming Assets

The Company assumed nonperforming assets in connection with the acquisition of Hibernia.

Nonperforming loans consist of nonaccrual loans (loans on which interest income is not currently recognized) and restructured loans (loans with below-market interest rates or other concessions due to the deteriorated financial condition of the borrower). Commercial and small business loans are placed in nonaccrual status at 90 days past due or sooner if, in management’s opinion, there is doubt concerning the ability to fully collect both principal and interest. Real estate secured consumer loans are placed in nonaccrual status at 180 days past due.

For additional information, see section XIII, Tabular Summary, Table G (Nonperforming Assets).

Allowance for loan losses

The allowance for loan losses is maintained at an amount estimated to be sufficient to absorb probable losses, net of principal recoveries (including recovery of collateral), inherent in the existing reported loan portfolio. The provision for loan losses is the periodic cost of maintaining an adequate allowance. Management believes that, for all relevant periods, the allowance for loan losses was adequate to cover anticipated losses in the total reported consumer loan portfolio under then current conditions, met applicable legal and regulatory guidance and was consistent with GAAP. There can be no assurance as to future credit losses that may be incurred in connection with the Company’s loan portfolio, nor can there be any assurance that the loan loss allowance that has been established by the Company will be sufficient to absorb such future credit losses. The allowance is a general allowance applicable to the

reported consumer loan portfolio. The amount of allowance necessary is determined primarily based on a migration analysis of delinquent and current accounts, forward loss curves and historical loss trends. In evaluating the sufficiency of the allowance for loan losses, management also takes into consideration the following factors: 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.

The allowance for loan losses increased $90.0 million since March 31, 2006 driven primarily by growth in the reported loan portfolio and continued credit quality deterioration in the U.K, partially offset by strong credit performance in the U.S. businesses.

For additional information, see section XIII, Tabular Summary, Table H (Summary of Allowance for Loan Losses).

VI. Reportable Segment Summary

The Company manages its business as four distinct operating segments: U.S. Card, Auto Finance, Global Financial Services, and Banking. In the first quarter 2006, the Company added the Banking segment which represents legacy Hibernia business lines, excluding the indirect auto business which moved to the Auto Finance segment and including the Company’s legacy branchless deposit business which moved from the Other caption. The U.S. Card, Auto Finance, Global Financial Services, and Banking segments are considered reportable segments based on quantitative thresholds applied to the managed loan portfolio for reportable segments provided by SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.

As management makes decisions on a managed basis within each segment, information about reportable segments is provided on a managed basis.

The Company maintains its books and records on a legal entity basis for the preparation of financial statements in conformity with GAAP. The following table presents information prepared from the Company’s internal management information system, which is maintained on a line of business level through allocations from legal entities.

U.S. Card Segment

Table 2: U.S. Card


	As of and for the Three Months Ended June 30,						As of and for the Six Months Ended June 30,
(Dollars in thousands)	2006			2005			2006			2005
Earnings (Managed Basis)
Interest income	$	1,628,144		$	1,596,247		$	3,342,703		$	3,290,226
Interest expense		507,722			444,555			1,001,180			887,896

Net interest income		1,120,422			1,151,692			2,341,523			2,402,330
Non-interest income		803,083			846,720			1,578,496			1,626,135

Total revenue		1,923,505			1,998,412			3,920,019			4,028,465
Provision for loan losses		413,701			539,211			638,139			1,028,247
Non-interest expense		860,874			794,012			1,705,603			1,630,154

Income before taxes		648,930			665,189			1,576,277			1,370,064
Income taxes		227,125			232,816			551,698			479,522

Net income	$	421,805		$	432,373		$	1,024,579		$	890,542

Selected Metrics (Managed Basis)
Period end loans	$	48,736,483		$	46,408,912		$	48,736,483		$	46,408,912
Average loans		47,856,045			46,504,945			48,035,986			47,027,255
Loan yield		13.61	%		13.73	%		13.92	%		13.99	%
Net charge-off rate		3.29			4.90			3.11			4.81
30+ day delinquency rate		3.30			3.60			3.30			3.60
Purchase volume⁽¹⁾	$	20,878,732		$	17,946,667		$	38,894,401		$	33,544,981
Number of Accounts (000s)		37,199			37,760			37,199			37,760

(1)	Includes purchase transactions net of returns and excludes cash advance transactions.

The U.S. Card segment consists of domestic consumer credit card lending activities.

U.S. Card segment net income decreased 2% in the second quarter of 2006 compared to the second quarter of 2005 reflecting a decrease in revenue and higher non-interest expense offset by lower provision for loan losses. U.S. Card segment net income increased 15% for the six months ended June 30, 2006 compared to the same period in the prior year as a result of lower provision for loan losses offset by a decrease in revenue and increase in non-interest expense.

Revenue declined slightly for the three and six month periods ended June 30, 2006, driven largely by the favorable credit environment in the U.S. which has resulted in lower past-due and overlimit fees.

Loans grew $2.3 billion, or 5%, since the second quarter of 2005. The Company is active across the credit card market. It focuses on opportunities, like rewards cards, that generate both economic returns and long term customer loyalty. The U.S. Card segment showed a 16% increase in purchase volume for both the three and six month periods ended June 30, 2006, reflecting the Company’s focus on the rewards segment.

Provision for loan losses decreased 23% and 38% for the three and six month periods ended June 30, 2006, respectively, as a result of improvements in credit quality metrics and decreases in bankruptcy related charge-offs which continue to be lower than historical levels following the bankruptcy spike experienced in the fourth quarter of 2005.

Non-interest expense increased 8% and 5% for the three and six month periods ended June 30, 2006, respectively, as a result of increased marketing expense to reflect origination opportunities in new and existing products. Operating expenses remained relatively stable year over year reflecting improved operating efficiencies offset by increased infrastructure investments.

Auto Finance Segment

Table 3: Auto Finance


	As of and for the Three Months Ended June 30,						As of and for the Six Months Ended June 30,
(Dollars in thousands)	2006			2005			2006			2005
Earnings (Managed Basis)
Interest income	$	563,734		$	401,991		$	1,100,391		$	756,323
Interest expense		207,497			116,247			395,324			221,072

Net interest income		356,237			285,744			705,067			535,251
Non-interest income		13,839			6,964			14,230			18,303

Total revenue		370,076			292,708			719,297			553,554
Provision for loan losses		74,714			20,330			182,519			112,643
Non-interest expense		149,115			124,584			283,770			238,349

Income before taxes		146,247			147,794			253,008			202,562
Income taxes		51,186			51,728			88,552			70,897

Net income	$	95,061		$	96,066		$	164,456		$	131,665

Selected Metrics (Managed Basis)
Period end loans	$	20,558,455		$	14,520,216		$	20,558,455		$	14,520,216
Average loans		20,187,631			13,993,998			19,815,457			13,414,580
Loan Yield		11.17	%		11.49	%		11.11	%		11.28	%
Net charge-off rate		1.54			1.74			1.94			2.28
30+ day delinquency rate		4.55			4.09			4.55			4.09
Auto loan originations⁽¹⁾	$	3,107,409		$	2,633,857		$	6,047,949		$	4,667,019
Number of Accounts (000s)		1,525			1,124			1,525			1,124

(1)	Includes all organic auto loan originations and excludes auto loans added through acquisitions.

The Auto Finance segment consists of automobile and other motor vehicle financing activities.

Second quarter Auto Finance net income remained relatively stable compared to the second quarter in 2005 while net income increased 25% for the six months ended June 30, 2006 compared to the same period in the prior year as a result of growth in revenue offset by increases to the provision for loan losses and non-interest expense.

The increase in revenue and non-interest expense for the three and six month periods ended June 30, 2006 was driven by significant loan growth. The Auto Finance segment had 18% and 30% increases in auto loan originations for the three and six month periods ended June 30, 2006, respectively, in addition to the transfer of $2.9 billion of Hibernia’s indirect auto loans to the Auto Finance segment on January 1, 2006. Revenue also increased due to higher back end performance bonuses related to prior period auto loan sales compared to the same periods in the prior year.

The provision for loan losses for the three and six month periods ended June 30, 2006 increased primarily due to the significant growth in the loan portfolio offset by a reduction in the charge-off rate. The decrease in the charge-off rate was primarily driven by improved loan quality through the addition of Hibernia’s indirect auto loans and the runoff of the higher-loss Key Bank portfolio, which increased the Auto Finance segment mix of prime loans, favorable industry trends and decreases in bankruptcy related charge-offs which continue to be lower than historical levels following the bankruptcy filing spike experienced in the fourth quarter of 2005.

Global Financial Services Segment

Table 4: Global Financial Services


	As of and for the Three Months Ended June 30,						As of and for the Six Months Ended June 30,
(Dollars in thousands)	2006			2005			2006			2005
Earnings (Managed Basis)
Interest income	$	725,256		$	642,481		$	1,417,502		$	1,276,207
Interest expense		279,804			230,656			533,801			451,649

Net interest income		445,452			411,825			883,701			824,558
Non-interest income		297,080			265,499			580,432			499,340

Total revenue		742,532			677,324			1,464,133			1,323,898
Provision for loan losses		296,614			256,766			513,979			445,082
Non-interest expense		365,149			378,278			695,321			729,754

Income before taxes		80,769			42,280			254,833			149,062
Income taxes		29,614			15,621			90,134			51,975

Net income	$	51,155		$	26,659		$	164,699		$	97,087

Selected Metrics (Managed Basis)
Period end loans	$	25,935,716		$	22,053,145		$	25,935,716		$	22,053,145
Average loans		24,910,879			21,971,839			24,293,035			21,664,828
Loan Yield		11.58	%		11.67	%		11.61	%		11.76	%

Net charge-off rate		3.90			3.89			3.77			3.72
30+ day delinquency rate		2.82			2.93			2.82			2.93
Number of Accounts (000s)		10,130			9,639			10,130			9,639

The Global Financial Services segment consists of international lending activities, small business lending, installment loans, home loans, healthcare financing and other consumer financial service activities.

Global Financial Services net income increased 92% and 70% for the three and six month periods ended June 30, 2006, respectively, as a result of increases in revenue and decreases to non-interest expense, offset by increases to the provision for loan losses. Total revenue increased 10% and 11% for the three and six month periods ended June 30, 2006, respectively, as a result of 13% and 12% growth in average loans for the same periods.

The provision for loan losses increased 16% and 15% and for the three and six month periods ended June 30, 2006, respectively, as a result of growth in the loan portfolio and continued credit quality deterioration in the U.K.

Non-interest expense decreased 3% and 5% for the three and six month periods ended June 30, 2006, respectively, as a result of improved operating efficiencies. Non-interest expense as a percentage of average managed loans improved 103 basis points to 5.86% for the quarter ended June 30, 2006 and improved 102 basis points to 5.72% for the year-to-date period ended June 30, 2006.

Banking Segment

Table 5: Banking


	Three Months Ended June 30,			Six Months Ended June 30,
(Dollars in thousands)	2006			2006
Earnings (Managed Basis)
Interest income	$	682,679		$	1,333,664
Interest expense		433,451			839,512

Net interest income		249,228			494,152
Non-interest income		114,039			218,524

Total revenue		363,267			712,676
Provision for loan losses		6,632			16,453
Non-interest expense		289,996			562,983

Income before taxes		66,639			133,240
Income taxes		23,324			46,634

Net income	$	43,315		$	86,606

Selected Metrics (Managed Basis)
Period end loans	$	13,189,112		$	13,189,112
Average loans		13,115,534			13,199,548
Loan yield		7.63	%		7.50	%
Net charge-off rate		0.45			0.41
30+ day delinquency rate		0.38			0.38
Core Deposits	$	27,857,265		$	27,857,265
Total Deposits	$	35,281,970		$	35,281,970
Number of ATMs		705			705
Number of locations		324			324

In the first quarter of 2006, the Company added a Banking segment which represents legacy Hibernia business lines, excluding their indirect auto business which moved to the Auto Finance segment and including the Company’s branchless deposits which moved from the Other caption. The Banking segment contributed $43.3 million and $86.6 million to net income during the three and six month periods ended June 30, 2006, respectively. The Banking segment ended the second quarter with $13.2 billion in loans and $35.3 billion in total deposits.

Deposits continue to exhibit strong growth in the Company’s Texas de novo branches, and modest growth in parts of Louisiana. However, this growth was not sufficient to offset the expected deposit attrition of hurricane related deposit growth experienced in those areas of Louisiana significantly impacted by last year’s hurricanes. Loans exhibited a similar effect, where loan growth was strong in the Company’s Texas de novo branches, modest in parts of Louisiana, and down in the areas significantly impacted by last year’s hurricanes.

VII. Funding

Funding Availability

The Company has established access to a variety of funding sources. Table 6 illustrates the Company’s unsecured funding sources and its two auto securitization warehouses.

Table 6: Funding Availability


(in millions)	Effective/ Issue Date	Availability ⁽¹⁾⁽⁵⁾		Outstanding		Final Maturity⁽⁴⁾
Senior and Subordinated Global Bank Note Program⁽²⁾	1/03	$	1,800	$	3,178	—
Senior Domestic Bank Note Program⁽³⁾	4/97		—	$	168	—
Credit Facility	6/04	$	750		—	6/07
Capital One Auto Loan Facility I	—	$	3,032	$	268	—
Capital One Auto Loan Facility II	5/06	$	1,124	$	626	—
Corporation Automatic Shelf Registration Statement	5/06		*		N/A	*	*
Bridge Loan Facility	5/06	$	3,866		—	5/07

(1)

All funding sources are non-revolving except for the Credit Facility and the Capital One Auto Loan Facilities. Funding availability under the credit facilities is subject to compliance with certain representations, warranties and covenants. Funding availability under all other sources is subject to market conditions.

(2)	The notes issued under the Senior and Subordinated Global Bank Note Program may have original terms of thirty days to thirty years from their date of issuance. This program was updated in June 2005.

(3)	The notes issued under the Senior Domestic Bank Note Program have original terms of one to ten years. The Senior Domestic Bank Note Program is no longer available for issuances.

(4)	Maturity date refers to the date the facility terminates, where applicable.

(5)	Availability does not include unused conduit capacity related to securitization structures of $6.4 billion at June 30, 2006.

*	The Corporation and certain of its subsidiaries have registered an indeterminate amount of securities pursuant to the Automatic Shelf Registration Statement that are available for future issuance.

**	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 Senior and Subordinated Global Bank Note Program gives the Bank the ability to issue securities to both U.S. and non-U.S. lenders and to raise funds in U.S. and foreign currencies, subject to conditions customary in transactions of this nature.

Prior to the establishment of the Senior and Subordinated Global Bank Note Program, the Bank issued senior unsecured debt through an $8.0 billion Senior Domestic Bank Note Program. The Bank did not renew the Senior Domestic Bank Note Program for future issuances following the establishment of the Senior and Subordinated Global Bank Note Program.

In June 2004, the Company terminated its Domestic Revolving and Multicurrency Credit Facilities and replaced them with a new revolving credit facility (“Credit Facility”) providing for an aggregate of $750.0 million in unsecured borrowings from various lending institutions to be used for general corporate purposes. The Credit Facility is available to the Corporation, the Bank, the Savings Bank, and Capital One Bank (Europe), plc, subject to covenants and conditions customary in transactions of this type. The Corporation’s availability has been increased to $500.0 million under the Credit Facility. All borrowings under the Credit Facility are based upon varying terms of London Interbank Offering Rate (“LIBOR”).

In April 2002, COAF entered into a revolving warehouse credit facility collateralized by a security interest in certain auto loan assets (the “Capital One Auto Loan Facility I”). As of June 30, 2006, the Capital One Auto Loan Facility I had the capacity to issue up to $3.3 billion in secured notes. The Capital One Auto Loan Facility I has multiple participants each with separate renewal dates. The facility does not have a final maturity date. Instead, each participant may elect to renew the commitment for another set period of time. Interest on the facility is based on commercial paper rates.

In March 2005, COAF entered into a revolving warehouse credit facility collateralized by a security interest in certain auto loan assets (the “Capital One Auto Loan Facility II”). As of June 30, 2006, the Capital One Auto Loan Facility II had the capacity to issue up to $1.8 billion in secured notes. The Capital One Auto Loan Facility II has multiple participants each with separate renewal dates. The facility does not have a final maturity date. Instead, the participant may elect to renew the commitment for another set period of time. Interest on the facility is based on commercial paper rates.

As of June 30, 2006, the Corporation had an effective automatic shelf registration statement under which the Corporation from time to time may offer and sell senior or subordinated debt securities, preferred stock, common stock, units and stock purchase contracts and other types of securities that may be added to the registration statement. The Corporation has the ability to issue an unlimited amount of securities under this registration statement.

Deposits

The Company continues to expand its retail deposit gathering efforts through its direct marketing channels. Retail deposits are originated through the existing Capital One, National Association branch network, and through de novo branch expansion, and through direct marketed channels, such as the internet.

The Company’s branch network offers a broad set of deposit products that include demand deposits, money market deposits, NOW accounts, and certificates of deposits (“CDs”).

As of June 30, 2006, the Company had $47.2 billion in deposits of which $3.4 billion were held in foreign banking offices and $9.9 billion represented large domestic denomination certificates of $100 thousand or more.

Table 7 shows the maturities of domestic time certificates of deposit in denominations of $100 thousand or greater (large denomination CDs) as of June 30, 2006.

Table 7: Maturities of Large Denomination Certificates—$100,000 or More


	June 30, 2006
(Dollars in thousands)	Balance		Percent
Three months or less	$	1,964,466	19.89	%
Over 3 through 6 months		1,091,850	11.06
Over 6 through 12 months		1,812,214	18.35
Over 12 months through 10 years		5,005,933	50.70

Total	$	9,874,463	100.00	%

Table 8 shows the composition of average deposits for the periods presented.

Table 8: Deposit Composition and Average Deposit Rates


	Three Months Ended June 30,						Six Months Ended June 30,
	Average Balance		% of Deposits		Average Deposit Rate		Average Balance		% of Deposits		Average Deposit Rate
Non-interest bearing—domestic	$	4,384,834	9.29	%	N/A		$	4,439,448	9.34	%	N/A
NOW accounts		597,406	1.26		2.71	%		584,863	1.23		2.52	%
Money market deposit accounts		11,093,056	23.50		3.21			10,905,954	22.94		3.03
Savings Accounts		3,919,465	8.30		2.68			3,820,280	8.03		2.59
Other consumer time deposits		13,980,892	29.61		4.16			14,312,460	30.10		4.12

Total core deposits		33,975,653	71.96		3.58			34,063,005	71.64		3.49
Public fund certificate of deposits of $100,000 or more		971,511	2.06		4.67			967,866	2.04		4.47
Certificates of deposit of $100,000 or more		8,878,461	18.81		4.51			9,141,714	19.23		4.44
Foreign time deposits - non-interest bearing		27,421	0.06		N/A			27,760	0.06		N/A
Foreign time deposits - interest-bearing		3,355,924	7.11		4.77			3,341,931	7.03		4.71

Total deposits	$	47,208,970	100.00	%	3.89	%	$	47,542,276	100.00	%	3.81	%

VIII. Off-Balance Sheet Arrangements

Off-Balance Sheet Securitizations

The Company actively engages in off-balance sheet securitization transactions of loans for funding purposes. The Company receives the proceeds from third party investors for securities issued from the Company’s securitization vehicles which are collateralized by transferred receivables from the Company’s portfolio. Securities outstanding totaling $47.4 billion as of June 30, 2006, represent undivided interests in the pools of consumer loan receivables that are sold in underwritten offerings or in private placement transactions.

The securitization of consumer loans has been a significant source of liquidity for the Company. Maturity terms of the existing securitizations vary from 2006 to 2025 and, for revolving securitizations, have accumulation periods during which principal payments are aggregated to make payments to investors. As payments on the loans are accumulated and are no longer reinvested in new loans, the Company’s funding requirements for such new loans increase accordingly. The Company believes that it has the ability to continue to utilize off-balance sheet securitization arrangements as a source of liquidity; however, a significant reduction or termination of the Company’s off-balance sheet securitizations could require the Company to draw down existing liquidity and/or to obtain additional funding through the issuance of secured borrowings or unsecured debt, the raising of additional deposits or the slowing of asset growth to offset or to satisfy liquidity needs.

Recourse Exposure

The credit quality of the receivables transferred is supported by credit enhancements, which may be in various forms including interest-only strips, subordinated interests in the pool of receivables, cash collateral accounts, cash reserve accounts and accrued interest and fees on the investor’s share of the pool of receivables. Some of these credit enhancements are retained by the seller and are referred to as retained residual interests. 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 loans are not paid when due. Securitization investors and the trusts only have recourse to the retained residual interests, not the Company’s assets. See the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2005, Part I, Item 8 “Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 21” for quantitative information regarding retained interests.

Collections and Amortization

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. For revolving securitizations, 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. For amortizing securitizations, amounts collected in excess of the amount that is used to pay the above amounts are generally remitted to the Company, but may be paid to investors in further reduction of their outstanding principal. See the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2005, Part I, Item 8 “Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 21” for quantitative information regarding revenues, expenses and cash flows that arise from securitization transactions.

Securitization transactions may amortize earlier than scheduled due to certain early amortization triggers, which would accelerate the need for funding. Additionally, early amortization would have a significant impact on the ability of the Bank and Savings Bank to meet regulatory capital adequacy requirements as all off-balance sheet loans experiencing such early amortization would be recorded on the balance sheet and accordingly would require incremental regulatory capital. As of June 30, 2006, no early amortization events related to the Company’s off-balance sheet securitizations have occurred.

Letters of Credit and Financial Guarantees

IX. Capital

Capital Adequacy

The Company and the Bank are subject to capital adequacy guidelines adopted by the Federal Reserve Board (the “Federal Reserve”) while the Savings Bank is subject to capital adequacy guidelines adopted by the Office of Thrift Supervision (the “OTS”) and the National Bank is subject to capital adequacy guidelines adopted by the Office of the Comptroller of the Currency (the “OCC”) (collectively, the “Regulators”). The capital adequacy guidelines require the Company, the Bank, the Savings Bank and the National Bank to maintain specific capital levels based upon quantitative measures of their assets, liabilities and off-balance sheet items. In addition, the Bank, Savings Bank and National Bank must also adhere to the regulatory framework for prompt corrective action.

The most recent notifications received from the Regulators categorized the Bank, the Savings Bank and the National Bank as “well-capitalized.” As of June 30, 2006, the Company’s, the Bank’s, the Savings Bank’s and the National Bank’s capital exceeded all minimum regulatory requirements to which they were subject, and there were no conditions or events since the notifications discussed above that management believes would have changed either the Company, the Bank, the Savings Bank’s or the National Bank’s capital category.

Table 9 – REGULATORY CAPITAL RATIOS


	Regulatory Filing Basis Ratios		Applying Subprime Guidance Ratios		Minimum for Capital Adequacy Purposes		To Be “Well Capitalized” Under Prompt Corrective Action Provisions
June 30, 2006
Capital One Financial Corp.⁽¹⁾
Tier 1 Capital	16.10	%	14.44	%	4.00	%	N/A
Total Capital	18.30		16.53		8.00		N/A
Tier 1 Leverage	14.22		14.22		4.00		N/A

Capital One Bank
Tier 1 Capital	14.42	%	11.41	%	4.00	%	6.00	%
Total Capital	18.53		14.88		8.00		10.00
Tier 1 Leverage	11.51		11.51		4.00		5.00

Capital One, F.S.B.
Tier 1 Capital	13.68	%	11.33	%	4.00	%	6.00	%
Total Capital	14.95		12.59		8.00		10.00
Tier 1 Leverage	13.65		13.65		4.00		5.00

Capital One, National Association
Tier 1 Capital	10.44	%	N/A		4.00	%	6.00	%
Total Capital	11.68		N/A		8.00		10.00
Tier 1 Leverage	7.30		N/A		4.00		5.00

June 30, 2005
Capital One Financial Corp.⁽¹⁾
Tier 1 Capital	19.59	%	17.08	%	4.00	%	N/A
Total Capital	22.09		19.40		8.00		N/A
Tier 1 Leverage	17.40		17.40		4.00		N/A

Capital One Bank
Tier 1 Capital	14.26	%	11.56	%	4.00	%	6.00	%
Total Capital	18.39		15.11		8.00		10.00
Tier 1 Leverage	10.88		10.88		4.00		5.00

Capital One, F.S.B.
Tier 1 Capital	13.05	%	11.08	%	4.00	%	6.00	%
Total Capital	14.34		12.36		8.00		10.00
Tier 1 Leverage	12.83		12.83		4.00		5.00

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

The Bank and Savings Bank treat a portion of their loans as “subprime” under the “Expanded Guidance for Subprime Lending Programs” (the “Subprime Guidelines”) issued by the four federal banking

agencies that comprise the Federal Financial Institutions Examination Council (“FFIEC”), and have assessed their capital and allowance for loan losses accordingly. Under the Subprime Guidelines, the Company, the Bank and Savings Bank each exceed the minimum capital adequacy guidelines as of June 30, 2006. Failure to meet minimum capital requirements can result in mandatory and possible additional discretionary actions by the regulators that, if undertaken, could have a material effect on the Company’s consolidated financial statements.

For purposes of the Subprime Guidelines, the Company has treated as subprime all loans in the Bank’s and the Savings Bank’s targeted “subprime” programs to customers either with a FICO score of 660 or below or with no FICO score. The Bank and the Savings Bank hold 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 the Bank and the Savings Bank.

Additionally, regulatory restrictions exist that limit the ability of the Bank, Savings Bank and National Bank to transfer funds to the Corporation. As of June 30, 2006, retained earnings of the Bank, the Savings Bank and the National Bank of $137.0 million, $467.7 million and $8.9 million, respectively, were available for payment of dividends to the Corporation without prior approval by the regulators.

Dividend Policy

Although the Company expects to reinvest a substantial portion of its earnings in its business, the Company also intends to continue to pay regular quarterly cash dividends on its common stock. The declaration and payment of dividends, as well as the amount thereof, are subject to the discretion of the Board of Directors of the Company and will depend upon the Company’s results of operations, financial condition, cash requirements, future prospects and other factors deemed relevant by the Board of Directors. Accordingly, there can be no assurance that the Corporation will declare and pay any dividends. As a holding company, the ability of the Corporation to pay dividends is dependent upon the receipt of dividends or other payments from its subsidiaries. Applicable banking regulations and provisions that may be contained in borrowing agreements of the Corporation or its subsidiaries may restrict the ability of the Corporation’s subsidiaries to pay dividends to the Corporation or the ability of the Corporation to pay dividends to its stockholders.

X. Business Outlook

This business outlook section summarizes the Company’s expectations for earnings for 2006, and its primary goals and strategies for continued growth. The statements contained in this section are based on management’s current expectations. Certain statements are forward looking, and therefore actual results could differ materially from those in the Company’s forward looking statements. Factors that could materially influence results are set forth throughout this section and in Item 1A “Risk Factors.”

Expected Earnings

The Company expects diluted earnings per share of $7.40 to $7.80, including the expected impacts of an early fourth quarter close of the North Fork acquisition. This EPS guidance represents an increase of between 10% and 16% over its diluted earnings per share of $6.73 in 2005. The company also expects its managed loan growth rate to be between 7% and 9% and continued stability in ROA in 2006, including the acquisition of North Fork. The Company notes that market conditions on the day of close and the resultant impact on purchase accounting adjustments, in addition to the timing of the close, create significant uncertainty about the impact that North Fork will have on fourth quarter EPS and managed ROA metrics.

The Company’s earnings are a function of its revenues (net interest income and non-interest income), consumer usage, payment and attrition patterns, the credit quality and growth rate of its earning assets (which affect fees, charge-offs and provision expense), the growth rate of its branches and deposits, and

the Company’s marketing and operating expenses. Specific factors likely to affect the Company’s 2006 earnings are the mix of loans in its portfolio, the level of off-balance sheet securitizations, changes in consumer or commercial payment behavior, the amount of and quality of deposits it generates, the competitive, legal, regulatory and reputational environment, the level of investments, growth in its businesses, and the health of the economy and its labor markets.

The Company expects to achieve these results based on the continued success of its business strategies and its current assessment of the competitive, regulatory and funding market environments that it faces (each of which is discussed elsewhere in this document), as well as the expectation that the geographies in which the Company competes will not experience significant consumer credit quality erosion, as might be the case in an economic downturn or recession.

Return on Managed Assets

The Company expects continued stability in its annual return on managed assets, generally consistent with 2004 and 2005 managed ROA of 1.73% and 1.72%, respectively, including the North Fork acquisition. The Company expects a decline in revenue margin, due to its bias towards lower loss assets, which is expected to be offset primarily by reductions in provision, marketing and operating expenses as a percent of assets. The Company also expects that its operating expenses in the second half of 2006 will be approximately $200 million higher than they were in the first half of 2006, due to a combination of infrastructure investments, most notably the portfolio conversion of its credit card processing to a Total Systems platform, as well as other infrastructure investments and generally higher operating costs associated with a growing business.

The Company’s objective is to continue expanding in consumer financial services, which may include expansion into additional geographic markets, additional bank branches, and other consumer loan products via organic growth and/or acquisitions of other companies. In each business line, the Company expects to apply its proprietary marketing capabilities to identify new product and new market opportunities, and to make investment decisions based on the Company’s extensive testing and analysis.

The Company’s lending and deposit products are subject to intense competitive pressures that management anticipates will continue to increase as its markets mature, and it could affect the economics of decisions that the Company has made or will make in the future in ways that it did not anticipate, test or analyze.

U.S. Card Segment

The Company’s U.S. Card segment consisted of $48.7 billion of managed U.S. consumer credit card loans as of June 30, 2006, marketed to consumers. The Company’s strategy for its U.S. Card segment is to offer compelling, value-added products to its customers.

The competitive environment is currently intense for credit card products. Industry mail volume has increased substantially in recent years, resulting in declines in response rates to the Company’s new customer solicitations over time. Additionally, the increase in other consumer loan products puts pressure on growth throughout the credit card industry. These competitive pressures remain significant as a result of, among other things, increasing consolidation within the industry. The industry’s response to this competitive pressure has been to increase mail volumes to record levels, and in some parts of the market, most notably, with respect to the prime revolver customers, offer products that appear to rely heavily on extremely low upfront pricing combined with extensive penalty repricing well beyond “go to” rates for profitability. In recent quarters, the Company has chosen to limit its marketing in those selected parts of the market because it believed the prevailing industry pricing practices will compromise both economic returns and customer loyalty over the long term. During this quarter, the Company began marketing new products in the prime segment. These new products are not dependent on extremely low upfront pricing combined with extensive penalty repricing well beyond “go to” rates to achieve profitability. The Company continues to believe that its marketing capabilities and credit risk management will enable it to originate new credit card accounts that exceed the Company’s return on investment requirements.

Auto Finance Segment

The Company’s Auto Finance segment consisted of $20.6 billion of managed U.S. auto loans as of June 30, 2006, marketed across the full credit spectrum, via direct and dealer marketing channels.

The 2005 acquisitions of Onyx Acceptance Corporation, the Key Bank non-prime portfolio, and Hibernia, along with its auto lending business, have strengthened the Auto Finance segment’s competitive position. The acquisitions have enhanced our ability to lend across the entire credit spectrum and provided operating scale. The Company expects to integrate these businesses more fully in 2006, and realize cost efficiencies and marketing synergies that will drive originations growth.

The Company believes that its strong risk management skills, increasing operating scale, full credit spectrum product offerings and multi-channel marketing approach will enable it to continue to increase market share in the Auto Finance industry.

Global Financial Services Segment

The Global Financial Services segment consisted of $25.9 billion of managed loans as of June 30, 2006, including international lending activities, small business lending, installment loans, home loans, point of sale financing and other consumer financial service activities.

The Company continues to experience solid growth from all of its North American businesses. Challenges in the UK business continued to worsen in the quarter. The Company expects credit quality pressures in its U.K. business to continue in the near term. As a result of this continued pressure, the company added $37.5 million to the allowance for loan losses and added $5.4 million to its estimate of uncollectible finance charges and fees which reduced GFS net income for the quarter.

Banking

With the acquisition of Hibernia on November 16, 2005, Capital One entered the branch banking market. Beginning in the first quarter of 2006, a separate Banking segment for Capital One was reported.

The National Bank has experienced a significant increase in deposits since the Gulf Coast Hurricanes in August 2005. The increase is partially due to the inflow of relief and insurance to customers in the hurricane impacted areas of the National Bank’s market. The Company expects that many of these incremental deposits will run off over time as customers reinvest these funds in the recovery of the hurricane impacted areas.

The Company’s de novo branch expansion program is expected to be a sizable source of future deposit and loan growth. The Company opened 7 new branches during the second quarter of 2006, and continues to expect to open approximately 40 in full year 2006.

The Company continues to expect integration costs of around $90 million in 2006, and continues to expect total integration costs and operating synergies to be broadly in line with original estimates when the Hibernia transaction was announced in March 2005.

XI. Supervision and Regulation

General

The Corporation is a bank holding company (“BHC”) under Section 3 of the Bank Holding Company Act of 1956, as amended (the “BHC Act”) (12 U.S.C. § 1842). The Corporation is subject to the requirements of the BHC Act, including its capital adequacy standards and limitations on the Corporation’s nonbanking activities, and to supervision, examination and regulation by the Federal Reserve Board (the “Federal Reserve”). Permissible activities for a BHC include those activities that are so closely related to banking as to be incident thereto such as consumer lending and other activities that have been approved by the Federal Reserve by regulation or order. Certain servicing activities are also permissible for a BHC if conducted for or on behalf of the BHC or any of its affiliates. Impermissible activities for BHCs include activities that are related to commerce such as retail sales of nonfinancial products. Under Federal Reserve policy, the Corporation is expected to act as a source of financial and managerial strength to any banks that it controls, including the Bank, the National Bank and the Savings Bank (the “Banks”), and to commit resources to support them.

The Corporation is also a “financial holding company” under the Gramm-Leach-Bliley Act amendments to the BHC Act (the “GLBA”). The GLBA removed many of the restrictions on the activities of BHCs that become financial holding companies. A financial holding company, and the non-bank companies under its control, are permitted to engage in activities considered financial in nature (including, for example, insurance underwriting, agency sales and brokerage, securities underwriting, dealing and brokerage and merchant banking activities); incidental to financial activities; or complementary to financial activities if the Federal Reserve determines that they pose no risk to the safety or soundness of depository institutions or the financial system in general.

The Corporation’s election to become a financial holding company under the GLBA certifies that the depository institutions the Corporation controls meet certain criteria, including capital, management and Community Reinvestment Act requirements. If the Corporation were to fail to continue to meet the criteria for financial holding company status, it could, depending on which requirements it failed to meet, face restrictions on new financial activities or acquisitions and/or be required to discontinue existing activities that are not generally permissible for bank holding companies.

The Bank is a banking corporation chartered under Virginia law and a member of the Federal Reserve System, the deposits of which are insured by the Bank Insurance Fund of the Federal Deposit Insurance Corporation (the “FDIC”) up to applicable limits. In addition to regulatory requirements imposed as a result of the Bank’s international operations (discussed below), the Bank is subject to comprehensive regulation and periodic examination by the Bureau of Financial Institutions of the Virginia State Corporation Commission (the “Bureau of Financial Institutions”), the Federal Reserve, the Federal Reserve Bank of Richmond (“FRB-R”) and the FDIC.

The National Bank is a nationally chartered bank, the deposits of which are insured by the Bank Insurance Fund of the FDIC up to applicable limits. The National Bank is subject to comprehensive regulation and periodic examination by the Office of the Comptroller of the Currency (the “OCC”) and the FDIC.

The Savings Bank is a federal savings bank chartered by the Office of Thrift Supervision (the “OTS”) and is a member of the Federal Home Loan Bank System. Its deposits are insured by the Savings Association Insurance Fund of the FDIC up to applicable limits. The Savings Bank is subject to comprehensive regulation and periodic examination by the OTS and the FDIC.

On July 12, 2006 we filed an application with our banking regulators that, among other things, seeks approval to reorganize our legal entity structure by consolidating North Fork Bank and our Savings Bank into our National Bank.

The Corporation is also registered as a financial institution holding company under Virginia law and as such is subject to periodic examination by Virginia’s Bureau of Financial Institutions. The Corporation’s automobile financing activities, conducted by COAF and its subsidiaries, fall under the scrutiny of the Federal Reserve and the state agencies having supervisory authority under applicable sales finance laws or consumer finance laws in most states. The Corporation also faces regulation in the international jurisdictions in which it conducts business.

For additional information on the Company’s regulatory issues and activities, see the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2005, Part I, Item 1, “Supervision and Regulation.”

International Regulation

The Bank faces regulation in foreign jurisdictions where it currently, and may, in the future, operate. Those regulations may be similar to or substantially different from the regulatory requirements the Bank faces in the United States. In the United Kingdom, the Bank operates through the U.K. Bank, which was established in 2000. The U.K. Bank is regulated by the Financial Services Authority (“FSA”) and licensed by the Office of Fair Trading (“OFT”). The U.K. Bank is an “authorized deposit taker” and thus is able to take consumer deposits in the U.K. The U.K. Bank has also been granted a full license by the OFT to issue consumer credit under the U.K.’s Consumer Credit Act—1974. The FSA requires the U.K. Bank to maintain certain regulatory capital ratios at all times, and it may modify those requirements at any time. The U.K. Bank obtains capital through earnings or through additional capital infusion from the Bank, subject to approval under Regulation K of the rules administered by the Federal Reserve. If the U.K. Bank is unable to generate or maintain sufficient capital in favorable terms, it may choose to restrict its growth to maintain its required capital levels. In addition, the U.K. Bank is limited by the U.K. Companies Act—1985 in its distribution of dividends to the Bank in that such dividends may only be paid out of the U.K. Bank’s “distributable profits.”

As in the U.S., in non-U.S. jurisdictions where the Company operates, the Company faces a risk that the laws and regulations that are applicable to it (or the interpretations of existing laws by relevant regulators) may change in ways that adversely impact the Company’s business. The OFT has concluded its industry wide investigation into alleged unfair contract terms in lending agreements and questioning how credit card companies calculate default charges, such as late, overlimit and returned check fees, in the U.K. The OFT has set out guidance on its view that default charges should cover only certain specified costs and it has issued guidance on what those costs may be. Specifically, the OFT has requested that the industry limit default fees to a maximum of twelve pounds sterling. The U.K. industry was given until June 28, 2006 to implement the OFT’s guidance and Capital One has taken steps to do so. The impact on the UK Bank depends on the success of actions the Company plans to take to mitigate the impact of this reduction. In addition, the OFT has confirmed that it will continue with its investigation into Visa’s and MasterCard’s current method of setting interchange fees applicable to UK domestic transactions. Cross-border interchange fees are also coming under scrutiny from the European Commission. While a final decision is not expected before early 2009, the most likely outcome is that interchange fees will be reduced and this could adversely affect the yield on U.K. credit card portfolios, including the Company’s, and could therefore adversely impact the Company’s earnings. Finally, in the United Kingdom, the Consumer Credit Act 2006 came into force on April 6, 2006. Consultation on its

implementation and the issuance of the regulations under the Act is now underway, with the implementation timetable extending from 2006 to 2008. The Act covers the following areas: the creation of an “unfair relationship” test for credit agreements, the creation of alternative dispute resolution options for credit agreements, a requirement on lenders to provide annual statements to borrowers outlining the full amount owed and warnings about making only minimum repayments, and a stricter licensing regime that would give the OFT new powers to fine lenders for their behavior. At this time, the Company cannot predict the extent to which the changes in the Act and Regulations would impact us.

XII. Enterprise Risk Management

Risk is an inherent part of the Company’s business and activities. The Company has an ongoing Enterprise Risk Management (“ERM”) program designed to ensure appropriate and comprehensive oversight and management of risk. The ERM program operates at all levels in the Company: first, at the most senior levels with the Board of Directors and senior management committees that oversee risk and risk management practices; second, in the centralized departments headed by the Chief Risk Officer that establishes risk management methodologies, processes and standards; and third, in the individual business areas throughout the Company which own the management of risk and perform ongoing identification, assessment and response to risks. The Company’s Corporate Audit Services department also assesses risk and the related quality of internal controls and quality of risk management through its audit activities. To facilitate the effective management of risk, the Company utilizes a risk and control framework that includes eight categories of risk: credit, liquidity, market, operational, legal, strategic, reputation and compliance. For additional information on the Company’s ERM program, see the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2005, Part I, Item 1, “Enterprise Risk Management”.

XIII. Tabular Summary

TABLE A—STATEMENTS OF AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES

Table A provides average balance sheet data and an analysis of net interest income, net interest spread (the difference between the yield on earning assets and the cost of interest-bearing liabilities) and net interest margin for the three and six months ended June 30, 2006 and 2005.


	Three Months Ended June 30
	2006							2005
(Dollars in thousands)	Average Balance			Income/ Expense		Yield/ Rate		Average Balance			Income/ Expense		Yield/ Rate
Assets:
Earning assets
Consumer loans⁽¹⁾
Domestic	$	44,670,021		$	1,297,675	11.62	%	$	31,025,308		$	1,006,887	12.98	%
International		3,718,870			105,066	11.30	%		4,357,947			114,506	10.51	%

Total consumer loans		48,388,891			1,402,741	11.60	%		35,383,255			1,121,393	12.68	%

Small business loans		6,627,218			143,795	8.68	%		2,854,208			68,705	9.63	%
Commercial loans		3,817,267			70,401	7.38	%		—			—

Total loans		58,833,376			1,616,937	10.99	%		38,237,463			1,190,098	12.45	%
Securities available for sale		14,364,402			167,804	4.67	%		9,592,645			91,245	3.80	%
Other
Domestic		4,381,571			88,496	8.08	%		2,509,554			52,220	8.32	%
International		1,446,352			23,920	6.62	%		1,354,268			18,337	5.42	%

Total Other		5,827,923			112,416	7.72	%		3,863,822			70,557	7.30	%

Total earning assets		79,025,701		$	1,897,157	9.60	%		51,693,930		$	1,351,900	10.46	%
Cash and due from banks		1,416,944							661,023
Allowance for loan losses		(1,678,091	)						(1,439,532	)
Premises and equipment, net		1,419,151							807,871
Other		9,459,924							5,239,360

Total assets	$	89,643,629						$	56,962,652

Liabilities and Equity:
Interest-bearing liabilities
Deposits
Domestic	$	40,524,921		$	388,448	3.83	%	$	23,754,986		$	245,094	4.13	%
International		2,271,794			27,784	4.89	%		2,636,247			34,344	5.21	%

Total Deposits		42,796,715			416,232	3.89	%		26,391,233			279,438	4.24	%
Senior and subordinated notes		5,576,041			84,707	6.08	%		6,987,888			104,593	5.99	%
Other borrowings
Domestic		16,917,110			199,073	4.71	%		10,824,232			95,254	3.52	%
International		11,163			63	2.26	%		14,723			112	3.04	%

Total Other borrowings		16,928,273			199,136	4.71	%		10,838,955			95,366	3.52	%

Total interest-bearing liabilities		65,301,029		$	700,075	4.29	%		44,218,076		$	479,397	4.34	%
Non-interest bearing deposits		4,412,255							79,623
Other		4,348,898							3,739,610

Total liabilities		74,062,182							48,037,309
Equity		15,581,447							8,925,343

Total liabilities and equity	$	89,643,629						$	56,962,652

Net interest spread						5.31	%						6.12	%

Interest income to average earning assets						9.60	%						10.46	%
Interest expense to average earning assets						3.54	%						3.71	%

Net interest margin						6.06	%						6.75	%

(1)	Interest income includes past-due fees on loans of approximately $155.9 million and $192.9 million for the three months ended June 30, 2006 and 2005, respectively.


	Six Months Ended June 30
	2006							2005
(Dollars in thousands)	Average Balance			Income/ Expense		Yield/ Rate		Average Balance			Income/ Expense		Yield/ Rate
Assets:
Earning assets
Consumer loans⁽¹⁾
Domestic	$	44,416,078		$	2,603,196	11.72	%	$	31,081,806		$	2,000,065	12.87	%
International		3,694,428			205,582	11.13	%		4,381,605			239,180	10.92	%

Total consumer loans		48,110,506			2,808,778	11.68	%		35,463,411			2,239,245	12.63	%

Small business loans		6,519,383			282,298	8.66	%		2,790,225			134,889	9.67	%
Commercial loans		3,859,917			138,483	7.18	%		—			—	—

Total loans		58,489,806			3,229,559	11.04	%		38,253,636			2,374,134	12.41	%
Securities available for sale		14,703,054			332,904	4.53	%		9,623,370			181,409	3.77	%
Other
Domestic		3,875,007			163,513	8.44	%		2,193,293			96,375	8.79	%
International		1,448,708			49,763	6.87	%		1,289,985			36,250	5.62	%

Total Other		5,323,715			213,276	8.01	%		3,483,278			132,625	7.61	%

Total earning assets		78,516,575		$	3,775,739	9.62	%		51,360,284		$	2,688,168	10.47	%
Cash and due from banks		1,648,909							1,055,882
Allowance for loan losses		(1,733,413	)						(1,475,040	)
Premises and equipment, net		1,315,270							818,472
Other		9,483,739							4,838,233

Total assets	$	89,231,080						$	56,597,831

Liabilities and Equity:
Interest-bearing liabilities
Deposits
Domestic	$	40,770,540		$	763,351	3.74	%	$	23,471,479		$	478,161	4.07	%
International		2,304,530			56,490	4.90	%		2,553,543			65,302	5.11	%

Total Deposits		43,075,070			819,841	3.81	%		26,025,022			543,463	4.18	%
Senior and subordinated notes		5,835,435			179,061	6.14	%		6,946,848			219,073	6.31	%
Other borrowings
Domestic		16,491,350			372,705	4.52	%		10,789,257			192,322	3.57	%
International		12,318			173	2.81	%		14,018			286	4.08	%

Total Other borrowings		16,503,668			372,878	4.52	%		10,803,275			192,608	3.57	%

Total interest-bearing liabilities		65,414,173		$	1,371,780	4.19	%		43,775,145		$	955,144	4.36	%
Non-interest bearing deposits		4,467,207							68,488
Other		4,252,920							4,339,123

Total liabilities		74,134,300							48,182,756
Equity		15,096,780							8,415,075

Total liabilities and equity	$	89,231,080						$	56,597,831

Net interest spread						5.42	%						6.11	%

Interest income to average earning assets						9.62	%						10.47	%
Interest expense to average earning assets						3.49	%						3.72	%

Net interest margin						6.12	%						6.75	%

(1)	Interest income includes past-due fees on loans of approximately $347.4 million and $403.6 million for the six months ended June 30, 2006 and 2005, respectively.

TABLE B—INTEREST VARIANCE ANALYSIS


	Three Months Ended June 30, 2006 vs 2005									Six Months Ended June 30, 2006 vs 2005
(Dollars in thousands)	Increase (Decrease)			Volume			Yield/ Rate			Increase (Decrease)			Volume			Yield/ Rate
Interest Income:
Consumer loans
Domestic	$	290,788		$	916,900		$	(626,112	)	$	603,131		$	1,090,043		$	(486,912	)
International		(9,440	)		(51,791	)		42,351			(33,598	)		(46,419	)		12,821

Total		281,348			849,534			(568,186	)		569,533			1,027,595			(458,062	)

Small business loans		75,090			120,318			(45,228	)		147,409			188,939			(41,530	)
Commercial loans		70,401			70,401			—			138,483			138,483			—

Total loans		426,839			1,265,635			(838,796	)		855,425			1,574,726			(719,301	)

Securities available for sale		76,559			52,488			24,071			151,495			109,701			41,794
Other
Domestic		36,276			46,707			(10,431	)		67,138			78,381			(11,243	)
International		5,583			1,312			4,271			13,513			4,814			8,699

Total		41,859			37,685			4,174			80,651			73,402			7,249

Total interest income		545,257			1,240,017			(694,760	)		1,087,571			1,699,796			(612,225	)

Interest Expense:
Deposits
Domestic		143,354			256,693			(113,339	)		285,190			396,460			(111,270	)
International		(6,560	)		(4,546	)		(2,014	)		(8,812	)		(6,183	)		(2,629	)

Total		136,794			281,947			(145,153	)		276,378			413,068			(136,690	)

Senior notes		(19,886	)		(30,151	)		10,265			(40,012	)		(34,240	)		(5,772	)
Other borrowings
Domestic		103,819			64,925			38,894			180,383			119,710			60,673
International		(49	)		(24	)		(25	)		(113	)		(32	)		(81	)

Total		103,770			64,862			38,908			180,270			119,660			60,610

Total interest expense		220,678			257,430			(36,752	)		416,636			524,004			(107,368	)

Net interest income	$	324,579		$	871,205		$	(546,626	)	$	670,935		$	1,117,277		$	(446,342	)

(1)

The change in interest due to both volume and rates has been allocated in proportion to the relationship of the absolute dollar amounts of the change in each. The changes in income and expense are calculated independently for each line in the table. The totals for the volume and yield/rate columns are not the sum of the individual lines.

TABLE C—MANAGED LOAN PORTFOLIO


	Three Months Ended June 30
(Dollars in thousands)	2006		2005
Period-End Balances:
Reported loans:
Consumer loans:
Credit cards
Domestic	$	14,255,974	$	14,083,674
International		3,404,092		3,452,185

Total credit cards		17,660,066		17,535,859
Installment loans
Domestic		6,716,247		4,780,296
International		627,735		565,090

Total installment loans		7,343,982		5,345,386
Auto loans		19,840,162		12,888,090
Mortgage loans		5,020,962		—

Total consumer loans		49,865,172		35,769,335
Small business loans		6,874,074		2,841,452
Commercial loans		3,863,557		—

Total reported loans		60,602,803		38,610,787

Securitization Adjustments:
Consumer loans:
Credit cards
Domestic		34,499,030		32,300,174
International		7,279,059		6,410,107

Total credit cards		41,778,089		38,710,281
Installment loans
Domestic		2,883,261		2,275,835
International		—		—

Total installment loans		2,883,261		2,275,835
Auto loans		718,293		1,632,126
Mortgage loans		—		—

Total consumer loans		45,379,643		42,618,242
Small business loans		2,450,993		1,722,323
Commercial loans		—		—

Total securitization adjustments		47,830,636		44,340,565

Managed loans:
Consumer loans:
Credit cards
Domestic		48,755,004		46,383,848
International		10,683,151		9,862,292

Total credit cards		59,438,155		56,246,140
Installment loans
Domestic		9,599,508		7,056,131
International		627,735		565,090

Total installment loans		10,227,243		7,621,221
Auto loans		20,558,455		14,520,216
Mortgage loans		5,020,962		—

Total consumer loans		95,244,815		78,387,577
Small business loans		9,325,067		4,563,775
Commercial loans		3,863,557		—

Total managed loans	$	108,433,439	$	82,951,352


	Three Months Ended June 30
(Dollars in thousands)	2006		2005
Average Balances:
Reported loans:
Consumer loans:
Credit cards
Domestic	$	13,940,706	$	14,198,506
International		3,122,612		3,793,973

Total credit cards		17,063,318		17,992,479
Installment loans
Domestic		6,289,439		4,633,497
International		596,258		563,974

Total installment loans		6,885,697		5,197,471
Auto loans		19,367,480		12,193,305
Mortgage loans		5,072,396		—

Total consumer loans		48,388,891		35,383,255
Small business loans		6,627,218		2,854,208
Commercial loans		3,817,267		—

Total reported loans		58,833,376		38,237,463

Securitization Adjustments:
Consumer loans:
Credit cards
Domestic		33,947,926		32,166,842
International		7,155,567		6,418,151

Total credit cards		41,103,493		38,584,993
Installment loans
Domestic		2,881,616		2,275,124
International		—		—

Total installment loans		2,881,616		2,275,124
Auto loans		820,151		1,800,693
Mortgage loans		—		—

Total consumer loans		44,805,260		42,660,810
Small business loans		2,451,258		1,573,555
Commercial loans		—		—

Total securitization adjustments		47,256,518		44,234,365

Managed loans:
Consumer loans:
Credit cards
Domestic		47,888,632		46,365,348
International		10,278,179		10,212,124

Total credit cards		58,166,811		56,577,472
Installment loans
Domestic		9,171,055		6,908,621
International		596,258		563,974

Total installment loans		9,767,313		7,472,595
Auto loans		20,187,631		13,993,998
Mortgage loans		5,072,396		—

Total consumer loans		93,194,151		78,044,065
Small business loans		9,078,476		4,427,763
Commercial loans		3,817,267		—

Total	$	106,089,894	$	82,471,828


	Six Months Ended June 30
(Dollars in thousands)	2006		2005
Average Balances:
Reported loans:
Consumer loans:
Credit cards
Domestic	$	14,254,020	$	14,947,347
International		3,119,895		3,844,364

Total credit cards		17,373,915		18,791,711
Installment loans
Domestic		6,129,167		4,580,630
International		574,533		537,241

Total installment loans		6,703,700		5,117,871
Auto loans		18,896,917		11,553,829
Mortgage loans		5,135,974		—

Total consumer loans		48,110,506		35,463,411
Small business loans		6,519,383		2,790,225
Commercial loans		3,859,917		—

Total reported loans		58,489,806		38,253,636

Securitization Adjustments:
Consumer loans:
Credit cards
Domestic		33,805,921		32,089,346
International		7,024,773		6,195,952

Total credit cards		40,830,694		38,285,298
Installment loans
Domestic		2,788,942		2,226,893
International		—		—

Total installment loans		2,788,942		2,226,893
Auto loans		918,540		1,860,751
Mortgage loans		—		—

Total consumer loans		44,538,176		42,372,942
Small business loans		2,326,153		1,488,252
Commercial loans		—		—

Total securitization adjustments		46,864,329		43,861,194

Managed loans:
Consumer loans:
Credit cards
Domestic		48,059,941		47,036,693
International		10,144,668		10,040,316

Total credit cards		58,204,609		57,077,009
Installment loans
Domestic		8,918,109		6,807,523
International		574,533		537,241

Total installment loans		9,492,642		7,344,764
Auto loans		19,815,457		13,414,580
Mortgage loans		5,135,974		—

Total consumer loans		92,648,682		77,836,353
Small business loans		8,845,536		4,278,477
Commercial loans		3,859,917		—

Total	$	105,354,135	$	82,114,830

TABLE D—COMPOSITION OF REPORTED LOAN PORTFOLIO


	As of June 30
	2006				2005
(Dollars in thousands)	Loans		% of Total Loans		Loans		% of Total Loans
Reported:
Consumer loans	$	49,865,172	82.28	%	$	35,769,335	92.64	%
Small business loans		6,874,074	11.34	%		2,841,452	7.36	%
Commercial loans		3,863,557	6.38	%		—	—

Total	$	60,602,803	100.00	%	$	38,610,787	100.00	%

TABLE E—DELINQUENCIES

Table E shows the Company’s loan delinquency trends for the periods presented on a reported and managed basis.


	As of June 30
	2006				2005
(Dollars in thousands)	Loans		% of Total Loans		Loans		% of Total Loans
Reported:
Loans outstanding	$	60,602,803	100.00	%	$	38,610,787	100.00	%
Loans delinquent:
30-59 days		997,496	1.65	%		739,705	1.92	%
60-89 days		376,485	0.62	%		301,974	0.78	%
90-119 days		208,977	0.34	%		172,150	0.44	%
120-149 days		100,449	0.16	%		99,206	0.26	%
150 or more days		88,784	0.15	%		86,517	0.22	%

Total	$	1,772,191	2.92	%	$	1,399,552	3.62	%

Loans delinquent by geographic area:
Domestic	$	1,675,540	2.96	%	$	1,298,283	3.75	%
International		96,651	2.40	%		101,269	2.52	%
Managed:
Loans outstanding	$	108,433,439	100.00	%	$	82,951,352	100.00	%
Loans delinquent:
30-59 days		1,560,217	1.44	%		1,302,901	1.57	%
60-89 days		711,829	0.66	%		630,898	0.76	%
90-119 days		471,946	0.43	%		423,919	0.51	%
120-149 days		301,476	0.28	%		288,842	0.35	%
150 or more days		260,925	0.24	%		246,299	0.30	%

Total	$	3,306,393	3.05	%	$	2,892,859	3.49	%

TABLE F—NET CHARGE-OFFS

Table F shows the Company’s net charge-offs for the periods presented on a reported and managed basis.


	Three Months Ended June 30						Six Months Ended June 30
(Dollars in thousands)	2006			2005			2006			2005
Reported:
Average loans outstanding	$	58,833,376		$	38,237,463		$	58,489,806		$	38,253,636
Net charge-offs		295,844			324,048			596,311			654,318
Net charge-offs as a percentage of average loans outstanding		2.01	%		3.39	%		2.04	%		3.42	%

Managed:
Average loans outstanding	$	106,089,894		$	82,471,828		$	105,354,135		$	82,114,830
Net charge-offs		729,010			844,610			1,421,513			1,688,541
Net charge-offs as a percentage of average loans outstanding		2.75	%		4.10	%		2.70	%		4.11	%

TABLE G—NONPERFORMING ASSETS

Table G shows a summary of nonperforming assets for the period indicated.


	As of June 30, 2006
Nonaccrual loans:
Consumer	$	33,618
Small business		22,004
Commercial		34,918

Total nonperforming loans		90,540
Foreclosed assets		6,705
Excess bank-owned property		1,036

Total nonperforming assets	$	98,281

(1)	The Company assumed nonperforming assets in connection with the Hibernia acquisition and therefore did not have any nonperforming assets prior to December 31, 2005.

TABLE H—SUMMARY OF ALLOWANCE FOR LOAN LOSSES

Table H sets forth activity in the allowance for loan losses for the periods indicated.


	Three Months Ended June 30						Six Months Ended June 30
(Dollars in thousands)	2006			2005			2006			2005
Balance at beginning of period	$	1,675,000		$	1,440,000		$	1,790,000		$	1,505,000
Provision for loan losses:
Domestic		289,724			236,576			398,246			449,265
International		72,721			55,024			134,469			101,966

Total provision for loan losses		362,445			291,600			532,715			551,231

Acquisitions		—			—			—			7,757
Other		10,520			(2,552	)		11,434			(4,670	)
Charge-offs:
Consumer loans:
Domestic		(321,912	)		(356,068	)		(665,317	)		(721,620	)
International		(59,755	)		(45,673	)		(114,083	)		(91,668	)

Total consumer loans		(381,667	)		(401,741	)		(779,400	)		(813,288	)
Small business loans		(35,490	)		(36,196	)		(64,607	)		(70,191	)
Commercial loans		(1	)		—			(70	)		—

Total charge-offs		(417,158	)		(437,937	)		(844,077	)		(883,479	)

Principal recoveries:
Consumer loans:
Domestic		113,714			97,475			236,336			196,346
International		12,073			10,662			23,646			21,567

Total consumer loans		125,787			108,137			259,982			217,913
Small business loans		8,330			5,752			14,736			11,248
Commercial loans		76			—			210			—

Total principal recoveries		134,193			113,889			274,928			229,161

Net charge-offs		(282,965	)		(324,048	)		(569,149	)		(654,318	)

Balance at end of period	$	1,765,000		$	1,405,000		$	1,765,000		$	1,405,000

Allowance for loan losses to loans at end of period		2.91	%		3.64	%		2.91	%		3.64	%

Allowance for loan losses by geographic distribution:
Domestic	$	1,558,919		$	1,232,438		$	1,558,919		$	1,232,438
International		206,081			172,562			206,081			172,562

Allowance for loan losses by loan category:
Consumer loans:
Domestic	$	1,319,607		$	1,117,221		$	1,319,607		$	1,117,221
International		206,081			172,562			206,081			172,562

Total consumer loans		1,525,688			1,289,783			1,525,688			1,289,783
Small business loans		187,333			115,217			187,333			115,217
Commercial loans		41,400			—			41,400			—
Unallocated		10,579			—			10,579			—

Total loans	$	1,765,000		$	1,405,000		$	1,765,000		$	1,405,000

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The information called for by this item is provided under the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2005, Item 7A “Quantitative and Qualitative Disclosures about Market Risk”. No material changes have occurred during the three and six month periods ended June 30, 2006.

Item 4. Controls and Procedures.

(a) Disclosure Controls and Procedures.

The Corporation’s management carried out an evaluation of the effectiveness of the design and operation of the Corporation’s disclosure controls and internal controls and procedures as of June 30, 2006, pursuant to Exchange Act Rules 13a-14 and 13a-15. These controls and procedures for financial reporting are the responsibility of the Corporation’s management. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in alerting them in a timely manner to material information relating to the Corporation (including consolidated subsidiaries) required to be included in the Corporation’s periodic filings with the Securities and Exchange Commission. The Corporation has established a Disclosure Committee consisting of members of senior management to assist in this evaluation.

Part II. Other Information

Item 1. Legal Proceedings.

The information required by Item 1 is included in this Quarterly Report under the heading “Notes to Condensed Consolidated Financial Statements – Note 8– Commitments and Contingencies.”

Item 1A. Risk Factors

This Quarterly Report on Form 10-Q contains forward-looking statements. We also may make written or oral forward-looking statements in our periodic reports to the Securities and Exchange Commission on Forms 10-K and 8-K, in our annual report to shareholders, in our proxy statements, in our offering circulars and prospectuses, in press releases and other written materials and in statements made by our officers, directors or employees to third parties. Statements that are not about historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include information relating to our future earnings per share, growth in managed loans outstanding, product mix, segment growth, managed revenue margin, funding costs, operations costs, employment growth, marketing expense, delinquencies and charge-offs. Forward-looking statements also include statements using words such as “expect,” “anticipate,” “hope,” “intend,” “plan,” “believe,” “estimate” or similar expressions. We have based these forward-looking statements on our current plans, estimates and projections, and you should not unduly rely on them.

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions, including the risks discussed below. Our future performance and actual results may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond our ability to control or predict. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should carefully consider the factors discussed below in evaluating these forward-looking statements.

This section highlights specific risks that could affect our business and us. Although we have tried to discuss key factors, please be aware that other risks may prove to be important in the future. New risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance. In addition to the factors discussed elsewhere in this report, among the other factors that could cause actual results to differ materially are the following:

We Face Intense Competition in All of Our Markets

We face intense competition from many other providers of credit cards, automobile loans, branch retail banking services and other consumer financial products and services. In particular, in our credit card activities, we compete with international, national, regional and local bank card issuers, with other general purpose credit or charge card issuers, and to a certain extent, issuers of smart cards and debit cards. Our credit card business also competes with providers of other types of financial services and consumer loans such as home equity lines and other mortgage related products that offer consumer debt consolidation. Thus, the cost to acquire new accounts will continue to vary among product lines and may rise. Other companies may compete with us for customers by offering lower initial interest rates and fees, higher credit limits and/or customer services or product features that are or may appear to be more attractive than those we offer. Because customers often choose credit card issuers (or other sources of financing) based on price (primarily interest rates and fees), credit limit and other product features, customer loyalty is limited. In addition, intense competition may lead to product and pricing practices that may adversely impact long-term customer loyalty; we may choose to not engage in such practices, which may adversely impact our ability to compete, particularly in the short term. Increased competition has resulted in, and may continue to cause, a decrease in credit card response rates and reduced productivity of marketing dollars invested in certain lines of business. Competition may also have an impact on customer attrition as our customers accept offers from other credit card lenders and/or providers of other consumer lending products, such as home equity financing.

Our other consumer lending businesses, including auto lending, small business lending, home loan lending, installment lending, our commercial lending businesses, and our businesses in international markets also compete on a similar variety of factors, including price, product features and customer service. These businesses may also experience a decline in marketing efficiency and/or an increase in customer attrition. Finally, our banking business competes with national and state banks for deposits, loans, and trust accounts, and also competes with other financial services companies in offering various types of financial services.

Some of our competitors may be substantially larger than we are, which may give those competitors advantages, including a more diversified product and customer base, operational efficiencies, broad-based local distribution capabilities, lower-cost funding and more versatile technology platforms. These competitors may also consolidate with other financial institutions in ways that enhance these advantages and intensify our competitive environment.

In such a competitive environment, we may lose entire accounts, or may lose account balances, to competing financial institutions, or find it more costly to maintain our existing customer base. Customer attrition from any or all of our lending products, together with any lowering of interest rates or fees that we might implement to retain customers, could reduce our revenues and therefore our earnings. Similarly, customer attrition from our deposit products, in addition to an increase of rates and/or services that we may undertake to retain those deposits, may increase our expenses and therefore reduce our earnings. We expect that competition will continue to grow more intensely with respect to most of our products, including our diversified products and the products we offer internationally.

We May Experience Increased Delinquencies and Credit Losses

Like other lenders, we face the risk that our customers will not repay their loans. Rising losses or leading indicators of rising losses (higher delinquencies or bankruptcy rates; lower collateral values) may require us to increase our allowance for loan losses and may degrade our profitability if we are unable to raise revenue or reduce costs to compensate for higher losses. The favorable credit environment we experienced in the first half of the year may not continue. In particular, we face the following risks in this area:

•

Missed Payments. We face the risk that customers will miss payments. Loan charge-offs are generally preceded by missed payments or other indications of worsening financial condition. Our reported delinquency levels measure these trends. In some instances, customers declare bankruptcy without first missing payments. We usually charge-off at least a portion of a customer’s outstanding loan balance in the case of bankruptcy. Our bankruptcy experience is generally correlated with national bankruptcy filing trends.

•

Collateral. We face the risk that collateral, when we have it, will be insufficient to compensate us for loan losses. When customers default on their loans and we have collateral, we attempt to seize it. However, the value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan and we may be unsuccessful in recovering the remaining balance from our customers. Our automobile loans are subject to collateral risk through declining used car prices. Our commercial and real-estate exposures are also subject to collateral risk, especially those that were affected by the Gulf Coast hurricanes.

•

Estimates of future losses. We face the risk that we may underestimate our future losses and fail to hold a loan loss allowance sufficient to account for these losses. We update our forecast of future losses and analyze certain scenarios each quarter. We incorporate these estimates into our financial plans, strategies, loan loss allowance, and forward looking statements. These estimates are based on observed trends in delinquency, charge-offs, bankruptcies, and collateral recoveries; on our marketing strategies and underwriting models; and on our views about future economic, interest rate, and competitive conditions. Incorrect assumptions could lead to material underestimates of future losses and inadequate allowance for loan losses. In addition, our estimate of future losses impacts the amount of reserves we build to account for those losses. The build or release of reserves impacts our current financial results.

•

Underwriting. We face the risk that our ability to assess the credit worthiness of our customers may diminish. We market our products to a wide range of customers including those with less experience with credit products and those with a history of missed payments. We select our customers, manage their accounts and establish prices and credit limits using proprietary models and other techniques designed to predict future charge-offs. Our goal is to set prices and credit limits such that we are appropriately compensated for the credit risk we accept for both high and low risk customers. If the models and approaches we use to select, manage, and underwrite our customers become less predictive of future charge-offs (due, for example, to changes in the competitive environment or in the economy), our credit losses and returns may deteriorate.

•

Business mix. We face the risk that our business mix will change in ways that could adversely affect credit losses. We participate in a mix of businesses with a broad range of credit loss characteristics. Consequently, changes in segment mix may change our charge-off rate. In addition, significant changes in our organic growth rate may change our charge-off rate since young accounts tend to have lower charge-offs than older accounts (i.e. slower organic growth may drive a higher charge-off rate).

•

Charge-off recognition. We face the risk that the rules governing charge-off recognition could change. We record charge-offs according to accounting practices consistent with accounting and regulatory guidelines and rules. These guidelines and rules, including among other things, the FFIEC Account Management Guidance, could change and cause our charge-offs to increase for reasons unrelated to the underlying performance of our portfolio.

•

Industry practices. We face the risk that our charge-off and delinquency rates may be impacted by industry developments. For example, actions by our competitors to change minimum payment practices in response to advice from the regulators regarding the application of FFIEC Account Management Guidance may adversely impact industry charge-off and delinquency rates and, in turn, our rates.

We Face Risk From Economic Downturns

Delinquencies and credit losses in the consumer finance industry generally increase during economic downturns or recessions. Likewise, consumer demand may decline during an economic downturn or recession. In the United States, we face the risk that the effects of higher energy costs, higher interest rates and pressure on housing prices may place added strain on consumers’ ability to sustain their recent strong credit performance. Accordingly, an economic downturn in the United States (either local or national), can hurt our financial performance as accountholders default on their loans or, in the case of

credit card accounts, carry lower balances and reduce credit card purchase activity. Furthermore, because our business model is to lend across the credit spectrum, we make loans to lower credit quality customers. These customers generally have higher rates of charge-offs and delinquencies than do higher credit quality customers. Additionally, we face the risk that the downturn in consumer credit in the United Kingdom may continue to worsen which could also hurt our financial performance.

We Face Strategic Risks in Sustaining Our Growth and Pursuing Diversification

Our growth strategy has multiple components. First, we seek to continue to grow our established businesses, such as our domestic credit card and automobile finance businesses. Second, we hope to continue to diversify our business, both geographically and in product mix. We seek to do this by identifying, pursuing and expanding new business opportunities, such as branch banking and other consumer loan products, and by growing our lending businesses internationally, principally in the United Kingdom and Canada. Our acquisition of Hibernia enabled us to expand into the branch banking business, which we believe can be a growth business for the Company, and is a key component of our ongoing diversification strategy. Our agreement to acquire North Fork Bancorporation, Inc. (“North Fork”) continues us on that strategic path. Our ability to continue to grow is driven by the success of our fundamental business plan, the level of our investments in new businesses or regions and our ability to apply our risk management skills to new businesses. This risk has many components, including:

•

Customer and Account Growth. Our growth is highly dependent on our ability to retain existing customers and attract new ones, grow existing and new account balances, develop new market segments and have sufficient funding available for marketing activities to generate these customers and account balances. Our ability to grow and retain customers is also dependent on customer satisfaction, which may be adversely affected by factors outside of our control, such as postal service and other marketing and customer service channel disruptions and costs.

•

Product and Marketing Development. Difficulties or delays in the development, production, testing and marketing of new products or services, which may be caused by a number of factors including, among other things, operational constraints, technology functionality, regulatory and other capital requirements and legal difficulties, will affect the success of such products or services and can cause losses arising from the costs to develop unsuccessful products and services, as well as decreased capital availability. In addition, customers may not accept the new products and services offered.

•

Diversification Risk. An important element of our strategy is our effort to continue diversifying beyond our U.S. credit card business. Our ability to successfully diversify is impacted by a number of factors, including: successfully integrating acquired businesses, including Hibernia and North Fork, developing and executing strategies to grow our existing consumer financial services businesses, identifying appropriate acquisition targets, entering into successful negotiations with such targets and executing on acquisition transactions, and our financial ability to undertake these diversification activities. As a regulated financial institution, our pursuit of attractive acquisition opportunities could be negatively impacted due to regulatory delays or other regulatory issues. Regulatory and/or legal issues relating to the pre-acquisition operations of an acquired business may harm our reputation following the acquisition and integration of the acquired business into ours and may result in additional future costs and expenses arising as a result of those issues. In addition, part of our diversification strategy has been to grow internationally. Our growth internationally faces additional challenges, including changing regulatory and legislative environments, political developments, possible economic downturns in other countries, exchange rates and differences from the historical experience of portfolio performance in the United States and other countries.

We May Fail To Realize All of the Anticipated Benefits of our Merger with Hibernia Corporation

The success of the merger will depend, in part, on our ability to realize the anticipated benefits from combining the businesses of Capital One and Hibernia. However, to realize these anticipated benefits, we must successfully combine the businesses of Capital One and Hibernia. If we are not able to achieve these objectives, the anticipated benefits of the merger, such as cost savings and other synergies, may not be realized fully or at all or may take longer to realize than expected.

Prior to the completion of the merger, Capital One and Hibernia operated independently. It is possible that the ongoing integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the merger. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on the Company during such transition period. The acquisition of Hibernia also involves our entry into new businesses and new geographic or other markets, this present risks resulting from our relative inexperience in these new areas.

We Face the Risk of a Complex and Changing Regulatory and Legal Environment

We operate in a heavily regulated industry and are therefore subject to a wide array of banking, consumer lending and deposit laws and regulations that apply to almost every element of our business. Failure to comply with these laws and regulations could result in financial, structural and operational penalties, including receivership. In addition, establishing systems and processes to achieve compliance with these laws and regulations, may increase our costs and/or limit our ability to pursue certain business opportunities. As our business grows in size and complexity, including as we grow by acquisition, establishing systems and processes to achieve compliance may become more difficult and costly. See “Supervision and Regulation” above.

Federal and state laws and regulations, as well as laws and regulations to which we are subject in foreign jurisdictions in which we conduct business, significantly limit the types of activities in which we may engage. For example, federal and state consumer protection laws and regulations, and laws and regulations of foreign jurisdictions where we conduct business, limit the manner in which we may offer and extend credit. From time to time, the U.S. Congress, the states and foreign governments consider

changing these laws and may enact new laws or amend existing laws and regulatory authorities may issue new regulations. Such new laws or regulations could limit the amount of interest or fees we can charge, restrict our ability to collect on account balances, or materially affect us or the banking or credit card industries in some other manner. Additional federal, state and foreign consumer protection legislation also could seek to expand the privacy protections afforded to customers of financial institutions and restrict our ability to share or receive customer information. See “Supervision and Regulation” above.

Banking regulators possess broad discretion to issue or revise regulations, or to issue guidance, which may significantly impact us. For example, the Federal Trade Commission has issued, and will continue to issue, a variety of regulations under the FACT Act of 2003, the Federal Reserve has announced proposed rule-making, and has issued some final rules, and in the UK the Office of Fair Trading has concluded its industry investigation on the calculation of default charges, all of which may impact us. Additionally, the new bankruptcy reform legislation will put additional requirements on us regarding disclosures on the effects on consumers of making only minimum payments on their accounts. We face similar risks in our international businesses, where changing laws and regulations may have an adverse impact on our results. See “International Regulation” above.

Each banking regulatory agency which has supervisory authority over one of our banks has broad authority to review and monitor our business activities. Under this authority, our regulators interpret the applicable laws, regulations and guidance and how these numerous requirements apply to our activities. The regulators also evaluate the degree to which we have satisfactorily complied with these requirements. We cannot, however, predict whether and how any new regulations or guidelines issued by the banking or other regulators would be applicable to the activities of the Bank, the National Bank or the Savings Bank, in what manner such regulations or guidelines might be interpreted or applied, or the resulting effect on us, the Bank, the National Bank or the Savings Bank. There can be no assurance that this kind of regulatory action will not have a negative impact on us and/or our financial results.

We Face Risk Related to the Strength of our Operational, Technological and Organizational Infrastructure

Our ability to grow and compete is dependent on our ability to build or acquire the necessary operational and technological infrastructure and to manage the cost of that infrastructure while we expand and as we integrate acquired businesses. Similar to other large corporations, in our case, operational risk can manifest itself in many ways, such as errors related to failed or inadequate processes, faulty or disabled computer systems, fraud by employees or persons outside of Capital One and exposure to external events. We are dependent on our operational infrastructure to help manage these risks. In addition, we are heavily dependent on the strength and capability of our technology systems which we use both to interface with our customers and to manage our internal financial and other systems. Our ability to develop and deliver new products that meet the needs of our existing customers and attract new ones depends on the functionality of our technology systems. Our ability to develop and implement effective marketing campaigns also depends on our technology. Additionally, our ability to run our business in compliance with applicable laws and regulations is dependent on these infrastructures.

We continuously monitor our operational and technological capabilities and make modifications and improvements when we believe it will be cost effective to do so. In some instances, we may build and maintain these capabilities ourselves. We also outsource some of these functions to third parties. These third parties may experience errors or disruptions that could adversely impact us and over which we may have limited control. As we increase the amount of our infrastructure that we outsource to third parties, we increase our exposure to this risk. We also face risk from the integration of new infrastructure platforms and/or new third party providers of such platforms into our existing businesses. We are currently undertaking a project with Total System Services, Inc. (“TSYS”) to transfer to a new technological platform that will result in TSYS providing processing services for Capital One’s North

American portfolio of consumer and small business credit card accounts. Our ability to successfully transition to this new platform as well as TSYS’s ongoing ability to provide services to us, could impact our performance in the future.

In addition to creating a solid infrastructure platform, we are also dependent on recruiting management and operations personnel with the experience to run an increasingly large and complex business. Although we take steps to retain our existing management talent and recruit new talent as needed, we face a competitive market for such talent and there can be no assurance that we will continue to be able to maintain and build a management team capable of running our increasingly large and complex business.

We May Face Limited Availability of Financing, Variation in Our Funding Costs and Uncertainty in Our Securitization Financing

In general, the amount, type and cost of our funding, including financing from other financial institutions, the capital markets and deposits, directly impacts our expense in operating our business and growing our assets and therefore, can positively or negatively affect our financial results.

A number of factors could make such financing more difficult, more expensive or unavailable on any terms both domestically and internationally (where funding transactions may be on terms more or less favorable than in the United States), including, but not limited to, financial results and losses, changes within our organization, specific events that adversely impact our reputation, changes in the activities of our business partners, disruptions in the capital markets, specific events that adversely impact the financial services industry, counter-party availability, changes affecting our assets, our corporate and regulatory structure, interest rate fluctuations, ratings agencies actions, and the legal, regulatory, accounting and tax environments governing our funding transactions. In addition, our ability to raise funds is strongly affected by the general state of the U.S. and world economies, and may become increasingly difficult due to economic and other factors. Also, we compete for funding with other banks, savings banks and similar companies, some of which are publicly traded. Many of these institutions are substantially larger, may have more capital and other resources and may have better debt ratings than we do. In addition, as some of these competitors consolidate with other financial institutions, these advantages may increase. Competition from these institutions may increase our cost of funds. We have sought to mitigate this risk by expanding our banking (deposit taking) franchise.

As part of our capital markets financing, we actively securitize our consumer loans. The occurrence of certain events may cause the securitization transactions to amortize earlier than scheduled, which would accelerate the need for additional funding. This early amortization could, among other things, have a significant effect on the ability of the Bank and the Savings Bank to meet the capital adequacy requirements as all off-balance sheet loans experiencing such early amortization would have to be recorded on the balance sheet. See pages 54-56 in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity Risk Management” contained in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2005.

Finally, Hibernia has experienced a significant increase in deposits since the Gulf Coast hurricanes, most likely as a result of customers receiving federal funds and insurance payments relating to the hurricanes. Currently, it is unclear what customers will do with these deposits in the long-term. It is possible that as rebuilding and reinvesting in the Gulf Coast area begins, the amount of these incremental deposits with Hibernia could decrease significantly.

We May Experience Changes in Our Debt Ratings

In general, ratings agencies play an important role in determining, by means of the ratings they assign to issuers and their debt, the availability and cost of wholesale funding. We currently receive ratings from several ratings entities for our secured and unsecured borrowings. As private entities, ratings agencies

have broad discretion in the assignment of ratings. A rating below investment grade typically reduces availability and increases the cost of market-based funding, both secured and unsecured. A debt rating of Baa3 or higher by Moody’s Investors Service, or BBB- or higher by Standard & Poor’s and Fitch Ratings, is considered investment grade. Currently, all three ratings agencies rate the unsecured senior debt of the Bank, Hibernia and the Corporation as investment grade. The following chart shows ratings for Capital One Financial Corporation, Capital One Bank and Hibernia National Bank as of June 30, 2006. As of that date, the ratings outlooks were as follows:


	Standard & Poor’s	Moody’s	Fitch

Capital One Financial Corporation	BBB	Baa1	BBB+

Capital One Financial Corporation—Outlook	Positive	Positive	Positive

Capital One Bank	BBB+	A3	BBB+

Capital One Bank—Outlook	Positive	Positive	Positive

Capital One, National Association	BBB+	A3	BBB+

Capital One, National Association—Outlook	Positive	Positive	Positive

Because we depend on the capital markets for funding and capital, we could experience reduced availability and increased cost of funding if our debt ratings were lowered. This result could make it difficult for us to grow at or to a level we currently anticipate. The immediate impact of a ratings downgrade on other sources of funding, however, would be limited, as our deposit funding and pricing, as well as some of our unsecured corporate borrowing, is not generally determined by corporate debt ratings.

We Face Market Risk of Interest Rate and Exchange Rate Fluctuations

Like other financial institutions, we borrow money from institutions and depositors, which we then lend to customers. We earn interest on the consumer loans we make, and pay interest on the deposits and borrowings we use to fund those loans. Changes in either or both of these two interest rates affect the value of our assets and liabilities. If the rate of interest we pay on our borrowings increases more than the rate of interest we earn on our loans, our net interest income, and therefore our earnings, would fall. Our earnings could also be hurt if the rates on our consumer loans fall more quickly than those on our borrowings. We also seek to minimize market risk to a level that is immaterial to our net income. The financial instruments and techniques we use to manage the risk of interest rate and exchange rate fluctuations, such as asset/liability matching and interest rate and exchange rate swaps and hedges and some forward exchange contracts, may not always work successfully or may not be available at a reasonable cost. Furthermore, if these techniques become unavailable or impractical, our earnings could be subject to volatility and decreases as interest rates and exchange rates change.

Changes in interest rates also affect the balances our customers carry on their credit cards and affect the rate of pre-payment for installment loan and mortgage products. These changes can reduce the overall yield on our portfolio if we do not adequately provide for them in our interest rate hedging strategies. When interest rates rise, there are fewer low-rate alternatives available to customers. Consequently, credit card balances may rise (or fall more slowly) and pre-payment rates on installment lending and mortgage products may fall. In this circumstance, we may have to raise additional funds at higher interest rates. In our credit card business, we could, subject to legal and competitive constraints, mitigate this risk by increasing the interest rates we charge, although such changes may increase opportunities for our competitors to offer attractive products to our customers and consequently increase customer attrition from our portfolio. We could also mitigate this risk through hedging strategies, if available; if we are unable to do so, we could suffer adverse impacts on overall portfolio yield. Rising interest rates across the industry may also lead to higher delinquencies as customers face increasing interest payments both on our products and on other loans they may hold. See pages 56-57 in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Interest Rate Risk Management” contained in the Annual Report on Form 10-K for the year ended December 31, 2005.

The Credit Card Industry Faces Increased Litigation Risks Relating to Industry Structure

We face possible risks from the outcomes of certain credit card industry litigation. In 1998, the United States Department of Justice filed an antitrust lawsuit against the MasterCard and Visa membership associations composed of financial institutions that issue MasterCard or Visa credit or debit cards (“associations”), alleging, among other things, that the associations had violated antitrust law and engaged in unfair practices by not allowing member banks to issue cards from competing brands, such as American Express and Discover Financial Services. In 2001, a New York district court entered judgment in favor of the Department of Justice and ordered the associations to repeal these policies. The United States Court of Appeals for the Second Circuit affirmed the district court and, on October 4, 2004, the United States Supreme Court denied certiorari in the case. In November 2004, American Express filed an antitrust lawsuit (the “Amex lawsuit”) against the associations and several member banks alleging that the associations and member banks jointly and severally implemented and enforced illegal exclusionary agreements that prevented member banks from issuing American Express and Discover cards. The complaint requests civil monetary damages, which could be trebled. We, the Bank, and the Savings Bank are named defendants in this lawsuit.

Separately, a number of entities, each purporting to represent a class of retail merchants, have also filed antitrust lawsuits (the “Interchange lawsuits”) against the associations and several member banks, including us and our subsidiaries, alleging among other things, that the associations and member banks conspired to fix the level of interchange fees. The complaints request civil monetary damages, which could be trebled. In October 2005, the Interchange lawsuits were consolidated before the United States District Court for the Eastern District of New York for certain purposes, including discovery.

We believe that we have meritorious defenses with respect to these cases and intend to defend these cases vigorously. At the present time, management is not in a position to determine whether the resolution of these cases will have a material adverse effect on either our consolidated financial position or our results of operations in any future reporting period.

In addition, several merchants filed class action antitrust lawsuits, which were subsequently consolidated, against the associations relating to certain debit card products. In April 2003, the associations agreed to settle the lawsuit in exchange for payments to plaintiffs and for changes in policies and interchange rates for debit cards. Certain merchant plaintiffs have opted out of the settlements and have commenced separate lawsuits. Additionally, consumer class action lawsuits with claims mirroring the merchants’ allegations have been filed in several courts. Finally, the associations, as well as certain member banks, continue to face additional lawsuits regarding policies, practices, products and fees.

With the exception of the Interchange lawsuits and the Amex lawsuit, we and our subsidiaries are not parties to the lawsuits against the associations described above and therefore will not be directly liable for any amount related to any possible or known settlements of such lawsuits. However, our subsidiary banks are member banks of MasterCard and Visa and thus may be affected by settlements or lawsuits relating to these issues, including changes in interchange payments. In addition, it is possible that the scope of these lawsuits may expand and that other member banks, including our subsidiary banks, may be brought into the lawsuits or future lawsuits. The associations are also subject to additional litigation, including suits regarding foreign exchange fees.

Given the complexity of the issues raised by these lawsuits and the uncertainty regarding: (i) the outcome of these suits, (ii) the likelihood and amount of any possible judgments, (iii) the likelihood, amount and validity of any claim against the associations’ member banks, including the banks and us, and (iv) changes in industry structure that may result from the suits and (v) the effects of these suits, in turn, on competition in the industry, member banks, and interchange and association fees, we cannot determine at this time the long-term effects of these suits on us.

We Face the Risk of Fluctuations in Our Expenses and Other Costs that May Hurt Our Financial Results

Our expenses and other costs, such as operating and marketing expenses, directly affect our earnings results. In light of the extremely competitive environment in which we operate, and because the size and scale of many of our competitors provides them with increased operational efficiencies, it is important that we are able to successfully manage such expenses. Many factors can influence the amount of our expenses, as well as how quickly they may increase. Investments in infrastructure, which may be necessary to maintain a competitive business, may increase operational expenses in the short-run. As our business develops, changes or expands, additional expenses can arise from management of outsourced services, asset purchases, structural reorganization, a reevaluation of business strategies and/or expenses to comply with new or changing laws or regulations. Other factors that can affect the amount of our expenses include legal and administrative cases and proceedings, which can be expensive to pursue, defend or settle.

We Face Risks Related to the Impact of the Gulf Coast Hurricanes That May Be Substantial and Cannot Be Predicted

Our branch banking business is currently headquartered in New Orleans, Louisiana, and maintains branches in the areas of Louisiana and Texas that sustained significant damage from the Gulf Coast hurricanes. Our operations in other parts of Louisiana and Texas have not been impacted, either significantly or at all, by the hurricanes.

The Gulf Coast hurricanes have also affected our branch banking businesses’ consumer, mortgage, auto, commercial and small business loan portfolios by damaging properties pledged as collateral and by impairing certain borrowers’ ability to repay their loans. The hurricanes may continue to affect loan originations and loan portfolio quality in the impacted areas into the future and could also adversely impact our deposit base. The severity and duration of these effects will depend on a variety of factors that are beyond our control, including the amount and timing of government, private and philanthropic investment (including deposits) in the region, the pace of rebuilding and economic recovery in the region generally, the extent to which the hurricanes’ property damage is covered by insurance, and the pace at which we restore our business operations in the various markets in which it operates.

None of the effects described above can be accurately predicted or quantified. As a result, significant uncertainty remains regarding the impact the hurricanes will have on the business, financial condition and results of operations of the combined company and the ability of the combined company to realize the anticipated benefits from the merger. Further, the area in which the branch banking business currently operates may experience hurricanes and other storms in the future, and some of those hurricanes and storms may have effects similar to those caused by the Gulf Coast hurricanes.

We Face Risks Related to our Proposed Merger with North Fork

Completion of the proposed merger between Capital One and North Fork is subject to the satisfaction of various conditions, including the receipt of approval from the stockholders of Capital One and the

stockholders of North Fork as well as the receipt of various regulatory approvals and authorizations. There is no assurance that all of the various conditions will be satisfied, or that the merger will be completed on the proposed terms and schedule. Additionally, when and if the merger is completed, we face the risks that the businesses may not be integrated successfully and that the cost savings and other synergies from the transaction may not be fully realized, or may take longer to realize than expected. Finally, uncertainties or disruptions related to the transaction may make it more difficult to maintain relationships with customers, employees or suppliers.

We must receive federal regulatory approval before we can acquire North Fork. In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, financial condition and future prospects including current and projected capital ratios and levels, the competence, experience and integrity of management and record of compliance with laws and regulations, the convenience and needs of the communities to be served, including the acquiring institution’s record of compliance under the Community Reinvestment Act and the effectiveness of the acquiring institution in combating money laundering activities. In addition, we cannot be certain when or if, or on what terms and conditions, any required regulatory approvals will be granted. We may be required to take certain actions as a condition to receiving regulatory approval.

Finally, the timing of the closing of the transaction and the market conditions on the date of closing that determine purchase accounting adjustments, may have a significant impact on our financial results. We face the risk that market conditions may be anomalous on the date the transaction closes, resulting in unexpected impacts on our financial statements.

Reputational Risk and Social Factors May Impact our Results

Our ability to originate and maintain accounts is highly dependent upon consumer and other external perceptions of our business practices and/or our financial health. Adverse perceptions regarding these issues could damage our reputation in both the customer and funding markets, leading to difficulties in generating and maintaining accounts as well as in financing them. Adverse developments with respect to the consumer or other external perceptions regarding the practices of our competitors, or our industry as a whole, may also adversely impact our reputation. In addition, adverse reputational impacts on third parties with whom we have important relationships, such as our independent auditors, may also adversely impact our reputation. Adverse impacts on our reputation, or the reputation of our industry, may also result in greater regulatory and/or legislative scrutiny, which may lead to laws or regulations that may change or constrain the manner in which we engage with our customers and the products we offer them. Adverse reputational impacts or events may also increase our litigation risk. See “We Face the Risk of a Complex and Changing Regulatory and Legal Environment” below. To this end, we carefully monitor internal and external developments for areas of potential reputational risk and have established governance structures to assist in evaluating such risks in our business practices and decisions.

In addition, a variety of social factors may cause changes in credit card and other consumer finance use, payment patterns and the rate of defaults by accountholders and borrowers domestically and internationally. These social factors include changes in consumer confidence levels, the public’s perception of the use of credit cards and other consumer debt, and changing attitudes about incurring debt and the stigma of personal bankruptcy.

Item 2. Unregistered Sales of Equity Securities and Uses of Proceeds.


Period	(a) Total Number of Shares Purchased⁽¹⁾	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans
April 1-30, 2006	11,810	$	82.46	N/A	N/A
May 1-31, 2006	42	$	85.16	N/A	N/A
June 1-30, 2006	51,711	$	81.11	N/A	N/A
Total	63,563	$	81.36	N/A	N/A

(1)	Shares purchased represent share swaps made in connection with stock option exercises and the withholding of shares to cover taxes on restricted stock lapses.

Item 5. Other Information

The following information is provided pursuant to Item 2.03 of Form 8-K, “Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant,” with respect to the Company’s entry into a syndicated bridge loan facility arranged by J.P. Morgan Securities Inc. and Citigroup Global Markets Inc. (the “Facility”) on May 9, 2006. The Facility is available to the Company to finance, on an interim basis, up to $4.2 billion of the cash consideration payable to shareholders of North Fork in connection with the Agreement and Plan of Merger by and between North Fork and the Company dated as of March 12, 2006 (the “Acquisition”). The Facility is available until May 7, 2007 and borrowings under the Facility will mature on the earlier of 364 days from the date of borrowing or December 1, 2007. In addition, the Facility size will automatically decrease by the amount of proceeds received by the Company from the issuance of securities intended to fund the cash consideration of the Acquisition. Currently, there have been no draw downs under the Facility, and $3.2 billion is available to the Company under the Facility. Entry into the Facility was reported previously under Item 1.01 in a Form 8-K filed on May 12, 2006. Additional information regarding the North Fork acquisition is included in Note 9 to the condensed consolidated financial statements in this Form 10-Q.

Item 6. Exhibits


Exhibit No.		Description
2.1		Agreement and Plan of Merger, dated as of March 6, 2005, between Capital One Financial Corporation and Hibernia Corporation (incorporated by reference to Exhibit 2.1 of the Corporation’s Current Report on Form 8-K, filed on March 9, 2005).

2.2		Amendment No. 1, dated as of September 6, 2005, to the Agreement and Plan of Merger, dated as of March 6, 2005, between Capital One Financial Corporation and Hibernia Corporation (incorporated by reference to Exhibit 2.1 of the Corporation’s Current Report on Form 8-K, filed on September 8, 2005).

3.1		Restated Certificate of Incorporation of Capital One Financial Corporation and Certificate of Amendment to Restated Certificate of Incorporation of Capital One Financial Corporation (incorporated by reference to Exhibit 3.1.2 of the Corporation’s Current Report on Form 8-K, filed on January 16, 2001).

3.2		Amended and Restated Bylaws of Capital One Financial Corporation (as amended November 18, 1999) (incorporated by reference to Exhibit 3.2 of the Corporation’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 1999, filed on March 23, 2000).

4.1		Specimen certificate representing the Common Stock (incorporated by reference to Exhibit 4.1 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 3, 2004).

4.2		Amended and Restated Issuing and Paying Agency Agreement dated as of April 30, 1996 between Capital One Bank and Chemical Bank (including exhibits A-1, A-2, A-3 and A-4 thereto) (incorporated by reference to Exhibit 4.3 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed on March 17, 2003).

4.3.1		Amended and Restated Distribution Agreement, dated May 8, 2003, among Capital One Bank, J.P. Morgan Securities, Inc. and the agents named therein (incorporated by reference to Exhibit 4.1 of the Corporation’s Quarterly Report on Form 10-Q for the period ending June 30, 2003, filed on August 11, 2003).

4.3.2		Copy of 6.50% Notes, due 2004, of Capital One Bank (incorporated by reference to Exhibit 4.4.5 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, filed on March 22, 2002).

4.3.3		Copy of 6.875% Notes due 2006, of Capital One Bank (incorporated by reference to Exhibit 4.4.6 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, filed on March 22, 2002).

4.3.4		Copy of 4.25% Notes, due 2008, of Capital One Bank (incorporated by reference to Exhibit 4.4.4 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 5, 2004).

4.3.5		Copy of 5.75% Notes, due 2010, of Capital One Bank (incorporated by reference to Exhibit 4.4.5 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 5, 2004).

4.3.6		Copy of 6.50% Notes, due 2013, of Capital One Bank (incorporated by reference to Exhibit 4.4.6 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 5, 2004).


4.3.7		Copy of 4.875% Notes, due 2008, of Capital One Bank (incorporated by reference to Exhibit 4.4.7 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 5, 2004).

4.3.8		Copy of 8.25% Notes, due 2005, of Capital One Bank (incorporated by reference to Exhibit 4.4.4 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000, filed on March 29, 2001).

4.4.1		Senior Indenture and Form T-1 dated as of November 1, 1996 among Capital One Financial Corporation and Harris Trust and Savings Bank (incorporated by reference to Exhibit 4.5.1 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed on March 17, 2003).

4.4.2		Copy of 8.75% Notes, due 2007, of Capital One Financial Corporation (incorporated by reference to Exhibit 4.5.5 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, filed on March 22, 2002).

4.4.3		Copy of 7.125% Notes, due 2008, of Capital One Financial Corporation (incorporated by reference to Exhibit 4.8.2 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998, filed on March 26, 1999).

4.4.4		Copy of 7.25% Notes, due 2006, of Capital One Financial Corporation (incorporated by reference to Exhibit 4.10 of the Corporation’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 1999, filed on March 23, 2000).

4.4.5		Copy of 6.25% Notes, due 2013, of Capital One Financial Corporation (incorporated by reference to Exhibit 4.5.5 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 5, 2004).

4.4.6		Copy of 5.25% Notes, due 2017, of Capital One Financial Corporation (incorporated by reference to Exhibit 4.5.6 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed on March 9, 2005).

4.4.7		Copy of 4.80% Notes, due 2012, of Capital One Financial Corporation (incorporated by reference to Exhibit 4.5.7 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed on March 9, 2005).

4.4.8		Copy of 5.50% Senior Notes, due 2015, of Capital One Financial Corporation (incorporated by reference to Exhibit 4.1 of the Corporation’s Quarterly Report on Form 10-Q for the period ending June 30, 2005, filed August 4, 2005).

4.5.1		Declaration of Trust, dated as of January 28, 1997, between Capital One Bank and The First National Bank of Chicago, as trustee (including the Certificate of Trust executed by First Chicago Delaware Inc., as Delaware trustee) (incorporated by reference to Exhibit 4.6.1 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed on March 17, 2003).

4.5.2		Copies of Certificates Evidencing Capital Securities (incorporated by reference to Exhibit 4.6.2 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed on March 17, 2003).

4.5.3		Amended and Restated Declaration of Trust, dated as of January 31, 1997, by and among Capital One Bank, The First National Bank of Chicago and First Chicago Delaware Inc (incorporated by reference to Exhibit 4.6.3 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 5, 2004).


4.6		Issue and Paying Agency Agreement, dated as of October 24, 1997, between Capital One Bank, Morgan Guaranty Trust Company of New York, London Office, and the Paying Agents named therein (incorporated by reference to Exhibit 4.9 of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998, filed on March 26, 1999).

4.7		Upper DECs^® form of certificate (incorporated by reference to Exhibit 4.9 of the Corporation’s Report on Current Form 8-K, filed on April 23, 2002).

10.1		Bridge Loan Agreement, dated as of May 9, 2006, by and among Capital One Financial Corporation and J.P. Morgan Securities Inc. and Citigroup Global Markets Inc., as Joint Book Managers and Joint Lead Arrangers, and the lenders named therein.

31.1		Section 302 Certification of Richard D. Fairbank

31.2		Section 302 Certification of Gary L. Perlin

32.1		Section 906 Certification of Richard D. Fairbank*

32.2		Section 906 Certification of Gary L. Perlin*

*	Information furnished herewith shall not be deemed to be “filed” for the purposes of Section 18 of the 1934 Act or otherwise subject to the liabilities of that section.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		CAPITAL ONE FINANCIAL CORPORATION
		(Registrant)

Date: August 07, 2006		/s/ GARY L.PERLIN
		Gary L. Perlin
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial Officer and duly authorized officer of the Registrant)