CAPITAL ONE FINANCIAL CORP

Our loan portfolio accounts for the substantial majority of our credit risk exposure. Through the Transaction, we acquired new lending products, including personal loans. Our lending activities are governed under our credit policies and are subject to independent review and approval. Below we provide information about the composition of our loan portfolio, key concentrations and credit performance metrics.

We also engage in certain non-lending activities that may give rise to ongoing credit and counterparty settlement risk, including purchasing securities for our investment securities portfolio, entering into derivative transactions to manage our market risk exposure and to accommodate customers, extending short-term advances on syndication activity including bridge financing transactions we have underwritten, depositing certain operational cash balances in other financial institutions, executing certain foreign exchange transactions and extending customer overdrafts. We provide additional information related to our investment securities portfolio under “Consolidated Balance Sheets Analysis—Investment Securities” and “Item 8. Financial Statements and Supplementary Data—Note 3—Investment Securities” as well as credit risk related to derivative transactions in “Item 8. Financial Statements and Supplementary Data—Note 10—Derivative Instruments and Hedging Activities.”

Primary Loan Products

We provide a variety of lending products. Our primary loan products include credit cards, auto loans and commercial lending products.

•Credit cards: Consists of our domestic consumer card lending, personal loans, domestic small business card lending and international card businesses in the U.K. and Canada. We originate credit cards and personal loans through a variety of channels. Our credit cards generally have variable interest rates and personal loans have fixed interest rates. Both our credit cards and personal loans are primarily underwritten using an automated underwriting system based on predictive models that we have developed. The underwriting criteria are established based on an analysis of the expected revenues, expenses and losses, and are designed to be resilient to a variety of stress scenarios. Underwriting decisions are generally based on credit bureau information, including Fair Isaac Corporation (“FICO”) scores, and on other factors, such as applicant income. We maintain a credit card securitization program.

•Auto: We originate auto loans through a network of auto dealers and direct marketing. Our auto loans have fixed interest rates. Our underwriting criteria are based on analysis of expected revenues, expenses and losses, and are designed to be resilient to a variety of stress scenarios. Underwriting decisions are generally based on credit bureau information including FICO scores, an applicant’s information, including income and collateral characteristics such as loan-to-value (“LTV”) ratio. We maintain an auto securitization program.

•Commercial: We offer a range of commercial lending products, including loans secured by commercial real estate and loans to middle market commercial and industrial companies. Our commercial loans may have a fixed or variable interest rate; however, the majority of our commercial loans have variable rates. Our underwriting standards require an analysis of the borrower’s financial condition and prospects, as well as an assessment of the industry in which the borrower operates. Where relevant, we evaluate and appraise underlying collateral and guarantees. We maintain underwriting guidelines and limits for major types of borrowers and loan products that specify, where applicable, guidelines for debt service coverage, leverage, LTV ratio and standard covenants and conditions. We assign a risk rating and establish a monitoring schedule for loans based on the risk profile of the borrower, industry segment, source of repayment, the underlying collateral and guarantees, if any, and current market conditions. Although we generally retain the commercial loans we underwrite, we may syndicate positions for risk mitigation purposes, including bridge financing transactions we have underwritten. In addition, we originate and service multifamily commercial real estate loans which are sold to GSE or Agency where we retain certain levels of residual risk after the loans are sold.