CAPITAL ONE FINANCIAL CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the fiscal year ended December 31, 1997.
[_] 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 (I.R.S. Employer Identification No.)
incorporation or organization)

2980 Fairview Park Drive, Suite 1300
Falls Church, Virginia 22042-4525
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (703) 205-1000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on
which registered

Common Stock, $.01 Par Value New York Stock Exchange

Preferred Stock New York Stock Exchange
Purchase Rights*

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* Attached to each share of Common Stock is a Right to acquire 1/100th of a
share of the Registrant's Cumulative Participating Preferred Stock, par value
$.01 per share, which Rights are not presently exercisable.

Securities registered pursuant to Section 12(g) of the Act:

None

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of the close of business on February 27, 1998.

Common Stock, $.01 Par Value -- $4,346,943,962*

- ---------------

* In determining this figure, the registrant assumed that the executive
officers of the registrant and the registrant's directors are affiliates of
the registrant. Such assumption shall not be deemed to be conclusive for any
other purpose.

The number of shares outstanding of the registrant's common stock as of the
close of business on February 27, 1998:

Common Stock, $.01 Par Value - 65,453,614

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Annual Report to stockholders for the year ended December 31,
1997 are incorporated by reference into Parts I, II and IV.

2. Portions of the Proxy Statement for the annual meeting of stockholders to
be held on April 23, 1998 are incorporated by reference into Part III.

2

CAPITAL ONE FINANCIAL CORPORATION
1997 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PAGE
----

ITEM 1. BUSINESS.....................................................................4
Overview..........................................................................4
Lines of Business.................................................................5
Competition.......................................................................8
Employees.........................................................................8
Supervision and Regulation........................................................9
Cautionary Statements............................................................12
Statistical Information..........................................................16
ITEM 2. PROPERTIES..................................................................16
ITEM 3. LEGAL PROCEEDINGS...........................................................16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........................17
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS...........17
ITEM 6. SELECTED FINANCIAL DATA.....................................................17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.........................................18
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY............................18
ITEM 11. EXECUTIVE COMPENSATION.....................................................18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............18
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................18
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............19

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PART I

ITEM 1. BUSINESS.

Overview
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Capital One Financial Corporation (the "Corporation") is a holding company,
incorporated in Delaware on July 21, 1994, whose subsidiaries provide a variety
of products and services to consumers. The Corporation's principal subsidiary,
Capital One Bank (the "Bank"), a limited purpose Virginia state chartered credit
card bank, offers credit card products. Capital One, F.S.B. (the "Savings
Bank"), a federally chartered savings bank, provides certain consumer lending
and deposit services. Capital One Services, Inc., another subsidiary of the
Corporation, provides various operating, administrative and other services to
the Corporation and its subsidiaries. Unless indicated otherwise, the term
"Company" refers to the Corporation and its consolidated subsidiaries and for
periods prior to the Separation (as defined herein), Signet Bank's credit card
division. The Company's common stock is listed on the New York Stock Exchange
under the symbol COF. The Company's principal executive office is located at
2980 Fairview Park Drive, Suite 1300, Falls Church, Virginia 22042-4525
(telephone number (703) 205-1000).

The Company is one of the oldest continually operating bank card issuers in
the United States having commenced operations in 1953, the same year as the
formation of what is now MasterCard International. The Company is among the ten
largest issuers of Visa and MasterCard credit cards in the U.S. based on
managed credit card loans outstanding as of December 31, 1997. The growth in
the Company's managed credit card loans and accounts was due largely to credit
card industry dynamics and the success of the Company's proprietary information-
based strategy ("IBS") initiated in 1988.

The Bank offers two brands of credit cards, Visa and MasterCard, and within
each brand, premium ("platinum" and "gold") cards and unsecured and secured
standard credit card products. Prior to November 22, 1994, the Bank conducted
its operations as a division of Signet Bank, a wholly-owned subsidiary of Signet
Banking Corporation ("Signet")./1/ Pursuant to the terms of an agreement among
Signet, Signet Bank and the Corporation, Signet Bank contributed designated
assets and liabilities of its credit card division into the Bank, initially
established as a subsidiary of Signet Bank (the "Separation"). Signet Bank
immediately distributed the capital stock of the Bank to Signet, which then
contributed such stock to the Corporation. Concurrently with the Separation,
the Corporation issued 7,125,000 shares of the Corporation's common stock, par
value $.01 ("Common Stock") in an initial public offering. On February 28,
1995, Signet distributed all of the remaining shares of the Common Stock held by
it to Signet shareholders of record as of February 10, 1995.

In June 1996, the Company established the Savings Bank to expand the
Company's product offerings and its relationship with its cardmembers. The
Savings Bank currently offers Visa and MasterCard credit cards and installment
loans, in each case, both unsecured and secured. The Savings Bank expects to
offer multiple financial products and services to existing cardmembers and other
households using the Company's IBS and existing information technology systems.

Information-Based Strategy

The Company's IBS is designed to allow the Company to differentiate among
customers based on credit risk, usage and other characteristics and to match
customer characteristics with appropriate product offerings. IBS involves
developing sophisticated models, information systems, well-trained personnel and
a flexible culture to create credit card or other products and services that
address the demands of changing consumer and competitive markets. By using
sophisticated statistical modeling techniques, the Company segments its
potential customer lists based upon the integrated use of credit scores,
demographics, customer behavioral characteristics and other criteria. By
actively testing a wide variety of product and service features, marketing
channels and other aspects of its offerings, the Company designs and targets
customized solicitations at various customer segments, thereby enhancing
customer response levels and maximizing returns on investment within given
underwriting parameters.

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/1/ Signet Bank and Signet Banking Corporation have since been acquired by
First Union National Bank and First Union Corporation, respectively, as of
November 30, 1997.

4

Continued integrated testing and model development builds on information gained
from earlier phases and is intended to improve the quality, performance and
profitability of the Company's solicitation and account management initiatives.
The Company applies IBS to all areas of its business, including solicitations,
account management, credit line management, pricing strategies, usage
stimulation, collections, recoveries and account and balance retention.

Lines of Business
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Products

The Company offers an array of Visa and MasterCard credit card products to
consumers throughout the United States and in Canada and the United Kingdom.
Products consist of varying annual percentage rates ("APRs"), finance charges
and fee combinations (annual membership, past-due, overlimit, returned check,
cash advance and other fees), credit limits and other special features or
services, depending on the risk profile and other characteristics of the
targeted consumer segment. The Company offers platinum and gold cards, which
generally have higher lines of credit and additional ancillary benefits, and
unsecured and secured standard card products. The Company uses information
derived from proprietary statistical models and targets consumers with carefully
matched combinations of pricing, credit analysis and packaging. The Company's
pricing philosophy reflects a risk-based approach where consumers with better
credit qualifications generally merit more favorable pricing. The Company
continually tests new product offerings and pricing combinations targeted to
different consumer segments.

The Company refers to its product offerings and services by generations.
In the early 1990's, the Company initially targeted its offerings to experienced
users of general purpose credit card products offering low introductory interest
rate products with accounts repricing to higher rates after six to 16 months
from the date of origination, "First Generation Products." After the
introductory period, the accounts may be repriced upwards based on individual
customer performance. First Generation Products permit cardholders to use
Company issued credit line checks for cash or purchases or, under balance
transfer programs, to pay down other card balances. The Company manages the
repricing of these First Generation Products to maximize return on investment at
the consumer level, taking into consideration the risk and expected performance
of these products.

Faced with increased competition for First Generation Products, since the
middle 1990's, the Company began to test a number of other markets and product
offerings, resulting in the development of "Second Generation Products." Second
Generation Products consist of secured card products and other customized credit
card products including affinity and co-branded, college student and other
accounts. Many Second Generation Products are offered to consumers with limited
credit history, which historically have not been solicited by lenders to the
same extent as more experienced, affluent credit users. The Company provides
credit to these underserved markets by utilizing its IBS to better evaluate the
credit risk of these consumers and to apply a risk-based pricing strategy to
optimize profitability within the context of acceptable risks. As a result,
Second Generation Products are generally designed to have lower credit lines and
higher APRs and fees, including annual membership fees. Second Generation
Products also tend to have balances that build over time, less attrition, higher
operational costs, and, in some cases, higher delinquencies and consequently
higher past-due and overlimit fee income as a percentage of total receivables
outstanding than First Generation Products. See "Cautionary Statements" herein.

Additionally, the Company has been applying, and expects to continue
applying, its IBS to other financial and non-financial products and services,
including the reselling of telecommunication services, "Third Generation
Products." The Company has also expanded its existing credit card operations
outside of the United States, with an initial focus on the United Kingdom and
Canada. The Company has established the Savings Bank, the U.K. branch of the
Bank and several non-bank operating subsidiaries to identify and expand these
opportunities and is in various stages of developing and test marketing a number
of new products and services.

The significant growth to date of the Company's consumer accounts and
managed loan balances initially was due largely to credit card industry dynamics
and the success of the Company's IBS in generating the First Generation
Products. More recently, Second Generation Products significantly contribute to
the growth in number of the Company's consumer accounts but do not have an
immediate impact on managed loan balances, as these products have lower balances
that build over time. The Company's product mix at any time may vary as the

5

Company intends to remain flexible in allocation of marketing investment spent
on specific products to take advantage of market opportunities as they arise.

Geographic Diversity

Loan portfolio concentration within a specific geographic region or
demographic portion of the population may be regarded as positive or negative
based upon the current and expected credit characteristics and performance of
the portfolio. The Company's consumer loan portfolio is geographically diverse.
See Note N to Consolidated Financial Statements on page 54 of the Company's
Annual Report to its stockholders for the year ended December 31, 1997 (the
"Annual Report"), which is incorporated herein by reference.

Origination and Risk Management

The Company's primary method of account acquisition is direct mail
solicitation. Since the introduction of IBS in 1988, the Company has steadily
increased its marketing efforts and has developed a sophisticated screening
process to target potential consumers. The Company tracks and periodically
reviews the results of each solicitation. Management information systems and
processes enable management to monitor the effectiveness of prescreening and
underwriting criteria, and such criteria are modified based on the results
obtained from this process.

The Company employs a comprehensive risk management process that integrates
all aspects of an account's life cycle, from origination to closure. Marketing
and credit policy decisions are made by a credit policy group consisting of
senior management representatives from the credit operations, risk management
and marketing and analysis units. This group originates credit policy from the
viewpoints of both profitability and credit risk, based on prescreening
criteria, proprietary model development and usage, as well as reviews of test
programs and test results. Significant test results are reviewed before the
widespread introduction of a tested policy or product.

The Company uses various credit risk scores, generated by both third party
providers of scoring models and by proprietary models. These scores are used,
together with other criteria, in multiple screening reviews at both the
prescreening stage and the credit application stage. Score usage continues after
the account has been established and throughout its life cycle to adjust credit
lines, pricing and collection policies.

Account Management

Management has found that active account management is necessary in order
to respond to the changing economic environment and cardholder risk, usage and
payment patterns. The Company applies new credit scores to each account several
times a year and new behavioral scores for open accounts each month. This
information is used in account management strategies relating to credit lines,
pricing, usage stimulation, retention and collection. For creditworthy and
profitable accounts, such periodic review may result in more favorable pricing,
higher credit lines or other enhancements which, based on testing, are likely to
increase account usage or the overall profitability of an account. Conversely,
for delinquent or other accounts with significant credit risk, periodic review
may result in an account being reassigned to a higher risk category and hence
not being eligible for credit line increases or, in certain circumstances,
having pricing adjusted upward or the credit line reduced.

The IBS approach has allowed the Company to develop customized collections
and pricing strategies based on cardholder behavior. Similarly, IBS has been
used in developing the Company's retention strategies. The Company has developed
integrated systems which evaluate account profitability and risk, test various
strategies for cost and effectiveness in retaining cardholders and assist
service representatives in negotiating potential pricing alternatives. Certain
of the Company's products, including the introductory interest rate program and
balance transfer program, have a repricing feature after an initial period. The
Company has developed methodologies for retaining these accounts and the
balances in these accounts after the expiration of the initial period.

Credit Operations

The Company's credit extension process is actively managed by senior
management and is designed to bring consistency in credit practices and
operating efficiencies. The Company's scoring technology and verification
procedures are highly automated with limited judgmental review. The credit
evaluation process is based on proprietary models using, among other things,
scores developed by nationally recognized scoring firms and tailored

6

to individual programs. These scores are validated, monitored and maintained by
the Company as part of IBS. The scores provide a statistically measurable way to
make decisions about applications, to evaluate risk and to modify credit
extension policies.

For pre-approved account solicitations, which constitute one of the
primary methods of marketing, the Company's current process generally begins
with a prescreening review which identifies consumers who are likely to be
approved for a credit card account. In the prescreening process, the Company
provides a set of credit history and other criteria to credit reporting
agencies, which generate lists with desired attributes. The Company further
refines this list by applying additional sets of underwriting criteria resulting
in a new list which represents the consumers who receive direct mail
solicitations. The Company also employs additional underwriting criteria that
are based upon proprietary models designed to predict the relative credit risk
of potential account holders. Those persons who receive marketing packages
generally must fill out acceptance certificates which are used to initiate a
back-end verification process in which an applicant's credit information is
reviewed a second time, updated and verified against criteria established by
lending guidelines. Once the acceptance certificates are returned and sorted
and current credit reporting agency reports are obtained, the acceptance
certificates are processed through the Company's underwriting criteria. Each
approved applicant is offered a line of credit commensurate with the results of
the back-end credit verification.

The Company manually reviews applications that are rejected by the
Company's credit scoring system because of inconsistencies in application
information, inquiry from a rejected applicant or for other reasons. Credit
analysts then have the ability to override decisions made by the system upon the
receipt of additional information from an applicant or otherwise.

For non-pre-approved solicitations, the Company acquires names of
prospective customers from a variety of sources and then edits the list
utilizing internal and external sources. The prospective customers on the final
list are mailed solicitations. Prospective customers who respond to a
solicitation are approved or declined based on the characteristics drawn from
both the application submitted and a credit reporting agency.

Collection Procedures

The Company generally considers an account delinquent if a minimum payment
due thereunder is not received by the Company by the cardholder's payment date.
Delinquent accounts are first directed to the pre-collection system, where
appropriate early collection actions are taken. Early contact with delinquent
cardholders may include payment reminders by telephone, by billing statement and
by mail. In most cases, an account is restricted and privileges are suspended
depending on the riskiness of the account between four and 105 days after the
account enters the Company's collections department. The Company may also, at
its discretion, enter into arrangements with delinquent account holders to
extend or otherwise change payment schedules. Efforts to collect delinquent
credit card accounts are generally made by the Company's regular collections
group, but may also be made by third-party collection agents.

The focus of the Company's response to an early stage delinquency is
rehabilitation and identification of the causes for delinquency. The Company's
policies and procedures are designed to encourage cardholders to pay delinquent
amounts; for example, once a delinquent account has re-established a payment
pattern with three consecutive minimum monthly payments, it can be re-aged as
current. An account can generally be re-aged once in the life of the account.

During the fourth quarter of 1997, the Company modified its methodology for
charging off credit card loans. The Company now charges off as uncollectible an
account (net of collateral) at 180 days past-due versus the prior practice of
charging off the account in the next billing cycle after becoming 180 days past-
due. In connection with a secured card account, except as set forth below,
funds deposited as collateral will generally be applied to payment on the
account shortly before the account is charged off as uncollectible. With respect
to bankrupt customers, the Company generally charges off the account within 30
days after the Company receives the bankruptcy petition and, with respect to
secured credit card accounts, funds deposited as collateral will be applied in
satisfaction of the account only after the bankruptcy automatic stay is lifted.
The Company charges off accounts of deceased customers within 60 days of
receiving proper notice if no estate exists against which a proof of claim can
be filed, no other party remits payments or no other responsible party is
available. The Company's credit

7

evaluation, servicing and charge off policies and collection practices may
change over time in accordance with the business judgment of the Company,
applicable law and guidelines established by applicable regulatory authorities.

Technology/Systems

A key part of the Company's strategic focus is the development of flexible,
high-volume systems capable of handling the Company's growth and changes in
marketing and account management strategies. Management believes that the
continued development and integration of these systems is important to its
efforts to reduce its operating costs and maintain a competitive advantage.

The Company has developed proprietary integrated systems which allow
employees to manage the large volumes of data collected through the IBS process
and to utilize such data in the Company's account solicitations, application
processing, account management and retention strategies. The Company maintains a
data warehouse that holds basic information on 120 million households, detailed
data on nearly 12 million customers and performance/ profitability information
on more than 4,000 product, pricing and feature combinations. The Company uses
this information to predict consumer behavior and then matches prospects to
credit cards with various terms and fees. These systems also allow the
Company's customer service representatives to access account specific
information when responding to customer inquiries.

Funding

The Company's primary methods of funding include loan securitizations,
issuing certificates of deposit, senior notes, deposit notes and other
borrowings and fed funds purchased from financial institutions. For a
discussion of the Company's funding program, see pages 19-20 and pages 29-31 of
the Annual Report under the respective headings "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Managed Consumer
Loan Portfolio" and "-- Funding," which are incorporated herein by reference.

Competition
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As a marketer of credit card products, the Company faces intense and
increasing competition in all aspects of its business from numerous bank and
non-bank providers of financial services. Many of these companies are
substantially larger and have more resources than the Company. The Company
competes with national, regional and local issuers of Visa and MasterCard credit
cards. In addition, American Express, Discover Card, Diner's Club and, to a
certain extent, smart cards and debit cards, represent additional competition in
the general purpose credit card market. In general, customers are attracted to
credit card issuers largely on the basis of price, credit limit and other
product features and customer loyalty is often limited. The Company believes
that IBS, together with its strategy of pursuing Second Generation Products,
will allow it to more effectively compete in this and new markets. There can be
no assurance, however, that the Company's ability to market its services
successfully or to obtain adequate yield on its loans will not be impacted by
the nature of the competition that now exists or may later develop.

In addition, the Company faces competition in seeking public funding from
banks, savings banks, money market funds and a wide variety of other entities
that take deposits and/or sell debt securities, some of which are publicly
traded. Many of these companies are substantially larger, have more capital and
other resources and have better financial ratings than the Company.
Accordingly, there can be no assurance that competition from these other
borrowers will not increase the Company's cost of funds.

Employees
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As of December 31, 1997, the Company employed 5,724 full-time and 189 part-
time employees. A central part of the Company's philosophy is to attract and
maintain a highly capable staff. The Company views current employee relations
to be satisfactory. None of the Company's employees are covered under
collective bargaining agreements.

8

Supervision and Regulation
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General

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 (the "BIF") of the Federal Deposit Insurance Corporation (the
"FDIC"). 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 Board and the FDIC. The Bank is not a "bank" under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), because it (i) engages only in
credit card operations, (ii) does not accept demand deposits or deposits that
the depositor may withdraw by check or similar means for payment to third
parties or others, (iii) does not accept any savings or time deposit of less
than $100,000, other than as permitted as collateral for extensions of credit,
(iv) maintains only one office that accepts deposits and (v) does not engage in
the business of making commercial loans. Due to the Bank's status as a limited
purpose credit card bank, any non-credit card operations which may be conducted
by the Company must be conducted in other operating subsidiaries of the Company.

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
("SAIF") of the FDIC. Pursuant to recent legislation recapitalizing the SAIF,
insurance premiums currently paid by SAIF-insured institutions are equivalent to
the rates paid by BIF-insured institutions. The Savings Bank is subject to
comprehensive regulation and periodic examination by the OTS and the FDIC.

The Corporation is not a bank holding company under the BHCA as a result of
the Corporation's ownership of the Bank because the Bank is not a "bank" as
defined under the BHCA. If the Bank failed to meet the credit card bank
exemption criteria described above, the Bank's status as an insured depository
institution would make the Corporation subject to the provisions of the BHCA,
including certain restrictions as to the types of business activities in which a
bank holding company and its affiliates may engage. Becoming a bank holding
company under the BHCA would affect the Corporation's ability to engage in
certain non-banking businesses. In addition, for purposes of the BHCA, if the
Bank failed to qualify for the credit card bank exemption, any entity that
acquired direct or indirect control of the Bank and also engaged in activities
not permitted for bank holding companies could be required either to discontinue
the impermissible activities or to divest itself of control of the Bank.

As a result of the Corporation's ownership of the Savings Bank, the
Corporation is a unitary savings and loan holding company subject to regulation
by the OTS and the provisions of the Savings and Loan Holding Company Act. As
a unitary savings and loan holding company, the Corporation generally is not
restricted under existing laws as to the types of business activities in which
it may engage so long as the Savings Bank continues to meet the qualified thrift
lender test (the "QTL Test"). If the Corporation ceased to be a unitary savings
and loan holding company as a result of its acquisition of an additional savings
institution or as a result of the failure of the Savings Bank to meet the QTL
Test, the types of activities that the Corporation and its non-savings
association subsidiaries would be able to engage in would generally be limited
to those eligible for bank holding companies.

The Corporation is also registered as a financial institution holding
company under Virginia law and as such is subject to periodic examination by the
Bureau of Financial Institutions.

Dividends and Transfers of Funds

The principal source of funds for the Corporation to pay dividends on
stock, make payments on debt securities and meet other obligations is dividends
from its direct and indirect subsidiaries. There are various federal and
Virginia law limitations on the extent to which the Bank and the Savings Bank
can finance or otherwise supply funds to the Corporation through dividends,
loans or otherwise. These limitations include minimum regulatory capital
requirements, Federal Reserve Board, OTS and Virginia law requirements
concerning the payment of dividends out of net profits or surplus, Sections 23A
and 23B of the Federal Reserve Act governing transactions between an insured
depository institution and its affiliates and general federal and Virginia
regulatory oversight to prevent unsafe or unsound practices. In general, federal
banking laws prohibit an insured depository institution, such as the Bank and
the Savings Bank, from making dividend distributions if such distributions are
not paid out of

9

available earnings or would cause the institution to fail to meet applicable
capital adequacy standards. In addition, the Savings Bank is required to give
the OTS at least 30 days' advance notice of any proposed dividend. Under OTS
regulations, other limitations apply to the Savings Bank's ability to pay
dividends, the magnitude of which depends upon the extent to which the Savings
Bank meets its regulatory capital requirements. In addition, under Virginia law,
the Bureau of Financial Institutions may limit the payment of dividends by the
Bank if the Bureau of Financial Institutions determines that such a limitation
would be in the public interest and necessary for the Bank's safety and
soundness.

Capital Adequacy

The Bank and the Savings Bank are currently subject to capital adequacy
guidelines adopted by the Federal Reserve Board and the OTS, respectively. For
a further discussion of the capital adequacy guidelines, see pages 31-32 of the
Annual Report under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Capital Adequacy" and page 52
in Note J to Consolidated Financial Statements, which are incorporated herein by
reference.

FDICIA

Among other things, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") requires federal bank regulatory authorities to take
"prompt corrective action" in respect of insured depository institutions that do
not meet minimum capital requirements. FDICIA establishes five capital ratio
levels: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. Under
applicable regulations, an insured depository institution is considered to be
well capitalized if it maintains a Tier 1 risk-based capital ratio (or core
capital to risk-adjusted assets in the case of the Savings Bank) of at least
6.00%, a total risk-based capital ratio of at least 10.00% and a Tier 1 leverage
capital ratio (or core capital ratio in the case of the Savings Bank) of at
least 5.00%, and is not otherwise in a "troubled condition" as specified by its
appropriate federal regulatory agency. An insured depository institution is
considered to be adequately capitalized if it maintains a Tier 1 risk-based
capital ratio (or core capital to risk-adjusted assets in the case of the
Savings Bank) of at least 4.00%, a total risk-based capital ratio of at least
8.00% and a Tier 1 leverage capital ratio (or core capital ratio in the case of
the Savings Bank) of at least 4.00% (3.00% for certain highly rated
institutions), and does not otherwise meet the well capitalized definition. The
three undercapitalized categories are based upon the amount by which the insured
depository institution falls below the ratios applicable to adequately
capitalized institutions. The capital categories are determined solely for the
purposes of applying FDICIA's prompt corrective action ("PCA") provisions, as
discussed below, and such capital categories may not constitute an accurate
representation of the overall financial condition or prospects of the Bank or
the Savings Bank.

As of December 31, 1997, each of the Bank and the Savings Bank met the
requirements for a "well capitalized" institution. A "well capitalized"
classification should not necessarily be viewed as describing the condition or
future prospects of a depository institution, including the Bank and the Savings
Bank.

Under FDICIA's PCA system, an insured depository institution in the
"undercapitalized category" must submit a capital restoration plan guaranteed by
its parent company. The liability of the parent company under any such
guarantee is limited to the lesser of 5.00% of the insured depository
institution's assets at the time it became undercapitalized, or the amount
needed to comply with the plan. An insured depository institution in the
undercapitalized category also is subject to limitations in numerous areas
including, but not limited to, asset growth, acquisitions, branching, new
business lines, acceptance of brokered deposits and borrowings from the Federal
Reserve. Progressively more burdensome restrictions are applied to insured
depository institutions in the undercapitalized category that fail to submit or
implement a capital plan and to insured depository institutions that are in the
significantly undercapitalized or critically undercapitalized categories. In
addition, an insured depository institution's primary federal banking agency is
authorized to downgrade the institution's capital category to the next lower
category upon a determination that the institution is in an unsafe or unsound
condition or is engaged in an unsafe or unsound practice. An unsafe or unsound
practice can include receipt by the institution of a less than satisfactory
rating on its most recent examination with respect to its capital, asset
quality, management, earnings or liquidity.

"Critically undercapitalized" insured depository institutions (which are
defined to include institutions that still have a positive net worth) may not,
beginning 60 days after becoming "critically undercapitalized," make any

10

payment of principal or interest on their subordinated debt (subject to certain
limited exceptions). Thus, in the event an institution became "critically
undercapitalized," it would generally be prohibited from making payments on its
subordinated debt securities. In addition, "critically undercapitalized"
institutions are subject to appointment of a receiver or conservator.

FDICIA requires the federal banking agencies to review the risk-based
capital standards to ensure that they adequately address interest-rate risk,
concentration of credit risk and risks from non-traditional activities. The OTS
amended its risk-based capital rules to incorporate interest rate risk
requirements under which a savings bank must hold additional capital if it
projects an excessive decline in "net portfolio value" in the event interest
rates increase or decrease by two percentage points. These standards are not
yet in effect.

FDICIA also requires the FDIC to implement a system of risk-based premiums
for deposit insurance pursuant to which the premiums paid by a depository
institution will be based on the probability that the FDIC will incur a loss in
respect of such institution. The FDIC has since adopted a system that imposes
insurance premiums based upon a matrix that takes into account an institution's
capital level and supervisory rating.

The Bank and the Savings Bank may accept brokered deposits as part of their
funding. Under FDICIA, only "well capitalized" and "adequately capitalized"
institutions may accept brokered deposits. "Adequately capitalized"
institutions, however, must first obtain a waiver from the FDIC before accepting
brokered deposits, and such deposits may not pay rates that significantly exceed
the rates paid on deposits of similar maturity from the institution's normal
market area or the national rate on deposits of comparable maturity, as
determined by the FDIC, for deposits from outside the institution's normal
market area.

Liability for Commonly-Controlled Institutions

Under the "cross-guarantee" provision of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), insured depository institutions
such as the Bank and the Savings Bank may be liable to the FDIC in respect of
any loss or reasonably anticipated loss incurred by the FDIC resulting from the
default of, or FDIC assistance to, any commonly controlled insured depository
institution. The Bank and the Savings Bank are commonly controlled within the
meaning of the FIRREA cross guarantee provision.

Investment Limitation and Qualified Thrift Lender Test

Federally-chartered savings banks such as the Savings Bank are subject to
certain investment limitations. For example, federal savings banks are not
permitted to make consumer loans (i.e., certain open-end or closed-end loans for
personal, family or household purposes, excluding credit card loans) in excess
of 35% of the savings bank's assets. Federal savings banks are also required to
meet the QTL Test, which generally requires a savings bank to maintain at least
65% "portfolio assets" (total assets less (i) specified liquid assets up to 20%
of total assets, (ii) intangibles, including goodwill and (iii) property used to
conduct business) in certain "qualified thrift investments" (residential
mortgages and related investments, including certain mortgage-backed and
mortgage-related investments, small business related securities, certain state
and federal housing investments, education loans and credit card loans) on a
monthly basis in nine out of every 12 months. Failure to qualify under the QTL
Test could subject the Savings Bank to substantial restrictions on its
activities and to certain other penalties, and could subject the Company to the
provisions of the BHCA, including the activity restrictions that apply generally
to bank holding companies and their affiliates. The Savings Bank has been
granted a two-year exception from the QTL Test, but must be in full compliance
with the test by June 30, 1998. As of December 31, 1997, 93.68% of the Savings
Bank's portfolio assets were held in qualified thrift investments, and the
Savings Bank was in compliance with the QTL Test.

Lending Activities

The activities of the Bank and the Savings Bank as consumer lenders are
also subject to extensive regulation under various federal laws including the
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, the Community Reinvestment Act and the Soldiers' and Sailors'
Civil Relief Act, as well as to various state laws. Regulators are authorized
to impose penalties for violations of these statutes and, in certain cases, to
order the Bank and the Savings Bank to pay restitution to injured borrowers.
Borrowers may also bring actions for certain violations. Federal bankruptcy and
state debtor relief and collection laws also affect the ability of

11

the Bank and the Savings Bank to collect outstanding balances owed by borrowers
who seek relief under these statutes.

Legislation

From time to time legislation has been proposed in Congress to limit
interest rates and fees that could be charged on credit card accounts or
otherwise restrict practices of credit card issuers. Various bills have also
been introduced that eliminate a separate savings bank charter possibly
requiring that existing savings banks become banks and repeal in some respects
the provisions of the Glass-Steagall Act prohibiting certain banking
organizations from engaging in certain securities activities and the provisions
of the BHCA prohibiting affiliations between banking organizations and non-
banking organizations. Legislation has also been proposed to change existing
federal bankruptcy laws. It is unclear at this time whether and in what form
any such legislation will be adopted or, if adopted, what its impact on the
Bank, the Savings Bank or the Company would be. Congress may in the future
consider other legislation that would materially affect the banking or credit
card industries.

Investment in the Corporation, the Bank and the Savings Bank

Certain acquisitions of capital stock may be subject to regulatory approval
or notice under federal or Virginia law. Investors are responsible for insuring
that they do not, directly or indirectly, acquire shares of capital stock of the
Company in excess of the amount which can be acquired without regulatory
approval.

The Bank and the Savings Bank are each "insured depository institutions"
within the meaning of the Change in Bank Control Act. Consequently, federal law
and regulations prohibit any person or company from acquiring control of the
Company without, in most cases, prior written approval of the Federal Reserve
Board or the OTS, as applicable. Control is conclusively presumed if, among
other things, a person or company acquires more than 25% of any class of voting
stock of the Corporation. A rebuttable presumption of control arises if a
person or company acquires more than 10% of any class of voting stock and is
subject to any of a number of specified "control factors" as set forth in the
applicable regulations.

Although the Bank is not a "bank" within the meaning of Virginia's
reciprocal interstate banking legislation (Chapter 15 of Title 6.1 of the Code
of Virginia), it is a "bank" within the meaning of Chapter 13 of Title 6.1 of
the Code of Virginia governing the acquisition of interests in Virginia
financial institutions (the "Financial Institution Holding Company Act"). The
Financial Institution Holding Company Act prohibits any person or entity from
acquiring, or making any public offer to acquire, control of a Virginia
financial institution or its holding company without making application to, and
receiving prior approval from, the Bureau of Financial Institutions.

Interstate Banking and Branching

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
permits bank holding companies, with Federal Reserve Board approval, to acquire
banks located in states other than the holding company's home state without
regard to whether the transaction is prohibited under state law. In addition, as
of June 1, 1997, national and state banks with different home states are
permitted to merge across state lines, with approval of the appropriate federal
banking agency, unless the home state of a participating bank passed legislation
prior to this date expressly prohibiting interstate bank mergers. Virginia has
not passed such legislation but has elected to permit such interstate bank
mergers.

Interstate Taxation

Several states have passed legislation which attempts to tax the income
from interstate financial activities, including credit cards, derived from
accounts held by local state residents. Based on the volume of its business in
these states and the nature of the legislation passed to date, the Company
currently believes that this development will not materially affect the
financial condition of the Bank, the Savings Bank or the Company.

Cautionary Statements
- ---------------------

Information or statements provided by the Company from time to time may
contain certain "forward-looking information," including information relating to
growth in diluted earnings per share, returns on equity,

12

growth in managed loans outstanding and consumer accounts, net interest margins,
funding costs, operations costs and employment growth, marketing expense,
delinquencies and charge offs. Such forward-looking statements may be identified
by the use of terminology such as "may," "will," "expect," "anticipate," "goal,"
"target," "forecast," "project," "continue" or comparable terminology and may
involve certain risks or uncertainties and are qualified in their entirety by
the cautionary statements provided below. The cautionary statements are being
made pursuant to the provisions of the Private Securities Litigation Reform Act
of 1995 (the "Act") and with the intention of obtaining the benefits of the
"safe harbor" provisions of the Act for any such forward-looking information.

Many of the cautionary factors discussed below, as well as other factors,
have also been discussed in the Company's prior public filings. Though the
Company has attempted to list comprehensively all important factors, the Company
wishes to caution investors that other factors in the future may prove to be
important in affecting the Company's results of operations. New factors may
emerge from time to time and it is not possible for management to predict all of
such factors, nor can it assess the impact of each such factor on the business
or the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements.

The Company cautions investors not to place undue reliance on any forward-
looking statements, as they speak only of the Company's views as of the date the
statement was made. The Company further cautions readers that any forward-
looking information provided by the Company is not a guarantee of future
performance and that actual results could differ materially from those in the
forward-looking information as a result of various factors, including, but not
limited to, the following:

Competition

The Company faces intense and increasing competition from numerous
providers of credit cards and other financial products and services who may
employ various competitive strategies. The Company faces competition from
national, regional and local issuers of bank cards in each of its markets.
Additionally, the Company competes with other general purpose credit card
providers and, to a certain extent, smart card or debit card providers. Many of
these companies are substantially larger and have more capital and other
resources than the Company. Additionally, many of the Company's competitors are
pricing credit card products at attractive interest rates at or below those
currently charged by the Company.

In the past, the Company has faced intense competition primarily with its
First Generation Products. Management, however, expects that, in the future,
competitive pressures will increase for Second and Third Generation Products,
including competition for its products and services in markets outside of the
United States.

Accounts and Loan Balances

The Company's aggregate accounts or loan balances and the growth rate
thereof are affected by a number of internal and external factors. Because the
Company's product mix significantly influences account and loan balance growth,
the allocation of Company marketing investment among different products will
cause fluctuations in the aggregate number of accounts and in outstanding loan
balances. Moreover, as IBS is designed to take advantage of market
opportunities, difficulties exist in forecasting the allocation of marketing
investment and projections of account and loan balance growth and accompanying
Company results will vary from time to time. In addition, external factors such
as attrition of accounts and loan balances to competing card issuers and general
economic conditions and other factors beyond the control of the Company could
vary results. Consumers are attracted to credit card issuers largely on the
basis of price, credit limit and other product features and, once an account is
originated, customer loyalty may be limited.

Ability to Sustain and Manage Growth

The Company's strategy for future growth has been, and is expected to
continue to be, to apply its proprietary IBS to its credit card business, as
well as to other businesses, both financial and non-financial, to identify new
business opportunities and to make informed investment decisions about its
existing products and services. Management believes that, through continued
application of its IBS, the Company can develop new product and service
offerings necessary to sustain growth. However, there are a number of factors
that can impact the Company's ability to sustain growth. As mentioned throughout
this section, continued growth of the

13

Company's credit card portfolio will depend on a number of factors, including
(i) the Company's ability to attract new consumers and retain existing
consumers; (ii) growth of existing and new account balances; (iii) levels of
delinquencies and charge offs; (iv) the availability of funding on favorable
terms; (v) the amount of marketing expenditures used to solicit new consumers
and (vi) general economic and other factors.

Continued growth through expansion and product diversification will depend
on additional factors. The Company's development of new products and services
will be affected by the ability of the Company to internally build or to acquire
the operational and organizational infrastructure necessary to engage in new
businesses and to recruit experienced personnel to assist in the management and
operations of these businesses and the availability of capital necessary to fund
these new businesses. Additionally, difficulties or delays in the development,
production, testing and marketing of products or services, including, but not
limited to, a failure to implement new product or service programs when
anticipated, the failure of customers to accept these products or services when
planned, losses associated with the testing of new products or services or
financial, legal or other difficulties as may arise in the course of such
implementation, will affect the success of any new product or business. In
addition, as the Company attempts to diversify and expand its offerings beyond
credit cards, and more particularly beyond financial services, there can be no
assurance that the historical financial results achieved from the Company's
credit card business will necessarily be reflective of the results from other
products and services.

Availability of Financing and Funding Costs

The Company's primary source of funding is the securitization of consumer
loans, and to date, the Company has completed securitization transactions on
terms that it believes are favorable. Difficulties or delays in the
securitization of the Company's receivables, or changes in credit enhancement
rates, impact the cost and availability of securitization funding. Such
difficulties, delays or changes may result from adverse developments in the
availability of credit enhancement for securitizations or in the performance of
the securitized assets or from changes in the current legal, regulatory,
accounting and tax environment governing securitizations. There can be no
assurance that the securitization market will continue to offer the Company an
attractive funding alternative, and the Company could have to seek other more
expensive funding sources.

More generally, the amount, type and cost of any financing available to the
Company to fund its operations, and any changes to that financing, including
changes resulting from within the Company's organization or the activities of
parties with which the Company has agreements or understandings, including any
activities affecting any investment, may impact Company results. The Company
faces competition in seeking funding from banks, savings banks, money market
funds and a wide variety of other entities that take deposits and/or sell debt
securities, some of which are publicly traded. Many of these companies are
substantially larger, have more capital and other resources and have better
financial ratings than the Company. Accordingly, there can be no assurance that
competition from these other borrowers will not increase the Company's cost of
funds.

Credit Quality

The costs of an increase in delinquencies and credit losses could have a
material adverse effect on the Company's financial performance and the
performance of the Company's securitized loan trusts. Delinquencies and credit
losses are influenced by a number of external and internal factors. First, a
national or regional economic slowdown or recession increases the risk of
defaults and credit losses. Costs associated with an increase in the number of
customers seeking protection under the bankruptcy laws, resulting in accounts
being charged off as uncollectible, and the effects of fraud by third parties or
customers are additional factors. "Seasoning" of accounts (increases in the
average age of a credit card issuer's portfolio) affects the Company's level of
delinquencies and losses which may require higher loan loss provisions (and
reserves). A decrease in account originations or balances and the attrition of
such accounts or balances could significantly impact the seasoning of the
overall portfolio, resulting in increases in the overall percentage of
delinquencies and losses.

In addition, the Company markets many of its Second Generation Products to
consumers with limited credit histories. As a result, in some cases, in
addition to the higher delinquency and credit loss rates associated with this
market, there is little historical experience with respect to credit risk and
performance of these underserved markets. Accordingly, although the Company
believes that by utilizing its IBS it can effectively price these products in
relation to their relative risk, there can be no assurance that the Company's
risk-based pricing system will offset the negative impact of the expected higher
delinquency and loss rates.

14

General Economic Conditions

Delinquencies and credit losses in the credit card industry generally
increase during periods of an economic downturn or recession. Such periods also
may be accompanied by decreased consumer demand for consumer loans, thereby
affecting the Company's ability to sustain its growth. Although the Company
believes that its underwriting criteria and product design enable it to manage
the risks inherent in the consumer loans it makes, no assurance can be given
that such criteria and design will afford adequate protection in a sustained
period of economic downturn or recession.

Interest Rate Risks

Interest rate fluctuations affect the Company's net interest margin and the
value of its assets and liabilities. The continued legal or commercial
availability of techniques (including interest rate swaps and similar financial
instruments, loan repricing, hedging and other techniques) used by the Company
to manage the risk of such fluctuations and the continuing operational viability
of those techniques will influence Company results.

The impact of repricing accounts and the overall product mix of accounts,
including the actual amount of accounts (and related loan balances) repriced and
the level and type of account originations at that time and the ability of the
Company to use account management techniques to retain repriced accounts and the
related loan balances, affects the Company's net interest margin.

Regulation and Legislation

The effects of, and changes in, monetary and fiscal policies, laws and
regulations (including financial, consumer regulatory or otherwise), other
activities of governments, agencies and similar organizations and social and
economic conditions, such as inflation and changes in taxation of the Company's
earnings influence Company goals and projections. For example, from time to
time Congress has proposed legislation to limit interest rates and fees that
could be charged on credit card accounts or to otherwise restrict practices of
credit card issuers. If this or similar legislation was adopted, the Company's
ability to collect on account balances or maintain previous levels of periodic
rate finance charges and other fees and charges could be adversely affected.
Failure by the Company to comply with any such requirements also could adversely
affect the Company's ability to enforce the receivables. Additionally, changes
have been proposed to the federal bankruptcy laws. Changes in federal
bankruptcy laws and any changes to state debtor relief and collection laws could
adversely affect the Company if such changes result in, among other things,
accounts being charged off as uncollectible and additional administrative
expenses. It is unclear at this time whether and in what form any legislation
will be adopted or, if adopted, what its impact on the Company would be.
Congress may in the future consider other legislation that would materially
affect the banking or credit card industries.

Expenses and Other Costs

The amount and rate of growth in the Company's expenses (including employee
and marketing expenses) as the Company's business develops or changes and
expands into new market areas; the acquisition of assets (variable, fixed or
other) and the impact of unusual items resulting from the Company's ongoing
evaluation of its business strategies, asset valuations and organizational
structures will all impact Company results. Additionally, other factors include
the costs and other effects of legal and administrative cases and proceedings,
settlements and investigations, claims and changes in those items, developments
or assertions by or against the Company, adoptions of new, or changes in
existing, accounting policies and practices and the application of such policies
and practices.

Technology

System delays, malfunctions and errors in the proprietary and third party
systems and networks used by the Company for payment processing, collections and
other services and operations may lead to delays, additional costs to the
Company, and, if not corrected in a timely fashion, customer dissatisfaction
which could ultimately affect the Company's customer base and the level of
service it is able to provide to its customers. The Year 2000 compliance issue
may result in such system delays or malfunctions. The Company has formed a Year
2000 project team to identify software systems and computer-related devices that
require modification, and the project team has

15

developed a plan to address any system issues and is making and testing all
required modifications within the plan time frame. Although the Company expects
to have all of its system modifications complete by the end of 1998, allowing a
sufficient amount of time to test systems in 1999, unforeseen problems could
arise in the year 2000 giving rise to delays and malfunctions which may impact
Company results. In addition, the Company is in discussions with outside third
party providers of services or systems and networks, to determine whether the
Company's outside vendors have addressed their Year 2000 systems issues.
Although the Company is taking certain precautionary measures to assure that it
is not vulnerable to the failure by its third party vendors to make necessary
system modifications, there can be no assurance that the Company's third party
vendors will successfully address all Year 2000 issues.

Statistical Information
- -----------------------

The statistical information required by Item 1 is in the Annual Report, and
is incorporated herein by reference, as follows:

Page in the Company's Annual
Report to its Stockholders for
Guide 3 Disclosure the Year Ended December 31, 1997
------------------ --------------------------------

I. Distribution of Assets, Liabilities and
Stockholders' Equity; Interest Rates and
Interest Differential 22-24

II. Investment Portfolio 46

III. Loan Portfolio 19-20, 26-29, 32-34, 54

IV. Summary of Loan Loss Experience 26-29, 47

V. Deposits 23, 29

VI. Return on Equity and Assets 17

VII. Other Borrowings 29-31

ITEM 2. PROPERTIES.

The Company leases its principal executive office at 2980 Fairview Park
Drive, Suite 1300, Falls Church, Virginia, consisting of approximately 43,400
square feet. The lease commenced January 1, 1995 and expires February 29, 2000.
The Company has the right to extend the lease until February 28, 2005.

The Company owns administrative offices and credit card facilities in
Richmond, Virginia, consisting of approximately 470,000 square feet from which
it conducts its credit, collections, customer service and other operations. The
Company also leases additional facilities consisting of an aggregate of
approximately 1,467,000 square feet (excluding the principal executive office)
from which credit, collections, customer service and other operations are
conducted in Virginia, Florida and Texas. The Company recently purchased a
facility in Nottingham, Great Britain, consisting of approximately 267,000
square feet. The Company also expects to lease additional facilities in Florida
and Virginia consisting of an aggregate of approximately 186,000 square feet.

ITEM 3. LEGAL PROCEEDINGS.

During 1995, the Company and the Bank became involved in a purported class
action suit relating to certain collection practices engaged in by Signet Bank
and, subsequently, by the Bank. The complaint in this case alleges that Signet
Bank and/or the Bank violated a variety of California state statutes and
constitutional and common law duties by filing collection lawsuits, obtaining
judgements and pursuing garnishment proceedings in the Virginia state courts
against defaulted credit card customers who were not residents of Virginia.
This case was filed in the Superior Court of California in the County of
Alameda, Southern Division, on behalf of a class of California

16

residents. The complaint seeks unspecified statutory damages, compensatory
damages, punitive damages, restitution, attorneys' fees and costs, a permanent
injunction and other equitable relief.

In February 1997, the California court entered judgement in favor of the
Bank on all of the plaintiff's claims. The plaintiffs have appealed the ruling
to the California Court of Appeal, First Appellate District Division 4, and the
appeal is pending.

Because no specific measure of damages is demanded in the complaint for the
California case and the trial court entered judgement in favor of the Bank
before the parties completed any significant discovery, an informed assessment
of the ultimate outcome of this case cannot be made at this time. Management
believes, however, that there are meritorious defenses to this lawsuit and
intends to defend it vigorously.

The Company is commonly subject to various other pending and threatened
legal actions arising from the conduct of its normal business activities. In
the opinion of management, the ultimate aggregate liability, if any, arising out
of any pending or threatened action will not have a material adverse effect on
the consolidated financial condition of the Company. At the present time,
however, management is not in a position to determine whether the resolution of
any pending or threatened litigation will have a material adverse effect on the
Company's results of operations in any future reporting period.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

During the fourth quarter of the Company's fiscal year ending December 31,
1997, no matters were submitted to a vote of the stockholders of the Company.

PART II

ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.

The information required by Item 5 is included under "Supervision and
Regulation -- Dividends and Transfers of Funds" herein and in the Annual Report
on pages 29-32 under the headings "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Funding" and "-- Capital
Adequacy," on page 37 under the heading "Selected Quarterly Financial Data" and
on page 52 in Note J to Consolidated Financial Statements, and is incorporated
herein by reference and filed as part of Exhibit 13.

ITEM 6. SELECTED FINANCIAL DATA.

The information required by Item 6 is included in the Annual Report on page
17 under the heading "Selected Financial and Operating Data," and is
incorporated herein by reference and filed as part of Exhibit 13.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

The information required by Item 7 is included in the Annual Report on
pages 18-36 under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and is incorporated herein by reference
and filed as part of Exhibit 13.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.

The information required by Item 7A is included in the Annual Report on
pages 32-34 under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Interest Rate Sensitivity," and is
incorporated herein by reference and filed as part of Exhibit 13.

17

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The information required by Item 8 is included in the Annual Report on page
39 under the heading "Report of Independent Auditors," on pages 40-55 under the
headings "Consolidated Balance Sheets," "Consolidated Statements of Income,"
"Consolidated Statements of Changes in Stockholders' Equity," "Consolidated
Statements of Cash Flows" and "Notes to Consolidated Financial Statements" and
on page 37 under the heading "Selected Quarterly Financial Data," and is
incorporated herein by reference and filed as part of Exhibit 13.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

The information required by Item 10 is included in the Company's 1997 Proxy
Statement (the "Proxy Statement") on pages 5-9 under the heading "Information
About Our Directors and Executive Officers" and on page 4 under the heading
"Information About Capital One's Common Stock Ownership - Section 16(a)
Beneficial Ownership Reporting Compliance," and is incorporated herein by
reference. The Proxy Statement will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days of the Corporation's 1997
fiscal year.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by Item 11 is included in the Proxy Statement on
pages 8-9 under the heading "Information About Our Directors and Executive
Officers -- Compensation of the Board" and on pages 10-15 under the heading
"Compensation of Executive Officers," and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by Item 12 is included in the Proxy Statement on
pages 3-4 under the heading "Information About Capital One's Common Stock
Ownership," and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by Item 13 is included in the Proxy Statement on
page 9 under the heading "Information About Our Directors and Executive Officers
- -- Related Party Transactions with Directors," and is incorporated herein by
reference.

18

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K

(a) (1) The following consolidated financial statements of Capital One
Financial Corporation, included in the Annual Report, are
incorporated herein by reference in Item 8:

Report of Independent Auditors, Ernst & Young LLP
Consolidated Balance Sheets - As of December 31, 1997 and 1996
Consolidated Statements of Income - Years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity -
Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
Selected Quarterly Financial Data - As of and for the Years ended
December 31, 1997 and 1996

(2) All schedules are omitted since the required information is
either not applicable, not deemed material, or is shown in the
respective financial statements or in notes thereto.

(3) Exhibits:

The following exhibits are incorporated by reference or filed
herewith. References to (i) the "1994 Form 10-K" are to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994; (ii) the "1995 Form
10-K" are to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and (iii) the "1996 Form 10-K" are the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.

Exhibit Number Description
-------------- -----------

3.1 Restated Certificate of Incorporation of Capital One Financial
Corporation (incorporated by reference to Exhibit 3.1 of the
1994 Form 10-K).

3.2 Restated Bylaws of Capital One Financial Corporation (as amended
January 24, 1995) (incorporated by reference to Exhibit 3.2 of
the 1994 Form 10-K).

4.1 Specimen certificate representing the Common Stock.

4.2 Rights Agreement dated as of November 16, 1995 between Capital
One Financial Corporation and Mellon Bank, N.A. (incorporated by
reference to Exhibit 4.1 of the Company's Report on Form 8-K,
filed November 16, 1995).

4.3 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 4.1 of

19

the Company's quarterly report on
Form 10-Q for the period ending June 30, 1996).

4.4 Issuing and Paying Agency Agreement dated as of April 30, 1996
between Capital One Bank and Chemical Bank (including exhibits
A-1 and A-2 thereto) (incorporated by reference to Exhibit 4.2
of the Company's quarterly report on Form 10-Q for the period
ending June 30, 1996).

4.5.1 Senior Indenture and Form T-1 dated as of November 1, 1996
among the Company and Harris Trust and Savings Bank
(incorporated by reference to Exhibit 4.1 of the Company's
Report on Form 8-K, filed November 13, 1996).

4.5.2 Copy of 7.25% Notes Due 2003 (incorporated by reference to
Exhibit 4.5.2 of the 1996 Form 10-K).

4.6.1 Declaration of Trust, dated as of January 28, 1997, between the
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 1996 Form 10-K).

4.6.2 Copies of Certificates Evidencing Capital Securities
(incorporated by reference to Exhibit 4.6.2 of the 1996
Form 10-K).

4.6.3 Amended and Restated Declaration of Trust, dated as of January
31, 1997, by and among the Bank, The First National Bank of
Chicago and First Chicago Delaware Inc. (incorporated by
reference to Exhibit 4.6.3 of the 1996 Form 10-K).

4.7 Indenture, dated as of January 31, 1997, between the Bank and
The First National Bank of Chicago (incorporated by reference
to Exhibit 4.7 of the 1996 Form 10-K).

10.1 Amended and Restated Distribution Agreement dated April 30,
1996 among Capital One Bank and the agents named therein
(incorporated by reference to Exhibit 10.1 of the Company's
quarterly report on Form 10-Q for period ending June 30, 1996).

10.2 Distribution Agreement dated April 30, 1996, among Capital One
Bank and the agents named therein (incorporated by reference to
Exhibit 10.2 of the Company's quarterly report on Form 10-Q for
period ending June 30, 1996).

10.3.1 Change of Control Employment Agreement dated as of November 1,
1994 between Capital One Financial Corporation and Richard D.
Fairbank (incorporated by reference to Exhibit 10.12 of the
1994 Form 10-K).

10.3.2 Amendment to the Change of Control Agreement between Capital
One Financial Corporation and Richard D. Fairbank dated as of
September 15, 1995 (incorporated by reference to Exhibit
10.12.1 of the 1995 Form 10-K).

20

10.3.3 Amended and Restated Change of Control Employment Agreement
dated as of December 18, 1997 between Capital One Financial
Corporation and Richard D. Fairbank.

10.4.1 Change of Control Employment Agreement dated as of November
1, 1994 between Capital One Financial Corporation and Nigel
W. Morris (incorporated by reference to Exhibit 10.13 of the
1994 Form 10-K).

10.4.2 Amendment to the Change of Control Agreement between Capital
One Financial Corporation and Nigel W. Morris dated as of
September 15, 1995 (incorporated by reference to Exhibit
10.13.1 of the 1995 Form 10-K).

10.4.3 Amended and Restated Change of Control Employment Agreement
dated as of December 18, 1997 between Capital One Financial
Corporation and Nigel W. Morris.

10.5.1 Change of Control Employment Agreement dated as of November
1, 1994 between Capital One Financial Corporation and James
M. Zinn (incorporated by reference to Exhibit 10.14 of the
1994 Form 10-K).

10.5.2 Amendment to Change of Control Employment Agreement dated as
of December 18, 1997 between Capital One Financial
Corporation and James M. Zinn.

10.6.1 Change of Control Employment Agreement dated as of November
1, 1994, between Capital One Financial Corporation and John
G. Finneran, Jr. (incorporated by reference to Exhibit 10.15
of the 1994 Form 10-K).

10.6.2 Amendment to Change of Control Employment Agreement dated as
of December 18, 1997 between Capital One Financial
Corporation and John G. Finneran, Jr.

10.7 Capital One Financial Corporation 1994 Stock Incentive Plan,
as amended (incorporated by reference to Exhibit 10.9 of the
1996 Form 10-K).

10.8 Capital One Financial Corporation Senior Executive Short-Term
Cash Incentive Plan (terminated effective November 16, 1995)
(incorporated by reference to Exhibit 10.17 of the 1994 Form
10-K).

10.9 Capital One Financial Corporation Senior Executive Long-Term
Cash Incentive Plan (terminated effective November 16, 1995)
(incorporated by reference to Exhibit 10.18 of the 1994 Form
10-K).

10.10 Capital One Financial Corporation Executive Employee
Supplemental Retirement Plan (terminated effective November
16, 1995) (incorporated by reference to Exhibit 10.19 of the
1994 Form 10-K).

21

10.11 Capital One Financial Corporation Excess Savings Plan, as
amended (incorporated by reference to Exhibit 10.20 of the
1995 Form 10-K).

10.12 Capital One Financial Corporation Excess Benefit Cash Balance
Plan, as amended (incorporated by reference to Exhibit 10.21
of the 1995 Form 10-K).

10.13 Capital One Financial Corporation 1994 Deferred Compensation
Plan, as amended (incorporated by reference to Exhibit 10.22
of the 1995 Form 10-K).

10.14 1995 Non-Employee Directors Stock Incentive Plan,
(incorporated by reference to Registrant's Registration
Statement on Form S-8 Commission File No. 33-91790, filed May
1, 1995).

10.15 Capital One Financial Corporation Severance Pay Plan
(terminated effective October 23, 1997) (incorporated by
reference to Exhibit 10.26 of the 1994 Form 10-K).

10.16 Consulting Agreement dated as of April 5, 1995, by and
between Capital One Financial Corporation and American
Management Systems, Inc. (incorporated by reference to
Exhibit 10.33 of the 1995 Form 10-K).

10.17.1 Participation Agreement dated as of January 5, 1996, among
Capital One Bank, as construction agent and as lessee, First
Security Bank of Utah, N.A., as owner/trustee for the COB
Real Estate Trust 1995-1, NationsBank of Texas, N.A., as
administrative agent and the holders and lenders named
therein (incorporated by reference to Exhibit 10.34.1 of the
1995 Form 10-K).

10.17.2 First Amendment to Operative Documents dated as of June 5,
1996, among Capital One Bank, as construction agent and as
lessee, First Security Bank of Utah, N.A., as owner/trustee
for the COB Real Estate Trust 1995-1, NationsBank of Texas,
N.A., as administrative agent, initial lender and initial
holder named therein (incorporated by reference to Exhibit
10.3 of the Company's quarterly report on Form 10-Q for
period ending June 30, 1996).

10.17.3 Second Amendment to Operative Agreements dated as of October
11, 1996, among Capital One Bank, as construction agent and
as lessee, First Security Bank of Utah, N.A., as
owner/trustee for the COB Real Estate Trust 1995-1,
NationsBank of Texas, N.A., as administrative agent, initial
lender and initial holder named therein (incorporated by
reference to Exhibit 10.20.3 of the 1996 Form 10-K).

10.17.4 Assignment, Consent and Third Amendment to Operative
Agreement dated November 8, 1996, by and among Capital One
Bank, Capital One Realty, Inc., First Security Bank of Utah,
N.A., as owner/trustee for the COB Real Estate Trust 1995-1,
and NationsBank of Texas, N.A., as administrative

22

agent (incorporated by reference to Exhibit 10.20.4 of the
1996 Form 10-K).

10.17.5 Lease Agreement dated as of January 5, 1996, between First
Security Bank of Utah, N.A., as owner/trustee for the COB
Real Estate Trust 1995-1, as lessor and Capital One Bank, as
lessee (incorporated by reference to Exhibit 10.34.2 of the
1995 Form 10-K).

10.17.6 Credit Agreement dated as of January 5, 1996, among First
Security Bank of Utah, N.A., as owner/trustee for the COB
Real Estate Trust 1995-1, as borrower, the lenders named
therein and NationsBank of Texas, N.A., as administrative
agent (incorporated by reference to Exhibit 10.34.3 of the
1995 Form 10-K).

10.17.7 Fourth Amendment to Operative Agreements dated as of April
10, 1997 by and among Capital One Bank, Capital One Realty,
Inc., First Security Bank of Utah, N.A., as owner/trustee for
the COB Real Estate Trust 1995-1, and NationsBank of Texas,
N.A., as administrative agent.

10.18 Amended and Restated Credit Agreement, dated as of November
25, 1996, among Capital One Financial Corporation, Capital
One Bank, Capital One, F.S.B. and The Chase Manhattan Bank,
as administrative agent (incorporated by reference to Exhibit
10.21 of the 1996 Form 10-K).

10.18.1 Change of Control Employment Agreement dated as of May 14,
1996 between Capital One Financial Corporation and James P.
Donehey.

10.18.2 Amendment to Change of Control Employment Agreement dated as
of December 18, 1997 between Capital One Financial
Corporation and James P. Donehey.

10.19 Revolving Credit Facility Agreement dated as of August 29,
1997 by and among Capital One Finance Company and Capital One
Inc., as original borrowers, Capital One Financial
Corporation, as original guarantor, and the agents and
lenders named therein.

13 The portions of the Company's 1997 Annual Report to
Stockholders which are incorporated by reference herein.

21 Subsidiaries of the Registrant.

23 Consent of Ernst & Young LLP.

(b) Reports on Form 8-K

The Company filed a Current Report on Form 8-K dated December 22,
1997, Commission File No. 1-13300, announcing 1997 and 1998 Earnings
Expectations and a New Compensation Program.

23

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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

Date: March 18, 1998 By /s/ James M. Zinn
---------------------------------
James M. Zinn
Senior Vice President and
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 18th day of March, 1998.

SIGNATURES TITLE
---------- -----

/s/ Richard D. Fairbank Director, Chairman and Chief Executive
- ----------------------------- Officer
Richard D. Fairbank (Principal Executive Officer)

/s/ Nigel W. Morris Director, President and Chief Operating
- ----------------------------- Officer
Nigel W. Morris

/s/ James M. Zinn Senior Vice President and
- ----------------------------- Chief Financial Officer
James M. Zinn (Principal Accounting and Financial
Officer)

/s/ W. Ronald Dietz Director
- -----------------------------
W. Ronald Dietz

/s/ James A. Flick, Jr. Director
- -----------------------------
James A. Flick, Jr.

/s/ Patrick W. Gross Director
- -----------------------------
Patrick W. Gross

24

/s/ James V. Kimsey Director
- -----------------------------
James V. Kimsey

/s/ Stanley I. Westreich Director
- -----------------------------
Stanley I. Westreich

25

EXHIBITS TO CAPITAL ONE FINANCIAL CORPORATION

ANNUAL REPORT ON FORM 10-K

DATED DECEMBER 31, 1997

COMMISSION FILE NO. 1-13300

EXHIBIT INDEX

Exhibit Number Description
- -------------- -----------

3.1 Restated Certificate of Incorporation of Capital
One Financial Corporation (incorporated by
reference to Exhibit 3.1 of the 1994
Form 10-K).

3.2 Restated Bylaws of Capital One Financial
Corporation (as amended January 24, 1995)
(incorporated by reference to Exhibit 3.2 of
the 1994 Form 10-K).

4.1 Specimen certificate representing the
Common Stock.

4.2 Rights Agreement dated as of November 16, 1995
between Capital One Financial Corporation and
Mellon Bank, N.A. (incorporated by reference
to Exhibit 4.1 of the Company's Report on
Form 8-K, filed November 16, 1995).

4.3 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 4.1 of
the Company's quarterly report on Form 10-Q
for the period ending June 30, 1996).

4.4 Issuing and Paying Agency Agreement dated as of
April 30, 1996 between Capital One Bank and
Chemical Bank (including exhibits A-1 and A-2
thereto) (incorporated by reference to
Exhibit 4.2 of the Company's quarterly report
on Form 10-Q for the period ending June 30, 1996).

4.5.1 Senior Indenture and Form T-1 dated as of
November 1, 1996 among the Company and Harris
Trust and Savings Bank (incorporated by
reference to Exhibit 4.1 of the Company's Report
on Form 8-K, filed November 13, 1996).

4.5.2 Copy of 7.25% Notes Due 2003 (incorporated by
reference to Exhibit 4.5.2 of the 1996 Form 10-K).

4.6.1 Declaration of Trust, dated as of January 28,
1997, between the 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 1996 Form 10-K).

4.6.2 Copies of Certificates Evidencing Capital
Securities (incorporated by reference to
Exhibit 4.6.2 of the 1996 Form 10-K).

4.6.3 Amended and Restated Declaration of Trust,
dated as of January 31, 1997, by and among
the Bank, The First National

Exhibit
Number Description
------ -----------

Bank of Chicago and First Chicago Delaware Inc.
(incorporated by reference to Exhibit 4.6.3 of
the 1996 Form 10-K).

4.7 Indenture, dated as of January 31, 1997, between
the Bank and The First National Bank of Chicago
(incorporated by reference to Exhibit 4.7 of the
1996 Form 10-K).

10.1 Amended and Restated Distribution Agreement dated
April 30, 1996 among Capital One Bank and the
agents named therein (incorporated by reference
to Exhibit 10.1 of the Company's quarterly report
on Form 10-Q for period ending June 30, 1996).

10.2 Distribution Agreement dated April 30, 1996,
among Capital One Bank and the agents named
therein (incorporated by reference to
Exhibit 10.2 of the Company's quarterly report
on Form 10-Q for period ending June 30, 1996).

10.3.1 Change of Control Employment Agreement dated
as of November 1, 1994 between Capital One
Financial Corporation and Richard D. Fairbank
(incorporated by reference to Exhibit 10.12
of the 1994 Form 10-K).

10.3.2 Amendment to the Change of Control Agreement
between Capital One Financial Corporation and
Richard D. Fairbank dated as of September 15,
1995 (incorporated by reference to
Exhibit 10.12.1 of the 1995 Form 10-K).

10.3.3 Amended and Restated Change of Control
Employment Agreement dated as of December 18,
1997 between Capital One Financial Corporation
and Richard D. Fairbank.

10.4.1 Change of Control Employment Agreement dated
as of November 1, 1994 between Capital One
Financial Corporation and Nigel W. Morris
(incorporated by reference to Exhibit 10.13
of the 1994 Form 10-K).

10.4.2 Amendment to the Change of Control Agreement
between Capital One Financial Corporation and
Nigel W. Morris dated as of September 15, 1995
(incorporated by reference to Exhibit 10.13.1
of the 1995 Form 10-K).

10.4.3 Amended and Restated Change of Control
Employment Agreement dated as of December 18,
1997 between Capital One Financial Corporation
and Nigel W. Morris.

10.5.1 Change of Control Employment Agreement dated
as of November 1, 1994 between Capital One
Financial Corporation and James M. Zinn
(incorporated by reference to Exhibit 10.14
of the 1994 Form 10-K).

10.5.2 Amendment to Change of Control Employment
Agreement dated as of December 18, 1997
between Capital One Financial Corporation
and James M. Zinn.

- 2 -

Exhibit
Number Description
------ -----------

10.6.1 Change of Control Employment Agreement dated
as of November 1, 1994, between Capital One
Financial Corporation and John G. Finneran, Jr.
(incorporated by reference to Exhibit 10.15
of the 1994 Form 10-K).

10.6.2 Amendment to Change of Control Employment
Agreement dated as of December 18, 1997
between Capital One Financial Corporation
and John G. Finneran, Jr.

10.7 Capital One Financial Corporation 1994 Stock
Incentive Plan, as amended (incorporated by
reference to Exhibit 10.9 of the 1996 Form 10-K).

10.8 Capital One Financial Corporation Senior
Executive Short-Term Cash Incentive Plan
(terminated effective November 16, 1995)
(incorporated by reference to Exhibit 10.17
of the 1994 Form 10-K).

10.9 Capital One Financial Corporation Senior
Executive Long-Term Cash Incentive Plan
(terminated effective November 16, 1995)
(incorporated by reference to Exhibit 10.18
of the 1994 Form 10-K).

10.10 Capital One Financial Corporation Executive
Employee Supplemental Retirement Plan
(terminated effective November 16, 1995)
(incorporated by reference to Exhibit 10.19
of the 1994 Form 10-K).

10.11 Capital One Financial Corporation Excess
Savings Plan, as amended (incorporated by
reference to Exhibit 10.20 of the 1995
Form 10-K).

10.12 Capital One Financial Corporation Excess
Benefit Cash Balance Plan, as amended
(incorporated by reference to Exhibit 10.21
of the 1995 Form 10-K).

10.13 Capital One Financial Corporation 1994
Deferred Compensation Plan, as amended
(incorporated by reference to Exhibit 10.22
of the 1995 Form 10-K).

10.14 1995 Non-Employee Directors Stock Incentive
Plan, (incorporated by reference to Registrant's
Registration Statement on Form S-8 Commission
File No. 33-91790, filed May 1, 1995).

10.15 Capital One Financial Corporation Severance
Pay Plan (terminated effective October 23, 1997)
(incorporated by reference to Exhibit 10.26
of the 1994 Form 10-K).

10.16 Consulting Agreement dated as of April 5, 1995,
by and between Capital One Financial Corporation
and American Management Systems, Inc.
(incorporated by reference to Exhibit 10.33
of the 1995 Form 10-K).

-3-

Exhibit
Number Description
------ -----------

10.17.1 Participation Agreement dated as of January 5,
1996, among Capital One Bank, as construction
agent and as lessee, First Security Bank of
Utah, N.A., as owner/trustee for the COB
Real Estate Trust 1995-1, NationsBank of
Texas, N.A., as administrative agent and
the holders and lenders named therein
(incorporated by reference to Exhibit 10.34.1
of the 1995 Form 10-K).

10.17.2 First Amendment to Operative Documents dated
as of June 5, 1996, among One Bank, as
construction agent and as lessee, First
Security Bank of Utah, N.A., as owner/trustee
for the COB Real Estate Trust 1995-1,
NationsBank of Texas, N.A., as administrative
agent, initial lender and initial holder named
therein (incorporated by reference to
Exhibit 10.3 of the Company's quarterly report
on Form 10-Q for period ending June 30, 1996).

10.17.3 Second Amendment to Operative Agreements dated
as of October 11, 1996, among Capital One Bank,
as construction agent and as lessee, First
Security Bank of Utah, N.A., as owner/trustee
for the COB Real Estate Trust 1995-1,
NationsBank of Texas, N.A., as administrative
agent, initial lender and initial holder
named therein (incorporated by reference to
Exhibit 10.20.3 of the 1996 Form 10-K).

10.17.4 Assignment, Consent and Third Amendment to
Operative Agreement dated November 8, 1996,
by and among Capital One Bank, Capital One
Realty, Inc., First Security Bank of Utah,
N.A., as owner/trustee for the COB Real
Estate Trust 1995-1, and NationsBank of
Texas, N.A., as administrative agent
(incorporated by reference to Exhibit 10.20.4
of the 1996 Form 10-K).

10.17.5 Lease Agreement dated as of January 5, 1996,
between First Security Bank of Utah, N.A.,
as owner/trustee for the COB Real Estate
Trust 1995-1, as lessor and Capital One Bank,
as lessee (incorporated by reference to
Exhibit 10.34.2 of the 1995 Form 10-K).

10.17.6 Credit Agreement dated as of January 5, 1996,
among First Security Bank of Utah, N.A.,
as owner/trustee for the COB Real Estate
Trust 1995-1, as borrower, the lenders named
therein and NationsBank of Texas, N.A.,
as administrative agent (incorporated by
reference to Exhibit 10.34.3 of the 1995
Form 10-K).

10.17.7 Fourth Amendment to Operative Agreements
dated as of April 10, 1997 by and among
Capital One Bank, Capital One Realty, Inc.,
First Security Bank of Utah, N.A., as
owner/trustee for the COB Real Estate Trust
1995-1, and NationsBank of Texas, N.A., as
administrative agent.

10.18 Amended and Restated Credit Agreement,
dated as of November 25, 1996, among
Capital One Financial Corporation, Capital
One Bank, Capital One, F.S.B. and The

-4-

Exhibit
Number Description
------ -----------

Chase Manhattan Bank, as administrative agent
(incorporated by reference to Exhibit 10.21
of the 1996 Form 10-K).

10.18.1 Change of Control Employment Agreement dated
as of May 14, 1996 between Capital One
Financial Corporation and James P. Donehey.

10.18.2 Amendment to Change of Control Employment
Agreement dated as of December 18, 1997
between Capital One Financial Corporation
and James P. Donehey.

10.19 Revolving Credit Facility Agreement dated
as of August 29, 1997 by and among Capital
One Finance Company and Capital One Inc.,
as original borrowers, Capital One Financial
Corporation, as original guarantor, and the
agents and lenders named therein.

13 The portions of the Company's 1997 Annual
Report to Stockholders which are incorporated
by reference herein.

21 Subsidiaries of the Registrant.

23 Consent of Ernst & Young LLP.

-5-