held against subprime loans. Under the revised application of the Subprime Guidelines, the Company has, for purposes of calculating capital ratios,  risk weighted subprime loans in targeted programs at 200%, rather than the 100% risk weighting applied to loans not in targeted subprime programs. The Company has addressed the additional capital requirements with available resources. Under the revised application of the Subprime Guidelines, each of the Bank and the Savings Bank exceeds the requirements for a “well-capitalized” institution as of December 31, 2002. For purposes of the Subprime Guidelines, the Company has treated as “subprime” all loans in the Bank’s and the Savings Bank’s targeted subprime programs to customers either with a Fair, Isaac and Company (“FICO”) score of 660 or below or with no FICO score. The Bank and the Savings Bank hold on average 200% of the total risk-based capital charge that would otherwise apply to such assets. This results in higher levels of regulatory capital at the Bank and the Savings Bank. As of December 31, 2002, approximately $5.3 billion or 28.0% of the Bank’s, and $3.8 billion or 32.4% of the Savings Bank’s, on-balance sheet assets were treated as “subprime” for purposes of the Subprime Guidelines. The Bank and the Savings Bank are subject to capital adequacy guidelines adopted by the Federal Reserve Board (the “Federal Reserve”) and the Office of Thrift Supervision (the “OTS”) (collectively, the “regulators”), respectively. The capital adequacy guidelines and the regulatory framework for prompt corrective action require the Bank and the Savings Bank to maintain specific capital levels based upon quantitative measures of their assets, liabilities and off-balance sheet items.  The most recent notifications received from the regulators categorized the Bank and the Savings Bank as “well-capitalized.” To be categorized as “well- capitalized,” the Bank and the Savings Bank must maintain minimum capital ratios as set forth in the following table. As of December 31, 2002, there were no conditions or events since the notifications discussed above that management believes would have changed either the Bank or the Savings Bank’s capital category. Regulatory Matters Not O In November 2001, the regulators adopted an amendment to the regulatory capital standards regarding the treatment of certain recourse obligations, direct credit substitutes (i.e., guarantees on third-party assets), residual interests in asset securitizations, and certain other securitized transactions. Effective January 1, 2002, this rule amended the regulatory capital standards to create greater differentiation in the capital treatment of residual interests. On May 17, 2002, the regulators issued an advisory interpreting the application of this rule to a residual interest commonly referred to as an accrued interest receivable (the “AIR Advisory”). The effect of this AIR Advisory is to require all insured depository institutions, including the Bank and the Savings Bank, to hold significantly higher levels of regulatory capital against accrued interest receivables beginning December 31, 2002. The Bank and the Savings Bank have met this capital requirement and remain well capitalized after applying the provisions of the AIR Advisory at December 31, 2002. In August 2000, the Bank received regulatory approval and established a subsidiary bank in the United Kingdom. In connection with the approval of its former branch office in the United Kingdom, the Company committed to the Federal Reserve that, for so long as the Bank maintains a branch or subsidiary bank in the United Kingdom, the Company will maintain a minimum Tier 1 Leverage ratio of 3.0%. As of December 31, 2002 and 2001, the Company’s Tier 1 Leverage ratio was 11.95% and 11.93%, respectively. Additionally, certain regulatory restrictions exist that limit the ability of the Bank and the Savings Bank to transfer funds to the Corporation. As of December 31, 2002, retained earnings of the Bank and the Savings Bank of $924.4 million and $408.4 million, respectively, were available for payment of dividends to the Corporation without prior approval by the regulators. The Savings Bank, however, is required to give the OTS at least 30 days advance notice of any proposed dividend and the OTS, in its discretion, may object to such dividend. Since early 2001, the Bank and Savings Bank have treated a portion of their loans as “subprime” under the “Expanded Guidance for Subprime Lending Programs” (the “Subprime Guidelines”) and have assessed their capital and allowance for loan losses accordingly. In the second quarter of 2002, the Company adopted a revised application of the Subprime Guidelines, the result of which is to require more capital and allowance for loan losses to be 67 To Be “Well Applying Minimum Capitalized” Call Report Subprime for Capital Under Prompt Basis Guidance Adequacy Corrective Action Ratios Ratios Purposes Provisions December 31, 2002 Capital One Bank Tier 1 Capital 15.56% 11.50% 4.00% 6.00% Total Capital 17.78 13.39 8.00 10.00 Tier 1 Leverage 13.79 13.79 4.00 5.00 Capital One, F.S.B. Tier 1 Capital 15.10% 11.02% 4.00% 6.00% Total Capital 16.80 12.59 8.00 10.00 Tier 1 Leverage 14.45 14.45 4.00 5.00 December 31, 2001 Capital One Bank Tier 1 Capital 12.95% 4.00% 6.00% Total Capital 15.12 8.00 10.00 Tier 1 Leverage 12.09 4.00 5.00 Capital One, F.S.B. Tier 1 Capital 9.27% 4.00% 6.00% Total Capital 11.21 8.00 10.00 Tier 1 Leverage 8.86 4.00 5.00