NEW YORK — Capital One Financial Corp. said Thursday it will acquire Chevy Chase Bank for $520 million in cash and stock, as it continues to bolster its deposit base to help fund operations amid the ongoing credit crisis.

Fresh off receiving $3.56 billion in funds as part of the government's bank investment program and raising more than $700 million through a stock offering, McLean, Va.-based Capital One will use $445 million in cash and 2.56 million shares of Capital One valued at $75 million, or about $29.30 per share, to acquire privately held Chevy Chase Bank.

Shares of Capital One fell 60 cents, or 1.9 percent, to close at $30.99 Thursday.

Chevy Chase Bank, which has about $11 billion in deposits, operates branches in Maryland, Virginia and Washington, D.C. Capital One had about $98.9 billion deposits as of Sept. 30.

Bethesda, Md.-based Chevy Chase Bank is the latest in a string of regional banks Capital One has purchased in recent years as it expands to become a full-service bank after primarily operating as a credit card lender.

In November 2005, Capital One bought New Orleans-based Hibernia Corp., which had branches in Texas and Louisiana. In December 2006, the company completed its acquisition of North Fork Bank, which operates banks in New York and New Jersey.

That appetite for growing deposits over the past three years has helped Capital One sidestep the worst of the credit crisis that has snagged other financial services firms without such bases.

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Access to funding typically used by credit card lenders such as Capital One has all but disappeared during the current market turmoil. By purchasing Chevy Chase Bank, Capital One can increase its funding through traditional savings and checking accounts.

"Deposits are really the only source of stable funding in the market, aside from government programs," said Scott Valentin, an analyst with Friedman, Billings, Ramsey & Co. The deal moves it closer to a funding model of traditional banks, Valentin said.

Credit ratings agency Fitch Ratings, while affirming Capital One's ratings, said in a statement it views the acquisition of Chevy Chase favorably because of the size of Chevy Chase's deposit base and "attractive branch footprint."

Capital One's managed loan-to-deposit ratio will be about 145 percent after the deal. A traditional retail bank's ratio is usually between 95 percent and 110 percent, Valentin added.

Capital One has also embraced its status as a bank to take advantage of the government's lending programs, such as participating in the Treasury Department's $700 billion investment plan. The plan is aimed at spurring banks to increase lending to each other and to consumers amid the seize-up in the credit markets. Capital One received about $3.56 billion in return for preferred stock and warrants to purchase common stock.

"The bailout money played a role in this transaction as well," said Bob Meara, a senior analyst with financial consulting firm Celent. "Taking a small percentage of (the government investment) to gain these assets strikes me as a good deal."

Being able to fund operations and have enough reserves to cover potential losses has been a key to banks' survival amid the market unrest. That has led to increased speculation that regional banks would be bought out by bigger players looking to boost deposits.

Rumors about a possible buyer for Chevy Chase had been circulating for several weeks. Citigroup Inc. was among the bidders reportedly looking to acquire the bank. Citi declined to comment Thursday on speculation it was interested in acquiring Chevy Chase Bank.

Citi's sharp stock slide last month that required billions of dollars in support from the federal government to stave off a cash squeeze likely took it out of the running to acquire Chevy Chase Bank, according to one analyst.

"Citi's stock got crushed," said David Hendler of CreditSights. "They couldn't do the stock deal anymore. They couldn't do it for cash given their capital. Citi has to work on its own internal situation to right its stock."

Unlike Citi, Capital One has remained profitable during the ongoing credit crisis, though it is facing mounting losses from its loan portfolio. Analysts widely expect loan losses industrywide to continue to rise into 2009.

When it completes the deal, Capital One said it expects to take a $1.75 billion net credit charge to account for potential losses in Chevy Chase's loan portfolio.

That charge might not be large enough, though, FBR's Valentin said. Capital One's eventual losses on Chevy Chase's loan portfolio could be closer to $2.25 billion, based on its mix of mortgages, home equity and auto loans, he added.

Capital One continued to beef up its loan-loss reserves during the third quarter as it braces for additional losses. During the third quarter, Capital One increased its quarterly allowance for loan losses by $208.6 million to $3.5 billion.

Capital One said the Chevy Chase deal will boost operating earnings in 2009. Capital One added that it expects to incur about $225 million of charges tied to merger and integration costs. It expects the deal to eventually reduce expenses by $125 million.

The deal is expected to close during the first quarter.

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AP Business Writer Ieva M. Augstums in Charlotte, N.C. contributed to this report.