Capital One 1996 Annual Report Download - page 36

Capital One
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
34
Table 11 Maturity of Interest Rate Swaps(1)
Within Over One Average
One to Five Life
(dollars in millions) Year Years Total (Years)
Receive fixed/pay floating:
December 31, 1996
Notional amount $1,063 $1,041 $2,104 1.15
Weighted average rates received 7.36% 7.55% 7.45%
Weighted average rates paid 5.55 5.59 5.57
December 31, 1995
Notional amount $ 40 $2,104 $2,144 2.03
Weighted average rates received 7.07% 7.45% 7.45%
Weighted average rates paid 5.88 5.73 5.73
Received floating/pay floating:
December 31, 1995
Notional amount $ 260 $ 260 0.56
Weighted average rates received 5.84% 5.84%
Weighted average rates paid 5.94 5.94
(1) Weighted average rates received and paid are based on the contractual rates in effect as of December 31, 1996 and 1995, respectively. Floating rates under the
swap contracts are based on varying terms of LIBOR.
Table 12 reflects a roll forward of activity by notional
amount for the Company’s swaps.
Table 12 Summary of Interest Rate Sw aps
Notional
(dollars in millions) Amount
Receive floating/pay fixed:
December 31, 1994
Additions $4,800
Maturities 4,800
December 31, 1995 $ –
Receive fixed/pay floating:
December 31, 1994 $ 539
Additions 1,605
December 31, 1995 2,144
Maturities 40
December 31, 1996 $2,104
Receive floating/pay floating:
December 31, 1994 $ –
Additions 260
December 31, 1995 260
Maturities 260
December 31, 1996 $ –
Swaps designated to on-balance sheet assets and liabili-
ties had the effect of increasing net interest income $20.0
million, $15.9 million, and $0.4 million for the years ended
December 31, 1996, 1995 and 1994, respectively, from that
which would have been recorded had the Company not
entered into these transactions. Swaps designated to off-
balance sheet items had the effect of increasing servicing
income $18.0 million, $12.7 million and $1.0 million for the
years ended December 31, 1996, 1995 and 1994, respectively.
Liquidity
Liquidity refers to the Company’s ability to meet its cash
needs. The Company meets its cash requirements by
securitizing assets and by debt funding. As discussed in
“Managed Consumer Loan Portfolio,” a significant source of
liquidity for the Company has been the securitization of
credit card loans. Maturity terms of the existing securitiza-
tions vary from 1997 to 2001 (extendable to 2004) and typi-
cally have accumulation periods during which principal pay-
ments are aggregated to make payments to investors. As
payments on the loans are accumulated for the partici-
pants in the securitization and are no longer reinvested in
new loans, the Company’s funding requirements for such
new loans increase accordingly. The occurrence of certain
events may cause the securitization transactions to amor-
tize earlier than scheduled which would accelerate the
need for funding.
Table 13 shows the amounts of investor principal of
securitized credit card loans that will amortize or be other-
wise paid off over the periods indicated based on outstand-
ing securitized credit card loans as of January 1, 1997. As
of December 31, 1996 and 1995, 66% and 72%, respectively,
of the Company’s total managed loans were securitized.
The Company believes that it can securitize consumer
loans, purchase federal funds and establish other funding
sources to fund the amortization or other payment of the
securitizations in the future, although no assurance can be
given to that effect. Additionally, the Company maintains a