Capital One 1996 Annual Report Download - page 53

During 1996, the Bank received regulatory approval to
establish a branch office in the United Kingdom. In connec-
tion with such approval, the Company committed to the
Federal Reserve Board that, for so long as the Bank main-
tains such branch in the United Kingdom, the Company
will maintain a minimum Tier 1 Leverage ratio of 3.0%. As
of December 31, 1996, the Company’s Tier 1 Leverage ratio
was 11.13%.
Additionally, certain regulatory restrictions exist which
limit the ability of the Bank and the Savings Bank to
transfer funds to the Corporation. As of December 31, 1996,
retained earnings of the Bank and the Savings Bank of
$113,700 and $4,600, respectively, were available for pay-
ment of dividends to the Corporation, without prior
approval by the regulators. The Savings Bank is required
to give the Office of Thrift Supervision at least 30 days’
advance notice of any proposed dividend.
Note I Income Taxes
Deferred income taxes reflect the net tax effects of tempo-
rary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant compo-
nents of the Company’s deferred tax assets and liabilities
as of December 31, 1996 and 1995 were as follows:
December 31
1996 1995
Deferred tax assets:
Allowance for loan losses $41,475 $26,177
Stock incentive plan 2,758
Other 7,542 2,590
Total deferred tax assets 51,775 28,767
Deferred tax liabilities:
Service charge accrual 5,368
Deferred issuance & replacement costs 3,119 2,376
Depreciation 2,546 1,872
Unrealized gains on
securities available for sale 1,121 3,768
Finance charge accrual 9,794
Other 542 2,054
Total deferred tax liabilities 12,696 19,864
Net deferred tax assets $39,079 $ 8,903
Significant components of the provision for income taxes
attributable to continuing operations were as follows:
Year Ended December 31
1996 1995 1994
Federal taxes $119,027 $63,162 $51,942
State taxes 1,715 600
Deferred income taxes (27,529) 7,458 (378)
Income taxes $ 93,213 $71,220 $51,564
The reconciliation of income tax attributable to continu-
ing operations computed at the U.S. federal statutory tax
rates to income tax expense was:
Year Ended December 31
1996 1995 1994
Income tax at statutory
federal tax rate of 35% $86,968 $69,206 $51,389
State taxes, net of federal benefit 1,115 390
Other 5,130 1,624 175
Income taxes $93,213 $71,220 $51,564
Note J Commitments and Contingencies
As of December 31, 1996, the Company had outstanding
lines of credit of approximately $26,800,000 committed to
its customers. Of that total commitment, approximately
$14,000,000 was unused. While this amount represented
the total available lines of credit to customers, the
Company had not experienced and does not anticipate that
all of its customers will exercise their entire available line
at any given point in time. The Company has the right to
increase, reduce, cancel, alter or amend the terms of these
available lines of credit at any time.
Certain premises and equipment are leased under
agreements that expire at various dates through 2006,
without taking into consideration available renewal
options. Many of these leases provide for payment by the
lessee of property taxes, insurance premiums, cost of main-
tenance and other costs. In some cases, rentals are subject
to increase in relation to a cost of living index. Total rental
expense amounted to $12,603, $5,394 and $3,700 for the
years ended December 31, 1996, 1995 and 1994, respectively.
Future minimum rental commitments as of
December 31, 1996 for all non-cancelable operating leases
with initial or remaining terms of one year or more are as
follows:
1997 $10,813
1998 10,603
1999 8,483
2000 6,800
2001 5,227
Thereafter 14,863
$56,789
During 1995, the Company and the Bank became
involved in three purported class action suits relating to
certain collection practices engaged in by Signet Bank and,
subsequently, by the Bank. The complaints in these three
cases allege that Signet Bank and/or the Company violated
a variety of federal and state statutes and constitutional
and common law duties by filing collection lawsuits,
obtaining judgments and pursuing garnishment proceed-
ings in the Virginia state courts against defaulted credit
Capital One 51