Capital One 1996 Annual Report Download - page 54

52 Capital One
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
Note K Related Party Transactions
In the ordinary course of business, executive officers and
directors of the Company may have credit card loans issued
by the Company. Pursuant to the Company’s policy, such
loans are issued on the same terms as those prevailing at
the time for comparable loans with unrelated persons and
do not involve more than the normal risk of collectability.
Prior to November 22, 1994, and on a declining basis
thereafter, Signet and its various subsidiaries provided sig-
nificant financial and operational support to the Company,
the estimated costs of which have been allocated to the
Company. Since the Company operated as a division of
Signet Bank for all periods prior to November 22, 1994,
these allocations did not necessarily represent expenses
that would have been incurred directly by the Company
had it operated on a stand-alone basis historically. The
following table summarizes the effects of these allocations
(including interest expense) and servicing income related to
the retained credit card portfolio reflected in the financial
statements. Revenues and expenses generated in 1995 from
agreements with Signet through February 28, 1995 were
immaterial.
Year Ended
December 31
1994
Revenues:
Loan servicing income pertaining to
retained credit card portfolio $11,046
Expenses:
Interest expense on affiliate borrowings 67,161
Salaries and associate benefits 7,509
Data processing services 16,524
Contract termination 49,000
Other 6,303
Incremental expenses, other than interest expense, that
the Company would have incurred directly had it operated
on a stand-alone basis were estimated to be $6,000
(unaudited) for the year ended December 31, 1994.
Premises and equipment with a net book value of $21,800
were transferred from Signet on November 22, 1994.
Effective November 22, 1994, the Company entered into
a Separation Agreement, Interim Service Agreement and
long-term Intercompany Servicing Agreements, a Tax
Sharing Agreement and an Associate Benefits Agreement,
which provide for certain ongoing operational and financial
relationships between the Company and Signet that expire
in 1997.
card customers who were not residents of Virginia. These
cases were filed in the Superior Court of California in the
County of Alameda, Southern Division, on behalf of a class
of California residents, in the United States District Court
for the District of Connecticut on behalf of a nationwide
class and in the United States District Court for the Middle
District of Florida on behalf of a nationwide class (except
for California). The complaints in these three cases seek
unspecified statutory damages, compensatory damages,
punitive damages, restitution, attorneys’ fees and costs, a
permanent injunction and other equitable relief.
On July 31, 1996, the Florida case was dismissed with-
out prejudice, which permits further proceedings. The
plaintiff has since noticed her appeal to the United States
Court of Appeals for the Eleventh Circuit and refiled cer-
tain claims arising out of state law in Florida state court.
On September 30, 1996, the Connecticut court entered
judgement in favor of the Bank on plaintiff’s federal claims
and dismissed without prejudice plaintiff’s state law
claims. The plaintiff has refiled, on behalf of a class of
Connecticut residents, her claims arising out of state law in
a Connecticut state court.
Subsequent to year-end 1996, the California court
entered judgment in favor of the Bank on all of the plain-
tiff’s claims. The time period in which plaintiffs may file an
appeal of the court’s decision has not yet expired.
In connection with the transfer of substantially all of
Signet Bank’s credit card business to the Bank in
November 1994, the Company and the Bank agreed to
indemnify Signet Bank for certain liabilities incurred in lit-
igation arising from that business, which may include
liabilities, if any, incurred in the three purported class
action cases described above. Because no specific measure
of damages is demanded in any of the complaints and each
of these cases is in early stages of litigation, an informed
assessment of the ultimate outcome of these cases cannot
be made at this time. Management believes, however, that
there are meritorious defenses to these lawsuits and
intends to defend them vigorously.
The Company is commonly subject to various other
pending and threatened legal actions arising from the con-
duct of its normal business activities. In the opinion of the
Management of the Company, the ultimate aggregate lia-
bility, if any, arising out of any pending or threatened
action will not have a material adverse effect on the consol-
idated financial condition of the Company. At the present
time, however, Management is not in a position to deter-
mine whether the resolution of pending or threatened liti-
gation will have a material effect on the Company’s results
of operations in any future reporting period.