Capital One 1997 Annual Report Download - page 56

Notes to Consolidated Financial Statements (continued)
(Currencies in Thousands, Except Per Share Data)
Note N: Significant Concentration of
Credit Risk
The Company is active in originating consumer loans primarily in
the United States.The Company reviews each potential customer’s
credit application and evaluates the applicant’s financial history
and ability and willingness to repay. Loans are made primarily on an
unsecured basis; however, certain loans require collateral in the
form of cash deposits. Foreign denominated consumer loans are
included in the “Other” geographic region loan category.The
geographic distribution of the Company’s consumer loans was
as follows:
Year Ended December 31
1997 1996
Geographic
Region: Loans % Loans %
South $ 5,061,414 35.57% $ 4,615,596 36.05%
Wes t 3,361,556 23.62 3,277,717 25.60
Northeast 2,835,256 19.92 2,465,237 19.25
Midwest 2,533,469 17.80 2,386,918 18.64
Other 439,320 3.09 58,501 .46
14,231,015 100.00% 12,803,969 100.00%
Less securitized
balances (9,369,328) (8,460,067)
Total loans $ 4,861,687 $ 4,343,902
Note O: Disclosures About Fair Value of
Financial Instruments
The following discloses the fair value of financial instruments as of
December 31, 1997 and 1996, whether or not recognized in the bal-
ance sheets, for which it is practical to estimate fair value. In cases
where quoted market prices are not available, fair values are based
on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In
that regard, the derived fair value estimates cannot be substanti-
ated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. As
required under GAAP, these disclosures exclude certain financial
instruments and all nonfinancial instruments. Accordingly, the
aggregate fair value amounts presented do not represent the under-
lying value of the Company.
The following methods and assumptions were used by the Com-
pany in estimating the fair value as of December 31, 1997 and 1996,
for its financial instruments:
Cash and Cash Equivalents
The carrying amounts of cash and due from banks, federal funds
sold and resale agreements and interest-bearing deposits at other
banks approximated fair value.
Securities Available for Sale
The fair value of securities available for sale was determined using
current market prices. See Note B.
Consumer Loans
The net carrying amount of consumer loans, including the Com-
pany’s seller’s interest in securitized consumer loan receivables,
approximated fair value due to the relatively short average life and
variable interest rates on a substantial number of these loans.This
amount excluded any value related to account relationships.
Interest Receivable
The carrying amount approximated fair value.
Borrowings
The carrying amounts of interest-bearing deposits, other borrowings
and deposit notes approximated fair value.The fair value of senior
notes was $3,351,000 and $3,722,000 as of December 31, 1997 and
1996, respectively, determined based on quoted market prices.
Interest Payable
The carrying amount approximated fair value.
Swaps
The fair value was the estimated amount that the Company would
have received to terminate the swaps at the respective dates, taking
into account the forward yield curve. As of December 31, 1997 and
1996, the estimated fair value was $5,800 and $32,700, respectively.
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