Capital One 1999 Annual Report Download - page 31

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The Company retains an interest in the trusts (“seller’s in-
terest”) equal to the amount of the receivables transferred to
the trust in excess of the principal balance of the certificates.
The Company’s interest in the trusts varies as the amount of the
excess receivables in the trusts fluctuates as the accounthold-
ers make principal payments and incur new charges on the se-
lected accounts. The securitization generally results in the
removal of the receivables, other than the seller’s interest, from
the Company’s balance sheet for financial and regulatory ac-
counting purposes.
The Company’s relationship with its customers is not
affected by the securitization. The Company acts as a servicing
agent and receives a fee.
Collections received from securitized receivables are used
to pay interest to certificateholders, servicing and other fees,
and are available to absorb the investors’ share of credit losses.
Amounts collected in excess of that needed to pay the above
amounts are remitted to the Company, as described in Servic-
ing and Securitizations Income.
Certificateholders in the Company’s securitization program
are generally entitled to receive principal payments either
through monthly payments during an amortization period or in
one lump sum after an accumulation period. Amortization may
begin sooner in certain circumstances, including if the annual-
ized portfolio yield (consisting, generally, of interest and fees)
for a three-month period drops below the sum of the certificate
rate payable to investors, loan servicing fees and net credit
losses during the period.
Prior to the commencement of the amortization or accu-
mulation period, all principal payments received on the trusts’
receivables are reinvested in new re-
ceivables to maintain the principal
balance of certificates. During the
amortization period, the investors’
share of principal payments is paid
to the certificateholders until they
are paid in full. During the accumu-
lation period, the investors’ share of
principal payments is paid into a
principal funding account designed
to accumulate amounts so that the
certificates can be paid in full on the
expected final payment date.
Table 2 indicates the impact of
the consumer loan securitizations on
average earning assets, net interest
margin and loan yield for the periods
presented. The Company intends to
continue to securitize consumer loans.
(in percentages)
8.81 9.91 10.83
97 98 99
managed net
interest margin
(in percentages)
15.73 16.99 17.59
97 98 99
managed loan
yield
table 2: OPERATING DATA AND RATIOS
Year Ended December 31 (Dollars in Thousands) 1999 1998 1997
Reported:
Average earning assets $ 9,694,406 $ 7,225,835 $ 5,753,997
Net interest margin 10.86% 9.51% 6.54%
Loan yield 19.33 18.75 15.11
Managed:
Average earning assets $ 20,073,964 $ 17,086,813 $ 14,658,143
Net interest margin 10.83% 9.91% 8.81%
Loan yield 17.59 16.99 15.73
RISK ADJUSTED REVENUE AND MARGIN
The Company’s products are designed with the objective of max-
imizing revenue for the level of risk undertaken. Management
believes that comparable measures for external analysis are the
risk adjusted revenue and risk adjusted margin of the managed
portfolio. Risk adjusted revenue is defined as net interest
income and non-interest income less net charge-offs. Risk
adjusted margin measures risk adjusted revenue as a percent-