Capital One 1999 Annual Report Download - page 64

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66
note o
SIGNIFICANT CONCENTRATION OF CREDIT RISK
The Company is active in originating consumer loans, primarily
in the United States. The Company reviews each potential cus-
tomer’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. International consumer
loans are originated primarily in Canada and the United King-
dom. The geographic distribution of the Company’s consumer
loans was as follows:
December 31, 1999 1998
Percentage Percentage
Geographic Region: Loans of Total Loans of Total
South $ 6,751,599 33.36% $ 5,868,386 33.74%
West 4,037,714 19.95 3,609,952 20.75
Northeast 3,362,044 16.62 3,032,061 17.43
Midwest 3,644,444 18.01 2,992,334 17.20
International 2,440,787 12.06 1,892,393 10.88
20,236,588 100.00% 17,395,126 100.00%
Less securitized
balances (10,323,039) (11,238,015)
Total $ 9,913,549 $ 6,157,111
note p
DISCLOSURES ABOUT FAIR VALUE
OF FINANCIAL INSTRUMENTS
The following discloses the fair value of financial instruments
as of December 31, 1999 and 1998, whether or not recognized
in the balance sheets. 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 sig-
nificantly 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 substantiated 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 finan-
cial instruments and all non-financial instruments. Accordingly,
the aggregate fair value amounts presented do not represent
the underlying value of the Company.
The following methods and assumptions were used by the
Company in estimating the fair value of its financial instruments
as of December 31, 1999 and 1998:
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 for fair values by type
of security.
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.
Accounts Receivable from Securitizations
The carrying amount approximated fair value.
Borrowings
The book value of interest-bearing deposits, secured borrowings,
federal funds purchased and resale agreements, and other
short-term borrowings approximates fair value. The fair value of
the junior subordinated capital income securities was $84,199
and $77,672 at December 31, 1999 and 1998, respectively, and
is determined based on quoted market prices. The fair value of
senior notes was $4,075,825 and $3,769,000 as of December
31, 1999 and 1998, respectively, and is determined based on
quoted market prices.
Interest Payable
The carrying amount approximated fair value.
Off-Balance Sheet Financial Instruments
The fair value was the estimated net amount that the Company
would have (paid)/received to terminate the interest rate swaps,
currency swaps and f/x contracts at the respective dates, taking
into account the forward yield curve on the swaps and the for-
ward rates on the currency swaps and f/x contracts. As of
December 31, 1999 and 1998, the estimated fair value was
$80,566 and ($64,713), respectively.