Capital One 2000 Annual Report Download - page 63

Note M
SECURITIZATIONS
During 2000 and 1999, the Company transferred $6,142,709
($141,140 international) and $2,586,517 ($47,642 international),
respectively, of consumer loan receivables in securitization trans-
actions accounted for as sales in accordance with the provisions of
SFAS 125. At December 31, 2000, the fair value of the retained inter-
ests relating to securitizations of consumer loan receivables totaled
$408,447.
The key assumptions used in determining the fair value of
retained interests at December 31, 2000, included a weighted aver-
age charge-off rate of 4%, an average prepayment rate of 16%, an
average life for receivables of seven months and a discount rate of
12%. The fair value of the Company’s retained interests at December
31, 2000, would decrease by $16,733, $5,912 and $245 from a 10%
adverse change in the assumed charge-off rate, prepayment rate
and discount rate, respectively. The fair value of the Company’s
retained interests at December 31, 2000, would decrease by
$33,467, $10,626 and $488 from a 20% adverse change in the
assumed charge-off rate, prepayment rate and discount rate,
respectively. These sensitivities are hypothetical and should be used
with caution. A change in fair value based on a 10% or 20% variation
in assumptions cannot necessarily be extrapolated because the
relationship of change in assumption to the change in fair value may
not be linear. Also, the effect of a variation in a particular assump-
tion on the fair value of the retained interest is calculated
independent from any change in another assumption, however,
changes in one factor may result in changes in other factors, which
might magnify or counteract the sensitivities. During 2000, the
Company recognized $30,466 in gains related to the transfer of
receivables accounted for as sales. The Company also received other
cash flows from the securitization trusts of $72,540 for servicing
the transferred receivables and $1,025,436 of net interest income
relating to the transferred receivables, including $34,007 for interest
income relating to subordinated interests retained by the Company.
Additionally, collections reinvested in revolving period securitizations
were $18,566,784.
At December 31, 2000, the Company’s managed consumer
loan portfolio of $29,524,026 is comprised of $15,112,712 in
reported consumer loans and $14,411,314 in off-balance sheet con-
sumer loans. At December 31, 2000, the Company’s 30-plus days
loan delinquency on a reported and managed basis were
$1,097,311, or 7.26%, and $1,544,654, or 5.23%, respectively. Net
charge-offs include the principal amount of losses (excluding
accrued and unpaid finance charges, fees, and fraud losses) less
current period recoveries. The Company charges off loans (net of
collateral) at 180 days past due. The Company’s net charge-offs for
the year ended December 31, 2000, on a reported and managed
basis were $532,621, or 4.64% of average reported loans, and
$883,667, or 3.90% of average managed loans, respectively.
The key assumptions used in determining the fair value of
retained interests resulting from securitizations of consumer loan
receivables completed during the period included weighted aver-
age charge-off rates ranging from 4% to 6%, weighted average
prepayment rates ranging from 13% to 16%, weighted average life
for receivables ranging from 7 to 8 months and weighted average
discount rates ranging from 11% to 13%. Static pool credit losses
are calculated by summing the actual and projected future credit
losses and dividing them by the original balance of each pool of
asset. Due to the short term revolving nature of consumer loan
receivables, the weighted average percentage of static pool credit
losses is not considered to be materially different from the
assumed charge-off rates used to determine the fair value of
retained interests.
Note N
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Company has entered into interest rate swaps to effectively
convert certain interest rates on bank notes from variable to fixed.
The pay-fixed, receive-variable swaps, which had a notional amount
totaling $157,000 as of December 31, 2000, will mature from 2001
to 2007 to coincide with maturities of the variable bank notes to
which they are designated. The Company has also entered into
interest rate swaps and amortizing notional interest rate swaps to
effectively reduce the interest rate sensitivity of loan securitiza-
tions. These pay-fixed, receive-variable interest rate swaps and
amortizing notional interest rate swaps had notional amounts total-
ing $2,050,000 and $1,991,062 respectively, as of December 31,
2000. The interest rate swaps will mature from 2002 to 2005 and
the amortizing notional interest rate swaps will fully amortize
between 2004 and 2006 to coincide with the estimated paydown
of the securitizations to which they are designated. The Company
also had a pay-fixed, receive-variable, interest rate swap with an
amortizing notional amount of $545,000 as of December 31, 2000,
which will amortize through 2003 to coincide with the estimated
attrition of the fixed rate Canadian dollar consumer loans to which
it is designated.
The Company has also entered into currency swaps that effec-
tively convert fixed rate pound sterling interest receipts to fixed rate
U.S. dollar interest receipts on pound sterling denominated assets.
notes 61