Capital One 2001 Annual Report Download - page 64

At December 31, 2001, the Company expects to reclassify $58,946 of net
losses after tax on derivative instruments from cumulative other
comprehensive income to earnings during the next 12 months as interest
payments and receipts on the related derivative instruments occur.
Hedge of Net Investment in Foreign Operations
The Company uses cross-currency swaps to protect the value of its
investment in its foreign subsidiaries. Realized and unrealized gains
and losses from these hedges are not included in the income statement,
but are shown in the cumulative translation adjustment account
included in other comprehensive income. The purpose of these hedges
is to protect against adverse movements in exchange rates.
For the year ended December 31, 2001, net losses of $605 related to
these derivatives was included in the cumulative translation adjustment.
Non-Trading Derivatives
The Company uses interest rate swaps to manage interest rate
sensitivity related to loan securitizations. The Company enters into
interest rate swaps with its securitization trust and essentially offsets
the derivative with separate interest rate swaps with third parties. These
derivatives do not qualify as hedges and are recorded on the balance
sheet at fair value with changes in value included in current earnings.
During the year ended December 31, 2001, the Company recognized
substantially no net gains or losses related to these derivatives.
Derivative Instruments and Hedging Activities—
Pre-SFAS 133
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 securitizations. These pay-fixed, receive-variable
interest rate swaps had notional amounts totaling $2,050,000 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, 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 effectively
convert fixed rate pound sterling interest receipts to fixed rate U.S.
dollar interest receipts on pound sterling denominated assets. These
currency swaps had notional amounts totaling $261,000 as of
December 31, 2000, and mature from 2001 to 2005, coinciding with
the repayment of the assets to which they are designated.
The Company has entered into foreign exchange contracts to reduce
the Company's sensitivity to foreign currency exchange rate changes
on its foreign currency denominated assets and liabilities. As of
December 31, 2000, the Company had foreign exchange contracts with
notional amounts totaling $665,284 that mature in 2001 to coincide
with the repayment of the assets to which they are designated.
Note P
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. International consumer loans are originated primarily in
Canada and the United Kingdom. The geographic distribution of the
Company's consumer loans was as follows:
Note Q
Disclosures About Fair Value of Financial
Instruments
The following discloses the fair value of financial instruments whether
or not recognized in the balance sheets as of December 31, 2001 and
2000. 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
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 financial
62 notes
December 31 2001 2000
Percentage Percentage
Geographic Region: Loans of Total Loans of Total
South $15,400,081 34.02% $ 9,869,290 33.43%
West 9,354,934 20.67 5,962,360 20.19
Midwest 8,855,719 19.56 5,694,318 19.29
Northeast 7,678,378 16.97 5,016,719 16.99
International 3,974,851 8.78 2,981,339 10.10
45,263,963 100.00% 29,524,026 100.00%
Less securitized
balances (24,342,949) (14,411,314)
Total $20,921,014 $ 15,112,712