Capital One 2003 Annual Report Download - page 109

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The following table presents the year-end and average balances, as well as the delinquent and net charge-off
amounts of the reported, off-balance sheet and managed consumer loan portfolios.
Supplemental Loan Information
Year Ended December 31
2003 2002
Loans
Outstanding
Loans
Delinquent
Loans
Outstanding
Loans
Delinquent
Managed loans $ 71,244,796 $ 3,177,929 $ 59,746,537 $ 3,345,394
Securitization adjustments (38,394,527) (1,604,470) (32,402,607) (1,671,525)
Reported consumer loans $ 32,850,269 $ 1,573,459 $ 27,343,930 $ 1,673,869
Average
Loans
Net
Charge-
Offs
Average
Loans
Net
Charge-
Offs
Managed loans $ 62,911,953 $ 3,683,887 $ 52,799,566 $ 2,769,249
Securitization adjustments (34,234,337) (2,037,527) (27,763,547) (1,509,565)
Reported consumer loans $ 28,677,616 $ 1,646,360 $ 25,036,019 $ 1,259,684
The Company’s retained residual interests in the off-balance sheet securitizations are recorded in accounts
receivable from securitizations and are comprised of interest-only strips, retained subordinated undivided
interests in the transferred receivables, cash collateral accounts, cash reserve accounts and unpaid interest and
fees on the investors’ portion of the transferred principal receivables. The interest-only strip is recorded at fair
value, while the other residual interests are carried at cost, which approximates fair value. Retained residual
interests totaled $2.2 billion and $1.6 billion at December 31, 2003 and 2002, respectively. The Company’s
retained residual interests are generally restricted or subordinated to investors’ interests and their value is subject
to substantial credit, repayment and interest rate risks on the transferred financial assets. The investors and the
trusts have no recourse to the Company’s assets, other than the retained residual interests, if the off-balance sheet
loans are not paid when due.
The gain on sale recorded from off-balance sheet securitizations is based on the estimated fair value of the assets
sold and retained and liabilities incurred, and is recorded at the time of sale in servicing and securitizations
income on the Consolidated Statements of Income. The related receivable is the interest-only strip, which is
based on the present value of the estimated future cash flows from excess finance charges and past-due fees over
the sum of the return paid to security holders, estimated contractual servicing fees and credit losses. The
Company periodically reviews the key assumptions and estimates used in determining the value of the interest-
only strip. Prior to December 31, 2002, decreases in fair value below the carrying amount as a result of changes
in the key assumptions were recognized in “servicing and securitizations” income, while increases in fair values
as a result of changes in key assumptions were recorded as unrealized gains and included as a component of
cumulative other comprehensive income, on a net-of-tax basis, in accordance with the provisions of SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities. Effective December 31, 2002 and for all
subsequent periods, the Company recognizes all changes in the fair value of the interest-only strip immediately in
servicing and securitizations income on the consolidated statements of income. In accordance with Emerging
Issues Task Force 99-20 (“EITF 99-20”), Recognition of Interest Income and Impairment of Purchased and
Retained Beneficial Interests in Securitized Financial Assets, the interest component of cash flows attributable to
retained interests in securitizations is recorded in other interest income.
The key assumptions used in determining the fair value of the interest-only strips resulting from securitizations of
consumer loan receivables completed during the period included the weighted average ranges for charge-off
rates, principal repayment rates, lives of receivables and discount rates included in the following table. The
charge-off rates are determined using forecasted net charge-offs expected for the trust calculated consistently
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