Capital One 2003 Annual Report Download - page 51

Other Guarantees
In connection with an installment loan securitization transaction, the transferee (off-balance sheet special purpose
entity receiving the installment loans) entered into an interest rate hedge agreement (the “swap”) with a
counterparty to reduce interest rate risk associated with the transaction. In connection with the swap, the
Corporation entered into a letter agreement guaranteeing the performance of the transferee under the swap. If at
anytime the Class A invested amount equals zero and the notional amount of the swap is greater than zero
resulting in an “Early Termination Date” (as defined in the securitization transaction’s Master Agreement), then
(a) to the extent that, in connection with the occurrence of such Early Termination Date, the transferee is
obligated to make any payments to the counterparty pursuant to the Master Agreement, the Corporation shall
reimburse the transferee for the full amount of such payment and (b) to the extent that, in connection with the
occurrence of an Early Termination Date, the transferee is entitled to receive any payment from the counterparty
pursuant to the Master Agreement, the transferee will pay to the Corporation the amount of such payment. At
December 31, 2003, the maximum exposure to the Corporation under the letter agreement was approximately
$10.4 million.
Reconciliation to GAAP Financial Measures
The Company’s consolidated financial statements prepared in accordance with GAAP are referred to as its
“reported” financial statements. Loans included in securitization transactions which qualified as sales under
GAAP have been removed from the Company’s “reported” balance sheet. However, interest income,
interchange, fees and recoveries generated from the securitized loan portfolio, net of charge-offs, in excess of the
interest paid to investors of asset-backed securitizations are recognized as servicing and securitizations income
on the “reported” income statement.
The Company’s “managed” consolidated financial statements reflect adjustments made related to effects of
securitization transactions qualifying as sales under GAAP. The Company generates earnings from its
“managed” loan portfolio which includes both the on-balance sheet loans and off-balance sheet loans. The
Company’s “managed” income statement takes the components of the servicing and securitizations income
generated from the securitized portfolio and distributes the revenue and expense to appropriate income statement
line items from which it originated. For this reason, the Company believes the “managed” consolidated financial
statements and related managed metrics to be useful to stakeholders.
As of and for the Year Ended December 31, 2003
(Dollars in thousands) Total Reported
Securitization
Adjustments(1) Total Managed(2)
Income Statement Measures
Net interest income $ 2,785,089 $ 3,252,825 $ 6,037,914
Non-interest income 5,415,924 (1,215,298) 4,200,626
Total revenue 8,201,013 2,037,527 10,238,540
Provision for loan losses 1,517,497 2,037,527 3,555,024
Balance Sheet Measures
Consumer loans $32,850,269 $38,394,527 $71,244,796
Total assets 46,283,706 37,715,556 83,999,262
Average consumer loans 28,677,616 34,234,337 62,911,953
Average earning assets 37,362,297 32,510,862 69,873,159
Average total assets 41,195,413 33,627,096 74,822,509
Delinquencies 1,573,459 1,604,470 3,177,929
(1) Includes adjustments made related to the effects of securitization transactions qualifying as sales under GAAP and adjustments made to
reclassify to “managed” loans outstanding the collectible portion of billed finance charge and fee income on the investors’ interest in
securitized loans excluded from loans outstanding on the “reported” balance sheet in accordance with Financial Accounting Standards
Board Staff Position, “Accrued Interest Receivable,” issued in April 2003.
(2) The managed loan portfolio does not include auto loans which have been sold in whole loan sale transactions where the Company has
retained servicing rights.
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