Capital One 2004 Annual Report Download - page 110

Note 18
Off-Balance Sheet Securitizations
Off-balance sheet securitizations involve the transfer of pools of consumer loan receivables by the Company to
one or more third-party trusts or qualified special purpose entities in transactions that are accounted for as sales
in accordance with SFAS 140. Certain undivided interests in the pool of consumer loan receivables are sold to
investors as asset-backed securities in public underwritten offerings or private placement transactions. The
proceeds from off-balance sheet securitizations are distributed by the trusts to the Company as consideration for
the consumer loan receivables transferred. Each new off-balance sheet securitization results in the removal of
consumer loan principal receivables equal to the sold undivided interests in the pool from the Company’s
consolidated balance sheet (“off-balance sheet loans”), the recognition of certain retained residual interests and a
gain on the sale. The remaining undivided interests in principal receivables of the pool, as well as the unpaid
billed finance charge and fee receivables related to the Company’s undivided interest in the principal receivables
are retained by the Company and recorded as consumer loans on the Consolidated Balance Sheet. The amounts
of the remaining undivided interests fluctuate as the accountholders make principal payments and incur new
charges on the selected accounts. The amount of retained consumer loan receivables was $10.3 billion and $8.3
billion as of December 31, 2004 and 2003, respectively.
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
2004 2003
Loans
Outstanding
Loans
Delinquent
Loans
Outstanding
Loans
Delinquent
Managed loans $ 79,861,299 $ 3,054,078 $ 71,244,796 $ 3,177,929
Securitization adjustments (41,645,708) (1,581,884) (38,394,527) (1,604,470)
Reported consumer loans $ 38,215,591 $ 1,472,194 $ 32,850,269 $ 1,573,459
Average
Loans
Net
Charge-
Offs
Average
Loans
Net
Charge-
Offs
Managed loans $ 73,711,673 $ 3,251,761 $ 62,911,953 $ 3,683,887
Securitization adjustments (39,446,005) (1,956,193) (34,234,337) (2,037,527)
Reported consumer loans $ 34,265,668 $ 1,295,568 $ 28,677,616 $ 1,646,360
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 $2.1 billion and $2.2 billion at December 31, 2004 and 2003, 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, net of transaction costs, 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
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