Capital One 2004 Annual Report Download - page 55

counterparty to reduce interest rate risk associated with the transactions. In connection with the swaps, the
Corporation entered into letter agreements guaranteeing the performance of the transferee under the swaps. 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, 2004, the maximum exposure to the Corporation under the letter agreements was approximately
$6.1 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 qualify as sales under GAAP
have been removed from the Company’s “reported” balance sheet. However, servicing fees, finance charges, and
other fees, net of charge-offs, and interest paid to investors of 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, 2004
(Dollars in thousands) Total Reported
Securitization
Adjustments(1) Total Managed(2)
Income Statement Measures
Net interest income $ 3,002,978 $ 3,631,764 $ 6,634,742
Non-interest income 5,900,157 (1,675,571) 4,224,586
Total revenue 8,903,135 1,956,193 10,859,328
Provision for loan losses 1,220,852 1,956,193 3,177,045
Net charge-offs 1,295,568 1,956,193 3,251,761
Balance Sheet Measures
Consumer loans $38,215,591 $41,645,708 $79,861,299
Total assets 53,747,255 41,044,776 94,792,031
Average consumer loans 34,265,668 39,446,005 73,711,673
Average earning assets 46,655,669 37,584,633 84,240,302
Average total assets 50,648,052 38,844,527 89,492,579
Delinquencies 1,472,194 1,581,884 3,054,078
(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, “Accounting for Accrued Interest Receivable Related to Securitized and Sold Receivables under FASB Statement
140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” issued 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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