Capital One 2005 Annual Report Download - page 44

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Summary of the Reported Income Statement
The following is a detailed description of the financial results reflected in Table 1 – Financial Summary. Additional
formation is provided in section XII, Tabular Summary as detailed in sections below. in
All 2005 comparisons are made between the year ended December 31, 2005 and the year ended December 31, 2004. All 2004
comparisons are made between the year ended December 31, 2004 and the year ended December 31, 2003.
N
et interest income
Net interest income is comprised of interest income and past-due fees earned and deemed collectible from the Company’ s
loans and income earned on securities, less interest expense on interest-bearing deposits, senior and subordinated notes and
ther borrowings. o
For the year ended December 31, 2005, reported net interest income increased 23%. The increase was primarily due to
significant growth in reported average earning assets. The yield on earning assets and cost of funds remained relatively stable
ear over year. y
Reported net interest income for the year ended December 31, 2004 increased 8% compared to the prior year. The increase in
net interest income is primarily a result of a 25% increase in the Company’ s reported average earning assets for the year
ended December 31, 2004, offset by a decrease in earning asset yields. The reported net interest margin decreased 101 basis
points compared to the prior year. The decrease was primarily due to a decrease in the reported loan yield, slightly offset by a
decrease in the cost of funds. The reported loan yield decreased 135 basis points. The yield on reported loans decreased due
to the Company’ s continued asset diversification beyond U.S. consumer credit cards and continued bias toward originating
higher credit quality, lower yielding loans when compared with the prior year. In addition, the Company increased the
average size of its liquidity portfolio by $3.5 billion during 2004. The yield on liquidity portfolio assets is typically lower
t an those on consumer loans and served to reduce the overall earning assets yields. h
For additional information, see section XII, Tabular Summary, Table A (Statements of Average Balances, Income and
Expense, Yields and Rates) and Table B (Interest Variance Analysis).
N
on-interest income
Non-interest income is comprised of servicing and securitizations income, service charges and other customer-related fees,
interchange income and other non-interest income.
For the year ended December 31, 2005 and 2004, reported non-interest income increased 8% and 9%, respectively. The 2005
and 2004 increases were both due to year over year increases in servicing and securitizations income, service charges and
other customer-related fees, interchange income and other non-interest income. See detailed discussion of the components of
on-interest income below. n
Servicing and Securitizations Income
Servicing and securitizations income represents servicing fees, excess spread and other fees derived from the off-balance
sheet loan portfolio, adjustments to the fair value of retained interests derived through securitization transactions, as well as
gains and losses resulting securitization and other sales transactions.
Servicing and securitizations income increased 9% for the year ended December 31, 2005. This increase was primarily the
result of a 13% increase in the average off-balance sheet loan portfolio offset by losses from the Gulf Coast hurricanes and
bankruptcy charge-offs resulting from the new bankruptcy legislation.
Servicing and securitizations income increased 13% for the year ended December 31, 2004. This increase was primarily the
result of a 16% increase in the average off-balance sheet loan portfolio for the year ended December 31, 2004, compared to
the prior year, partially offset by a reduction in the excess spread generated by the off-balance sheet portfolio due to a higher
oncentration of higher credit quality, lower yielding loans. c
Service Charges and Other Customer-Related Fees
Excluding $44.7 million contributed by businesses acquired in 2005, service charges and other customer-related fees
decreased 2% for the year ended December 31, 2005, while the average reported loan portfolio, exclusive of the 2005
acquisitions, grew 7%. The lower growth in service charges and other customer-related fee income when compared to
average reported loan growth is reflective of the reported loan growth being concentrated in the Auto Finance and Global
Financial Services segments that generate lower fee income.
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