Capital One 2006 Annual Report Download - page 124

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Securitization Key Assumptions
Year Ended December 31 2006 2005
Weighted average life for receivables (months) 8 to 9 9 to 10
Principal repayment rate (weighted average rate) 14% to 16% 13% to 14%
Charge-off rate (weighted average rate) 3% to 4% 4% to 5%
Discount rate (weighted average rate) 10% to 13% 9% to 13%
If these assumptions are not met, or if they change, the interest-only strip and related servicing and securitizations income
would be affected. The following adverse changes to the key assumptions and estimates, presented in accordance with SFAS
140, are hypothetical and should be used with caution. As the figures indicate, any change in fair value based on a 10% or
20% variation in assumptions cannot be extrapolated because the relationship of a change in assumption to the change in fair
value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the interest-only strip is
calculated independently from any change in another assumption. However, changes in one factor may result in changes in
other factors, which might magnify or counteract the sensitivities.
Securitization Key Assumptions and Sensitivities
As of December 31 2006 2005
Interest-only strip $ 448,684 $ 419,196
Weighted average life for receivables (months) 8 9
Principal repayment rate (weighted average rate) 16% 14%
Impact on fair value of 10% adverse change $ (26,505) $ (13,802)
Impact on fair value of 20% adverse change (49,799) (25,203)
Charge-off rate (weighted average rate) 4% 4%
Impact on fair value of 10% adverse change $ (45,334) $ (62,326)
Impact on fair value of 20% adverse change (90,476) (124,536)
Discount rate (weighted average rate) 10% 13%
Impact on fair value of 10% adverse change $ (2,042) $ (2,202)
Impact on fair value of 20% adverse change (4,109) (4,378)
Static pool credit losses are calculated by summing the actual and projected future credit losses and dividing them by the
original balance of each pool of assets. Due to the short-term revolving nature of the consumer loan receivables, the weighted
average percentage of static pool credit losses is not considered materially different from the assumed charge-off rates used to
determine the fair value of the retained interests.
The Company acts as a servicing agent and receives contractual servicing fees of between 0.50% and 6% of the investor
principal outstanding, based upon the type of assets serviced. The Company generally does not record material servicing
assets or liabilities for these rights since the contractual servicing fee approximates market rates.
Securitization Cash Flows
Year Ended December 31 2006 2005
Proceeds from new securitizations $ 12,343,771 $ 9,482,333
Collections reinvested in revolving-period securitizations 85,525,697 76,224,390
Repurchases of accounts from the trust 236,964 391,118
Servicing fees received 893,046 846,535
Cash flows received on retained interests(1) 4,465,769 4,076,128
(1) Includes all cash receipts of excess spread and other payments (excluding servicing fees) from the Trust to the Company.
For the year ended December 31, 2006, the Company recognized gross gains of $50.4 million on the sale of $12.3 billion of
loan principal receivables compared to gross gains of $58.2 million on the sale of $9.5 billion of loan principal receivables
for the year ended December 31, 2005 and gross gains of $55.8 million on the sale of $10.9 billion of loans in 2004 These
gross gains are included in servicing and securitizations income. In addition, the Company recognized, as a reduction to
servicing and securitizations income, upfront securitization transaction costs and recurring credit facility commitment fees of
$66.1 million, $48.6 million and $69.0 million for the years ended December 31, 2006, 2005 and 2004, respectively. The
remainder of servicing and securitizations income represents servicing income and excess interest and non-interest income