Capital One 2007 Annual Report Download - page 101

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79
The Gulf Coast Hurricanes Impacts
As a result of the Gulf Coast Hurricanes of 2005, the Company recorded a $28.5 million allowance for loan losses and recognized a
$15.6 million write-down on retained interests related to its loan securitization programs in 2005. Of the additional allowance build,
$10.0 million was allocated to the U.S. Card sub-segment, $2.5 million was allocated to the Global Financial Services sub-segment,
and $16.0 million was allocated to the Auto Finance sub-segment. The $15.6 million write-down of retained interests was held in the
Other category. The impact of the hurricanes on Hibernia was reflected in Hibernias results prior to the acquisition
During 2006, the Company determined that $25.7 million of allowance for loan losses previously established by Hibernia to cover
expected losses in the portion of the loan portfolio impacted by the hurricanes was no longer needed. This determination was driven
by improvements in credit performance of the impacted portfolios since the time those reserves were established. As a result, the
Local Banking segment includes the reversal of this allowance.
Bankruptcy Legislation Impacts
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (new bankruptcy legislation) became effective in October
2005. As a result, the Company experienced a significant increase in bankruptcy related charge-offs during 2005 which is reflected in
the provision for loan losses. The majority of the increase was allocated to the U.S. Card sub-segment.
MasterCard Stock Sale
In 2007, shareholders approved an amendment to the MasterCard Certificate of Incorporation that provides for an accelerated
conversion of class B common stock into class A common stock. The MasterCard Board of Directors approved a conversion window
running from August 4 to October 5, 2007, during which time owners of class B shares could have voluntarily elected to convert and
sell a certain number of their shares. During the conversion period, Capital One elected to convert and sell 300,482 shares of
MasterCard class B common stock. The Company recognized gains of $43.4 million on these transactions in non-interest income in
the Other category.
MasterCard IPO
During 2006, MasterCard, Inc. completed an initial public offering of its stock. In connection with this transaction, the Company
received 2,305,140 Class B shares of which 1,360,032 Class B shares were immediately redeemed by MasterCard, Inc. The Company
recognized a $20.5 million gain from the share redemption, which was reported in non-interest expense and held in the Other
category.
Note 5
Securities Available for Sale
Securities available for sale as of December 31, 2007 and 2006 as follows:
Expected Maturity Schedule
1 Year
or Less
15
Years
510
Years
Over 10
Years
Market
Value
Totals
Amortized
Cost Totals
December 31, 2007
U.S. Treasury and other U.S.
government agency obligations $ 544,821 $ 620,435 $ 222,076 $ $ 1,387,332 $ 1,369,322
Collateralized mortgage obligations 57,951 8,347,975 441,936 7,209 8,855,071 8,856,897
Mortgage backed securities 72,232 7,727,279 506,495 8,306,006 8,290,208
Asset backed securities 179,105 349,044 14,634 542,783 546,166
Other 316,274 164,844 52,843 156,434 690,395 696,724
Total $ 1,170,383 $ 17,209,577 $ 1,237,984 $ 163,643 $ 19,781,587 $ 19,759,317
December 31, 2006
U.S. Treasury and other U.S.
government agency obligations $ 422,352 $ 1,404,961 $ 239,127 $ 991 $ 2,067,431 $ 2,091,601
Collateralized mortgage obligations 2,009 2,197,964 96,820 543,189 2,839,982 2,860,302
Mortgage backed securities 4,858 1,207,529 1,470,515 5,914,861 8,597,763 8,692,290
Asset backed securities 284,275 157,770 161,713 603,758 606,558
Other 573,830 204,781 154,542 409,960 1,343,113 1,293,580
Total $ 1,003,049 $ 5,299,510 $ 2,118,774 $ 7,030,714 $ 15,452,047 $ 15,544,331
Securities available for sale included pledged securities of $9.3 billion and $9.5 billion at December 31, 2007 and 2006, respectively.