Capital One 2007 Annual Report Download - page 49

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27
to a third party in a borrowing arrangement. Commercial letters of credit are short-term commitments issued primarily to facilitate
trade finance activities for customers and are generally collateralized by the goods being shipped to the client. Collateral requirements
are similar to those for funded transactions and are established based on managements credit assessment of the customer.
Management conducts regular reviews of all outstanding letters of credit and customer acceptances, and the results of these reviews
are considered in assessing the adequacy of the Companys allowance for loan and lease losses.
Loan and Line of Credit Commitments
For credit extended through credit cards, only drawn and outstanding loan balances are recorded on the Consolidated Balance Sheet.
The Company has unused available credit card lines and does not anticipate that all of its customers will exercise their entire available
line at any given point in time. The Company generally has the right to increase, reduce, cancel, alter or amend the terms of these
available lines of credit at any time.
The Company enters into commitments to extend credit other than credit card lines that are legally binding conditional agreements
having fixed expirations or termination dates and specified interest rates and purposes. These commitments generally require
customers to maintain certain credit standards. Collateral requirements and loan-to-value ratios are the same as those for funded
transactions and are established based on managements credit assessment of the customer. Commitments may expire without being
drawn upon. Therefore, the total commitment amount does not necessarily represent future requirements.
IV. Reconciliation to GAAP Financial Measures
The Companys consolidated financial statements prepared in accordance with accounting principles generally accepted in the United
States (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, 2007
(Dollars in millions) Total Reported
Securitization
Adjustments(1) Total Managed(2)
Income Statement Measures(3)
Net interest income $ 6,530 $ 4,490 $ 11,020
Non-interest income $ 8,054 $ (2,288) $ 5,766
Total revenue $ 14,584 $ 2,202 $ 16,786
Provision for loan losses $ 2,637 $ 2,201 $ 4,838
Net charge-offs $ 1,961 $ 2,201 $ 4,162
Balance Sheet Measures
Loans held for investment $ 101,805 $ 49,557 $ 151,362
Total assets $ 150,590 $ 48,707 $ 199,297
Average loans held for investment $ 93,837 $ 51,185 $ 145,022
Average earning assets $ 124,426 $ 49,076 $ 173,502
Average total assets $ 148,983 $ 50,410 $ 199,393
Delinquencies $ 3,721 $ 2,143 $ 5,864
(1) Income statement adjustments for the year ended December 31, 2007 reclassify the net of finance charges of $6,334.8 million, past due fees of $1,004.1 million, other
interest income of $(167.3) million and interest expense of $2,681.7 million; and net charge-offs of $2,201.5 million to non-interest income from net interest income and
provision for loan losses, respectively.
(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.
(3) Based on continuing operations.