Capital One 2007 Annual Report Download - page 70

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equivalents at December 31, 2006. As of December 31, 2007, the weighted average life of the investment securities was
approximately 3.9 years. These investment securities, along with cash and cash equivalents, provide increased liquidity and flexibility
to support the Companys funding requirements.
Deposits
Core deposits are comprised of domestic non-interest bearing deposits, NOW accounts, money market deposit accounts, savings
accounts, certificates of deposit of less than $100,000 and other consumer time deposits. The Company maintains a Grand Cayman
branch for issuing Eurodollar time deposits.
The Company has deposits that are obtained through the use of a third-party intermediary. Included in these deposits at December 31,
2007, were brokered deposits of $6.9 billion, compared to $12.0 billion at December 31, 2006. These deposits represented 8.3% and
14% of total deposits at December 31, 2007 and 2006, respectively. If these brokered deposits are not renewed at maturity, the
Company would use its investment securities and money market instruments in addition to alternative funding sources to fund
increases in loans and meet its other liquidity needs. The Federal Deposit Insurance Corporation Improvement Act of 1991 limits the
use of brokered deposits to well-capitalized insured depository institutions and, with a waiver from the Federal Deposit Insurance
Corporation, to adequately capitalized institutions. At December 31, 2007, the Banks and the Corporation were well-capitalized as
defined under the federal bank regulatory guidelines. Based on the Companys historical access to the brokered deposit market, it
expects to replace maturing brokered deposits with new brokered deposits or with the Companys direct deposits.
Based on past deposit activity, the Company expects to retain a portion of its deposit balances as they mature. Therefore, the Company
anticipates the net cash outflow related to deposits within the next year will be significantly less than reported in Table 8. The
Company utilizes deposits to fund loan and other asset growth and to diversify funding sources.
Consumer Loan Securitizations
As discussed in Off-Balance Sheet Arrangements, a significant source of liquidity for the Company has been the securitization of
consumer loans. As of December 31, 2007 the Company funded approximately 33% of its managed loans through on and off-balance
sheet securitizations. The Company expects to securitize additional loan principal receivables during 2008. The Companys
securitization program has maturities in 2008 and through 2025. The revolving securitizations have accumulation periods during
which principal payments are aggregated to make payments to investors. As payments on the loans are accumulated and are no longer
reinvested in new loans, the Companys funding requirements for such new loans increase accordingly. The occurrence of certain
events may cause the securitization transactions to amortize earlier than scheduled, which would accelerate the need for funding.
Additionally, this early amortization could have a significant effect on the ability of COB and CONA to meet the capital adequacy
requirements as all off-balance sheet loans experiencing such early amortization would have to be recorded on the balance sheet and
accordingly would require incremental regulatory capital. As such amounts mature or are otherwise paid, the Company believes it can
securitize additional consumer loans, gather deposits, purchase federal funds and establish other funding sources to fund new loan
growth, although no assurance can be given to that effect.
The Company is a leading issuer in the securitization markets. While these markets experienced difficulties in 2007, the Company was
able to access the market and execute transactions. Factors affecting the Companys ability to securitize its loan receivables or to do so
at favorable pricing levels include the overall credit quality of the Companys securitized loans, the stability of the market for
securitization transactions, and the legal, regulatory, accounting and tax environments governing securitization transactions. If the
Company was unable to continue to securitize its loan receivables at current levels, the Company would use its investment securities,
money market instruments and deposits in addition to alternative funding sources to fund increases in loan receivables and to meet its
other liquidity needs. The resulting change in the Companys current liquidity sources could potentially subject the Company to
certain risks. These risks would include an increase in the Companys cost of funds, an increase in the allowance and the provision for
loan losses as more loans would remain on the Companys consolidated balance sheet, and limited or no loan growth, if the Company
were unable to find alternative and cost-effective funding sources. In addition, if the Company could not continue to remove the loan
receivables from the balance sheet the Company would possibly need to raise additional capital to support asset growth.
Senior and Subordinated Notes
Other funding programs established by the Company include senior and subordinated notes. At December 31, 2007, the Company had
$10.7 billion in senior and subordinated notes outstanding that mature in varying amounts from 2008 to 2027, as compared to $9.7
billion at December 31, 2006.
Included in senior and subordinated notes on the Companys balance sheet, COB has a global bank note program. Notes may be
issued under this program with maturities of thirty days or more from the date of issue. At December 31, 2007, COB had $3.2 billion
in bank notes outstanding.