Capital One 2008 Annual Report Download - page 57

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Trust Preferred Securities
The Company has raised financing through the issuance of trust preferred securities. In these transactions, the Company forms a
statutory business trust and owns all of the voting equity shares of the trust. The trust issues preferred equity securities to third-party
investors and invests the gross proceeds in junior subordinated deferrable interest debentures issued by the Company. These trusts
have no assets, operations, revenues or cash flows other than those related to the issuance, administration, and repayment of the
preferred equity securities held by third-party investors. These trusts obligations are fully and unconditionally guaranteed by the
Company.
Because the sole asset of the trust is a receivable from the Company, the Company is not permitted to consolidated the trusts under
FIN 46R, even though the Company owns all of the voting equity shares of the trust, has fully guaranteed the trusts obligations, and
has the right to redeem the preferred securities in certain circumstances. The Company recognizes the subordinated debentures on its
balance sheet as long-term liabilities. See Item 8 Financial Statements and Supplementary DataNotes to the Consolidated Financial
StatementsNote 8 for quantitative information regarding Deposits and Other Borrowings.
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, 2008
(Dollars in millions)
Total Reported
Securitization
Adjustments(1)
Total Managed(2)
Income Statement Measures(3)
Net interest income ........................................................................................................ $ 7,149 $ 4,273 $ 11,422
Non-interest income....................................................................................................... 6,744 (1,327) 5,417
Total revenue ................................................................................................................. 13,893 2,946 16,839
Provision for loan losses ................................................................................................ 5,101 2,946 8,047
Net charge-offs .............................................................................................................. $ 3,478 $ 2,946 $ 6,424
Balance Sheet Measures
Loans held for investment.............................................................................................. $ 101,018 $ 45,919 $ 146,937
Total assets..................................................................................................................... 165,913 43,962 209,875
Average loans held for investment................................................................................. 98,971 48,841 147,812
Average earning assets................................................................................................... 133,084 46,264 179,348
Average total assets ....................................................................................................... 156,268 47,262 203,530
Delinquencies................................................................................................................. $ 4,418 $ 2,178 $ 6,596
(1) Income statement adjustments for the year ended December 31, 2008 reclassify the net of finance charges of $5,563.4 million,
past due fees of $933.6 million, other interest income of $(158.1) million and interest expense of $2,065.6 million; and net
charge-offs of $2,946.8 million from non-interest income to 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.