Capital One 2009 Annual Report Download - page 119

106
Using a qualitative assessment and considering the elimination of the QSPE exemption, the Company will be required to consolidate
certain securitization trusts, which are currently treated as off-balance sheet securitizations and the transfers to which were previously
used in the transfer of loans which were accounted for as sales. Effective January 1, 2010, the Company expects to record a $47.6
billion increase in loan receivables, a $4.3 billion increase in allowance for loan and lease losses related to the newly consolidated
loans, a $44.9 billion increase in liabilities and a $3.0 billion reduction in stockholders’ equity. The table below represents the pro-
forma financial impacts had the Company adopted the new standards as of December 31, 2009.
(Dollars in millions)
As of
December 31,
2009
Estimated
Impact of
ASU 2009-17
Pro-forma
As of
January 1,
2010
Assets:
Cash and cash equivalents ................................................................................................
.
$ 8,685 $ 3,954 $ 12,639
Loans held for investment ................................................................................................
.
90,619 47,566 138,185
Less: Allowance for loan and lease losses ..............................................................
.
(4,127) (4,264) (8,391)
N
et loans held for investmen
t
...........................................................................................
.
86,492 43,302 129,794
Accounts receivable from securitizations .........................................................................
.
7,629 (7,463) 166
Other .................................................................................................................................
.
66,840 2,055 68,895
Total assets ..............................................................................................................
.
$ 169,646 $ 41,848 $ 211,494
Liabilities:
Securitization liability ......................................................................................................
.
$ 3,953 $ 44,346 $ 48,299
Other liabilities .................................................................................................................
.
139,104 525 139,629
Total liabilities ........................................................................................................
.
143,057 44,871 187,928
Stockholders’ Equity: 26,589 (3,023) 23,566
Total liabilities and stockholders’ equity ............................................................
.
$ 169,646 $ 41,848 $ 211,494
The following provides more detail of the estimated pro-forma financial impacts of adoption:
• Consolidation of $46.8 billion in securitized loan receivables and $44.3 billion in related debt securities issued from the
trusts to third party investors. Included in the total loan receivables is $1.6 billion of mortgage loan securitizations related
to the Chevy Chase Bank acquisition which are not included in our managed financial statements. Also included in total
loan receivables are $2.6 billion of retained interests, currently classified as accounts receivable from securitizations.
• Reclassification of $0.8 billion of net finance charge and fee receivables from accounts receivable from securitizations to
loans held for investment.
• Recording a $4.3 billion allowance for loan and lease losses which was not previously required under U.S. GAAP, for the
newly consolidated loan receivables. Previously, the losses inherent in the off-balance sheet loans were captured as a
reduction in the valuation of residual securitization interests.
• Recording derivative assets of $0.3 billion and derivative liabilities of $0.5 billion, representing the fair value of interest
rate swaps and foreign currency derivatives entered into by the trusts.
• Recording net deferred tax assets of $1.5 billion, largely related to establishing an allowance for loan and lease losses on
the newly consolidated loan receivables.
After the adoption of ASU 2009-16 (ASC 860/SFAS 166) and ASU 2009-17 (ASC 810/SFAS 167), the Company’s Consolidated
Statements of Income will no longer reflect securitization and servicing income related to the loans consolidated, but will instead
report interest income, net-charge-offs and certain other income associated with securitized loan receivables and interest expense
associated with the debt securities issued from the trusts to third party investors. Amounts will be recorded in the same categories as
non-securitized loan receivables and corporate debt. The Company does not anticipate that there will be a material difference between
“reported” and “managed” financial statements in the future. Additionally, the Company will treat the consolidated trusts and
securitized loans as secured borrowings and will no longer record initial gains on new securitization activity unless the Company
achieves sale accounting under ASU 2009-16 (ASC 860/SFAS 166) and achieves deconsolidation under ASU 2009-17 (ASC
810/SFAS 167).
On January 21, 2010, the OCC and the Federal Reserve announced a final rule regarding capital requirements related to the adoption
of ASU 2009-16 (ASC 860/SFAS 166) and ASU 2009-17 (ASC 810/SFAS 167). Under the final rule, the Company and its subsidiary
banks will be required to hold additional capital in relation to the consolidated assets and any associated creation of loan loss reserves.
The rule provides for a phase-in of the capital requirements in the form of an optional two-quarter delay in implementation for
regulatory capital ratios, followed by an optional two-quarter partial implementation for regulatory capital ratios. The Company
expects to adopt the transition provisions permitted by the final rule.