Capital One 2006 Annual Report Download - page 128

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110
Note 25
Disclosures About Fair Value of Financial Instruments
The following discloses the fair value of financial instruments whether or not recognized in the balance sheets as of
December 31, 2006 and 2005. In cases where quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. As
required under GAAP, these disclosures exclude certain financial instruments and all non-financial instruments. Accordingly,
the aggregate fair value amounts presented do not represent the underlying value of the Company.
The Company, in estimating the fair value of its financial instruments as of December 31, 2006 and 2005, used the following
methods and assumptions:
Financial Assets
Cash and cash equivalents
The carrying amounts of cash and due from banks, federal funds sold and resale agreements and interest-bearing deposits at
other banks approximate fair value.
Securities available for sale
The fair value of securities available for sale was determined using current market prices. See Note 4 for fair values by type
of security.
Mortgage loans held for sale
The carrying amount approximates fair value.
Loans held for investment
The net carrying amount of credit card loans approximates fair value due to the relatively short average life and variable
interest rates on a substantial number of these loans. This amount excluded any value related to account relationships.
The fair value of loans other than credit card loans was estimated by discounting future cash flows using a rate at which
similar portfolios of loans would be made under current conditions.
Interest receivable
The carrying amount approximates the fair value of this asset due to its relatively short-term nature.
Accounts receivable from securitizations
The carrying amount approximates fair value.
Derivatives
The carrying amount of derivatives approximates fair value and was estimated using present value valuation techniques. This
value generally reflects the estimated amounts that the Company would have received to terminate the interest rate swaps,
currency swaps and forward foreign currency exchange (f/x) contracts at the respective dates, taking into account the
forward yield curve on the swaps and the forward rates on the currency swaps and f/x contracts. These derivatives are
included in other assets on the balance sheet.
Mortgage Servicing Rights
MSRs are carried at the lower of the initial carrying value, adjusted for amortization, or fair value.
Financial Liabilities
Non-interest bearing deposits
The carrying amount approximates fair value.