Capital One 2008 Annual Report Download - page 127

109
Allowance for Loan and Lease Losses
The following is a summary of changes in the allowance for loan and lease losses:
Year Ended December 31
2008
2007 2006
Balance at beginning of year............................................................................................ $ 2,963,000 $ 2,180,000 $ 1,790,000
Provision for loan and lease losses from continuing operations ...................................... 5,101,040 2,636,502 1,476,438
Provision for loan and lease losses from discontinued operations...................................  80,151 
Acquisitions .....................................................................................................................   225,890
Other ................................................................................................................................ (61,909) 26,888 72,821
Charge-offs............................................................................................................. (4,151,231) (2,580,219) (1,932,453)
Principal recoveries ................................................................................................ 673,060
619,678 547,304
Net charge-offs ................................................................................................................ (3,478,171) (1,960,541) (1,385,149)
Balance at end of year...................................................................................................... $ 4,523,960 $ 2,963,000 $ 2,180,000
Unfunded Lending Commitments
We manage the potential risk in credit commitments by limiting the total amount of arrangements, both by individual customer and in
total, by monitoring the size and maturity structure of these portfolios and by applying the same credit standards for all of our credit
activities.
As of December 31, 2008 and 2007, the Company had $171.1 billion and $198.0 billion, respectively, of unused credit card lines.
While this amount represented the total unused available credit card lines, the Company has not experienced, 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 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. The Company maintains a reserve for unfunded loan
commitments and letters of credit to absorb estimated probable losses related to these unfunded credit facilities in other liabilities. The
outstanding unfunded commitments to extend credit other than credit card lines were approximately $10.0 billion and $10.4 billion as
of December 31, 2008 and 2007, respectively.
Note 6
Premises, Equipment & Lease Commitments
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and amortization. The Company capitalizes direct costs
(including external costs for purchased software, contractors, consultants and internal staff costs) for internally developed software
projects that have been identified as being in the application development stage. Depreciation and amortization expenses are computed
generally by the straight-line method over the estimated useful lives of the assets. Useful lives for premises and equipment are as
follows:
Buildings and improvement........................................................................... 5-39 years
Furniture and equipment................................................................................ 3-10 years
Computer software ........................................................................................ 3-5 years