Capital One 2011 Annual Report Download - page 255

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS—(Continued)
Derivative Liabilities
Most of our derivatives are not exchange traded, but instead traded in over the counter markets where quoted
market prices are not readily available. The fair value of those derivatives, derived using models that use
primarily market observable inputs, such as interest rate yield curves, credit curves, option volatility and currency
rates, are classified as Level 2. Any derivative fair value measurements using significant assumptions that are
unobservable are classified as Level 3, which include interest rate swaps whose remaining terms do not correlate
with market observable interest rate yield curves. The impact of counterparty non-performance risk is considered
when measuring the fair value of derivative assets. These derivatives are included in other liabilities on the
consolidated balance sheets.
We validate the pricing obtained from the internal models through comparison of pricing to additional sources,
including external valuation agents and other internal sources. Pricing variances among different pricing sources
are analyzed and validated.
Commitments to extend credit and letters of credit
These financial instruments are generally not sold or traded. The fair value of the financial guarantees
outstanding and included in other liabilities as of December 31, 2011 and 2010 that have been issued since
January 1, 2003 was $4 million and $3 million, respectively. The estimated fair values of extensions of credit and
letters of credit are not readily available. However, the fair value of commitments to extend credit and letters of
credit is based on fees currently charged to enter into similar agreements with comparable credit risks and the
current creditworthiness of the counterparties. Commitments to extend credit issued by us are generally short-
term in nature and, if drawn upon, are issued under current market terms and conditions for credits with
comparable risks. At December 31, 2011 and 2010, there was no material unrealized appreciation or depreciation
on these financial instruments.
NOTE 20—BUSINESS SEGMENTS
Segment Description
Our principal operations are currently organized into three primary business segments, which are defined based
on the products and services provided, or the type of customer served: Credit Card, Consumer Banking and
Commercial Banking. The operations of acquired businesses have been integrated into our existing business
segments. Certain activities that are not part of a segment are included in the “Other” category.
•Credit Card: Consists of our domestic consumer and small business credit card lending, national small
business lending, national closed end installment lending and the international credit card lending businesses
in Canada and the United Kingdom.
•Consumer Banking: Consists of our branch-based lending and deposit gathering activities for consumers and
small businesses, national deposit gathering, national auto lending and consumer home loan lending and
servicing activities.
•Commercial Banking: Consists of our lending, deposit gathering and treasury management services to
commercial real estate and middle market customers. Our middle market customers typically include
commercial and industrial companies with annual revenues between $10 million to $1.0 billion.
•Other Category: Includes the residual impact of the allocation of our centralized Corporate Treasury group
activities, such as management of our corporate investment portfolio and asset/liability management, to our
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