Capital One 2013 Annual Report Download - page 172

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
recorded as a reduction in our provision for credit losses in our consolidated statements of income. The
allowance for loan and lease losses attributable to the Retailer’s portfolio is reduced by the loss sharing amount
due from the Retailer.
Interest income was reduced by $965 million, $885 million, and $607 million in 2013, 2012, and 2011,
respectively, for amounts earned by the Retailer, as part of the revenue sharing agreement. Loss sharing amounts
attributable to the Retailer, reduced charge-offs by $161 million, $167 million, and $118 million in 2013, 2012,
and 2011, respectively. The reduction in the provision for loan and lease losses attributable to the Retailer, was
$119 million, $199 million, and $257 million in 2013, 2012 and 2011, respectively. The expected reimbursement
from the Retailer, which is netted against our allowance for loan and lease losses, was approximately $128
million, $170 million and $139 million as of December 31, 2013, 2012, and 2011, respectively.
Stock-Based Compensation
We reserve common shares for issuance to employees, directors and third-party service providers, in various
forms, including incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock
awards and units and performance share awards and units. In addition, we also issue cash equity units and cash-
settled restricted stock units which are not counted against the common shares reserved for issuance or available
for issuance because they are settled in cash. For awards settled in shares, we generally recognize compensation
expense on a straight-line basis over the award’s service period. If an award settled in shares contains a
performance condition with graded vesting, we recognize compensation expense using the accelerated attribution
method. Cash-settled equity and restricted stock units are accounted for as liability awards which results in
quarterly expense fluctuations based on changes in our stock price through the date that the awards are settled.
Awards that continue to vest after retirement are expensed over the shorter of the period of time between the
grant date and the final vesting period or between the grant date and when the participant becomes retirement
eligible; awards to participants who are retirement eligible at the grant date are subject to immediate expensing
upon grant. Stock-based compensation expense is included in salaries and associate benefits on the consolidated
statements of income.
Stock-based compensation expense for stock options is based on the grant date fair value, which is estimated
using a Black-Scholes option pricing model. Significant judgment is required when determining the inputs into
the fair value model and the expected forfeiture rate of stock options. Aside from stock options, the fair value of
stock-based compensation used in determining compensation expense will generally equal the fair market value
of our common stock on the date of grant.
Marketing Expense
We expense marketing costs as incurred. Television advertising costs are expensed during the period in which the
advertisements are aired. We recognized marketing expense of $1.4 billion in both 2013 and 2012, respectively.
We recognized marketing expense of $1.3 billion in 2011.
Fraud Losses
We experience fraud losses from the unauthorized use of credit cards, debit cards and customer bank accounts.
Additional fraud losses may be incurred when loans are obtained through fraudulent means. Transactions
suspected of being fraudulent are recorded in our consolidated statements of income as a component of non-
interest expense after the investigation period has completed. Recoveries of fraud losses are also included in non-
interest expense. See “Note 14—Other Non-Interest Expense” for additional information.
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