Capital One 2013 Annual Report Download - page 210

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(2) The asset-specific component of the allowance for smaller-balance impaired loans is calculated on a pool basis using historical loss
experience for the respective class of assets. The asset-specific component of the allowance for larger-balance commercial loans is
individually calculated for each loan.
(3) The Acquired Loans component of the allowance is accounted for based on expected cash flows. See “Note 4 – Loans” for details on
these loans.
NOTE 6—VARIABLE INTEREST ENTITIES AND SECURITIZATIONS
In the normal course of business, we enter into various types of transactions with entities that are considered to
be VIEs. Our primary involvement with VIEs has been related to our securitization transactions in which we
transferred assets from our balance sheet to securitization trusts. We have primarily securitized credit card loans
and home loans, which have provided a source of funding for us and enabled us to transfer a certain portion of
the economic risk of the loans or debt securities to third parties.
The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and is
required to consolidate the VIE. The vast majority of the VIEs in which we are involved have been consolidated
in our financial statements.
Summary of Consolidated and Unconsolidated VIEs
The table below presents a summary of VIEs, aggregated based on VIEs with similar characteristics, in which we
had continuing involvement or held a variable interest as of December 31, 2013 and 2012. We separately present
information for consolidated and unconsolidated VIEs.
For consolidated VIEs, we present the carrying amount of assets and liabilities reflected on our consolidated
balance sheets. The assets of consolidated VIEs primarily consist of cash and loans, which we report on our
consolidated balance sheets under restricted cash and restricted loans, respectively, for securitization investors.
The assets of a particular VIE are the primary source of funds to settle its obligations. The creditors of the VIEs
typically do not have recourse to the general credit of our company. The liabilities primarily consist of debt
securities issued by the VIEs, which we report under securitized debt obligations. For unconsolidated VIEs, we
present the carrying amount of assets and liabilities reflected on our consolidated balance sheets and our
maximum exposure to loss. Our maximum exposure to loss is estimated based on the unlikely event that all of
the assets in the VIEs became worthless and we were required to meet our maximum remaining funding
obligations.
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