Capital One 2013 Annual Report Download - page 254

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Year Ended December 31, 2012
Total Gains or (Losses)
(Realized/Unrealized)
Net
Unrealized
Gains
(Losses)
Included
in Net
Income
Related to
Assets and
Liabilities
Still Held as of
December 31,
2012(3) (Dollars in millions)
Balance,
January 1,
2012
Included
in Net
Income(1)
Included in
Other
Comprehensive
Income Purchases Sales Issuances Settlements
Transfers
Into
Level 3(2)
Transfers
Out of
Level 3(2)
Balance,
December 31,
2012
Assets:
Securities available for
sale:
Corporate debt securities
guaranteed by U.S.
government
agencies ........... $ 0 $ 0 $ 6 $ 276 $ 0 $ 0 $ (8) $376 $0 $650 $0
RMBS ............... 195 (10) 157 2,549 (640) 0 (280) 630 (1,266) 1,335 (10)
CMBS ............... 274 5 20 1,102 (76) 0 (30) 70 (778) 587 5
Other ABS ........... 32 0 23 384 0 0 (4) 261 (594) 102 0
Other securities . . . . . . . . 12 0 0 0 0 0 (5) 17 (9) 15 0
Total securities available
for sale ............ 513 (5) 206 4,311 (716) 0 (327) 1,354 (2,647) 2,689 (5)
Other assets:
Consumer MSRs ...... 93 (39) 0 0 0 11 (10) 0 0 55 (39)
Derivative assets ....... 103 58 0 0 0 13 (88) 13 (9) 90 58
Retained interest in
securitization . . . . . . . 145 59 0 0 0 0 0 0 0 204 59
Liabilities:
Other liabilities
Derivative liabilities . . . . 279 12 0 0 0 33 (274) (8) (4) 38 12
(1) Gains (losses) related to Level 3 mortgage servicing rights and Level 3 derivative assets and derivative liabilities are reported in other
non-interest income, which is a component of non-interest income. Gains (losses) related to Level 3 retained interests in securitizations
are reported in servicing and securitizations income, which is a component of non-interest income.
(2) The transfers out of Level 3 for 2013 and 2012 were primarily driven by greater consistency among multiple pricing sources. The
transfers into Level 3 were primarily driven by less consistency among vendor pricing on individual securities.
(3) The amount presented for unrealized gains (loss) for assets still held as of the reporting date primarily represents impairments for
securities available for sale, accretion on certain fixed maturity securities, change in fair value of derivative instruments and mortgage
servicing rights transaction. The impairments are reported in total other-than-temporary losses as a component of non-interest income.
Significant Level 3 Fair Value Asset and Liability Input Sensitivity
Changes in unobservable inputs may have a significant impact on fair value. Certain of these unobservable inputs
will (in isolation) have a directionally consistent impact on the fair value of the instrument for a given change in that
input. Alternatively, the fair value of the instrument may move in an opposite direction for a given change in
another input. In general, an increase in the discount rate, default rates, loss severity and credit spreads, in isolation,
would result in a decrease in the fair value measurement. In addition, an increase in default rates would generally be
accompanied by a decrease in recovery rates, slower prepayment rates and an increase in liquidity spreads.
Techniques and Inputs for Level 3 Fair Value Measurements
The following table presents the significant unobservable inputs relied upon to determine the fair values of our
recurring Level 3 financial instruments. We utilize multiple third party pricing services to obtain fair value measures
for our securities. Several of our third party pricing services are only able to provide unobservable input information
for a limited number of securities due to software licensing restrictions. Other third party pricing services are able to
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