Capital One 2013 Annual Report Download - page 99

Investment Securities
Our investment portfolio consists primarily of the following: U.S. Treasury debt, U.S. agency debt and corporate
debt securities guaranteed by U.S. government agencies (“Agency”); Agency and non-agency residential
mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”); other asset-
backed securities (“ABS”) and other investments. The carrying value of our investments in U.S. Treasury,
agency securities and other securities guaranteed by the U.S. government or agencies of the U.S. government
represented 77% of our total investment securities portfolio as of December 31, 2013 and 2012.
Our investment security portfolio includes securities available for sale as well as securities held to maturity. We
classify securities as available for sale or held to maturity based on our investment strategy and management’s
assessment of our intent and ability to hold the securities until maturity. We report securities available for sale in
our consolidated balance sheets at fair value with unrealized gains and losses recorded, net of tax, as a
component of accumulated other comprehensive income (“AOCI”). We report securities held to maturity on our
consolidated balance sheets at carrying value. Carrying value generally consists of amortized cost. For securities
transferred from available for sale to held to maturity, carrying value also includes unrealized gains and losses
recognized in AOCI at the date of transfer. Such unrealized gains or losses are accreted over the remaining life of
the security with no impact on future net income.
During 2013, the fair value of our investment portfolio decreased by $3.0 billion, or 5% from $64.0 billion as of
December 31, 2012 to $61.0 billion as of December 31, 2013. The fair value of our securities available for sale
portfolio was $41.8 billion as of December 31, 2013, a $22.2 billion decrease from $64.0 billion as a
December 31, 2012. This decrease was primarily driven by the transfer of securities available for sale to
securities held to maturity with a fair value of $18.3 billion as of the date of the transfer. We transferred these
securities to held to maturity in consideration of changes to regulatory capital requirements under the final Basel
III capital standards, and to reduce the impact of price volatility on AOCI. The transferred securities included net
pre-tax unrealized losses of $1.5 billion at the date of transfer. Excluding the change on the held to maturity
securities subsequent to the transfer, the fair value of our securities decreased $4 billion in 2013 driven by the
rise in interest rates and normal portfolio activity.
During 2012, our portfolio of investment securities available for sale increased by $25.2 billion, or 65%. The
increase was primarily attributable to the acquisition of ING Direct investment securities of $30.2 billion as of
the acquisition date, which was partially offset by the sale of investment securities of approximately
$16.9 billion. We recorded a net gain of $45 million from the sale of these securities.
We had gross unrealized gains of $799 million and gross unrealized losses of $631 million on available-for sale
investment securities as of December 31, 2013, compared with gross unrealized gains of $1.2 billion and gross
unrealized losses of $120 million as of December 31, 2012. The increase in gross unrealized losses in 2013 was
primarily driven by higher interest rates. Of the $631 million in gross unrealized losses as of December 31, 2013,
$109 million related to securities that had been in a loss position for more than 12 months.
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