Capital One 2014 Annual Report Download - page 160

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available for sale to held to maturity, carrying value also includes unrealized gains and losses recognized in AOCI
at the date of transfer. Investment securities transferred into the held to maturity category from the available for sale
category are recorded at fair value at the date of transfer. Such unrealized gains or losses are accreted over the
remaining life of the security with no expected impact on future net income.
Deferred items, including unamortized premiums, discounts and other basis adjustments, are recognized in interest
income over the contractual lives of the securities using the effective interest method. We record purchases and
sales of investment securities on a trade date basis. Realized gains and losses from the sale of debt securities are
computed using the first in first out method of identification, and included in non-interest income in our
consolidated statements of income. If we intend to sell an available for sale security in an unrealized loss position
or it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost
basis, the entire difference between the amortized cost basis of the security and its fair value is recognized in
earnings.
We regularly evaluate our securities whose values have declined below amortized cost to assess whether the decline
in fair value is other than temporary. Amortized cost reflects historical cost adjusted for amortization of premiums,
accretion of discounts and other-than-temporary impairment (“OTTI”) write-down. We discuss our assessment of
and accounting for OTTI in “Note 3—Investment Securities.” We discuss the techniques we use in determining the
fair value of our investment securities in “Note 18—Fair Value Measurement.”
Our investment portfolio also includes certain acquired debt securities that were deemed to be credit impaired at the
acquisition date, and therefore are accounted for in accordance with accounting guidance for purchased credit-impaired
loans and debt securities. These securities are recorded at fair value at the acquisition date using the estimated cash
flows we expect to collect discounted by the prevailing market interest rate. The difference between the contractually
required payments due and the undiscounted cash flows we expect to collect at acquisition, considering the impact
of prepayments, is referred to as the nonaccretable difference. The nonaccretable difference reflects estimated future
credit losses expected to be incurred over the life of the security, and is neither accreted into income nor recorded on
our consolidated balance sheet. The excess of the undiscounted cash flows expected to be collected over the estimated
fair value of credit-impaired debt securities at acquisition is referred to as the accretable yield, which is accreted into
interest income using an effective yield method over the remaining life of the security. Decreases in expected cash
flows attributable to credit, result in the recognition of OTTI. Significant increases in expected cash flows are
recognized prospectively over the remaining life of the security as an adjustment to the accretable yield. See “Loans
Acquired” in this Note for further discussion of accounting guidance for purchased credit-impaired loans and debt
securities.
Loans
Our total loan portfolio consists of credit card, consumer banking and commercial banking loans that we own and
loans that underlie our securitization trusts. Credit card loans consist of domestic and international credit card loans
as well as installment loans. Consumer banking loans consist of auto, home, and retail banking loans. Commercial
banking loans consist of commercial and multifamily real estate, commercial and industrial, and small-ticket
commercial real estate loans.
Loan Classification
Upon origination or purchase, we classify loans as held for investment or held for sale based on our investment
strategy and management’s intent and ability with regard to the loans which may change over time. The accounting
and measurement framework for loans differs depending on the loan classification, whether the loans are originated
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Capital One Financial Corporation (COF)