Capital One 2014 Annual Report Download - page 168

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Determining the appropriateness of the allowance is complex and requires judgment by management about the effect
of matters that are inherently uncertain. Subsequent evaluations of the loan portfolio, in light of the factors then
prevailing, may result in significant changes in the allowance and the reserve for unfunded lending commitments in
future periods.
Securitization of Loans
Our loan securitization activities primarily involve the securitization of credit card loans, which have provided a
source of funding for us. See “Note 6—Variable Interest Entities and Securitizations” for additional details. Loan
securitization involves the transfer of a pool of loan receivables from our portfolio to a trust. The trust then sells an
undivided interest in the pool of loan receivables to third-party investors through the issuance of debt securities and
transfers the proceeds from the debt issuance to us as consideration for the loan receivables transferred. The debt
securities are collateralized by the transferred receivables from our portfolio. We remove loans from our consolidated
balance sheets when securitizations qualify as sales to non-consolidated VIEs, recognize assets retained and liabilities
assumed at fair value and record a gain or loss on the transferred loans. Alternatively, when the transfer does not
qualify as a sale but instead is considered a secured borrowing or when the sale is to a consolidated VIE, the asset will
remain on our consolidated balance sheets with an offsetting liability recognized for the amount of proceeds received.
Premises and Equipment
Land is carried at cost. Premises and equipment, including leasehold improvements, are carried at cost less
accumulated depreciation and amortization. We capitalize direct costs incurred during the application development
stage of internally developed software projects. Depreciation and amortization expenses are computed generally by
the straight-line method over the estimated useful lives of the assets. Useful lives for premises and equipment are
estimated as follows:
Premises & Equipment Useful Lives
Buildings and improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-39 years
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-10 years
Computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-7 years
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lesser of useful life or the remaining
fixed non-cancelable lease term
Expenditures for maintenance and repairs are expensed to earnings as incurred. Gains or losses upon disposition
are reflected in earnings as realized.
Goodwill and Intangible Assets
Goodwill is not amortized but is tested for impairment, at the reporting unit level, annually or more frequently when
adverse circumstances indicate that it is more likely than not that the carrying amount of a reporting unit exceeds
its fair value. A reporting unit is defined as an operating segment or one level below an operating segment and
goodwill is assigned to one or more reporting units at the date of acquisition. Our reporting units are Domestic Card,
International Card, Auto, Other Consumer Banking and Commercial Banking. The annual goodwill impairment
test, performed as of October 1 of each year, is a two-step test. The first step identifies whether there is potential
impairment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. If fair value
is less than the carrying amount, the second step of the impairment test is required to measure the amount of any
potential impairment loss. Intangible assets with definite useful lives are amortized either on a straight-line or on an
accelerated basis over their estimated useful lives and are evaluated for impairment whenever events or changes in
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Capital One Financial Corporation (COF)