Capital One 2014 Annual Report Download - page 185

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Other-Than-Temporary Impairment
We evaluate all securities in an unrealized loss position at least on a quarterly basis, and more often as market
conditions require, to assess whether the impairment is other-than-temporary. Our OTTI assessment is based on a
discounted cash flow analysis which requires careful use of judgments and assumptions. A number of qualitative and
quantitative criteria may be considered in our assessment as applicable, including the size and the nature of the
portfolio; historical and projected performance such as prepayment, default and loss severity for the RMBS portfolio;
recent credit events specific to the issuer and/or industry to which the issuer belongs; the payment structure of the
security; external credit ratings of the issuer and any failure or delay of the issuer to make scheduled interest or principal
payments; the value of underlying collateral; our intent and ability to hold the security; and current and projected market
and macro-economic conditions.
If we intend to sell a 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. As of December 31, 2014, we do not intend to sell any
securities with unrealized losses recorded in AOCI nor believe that we will be required to sell prior to recovery of
their amortized cost.
For those securities that we do not intend to sell nor expect to be required to sell, an analysis is performed to
determine if any of the impairment is due to credit-related factors or whether it is due to other factors, such as
interest rates. Credit-related impairment is recognized in earnings, with the remaining unrealized non-credit related
impairment recorded in AOCI. We determine the credit component based on the difference between the security’s
amortized cost basis and the present value of its expected cash flows, discounted based on the effective yield.
The table below presents a rollforward of the credit related OTTI recognized in earnings for the years ended
December 31, 2014, 2013 and 2012 on investment securities for which we had no intent to sell.
Table 3.8: Credit Impairment Rollforward
Year Ended December 31,
(Dollars in millions) 2014 2013 2012
Credit loss component, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 160 $ 120 $ 68
Additions:
Initial credit impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514 22
Subsequent credit impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 27 30
Total additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 41 52
Reduction due to payoffs, disposals, transfers & other . . . . . . . . . . . . . . . . . . . . . . (2) (1) 0
Credit loss component, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 175 $ 160 $ 120
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Capital One Financial Corporation (COF)