Capital One 2014 Annual Report Download - page 265

speeds, discount rate/option-adjusted spreads, cost to service, contractual servicing fee income, ancillary income and
late fees. Fair value measurements of MSRs use significant unobservable inputs and, accordingly, are classified as
Level 3. In the event we enter into an agreement with a third party to sell the MSRs, the valuation is based on the
agreed upon sale price which is considered to be the determined exit price for the assets and the MSRs are classified
as Level 2.
Retained Interests in Securitizations
We have retained interests in various mortgage securitization deals from previous acquisitions. Our retained interest
includes rights to future cash flows arising from the receivables, the most significant being certificated interest-
only bonds issued by the trust. We record our interest in these deals at fair value using valuation models to calculate
the present value of future income. The model incorporates various assumptions that market participants use in
estimating future income including weighted-average life, constant prepayment rate, discount rate, default rate and
severity.
Other Assets
Included in other assets are foreclosed property, other repossessed assets and long-lived assets held for sale.
Foreclosed property and other repossessed assets are carried at the lower of the carrying amount or fair value less
costs to sell. The fair value is determined based on the appraisal value or listing price of the property or collateral
provided by independent appraisers, and is adjusted for the estimated costs to transact the sale. Due to the use of
significant unobservable inputs, foreclosed property is classified as Level 3 under the fair value hierarchy. Fair value
adjustments for foreclosed property are recorded in other non-interest expense in the consolidated statements of
income. Foreclosed property and repossessed assets, which we report on our consolidated balance sheets under other
assets, totaled $139 million and $183 million, respectively, as of December 31, 2014, compared to $113 million and
$160 million, respectively, as of December 31, 2013.
Long-lived assets held for sale are also subject to fair value measurement on a nonrecurring basis, and carried at the
lower of their carrying amount or fair value less costs to sell. The fair value is determined based on the appraisal
value or listing price of the property or collateral provided by independent appraisers, and is adjusted for the estimated
costs to transact the sale. Due to the use of significant unobservable inputs, long-lived assets held for sale are
classified as Level 3 under the fair value hierarchy. Fair value adjustments for long-lived assets are recorded in other
non-interest expense in the consolidated statements of income.
Non-Interest Bearing Deposits
The carrying amount of non-interest bearing deposits approximates fair value.
Interest-Bearing Deposits
The fair value of interest-bearing deposits is determined based on discounted expected cash flows using discount
rates consistent with current market rates for similar products with similar remaining terms.
Securitized Debt Obligations
We utilized multiple third-party pricing services to obtain fair value measurements for the large majority of our
securitized debt obligations. The techniques used by the pricing services utilize observable market data to the
extent available; and pricing models may be used which incorporate available trade, bid and other market
243
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Capital One Financial Corporation (COF)