Capital One 2014 Annual Report Download - page 272

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CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Capital One Financial Corporation (COF)
NOTE 20—COMMITMENTS, CONTINGENCIES, GUARANTEES AND OTHERS
Contingent Payments Related to Acquisitions and Partnership Agreements
Certain of our acquisition and partnership agreements include contingent payment provisions in which we agree to
provide future payments, up to a maximum amount, based on certain performance criteria. Our contingent payment
arrangements are generally based on the difference between the expected credit performance of specified loan
portfolios as of the date of the applicable agreement and the actual future performance. To the extent that actual losses
associated with these portfolios are less than the expected level, we agree to share a portion of the benefit with the
seller. In 2013, we settled all of our existing contingent payment arrangements for $165 million and, as of
December 31, 2014 and 2013, we had no liability for contingent payments related to these arrangements.
Guarantees
We have credit exposure on agreements that we entered into to absorb a portion of the risk of loss on certain
manufactured housing securitizations issued by GreenPoint Credit, LLC in 2000. Our maximum credit exposure
related to these agreements totaled $14 million and $16 million as of December 31, 2014 and 2013, respectively.
These agreements are recorded on our consolidated balance sheets as a component of other liabilities. The value of
our obligations under these agreements was $12 million and $15 million as of December 31, 2014 and 2013,
respectively.
See “Note 6—Variable Interest Entities and Securitizations” for additional information about our manufactured
housing securitization transactions.
Letters of Credit and Loss Sharing Agreements
We issue letters of credit (financial standby, performance standby and commercial) to meet the financing needs of
our customers. Standby letters of credit are conditional commitments issued by us to guarantee the performance of a
customer to a third party in a borrowing arrangement. Commercial letters of credit are short-term commitments issued
primarily to facilitate trade finance activities for customers and are generally collateralized by the goods being shipped
to the client. These collateral requirements are similar to those for funded transactions and are established based on
management’s credit assessment of the customer. Management conducts regular reviews of all outstanding letters of
credit and customer acceptances, and the results of these reviews are considered in assessing the adequacy of our
allowance for loan and lease losses.
On November 1, 2013, we acquired Beech Street Capital, a privately-held, DUS lender that originates
multifamily commercial real estate loans with the intent to sell them to a government-sponsored enterprise
(“GSE”). We enter into loss sharing agreements with Fannie Mae upon the sale of the DUS commercial loans.
Under these agreements, we share losses on the covered loans with Fannie Mae on a pari-passu basis. At
inception, we record a liability representing the fair value of our obligation which is subsequently amortized as
we are released from risk of payment under the loss sharing agreement. If payment under the loss sharing
agreement becomes probable and estimable, an additional liability may be recorded on the consolidated balance
sheets and a non-interest expense may be recognized in the consolidated statements of income. The associated
MSRs are also reviewed for impairment annually.
We had standby letters of credit and commercial letters of credit with contractual amounts of $2.1 billion and $2.0
billion as of December 31, 2014 and 2013, respectively. The carrying value of outstanding letters of credit, which