Capital One 2014 Annual Report Download - page 98

The table below summarizes changes in our representation and warranty reserve in 2014 and 2013.
Table 13: Changes in Representation and Warranty Reserve(1)
Year Ended December 31,
(Dollars in millions) 2014 2013
Representation and warranty reserve, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . $ 1,172 $ 899
(Benefit) provision for mortgage representation and warranty losses:
Recorded in continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26) (24)
Recorded in discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) 333
Total (benefit) provision for mortgage representation and warranty losses . . . . . . . . . . . . . (33) 309
Net realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (408) (36)
Representation and warranty reserve, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 731 $ 1,172
(1) Reported on our consolidated balance sheets as a component of other liabilities.
As part of our business planning processes, we have considered various outcomes relating to the future representation
and warranty liabilities of our subsidiaries that are possible but do not rise to the level of being both probable and
reasonably estimable outcomes justifying an incremental accrual under applicable accounting standards. Our current
best estimate of reasonably possible future losses from representation and warranty claims beyond what was in our
reserve as of December 31, 2014, is approximately $2.1 billion, a decline from our estimate of $2.6 billion as of
December 31, 2013. The decrease in the reasonably possible estimate of the representation and warranty reserve
was primarily driven by claims paid and legal developments including settlements.
We provide additional information related to the representation and warranty reserve, including factors that may
impact the adequacy of the reserve and the ultimate amount of losses incurred by our subsidiaries, in “Note 20—
Commitments, Contingencies, Guarantees and Others.”
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities represent decreases or increases in taxes expected to be paid in the future because
of future reversals of temporary differences between the financial reporting and tax bases of assets and liabilities,
as well as from net operating loss and tax credit carryforwards. Deferred tax assets are recognized subject to
management’s judgment that realization is “more likely than not.” We evaluate the recoverability of these future tax
deductions by assessing the adequacy of expected taxable income from all sources, including taxable income in
carryback years, reversal of taxable temporary differences, forecasted operating earnings and available tax planning
strategies. These sources of income rely heavily on estimates. We use our historical experience and our short and
long-range business forecasts to provide insight.
As of December 31, 2014, we have recorded deferred tax assets, net of deferred tax liabilities and valuation
allowances, of approximately $3.3 billion, which is a decrease of $400 million from $3.7 billion at December 31,
2013. We have recorded a valuation allowance of $148 million and $139 million as of December 31, 2014 and 2013,
respectively. We expect to fully realize the 2014 net deferred tax asset amounts in future periods. If changes in
circumstances lead us to change our judgment about our ability to realize deferred tax assets in future years, we will
adjust our valuation allowances in the period that our change in judgment occurs and record a corresponding increase
or charge to income.
We provide additional information on income taxes in “Consolidated Results of Operations” and in “Note 17—
Income Taxes.”
76 Capital One Financial Corporation (COF)