Capital One 2015 Annual Report Download - page 147

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
128 Capital One Financial Corporation (COF)
to assess credit quality and derive a total loss estimate. We assess these risk classifications, taking into consideration both quantitative
and qualitative factors, including historical loss experience, utilization assumptions, current economic conditions, performance
trends within specific portfolio segments and other pertinent information to estimate the reserve for unfunded lending commitments.
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 7—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
Premises and equipment, including leasehold improvements, are carried at cost less accumulated depreciation and amortization.
Land is carried at cost. We capitalize direct costs incurred during the application development stage of internally developed software
projects. Depreciation and amortization expenses are generally calculated using 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 in non-interest expense as incurred. Gains or losses upon disposition are
reflected in income as realized.
Goodwill and Intangible Assets
Goodwill is not amortized but is tested for impairment at the reporting unit level annually or more frequently if 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. 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 finite useful lives are amortized on either an accelerated or straight-line basis over their
estimated useful lives and are evaluated for impairment whenever events or changes in circumstances indicate the carrying amount
of the assets may not be recoverable. See “Note 8—Goodwill and Intangible Assets” for additional detail.