Capital One 2015 Annual Report Download - page 221

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
202 Capital One Financial Corporation (COF)
(3) The amount presented for unrealized gains (losses) for assets still held as of the reporting date primarily represents impairments of securities available for
sale, accretion on certain fixed maturity securities, changes in fair value of derivative instruments and mortgage servicing rights transactions. Impairment is
reported in total OTTI, which is a component of non-interest income, in our consolidated statements of income.
(4) All Level 3 derivative assets and liabilities are presented on a gross basis and are not reduced by the impact of legally enforceable master netting agreements
that allow us to net positive and negative positions and the related payables and receivables for cash collateral held or placed with the same counterparty.
Significant Level 3 Fair Value Asset and Liability Input Sensitivity
Changes in unobservable inputs may have a significant impact on fair value. Certain of these unobservable inputs will, in isolation,
have a directionally consistent impact on the fair value of the instrument for a given change in that input. Alternatively, the fair
value of the instrument may move in an opposite direction for a given change in another input. In general, an increase in the
discount rate, default rates, loss severity and credit spreads, in isolation, would result in a decrease in the fair value measurement.
In addition, an increase in default rates would generally be accompanied by a decrease in recovery rates, slower prepayment rates
and an increase in liquidity spreads.
Techniques and Inputs for Level 3 Fair Value Measurements
The following table presents the significant unobservable inputs relied upon to determine the fair values of our Level 3 financial
instruments on a recurring basis. We utilize multiple third-party pricing services to obtain fair value measures for our securities.
Several of our third-party pricing services are only able to provide unobservable input information for a limited number of securities
due to software licensing restrictions. Other third-party pricing services are able to provide unobservable input information for all
securities for which they provide a valuation. As a result, the unobservable input information for the securities available for sale
presented below represents a composite summary of all information we are able to obtain for a majority of our securities. The
unobservable input information for all other Level 3 financial instruments is based on the assumptions used in our internal valuation
models.
Table 19.3: Quantitative Information about Level 3 Fair Value Measurements
Quantitative Information about Level 3 Fair Value Measurements
(Dollars in millions)
Fair Value at
December 31,
2015
Significant
Valuation
Techniques
Significant
Unobservable
Inputs Range
Weighted
Average
Assets:
Securities available for sale:
RMBS . . . . . . . . . . . . . . . . . . . . . . $ 504 Discounted cash flows
(3rd party pricing)
Yield
Constant prepayment rate
Default rate
Loss severity
0-12%
0-28%
0-8%
16-85%
6%
4%
4%
55%
CMBS . . . . . . . . . . . . . . . . . . . . . . 97 Discounted cash flows
(3rd party pricing)
Yield
Constant prepayment rate
2-3%
0-15%
3%
9%
Other securities . . . . . . . . . . . . . . . 14 Discounted cash flows Yield 1% 1%
Other assets:
Consumer MSRs . . . . . . . . . . . . . . 68 Discounted cash flows Total prepayment rate
Discount rate
Option-adjusted spread rate
Servicing cost ($ per loan)
11-18%
12%
435-1,500 bps
$93-$201
16%
12%
474 bps
$98
Derivative assets(1) . . . . . . . . . . . . 57 Discounted cash flows Swap rates 2% 2%
Retained interests in
securitization(2) . . . . . . . . . . . . . . .
211 Discounted cash flows Life of receivables (months)
Constant prepayment rate
Discount rate
Default rate
Loss severity
16-75
1-13%
4-9%
2-6%
15-94%
N/A
Liabilities:
Derivative liabilities(1). . . . . . . . . . $ 27 Discounted cash flows Swap rates 2% 2%
Quantitative Information about Level 3 Fair Value Measurements