Capital One 2015 Annual Report Download - page 69

50 Capital One Financial Corporation (COF)
Income Taxes
We recorded income tax provisions of $1.9 billion (31.8% effective income tax rate), $2.1 billion (32.7% effective income tax
rate), $2.2 billion (33.8% effective income tax rate) in 2015, 2014 and 2013, respectively. Our effective tax rate on income from
continuing operations varies between periods due, in part, to fluctuations in our pre-tax earnings, which affects the relative tax
benefit of tax-exempt income, tax credits and other permanent tax items.
The decrease in our effective income tax rate in 2015, from 2014, was primarily due to lower income before taxes, higher discrete
tax benefits and increased net tax credits. This decrease was partially offset by a reduced benefit of lower taxed foreign earnings.
The decrease in our effective income tax rate in 2014, from 2013, was primarily attributable to increased net tax credits and tax
exempt income, and reductions in state rates, partially offset by increased discrete tax expenses.
We recorded net discrete tax benefits of $15 million in 2015, and net discrete tax expenses of $33 million and $16 million in 2014
and 2013, respectively. Our effective income tax rate, excluding the impact of discrete tax items discussed above, was 32.0%,
32.2% and 33.6% in 2015, 2014 and 2013, respectively.
We provide additional information on items affecting our income taxes and effective tax rate under “Note 18—Income Taxes.”
BUSINESS SEGMENT FINANCIAL PERFORMANCE
Our principal operations are currently organized into three major business segments, which are defined based on the products and
services provided or the type of customer served: Credit Card, Consumer Banking and Commercial Banking. The operations of
acquired businesses have been integrated into our existing business segments. Certain activities that are not part of a segment,
such as management of our corporate investment portfolio and asset/liability management by our centralized Corporate Treasury
group, are included in the Other category.
The results of our individual businesses, which we report on a continuing operations basis, reflect the manner in which management
evaluates performance and makes decisions about funding our operations and allocating resources. We may periodically change
our business segments or reclassify business segment results based on modifications to our management reporting methodologies
and changes in organizational alignment. Our business segment results are intended to reflect each segment as if it were a stand-
alone business. We use an internal management and reporting process to derive our business segment results. Our internal
management and reporting process employs various allocation methodologies, including funds transfer pricing, to assign certain
balance sheet assets, deposits and other liabilities and their related revenue and expenses directly or indirectly attributable to each
business segment. Total interest income and net fees are directly attributable to the segment in which they are reported. The net
interest income of each segment reflects the results of our funds transfer pricing process, which is primarily based on a matched
maturity method that takes into consideration market rates. Our funds transfer pricing process provides a funds credit for sources
of funds, such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a funds charge for the
use of funds by each segment. The allocation process is unique to each business segment and acquired businesses. We regularly
assess the assumptions, methodologies and reporting classifications used for segment reporting, which may result in the
implementation of refinements or changes in future periods.
We refer to the business segment results derived from our internal management accounting and reporting process as our “managed”
presentation, which differs in some cases from our reported results prepared based on U.S. GAAP. There is no comprehensive
authoritative body of guidance for management accounting equivalent to U.S. GAAP; therefore, the managed presentation of our
business segment results may not be comparable to similar information provided by other financial services companies. In addition,
our individual business segment results should not be used as a substitute for comparable results determined in accordance with
U.S. GAAP.
Below we summarize our business segment results for 2015, 2014 and 2013 and provide a comparative discussion of these results.
We also discuss changes in our financial condition and credit performance statistics as of December 31, 2015, compared to
December 31, 2014. We provide a reconciliation of our total business segment results to our reported consolidated results in
“Note 20—Business Segments.” Additionally, we provide information on the outlook for each of our business segments as described
above under “Executive Summary and Business Outlook.”