Capital One 2010 Annual Report Download - page 79

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Table 21: Loan Modifications and Restructurings(1)
December 31,
(Dollars in millions) 2010 2009
Modified and restructured loans:
Credit card(2) .............................................................................
.
$ 912 $ 678
Home loans ..............................................................................
.
57 10
Commercial retail and multifamily real estate ...............................................
.
153 41
Other retail ...............................................................................
.
23 4
Total .....................................................................................
.
$ 1,145 $ 733
Status of modified and restructured loans:
Performing ...............................................................................
.
$ 1,049 $ 713
Nonperforming ...........................................................................
.
96 20
Total .....................................................................................
.
$ 1,145 $ 733
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(1) Reflects modifications and restructuring of loans in our total loan portfolio, which we previously referred to as our “managed” loan portfolio.
The total loan portfolio includes loans recorded on our balance sheet and loans held in our securitization trusts. Certain prior period amounts
have been reclassified to conform to the current period presentation.
(2) Amount reported reflects the total outstanding customer balance.
The outstanding balance of loan modifications made to assist borrowers experiencing financial difficulties increased to $1.1 billion as
of December 31, 2010, from $733 million as December 31, 2009. Of these modifications, approximately $96 million, or 8%, were
classified as nonperforming as of December 31, 2010, compared with $20 million, or 3%, as of December 31, 2009.
Credit card loan modifications have accounted for the substantial majority of our loan modifications, representing $912 million, or
80%, of the outstanding balance of total modified loans as of December 31, 2010, and $678 million, or 92%, of the outstanding
balance of total modified loans as of December 31, 2009. The vast majority of our credit card loan modifications involve a reduction
in the interest rate on the account and placing the customer on a fixed payment plan not exceeding 60 months. In all cases, we cancel
the customer’s available line of credit on the credit card. If the cardholder does not comply with the modified payment terms, then the
credit card loan agreement will revert back to its original payment terms, with the amount of any loan outstanding reflected in the
appropriate delinquency “bucket.” The loan amount may then be charged-off in accordance with our standard charge-off policy.
We typically measure the re-performance rate of modified credit card loans over a 5-year period. Five years after starting a credit card
modification, approximately 84% of the balances of modified loans are paid off in full and approximately 16% are charged-off. Based
on our experience to date, we believe that credit losses are lower for credit card loans that have been modified than those of similar
accounts that were not modified. We therefore plan to ramp up our short-term credit card loan modification programs and continue our
long-term programs.
Mortgage loan modifications represented $57 million, or 5%, of the outstanding balance of total modified loans as of December 31,
2010, compared with $10 million, or 1%, of the outstanding balance of total modified loans as of December 31, 2009. Approximately
76% of our modified mortgage loans include reduction in the contractual interest rate, approximately 17% include a term extension
and approximately 5% include a principal reduction. The majority of our modified mortgage loans involve a combination of an
interest rate reduction, term extension or principal reduction. Because many of the mortgage loan modification programs have been
recently launched and we have had a limited number of modifications under these programs, we do not have sufficient history to fully
assess the long-term performance of modified mortgage loans. Of the modified mortgage loans outstanding as of December 31, 2010,
approximately 27% were 90 days or more delinquent.
Commercial loan modifications represented $153 million, or 13%, of the outstanding balance of total modified loans as of December
31, 2010, compared with $41 million, or 6%, of the outstanding balance of total modified loans as of December 31, 2009. The vast
majority of modified commercial loans include a reduction in interest rate or a term extension. Because we have had only a limited
number of commercial loan modifications and the structure of each loan varies, the ultimate success of our commercial loan
modifications is uncertain. Of the modified commercial loans outstanding as of December 31, 2010, approximately 22% were 90 days
or more delinquent.
Impaired Loans
A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all
amounts due from the borrower in accordance with the original contractual terms of the loan. Loans defined as individually impaired,
based on applicable accounting guidance, include larger balance commercial nonperforming loans and TDR loans. We do not report
nonperforming consumer loans that have not been modified in a TDR as individually impaired, as we collectively evaluate these