Capital One 2011 Annual Report Download - page 127

Net Charge-Offs
Net charge-offs consist of the unpaid principal balance of loans held for investment that we determine are
uncollectible, net of recovered amounts. We exclude accrued and unpaid finance charges and fees and fraud
losses from charge-offs. Charge-offs are recorded as a reduction to the allowance for loan and lease losses and
subsequent recoveries of previously charged off amounts are credited to the allowance for loan and lease losses.
Costs incurred to recover charged-off loans are recorded as collection expense and included in our consolidated
statements of income as a component of other non-interest expense. Our charge-off time frame for loans, which
varies based on the loan type, is presented below.
•Credit card loans: We generally charge-off credit card loans when the account is 180 days past due from the
statement cycle date. Credit card loans in bankruptcy are charged-off within 30 days of receipt of a complete
bankruptcy notification from the bankruptcy court, except for U.K. credit card loans, which are charged-off
within 60 days. Credit card loans of deceased account holders are charged-off within 60 days of receipt of
notification.
•Consumer loans: We generally charge-off consumer loans at the earlier of the date when the account is a
specified number of days past due or upon repossession of the underlying collateral. Our charge-off time
frame is 180 days for home loans and unsecured small business lines of credit and 120 days for auto and
other non-credit card consumer loans. We calculate the charge-off amount for home loans based on the
difference between our recorded investment in the loan and the fair value of the underlying property and
estimated selling costs as of the date of the charge-off. We update our home value estimates on a regular
basis and recognize additional charge-offs for declines in home values below our initial fair value and
selling cost estimate at the date home loans are charged-off. Consumer loans in bankruptcy, except for auto
and home loans, generally are charged-off within 40 days of receipt of notification from the bankruptcy
court. Auto and home loans in bankruptcy are charged-off in the period that the loan is both 60 days or more
past due and 60 days or more past the bankruptcy notification date or in the period the loan becomes 120
days past due for auto loans and 180 days past due for home loans regardless of the bankruptcy notification
date. Consumer loans of deceased account holders are charged-off within 60 days of receipt of notification.
•Commercial loans: We charge-off commercial loans in the period we determine that the unpaid principal
loan amounts are uncollectible.
•Purchased credit-impaired loans: We do not record charge-offs on purchased-credit impaired loans that are
performing in accordance with or better than our expectations as of the date of acquisition, as the fair values
of these loans already reflect a credit component. We record charge-offs on purchased credit-impaired loans
only if actual losses exceed estimated losses incorporated into the fair value recorded at acquisition.
Table 28 presents our net charge-off amounts and rates, by business segment, for 2011, 2010 and 2009. We
provide information on charge-off amounts by loan category below in Table 30.
Table 28: Net Charge-Offs
Year Ended December 31,
2011 2010 2009
(Dollars in millions) Amount Rate(1) Amount Rate(1) Amount Rate(1)
Managed:
Credit card(2) .......................... $ 3,056 4.92% $ 5,505 8.79% $ 6,688 9.15%
Consumer banking(3)(4) .................. 484 1.39 655 1.82 1,094 2.74
Commercial banking(3)(4) ................ 177 0.57 390 1.32 434 1.45
Other ................................ 54 11.52 107 21.18 205(5) 37.11
Total charge-offs(4) ..................... $ 3,771 2.94% $ 6,657 5.18% $ 8,421 5.87%
Average loans held for investment(6) ........ $128,424 $128,622 $143,514
Reported:
Total charge-offs ....................... $ 3,771 2.94% $ 6,651 5.18% $ 4,568 4.58%
Average loans held for investments(6) ....... 128,424 128,526 99,787
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