Capital One 2011 Annual Report Download - page 165

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS—(Continued)
Delinquent and Nonperforming Loans
The entire balance of a loan is considered contractually delinquent if the minimum required payment is not
received by the first statement cycle date equal to or following the due date specified on the customer’s billing
statement. Delinquency is reported on loans that are 30 or more days past due. Interest and fees continue to
accrue on past due loans until the date the loan is placed on nonaccrual status, if applicable. We generally place
loans on nonaccrual status when we believe the collectability of interest and principal is not reasonably assured.
Nonperforming loans generally include loans that have been placed on nonaccrual status and certain restructured
loans whose contractual terms have been restructured in a manner that grants a concession to a borrower
experiencing financial difficulty. We do not report loans accounted for under the fair value option and loans held
for sale as nonperforming.
Our policies for classifying loans as nonperforming, by loan category, are as follows:
•Credit card loans: As permitted by regulatory guidance issued by the Federal Financial Institutions
Examination Council (“FFIEC”), our policy is generally to exempt credit card loans from being classified as
nonperforming as these loans are generally charged off in the period the account becomes 180 days past
due. Consistent with industry conventions, we generally continue to accrue interest and fees on delinquent
credit card loans until the loans are charged-off. When we do not expect full payment of billed finance
charges and fees, we reduce the balance of the credit card account by the estimated uncollectible portion of
any billed finance charges and fees and exclude this amount from revenue.
•Consumer loans: We classify other non-credit card consumer loans as nonperforming at the earlier of the
date when we determine that the collectability of interest or principal on the loan is not reasonably assured
or in the period in which the loan becomes 90 days past due for auto, home loans, and unsecured small
business revolving lines of credit and 120 days past due for all other non-credit card consumer loans,
including installment loans.
•Commercial loans: We classify commercial loans as nonperforming as of the date we determine that the
collectability of interest or principal on the loan is not reasonably assured.
•Modified loans and troubled debt restructurings: Modified loans, including TDRs, that are current at the
time of the restructuring remain on accrual status if there is demonstrated performance prior to the
restructuring and continued performance under the modified terms is expected. Otherwise, the modified
loan is classified as nonperforming and placed on nonaccrual status until the borrower demonstrates a
sustained period of performance over several payment cycles, generally six months of consecutive
payments, under the modified terms of the loan.
•Purchased credit-impaired loans: PCI loans primarily include loans acquired from Chevy Chase Bank,
which we recorded at fair value at acquisition. Because the initial fair value of these loans included an
estimate of credit losses expected to be realized over the remaining lives of the loans, our subsequent
accounting for PCI loans differs from the accounting for non-PCI loans. We therefore separately track and
report PCI loans and exclude these loans from our delinquency and nonperforming loan statistics.
Interest and fees accrued but not collected at the date a loan is placed on nonaccrual status are reversed against
earnings. In addition, the amortization of net deferred loan fees is suspended. Interest and fee income is
subsequently recognized only upon the receipt of cash payments. However, if there is doubt regarding the
ultimate collectability of loan principal, all cash received is applied against the principal balance of the loan.
Nonaccrual loans are generally returned to accrual status when all principal and interest is current and repayment
of the remaining contractual principal and interest is reasonably assured or when the loan is both well-secured
and in the process of collection and collectability is no longer doubtful.
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