Capital One 2012 Annual Report Download - page 164

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
•Consumer banking 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 banking 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.
•Acquired loans: Since 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 acquired loans differs from the
accounting for non-acquired loans. We therefore separately track and report acquired 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.
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 consumer loans as impaired unless they have
been modified in a TDR, as we collectively evaluate these smaller-balance homogenous loans for impairment in
accordance with applicable accounting guidance. Loans held for sale are also not reported as impaired, as these
loans are recorded at lower of cost or fair value. Impaired loans also exclude acquired loans accounted for based
on expected cash flows at initial acquisition because this accounting methodology takes into consideration future
credit losses expected to be incurred.
Loans defined as individually impaired, based on applicable accounting guidance, include larger balance
nonperforming loans and TDR loans. Our policies for identifying loans as individually impaired, by loan
category, are as follows:
•Credit card loans: Credit card loans that have been modified in a troubled debt restructuring are identified
and accounted for as individually impaired.
•Consumer banking loans: Consumer loans that have been modified in a troubled debt restructuring are
identified and accounted for as individually impaired.
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