Capital One 2013 Annual Report Download - page 163

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
same fiscal quarter into one or more pools if the loans have common risk characteristics. A pool is then
accounted for as a single asset with a single composite interest rate and an aggregate fair value and expected cash
flows.
Subsequent to acquisition, it may be necessary to record an allowance for loan and lease losses through the
provision for credit losses to properly recognize an estimate of incurred losses on the existing principal balances
as of each reporting date. The allowance for loan and lease losses is calculated using the same methodology
utilized for determining the allowance for our existing credit card portfolio prior to the 2012 U.S. card
acquisition, as described below under “Allowance for Loan and Lease Losses”.
Loan Modifications and Restructurings
As part of our loss mitigation efforts, we may provide short-term (three to twelve months) or long-term (greater
than twelve months) modifications to a borrower experiencing financial difficulty to improve long-term
collectability of the loan and to avoid the need for foreclosure or repossession of collateral. Our loan
modifications typically result in reduced principal and interest payments for borrowers through an extension of
the loan term, a reduction in the interest rate, or a combination of both. For credit card loan agreements, such
modifications may include canceling the customer’s available line of credit on the credit card, reducing the
interest rate on the card, and placing the customer on a fixed payment plan not exceeding 60 months. In some
cases, we may curtail the amount of principal owed by the borrower.
A loan modification in which a concession is granted to a borrower experiencing financial difficulty is accounted
for and reported as a troubled debt restructuring (“TDR”). We describe our accounting for and measurement of
impairment on restructured loans below under “Impaired Loans.” See “Note 4—Loans” for additional
information on our loan modifications and restructurings.
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. We do not report loans
accounted for under the 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. During the fourth quarter 2012, we began classifying credit
card loans issued in the U.K. as nonperforming when the account becomes either 90 or 120 days past due
depending on the specific facts and circumstances.
•Consumer banking loans: We classify consumer banking loans as nonperforming at the earlier of the date
when we determine that the collectability of all interest and 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 consumer loans, including installment loans.
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