Capital One 2013 Annual Report Download - page 164

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
•Commercial banking loans: We classify commercial loans as nonperforming as of the date we determine
that the collectability of all interest and 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 Acquired Loans were initially measured at fair value based on an estimate of
credit losses expected to be realized over the remaining lives of the loans, we 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.
Generally, we report loans as impaired based on the method for measuring 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 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. In 2013 we began including home loans written-down
to collateral value.
•Commercial banking loans: Commercial loans classified as nonperforming and commercial loans that have
been modified in a troubled debt restructuring are reported as individually impaired.
•Acquired Loans: We track and report Acquired Loans separately from other impaired loans.
The majority of individually impaired loans are evaluated for an asset-specific allowance. Although a loan
modified in a TDR may be returned to accrual status if the criteria above under “Delinquent and Nonperforming
Loans” are met, we would generally continue to report the loan as impaired until maturity.
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