Capital One 2013 Annual Report Download - page 165

CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We generally measure impairment and the related asset-specific allowance for individually impaired loans based
on the difference between the recorded investment of the loan and the present value of the expected future cash
flows, discounted at the original effective interest rate of the loan at the time of modification. If the loan is
collateral dependent, we measure impairment based upon the fair value of the underlying collateral, which we
determine based on the current fair value of the collateral less estimated selling costs, instead of discounted cash
flows. Loans are identified as collateral dependent if we believe that collateral is the sole source of repayment.
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 in the period the account becomes 180 days
past due. During the fourth quarter 2012, we began charging off delinquent credit card loans for which
revolving privileges have been revoked as part of a closed end loan workout when the account becomes 120
days past due. Credit card loans in bankruptcy are charged-off by the end of the month upon the receipt of a
complete bankruptcy notification from the bankruptcy court. Credit card loans of deceased account holders
are charged-off by the end of the month following 60 days of receipt of notification.
•Consumer banking loans: We generally charge-off consumer banking 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 initial charge-off amount for home
loans based on the excess of our recorded investment in the loan over the fair value of the underlying
property less 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 subsequent declines in home values. 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
by the end of the month following 60 days of receipt of notification.
•Commercial banking loans: We charge-off commercial loans in the period we determine that the unpaid
principal loan amounts are uncollectible.
•Acquired Loans: We do not record charge-offs on Acquired 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 impaired loans only if actual losses exceed estimated losses
incorporated into the fair value recorded at acquisition.
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