Capital One 2014 Annual Report Download - page 164

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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. We classify 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 when we determine that the
collectability of all interest and principal on the loan is not reasonably assured, generally when the loan becomes
90 days past due for auto, home loans and small business banking loans. Consumer installment loans accrue
interest up until charge off.
•Commercial banking loans: We classify commercial banking 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.
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Capital One Financial Corporation (COF)