Wells Fargo 2012 Annual Report Download - page 156

Note 6: Loans and Allowance for Credit Losses (continued)
The following table summarizes the activity in the allowance for credit losses by our commercial and consumer portfolio segments.
Year ended December 31,
2012 2011
(in millions) Commercial Consumer Total Commercial Consumer Total
Balance, beginning of period $ 6,358 13,310 19,668 8,169 15,294 23,463
Provision for credit losses 666 6,551 7,217 365 7,534 7,899
Interest income on certain impaired loans (95) (220) (315) (161) (171) (332)
Loan charge-offs (2,014) (8,959) (10,973) (2,796) (10,819) (13,615)
Loan recoveries 799 1,140 1,939 777 1,539 2,316
Net loan charge-offs (1,215) (7,819) (9,034) (2,019) (9,280) (11,299)
Allowance related to business combinations/other - (59) (59) 4 (67) (63)
Balance, end of period $ 5,714 11,763 17,477 6,358 13,310 19,668
The following table disaggregates our allowance for credit losses and recorded investment in loans by impairment methodology.
Allowance for credit losses Recorded investment in loans
(in millions) Commercial Consumer Total Commercial Consumer Total
December 31, 2012
Collectively evaluated (1) $ 3,951 7,524 11,475 349,035 389,559 738,594
Individually evaluated (2) 1,675 4,210 5,885 8,186 21,826 30,012
PCI (3) 88 29 117 3,977 26,991 30,968
Total $ 5,714 11,763 17,477 361,198 438,376 799,574
December 31, 2011
Collectively evaluated (1) $ 4,060 8,699 12,759 328,117 376,785 704,902
Individually evaluated (2) 2,133 4,545 6,678 10,566 17,444 28,010
PCI (3) 165 66 231 6,767 29,952 36,719
Total $ 6,358 13,310 19,668 345,450 424,181 769,631
(1) Represents loans collectively evaluated for impairment in accordance with Accounting Standards Codification (ASC) 450-20, Loss Contingencies (formerly FAS 5), and
pursuant to amendments by ASU 2010-20 regarding allowance for non-impaired loans.
(2) Represents loans individually evaluated for impairment in accordance with ASC 310-10, Receivables (formerly FAS 114), and pursuant to amendments by ASU 2010-20
regarding allowance for impaired loans.
(3) Represents the allowance and related loan carrying value determined in accordance with ASC 310-30, Receivables – Loans and Debt Securities Acquired with Deteriorated
Credit Quality (formerly SOP 03-3) and pursuant to amendments by ASU 2010-20 regarding allowance for PCI loans.
Credit Quality
We monitor credit quality as indicated by evaluating various
attributes and utilize such information in our evaluation of the
appropriateness of the allowance for credit losses. The following
sections provide the credit quality indicators we most closely
monitor. See the “Purchased Credit-Impaired Loans” section of
this Note for credit quality information on our PCI portfolio.
The majority of credit quality indicators are based on
December 31, 2012 information, with the exception of updated
Fair Isaac Corporation (FICO) scores and updated loan-to-value
(LTV)/combined LTV (CLTV), which are obtained at least
quarterly. Generally, these indicators are updated in the second
month of each quarter, with updates no older than
September 30, 2012.
COMMERCIAL CREDIT QUALITY INDICATORS In addition to
monitoring commercial loan concentration risk, we manage a
consistent process for assessing commercial loan credit quality.
Generally, commercial loans are subject to individual risk
assessment using our internal borrower and collateral quality
ratings. Our ratings are aligned to Pass and Criticized categories.
The Criticized category includes Special Mention, Substandard,
and Doubtful categories which are defined by bank regulatory
agencies.
The following table provides a breakdown of outstanding
commercial loans by risk category. Of the $21.0 billion in
criticized commercial real estate (CRE) loans, $4.3 billion has
been placed on nonaccrual status and written down to net
realizable collateral value. CRE loans have a high level of
monitoring in place to manage these assets and mitigate loss
exposure.
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