Wells Fargo 2010 Annual Report Download - page 144

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Note 6: Loans and Allowance for Credit Losses (continued)
Purchased Credit-Impaired Loans
Certain loans acquired in the Wachovia acquisition are
accounted for as PCI loans. The following table presents PCI
loans net of any remaining purchase accounting adjustments.
December 31,
(in millions) 2010
2009
2008
Commercial:
Commercial and industrial $ 718
1,911
4,580
Real estate mortgage 2,855
4,137
5,803
Real estate construction 2,949
5,207
6,462
Foreign 1,413
1,733
1,859
Total commercial 7,935
12,988
18,704
Consumer:
Real estate 1-4 family first mortgage 33,245
38,386
39,214
Real estate 1-4 family junior lien mortgage 250
331
728
Other revolving credit and installment -
-
151
Total consumer 33,495
38,717
40,093
Total PCI loans (carrying value) $ 41,430
51,705
58,797
Total PCI loans (unpaid principal balance) $ 64,331
83,615
98,182
ACCRETABLE YIELD The excess of cash flows expected to be
collected over the carrying value of PCI loans is referred to as the
accretable yield and is recognized in interest income using an
effective yield method over the remaining life of the loan, or
pools of loans. The accretable yield is affected by:
• Changes in interest rate indices for variable rate PCI loans –
Expected future cash flows are based on the variable rates in
effect at the time of the regular evaluations of cash flows
expected to be collected;
• Changes in prepayment assumptions – Prepayments affect
the estimated life of PCI loans which may change the
amount of interest income, and possibly principal, expected
to be collected; and
• Changes in the expected principal and interest payments
over the estimated life – Updates to expected cash flows are
driven by the credit outlook and actions taken with
borrowers. Changes in expected future cash flows from loan
modifications are included in the regular evaluations of cash
flows expected to be collected.
The change in the accretable yield related to PCI loans is
presented in the following table.
Year ended December 31,
(in millions) 2010
2009
Total, beginning of year $ 14,559
10,447
Accretion (2,435)
(2,606)
Reclassification from nonaccretable difference for loans with improving cash flows 3,399
441
Changes in expected cash flows that do not affect nonaccretable difference (1) 1,191
6,277
Total, end of year $ 16,714
14,559
(1) Represents changes in cash flows expected to be collected, changes in interest rates on variable rate PCI loans, and the impact of modifications on expected cash flows.
142