Wells Fargo 2005 Annual Report Download - page 75

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73
14% of total loans at December 31, 2005, compared with
18% at the end of 2004. These loans are mostly within the
larger metropolitan areas in California, with no single area
consisting of more than 3% of our total loans. Changes in
real estate values and underlying economic conditions for
these areas are monitored continuously within our credit
risk management process.
Some of our real estate 1-4 family mortgage loans, including
first mortgage and home equity products, include an interest-
only feature as part of the loan terms. At December 31, 2005,
such loans were approximately 26% of total loans, compared
with 28% at the end of 2004. Substantially all of these loans
are considered to be prime or near prime. We do not offer
option adjustable-rate mortgage products, nor do we offer
variable-rate mortgage products with fixed payment amounts,
commonly referred to within the financial services industry as
negative amortizing mortgage loans.
A summary of the major categories of loans outstanding is
shown in the following table. Outstanding loan balances
reflect unearned income, net deferred loan fees, and unamor-
tized discount and premium totaling $3,918 million and
$3,766 million at December 31, 2005 and 2004, respectively.
Loan concentrations may exist when there are amounts
loaned to a multiple number of borrowers engaged in similar
activities or similar types of loans extended to a diverse group
of borrowers that would cause them to be similarly impacted
by economic or other conditions. At December 31, 2005 and
2004, we did not have concentrations representing 10% or
more of our total loan portfolio in commercial loans (by
industry); commercial real estate loans (other real estate
mortgage and real estate construction) (by state or property
type); or other revolving credit and installment loans (by
product type). Our real estate 1-4 family mortgage loans to
borrowers in the state of California represented approximately
Note 6: Loans and Allowance for Credit Losses
(in millions) December 31,
2005 2004 2003 2002 2001
Commercial and commercial real estate:
Commercial $ 61,552 $ 54,517 $ 48,729 $ 47,292 $ 47,547
Other real estate mortgage 28,545 29,804 27,592 25,312 24,808
Real estate construction 13,406 9,025 8,209 7,804 7,806
Lease financing 5,400 5,169 4,477 4,085 4,017
Total commercial and commercial real estate 108,903 98,515 89,007 84,493 84,178
Consumer:
Real estate 1-4 family first mortgage 77,768 87,686 83,535 44,119 29,317
Real estate 1-4 family junior lien mortgage 59,143 52,190 36,629 28,147 21,801
Credit card 12,009 10,260 8,351 7,455 6,700
Other revolving credit and installment 47,462 34,725 33,100 26,353 23,502
Total consumer 196,382 184,861 161,615 106,074 81,320
Foreign 5,552 4,210 2,451 1,911 1,598
Total loans $310,837 $287,586 $253,073 $192,478 $167,096
For certain extensions of credit, we may require collateral,
based on our assessment of a customer’s credit risk. We hold
various types of collateral, including accounts receivable,
inventory, land, buildings, equipment, automobiles, financial
instruments, income-producing commercial properties and
residential real estate. Collateral requirements for each customer
may vary according to the specific credit underwriting, terms
and structure of loans funded immediately or under a
commitment to fund at a later date.
A commitment to extend credit is a legally binding agree-
ment to lend funds to a customer, usually at a stated interest
rate and for a specified purpose. These commitments have
fixed expiration dates and generally require a fee. When we
make such a commitment, we have credit risk. The liquidity
requirements or credit risk will be lower than the contractual
amount of commitments to extend credit because a significant
portion of these commitments are expected to expire without
being used. Certain commitments are subject to loan agree-
ments with covenants regarding the financial performance
of the customer that must be met before we are required to
fund the commitment. We use the same credit policies in
extending credit for unfunded commitments and letters of
credit that we use in making loans. For information on
standby letters of credit, see Note 24.