Wells Fargo 2007 Annual Report Download - page 92

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The total of our unfunded loan commitments, net of all
funds lent and all standby and commercial letters of credit
issued under the terms of these commitments, is summarized
by loan category in the following table:
(in millions) December 31,
2007 2006
Commercial and commercial real estate:
Commercial $ 89,480 $ 79,879
Other real estate mortgage 2,911 2,612
Real estate construction 9,986 9,600
Total commercial and
commercial real estate 102,377 92,091
Consumer:
Real estate 1-4 family first mortgage 11,861 9,708
Real estate 1-4 family junior lien mortgage 47,763 44,179
Credit card 62,680 55,010
Other revolving credit and installment 16,220 14,679
Total consumer 138,524 123,576
Foreign 980 824
Total unfunded loan commitments $241,881 $216,491
We have an established process to determine the adequacy
of the allowance for credit losses that assesses the risks and
losses inherent in our portfolio. We combine estimates of the
allowances needed for loans analyzed on a pooled basis and
loans analyzed individually (including impaired loans) to
determine the adequacy of the total allowance.
A significant portion of the allowance is estimated at
a pooled level for consumer loans and some segments of
commercial small business loans. We use forecasting models
to measure the losses inherent in these portfolios. We validate
and update these models periodically to capture recent
behavioral characteristics of the portfolios, such as updated
credit bureau information, actual changes in underlying
economic or market conditions and changes in our loss
mitigation strategies. The increase in provision for 2007
was a significant credit event where home equity credit
losses emerged in excess of previous estimates and the
allowance was increased primarily to reflect this increase
in inherent losses.
The remaining portion of the allowance is for commercial
loans, commercial real estate loans and lease financing. We
initially estimate this portion of the allowance by applying
historical loss factors statistically derived from tracking losses
associated with actual portfolio movements over a specified
period of time, using a standardized loan grading process.
Based on this process, we assign loss factors to each pool
of graded loans and a loan equivalent amount for unfunded
loan commitments and letters of credit. These estimates
are then adjusted or supplemented where necessary from
additional analysis of long-term average loss experience,
external loss data, or other risks identified from current
conditions and trends in selected portfolios, including
management’s judgment for imprecision and uncertainty.
We assess and account for as impaired certain nonaccrual
commercial and commercial real estate loans that are over
$3 million and certain consumer, commercial and commercial
real estate loans whose terms have been modified in a
troubled debt restructuring. We include the impairment on
these nonperforming loans in the allowance unless it has
already been recognized as a loss.
The potential risk from unfunded loan commitments and
letters of credit for wholesale loan portfolios is considered
along with the loss analysis of loans outstanding. Unfunded
commercial loan commitments and letters of credit are
converted to a loan equivalent factor as part of the analysis.
The reserve for unfunded credit commitments was
$211 million at December 31, 2007, and $200 million
at December 31, 2006.
Reflected in the two portions of the allowance previously
described is an amount for imprecision or uncertainty that
incorporates the range of probable outcomes inherent in
estimates used for the allowance, which may change from
period to period. This amount is the result of our judgment
of risks inherent in the portfolios, economic uncertainties,
historical loss experience and other subjective factors,
including industry trends, calculated to better reflect our
view of risk in each loan portfolio.
Like all national banks, our subsidiary national banks
continue to be subject to examination by their primary
regulator, the OCC, and some have OCC examiners in
residence. The OCC examinations occur throughout the
year and target various activities of our subsidiary national
banks, including both the loan grading system and specific
segments of the loan portfolio (for example, commercial
real estate and shared national credits). The Parent and
our nonbank subsidiaries are examined by the Federal
Reserve Board.
We consider the allowance for credit losses of $5.52 billion
adequate to cover credit losses inherent in the loan portfolio,
including unfunded credit commitments, at December 31, 2007.
Nonaccrual loans were $2,679 million and $1,666 million
at December 31, 2007 and 2006, respectively. Loans past due
90 days or more as to interest or principal and still accruing
interest were $6,393 million at December 31, 2007, and
$5,073 million at December 31, 2006. The 2007 and 2006
balances included $4,834 million and $3,913 million,
respectively, in advances pursuant to our servicing agreements
to the Government National Mortgage Association (GNMA)
mortgage pools whose repayments are insured by the Federal
Housing Administration or guaranteed by the Department of
Veterans Affairs.