Wells Fargo 2008 Annual Report Download - page 67

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NONACCRUAL LOANS AND OTHER ASSETS Table 19 shows the
five-year trend for nonaccrual loans and other assets. We
generally place loans on nonaccrual status when:
• the full and timely collection of interest or principal
becomes uncertain;
• they are 90 days (120 days with respect to real estate 1-4
family first and junior lien mortgages and auto loans) past
due for interest or principal (unless both well-secured and
in the process of collection); or
• part of the principal balance has been charged off.
The combined company’s nonaccrual loans include
$97 million from Wachovia related largely to lease financing.
Prior to the application of SOP 03-3, Wachovia’s nonaccrual
loans totaled $20.1 billion, including $14.0 billion of consumer
loans ($11.6 billion of Pick-a-Pay) and $6.1 billion of commer-
cial and commercial real estate loans.
Note 1 (Summary of Significant Accounting Policies) to
Financial Statements describes our accounting policy for
nonaccrual loans.
Table 19: Nonaccrual Loans and Other Assets
(in millions) December 31,
2008 (1) 2007 2006 2005 2004
Nonaccrual loans:
Commercial and commercial real estate:
Commercial $1,253 $ 432 $ 331 $ 286 $ 345
Other real estate mortgage 594 128 105 165 229
Real estate construction 989 293 78 31 57
Lease financing 92 45 29 45 68
Total commercial and commercial real estate 2,928 898 543 527 699
Consumer:
Real estate 1-4 family first mortgage (2) 2,648 1,272 688 471 386
Real estate 1-4 family junior lien mortgage 894 280 212 144 92
Other revolving credit and installment 273 184 180 171 160
Total consumer 3,815 1,736 1,080 786 638
Foreign 57 45 43 25 21
Total nonaccrual loans (3) 6,800 2,679 1,666 1,338 1,358
As a percentage of total loans 0.79% 0.70% 0.52% 0.43% 0.47%
Foreclosed assets:
GNMA loans (4) 667 535 322 — —
Other 1,526 649 423 191 212
Real estate and other nonaccrual investments (5) 16 5 5 2 2
Total nonaccrual loans and other assets $9,009 $3,868 $2,416 $1,531 $1,572
As a percentage of total loans 1.04% 1.01% 0.76% 0.49% 0.55%
(1) The allowance for credit losses does not include any amounts related to loans acquired from Wachovia that are accounted for under SOP 03-3 (Wachovia’s allowance
related to these loans was $12.0 billion), and nonaccrual loans exclude $20.0 billion of SOP 03-3 loans that were previously reflected as nonaccrual by Wachovia.
(2) Includes nonaccrual mortgages held for sale.
(3) Includes impaired loans of $3,640 million, $469 million, $230 million, $190 million and $309 million at December 31, 2008, 2007, 2006, 2005 and 2004, respectively. See
Note 1 (Summary of Significant Accounting Policies) and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements for further discussion of impaired loans.
(4) Due to a change in regulatory reporting requirements effective January 1, 2006, foreclosed real estate securing GNMA loans has been classified as nonperforming. Both
principal and interest for GNMA loans secured by the foreclosed real estate are collectible because the GNMA loans are insured by the FHA or guaranteed by the
Department of Veterans Affairs.
(5) Includes real estate investments (contingent interest loans accounted for as investments) that would be classified as nonaccrual if these assets were recorded as loans.
Nonaccrual loans increased $4.1 billion to $6.8 billion at
December 31, 2008, from $2.7 billion a year ago, reflecting the
deterioration in economic conditions, primarily in portfolios
affected by the residential real estate environment and the
associated impact on the consumer. A small portion of the
increase in nonaccrual loans from a year ago continues to be
related to our active loss mitigation strategies at Home
Equity, Home Mortgage and Wells Fargo Financial as we are
aggressively working with customers to keep them in their
homes or find alternative solutions to their financial chal-
lenges. Home builders, mortgage service providers, contrac-
tors, suppliers and others in the residential real estate-related
segments continued to be stressed during this credit cycle.
Additionally, as consumers cut back on discretionary spend-
ing, we are seeing some of the commercial loan portfolios
dependent on their spending weaken. The $2.1 billion
increase in nonaccrual consumer loans from a year ago was
primarily due to an increase of $742 million in Wells Fargo
Financial real estate and an increase of $424 million in Home
Mortgage. Nonaccrual real estate 1-4 family loans included
approximately $3.4 billion of loans at December 31, 2008, that
have been modified. Our policy requires six consecutive
months of payments on modified loans before they are
returned to accrual status. Other foreclosed assets increased
$877 million (including $885 million acquired from
Wachovia) to $1.5 billion at December 31, 2008. Until condi-
tions improve in the residential real estate and liquidity mar-
kets, we will continue to hold more nonperforming assets on
our balance sheet as it is currently the most economic option
available. Increases in commercial nonperforming assets
were also primarily a direct result of the conditions in the res-
idential real estate markets and general consumer economy.