Wells Fargo 2008 Annual Report Download - page 68

ALLOWANCE FOR CREDIT LOSSES The allowance for credit
losses, which consists of the allowance for loan losses and the
reserve for unfunded credit commitments, is management’s
estimate of credit losses inherent in the loan portfolio at the
balance sheet date. We assume that our allowance for credit
losses as a percentage of charge-offs and nonaccrual loans
will change at different points in time based on credit perfor-
mance, loan mix and collateral values. Any loan with past due
principal or interest that is not both well-secured and in the
process of collection generally is charged off (to the extent
that it exceeds the fair value of any related collateral) based
on loan category after a defined period of time. Also, a loan is
charged off when classified as a loss by either internal loan
examiners or regulatory examiners. The detail of the changes
in the allowance for credit losses, including charge-offs and
recoveries by loan category, is in Note 6 (Loans and
Allowance for Credit Losses) to Financial Statements.
At December 31, 2008, the allowance for loan losses
totaled $21.0 billion (Wells Fargo and Wachovia) (2.43% of
total loans), compared with $5.3 billion (Wells Fargo only)
(1.39%), at December 31, 2007. The allowance for credit losses
was $21.7 billion (2.51% of total loans) at December 31, 2008,
and $5.52 billion (1.44%) at December 31, 2007. The allowance
for loan losses and the allowance for credit losses do 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 loans acquired
from Wachovia are included in total loans net of related
purchase accounting net write-downs. These ratios fluctuate
from period to period and the increase in the ratios of the
allowance for loan losses and the allowance for credit losses to
total loans in 2008 was primarily due to the $8.1 billion credit
reserve build in 2008 that included $3.9 billion to conform
We expect that the amount of nonaccrual loans will
change due to portfolio growth, economic growth, portfolio
seasoning, routine problem loan recognition and resolution
through collections, sales or charge-offs. See “Financial
Review – Allowance for Credit Losses” for additional discus-
sion. The performance of any one loan can be affected by
external factors, such as economic or market conditions, or
factors affecting a particular borrower.
If interest due on the book balances of all nonaccrual
loans (including loans that were but are no longer on nonac-
crual at year end) had been accrued under the original terms,
approximately $310 million of interest would have been
recorded in 2008, compared with payments of $33 million
recorded as interest income.
At year-end 2008, substantially all of our foreclosed assets
of $2.2 billion have been in the portfolio one year or less,
including $885 million acquired from Wachovia.
LOANS  DAYS OR MORE PAST DUE AND STILL ACCRUING
Loans included in this category are 90 days or more past due
as to interest or principal and still accruing, because they are
(1) well-secured and in the process of collection or (2) real
estate 1-4 family first mortgage loans or consumer loans
exempt under regulatory rules from being classified as
nonaccrual. Loans acquired from Wachovia that are subject
to SOP 03-3 are excluded from the disclosure of loans 90 days
or more past due and still accruing interest even though sub-
stantially all of them are 90 days or more contractually past
due and they are considered to be accruing because the inter-
est income on these loans relates to the establishment of an
accretable yield in purchase accounting under the SOP and
not to contractual interest payments.
Loans 90 days or more past due and still accruing totaled
$12,645 million (Wells Fargo and Wachovia combined),
$6,393 million, $5,073 million, $3,606 million and $2,578 mil-
lion at December 31, 2008, 2007, 2006, 2005 and 2004, respec-
tively. The total included $8,184 million, $4,834 million,
$3,913 million, $2,923 million and $1,820 million for the same
periods, respectively, in advances pursuant to our servicing
agreements to GNMA mortgage pools and similar loans
whose repayments are insured by the FHA or guaranteed by
the Department of Veterans Affairs. Table 20 reflects loans
90 days or more past due and still accruing excluding the
insured/guaranteed GNMA advances.

Table 20: Loans 90 Days or More Past Due and Still Accruing
(Excluding Insured/Guaranteed GNMA and Similar Loans)
(in millions) December 31,
2008 2007 2006 2005 2004
Commercial and
commercial real estate:
Commercial $ 218 $ 32 $ 15 $ 18 $ 26
Other real estate
mortgage 88 10 3 13 6
Real estate construction 232 24 3 9 6
Total commercial
and commercial
real estate 538 66 21 40 38
Consumer:
Real estate
1-4 family
first mortgage (1) 1,565 286 154 103 148
Real estate
1-4 family junior
lien mortgage 590 201 63 50 40
Credit card 687 402 262 159 150
Other revolving credit
and installment 1,047 552 616 290 306
Total consumer 3,889 1,441 1,095 602 644
Foreign 34 52 44 41 76
Total $4,461 $1,559 $1,160 $683 $758
(1) Includes mortgage loans held for sale 90 days or more past due and still accruing.