Wells Fargo 2010 Annual Report Download - page 62

Risk Management – Credit Risk Management (continued)
Since the Wachovia acquisition, we have released $5.3 billion
in nonaccretable difference for certain PCI loans and pools of
loans, including $3.8 billion transferred from the nonaccretable
difference to the accretable yield and $1.5 billion released
through loan resolutions. We have provided $1.6 billion in the
allowance for credit losses for certain PCI loans or pools of loans
that have had loss-related decreases to cash flows expected to be
collected. The net result is a $3.7 billion improvement in our
initial projected losses on all PCI loans.
At December 31, 2010, the allowance for credit losses in
excess of nonaccretable difference on certain PCI loans was
$298 million. The allowance is necessary to absorb decreases in
cash flows expected to be collected since acquisition and
primarily relates to individual PCI loans. Table 22 analyzes the
actual and projected loss results on PCI loans since the
acquisition of Wachovia on December 31, 2008, through
December 31, 2010.
Table 22: Actual and Projected Loss Results on PCI Loans
Other
(in millions) Commercial Pick-a-Pay consumer Total
Release of unneeded nonaccretable difference due to:
Loans resolved by settlement with borrower (1) $ 1,147 - - 1,147
Loans resolved by sales to third parties (2) 258 - 85 343
Reclassification to accretable yield for loans with improving cash flows (3) 864 2,383 593 3,840
Total releases of nonaccretable difference due to better than expected losses 2,269 2,383 678 5,330
Provision for worse than originally expected losses (4) (1,562) - (62) (1,624)
Actual and projected losses on PCI loans better than originally expected $ 707 2,383 616 3,706
(1) Release of the nonaccretable difference for settlement with borrower, on individually accounted PCI loans, increases interest income in the period of settlement. Pick-a-Pay
and Other consumer PCI loans do not reflect nonaccretable difference releases due to pool
accounting for those loans, which assumes that the amount received approximates
the pool performance expectations.
(2)
Release of the nonaccretable difference as a result of sales to third parties increases noninterest income in the period of the sale.
(3) Reclassification of nonaccretable difference to accretable yield for loans with increased cash flow estimates will result in increased interest income as a prospective yield
adjustment over the remaining life of the loan or pool of loans.
(4) Provision for additional losses recorded as a charge to income, when it is estimated that the cash flows expected to be collected for a PCI loan or pool of loans have
decreased subsequent to the acquisition.
For further detail on PCI loans, see Note 1 (Summary of
Significant Accounting Policies – Loans) and Note 6 (Loans and
Allowance for Credit Losses) to Financial Statements in this
Report.
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