Wells Fargo 2011 Annual Report Download - page 141

Other-Than-Temporarily Impaired Debt Securities
The following table shows the detail of OTTI write-downs on
debt securities available for sale included in earnings and the
related changes in OCI for the same securities.
Year ended December 31,
(in millions)
2011
2010
2009
OTTI on debt securities
Recorded as part of gross realized losses:
Credit-related OTTI
$
422
400
982
Intent-to-sell OTTI (1)
1
272
30
Total recorded as part of gross realized losses
423
672
1,012
Recorded directly to OCI for non-credit-related impairment:
U.S. states and political subdivisions
(1)
(4)
3
Residential mortgage-backed securities
(171)
(326)
1,124
Commercial mortgage-backed securities
105
138
179
Corporate debt securities
2
(1)
(2)
Collateralized debt obligations
4
54
20
Other debt securities
(13)
(33)
16
Total recorded directly to OCI for increase (decrease) in non-credit-related impairment (2)
(74)
(172)
1,340
Total OTTI losses recorded on debt securities
$
349
500
2,352
(1) For the year ended December 31, 2010, amount includes $252 million related to securities with a fair value of $14.5 billion that were sold subsequent to
December 31, 2010.
(2) Represents amounts recorded to OCI on debt securities in periods OTTI write-downs have occurred. Changes in fair value in subsequent periods on such securities, to the
extent additional credit-related OTTI did not occur, are not reflected in this total. Increases represent OTTI write-downs recorded to OCI on debt securities in the periods
non-credit related impairment has occurred. Decreases represent partial recoveries in the fair value of securities due to factors other than credit, where the increase in fair
value was not sufficient to recover the full amount of the unrealized loss on such securities.
The following table presents a rollforward of the credit loss
component of OTTI recognized in earnings for debt securities we
still own (referred to as “credit-impaired” debt securities). The
credit loss component of the amortized cost represents the
difference between the present value of expected future cash
flows discounted using the security’s current effective interest
rate and the amortized cost basis of the security prior to
considering credit losses. OTTI recognized in earnings for credit-
impaired debt securities is presented as additions and is
classified into one of two components based upon whether the
current period is the first time the debt security was credit-
impaired (initial credit impairment) or if the debt security was
previously credit-impaired (subsequent credit impairments).
The credit loss component is reduced if we sell, intend to sell or
believe we will be required to sell previously credit-impaired
debt securities. Additionally, the credit loss component is
reduced if we receive or expect to receive cash flows in excess of
what we previously expected to receive over the remaining life of
the credit-impaired debt security, the security matures or is fully
written down.
Changes in the credit loss component of credit-impaired debt
securities that we do not intend to sell were:
Year ended December 31,
(in millions)
2011
2010
2009
Credit loss component, beginning of year
$
1,043
1,187
471
Additions:
Initial credit impairments
87
122
625
Subsequent credit impairments
335
278
357
Total additions
422
400
982
Reductions:
For securities sold
(160)
(263)
(255)
For securities derecognized due to changes in consolidation status of variable interest entities
(2)
(242)
-
Due to change in intent to sell or requirement to sell
-
(2)
(1)
For recoveries of previous credit impairments (1)
(31)
(37)
(10)
Total reductions
(193)
(544)
(266)
Credit loss component, end of year
$
1,272
1,043
1,187
(1) Recoveries of previous credit impairments result from increases in expected cash flows subsequent to credit loss recognition. Such recoveries are reflected prospectively as
interest yield adjustments using the effective interest method.
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