Wells Fargo 2012 Annual Report Download - page 54
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Risk Management – Credit Risk Management (continued)
difference between these amounts is absorbed by the
nonaccretable difference. This removal method assumes
that the amount received from resolution approximates pool
performance expectations. The accretable yield percentage is
unaffected by the resolution and any changes in the effective
yield for the remaining loans in the pool are addressed by our
quarterly cash flow evaluation process for each pool. For loans
that are resolved by payment in full, there is no release of the
nonaccretable difference for the pool because there is no
difference between the amount received at resolution and the
contractual amount of the loan. Modified PCI loans are not
removed from a pool even if those loans would otherwise be
deemed TDRs. Modified PCI loans that are accounted for
individually are TDRs, and removed from PCI accounting, if
there has been a concession granted in excess of the original
nonaccretable difference. We include these TDRs in our
impaired loans.
During 2012, we recognized as income $85 million released
from the nonaccretable difference related to commercial PCI
loans due to payoffs and other resolutions. We also transferred
$1.1 billion from the nonaccretable difference to the accretable
yield for PCI loans with improving credit-related cash flows and
absorbed $2.5 billion of losses in the nonaccretable difference
from loan resolutions and write-downs. Our cash flows expected
to be collected have been favorably affected by lower expected
defaults and losses as a result of observed economic
strengthening, particularly in housing prices, and our loan
modification efforts. See the “Real Estate 1-4 Family First and
Junior Lien Mortgage Loans” section in this Report for
additional information. These factors led to the reduction in
expected losses on PCI loans, primarily Pick-a-Pay, which
resulted in a reclassification from nonaccretable difference to
accretable yield in 2012, which has also occurred in prior years.
Table 18 provides an analysis of changes in the nonaccretable
difference.
52