Wells Fargo 2014 Annual Report Download - page 166

Note 6: Loans and Allowance for Credit Losses (continued)
The following table summarizes the activity in the allowance
for credit losses by our commercial and consumer portfolio
segments.
Year ended December 31,
2014 2013
(in millions) Commercial Consumer Total Commercial Consumer Total
Balance, beginning of period $ 6,103 8,868 14,971 5,714 11,763 17,477
Provision for credit losses 342 1,053 1,395 680 1,629 2,309
Interest income on certain impaired loans (20) (191) (211) (54) (210) (264)
Loan charge-offs (717) (4,007) (4,724) (991) (5,419) (6,410)
Loan recoveries 673 1,106 1,779 776 1,125 1,901
Net loan charge-offs (44) (2,901) (2,945) (215) (4,294) (4,509)
Allowance related to business combinations/other (4) (37) (41) (22) (20) (42)
Balance, end of period $ 6,377 6,792 13,169 6,103 8,868 14,971
The following table disaggregates our allowance for credit
losses and recorded investment in loans by impairment
methodology.
Allowance for credit losses Recorded investment in loans
(in millions) Commercial Consumer Total Commercial Consumer Total
December 31, 2014
Collectively evaluated (1) $ 5,482 3,706 9,188 409,560 404,263 813,823
Individually evaluated (2) 884 3,086 3,970 3,759 21,649 25,408
PCI (3) 11 — 11 1,507 21,813 23,320
Total $ 6,377 6,792 13,169 414,826 447,725 862,551
December 31, 2013
Collectively evaluated (1) $ 4,921 5,011 9,932 369,252 398,237 767,489
Individually evaluated (2) 1,156 3,853 5,009 5,334 22,736 28,070
PCI (3) 26 4 30 2,504 24,223 26,727
Total $ 6,103 8,868 14,971 377,090 445,196 822,286
(1) Represents loans collectively evaluated for impairment in accordance with Accounting Standards Codification (ASC) 450-20, Loss Contingencies (formerly FAS 5), and
pursuant to amendments by ASU 2010-20 regarding allowance for non-impaired loans.
(2) Represents loans individually evaluated for impairment in accordance with ASC 310-10, Receivables (formerly FAS 114), and pursuant to amendments by ASU 2010-20
regarding allowance for impaired loans.
(3) Represents the allowance and related loan carrying value determined in accordance with ASC 310-30, Receivables – Loans and Debt Securities Acquired with Deteriorated
Credit Quality (formerly SOP 3-3) and pursuant to amendments by ASU 2010-20 regarding allowance for PCI loans.
Credit Quality
We monitor credit quality by evaluating various attributes and
utilize such information in our evaluation of the appropriateness
of the allowance for credit losses. The following sections provide
the credit quality indicators we most closely monitor. The credit
quality indicators are generally based on information as of our
financial statement date, with the exception of updated Fair
Isaac Corporation (FICO) scores and updated loan-to-value
(LTV)/combined LTV (CLTV), which are obtained at least
quarterly. Generally, these indicators are updated in the second
month of each quarter, with updates no older than
September 30, 2014. See the “Purchased Credit-Impaired Loans”
section of this Note for credit quality information on our PCI
portfolio.
COMMERCIAL CREDIT QUALITY INDICATORS In addition to
monitoring commercial loan concentration risk, we manage a
consistent process for assessing commercial loan credit quality.
Generally, commercial loans are subject to individual risk
assessment using our internal borrower and collateral quality
ratings. Our ratings are aligned to Pass and Criticized categories.
The Criticized category includes Special Mention, Substandard,
and Doubtful categories which are defined by bank regulatory
agencies.
The following table provides a breakdown of outstanding
commercial loans by risk category. Of the $8.3 billion in
criticized commercial real estate (CRE) loans at
December 31, 2014, $1.7 billion has been placed on nonaccrual
status and written down to net realizable collateral value. CRE
loans have a high level of monitoring in place to manage these
assets and mitigate loss exposure.
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