Wells Fargo 2015 Annual Report Download - page 168

Note 6: Loans and Allowance for Credit Losses (continued)
Table 6.6 summarizes the activity in the allowance for credit
losses by our commercial and consumer portfolio segments.
Table 6.6: Allowance Activity by Portfolio Segment
Year ended December 31,
2015 2014
(in millions) Commercial Consumer Total Commercial Consumer Total
Balance, beginning of year $ 6,377 6,792 13,169 6,103 8,868 14,971
Provision for credit losses 908 1,534 2,442 342 1,053 1,395
Interest income on certain impaired loans (17) (181) (198) (20) (191) (211)
Loan charge-offs (811) (3,643) (4,454) (717) (4,007) (4,724)
Loan recoveries 424 1,138 1,562 673 1,106 1,779
Net loan charge-offs (387) (2,505) (2,892) (44) (2,901) (2,945)
Other (9) — (9) (4) (37) (41)
Balance, end of year $ 6,872 5,640 12,512 6,377 6,792 13,169
Table 6.7 disaggregates our allowance for credit losses and
recorded investment in loans by impairment methodology.
Table 6.7: Allowance by Impairment Methodology
Allowance for credit losses Recorded investment in loans
(in millions) Commercial Consumer Total Commercial Consumer Total
December 31, 2015
Collectively evaluated (1) $ 5,999 3,436 9,435 452,063 420,705 872,768
Individually evaluated (2) 872 2,204 3,076 3,808 20,012 23,820
PCI (3) 1 — 1 712 19,259 19,971
Total $ 6,872 5,640 12,512 456,583 459,976 916,559
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
(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, 2015. 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.
Table 6.8 provides a breakdown of outstanding commercial
loans by risk category. Of the $7.1 billion in criticized
commercial real estate (CRE) loans at December 31, 2015,
$1.0 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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