Wells Fargo 2015 Annual Report Download - page 80

Risk Management – Credit Risk Management (continued)
Table 31 provides an analysis of the changes in nonaccrual
loans.
Table 31: Analysis of Changes in Nonaccrual Loans
Quarter ended
Dec 31, Sep 30, Jun 30, Mar 31, Year ended Dec 31,
(in millions) 2015 2015 2015 2015 2015 2014
Commercial nonaccrual loans
Balance, beginning of period $ 2,336 2,522 2,192 2,239 2,239 3,475
Inflows 793 382 840 496 2,511 1,552
Outflows:
Returned to accruing (44) (26) (20) (67) (157) (280)
Foreclosures (72) (32) (11) (24) (139) (174)
Charge-offs (243) (135) (117) (107) (602) (501)
Payments, sales and other (1) (346) (375) (362) (345) (1,428) (1,833)
Total outflows (705) (568) (510) (543) (2,326) (2,788)
Balance, end of period 2,424 2,336 2,522 2,192 2,424 2,239
Consumer nonaccrual loans
Balance, beginning of period 9,201 9,921 10,318 10,609 10,609 12,193
Inflows 1,226 1,019 1,098 1,341 4,684 6,306
Outflows:
Returned to accruing (646) (676) (668) (686) (2,676) (3,706)
Foreclosures (89) (99) (108) (111) (407) (540)
Charge-offs (204) (228) (229) (265) (926) (1,315)
Payments, sales and other (1) (530) (736) (490) (570) (2,326) (2,329)
Total outflows (1,469) (1,739) (1,495) (1,632) (6,335) (7,890)
Balance, end of period 8,958 9,201 9,921 10,318 8,958 10,609
Total nonaccrual loans $ 11,382 11,537 12,443 12,510 11,382 12,848
(1) Other outflows include the effects of VIE deconsolidations and adjustments for loans carried at fair value.
Typically, changes to nonaccrual loans period-over-period
represent inflows for loans that are placed on nonaccrual status
in accordance with our policy, offset by reductions for loans that
are paid down, charged off, sold, foreclosed, or are no longer
classified as nonaccrual as a result of continued performance
and an improvement in the borrower’s financial condition and
loan repayment capabilities. Also, reductions can come from
borrower repayments even if the loan remains on nonaccrual.
While nonaccrual loans are not free of loss content, we
believe exposure to loss is significantly mitigated by the
following factors at December 31, 2015:
• 98% of total commercial nonaccrual loans and over 99% of
total consumer nonaccrual loans are secured. Of the
consumer nonaccrual loans, 98% are secured by real estate
and 75% have a combined LTV (CLTV) ratio of 80% or less.
• losses of $483 million and $3.1 billion have already been
recognized on 28% of commercial nonaccrual loans and
52% of consumer nonaccrual loans, respectively. Generally,
when a consumer real estate loan is 120 days past due
(except when required earlier by guidance issued by bank
regulatory agencies), we transfer it to nonaccrual status.
When the loan reaches 180 days past due, or is discharged
in bankruptcy, it is our policy to write these loans down to
net realizable value (fair value of collateral less estimated
costs to sell), except for modifications in their trial period
that are not written down as long as trial payments are
made on time. Thereafter, we reevaluate each loan regularly
and record additional write-downs if needed.
• 79% of commercial nonaccrual loans were current on
interest, but were on nonaccrual status because the full or
timely collection of interest or principal had become
uncertain.
• the risk of loss of all nonaccrual loans has been considered
and we believe is adequately covered by the allowance for
loan losses.
• $1.9 billion of consumer loans discharged in bankruptcy and
classified as nonaccrual were 60 days or less past due, of
which $1.7 billion were current.
We continue to work with our customers experiencing
financial difficulty to determine if they can qualify for a loan
modification so that they can stay in their homes. Under both
our proprietary modification programs and the MHA programs,
customers may be required to provide updated documentation,
and some programs require completion of payment during trial
periods to demonstrate sustained performance before the loan
can be removed from nonaccrual status. In addition, for loans in
foreclosure in certain states, including New York and New
Jersey, the foreclosure timeline has significantly increased due
to backlogs in an already complex process. Therefore, some
loans may remain on nonaccrual status for a long period.
If interest due on all nonaccrual loans (including loans that
were, but are no longer on nonaccrual at year end) had been
accrued under the original terms, approximately $700 million of
interest would have been recorded as income on these loans,
compared with $569 million actually recorded as interest income
in 2015, versus $741 million and $598 million, respectively, in
2014.
Table 32 provides a summary of foreclosed assets and an
analysis of changes in foreclosed assets.
Wells Fargo & Company
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